SECURITIES PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT
dated as
of August 13, 2008, by and among Coreworx Inc., an Ontario corporation (the
“Company”), the Company’s debenture holders set forth on Exhibit
A
hereto
(the “Debenture Holders”), the Company’s shareholders set forth on Exhibit
B
hereto
(the “Shareholders” and collectively with the Debenture Holders, the “Sellers”)
and Acorn Energy, Inc., a Delaware corporation (“Buyer”).
WHEREAS,
the
Debenture Holders own all of the outstanding 12% secured debentures (the
“Debentures”) of the Company;
WHEREAS,
the
Shareholders own all of the Company’s issued and outstanding Class A common
shares (the “Class A Common Shares”);
WHEREAS,
Buyer
desires to subscribe for certain additional Class A Common Shares from the
Company in consideration for the Cash Payment (as hereinafter
defined);
WHEREAS,
upon
completion of the subscription, Buyer desires to make a contribution to the
Company’s surplus in the form of the Original Note (as hereinafter defined);
WHEREAS,
the
Debenture Holders are willing to accept repayment of the Debentures through
a
combination of cash and Repayment Notes (as hereinafter defined);
WHEREAS,
the
Sellers desire to sell to Buyer, and Buyer desires to purchase from the Sellers,
all of their issued and outstanding Class A Common Shares upon the terms and
subject to the conditions herein set forth.
NOW,
THEREFORE,
in
consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, and covenants herein
contained, the parties agree as follows:
SECTION
1. Subscription;
Contribution to Surplus; Repayment of the Debentures; Sale and Purchase of
Class
A Common Shares.
Upon the
terms and subject to the conditions herein set forth:
(a) prior
to
the Closing (as hereinafter defined), the Company shall issue and deliver and
Buyer agrees to purchase from the Company 100 Class A Common Shares (the
“Subscription Shares”).
(b) upon
acquisition of the Subscription Shares and prior to the Closing, Buyer shall
contribute the Original Note to the surplus of the Company.
(c) prior
to
the Closing, the Company shall repay the Debentures and the Debenture Holders
shall accept repayment of the Debentures as described in Section 2 (d)
below.
(d) on
the
Closing Date, each Shareholder agrees to sell and deliver to Buyer, and Buyer
agrees to purchase from each Seller, the respective number of Class A Common
Shares set forth in Column I opposite the name of such Seller in Exhibit
C
attached
hereto, free and clear of all the following (herein collectively called
“Claims”): liens, security interests, claims, pledges and encumbrances of every
kind, interests arising in connection with so-called community property laws
or
other laws relating to the rights of spouses, charges, escrows, options, rights
of first refusal, mortgages, indentures, security agreements or other
agreements, arrangements, contracts, commitments, understandings or obligations,
whether written or oral and whether or not relating in any way to credit or
the
borrowing of money.
SECTION
2. Consideration
and Payment.
Upon the
terms and subject to the conditions herein set forth:
(a) prior
to
the Closing, Buyer shall deliver to the Company the sum of US$2,500,000 by
wire
transfer (the “Cash Payment”) in consideration for the Subscription
Shares;
(b) prior
to
the Closing, in consideration for the Cash Payment, the Company shall issue
and
deliver the Subscription Shares to Buyer which shall be fully paid,
non-assessable and free of all Claims;
(c) upon
issuance of the Subscription Shares and prior to the Closing, Buyer shall make
a
contribution to capital which shall result in an increase in the Company’s
contributed surplus by executing and delivering to the Company an 8% promissory
note in the principal amount of US$3,400,000 in the form annexed hereto as
Exhibit
D
(the
“Original Note”) payable to the order of the Company and the Company shall
allocate, transfer and assign the Original Note to the Debenture Holders in
accordance with the Company’s instructions and in the denominations set forth on
Exhibit
C
which
allocation, transfer and assignment shall be evidenced by Buyer’s 8% promissory
notes in the aggregate principal amount of US$3,400,000 in the form annexed
hereto as Exhibit
E
(the “
Repayment Notes”);
(d) prior
to
the Closing, the Company shall deliver the Cash Payment and the Repayment Notes
to the Debenture Holders which the Debenture Holders shall accept as payment
in
full for all amounts of principal and interest due and owing under the
Debentures and each Debenture Holder shall deliver to the Company the respective
Debentures set forth in Column I opposite the name of such Debenture Holder
in
Exhibit
C
for
cancellation;
(e) on
the
Closing Date, each Shareholder shall deliver to Buyer a certificate or
certificates for the respective number of Class A Common Shares set forth in
Column I opposite the name of such Shareholder in Exhibit
C
attached
hereto (collectively, the “Purchased Shares”), duly endorsed to Buyer or with
stock powers attached duly executed to Buyer, in proper form for transfer and
with stamps for all applicable federal, provincial or local stock transfer
taxes, if any, affixed thereto;
(f) in
consideration for the acquisition of the Purchased Shares, on the Closing Date,
Buyer shall issue an aggregate of 287,500 shares (the “Closing Shares”) of
Buyer’s common stock, par value $.01 per share (“Buyer Stock”), to the
Shareholders in accordance with the denominations set forth in Exhibit
C
and
Buyer shall deliver 50,000 of such Closing Shares (the “Escrow Shares”) to a
mutually acceptable escrow agent, as escrow agent (“Escrow Agent”) for the
holders of the Closing Shares in accordance with the Escrow Agreement, in the
form attached hereto as Exhibit
F,
by and
among Buyer, the Shareholders and the Escrow Agent (the “Escrow Agreement”),
pursuant to which the Escrow Shares and the Shareholders’ SRED Portion (as
hereinafter defined), if any, shall serve as the source of recovery, absent
fraud, with respect to Buyer’s right to indemnification in accordance with the
provisions of Section 11 hereof; and
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(g) upon
receipt by the Company of any monies from the Canada Revenue Agency (“CRA”) or
the Ontario Ministry of Revenue (“OMR”) in connection with the Company’s 2007
scientific research and experimental development tax credit refund claim or
the
Company’s 2007 Ontario innovation tax credit refund claim (collectively, the
“SRED Claim”) during the six (6) months immediately following the Closing Date,
Buyer shall deliver or cause the Company to deliver wire transfers representing
fifty percent (50%) of the net amount (after payment by the Company to KPMG
LLP
of applicable fees) of any such refunds (the “Shareholders’ SRED Portion”) to
the Escrow Agent to be held by the Escrow Agent in accordance with the
allocations set forth in Exhibit
C
and
pursuant to the provisions of the Escrow Agreement. Any monies received by
the
Company in connection with the SRED Claim more than six (6) months after the
Closing Date shall be retained by the Company.
SECTION
3. The
Closing.
The
closing under this Agreement for the sale hereunder of the Class A Common Shares
(the “Closing”) shall take place at 10:00 a.m., New York City time, on the date
hereof at the offices of Messrs. Xxxxxxxxx Xxxxxx & Xxxx LLP, 00 Xxxx
00xx
Xxxxxx,
00xx
Xxxxx,
Xxx Xxxx, Xxx Xxxx. The date and time of the closing are herein referred to
as
the “Closing Date”.
SECTION
4. Representations,
Warranties and Certain Agreements of Sellers.
Each
Seller, severally and not jointly, hereby represents and warrants to, and agrees
with, Buyer as follows (such representations and warranties on the date of
this
Agreement being, and on the Closing Date to be, true and correct in all
respects):
(a) Title
to Debentures and Class A Common Shares.
Such
Seller is the lawful owner of, with good and marketable title to, the respective
number of Debentures and shares of Class A Common Shares set forth in Column
I
opposite the name of such Seller in Exhibit
C
attached
hereto. The delivery of the certificate(s) representing the Class A Common
Shares of the Seller together with related stock transfer powers therefor to
Buyer pursuant to the provisions of this Agreement and the Escrow Agreement
will
transfer to Buyer good and marketable title thereto, free and clear of all
Claims.
(b) Authority
of Seller.
Each
Shareholder has full right, power and authority to sell, transfer and deliver
to
Buyer the Class A Common Shares to be sold by such Shareholder pursuant to
this
Agreement and the Escrow Agreement. This Agreement and the Escrow Agreement
have
been duly executed and delivered by such Seller and this Agreement and the
Escrow Agreement constitute the legal, valid and binding obligation of such
Seller enforceable in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
(ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which a proceeding therefor may be brought (collectively, the
“Enforcement Exceptions”). The execution, delivery and performance of this
Agreement and the Escrow Agreement by such Seller will not violate any material
provision of law or any judgment, decree or order of any court or other
governmental agency to which such Seller is subject.
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(c) No
Bankruptcy, etc.
There
has not been filed any petition or application, or any proceedings commenced,
by
or against, or with respect to any assets of, such Seller under Title 11 of
the
United States Code, the Bankruptcy
and Insolvency Act (Canada) or
any
other law, domestic or foreign, relating to bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt or creditors' rights,
and such Seller has not made any assignment for the benefit of
creditors.
(d) Accredited
Investor; Non-U.S. Person.
Such
Seller is either (i) an “accredited investor” as defined by Rule 501 under the
Securities Act of 1933, as amended (the “Act”), and is capable of evaluating the
merits and risks of its investment in shares of Buyer’s Stock and the Notes and
has the capacity to protect its own interests or (ii) not a US Person within
the
meaning of Rule 902(o) of Regulation S promulgated under the Act.
(e) Absence
of Offering Memorandum or Similar Document.
Such
Seller has not received, nor has it requested, nor does it have any need to
receive, any offering memorandum or any other document describing the business
and affairs of the Buyer, nor has any document been prepared for delivery to,
or
review by, such Seller in order to assist it in making the decision to acquire
Buyer Stock.
(f) Restricted
Securities.
Such
Seller acknowledges that the Buyer Stock and the Notes when issued will not
be
registered under the Act and will be “restricted securities” as that term is
defined in Regulation S and Rule 144 under the Act and that the Buyer Stock
and
Repayment Notes must be held indefinitely unless subsequently registered under
the Act or unless an exemption from such registration is available. Such Seller
acknowledges that the provisions of Rule 144 promulgated under the Act which
permit limited resale of common stock purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the common stock, the availability of certain
current public information about Buyer, the resale occurring not less than
six
months after a party has purchased and paid for the security to be sold, the
sale being effected through a “broker’s transaction” or in transactions directly
with a “market maker” and the number of shares of common stock being sold during
any three-month period not exceeding specified limitations.
(g) Investment.
Such
Seller is acquiring the Buyer Stock and/or the Repayment Notes for investment
purposes for its own account and not, in whole or in part, for the account
of
any other person and not with a view to distribution or resale, nor with the
intention of selling, transferring or otherwise disposing of all or any part
thereof for any particular price, or at any particular time, or upon the
happening of any particular event or circumstances, except selling,
transferring, or disposing the Buyer Stock and the Repayment Notes in full
compliance with the applicable provisions of the Act, the rules and regulations
promulgated thereunder, and applicable state securities laws. Such Seller has
not formed any entity for the purpose of acquiring the Repayment Notes or Buyer
Stock.
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(h) Information.
Such
Seller has had the opportunity to ask questions of, and receive answers from
Buyer or any person acting on its behalf concerning Buyer and its business
and
to obtain any additional information, to the extent possessed by Buyer (or
to
the extent it could have been acquired by Buyer without unreasonable effort
or
expense) necessary to verify the accuracy of the information received by such
Seller. In connection therewith, such Seller acknowledges that such Seller
has
had the opportunity to discuss Buyer’s business, management and financial
affairs with Buyer’s management or any person acting on its behalf. Such Seller
has received and reviewed all the information concerning Buyer that it desires.
Without limiting the generality of the foregoing, such Seller has been furnished
with or has had the opportunity to acquire, and to review: (i) copies of all
of
Buyer’s publicly available documents, and (ii) all information that it desires
with respect to Buyer’s business, management, financial affairs and prospects.
In determining whether to accept the Repayment Notes and Buyer Stock in
connection with the transactions hereunder, such Seller has relied solely on
such Seller’s own knowledge and understanding of Buyer and its business based
upon any information furnished to such Seller in writing. Such Seller
understands that no person has been authorized to give any information or to
make any representations which were not furnished pursuant to this Section
and
such Seller has not relied on any other representations or information.
(i) Advisors.
Such
Seller has carefully considered and has discussed with such Seller’s
professional legal, tax, accounting and financial advisors, to the extent that
such Seller has deemed necessary, the suitability of this investment and the
transaction agreements contemplated by this Agreement and for such Seller’s
particular federal, provincial, local and foreign tax and financial situation
and has determined that the acquisition of the Buyer Stock and the Repayment
Notes and the transactions contemplated by this Agreement are suitable for
such
Seller. Such Seller relies solely on such advisors and not on any statements
or
representations of Buyer or any of its agents. Such Seller understands that
such
Seller (and not Buyer) shall be responsible for such Seller’s own tax liability
that may arise as a result of this investment or the transactions contemplated
by this Agreement.
(j) No
Litigation.
There
are no actions, suits, proceedings or investigations pending against such Seller
or Seller’s properties before any court or governmental agency (nor, to such
Seller’s knowledge, is there any threat thereof) which would impair in any way
such Seller’s ability to enter into and fully perform such Seller’s commitments
and obligations under this Agreement, the Escrow Agreement or the transactions
contemplated hereby.
(k) No
Violations.
The
execution, delivery and performance of and compliance with this Agreement and
the issuance of the Buyer Stock and the Repayment Notes will not result in
any
material violation of, or conflict with, or constitute a material default under,
any of Seller’s articles of incorporation, bylaws or other organizational
documents, if applicable, or any of such Seller’s material agreements nor result
in the creation of any mortgage, pledge, lien, encumbrance or charge against
any
of the assets or properties of Seller or the Buyer Stock or the Repayment Notes.
(l) Risk
of Ownership of Repayment Notes and Buyer Stock.
Such
Seller acknowledges that ownership of the Repayment Notes and Buyer Stock is
speculative and involves a high degree of risk and that such Seller can bear
the
economic risk of ownership of the Repayment Notes and Buyer Stock, including
a
total loss of its investment.
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(m) No
Governmental Recommendation.
Such
Seller acknowledges that no federal, provincial or foreign agency has
recommended or endorsed such Seller’s acquisition of Buyer Stock and the
Repayment Notes.
(n) Legends.
Such
Seller acknowledges that the Repayment Notes and any and all certificates
representing Buyer Stock and any and all securities issued in replacement
thereof or in exchange therefor shall bear the following legend or one
substantially similar thereto, which such Seller has read and
understands:
“THE
SECURITIES REPRESENTED HEREBY WERE ORIGINALLY ISSUED WITHOUT REGISTRATION UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”) AND MAY BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE 1933 ACT OR (C)
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS, PROVIDED
IN SUCH LATTER CASE THAT THE HOLDER UPON REQUEST PRIOR TO SUCH SALE FURNISHES
TO
ACORN ENERGY, INC. AN OPINION OF COUNSEL OF RECOGNIZED STANDING TO THAT EFFECT
REASONABLY SATISFACTORY TO ACORN ENERGY, INC. HEDGING TRANSACTIONS INVOLVING
THE
SECURITIES REPRESENTED HEREBY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
THE
1933 ACT.
UNTIL
AUGUST 13, 2009, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO
CERTAIN RESTRICTIONS ON TRANSFER.”
(o) Stop-Transfer.
Because
of the restrictions imposed on resale, such Seller acknowledges that Buyer
shall
have the right to note stop-transfer instructions in its stock transfer records,
and that Buyer intends to do so. Any sales, transfers, or any other dispositions
of the Repayment Notes of Buyer Stock by such Seller, if any, will be in
compliance with the Act.
(p) Investment
Experience.
Such
Seller acknowledges that such Seller has such knowledge and experience in
financial and business matters that such Seller is capable of evaluating the
merits and risks of an investment in the Repayment Notes and Buyer Stock and
of
making an informed investment decision.
(q) No
Advertisement or General Solicitation.
Such
Seller represents that such Seller is not acquiring the Repayment Notes or
Buyer
Stock as a result of any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over the
Internet, television or radio or presented at any seminar or
meeting.
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(r) Read
and Understood this Agreement.
Such
Seller has carefully read and understands this Agreement.
(s) Representations
and Warranties.
No
representations or warranties have been made to such Seller by Buyer, or any
officer, employee, agent, affiliate or subsidiary of Buyer, other than the
representations of Buyer contained herein, and in acquiring for the Repayment
Notes and Buyer Stock such Seller is not relying upon any representations other
than those contained in this Agreement.
(t) No
Brokers.
Such
Seller represents and warrants no finder, broker, agent, financial advisor
or
other intermediary, nor any purchaser representative or any broker-dealer acting
as a broker, is entitled to any compensation in connection with the transactions
contemplated by this Agreement.
(u) No
Reliance upon Buyer’s or Company’s Counsel.
Such
Seller is not being represented by counsel to Buyer or the Company and has
been
advised to obtain independent legal advice regarding an investment in the
Repayment Notes and/or Buyer Stock, as the case may be.
(v) No
Non-Resident Sellers.
Except
for Software Innovation ASA, no Seller is a Non-Resident Seller (as hereinafter
defined).
(w) CRA
Section 116. Such
Seller acknowledges that if a certificate issued by the CRA under section 116
(“Section 116 Certificate”) of the Income Tax Act (Canada) (the “Tax Act”) in
respect of the disposition of any Class A Common Shares owned by a Non-Resident
Seller, specifying a certificate limit in an amount which is not less than
the
portion of the Closing Shares otherwise to be issued and delivered to that
Non-Resident Seller in respect of such Class A Common Shares, is not delivered
to Buyer at or before the Closing Date, Buyer will be entitled to and shall
withhold from the portion of the Closing Shares otherwise issuable to that
Non-Resident Seller, an amount equal to 25% of the amount, if any, by which
the
portion of the Closing Shares to be issued and delivered to that Non-Resident
Seller exceeds the certificate limit in respect of any Section 116 Certificate
issued in connection with the disposition of the Class A Common Shares by that
Non-Resident Seller under section 116 of the Tax Act, which amount shall be
held
by Buyer in escrow (the “Section 116 Escrow Amount”) and shall be released upon
receipt by Buyer of written evidence (commonly known as a “Comfort Letter” which
is reasonably satisfactory to Buyer) that the CRA or OMR, as applicable, permits
an extension of the time for remittance by Buyer of the Section 116 Escrow
Amount.
(x) Seller
Agreements Concerning Section 116. Such
Seller acknowledges that any amount withheld by Buyer pursuant to Section 4(w)
and either subsequently paid to a Non-Resident Seller or remitted to the CRA
or
OMR in accordance with the terms of this Section 4 shall be deemed to have
been
paid by Buyer to the Non-Resident Seller on account of the portion of the
Closing Shares to be issued and delivered to such Seller. Such Non-Resident
Seller hereby covenants and agrees with Buyer to indemnify and save harmless
Buyer from and against all Taxes (as hereinafter defined), including interest
and penalties, which Buyer may suffer or incur as a result of the certificate
limit, as defined in the Tax Act and in the Section 116 Certificate being less
than the value of the Closing Shares to be issued and delivered to such
Seller.
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(y) Termination
of Unanimous Shareholders Agreement. Such
Seller acknowledges that the Unanimous Shareholders Agreement, dated June 11,
2007, among the Company and certain of the Sellers (the “Unanimous Shareholders
Agreement”) shall, by the provisions of Section 9.10 thereof, terminate, among
other events, upon the Buyer acquiring all of the Purchased Shares, and hereby
agrees and acknowledges that for purposes of the transactions contemplated
by
this Agreement and in accordance with Section 9.10 of the Unanimous Shareholders
Agreement, the Unanimous Shareholders Agreement shall terminate immediately
prior to the completion of the acquisition of the Purchased Shares by the Buyer.
(z) Termination
of Voting Trust Agreement. If
such
Seller is a party to the Voting Trust Agreement of the Company, dated December
19, 2005 (the “Voting Trust Agreement”), it acknowledges that the Voting Trust
Agreement shall, by the provisions of Section 7.5 thereof, terminate upon the
termination of the Unanimous Shareholders Agreement, and hereby agrees and
acknowledges that for purposes of the transactions contemplated by this
Agreement, the Voting Trust Agreement shall terminate immediately prior to
the
completion of the acquisition of the Purchased Shares by the Buyer. Such Seller
further acknowledges and agrees that upon the termination of the Voting Trust
Agreement, the Depositary thereunder (as defined in the Voting Trust Agreement)
shall distribute the Deposited Shares (as defined in the Voting Trust Agreement)
of such Seller to the Buyer as purchaser of such Deposited Shares pursuant
to
the provisions of this Agreement.
(aa) One
Year Restriction on Transfers of Closing Shares. For
a
period of one year from the Closing Date, each Seller hereby agrees that the
Closing Shares issued to such Seller pursuant to this Agreement may not be
sold,
transferred, pledged or otherwise be otherwise disposed of without the prior
written consent of Buyer.
SECTION
5. Representations,
Warranties and Certain Agreements with Respect to the
Company.
The
Company hereby represents and warrants to, and agrees with, Buyer as follows
(such representations and warranties on the date of this Agreement being, and
on
the Closing Date to be, true and correct in all respects):
(a) Organization,
Qualification and Corporate Power.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the Province of Ontario. The Company has the corporate power
and authority to carry on its business as now being conducted and to own and
lease its properties, and is duly registered, licensed or qualified as an
extra-provincial or foreign corporation, and is in good standing in, all the
jurisdictions wherein the Company is required to so qualify by reason of the
nature of its business or its ownership or leasing of property. The Company
has
supplied Buyer complete and correct copies of the Company’s Certificate and
Articles of Continuance and By-Laws and all amendments thereto. Attached hereto
as Schedule
5 (a)
is a
correct and complete list of each Subsidiary (as defined below) of the Company,
showing, as to each Subsidiary, its name, the jurisdiction and date of its
incorporation, the jurisdictions in which it is qualified to do business, the
number of shares of its stock of each class authorized and the number thereof
outstanding, and the number of such outstanding shares owned by the Company.
Each Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each Subsidiary
has the corporate power and authority to carry on its business as now being
conducted and to own and lease its properties and is duly qualified to do
business as a foreign corporation and is in good standing in every jurisdiction
where it is required to so qualify by reason of the nature of its business
or
its ownership or leasing of property. There do not exist any warrants, options
or other rights outstanding for the issue or purchase of shares of capital
stock
or other securities of any Subsidiary, or any securities convertible into or
exchangeable for shares of capital stock or other securities of any Subsidiary.
The capital stock of each Subsidiary is owned by the Company free and clear
of
all Claims. For purposes of this Agreement, “Subsidiary” shall mean any
corporation or entity a majority of whose outstanding shares of capital stock
(other than directors' or other qualifying shares) or other ownership interests,
at the time as of which any determination is being made, shall be owned by
the
Company either directly or indirectly.
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(b) Binding
Effect.
This
Agreement has been duly authorized by the Company’s Board of Directors, the
Debenture Holders and the Shareholders, has been duly executed and delivered
by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to the Enforcement Exceptions. The execution, delivery and performance by the
Company of this Agreement in accordance with its terms will not result in any
violation of or default or creation of any lien under, or the acceleration
or
vesting or modification of any right or obligation under, or in any conflict
with, the Company’s Certificate and Articles of Continuance or By-Laws or of any
agreement, instrument, judgment, decree, order, statute, rule or regulation
binding on or applicable to the Company, except where any of the foregoing
would
not have a material adverse effect on the business, assets or financial
condition of the Company.
(c) Authorized
Capital Stock.
Excluding the Subscription Shares, the authorized capital of the Company
consists of: (i) an unlimited number of Class A Common Shares, of which
43,183,917 Class A Common Shares, and no more, are currently issued and
outstanding and all of which are owned of record and beneficially by the
Shareholders as set forth on Exhibit
C
attached
hereto; and (ii) an unlimited number of Class A preference shares, of which
none
are currently issued and outstanding. In addition, immediately prior to the
Closing the Company had 4,608,150 issued and outstanding stock options to
acquire the same number of Class A Common Shares (the “Stock Options”) as set
forth on Schedule
5(c)
and
C$5,254,316 aggregate principal amount of Debentures issued and outstanding,
all
of which are held by the Debenture Holders as set forth on Exhibit
C.
The
Class A Common Shares, the Stock Options and the Debentures are all of the
issued and outstanding securities of the Company. All of the outstanding Class
A
Common Shares have been validly issued, are outstanding, fully paid and
non-assessable, and registered in the respective names of the Sellers as set
forth in Exhibit
C
attached
hereto. Except as set out on Schedule
5(c),
there
are no shareholder agreements, voting trusts, pooling arrangements or other
contracts, arrangements or understandings in respect of the voting of any of
the
shares of the Company. Except as set forth on Schedule
5(c),
the
Company is neither a party to, nor is bound by, any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling
for
the Company to issue, deliver or sell, or cause to be issued, delivered or
sold
any Class A Common Shares or any other equity or voting security of the Company
or any securities convertible into, exchangeable for or representing the right
to subscribe for, purchase or otherwise receive any Class A Common Shares or
any
other equity or voting security of the Company or obligating the Company to
grant, extend or enter into any such subscriptions, options, warrants, calls,
commitments or agreements. The Debentures have been validly issued, are
outstanding, and represent current and valid claims against the Company in
accordance with their terms.
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(d) Financial
Statements.
Attached
as Schedule
5 (d)
hereto
are copies of (i) the audited balance sheet of the Company as of December 31,
2007 (the “2007 Balance Sheet”) and the related audited statements of operations
and deficit, and statements of cash flows of the Company for the fiscal years
ended December 31, 2007 and 2006 (collectively the “Audited Financial
Statements”), accompanied by a report thereon of Deloitte & Touche LLP and
(ii) the unaudited balance sheet of the Company for the six month period ended
June 30, 2008, and related unaudited statements of operations and cash flows
for
such period (the “Interim Financial Statements”, and together with the Audited
Financial Statements, the “Financial Statements”). The Company will deliver to
Buyer promptly, but no later than ten days after the end of each month, any
additional monthly reports after May 31, 2008 up to and including the Closing
Date which shall also be deemed Financial Statements. Each balance sheet
included in the Financial Statements (A) is in accordance with the books of
account and records of the Company, and (B) fairly presents the financial
condition of the Company in all material respects as of its date, and each
statement of operations and deficit and cash flows fairly presents the results
of operations and deficit and cash flows of the Company for the fiscal year
or
other period covered thereby, all in conformity with Canadian generally accepted
accounting principles (“GAAP”) applied on a consistent basis, except as stated
therein. All receivables of the Company reflected in the Financial Statements
were or will be, as the case may be, collectible in full when due in the
ordinary course of business in amounts equal to not less than the aggre-gate
face amounts thereof, after giving effect to any applicable provision for
doubtful accounts reflected on such Financial Statements.
(e) Tax
Matters and Tax Returns.
(i) All
Taxes
(as hereinafter defined) of any nature whatsoever due and payable by the Company
prior to the execution hereof and all Tax Returns (as hereinafter defined)
required to be filed prior to such date have been properly computed in all
material respects, duly and timely filed (taking into consideration extensions
of time to file) and fully paid and discharged. There are no outstanding
agreements or waivers extending the statutory period of limitations applicable
to any Tax or Tax Return for any period. The Company has paid all Taxes which
have become due and has paid all installments of estimated Taxes due. All Taxes
and other assessments and levies which it is required by law to withhold or
to
collect have been duly withheld and collected, and have been paid over to the
proper governmental authorities to the extent due and payable. All Taxes not
yet
due and payable have been properly accrued on the Financial Statements.
Subsequent to the date hereof and prior to the Closing Date hereunder, all
Tax
Returns shall be timely and accurately filed, and any Tax payable as shown
thereby shall be paid, as required by applicable law. The Company has not
requested nor been granted an extension of the time for filing any Tax Return
to
a date later than the Closing Date. Except as disclosed in the Financial
Statements, there are no determined material tax deficiencies or proposed tax
assessments against the Company. The Company has not incurred any liability
for
penalties, assessments or interest under any federal, provincial, local or
foreign tax laws. The Company has withheld and paid all Taxes required to have
been withheld and paid by it in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party.
10
(ii) There
are
no liens for Taxes (other than current Taxes not yet due and payable) on the
Company's assets. There is no audit, action, suit, or taxing authority
proceeding now in progress, pending or threatened against the Company or with
respect to any Tax of the Company, and no claim has ever been made by a taxing
authority in a jurisdiction where the Company does not pay Tax or file Tax
Returns that the Company is or may be subject to Taxes assessed by that
jurisdiction.
(iii) The
Company has not been a member of any affiliated group or filed or been included
in a combined, consolidated, aggregate, or unitary income Tax Return. The
Company has never been and is not now a party to or bound by any Tax
indemnification, Tax allocation, or Tax sharing agreement or other contractual
obligation pursuant to which it is or may at any time in the future be obligated
to indemnify any other person or entity with respect to Taxes.
(iv) The
Company has provided Buyer with true and complete copies of all Tax Returns
filed with respect to it for taxable periods ending after 2003 and all
examination reports and statements of deficiencies assessed against or agreed
to
be paid by it with respect to such taxable periods.
(v) For
purposes of this Agreement, “Tax” or “Taxes” shall mean any federal, provincial,
local, or foreign income, goods and services, gross receipts, franchise,
estimated, alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, Personal Property (as hereinafter defined), capital stock,
intangibles, social security, unemployment, disability, payroll, license,
employee, or other tax or levy, of any kind whatsoever, including any interest,
penalties, or additions to tax in respect of the foregoing.
(vi) For
purposes of this Agreement, “Tax Return” shall mean any return, declaration,
report, claim for refund, information return, or other document (including
any
related or supporting estimates, elections, schedules, statements, or
information) filed or required to be filed in connection with the determination,
assessment, or collection of any Tax or the administration of any laws,
regulations, or administrative requirements relating to any Tax.
(vii) For
the
purposes of this Agreement, “Non-Resident Seller” shall mean: (a) a Seller that
is not a resident of Canada for the purposes of the Tax Act; (b) in the case
of
a Seller that is a partnership (other than a partnership that is a Canadian
partnership within the meaning of the Tax Act), such partnership and every
member of such partnership other than: (i) a member that is a Canadian
partnership or (ii) a member that is a resident of Canada for the purposes
of
the Tax Act or (c) in the case of a partnership that is deemed by clause (b)
or
this clause (c) to be a Non-Resident Seller, every member of such partnership
other than: (i) a member that is a Canadian partnership or (ii) a member that
is
a resident of Canada for the purposes of the Tax Act.
11
(viii) The
Company is, and has at all relevant times been, duly registered with the CRA
under the Excise
Tax Act
(Canada). The Company has complied in all material respects with all
registration, reporting, payment, collection and remittance requirements in
respect of income tax, goods and services tax and provincial sales tax
legislation.
(f) Absence
of Undisclosed Liabilities.
Except
to the extent reflected or reserved against in the 2007 Balance Sheet included
in the Audited Financial Statements or incurred in the ordinary course of
business since December 31, 2007 or described in any Schedule hereto, the
Company has no liabilities or obligations of any nature, whether known or
unknown, whether asserted or unasserted or whether accrued, absolute, contingent
or otherwise (including, without limitation, liabilities as guarantor or
otherwise with respect to obligations of others) and whether due or to become
due (including, without limitation, any liabilities for Taxes due or to become
due) which would be required by GAAP to be reflected on a balance sheet of
the
Company.
(g) Personal
Property. Schedule
5(g)
is a
true, accurate and complete list of all material computer hardware, computer
software, furniture and fixtures and leasehold improvements owned or leased
by
the Company (including those in possession of third parties) as recorded on
the
books and records of the Company (the “Personal Property”).
(h) Title
to Properties.
Except
as specifically set forth in Schedule
5 (h)
attached
hereto, the Company and each Subsidiary own outright all the assets and
properties shown on the 2007 Balance Sheet or acquired by them after December
31, 2007 (other than inventory sold or otherwise disposed of in the ordinary
course of business subsequent to said date), in each case free and clear of
all
Claims (other than immaterial easements), or any conditional sale agreement
or
other title retention agreement, except for (i) liens for taxes and assessments
not yet payable, (ii) liens of employees and laborers for current wages not
yet
due and (iii) liens described in the notes to the Financial Statements. All
Personal Property used by the Company or any Subsidiary is in good operating
condition and repair, ordinary wear and tear excepted.
(i) Bank
Accounts.
Schedule
5(i)
contains
a true and complete list (including address and account number) of each bank,
trust company or similar institution in which the Company and any Subsidiary
has
an account or a safety deposit box and the names of all persons, including
any
person or firm holding a power of attorney, authorized to draw thereon or to
have access thereto and a description of all credit facilities, lines of credit,
loan agreements and the like which the Company has with any financial
institution. All of the bank accounts operated in connection with the business
are maintained and operated solely in the name of the Company. Except as set
forth on Schedule
5 (i),
there
are no bank accounts operated in the name of any division or business or trade
name or style of the Company.
(j) Indebtedness.
Except
as set forth on Schedule
5 (j)
and
except for the Debentures, loans from Buyer to the Company, Indebtedness (as
hereinafter defined) reflected or reserved against in the 2007 Balance Sheet
included in the 2007 Financial Statements and Indebtedness incurred in the
ordinary course of business after the date of the 2007 Financial Statements,
the
Company has no material Indebtedness outstanding at the date hereof. The Company
is not in default with respect to any outstanding Indebtedness or any instrument
relating thereto and no such Indebtedness or any instrument or agreement
relating thereto purports to limit the issuance of any securities by the Company
or the operation of the business of the Company. Complete and correct copies
of
all instruments (including all amendments, supplements, waivers and consents)
relating to any Indebtedness of the Company have been made available to Buyer.
For purposes of this Agreement, “Indebtedness” shall mean (a) all indebtedness
for borrowed money or other obligations, commitments or liabilities, whether
current or long-term, contingent or matured, secured or unsecured, (b) all
indebtedness of the deferred purchase price of property or services represented
by a note or security agreement, (c) all indebtedness created or arising under
any conditional sale or other title retention agreement (even though the rights
and remedies of the seller or lender under such agreement in the event of
default may be limited to repossession or sale of such property), (d) all
indebtedness secured by a purchase money mortgage or other lien to secure all
or
part to the purchase price of property subject to such mortgage or lien, (e)
all
obligations under leases that have been or must be, in accordance with GAAP,
recorded as capital leases in respect of which the Company is liable as lessee,
(f) any liability in respect of banker’s acceptances or letters of credit, and
(g) all indebtedness of the Company, the stockholders of the Company or any
other person that is guaranteed by the Company or that the Company has agreed
(contingently or otherwise) to purchase or otherwise acquire or in respect
of
which the Company has otherwise assured a creditor against loss.
12
(k) Intellectual
Property Rights.
(i) Schedule
5 (k) (i)
contains
an accurate and complete list (by name, owner and, where applicable,
registration number and jurisdiction of registration, application, certification
or filing) of all Intellectual Property (as hereinafter defined) of the Company
(“Company Owned Intellectual Property”).
(ii) Schedule
5 (k) (ii)
lists
all consents, permissions, licenses, sublicenses and any other agreements or
arrangements, including a summary of all royalties and milestones payable
thereunder (“In-Bound Licenses”), pursuant to which a third party authorizes
Company to use, practice any rights under, or grant sublicenses with respect
to,
any Intellectual Property owned by a third party (other than generally
commercially available, non-custom, off the shelf software application programs
having a retail acquisition price of less than C$5,000 per license), including
the incorporation of any such Intellectual Property into products of the
Company, including such products Related to the Company Software (as defined
in
(k) (iii)), and, with respect to each In-Bound License, whether the In-Bound
License is exclusive or non-exclusive. Except as described in Schedule
5 (k) (ii),
all
In-Bound Licenses are valid and binding obligations of the Company and the
other
parties thereto, enforceable in accordance with their terms subject to the
Enforcement Exceptions and there exists no event or condition which will result
in a material violation or breach of or constitute (with or without due notice
or lapse of time or both) a default by the Company under any such In-Bound
Licenses.
(iii) The
Company Owned Intellectual Property, together with Company’s rights under the
In-Bound Licenses listed in Schedule
5 (i) (ii)
(collectively, the “Company Intellectual Property”), constitute all the
Intellectual Property used, held for use or acquired or developed for use in
the
Company Software (as defined in (k)(xviii)) or otherwise relating to, or arising
out of, the operation or conduct of the Company Software as it is currently
conducted or as proposed to be conducted (collectively “Related to the Company
Owned Software”).
13
(iv) Schedule
5 (k) (iv)
lists
all consents, permissions, licenses, sublicenses and any other agreements or
arrangements (“Out-Bound Licenses”) pursuant to which Company authorizes a third
party to use, practice any rights under, or grant sublicenses with respect
to,
any Company Owned Intellectual Property or any In-Bound Licenses and whether
the
Out-Bound License is exclusive or non-exclusive.
(v) Except
with respect to those rights in Intellectual Property owned by third persons
granted to the Company pursuant to In-Bound Licenses as disclosed in
Schedule
5 (k) (ii),
the
Company is the sole legal and beneficial owner of the Company Intellectual
Property, including as set out in Schedule
5 (k) (i),
including as required to carry on its business as currently conducted and for
the ownership, maintenance and operation of its properties and assets, free
and
clear of all mortgages, liens, pledges, charges, security interests, adverse
claims or other encumbrances.
(vi) All
applications, registrations and grants for any of the Company Owned Intellectual
Property (“Company Registered Items”), and, to Company’s knowledge, for any
Intellectual Property that is the subject of In-Bound Licenses, including as
identified in the Schedule
5(k)(ii),
are
valid and subsisting, and are in good standing, and all required filings with
any relevant governmental intellectual property office have been made and all
required filing, registration, maintenance, renewal and other fees have been
paid and all documents and certificates related to such Company Registered
Items
have been filed with the relevant governmental entity or other authorities
in
Canada or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Company Registered Items. There are no actions that must be
taken by Buyer within 180 days after the date hereof, including the payment
of
any 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 Registered Items. All Company Registered
Items are in good standing, held in compliance with all applicable legal
requirements and enforceable by Company. All Patents Related to the Company
Software that have been issued to the Company are valid.
(vii) The
Company has used and uses the Company Owned Intellectual Property in such manner
as to preserve its rights therein including the use of proper notices indicating
ownership of and/or rights to use the Company Owned Intellectual Property,
to
the extent reasonably necessary for the protection of the Company Owned
Intellectual Property, and the prevention of any disclosure to the public of
the
Proprietary Information which would impair Company’s rights
therein.
(viii) Waivers
of moral rights have been obtained in writing with respect to all Copyrights
owned by or licensed to the Company.
(ix) The
Seller has granted:
|
(1)
|
only
those Out-Bound Licenses permitting third persons to use any Company
Owned
Intellectual Property as set out in the Schedule
5 (k) (iv)
and there are no other Out-Bound Licenses to any person other than
those
Out-Bound Licenses disclosed in Schedule
5 (k) (iv);
|
14
|
(2)
|
only
those perpetual, irrevocable Out-Bound Licenses (or rights to acquire
a
perpetual Out-Bound License) as set out in the Schedule
5 (k) (iv);
and
|
|
(3)
|
no
ownership-like rights or exclusive rights in the Company Owned
Intellectual Property that exclude Company, in any manner whatsoever,
from
the rights granted.
|
(x) The
Company is not aware of any challenges (or any basis therefor) with respect
to
the ownership, validity or enforceability of any Company Owned Intellectual
Property. Schedule
5 (k) (i)
lists
the status of any proceedings or actions before the Canadian Intellectual
Property Office and any other governmental entity anywhere in the world related
to any of the Company Owned Intellectual Property, including the due date for
any outstanding response by Seller in such proceedings. Company has not taken
any action or failed to take any action that could reasonably be expected to
result in the abandonment, cancellation, forfeiture, relinquishment,
invalidation, waiver or unenforceability of any Company Owned Intellectual
Property. Schedule
5 (k) (i)
lists
all previously held Company Registered Items that Company has abandoned,
cancelled, forfeited or relinquished during the 12 months prior to the date
of
this Agreement.
(xi) None
of
the products or services currently or formerly developed manufactured, sold,
distributed, provided, shipped or licensed by the Company, or which are
currently under development has infringed or infringes upon, or otherwise
unlawfully used or uses, the Intellectual Property of any third party. The
Company, by conducting its business as currently conducted or as proposed to
be
conducted, has not infringed nor infringes upon, or otherwise unlawfully used
or
uses, any Intellectual Property of a third party. The Company has not received
any communication alleging that the Company has violated or, by conducting
its
business as currently conducted or as proposed to be conducted, would violate,
any Intellectual Property of a third party nor, to the Company’s knowledge, is
there any basis therefor. No action, suit or proceeding, claim, arbitration,
litigation or investigation has been instituted, or, to the Company’s knowledge,
threatened, relating to any Company Intellectual Property formerly or currently
used by the Company and none of the Company Intellectual Property is subject
to
any outstanding Order (as defined below). To the Company’s knowledge, no person
has infringed or is infringing any Company Intellectual Property or has
otherwise misappropriated or is otherwise misappropriating any Company
Intellectual Property.
(xii) With
respect to the Proprietary Information of the Company, the documentation
relating thereto is current, accurate and sufficient in detail and content
to
identify and explain it and to allow its full and proper use without reliance
on
the special knowledge or memory of others. The Company has taken all
commercially reasonable steps to protect and preserve the confidentiality of
all
Proprietary Information owned by the Company. Any receipt or use by, or
disclosure to, a third party of Proprietary Information owned by the Company
has
been pursuant to the terms of binding written confidentiality and non-use
agreement between the Company and such third party (“Nondisclosure Agreements”).
True and complete copies of the Nondisclosure Agreements and any amendments
thereto, have been provided to Buyer. The Company is, and to Company’s
knowledge, all other parties thereto are, in compliance with the provisions
of
the Nondisclosure Agreements. The Company is in compliance with the terms of
all
agreements, contracts, licenses, leases, commitments, arrangements or
understanding, written or oral, including any sales order or purchase order
pursuant to which a third party has disclosed to, or authorized the Company
to
use, Proprietary Information owned by such third party.
15
(xiii) All
current and former employees, consultants and contractors of the Company have
executed and delivered, and are in compliance with, enforceable agreements
regarding the protection of Proprietary Information and providing valid written
assignments and waivers of moral rights of all Intellectual Property Related
to
the Company Software conceived or developed by such employees, consultants
or
contractors in connection with their services for Company (“Work Product
Agreements”). True and complete copies of the Work Product Agreements have been
provided to Buyer. No current or former employee, consultant or contractor
or
any other person has any right, claim or interest to any of the Company Owned
Intellectual Property.
(xiv) No
officer, employee, consultant or contractor of the Company has been, is or
will
be, by performing services, including services Related to the Company Owned
Software, for or on behalf of Company, in violation of any term of any
employment, invention disclosure or assignment, confidentiality or
noncompetition agreement or any other contract or agreement or any other
restrictive covenant such officer, employee, consultant or contractor has with
any person, or arising under any award, injunction, judgment, decree, order,
ruling, subpoena or verdict or other decision issued, promulgated or entered
by
or with any governmental entity of competent jurisdiction (an “Order”),
including relating to the right of any such officer, employee, consultant or
contractor to be employed by the Company or to use the Proprietary Information
of others or that could subject the Company or Buyer to any liability to third
parties as a result of the existence or terms of any such contracts or
agreements.
(xv) All
Intellectual Property that has been distributed, sold or licensed to a third
party by the Company that is covered by warranty conformed and conforms to,
and
performed and performs in accordance with, the representations and warranties
provided with respect to such Intellectual Property by or on behalf of the
Company for the time period during which such representations and warranties
apply.
(xvi) The
execution and delivery of this Agreement by the Company does not, and the
consummation of the transactions contemplated hereby (in each case, with or
without the giving of notice or lapse of time, or both), will not, directly
or
indirectly, result in the loss or impairment of, or give rise to any right
of
any third party to terminate or re-price or otherwise renegotiate any of the
Company’s rights to own any of its Intellectual Property or its respective
rights under any Out-Bound License or In-Bound License, nor require the consent
of any governmental entity or other third party in respect of any such
Intellectual Property.
(xvii) For
purposes of this Agreement, “Intellectual Property” shall mean (i) inventions
(whether or not patentable), invention disclosures, trade secrets, technical
data, databases, customer and supplier lists, designs, tools, methods,
processes, technology, ideas, know-how, source code, product road maps,
formulae, compositions, processes, procedures and techniques, research and
development information, performance specifications, support documentation,
drawings, specifications, designs, business and marketing plans and other
proprietary information and materials (“Proprietary Information”); (ii)
trade-marks, service marks, brands, designs, logos, indicia, trade dress, trade
names, taglines, logos, business names, trading styles, trade dress, domain
names, business identifiers, whether registered or not, applications to register
and registrations of the same and like protection, and the entire goodwill
of
business connected with and symbolized by such rights (“Marks”); (iii)
documentation, advertising copy, marketing materials, web-site content and
design(s), product specifications, mask works, drawings, graphics, manuals,
databases, recordings and any and all other works of authorship and derivative
work thereof, whether published or unpublished (“Copyright”); (iv) all patents,
patent applications, provisional patents, design patents, and any foreign
applications and PCT filings corresponding thereto, and any and all letters
patent which may issue for the same and patentable inventions and/or
improvements thereto and from said applications, including any reissues,
extensions, continuations, continuations-in-part, renewals, divisions or
re-examinations thereof, and any and all other rights to inventions and designs
(“Patents”); and (v) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source
code
or object code, design documents, flow-charts, user manuals and training
materials relating thereto and any translations thereof (collectively,
“Software”).
16
(xviii) The
Software owned, or purported to be owned by Company (collectively, the “Company
Software”), was either (i) developed by employees of Company within the scope of
their employment, (ii) developed by independent contractors who have assigned
all of their right, title and interest and waived all moral rights therein
to
Company pursuant to written agreements or (iii) otherwise acquired by Company
from a third party pursuant to a written agreement in which such third party
assigns all of its right, title and interest therein. None of the Company
Software contains any programming code, documentation or other materials or
development environments that embody Intellectual Property of any person other
than Company, except for such materials obtained by Company from other persons
who make such materials generally available to all interested purchasers or
end-users on standard commercial terms.
(xix) Each
existing and currently supported and marketed Software product performs, in
all
material respects, the functions described in any agreed specifications or
end
user documentation or other information provided to customers on which such
customers relied when licensing or otherwise acquiring such products, subject
only to routine bugs and errors that can be corrected promptly by the Company
in
the course of providing customer support without further liability to the
Company, and all of the code of such products has been developed in a manner
that meets common industry practice, including the use of regression test and
release procedures.
(xx) The
Company has taken all actions customary in the software industry to document
the
Company Software and its operation, such that the materials comprising the
Software, including the source code and documentation, have been written in
a
clear and professional manner so that they may be understood, modified and
maintained in an efficient manner by reasonably competent
programmers.
(xxi) The
Company has not exported or transmitted Software, including Company Software,
or
other material in connection therewith to any country to which such export
or
transmission is restricted by any applicable law, without first having obtained
all necessary and appropriate governmental authorizations.
17
(xxii) The
Company Owned Software is free of any and all disabling codes or instructions
(a
“Disabling Code”), and any viruses, worms, trojan horses or other intentionally
created, undocumented or material known contaminant (a “Contaminant”), that may,
or may be used to, access, modify, delete, damage or disable any Systems or
that
may result in damage thereto and does not contain any bugs, errors, or problems
that would substantially disrupt its operation or have a substantial adverse
impact on the operation of the Company Software. The Company has taken
reasonable steps and implemented reasonable procedures to ensure that its
internal computer systems used in connection with its business are free from
Disabling Codes and Contaminants. The Software licensed by the Company is free
of any Disabling Codes or Contaminants that may, or may be used to, access,
modify, delete, damage or disable any of the databases or embedded control
systems of the software or that might result in damage thereto. The Company
has
taken all reasonable steps to safeguard its software and restrict unauthorized
access thereto.
(l) Insurance
Policies. Schedule
5
(l)
lists
the policies of theft, fire, liability (including products liability), worker’s
compensation, life, property and casualty, directors’ and officers’, and other
insurance owned or held by the Company. Such policies of insurance are
maintained with financially sound and reputable insurance companies, funds,
or
underwriters, are of the kinds and cover such risks, and are in such amounts
and
with such deductibles and exclusions, as are consistent with prudent business
practice. All such policies are in full force and effect, are sufficient for
compliance in all material respects by it with all requirements of law and
of
all agreements to which the Company is a party, and provide that they will
remain in full force and effect through the respective dates set forth in
Schedule
5
(l)
and will
not terminate or lapse or otherwise be affected in any way by reason of the
transactions contemplated hereby.
(m) Leases
and Related Agreements.
The
Company and each Subsidiary enjoy the undisturbed quiet possession of each
of
the premises purported to be leased by them. Each such lease is listed on
Schedule
5 (m)
attached
hereto, is valid as between the parties thereto and the Company or such
Subsidiary, as the case may be, is a tenant or possessor in good standing
thereunder, free of any material default or breach by it. Neither the Company
nor any Subsidiary has knowledge of any material default or breach by any
landlord or of any other event which would materially affect the right of
possession under any such lease. All rental and other payments due under each
such lease have been duly paid.
(n) Certain
Contracts.
Except
as specifically set forth in Schedule
5 (n)
attached
hereto, neither the Company nor any Subsidiary is a party to or bound by any
of
the following written or oral contracts, leases, licenses, agreements, permits,
plans, commitments or binding arrangements, relating to or affecting the Company
or any Subsidiary: (i) distributor, dealer, sales agency, manufacturer's
representative, consignment or similar contract or commitment, or any
advertising or public relations contract or commitment; (ii) contract with
or
commitment to any labor union or employees' association; (iii) continuing
contract commitment for the future purchase of materials, supplies, merchandise,
equipment or services in excess of six months; (iv) continuing contract or
commitment for the future sale or furnishing of products or merchandise or
services in excess of one year (in each case other than any such contract or
commitment terminable on not more than 30 days' notice without cost or other
liability to the Company and the Subsidiaries); (v) contract or commitment
for
the employment or retention of any director, officer, employee, agent,
shareholder, consultant or advisor or any other type of contract or
understanding with any director, officer, employee, agent, shareholder,
consultant or advisor which is not immediately terminable without cost or other
liability to the Company or any Subsidiary at or at any time after the Closing
Date; (vi) profit sharing, bonus, stock option, stock purchase, pension,
deferred compensation, retirement, severance, hospitalization, insurance or
other plan or arrangement, providing benefits to any present or former director,
officer, employee, agent, shareholder, consultant or advisor, or such person's
dependents, beneficiaries or heirs; (vii) indenture, mortgage, promissory note,
loan or credit agreement or other contract or commitment relating to the
borrowing of money or a line of credit by the Company or any Subsidiary or
to
the direct or indirect guarantee or assumption by the Company or any Subsidiary
of obligations of others (other than as specifically set forth in the notes
to
the Financial Statements); (viii) contract or commitment for charitable
contributions in excess of C$5,000 in the aggregate for the Company and each
Subsidiary for all such contracts and commitments; (ix) contract or commitment
for capital expenditures or the acquisition or construction of fixed assets
in
excess of C$25,000 in the aggregate for the Company and each Subsidiary for
all
such contracts or commitments; or (x) other contracts or commitments, in excess
of C$10,000 in the aggregate for the Company and each Subsidiary, not made
in
the ordinary course of the business of the Company or a Subsidiary. True,
accurate and complete copies of all contracts set forth on Schedule 6(n), or
where those contracts are oral, true, accurate and complete summaries of their
terms, have been provided to the Buyer.
18
(o) Transfer
of Class A Common Shares by Sellers.
The
transfer by Sellers to Buyer of the Class A Common Shares pursuant to this
Agreement, and the execution and delivery of the Escrow Agreement will not
diminish, limit or otherwise impair the right, title or interest of the Company,
or Buyer as the successor of Sellers as owner of the Class A Common Shares,
under or in respect of any properties of the Company or any Subsidiary,
including the capital stock, securities, assets, leases, licenses, Company
Intellectual Property, insurance policies, contracts and other instruments
and
properties referred to herein or in the exhibits or schedules hereto. The
execution, delivery and performance of this Agreement and the Escrow Agreement
by Sellers will not conflict with, or result in any breach of, any of the terms,
conditions or provisions of, or constitute a default (or an event which with
the
giving of notice or lapse of time, or both, would become a default) under,
or
result in the creation of any Claim upon any of the properties or assets of
the
Company or any Subsidiary pursuant to, the certificate of incorporation or
by-laws of the Company or such Subsidiary, as the case may be, or any indenture,
mortgage, lease, loan agreement, credit agreement or any other agreement or
instrument to which the Company or such Subsidiary, as the case may be, is
a
party or by which it or any of its properties is or may be bound or
affected.
(p) True
Copies of Documents.
True
copies of all leases, insurance policies, agreements, contracts and other
instruments listed in the exhibits and schedules hereto have been delivered
to,
or made available for inspection by, Buyer, or, to the extent not heretofore
delivered, will be delivered to, or made available for inspection by, Buyer
as
promptly as possible after the date of this Agreement.
(q) Legal
Proceedings.
There is
no action, suit, proceeding or investigation pending (or, to the knowledge
of
the Company, after reasonable investigation with respect thereto, threatened)
against, by or affecting the Company or any Subsidiary in any court, at law
or
in equity, or before or by any federal, provincial, local or other governmental
department, commission, board, bureau, agency or instrumentality, domestic
or
foreign, or before any arbitrator of any kind.
19
(r) Compliance
with Law.
The
Company and each Subsidiary have complied in all material respects with all
laws, rules, decrees, regulations, ordinances and orders (“Laws and
Regulations”) applicable to their respective businesses and operations
(including, without limitation, laws and regulations relating to wages and
hours, record keeping, customs, exportation, environmental matters, pollution
control or zoning) and have filed with the proper authorities any statements
and
reports required by all applicable Laws and Regulations. No officer of the
Company or any Subsidiary has received notice of any material violation of
any
Laws and Regulations applicable to the business or operations of the Company
or
any Subsidiary. The Company does not have or need any licenses, permits or
other
authorizations from governmental authorities for the conduct of its business
or
in connection with the ownership or use of its properties, except where the
failure to have any such license, permit or other authorization would not have
a
material adverse effect on the business, assets or financial condition of the
Company.
(s) Agreements
in Full Force and Effect.
The
Company and each Subsidiary have in all material respects performed all
obligations required to be performed by them to date under all indentures,
mortgages, leases, loan agreements, credit agreements and other agreements
and
instruments, permits, plans and binding arrangements to which any of them is
a
party and are not in default in any material respect under any thereof and
each
of the other parties thereto or bound thereby has in all material respects
performed all the obligations required to be performed by it to date and is
not
in default in any material respect thereunder.
(t) Absence
of Subsequent Actions.
Except
as set forth in Schedule
5 (t)
attached
hereto, since December 31, 2007, neither the Company nor any Subsidiary has:
(i)
issued or sold, or agreed to issue or sell, any shares of capital stock or
any
warrants, options or other rights for the issue or purchase of shares of capital
stock or other securities of, or any securities convertible into or exchangeable
for shares of capital stock or other securities of, the Company or any
Subsidiary; (ii) guaranteed any debt, obligation or dividend of any person
other
than a Subsidiary or incurred any liability (fixed or contingent) in excess
of
C$25,000 in the aggregate, except current liabilities incurred, and liabilities
under contracts entered into, in the ordinary course of business; (iii)
discharged or satisfied any lien, pledge, security interest, claim or
encumbrance, except for the discharge of liabilities provided for herein to
be
discharged, or paid any obligation or liability (fixed or contingent) other
than
current liabilities shown on the 2007 Balance Sheet and current liabilities
incurred since December 31, 2007, in the ordinary course of business; (iv)
declared or paid any dividend or made any other distribution to its shareholders
or purchased any shares of its capital stock or other securities; (v)
reclassified its shares of capital stock; (vi) mortgaged, pledged or subjected
to any Claim, any of its assets, tangible or intangible; (vii) sold, assigned,
transferred or otherwise disposed of any of its tangible assets, or canceled
any
debts or claims, except in each case in the ordinary course of business; (viii)
sold, assigned, licensed, sublicensed or transferred any Company Intellectual
Property; (ix) suffered any extraordinary losses or waived any rights of
substantial value; or (x) entered into any other material transaction other
than
in the ordinary course of business.
20
(u) No
Adverse Change.
Since
December 31, 2007, (i) the business and properties of the Company and each
Subsidiary, taken as a whole, have not been adversely affected in any material
way as the result of any fire, explosion, accident, riot, civil disturbance,
strike, boycott, lockout, flood, drought, storm, earthquake, embargo or other
casualty or act of God or the public enemy; and (ii) there has been no material
adverse change in the assets, business, prospects, properties or condition,
financial or other, of the Company or any Subsidiary.
(v) No
Default Under Contracts.
The
Company has performed all of the obligations required to be performed by it
and
is entitled to all benefits under, and is not in default or alleged to be in
default in respect of, any contract relating to the its business, to which
it is
a party or by which it is bound or affected. All such contracts are in good
standing and in full force and effect, and no event, condition or occurrence
exists that, after notice or lapse of time or both, would constitute a default
under any such contract. There is no dispute between the Company and any other
party under any such contract. Except as disclosed in the Schedules to this
Agreement, none of such contracts contain terms under which the execution or
performance of this Agreement would give any other contracting party the right
to terminate or adversely change the terms of that contract or otherwise require
the consent of any other person. None of those contracts have been assigned,
or
if applicable subleased, in whole or in part.
(w) Contracts
with Sellers, etc.
Except
as set forth in Schedule
5 (w)
attached
hereto and expressly so indicated, neither (i) any Seller, nor (ii) any
beneficiary of any trust, a trustee, grantor or beneficiary of which is a Seller
or any member of the family of a Seller, nor (iii) any member of the family
of
any Seller, nor (iv) any corporation, partnership, trust or other entity in
which any Seller or other such person has a substantial interest or is a
director, officer, trustee or partner, nor (v) any affiliate of any Seller,
is a
party to any transaction with the Company or any Subsidiary, including, without
limitation, any contract, agreement or other arrange-ment providing for the
furnishing of services by, or rental of real or Personal Property from, or
otherwise requiring payments to, any such person, except for such contracts,
agreements and arrangements terminable on not more than 30 days' notice without
cost or other liability to the Company or any Subsidiary.
(x) Relationships
with Customers, Suppliers, Distributors and Sales
Representatives.
The
Company has not received any written (or to the knowledge of the Company other)
notice that any customer, supplier, distributor or sales representative intends
to cancel, terminate or otherwise modify or not renew its relationship with
the
Company or any Subsidiary, and, to the knowledge of the Company, no such action
has been threatened, which individually or in the aggregate, would reasonably
be
expected to have a material adverse effect on the Company.
(y) Environmental
Matters.
The
Company: (A) is in material compliance with any and all Environmental
Laws and Regulations (as hereinafter defined);
(B) has received all permits, licenses or other approvals required of it
under applicable Environmental Laws and Regulations to conduct its businesses;
and (C) is in material compliance with all terms and conditions of any such
permit, license or approval. There have been no past unresolved, and there
are
no pending or threatened, claims, complaints, notices or requests for
information received by the Company with respect to any alleged material
violation of any Environmental Laws and Regulations, and no conditions exist
at,
on or under any property now or previously owned, operated or leased by the
Company which, with, the passage of time, or the giving of notice) or both,
would give rise to liability under any Environmental Laws and Regulations that,
individually or in the aggregate, has or may reasonably be expected to have,
a
material adverse effect with respect to the Company, following the
Closing.
21
(i) For
purposes of this Agreement, “Environmental Laws and Regulations” means any Law
or Regulation with respect to any Hazardous Materials, groundwater, wetlands,
landfills, open dumps, storage tanks, underground storage tanks, solid waste,
waste water, storm water run-off, waste emissions, xxxxx or otherwise concerning
pollution or the protection of the environment.
(ii) For
purposes of this Agreement, “Hazardous Materials” means each and every element,
compound, chemical mixture, contaminant, pollutant, material, waste or other
substance which is defined, determined or identified as hazardous or toxic
under
any Environmental Law or Regulation or the Release of which is prohibited under
any Environmental Law or Regulation,
(iii) For
purposes of this Agreement, “Release” means
any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
storing, escaping, leaching, dumping, discarding, burying, abandoning or
disposing into the environment.
(z) Labor
Relations.
The
Company is in compliance with all federal, provincial and state laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours and nondiscrimination in employment, and is not engaged in any unfair
labor practice. There is no charge pending or threatened against the Company
alleging unlawful discrimination in employment practices before any court or
agency and there is no charge of or proceeding with regard to any unfair labor
practice against the Company pending before any governmental agency. There
is no
labor strike, dispute, slow-down or work stoppage actually pending or threatened
against or involving the Company. No grievance or arbitration proceeding arising
out of or under any collective bargaining agreement is pending against the
Company and no claim therefor has been asserted. None of the employees of the
Company is covered by any collective bargaining agreement, and no collective
bargaining agreement is currently being negotiated by the Company. The Company
has not experienced any work stoppage or other material labor difficulty during
the last five years. All required levies under the Workplace
Safety and Insurance Act, 1997
(Ontario), or under the workers’ compensation legislation of any other
jurisdiction where the Company carries on business, have been paid by the
Company. The Company has paid to the date of this Agreement all amounts payable
on account of salary, bonus payments and commission to or on behalf of any
and
all employees.
(aa) Governmental
Consent; Non-Contravention, etc.
Except
as described in Schedule
5 (aa),
the
Company holds no licenses, permits or other authorizations issued by any
governmental agency to the Company related to its properties, Intellectual
Property, research program or business. No consent, approval or authorization
of
or registration, designation, declaration or filing with any governmental
authority, federal or other, on the part of the Company, is required in
connection with the consummation of the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not violate (i) any provision of the
Company’s Certificate of Incorporation or its By-Laws, or (ii) any order,
judgment, injunction, award or decree of any court or provincial, state or
federal governmental or regulatory body applicable to the Company.
22
(bb) Minute
Books.
The
minute books of the Company made available to Buyer for inspection accurately
record therein all actions by the Company’s Board of Directors and
stockholders.
(cc) Brokers.
The
Company has not retained, utilized or been represented by any broker or finder
in connection with the negotiation or consummation of this Agreement or the
transactions contemplated hereby.
(dd) Customers.
Attached
as Schedule
5 (dd) is
the
Company's customer list with name, address, and associated revenue for each
customer for 2005, 2006, and 2007 and for the five months ended May 31, 2008.
Such list shows as to each customer what was purchased during each period and
the number of users for the Company’s products. The customer list is true and
correct in all material respects. The Company has received no indication from
any current customer that the transactions contemplated by this Agreement will
materially and adversely affect such customer’s relationship with the
Company.
(ee) Product
Warranty.
All
products manufactured, processed, distributed, shipped or sold by the Company
and any services rendered by Seller have been in conformity with all applicable
contractual commitments and all expressed or implied warranties. No liability
exists or will arise for repair, replacement or damage in connection with such
sales or deliveries, in excess of the reserve therefor on the Interim Balance
Sheet. Schedule
5 (ee)
sets
forth an accurate, correct and complete statement of all written warranties,
warranty policies, service and maintenance agreements of the Company. No
products heretofore sold by the Company are now subject to any guarantee,
written warranty, claim for product liability, or patent or other indemnity.
Schedule
5 (ee)
sets
forth an accurate, correct and complete list and summary description of all
service or maintenance agreements under which the Company is currently
obligated, indicating the terms of such agreement and any amounts paid or
payable thereunder.
(ff) Termination
of Stock Option Plan.
The
Company has taken all actions necessary under the Software Innovation Inc.
2004
Employee Stock Option Plan (the “Plan”) to cause the Plan and all options
outstanding thereunder to be terminated as of the Closing Date.
SECTION
6. Representations,
Warranties and Certain Agreements of Buyer.
Buyer
represents and warrants to, and agrees with, Sellers as follows (such
representations and warranties on the date of this Agreement being, and on
the
Closing Date to be, true and correct in all respects):
(a) Organization
and Corporate Power.
Buyer is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Buyer has the corporate power and authority
to
execute, deliver and perform each of this Agreement and the Escrow Agreement.
This Agreement has been, and on the Closing Date the Escrow Agreement will
have
been, duly authorized, executed and delivered by Buyer, and this Agreement
constitutes, and on the Closing Date the Escrow Agreement will constitute,
the
legal, valid and binding obligation of Buyer, enforceable in accordance with
its
terms, subject to the Enforcement Exceptions. The execution, delivery and
performance of this Agreement and the Escrow Agreement by Buyer will not violate
any material provision of law (except that no representation or warranty is
made
with respect to compliance with any Federal or state antitrust laws) or any
judgment, decree or order of any court or other governmental agency to which
Buyer is subject, or conflict with, or result in any breach of, any of the
terms, conditions or provisions of, or constitute a default (or an event which
with the giving of notice or lapse of time, or both, would become a default)
under, or result in the creation of any Claim upon any of the properties or
assets of Buyer pursuant to, the certificate of incorporation or by-laws of
Buyer or any indenture, mortgage, lease, loan agreement, credit agreement or
any
other agreement or instrument to which Buyer is a party or by which it or any
of
its properties is or may be bound or affected.
23
(b) Capitalization.
The
authorized capital stock of Buyer consists of 20,000,000 shares of Common Stock,
par value $.01 per share, of which 11,222,481
shares
are issued and outstanding. All of the outstanding shares of capital stock
of
Buyer are validly issued and outstanding, fully paid and non-assessable. All
shares of Buyer Stock to be issued to the Sellers under this Agreement will,
when issued, be duly authorized, validly issued, fully paid and non-assessable
and will not be subject to the pre-emptive rights of others.
(c) Legal
Proceedings.
No
action, suit, proceeding or investigation (whether conducted by any judicial
or
regulatory body or other person) is pending or, to the knowledge of Buyer,
threatened against Buyer (nor is there any basis therefor to the knowledge
of
Buyer) which questions the validity of this Agreement or any action taken or
to
be taken pursuant hereto or which might reasonably be expected, either in any
case or in the aggregate, to adversely affect the business, assets, or financial
condition of Buyer or impair the right or the ability of Buyer to carry on
its
business substantially as now conducted.
(d) Government
Consents, etc.
No
consent, approval or authorization of or registration, designation, declaration
or filing with any governmental authority, federal or other, on the part of
Buyer is required in connection with the transactions contemplated hereby.
The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not violate (i) any provision of Buyer’s
Articles of Incorporation and By-Laws, or (ii) any order, judgment, injunction,
award or decree of any court or state or federal governmental or regulatory
body
applicable to Buyer.
(e) Brokers.
Buyer
has not retained, utilized or been represented by any broker or finder in
connection with the negotiation or consummation of this Agreement or the
transactions contemplated hereby.
SECTION
7. Covenants
of the Parties.
(a) Further
Assurances.
Subject
to the terms and conditions set forth in this Agreement, each of the parties
to
this Agreement shall use its best efforts, as promptly as practicable, to take
or cause to be taken all actions, and to do or cause to be done all other
things, as are necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
by
this Agreement.
24
(b) Confidentiality.
Buyer,
the Company and each Seller will treat in confidence all documents, materials
and other information obtained regarding the other during the course of the
negotiations leading to the transactions contemplated pursuant to this
Agreement, the investigation of the other parties hereto and the preparation
of
agreements and other documents relating to such transactions, and, if such
transactions are not consummated, shall return all copies of nonpublic documents
and materials which have been furnished in connection
therewith.
(c) Public
Statements or Releases.
The
parties hereto each agree that no party to this Agreement shall make, issue
or
release any public announcement, statement or acknowledgment of the existence
of, or reveal the status of, the transactions provided for herein, without
first
obtaining the consent of the other party hereto. Nothing contained in this
Section 7 (c) shall prevent Buyer from making such public announcements as
it
may consider necessary in order to satisfy the requirements of United States
securities Laws and Regulations applicable to Buyer.
(d) Adoption
of Stock Option Plan.
Within
sixty (60) days of the Closing Date, Buyer shall cause the Company to adopt
a
new stock option plan under which a class of Common Shares with the same rights,
privileges, restrictions and conditions as the Class A Common Shares,
representing twenty percent (20%) of the Company’s fully diluted capitalization
as the Closing Date, shall be reserved for issuance.
SECTION
8. Conditions
Precedent to Obligations of Buyer.
All
obligations of Buyer under this Agreement are, at the option of Buyer, subject
to the conditions that, at the Closing Date:
(a) Accuracy
of Representations and Warranties by the Sellers and the
Company.
The
representations and warranties of the Sellers and the Company set forth in
Sections 4 and 5 of this Agreement (including any schedules thereto) shall
be
true and correct in all material respects as of the Closing Date with the same
force and effect as though made again at and as of the Closing Date, except
for
changes permitted or required by this Agreement.
(b) Compliance
by the Company.
The
Company shall have performed and complied in all material respects with all
covenants and agreements contained in this Agreement required to be performed
or
complied with by it on or before the Closing Date.
(c) No
Restraining Order.
No
restraining order or injunction or other order issued by any court of competent
jurisdiction, or other legal restraint or prohibition shall prevent the
consummation of the transactions contemplated by this Agreement, and no petition
or request for any such injunction or other order shall be pending.
(d) No
Material Adverse Change.
There
shall not have been any material adverse change in the business or assets of
the
Company.
(e) Officers'
Certificates.
The
Company shall have delivered to Buyer at and as of the Closing a certificate
attaching the Company’s articles of incorporation, by-laws, certificate of
incumbency and resolutions authorizing execution and delivery of this Agreement
and the transactions contemplated hereby, duly executed by the Company’s Chief
Executive Officer or Chief Financial Officer, in form and substance satisfactory
to Buyer and Buyer’s counsel.
25
(f) Opinion
of the Company's Counsel.
The
Company shall have delivered to Buyer an opinion of Xxxxxxxxx
Dellelce LLP, counsel to the Company, dated the Closing Date, in form and
substance reasonably satisfactory to Buyer and its counsel.
(g) Exercise/Conversion
of Stock Options, Warrants and Other Rights.
Each
outstanding Stock Option, warrant, and other right to acquire the capital stock
of the Company shall have been exercised, waived, released and/or terminated,
and the Company’s stock option plan shall have been terminated as of the Closing
Date and shall be of no further force or effect.
(h) Consents.
All
consents, in form and substance satisfactory to Buyer and Buyer’s counsel, to
the consummation of the transactions contemplated by this Agreement, by each
party to any material contract, commitment or obligation of the Company required
to be secured by the Company shall have been secured on or prior to the Closing
Date.
(i) Private
Placement.
The
issuance of the Buyer Stock and the Repayment Notes to the Sellers shall qualify
as a private placement under Section 4(2) of the Act and/or Regulation D
promulgated thereunder and/or in reliance upon Regulation S promulgated under
the Act shall be exempt from registration under the federal securities laws
of
the United States and from local registration, prospectus or similar
requirements. Further, the issuance of Buyer Stock and the Repayment Notes
to
the Sellers shall qualify as an exempt distribution under National Instrument
45-106 - Prospectus
and Registration Exemptions.
(j) Execution
and Delivery of the Escrow Agreement.
The
Sellers shall have executed and delivered the Escrow Agreement.
(k) Termination
of Unanimous Shareholders Agreement and Voting Trust.
The
Company and the Sellers shall have terminated the Unanimous Shareholders
Agreement and the Voting Trust Agreement to which they are parties.
(l) Resignations
of Certain Directors.
Will
Jin, Xxxx Xxxx-Xxxxx, Xxxxxx Xxxxxxxx, Xxxxxxx Xxxxxx and Xxxxxxx Harapiak
shall
have resigned as directors of the Company.
(m) Repayment
of Debentures. The
Company shall have used to the Cash Consideration and the Repayment Notes to
repay the Debentures which shall have been canceled.
(n) All
Actions To Be Satisfactory.
All
actions, proceedings, instruments, opinions and documents required to carry
out
the purposes of this Agreement or incidental thereto, and all other related
legal matters, shall be reasonably satisfactory in form and substance to Buyer
and its counsel.
(o) All
Conditions To Be Satisfied.
All the
terms, agreements and conditions of this Agreement to be complied with and
performed by any Seller at or before the Closing Date shall have been complied
with and performed in all material respects.
26
SECTION
9. Conditions
Precedent to Obligations of Sellers.
All
obligations of the Sellers under this Agreement are, at the option of the
Sellers, subject to the conditions that, at the Closing Date:
(a) Accuracy
of Representations and Warranties by Buyer.
The
representations and warranties of Buyer set forth in Section 6 of this Agreement
and in any Schedules to this Agreement shall be true and correct in all material
respects as of the Closing Date with the same force and effect as though made
again at and as of the Closing Date, except for changes permitted or required
by
this Agreement.
(b) Compliance
by Buyer.
Buyer
shall have performed and complied in all material respects with all of the
covenants and agreements required to be performed or complied with by it by
the
Closing Date.
(c) No
Restraining Order.
No
restraining order or injunction or other order issued by any court of competent
jurisdiction, or other legal restraint or prohibition shall prevent the
transactions contemplated by this Agreement, and no petition or request for
any
such injunction or other order shall be pending.
(d) Buyer
Certificate.
Buyer
shall have delivered to the Sellers at and as of the Closing a certificate
attaching Buyer’s certificate of incorporation, by-laws, certificate of
incumbency and resolutions authorizing execution and delivery of this Agreement
and the transactions contemplated hereby, duly executed by Buyer’s Chief
Executive Officer or Chief Financial Officer, in form and substance satisfactory
to Sellers, the Company and their counsel.
(e) Opinion
of Buyer’s Counsel.
Buyer
shall have delivered to Sellers an opinion of Xxxxxxxxx Xxxxxx & Xxxx LLP,
counsel for Buyer, dated the Closing Date, in form and substance reasonably
satisfactory to Sellers, the Company and their counsel.
(f) No
Material Adverse Change.
There
shall not have been any material adverse change in the business or assets of
Buyer, it being agreed that a material adverse change shall not include the
incurrence of cash losses from operations in accordance with the conduct of
Buyer’s business in the ordinary course.
(g) Private Placement.
The
issuance of the Buyer Stock to the Sellers shall qualify as a private placement
under Regulation D or Regulation of the Securities Act and shall be exempt
from
registration under United States federal securities laws and all state and
foreign securities laws.
(h) Delivery
of Escrow Shares.
Buyer
shall have delivered certificates to the Escrow Agent evidencing the Escrow
Shares as provided in Section 2 (f).
(i) Execution
and Delivery of Escrow Agreement.
Buyer
shall have executed and delivered the Escrow Agreement.
(j) Resignations
of Certain Directors.
Will
Jin, Xxxx Xxxx-Xxxxx, Xxxxxx Xxxxxxxx, Xxxxxxx Xxxxxx and Xxxxxxx Harapiak
shall
have resigned as directors of the Company.
(k) All
Actions To Be Satisfactory.
All
actions, proceedings, instruments, opinions and documents required to carry
out
this Agreement or incident thereto, and all other related legal matters, shall
be reasonably satisfactory in form and substance to Sellers and their
counsel.
27
(l) All
Conditions To Be Satisfied.
All the
terms, agreements and conditions of this Agreement to be complied with and
performed by Buyer at or before the Closing Date shall have been complied
with
and performed in all material respects.
SECTION
10. Expenses.
Buyer
agrees to pay its own expenses, including all fees and disbursements of counsel
for Buyer, incidental to this Agreement and the transaction contemplated hereby.
Each of the Sellers jointly and severally agrees to pay the expenses of Sellers,
including all fees and disbursements of counsel for Sellers, incidental to
this
Agreement and the transaction contemplated hereby.
SECTION
11. Indemnification.
(a) Sellers’
Indemnity.
(i) From
and
after the Closing, each Seller shall, severally and not jointly, and in
proportion to their relative ownership of Purchased Shares, indemnify and defend
Buyer, and each of its successors and assigns, officers, directors, employees,
advisors, and affiliates (as applicable, the “Buyer Indemnified Party”), and
hold each of them harmless from and against any and all claims, judgments,
proceedings, actions, suits, investigations, liabilities, losses, reasonable
costs (including the reasonable fees and disbursements of attorneys), expenses
and damages, including without limitation under federal or provincial or state
securities laws, but excluding any incidental, consequential or punitive
damages, (collectively, “Damages”) directly or indirectly based on, arising out
of or relating to: (A) any breach of or inaccuracy in any representation or
warranty of the Company set forth in this Agreement; (B) any breach of any
covenant or agreement of the Company set forth in this Agreement or any of
the
other agreements, certificates and instruments delivered or required to be
delivered hereunder or in connection with the transactions contemplated by
this
Agreement to be performed at or prior to the Closing; (C) any liability of
the
Company that accrues after the Closing Date for Taxes for all periods ending
on
or before the Closing Date (the “Pre-Closing Periods”), including, but not
limited to Taxes for a Pre-Closing Period arising as a result of any federal
or
provincial governmental action, including any audit, assessment or reassessment
of the Company before or after the Closing Date; and (D) any liability of the
Company as a result of any federal or provincial governmental action, including
any audit, assessment or reassessment in respect of the SRED Claim (as such
term
is defined in Section 2(g)) (collectively, “Buyer Indemnity Claims”). In
addition, each of the Sellers individually agrees to indemnify and defend the
Buyer Indemnified Parties, and hold each of them harmless from and against
any
and all Damages directly or indirectly based on, arising out of or relating
to
any breach or inaccuracy in any representation or warranty of that Seller set
forth in Section 4 of this Agreement or with respect to any breach of covenant
of and by that Seller under this Agreement.
(ii) A
Buyer
Indemnified Party shall not be entitled to assert a claim for indemnification
from a Seller under the provisions of Section 11 (a) (i) until such time as,
and
only to the extent that, the total of all Damages of a Buyer Indemnified Party
subject to indemnification exceed, in the aggregate, the sum of Fifteen Thousand
Dollars (C$15,000) (the “Basket”). Further, any and all indemnification
obligations of Sellers under the provisions of Section 11 (a) (i) shall not
exceed the aggregate value of the Shareholder’ SRED Portion and the Escrow
Shares (the “Cap”), other than claims for fraud or intentional
misrepresentation.
28
(b) Buyer’s
Indemnity.
(i) From
and
after the Closing, Buyer shall indemnify and defend Sellers and their respective
successors and assigns, and hold each of them harmless from and against any
and
all Damages (including in each case reasonable attorneys’ fees) directly or
indirectly based on, arising out of or relating to (i) any breach of or
inaccuracy in any representation or warranty of Buyer set forth in this
Agreement; (ii) any breach of any covenant or agreement of Buyer set forth
in
this Agreement or any of the other agreements, certificates and instruments
delivered or required to be delivered hereunder or in connection with the
transactions contemplated by this Agreement to be performed at or prior to
the
Closing (collectively, “Seller Indemnity Claims”, and together with Buyer
Indemnity Claims, the “Indemnity Claims”).
(ii) Sellers
shall not be entitled to assert a claim for indemnification from Buyer under
the
provisions of Section 11 (b) (i) until such time as, and only to the extent
that, the total of all Damages of Sellers subject to indemnification exceed,
in
the aggregate, the sum of the Basket. Further, any and all indemnification
obligations of Buyer under the provisions of Section 11 (b) (i) shall not exceed
the Cap, other than claims for fraud or intentional
misrepresentation.
(c) Notice
and Defense of Indemnity Claims.
(i) A
party
hereto agreeing to be responsible for or to indemnify against any matter
pursuant to this Agreement is referred to herein as the “Indemnifying Party” and
a Party entitled to indemnification hereunder is referred to herein as the
“Indemnified Party.” An Indemnified Party under this Agreement shall give
written notice to the Indemnifying Party hereunder with respect to any assertion
by the Indemnified Party or by a third-party of any Damages that the Indemnified
Party has reason to believe might give rise to an Indemnity Claim under this
Agreement, within thirty (30) days of the Indemnified Party having actual
knowledge of the Indemnity Claim. Such notice shall set forth in reasonable
detail the nature of such Damages and include copies of any written complaint,
summons, correspondence or other communication from the Party asserting the
claim or initiating the proceeding. If the Indemnifying Party disagrees with
or
contests the Indemnity Claim, the Indemnifying Party must, within thirty (30)
days of the Indemnifying Party’s receipt of such notice, deliver written notice
to the Indemnified Party that it contests such Indemnity Claim. Such notice
shall set forth in reasonable detail the factual and legal basis for disputing
the Indemnity Claim. The Parties shall meet to negotiate a resolution to any
contested Indemnity Claim. If no negotiated resolution can be reached, the
Parties shall have recourse to all legal remedies available to them. If the
Indemnifying Party does not deliver written notice of its intent to contest
an
Indemnity Claim within the thirty (30) day period, the Indemnifying Party shall
be deemed to have accepted and agreed to the Indemnity Claim.
If the
Indemnifying Party elects not to defend the Indemnified Party against an
Indemnity Claim, whether by failure of such Party to give the Indemnified Party
timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against the Indemnifying Party, may settle or defend
against such Indemnity Claim and the Indemnified Party shall be entitled to
recover from the Indemnifying Party the amount of any settlement or judgment
(subject to any rights of appeal) and, on an ongoing basis, all indemnifiable
costs and reasonable expenses of the Indemnified Party with respect thereto,
including interest from the date such costs and reasonable expenses were
incurred.
29
(ii) As
to any
such Indemnity Claim which involves a third-party, the Indemnifying Party shall
control the defense, compromise or settlement thereof, and the Indemnified
Party
shall be entitled to participate in the defense, compromise or settlement of
any
such matter through the Indemnified Party’s own attorneys and at its own
expense; provided,
however,
that the
fees and expenses of the Indemnified Party’s counsel shall be at the expense of
the Indemnified Party unless (A) the Indemnifying Party has agreed in writing
to
pay such fees and expenses, (B) the Indemnifying Party has failed to assume
the
defense and employ counsel as provided herein or (C) a claim shall have been
brought or asserted against the Indemnifying Party as well as the Indemnified
Party, and such Indemnified Party shall have been advised in writing by counsel
that there may be one or more factual or legal defenses available to it that
are
in conflict with those available to the Indemnifying Party, in which case such
co-counsel shall be at the expense of the Indemnifying Party. The Indemnified
Party shall provide such cooperation and such access to its books, records
and
properties as the Indemnifying Party shall reasonably request with respect
to
such matters and the Parties hereto agree to render each other such assistance
as they may reasonably require of each other in order to ensure the proper
and
adequate defense thereof. An Indemnifying Party shall not make any settlement
of
any Indemnity Claims without the written consent of the Indemnified Party,
which
consent shall not be unreasonably withheld, other than (i) Indemnity Claims
strictly for monetary damages as to which the Indemnifying Party agrees to
be
responsible or (ii) a settlement which includes as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability with respect to such Indemnity Claim. Without limiting the
generality of the foregoing, it shall not be deemed unreasonable to withhold
consent to a settlement involving injunctive or other equitable relief against
the Indemnified Party or its assets, employees or business.
(d) Survival.
All
representations and warranties in this Agreement and their related schedules
shall terminate upon the 12-month anniversary of the Closing Date; provided,
however,
that (a)
the representations and warranties in Section 5 (e) (Tax Matters and Tax
Returns), Section 5 (r) (Compliance with Law), Section 5(y) (Environmental
Matters) and their related schedules shall survive until sixty (60) days after
the date as of which the applicable statutes of limitations with respect to
such
matters expire and (b) the representations and warranties in Section 5 (a)
(Organization; Qualification and Corporate Power), Section 5(b) (Binding
Effect), Section 5 (c) (Authorized Capital Stock), Section 5 (g) (Title to
Properties) and Section 5 (z) (Brokers) and their related schedules shall
survive indefinitely and not terminate.
(e) Payment
and Satisfaction.
(i) Any
Damages for which the Sellers shall be liable to the Buyer Indemnified Parties
(other than for fraud) shall be paid and satisfied from either (A) the Escrow
Shares with the value of such shares to be determined as the average of the
closing price of Buyer Stock for the fifteen consecutive
trading days ending one business day prior to the date of assertion of a claim
for Damages or (B) the Shareholders’ SRED Portion, at the Sellers’ discretion,
provided, however, that to the extent that either the Escrow Shares or the
Shareholders’ SRED Portion shall be exhausted, any Damages shall be satisfied
from whichever component still remains. Where indemnification for Damages is
claimed from more than one Seller, such election shall be determined on behalf
of all Sellers by any two of Xxxxxxxxx Capital Corporation, BDC Capital Inc.
and
Tech Capital II L.P. in accordance with the provisions of the Escrow
Agreement.
30
(ii)
The
parties hereto agree and acknowledge that the Escrow Shares and the
Shareholders’ SRED Portion shall be the sole and exclusive source of recovery by
the Buyer Indemnified Parties and shall limit any other remedies available
to
the Buyer Indemnified Parties hereunder or under any applicable law for the
payment of or in respect of any claims arising hereunder, except that no such
limitation shall apply in the event of fraud by any Sellers or the
Company.
SECTION
12. Miscellaneous.
(a) Successors
and Assigns.
The
rights and obligations of a Seller under this Agreement shall not be assignable
by such Seller without the prior written consent of Buyer. Nothing herein
expressed or implied is intended to confer upon any person, other than the
parties hereto or their respective successors, heirs and legal representatives,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
(b) Extensions,
Waivers and Amendments.
The
Sellers (on their own behalf or by any agent) and Buyer, may, by written
agreement, (i) extend the time for the performance of any of the obligations
or
other acts of the parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any docu-ments
delivered pursuant to this Agreement, (iii) waive compliance with or modify
any
of the agreements contained in this Agreement and (iv) waive or modify
performance of any of the obligations of any of the parties to this
Agreement.
(c) Notices.
Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be deemed
given upon such delivery, (ii) if given by telecopier, then such notice shall
be
deemed given upon receipt of confirmation of complete transmittal, (iii) if
given by mail, then such notice shall be deemed given upon the earlier of (A)
receipt of such notice by the recipient or (B) three days after such notice
is
deposited in first class mail, postage prepaid, and (iv) if given by an
internationally recognized overnight air courier, then such notice shall be
deemed given one business day after delivery to such carrier. Any party and
any
representative designated below may, by notice to the others, change its address
for receiving such notices.
31
Address
for notices to Buyer:
0
Xxxx
Xxxxxxxx Xxxx
Xxxxxxxxxx,
XX 00000
Attn:
Chief Executive Officer
| Fax: |
(000)
000-0000
|
| Phone: |
(000)
000-0000
|
with
a
copy (which shall not constitute notice) to:
Xxxxxxx
Xxxxxx, Esq.
Xxxxxxxxx
Xxxxxx & Xxxx LLP
00
Xxxx
00xx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
| Fax: |
(000)
000-0000
|
| Phone: |
(000)
000-0000
|
Address
for notices to the Company:
Coreworx
Inc.
00
Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx,
XxxxxxxX0X 0X0
Attn:
Chief Executive Officer
| Fax: |
(000)
000-0000
|
| Phone: |
(000)
000-0000
|
with
a
copy (which shall not constitute notice) to:
Xxxxxx
XxxXxxxxx
Xxxxxxxxx
Dellelce LLP
Suite
800, Xxxxxxxxx Dellelce Place
000
Xxx
Xxxxxx
Xxxxxxx,
Xxxxxxx X0X 0XX
| Fax: |
(000)
000-0000
|
| Phone: |
(000)
000-0000
|
32
Addresses for notices to the Sellers:
To
the
address set forth in Exhibit A and Exhibit B
with
a
copy (which shall not constitute notice) to:
Xxxxxx
XxxXxxxxx
Xxxxxxxxx
Dellelce LLP
Suite
800, Xxxxxxxxx Dellelce Place
000
Xxx
Xxxxxx
Xxxxxxx,
Xxxxxxx X0X 0XX
| Fax: |
(000)
000-0000
|
| Phone: |
(000)
000-0000
|
(d) Governing
Law.
This
Agreement, including the exhibits hereto, contains the entire agreement between
the parties hereto with respect to the transaction contemplated hereby and
supersedes all prior oral and written agreements (including, without limitation,
the Letter of Intent dated February 22, 2008 and amended on March 7, 2008,
March
11, 2008 and June 3, 2008, between the Company and Buyer), memoranda,
understandings and undertakings between the parties hereto relating to the
subject matter hereof. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of law.
(e) Severability
Clause.
In case
any provision in this Agreement shall be invalid, illegal or unenforceable,
the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby.
(f) Headings.
The
section and subsection headings used herein are for convenience of reference
only, are not a part of this Agreement and are not to affect the construction
of, or be taken into consideration in interpreting, any provision of this
Agreement.
(g) Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed to be an original, but all of which together shall consti-tute one and
the same instrument.
[Remainder
of this page left intentionally blank]
34
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered, as of the day and year first written above.
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Per:
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Xxxx
X. Xxxxx
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President
and Chief Executive Officer
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COREWORX
INC.
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Per:
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/s/
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Xxxx
Gillberry
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Chief
Financial and Operating Officer
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XXXXXXXXX
VENTURE FUND INC.
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Per:
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Name:
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Title:
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XXXX-XXXXXXX
CSBIF I INC., XXXX-XXXXXXX CSBIF II INC. and XXXXXXXXX STRATEGIC
CAPITAL
FUND INC.
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Per:
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Name:
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Title:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXX
GILLBERRY
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXX
XXXXXXXX
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Name:
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BDC
CAPITAL INC.
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Per:
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Name:
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Title:
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Per:
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Name:
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Title:
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TECH
CAPITAL II L.P. BY ITS GENERAL PARTNER TECH CAPITAL II
INC.
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Per:
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Name:
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Title:
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ROYNAT
CAPITAL INC.
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Per:
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Name:
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Title:
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BEST
TOTAL RETURN FUND INC.
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Per:
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Name:
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Title:
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VERDEXUS
HOLDINGS I INC.
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Per:
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Name:
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Title:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXXXX
XXXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXX
XXXXXXXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXXX
XXXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXX
X’XXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXXX
XXXXXXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXX
XXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXXXX
XXXXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXX
XXXXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXX
XXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXX
XXXXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXXXX
XXXXX
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Name:
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/s/
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/s/
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SIGNATURE
OF WITNESS
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XXXXX
XXXXXX
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Name:
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SOFTWARE
INNOVATION ASA
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Per:
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Name:
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Title:
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38
