Exhibit 99.2
REORGANIZATION AGREEMENT
THIS AGREEMENT is entered into this 30th day of June, 1998 by and among Applied
Cellular Technology, Inc. ("ACT"), a Missouri corporation, ACT-GFX Canada, Inc.
("ACTsub") an Ontario corporation, Drummer Enterprises Ltd. ("Drummer"), an
Ontario corporation, Morstar Holdings Ltd. ("Morstar"), a Manitoba corporation,
Scozul Enterprises Ltd. ("Scozul"), an Ontario corporation, (Drummer, Morstar
and Scozul are hereinafter collectively referred to as "Sellers"), Xxxxx X.
Xxxxx (the "Principal") and Ground Effects Ltd. (the "Acquiree"), an Ontario
corporation.
RECITALS
A. The Principal has entered into an option agreement (the "Option Agreement")
with the Acquiree wherein in recognition of his service to the Acquiree the
Principal may subscribe, for a subscription price in the aggregate of Ten
Thousand Dollars ($10,000), for sufficient common shares in the capital of the
Acquiree so that after the exercise of the Option, Scozul and the Principal
collectively would have, in the aggregate, 40% of the fair value of all
shareholder indebtedness, Class B preference shares and common shares in the
capital of the Acquiree;
B. Immediately prior to the Closing Date the Acquiree borrowed the sum of
$708,307.91 to pay to Innovation Ontario Corporation ("Innovation Ontario") the
sum of $708,307.91, being the balance owing under a promissory note in the
principal amount of Eight Hundred Thousand Dollars ($800,000) dated October 8,
1997, made by the Acquiree in favour of Innovation Ontario, to effect the
purchase of all of the Class A preference shares issued by the Acquiree in
favour of Innovation Ontario with ACT as guarantor of such loan;
C. The Acquiree is authorized to issue an unlimited number of Class A Preference
Shares, an unlimited number of Class B Preference Shares and an unlimited number
of common shares;
D. As at the date hereof the holders of all of the issued and outstanding shares
in the capital of the Acquiree together with the number and class of shares
issued to such holders are set out below:
Holder Acquiree Shares
------ ---------------
Drummer 10 Common
150,000 Class B preference
Morstar 10 Common
195,000 Class B preference
Scozul 10 Common
138,000 Class B preference
E. As at the date hereof the Acquiree is indebted to the Sellers as follows:
Seller Debt
------ ----
Drummer $75,000
Morstar $120,000
F. Subject to the conditions set forth in this Agreement, the Sellers have
agreed to cause the Acquiree to declare on the Closing Date a twenty percent
(20%) stock dividend to the common shareholders in the form of two (2) new
common shares to each of the Sellers such that after the declaration of such
dividend the total number of common shares issued to each of Drummer, Morstar,
and Scozul shall be twelve (12).
G. The Sellers will cause articles of amendment to be filed in respect of the
Acquiree on the Closing Date to cause a stock split of one hundred thousand
(100,000) common shares to be issued for each one (1) common share such that
after the articles of amendment are filed each of Drummer, Morstar and Scozul
will be the registered owner of one million two hundred thousand (1,200,000)
common shares.
H. ACTsub is authorized to issue an unlimited number of common shares, an
unlimited number of class A exchangeable shares and class B exchangeable shares
each of which exchangeable shares are exchangeable for common shares of ACT with
demand registration rights as provided herein (the "ACT Shares"). The class A
exchangeable shares and the class B exchangeable shares hereinafter referred to
as the "Class A Exchangeable Shares" and the "Class B Exchangeable Shares".
I. On the Closing Date, ACTsub shall purchase from the Sellers all of the issued
and outstanding shares in the capital of the Acquiree owned by Drummer and
Morstar, all of the debt owed by the Acquiree to Drummer and Morstar and 2,400
Class B shares and 924,632 common shares in the capital of the Acquiree owned by
Scozul and shall satisfy the purchase price by issuing Class A Exchangeable
Shares for the common shares purchased and Class B Exchangeable Shares for the
Class B shares and debt purchased.
J. ACT has agreed with ACTsub, the Sellers and the Acquiree to enter into a
Exchange and Voting Trust Agreement whereby, inter alia, ACT agrees to cause ACT
Shares to be issued upon the redemption of the Exchangeable Shares;
K. The Sellers have agreed to grant to ACT certain call rights in the
Exchangeable Shares pursuant to a call agreement.
NOW, THEREFORE, for the mutual consideration set out herein, the parties
agree as follows:
ARTICLE I
REORGANIZATION AND SHARE PURCHASE
1.1 Reorganization and Share Purchase. On the Closing Date, as defined
hereinafter in Section 4.1, the Sellers, the Principal, ACTsub and ACT shall
cause the following steps to occur to effect the acquisition by ACTsub of
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certain of the issued and outstanding shares in the capital of the Acquiree and
certain debt owed by the Acquiree to Drummer and Morstar:
1.1.1 The Acquiree shall cause a common share stock dividend to be declared and
paid to each of Drummer, Morstar and Scozul in the form of two (2) common shares
such that after the declaration of such dividend twelve (12) common shares will
be issued and outstanding in favour of each shareholder. The Acquiree shall
cause its directors to declare that the amount of the dividend (for purposes of
the Income Tax Act (Canada) (the "ITA") shall be Eight Hundred Sixteen Thousand
Dollars ($816,000), and shall add such amount to the stated capital account of
the common shares of Acquiree in respect of the issuance of the six (6) common
shares of Acquiree.
1.1.2 Articles of amendment in respect of the Acquiree shall be filed causing
each one common share in the capital of the Acquiree to be converted into
100,000 common shares such that following the filing of the articles of
amendment, one million, two hundred thousand (1,200,000) common shares in the
capital of the Acquiree will be issued and outstanding in favour of each of
Drummer, Morstar and Scozul.
1.1.3 Each of the Sellers shall sell and ACTsub shall purchase the following
shares (the "Sellers' Shares") in the capital of the Acquiree and the following
debt (the "Debt") owed to each of Morstar and Drummer by the Acquiree:
Name Common Class B Debt
Shares Preference
Shares
Drummer 1,200,000 150,000 $ 75,000
Morstar 1,200,000 195,000 $120,000
Scozul 924,632 2,400
An aggregate purchase price of Five Million, Two Hundred Eighty Thousand Dollars
($5,280,000) shall be attributed as to One Dollar ($1) for each Class B shares
and $1.425 per common share and One Dollar ($1) for each One Dollar ($1) of debt
purchased. The purchase price shall be satisfied by the issuance to Drummer of
Thirty-one Thousand Four Hundred and Twelve (31,412) Class B Exchangeable Shares
for One Hundred Fifty Thousand (150,000) Class B shares, Nineteen Thousand,
Seven Hundred and Six (19,706) Class B Exchangeable Shares for One Hundred Fifty
Thousand Dollars ($150,000) of Debt and Three Hundred Fifty-eight Thousand and
Ninety-eight (358,098) Class A Exchangable Shares for One Million, Two Hundred
Thousand (1,200,000) common shares, the issuance to Morstar of Forty Thousand,
Eight Hundred and Thirty-six (40,836) Class B Exchangeable Shares for One
Hundred Ninety-five Thousand (195,000) Class B Shares, Twenty-five Thousand, One
Hundred Thirty (25,130) Class B Exchangeable Shares for One Hundred Ninety-five
Thousand Dollars ($195,000) of Debt and Three Hundred Fifty-eight Thousand,
Ninety-eight (358,098) Class A Exchangeable Shares for One Million, Two Hundred
Thousand (1,200,000) common shares and the issuance to Scozul of Five Hundred
and Three (503) Class B Exchangeable Shares for Two Thousand, Four Hundred
(2,400) Class B Shares and Two Hundred Seventy-five Thousand, Nine Hundred
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Twenty-five (275,925) Class A Exchangeable Shares for Nine Hundred Twenty-four
Thousand, Six Hundred Thirty-two (924,632) common shares.
Each of the Sellers shall elect jointly with ACTsub pursuant to the provisions
of section 85 of the ITA, by completing and filing Form T2057 as prescribed
under the ITA, that for tax purposes only, the proceeds of disposition received
by the Seller and the cost to the Purchaser of the shares and Debt of the
Acquiree so purchased shall be an amount determined by each Seller provided such
amount does not exceed the fair market value of the shares and Debt of the
Acquiree so purchased as at the Effective Time. Each of the Sellers and ACTsub
shall, on the Closing Date, execute Form T2057 substantially in the form set
forth in Schedule 1.1.4 annexed hereto. ACTsub shall file such form T2057 in
respect of each Seller forthwith after the Closing Date and shall provide proof
of delivery to Sellers. ACTsub shall cause its directors to add to the stated
capital account of the Class A Exchangeable Shares the sum of One Million One
Hundred Thirty Eight Thousand Four Hundred Eighty-one Dollars ($1,138,481) in
respect of the issuance of the Nine Hundred Ninety-two Thousand, One Hundred
Twenty-one (992,121) Class A Exchangeable Shares, and shall cause its directors
to add to the stated capital account of the Class B Exchangeable Shares the sum
of five hundred forty two thousand four hundred dollars ($542,400) in respect of
the issuance of the Seventy-two Thousand, Seven Hundred Fifty-two (72,752) Class
B Exchangeable Shares.
1.1.4 ACTsub shall subscribe for 195,000 Class B Shares in the capital of the
Acquiree and shall satisfy the subscription price for such shares by offsetting
against the subscription price $195,000 of the debt purchased by ACTsub pursuant
to Section 1.1.4 above.
1.1.5 The Principal shall exchange the Option Agreement for a new option
agreement with the Acquiree (the "New Option Agreement") in the form set forth
as Schedule 1.1.6 annexed hereto.
1.2 Voting and Exchange Trust Agreement. On the Closing Date, ACT, ACTsub and
the Acquiree, the Sellers, the Principal and Montreal Trust Company of Canada
shall execute and deliver a voting and exchange trust agreement (the "Exchange
Agreement") in substantially the form set forth as Schedule 1.2 annexed hereto.
1.3 Support Agreement. On the Closing Date, ACT and ACTsub shall execute and
deliver the support agreement (the "Support Agreement") substantially in the
form set forth as Schedule 1.3 annexed hereto.
1.4 Call Option. On the Closing Date, each of the Sellers, ACT and ACTsub shall
enter into a call agreement (the "Call Agreement") substantially in the form set
forth as Schedule 1.4 annexed hereto.
1.5 Shareholders' Agreement. Scozul, the Principal, ACT, ACTsub and the Acquiree
shall, on the Closing Date, enter into a shareholders' agreement (the
"Shareholders' Agreement") substantially in the form set forth as Schedule 1.5
annexed hereto.
1.6 Consents and Approvals. The Acquiree, the Sellers, ACT, ACTsub and the
Principal shall each use all reasonable efforts to obtain all approvals and
shall make all filings required in connection with the authorization, execution
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and delivery of this Agreement and the consummation of the transactions
contemplated herein.
ARTICLE II
REPRESENTATIONS OF SELLERS, ACQUIREE AND PRINCIPAL
The Sellers, the Acquiree and the Principal hereby represent and warrant,
jointly and severally, to ACT and ACTsub that, effective this date and the
Closing Date, the representations listed below are true and correct:
2.1 Title to Acquiree Shares and Debt. Each Seller is the beneficial and owner
of record of the issued and outstanding shares in the capital of the Acquiree
and the Debt set forth opposite such Seller's name in Section 1.1.4. All such
Sellers' Shares and the Debt are free from claims, liens or other encumbrances
("Liens") and each Seller has the unqualified right to transfer and dispose of
such shares and Debt. The Sellers' Shares are not subject to any voting trust
agreement, contract agreement, commitment or understanding restricting or
otherwise relating to voting, dividend rights or the disposition of the Sellers'
Shares except as provided for in the Exchange Agreement.
2.2 Financial Statements. Acquiree has previously furnished to ACT unaudited
financial statements for the fiscal years dated September 30, 1995, 1996, 1997
and for the interim period ended March 31, 1998, all attached hereto as Schedule
2.2 (collectively the "Financial Statements"). The Financial Statements are
correct and complete and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. The Financial
Statements present fairly the operations of Acquiree for the respective periods
indicated in said statements of income and retained earnings and, in the case of
each such interim statement, is subject to year-end adjustments consistent with
past practice.
2.3 Litigation. There are no actions, suits, proceedings or investigations
(whether or not purportedly on behalf of Acquiree) pending or threatened against
or affecting Acquiree, at law, or in equity or admiralty, or before or by any
federal, state, provincial, municipal or other governmental department,
commission, board, bureau agency or instrumentality, domestic or foreign, in
excess of Five Thousand Dollars ($5,000.00) in any one case, or Ten Thousand
Dollars ($10,000.00) in the aggregate, or which may result in any material
adverse change aside from the monetary adverse judgment or liability in the
business, operations, properties or assets or in the condition, financial or
otherwise, of Acquiree. To the best of Sellers' knowledge, Acquiree is not in
default with respect to any order, writ, injunction or decree of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
2.4 Compliance with Laws. Acquiree has complied in all material respects with
all laws, regulations and judicial or administrative tribunal orders applicable
to its business except as set out in Schedule 2.4 annexed hereto.
2.5 Taxes. The Acquiree has duly filed within the times and within the manner
prescribed by law, all federal, provincial, local and foreign tax returns and
tax reports which are required to be filed by, or with respect to, such
Acquiree. Such returns and reports reflect accurately all liability for taxes
for the Acquiree for the periods covered thereby. All federal, provincial, local
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and foreign income, profits, franchise, sales, use, occupancy, excise and other
taxes, assessments and re-assessments (including interest, dues, fines, and
penalties) payable by, or due from, the Acquiree have been fully paid or
adequately disclosed and fully provided for in the books and financial
statements of the Acquiree. To the best knowledge, information and belief of the
Sellers and the Principal, no audit of any tax return of the Acquiree is
currently in progress. There are no outstanding agreements or waivers extending
the statutory period providing for an extension of time with respect to the
assessment or re-assessment of income tax or the filing of any tax return by, or
any payment of any tax by, or levying of any government charge against, the
Acquiree. To the best knowledge, information and belief of the Sellers and the
Principal, there are no actions, audits, assessments, re-assessments, suits,
proceedings, investigations or claims now threatened or pending against the
Acquiree in respect of taxes or governmental charges or any matters under
discussion with any governmental authority relating to taxes or governmental
charges asserted by any such authority. The Acquiree has withheld for each
payment made by it the amount of all taxes and other deductions required to be
withheld therefrom and has paid the same to the proper taxing or other authority
within the time prescribed under any applicable legislation or regulation
2.6 Absence of Changes of Events. Since the date of the balance sheet, September
30, 1997 (the "Balance Sheet Date") there has not occurred:
(a) any material and adverse change in the financial condition or
operations of Acquiree;
(b) any damage, destruction or loss to or of any of the material assets or
properties owned or leased by Acquiree;
(c) the creation or attachment of any lien against any of the currently
issued and distributed stock of Acquiree;
(d) any waiver, release, discharge, transfer or cancellation by Acquiree
of any rights or claims of material value;
(e) any issuance by Acquiree of any securities (including all debt or
equity securities) or any merger or consolidation of Acquiree with any
other person or any acquisition by Acquiree of the business of any
other person;
(f) any incurrence, assumption or guarantee by Acquiree of any
indebtedness or liability other than in the ordinary course of
business except with regard to the borrowing (the "IOC Borrowing") in
connection with the redemption of the Class A preference shares in the
capital of the Acquiree issued in favour of IOC, as contemplated by
Recital B;
(g) any declaration, setting aside or payment by Acquiree of any dividends
on, or any other distribution with respect to, any capital stock of
Acquiree or any repurchase, redemption or other acquisition of any
capital stock of Acquiree other than the IOC Borrowing and the stock
dividend contemplated by Section 1.1.1; or
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(h) Except for those given in the ordinary course of the business of
Acquiree (i) any payment of any bonus, profit sharing, pension or
similar payment or arrangement or special compensation to any employee
of Acquiree, or (ii) any increase in the compensation payable or to
become payable to any employee of Acquiree.
2.7 No Violation. Except as set forth in the documents listed, referred to in
Schedules hereto, the execution and carrying out of this Agreement will not
conflict with, or result in any breach of any of the terms, or create a charge
or encumbrance upon any of the properties or assets, or outstanding stock of
Acquiree pursuant to any corporate charter, bylaw, indenture, mortgage or lease
to which Acquiree or any of its stockholders is a party or by which it's bound.
To the best knowledge of the Sellers, the Principal and Acquiree, the execution
and carrying out of this Agreement will not violate any provision of Canadian
law.
2.8 Accuracy of Information. To the best knowledge of either of the Sellers, the
Principal and the Acquiree, none of the written information and documents which
have been or will be furnished by Acquiree or by any representatives of Acquiree
to ACT or any of the representatives of ACT in connection with the transactions
contemplated by this Agreement contains or will contain, as the case may be, any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary in order to make the statements therein not misleading in light
of the circumstances in which made. To the best of its knowledge, Acquiree has
disclosed to ACT all material information relating to Acquiree and its
activities as currently conducted.
2.9 Capital Stock. The Acquiree is authorized to issue an unlimited number of
Class A Preference Shares, an unlimited number of Class B Preference Shares and
an unlimited number of common shares immediately following the declaration of
the stock dividend and stock split referred to in Sections 1.1.2 and 1.1.3
hereof of which three million six hundred thousand (3,600,000) common shares and
four hundred eighty three thousand (483,000) Class B Preference Shares are
issued and outstanding. All outstanding shares have been duly authorized,
validly issued and are fully paid and non-assessable with no personal liability
attaching to the ownership thereof. Other than as contemplated by this
Agreement, there are no outstanding convertible securities, warrants, options or
commitments of any nature that may cause authorized but unissued shares to be
issued to any person.
2.10 Organization and Good Standing. Acquiree and each of the Sellers is a
corporation duly organized, validly existing under the laws of its jurisdiction
of incorporation, with all requisite power and authority to own its properties
and to carry on its business as now conducted. Each jurisdiction in which the
Acquiree and each Seller carries on business is set forth in Schedule 2.10.
2.11 Enforceable Agreement. Each of the Sellers and the Acquiree have the power
and capacity to execute and deliver this Agreement, to perform each of their
obligations and to consummate the transactions contemplated hereby. Each of the
Sellers and the Principal agree that this Agreement constitutes a valid and
binding obligation enforceable against him or it, as applicable, in accordance
with its terms.
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2.12 Officers and Directors. The present officers and directors of Acquiree are
as follows:
Officers: President - Xxxxx X. Xxxxx
Secretary/Treasurer - J. Xxxxxx Xxxxx
Directors: Xxxxx X. Xxxxx
X. Xxxxx Xxxxxx
J. Xxxxxx Xxxxx
2.13 Other Agreements. Acquiree is not a party to any material agreement
(written or verbal) except (1) as disclosed in this Agreement, (2) orders in
normal quantities for use in Acquiree's business, and (3) as set forth in
Schedule 2.13. All such agreements are in full force and effect and not in
default.
2.14 Insurance Policies. Acquiree has delivered to ACT true, correct and
complete copies of all policies of fire, liability and other forms of insurance
now in force with respect to Acquiree and its assets, as listed in Schedule
2.14. All premiums have been paid and all such policies are in effect and will
remain in effect through the Closing Date. Acquiree shall amend such policies to
add ACT as an additional insured.
2.15 Relationship with Competitors. None of the Sellers nor the Principal owns
or has a material beneficial interest and has not owned or had a beneficial
interest within the past three (3) years, directly or indirectly, in any
corporation, firm, association, partnership or proprietorship that (1) is
similar to or a competitor of Acquiree, (2) is a customer or supplier of
Acquiree, or (3) has any existing contractual relationship with Acquiree other
than Xxxxxx Chevrolet Oldsmobile which is a customer of the Acquiree and
International Seating and Decor Ltd. Each of Xxxxxx Chevrolet Oldsmobile and
International Seating and Decor Ltd. deal with the Acquiree on terms which are
comparable to the terms upon which arm's length parties deal with the Acquiree.
2.16 Employee Benefit Matters. Schedule 2.16 sets forth a complete and correct
list of employees of the Acquiree, their respective salaries, date of
commencement of employment, vacation entitlement, level of pension contributions
and company car entitlement, if any. Complete and correct copies of all
employment, consulting, engagement or retainer agreements, if any, for the
provision of services to the Acquiree have been made available to ACT in
addition to all documents describing the amount, entitlement to and rules
governing any insurance, pension plan, sick pay, maternity leave and company car
policy of the Acquiree. There are no defined benefit pension plans, bonus plans,
profit sharing or retirement or other benefit plans operated by the Acquiree.
There are no negotiations, demands or proposals which are pending or threatened
or which have been made since the Balance Sheet Date which concern matters now
covered, or that would be covered, by the foregoing types of agreement,
arrangement, plan or policy. Except as described in Schedule 2.16 the Acquiree
has not made any contracts with any labour union or employee association nor
made commitments to or conducted negotiations with any labour union or employee
association with respect to any future agreements and, except as set out in
Schedule 2.16 none of the Sellers, the Principal nor the Acquiree is aware of
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any current attempts to organize or establish any labour union or employee
association with respect to any employees of the Acquiree, nor is there any
certification of any such union with regard to a bargaining unit.
2.17 Brokers, Finders. No finder, broker, agent or other intermediary, acting on
behalf of any of the Sellers or the Acquiree, is entitled to a commission, fee
or other compensation.
2.18 Environmental Issues.
(a) Except as described in Schedule 2.18, the Acquiree has been and is in
compliance with all applicable federal, provincial, state, municipal
and local laws, statutes, ordinances, by-laws and regulations and
orders, directives and decisions rendered by any ministry, department
or administrative or regulatory agency ("Environmental Laws") relating
to the protection of the environment, occupational health and safety
or the manufacture, processing, distribution, use, treatment, storage,
disposal, discharge, transport or handling of any pollutants,
contaminants, chemicals or industrial, toxic or hazardous wastes or
substances ("Hazardous Substances");
(b) The Acquiree has obtained all licenses, permits, approvals, consents,
certificates, registrations and other authorizations under
Environmental Laws (the "Environmental Permits") required for the
operation of the business, all of which are described in Schedule
2.18. Each Environmental Permit is valid, subsisting and in good
standing and the Acquiree is not in default or breach of any
Environmental Permit and no proceeding is pending or threatened, to
revoke or limit any Environmental Permit;
(c) The Acquiree has not used or permitted to be used, except in
compliance with all Environmental Laws, any of its property (including
leased property) or facilities or any property or factuality that is
previously owned or leased, to generate, manufacture, process,
distribute, use, treat, store, dispose of, transport or handle any
Hazardous Substance;
(d) The Acquiree has never received any notice of, nor been prosecuted for
an offense alleging, non-compliance with any Environmental Laws, and
none of the Sellers, the Principal nor the Acquiree has settled any
allegations on non-compliance short of prosecution. There are no
orders or directions relating to environmental matters requiring any
work, repairs, construction or capital expenditures with respect to
the business or any property of the Acquiree, nor has the Acquiree
received notice of any of the same;
(e) Except as disclosed in Schedule 2.18, there are no pending or proposed
changes to Environmental Laws that would render illegal or restrict
the manufacture or sale of any product manufactured or sold or service
provided by the Acquiree;
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(f) The Acquiree has not caused or permitted, nor does it have any
knowledge of, the release, in any manner whatsoever, of any Hazardous
Substance on or from any of its properties (including any of the
leased property) or assets or any property or facility that it
previously owned or leased, or any such release on or from a facility
owned or operated by third parties but with respect to which the
Acquiree is or may reasonably be alleged to have liability. All
Hazardous Substances and all other wastes and other material and
substances used in whole or in part by the Acquiree or resulting from
its business have been disposed of, treated and stored in compliance
with all Environmental Laws. Schedule 2.18 identifies all of the
locations where Hazardous Substances used in whole or in part by the
Acquiree have been or are being stored or disposed of;
(g) the Acquiree has not received any notice that it is potentially
responsible for a federal, provincial, municipal or local clean-up
site or corrective action under any Environmental Laws. The Acquiree
has not received any request for information in connection with any
federal, provincial, municipal or local inquires at to disposal sites;
and
(h) The Acquiree has delivered to ACT a true and complete copy of all
environmental audits, evaluations, assessments, studies or tests
relating to the Acquiree of which it is aware.
2.19 Liabilities. The Acquiree does not have any outstanding liabilities,
contingent or otherwise, other than liabilities disclosed in the Financial
Statements for the last completed fiscal year and trade or business obligations
subsequently incurred in the ordinary course of business none of which has been
materially adverse to the nature, results of operations, assets or financial
condition of, or manner of conducting the business of the Acquiree.
2.20 Customer Relations. During the three (3) years ending on the date of this
Agreement, there has been no material adverse change in the basis or terms
(apart from normal price changes) upon which any person or entity is prepared to
enter into contracts or do business with the Acquiree and no such change is
anticipated. There has not been, and to the best knowledge, information and
belief of the Sellers and the Principal there will not be, any adverse change in
relations with customers as a result of any announcement of the transactions
contemplated by this Agreement. Attached hereto as Schedule 2.20 is a list by
dollar amount of sales of the ten (10) largest customers of the Acquiree for the
three (3) preceding financial years.
2.21 Intellectual Property. Attached hereto as Schedule 2.21 is a complete and
accurate list of all trade marks, trade names, business names, patents,
inventions, know-how, copyrights, service marks, brand names, industrial designs
and all other industrial or intellectual property owned or used by the Acquiree
in carrying on its business and all applications therefor and all goodwill
connected therewith, including, without limitation, all licenses, registered
user agreements and all like rights used by or granted to the Acquiree and all
right to register or otherwise apply for the protection of any of the forgoing
(collectively, the "Intellectual Property"). Schedule 2.21 also includes
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complete and accurate particulars of all registrations or applications for
registration of the Intellectual Property. The Intellectual Property comprises
all trade marks, trade names, business names, patents, inventions, know-how,
copyrights, service marks, brand marks, industrial designs and all other
industrial or intellectual property necessary to conduct the business of the
Acquiree. The Acquiree is the beneficial owner of the Intellectual Property,
free and clear of all Liens and is not a party to or bound by any contract or
other obligations whatsoever that limits or impairs its ability to sell,
transfer, assign or convey, or that otherwise affects, the Intellectual
Property. No person has been granted any interest in or right to use all or any
portion of the Intellectual Property. None of the Sellers nor the Principal is
aware of a claim of any infringement or breach of any industrial or intellectual
property rights of any other person, and none of the Sellers, the Principal nor
the Acquiree, after due inquiry, has any knowledge of any infringement or
violation of any of their rights or the rights of the Acquiree in the
Intellectual Property. The conduct of the business of the Acquiree does not
infringe upon the patents, trade marks, licenses, trade names, business names,
copyright or other industrial or intellectual property rights, domestic or
foreign, of any other person. None of the Sellers, the Principal nor the
Acquiree is aware of any state of facts that casts doubt on the validity or
enforceability of any of the Intellectual Property.
2.22 Title to Personal and Other Property. Except as disclosed in Schedule 2.22
attached hereto, at the Closing the Acquiree shall own, possess and have a good
and marketable title, free and clear of all liens to all its properties and
assets used in connection with its business, including without limitation the
assets reflected on the balance sheet forming part of the Financial Statements
for the last completed fiscal year. The uses to which the properties held by the
Acquiree have been put are not in breach of any statute, by-law, ordinances,
regulations, governmental restriction or official plan, municipal or otherwise.
2.23 Real Property. The Acquiree is not the owner of or under any agreement to
own real property other than the real property listed on Schedule 2.23 hereof
(the "Real Property"). The Acquiree has the exclusive right to possess, use and
occupy, and has good and marketable title in fee simple to, all the Real
Property, free and clear of all Liens, easements or other restrictions of any
kind other than Permitted Liens as set out in Schedule 2.23 hereof. All
buildings, structures, improvements and appurtenances situated on the Real
Property are in good operating condition and in a state of good maintenance and
repair, are adequate and suitable for the purposes for which they are currently
being used and the Acquiree has adequate rights of ingress and egress for the
operation of the business of the Acquiree in the ordinary course. None of such
buildings, structures, improvements or appurtenances (or any equipment therein),
nor the operation or maintenance thereof, violates any restrictive covenant or
any provision of any federal, provincial or municipal law, ordinance, rule or
regulation, or encroaches on or any property owned by others. Without limitation
the generality of the foregoing:
(a) save and except for the fact that the employee parking lot at plant #1
is not paved as required by City of Windsor by-laws, the Real
Property, the current uses thereof and the conduct of the business of
the Acquiree comply with all regulations, statutes, enactments, laws
and by-laws including, without limitation, those dealing with zoning,
parking, access, loading facilities, landscaped areas, building
11
construction, fire and public health and safety and environmental
laws;
(b) no alteration, repair, improvement or other work has been ordered,
directed or requested in writing to be done or performed to or in
respect of the Real Property, or to any of the plumbing, heating,
elevating, water, drainage or electrical systems, fixtures or works by
any municipal, provincial or other competent authority, which
alteration, repair, improvement or other work has not been completed,
and the Acquiree knows of no written notification having been given to
it of any such outstanding work being ordered, directed or requested,
other than those that have been complied with;
(c) all accounts for work and services performed and materials placed or
furnished upon or in respect of the Real Property at the request of
the Acquiree have been fully paid and satisfied, and no person is
entitled to claim a Lien under the Construction Lien Act (Ontario)
against the Real Property, or any part thereof, other than current
accounts in respect of which the payment due date has not yet passed;
(d) there is nothing owing in respect of the Real Property by the Acquiree
to any municipal corporation or to any other corporation or commission
owning or operating a public utility for water, gas, electrical power
or energy, steam or hot water, or for the use thereof, other than
current accounts in respect of which the payment due date has not yet
passed;
(e) no part of the Real Property has been taken or expropriated by any
federal, provincial, municipal or other competent authority nor has
any notice or proceeding in respect thereof been given or commenced;
(f) the Permitted Liens constitute all of the Liens, agreements,
indentures and other matters that affect the Real Property;
(g) the Real Property (including all buildings, improvements and fixtures)
is fit for its present use, and there are no material or structural
repairs or replacements that are necessary or advisable and, without
limiting the foregoing, there are no repairs to, or replacements of,
the roof or the mechanical, electrical, heating, ventilating,
air-conditioning, plumbing or drainage equipment or systems that are
necessary or advisable, and none of the Real Property is currently
undergoing any alteration or renovation nor is any such alteration or
renovation contemplated; and
(h) the Real Property is fully serviced and has suitable access to public
roads, and there are no outstanding levies, charges or fees assessed
against the Real Property by any public authority (including
development or improvement levies, charges or fees).
2.24 Residency. None of the Sellers is a "non-resident" of Canada within the
meaning of the Income Tax Act (Canada).
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2.25 Year 2000 Compliance. The Acquiree and the Principal have reviewed,
together with consultants with expertise in the field, all internal hardware and
software configurations and external third party, customer and vendor software
and interfaces to assess the risks related to such hardware and software in
respect of Year 2000 Compliance. The Acquiree and the Principal have established
Year 2000 Compliance as a business priority, have established a budget and
allocated sufficient human and financial resources to implement the
recommendation of such consultants as well and their internal reviews to achieve
Year 2000 Compliance. The Principal and the Sellers have no reason to believe
that the Acquiree will not be Year 2000 Compliant by June of 1999. For the
purposes of this Section, "Year 2000 Compliance" means the successful operation
prior to, during and after calendar year 2000 A.D. without error relating to
date data, the successful management and manipulation of data involving dates,
including single century formulas and multi-century formulas, and the obtaining
of correct results for date calculations that are both chronologically earlier
and later than June 30, 1999, in date calculations that involve more than one
century and in date calculations using the date September 9, 1999 (i.e. 9/9/99),
of the computer hardware and software discussed in this Section 2.25 provided,
that all date data imputed for use with such computer software and hardware is
accurate and in appropriate format.
2.26 No Loans to Directors. Other than as described on the balance sheet of the
Acquiree dated March 31, 1998, the Acquiree has no loan or indebtedness
outstanding (other than the normal salaries, bonuses, fringe benefits and
obligation to reimburse for expenses incurred on behalf of the Acquiree in the
normal course of employment) which has been made to or incurred by any director,
officer, shareholder or employee, to any former director, officer, shareholder
or employee of the Acquiree or to any Person not dealing at arms length (as such
term is construed under the Income Tax Act (Canada) with any of the foregoing.
2.27 ACT's Right to Rescind. ACT shall have the right to rescind this Agreement
by notice to the Sellers if prior to the Closing Date it appears that any of the
representations and warranties set out in this Section 2 or elsewhere in this
Agreement (the "Warranties") is not or was not true and accurate in all material
respects or if any act or event occurs which, had it occurred on or before the
date of this Agreement, would have constituted a breach of any of the Warranties
or if there is any material breach or non fulfillment of any of the Warranties
which (being capable of remedy) is not remedied prior to the Closing Date. Any
right of ACT to rescind this Agreement pursuant to the specific provisions of
this Section 2.27 shall be without prejudice to any other rights or claims which
ACT might have against any other party for breach of this Agreement.
2.28 True and Correct. Each Schedule and each document attached to or listed in
the Schedules is true, correct and complete. No representation or warranty by
Sellers or the Principal in this Agreement or any Schedule or any agreement or
certificate referred to in this Agreement contains any untrue statement of a
material fact or any omission of a material fact necessary to make the
respective statements contained herein or therein, in light of the circumstances
under which the statements were made, not misleading.
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ARTICLE III
REPRESENTATIONS OF ACT AND ACTSUB
ACT and ACTsub hereby represent and warrant, jointly and severally to the
Sellers and the Principal that, effective this date and the Closing Date, the
representations listed below are true and correct.
3.1 Organization, Good Standing. ACT is duly organized, validly existing and in
good standing under the State of Missouri and under the laws of each
jurisdiction where qualification is required, except for jurisdictions where
such failure to so qualify or be in good standing would have no material adverse
effect. ACTsub is duly organized and validly subsisting under the laws of the
Province of Ontario and under the laws of each jurisdiction where qualification
is required, except for jurisdictions where such failure to so qualify or be in
good standing would have no material adverse effect.
3.2 Execution, Delivery and Performance of Agreement; No Conflict;
Authorization. Each of ACT and ACTsub has full power and authority to carry out
the transactions contemplated by this Agreement and the execution, delivery and
performance of this Agreement has been duly authorized by the Board of Directors
of each of ACT and ACTsub by all necessary corporate action and will not result
in any breach of or violate or constitute a default under its Certificate of
Incorporation or Bylaws and other governing documents of ACT or ACTsub, or any
statutes, laws or regulations or indenture, mortgage or other agreement or
instrument, or any order, judgment or decree to which they are a party, or may
be subject.
3.3 Title to ACT Shares. ACT Shares, deliverable pursuant to the redemption of
the Exchangeable Shares, shall be validly issued and outstanding as fully paid
and non assessable free and clear of all liens and encumbrances resulting from
any action or inaction of ACT.
3.4 Capital Stock. ACT is authorized to issue forty-five million (45,000,000)
shares consisting of (a) forty million shares (40,000,000) designated as common
stock, $.001 par value, of which are twenty-eight million, seven hundred
fifty-five thousand, three hundred eighty-seven (28,755,387) as at June 29, 1998
are validly issued and outstanding and (b) five million (5,000,000) designated
as preferred stock, of which seven thousand and one shares (7,001) are validly
issued and outstanding. ACTsub is authorized to issue an unlimited number of
common shares, an unlimited number of Class A Exchangeable Shares and an
unlimited number of Class B Exchangeable Shares of which 1,000 common shares are
issued and outstanding as fully paid and non-assessable.
3.5 Financial Statements. Annexed hereto as Schedule 3.5 are the audited
financial statements of ACT dated December 31, 1997. The financial statements in
Schedule 3.5 have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The financial statements present
fairly the consolidated financial position of ACT as of the respective dates of
said balance sheets and the consolidated results of its operations for the
respective periods indicated in said consolidated statements of income and
retained earnings and cash flow.
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3.6 Litigation. Other than as set out as Schedule 3.6, there are no actions,
suits, proceedings or investigations (whether or not purportedly on behalf of
ACT of ACTsub) or, to the best of ACT's knowledge, pending or threatened,
against or affecting ACT or ACTsub at law or in equity, or admiralty, or before
or by any federal, state, municipal or other governmental department,
commission, board, bureau agency or instrumentality, domestic or foreign, which
involve the likelihood of any adverse judgment of liability, not fully covered
by insurance, in excess of Five Thousand Dollars ($5,000.00) in any one case or
Ten Thousand Dollars ($10,000.00) in the aggregate, or which may result in any
material adverse change aside from the monetary adverse judgment or liability,
in the business, operations, properties or assets or in the condition, financial
or otherwise, of ACT or ACTsub. To the best of ACT's knowledge and to the best
of ACTsub's knowledge, neither, ACT nor ACTsub is not in default with respect to
any order, writ, injunction or decree of any court of federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
3.7 Compliance with Laws. Each of ACT and ACTsub has complied in all material
respects with all laws, regulations and judicial or administrative tribunal
orders applicable to its business of which they are aware.
3.8 Taxes. All state and local tax returns required to be filed by ACT have been
duly filed. Federal income tax returns have been submitted to the IRS for all
past fiscal years through the fiscal year ended in 1996. Extensions for state
and federal returns for 1997 have been filed on a timely basis.
3.9 No Violation. The execution and carrying out of this Agreement will not
conflict with, or result in any breach of any of the terms, or create a charge
or encumbrance upon any of the properties or assets, or outstanding stock of ACT
or ACTsub pursuant to any corporate charter, bylaw, indenture, mortgage or lease
to which ACT or ACTsub or any of its stockholders is a party or by which it is
bound. The execution and carrying out of this Agreement will not violate any
provision of law.
3.10 Accuracy of Information. None of the written information and documents
which have been or will be furnished by ACT or any representatives of ACT to
Sellers or Principal or any of their representatives in connection with the
transactions contemplated by this Agreement contains or will contain, as the
case may be, any untrue statement of a material fact, or omits or will omit to
state a material fact necessary in order to make the statements therein not
misleading in light of the circumstances in which made.
3.11 Disclosure of Information. Each of ACT and ACTsub is fully aware of the
condition and prospects, financial and otherwise, of the Acquiree, having been
supplied with such financial and other data relating to the Acquiree as ACT and
ACTsub considered necessary and advisable to enable it to form a decision
concerning the purchase herein provided.
3.12 SECURITIES AND EXCHANGE COMMISSION.
3.12.1 ACT Documents. ACT has heretofore furnished, or made available, to
Sellers a true and complete copy of all documents which it has filed with the
Securities and Exchange Commission (the "Commission") for the past one (1) year
period, including year ending December 31, 1997, together with any amendments or
15
supplements thereto ("ACT Documents"). Except as disclosed in ACT Documents, no
event has occurred or arisen prior to the date hereof that will require the
filing of (i) a Current Report on Form 8-K after the date hereof, or (ii) any
material amendment or supplement to any ACT Document. As of their respective
dates, ACT Documents did not contain any untrue statements of material facts or
omit to state material facts required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, ACT Documents complied in
all material respects with the applicable requirements of the Securities Act of
1993, as amended (the "Act"), as amended, and the Securities Exchange Act of
0000, (xxx "Xxxxxxxx Xxx") as amended, and the rules and regulations promulgated
under such statutes. The financial statements contained in ACT Documents,
together with the notes thereto, have been prepared in accordance with generally
accepted accounting principles consistently followed through the periods
indicated (except as may be indicated in the notes thereto, or, in the case of
the unaudited financial statements, as permitted by Form 10-Q), reflect all
known liabilities of ACT required to be stated therein, including all known
contingent liabilities as of the end of each period reflected therein, and
present fairly the financial condition of ACT at said dates and the consolidated
results of operations and cash flows of ACT for the periods then ended. As at
the date hereof, there has been no material change in the information set forth
in the ACT Documents other than as set out therein.
3.13 True and Correct. The representations and warranties made herein above in
this Section 3 will be correct in all material respects on and as of the Closing
Date with the same force and effect as though such representations and
warranties had been made on the Closing Date.
3.14 No Broker. No Broker has been retained by ACT and there are no fees
("Broker's Fees") due and/or payable as a result of this Agreement.
ARTICLE IV
CLOSING DATE
4.1 Closing Date. The Closing Date herein referred to shall be such two (2) day
period as the parties hereto may mutually agree upon but is expected to be
during June 1998. All documents tendered shall remain in escrow.
ARTICLE V
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF SELLERS AND THE PRINCIPAL
All obligations of the Sellers and the Principal under this Agreement are
subject to the fulfillment, prior to or as of the Closing Date, of each of the
following conditions:
5.1 Representations and Warranties. The representations and warranties by ACT
and ACTsub contained in this Agreement or in any certificate or document
delivered to Sellers and the Principal pursuant to the provisions hereof shall
be true in all material respects at and as of the time of Closing as though such
representations and warranties were made at and as of such time.
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5.2 Performance of Agreement. ACT shall have performed and complied with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing in accordance with the terms
hereof.
5.3 Instruments and Documents. All instruments and documents delivered to
Sellers and the Principal pursuant to the provisions hereof shall be reasonably
satisfactory to legal counsel for Sellers and the Principal.
5.4 No Adverse Proceeding. No action shall have been instituted and remain
pending before a court or other government
entity:
(a) for the purpose of enjoining or preventing the consummation of this
Agreement or any of the transactions contemplated hereby; or
(b) which claims that this Agreement, such transactions or their
consummation, is illegal.
5.5 Personal Guarantees. The personal guarantees of the Principal, Xxxxx Xxxxxx
and Art Xxxxx of the obligations of the Acquiree made in favour of the banker of
the Acquiree and General Motors Acceptance Corporation Canada, Limited shall
have been released provided that in respect of the guarantees given to General
Motors Acceptance Corporation Canada, Limited (the "GMAC Guarantees"), if such
release is not obtained as of the Closing Date, ACT and ACTsub shall indemnify
the Principal, Xxxxx Xxxxxx and Art Xxxxx, in accordance with the provisions of
Section 9.3 hereof and will use reasonable commercial efforts to obtain such
release as soon as possible after the Closing Date.
5.6 Opinions. An opinion of counsel to ACT and ACTsub shall have been delivered
in a form satisfactory to counsel for Sellers and the Principal acting
reasonably.
5.7 Guarantee of Lease. ACT and ACTsub shall have delivered to the Principal an
indemnity agreement in the form set forth as Schedule 5.8 hereto in respect of
the guarantee of the Principal relating to the obligations of the Acquiree
pursuant to certain leases set out in Schedule 2.13.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACT
All obligations of ACT under this Agreement are subject to the fulfillment,
prior to, or as of the Closing Date, of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties by
Sellers, the Principal and ACT contained in this Agreement or in any certificate
or document delivered to ACT pursuant to the provisions hereof shall be true at
and as of the time of Closing as though such representations and warranties were
made at and as of such time.
6.2 Resignations. ACT has received the resignations of all of the present
officers and directors of Acquiree other than Xxxxx Xxxxx, subject however, to
the requirement that the resignations of such present officers and directors,
shall take effect only at such time following the Closing.
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6.3 No Adverse Legislation. No legislation (whether by statute, regulation,
by-law or otherwise) shall have been enacted or introduced which, in the
reasonable opinion of ACT, adversely affects or may adversely affect the
operations and business of the Corporation.
6.4 Performance of Agreement. Acquiree, Sellers and the Principal shall have
performed and complied with all other covenants, agreements and conditions
required by this Agreement to be performed or complied with by them prior to or
at the Closing.
6.5 Closing Documents and Proceedings. All documents relating to the due
authorization and completion of the transaction contemplated hereby and all
actions and proceedings taken on or prior to the Closing in connection with the
performance by the Sellers and the Principal of their obligations under this
Agreement shall be satisfactory to ACT and its counsel and ACT shall have
received copies of all such documents or other evidence as it may reasonably
request in form and substance satisfactory to ACT and its counsel.
6.6 Refinancing. Acquiree shall have, prior to Closing either (a) executed and
delivered any and all the necessary documentation, votes or other record filings
which may be required to close on the refinancing of its current outstanding
debt so as to remove any impediments to the transaction contemplated hereunder
or (b) obtained the prior written consent of the Acquiree's current Lender to
the transaction contemplated hereunder.
6.7 Consents to Assignment. All consents or approvals from or notifications to
any landlord, lessor or third person required under the terms of any agreement,
lease or other commitment entered into by the Acquiree shall have been duly
obtained or given, as the case may be, before the Closing Date.
6.8 Governmental and Administrative Approvals. All governmental administrative
consents and approvals, if any, necessary to permit the consummation of the
transactions contemplated by the Agreement shall have been received.
6.9 Employee Arrangements. The Acquiree shall have made employment arrangements
satisfactory to ACT with key management of the Acquiree designated by ACT and
shall have entered into a performance bonus arrangement with Xxxxx Xxxxx.
6.10 Management Fees. Acquiree and Sellers agree that Acquiree shall pay to ACT
a management fee on a yearly basis of one percent (1%) of Acquiree's gross sales
revenue. Such management fee shall be payable by Acquiree in twelve (12) monthly
payments of equal amounts based upon the then previous year's gross sales
revenues, (for example, 1998 management fees will be based upon 1997 sales
revenues). Notwithstanding the foregoing, the management fee in respect of 1998
shall be one half of one percent (.5%) of the Acquiree's gross sales revenue and
shall be pro rated for the period from the Closing Date to December 31, 1998.
6.11 Opinion. An opinion of counsel to Sellers and Principal shall have been
delivered in a form satisfactory to counsel for ACT and ACTsub acting
reasonably.
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ARTICLE VII
DOCUMENTS AT CLOSING
7.1 Further Assurances. Sellers, the Principal and the Acquiree will deliver or
cause to be delivered to ACT and ACTsub such instruments and documents as are
required to be delivered pursuant to the provisions of this Agreement or which
may be reasonably requested in furtherance of the provisions of this Agreement.
ACT and ACTsub will deliver or cause to be delivered to Seller, the Principal
and the Acquiree such instruments and documents as are required to be delivered
pursuant to the provisions of this Agreement or which may be reasonably
requested in furtherance of the provisions of this Agreement.
ARTICLE VIII
REGISTRATION RIGHTS
8.1 Registration Statement. ACT agrees that it will prepare and file with the
Commission, a registration statement ("Registration Statement"), with respect to
the restricted common stock to be issued pursuant to the Support Agreement, the
Call Agreement or the Shareholders' Agreement ("Registerable Securities"). ACT
shall use its best efforts to cause the Registration Statement to become
effective as soon as possible and in any event not later than nine (9) months
after the Closing Date only for the o ACT Shares issued in payment of the
Purchase Price which Sellers will receive upon exchange of Class A and Class B
Exchangeable Shares. ACT will give prompt notice (in any event, within three (3)
business days of the receipt of notice of any exercise of demand registration
rights from any person) to the Sellers of its intention to effect such a
registration and will include in such registration all the Registerable
Securities with respect to which ACT receives a written request for inclusion,
if such request is received within fifteen (15) days after receipt of ACT's
notice. ACT shall prepare and file with the Commission such amendments and
supplements to the Registration Statement, including post-effective amendments
and the prospectus used in connection therewith, that may be necessary to keep
such Registration Statement effective for a period of not less than nine (9)
months and to comply with the provisions of the Act.
8.1.1 ACT shall use its best efforts to cause all securities registered pursuant
to the Registration Statement to be listed on the Nasdaq National Market System
or alternatively on the Nasdaq Small Cap Market.
8.1.2 In the event of the issuance of any stop order suspending the
effectiveness of the Registration Statement, or any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in the Registration Statement, ACT will use its best
efforts to promptly obtain the withdrawal of such order.
8.1.3 ACT shall bear all costs, fees and expenses involved in the preparation
and filing of the Registration Statement, including, without limitation,
accounting and auditing fees and expenses, and expenses in connection with state
qualifications, filing fees, legal counsel fees and expenses and printing
expenses. Sellers, however, shall pay all applicable transfer taxes and
brokerage commissions as a result of any sale by the Sellers.
8.1.4 In the event that any of the Registerable Securities are sold by means of
the Registration Statement, ACT agrees to indemnify and hold harmless the
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Sellers and their assigns (an "Indemnified Person") from and against any and all
claims, demands, actions, causes of action, losses, costs, damages, liabilities
and expenses, including, without limitation, reasonable legal fees (hereinafter
referred to in the singular as a "Claim" and in the plural as "Claims") based
upon, arising out of, or resulting from any untrue statement of a material fact
contained in the Registration Statement or any failure to state therein a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading except to the
extent that such Claim is based upon, arises out of, or results from information
furnished to ACT in writing by Sellers for use in connection with the
Registration Statement. Also, in that connection, Sellers agree to defend and
indemnify and hold harmless ACT, its officers and directors (ACT, its officers
and directors and any such other persons being referred to collectively as
"Indemnified Person") from and against any and all Claims based upon, arising
out of, or resulting from any untrue statement of a material fact contained in
the Registration Statement or any failure to state therein a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading to the extent that such
Claim is based upon, arises out of, or results from information furnished to ACT
in writing by Sellers for use in connection with the Registration Statement. The
indemnification set forth herein shall be in addition to any liability which ACT
or Sellers, respectively, may otherwise have to the Indemnified Person.
8.1.5 Within five (5) days after receiving written notice of any Claim in
respect of which an Indemnified Person may seek indemnification under subsection
8.1.4 above, such Indemnified Person shall submit notice thereof to ACT or
Sellers, as the case may be (sometimes referred to as an "Indemnifying Person").
The failure of the Indemnified Person to so notify the Indemnifying Person of
any such Claim shall not relieve the Indemnifying Person from any liability it
may have hereunder except to the extent that (i) such liability was caused or
increased by such omission, or (ii) the ability of the Indemnifying Person to
reduce such liability was adversely affected by such failure. The Indemnified
Person and the Indemnifying Person shall cooperate with, and assist, one another
in the defense of any Claim and any action, suit or proceeding arising in
connection therewith; provided, however, that the Indemnifying Person shall have
the right to investigate and defend any Claim and the Indemnified Person shall
have the right to employ separate counsel and to participate in the defense of
any Claim, but the fees and expenses of such counsel shall not be at the expense
of the Indemnifying Person. No settlement of any Claim for indemnification under
this Section shall be made without the consent of the Indemnifying Person.
8.2 Primary Registration. If the Registration Statement described in Section 8.1
is an underwritten primary registration on behalf of ACT, and the managing
underwriters advise ACT in writing that, in their opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
that is acceptable to ACT, ACT will include in such registration (a) first, the
securities ACT proposes to sell and, (b) secondly, the Registerable Securities
requested to be included in such registration, and the other securities
requested to be included in such registration, on a pro rata basis.
8.3 Secondary Registration. If the Registration Statement described in Section
8.1 is an underwritten secondary registration on behalf of holders of ACT's
20
securities and the managing underwriters advise ACT in writing that, in their
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the holders initially requesting such
registration, ACT will include in such registration (a) first, on a pro rata
basis, the securities requested to be included therein by the holders requesting
such registration and the Registerable Securities requested to be included in
such registration, and (b) second, other securities requested to be included in
such registration.
8.4 Rule 144 Requirements. With a view to making available to the Sellers the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the Commission that may, at any time, permit Sellers to sell
securities of ACT to the public without registration, ACT agrees to use its best
efforts to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under ACT;
(b) use its best efforts to file with the Commission, in a timely manner,
all reports and other documents required of ACT under ACT and the
Securities Exchange Act of 1934 (the "Exchange Act") (at any time
after it has become subject to such reporting requirements); and
(c) furnish to the Sellers, upon request, a written statement by ACT as to
its compliance with the reporting requirements of said Rule 144 (at
any time after ninety [90] days after the closing of the first sale of
securities by ACT pursuant to a Registration Statement), and of ACT
and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of ACT, and such other reports and documents of ACT as such
holders may reasonably request to avail itself of said Rule 144 or any
similar rule or regulation of the Commission allowing it to sell any
such securities without registration.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification of ACT and ACTsub by Sellers and Principal. The Sellers and
the Principal hereby jointly and severally agree to indemnify and save harmless
ACT and ACTsub of and from any loss, liability, cost, damage or expense
whatsoever (including reasonable legal fees on a solicitor and their own client
basis) (a "Loss") arising out of or resulting from, under or pursuant to:
(a) all debts, liabilities, contingent or otherwise, contracts or
engagements whatsoever including, without limitation, liabilities for
federal, provincial, sales, excise, income, capital, land transfer,
goods and services or other taxes of the Acquiree or any re-assessment
therefor, interest thereon or penalties with respect thereto existing
at the Closing and not disclosed on or included in the balance sheet
dated September 30, 1997 forming part of the Financial Statements for
the last completed fiscal year, save and except those liabilities
21
incurred subsequent to September 30, 1997 in the ordinary course of
business none of which has been materially adverse to the nature,
results of operations, assets or financial condition of, or manner of
conducting, the business of the Corporation;
(b) the inaccuracy of any representation or warranty or the breach of any
covenant made by the Sellers or the Principal herein or in any
instrument or certificate delivered by the Sellers or the Principal
pursuant hereto except as contemplated by this Agreement; and
(c) all claims, actions, suits, proceedings, demands, costs and expenses
in respect of or incidental to any of the foregoing.
9.2 Indemnification of Sellers and Principal. ACT and ACTsub jointly and
severally hereby agree to indemnify and hold the Sellers and Principal harmless
from and against any Loss which may be sustained or suffered by such Sellers and
a Principal, as the case may be, based upon a breach of any representation,
warranty or covenant made by ACT in this Agreement, or in any Schedule or
document or instrument prepared or given by ACT in connection with this
Agreement, or by reason of any claim, action or proceeding asserted or
instituted growing out of any matter or thing covered by such representations,
warranties or covenants.
9.3 Indemnification re GMAC Guarantees. In the event that a release has not been
obtained of the GMAC Guarantees, prior to the Closing Date, ACT and ACTsub
jointly and severally hereby agree to indemnity and hold harmless each of the
Principal, Art Xxxxx and Xxxxx Xxxxxx ("Indemnitees"), from and against any Loss
which may be sustained by or suffered by such Indemnitees, as the case may be,
under such Indemnitee's GMAC Guarantee, as such Loss relates to the period from
and after the Closing Date. This indemnity will be of no further force and
effect with regard to any Indemnitee, as ACT and ACTsub receive a release of the
GMAC Guarantee of such Indemnitee, following the Closing Date, from GMAC.
9.4 Procedure.
(a) Each party claiming indemnification under this Agreement shall give
written notice to the other of the indemnification claims hereunder,
specifying the amount and nature of the claim and giving the other
party the right to contest any such claim. If any third party claim is
made to which indemnification is claimed, such indemnified party will,
if a claim is to be made against an indemnifying party hereunder, give
notice to the indemnifying party of the commencement of such claim,
but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is materially and
adversely affected by the indemnifying party's failure to give such
notice.
(b) If any proceeding is brought against an indemnified party and it gives
notice to the indemnifying party of the commencement of such
proceeding, the indemnifying party will, unless the claim involves the
22
tax liability of any Seller, be entitled to participate in such
proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such proceeding and the
indemnified party determines, in good faith, that joint representation
would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial
capacity to defend such proceeding and provide indemnification with
respect to such proceeding), to assume the defense of such proceeding
with counsel satisfactory to the indemnified party and, after notice
from the indemnifying party to the indemnified party of its election
to assume the defense of such proceeding, the indemnifying party will
not, as long as it diligently conducts such defense, be liable to the
indemnified party for any fees of other counsel or any other expenses
with respect to the defense of such proceeding, subsequently incurred
by the indemnified party in connection with the defense of such
proceeding, other than reasonable costs of investigation if the
indemnifying party assumes the defense of such proceeding (i) it will
be conclusively established for purposes of this Agreement that the
claims made in that proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's
consent, unless the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified
party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is
given to an indemnifying party of the commencement of any proceeding
and the indemnifying party does not, within thirty (30) days after the
indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense of such proceeding, the
indemnifying party will be bound by any determination made in such
proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a proceeding
may adversely affect it, or its affiliates, other than as a result of
monetary damages for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to the
indemnifying party, assume the exclusive right to defend, compromise
or settle such proceeding, but the indemnifying party will not be
bound by any determination of a proceeding so defended or any
compromise or settlement effected without its consent (which may not
be unreasonably withheld).
(d) The indemnified party shall make available to the indemnifying party
and its attorneys and accountants all books and records of the
indemnified party relating to such proceedings or litigation and the
parties hereto agree to render to each other such assistance as they
may reasonably require of each other in order to ensure the proper and
adequate defense of any such action, suit or proceeding.
23
(e) Any indefinable liability or reimbursement under this Section shall be
limited to the amount of damages (of any nature) actually sustained by
a party hereto, net of any applicable insurance payments actually
received, other reimbursement or tax benefit actually realized by such
party.
9.5 Threshold. Sellers, the Acquiree, and the Principal shall not be liable for
the payment of any Loss suffered, sustained, incurred or required to be paid by
ACT or ACTsub except to the extent such Losses, in the aggregate, total more
than Five Thousand ($5,000.00), in which case Sellers, the Acquiree and the
Principal shall only be liable to pay the amount of the Losses in excess of Five
Thousand Dollars ($5,000.00).
ARTICLE X
MISCELLANEOUS
10.1 Survival of Representations and Warranties. The covenants, representations
and warranties of the parties contained in this Agreement shall not merge in, be
superseded or prejudiced by and shall survive the Closing and continue in full
force and effect for the benefit of the respective party provided, however,
that:
(a) the covenants, representations and warranties of the parties, except
those relating to tax liability, shall terminate at the expiration of
one (1) year following the Closing; and
(b) representations and warranties in respect of tax matters and in
respect of which any taxation authority of competent jurisdiction,
administering any taxation legislation pursuant to which the
Corporation or a Subsidiary is subject, has the right to assess,
reassess or make additional assessments pursuant to the taxation
legislation of such jurisdiction, shall survive until the day
following the day that the rights of assessment or reassessment
referred to in this sentence cease (such time hereinafter called the
"Tax Warranty Expiry Time"). If no Claim has been made by a Party
hereto with respect to any incorrectness or misrepresentation in any
such representation or warranty within thirty (30) days of the expiry
of the Tax Warranty Expiry Time, such Party shall have no further
liability hereunder with respect to such representation or warranty.
10.2 Further Assurances. At any time, and from time to time, after the Closing
Date, each party will execute such additional instruments and take such action
as may be reasonably requested by the other party to confirm or perfect title to
any property transferred hereunder or otherwise to carry out the intent and
purposes of this Agreement.
10.3 Tax Filings. Sellers covenant that following the Closing Date they shall
cause to be prepared and filed all tax returns of the Acquiree relating to the
period on or prior to the Closing Date within the times prescribed by the
applicable legislation.
24
10.4 Waiver. Any failure on the part of any party hereto to comply with any of
its obligations, agreements or conditions hereunder may be waived in writing by
the party to whom such compliance is owed.
10.5 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given if delivered in person or if sent by
prepaid first class registered or certified mail, return receipt requested, fax
or recognized courier then upon receipt thereof to the following addresses:
To Sellers: Drummer Enterprises Ltd.
c/o Del Industrial Metals Inc.
00 Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Mr. J. Xxxxxx Xxxxx
Morstar Holdings Ltd.
c/x Xxxxxx Chevrolet Oldsmobile
000 Xxxx Xxxxxx
Xxxxxxx, Xxxxxxxx X0X 0X0
Attention: Mr. Xxxxx Xxxxxx
Scozul Enterprises Ltd.
and Xxxxx Xxxxx
0000 Xx. Xxxxx Xxxx
Xxxxxx Xxxxx, Xxxxxxx X0X 0X0
Attention: Xx. Xxxxx Xxxxx
To Acquiree: Ground Effects Ltd.
0000 Xx. Xxxxxxx Xxxx.
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: The President
with copies to: Xxxxxx Xxxxxxxx
Nobbs, Xxxxx & Xxxxx
00 Xxxxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx X0X 0X0
Fax No.(000) 000-0000
To ACT and: Applied Cellular Technology, Inc.
ACTsub 000 Xxxxx Xxxx Xxx
Xxxxx 000
Xxxx Xxxxx, XX
00000, U.S.A.
Fax No. (000) 000-0000
25
with copies to: Xxx Xxxxxxxxxxx
Xxxxxxx Xxxxx & Xxxxxxxxx
Suite 2100
00 Xxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxx
X0X 0X0
Fax No. (000) 000-0000
with copies to: Xxxx X. Creme, Esq.
Merra, Kanakis, Creme & Xxxxxx, P.C.
00 Xxxx Xxxxxx
Xxxxxx, XX 00000
Fax No. (000) 000-0000
10.6 Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses.
10.7 Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 Governing Law. This Agreement shall be governed by the laws of the Province
of Ontario.
10.10 Binding Effect. This Agreement shall be binding upon the parties hereto
and inure to the benefit of the parties, their respective heirs, administrators,
executors, successors and assigns.
10.11 Entire Agreement. This Agreement is the entire agreement of the parties
covering everything agreed upon or understood in the transaction. There are no
oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof.
10.12 Severability. If any part of this Agreement is deemed to be unenforceable
the balance of this Agreement shall remain in full force and effect.
10.13 Currency. Unless otherwise indicated, all dollar amounts referred to in
this Agreement are in Canadian funds.
26
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
APPLIED CELLULAR TECHNOLOGY, INC.
Per: ---------------------------------
Xxxxxxx X. Xxxxxxxx
Its duly authorized President
DRUMMER ENTERPRISES LTD.
Per: ---------------------------------
c/s
Per: ---------------------------------
MORSTAR HOLDINGS LTD.
Per: ---------------------------------
c/s
Per: ---------------------------------
GROUND EFFECTS LTD.
Per: ---------------------------------
c/s
Per: ---------------------------------
SCOZUL ENTERPRISES LTD.
Per:----------------------------------
c/s
Per: ---------------------------------
ACT-GFX CANADA, INC.
Per: ---------------------------------
c/s
Per: ---------------------------------
27
SIGNED, SEALED AND DELIVERED )
in the presence of: )
)
---------------------------- ) --------------------------------------
Witness ) Xxxxx X. Xxxxx
28
SCHEDULE 6.5
Applied Cellular Technology, Inc.
Audited Consolidated Financial Statements
for the year ending December 31, 1997
29
