ASSET PURCHASE AGREEMENT
|
ARTICLE
IV
|
|
THIS
AGREEMENT
made the
5th day of January, 2006,
BETWEEN:
CONSULTRONICS
LIMITED,
a
corporation existing under the laws of the Province of Ontario,
(hereinafter
called the "Vendor")
-
and
-
EXFO
ELECTRO-OPTICAL ENGINEERING INC. a
corporation constituted under the laws of Canada;
(hereinafter
called the "Purchaser")
WITH
THE INTERVENTION OF :
XXXXX
XXXXX,
of the
City of Scarborough, Province of Ontario
(hereinafter
called the "Vendor’s Party")
-
and
-
CONSULTRONICS
EUROPE LIMITED,
a
corporation existing under the laws of England,
(hereinafter
called "Consultronics Europe")
-
and
-
CONSULTRONICS
DEVELOPMENT KFT,
a
corporation existing under the laws of Hungary,
(hereinafter
called "Consultronics Hungary")
(Consultronics
Europe and Consultronics Hungary are hereinafter called the
"Subsidiaries")
-
and
-
CONSULTRONICS
INC.,
a
corporation existing under the laws of the State of Delaware,
(hereinafter
called "Consultronics USA")
THIS
AGREEMENT WITNESSES THAT
in
consideration of the respective covenants, agreements, representations,
warranties and indemnities of the parties herein contained and for other good
and valuable consideration (the receipt and sufficiency of which are
acknowledged by each party), the parties agree as follows:
INTERPRETATION
1.1 Defined
Terms
For
the
purposes of this Agreement, unless the context otherwise requires, the following
terms shall have the respective meanings specified or referred to below and
grammatical variations of such terms shall have corresponding
meanings:
| (a) |
"Act"
means the Business
Corporations Act
(Ontario) as in effect on the date
hereof;
|
| (b) |
"Affiliate"
has the meaning given to that term in the
Act;
|
| (c) |
"Agreement"
means this Asset Purchase Agreement and all amendments made in writing
by
the parties hereto, "herein" and similar expressions mean and refer
to
this Agreement and not to any particular Article, section, subsection
or
Schedule;
|
| (d) |
"Associate"
has the meaning given to that term in the
Act;
|
| (e) |
"Assumed
Liabilities" has the meaning set out in section 4.1;
|
| (f) |
"Audited
Financial Statements" means the audited consolidated financial statements
of the Vendor as at and for the financial year ended May 31, 2005,
including the notes thereto and the report of the Vendor's auditors
thereon, copies of which are annexed hereto as Schedule
1;
|
| (g) |
"Business
Day" means any day, other than a Saturday or a Sunday, on which the
main
branch of HSBC Bank Canada in Toronto, Ontario is open for
business;
|
| (h) |
"Claim"
has the meaning set out in section 11.3;
|
| (i) |
"Closing"
has the meaning set out in section 10.2;
|
| (j) |
"Closing
Audited Financial Statements" has the meaning set out in subsection
3.3(a);
|
| (k) |
"Closing
Date" means January 24th,
2006, or such other date as the Vendor and the Purchaser may mutually
determine;
|
| (l) |
"Closing
Statements" has the meaning set out in subsection 3.3(a);
|
| (m) |
"Contract"
means any agreement, indenture, contract, lease, including, without
limitation, the Leases, deed of trust, licence, option, instrument
or
other commitment, whether written or
oral;
|
| (n) |
"Employee
Plans" has the meaning set out in section 5.29;
|
| (o) |
"Employees"
means those salaried and hourly paid employees of the Vendor and
the
Subsidiaries who are employed in the Purchased Business immediately
prior
to the Time of Closing;
|
| (p) |
"Encumbrance"
means any encumbrance, lien, charge, hypothec, pledge, mortgage,
title
retention agreement, security interest of any nature, adverse claim,
exception, reservation, easement, right of occupation, any matter
capable
of registration against title, option, right of pre-emption, privilege
or
any Contract to create any of the
foregoing;
|
| (q) |
"ETA"
means Part IX of the Excise
Tax Act
(Canada), as amended from time to
time;
|
| (r) |
"Excluded
Assets" has the meaning set out in section 2.2;
|
| (s) |
"Excluded
Liabilities" has the meaning set out in section 4.1;
|
| (t) |
"Existing
Mortgage" means the Charge/Mortgage registered in the Land Registry
Office
for the Land Titles Division of York Region (No. 65), as instrument
No.YR355014;
|
| (u) |
"Financial
Statements" means the Audited Financial Statements and the Interim
Financial Statements;
|
| (v) |
“Former
Employees” has the meaning set out in subsection 8.9(b)
|
| (w) |
"Governmental
Authority" means any governmental or regulatory authority, body,
agency or
department, whether foreign or domestic federal, provincial or
municipal;
|
| (x) |
"GST"
means all taxes payable under the ETA or under any provincial legislation
similar to the ETA, and any reference to a specific provision of
the ETA
or any such provincial legislation shall refer to any successor provision
thereto of like or similar effect;
|
| (y) |
"Indemnified
Party" has the meaning set out in section 11.3;
|
| (z) |
"Indemnifying
Party" has the meaning set out in section 11.3;
|
| (aa) |
"Intellectual
Property" has the meaning set out in subsection 2.1(j);
|
| (bb) |
"Independent
Auditor" has the meaning given to such term in subsection 3.3(b);
|
| (cc) |
"Interim
Financial Statements" means the unaudited consolidated financial
statements of the Vendor and the unaudited non-consolidated financial
statements of the Vendor, Consultronics Europe and Consultronics
Hungary
as at and for the period from June 1st,
2005 to November 30th,
2005, copies of which are annexed hereto as Schedule
2;
in the event the Closing is delayed, such financial statements will
be for
the period from June 1st,
2005 to the last day of the month preceding the
Closing;
|
| (dd) |
"Laws"
means all applicable laws, by-laws, rules, regulations, orders,
ordinances, protocols, codes, guidelines, policies, notices, directions
and judgments or other requirements of any Governmental
Authority;
|
| (ee) |
"Leased
Property" has the meaning set out in section 5.7;
|
| (ff) |
"Leases"
has the meaning set out in section 5.10;
|
| (gg) |
"Licences"
has the meaning set out in section 5.16;
|
| (hh) |
"Losses"
means, in respect of any matter, all claims, demands, proceedings,
losses,
damages, liabilities, deficiencies, costs and expenses (including,
without
limitation, all legal and other professional fees and disbursements,
interest, penalties and amounts paid in settlement) arising directly
or
indirectly as a consequence of such
matter;
|
| (ii) |
"Objection
Notice" has the meaning given to such term in subsection 3.3(b);
|
| (jj) |
"Permitted
Encumbrances" means all the Encumbrances described and disclosed
in
Schedule
12;
|
| (kk) |
"Purchase
Price" has the meaning set out in section 3.1;
|
| (ll) |
"Purchased
Assets" has the meaning set out in section 2.1;
|
| (mm) |
"Purchased
Business" means the business carried on by the Vendor and each of
the
Subsidiaries consisting primarily of the design, manufacture and
marketing
of telecommunications and data communications test equipment, and
turnkey
network monitoring solutions for telecommunications access
testing;
|
| (nn) |
"Real
Property" has the meaning set out in section 5.7;
|
| (oo) |
"Remaining
Employees" has the meaning set out in subsection 8.9(a);
|
| (pp) |
"Replacement
Plans" has the meaning set out in section 8.10;
|
| (qq) |
"Smart
Grant" means the grant granted by the UK Secretary of State for Trade
and
Industry to Consultronics Europe dated August 15th,
2003 and accepted on August 20th,
2003.
|
| (rr) |
"Subsidiaries"
means Consultronics Europe and Consultronics
Hungary;
|
| (ss) |
"Tax"
or "Taxes" means any federal, provincial, state, local, foreign or
other
income, gross receipts, profits, franchise, transfer, sales, use,
customs,
payroll, occupation, health, property, excise, GST or other taxes,
fees,
duties, assessments, withholdings or governmental charges of any
nature,
including employment insurance (including interest, penalties and
additions to such taxes or
charges);
|
| (tt) |
"Tax
Act" means the Income
Tax Act
(Canada), as amended from time to
time;
|
| (uu) |
"Time
of Closing" means 10:00 a.m. Toronto time on the Closing Date, or
such
other time on the Closing Date as the Vendor and the Purchaser may
mutually determine;
|
| (vv) |
"Transaction
Documents" has the meaning set out in section 1.6;
|
| (ww) |
"Transferred
Employees" has the meaning set out in section 8.10;
|
| (xx) |
"Unaudited
Financial Statements" means
the unaudited non-consolidated financial statements of the Vendor,
Consultronic Europe and Consultronics Hungary as at and for the financial
year ended May 31, 2005, including the notes thereto,
a
copy of which is annexed hereto as Schedule
27;
and
|
| (yy) |
"Working
Capital" means the aggregate of consolidated accounts receivable,
consolidated prepaids, consolidated inventory, consolidated deferred
costs, consolidated current liabilities (including any income tax
payable
by the Subsidiaries but excluding any income tax liabilities of the
Vendor), consolidated deferred revenue and all cash and cash equivalents
as per the Subsidiaries’ audited financial statements as of the Closing
Date.
|
1.2 Currency
Unless
otherwise indicated, all dollar amounts in this Agreement are expressed in
Canadian funds.
1.3 Sections
and Headings
The
division of this Agreement into Articles, sections and subsections and the
insertion of headings are for convenience of reference only and shall not affect
the interpretation of this Agreement. Unless otherwise indicated, any reference
in this Agreement to an Article, section, subsection or Schedule refers to
the
specified Article, section or subsection of or Schedule to this
Agreement.
1.4 Number,
Gender and Persons
In
this
Agreement, words importing the singular number only shall include the plural
and
vice versa, words importing gender shall include all genders and words importing
persons shall include individuals, corporations, partnerships, associations,
trusts, unincorporated organizations, governmental bodies and other legal or
business entities of any kind whatsoever.
1.5 Accounting
Principles
Any
reference in this Agreement to generally accepted accounting principles refers
to generally accepted accounting principles that have been established in
Canada, including those approved from time to time by the Canadian Institute
of
Chartered Accountants or any successor body thereto.
1.6 Entire
Agreement
This
Agreement, together with the agreements and the other documents to be delivered
pursuant to this Agreement (the “Transaction Documents”) constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether written or oral. There are no conditions, covenants, agreements,
representations, warranties or other provisions, express or implied, collateral,
statutory or otherwise, relating to the subject matter hereof except as herein
provided.
1.7 Time
of Essence
Time
shall be of the essence of this Agreement.
1.8 Construction
The
parties agree that each party and its counsel have reviewed and revised this
Agreement and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments, schedules or exhibits
thereto.
1.9 Applicable
Law
This
Agreement shall be construed, interpreted and enforced in accordance with,
and
the respective rights and obligations of the parties shall be governed by,
the
laws of the Province of Ontario and the federal laws of Canada applicable in
Ontario, and each party irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of such province and all courts
competent to hear appeals therefrom.
1.10 Successors
and Assigns
This
Agreement shall enure to the benefit of and shall be binding on and enforceable
by the parties and their respective successors and permitted assigns. The
Purchaser may assign any rights hereunder to any of its Affiliates or
Associates, but no such assignment shall relieve the Purchaser of any of its
obligations under this Agreement. Except as otherwise provided herein, neither
party may assign any of its rights or obligations hereunder without the prior
written consent of the other party.
1.11 Amendments
and Waivers
No
amendment or waiver of any provision of this Agreement shall be binding on
either party unless consented to in writing by such party. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision,
nor shall any waiver constitute a continuing waiver unless otherwise
provided.
1.12 Knowledge
In
this
Agreement, any reference to the knowledge or awareness of any party means to
the
best of the knowledge, information and belief of the party after reviewing
all
relevant records and (except where such reference is to actual knowledge without
inquiry) making due inquiries regarding the relevant matter of all relevant
directors, officers, employees, agents and advisors of the party (or, in the
case of the knowledge of the Vendor’s Party, of the Vendor).
1.13 Schedules
The
following Schedules are attached to and form part of this
Agreement:
|
Schedule
1
|
|
Audited
Financial Statements
|
|
Schedule
2
|
|
Interim
Financial Statements
|
|
Schedule
3
|
|
|
|
Schedule
4
|
|
Machinery
and Equipment
|
|
Schedule
5
|
|
Vehicles
|
|
Schedule
6
|
|
|
|
Schedule
7
|
|
|
|
Schedule
8
|
|
Licences
and Permits
|
|
Schedule
9
|
|
|
|
Schedule
10
|
|
Allocation
of Purchase Price
|
|
Schedule
11
|
|
Location
of Assets
|
|
Schedule
12
|
|
Permitted
Encumbrances
|
|
Schedule
13
|
|
Insurance
Policies
|
|
|
|
|
|
Schedule
14
|
Legal
and Regulatory Proceedings
|
|
|
Schedule
15
|
Regulatory
Consents
|
|
|
Schedule
16
|
Third
Party Consents
|
|
|
Schedule
17
|
Major
Customers
|
|
|
Schedule
18
|
|
|
|
Schedule
19
|
Affiliates
|
|
|
Schedule
20
|
Prepaid
Expenses
|
|
|
Schedule
21
|
Purchase
Orders Issued for Goods or Services Not Received at Closing
|
|
|
Schedule
22
|
Backlog
of Purchase Orders Received and Not Fulfilled at Closing
|
|
|
Schedule
23
|
Lease
of Equipments, Machinery, Cars and Other Fixed Assets
|
|
|
Schedule
24
|
Environment
|
|
|
Schedule
25
|
Bank
accounts of the Subsidiaries
|
|
|
Schedule
26
|
Software
Licences
|
|
|
Schedule
27
|
Unaudited
Financial Statements
|
|
|
Schedule
28
|
Purchased
Assets Related to US Activities
|
|
|
Schedule
29
|
|
Purchase
Orders - Embedded Planets
|
|
Schedule
30
|
Post-closing
Assistance to the Vendor
|
|
PURCHASE
AND SALE OF PURCHASED ASSETS
2.1 Purchased
Assets
Subject
to the provisions of this Agreement, the Vendor agrees to sell, assign and
transfer to the Purchaser and the Purchaser agrees to purchase from the Vendor,
effective as of the close of business on the Closing Date, all of the immovable
and movable property, all personal property rights and other assets of the
Vendor used in connection with, comprising part of or otherwise relating to
the
Purchased Business (other than the Excluded Assets), whether real or personal,
tangible or intangible, of every kind and description and wheresoever situated
and whether or not in possession of the Vendor, as a going concern
(collectively, the "Purchased Assets"), including without
limitation:
| (a) |
Real
Property.
All real property, together with the buildings, structures, improvements
and appurtenances situated thereon, including, without limitation,
the
real property described in Schedule
3;
|
| (b) |
Leases
of Real Property.
All rights (whether as lessee or lessor) under leases of real property,
together with all leasehold improvements relating thereto, including,
without limitation, all rights under the leases described in Schedule
3;
|
| (c) |
Machinery
and Equipment.
All machinery, equipment, fixtures, furniture, furnishings, parts,
tooling
melds, dies, jigs or patterns and other fixed assets associated with
the
ongoing operation of the Purchased Business, whether or not located
in or
on the premises of the Vendor or elsewhere, including, without limitation,
the machinery and equipment described in Schedule
4;
|
| (d) |
Vehicles.
All trucks, cars and other vehicles, including, without limitation,
the
vehicles described in Schedule
5;
|
| (e) |
Inventories.
All inventories, including, without limitation, raw materials,
work-in-process, finished goods and replacement
parts;
|
| (f) |
Accounts
Receivable.
All accounts receivable, trade accounts, notes receivable, book debts
and
other debts due or accruing due to the Vendor and the benefit of
all
security for such accounts, notes and
debts;
|
| (g) |
Prepaid
Expenses.
All prepaid expenses, deferred costs and expenses relating to the
Purchased Business and all other items relating to the Purchased
Business
of the type classified as current assets in accordance with generally
accepted accounting principles, including those expenses and costs
listed
in Schedule
20;
|
| (h) |
Agreements.
All rights under leases of personal property, orders or contracts
for the
provision of goods or services (whether as buyer or seller), distribution
and agency agreements, employment and collective agreements, agreements
and instruments relating to employee pension or benefit plans and
other
Contracts not otherwise referred to in this section 2.1,
including, without limitation, the Contracts described in Schedule
6
and Schedule
7;
|
| (i) |
Licences
and Permits.
All licences, permits, approvals, consents, registrations, certificates
and other authorizations of any kind required to conduct the Purchased
Business, including, without limitation, those described in Schedule
8;
|
| (j) |
Intellectual
Property.
All trade or brand names, business names, domain names, trade marks,
trade
xxxx registrations and applications, service marks, service xxxx
registrations and applications, copyrights, copyright registrations
and
applications, patents, patent registrations and applications and
other
patent rights (including any patents issued on such applications
or
rights), trade secrets, proprietary manufacturing information, custom
software, software not generally available to the public used in
connection with the Purchased Business, source codes, fully annotated,
for
all custom software (including all software not generally available
to the
public used in connection with the Purchased Business) and know-how,
equipment and parts lists and descriptions, instruction manuals,
inventions, inventors' notes, research data, unpatented blue prints,
drawings, logos and designs, formulae, processes, technology and
other
intellectual property, together with all rights under licences, technology
transfer agreements and other agreements or instruments relating
to any of
the foregoing (collectively, "Intellectual Property"), including,
without
limitation, the trade marks, copyrights, patents, licences and agreements
described in Schedule
9;
|
| (k) |
Computer
Hardware and Software.
All computer hardware and software associated with the ongoing operation
of the Purchased Business, including all rights under licences and
other
agreements or instruments relating
thereto;
|
| (l) |
Books
and Records.
All books and records (other than those required by Laws to be retained
by
the Vendor, copies of which will be provided to the Purchaser no
later
than on Closing Date), including without limitation, customer lists,
sales
records, price lists and catalogues, sales literature, advertising
material, manufacturing data, production records, employee manuals,
personnel records, supply records, inventory records and correspondence
files (together with, in the case of any such information that is
stored
electronically, the media on which the same is
stored);
|
| (m) |
Securities.
All
shares and other securities held by the Vendor in Affiliates listed
in
Schedule
19;
|
| (n) |
Goodwill.
All goodwill, (including all rights in every telephone number used
by the
Vendor) together with the exclusive right for the Purchaser to represent
itself as carrying on the Purchased Business in succession to the
Vendor
and the right to use any words indicating that the Purchased Business
is
so carried on, including the exclusive right to use the name
"Consultronics", or any variation thereof, as part of the name or
style
under which the Purchased Business or any part thereof is carried
on by
the Purchaser; and
|
| (o) |
Other
Assets.
Unless expressly excluded in this Agreement, all other or additional
privileges, rights, interests and assets of the Vendor that are used
in
the Purchased Business.
|
Notwithstanding
the foregoing, the parties agree that all above mentioned Purchased Assets
related to the activities of the Vendor and its Subsidiaries in the United
States, including those mentioned in Schedule
28,
may be
sold to, and purchased by, any Affiliate of the Purchaser hereunder, provided
that the Purchaser shall, in respect of such sale and purchase, remain subject
to all of its obligations under this Agreement as if it were the purchaser
of
such Purchased Assets.
2.2 Excluded
Assets
The
Purchased Assets shall not include any of the following property and assets
(collectively, the "Excluded Assets"):
| (a) |
Cash.
All cash and cash equivalents of the Vendor (except for cash and cash
equivalents of the Subsidiaries);
|
| (b) |
Income
Taxes.
All income tax instalments paid by the Vendor and the right to receive
any
refund of income taxes paid by the Vendor, however any income tax
liability will be assumed by the Vendor and excluded from the Working
Capital;
|
| (c) |
Investment
Tax Credits.
All federal and provincial tax credits of the
Vendor;
|
| (d) |
Shares
of Consultronics USA. All
issued and outstanding shares of Consultronics USA provided that
on the
Closing Date, all Contracts to which Consultronics USA is a party
are
assigned to the Purchaser; and
|
| (e) |
Insurance.
All
rights, titles and interests of the Vendor into the Key Man Insurance
-
Xxxxx Xxxxx, the Accounts Receivable Insurance - Consultronics Limited
and
the directors and officers liability insurance
policy.
|
PURCHASE
PRICE
3.1 Purchase
Price
The
aggregate purchase price (the "Purchase Price") payable by the Purchaser to
the
Vendor for the Purchased Assets shall be the sum of the following
elements:
| (a) |
an
amount equal to the Working Capital of the Vendor estimated by the
parties
to be an aggregate amount of $3,000,000, such amount to be adjusted
on the
basis of the Closing Audited Financial
Statements;
|
| (b) |
an
amount of $16,500,000; and
|
| (c) |
an
amount equal to the principal amount outstanding under the Existing
Mortgage together with all accrued interest up to and including the
Closing Date, plus an amount equal to two (2) months interest payable
as a
penalty on the prepayment of the Existing Mortgage;
|
less:
| (d) |
any
amount due by Consultronics Hungary, as the case may be, to the Vendor,
as
of the Closing Date, plus interest thereon, as the case may
be.
|
The
Purchase Price shall be satisfied by the payment referred to in section
3.2
(as such
payment and Purchase Price may be adjusted pursuant to section 3.4).
3.2 Closing
Date Payment
The
Purchase Price shall be paid by the Purchaser to the Vendor as
follows:
| (a) |
An
amount of two
million dollars ($2,000,000) shall
be deposited at Closing with the Purchaser’s legal counsel, in escrow, in
order to ensure that all representations and warranties of the Vendor
are
true and correct and the agreements with the Purchaser are or will
be
performed. Seventy-five percent (75%) of the said sum shall be released
twelve (12) months following the Closing Date and the balance shall
be
released eighteen (18) months following the Closing Date unless,
in the
meantime, the Purchaser has presented to the Vendor a Claim, in which
case, the Purchaser shall be entitled to retain an amount equivalent
to
the amount of the Claim until such Claim is settled in accordance
with
Article XI hereof; and
|
| (b) |
the
balance of the Purchase Price shall be paid by certified cheque or
bank
draft payable to or to the order of the Vendor or, if the Vendor
so
directs at least two Business Days prior to the Closing Date, by
way of
electronic transfer of immediately available funds to such bank account
in
Toronto, Ontario as the Vendor may specify in such direction, subject
to
registration of the deed of sale for the Real Property and entering
of
such transfer, in the Land Titles Office, without any adverse entry
other
than Permitted Encumbrances.
|
3.3 Closing
Audited Financial Statements
| (a) |
Closing
Statements.
As
soon as possible, but not later than 90 days following the Closing
Date,
the Vendor's auditors shall deliver to the Purchaser, at Vendor’s expense,
audited consolidated financial statements (the "Closing Audited Financial
Statements") of the Vendor as of the close of business on the day
immediately prior to the Closing Date, prepared in accordance with
generally accepted accounting principles and Vendor’s accounting
practices, applied on a basis consistent with the Audited Financial
Statements together with a schedule setting out the adjustment amount,
if
any, calculated in accordance with section 3.4
(that schedule and the Closing Audited Financial Statements, collectively,
the "Closing Statements"). For the purpose of preparing the Closing
Statements, the Purchaser shall grant to the Vendor’s authorized
representatives reasonable access to relevant records, facilities
and
personnel of the Purchased Business. The Vendor and the Purchaser
shall
co-operate fully with each other in the preparation of the Closing
Statements.
|
| (b) |
Approval
of Closing Statements.
The
Purchaser shall have 30 days from receipt of the Closing Statements
within
which to review the Closing Statements. For the purposes of this
review,
the Vendor shall permit the Purchaser and the Purchaser's authorized
representatives to examine the working papers, schedules and other
documents and information used or prepared by the Vendor or the Vendor's
auditors in connection with the preparation of the Closing Statements.
The
Purchaser may dispute any of the items in the Closing Statements
by
written notice (an "Objection Notice") to the Vendor within the same
30
days. If the Purchaser has not delivered an Objection Notice to the
Vendor
within this 30 day period, the Purchaser shall be deemed to have
accepted
the Closing Statements. If the Purchaser delivers an Objection Notice,
the
Vendor and the Purchaser shall attempt to resolve all of the items
in
dispute within 15 days
of receipt of the Objection Notice. If all items in dispute are not
resolved within this 15 day
period, such unresolved items will be submitted to an independent
third
party arbitrator, which shall be a national audit firm (the "Independent
Auditor"), appointed together by the Vendor and the Purchaser to
resolve
the remaining items in dispute.
In
case the parties fail to select the Independent Auditor within 15
days,
the Independent Auditor shall be appointed by a judge of the Superior
Court of Justice of Ontario in the Toronto Region, upon application
of
either party.
|
| (c) |
Each
party shall furnish to the Independent Auditor those working papers,
schedules and other documents, and information relating to the items
in
dispute, that are available to that party or its auditors as the
Independent Auditor may require. The Independent Auditor shall be
instructed that time is of the essence in proceeding with its
determination of any dispute, and the decision of the Independent
Auditor
with respect to any item in dispute shall be in writing and shall
be final
and binding on the Vendor and the Purchaser with no rights of challenge,
review or appeal to the courts in any manner. The Independent Auditor,
in
making its determination of any dispute, does not act as an arbitrator
and
is not required to engage in a judicial inquiry worked out in a judicial
manner.
|
| (d) |
On
agreement or decision, as the case may be, with respect to all items
in
dispute, the Closing Statements shall be deemed to be amended as
may be
necessary to reflect the agreement or the decision, as the case may
be. In
this event, references in this Agreement to the Closing Statements
shall
be references to the Closing Statements, as so
amended.
|
| (e) |
The
fees and expenses of the Independent Auditor shall be borne equally
by the
Vendor, on the one hand, and the Purchaser, on the other hand, but
each
party shall be responsible for its own costs and
expenses.
|
3.4 Adjustment
of Closing Date Payment
| (a) |
If
the Working Capital of the Vendor, as set out in the Closing Audited
Financial Statements (as accepted or amended under section 3.3 above)
,
is:
|
| (i) |
less
than $3,000,000, the Purchase Price shall be reduced;
or
|
| (ii) |
more
than $3,000,000, the Purchase Price shall be
increased;
|
on
a
dollar for dollar basis;
| (b) |
if
any Purchased Asset(s) (including the Prepaid Expenses) cannot be
transferred to the Purchaser, the Purchase Price shall be reduced
by the
book value assigned to such Purchased Assets in the preparation of
the
Closing Audited Financial Statements, which book values shall be
set out
in the Schedule forming part of the Closing
Statements;
|
| (c) |
in
determining the adjustment to the Purchase Price for purposes of
the
schedule forming part of the Closing Statements, any reduction under
subsection (b) shall be set off against any increase under clause
(a)(ii);
and
|
| (d) |
the
total (or net, as the case may be) amount of the increase or reduction
in
the Purchase Price shall be paid by the Purchaser to the Vendor,
or by the
Vendor to the Purchaser, as the case may be, within two (2) Business
Days
after the Closing Statements are finalized by deemed acceptance,
agreement
or arbitration under section 3.3, by way of electronic transfer of
immediately available funds to such bank account in Canada as the
payee
specifies.
|
3.5 Allocation
of Purchase Price
The
Vendor and the Purchaser agree to allocate the Purchase Price among the
Purchased Assets in accordance with Schedule
10
and to
report the sale and purchase of the Purchased Assets for all federal, provincial
and local tax purposes in a manner consistent with such allocation. The
Purchaser and the Vendor agree that if any taxing authority does not agree
with
any allocation of the Purchase Price agreed to between the parties in accordance
with the foregoing, the Vendor and the Purchaser shall use their best efforts
and good faith to agree upon a different allocation acceptable to the relevant
authority and, if the parties are so able to agree, they shall thereafter amend
the allocation and their income tax returns accordingly; provided, however
that
nothing contained herein shall be construed so as to require any party to
commence or participate in any litigation or administrative process challenging
the determination so made by any applicable authority.
3.6 ETA
Election
The
Purchaser and the Vendor shall elect jointly under subsection 167(1) of the
ETA,
in the form prescribed for the purposes of that subsection, in respect of the
sale and transfer of the Purchased Assets hereunder, and the Purchaser shall
file such election in its GST return for its reporting period that includes
the
Closing Date.
3.7 Transfer
Taxes
The
Purchaser shall be liable for and shall pay all federal and provincial sales
taxes (including any GST, retail sales taxes and land transfer taxes) and all
other taxes, duties, fees or other like charges of any jurisdiction properly
payable in connection with the transfer of the Purchased Assets by the Vendor
to
the Purchaser.
3.8 Income
Tax Election
The
Purchaser and the Vendor agree to elect jointly in the prescribed form under
section 22 of the Tax Act as to the sale of the accounts receivable and
other assets that are referred to in subsection 2.1(f)
and
described in section 22 of the Tax Act and to designate in such election an
amount equal to the portion of the Purchase Price allocated to such assets
pursuant to section 3.5
as the
consideration paid by the Purchaser therefor.
3.9 Tax
Amounts Payable by Customers
If
and to
the extent that the accounts receivable described in subsection 2.1(f)
include
amounts ("Tax Amounts") payable by the customer or other account debtor on
account of GST or any other Taxes which the Vendor is required to collect from
the account debtor in conjunction with such accounts, and which the Vendor
has
remitted or is obliged to remit to the relevant taxing authority (the
“Authority”), the Purchaser shall, upon collecting the relevant account, remit
the Tax Amount:
(a) if
the
Vendor has previously accounted for such amount in its returns to the relevant
Authority (by remittance and/or by setoff of input tax credits), to the Vendor;
or
(b) otherwise,
to the appropriate Authority.
Notwithstanding
the foregoing, Purchaser’s obligations pursuant to this section 3.9
shall be
limited to collecting the Taxes billed by Vendor and the Purchaser shall not
be
liable in any case where Taxes have not been billed or have been incorrectly
billed. For greater certainty, Purchaser shall not be liable with respect to
any
Taxes regarding any sales completed prior to the Closing Date, save and except
for the portion of Taxes billed and included in the accounts receivable
indicated in the Closing Audited Financial Statements.
3.10 Inter-company
Accounts
| (a) |
The
Purchaser will ensure that any amount referred to in section 3.1(d)
due by Consultronics Hungary to the Vendor as of the Closing Date
will be
repaid by Consultronics Hungary to the Vendor within ten (10) business
days following the Closing Date.
|
| (b) |
If,
as a result of the repayment or forgiveness of intercorporate loans
between the Vendor and Consultronics Europe, the amount of the tax
losses
available to Consultronics Europe is reduced, then the Purchase Price
shall be reduced by an amount equal
to:
|
| (i) |
the
amount of such reduction of tax
losses;
|
multiplied
by
| (ii) |
the
effective UK tax rate which would apply to taxable income of Consultronics
Europe;
|
multiplied
by
| (iii) |
two-thirds
(66.67%).
|
ASSUMPTION
OF LIABILITIES
4.1 Assumption
of Certain Liabilities by the Purchaser
Subject
to the provisions of this Agreement, the Purchaser agrees to assume, pay,
satisfy, discharge, perform and fulfil, from and after the Time of Closing,
only
those outstanding obligations and liabilities of the Vendor as at the Closing
Date which, by their terms, are to be paid, satisfied, discharged, performed
and
fulfilled at and after the Time of Closing (the "Assumed Liabilities")
under:
| (a) |
the
Contracts described in Schedule
3,
Schedule
6,
Schedule
7
and Schedule
9;
|
| (b) |
the
licences, permits, approvals, consents, registrations, certificates
and
other authorizations described in Schedule
8;
|
| (c) |
the
agreements entered into by the Vendor for the provision of services
or
goods to the Vendor which are detailed in Schedule
21;
|
| (d) |
the
agreements entered into by the Vendor for the sale of inventories
by the
Vendor or the provision of services by the Vendor after the Closing
Date
which are detailed in Schedule
22;
|
| (e) |
the
outstanding balance due on the capital leases (current and long term)
as
reflected in the Closing Audited Financial
Statements;
|
| (f) |
the
current liabilities as reflected in the Closing Audited Financial
Statements, excluding any income tax liabilities;
and
|
| (g) |
warranty
claims in respect of products sold prior to the Closing Date, but
only to
the maximum number of units in respect of which a warranty reserve
is
included in the Closing Audited Financial
Statements.
|
For
greater certainty, and without limiting the generality of the foregoing, the
Vendor shall remain liable for and shall pay, satisfy, discharge, perform and
fulfil, all obligations, liabilities covenants, commitments and undertakings
of
the Vendor, whether known, accrued or contingent, except the Assumed Liabilities
(the "Excluded Liabilities"), including, without limitation, the obligations
and
liabilities of the Vendor:
| (h) |
for
Taxes payable, collectible or remittable by the Vendor in respect
of the
Purchased Business and the Purchased Assets, provided that real property
and other Taxes levied with respect to the Purchased Assets for a
taxable
period that includes but does not end on the Closing Date shall be
apportioned between the Vendor and the Purchaser such that the Vendor
shall be liable for the amount determined by multiplying the Taxes
to be
apportioned by a fraction, the numerator of which is the number of
days in
the taxable period up to the Closing Date and the denominator of
which is
the total number of days in the period, and the Purchaser shall be
liable
for the balance;
|
| (i) |
pursuant
to any default of the Vendor under any of the
Contracts;
|
| (j) |
pursuant
to any warranty claim for any manufactured products prior to the
Closing
Date, in excess of the number of units recorded as warranty reserve
in the
Closing Audited Financial Statements and in Schedule
18;
such warranty claims will be tracked based on the number of products
returned and the calculation of the claim will be based on the calculation
of the reserve as set of in Schedule
18;
and
|
| (k) |
pursuant
to any other liabilities payable on or prior to the Closing Date
and not
included in the liabilities reflected in the Closing Audited Financial
Statements.
|
The
Vendor hereby agrees to indemnify and save harmless the Purchaser, its
representatives, successors and assigns, from and against any and all Losses
incurred by it and arising out of the Excluded Liabilities or the failure of
the
Vendor to duly pay, perform and discharge the Excluded Liabilities as and when
they become due.
REPRESENTATIONS
AND WARRANTIES OF THE VENDOR
Each
of
the Vendor and the Vendor’s Party, jointly and severally, represents and
warrants to the Purchaser as follows and acknowledges that the Purchaser is
relying on such representations and warranties in connection with its purchase
of the Purchased Assets and the transactions contemplated by the
Agreement:
5.1 Organization
Each
of
the Vendor and the Subsidiaries is a corporation duly incorporated and validly
existing under the Laws of its respective jurisdiction, is not in default of
filing any notice, report or return under such Laws the failure to file which
could result in the cancellation of its corporate existence under such Laws,
has
the corporate power and holds the licences, permits, certificates and other
approvals required to own or lease its property, to carry on the Purchased
Business as now being conducted by it and to enter into this Agreement and
to
perform its obligations hereunder.
5.2 Authorization
Each
of
the Vendor and the Subsidiaries has obtained all required consents, approvals
and authorizations, including, without limitation, all shareholders’ consents,
and has the full power and authority to sell, or cause the sale of the Purchased
Assets and to execute, deliver and perform or cause to be executed, delivered
or
performed, and to enter into and consummate, or cause to be entered into or
consummated, all transactions contemplated by this Agreement, and has duly
authorized the execution, delivery and performance of this Agreement, and each
of the Transaction Documents has been (or, in the case of those delivered after
the date hereof, will at the time of such delivery have been) duly authorized,
executed and delivered by each of the Vendor and the Subsidiaries and is (or
will upon delivery be) a legal, valid and binding obligation of each of the
Vendor and the Subsidiaries, enforceable by the Purchaser against each of the
Vendor, the Subsidiaries and the Vendor’s Party by the Purchaser in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency
and other laws affecting the rights of creditors generally and except that
equitable remedies may be granted only in the discretion of a court of competent
jurisdiction. No authorization is required to be obtained by the Vendor or
any
of the Subsidiaries from any Governmental Authority, regulatory agency or any
other third party in connection with the execution, delivery or performance
of
this Agreement or any other document or agreement to be delivered under this
Agreement.
5.3 No
Other Agreements to Purchase
No
person
other than the Purchaser has any written or oral agreement or option or any
right or privilege (whether by law, pre-emptive or contractual) capable of
becoming an agreement or option for the purchase or acquisition from the Vendor
of any of the Purchased Assets, other than pursuant to purchase orders accepted
by the Vendor in the ordinary course of the Purchased Business.
5.4 No
Violation
The
execution and delivery of this Agreement by each of the Vendor, the Vendor’s
Party and the Subsidiaries and the consummation of the transactions herein
provided for or the fulfilment of or the compliance with the terms and
conditions of any of the Transaction Documents will not result in:
| (a) |
the
breach or violation of any of the provisions of, or constitute a
default
under, or conflict with or cause the acceleration of any obligation
of the
Vendor or any of the Subsidiaries
under:
|
| (i) |
any
Contract to which the Vendor, the Vendor’s Party or any of the
Subsidiaries is a party or by which it is or its properties are bound;
nor
|
| (ii) |
any
provision of the constating documents or by-laws or resolutions of
the
board of directors (or any committee thereof) or shareholders of
the
Vendor or any of the Subsidiaries;
nor
|
| (iii) |
any
judgment, decree, order or award of any court, governmental body
or
arbitrator having jurisdiction over the Vendor, the Subsidiaries
or
Vendor’s Party; nor
|
| (b) |
a
violation of any Laws to which the Vendor, the Vendor’s Party, the
Subsidiaries, the Purchased Assets or the Purchased Business are
subject,
other than the Bulk
Sales Act
(Ontario).
|
5.5 Sufficiency
and Condition of Purchased Assets
As
from
the purchase of the Purchased Business by the Purchaser and its Affiliate on
the
Closing Date, the Purchaser will hold and benefit from all the Purchased Assets
owned or leased by the Vendor as well as the rights, titles and interest
required in order to continue operating the Purchased Business as it was
operated by the Vendor prior to the Closing Date. All Purchased Assets owned
and
used by the Vendor in connection with the Purchased Business are in good
operating condition and are in a state of good repair and maintenance. The
Purchased Assets and their use by the Vendor and the Subsidiaries are in
compliance with the Laws applicable thereto or to the use thereof.
5.6 Title
to Personal Property
The
Purchased Assets (other than the Real Property) are owned beneficially by the
Vendor with a good and marketable title thereto, free and clear of all
Encumbrances other than Permitted Encumbrances. The assets of the Subsidiaries
are beneficially owned by the Subsidiaries with good and marketable title
thereto, free and clear of all Encumbrances other than Permitted Encumbrances.
Each of the Vendor and the Subsidiaries has no equipment leases, leaseback
agreements or machinery leases, other than those enumerated in Schedule
23.
5.7 Location
of Real Property
Schedule
3 sets forth the municipal addresses and complete and accurate legal
descriptions of all the real property that is used in the Purchased Business
and
of which the Vendor or any of the Subsidiaries is the beneficial or registered
owner (the "Real Property"), free and clear of any Encumbrances except the
Permitted Encumbrances and the real property that is used in the Purchased
Business and leased by the Vendor (the "Leased Property").
5.8 Title
to Real and Leased Property
The
Vendor is not the beneficial or registered owner of and has not agreed to
acquire any real property or any interest in any real property other than the
Real Property and the Leased Property. The Vendor has the exclusive right to
possess, use and occupy the Leased Property and has good and marketable title
in
fee simple to all the Real Property, free and clear of all Encumbrances,
easements or other restrictions of any kind other than Permitted Encumbrances.
Without limiting the generality of the foregoing:
| (a) |
the
Permitted Encumbrances constitute all of the Encumbrances, agreements,
indentures and other matters, including, without limitation, all
unregistered Encumbrances, that affect the Real Property or the Leased
Property, and the Vendor has not received any notice of default under,
or
termination of, any of the Permitted
Encumbrances;
|
| (b) |
each
of the Real Property and the Leased Property (including all buildings,
improvements and fixtures) is in good state of repair and is fit
for its
present use, and with the exception that it may be advisable to replace
the heating and air conditioning units at the Concord facility in
the
Spring of 2006 (the costs of which shall not exceed $80,000), there
are no
faults in design, material or structural repairs, defects 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 or the Leased Property is currently undergoing any alteration
or
renovation nor is any such alteration or renovation
contemplated;
|
| (c) |
the
Real Property and the Leased Property, with regard to the location,
construction, occupancy and use thereof, are in compliance with all
of the
applicable Laws and regulations, municipal or otherwise; no buildings
or
other structures located on the Real Property encroaches upon any
land not
owned by the Vendor; no buildings or other structures located on
adjacent
property encroaches upon the Real Property; and there are no restrictive
covenants, municipal by-laws or other laws or regulations which in
any way
restrict or prohibit the use of the Real Property or Leased Property
or
the buildings or structures located thereon for the purposes for
which
they are presently being used, other than Permitted Encumbrances;
and
|
| (d) |
there
are no expropriation or similar proceedings, actual or threatened,
of
which the Vendor has received notice against the Real Property or
the
Leased Property.
|
5.9 Environmental
Matters
| 5.9.1 |
In
this section,
|
| (a) |
"Environment"
means the
ambient air, all layers of the atmosphere, surface water, underground
water, all land, all living
organisms and the
interacting natural systems that include components of air, land,
water,
organic and inorganic matter and living organisms, and includes indoor
spaces;
|
| (b) |
"Environmental
Law"
means all federal, provincial, municipal or local statutes, regulations,
by-laws, Environmental Permits, orders or rules,
and any policies or guidelines of any Governmental Authority or regulatory
body or agency, and any requirements or obligations arising under
the
common law, relating to the Environment, the transportation of dangerous
goods and occupational health and
safety;
|
| (c) |
"Environmental
Permits"
means all permits, licences, approvals, consents, authorizations,
registrations and certificates issued by or provided
to, as the case may be, any government or Governmental Authority
pursuant
to an Environmental Law;
|
| (d) |
"Premises"
means all real property, buildings and facilities, including any
part of
any such property, building or facility owned, leased,
or
operated by the Vendor or any of the Subsidiaries in connection with
the
Purchased Business; and
|
| (e) |
"Substance"
means any substance or material which under any Environmental Law
is
defined to be "hazardous", "toxic", "deleterious", "caustic",
"dangerous", a "contaminant", a "pollutant", a "dangerous good",
a
"waste", a "source of contamination" or a source of a
"pollutant".
|
| 5.9.2 |
Except
as disclosed in Schedule
24,
|
| (a) |
neither
the Vendor nor any other Person has emitted, discharged,
deposited
or released or caused or permitted to be emitted, discharged,
deposited
or released, any Substances on or to the Premises, or in connection
with
the operation of the Purchased Business, except in compliance with
Environmental Law;
|
| (b) |
the
soil and subsoil, and the surface and ground water in, on or under
the
Premises do not contain any Substances, nor do the Premises
contain
any underground storage tanks; all Substances which have been or
are being
treated or stored on the Premises have been generated, treated and
stored
in compliance with Environmental
Law;
|
| (c) |
no
polychlorinated biphenyls, asbestos containing materials, lead or
urea-formaldehyde is or has ever been on, at, in or under the
Premises;
and
|
| (d) |
neither
the Vendor nor any of the Subsidiaries has permitted the Premises
to be
used for the disposal of any
Substance.
|
| 5.9.3 |
All
Environmental Permits obtained by the Vendor in
connection with the Purchased Business (including any applicable
expiry
dates) are listed in Schedule
24
and are valid and in full force and
effect.
|
| 5.9.4 |
There
are no proceedings against or involving the
Vendor or any of the Subsidiaries either in progress, pending, or
threatened which allege the violation of, or non-compliance with,
any
Environmental Law.
|
| 5.9.5 |
For
greater certainty, the representations and warranties contained in
section
5.2,
5.4,
5.16
and 5.17
apply to Environmental Permits.
|
5.10 Leased
Property
The
Vendor is not a party to any lease or agreement to lease or sublease in respect
of any real property, whether as lessor or lessee or sublessor or sublessee,
other than the leases and subleases (the "Leases") described in Schedule
3
relating
to the Leased Property. Schedule
3
sets out
the parties to each of the Leases, their dates of execution and expiry dates,
any options to renew, the locations of the leased lands and premises and the
rent payable thereunder. The Vendor or the Subsidiaries, as the case may be,
has
quiet possession of all the property which it operates under the Leases and
each
of such Leases is fully enforceable in accordance with the terms thereof and
none of the Vendor nor any of the Subsidiaries is in default under any of such
Leases.
5.11 Inventories
The
inventories were acquired in the normal course of business. The inventories
of
the Vendor relating to the Purchased Business do not include any items that
are
slow moving, below standard quality or of a quality or quantity not usable
or
saleable in the normal course of business, the value of which has not been
written down on its books of account to net realizable market
value.
5.12 Accounts
Receivable
All
accounts receivable, book debts and other debts due or accruing to the Vendor
in
connection with the Purchased Business are bona fide, valid and good and,
subject to an allowance for doubtful accounts that has been reflected on the
books of the Vendor in accordance with generally accepted accounting principles,
collectible without set-off or counterclaim.
5.13 Intellectual
Property
Schedule
9 sets out all registered or pending Intellectual Property (including
particulars of registration or application for registration) and all licences
and other Contracts that comprise or relate to Intellectual Property, including
all Intellectual Property registered or owned by the Subsidiaries. The
Intellectual Property comprises all trade or brand names, business names, trade
marks, service marks, copyrights, patents, trade secrets, know-how, inventions,
designs and other industrial or intellectual property necessary to conduct
the
Purchased Business. The Vendor or any of the Subsidiaries, as indicated in
Schedule
9,
is the
beneficial owner of the Intellectual Property free and clear of all
Encumbrances, and is not a party to or bound by any Contract or any other
obligation whatsoever that limits or impairs its ability to sell, transfer,
assign or convey, or that otherwise affects, the Intellectual Property,
including, without limitation, all rights and interests of the Vendor in the
Acterna
Settlement Agreement
dated
October 1st,
2004.
No person has been granted any interest in or right to use all or any portion
of
the Intellectual Property. The conduct of the Purchased Business does not
infringe upon the industrial or intellectual property rights, domestic or
foreign, of any other person. The Vendor is not aware of a claim of any
infringement or breach of any industrial or intellectual property rights of
any
other person, nor has the Vendor received any notice that the conduct of the
Purchased Business, including the use of the Intellectual Property, infringes
upon or breaches any industrial or intellectual property rights of any other
person, and the Vendor has no knowledge of any infringement or violation of
any
of its rights in the Intellectual Property. The Vendor is not aware of any
state
of facts that casts doubt on the validity or enforceability of any of the
Intellectual Property. The Vendor has provided to the Purchaser a true and
complete copy of all Contracts and amendments thereto that comprise or relate
to
the Intellectual Property.
5.14 Insurance
The
Vendor has the Purchased Assets and the Subsidiaries insured against loss or
damage by all insurable hazards or risks on a replacement cost basis.
Schedule
13
sets out
all insurance policies (specifying the insurer, the amount of the coverage,
the
type of insurance, the policy number and any pending claims thereunder)
maintained by the Subsidiaries or the Vendor on the Purchased Assets or
personnel as of the date hereof and true and complete copies of the most recent
inspection reports, if any, received from insurance underwriters or others
as to
the condition of the Purchased Assets. Each of such policies covers the risks
(including liability for latent product defects) normally covered by enterprises
operating businesses which are similar to the Purchased Business. Each of such
policies covers all reasonable risks, the coverage provided is such as would
be
maintained by a prudent administrator carrying on a similar business and each
of
such policies is in full force and effect. The Vendor is not in default with
respect to any of the provisions contained in any such insurance policy and
has
not failed to give any notice or present any claim under any such insurance
policy, in due and timely fashion. The Vendor has provided a true copy of each
insurance policy referred to in Schedule
13
to the
Purchaser.
5.15 Agreements
and Commitments
Except
as
described in Schedule
3,
Schedule
6,
Schedule
7,
Schedule
9
and
Schedule
18,
the
Vendor and the Subsidiaries are not a party to or bound by any Contract relating
to the Purchased Business or Purchased Assets. Each of the Vendor and the
Subsidiaries 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 Purchased Business or
Purchased Assets to which it is a party or by which it is bound and all such
Contracts are in good standing and in full force and effect. The Vendor has
provided to the Purchaser a true and complete copy of each Contract listed
or
described in Schedule
3,
Schedule
6,
Schedule
7,
Schedule
9
and
Schedule
18,
and all
amendments thereto.
5.16 Compliance
With Laws; Governmental Authorization
Each
of
the Vendor and the Subsidiaries has complied with all Laws applicable to the
Purchased Business or the Purchased Assets. Schedule
8
sets out
a complete and accurate list of all licences, permits, approvals, consents,
certificates, registrations and authorizations (whether governmental, regulatory
or otherwise) (the "Licences") held by or granted to the Vendor or any of the
Subsidiaries, and there are no other licences, permits, approvals, consents,
certificates, registrations or authorizations necessary to carry on the
Purchased Business or to own or lease any of the Purchased Assets.Each licence
is in good standing.
5.17 Consents
and Approvals
There
is
no requirement to make any filing with, give any notice to or to obtain any
licence, permit, certificate, registration, authorization, consent or approval
of, any governmental or regulatory authority as a condition to the lawful
consummation of the transactions contemplated by this Agreement. There is no
requirement under any Contract relating to the Purchased Business or Purchased
Assets to which the Vendor or any of the Subsidiaries is a party or by which
it
is bound to give any notice to, or to obtain the consent or approval of, any
party to such agreement, instrument or commitment relating to the consummation
of the transactions contemplated by this Agreement, except for the
notifications, consents and approvals described in Schedule
16
that
will be obtained no later than the Closing Date.
5.18 Financial
Statements
The
Financial Statements have been prepared in accordance with generally accepted
accounting principles and Vendor’s accounting practices, applied on a basis
consistent with prior periods, are true, correct and complete, and present
fairly and accurately the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and financial condition of the Vendor and the
Subsidiaries as at the respective dates of the Financial Statements and the
sales, earnings and results of operations of the Vendor and the Subsidiaries
for
the respective periods covered by the Financial Statements.
5.19 Books
and Records
The
books
and records of each of the Vendor and the Subsidiaries accurately and correctly
set out and disclose, in accordance with generally accepted accounting
principles, the financial position of the Vendor and the Subsidiaries as at
the
date hereof, and all financial transactions of the Vendor and the Subsidiaries
relating to the Purchased Business have been accurately recorded in such books
and records.
5.20 Closing
Audited Financial Statement
The
Closing Audited Financial Statements will be prepared in accordance with
generally accepted accounting principles and Vendor’s accounting practices,
applied on a basis consistent with those used in the preparation of the Audited
Financial Statements and will present fairly and accurately the Purchased Assets
and Assumed Liabilities as at the close of business on the Closing
Date.
5.21 Absence
of Changes
Since
May
31, 2005, the Purchased Business has been carried on only in the ordinary and
normal course consistent with past practice and there has not been:
| (a) |
any
material adverse change in the financial condition of the Purchased
Business;
|
| (b) |
any
material obligation or liability incurred by the Vendor or any of
the
Subsidiaries in connection with the Purchased Business, other than
those
incurred in the ordinary and normal course of the Purchased Business
and
consistent with past practice and with the exception of a 5 year
lease
commitment in the amount of approximately $635,000 for certain production
machinery;
|
| (c) |
any
payment, discharge or satisfaction of any Encumbrance, liability
or
obligation of the Vendor or any of the Subsidiaries in relation to
the
Purchased Business or the Purchased Assets other than payment of
accounts
payable and tax liabilities incurred in the ordinary and normal course
of
business consistent with past
practice;
|
| (d) |
any
licence, sale, assignment, transfer, disposition, pledge, mortgage
or
granting of a security interest or other Encumbrance on or over any
Purchased Assets, other than sales of inventory to customers in the
ordinary and normal course of the Purchased
Business;
|
| (e) |
any
general increase in the compensation of employees of the Vendor or
any of
the Subsidiaries, involved in the Purchased Business (including,
without
limitation, any increase pursuant to any Employee Plan or commitment),
or
any increase in any such compensation or bonus payable to any officer,
employee, consultant or agent thereof, with the exception of a general
salary review in September 2005 resulting in increases in salaries
averaging approximately 5%;
|
| (f) |
any
change in the employment conditions, benefit, bonus and severance
packages
for management personnel of the Purchased
Business;
|
| (g) |
any
forward purchase commitments in excess of the requirements of the
Purchased Business for normal operating inventories or at prices
higher
than the current market prices;
|
| (h) |
any
forward sales commitments other than in the ordinary and normal course
of
the Purchased Business;
|
| (i) |
any
change in the accounting or tax practices followed by the Vendor
or any of
the Subsidiaries;
|
| (j) |
any
change adopted in the depreciation or amortization policies or rates;
or
|
| (k) |
any
change in the credit terms offered to customers of, or by suppliers
to,
the Purchased Business.
|
5.22 Non-Arm's
Length Transactions
With
respect to the Purchased Business, the Vendor has not, since May 31, 2005,
made
any payment or loan to, or borrowed any moneys from or is otherwise indebted
to,
any officer, director, employee, shareholder or any other person not dealing
at
arm's length with the Vendor or any of the Subsidiaries (within the meaning
of
the Tax Act) or any Affiliate or Associate of any of the foregoing, except
as
disclosed on the Audited Financial Statements and except for usual employee
reimbursements and compensation paid in the ordinary course of the Purchased
Business. All loans or other indebtedness of the Vendor in favour of the
Subsidiaries or of any of the Subsidiaries in favour of the Vendor will have
been reimbursed on or prior to the Closing Date.
5.23 Taxes
Each
of
the Vendor and the Subsidiaries is not in default of filing its income Tax
or
Tax returns with the competent Governmental Authority; all of the Taxes and
all
of the income Taxes levied, either by the Government of Canada, the U.S.
Government or the government of any other country, the government of a province
or a state or by a municipality or any other authority incorporated or empowered
to do so, which are due and payable by the Vendor or any of the Subsidiaries,
have been discharged in full or have been the subject of appropriate reserves,
the amounts of which have been recorded in the Financial Statements; in respect
of all such Taxes or income Taxes, none of the Vendor nor the Subsidiaries
has
received any notice of assessment nor has been the subject of an audit,
investigation or threatened assessment for Taxes which are owing in respect
of
previous years to this date and which could be added to the amounts indicated
in
the books and records of the Vendor and of the Subsidiaries in respect of Taxes
and income Taxes payable.
5.24 Litigation
Except
as
described in Schedule
14,
there
are no actions, suits, audits, investigations, assessments or proceedings
(whether or not purportedly on behalf of the Vendor) pending or, to the best
knowledge of the Vendor, after due enquiry, threatened against or affecting
the
Vendor or any of the Subsidiaries or any of their employees and directors in
their capacities as such, at law or in equity or before or by any federal,
provincial, municipal or other governmental department, court, commission,
board, bureau, agency or instrumentality, domestic or foreign, or before or
by
an arbitrator or arbitration board. There is not currently outstanding against
or affecting the Purchased Assets or the Purchased Business or the Vendor’s or
the Subsidiaries’ employees or directors in their capacities as such, any
judgment, decree, injunction, ruling or order of any court, arbitrator,
governmental department, commission, agency or instrumentality.
5.25 Residency
The
Vendor is not a non-resident of Canada for the purposes of the Tax
Act.
5.26 GST
Registration
The
Vendor is a registrant for purposes of the ETA whose registration number is
122604119RT0001. Following completion of this Agreement, the Purchaser will
have
ownership, possession or use of all or substantially all of the property that
can reasonably be regarded as being necessary for the Purchaser to be able
to
carry on the Purchased Business.
5.27 Customers
and Suppliers
Schedule
17 sets out the major customers of the Purchased Business, and there has been
no
termination or cancellation of, and no modification or change in, the Vendor's
business relationship with any major customer or group of major customers.
There
has not been any material adverse change in relations with clients or suppliers
of the Purchased Business since May 31, 2005 and, to the knowledge of the
Vendor’s Party, no such change is anticipated including, without limitation, as
a result of the transactions contemplated herein. The agreements entered into
by
the Vendor or any of the Subsidiaries for the sale of inventories or the
provision of services by the Vendor or any of the Subsidiaries are upon
reasonable terms and conditions and have been entered into in the ordinary
course of the Purchased Business. Each of the Vendor and the Subsidiaries has
not had a significant problem in obtaining in a timely manner and at reasonable
cost any and all services used or to be used in the Purchased Business, nor
do
the Vendor or Vendor’s Party have any reason to believe each of the Vendor and
the Subsidiaries will have any significant problem in obtaining such services
in
the future. The agreements entered into by the Vendor or any of its Subsidiaries
for the provision of services or goods to the Vendor or any of the Subsidiaries
are for quantity, terms and quality reasonable with the level of the Purchased
Business and have been entered into in the ordinary course of the Purchased
Business. None of the Vendor nor any of the Subsidiaries has received written
notice of intent to terminate any Contracts or agreements for the purchase
of
the products or services of any of the Vendor or the Subsidiaries, nor do they
have actual knowledge, without inquiry, of any circumstances which are likely
to
result in the major customers materially decreasing their purchases of products
or services during the 12 months immediately after the
Closing.
5.28 Product
Warranties
Schedule
18 is a complete list of all express, written warranties given to purchasers
of
products supplied by the Vendor in connection with the Purchased Business.
The
books and records of each of the Vendor and the Subsidiaries accurately and
correctly set out and disclose, in accordance with generally accepted accounting
principles, the provisions with respect to the written warranties as at the
date
hereof.
5.29 Employee
Plans
Schedule
7 identifies each deferred compensation, bonus or incentive compensation, share
option or purchase, severance, termination pay, hospitalization or other medical
benefit, life or other insurance, vision, dental, drug, sick leave, disability,
salary continuation, vacation, supplemental unemployment benefits, profit
sharing, incentive or other compensation, mortgage assistance, pension or
supplemental pension plan, retirement compensation arrangement, group registered
retirement savings plan, deferred profit sharing plan, employee profit sharing
plan, savings, retirement or supplemental retirement plan, program or
arrangement, whether funded or unfunded, formal or informal, written or oral,
that is maintained, contributed to or required to be contributed to, by the
Vendor or any of the Subsidiaries, or to which the Vendor or any of the
Subsidiaries is a party, or bound by, or under which the Vendor or any of the
Subsidiaries has any liability or contingent liability with respect to or
relating to the Purchased Business or the Purchased Assets for the benefit
of
employees or former employees of the Vendor and any of the Subsidiaries, and
their beneficiaries and dependents (the "Employee Plans"). The Employee Plans
have been established under, and are registered as required, maintained and
administered in accordance with applicable Laws relating to such plans and
the
terms and conditions of such plans, and all filings, reports and disclosures
with respect thereto required by applicable Laws have been filed, made or
distributed. All obligations required by applicable laws, the Employee Plans
or
by contract to be performed in connection with the Employee Plans have been
performed and there are no outstanding defaults or violations by any party
to
any Employee Plan nor any Taxes, penalties or fees owing or exigible under
any
Employee Plan. All obligations of the Vendor and the Subsidiaries with respect
to Employee Plans are reflected in the Financial Statements in accordance with
generally accepted accounting principles. True and complete copies of all
Employee Plans, or where such Employee Plans are oral commitments, written
summaries of their terms, together with all related documents including, if
applicable, funding agreements, actuarial reports, funding returns and
statements, plan summaries, employee booklets and personnel manuals have been
provided to the Purchaser and attached as Schedule
7.
Where
required by applicable Laws, the Employee Plans or by contract, each Employee
Plan has been fully funded or fully insured. All Employee data necessary to
administer the Employee Plans is in the possession and control of the Vendor
and
the Subsidiaries and has been made available to the Purchaser and is complete
and accurate.
No
amendments or improvements have been made or promised respecting any Employee
Plan since May 31, 2005 other than those required by applicable Laws. Except
as
set out on Schedule
7,
no
Employee Plan provides for any payment or the acceleration of any right or
benefit as a consequence of the transaction contemplated by this Agreement.
The
Vendor and its Subsidiaries are not a party to, or bound by, and have no actual
or contingent liability in respect of any retirement or retirement savings
plans
including, without limitation, any registered or unregistered pension plan,
pensions, supplemental pensions, registered retirement savings plans or any
retirement compensation arrangements. No Employee Plan is a defined benefit
pension plan. No Employee Plan provides benefits beyond retirement or any other
cessation of service to retirees or any current or former directors, employees
or consultants of the Vendor or its Subsidiaries, or to their dependents or
beneficiaries. No Employee Plan provides for retroactive charges or premium
increases.
5.30 Collective
Agreements
There
are
no unions or employee associations, whether certified or voluntarily recognized,
that represent the employees of the Vendor or any of the Subsidiaries. The
Vendor and the Subsidiaries have 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.
The
Vendor and the Subsidiaries are not aware of any current attempts or any
attempts in the last three years, to organize or establish any labour union
or
employee association with respect to any Employees of the Vendor or the
Subsidiaries. There is no labour dispute involving the employees, including,
without limitation, with respect to workers’ compensation. There are no pending
unfair labour practice complaints involving any employee of the Vendor or the
Subsidiaries, nor any related or successor employer’s applications or
proceedings involving the Vendor or the Subsidiaries, nor have there been for
the past three years.
5.31 Employees
Schedule
7 contains a true, complete and accurate list of all individuals who are
employees, sales and other agents or representatives of the Vendor or of any
of
the Subsidiaries employed or engaged in the Purchased Business as of the date
of
this Agreement specifying with respect to salaried employees and sales or other
agents or representatives, the length of service, age, title, rate of salary
or
other pay and commission or bonus structure or other security-based compensation
participation for each such employee, agent or representative. Other than as
set
out in Schedule
7,
the
engagement of all of the employee of the Vendor and the Subsidiaries can be
terminated at any time for cause or upon providing reasonable notice of
termination upon termination without cause. The Vendor and the Subsidiaries
have
not incurred, and no circumstances exist, under which the Vendor and the
Subsidiaries could incur any liability for the misclassification of employees
as
independent contractors.
5.32 Employee
Accruals
All
accruals for unpaid vacation pay, premiums for unemployment insurance, workers’
compensation, health premiums, Canada Pension Plan or other pension plan
premiums, accrued wages, salaries and commissions and employee benefit plan
payments and other source deductions have been reflected in the books and
records of each of the Vendor and the Subsidiaries.
5.33 Ownership
of Subsidiaries’ Shares
The
Vendor has the right, power and authority to sell, transfer, assign and deliver
all the shares of the Subsidiaries (the "Subsidiaries’ Shares"). Immediately
prior to the delivery of the Subsidiaries’ Shares, the Vendor will be the sole
registered and beneficial owner of all the Subsidiaries’ Shares and will have
good and valid title to such Subsidiaries’ Shares, free and clear of all
Encumbrances and restrictions on transfer other than those in the articles
of
any of the Subsidiaries, which shall have been complied with at Closing. There
are no outstanding options, warrants, convertible securities, calls, rights,
commitments, preemptive rights or agreements or instruments or understandings
of
any character to which the Vendor is a party, obligating the Vendor to deliver
or sell, or cause to be delivered or sold, contingently or otherwise, such
Subsidiaries’ Shares. There are no voting trust agreements or other contracts,
agreements, arrangements, commitments, plans or understandings to which the
Vendor is a party restricting or otherwise relating to voting, dividend or
other
rights with respect to the Subsidiaries’ Shares.
5.34 Absence
of Undisclosed Liabilities
Each
of
the Vendor and the Subsidiaries is not now subject to any liabilities or
obligations, direct or indirect, absolute or, to the best of Vendor’s knowledge,
contingent, other than the liabilities or obligations set forth in the Financial
Statements,
and
those arising since May 31, 2005 in the ordinary course of business, none of
which is materially adverse to the Purchased Business and all of which in the
aggregate are not materially adverse to the Purchased Business. To the Vendor’s
knowledge, there are no facts or circumstances which might reasonably serve
as
the basis for, or give rise to, any material liabilities or obligations on
the
part of the Purchased Business other than liabilities or obligations disclosed
in the Audited Financial Statements,
or
arising thereafter in the ordinary course of business (none of which is
materially adverse to the Purchased Business). None of the Vendor nor any of
the
Subsidiaries has given or agreed to give, nor is it a party to or bound by,
any
guarantee or indemnity in respect of indebtedness, or other obligations, of
any
Person, or any other commitment by which any of the Vendor or the Subsidiaries
is, or is contingently, liable for such indebtedness or other
obligations.
5.35 No
Joint Venture Interests, etc.
None
of
the Vendor nor any of the Subsidiaries is a partner, beneficiary, trustee,
co-tenant, joint-venturer or otherwise a participant in any partnership, trust,
joint venture, co-tenancy or similar jointly owned business undertaking and
none
of the Vendor nor any of the Subsidiaries has significant investment interests
in any business owned or controlled by any third party.
5.36 Articles
and By-Laws
The
Articles and by-laws of each of the Subsidiaries, including any and all
amendments have been delivered or made available to the Purchaser and such
Articles and by-laws as so amended are in full force and effect and no
amendments are being made to same.
5.37 Bank
Accounts, etc.
Schedule
25
sets
forth a complete list of every financial institution in which the Subsidiaries
maintain any depository account, trust account or safety deposit box and the
names of all persons authorized to draw on or who have access to such accounts
or safety deposit box as well as a complete list and brief description of each
power of attorney currently in force and given by the Vendor or any of the
Subsidiaries.
5.38 No
Bankruptcy/Insolvency
None
of
the Vendor nor any of the Subsidiaries is insolvent, has committed an act of
bankruptcy, has proposed a compromise or arrangement to its creditors generally,
has had any petition for a receiving order in bankruptcy filed against it,
has
taken any proceeding with respect to a compromise or arrangement, has taken
any
proceeding to have itself declared bankrupt or wound-up, has taken any
proceeding to have a receiver appointed on any part of its assets, has had
any
encumbrance registered on any of its property, nor has it had any execution
or
distress become enforceable or become levied upon any of its
property.
5.39 Distributions
No
directors fees and no dividends or other distributions (in cash or other
property) on any of the Shares of any of the Subsidiaries have been authorized,
declared, paid or proposed since May
31,
2005.
5.40 Computer
Systems
The
computer systems of each of the Vendor and the Subsidiaries, including but
not
limited to, mainframes, mini-computers, personal computers and special purpose
systems are fully operational and have adequate documentation describing, among
other things, the operation of the hardware, required maintenance,
daily/weekly/monthly/quarterly/annual “run books” or other operational
procedures, all operating systems, applications and utilities. The documentation
matches the implementation of the hardware and software in use as of the date
thereof. Each of the Vendor and the Subsidiaries is in material compliance
with
all legal obligations with respect to all software used by it and has license
to
use all software currently used by it which it does not own as disclosed in
Schedule
26.
Further, each of the Vendor and the Subsidiaries has a copy of all source codes,
fully annotated, for all custom software and all other software not generally
available to the public, used by each of the Vendor and the Subsidiaries in
connection with the Purchased Business.
5.41 Full
Disclosure
The
Vendor and the Vendor’s Party have made available to the Purchaser, to the best
of Vendor’s and Vendor’s Party’s knowledge, all information, including the
financial, marketing, sales and operational information on a historical basis
relating to the Purchased Business which would be material to a purchaser of
the
Purchased Business. All information contained in this Agreement, or in any
Schedule hereto or which has been provided to the Purchaser is true and correct
in all material respects to the best of Vendor’s and Vendor’s Party’s knowledge,
and no material fact or facts have been omitted therefrom which would make
such
information, taken as a whole, false or misleading in light of the circumstances
in which such information was provided. Without limiting the generality of
the
foregoing, the Vendor and the Vendor’s Party have not failed to disclose to the
Purchaser any fact or information, to the best of Vendor’s and Vendor’s Party’s
knowledge, which would reasonably be considered to be material to a purchaser
of
the Purchased Business, acting reasonably, or likely to deter the Purchaser
from
completing the transactions contemplated herein.
REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER
The
Purchaser represents and warrants to the Vendor as follows and acknowledges
and
confirms that the Vendor is relying on such representations and warranties
in
connection with its sale of the Purchased Assets:
6.1 Organization
The
Purchaser is a corporation validly subsisting under the laws of Canada and
has
the corporate power to enter into this Agreement and to perform its obligations
hereunder.
6.2 Authorization
This
Agreement has been duly authorized, executed and delivered by the Purchaser
and
is a legal, valid and binding obligation of the Purchaser, enforceable against
the Purchaser by the Vendor in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency and other laws affecting
the rights of creditors generally and except that equitable remedies may only
be
granted in the discretion of a court of competent jurisdiction.
6.3 No
Violation
The
execution and delivery of this Agreement by the Purchaser and the consummation
of the transactions herein provided for will not result in the violation of,
or
constitute a default under, or conflict with or cause the acceleration of any
obligation of the Purchaser under:
| (a) |
any
Contract to which the Purchaser is a party or by which it is
bound;
|
| (b) |
any
provision of the constating documents or by-laws or resolutions of
the
board of directors (or any committee thereof) or shareholders of
the
Purchaser;
|
| (c) |
any
judgment, decree, order or award of any court, governmental body
or
arbitrator having jurisdiction over the Purchaser;
or
|
| (d) |
any
applicable law, statute, ordinance, regulation or
rule.
|
6.4 Consents
and Approvals
There
is
no requirement for the Purchaser to make any filing with, give any notice to
or
obtain any licence, permit, certificate, registration, authorization, consent
or
approval of, any Governmental Authority as a condition to the lawful
consummation of the transactions contemplated by this Agreement, or such filing,
notice, consent or approval will have been obtained or filed on or prior to
the
Closing Date.
6.5 Investment
Canada
The
Purchaser is a Canadian within the meaning of the Investment
Canada Act.
6.6 GST
Registration
The
Purchaser is a registrant for purposes of the ETA whose registration number
is
102487287RT0001.
SURVIVAL
OF DECLARATIONS, REPRESENTATIONS AND WARRANTIES
7.1 Survival
of Declarations, Representations and Warranties
|
All
of the declarations, representations and warranties made or given
herein,
and in any document or certificate ancillary hereto, will continue
to have
full force and effect from the Closing Date for the period indicated
hereinbelow, notwithstanding any investigation which the Purchaser
may
have made prior to the Closing, the whole subject to the following
terms
and conditions:
|
| (a) |
the
representations and warranties set out in paragraphs 5.1
to
5.4,
5.6,
5.8,
5.9,
5.13
and 5.17
will continue to have full force and effect from the Closing Date,
without
any time limitation;
|
| (b) |
all
of the declarations, representations and warranties set out in Article
V,
excluding those referred to in sub-paragraphs 7.1 (a) and 7.1 (c)
or and
in Article VI, will continue to have full force and effect for a
period of
two years from the Closing Date;
|
| (c) |
all
of the Vendor and the Vendor’s Party’s declarations, representations and
warranties herein that are related directly or indirectly to taxation
will
continue to have full force and effect for the prescribed fiscal
prescription period and, without any time limitation in the event
of any
re-assessment of prior years, notice of assessment, or misrepresentation
of facts, through negligence, carelessness or voluntary omission,
or where
a return has been filed or information has been furnished fraudulently
for
the purposes of any Tax law.
|
COVENANTS
8.1 Access
to Purchased Business and Purchased Assets
The
Vendor shall forthwith make available to the Purchaser and its authorized
representatives and, if requested by the Purchaser, provide a copy to the
Purchaser of, all title documents, Contracts, financial statements, policies,
plans, reports, licences, orders, permits, books of account, accounting records
and all other documents, information and data relating to the Purchased Business
(the "Due Diligence Process"). The Vendor shall afford the Purchaser and its
authorized representatives every reasonable opportunity to have free and
unrestricted access to the Purchased Assets and all other property and assets
utilized in the Purchased Business. At the request of the Purchaser, the Vendor
shall execute such consents, authorizations and directions as may be necessary
to permit any inspection of the Purchased Business or any of the Purchased
Assets or to enable the Purchaser or its authorized representatives to obtain
full access to all files and records relating to any of the Purchased Assets
maintained by governmental or other public authorities. At the Purchaser's
request, the Vendor shall co-operate with the Purchaser in arranging any such
meetings at times agreeable to the Vendor and as the Purchaser should reasonably
request with:
| (a) |
employees
employed in the Purchased Business;
|
| (b) |
customers,
suppliers, distributors or others who have or have had a business
relationship with the Vendor in respect of the Purchased Business;
and
|
| (c) |
the
auditors, solicitors or any other persons engaged or previously engaged
to
provide services to the Vendor who have knowledge of matters relating
to
the Purchased Business or Purchased
Assets.
|
8.2 Delivery
of Books and Records
At
the
Time of Closing, there shall be delivered to the Purchaser by the Vendor all
the
books and records described in subsection 2.1(l).
The
Purchaser agrees that it will preserve the books and records so delivered to
it
for a period of six years from the Closing Date, or for such longer period
as is
required by any applicable law, and will permit the Vendor or its authorized
representatives reasonable access thereto in connection with the affairs of
the
Vendor relating to its matters, but the Purchaser shall not be responsible
or
liable to the Vendor for or as a result of any accidental loss or destruction
of
or damage to any such books or records.
8.3 Change
and Use of Name
The
Vendor agrees that within 5 days from the Closing Date it shall file articles
of
amendment or such other corporate action necessary to change its name and the
names of any of its Associates or Affiliates to a name that does not include
the
words "Consultronics" or any part thereof or any similar words. The Vendor
agrees that from and after the Closing Date neither the Vendor nor any of its
Associates or Affiliates will use the words "Consultronics" or any part thereof
or any similar words.
8.4 Conduct
of Purchased Business Prior to Closing
Without
in any way limiting any other obligations of the Vendor hereunder, during the
period from the date hereof to the Time of Closing:
| (a) |
Conduct
Business in the Ordinary Course.
Each of the Vendor and the Subsidiaries shall conduct the Purchased
Business only in the ordinary and normal course consistent with past
practice and each of the Vendor and the Subsidiaries shall not, without
the prior written consent of the Purchaser, enter into any transaction
or
refrain from doing any action that, if effected before the date of
this
Agreement, would constitute a breach of any representation, warranty,
covenant or other obligation of the Vendor contained herein, and
each of
the Vendor and the Subsidiaries shall not enter into any material
supply
arrangements relating to the Purchased Business or make any material
decisions or enter into any material Contracts with respect to the
Purchased Business without the consent of the
Purchaser;
|
| (b) |
Continue
Insurance.
Until the Time of Closing each of the Vendor and the Subsidiaries
shall
continue to maintain in full force and effect all policies of insurance
or
renewals thereof now in effect;
|
| (c) |
Regulatory
Consents. The
Vendor shall obtain, at or prior to the Time of Closing, from all
appropriate federal, provincial, municipal or other governmental
or
regulatory bodies, licences, permits, consents, approvals, certificates,
registrations, and authorizations described in Schedule
15.
|
| (d) |
Contractual
Consents.
The Vendor shall give or obtain, at or prior to the Time of Closing,
the
notices, consents and approvals described in Schedule
16;
|
| (e) |
Preserve
Goodwill.
The Vendor shall use its best efforts to preserve intact the Purchased
Business and Purchased Assets and to carry on the Purchased Business
as
currently conducted, and the Vendor shall use its best efforts to
promote
and preserve for the Purchaser the goodwill of suppliers, customers
and
others having business relations with the
Vendor;
|
| (f) |
Discharge
Liabilities.
The Vendor shall pay and discharge the liabilities of the Vendor
relating
to the Purchased Business in the ordinary course in accordance and
consistent with the previous practice of the Vendor, except those
contested in good faith by the
Vendor;
|
| (g) |
Corporate
Action.
The Vendor shall take or cause to be taken all necessary corporate
action,
steps and proceedings to approve or authorize, validly and effectively,
the transfer of the Purchased Assets to the Purchaser and the execution
and delivery of this Agreement and the other agreements and documents
contemplated hereby and to cause all necessary meetings of directors
and
shareholders of the Vendor to be held for such purpose;
and
|
| (h) |
Best
Efforts.
The Vendor shall use its best efforts to satisfy the conditions of
Closing
in favour of the Purchaser mentioned in section 9.1
hereof, excluding however the condition contained in subsection
9.1(b).
|
8.5 Delivery
of Conveyancing Documents
On
the
Closing Date, the Vendor shall deliver to the Purchaser all necessary deeds,
conveyances, bills of sale, assurances, transfers, assignments, discharges
and
any other documentation necessary or reasonably required to transfer the
Purchased Assets to the Purchaser with a good and marketable title, free and
clear of all Encumbrances whatsoever except for Permitted
Encumbrances.
8.6 Retail
Sales Tax Certificate
On
the
Closing Date, the Vendor shall deliver to the Purchaser a certificate issued
by
the Minister of Revenue of Ontario under subsection 6(1) of the
Retail
Sales Tax Act
(Ontario).
8.7 Delivery
of Vendor's Closing Documentation
On
the
Closing Date, each of the Vendor and the Subsidiaries shall deliver to the
Purchaser a current certificate of status with respect to the Vendor and two
copies, certified by a senior officer of it as of the Closing Date, of its
respective constating documents and by-laws and of the resolutions authorizing
the execution, delivery and performance by the each of the Vendor and the
Subsidiaries of this Agreement and any documents to be provided by it pursuant
to the provisions hereof.
8.8 Delivery
of Purchaser's Closing Documentation
The
Purchaser shall deliver to the Vendor a current certificate of status, with
respect to the Vendor, and two copies, certified by a senior officer of the
Purchaser as of the Closing Date, of its constating documents and by-laws and
of
the resolution authorizing the execution, delivery and performance by the
Purchaser of this Agreement and any documents to be provided by it pursuant
to
the provisions hereof. The Purchaser shall also execute and deliver or cause
to
be executed and delivered [two] copies of such other documents relevant to
the
closing of the transactions contemplated hereby as the Vendor, acting
reasonably, may request.
8.9 Employees
| (a) |
The
Vendor and the Subsidiaries agree to provide the Purchaser with an
up-to-date list of the names of the Employees at least two Business
Days
and not more than four Business Days prior to the Closing Date. The
Purchaser agrees that it shall offer employment to all Employees,
effective as at the Time of Closing and conditional on the Closing
of this
Agreement and the transactions contemplated in the Agreement (the
"Remaining Employees"), on substantially the same terms and conditions
of
employment in aggregate as are then applicable to the
Employees.
However, nothing herein shall reduce the Purchaser’s management rights in
the pursuit of the Purchased Business, including, without limitation,
the
right to terminate or dismiss any of the Remaining
Employees.
|
| (b) |
The
Vendor and the Subsidiaries shall employ all of the employees set
out in
Schedule
7
until the Time of Closing, except for any employees who prior to
the Time
of Closing (the "Former
Employees"):
|
| (i) |
are
terminated for cause;
|
| (ii) |
are
terminated with the Purchaser's consent, which consent shall not
be
unreasonably withheld;
|
| (iii) |
voluntarily
resign;
|
| (iv) |
retire;
or
|
| (v) |
do
not accept the Purchaser’s offer of
employment.
|
The
Vendor and the Subsidiaries shall not attempt in any way to discourage any
of
the Employees from accepting any offer of employment to be made by the
Purchaser. The Vendor and the Purchaser will cooperate with one another in
presenting the offers of employment.
The
Vendor agrees that up to and including the Closing Date, all amounts of salary,
commissions, sick leave, bonuses or other amounts owed to or in respect of
the
Remaining Employees shall be paid in full by the Vendor or accrued in the
Audited Closing Financial Statements. Accrued amounts for vacation pay, workers’
compensation, employment insurance, income tax and all employee benefits for
Remaining Employees shall be assumed by the Purchaser and the Vendor agrees
to
properly accrue in the Closing Audited Financial Statements all vacation pay,
workers compensation, employment insurance, income tax, employee benefits and
other payments owing to any such person or agency in respect of such employment
up to the Closing Date.
The
Purchaser shall have no obligations to or any liability for any Former Employee.
The Vendor agrees to indemnify and hold harmless the Purchaser from and against
(i) all claims made by Remaining Employees based on acts or omissions by the
Vendor during the period of time prior to the Closing Date, and (ii) all claims
made by Former Employees.
8.10 Employee
Plans
Plans
listed in Schedule
7
will be
transferred to the Purchaser excluding, however, any stock option plan, such
as
the employee stock option plan dated April 1st,
1997
and any bonus plan for senior management such as the SMART bonus plan dated
February 3rd,
2005
(the "SMART Bonus Plan"), which shall be terminated by the Vendor at Vendor’s
expense. Purchaser may amend any plan listed in Schedule
7
to
reflect Purchaser’s current employee plans. In the event a plan cannot be
transferred, the Purchaser agrees that it will establish replacement plans
(the
"Replacement Plans") or offer participation in the Purchaser’s current employee
plans for those Remaining Employees who accept the offers of employment to
be
made by the Purchaser pursuant to section 8.9
and who
commence working for the Purchaser pursuant to such offers (the "Transferred
Employees") in respect of their employment by the Purchaser from and after
the
Time of Closing. The Replacement Plans, any amendment to any plan listed in
Schedule 7 or Purchaser’s current employee plans shall provide to the
Transferred Employees benefits that are, at least, similar in the aggregate
to
benefits currently provided by the Vendor, as disclosed in Schedule
7;
however, the Transferred Employees will become eligible to any of the
Purchaser’s stock option plan, deferred share unit plan and/or senior management
bonus plan, on the same basis and criteria applicable for Purchaser’s current
employees. It is agreed that the Purchaser’s senior management bonus plan will
provide, at least, the same targeted bonus as in the SMART Bonus Plan. For the
purpose of determining the eligibility of a Transferred Employee for membership
or benefits under the Employee Plans, under the Replacement Plans or under
the
Purchaser’s current employee plans:
| (a) |
their
period of employment shall include employment with both the Vendor
and the
Purchaser and shall be deemed not to have been interrupted at the
Time of
Closing; and
|
| (b) |
their
period of membership shall include membership in both the Employee
Plans
and the Replacement Plans and shall be deemed not to have been interrupted
at the Time of Closing.
|
The
Transferred Employees shall begin to accrue full benefits under the Replacement
Plans as of the Time of Closing in respect of their employment by the Purchaser.
The Purchaser agrees to use its best effort to obtain the required approvals
of
the applicable federal and provincial regulatory authorities in connection
with
the establishment and registration of the Replacement Plans or the assignment
to
the Purchaser of the Employee Plans (excluding, however, any stock option plan
and senior management bonus plan).
8.11 Post-closing
Assistance
to the Vendor
The
Purchaser agrees to provide the Vendor, at Vendor’s expense, with assistance and
access to the relevant books and records in order to allow the Vendor and its
outside consultants to prepare, within 30 days from the Closing Date, all
required filings, including any schedules, regarding the research and
development report to be filed by the Vendor for the period beginning on June
1,
2005 and ending on the Closing Date, and, as soon as practicable following
the
Closing Date and in any event within the legally prescribed periods, all
schedules required for the corporate income tax return, the branch tax return
and all other required filings by the Vendor. The terms and conditions on which
the services of the Remaining Employees will be made available to the Vendor
are
set out in Schedule
30.
CONDITIONS
OF CLOSING
9.1 Conditions
of Closing in Favour of the Purchaser
The
sale
and purchase of the Purchased Assets is subject to the following terms and
conditions for the exclusive benefit of the Purchaser, to be performed or
fulfilled to the Purchaser’s satisfaction at or prior to the Time of
Closing:
| (a) |
Due
Diligence Process.
The Purchaser shall have completed and shall, acting reasonably,
be fully
satisfied with its Due Diligence
Process;
|
| (b) |
Representations
and Warranties.
The representations and warranties of the Vendor contained in this
Agreement shall be true and correct at the Time of Closing with the
same
force and effect as if such representations and warranties were made
at
and as of such time, and a certificate of the President of the Vendor,
dated the Closing Date, to that effect shall have been delivered
to the
Purchaser, such certificate to be in form and substance satisfactory
to
the Purchaser, acting reasonably;
|
| (c) |
Covenants.
All of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Vendor at or before the Time of
Closing
shall have been complied with or performed, and a certificate of
the
President of the Vendor, dated the Closing Date, to that effect shall
have
been delivered to the Purchaser, such certificate to be in form and
substance satisfactory to the Purchaser, acting
reasonably;
|
| (d) |
Regulatory
Consents.
There shall have been obtained from all appropriate federal, provincial,
municipal or other governmental or administrative bodies such licences,
permits, consents, approvals, certificates, registrations and
authorizations as are required to be obtained by the Vendor or any
of the
Subsidiaries to permit the change of ownership of the Purchased Assets
contemplated hereby, including, without limitation, those described
in
Schedule
15,
in each case in form and substance satisfactory to the Purchaser,
acting
reasonably;
|
| (e) |
Contractual
Consents.
The Vendor shall have given or obtained all the notices, consents
and
approvals described in Schedule
16,
including consents to assignment of Leases, shareholders' consent
to
proceed with the transactions contemplated herein and renunciation
by each
outside investor, including every shareholder being a party to any
shareholders agreements or similar agreement, to any right thereunder,
in
each case in form and substance satisfactory to the Purchaser, acting
reasonably;
|
| (f) |
Non-Competition
Agreement.
The Vendor, the Vendor’s Party and the current senior management team
shall have executed and delivered to the Purchaser a non-competition
agreement upon such terms and conditions to be negotiated between
the
parties, acting reasonably;
|
| (g) |
No
Action or Proceeding.
No legal or regulatory action or proceeding shall be pending or threatened
by any person to enjoin, restrict or prohibit the purchase and sale
of the
Purchased Assets contemplated
hereby;
|
| (h) |
No
Material Damage.
No material damage by fire or other hazard to the whole or any material
part of the Purchased Assets shall have occurred from the date of
the
preliminary offer with respect to the transactions contemplated herein
presented by the Purchaser to the Vendor on October 27, 2005, to
the time
of Closing;
|
| (i) |
No
Material Adverse Change.
There shall have been no material adverse change in the Purchased
Business
since May 31, 2005;
|
| (j) |
Instruments
of Transfer.
The Vendor shall have received from its Affiliates such instruments
of
transfer necessary (including the share certificates) to transfer
the
securities of such Affiliates held by the Vendor from the Vendor
to the
Purchaser;
|
| (k) |
Legal
Opinion from Vendor’s Legal Counsel.
The Purchaser will have received, at Closing, a legal opinion from
the
Vendor’s legal counsel, the form and content of which are satisfactory to
the Purchaser and its counsel; such opinion will deal, among other
things,
but without restricting the generality of the foregoing, with questions
of
law relating to the corporate and legal status of each of the Vendor
and
the Subsidiaries, the authority of each of the Vendor and the Subsidiaries
in respect of the transactions contemplated by this Agreement, and
its
power and capacity, and will attest to the validity of the Vendor’s
registered title of ownership to the Real Property, the Subsidiaries’
Shares and any patents part of the Intellectual
Property;
|
| (l) |
Title
to Real Property.
On Closing, the Purchaser shall acquire good and marketable title
to the
Real Property, free and clear of all Encumbrances, including the
Existing
Mortgage and any interest and penalty thereon which shall have been
paid
by Vendor, other than Permitted
Encumbrances;
|
| (m) |
Employment
Agreements.
Employment Agreements will be signed by the key employees, as determined
by the Purchaser;
|
| (n) |
Environment.
A
phase 1 environment study with respect to the Real Property, without
any
reserve or any potential liability mentioned therein, will be delivered
by
the Vendor to the Purchaser no later than on the Closing
Date;
|
| (o) |
Customer
Purchase Orders. The
Purchaser will have received from the Vendor evidence of sufficient
and
normal backlog (customer purchase orders) and work in progress in
accordance with current practices of the Vendor on the Closing
Date;
|
| (p) |
Good
Standing.
The Vendor will deliver to the Purchaser certificates of good standing
with respect to the Vendor and each of the
Subsidiaries;
|
| (q) |
Retail
Sales Tax.
Delivery
of Evidence Relating to Retail Sales Tax. The
Vendor shall have delivered to the Purchaser the certificate contemplated
by section 8.6
representing evidence that all governmental charges required to be
withheld and remitted by the Vendor in respect of the Purchased Business
under the Retail
Sales Tax Act (Ontario)
have been paid;
|
| (r) |
Health
and Safety. Delivery
of Evidence Relating to Workplace Safety and Insurance
Compliance.
The Vendor shall have delivered to the Purchaser a Clearance Certificate
from the Ontario Workplace Safety and Insurance Board and any similar
certificate from other provincial workers’ compensation boards where there
are Employees in such province confirming that the Vendor has made
all
payments in respect of workers’ compensation up to the Closing Date and
there are no outstanding amounts owing;
|
| (s) |
Inter-company
accounts.
Consultronics Europe must have paid or transferred as share capital
all
its inter-company balances due to the Vendor on or prior to the Closing
Date;
|
| (t) |
Cash
-
Subsidiaries.
All cash and cash equivalents of the Subsidiaries, as of the Closing
Date
as per the Subsidiaries’ audited financial statements, will remain with
the Subsidiaries;
|
| (u) |
Termination.
Save and except for any confidentiality undertakings in favour of
the
Purchaser, all agreements between the Vendor and the Purchaser executed
before the date of this Agreement will be terminated as of the Closing
Date, and each of the Vendor and the Purchaser will grant in favour
of the
other a release and discharge with respect to such
agreements;
|
| (v) |
Additional
Agreements.
The execution by the Vendors of all required documents and agreements
to
register the assignment of the Purchased Assets, including, without
limitation, a Deed of transfer with respect to the Real Property
and the
required documentation with respect to the Intellectual
Property;
|
| (w) |
Schedules.
The Purchaser shall have received and approved updated Schedules
to this
Agreement; and
|
| (x) |
Authorizations
and Other Documentation.
All of the documents relating to the authorization and execution
of the
transactions provided for herein and all of the actions and measures
taken
on or prior to the Closing Date in respect of the fulfilment by the
Vendor
of its obligations pursuant hereto will be satisfactory to the Purchaser
and its counsel, and the Purchaser will have received copies of all
such
documents in a form which is satisfactory to the Purchaser and its
counsel.
|
If
any of
the conditions contained in this section 9.1
shall
not be performed or fulfilled at or prior to the Time of Closing to the
satisfaction of the Purchaser, acting reasonably, the Purchaser may, by notice
to the Vendor, terminate this Agreement and the obligations of the Vendor and
the Purchaser under this Agreement, other than the obligations contained in
sections 13.2
and
13.3,
provided that the Purchaser may also bring an action pursuant to Article
XI
against
the Vendor for damages suffered by the Purchaser where the non-performance
or
non-fulfilment of the relevant condition is as a result of a breach of covenant,
representation or warranty by the Vendor. Any such condition may be waived
in
whole or in part by the Purchaser without prejudice to any claims it may have
for breach of covenant, representation or warranty. The Purchaser may also
request postponement of the Closing Date by 15 days, pursuant to a written
notice to the Vendor, to allow the Vendor to remedy the alleged default and
fulfil all of the conditions set out herein, it being understood that such
new
date will then become the Closing Date for the purposes hereof and that if
such
alleged default is not remedied within such delay, the Buyer may, at the expiry
of the said 15-day period, exercise anew any of the options provided
herein.
9.2 Conditions
of Closing in Favour of the Vendor
The
sale
and purchase of the Purchased Assets is subject to the following terms and
conditions for the exclusive benefit of the Vendor, to be performed or fulfilled
at or prior to the Time of Closing:
| (a) |
Representations
and Warranties.
The representations and warranties of the Purchaser contained in
this
Agreement shall be true and correct in all material respects at the
Time
of Closing with the same force and effect as if such representations
and
warranties were made at and as of such time, and a certificate of
the
President of the Purchaser, dated the Closing Date, to that effect
shall
have been delivered to the Vendor, such certificate to be in form
and
substance satisfactory to the Vendor, acting
reasonably;
|
| (b) |
Covenants.
All of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Purchaser at or before the Time
of
Closing shall have been complied with or performed in all material
respects, and a certificate of the President of the Purchaser, dated
the
Closing Date, to that effect shall have been delivered to the Vendor,
such
certificate to be in form and substance satisfactory to the Vendor,
acting
reasonably;
|
| (c) |
Regulatory
Consents.
There shall have been obtained from all appropriate federal, provincial,
municipal or other governmental or administrative bodies such licences,
permits, consents, approvals, certificates, registrations and
authorizations as are required to be obtained by the Purchaser to
permit
the change of ownership of the Purchased Assets contemplated hereby,
including those described in Schedule
15;
|
| (d) |
Bulk
Sales Compliance. It
is agreed that the Purchaser shall not require the Vendor to comply,
or to
assist the Purchaser to comply, with the requirements of the Bulk
Sales Act (Ontario),
provided that, at the Closing Date, the Vendor will apply (or direct
the
Purchaser to apply) any payment made pursuant to section 3.2(b)
to
satisfy amounts owing by the Vendor to creditors of the Vendor not
accounted for in the Closing Audited Financial Statements. Notwithstanding
the foregoing, the Vendor agrees to indemnify and save harmless the
Purchaser from and against any Claims (including Third Party Claims)
the
Purchaser may suffer or be exposed to by virtue of non-compliance
with the
Bulk
Sales Act (Ontario);
and
|
| (e) |
No
Action or Proceeding.
No legal or regulatory action or proceeding shall be pending or threatened
by any person to enjoin, restrict or prohibit the purchase and sale
of the
Purchased Assets contemplated
hereby.
|
If
any of
the conditions contained in this section 9.2
shall
not be performed or fulfilled at or prior to the Time of Closing to the
satisfaction of the Vendor acting reasonably, the Vendor may, by notice to
the
Purchaser, terminate this Agreement and the obligations of the Vendor and the
Purchaser under this Agreement, other than the obligations contained in sections
13.2
and
13.3,
provided that the Vendor may also bring an action pursuant to Article XI against
the Purchaser for damages suffered by it where the non-performance or
non-fulfilment of the relevant condition is as a result of a breach of covenant,
representation or warranty by the Purchaser. Any such condition may be waived
in
whole or in part by the Vendor without prejudice to any claims it may have
for
breach of covenant, representation or warranty.
CLOSING
DATE AND TRANSFER OF POSSESSION
10.1 Transfer
Subject
to compliance with the terms and conditions hereof, the transfer of possession
of the Purchased Assets shall be deemed to take effect as at the close of
business on the day immediately prior to the Closing Date.
10.2 Place
of Closing
The
closing shall take place at the Time of Closing at the offices of Xxxxxx Xxxxxx
Xxxxxxx LLP, counsel for the Vendor, Scotia Plaza, 40 King Street West, Suite
4200, Xxxxxxx, Xxxxxxx, X0X 0X0 (the "Closing").
10.3 Further
Assurances
Each
party to this Agreement covenants and agrees that it will at all times after
the
Closing Date, at the expense of the requesting party, promptly execute and
deliver all such documents, including, without limitation, all such additional
conveyances, transfers, consents and other assurances and do all such other
acts
and things as the other party, acting reasonably, may from time to time request
be executed or done in order to better evidence or perfect or effectuate any
provision of this Agreement or of any agreement or other document executed
pursuant to this Agreement or any of the respective obligations intended to
be
created hereby or thereby.
10.4 Risk
of Loss
From
the
date hereof up to the Time of Closing, the Purchased Assets shall be and remain
at the risk of the Vendor. If, prior to the Time of Closing, all or any part
of
the Purchased Assets that are necessary to carry on the Purchased Business
as
currently conducted are destroyed or damaged by fire or any other casualty
or
shall be appropriated, expropriated or seized by governmental or other lawful
authority, unless the Purchaser terminates its obligations under this Agreement
as contemplated by section 9.1,
the
Purchaser may complete the purchase without reduction of the Purchase Price,
in
which event all proceeds of insurance or compensation for expropriation or
seizure shall be paid to the Purchaser at the Time of Closing and all right
and
claim of the Vendor to any such amounts not paid by the Closing Date shall
be
assigned at the Time of Closing to the Purchaser. For greater certainty, the
Purchased Assets shall be at the risk of the Purchaser from and after the Time
of Closing.
INDEMNIFICATION
11.1 Indemnification
by the Vendor
and
the Vendor’s Party
Subject
to section 11.10,
the
Vendor and the Vendor’s Party, jointly and severally, agree to indemnify and
save harmless the Purchaser from all Losses suffered or incurred by the
Purchaser as a result of or arising directly or indirectly out of or in
connection with:
| (a) |
any
breach by the Vendor of or any inaccuracy of any representation or
warranty of the Vendor contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto (provided
that the
Vendor shall not be required to indemnify or save harmless the Purchaser
in respect of any breach or inaccuracy of any representation or warranty
unless the Purchaser shall have provided notice to the Vendor in
accordance with section 11.3
on
or prior to the expiration of the applicable time period related
to such
representation and warranty as set out in section 7.1);
|
| (b) |
any
breach or non-performance by the Vendor of any covenant to be performed
by
it that is contained in this Agreement or in any agreement, certificate
or
other document delivered pursuant
hereto;
|
| (c) |
the
operations of the Purchased Business before the Time of Closing including,
without limitation, any failure by the Vendor to pay, satisfy, discharge,
perform or fulfil any of the Excluded
Liabilities;
|
| (d) |
all
losses, costs and damages suffered by the Purchaser as a result of
the
failure of the Vendor to perform any of its obligations relating
to or in
respect of the Purchased Business not assumed by the Purchaser pursuant
to
this Agreement, or arising under contracts or other agreements assumed
by
the Purchaser pursuant to this Agreement but relating to or arising
out of
action or inaction of the Vendor and relating to events which occurred
prior to the Closing Date; and
|
| (e) |
all
losses, costs and damages suffered by the Purchaser arising from
any claim
by or on behalf of any Former
Employees.
|
11.2 Indemnification
by the Purchaser
Subject
to section 11.10,
the
Purchaser agrees to indemnify and save harmless the Vendor from all Losses
suffered or incurred by the Vendor as a result of or arising directly or
indirectly out of or in connection with:
| (a) |
any
breach by the Purchaser of or any inaccuracy of any representation
or
warranty contained in this Agreement or in any agreement, instrument,
certificate or other document delivered pursuant hereto (provided
that the
Purchaser shall not be required to indemnify or save harmless the
Vendor
in respect of any breach or inaccuracy of any representation or warranty
unless the Vendor shall have provided notice to the Purchaser in
accordance with section 11.3
on
or prior to the expiration of the applicable time period related
to such
representation and warranty as set out in section 7.1);
|
| (b) |
any
breach or non-performance by the Purchaser of any covenant to be
performed
by it that is contained in this Agreement or in any agreement, certificate
or other document delivered pursuant hereto;
and
|
| (c) |
the
operations of the Purchased Business after the Time of Closing including,
without limitation, any failure by the Purchaser to pay, satisfy,
discharge, perform or fulfil any of the Assumed
Liabilities.
|
11.3 Notice
of Claim
In
the
event that a party (the "Indemnified Party") shall become aware of any claim,
proceeding or other matter (a "Claim") in respect of which the other party
(the
"Indemnifying Party") agreed to indemnify the Indemnified Party pursuant to
this
Agreement, the Indemnified Party shall promptly give written notice thereof
to
the Indemnifying Party. Such notice shall specify whether the Claim arises
as a
result of a claim by a person against the Indemnified Party (a "Third Party
Claim") or whether the Claim does not so arise (a "Direct Claim"), and shall
also specify with reasonable particularity (to the extent that the information
is available):
| (a) |
the
factual basis for the Claim; and
|
| (b) |
the
amount of the Claim, if known.
|
If,
through the voluntary fault of the Indemnified Party, the Indemnifying Party
does not receive notice of any Claim in time to effectively contest the
determination of any liability reasonably susceptible of being contested, the
Indemnifying Party shall be entitled to set off against the amount claimed
by
the Indemnified Party the amount of any Losses incurred by the Indemnifying
Party resulting from the Indemnified Party's failure to give such notice on
a
timely basis.
11.4 Direct
Claims
With
respect to any Direct Claim, following receipt of notice from the Indemnified
Party of the Claim, the Indemnifying Party shall have 60 days to make such
investigation of the Claim as is considered necessary or desirable. For the
purpose of such investigation, the Indemnified Party shall make available to
the
Indemnifying Party the information relied upon by the Indemnified Party to
substantiate the Claim, together with all such other information as the
Indemnifying Party may reasonably request. If both parties agree at or prior
to
the expiration of such 60-day period (or any mutually agreed upon extension
thereof) to the validity and amount of such Claim, the Indemnifying Party shall
immediately pay to the Indemnified Party the full agreed upon amount of the
Claim (plus all accrued interest since the date of the Claim), failing which
the
matter shall be referred to binding arbitration in such manner as the parties
may agree or shall be determined by a court of competent
jurisdiction.
11.5 Third
Party Claims
With
respect to any Third Party Claim, the Indemnifying Party shall have the right,
at its expense, to participate in the negotiation, settlement or defence of
the
Claim and, in such event, the Indemnifying Party shall reimburse the Indemnified
Party for all the Indemnified Party's out-of-pocket expenses as a result of
such
participation. If any Third Party Claim is of a nature such that the Indemnified
Party is required by applicable law to make a payment to any person (a "Third
Party") with respect to the Third Party Claim before the completion of
settlement negotiations or related legal proceedings, the Indemnified Party
may
make such payment and the Indemnifying Party shall, forthwith after demand
by
the Indemnified Party, reimburse the Indemnified Party for such payment. If
the
amount of any liability of the Indemnified Party under the Third Party Claim
in
respect of which such a payment was made, as finally determined, is less than
the amount that was paid by the Indemnifying Party to the Indemnified Party,
the
Indemnified Party shall, forthwith after receipt of the difference from the
Third Party, pay the amount of such difference to the Indemnifying
Party.
11.6 Settlement
of Third Party Claims
The
Indemnified Party shall have the exclusive right to contest, settle or pay
the
amount of any Third Party Claim. The Indemnified Party shall not settle any
Third Party Claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed; provided, however, that
the liability of the Indemnified Party shall be limited to the proposed
settlement amount if any such consent is not obtained for any
reason.
11.7 Co-Operation
The
Indemnified Party and the Indemnifying Party shall co-operate fully with each
other with respect to Third Party Claims, and shall keep each other fully
advised with respect thereto (including supplying copies of all relevant
documentation promptly as it becomes available).
11.8 Inventories
The
Purchase Price will be reduced by the book value of any item of inventories
that
was computed as of the Closing Date that has not been consumed by the Purchaser
within eighteen (18) months following the Closing Date (the «Amount
A»).
This
amount will be offset by the book value of any item of inventories included
in
the inventories as of the Closing Date and reserved for, but that has been
consumed within eighteen (18) months following the Closing Date (the
«Amount
B»).
If
the difference between Amount A and Amount B is within the range of ($37,500)
and $37,500, then no amount will be reimbursed by the Vendor to the Purchaser.
If the difference between these two amounts is greater than $37,500, the total
aggregate amount of such difference will be reimbursed by the Vendor to the
Purchaser within thirty (30) days of a notice to such effect from the Purchaser
to the Vendor. If the difference between these two amounts is a larger negative
number than ($37,500), then the total aggregate amount of such difference will
be reimbursed by the Purchaser to the Vendor within thirty (30) days of a notice
to such effect from the Vendor to the Purchaser. For the purposes hereof, dollar
figures in brackets denote negative numbers.
Products,
including their sub-assembly parts and component parts, that have been
discontinued by the Purchaser will be excluded as part of this calculation.
In
addition, the items included in Schedule
29
that
have been received into inventories and are still included as part of
inventories within eighteen (18) months of the Closing Date will be included
as
part of this calculation, provided, however, that the Purchaser will cooperate
with the Vendor and the Vendor’s Party in managing such inventories with the
supplier(s), so as to minimize the levels thereof on such date.
11.9 Accounts
receivable
The
Purchaser may, no later than 120 days after the Closing Date, give a notice
to
the Vendor listing accounts (“Uncollected Accounts”) which were included in the
Purchased Assets pursuant to subsection 2.1(f) but which have not been
collected. The Vendor and the Vendor’s Party shall have the right to use their
best efforts to collect the Uncollected Accounts for and on behalf of the
Purchaser. On the date which is 180 days after the Closing Date, the Purchaser
shall sell, and the Vendor shall purchase, all Uncollected Accounts which are
then still uncollected, for a purchase price equal to the excess, if any, of
the
aggregate amount of such Uncollected Accounts over the amount of the allowance
for doubtful accounts included in the Closing Audited Financial
Statements.
11.10 Threshold
| (a) |
Notwithstanding
any other provision of this Article
XI,
but subject to subsection (b)
below, no claim for Losses may be made unless the amount thereof
exceeds
cumulatively and in aggregate $20,000, in which event the Indemnifying
Party shall become liable for the full amount of all Losses on a
dollar
for dollar basis, as from the first dollar
claimed.
|
| (b) |
For
greater certainty, subsection (a) above shall not apply
to:
|
| (i) |
the
Purchaser’s rights to sell Uncollected Accounts under section 11.9;
|
| (ii) |
claims
in respect of warranty obligations or inventories for which no reserve
has
been included in the Closing Audited Financial Statements, pursuant
respectively to sections 4.1(j)
and 11.8;
|
| (iii) |
any
amount payable as Purchase Price and any adjustment
thereof;
|
| (iv) |
any
Tax Amounts or other Taxes; and
|
| (v) |
any
amount claimed by the Purchaser for Excluded
Liabilities.
|
| (c) |
The
Vendor and the Vendor’s Party shall be entitled to set off, against any
amount otherwise payable to or for the account of the Purchaser pursuant
to section 11.1,
the amount by which any accrual or reserve included in the Closing
Audited
Financial Statements is conclusively determined to have exceeded
the
actual loss or liability in respect of which it was so included,
with the
exclusion of the warranty reserve referred to in section 4.1(j)
and the inventory reserve referred to in section 11.8.
|
11.11 Smart
Grant
The
parties acknowledge that the Smart Grant by its terms is repayable in certain
circumstances. The Vendor and the Vendor’s Party shall use their best efforts to
obtain confirmation from the relevant Governmental Authority that the sale
to
the Purchaser of the Shares of Consultronics Europe will not be considered
as
disqualifying Consultronics Europe as a grant recipient under the “Grant for
Research and Development” program, and that accordingly the Smart Grant will not
have to be repaid in whole or part. If such Governmental Authority does require
repayment of the Smart Grant in whole or part (whether by reason of such sale
or
by reason of alleged non-compliance by Consultronics Europe with the terms
and
conditions of the Smart Grant) then the Vendor and the Vendor’s Party, jointly
and severally, shall, within five (5) Business Days after receipt of notice
from
the Purchaser of such requirement, pay to Consultronics Europe or to the
Purchaser, as the Purchaser may instruct, an amount (in pounds sterling) equal
to 50% of the amount required to be repaid.
DISPUTE
RESOLUTION
12.1 Arbitration
Except
for disputes contemplated by section 3.3,
all
disputes over the validity or the amount of Claims made pursuant to Article
XI
and all
other disputes, disagreements, controversies, questions or claims arising out
of
or relating to this Agreement, including, without limitation, with respect
to
its formation, execution, validity, application, interpretation, performance,
breach, termination or enforcement ("Disputes") shall be determined by
arbitration under the Arbitration
Act, 1991
(Ontario) (the "Arbitration Act"), provided that:
| (a) |
any
hearing in the course of the arbitration shall be held in Toronto,
Ontario;
|
| (b) |
the
application of section 7(2) of the Arbitration Act is expressly
excluded;
|
| (c) |
subject
to section 44 of the Arbitration Act, any award or determination of
an arbitrator shall be final and binding on the parties and there
shall be
no appeal on any ground, including, for greater certainty, any appeal
on a
question of law, a question of fact, or a question of mixed fact
and
law;
|
| (d) |
despite
section 28(1) of the Arbitration Act, an arbitrator shall not,
without the written consent of all parties to the arbitration, retain
any
expert;
|
| (e) |
an
arbitrator may apportion the costs of the arbitration, including
the
reasonable fees and disbursements of the parties, between or among
the
parties in such manner as the arbitrator considers reasonable, provided
that an arbitrator shall not award costs on a distributive
basis;
|
| (f) |
all
awards for the payment of money shall include prejudgment and postjudgment
interest in accordance with sections 127 to 130 of the Courts
of Justice Act
(Ontario) with necessary modifications;
and
|
| (g) |
all
matters relating to the arbitration shall be kept confidential to
the full
extent permitted by law and no individual shall be appointed as an
arbitrator unless he or she agrees in writing to be bound by this
dispute
resolution provision.
|
MISCELLANEOUS
13.1 Notices
| (a) |
Any
notice or other communication required or permitted to be given hereunder
shall be in writing and shall be delivered in person, transmitted
by
telecopy [or similar means of recorded electronic communication]
or sent
by registered mail, charges prepaid, addressed as
follows:
|
| (i) |
if
to the Vendor:
|
Consultronics
Limited
000
Xxxxxxx Xxxxxx
Xxxxxxx,
Xxxxxxx
X0X
0X0
Attention: Xx.
Xxxxx
Xxxxx, President & CEO
Fax
No.: 000
000-0000
with
a
copy to:
Xxxxxx
Xxxxxx Gervais LLP
Scotia
Plaza
00
Xxxx
Xxxxxx Xxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxx
X0X
0X0
Attention: Xxxxxx
Xxxx
Fax
No.: 000-000-0000
| (ii) |
if
to the Purchaser:
|
EXFO
Ingénierie électro-optique / Electro-Optical Engineering
400,
avenue Godin
Vanier
(Québec)
X0X
0X0
Attention: Xx.
Xxxxxxx Xxxxxxx, president
Fax
No.: 000-000-0000
with
a
copy to:
Xxxxxxxxxx
Xxxxxxxx, LLP
00
Xxxxxxxxx, Xxxxx 000
Xxxxxx
Xxxx, Xxxxxx
X0X
0X0
Attention: Me
Xxxx
Xxxxxx
Fax
No.: 000-000-0000
| (b) |
Any
such notice or other communication shall be deemed to have been given
and
received on the day on which it was delivered or transmitted (or,
if such
day is not a Business Day, on the next following Business Day) or,
if
mailed, on the third Business Day following the date of mailing;
provided,
however, that if at the time of mailing or within three Business
Days
thereafter there is or occurs a labour dispute or other event that
might
reasonably be expected to disrupt the delivery of documents by mail,
any
notice or other communication hereunder shall be delivered or transmitted
by means of recorded electronic communication as
aforesaid.
|
| (c) |
Either
party may at any time change its address for service from time to
time by
giving notice to the other party in accordance with this section
13.1.
|
13.2 Non-Transferability
| (a) |
Subject
to subsections 13.2(b)
and 13.2(c),
to the extent that any Purchased Asset is not capable of being sold,
assigned, transferred, delivered or subleased without the consent
or
waiver of any person, or if such sale, assignment, transfer, delivery
or
sublease, or attempted sale, assignment, delivery or sublease would
constitute a breach thereof or a violation of any law, statute, ordinance,
regulation, rule, judgment or order, this Agreement shall not constitute
a
sale, assignment, transfer, delivery or sublease thereof, or an attempted
sale, assignment, transfer, delivery or sublease thereof until such
consent or waiver of the applicable person is
received.
|
| (b) |
Each
of the Vendor and the Vendor’s Party shall use its best efforts (and the
Purchaser shall reasonably cooperate with the Vendor) on or before
the
Closing Date and thereafter as required, to obtain the consents and
waivers referred to in subsection 13.2(a)
and to resolve the impediments to the sale, assignment, transfer,
delivery
or sublease referred to in subsection 13.2(a)
and to obtain any other consents and waivers necessary to convey
to the
Purchaser any of the Purchased
Assets.
|
| (c) |
To
the extent that the consents and waivers referred to in subsection
13.2(a)
are not obtained by the Vendor, or until the impediments to the sale,
assignment, transfer, delivery or sublease referred to therein are
resolved, the Vendor shall, after the Closing
Date:
|
| (i) |
hold
the benefits of any Purchased Asset referred to in subsection 13.2(a)
in
trust for the Purchaser in accordance with the provisions of this
subsection 13.2(c);
|
| (ii) |
cooperate
in any reasonable and lawful arrangement, approved by the Purchaser,
designed to provide such benefits to the Purchaser;
and
|
| (iii) |
enforce
and perform for the account of the Purchaser, any rights or obligations
of
the Vendor arising from any Purchased Asset referred to in subsection
13.2(a)
against or in respect of any person, including the right to elect
to
terminate in accordance with the terms thereof upon the advice of
the
Purchaser;
|
provided,
however, that this subsection 13.2(c)
shall
not constitute a waiver of any right of the Purchaser to require delivery of
all
consents and waivers on the Closing Date pursuant to section 9.1.
| (d) |
If
the Vendor provides the Purchaser with the use of any Purchased Asset
referred to in subsection 13.2(a)
without having obtained the necessary consents and waivers referred
to in
that subsection, and if the use by the Purchaser constitutes a breach
or
violation of any Contract, permit, authorization or approval to which
the
Vendor is a party or by which the Vendor or such Purchased Asset
is bound,
the Vendor shall be responsible for any losses arising as a direct
consequence of such breach or violation under any such Contract,
permit,
authorization or approval.
|
13.3 Consultation
The
parties shall consult with each other before issuing any press release or making
any other public announcement with respect to this Agreement or the transactions
contemplated hereby and, except as required by any applicable law or any
regulatory authority or stock exchange having jurisdiction, neither of them
shall issue any such press release or make any such public announcement without
the prior written consent of the other, which consent shall not be unreasonably
withheld or delayed.
13.4 Disclosure
Prior
to
any public announcement of the transaction contemplated hereby pursuant to
section 13.2,
neither
party shall disclose this Agreement or any aspects of such transaction except
to
its board of directors, its senior management, its legal, accounting, financial
or other professional advisors, any financial institution contacted by it with
respect to any financing required in connection with such transaction and
counsel to such institution, or as may be required by any applicable law or
any
regulatory authority or stock exchange having jurisdiction.
13.5 Confidentiality
Both
the
Vendor and the Purchaser shall maintain the confidentiality of any information
received from each other in connection with the transactions contemplated by
this Agreement, whether received before or after the date of this Agreement.
If
the transfer of the Purchased Assets to the Purchaser is not consummated, each
shall return to the other any confidential schedules, documents, or other
written information obtained from the other in connection with this Agreement
whether received before or after the date of this Agreement and the Purchaser
agrees that, except as otherwise authorized by the Vendor, neither the Purchaser
nor its representatives, agents or employees will disclose to third parties
any
confidential information or confidential data relating to the Vendor or the
Purchased Assets discovered by the Purchaser or its representatives as a result
of the Vendor making available to the Purchaser and its representatives the
information requested by them in connection with the transactions contemplated
herein.
13.6 Best
Efforts
The
parties acknowledge and agree that, for all purposes of this Agreement, an
obligation on the part of either party to use its best efforts to obtain any
waiver, consent, approval, permit, licence or other document shall not require
such party to make any payment to any person for the purpose of procuring the
same, other than payments for amounts due and payable to such person, payments
for incidental expenses incurred by such person and payments required by any
applicable law or regulation.
13.7 Counterparts
This
Agreement may be executed in counterparts, each of which shall constitute an
original and all of which taken together shall constitute one and the same
instrument.
[THE
NEXT PAGE IS THE SIGNATURE PAGE]
IN
WITNESS WHEREOF
this
Agreement has been executed by the parties.
|
CONSULTRONICS
LIMITED
|
||
|
By:
|
/s/Xxxxx
Xxxxx
|
|
|
Xxxxx
Xxxxx
President
|
||
|
By:
|
/s/Xxxxxx
XxXxxxxx
|
|
|
Xxxxxx
XxXxxxxx
Chief
Financial Officer
|
||
|
EXFO
ELECTRO-OPTICAL ENGINEERING INC.
|
||
|
By:
|
/s/Xxxxxxx
Xxxxxxx
|
|
|
Xxxxxxx
Xxxxxxx
President
and Chief Executive Officer
|
||
|
WITH
THE INTERVENTION OF/
|
CONSULTRONICS
EUROPE LIMITED
|
|
|
/s/Xxxxx
Xxxxx
Xxxxx
Xxxxx
|
By:
|
/s/Xxxxx
Xxxxx
|
|
CONSULTRONICS
DEVELOPMENT KFT
|
||
|
By:
|
/s/Xxxxx
Xxxxx
|
|
|
CONSULTRONICS
INC.
|
||
|
By:
|
/s/Xxxxx
Xxxxx
|
|
-53-
