MEMORANDUM OF AGREEMENT made as of the 19th day of July, 2005
A M O N G
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ AND ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
(hereinafter referred to collectively as the "Vendors")
OF THE FIRST PART
▇▇▇▇▇ ▇▇▇▇▇
(hereinafter referred to as the "Principal")
OF THE SECOND PART
1066865 ONTARIO INC
(hereinafter referred to collectively as "Holdco")
OF THE THIRD PART
- and -
ON THE GO HEALTHCARE, INC., a corporation incorporated under the laws
of the State of Delaware
(hereinafter referred to as the "Purchaser")
OF THE FOURTH PART
- and -
INFINITY TECHNOLOGIES INC., a corporation incorporated under the
laws of the Province of Ontario
(hereinafter called the "Corporation")
OF THE FIFTH PART
WHEREAS the authorized capital of Holdco consists of unlimited common
shares, of which one hundred (100) common shares have been issued and
are outstanding as fully paid and non-assessable and unlimited
preference shares, of which three thousand three hundred and twenty
(3,320) have been issued and are outstanding as fully paid and
non-assessable;
AND WHEREAS the authorized capital of the Corporation consists of
unlimited common voting shares without par value and unlimited
preference shares of which one hundred (100) common shares have
been issued and are outstanding as fully paid and non-assessable;
AND WHEREAS Vendors are the beneficial owners and are entitled to
sell the aforesaid issued and outstanding common shares and
preference shares of Holdco;
AND WHEREAS Holdco is the sole shareholder of the Corporation;
AND WHEREAS the Purchaser has agreed with the Vendors to purchase
the issued and outstanding shares controlled by the Vendors in the
capital stock of Holdco;
THIS AGREEMENT WITNESSETH that in consideration of the covenants,
agreements, warranties and payments herein set out and provided for,
the parties hereto hereby respectively covenant and agree as follows:
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1. INTERPRETATION
(1) Definitions
Whenever used in this Agreement, unless there is something in the subject
matter or context inconsistent therewith, the following words and terms shall
have the respective meanings ascribed to them in this Section 1(1):
(a) "Affiliate", "Associate", "Body Corporate", "Subsidiary" and
"Voting Securities" shall have the respective meanings ascribed
to those terms by the Business Corporations Act (Ontario) on
the date hereof;
(b) "Agreement" means this share purchase agreement and all
instruments supplemental to or in amendment or confirmation of
this share purchase agreement, and all references to this
Agreement shall include the attached Schedules and "Article",
"Section", "Subsection", or "Paragraph" means and refers to the
specified article, section, subsection, or paragraph of this
share purchase agreement;
(c) "Assets" means the undertaking, property and assets of the
Corporation relating to the Business as a going concern, of
every kind and description and wheresoever situated;
(f) "Business Day" means any day, other than a Saturday, Sunday or
any other day on which the principal chartered banks located
in the City of Toronto are not open for business during normal
banking hours;
(g) "Claim" means any claim, demand, action, suit, litigation,
charge, complaint, prosecution or other proceeding for which
one Party can seek indemnification from the other Party
pursuant to this agreement;
(h) "Closing" means the completion of the sale to, and the purchase
by the Purchaser of, the Purchased Shares and, subject to the
terms hereof, the completion of the transactions contemplated
by this Agreement including the transfer and delivery of all
documents of title to the Purchased Shares and the payment of
the Purchase Price;
(i) "Closing Date" means July 19 2005, or such other date as the
Parties may agree in writing as the date upon which the Closing
shall take place;
(j) "Closing Documents" has the meaning ascribed in Article 6;
(k) "Closing Time" means 10:00 o'clock in the forenoon on the Closing
Date or such other time on such date as the Parties may agree
as the time at which the Closing shall take place;
(m) "Corporation's Bank" means the Royal Bank of Canada;
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(n) "Contracts" means those contracts, agreements, commitments,
entitlements and engagements of the Corporation relating to
the Business and the Assets (and, for greater certainty, not
including Collective Agreements, Leases and Equipment Leases)
whether with suppliers, customers or otherwise and including
all unfilled orders from customers; all forward commitments
for supplies or materials; all orders for new machinery and
equipment as yet undelivered; all equipment and construction
guarantees and warranties; negative covenants with employees;
and all other contracts described in Schedule "C";
(o) "Effective Date" means _July 1, 2005, or such other date as the
parties may agree in writing;
(p) "Effective Date Financial Statements" means the consolidated
Notice to reader financial statements of the Corporation for
the fiscal period ended June 30, 2005, prepared by ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ & Partners, LLP in accordance with generally accepted
accounting principles consistently applied, consisting of balance
sheet as at such date, and statements of earnings and retained
earnings and of changes in financial position for such period;
(r) "Equipment Leases" means those equipment leases, conditional
sales contracts, title retention agreements and other agreements
between the Corporation and third Persons relating to equipment
used by the Corporation including those that are listed in
Schedule "C";
(s) "GST" means the Goods and Services Tax payable under the Excise
Tax Act;
(t) "Intellectual Property Rights" means all patents and inventions,
trade-marks, including those described in Schedule "D", all trade
names and styles, logos and designs, trade secrets, technical
information, engineering procedures, designs, know-how and
processes (whether confidential or otherwise), software, and
other industrial property (including applications for any of
these) in each case used or reasonably necessary to permit
satisfactory operation of the Business as presently constituted;
(v) "Inventories" means all inventories of every kind and nature and
wheresoever situate owned by the Corporation and pertaining to
the Business including, without limitation, all inventories of
raw materials, work-in-progress, finished goods, operating
supplies and packaging materials of or pertaining to the
Business;
(w) "Leases" means all leases of Leasehold Properties including
those listed in Schedule "E"
(x) "Licences" means all transferable licences, registrations,
qualifications, permits and approvals, issued by any government
or governmental unit, agency, board, body or instrumentality,
whether federal, provincial or municipal, relating to the
Business, including those listed in Schedule "F", together
with all applications for such licences or permits;
(y) "Employment Agreements" means the employment agreements and
non-competition agreements attached as Schedule "G"
(z) "Parties" means the Vendors, Holdco, the Purchaser and the
Corporation, collectively, and "Party" means any one of them;
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(aa) "Person" includes an individual, corporation, partnership,
joint venture, trust, unincorporated organization, the Crown
or any agency or instrumentality thereof or any other juridical
entity;
(ab) "Purchase Price" means the purchase price to be paid by the
Purchaser to the Vendors for the Purchased Shares, all as
provided in Article 3;
(ad) "Real Properties" means all freehold, leasehold, and other
interests in real and immoveable properties owned or used by
the Corporation in connection with the Business, including,
without limitation,
(i) the freehold lands and premises described in
Schedule "I", and all plants, buildings, sidings,
parking lots, roadways, structures, erections,
improvements, fixed machinery, fixed equipment,
appurtenances, and fixtures situate on or forming
part of such lands and premises (collectively the
"Owned Properties");
(ii) the leasehold and other interest described in
Schedule "J" including all fixtures and improvements
owned by the Corporation relating to those leaseholds
and other interests (collectively the "Leasehold
Properties");
(ae) "Purchased Shares" means all of the issued and outstanding
common shares and preference shares in the capital of Holdco,
to be sold by the Vendors to the Purchaser pursuant to the
terms of this Agreement;
(ag) "to the best of the knowledge" when used in reference to:
(i) the Vendors mean the knowledge of the Vendors; and
(ii) the Purchaser means the knowledge of the senior
officers of the Purchaser;
(2) Gender and Number
In this Agreement, words importing the singular include the plural
and vice versa and words importing gender include all genders.
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(3) Entire Agreement
This Agreement, including Schedules "A" to "J", together with the
agreements and other documents to be delivered under this Agreement
constitute the entire agreement between the Parties pertaining to the
subject matter of this Agreement and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or
written, of the Parties and there are no warranties, representations
or other agreements between the Parties in connection with the subject
matter of this Agreement except as specifically set forth in this
Agreement. No supplement, modification or amendment to this Agreement
and no waiver of any provision of this Agreement shall be binding on
any Party unless executed by such Party in writing. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provision (whether or not similar) nor shall such
waiver constitute a continuing waiver unless otherwise expressly
provided.
(4) Article and Section Headings
Article and Section headings contained in this Agreement are included
solely for convenience, are not intended to be full or accurate
descriptions of the content of any Article or Section and shall not be
considered to be part of this Agreement.
(5) Schedules
The following Schedules are an integral part of this Agreement:
Schedule "A" - Financial Statements as at Dec. 31, 2004
Schedule "B" - Assets and Liens and Encumbrances
Schedule "C" - Contracts and Equipment Leases
Schedule "D" - Intellectual Property Rights
Schedule "E" - Leases
Schedule "F" - Licenses
Schedule "G" - Employment Agreements
Schedule "H" - Litigation Matters\
Schedule "I" - Employment Matters
Schedule "J" - Leasehold Properties
(6) Applicable Law
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the federal laws of Canada
applicable in the Province of Ontario and shall be treated, in all
respects, as an Ontario contract. Each Party to this Agreement
irrevocably attorns to and submits to the jurisdiction of the Courts
of Ontario with respect to any matter arising under or relating to
this Agreement.
(7) Currency
Unless otherwise indicated, all dollar amounts referred to in this
Agreement are in Canadian funds.
(8) Accounting Terms
All accounting terms not otherwise defined have the meanings assigned
to them, and all calculations are to be made and all financial data
to be submitted are to be prepared, in accordance with the generally
accepted accounting principles ("GAAP") approved from time to time
by the Canadian Institute of Chartered Accountants, or any successor
institute applied on a consistent basis.
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(9) Arm's Length
For purposes of this Agreement, Persons are not dealing "at arm's
length" with one another if they would not be dealing at arm's length
with one another for purposes of the Income Tax Act.
(10) Business Days
Whenever any action or payment to be taken or made under this Agreement
shall be stated to be required to be taken or made on a day other than
a Business Day, any payment shall be made or such action shall be taken
on the next succeeding Business Day.
(11) Statutory Instruments
Unless otherwise specifically provided in this Agreement any reference
in this Agreement to any law, by-law, rule, regulation, order, act or
statute of any government, governmental body or other regulatory body
shall be construed as a reference to those as amended or re-enacted
from time to time or as a reference to any successor to those.
2. Purchased Shares
Subject to the terms and conditions hereof, the Vendors covenant and
agree to sell, assign, and transfer to the Purchaser and the Purchaser
covenants and agrees to purchase from the Vendors all (and not less
than all) of the issued and outstanding shares in the capital stock
of Holdco controlled by the Vendors (the "Purchased Shares") for the
purchase price (the "Purchase Price") payable as set out in Article 3
hereof.
3. Purchase Price
(1) The Purchase Price shall be, subject to the adjustment provided
for herein, the sum of Three Million One Hundred and Twenty
Thousand dollars ($3,120,000.00) of lawful money of Canada.
(2) The Purchase Price shall be payable as follows:
a) subject to the terms hereof, the Purchaser issues and
delivers upon the unconditional acceptance of this
agreement 100,000 restricted shares to ▇▇▇▇▇ ▇▇▇▇▇ as
a deposit to be held by him in trust and to be credited
to the Purchaser on closing at the issue price of
US$_1.00 per share.
b) the sum of $1,000,000.00 by way of certified cheque or
bank draft on Closing to the order of the Vendors in
proportion to their shareholdings, as they direct in
writing, with $332,000 of same to be allocated to the
preference shares being acquired;
c) the sum of $500,000.00 shall be paid in three (3) equal
monthly payments, commencing on January 15, 2006 and
monthly thereafter on the 15th day of each month until
fully paid to the order of the Vendors in proportion to
their shareholdings, as they direct in writing;
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d) subject to the terms hereof, the balance of the Purchase
Price is to be paid in the form of 1,250,000 restricted
shares in the Purchaser valued on the day of Closing at
the issue price of US$ 1.00 per share;
(3) The Parties agree to make the necessary adjustments to the Purchase
Price, on a dollar-for-dollar basis, based on any discrepancy
between the amount of $700,000 and the amount of "Net Equity" of
the Corporation, "Net Equity" being defined herein as the excess
of all assets over liabilities of the Corporation without
consideration of any indebtedness to the Business Development Bank
of Canada ("BDC") as at the Effective Date. Net Equity shall be
determined using the balance sheet in the Effective Date Financial
Statements, which will be prepared and delivered to the Purchaser
and Vendors for their review and approval, acting reasonably,
within 15 days of Closing. If the adjustment results in a decrease
in the Purchase Price, the parties will adjust the number of shares
of the Purchaser issued in favour of the Vendors. If the
adjustment results in an increase in the Purchase Price, the
amount of the increase will be paid in cash or certified cheque
to the Vendors or as they direct in writing in 3 equal monthly
instalments payable September 1, 2005, October 1, 2005 and
November 1, 2005
3. Closing Arrangements
(1) The closing of this transaction shall take place at the offices of
the Vendors' solicitors, Messrs. ▇▇▇▇▇▇ ▇▇▇▇▇ Ball, LLP Barristers
and Solicitors, on July 19, 2005 or at such other date(s) as the
parties hereto may agree (the "Closing Date").
(2) On the Closing Date, upon fulfilment of all the conditions set out
herein, the Vendors shall deliver to the Purchaser the certificates
representing all the Purchased Shares duly endorsed in favour of
the Purchaser.
4. 1 Representations and Warranties of the Vendors and Principal
(1) The Vendors and Principal covenant, represent and warrant as
follows as of the date hereof and as of the Closing Date and
acknowledge that the Purchaser is relying upon such covenants,
representations and warranties in connection with the purchase by
the Purchaser of the Purchased Shares:
(2) The authorized capital of the Corporation consists of unlimited
common voting shares without par value and unlimited preference
shares of which 100 common shares have been duly issued and are
outstanding as fully paid and non-assessable. The authorized
capital of Holdco consists of unlimited common voting shares
without par value and unlimited preference shares of which
100 common shares and 3,320 preference shares have been duly
issued and are outstanding as fully paid and non-assessable.
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(3) The shareholders of record are as follows:
1066865 ONTARIO INC. - 100 common shares in the capital
of the Corporation
▇▇▇▇▇▇ ▇▇▇▇▇ - 60 common shares and 2,000 preference
shares in the capital in the Holdco
▇▇▇▇ ▇▇▇▇▇ - 20 common shares and 660 preference
shares in the capital in the Holdco
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - 20 common shares and 660 preference
shares in the capital in the Holdco
and such shares are owned by the Vendors and Holdco, are held with good
and marketable title, free and clear of all mortgages, liens, charges,
security interests, adverse claims, pledges, encumbrances and demands
whatsoever.
(4) No person, firm or corporation has any agreement or option or any
right (whether by law, pre-emptive or contractual and including
convertible securities, warrants or convertible obligations of
any nature) for the purchase or the issue of either the Purchased
Shares or any un-issued shares in the capital stock of the
Corporation.
(5) The entering into of this agreement and the transactions
contemplated hereby will not result in the violation of any of
the terms and provisions of the constating documents or by-laws
of the Corporation or Holdco or of any indenture or other
agreement, written or oral, to which the Vendors may be a party.
(6) This agreement has been duly executed and delivered by the Vendors
and is a valid and binding obligation of the Vendors enforceable
in accordance with its terms.
(7) The Vendors are not non-residents within the meaning of s.116 of
the Income Tax Act.
(8) To the Vendors' knowledge, there are no existing or threatened
legal actions or claims against the Corporation save as set out
in Schedule "H" hereto.
(9) As at July 19, 2005, there is approximately Cdn $$514,667.89 in
the Corporation's bank accounts.
(10) There are no liens, charges or encumbrances of any kind whatsoever
on the assets of the Corporation, save and except as are listed in
Schedule "B" annexed hereto.
(11) All Material tangible Assets of the Corporation used in or in
connection with the Business are in good condition and repair and,
where applicable, in good working order, having regard to the use
and age thereof. A list of all Material fixed assets is shown in
Schedule "B".
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(12) The unaudited financial statements of the Corporation dated
March 18, 2005, a copy of which is attached hereto as
Schedule "A", prepared by Price Waterhouse Coopers, Chartered
Accountants, fairly represent the financial position of the
Corporation as at December 31, 2004.
(13) Organization and Good Standing-The Corporation and Holdco are
corporations duly incorporated, organized and validly existing
in good standing under the laws of Ontario.
(14) Bankruptcy, etc.-No bankruptcy, insolvency or receivership
proceedings have been instituted or are pending against Holdco
or the Corporation and Holdco and the the Corporation are able
to satisfy their liabilities as they become due.
(15) Capacity to Carry on Business-The Corporation has all necessary
corporate power, authority and capacity to own its property and
assets and to carry on the Business as presently owned and carried
on by it, and the Corporation is duly licensed, registered and
qualified as a corporation to do business and is in good standing
in each jurisdiction in which the nature of the Business make such
qualification necessary, and all such licences, registrations and
qualifications are valid and subsisting and in good standing and
none of them contains any burdensome term, provision, condition or
limitation which has or may have an adverse effect on the
Corporation
(16) Due Authorization, Corporation etc.-Holdco and the Corporation
have all necessary corporate power, authority and capacity to
enter into this Agreement and to perform their obligations under
this Agreement; the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the
part of Holdco and the Corporation.
(17) Absence of Conflicting Agreements-Except for the Contracts, the
Equipment Leases, and the Leases, the consent to the change of
control of the Corporation which may be required from lessors or
other third parties thereunder in connection with the completion
of the transactions contemplated by this Agreement and except for
various financing and security agreements with the BDC, the
Vendors and the Corporation are not a party to, bound or affected
by or subject to any indenture, mortgage, lease, agreement,
instrument, statute, regulation, arbitration award, charter or
by-law provisions, order or judgment which would be violated,
contravened, breached by, or under which any default would occur
as a result of the execution and delivery of this Agreement or
the consummation of any of the transactions contemplated under
this Agreement. The Purchaser acknowledges that there remains
outstanding a loan payable to the BDC in the amount of $71,000.00,
more or less, which loan is to be assumed by the Purchaser and
satisfied immediately following completion of the transactions
contemplated herein.
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(18) Absence of Guarantees-Holdco and the Corporation have not given
or agreed to give, nor is either of them a party to or bound by,
any guarantee of indebtedness or other obligations of third
parties nor any other commitment by which such corporation is,
or is contingently, responsible for such indebtedness or other
obligations.
(19) Enforceability of Obligations-This Agreement constitutes a valid
and binding obligation of the Vendors, Holdco and the Corporation
enforceable against them in accordance with its terms, provided
that enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, reconstruction and other similar
laws generally affecting enforceability of creditors' rights and
that equitable remedies such as specific performance and
injunction are in the discretion of the court from which they are
sought.
(20) Books and Records-The books and records of the Corporation fairly
and correctly set out and disclose in all Material respects, in
accordance with GAAP, the financial position of the Corporation
as at the date of this Agreement and all Material financial
transactions of the Corporation relating to the Business have
been accurately recorded in such books and records.
(21) Employment Contracts and Government Withholdings-Subject to
applicable statutory rights and the employee contracts listed in
Schedule "C", the Corporation is not a party to any written
contracts of employment with any of its employees or any oral
contracts of employment which are not terminable on the giving
of reasonable notice and/or severance pay in accordance with
applicable law and no inducements to accept employment with the
Corporation were offered to any such employees which have the
effect of increasing the period of notice of termination to
which any such employee is entitled. The Corporation has deducted
and remitted to the relevant governmental authority or entity
all income taxes, unemployment insurance contributions, Canada
Pension Plan contributions, provincial employer health tax
remittances and any taxes or deductions or other amounts which
it is required by statute or contract to collect and remit to
any governmental authority or other entities entitled to receive
payment of such deduction.
(22) Employment Payments by the Corporation to Date of Closing-The
Corporation has paid to the date of this Agreement all amounts
due and payable on account of salary, bonus payments and
commission to or on behalf of any and all Employees;
(23) Workers' Compensation-All levies under the Workplace Safety and
Insurance Act, 1997 (Ontario), or under the workers' compensation
legislation of any other jurisdiction where the Corporation
carries on the Business, have been paid by the Corporation.
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(24) Labour Matters-There is no:
(i) unfair labour practice complaint under The Ontario Labour
Relations Act against the Corporation pending before
provincial labour tribunals or any similar agency or body
having jurisdiction therefor;
(ii) labour strike threatened against or involving the
Corporation;
(iii) certification application outstanding respecting the
Employees;
(iv) grievance or arbitration proceeding or governmental
proceeding relating to the Employees pending, nor is
there any such proceeding threatened against the
Corporation which might have a material adverse effect
on the Corporation or on the conduct of the Business;
(v) collective bargaining agreement currently being
negotiated by the Corporation; and
(vi) Employee in receipt of or who has claimed benefits under
any weekly indemnity, long term disability or workers'
compensation plan or arrangement or any other form of
disability benefit programme, save and except as is set
out in Schedule I.
(25) Material Contracts-the Corporation is not a party to or bound by
any Material contract or commitment relating to the Business
whether oral or written, save and except as disclosed in
Schedules "C", "E" and "F" hereto. All leases and licences to
which the Corporation is a party are set out and described in
Schedules "E" and "F" hereto and are in good standing and subject
only to the equities and claims as set out in the said Schedules.
(26) Insurance-The Corporation maintains such policies of insurance,
issued by responsible insurers, as are appropriate to the
Corporation and its property and assets, in such amounts and
against such risks as are customarily carried and insured against
by owners of comparable businesses, properties and assets; all
such policies of insurance are in full force and effect, and will
continue to be so until the Closing Date, and the Corporation is
not in default, whether as to the payment of premium or otherwise,
under the terms of any such policy, nor has the Corporation
failed to give any notice or present any claim under any claim
under any such insurance policy in due and timely fashion. The
Purchaser has already taken steps to assume the appropriate
policies of insurance.
(27) Litigation-Except as provided in Schedule "H" there is no suit,
action, litigation, arbitration, proceeding, governmental
proceeding, including appeals and applications for review in
progress, pending or threatened against or involving the
Corporation, and there is not presently outstanding against the
Corporation any judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency,
instrumentality or arbitrator.
(28) Accounts Receivable-All accounts receivable, bills receivable and
book debts and other debts due or accruing to the Corporation
are bona fide and good and subject to an allowance for doubtful
accounts taken in accordance with GAAP are collectible without
set-off or counterclaim.
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(29) Inventories-The Inventories are in good and merchantable
condition and are usable or saleable in the ordinary course
of business for the purposes for which they are intended and
are carried on the books of the Corporation at the lower of
cost and net realizable value.
(30) Tax Matters-Except to the extent reflected in or reserved against
in the unaudited Financial Statements or the Effective Date
Financial Statements, and save and except for liabilities not
exceeding $105,000.00 (net of related GST overpayments during
the same time periods), as at December 31, 2004, for Ontario
Retail Sales Tax as disclosed by a Ministry of Revenue audit as
well as QST , the Corporation is not liable for any taxes,
levies, duties, assessments, charges, penalties, interest, fines
or other imposts of any nature or kind due and unpaid at the date
hereof in respect of its income, business or property or for the
payment of any tax instalment due in respect of its current
taxation year and, except as aforesaid, no such taxes,
assessments, imposts, levies, charges, fines or penalties are
required to be reserved against. If any such reservation has
been made or taken, it is adequate to provide for taxes payable
by the Vendors for its current period for which tax returns are
not yet required to be filed. The Corporation is not in default
in filing any returns or reports covering any Canadian federal,
provincial, municipal or local taxes, levies, duties, assessments
or other reports in respect of its income, business or property.
The Corporation has filed all reports or returns with respect to
income, capital, sales (including goods and services and Ontario
employer health tax reports), excise, business and property taxes
and all other taxes and customs duties which are required to be
filed by it up to the date of this Agreement (and all such returns
and reports are correct and complete in all material respects,
save as provided above) and has paid, or where permitted by law,
provided security for, all taxes and duties as shown on such
reports or returns to the extent such taxes or duties are payable
or have or may become due and has paid, or where permitted by
law, provided security for, all assessments received by it. The
Corporation has withheld from any amounts payable, including
without limiting the generality of the foregoing, from any
salaries, bonuses or dividends paid by it all deductions required
by law to be made therefrom and has remitted the same to the
proper tax or other authorities. Federal Canadian income tax
assessments have been issued to the Corporation covering all
past periods through the fiscal year ended December 31, 2003
(and such assessments, if any amounts were owing in respect
thereof, have been paid or, where permitted by law, security
therefor has been provided.). Save as provided for above, there
are no currently outstanding reassessments, suits, actions,
proceedings, investigations, claims or questions which have been
issued or raised by an governmental authority relating to any
such reports or tax returns except for those provided in the
Audited Financial Statements or the Effective Date Financial
Statements and the Corporation does not have any negotiations
or discussions in progress with respect to any eventual
assessment or reassessment with any such authority. The
Corporation has not executed or filed with any taxing authority
any waiver or agreement extending the period for assessment or
collection of any income or other taxes.
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4.2 Representations of the Purchaser
The Purchaser covenants, represents and warrants as follows as of the
date hereof and as of the Closing Date and it acknowledges that the
Vendors are relying upon such covenants, representations and
warranties in connection with the sale by the Vendors of the Purchased
Shares:
(1) The authorized capital of the Purchaser consists of 100,000,000
common shares of which approximately 2,200,000 common shares have
been duly issued and are outstanding as fully paid and
non-assessable and 1,000,000 preference shares (the material
preference of same being the entitlement of each such share to
200 votes), of which 279,000 have been duly issued and are
outstanding as fully paid and non-assessable.
(2) Save for certain warrants and convertible notes issued to Laurus
Master Funds Limited, which if fully exercised or converted as of
today's date would result in the issuance of approximately
2,500,000 to 3,500,000 common shares of the Purchaser, and as
disclosed in the Purchaser's most recent disclosure filings with
the Securities and Exchange Commission ("SEC"), no person, firm or
corporation has any agreement or option or any right (whether by
law, pre-emptive or contractual and including convertible
securities, warrants or convertible obligations of any nature)
for the purchase or the issue of any shares in the capital stock
of the Purchaser.
(3) The entering into of this agreement and the transactions
contemplated hereby will not result in the violation of any of
the terms and provisions of the constating documents or by-laws of
the Purchaser or of any indenture or other agreement, written or
oral, to which the Purchaser may be a party.
(4) This agreement has been duly executed and delivered by the
Purchaser and is a valid and binding obligation of the Purchaser
enforceable in accordance with its terms.
(5) To the Purchaser's knowledge, there are no existing or threatened
legal actions or claims against the Purchaser. The Purchaser has
filed all reports required to be filed by it under applicable U.S.
securities/SEC laws, rules and regulations on a timely basis and
such reports have complied with the requirements of applicable U.S
securities/SEC laws, rules and regulations and none of the reports
contained any untrue statement of fact or omitted to state a fact
required to be stated therein or necessary to make the statements
therein not misleading. The financial statements of the Purchaser
included in the reports comply in all material respects with
applicable SEC accounting requirements, rules and regulations in
effect at the time of filing.
13
(6) The Purchaser has not, in the 12 months preceding the date hereof,
received notice from any trading market on which its shares are or
have been listed or quoted to the effect that the Purchaser is not
in compliance with the listing or maintenance requirements of such
trading market. The Purchaser is, and has no reason to believe
that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
(7) Organization and Good Standing-The Purchaser is a corporation duly
incorporated, organized and validly existing in good standing under
the laws of the State of Delaware.
(8) Bankruptcy, etc.-No bankruptcy, insolvency or receivership
proceedings have been instituted or are pending against the
Purchaser and the Purchaser is able to satisfy its liabilities
as they become due.
(9) Capacity to Carry on Business-The Purchaser has all necessary
corporate power, authority and capacity to own its property and
assets and to carry on its business as presently owned and
carried on by it, and the Purchaser is duly licensed, registered
and qualified as a corporation to do business and is in good
standing in each jurisdiction in which the nature of its business
make such qualification necessary, and all such licences,
registrations and qualifications are valid and subsisting and
in good standing and none of them contains any burdensome term,
provision, condition or limitation which has or may have an
adverse effect on the Purchaser.
(10)Due Authorization, etc.-The Purchaser has all necessary corporate
power, authority and capacity to enter into this Agreement and to
perform its obligations under this Agreement; the execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Purchaser.
(11)Absence of Conflicting Agreements-The Purchaser is not a party to,
bound or affected by or subject to any indenture, mortgage, lease,
agreement, instrument, statute, regulation, arbitration award,
charter or by-law provisions, order or judgment which would be
violated, contravened, breached by, or under which any default
would occur as a result of the execution and delivery of this
Agreement or the consummation of any of the transactions
contemplated under this Agreement.
(12)Enforceability of Obligations-This Agreement constitutes a valid
and binding obligation of the Purchaser enforceable against it
in accordance with its terms, provided that enforcement may be
limited by bankruptcy, insolvency, liquidation, reorganization,
reconstruction and other similar laws generally affecting
enforceability of creditors' rights and that equitable remedies
such as specific performance and injunction are in the discretion
of the court from which they are sought.
14
(13)Litigation-There is no suit, action, litigation, arbitration,
proceeding, governmental proceeding, including appeals and
applications for review in progress, pending or threatened against
or involving the Purchaser, and there is not presently outstanding
against the Purchaser any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency,
instrumentality or arbitrator.
5. Covenants
(1) The parties hereto acknowledge and agree that the transactions
contemplated in this agreement are intended to constitute a tax
deferred reorganization for Canadian federal income tax purposes
for the Vendors in that the Vendors will receive exchangeable
shares in an Ontario corporation that is a wholly-owned subsidiary
of the Purchaser in satisfaction of that part of the Purchase
Price which is not payable in cash.
(2) The Purchaser covenants and agrees with the Vendors that within
15 days of the date hereof, the Purchaser shall:
(a) create an Ontario corporation with authorized capital
consisting of unlimited common shares and unlimited
exchangeable shares which have characteristics which
are suitable in the opinion of the Vendors and their
professional advisors, acting reasonably, for the
reorganization described above and which are exchangeable
on a share for share basis for common shares of the
Purchaser;
(b) issue such number of exchangeable shares as is equal
to the number of common shares of the Purchaser the
Vendors are entitled to receive pursuant to the terms
hereof;
(c) enter into a voting and exchange agreement with the
Vendors on terms reasonably agreeable to the parties
and commonly found in such agreements, including
appointing an agent to hold such number of common shares
of the Purchaser as is equal to the number of
exchangeable shares, providing for the exercising of
voting rights of such shares in the Purchaser, the payment
of dividends (if any) and other amounts on such shares,
the exchanging of exchangeable shares for said shares of
the Purchaser and the rights and obligations of the agent;
(d) enter into a support agreement with the Vendors on terms
reasonably agreeable to the parties and commonly found in
such agreements, including ensuring that if a dividend or
other payment is made on shares of the Purchaser prior to
all of the exchangeable shares being exchanged by the
Vendors, the Ontario corporation will take similar action
regarding the outstanding exchangeable shares and that
exchangeable shares continue to be economically equivalent
on a per share basis to the issued shares of the Purchaser;
(e) issue the shares of the Purchaser required to satify the
Purchase Price to the agent;
15
(3) In order to assist the Vendors in complying with applicable
Canadian federal tax legislation and regulations regarding this
tax deferred reorganization, The parties hereto shall allocate the
consideration amongst the Purchased Shares as follows:
(a) the cash portion shall be allocated firstly to the
preference shares and the balance of the cash portion
to that number of common shares as is equal to the value
of said balance;
(b) the exchangeable shares shall be allocated to the remainder
of the common shares.
(4) The parties hereto acknowledge that the actions and documents
specified in Article 6 hereof have not been completed. Both
parties covenants and agree to do such things, sign such documents
and take such steps as are necessary to complete such actions and
documents and fulfill the terms and intent of the transactions
contemplated herein with 15 days of the date hereof, provided same
do not, in the reasonable opinion of the Purchaser, result in
negative tax consequences for the Purchaser/Ontario corporation.
6. Closing
The obligation of the Purchaser to complete the transactions
contemplated by this Agreement shall be subject to the satisfaction
of, or compliance with, at or before the Closing Time, each of the
following conditions precedent (each of which is hereby acknowledged
to be inserted for the exclusive benefit of the Purchaser and may be
waived by it in whole or in part):
(a) Truth and Accuracy of Representations of the Vendors at the
Closing Time - All of the representations and warranties of the
Vendors made in or under this Agreement, shall be true and correct
in all material respects as at the Closing and with the same
effect as if made at and as of the Closing (except as such
representations and warranties may be affected by the occurrence
of events or transactions expressly contemplated and permitted by
this Agreement) and the Purchaser shall have received a statutory
declaration from the Vendors confirming the truth and correctness
in all material respects of the representations and warranties of
the Vendors.
(b) Performance of Obligations - The Vendors shall have performed or
complied with, in all material respects, all their obligations,
covenants and agreements under this Agreement.
16
(c) Receipt of Closing Documentation - All instruments of conveyance
and other documentation and assurances relating to the sale and
purchase of the Shares including, without limitation, share
certificates (the "Closing Documents") and all actions and
proceedings taken on or prior to the Closing in connection with
performance by the Vendors of their obligations under this
Agreement shall be satisfactory to the Purchaser and its counsel,
acting reasonably, and the Purchaser shall have received copies
of all such documentation or other evidence as it may reasonably
request in order to establish the consummation of the transactions
contemplated under this Agreement and the taking of all corporate
proceedings in connection with those transactions in compliance
with this agreement, in form and substance satisfactory to the
Purchaser and its counsel.
(d) Closing Documentation - Without limiting the generality of the
foregoing, the Purchaser shall have received at or before the
Closing sufficient duly executed original copies of the following:
(i) certified copies of resolutions of the board of
directors of the Corporation and Holdco approving this
Agreement and the transactions contemplated under this
Agreement;
(ii) statutory declaration of the Vendors concerning
residence of the Vendors, and confirming that all
conditions under this Agreement in favour of the Vendors
have been either fulfilled or waived;
(iii) certificates of incumbency of the Corporation and
Holdco;
(iv) certificates of status of the Corporation and
Holdco;
(v) share certificates representing the Purchased
Shares;
(vi) books and records of the Corporation and Holdco;
(vii) Employment Agreements;
(viii) resignations of the directors and officers of Holdco
and the Corporation, effective as of the Effective
Date.
(e) Opinion of Counsel - The Purchaser shall have received an opinion
from counsel for the Corporation dated the Closing Date, confirming
the matters represented in 4(2), (3), (5), (13), (15), (16) and
(19) with respect to matters of law in the Province of Ontario.
In giving such opinion, counsel to the Corporation may rely on
certificates as to factual matters.
The obligation of the Vendors to complete the transactions
contemplated by this Agreement shall be subject to the satisfaction
of, or compliance with, at or before the Closing Time, each of the
following conditions precedent (each of which is hereby acknowledged
to be inserted for the exclusive benefit of the Vendors and may be
waived by them in whole or in part):
17
(a) Truth and Accuracy of Representations of the Purchaser at the
Closing Time - All of the representations and warranties of the
Purchaser made in or under this Agreement, shall be true and
correct in all material respects as at the Closing and with the
same effect as if made at and as of the Closing (except as such
representations and warranties may be affected by the occurrence
of events or transactions expressly contemplated and permitted
by this Agreement) and the Vendors shall have received a
certificate from the Purchaser confirming the truth and
correctness in all material respects of the representations and
warranties of the Purchaser.
(b) Performance of Obligations - The Purchaser shall have performed
or complied with, in all material respects, all its obligations,
covenants and agreements under this Agreement.
(c) Receipt of Closing Documentation - All instruments of conveyance
and other documentation and assurances relating to the sale and
purchase of the Purchased Shares including, without limitation,
share certificates, the portion of the Purchase Price set out in
paragraph 3(2)(b) by way of bank draft or certified cheque, a
promissory note for the balance of the Purchase Price, the
Employment Agreements in Schedule "G", releases of all guarantees
from the BDC in respect of the outstanding loan described herein
and documentation evidencing the election of ▇▇▇▇▇ ▇▇▇▇▇ to the
Board of Directors of the Purchaser (the "Closing Documents") and
all actions and proceedings taken on or prior to the Closing in
connection with performance by the Purchaser of its obligations
under this Agreement shall be satisfactory to the Vendors, acting
reasonably, and the Vendor shall have received copies of all such
documentation or other evidence as it may reasonably request in
order to establish the consummation of the transactions
contemplated under this Agreement and the taking of all corporate
proceedings in connection with those transactions in compliance
with this agreement, in form and substance satisfactory to the
Vendors.
At the Closing Time, upon fulfilment of all the conditions under this
Agreement which have not been waived in writing by the Purchaser or
the Vendors respectively:
(a) Purchase and Sale of Purchased Shares - The Vendors shall sell and
the Purchaser shall purchase the Purchased Shares for the Purchase
Price payable under this Agreement.
(b) Delivery of Closing Documents - The Parties shall respectively
deliver the Closing Documents.
(c) Actual Possession - The Vendors shall deliver actual possession
of the Purchased Shares to the Purchaser.
(d) Payment of Purchase Price - On the fulfilment of the foregoing
terms of this Article Six, the Purchaser shall pay and satisfy the
Purchase Price as provided in Section 2.
18
7. Survival of Representations and Warranties
The representations and warranties of the Vendors and Purchaser
contained in this agreement and contained in any document or
certificate given pursuant hereto shall survive the closing of the
purchase and sale of the Purchased Shares herein provided for, for
a period of two years from the Closing Date.
8. Indemnification
The Vendors and Principal hereby jointly and severally indemnify and
save the Corporation, and the Purchaser harmless of and from any Claim
arising with respect to any inaccuracy in the Vendors' representations,
warranties and statements or any failure to fulfil the Vendors'
covenants and obligations set forth herein. The Corporation may defend
at its expense any such Claims that may arise with respect to the
Corporation or its activities, concerning the time period prior to
the Closing Date, save that any settlement or other resolution of
such Claim shall require the prior written consent of the Vendors and
Principal, acting reasonably. Such indemnity is conditional upon
Purchaser not entering into any Claim in an adverse position to
Vendors. The Purchaser hereby indemnifies and saves the Vendor
harmless of and from any Claim arising with respect to any inaccuracy
in the Purchaser's representations, warranties and statements or any
failure to fulfil the Purchaser's covenants and obligations set forth
herein.
Notwithstanding the foregoing, the parties covenant and agree as
follows:
(1) the Vendors and Principal shall not be liable for the first
$75,000.00 of Claim(s);
(2) each Vendor shall be liable only for the proportionate amount
of any Claim that is equal to their proportionate share of the cash
portion of the Purchase Price actually paid to the Vendors; and
(3) if a Vendor has paid an amount regarding Claims that is equal to
the cash portion of the Purchase Price received by the Vendor, any
additional amount payable in relation to Claims shall be satisfied
solely by the return of exchangeable shares/shares in the Purchaser
held by such Vendor, such shares to be valued at the price
specified in Article 3 hereof ;
(4) a Vendor's liability shall be limited to the value of the cash
portion of the Purchase Price received and the exchangeable
shares/shares of the Purchaser held by such Vendor;
(5) for the purposes of sections (1) through (4), the caps and
limitations applicable to ▇▇▇▇▇▇ ▇▇▇▇▇ shall be deemed to apply
to ▇▇▇▇▇▇ ▇▇▇▇▇ and the Principal jointly.
19
9. Notices
Any notice, direction or other instrument required or permitted to
be given to the Vendors hereunder shall be in writing and may be given
by mailing the same postage prepaid or delivering the same addressed
to the Vendors at:
▇▇▇▇▇ ▇▇▇▇▇
▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇.,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇., ▇▇▇ ▇▇▇
Any notice, direction or other instrument required or permitted to
be given to the Purchaser or the Corporation hereunder shall be in
writing and may be given by mailing the same postage prepaid or
delivering the same addressed to the Purchaser or the Corporation
at:
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
Attention: President
Any notice, direction or other instrument aforesaid if delivered,
shall be deemed to have been given or made on the date on which it
was delivered or if mailed, shall be deemed to have been given or
made on the fifth business day following the day on which it was
mailed.
10. Costs
(1) The parties hereto agree that there are no broker's or finder's
fees due or payable with respect to this transaction.
(2) Each of the parties hereto shall pay its own legal, accounting
and other costs and expenses associated with this transaction
and this agreement.
11. Entire Agreement
This agreement constitutes the entire agreement between the parties
hereto. There are not and shall not be any verbal statements,
representations, warranties, undertakings or agreements between the
parties hereto and this agreement may not be amended or modified in
any respect except by written instrument signed by the parties hereto.
12. Proper Law of Contract
This agreement shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the
Province of Ontario. Each of the parties hereto hereby irrevocably
submits and attorns to the jurisdiction of the courts of the
Province of Ontario.
13. Benefit and Binding Nature of the Agreement
This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
14. Counterparts
This agreement may be executed by the parties in one or more
counterparts by original or by facsimile, each of which when so
executed and delivered shall be an original and such counterparts
shall together constitute one and the same instrument.
20
IN WITNESS WHEREOF this agreement has been executed by the parties
hereto.
/s/▇▇▇ ▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------- ------------------------------------------
Witness ▇▇▇▇▇▇ ▇▇▇▇▇
/s/▇▇▇ ▇▇▇▇ /s/ ▇▇▇▇ ▇▇▇▇▇
----------------------- ------------------------------------------
Witness ▇▇▇▇ ▇▇▇▇▇
/s/▇▇▇ ▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------- ------------------------------------------
Witness ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/▇▇▇ ▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------- ------------------------------------------
Witness ▇▇▇▇▇ ▇▇▇▇▇
1066865 ONTARIO INC.
Per: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------
ON THE GO HEALTHCARE, INC.
Per: /s/ ▇▇▇▇▇▇ ▇▇▇▇
----------------------------
INFINITY TECHNOLOGIES INC.
Per: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------
21
Schedule "A"
Financial Statements as of Dec 31, 2004
CANADIAN DOLLARS
[Letterhead of PWC]
March 18, 2005
Review Engagement Report
To the Shareholder of
Infinity Technologies Inc.
We have reviewed the non-consolidated balance sheet of Infinity Technologies
Inc. as at December 31, 2004 and the non-consolidated statements on income
and retained earnings and cash flows for the year then ended. These
financial statements have been prepared in accordance with Canadian
generally accepted accounting principles using differential reporting
options available to non-publicly accountable enterprises, as described in
note 2 of the financial statements. Our review was made in accordance with
Canadian generally accepted standards for review engagements and accordingly
consisted primarily of enquiry, analytical procedures and discussion related
to information supplied to us by the company.
A review does not constitute an audit and consequently we do not express an
audit opinion on the financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that these non-consolidated financial statements are not, in all
material respects, in accordance with Canadian generally accepted accounting
principles.
/S/ PricewaterhouseCoopers LLP
Chartered Accountants
22
Infinity Technologies Inc.
Non-consolidated Balance Sheet
(Unaudited)
As at December 31, 2004
2004 2003
$ $
Assets
Current Assets
Cash 33,556 85,538
Short-term investments 2,153 4,784
Accounts receivable 5,125,714 5,323,476
Prepaids - 24,654
Inventories 189,926 274,185
--------------------------
5,351,349 5,712,637
Property and Equipment (note 3) 153,821 98,586
--------------------------
5,505,170 5,811,223
--------------------------
Liabilities
Current liabilities
Bank indebtedness (note 5) - 235,000
Accounts payable and accrued liabilities 4,288,100 4,462,278
Current portion of long-term debt (note 6) 67,200 67,200
--------------------------
4,355,300 4,764,478
Long-term debt (note 6) 22,400 89,600
Due to related parties (note 7) 89,500 89,500
--------------------------
4,467,200 4,943,578
--------------------------
Shareholder's Equity
Capital Stock (note 9) 100 100
Retained earnings 1,037,870 867,545
--------------------------
1,037,970 867,645
--------------------------
5,505,170 5,811,223
--------------------------
Contingent liability (note 11)
23
Infinity Technologies Inc.
Non-consolidated Statement of Income and Retained Earnings
(Unaudited)
For the year ended December 31, 2004
2004 2003
$ $
Sales 24,426,801 26,413,258
Cost of sales 21,253,866 23,109,445
--------------------------
Gross profit 3,172,935 3,303,813
--------------------------
Operating costs
Selling and sales support 943,794 1,055,379
General and administrative 1,956,871 1,768,523
Advertising and promotion 56,316 47,376
Amortization and property equipment 45,629 38,026
--------------------------
3,002,610 2,909,304
--------------------------
Net income for the year 170,325 394,509
Retained earnings - Beginning of year 867,545 473,036
--------------------------
Retained earnings - End of year 1,037,870 867,545
--------------------------
24
Infinity Technologies Inc.
Non-consolidated Statement Cash Flows
(Unaudited)
For the year ended December 31, 2004
2004 2003
$ $
Cash provided by (used in)
Operating activities
Net income for the year 170,325 394,509
Item not affecting cash
Amortization of property and equipment 45,629 38,026
--------------------------
215,954 432,535
Changes in non-cash operating working capital items
Accounts receivable 197,762 (494,430)
Income taxes payable - (36,803)
Prepaids 24,654 (7,356)
Inventories 84,259 (70,718)
Accounts payable and accrued liabilities (174,178) (67,584)
--------------------------
348,451 (244,356)
--------------------------
Investing Activities
Purchase of property and equipement (100,864) (8,867)
Short-term investments 2,631 37,960
--------------------------
(98,233) 29,093
--------------------------
Financing activities
(Repayment of) proceeds from operating
line of credit (235,000) 235,000
Repayment of long-term debt (67,200) (44,800)
--------------------------
(302,200) 190,200
--------------------------
Decrease in cash during the year (51,982) (25,063)
Cash - Beginning of year 85,538 110,601
--------------------------
Cash - End of year 33,556 85,538
--------------------------
Supplemental information
Interest paid 12,043 25,645
Income taxes paid - -
25
Infinity Technologies Inc.
Notes to Non-consolidated Financial Statements
(Unaudited)
December 31, 2004
------------------------------------------------------------------------------
1. Description of business
The company is incorporated under the Ontario Business Corporations
Act and is a wholly owned subsidiary of 1066865 Ontario Inc. The
company is in the business of computer hardware and software sales,
service and consulting.
2. Summary of significant accounting policies
Effective January 1, 2004, the company adopted The Canadian Institute
of Charted Accounts (CICA) Handbook Section 3110, "Asset Retirement
Obligations." This section requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be
made. The associated retirement costs are capitalized as part of the
carrying amount of the long-lived assets and amortized over the life
of the asset. At this time, the company has determined that there
are no significant asset retirement obligations associated with its
assets.
Effective January 1, 2004, the company adopted CICA Section 1100,
"Generally Accepted Accounting Principles" (GAAP). This section
establishes standards for financial reporting in accordance with GAAP
and provides guidance on sources to consult with when selecting
accounting policies and determining the appropriate disclosures when
an item is not explicitly dealt with in the primary sources of GAAP.
The company also adopted CICA Section 1400, "General Standards of
Financial Statement Preparation." Adoption of these sections did not
have a material impact on the company's non-consolidated financial
statements.
Differential reporting
The company, with the unanimous consent of its shareholders, has
elected to prepare its financial statements in accordance with
Canadian generally accepted accounting principles, using the
differential reporting options available to non-publicly accountable
enterprises described below.
a) Investment in and due from subsidiary company
The company has elected to apply the differential reporting measurement
option allowed for investment in and due from a subsidiary company
and, accordingly, the investment in shares of a subsidiary company
is recorded at cost less a writedown for loss is value that is other
than a temporary decline. It is the company's practice to record
income from this company only as dividends are received. The amount
due from a subsidiary company has been recorded at cost less a
writedown for loss in value that is other than a temporary decline.
26
b) Income taxes
The company has elected to apply the differential reporting measurement
option allowed for income taxes and, accordingly, to account for income
taxes using the tax payable method.
c) Financial instruments
The company has elected not to disclose fair value information about
financial assets and liabilities for which the fair value was not
readily determinable.
Use of estimates
The preparation of the company's financial statements in accordance
with Canadian generally accepted accounting principles requires
management to make estimates and assumptions based on currently
available information. Such estimates and assumptions affect the
reported amounts of assets and liabilities as at the date of the
financial statements, disclosure of contingent assets and liabilities,
and the reported amounts of revenue and expenses during the year.
The most significant estimates included in the financial statements
are the valuation of accounts receivable, inventories and accounts
payable and accrued liabilities. Actual results could differ from
those estimates.
Revenue recognition
Revenue from the sale of hardware, technical services and software
is recognized when goods are shipped or services rendered to
customers, the price is fixed and collection is reasonably assured.
Short-term investments
Short-term investments consist of investments in shares of publicly
traded securities and are valued at the lower of cost and quoted
market value.
Inventories
Inventories are stated at the lower of cost (determined on a weighted
average basis) and net realizable value. Inventories are comprised
of finished goods.
Long lived assets
d) Property and equipment
Property and equipment are stated at the lower of acquisition cost,
net of accumulated amortization. Property and equipment are
amortized over their estimated useful lives. The annual rates and
methods used are as follows:
Furniture 20% declining balance
Equipment 30% declining balance
Computer hardware 30% declining balance
Computer software 30% declining balance
Leasehold improvements straight-line over the lease term
27
e) Impairment of long-lived assets
Effective January 1, 2004, the company adopted CICA Section 3063,
"Impairment of Long-Lived Assets." This section requires that the
company review long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset
may not be recoverable. If the sum of the expected future undiscounted
cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of the impairment loss
for the long-lived assets is based on the fair value of the assets.
The adoption of this standard has not had an impact on the financial
statements.
3. Property and equipment
2004 2003
-----------------------------------------
Cost $ Accumulated Net $ Net$
amortization
$
Furniture 32,304 21,699 10,605 13,256
Equipment 44,165 33,319 10,846 2,307
Computer Hardware 201,209 107,756 93,453 24,214
Computer Software 100,187 73,289 26,898 41,639
Leasehold improvements 29,467 17,448 12,019 17,170
-----------------------------------------
407,332 253,511 153,821 98,586
-----------------------------------------
4. Investment in and due from subsidiary company
2004 2003
$ $
Infinity Heritage Technologies Inc. 49% owned
Investment and advances - at cost 30,444 30,444
Less: Provision for loss 30,444 30,444
---------------
- -
---------------
5. Bank indebtness
The company has an operating facility with the Royal Bank of Canada of
up to $650,000 bearing interest at the bank's prime lending rate plus
2%. This facility is secured by a general security agreement covering
all assets other than real property. As at December 31, 2004, the
company has drawn $nil (2003 - $235, 000).
28
6. Long-term debt
2004 2003
$ $
Bank loan, secured, requiring monthly principal
repayments of $5,600 plus interest, bearing interest
at the daily floating base interest rate plus 3% per
annum, due April 2006 89,600 156,800
Less: Current portion 67,200 67,200
----------------
22,400 89,600
The loan is secured by a general security agreement providing
subordinated security on all of the company's assets, a joint and
several guarantee by two of the company's officers for 25% of the loan
outstanding, the assignment of $400,000 of life insurance on two of
the company's officers, and the assignment of shareholder loans
totaling $89,500 (note 7). The bank loan contains restrictive
covenants with respect to the maintenance of certain financial
ratios. During the year, principal repayments totaling $67,200
were made on this loan and interest expense amounted to $11,364
(2003 - $17,356).
7. Related party transactions
The amount of $89,500 (2003 - $89,500) due to the shareholders of the
parent company, 1066865 Ontario Inc., is non-interest bearing and has
no fixed repayment terms. The shareholders of the parent company do
not intend to demand repayment before January 1, 2006 and, accordingly,
this amount has been classified as long-term. In addition, this loan
is subordinated (note 6).
8. Income taxes
Losses amounting to approximately $199,000 (2003 - $428,000) were used
by the company to reduce taxable income to $nil for the 2004 and 2003
taxation years.
9. Capital Stock
Authorized
Unlimited common shares, voting
Unlimited Series A, preferred shares, non-voting,
with a 9% non-cumulative dividend
Unlimited Series B, preferred shares, non-voting
2004 2003
$ $
Issued
100 common shares 100 100
-------------
10. Lease commitments
The company is committed under operating leases for premises,
automobiles and certain computer equipment. The aggregate minimum
annual rentals under these arrangements are approximately as follows:
2005 $ 14,000
2006 $ 12,000
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11. Contingent liability
A legal action has been initiated against the company for breach of
a lease agreement in the amount of $82,000. The ultimate outcome and
loss are not determinable at this time. An amount of $43,000 has
been provided for in the non-consolidated financial statements with
respect to this claim. Any additional loss, if any, sustained on the
ultimate resolution of this claim will be accounted for in the year
of settlement.
12. Comparative figures
Certain of the prior year's figures have been reclassified to conform
with the current year's financial statement presentation.
30
Schedule "B" Assets and Liens and Encumbrances
As indicated on Balance Sheet dated June 30th, 2005
1) Inventory $ 376,478.54
- standard inventory on hand
- inventory on hand - not billed
- inventory in transit
2) Capital Assets $140,383.96 (Depreciated Value)
- Computer Hardware
- Computer Software
- Office Equipment
- includes all workstations, servers storage and all peripherals
Liens and Encumbrances:
Infinity Technologies Inc.
1) BDC $ 71,000.00 ( Approx. )
2) Laurus Master Fund Ltd.
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Schedule "C" Contracts and Equipment Leases
Contracts and Obligations:
(The below are customers who purchase products and services on an on going
basis with no outstanding commitment from Infinity. We are however their
primary product or services provider in certain areas.)
City of Mississauga Vendor of Record \ Tablets and Ent. Backup (Tender)
City Of ▇▇▇▇▇▇▇ Vendor of Record \ Professional Services (Tender)
City Of Oshawa Vendor of Record \ Professional Services (Tender)
Peel District SB Vendor of Record
Legislative Assembly Vendor of Record
Symcor Services Vendor of Record
ING Vendor of Record \ Professional Services
Blakes Cassell Vendor of Record
St. Mary's Cement- Vendor of Record \ Professional Services
Tyco Electronics Vendor of Record \ Professional Services
RB & W Vendor of Record \ Professional Services
Morningstar Ind. Vendor of Record \ Professional Services
Norbord Ind. Inc. Vendor of Record \ Professional Services
Chum TV Vendor of Record \ Professional Services
▇▇▇▇▇▇▇ Vendor of Record \ Professional Services
(The below are customer who have Block Time Services and the respective
approx. amount left on our commitment.)
▇▇▇▇▇ ▇▇▇▇ Foods- Vendor of Record \ Prof. Services (Approx. $2400.00)
Applied Electronics Vendor of Record \ Prof. Services (Approx. $1000.00)
World Wrestling Ent. Vendor of Record \ Prof. Services (Approx. $1700.00)
▇▇▇▇▇ & Nephew Vendor of Record \ Prof. Services (Approx. $5775.00)
▇▇▇▇▇ Packaging Vendor of Record \ Prof. Services (Approx. $2000.00)
Polk Vendor of Record \ Prof. Services (Approx. $1060.00)
Geneva Autism Vendor of Record \ Prof. Services (Approx. $3000.00)
Employment Contracts List to be delivered post closing
Leased Equipment:
1) Panasonic Photo Copier is on lease. Lease details enclosed. All other
equipment is free and clear.
32
Schedule "D" Intellectual Property
Infinity does not have any intellectual property rights save for an
application called AllFinder (Personal Information Manager) which we
ceased production on in the mid 90's.
33
Schedule "E" Leases
Unsigned Lease for the premises is slated to end on Oct 31st, 2005.
See Schedule "J" for particulars. Based on discussions with our legal
counsel we would be obligated regardless of the lease not being signed
until the end of the lease.
Standard monthly payment is enclosed. No obligation to return to original
status. Infinity must provide 3 months notice to the landlord should we
not be staying at this location.
34
Schedule "F" Licenses
1) Microsoft Licenses as per our Gold Certified Authorization
Internal Use Software
Demonstration
Development and Testing
Training Use
Additional Savings
Internal Use Software- These software licenses may be used by Gold Certified
Partners to run their business and for internal employee training only. These
licenses must not be resold, used for personal use, or used for customer
training. Licenses are provided for the latest released versions of Microsoft
software only.
NOTE: For access to your Volume License Keys, please see the "Benefits Center"
link within your Partner Profile.
Microsoft Software
License Grants
Microsoft Office Outlook 2003 with Business Contact Manager 100
Microsoft Office Professional Edition 2003 100
Microsoft Office FrontPage 2003 100
Microsoft Office OneNote 2003 100
Microsoft Office InfoPath 2003 100
Microsoft Office Live Communications Server 2005
Standard Edition 1
Microsoft Office Live Communications Server 2005
Client Access Licenses (CALs) 100
Microsoft Virtual PC 2004 100
Microsoft Windows XP Professiona l00
Microsoft Office Business Contact Manager 2003 100
Microsoft Office Visio 2003 Professional 20
Microsoft Office Project 2003 Professional 20
Microsoft Office Project 2003 Server 1
Microsoft Office Project 2003 CALs 100
Microsoft MapPoint 2004 20
35
Microsoft Windows Server 2003 Enterprise Edition 3
Microsoft Windows Server 2003 CALs 125
Microsoft Windows Server 2003 Terminal Server CALs 100
Microsoft Windows Server 2003 Web Edition 2
Microsoft SQL Server 2000 Enterprise Edition 2
Microsoft SQL Server 2000 Enterprise Edition CALs 100
Microsoft SQL Server Reporting Services Standard Edition 100
Microsoft Exchange Server 2003 Enterprise Edition 1
Microsoft Exchange Server 2003 Enterprise Edition CALs 100
Microsoft Office SharePoint Portal Server 2003 1
Microsoft Office SharePoint Portal Server 2003 CALs 100
Microsoft Windows Sharepoint Services 2003 Enterprise Edition 100
Microsoft Small Business Server Premium Edition Server 1
Microsoft Small Business Server CALs 20
Microsoft Systems Management Server 2003 5
Microsoft Systems Management Server 2003 CALs 100
Microsoft BizTalk Server 2004 Enterprise Edition (Single Processor) 5
Microsoft Internet Security and Acceleration (ISA) Server 2004
Enterprise Edition (Single Processor) 2
Microsoft Internet Security and Acceleration (ISA) Server 2004
Enterprise Edition (Single Processor) CALs 100
Microsoft Commerce 2002 Enterprise Edition (Single Processor) 5
Microsoft Windows Rights Management Services (RMS) for Windows
Server 2003 CALs 10
Microsoft Application Center (Single Processor) 2
Microsoft Content Management Server (Single Processor) 5
Microsoft Mobile Information Server (Single Processor) 2
Microsoft Operations Manager Server 2005 Enterprise Edition
(Single Processor licenses) 1
Microsoft Operations Manager Server 2005 OML 2
36
Microsoft Identity Integration Server (Single Processor licenses) 2
Microsoft Business Solutions CRM Professional Suite 25
Microsoft Business Solutions CRM Suite Server 1
Microsoft Live Communication Server 2005 Enterprise Edition 1
Microsoft Live Communication Server 2005 Enterprise
Edition CALs 100
Microsoft Virtual Server Enterprise Edition 3
Microsoft System Builder OEM Software - includes OEM
Windows XP SP2 Pro, OEM Office 2003 Professional, OEM Small
Business Server 2003 Standard, OEM Windows Media Center Edition,
OneNote 2003 W32 w/SP1, and associated OPKs. Not available
in all countries. 1
2) Citrix 5 Copies of Metaframe or Presentation Server
3) Quotewerks 10 Licensed copies
4) Clientele Help Desk 4 Administration Copies with unlimited WEB Connectors
5) Accpac ver 4.2 31 Pervasive SQL licenses
- Accounts Payable
- Accounts Receivable
- General Ledger
- Inventory Control
- Order Entry
- Serialized Inventory
- Purchase Orders
- Sales Analysis
- Systems Manager
6) Symantec Enterprise Suite 35 Users
7) Fortinet VPN Clients 5 Users
8) BlackBerry Enterprise Server 20 Users
9) Altiris Client Access Suite 25 Users
37
10) Various other applications are owned and fully licensed to Infinity such as:
- Crystal Enterprise Report Writer
- Server DiskKeeper software for 3 servers
- Various copies of Adobe
- Various Graphics Programs such as Corel Draw
- Various Business related directories ( ▇▇▇▇▇'▇ etc. )
- Corporate Fax Solution
- CommVault Enterprise Tape Backup Software and various application
modules
Schedule "G" Employment Agreement and Non-Competition Agreement
Schedule "H" Litigation Matters
A WSIB adjustment is pending. Infinity has filed an appeal on the claim which
was not due to any negligence on our part. An employee injured himself on the
premises and the WSIB could only apply the claim against Infinity. A final
ruling will be made by end of July and initial discussions would indicate no
negative impact to Infinity.
The claim number is 23784192.
The person handling this claim is ▇▇▇▇▇ ▇▇▇▇▇ and he can be reached at
▇▇▇-▇▇▇-▇▇▇▇ or ▇▇▇▇▇▇@▇▇▇▇.▇▇.▇▇.
There is a threatened claim for an unspecified amount against the Corporation
by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ who was terminated as a salesperson.
Schedule "I" Employment Matters
See Schedule "C" for list of employment contracts.
See Schedule "H" for WSIB. claim and threatened litigation.
Schedule "J" Leasehold Properties
Infinity Technologies Inc. currently leases,
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇-▇▇▇
From ▇▇▇▇ ▇▇▇▇▇▇
of
Kavcic Investments Limited
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇-▇▇▇
Unofficial expiration date is Oct 31st, 2005
38