EXHIBIT 2.11
SHARE PURCHASE AGREEMENT
BY AND AMONG
CITYSEARCH CANADA, INC.,
TICKETMASTER ONLINE-CITYSEARCH, INC.,
RESERVEAMERICA HOLDINGS, INC.
AND
THE SHAREHOLDERS THEREOF
DATED AS OF DECEMBER 28, 2000
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS............................................................................................1
1.1. Defined Terms........................................................................1
1.2. Terms Defined Elsewhere..............................................................6
ARTICLE II AGREEMENT TO PURCHASE AND SELL SHARES.................................................................8
2.1 Agreement to Purchase and Sell Shares................................................8
2.2. Distribution of the Aggregate Consideration..........................................8
2.3. Form of Consideration................................................................9
2.4. Additional Consideration.............................................................9
2.5. Adjustment Events...................................................................11
2.6. Payment of Closing Debt Outstanding at Closing; Release of Guarantee................12
ARTICLE III CLOSING; DELIVERY...................................................................................12
3.1 The Closing.........................................................................12
3.2. Deliveries by the Company and the Shareholders at the Closing.......................12
3.3. Deliveries by Purchaser at the Closing..............................................13
3.4. Non-Resident Deliveries.............................................................13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS...................................14
4.1 Organization, Good Standing and Qualification.......................................14
4.2 Capitalization......................................................................14
4.3 Subsidiaries........................................................................15
4.4 Due Authorization...................................................................16
4.5 Valid Issuance of Shares............................................................16
4.6 Liabilities.........................................................................16
4.7 Title to Properties and Assets......................................................16
4.8 Intellectual Property; Software.....................................................16
4.9 Material Contracts and Obligations..................................................20
4.10. Litigation..........................................................................21
4.11 Required Consents...................................................................21
4.12 Compliance with Other Instruments...................................................22
4.13. Disclosure..........................................................................22
4.14. Government Contracts................................................................22
4.15. Insurance...........................................................................23
4.16. Financial Statements................................................................23
4.17. Certain Actions.....................................................................24
4.18. Activities Since Balance Sheet Date.................................................24
4.19. Taxes...............................................................................25
4.20. Environmental Matters...............................................................27
4.21 Employee Benefits...................................................................29
4.22. Permits.............................................................................30
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4.23. Interested Party Transactions.......................................................30
4.24. Compliance with Law.................................................................30
4.25 Certain Business Practices..........................................................30
4.26 Minute Books........................................................................31
4.27. Labor Matters.......................................................................31
4.28. No Brokers..........................................................................31
4.29. Bank Accounts.......................................................................32
4.30. Competition Act.....................................................................32
4.31. Trust Account.......................................................................32
4.32. Private Company.....................................................................32
4.33 Due Authorization of Shareholders...................................................32
4.34 Title to Shares.....................................................................32
4.35. Proceedings Regarding Shareholders..................................................33
4.36. Representations Regarding Parent Shares.............................................33
4.37. Non-Residents.......................................................................34
4.38. Community Property..................................................................34
4.39. Securities Act (Ontario)............................................................34
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................................................34
5.1 Organization........................................................................34
5.2 Due Authorization...................................................................34
5.3 No Conflicts........................................................................35
5.4. Consents and Approvals..............................................................35
5.5. Litigation..........................................................................35
5.6. No Brokers..........................................................................35
5.7. Valid Issuance of Stock.............................................................35
5.8. SEC Filings.........................................................................36
5.9. Conduct of Business.................................................................36
5.10. Financial Statements................................................................36
ARTICLE VI CERTAIN COVENANTS....................................................................................36
6.1 Conduct of the Business.............................................................36
6.2 Further Assurances..................................................................38
6.3 Confidentiality; Public Announcements...............................................38
6.4. Ancillary Agreements................................................................39
6.5 Inspection..........................................................................39
6.6. Notification of Certain Matters.....................................................39
6.7. Non-Executive Employee Matters......................................................39
6.8. Budgeting and Transitional Matters..................................................40
6.9. Registration Statement..............................................................41
6.10. Release.............................................................................44
6.11. Lock-up.............................................................................45
6.12. Financial Statements................................................................46
6.13. Solicitation of Shareholders and Warrant Holders....................................46
6.14. Software Compliance.................................................................46
6.15. Updating Schedules..................................................................47
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ARTICLE VII CONDITIONS TO CLOSING...............................................................................47
7.1. Conditions to Each Party's Obligations..............................................47
7.2. Conditions to Obligation of the Company and the Shareholders........................47
7.3. Conditions to Obligation of Purchaser...............................................48
ARTICLE VIII. TERMINATION.......................................................................................49
8.1. Termination.........................................................................49
8.2. Effect of Termination...............................................................50
ARTICLE IX. INDEMNIFICATION.....................................................................................51
9.1. Survival of Representations.........................................................51
9.2. Indemnification.....................................................................51
9.3. Notice of Claims....................................................................52
9.4. Third Person Claims.................................................................54
9.5. Limitation on Indemnity.............................................................54
9.6. Right of Offset.....................................................................55
9.7. Remedies............................................................................55
ARTICLE X. MISCELLANEOUS........................................................................................55
10.1. Binding Effect; Assignment..........................................................55
10.2. Notices.............................................................................55
10.3. Choice of Law.......................................................................57
10.4. Entire Agreement; Amendments and Waivers............................................57
10.5. Counterparts........................................................................57
10.6. Severability........................................................................57
10.7. Headings............................................................................57
10.8. Schedules...........................................................................57
10.9. No Third Party Beneficiaries........................................................57
10.10. Specific Performance................................................................58
10.11. No Strict Construction..............................................................58
10.12. Expenses............................................................................58
10.13. Disclosure Schedules................................................................58
10.14. Shareholders' Representatives.......................................................59
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EXHIBITS
Exhibit A Form of Employment Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Earn-Out Amounts
Exhibit D Form of Opinion of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
Exhibit E Form of Opinion of Torys
Exhibit F Form of Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
Exhibit G Form of Opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Exhibit H Form of Spousal Consent
SCHEDULES
Schedule I..................................Security Holders
Schedule 2.6................................Net Cash and Closing Debt
Schedule 4.2................................Options, Warrants, Reserved Shares
Schedule 4.3................................Subsidiaries
Schedule 4.6................................Liabilities
Schedule 4.7 ...............................Title to Properties and Assets
Schedule 4.8................................Intellectual Property
Schedule 4.9................................Material Contracts
Schedule 4.10...............................Litigation
Schedule 4.12...............................Compliance with Other Instruments
Schedule 4.14...............................Government Contracts
Schedule 4.15 ..............................Insurance
Schedule 4.16...............................Financial Statements
Schedule 4.19...............................Taxes
Schedule 4.21...............................Employee Benefits
Schedule 4.22...............................Permits
Schedule 4.23...............................Interested Party Transactions
Schedule 4.27...............................Labor Matters
Schedule 4.28...............................Brokers
Schedule 4.29...............................Bank Accounts
Schedule 4.34...............................Title to Shares
Schedule 4.37...............................Non-Residents
Schedule 4.38...............................Community Property
Schedule 6.1................................Capital Expenditures
Schedule 6.14...............................Software Compliance
Schedule 7.3................................Liens
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SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (the "AGREEMENT") is entered into as of
December 28, 2000 (the "EFFECTIVE DATE") by and among CitySearch Canada, Inc.,
an Ontario corporation ("PURCHASER"), Ticketmaster Online-CitySearch, Inc., a
Delaware corporation and the parent corporation of Purchaser ("PARENT"),
ReserveAmerica Holdings, Inc., an Ontario corporation (the "COMPANY") and the
Shareholders (as defined below).
R E C I T A L S
WHEREAS, Parent wishes to acquire the Company;
WHEREAS, Parent wishes to effect the acquisition through Purchaser;
WHEREAS, Purchaser desires to purchase from the shareholders of the
Company included on the signature pages hereto, including those shareholders who
have executed this Agreement following the date hereof, but prior to the Closing
Date (as defined below) (each a "SHAREHOLDER" and collectively, the
"SHAREHOLDERS"), and the Shareholders desire to sell to Purchaser the Company's
common shares (the "COMMON SHARES"), Class A Preference shares (the "CLASS A
SHARES"), Class B Preference shares (the "CLASS B SHARES,") and Class B Shares
(the "WARRANT CLASS B SHARES") and Common Shares (the "WARRANT COMMON SHARES")
issuable upon exercise of warrants (the "WARRANTS"), in exchange for cash and
stock consideration as provided below;
WHEREAS, the Common Shares, Class A Shares, Class B Shares, Warrant
Class B Shares and Warrant Common Shares (collectively, the "SHARES") to be sold
to Purchaser by the Shareholders are listed on SCHEDULE I attached hereto, as
amended immediately prior to the Closing (as defined below); and
WHEREAS, the Shares represent at least 98% of each class of the
Company's fully diluted equity securities.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINED TERMS. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"ACCREDITED SHAREHOLDERS" means those shareholders of the
Company who have represented that they are "accredited investors" as that
term is defined in Rule 501 promulgated under the Act (as defined below), as
indicated on SCHEDULE I attached hereto, as amended immediately prior to the
Closing.
"ACT" means the Securities Act of 1933, as amended, of the
United States.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"ANCILLARY AGREEMENTS" means the Employment Agreements and the
Escrow Agreement substantially in the forms attached hereto as EXHIBITS A and
B respectively.
"AVERAGE STOCK PRICE" means the average of the closing sales
prices of Parent Shares (as defined below) on the NASDAQ National Market for
each of the seven trading days immediately preceding and including a
specified date (for example, the Closing Date), as reported in the Western
Edition of THE WALL STREET JOURNAL.
"BUSINESS" means the Company's business of camping reservations
and management, hotel reservations, online ticketing and venue ticketing.
"BUSINESS DAY" means a day other than a Saturday, Sunday or
other day on which commercial banks in Los Angeles, California are authorized
or required by law to close.
"CANADIAN GAAP" means generally accepted accounting principles
as stated in the Handbook of the Canadian Institute of Chartered Accountants.
"CAPITAL LEASES" means a lease of which the Company and/or any
of its Subsidiaries is the lessee that extends over most of the estimated
economic life of the asset(s) leased and which cannot be canceled or, if such
lease can be canceled, the lessor is reimbursed for any losses pursuant to
the terms of such lease.
"CLOSING DEBT" means (a) the outstanding long-term Debt (as
defined below) and the outstanding short-term Debt of the Company as set forth
on SCHEDULE 2.6, specifically including, among other things, all mortgages and
other loans secured by an interest in real property which is not owned by the
Company or its Subsidiaries and which is not released at Closing (including,
without limitation, any such mortgages or other loans for which the Company or
one of its Subsidiaries is contingently liable and which liability is not
released at Closing), (b) that certain Mortgage, dated January 1, 1997, in the
original amount of $170,000, of which South Street LLC and County of Saratoga
Industrial Development Agency are the mortgagors and Key Bank National
Association is the mortgagee (the "EQUIPMENT MORTGAGE"), (c) all Capital Leases
that will change materially as a result of the consummation of the transactions
contemplated hereby [such that they must be paid out in full] and (d) all
Capital Leases for improvements to the building and parking lot at ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇ owned by certain of the Shareholders as set forth
on SCHEDULE 2.6. All Capital Leases referred to in clauses (c) and (d) shall be
referred to herein as "TERMINATING CAPITAL LEASES."
2
"CODE" meathe Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"COMPANY ACCOUNTANTS" means KPMG LLP.
"COMPANY FISCAL YEAR" means a twelve month period commencing on
December 1 of each calendar year.
"CONSENTS" means any and all consents, approvals,
authorizations or waivers of any public, governmental or regulatory body or
authority or from parties to Material Contracts (as defined below) that are
(a) required for the consummation of the transactions contemplated by this
Agreement or (b) necessary in order that the Company can conduct the Business
after the Closing Date substantially in the same manner as the Business was
conducted by the Company before the Closing Date.
"COURT ORDER" means any judgment, decision, consent decree,
injunction, ruling or order of any national, federal, state, provincial or
local court or governmental agency, department or authority that is binding
on any Person or its property under applicable law.
"DEBT" means (a) any indebtedness of the Company or any of its
Subsidiaries, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or other similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances, (b) any balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
account payable, in each case referred to in this clause (b) incurred in the
Ordinary Course of Business (as defined below), (c) all indebtedness of
others secured by a lien on any asset of the Company or any of its
Subsidiaries (whether or not such indebtedness is assumed by the Company) and
(d) to the extent not otherwise included by clauses (a), (b) and (c), any
guaranty by the Company or any of its Subsidiaries of any indebtedness of any
other Person.
"DEFAULT" means (a) any actual breach or default, (b) the
occurrence of an event that with the passage of time or the giving of notice
or both would constitute a breach or default or (c) the occurrence of an
event that with or without the passage of time or the giving of notice or
both would give rise to a right of termination, renegotiation or acceleration.
"EBITDA" means earnings before interest, taxes, depreciation
and amortization, as adjusted in accordance with the express provisions of
this Agreement.
"EMPLOYMENT AGREEMENTS" means those certain Employment
Agreements to be entered into at the Closing by and between the Company and
each of the Executives (as defined below) substantially in the form attached
hereto as EXHIBIT A.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, conditional sales
agreement, encumbrance or other right of third parties, whether voluntarily
incurred or arising by operation of law, and includes, without limitation,
any agreement to give any of the foregoing in the future, and any contingent
sale or other title retention agreement or lease in the nature thereof.
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"ESCROW AGREEMENT" means that certain escrow agreement to be
entered into at the Closing by and between the Escrow Agent (as defined
below), the Shareholders' Representative (as defined below), Purchaser and
Parent substantially in the form attached hereto as EXHIBIT B, with such
changes as reasonably requested by the Escrow Agent.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, of the United States.
"EXECUTIVES" means ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ Park and ▇▇▇▇ ▇▇▇▇▇▇.
"FISCAL YEAR" means a twelve month period commencing on January
1 of each calendar year.
"GOVERNMENT CONTRACT" means any contract currently in effect
between the Company or one of its Subsidiaries and the United States
government, any state government or a department or agency thereof, or any
subcontract thereunder.
"INITIAL STOCK PRICE" means the Average Stock Price on the date
that is two Business Days prior to the Closing Date; PROVIDED, HOWEVER, that,
(a) if the Initial Stock Price is less than ninety percent (90%) of the
Signing Stock Price (as defined below), then the Initial Stock Price shall be
deemed to be ninety percent (90%) of the Signing Stock Price and (b) if the
Initial Stock Price is greater than one hundred ten percent (110%) of the
Signing Stock Price, then the Initial Stock Price shall be deemed to be one
hundred ten percent (110%) of the Signing Stock Price.
"KNOWLEDGE" of the Company means the knowledge of the
Executives, after a reasonable investigation of the surrounding circumstances.
"LIABILITIES" means any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any Person of any type, known or unknown, and whether
accrued, absolute, contingent, matured, unmatured or other.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" will be
deemed to occur if any event, violation, inaccuracy, circumstance or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in this Agreement
but for the presence of "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, in such representations and
warranties) has, or could reasonably be expected to have or give rise to, a
material adverse effect or material adverse change on (a) the condition
(financial or otherwise), business, results of operations, assets, prospects,
Liabilities, capitalization, operations or financial performance of the party
making the representations and warranties or (b) the ability of the Company
to consummate the transactions contemplated by this Agreement or to perform
any of its obligations under this Agreement; PROVIDED, HOWEVER, that in no
event shall any event, violation, inaccuracy, circumstance or other matter
that is attributable to or results from changes in general economic
conditions or changes affecting the industry generally in which the Company
operates, in and of itself, constitute a Material Adverse Effect or Material
Adverse Change.
4
"NAMED SHAREHOLDERS" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Family Trust, MRS Trust Company ITF and
▇▇▇▇▇▇▇ Family Trust.
"NET CASH" means (a) cash on hand, PLUS (b) accounts
receivables, net of bad debt accrual recorded by the Company in the ordinary
course, PLUS (c) cash due to the Company from the exercise of the Warrants,
LESS (d) trade payables.
"NON-ACCREDITED SHAREHOLDERS" means those shareholders of the
Company who have represented that they are not "accredited investors" as that
term is defined in Rule 501 promulgated under the Act, as indicated on
SCHEDULE I attached hereto, as amended immediately prior to the Closing.
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any
similar phrase means the ordinary course of the Business, consistent with the
past practice of the Company.
"PARENT SEC DOCUMENT" means any report, schedule, form,
statement, registration statement, definitive proxy statement or other
document filed by Parent with the SEC.
"PARENT SHARES" means shares of the Class B Common Stock, par
value U.S.$.01 per share, of Parent.
"PERMITS" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, national, federal, provincial, state or local, or
any other Person, necessary for the past, present or anticipated conduct of,
or relating to the operation of the Business.
"PERMITTED ENCUMBRANCES" means (a) liens, taxes, assessments
and other governmental charges not yet due and payable, (b) statutory,
mechanics', laborers' and materialmen liens arising in the Ordinary Course of
Business for sums not yet due, (c) statutory and contractual landlord liens
under leases pursuant to which the Company is a lessee and not in Default,
(d) with regard to real property, any and all matters of record in the
jurisdiction where the real property is located including, without
limitation, restrictions, reservations, covenants, conditions, oil and gas
leases, mineral severances and liens and (e) with regard to real property,
any easements, rights-of-way, building or use restrictions, prescriptive
rights, encroachments, protrusions, rights and party walls, and liens for
taxes, assessments, and other governmental charges not yet due.
"PERSON" means any person or entity, whether an individual,
trustee, corporation, partnership, limited partnership, limited liability
company, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority.
"REGULATIONS" means any laws, statutes, ordinances,
regulations, rules, notice requirements, court decisions, agency guidelines,
principles of law and orders of any foreign, federal, national, provincial,
state or local government and any other governmental department or agency,
and including, without limitation, environmental laws, energy, public
utility, health
5
codes, occupational safety and health regulations and laws respecting employment
practices, employee documentation, terms and conditions of employment and wages
and hours.
"REPRESENTATIVE" means, with respect to any Person, any
officer, director, principal, attorney, agent, employee or other
representative of such Person.
"SEC" means the United States Securities and Exchange
Commission.
"SIGNING STOCK PRICE" means the Average Stock Price on the date
that is two Business Days prior to the date hereof.
"SUBSIDIARY" means (a) any corporation in an unbroken chain of
corporations if each of the corporations other than the last corporation in
the unbroken chain then owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain, (b) any partnership in which a Person is a
general partner or (c) any limited liability company, partnership or other
entity in which a Person possesses a 50% or greater interest in the total
capital or total income of such limited liability company, partnership or
other entity.
"U.S. GAAP" means generally accepted United States accounting
principles.
1.2. TERMS DEFINED ELSEWHERE. The following is a list of additional
terms used in this Agreement and a reference to the Section hereof in which such
term is defined:
DEFINED TERM SECTION PAGE
------------ ------- ----
AAA...........................................................Section 9.3..............53
Accredited Holder.............................................Section 6.9..............42
Actual Compliance Cost........................................Section 6.14.............47
Additional Consideration......................................Section 2.4..............10
Adjustment Event..............................................Section 2.5..............12
Aggregate Consideration.......................................Section 2.1..............8
Agreement.....................................................Preamble.................1
Arbitrator....................................................Section 9.3..............53
Auditor.......................................................Section 2.4..............12
Balance Sheet Date............................................Section 4.16.............23
Cap...........................................................Section 9.5..............55
Cash Consideration............................................Section 2.1..............8
Claim Notice..................................................Section 9.3..............52
Claim.........................................................Section 6.10.............45
Class A Shares................................................Recitals.................1
Class B Shares................................................Recitals.................1
Closing Date..................................................Section 3.1..............13
Closing.......................................................Section 3.1..............12
Common Shares.................................................Recitals.................1
Company Intellectual Property Assets..........................Section 4.8..............17
Company Marks.................................................Section 4.8..............18
Company Required Consents.....................................Section 4.11.............22
Company.......................................................Preamble.................1
Compliance Estimate...........................................Section 6.14,............47
6
Copyrights....................................................Section 4.8..............17
CPOA..........................................................Section 10.14............59
Damages,......................................................Section 9.2..............52
Designated Software Agreements................................Section 4.8..............20
Disposition...................................................Section 6.8..............46
Dispute Notice................................................Section 9.3..............53
Distribution Date.............................................Section 2.4..............11
Distribution Stock Price......................................Section 2.4..............10
Earn-Out Amount...............................................Section 2.4..............11
Earn-Out Dollar Amount........................................Section 2.4..............10
Effective Date................................................Preamble.................1
Effective Period..............................................Section 6.9..............42
Employee Pension Benefit Plan.................................Section 4.21.............30
Equipment Mortgage............................................Section 1.1..............3
ERISA.........................................................Section 4.21.............30
Escrow Account................................................Section 2.2..............9
Escrow Agent..................................................Section 2.2..............9
Escrowed Amount...............................................Section 2.2..............9
Escrowed Earn-Out Amount......................................Section 2.4..............11
Excess Closing Debt...........................................Section 2.6..............12
Financial Statements..........................................Section 4.16.............23
Holder........................................................Section 6.13.............46
Indemnified Party.............................................Section 9.3..............52
Indemnitor....................................................Section 9.3..............52
Intellectual Property Rights..................................Section 4.8..............17
Intellectual Property.........................................Section 4.8..............17
Licensed Software Agreements..................................Section 4.8..............20
Licensed Software.............................................Section 4.8..............19
Licensed Technology Agreements................................Section 4.8..............20
Limitation on Indemnity.......................................Section 9.5..............54
Lock-Up Period................................................Section 2.2..............9
Marks.........................................................Section 4.8..............17
Material Contracts............................................Section 4.9..............21
Multiemployer Plan............................................Section 4.21.............30
Other Licensed Technology.....................................Section 4.8..............20
Outside Date..................................................Section 8.1..............50
Owned Software................................................Section 4.8..............19
Parent........................................................Preamble.................1
Patents.......................................................Section 4.8..............17
Proceedings...................................................Section 4.10.............21
Purchase Price................................................Section 2.1..............8
Purchaser Indemnified Parties.................................Section 9.2..............52
Purchaser.....................................................Preamble.................1
Real Property.................................................Section 4.7..............17
Registration Indemnified Party................................Section 6.9..............44
Registration Indemnifying Party...............................Section 6.9..............44
Registration Statement........................................Section 6.9..............41
Released Claims...............................................Section 6.10.............45
Releasees.....................................................Section 6.10.............45
Required Amount...............................................Section 3.4..............14
Restricted Parent Shares......................................Section 2.2..............9
7
Share Consideration...........................................Section 2.1..............8
Shareholder Indemnified Parties...............................Section 9.2..............52
Shareholders' Representative..................................Section 10.14............58
Shareholders..................................................Recitals.................1
Shares........................................................Recitals.................1
Software......................................................Section 4.8..............17
Statement.....................................................Section 2.4..............12
Tax Return....................................................Section 4.19.............25
Tax...........................................................Section 4.19.............25
Terminating Capital Leases....................................Section 1.1..............3
Trade Secrets.................................................Section 4.8..............17
Transaction Fees..............................................Section 10.12............58
Violation.....................................................Section 6.9..............43
Warrant Class B Shares........................................Recitals.................1
Warrant Common Shares.........................................Recitals.................1
Warrants......................................................Recitals.................1
ARTICLE II
AGREEMENT TO PURCHASE AND SELL SHARES
2.1 AGREEMENT TO PURCHASE AND SELL SHARES. Subject to the terms and
conditions hereof, the Shareholders agree to sell to Purchaser, and Purchaser
agrees to purchase from the Shareholders, the Shares which represent 100% of the
fully-diluted equity of the Company, for an aggregate purchase price (the
"PURCHASE PRICE") of U.S.$22,200,000 (in the event less than 100% of the
fully-diluted equity of the Company is tendered for sale to the Purchaser, this
amount will be reduced PRO RATA), which, assuming 100% of the fully-diluted
equity is tendered, shall consist of (a) cash consideration (the "CASH
CONSIDERATION") in the amount of U.S.$12,200,000 and (b) that number of Parent
Shares determined by DIVIDING (1) the difference between the Purchase Price and
the Cash Consideration by (2) the Initial Stock Price (the "SHARE CONSIDERATION"
and collectively with the Cash Consideration, the "AGGREGATE CONSIDERATION").
The Aggregate Consideration shall be allocated to the Shareholders as provided
on SCHEDULE I attached hereto, as amended immediately prior to the Closing.
2.2 DISTRIBUTION OF THE AGGREGATE CONSIDERATION.
(a) On the Closing Date, Purchaser shall pay to each Shareholder
holding Class A Shares and/or to such Shareholder's order, by certified check or
wire transfer, that portion of the Cash Consideration that such Shareholder has
the right to receive with respect to the Class A Shares held by such
Shareholder, as reflected on SCHEDULE I attached hereto, as amended immediately
prior to the Closing.
(b) On the Closing Date, Purchaser shall pay to each Shareholder
holding Class B Shares and/or to such Shareholder's order, by certified check or
wire transfer, that portion of the Cash Consideration that such Shareholder has
the right to receive with respect to the Class B Shares held by such
Shareholder, as reflected on SCHEDULE I attached hereto, as amended immediately
prior to the Closing.
8
(c) On the Closing Date, Purchaser shall pay to each Non-Accredited
Shareholder and/or to such Shareholder's order, by certified check or wire
transfer, that portion of the Cash Consideration that such Non-Accredited
Shareholder has the right to receive with respect to the Common Shares held by
such Non-Accredited Shareholder, as reflected on SCHEDULE I attached hereto, as
amended immediately prior to the Closing.
(d) On the Closing Date, Purchaser shall (i) pay to each Accredited
Shareholder and/or to such Shareholder's order, by certified check or wire
transfer, that portion of the Cash Consideration that such Accredited
Shareholder has the right to receive with respect to the Common Shares held by
such Accredited Shareholder, as reflected on SCHEDULE I attached hereto, as
amended immediately prior to the Closing, and (ii) deliver to each Accredited
Shareholder certificates representing that portion of the Share Consideration
that such Accredited Shareholder has the right to receive with respect to the
Common Shares held by such Accredited Shareholder, as reflected as such
Accredited Shareholder's "Closing Parent Shares" on SCHEDULE I attached hereto,
as amended immediately prior to the Closing.
(e) On the Closing Date, certificates representing a portion of the
Share Consideration and a portion of the Cash Consideration, representing an
aggregate of Five Million United States Dollars (U.S.$5,000,000), otherwise
allocable to the Shareholders, as provided on SCHEDULE I attached hereto, as
amended immediately prior to the Closing (the "ESCROWED AMOUNT"), shall be
delivered to an escrow agent (the "ESCROW AGENT") identified by the
Shareholders' Representative at least fifteen (15) days prior to the Closing
Date, which Escrow Agent shall be reasonably acceptable to Parent and Purchaser,
to be held by such Escrow Agent in an escrow account (the "ESCROW ACCOUNT") for
the benefit of the Shareholders pursuant to the terms and conditions of the
Escrow Agreement, which include the release of the funds from the Escrow Account
upon the renewal of certain Government Contracts of the Company.
(f) The Share Consideration to be issued to the Accredited
Shareholders shall be subject to a lock-up for the twelve-month period following
the Closing Date (the "LOCK-UP PERIOD") and shall otherwise become transferable,
subject to applicable securities laws, upon the effectiveness of the
Registration Statement (as defined below) (collectively, the "RESTRICTED PARENT
SHARES").
(g) Notwithstanding the foregoing, in no event shall the aggregate
Cash Consideration and the Additional Consideration (as defined below) paid
hereunder with respect to the Class A Shares or Class B Shares exceed the amount
of the preference to which such shares are entitled (in respect of dividends or
on wind-up of the Company) under the provisions of the Company's articles as in
effect immediately prior to the date hereof.
2.3 FORM OF CONSIDERATION. In lieu of delivering the Share
Consideration in the form of Parent Shares, Purchaser may, in addition to the
Cash Consideration, elect to pay all or any portion of the Share Consideration
in cash. In the event that Purchaser elects to pay any portion of the Share
Consideration in cash rather than Parent Shares, on the Closing Date, Purchaser
will pay to the Accredited Shareholders in immediately available funds that
portion of the Share Consideration so converted to cash.
2.4 ADDITIONAL CONSIDERATION.
9
(a) As additional consideration and in exchange for the Shares,
with respect to each of the Fiscal Years ending on December 31, 2001 and
December 31, 2002, Purchaser shall distribute to the Shareholders on each
Distribution Date (as defined below) the number of Parent Shares and cash equal
to the Additional Consideration. For the purposes of this SECTION 2.4,
"ADDITIONAL CONSIDERATION" shall mean the number of Parent Shares equal to the
number determined by DIVIDING (i) the applicable dollar amount set forth
opposite the applicable EBITDA amount for such Fiscal Year as reflected on
EXHIBIT C hereto (the "EARN-OUT DOLLAR AMOUNT") by (ii) the Average Stock Price
on the date that is two trading days prior to the applicable Distribution Date
(the "DISTRIBUTION STOCK PRICE"); PROVIDED, HOWEVER, that, (A) if the
Distribution Stock Price is less than eighty percent (80%) of the Signing Stock
Price, then the Distribution Stock Price shall be deemed to be eighty percent
(80%) of the Signing Stock Price and (B) if the Distribution Stock Price is
greater than one hundred thirty percent (130%) of the Signing Stock Price, then
the Distribution Stock Price shall be deemed to be one hundred thirty percent
(130%) of the Signing Stock Price. In lieu of delivering Additional
Consideration in the form of Parent Shares, (1) Purchaser shall pay any portion
of the Additional Consideration payable to Non-Accredited Shareholders in cash
and (2) Purchaser may elect to pay the remaining Additional Consideration, or
any portion thereof, in cash; PROVIDED, HOWEVER, that, to the extent Purchaser
pays cash in lieu of Parent Shares and the Distribution Stock Price is less than
eighty percent (80%) of the Signing Stock Price or greater than one hundred
thirty percent (130%) of the Signing Stock Price, then, in lieu of paying the
applicable Earn-Out Dollar Amount, Purchaser shall pay an amount in cash equal
to the value of the Parent Shares it would have been obligated to deliver
pursuant to the previous sentence. Earn-Out Dollar Amounts between levels
specified on EXHIBIT C shall be determined as provided thereon.
(b) The Company and each of the Shareholders acknowledges that
EXHIBIT C has been created with reference to the Company's financial projections
which were provided to Purchaser by the Company. The Company and each of the
Shareholders further acknowledges that any directive by Purchaser or Parent
during Fiscal Years ending December 31, 2001 and December 31, 2002 that the
Company not participate in the ticketing, hotel reservation or off season call
center markets, except to fulfill their current contracts, if any, shall not be
construed as affecting the rights of the Shareholders to earn any portion of
either Earn-Out Amount (as defined below) and will not give rise to any claims
against Purchaser, Parent or their respective Affiliates with respect thereto.
Notwithstanding the foregoing, should the Company directly earn EBITDA from the
ticketing, hotel reservation or off season call center businesses in excess of
that generated from the existing contracts, such EBITDA shall count toward the
calculation of the Earn-Out Amounts. In the event that Purchaser or Parent asks
the Company to cede control of the existing Company ticketing, hotel reservation
or off season call center contracts, if any, to other Purchaser or Parent
operating divisions, then Purchaser will give the Company credit for the EBITDA
earned from such ceded contracts for purposes of earning the Earn-Out Amounts
discussed herein. Such credit will consist of EBITDA credit equal to a
percentage of the revenue recognized under U.S. GAAP by such Purchaser or Parent
operating division during the applicable Fiscal Year from such ceded contracts
which will be agreed upon in good faith by Parent and the Shareholders'
Representative prior to the transfer of such contracts. In addition, any expense
(or loss of revenue) incurred by the Company which is actually recovered by the
Company, Purchaser or Parent through an indemnification payment made by the
Shareholders pursuant to ARTICLE IX hereto shall not be counted as an expense
(or loss of revenue) of the Company for the purpose of calculating EBITDA
pursuant hereto.
10
(c) Subject to SECTION 2.4(d) below, the amounts to be distributed
to Shareholders pursuant to SECTION 2.4(a) with respect to either of the
foregoing Fiscal Years (each an "EARN-OUT AMOUNT") shall be distributed to
Shareholders pro rata according to their respective percentage ownership of the
Company immediately prior to the Closing Date, as reflected on SCHEDULE I
attached hereto, as amended immediately prior to the Closing, within ten (10)
days after the completion of the Statement (as defined below) with respect to
such Fiscal Year (the "DISTRIBUTION DATE") in cash or Parent Shares transferable
pursuant to a registration statement which Parent shall cause to be filed and
declared effective by the SEC (as defined below) prior to each Distribution Date
on the same terms and conditions provided in SECTION 6.9; PROVIDED, that, in
addition to those terms and conditions provided in SECTION 6.9, Parent may
postpone the effectiveness of any registration statement filed pursuant to this
SECTION 2.4(c) for up to 45 days if Parent's board of directors determines that
the sale of Parent Shares would reasonably be expected to have an adverse effect
on any proposal or plan by Parent or any of its Subsidiaries to engage in any
acquisition of assets or capital stock (other than in the Ordinary Course of
Business) or any merger, consolidation, tender offer or similar transaction;
PROVIDED, HOWEVER, that, in such event the Effective Period (as defined below)
for such registration statement shall be extended by the number of days during
the postponement period.
(d) In the event that no funds in the Escrow Account by reason of
SECTION 2.2(e) have been released from the Escrow Account pursuant to the terms
of the Escrow Agreement due to clarification of whether or not certain
Government Contracts of the Company have been definitively renewed, on each
Distribution Date, the applicable Earn-Out Amount, otherwise allocable to the
Shareholders as provided in SECTION 2.4(c) (the "ESCROWED EARN-OUT AMOUNT")
shall be delivered to the Escrow Agent to be held by such Escrow Agent in the
Escrow Account for the benefit of the Shareholders pursuant to the terms and
conditions of the Escrow Agreement, which include the release of the funds from
the Escrow Account upon the renewal of certain Government Contracts of the
Company.
(e) As soon as practicable after the Closing and prior to the
beginning of the Fiscal Year ending December 31, 2002, the Executives and
Purchaser will mutually establish "agreed upon procedures" reasonably consistent
with the preparation of the Financial Statements (as defined below) to be used
in determining EBITDA for purposes of calculating the Earn-Out Amounts. Not
later than ninety (90) days after the end of each of the foregoing Fiscal Years,
Ernst & Young LLP (the "AUDITOR") will determine EBITDA for purposes of
calculating the Earn-Out Amount for that Fiscal Year in accordance with such
agreed upon procedures and will prepare a statement of EBITDA relating thereto
(the "STATEMENT"). The fees and disbursements of the Auditor incurred in the
preparation of the Statement shall be paid 100% by Purchaser.
2.5 ADJUSTMENT EVENTS. If, between the date of this Agreement and the
Closing Date, the outstanding Parent Shares shall have been changed into or
exchanged for a different number of shares or kind of shares of Parent or
another corporation or entity by reason of any reclassification, split-up, stock
dividend or stock combination or merger or any arrangement, amalgamation or
similar statutory procedure (an "ADJUSTMENT EVENT"), then the Share
Consideration and the Earn-Out Amounts shall be reasonably and equitably
adjusted. If the Adjustment Event occurs between the Closing Date and a
Distribution Date, the Earn-Out Amounts shall be reasonably and equitably
adjusted. If the record date for any such Adjustment Event shall be prior to the
Closing Date or a Distribution Date, as applicable, but the payment
11
date therefor shall be subsequent to the Closing Date or a Distribution Date, as
applicable, Parent shall take such action as shall be required so that on such
payment date the Accredited Shareholders shall be entitled to receive such
number or kind of shares as such holder would have received as a result of such
event if the record date therefor had been immediately after the Closing Date or
a Distribution Date, as applicable.
2.6 PAYMENT OF CLOSING DEBT OUTSTANDING AT CLOSING; RELEASE OF
GUARANTEE.
(a) The Shareholders shall pay all Closing Debt of the Company and
its Subsidiaries immediately after the Closing. The Shareholders may use all Net
Cash as of the Closing Date to make all or any portion of such payments. To the
extent that there is Closing Debt in excess of the Net Cash (the "EXCESS CLOSING
DEBT"), Purchaser shall pay portions of the Cash Consideration to third parties
at the Shareholders' direction in order to pay all or any portion of the Excess
Closing Debt. The Cash Consideration used for this purpose shall be allocated to
the Shareholders pro rata. The use of Net Cash and the amounts to be paid
immediately after the Closing are reflected on SCHEDULE 2.6(a).
(b) Immediately after the Closing, the Shareholders shall cause the
Company and each of its Subsidiaries to be released from all Liabilities that
are secured by a lien on any real or personal property that is not owned by the
Company or any of its Subsidiaries at the Closing, including, without
limitation, the mortgages and capital leases set forth on SCHEDULE 2.6(b).
Immediately after the Closing, Purchaser shall cause all Shareholders and their
Affiliates to be released from all Liabilities relating to personal property
owned by the Company or any of its Subsidiaries as of the Closing Date and will
substitute Purchaser or Parent as guarantor in such released persons stead as
necessary.
ARTICLE III
CLOSING; DELIVERY
3.1 THE CLOSING. The closing (the "CLOSING") of the transactions
contemplated by this Agreement shall be held at the offices of ▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, on
January 31, 2001, or at such other time and place as to which the Company and
Purchaser may agree (the "CLOSING DATE").
3.2 DELIVERIES BY THE COMPANY AND THE SHAREHOLDERS AT THE CLOSING. At
the Closing, the Company and the Shareholders, as the case may be, shall
deliver, or cause to be delivered:
(a) the Ancillary Agreements;
(b) certificates representing all of the Shares;
(c) a certificate of status issued by the Companies Branch of the
Ministry of Consumer and Commercial Relations of the Province of Ontario for the
Company, and equivalent certificates of good standing for each of the
Subsidiaries of the Company, dated not more than five days prior to the Closing
Date ;
12
(d) a certificate, dated as of the Closing Date and signed by the
Company's President or a Vice President, as to the fulfillment of the conditions
set forth in SECTION 7.3;
(e) a certificate executed by the Secretary of the Company, dated
as of the Closing Date, certifying resolutions adopted by the Company's board of
directors relating to the transactions contemplated by this Agreement and the
Ancillary Agreements;
(f) copies of all third party and governmental Consents, approvals
and filings required in connection with the consummation of the transactions
hereunder;
(g) the written opinions of counsel described in SECTION 7.3(h) and
7.3(i); and
(h) such other documents and items as Purchaser may reasonably
request, including, without limitation, all documents required by SECTION 7.3.
3.3 DELIVERIES BY PURCHASER AT THE CLOSING. At the Closing, Purchaser
shall deliver, or cause to be delivered:
(a) the Ancillary Agreements;
(b) certificates representing the Parent Shares comprising the
Share Consideration;
(c) the Cash Consideration;
(d) a certificate, dated as of the Closing Date and signed by
Purchaser's authorized representative, as to the fulfillment of the conditions
set forth in SECTION 7.2;
(e) a certificate executed by the Secretary of the Purchaser, dated
as of the Closing Date, certifying resolutions adopted by the Purchaser's board
of directors relating to the transactions contemplated by this Agreement and the
Ancillary Agreements;
(f) the written opinion of counsel described in SECTION 7.2(c) and
7.2(d); and
(g) such other documents and items as the Company or the
Shareholders may reasonably request, including, without limitation, all
documents required SECTION 7.2.
3.4 NON-RESIDENT DELIVERIES. If any Shareholder not listed on SCHEDULE
4.37 fails to deliver to Purchaser, at or prior to the Closing, a certificate
issued pursuant to Section 116 of the Income Tax Act (Canada) with respect to
the sale of the Shares being sold by such Shareholder, Purchaser shall be
entitled to withhold from the Aggregate Consideration payable to such
Shareholder an amount equal to 331/3 % of such Aggregate Consideration (the
"REQUIRED AMOUNT") with respect to such Shares first from the Cash Consideration
payable for such Shares and, if that amount is less than the Required Amount,
from the Share Consideration payable for such Shares. Where Share Consideration
is withheld, Purchaser may sell or otherwise dispose of that number of Shares
such that the net proceeds from such sale or other disposition, when added to
the Cash Consideration, will be equal to the Required Amount, and such
Shareholder authorizes Purchaser to make such sale or other disposition for this
purpose. Purchaser will be
13
entitled to remit the Required Amount to the Receiver General for Canada on
account of Taxes payable by such Shareholder under the Income Tax Act(Canada) in
respect of the sale of such Shares if such certificate is not received within 30
days following the end of the month in which the Closing takes place. If such
certificate is received in the time period referred to above, the amount
withheld will be promptly paid to such Shareholder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
As a material inducement to Purchaser to enter into this Agreement, the
Company and each of the Named Shareholders, severally as provided in ARTICLE IX,
hereby represent and warrant to Purchaser as provided in SECTION 4.1 through
4.32, which representations and warranties are, as of the date hereof, and will
be, as of the Closing Date, true, correct and complete:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly incorporated and organized, and is validly existing and
up-to-date in the filing of all corporate and similar returns under the laws of
the Province of Ontario, its jurisdiction of incorporation, and has all
requisite corporate power and capacity to own its properties and assets and to
carry on its business as now conducted and as presently proposed to be
conducted. The Company is duly qualified to do business as an extra-provincial
or foreign corporation in each jurisdiction where failure to be so qualified
would have a Material Adverse Effect on the Company.
4.2 CAPITALIZATION. Immediately prior to the Closing, the authorized
share capital of the Company will consist of the following:
(a) A total of (i) an unlimited number of authorized Common Shares,
of which 936,896.81 are issued and outstanding, (ii) an unlimited number of
authorized Class A Shares, of which 874,037.31 are issued and outstanding, (iii)
an unlimited number of authorized Class B Shares, of which 62,859.5 are issued
and outstanding and (iv) an unlimited number of authorized Class A Common
Shares, none of which are issued and outstanding.
(b) Except as set forth on SCHEDULE 4.2(b), there are no options,
warrants, conversion privileges or other rights, or agreements, obligations or
other commitments, whether written or oral, contingent or otherwise, with
respect to the issuance thereof, presently outstanding to purchase any of the
shares of the Company. Except as set forth on SCHEDULE 4.2(b), no shares
(including the Shares) of the Company, or shares issuable upon exercise or
exchange of any outstanding options or other shares issuable by the Company, are
subject to any rights of first refusal, preemptive rights or other rights to
purchase such shares (whether in favor of the Company or any other Person),
pursuant to any agreement, commitment or other obligation of the Company,
whether written or oral, contingent or otherwise.
(c) SCHEDULE I , as amended immediately prior to the Closing, sets
forth a complete list of all outstanding shareholders, option holders and other
security holders of the
14
Company as of the date hereof, and identifies those who are in the employment of
the Company or an "affiliate" of the Company (for the purposes of this SECTION
4.2(c), as defined in the Securities Act (Ontario)), or were formerly in the
employment of the Company or an affiliate of the Company, and who, while in that
employment, were, and have continued after that employment to be, security
holders of the Company. SCHEDULE I, as amended immediately prior to the Closing,
lists, for each Warrant holder of the Company, such Warrant holder's name, the
exercise price(s) of all Warrant(s) granted to such Warrant holder, the term(s)
of such Warrant(s), the vesting period(s) of such Warrant(s), and any
contingencies applicable to such Warrant(s). No claim has been made or
threatened to the Company asserting that any Person other than a Person listed
on SCHEDULE I, as amended immediately prior to the Closing, is the holder or
beneficial owner of, or has the right to acquire beneficial ownership of, any
shares of, or any other voting, equity or ownership interest in the Company.
(d) The Company has issued all of its securities (including,
without limitation, share purchase options and warrants) pursuant to valid
exemptions from registration and prospectus requirements under applicable
federal, national, provincial and state securities laws. There are no agreements
between the Company's shareholders with respect to the voting or transfer of the
Company's securities or with respect to any other aspect of the Company's
affairs.
(e) All shareholders of the Company (other than the Shareholders)
are either resident outside Canada or, if not, are in Ontario or the last
address of such shareholder as shown on the books of the Company is in Ontario.
4.3 SUBSIDIARIES.
(a) Except as set forth on SCHEDULE 4.3, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, partnership, trust, joint venture, association, or other entity.
(b) Each of the Subsidiaries of the Company is a corporation duly
incorporated and organized, and is validly existing and up-to-date in the filing
of all corporate and similar returns under the laws of its jurisdiction of
incorporation, and has all requisite corporate power and capacity to own its
properties and assets and to carry on its business as now conducted and as
presently proposed to be conducted. Each of the Subsidiaries of the Company is
duly qualified to do business as an extra-provincial or foreign corporation in
each jurisdiction where failure to be so qualified would have a Material Adverse
Effect on the Company.
(c) The authorized shares of each of the Subsidiaries of the
Company consists of the shares set forth on SCHEDULE 4.3, all of which are owned
by the Company or one of its Subsidiaries and are issued and outstanding. All of
the outstanding shares of each of the Subsidiaries of the Company have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights.
(d) None of the Subsidiaries of the Company has granted any
outstanding option, warrants, rights or other securities convertible into or
exchangeable or exercisable for shares of such Subsidiary or any other
commitments or agreements providing for the issuance of additional shares, the
sale of treasury shares, or for the repurchase or redemption of shares of
15
such Subsidiary's shares. There are no agreements of any kind which obligate any
of the Subsidiaries of the Company to issue, purchase, redeem or otherwise
acquire any of its shares.
4.4 DUE AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of, and the performance of all obligations of the Company
under, this Agreement, has been taken or will be taken prior to the Closing.
This Agreement has been duly executed and delivered by the Company and is a
legal, valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and except insofar as the availability of equitable
remedies may be limited by applicable law.
4.5 VALID ISSUANCE OF SHARES. The outstanding shares of the Company are
duly and validly issued, fully paid and non-assessable, and such shares and all
other outstanding securities of the Company have been issued in full compliance
with the requirements of all applicable securities laws, including, without
limitation, anti-fraud provisions.
4.6 LIABILITIES. Except as set forth on SCHEDULE 4.6 or on the
Financial Statements, the Company has no indebtedness for borrowed money that
the Company has, directly or indirectly, created, incurred, assumed or
guaranteed, or with respect to which Company has otherwise become directly or
indirectly liable.
4.7 TITLE TO PROPERTIES AND ASSETS.
(a) Except as set forth on SCHEDULE 4.7(a), (i) each of the Company
and its Subsidiaries has, or will have, as of the Closing, a good and valid
title to or, in the case of leased properties or properties held under license,
a good and valid leasehold or license interest in, all of its properties and
assets and (ii) each of the Company and its Subsidiaries holds title to each
such property and asset which it purports to own, free and clear of all liens,
adverse claims, mortgages, pledges, Encumbrances, security interest or charge of
any kind. The representations in this SECTION 4.7 do not apply to the Marks or
Intellectual Property Rights as to which only the representations in SECTION 4.8
shall apply.
(b) All of the tangible assets of each of the Company and its
Subsidiaries, are, or will be as of the Closing, in all material respects, in
reasonably serviceable operating condition and repair and are adequate for the
conduct of the business of the Company and its Subsidiaries in substantially the
same manner as has heretofore been conducted.
(c) SCHEDULE 4.7(c) sets forth a true and complete list of all real
property owned or leased by each of the Company and its Subsidiaries
(collectively, the "REAL PROPERTY"), including the location of, and a brief
description of the nature of the activities conducted on, such Real Property.
4.8 INTELLECTUAL PROPERTY; SOFTWARE.
(a) For all purposes of this Agreement,
16
(i) "INTELLECTUAL PROPERTY RIGHTS" means intellectual property
rights arising from or in respect of the following, whether protected, created
or arising under the laws of the United States or any other jurisdiction: (A)
fictional business names, trade names, service names, registered and
unregistered trademarks and service marks and logos (including any Internet
domain names), and applications therefor (collectively, "MARKS"), (B) patents,
patent rights and all applications therefor, including any and all continuation,
divisional, continuation-in-part, or reissue patent applications or patents
issuing thereon (collectively, "PATENTS"), (C) copyrights and all registrations
and applications therefor (collectively, "COPYRIGHTS") and (D) know-how, trade
secrets, inventions, discoveries, concepts, ideas, methods, processes, designs,
formulae, technical data, drawings, specifications, data bases and other
proprietary and confidential information, including customer lists, in each case
to the extent not included in the foregoing clauses (B) or (C) (collectively,
"TRADE SECRETS" and, together with the Marks, Patents, Copyrights and Trade
Secrets, the "INTELLECTUAL PROPERTY").
(ii) "SOFTWARE" means any and all (A) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (B) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (C) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing and (D)
all documentation, including user manuals and training materials, relating to
any of the foregoing, in each case developed or licensed by the Company and its
Subsidiaries, or used in or necessary for the conduct of its business,
specifically excluding those items prepared for customers in the operation of
the Company's business for which the customer contractually has vested title.
(b) SCHEDULE 4.8(b) sets forth a complete and correct list of all
Intellectual Property Rights owned, licensed or used by each of the Company and
its Subsidiaries in the conduct of its business (other than any Intellectual
Property Rights consisting of "shrink-wrap" licensed software), together with a
listing of all material licenses, franchises, licensing agreements (whether as
licensor or licensee) to which the Company or one of its Subsidiaries is a
party, and any other arrangement with respect to such Intellectual Property
Rights. All Intellectual Property Rights owned, licensed or used by the Company
and its Subsidiaries or used or exercised in or necessary to the conduct of the
Company's business, are referred to herein, collectively, as the "COMPANY
INTELLECTUAL PROPERTY ASSETS."
(c) None of the Company or its Subsidiaries has, during the three
years preceding the date of this Agreement, been a party to any Proceeding, nor,
to the knowledge of the Company, is any Proceeding threatened that involved or
is likely to involve a claim of infringement or misappropriation by any Person
(including any governmental authority) of any Intellectual Property Right of
such Person. No Company Intellectual Property Asset is subject to any
outstanding order, judgment, decree or stipulation to which the Company or its
Subsidiaries is subject in any proceeding to which the Company or its
Subsidiaries is a party or, to its knowledge, any other proceeding, restricting
the use thereof by the Company or its Subsidiaries, or restricting the licensing
thereof by the Company or its Subsidiaries or any Person. The current use and
exploitation of the Intellectual Property Assets by the Company and its
Subsidiaries (including, without limitation, the licensing or other distribution
of Software to third parties by the Company or its Subsidiaries) does not
conflict with, infringe upon, violate or result in the misappropriation of
Intellectual Property Right of any Person.
17
(d) Except as set forth on SCHEDULE 4.8(d):
(i) The Company and its Subsidiaries own no right, title or
interest in any Patent. The Company and its Subsidiaries own all right, title
and interest in each of the Marks listed in SCHEDULE 4.8(b) (collectively, the
"COMPANY MARKS"), free and clear of any and all liens and Encumbrances, and
neither the Company nor any of its Subsidiaries has received any notice or claim
(whether written or oral) challenging the Company's or one of its Subsidiary's
exclusive and complete ownership of any Company Marks or suggesting that any
other Person has any claim of legal or beneficial ownership or other claim or
interest with respect thereto;
(ii) The Company Marks are legally valid and enforceable
without any material qualification, limitation or restriction on their use and
neither the Company nor any of its Subsidiaries has received any notice or claim
(whether written or oral) challenging the validity or enforceability of any
Company Marks;
(iii) Neither the Company nor any of its Subsidiaries has taken
any action (or failed to take any action), or used or enforced (or failed to use
or enforce) any of the Company Marks, in each case in a manner that would result
in the abandonment, cancellation, forfeiture, relinquishment or unenforceability
of any of the Owned Marks or any of the Company's or any of its Subsidiary's
rights therein;
(iv) Each of the Company and its Subsidiaries have taken
reasonable steps to protect its rights in and to each of the Company Marks and
to prevent the unauthorized use thereof by any other Person, in each case in
accordance with standard industry practice, and has adequately policed the
Company Marks against third party infringement of which it is aware;
(v) Neither the Company nor any of its Subsidiaries has granted
to any Person any right, license or permission to use any of the Company Marks;
(vi) All Company Marks that have been registered have been
effectively registered in accordance with all applicable legal requirements and
are currently in compliance with all legal requirements;
(vii) All maintenance fees, annuities, and the like due on
Company Marks have been timely paid; and
(viii) No ▇▇▇▇ that constitutes a Company ▇▇▇▇ has been or is
now involved in any opposition or cancellation proceeding and, to the Company's
knowledge, no such action is threatened with the respect to any of the Company
Marks.
(e) The Company and its Subsidiaries have taken reasonable
precautions (as determined by the Company's management) to protect the secrecy
of any Trade Secrets that derive commercial value from not being generally known
to the public. The Company or one of its Subsidiaries has the absolute and
unrestricted right to use all of the Trade Secrets and none of the Trade Secrets
owned by the Company or one of its Subsidiaries is subject to any liens or
Encumbrances. The Company and its Subsidiaries have not received any notice or
claim challenging the Company's or one of its Subsidiary's absolute and
unrestricted right to use any of
18
the Trade Secrets or suggesting that any other Person has any claim with respect
thereto. None of the Trade Secrets has been, or is alleged to have been,
misappropriated from any other Person. Except under appropriate confidentiality
obligations, to its best knowledge, there has been no disclosure by the Company
or its Subsidiaries of material confidential information or other Trade Secrets
that derive commercial value from not being generally known to the public.
(f) The Company or one of its Subsidiaries either owns the entire
right, title and interest in, to and under, or has acquired a license to use,
any and all Company Intellectual Property Assets which are material to the
conduct of the Business in the manner that the Business has heretofore been or
is presently being conducted or as contemplated to be conducted pursuant to the
Company's current business plans, and no other Intellectual Property Rights are
necessary for the unimpaired continued operation of such businesses after the
Effective Date in the manner that such businesses have heretofore been or are
presently being conducted.
(g) SCHEDULE 4.8(g) sets forth a complete and accurate list of all
of the material Software (excluding Software that is available in consumer
retail stores and subject to "shrink-wrap" agreements). SCHEDULE 4.8(g)
specifically identifies all material Software that is owned exclusively by the
Company or its Subsidiaries (the "OWNED SOFTWARE") and all material Software
that is used by the Company or its Subsidiaries in the conduct of the Business
that is not exclusively owned by the Company or its Subsidiaries (excluding
software that is available in consumer retail stores and subject to
"shrink-wrap" agreements) (the "LICENSED SOFTWARE"). The Company or one of its
Subsidiaries is the owner of all right, title and interest in and to all Owned
Software, including, without limitation, all Copyrights, Trade Secrets and other
Intellectual Property Rights relating thereto, free and clear of any and all
liens and Encumbrances, and neither the Company nor any of its Subsidiaries has
received any notice or claim (whether written, oral or otherwise) challenging
the Company's or any of its Subsidiary's complete and exclusive ownership of all
Owned Software and all such Intellectual Property Rights relating thereto or
claiming that any other Person has any claim of legal or beneficial ownership
with respect thereto. Neither the Company nor any of its Subsidiaries has
assigned, licensed, transferred or encumbered any of its rights in or to any
Owned Software, including, without limitation, any Copyrights, Trade Secrets or
other Intellectual Property Rights with respect thereto, to any Person,
excluding any non-exclusive licenses granted to distributors or customers in the
Ordinary Course of Business. The Company or one of its Subsidiaries has lawfully
acquired the right to use the Licensed Software, as it is used in the conduct of
its business as presently conducted, and has not exercised any rights in respect
of any Licensed Software, including, without limitation, any reproduction,
distribution or derivative work rights, outside the scope of any license
expressly granted by the Person from which the right to use such Licensed
Software was obtained.
(h) SCHEDULE 4.8(h) contains a complete and accurate specific list
of all agreements and arrangements pertaining to the Licensed Software
(collectively, "LICENSED SOFTWARE AGREEMENTS") and a complete and accurate list
of all agreements and arrangements pertaining to any other technology used or
practiced by the Company or its Subsidiaries as to which a Person other than the
Company or one of its Subsidiaries owns the applicable Intellectual Property
Rights (collectively, "OTHER LICENSED TECHNOLOGY AGREEMENTS" and, together with
Licensed Software Agreements, the "LICENSED TECHNOLOGY AGREEMENTS"). SCHEDULE
4.8(h) sets forth a complete and accurate list of all royalty obligations of the
Company
19
and its Subsidiaries under any Licensed Technology Agreements. All Licensed
Technology Agreements are in full force and effect, and neither the Company nor
any of its Subsidiaries are in material breach thereof, nor is the Company aware
of any claim or basis for any claim to the contrary. There are no outstanding,
and, to the Company's knowledge, no threatened disputes with respect to any
Licensed Technology Agreement. The rights licensed under each Licensed
Technology Agreement shall be exercisable by the Company or its Subsidiaries on
and after the Closing Date to the same extent as prior to the Closing Date. The
Licensed Technology Agreements together expressly confer on the Company or its
Subsidiaries valid and enforceable rights under or in respect of all of the
Intellectual Property Rights that are not owned exclusively by the Company or
its Subsidiaries and that are used or practiced in the Business. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the impairment of any rights
under, any Licensed Technology Agreement.
(i) SCHEDULE 4.8(i) contains a complete and accurate list of all
agreements and arrangements involving the grant by the Company or its
Subsidiaries to any Person of any right to distribute, prepare derivative works
based on, support or maintain or otherwise commercially exploit any Software,
including, without limitation, any value-added reseller agreements, joint
development or marketing agreements or strategic alliance agreements involving
any Software (collectively, "DESIGNATED SOFTWARE AGREEMENTS"). All Designated
Software Agreements are in full force and effect, and neither the Company nor
any of its Subsidiaries are in material breach thereof, nor is the Company aware
of any claim or basis for a claim to the contrary. There are no outstanding and,
to the Company's knowledge, no threatened disputes or disagreements with respect
to any Designated Software Agreement. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any impairment of rights under any Designated Software Agreement.
(j) To the Company's knowledge, each of the Company and its
Subsidiaries has taken commercially reasonable actions in accordance with
industry practice to protect its Intellectual Property Rights in relation to
employees, independent contractors and consultants, including entering into
agreements with such Persons that assign to the Company or one of its
Subsidiaries all of the employee's, contractor's or consultant's rights,
including all Intellectual Property Rights, in any Intellectual Property created
or developed thereby that is used in connection with, or that relates to, the
Business. To the knowledge of the Company, no employee of the Company or any of
its Subsidiaries has entered into any contract or other agreement with any
Person (other than the Company or one of its Subsidiaries) that restricts or
limits in any way the scope or type of work in which the employee may be engaged
for the Company or any of its Subsidiaries or requires the employee to transfer,
assign, or disclose information concerning the employee's work with the Company
or any of its Subsidiaries to any other Person.
4.9 MATERIAL CONTRACTS AND OBLIGATIONS.
(a) All agreements, contracts, leases, licenses, instruments,
commitments (oral or written), indebtedness, Liabilities and other obligations
to which the Company or one of its Subsidiaries is a party or by which it is
bound that (a) are material to the conduct and operations of its business and
properties, (b) involve any of the officers, consultants, directors, employees
or shareholders of the Company or one of its Subsidiaries or (c) obligate the
Company or one of its
20
Subsidiaries to share, license or develop any product or technology (the
"MATERIAL CONTRACTS") are listed in SCHEDULE 4.9(a) and have been made available
for inspection by Purchaser and its counsel. For purposes of this SECTION 4.9,
"material" shall mean any agreement, contract, indebtedness, Liability or other
obligation either (i) having an aggregate value, cost or amount in excess of
U.S.$50,000 or (ii) not terminable upon thirty days' notice.
(b) Each Material Contract is in full force and effect, paid
currently and has not been materially impaired by any acts or omissions of the
Company or one of its Subsidiaries. Except for those Material Contracts denoted
with an asterisk (*) as set forth on SCHEDULE 4.9(a), no Material Contract
requires the consent of any other contracting party to the transactions
contemplated by this Agreement to prevent a breach of, a Default under, or a
termination, change in the terms or conditions or modification of, any Material
Contract. All of the Material Contracts are valid, binding and enforceable in
accordance with their terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
enforcement of creditors' rights generally and except insofar as the
availability of equitable remedies may be limited by applicable law. Each of the
Company and its Subsidiaries has fulfilled, or taken all action reasonably
necessary to enable them to fulfill when due, all of its material obligations
under each of such Material Contracts. To the Company's knowledge, no party is
in material Default under such Material Contracts, no event has occurred and no
condition or state of facts exists which, with the passage of time or the giving
of notice or both, would constitute such a Default and no notice of any claim of
Default has been given to the Company or one of its Subsidiaries. The Company is
not aware of any intent by any party to any Material Contract to terminate or
amend the terms thereof or to refuse to renew any such Material Contract upon
expiration of its term. The Company is not currently paying liquidated damages
in lieu of performance thereunder.
4.10 LITIGATION. Except as set forth on SCHEDULE 4.10, there is no
action, suit, proceeding, claim, arbitration or investigation ("PROCEEDING")
pending or, to the Company's knowledge, currently threatened against the Company
or one of its Subsidiaries, its activities, properties or assets or, to the
Company's knowledge, against any officer, director or employee of the Company or
one of its Subsidiaries in connection with such officer's, director's or
employee's relationship with, or actions taken on behalf of, the Company or one
of its Subsidiaries. To the Company's knowledge, there is no factual or legal
basis for any such Proceeding that might result, individually or in the
aggregate, in any Material Adverse Effect on the Company. Neither the Company
nor any of its Subsidiaries is a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality and there is no Proceeding by the Company or one of its
Subsidiaries currently pending or which the Company or one of its Subsidiaries
intends to initiate.
4.11 REQUIRED CONSENTS. All Consents, approvals, orders, authorizations
or registrations, qualifications, designations, declarations or filings on the
part of the Company or the Shareholders with any federal, national, provincial,
state or local governmental authority or otherwise required in connection with
the consummation of the transactions contemplated herein (the "COMPANY REQUIRED
CONSENTS"), shall have been obtained prior to and be effective as of the
Closing.
21
4.12 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor any of
its Subsidiaries is in any violation, breach or Default of (a) any term of its
charter, articles or bylaws, (b) in any material respect, any term or provision
of any mortgage, indenture, contract, agreement or instrument to which it is a
party or by which it may be bound or (c) any provision of any foreign or
domestic, provincial, state, national or federal judgment, decree, order,
statute, rule or regulation applicable to or binding upon it. Except as set
forth on SCHEDULE 4.12, the execution, delivery and performance of and
compliance with this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or Default, or be in
conflict with or constitute, with or without the passage of time or the giving
of notice or both, either a Default under the charter, articles or bylaws of the
Company or any of its Subsidiaries, or any agreement or contract of the Company
or any of its Subsidiaries, or, to the best of the Company's knowledge, a
violation of any statutes, laws, Regulations or Court Orders, or an event which
results in the creation of any lien, charge or Encumbrance upon any of the
assets of the Company or any of its Subsidiaries.
4.13 DISCLOSURE. No representation or warranty by the Company in this
Agreement or in any statement or certificate signed by any officer of the
Company furnished or to be furnished to the Purchaser pursuant to this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances in which
they are made, not misleading.
4.14 GOVERNMENT CONTRACTS. Except as set forth on SCHEDULE 4.14:
(a) The Company and its Subsidiaries have not received a final
decision of a contracting officer or prime contractor asserting any claim or
equitable adjustment against the Company or any of its Subsidiaries with respect
to any Government Contract and there are no disputes between the Company or one
of its Subsidiaries and the United States Government for any prime contract
under the Contract Dispute Act or any other federal statute arising under or
relating to any Government Contract that would, individually or in the aggregate
have a Material Adverse Effect.
(b) The Company and its Subsidiaries have not received any written
notice of the intention of any contracting officer or prime contractor to
terminate any Government Contract for either convenience or Default. The Company
and its Subsidiaries have not received any show cause notices, cure notices, or
negative determinations of responsibility with respect to any Government
Contract in the last twelve months, and any notice or determination asserted
prior thereto has been resolved to the Company's reasonable satisfaction.
(c) The Company and its Subsidiaries have not asserted any claim or
request for equitable adjustment requesting money, interpretation of contract
terms, or other relief under any Government Contract in the last twelve months,
and any claim or request asserted prior thereto has been resolved to the
Company's reasonable satisfaction.
(d) The Company and its Subsidiaries have not received written
notice of any failure to comply in all material respects with the Truth in
Negotiations Act (10 U.S.C. Section 2306a,
22
41 U.S.C. Section 254(d)) or to submit where required cost or pricing data that
were accurate, complete and current.
(e) The Company and its Subsidiaries have not received written
notice that either the Company or any of its Subsidiaries or any of their
directors, officers, employees, agents, or consultants is under administrative,
civil, or criminal investigation, indictment or information, audit or internal
investigation with respect to any irregularity, misstatement, or omission
regarding any Government Contract.
(f) The Company and its Subsidiaries have not received written
notice that any suspension or debarment action has been commenced against the
Company or any of its Subsidiaries with respect to any Government Contract.
(g) The Company and its Subsidiaries have fully complied in all
material respects with all of its obligations under applicable Government
Contracts relating to any government furnished property or similar property or
equipment owned by the United States or any state in the United States.
(h) The Business has complied in all material respects with all
Cost Accounting Standards and has accounted for all Government Contracts in
accordance with disclosure statements furnished to and reviewed by the United
States government or any state government.
(i) The Company and its Subsidiaries possess all necessary security
clearances and Permits for the execution of their obligations under any
Government Contract.
4.15 INSURANCE. Set forth on SCHEDULE 4.15 is a complete and correct
list of all insurance policies of the Company and its Subsidiaries of any kind
currently in force and also sets forth for each insurance policy the type of
coverage, the name of the insureds, the insurer, the premium, the expiration
date, the deductibles and loss retention amounts and the amounts of coverage.
4.16 FINANCIAL STATEMENTS. SCHEDULE 4.16 sets forth the Company's
unaudited balance sheet dated November 30, 2000 (the "BALANCE SHEET DATE") and
the income statements and statements of changes in cash flows of the Company for
the year ended November 30, 2000 (the "FINANCIAL STATEMENTS"), in the case of
the year end Financial Statements, as audited by the Company Accountants. Such
Financial Statements (a) were prepared in accordance with the books and records
of the Company, (b) are true, correct and complete and present fairly the
financial condition of the Company as of the dates therein indicated and the
results of operations for the periods therein specified and (c) have been
prepared in accordance with Canadian GAAP applied on a consistent basis, except
for the omission of notes thereto and normal year-end audit adjustments.
Specifically, but not by way of limitation, the balance sheet of the Financial
Statements discloses all of the Company's material Debts, Capital Leases,
Liabilities and obligations of any nature, whether due or to become due, as of
the Balance Sheet Date (including, without limitation, absolute liabilities,
accrued liabilities and contingent liabilities) to the extent such Debts,
Capital Leases, Liabilities and obligations are required to be disclosed in
accordance with Canadian GAAP. The Company has good and marketable title to all
assets set
23
forth on the balance sheet of the Financial Statements, except for such assets
as have been spent, sold or transferred in the Ordinary Course of Business since
the Balance Sheet Date.
4.17 CERTAIN ACTIONS. Since the Balance Sheet Date, except as disclosed
on SCHEDULE 2.6 or indebtedness that has been incurred with Parent's prior
knowledge and consent, neither the Company nor any of its Subsidiaries has:
(a) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its shares;
(b) incurred any indebtedness for money borrowed or incurred any
other Liabilities individually in excess of U.S.$25,000 or in excess of
U.S.$100,000 in the aggregate, other than U.S.$200,000 incurred since the
Balance Sheet Date for payroll purposes;
(c) made any loans or advances to any Person, other than ordinary
advances for travel expenses;
(d) sold, exchanged or otherwise disposed of any material assets or
rights other than the sale of inventory in the Ordinary Course of its Business;
or
(e) entered into any transactions with any of its officers,
directors or employees or any entity controlled by any of such individuals
(other than employment, share purchase option, confidentiality, noncompetition
and intellectual property rights agreements entered into in the Ordinary Course
of Business and disclosed on SCHEDULE 4.9 hereto).
4.18 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Balance Sheet Date,
there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as presently
conducted and as presently proposed to be conducted);
(b) any waiver by the Company or its Subsidiaries of a valuable
right or of a material Debt owed to the Company or any of its Subsidiaries;
(c) any satisfaction or discharge of any lien, claim or Encumbrance
or payment of any obligation by the Company or its Subsidiaries, except such a
satisfaction, discharge or payment made in the Ordinary Course of Business that
is not material to the assets, properties, financial condition, operating
results or business of the Company;
(d) any material change or amendment to a material contract or
arrangement by which the Company, one of its Subsidiaries or any of their assets
or properties is bound or subject, except for changes or amendments which are
expressly provided for or disclosed in this Agreement;
24
(e) any material change in any compensation arrangement or
agreement with any present or prospective employee, contractor or director not
approved by the Company's Board of Directors; or
(f) to the Company's knowledge, any other event or condition of any
character which would materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company.
4.19 TAXES.
(a) DEFINITIONS. For purposes of this Agreement:
(i) the term "TAX" (including with correlative meaning, the
terms "TAXES" and "TAXABLE") means (A) all federal, national, provincial, state,
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any Liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
Liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other Person; and
(ii) the term "TAX RETURN" means any return, declaration,
report, statement, information statement and other document required to be filed
with respect to Taxes.
(b) Each of the Company and its Subsidiaries has accurately
prepared and timely filed all Tax Returns it is required to have filed. Such Tax
Returns are accurate, complete and correct in all material respects and do not
contain a disclosure statement under Section 6662 of the Code (or any
predecessor provision or comparable provision of state, provincial, local or
foreign law).
(c) The Company and its Subsidiaries have paid all Taxes each is
required to have paid.
(d) Except as set forth on SCHEDULE 4.19(d):
(i) no claim has been made by any taxing authority in any
jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that it is or may be subject to Tax by that jurisdiction; and
(ii) no extensions or waivers of statutes or periods of
limitations with respect to the Tax Returns have been given by or requested from
the Company or its Subsidiaries.
(e) SCHEDULE 4.19(e) sets forth:
25
(i) the taxable years of the Company and its Subsidiaries as to
which the applicable statutes or periods of limitations on the assessment and
collection of Taxes have not expired;
(ii) those taxable years for which examinations by taxing
authorities are presently being conducted;
(iii) those years for which notice of pending or threatened
examination or adjustment has been received; and
(iv) those years for which required income Tax Returns have not
yet been filed.
(f) Except to the extent indicated in SCHEDULE 4.19(f), all
deficiencies asserted or assessments made against the Company or its
Subsidiaries as a result of any examinations by any taxing authority have been
fully paid.
(g) There are no liens for Taxes (other than for current Taxes not
yet due and payable) upon the assets of the Company or its Subsidiaries.
(h) Neither the Company nor any of its Subsidiaries is a party to
or bound by any tax indemnity, tax sharing or tax allocation agreement.
(i) Neither the Company nor any of its Subsidiaries is a party to
or bound by any closing agreement or offer in compromise with any taxing
authority.
(j) Except to the extent indicated in SCHEDULE 4.19(j):
(i) neither the Company nor any of its Subsidiaries has ever
been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code (or any predecessor provision or comparable provision
of state, provincial, local or foreign law), or a member of combined,
consolidated or unitary group for state, provincial, local or foreign Tax
purposes;
(ii) neither the Company nor any of its Subsidiaries has
Liability for Taxes of any Person (other than the Company and its Subsidiaries)
under Treasury Regulations Section 1.1502-6 (or any corresponding provision of
state, provincial, local or foreign income Tax law), as transferee or successor,
by contract, or otherwise;
(iii) neither the Company nor any of its Subsidiaries has filed
a consent pursuant to the collapsible corporation provisions of Section 341(f)
of the Code (or any corresponding provision of state, provincial, local or
foreign income Tax law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, provincial, local or foreign income Tax law)
apply to any disposition of any asset owned by it; and
(iv) neither the Company nor any of its Subsidiaries has been a
personal holding company under Section 542 of the Code.
26
(k) Neither the Company nor any of its Subsidiaries has agreed to
make, nor is it required to make, any adjustment under Sections 481(a) or 263A
of the Code or any comparable provision of state, provincial or foreign tax laws
by reason of a change in accounting method or otherwise. Neither the Company nor
any of its Subsidiaries has taken action that is not in accordance with past
practice that could defer a Liability for Taxes of the Company or any of its
Subsidiaries from any taxable period ending on or before the Closing Date to any
taxable period ending after such date.
(l) Neither the Company nor any of its Subsidiaries is a party to
any agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in connection with this Agreement or any change
of control of the Company, in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code, other than an agreement,
contract, arrangement or plan for which shareholder approval meeting the
requirements of Code Section 280G(b)(5) has been or will be obtained prior to
the Closing.
(m) SCHEDULE 4.19(m) sets forth all foreign jurisdictions in which
the Company or any of its Subsidiaries is subject to tax, is engaged in business
or has a permanent establishment.
(n) Neither the Company nor any of its Subsidiaries is a party to
any joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income tax purposes.
(o) No material election with respect to Taxes of the Company or
any of its Subsidiaries will be made by the Executives or the Company or any of
its Subsidiaries after the date of this Agreement without the prior written
consent of Purchaser.
(p) None of the income recognized, for federal, national, state,
provincial, local or foreign income tax purposes, by the Company or any of its
Subsidiaries during the period commencing on the date hereof and ending on the
Closing Date will be derived other than in the Ordinary Course of Business.
(q) The provisions for Taxes currently payable on the Financial
Statements are at least equal, as of the date thereof, to all unpaid Taxes of
the Company and its Subsidiaries, whether or not disputed.
(r) The Company and each of its Subsidiaries have withheld all
Taxes required to be withheld from any payments made by each of them and have
remitted such withheld Taxes on a timely basis to the appropriate governmental
authorities.
4.20 ENVIRONMENTAL MATTERS.
(a) For the purposes of this SECTION 4.20:
(i) "CERCLA" means the U.S. Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq., as amended.
27
(ii) "DISPOSAL," "RELEASE" and "THREATENED RELEASE" shall have
the definitions assigned thereto by CERCLA.
(iii) "ENVIRONMENT" means any ambient, workplace or indoor air,
surface water, drinking water, groundwater, land surface, subsurface strata,
river sediment, plant or animal life, natural resources, workplace, and real
property and the physical buildings, structures, improvements and fixtures
thereon.
(iv) "ENVIRONMENTAL LAWS" means all applicable state, federal,
provincial laws relating to Hazardous Substances, toxic torts, occupational
health and safety, or the Environment, including without limitation, the
Resource Conservation and Recovery Act, CERCLA, the Clean Air Act, the Water
Pollution Control Act, the Safe Drinking Water Act, and the Toxic Substances
Control Act, and any requirements promulgated pursuant to these applicable laws
or any analogous federal, state, provincial or local applicable laws.
(v) "ENVIRONMENTAL LIABILITIES" means all Liabilities of a
Person (whether such Liabilities are owed by such Person to governmental
authorities, third parties or otherwise) whether currently in existence or
arising hereafter which arise under or relate to any Environmental Law.
(iv) "HAZARDOUS SUBSTANCE" means any substance or material: (i)
the presence of which requires investigation or remediation under any applicable
law; or (ii) that is defined as a "pollutant or contaminant," "solid waste,"
"hazardous waste" or "hazardous substance" under any applicable law; or (iii)
that is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic or mutagenic or otherwise hazardous and is regulated by any
governmental authority having or asserting jurisdiction over the Company; or
(iv) the presence of which causes a nuisance, trespass or other tortious
condition; (v) the presence of which poses a hazard to the health or safety of
Persons; or (vi) without limitation, that contains gasoline, diesel fuel or
other petroleum hydrocarbons, polychlorinated biphenols (PCBs) or asbestos.
(b) Except as disclosed in SCHEDULE 4.20(b), each of the Company
and its Subsidiaries has obtained all approvals, authorizations, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other Person, that are required under any
Environmental Law, except for such approvals, authorizations, certificates,
consents, license, orders and permits or other similar authorizations the
failure of which to obtain would not have a Material Adverse Effect on the
Company. SCHEDULE 4.20(b) sets forth all material Permits, licenses and other
authorizations issued under any Environmental Law relating to the Company, any
of its Subsidiaries or the Business.
(c) Except as set forth in SCHEDULE 4.20(c), each of the Company
and its Subsidiaries is in compliance with all terms and conditions of all
Permits of all governmental authorities (and all other Persons) required under
all Environmental Laws that are used in the Business or that relate to the
Company or any of its Subsidiaries, except where the failure to be in compliance
would not have a Material Adverse Effect on the Company. Each of the Company and
its Subsidiaries is also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental
28
Laws, except where the failure to be in compliance would not have a Material
Adverse Effect on the Company.
(d) Except as set forth in SCHEDULE 4.20(d), there are no past or
present events, conditions, circumstances, incidents, actions or omissions
relating to or in any way affecting the Company, any of the Subsidiaries or the
Business that violate or may violate any Environmental Law after the Closing
Date or that may give rise to any Environmental Liability, or otherwise form the
basis of any claim, action, demand, suit, Proceeding, hearing, study or
investigation (i) under any Environmental Law, (ii) based on or related to the
manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any Hazardous
Substance or (iii) resulting from exposure to workplace hazards, except where
such events would not have a Material Adverse Effect on the Company.
(e) During the period that the Company or one of its Subsidiaries
has owned or leased its properties and facilities, (i) there have been no
disposals, releases or threatened releases of Hazardous Substances on, from or
under such properties or facilities and (ii) neither the Company nor one of its
Subsidiaries, nor, to the Company's knowledge, any third party, has used,
generated, manufactured or stored on, under or about such properties or
facilities or transported to or from such properties or facilities any Hazardous
Substances, except where such activities would not have a Material Adverse
Effect on the Company. The Company has no knowledge of any presence, disposals,
releases or threatened releases of Hazardous Substances on, from or under any of
such properties or facilities, which may have occurred prior to the Company
having taken possession of any of such properties or facilities.
(f) The Company has delivered to Purchaser all material
environmental documents, studies and reports relating to: (i) any facilities or
real property ever owned, operated or leased by the Company or any of its
Subsidiaries or (ii) any Environmental Liability of the Business, the Company or
any of its Subsidiaries.
4.21 EMPLOYEE BENEFITS.
(a) For all purposes of this Agreement,
(i) "EMPLOYEE PENSION BENEFIT PLAN" means any employee pension
benefit plan, as defined in Section 3(2) of ERISA, that is subject to Title IV
of ERISA, or any other registered or unregistered employee pension, retirement,
retirement savings, supplemental pension or other retirement plan, program,
agreement or arrangement.
(ii) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(iii) "MULTIEMPLOYER PLAN" means a multiemployer plan, as
defined in Section 3(37) and 4001(a)(3) of ERISA.
(b) Except as set forth on SCHEDULE 4.21, the Company and its
Subsidiaries do not currently sponsor, maintain or contribute to and has not
ever sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Employee Pension Benefit Plan on
29
behalf of or with respect to any employee of the Company or its Subsidiaries.
The Company and its Subsidiaries do not currently sponsor, maintain or
contribute to any Multiemployer Plan covering its employees.
4.22 PERMITS. SCHEDULE 4.22 sets forth a complete list of all Permits
material to the operation of the Business or otherwise held by the Company or
one of its Subsidiaries in connection with the Business, all of which are as of
the date hereof, and all of which will be as of the Closing Date, in full force
and effect. The Company and its Subsidiaries have, and at all times have had,
all Permits required under any Regulation in the operation of the Business and
owns or possesses such Permits free and clear of all Encumbrances except
Permitted Encumbrances, and except such Permits the failure of which to obtain
would not have a Material Adverse Effect on the Company. The Company and its
Subsidiaries are not in material Default and has not received any notice of any
claim of Default, with respect to any such Permit. Except as otherwise governed
by law, all such Permits are renewable by their terms or in the Ordinary Course
of Business without the need to comply with any special qualification procedures
or to pay any amounts other than routine filing fees and will not be adversely
affected by the completion of the transactions contemplated by this Agreement.
Except as set forth on SCHEDULE 4.22, no present or former shareholder,
director, officer or employee of the Company or any Affiliate thereof, or any
other Person, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permit which the Company or any of its Subsidiaries owns,
possesses or uses.
4.23 INTERESTED PARTY TRANSACTIONS. Except as set forth SCHEDULE 4.23,
no officer or director of any of the Company or any "affiliate" or "associate"
(as those terms are defined in Rule 405 promulgated under the Act) of any such
Person has had, either directly or indirectly, a material interest in: (a) any
Person or entity which purchases from or sells, licenses or furnishes to the
Company or any of its Subsidiaries any goods, property, technology, intellectual
or other property rights or (b) any contract or agreement to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries may be bound or affected.
4.24 COMPLIANCE WITH LAW. The Company and its Subsidiaries and the
conduct of its business have not violated and are in compliance with all
Regulations and Court Orders relating to the business or operations of the
Company, except where such violation or failure to be in compliance would not
have a Material Adverse Effect on the Company. The Company has not received any
notice to the effect that, or otherwise been advised that, it is not in
compliance in any material respect with any such Regulations or Court Orders,
and the Company does not know of any existing circumstances that are likely to
result in violations of any of the foregoing.
4.25 CERTAIN BUSINESS PRACTICES. None of the directors, officers,
agents or employees of the Company or any of its Affiliates has, in each case in
connection with the business, (a) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses, including without limitation,
expenses related to political activity, (b) made any unlawful payment to foreign
or domestic government officials or employees or to foreign or domestic
political parties or campaigns, made any bribes or kickback payments or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (c)
made any other unlawful payment.
30
4.26 MINUTE BOOKS. The minute books of the Company and its Subsidiaries
provided to Purchaser contain a complete summary of all meetings of directors
and shareholders and all other corporate proceedings since the time of
incorporation and reflect all transactions referred to in such books accurately
in all material respects.
4.27 LABOR MATTERS.
(a) Neither the Company nor any of its Subsidiaries is bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of Company or any of its Subsidiaries. There is no strike or other labor dispute
involving the Company or any of its Subsidiaries pending, or to the knowledge of
the Company, threatened, which could have a Material Adverse Effect on the
Company, nor is the Company aware of any labor organization or employee
bargaining agent involving its employees or the employees of any of its
Subsidiaries.
(b) SCHEDULE 4.27(b) sets forth the names of each of the key,
exempt employees (I.E., those employees whose annual cash compensation exceeds
U.S.$50,000 and who are considered "exempt" from the payment of overtime) of the
Company and its Subsidiaries, and also sets forth the base payment made to such
key employee each pay period as of the date hereof and projections for the
current Company Fiscal Year of other incentive compensation (including bonuses)
for each Person named therein. SCHEDULE 4.27(b) also lists as of the date hereof
the names of all other employees of the Company and its Subsidiaries, the hourly
pay rates of compensation and the job titles for all such employees, length of
employment and whether on approved or statutory leave of absence. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate his or her employment with the Company of any of its
Subsidiaries, nor does the Company have a present intention to terminate the
employment of any of the foregoing. SCHEDULE 4.27(b) also sets forth all
employment, compensation, severance or termination agreements between the
Company or any of its Subsidiaries and any employee of the Company or any of its
Subsidiaries. To the Company's knowledge, no employee or director of the Company
or any of its Subsidiaries is a party to, or is otherwise bound by, any
nondisclosure, confidentiality, noncompetition, proprietary rights, employment,
consulting or similar agreement, between such employee or director and any other
Person that materially adversely affects or will affect the performance of his
or her duties as an employee or director of the Company or any of its
Subsidiaries.
(c) No complaint, grievance, claim, work order or investigation has
been filed, made or commenced against the Company or any Subsidiary pursuant to
the Ontario Human Rights Code, the Occupational Health & Safety Act, the
Workplace Safety and Insurance Act (Ontario), the Employment Standards Act or
the Pay Equity Act, in each case of the Province of Ontario, or any similar
legislation of Canada, the Province of Ontario or any other jurisdiction, except
for such complaints, grievances, claims, work orders or investigations that have
been resolved such that the Company will have no further liability to any third
party.
4.28 NO BROKERS. Except as set forth on SCHEDULE 4.28, none of the
Company or any of the Company's Subsidiaries, officers, directors, employees or
shareholders has entered into nor
31
will enter into any contract, agreement, arrangement or understanding with any
broker, finder or similar agent or any Person which will result in the
obligation of Purchaser, Parent, the Company or any of their respective
Affiliates to pay any finder's fee, brokerage fees or commission or similar
payment in connection with the transactions contemplated hereby.
4.29 BANK ACCOUNTS. SCHEDULE 4.29 contains a true, correct and complete
list of all bank accounts maintained by the Company and its Subsidiaries,
including each account number and the name and address of each bank and the name
of each Person who has signature power with respect to each such account.
4.30 COMPETITION ACT. The Company, together with its "affiliates" (as
defined in the Competition ACT (Canada)), does not have assets in Canada, or
gross revenues from sales in, from or into Canada, that exceed C$35,000,000 in
aggregate value as determined in accordance with the Notifiable Transaction
Regulations promulgated under the Competition Act (Canada).
4.31 TRUST ACCOUNT. As of the Closing Date, the cash and other
marketable securities in the Company's trust account maintained for the benefit
of the clients of the Company on whose behalf the Company collects funds will
equal or exceed the amount of the Liabilities of the Company to such clients.
All funds collected by the Company on behalf of its clients are deposited in the
trust account of the Company and are not commingled with other funds of the
Company.
4.32 PRIVATE COMPANY. The Company is not a reporting issuer (as defined
in the Securities Act (Ontario)), there is not a published market for the
Shares, and the number of holders of securities of the Shares is not more than
fifty, exclusive of holders who are in the employment of the Company or an
Affiliate of the Company, and exclusive of holders who were formerly in the
employment of the Company or an Affiliate of the Company and who while in that
employment were, and have continued after that employment to be, security
holders of the Company.
As a material inducement to Purchaser to enter into this Agreement,
each of the Shareholders, severally as provided in ARTICLE IX, hereby represent
and warrant to Purchaser as provided in SECTION 4.33 through 4.39, which
representations and warranties are, as of the date hereof, and will be, as of
the Closing Date, true, correct and complete:
4.33 DUE AUTHORIZATION OF SHAREHOLDERS. Each of the Shareholders has
all requisite power and authority, and has taken all action necessary, to
execute, deliver and perform this Agreement, to consummate the transactions
contemplated hereby, and to perform his, her or its obligations hereunder. This
Agreement has been duly executed and delivered by each of the Shareholders and
is a legal, valid and binding obligation of each of the Shareholders,
enforceable against him or her in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and except
insofar as the availability of equitable remedies may be limited by applicable
law.
4.34 TITLE TO SHARES. Except as set forth on SCHEDULE 4.34, as of the
date hereof, each Shareholder is the registered and sole beneficial owner of the
Shares held by such Shareholder,
32
with good and marketable title thereto, free and clear of any and all liens,
security interests, pledges, mortgages, charges, limitation, claims,
restrictions, rights of first refusal, rights of first offer, rights of first
negotiation or other Encumbrance of any kind or nature whatsoever. Effective
upon the Closing, each Shareholder will be the registered and sole beneficial
owner of the Shares held by such Shareholder, with good and marketable title
thereto, free and clear of any and all liens, security interests, pledges,
mortgages, charges, limitation, claims, restrictions, rights of first refusal,
rights of first offer, rights of first negotiation or other Encumbrance of any
kind or nature whatsoever. Upon consummation of the purchase of the Shares from
each Shareholder, Purchaser will acquire from such Shareholder good and
marketable title to the Shares held by such Shareholder, free and clear of any
and all liens, security interests, pledges, mortgages, charges, limitation,
claims, restrictions, rights of first refusal, rights of first offer, rights of
first negotiation or other Encumbrance of any kind or nature whatsoever.
4.35 PROCEEDINGS REGARDING SHAREHOLDERS. There is no Proceeding pending
against, or to each Shareholder's knowledge, currently threatened against or
affecting, any Shareholder before any court or arbitrator or any governmental
body, agency or official that challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
4.36 REPRESENTATIONS REGARDING PARENT SHARES. Each of the Accredited
Shareholders, severally, but not jointly, hereby represent and warrant to Parent
as follows:
(a) INVESTIGATION; ECONOMIC RISK. Each of the Accredited
Shareholders acknowledges that he has had an opportunity to discuss the
business, affairs and current prospects of Parent with its officers. Each of the
Accredited Shareholders further acknowledges having had access to information
about Parent that it has requested. Each of the Accredited Shareholders
acknowledges that he is able to fend for himself in the transactions
contemplated by this Agreement and has the ability to bear the economic risks of
holding Parent Shares pursuant to this Agreement.
(b) PURCHASE FOR OWN ACCOUNT. The Parent Shares to be acquired by
each of the Accredited Shareholders hereunder will be acquired for such
Accredited Shareholder's own account, not as a nominee or agent, and not with a
view to or in connection with the sale or distribution of any part thereof,
except for such transfers made under an effective registration statement or such
other transfer as may be in compliance with applicable securities laws as
provided in an opinion, acceptable in form to Parent, delivered to Parent by
counsel for the Accredited Shareholders prior to any such transfer.
(c) RESTRICTIVE LEGENDS. It is understood by each of the Accredited
Shareholders that each certificate representing the Restricted Parent Shares and
any other securities issued in respect of the Restricted Parent Shares upon any
stock split, stock dividend, recapitalization, merger or similar event shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF
33
ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THAT CERTAIN STOCK PURCHASE AGREEMENT,
DATED AS OF DECEMBER 28, 2000, BY AND BETWEEN CITYSEARCH CANADA,
INC., TICKETMASTER ONLINE-CITYSEARCH, INC., RESERVEAMERICA
HOLDINGS, INC. AND THE SHAREHOLDERS THEREOF, THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
(d) REMOVAL OF RESTRICTIVE LEGEND. The legends set forth above
shall be removed by Parent upon request to do so from the holder thereof within
five Business Days from any certificate evidencing Restricted Parent Shares, (i)
with respect to the legend regarding the Act, upon the transfer of such
Restricted Parent Shares in accordance with the Registration Statement or
pursuant to an opinion of counsel, as reasonably requested by Parent, that such
Restricted Parent Shares may be transferred in reliance upon an exemption from
the Act and applicable Ontario securities laws and (ii) with respect to the
lock-up, upon the transfer of such Restricted Parent Shares subsequent to the
expiration of the Lock-Up Period.
4.37. NON-RESIDENTS. SCHEDULE 4.37 lists each of the Shareholders that
are not "non-residents" of Canada for the purposes of the Income Tax Act
(Canada).
4.38. COMMUNITY PROPERTY. Except for those Shareholders listed on
SCHEDULE 4.38, each Shareholder does not reside in and is not subject to the
laws of a community property jurisdiction.
4.39. SECURITIES ACT (ONTARIO). Each Shareholder is either resident
outside Canada or, if not, is in Ontario or the last address of such Shareholder
as shown on the books of the Company is in Ontario.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Parent and Purchaser hereby jointly and severally represent and warrant
to the Company and each of the Shareholders as follows:
5.1 ORGANIZATION. Purchaser is a corporation duly incorporated and
organized, and is validly existing and up-to-date in the filing of all corporate
and similar returns under the laws of the Province of Ontario, its jurisdiction
of incorporation, and has all requisite corporate power and capacity to own its
properties and assets and to carry on its business as now conducted and as
presently proposed to be conducted.
5.2 DUE AUTHORIZATION. All corporate action on the part of each of
Purchaser and Parent, its officers, directors and shareholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of each of Purchaser and Parent under this Agreement has been taken or will be
taken prior to the Closing. This Agreement, when executed
34
and delivered by each of Purchaser and Parent, will constitute a valid and
legally binding obligation of each of Purchaser and Parent, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors' rights generally and to
general equitable principles.
5.3 NO CONFLICTS. Each of Purchaser and Parent is not in any violation,
breach or Default of any term of its charter or bylaws or in any material
respect of any term or provision of any mortgage, indenture, contract, agreement
or instrument to which the either Purchaser or Parent is a party or by which it
may be bound, or of any provision of any foreign or domestic state or federal
judgment, decree, Court Order, statute, rule or Regulation applicable to or
binding upon Purchaser or Parent. The execution, delivery and performance of and
compliance with this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or Default, or be in
conflict with or constitute, with or without the passage of time or the giving
of notice or both, either a Default under the Purchaser's or Parent's charter or
bylaws, or any agreement or contract of Purchaser or Parent, or, to the best of
Purchaser's or Parent's knowledge, as the case may be, a violation of any
statutes, laws, Regulations or Court Orders, or an event which results in the
creation of any lien, charge or Encumbrance upon any of Purchaser's or Parent's
assets.
5.4. CONSENTS AND APPROVALS. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements, of state or provincial securities laws and the
Investment Canada Act (Canada), no consent, approval or authorization of,
declaration to, or filing or registration with, any governmental or regulatory
authority, or any other Person, is required to be made or obtained by Purchaser
or Parent in connection with the execution, delivery and performance by
Purchaser or Parent of this Agreement and the consummation of the transactions
contemplated hereby.
5.5. LITIGATION. Except as disclosed in the Parent SEC Documents, there
is no Proceeding pending, or to the knowledge of Purchaser or Parent, threatened
or anticipated against or affecting Purchaser or Parent which has or might be
reasonably expected to have a Material Adverse Effect on Purchaser or Parent or
on the ability of Purchaser or Parent to perform any of its obligations
hereunder or on the consummation of the transactions contemplated by this
Agreement.
5.6. NO BROKERS. Neither Purchaser nor Parent nor any of their
respective partners, Representatives or Affiliates has entered into nor will
enter into any contract, agreement, arrangement or understanding with any
broker, finder or similar agent or any Person which will result in the
obligation of the Company or the Shareholders to pay any finder's fee, brokerage
fees or commission or similar payment in connection with the transactions
contemplated hereby.
5.7. VALID ISSUANCE OF STOCK. The Parent Shares to be issued hereunder,
when issued and delivered in accordance with the terms of this Agreement, will
be duly and validly issued, fully paid and non assessable, free and clear of all
liens, claims, Encumbrances and adverse interests of any kind, except for such
Encumbrances as may have been created by the Shareholders. All Parent Shares
upon issuance will have the rights, privileges and preferences set forth in
Parent's Certificate of Incorporation and Bylaws for such class of shares. The
Parent
35
Shares will be issued in compliance with or pursuant to exemptions from
applicable federal and state securities laws and applicable Canadian securities
laws.
5.8 SEC FILINGS. Parent has filed each Parent SEC Document which Parent
was required to file with the SEC since December 31, 1998. As of their
respective dates or, in the case of registration statements, their effective
dates (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing), none of the Parent SEC Documents
(including all schedules thereto and documents incorporated by reference
therein) contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and the Parent SEC Documents complied when filed in all material
respects with the then applicable requirements of the Act or the Exchange Act,
as the case may be, and the rules and regulations promulgated by the SEC
thereunder.
5.9 CONDUCT OF BUSINESS. Except as disclosed in the Parent SEC
Documents filed during the calendar year 2000, Parent has conducted its business
only in the Ordinary Course and there has not been, since the last such filing,
any event, change or effect that has had or could reasonably be expected to have
a Material Adverse Effect on Parent.
5.10 FINANCIAL STATEMENTS. The financial statements of Parent included
in any Parent SEC Document filed in 1999 and 2000 complied as to form in all
material respects with the then applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with U.S. GAAP applied on a consistent basis during the periods
involved (except as may have been indicated in the notes thereto or, the case of
the unaudited statements, as permitted by Form 10-Q promulgated by the SEC) and
fairly present (subject, in the case of the unaudited statements, to normal,
year-end audit adjustments) the consolidated financial position of Parent and
its consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended. Except as disclosed in any Parent SEC Document, neither
Parent nor any of its Subsidiaries has any liabilities, accrued, contingent or
otherwise, that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect on Parent.
ARTICLE VI
CERTAIN COVENANTS
6.1 CONDUCT OF THE BUSINESS. From the date hereof until the Closing
Date, the Company will conduct its business in the Ordinary Course and use its
commercially reasonable efforts, without paying or increasing the compensation,
payments, remuneration or fees payable to any Person other than in the Ordinary
Course of Business, to preserve intact its business organizations and
relationships and goodwill with third parties. Without limiting the generality
of the foregoing, from the date hereof until the Closing Date:
(a) Without the Purchaser's prior consent (which consent shall not
be unreasonably withheld or delayed), neither the Company nor any of its
Subsidiaries will and will not agree to:
36
(i) purchase or otherwise acquire assets from any other Person,
or sell or transfer any assets of its business, other than in the Ordinary
Course of Business;
(ii) incur any Liability, except Liabilities (A) incurred in
the Ordinary Course of Business where the aggregate dollar amount of all such
Liabilities incurred does not exceed U.S.$25,000, (B) incurred pursuant to
existing obligations of the Company that are disclosed in the Schedules hereto,
(C) incurred for payroll purposes where the aggregate dollar amount of all such
Liabilities incurred does not exceed U.S.$300,000 or (D) expressly contemplated
by the terms of this Agreement;
(iii) amend or modify in any material respect or terminate any
Material Contract or any other contract entered into by the Company after the
date hereof which, if in existence on the date hereof, would be considered a
Material Contract;
(iv) make or commit to make any capital expenditure, or group
of related capital expenditures, in excess of U.S.$25,000, other than (A)
capital expenditures set forth on SCHEDULE 6.1 and (B) capital expenditures
expressly required under any Material Contract;
(v) hire or make an offer to hire any full-time employee;
PROVIDED, HOWEVER, that this restriction will not apply to any part-time call
center personnel; or
(vi) fail to inform Purchaser of any material issues being
investigated by the Company and its independent auditors in connection with the
preparation and finalization of the Company's audited financial statements as
provided in SECTION 6.12.
(b) Each of the Company and its Subsidiaries will:
(i) (A) maintain its assets in the Ordinary Course of Business
in reasonably serviceable operating order and condition, reasonable wear and
tear, damage by fire and other casualty excepted, (B) promptly repair, restore
or replace any material assets in the Ordinary Course of Business and (C) upon
any damage, destruction or loss to any of such assets, apply any and all
insurance proceeds received with respect thereto to the prompt repair,
replacement and restoration thereof to the condition of such assets before such
event to the extent reasonably practicable;
(ii) comply with all material applicable laws;
(iii) not allow any liens for taxes to be placed on any of its
assets, except for liens arising from taxes which are due but not yet payable;
(iv) use its commercially reasonable efforts to obtain, prior
to the Closing Date, all Company Required Consents;
(v) promptly notify Purchaser in writing if it has knowledge of
any action, event, condition or circumstance, or group of actions, events,
conditions or circumstances that materially affect the Business of the Company,
other than changes in general economic conditions;
37
(vi) promptly notify Purchaser in writing of the commencement
of any Proceeding by or against the Company, or of becoming aware of any
material claim, action, suit, inquiry, proceeding, notice of violation,
subpoena, government audit or disallowance that could reasonably be expected to
result in a Proceeding; and
(vii) pay accounts payable and pursue collection of its
accounts receivable in the Ordinary Course of Business.
6.2 FURTHER ASSURANCES. The parties hereto shall execute and deliver
such other documents, certificates, agreements and other writings and shall take
such other actions as may be reasonably necessary or desirable (including,
without limitation, obtaining the Company Required Consents and any consent or
approvals required to be obtained by Purchaser or Parent and making necessary
filings with all governmental authorities) in order to consummate or implement
expeditiously the transactions contemplated by this Agreement. Notwithstanding
the foregoing, no party hereto shall have any obligation to expend any funds or
to incur any other obligation in connection with the consummation of the
transactions contemplated hereby (including, by way of illustration only, any
payment in connection with obtaining the Company Required Consents) other than
normal out-of-pocket expenses (such as fees and expenses of counsel and
accountants) reasonably necessary to consummate such transactions.
6.3 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS. The parties hereto shall use
their best efforts to keep this Agreement and the execution and terms hereof
confidential, and shall consult with each other before issuing any press release
or making any public statement with respect to this Agreement or the
transactions contemplated hereby. The parties may, however, disclose such
matters to its directors, officers, executive employees and professional
advisors and those of prospective financing sources to such extent as may be
reasonable for the negotiation, execution and consummation of this Agreement.
Each party shall keep confidential all information concerning the other obtained
pursuant to this Agreement and shall not use such information except in
connection with the transactions set forth herein. If for any reason such
transactions shall not be consummated, each party will return all such
information (including all copies thereof) regarding the other, to the other
party. The foregoing obligations of confidentiality in this SECTION 6.3 do not
pertain to the disclosure of information which is available publicly, is
required to be disclosed by any court or any party discloses, upon advice of
counsel, in order to comply with applicable law. The parties hereto recognize
and agree that in the event of a breach by a party of this section, money
damages would not be an adequate remedy to the injured party for such breach
and, even if money damages were adequate, it would be impossible to ascertain or
measure with any degree of accuracy the damages sustained by such injured party
therefrom. Accordingly, if there should be a breach or threatened breach by a
party of the provisions of this section, the injured party shall be entitled to
an injunction restraining the breaching party from any breach without showing or
proving actual damage sustained by the injured party. Nothing in the preceding
sentence shall limit or otherwise affect any remedies that a party may otherwise
have under applicable law. Notwithstanding the foregoing, Purchaser and Parent
agree that the Company may inform its customers and clients of the transactions
contemplated hereby after the close of trading on the NASDAQ National Market one
day prior to the issuance of any press release announcing the transactions
contemplated hereby.
38
6.4. ANCILLARY AGREEMENTS. In connection with the transactions
contemplated hereby, Purchaser and the Company will enter into the Employment
Agreements with each of the Executives.
6.5 INSPECTION. Subject to confidentiality obligations and similar
restrictions that may be applicable to information furnished to the Company by
third parties that may be in the Company's possession from time to time
(including restrictions on the disclosure of government-classified information),
prior to the Closing, the Company shall allow Purchaser and its accountants,
counsel and other representatives reasonable access, during normal business
hours, by advance arrangement with the Company's management and in the presence
of representatives of the Company and in such manner so as not to interfere
unduly with the Company's operations, to all of the properties, books,
contracts, commitments, tax returns and records of its business and appropriate
officers and employees, and shall furnish such representatives, at Purchaser's
expense for copying only, with all financial and operating data and other
information concerning its affairs as Purchaser may reasonably request.
6.6. NOTIFICATION OF CERTAIN MATTERS.
(a) The Company and the Named Shareholders shall give prompt notice
to Purchaser of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty of
the Company or Named Shareholders contained in this Agreement or in any
Ancillary Agreement, exhibit or schedule to be untrue or inaccurate in any
material respect and (ii) any material failure of the Company or any of its
Affiliates or the Named Shareholders to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any Ancillary Agreement, exhibit or schedule; PROVIDED, HOWEVER,
that such disclosure shall not be deemed to cure any breach of a representation,
warranty, covenant or agreement or to satisfy any condition. The Company and the
Named Shareholders shall promptly notify Purchaser of the threat or commencement
of any Proceeding, or any development that occurs before the Closing that could
in any way result in a Material Adverse Effect on the Company.
(b) Each of Purchaser and Parent shall give prompt notice to the
Company of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty of
Purchaser or Parent contained in this Agreement or in any Ancillary Agreement,
exhibit or schedule to be untrue or inaccurate in any material respect and (ii)
any material failure of Purchaser Parent or any of their respective Affiliates
or Representatives, as applicable, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any Ancillary Agreement, exhibit or schedule; PROVIDED, HOWEVER,
that such disclosure shall not be deemed to cure any breach of a representation,
warranty, covenant or agreement or to satisfy any condition. Each of Purchaser
and Parent shall promptly notify the Company of the threat or commencement of
any Proceeding, or any development that occurs before the Closing that, to
Purchaser's or Parent's knowledge, could in any way result in a Material Adverse
Effect on Purchaser or Parent.
6.7. NON-EXECUTIVE EMPLOYEE MATTERS. Purchaser or Parent intends to
continue the employment with the Company of all non-Executive employees of the
Company on an at-will basis at the Closing at the same compensation levels such
employees received in the Company
39
Fiscal Year prior to the Closing. The Company and the Shareholders shall each
use their best efforts to assist Purchaser in continuing the employment of such
employees of the Company. In addition, promptly after the Closing, at
Purchaser's sole discretion, those non-Executive employees of the Company
identified by Purchaser in its reasonable discretion will be granted options to
purchase Parent Shares in amounts commensurate with those options provided to
similarly situated employees of Parent, such amount to be determined by
Purchaser in its reasonable discretion. In addition, in accordance with Parent's
normal compensation and review process, those non-Executive employees of the
Company identified by Purchaser in its reasonable discretion will receive annual
salary adjustments and Parent Share option awards commensurate with other
employees of Parent in the same general positions and geographic locations.
6.8. BUDGETING AND TRANSITIONAL MATTERS.
(a) Purchaser and the Company acknowledge and agree that, promptly
following the Closing (with respect to the 2001 Fiscal Year) and prior to the
beginning of the 2002 Fiscal Year (with respect to the 2002 Fiscal Year), the
parties will jointly prepare an operating plan for the Company that will include
minimum and maximum working capital and capital expenditure resources and an
annual budget for any applicable Fiscal Years; PROVIDED, HOWEVER, that Purchaser
shall have the right to approve the final operating plan in its discretion. The
parties agree that Purchaser shall have the right to (a) in its sole discretion,
prevent the Company from entering into agreements with any Persons with respect
to ticketing, hotel reservations and off season call markets, (b) increase
employee compensation by up to an aggregate of U.S.$1,000,000 in each of the
2001 and 2002 Fiscal Years and (c) transfer the rights and obligations of the
Company's existing ticketing, hotel reservation and off season call center
service contracts (or the relevant portions of contracts which include
campground reservation rights and the transferred rights) to other Purchaser
Affiliates. None of the foregoing actions by Purchaser shall give rise to any
claim by the Company or the Shareholders that such actions have affected or
impaired the ability of the Shareholders to earn all or any portion of the
maximum Earn-Out Amounts for each of the 2001 and 2002 Fiscal Years.
(b) The parties agree that, promptly after the Closing Date,
Purchaser will change the fiscal year of the Company from a November 30 year-end
to a December 31 year-end. In connection therewith, each of the parties
acknowledges that any EBITDA generated by the Company or its Subsidiaries in
December 2000 will not be taken into account in calculating the Earn-Out Amount
for the Fiscal Year ending December 31, 2001.
(c) Purchaser, Parent and the Company acknowledge and agree that,
promptly following execution of this Agreement, through Closing and continuing
after the Closing, the parties will jointly prepare a technology staffing and
implementation plan for the Company that will set forth changes to the Company's
technology personnel and technology development efforts post-Closing. The plan
will be jointly prepared by the parties; PROVIDED, HOWEVER, that Purchaser and
Parent shall have the right to approve the final technology plan in their sole
discretion. In addition, Parent reserves the right, in its sole discretion, to
appoint new senior personnel for the Company post-Closing and to remove Company
personnel post-Closing. Further, the Company reserves the right, in its sole
discretion, to appoint a Chief Operating Officer and such other appropriate
senior management for the Company. The Chief Operating
40
Officer will report to the Chief Executive Officer of the Company and will have
such direct reports as are mutually agreed upon by the Chief Executive Officer
and Parent. The Company and the Shareholders acknowledge and agree that none of
the foregoing actions by Purchaser and Parent shall give rise to any claim by
the Company or the Shareholders that such actions have affected or impaired the
ability of the Shareholders to earn all or any portion of the maximum Earn-Out
Amounts for each of the 2001 and 2002 Fiscal Years; PROVIDED that Purchaser and
Parent use commercially reasonable efforts to make any and all decisions to take
any and all of the foregoing actions with the intent of maintaining or improving
the EBITDA generating capacity of the Company.
6.9. REGISTRATION STATEMENT.
(a) Parent shall promptly prepare at its sole expense, with the
cooperation of the Accredited Shareholders with respect to information relating
to the Accredited Shareholders or their sale of Parent Shares, and Parent at its
sole expense shall file with the SEC prior to the expiration of the Lock-Up
Period, a Registration Statement on Form S-3 or other appropriate short-form
registration statement (the "US REGISTRATION STATEMENT") under the Act, with
respect to the Restricted Parent Shares.
(b) Parent, with the cooperation of the Accredited Shareholders
with respect to information relating to the Accredited Shareholders or their
sale of such Parent Shares, shall cause the US Registration Statement to comply
as to form in all material respects with the applicable provisions of the Act
and the rules and regulations thereunder. Parent shall use all reasonable
efforts, and the Accredited Shareholders will cooperate with Parent, to have the
US Registration Statement declared effective by the SEC prior to the expiration
of the Lock-Up Period. Parent shall use its commercially reasonable efforts to
obtain, prior to the effective date of the US Registration Statement, all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the sale of such Parent Shares by the Accredited Shareholders and will
pay all expenses incident thereto.
(c) Parent agrees that the US Registration Statement and each
amendment or supplement thereto at the time it is filed or becomes effective,
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and indemnifies and holds harmless the Accredited Shareholders with
respect to any breach of the foregoing; PROVIDED, HOWEVER, that the foregoing
shall not apply to the extent that any such untrue statement of a material fact
or omission to state a material fact was made by Parent in reliance upon and in
conformity with written information concerning the Accredited Shareholders
furnished to Parent by the Accredited Shareholders specifically for use in the
US Registration Statement or any amendment thereto, and the Accredited
Shareholders and their counsel have been given reasonable opportunity to review
the US Registration Statement or any amendment thereto prior to filing.
(d) Parent shall advise the Accredited Shareholders, promptly after
it receives notice thereof, of the time when the US Registration Statement has
become effective. Parent shall cause the US Registration Statement to remain
effective until the earlier of (1) the date at which all of the Restricted
Parent Shares have been sold by the Accredited Shareholders or (2)
41
twelve months following the Registration Date (the "EFFECTIVE PERIOD"). Parent
at its expense shall provide the shareholders with such number of copies of the
US Registration Statement and any amendments thereto as any Accredited
Shareholder may reasonably request from time to time.
(e) The Accredited Shareholders agree that (A) the written
information provided by each of them for inclusion in the US Registration
Statement and each amendment or supplement thereto at the time it is filed or
becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading and (B) such Accredited Shareholders, upon notification
from Parent, shall not use the US Registration Statement to effect sales of
Parent Shares for any reasonable time period during which Parent is amending the
US Registration Statement to reflect material developments, as specified in the
notice from Parent.
(f) With a view to making available the benefits of certain rules
and regulations of the SEC which may at any time permit the sale of the Parent
Shares to the public without registration, or pursuant to a registration on Form
S-3, for a period of three (3) years following the Closing Date, Parent agrees
to use its reasonable best efforts to:
(i) Make and keep public information available, as those terms
are understood and defined in Rule 144 promulgated under the Act, at all times
after the share purchase;
(ii) File with the SEC in a timely manner all reports and other
documents required of Parent under the Act and the Exchange Act; and
(iii) So long as an Accredited Shareholder or its assignee or
transferee who is identified to Parent in writing ("ACCREDITED HOLDER") owns any
Parent Shares, and Parent has been notified of the name, address and holdings of
such Accredited Holder, to furnish to that Accredited Holder forthwith upon
request a written statement by Parent as to its compliance with the reporting
requirements of said Rule 144, and of the Act and the Exchange Act, a copy of
the most recent annual or quarterly report of Parent, and such other reports and
documents of Parent as such Accredited Holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing such Accredited Holder to
sell any such Parent Shares without registration.
(g) (i) To the extent permitted by law, Parent will indemnify and
hold harmless each Shareholder, any underwriter (as defined in the Act) for such
Shareholder, its officers, directors, shareholders or partners and each person,
if any, who controls such Shareholder or underwriter within the meaning of the
Act or the Exchange Act, against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations with respect to the
Registration Statement (collectively, a "VIOLATION"): (A) any untrue statement
or alleged untrue statement of a material fact, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (B) the omission or alleged omission to state therein a
material fact required
42
to be stated therein, or necessary to make the statements therein not misleading
or (C) any violation or alleged violation by Parent of the Act, the Exchange
Act, any state securities law or any rule or regulation promulgated under the
Act, the Exchange Act or any state securities law; and Parent will pay to each
such Shareholder (and its officers, directors, stockholders or partners),
underwriter or controlling person, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this SECTION 6.9(g)(i) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of Parent; nor shall Parent be liable
in any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon (1) a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in the Registration Statement by any such Shareholder or (2) a Violation
that would not have occurred if such Shareholder had delivered to the purchaser
the version of the prospectus most recently made available by Parent to the
Shareholder as of the date of such sale.
(ii) To the extent permitted by law, each selling Shareholder,
severally and not jointly, will indemnify and hold harmless Parent, each of its
directors, each of its officers who has signed the Registration Statement, each
person, if any, who controls Parent within the meaning of the Act, any
underwriter, any other Shareholder selling securities pursuant to the
Registration Statement and any controlling person of any such underwriter or
other Shareholder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation (which includes without limitation the failure of
the Shareholder to comply with the prospectus delivery requirements under the
Act, and the failure of the Shareholder to deliver the most current prospectus
made available by Parent prior to such sale), in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Shareholder expressly for
use in the Registration Statement or such Violation is caused by the
Shareholder's failure to deliver to the purchaser of the Shareholder's Parent
Share the most current version of the prospectus (or amendment or supplement
thereto) that had been made available to the Shareholder by Parent; and each
such Shareholder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this SECTION 6.9(g)(ii) in
connection with investigating or defending any such loss, claim, damage,
liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this SECTION 6.9(g)(ii) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Shareholder. The aggregate indemnification and
contribution liability of each shareholder under this SECTION 6.9(g)(ii) shall
not exceed the net proceeds received by such Shareholder in connection with sale
of shares pursuant to the Registration Statement.
(iii) Each Person entitled to indemnification under this
SECTION 6.9(g) (for purposes of this SECTION 6.9(g), the "REGISTRATION
INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "REGISTRATION INDEMNIFYING PARTY") promptly after such
Registration Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought and shall permit the Registration Indemnifying Party to
assume the defense of any such claim and any litigation resulting therefrom;
PROVIDED, that counsel for
43
the Registration Indemnifying Party who conducts the defense of such claim or
any litigation resulting therefrom shall be approved by the Registration
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Registration Indemnified Party may participate in such defense at such party's
expense; PROVIDED FURTHER, that the failure of any Registration Indemnified
Party to give notice as provided herein shall not relieve the Registration
Indemnifying Party of its obligations under this SECTION 6.9(g) unless the
Registration Indemnifying Party is materially prejudiced thereby. No
Registration Indemnifying Party, in the defense of any such claim or litigation,
shall (except with the consent of each Registration Indemnified Party) consent
to entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Registration Indemnified Party of a release from all liability in respect to
such claim or litigation. Each Registration Indemnified Party shall furnish such
information regarding itself or the claim in question as a Registration
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(iv) To the extent that the indemnification provided for in
this SECTION 6.9(g) is held by a court of competent jurisdiction to be
unavailable to a Registration Indemnified Party with respect to any loss,
liability, claim, damage or expense referred to herein, then the Registration
Indemnifying Party, in lieu of indemnifying such Registration Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Registration
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Registration Indemnifying Party on the one hand and of the Registration
Indemnified Party on the other in connection with the statements or omissions
which resulted in such loss, liability, claim, damage or expense, as well as any
other relevant equitable considerations. The relative fault of the Registration
Indemnifying Party and of the Registration Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Registration Indemnifying
Party or by the Registration Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
6.10. RELEASE.
(a) From and after the Closing Date, each Shareholder finally and
forever releases Purchaser, Parent and the Company, and their respective
successors, assigns, officers, directors, agents, servants, employees and all
Affiliates and Subsidiaries, past and present, of Purchaser, Parent and the
Company (the "RELEASEES") from each and every agreement, commitment,
indebtedness, obligation and claim of every nature and kind whatsoever, known or
unknown, suspected or unsuspected (each, a "CLAIM" and collectively, the
"CLAIMS") that (A) such Shareholder may have had in the past, may have as of the
date hereof or, to the extent arising from or in connection with any act,
omission or state of facts taken or existing on or prior to the date hereof, may
have after the date hereof against any of the Releasees and (B) has arisen or
arises directly out of, or relates directly to, such Shareholder's interest as a
shareholder, director, officer and/or employee of the Company, except (1) such
Claims as are contemplated by this Agreement (including, without limitation,
such Shareholder's rights pursuant to SECTION 6.9) and (2) Claims for
indemnification that such Shareholder may have under the Company's
44
charter or bylaws (such Claims being the "RELEASED CLAIMS"). Each Shareholder
acknowledges his, her or its understanding that the facts in respect of which
this release is given may hereafter be determined to be other than or different
from the facts now known or believed by such Shareholder, and such Shareholder
hereby accepts and assumes the risks of the facts being different and agrees
that this release shall be and remain, in all respects, effective and not
subject to termination or rescission by reason of any such difference in facts.
Specifically, each Shareholder hereby expressly waives any and all rights under
Section 1542 of the California Civil Code with respect to the Released Claims,
which reads in full as follows:
SECTION 1542. GENERAL RELEASE. A GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS
FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Each Shareholder acknowledges that he, she or it has separately bargained for
the foregoing waiver of Section 1542. The parties hereto intend that the
provisions regarding the Released Claims be construed as broadly as possible,
and incorporate herein similar federal, national, state, provincial or other
laws, all of which, with respect to the Released Claims, are similarly waived by
each Shareholder.
(b) From and after the Closing Date, except with respect to any
Liabilities to be paid to any Shareholder by Parent pursuant to this Agreement,
each Shareholder covenants and agrees to waive and release the right to receive
any and all amounts due to such Shareholder pursuant to Liabilities of the
Company by reason of any agreement between the Company and such Shareholder on
or before the Closing Date or otherwise. Each Shareholder shall have caused all
indebtedness owed to the Company by such Shareholder or any Affiliate of such
Shareholder to be paid in full prior to the Closing. In addition, each
Shareholder covenants and agrees to take any and all actions as may be necessary
to effect the release of indebtedness contemplated hereby, in form reasonably
satisfactory to Purchaser.
(c) Except with respect to each Shareholder's right, as of the
Closing Date, to receive a portion of the Aggregate Consideration in exchange
for his, her or its shares of the Company as provided herein, each Shareholder
hereby acknowledges that, as of the Closing Date, such Shareholder will have no
ongoing interest in the Company, financial or otherwise, by reason of ownership
of the shares of the Company or otherwise.
6.11. LOCK-UP. Except for transfers between the Accredited Shareholders
in accordance with U.S. and Canadian securities laws and pursuant to an opinion
of counsel reasonably satisfactory to Parent if requested, each Accredited
Shareholder agrees that he, she or it will not offer to sell, contract to sell,
or otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "DISPOSITION") any Restricted Parent Shares during the Lock-Up
Period; PROVIDED, HOWEVER, that nothing in this SECTION 6.11 shall prohibit such
Accredited Shareholders from exchanging his, her or its Restricted Parent Shares
for interests in a diversified exchange fund; PROVIDED that any such exchange is
done in accordance with applicable securities laws. Each Accredited Stockholder
also consents to the entry of stop transfer instructions by Parent's transfer
agent and registrar prohibiting the transfer of any
45
Restricted Parent Shares held by such Accredited Shareholder except in
compliance with the foregoing restrictions.
6.12. FINANCIAL STATEMENTS. The Company shall, and the Shareholders
shall cause the Company to, no later than one (1) day prior to the Closing Date,
deliver to Purchaser audited financial statements of the Company and its
Subsidiaries as of and for the fiscal year ended November 30, 2000.
6.13. SOLICITATION OF SHAREHOLDERS AND WARRANT HOLDERS.
(a) As promptly as practicable following the date hereof, the
Company shall send to all shareholders of the Company information soliciting
such holders to sell all of their outstanding shares of the Company to Purchaser
pursuant to the terms of this Agreement, as evidenced by execution of this
Agreement by such shareholder at least five (5) days prior to the Closing Date.
Purchaser agrees to cooperate with the Company, as requested by the Company, in
the solicitation of the security holders of the Company as provided in this
SECTION 6.13(a).
(b) As promptly as practicable following the date hereof, the
Company shall send to all holders of Warrants of the Company (each a "HOLDER"
and collectively, the "HOLDERS") information soliciting such Holder to (i)
exercise such Warrants prior to the Closing Date and (ii) sell all of their
Warrant Class B Shares and Warrant Common Shares issued upon such exercise to
Purchaser pursuant to the terms of this Agreement, and for the full
consideration for Class B Shares and Common Shares provided herein, as evidenced
by execution of this Agreement by such Holder as a "Shareholder" at least five
(5) days prior to the Closing Date. In connection therewith, the Company agrees
to offer to each such Holder the right to finance the exercise of such Warrants
by accepting a loan of the funds necessary for such exercise and executing a
Note in favor of the Company for the full exercise price of such Warrants, such
Note to be repaid in full, pursuant to its terms, from the portion of the Cash
Consideration payable to such Holder pursuant hereto. Purchaser agrees to
cooperate with the Company, as requested by the Company, in the solicitation of
the Holder as provided in this SECTION 6.13(b).
6.14. SOFTWARE COMPLIANCE. The parties agree that, within thirty (30)
days of the Closing Date, Purchaser shall cause the Company to be brought into
compliance with respect to the license agreements pursuant to which the Company
has licensed the software listed on SCHEDULE 6.14. The Shareholders shall be
responsible for all costs related to bringing the Company into compliance
pursuant to this SECTION 6.14. The parties estimate that such compliance will
cost approximately $200,000 (the "COMPLIANCE ESTIMATE"), which amount shall be
deducted from the Cash Consideration paid at the Closing pursuant to ARTICLE II
pro rata based on each Shareholder's percentage ownership of the Company
immediately prior to the Closing Date, as reflected on SCHEDULE I attached
hereto, as amended immediately prior to the Closing. To the extent that the
actual cost of bringing the Company into compliance (the "ACTUAL COMPLIANCE
COST") is more than $5,000 greater than the Compliance Estimate, the
Shareholders' Representative and Purchaser shall jointly notify the Escrow Agent
to release funds from the Escrow Account to Purchaser in the amount of such
excess, to be borne by the Shareholders pro rata. To the extent that the Actual
Compliance Cost is more than $5,000 less than the Compliance Estimate, Purchaser
shall pay such difference to the Escrow Account for the benefit of the
Shareholders PRO RATA, subject to the terms of the Escrow Agreement.
46
6.15. UPDATING SCHEDULES. The Company shall deliver to Purchaser, no
later than three (3) days prior to the Closing Date, a written update or
supplement to the Schedules reflecting events occurring and contracts and
agreements executed or to be executed from the date hereof through the Closing
Date and any corrections required to be made to the Schedules. To the extent
that the Schedules are updated, corrected or supplemented, the Schedules shall
be deemed to be amended as of the Closing Date to include the information set
forth on such updated, corrected or supplemental Schedules; PROVIDED, HOWEVER,
that (a) if there are any matters or events reflected on such updated, corrected
or supplemental Schedules that could reasonably be expected to have a Material
Adverse Effect on the Company, then Purchaser shall not be obligated to close
the transactions contemplated hereby pursuant to SECTION 7.3(p) and (b) for all
purposes of ARTICLE IX, the representations and warranties shall only be
qualified by the Schedules as of the date hereof and shall not be qualified by
any updated, corrected or supplemental Schedules.
ARTICLE VII
CONDITIONS TO CLOSING
7.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations
of each party hereto to consummate the transactions provided for hereby are
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions:
(a) No Proceeding by any governmental authority or other Person
shall have been instituted or threatened which questions the validity or
legality of the transactions contemplated hereby and which could reasonably be
expected to damage the assets of the Company or the Business materially if the
transactions contemplated hereby are consummated. There shall not be any
Regulation or Court Order that makes the transactions contemplated hereby and by
the Ancillary Agreements illegal or otherwise prohibited.
(b) Any governmental or regulatory notices or approvals required
under any Regulations to carry out the transactions contemplated by this
Agreement shall have been obtained and the parties shall have complied with all
Regulations applicable to the transactions contemplated by this Agreement.
7.2. CONDITIONS TO OBLIGATION OF THE COMPANY AND THE SHAREHOLDERS. The
obligations of the Company and the Shareholders to consummate the transactions
provided for hereby are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions, any of which may be waived by the
Company:
(a) All representations and warranties of each of Purchaser and
Parent contained in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing
Date, except as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms hereof, and each of Purchaser and Parent shall have
performed and satisfied in all material respects all agreements and covenants
required hereby to be performed by it prior to or on the Closing Date.
47
(b) Purchaser shall have tendered for delivery the documents and
other items to be delivered by such parties pursuant to ARTICLE III of this
Agreement.
(c) Purchaser shall have delivered to the Company and the
Shareholders a written opinion of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, dated as of the
Closing Date, substantially in the form attached hereto as EXHIBIT D.
(d) Purchaser shall have delivered to the Company and the
Shareholders a written opinion of Torys, dated as of the Closing Date,
substantially in the form attached hereto as EXHIBIT E.
7.3. CONDITIONS TO THE OBLIGATION OF PURCHASER. The obligation of
Purchaser to consummate the transactions provided for hereby are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Purchaser:
(a) The Shares to be sold hereunder, as held by the security
holders of the Company listed on the executed signature pages hereto, shall
represent not less than 98% of the issued and outstanding shares of each class
of shares of the Company on a fully-diluted basis.
(b) All representations and warranties of the Company and the
Shareholders contained in this Agreement shall be true and correct in all
material respects at and as of the date of this Agreement and at and as of the
Closing Date, except as and to the extent that the facts and conditions upon
which such representations and warranties are based are expressly required or
permitted to be changed by the terms hereof, and the Company and each of the
Shareholders shall have performed and satisfied in all material respects all
agreements and covenants required hereby to be performed by each of them prior
to or on the Closing Date.
(c) The Company shall have tendered for delivery the documents and
other items to be delivered by such parties pursuant to ARTICLE III of this
Agreement.
(d) All Permits and Company Required Consents by governmental
agencies that are required for the consummation of the transactions contemplated
hereby, or by third parties that are required in order to prevent a breach of, a
Default under, or a termination, change in the terms or conditions or
modification of, any instrument, contract, lease, license or other agreement to
which the Company is a party and which is denoted with an asterisk (*) on
SCHEDULE 4.9 shall have been obtained on terms and conditions satisfactory to
Purchaser. In the event the Company cannot obtain certain Consents prior to the
Closing and Purchaser elects to waive this condition to Closing, the Company and
the Shareholders shall have the continuing obligation after the Closing to use
its commercially reasonable efforts to endeavor to obtain all necessary
Consents.
(e) The Executives and the Company shall have executed and
delivered the Ancillary Agreements.
(f) All liens against the Company or any of its assets or
properties shall have been released, including, without limitation, those liens
listed on SCHEDULE 7.3(f) hereto, except as otherwise provided for herein.
48
(g) All liens or other Encumbrances against the Shares shall have
been release, including, without limitation, those Encumbrances listed on
SCHEDULE 4.5 hereto, except as otherwise provided for herein.
(h) The Company shall have delivered to Purchaser a written opinion
of ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, dated as of the Closing Date, substantially in
the form attached hereto as EXHIBIT F.
(i) The Company shall have delivered to Purchaser a written opinion
of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, dated as of the Closing Date, substantially in the
form attached hereto as EXHIBIT G.
(j) Purchaser shall have received from the spouse, if any, of each
Shareholder listed on SCHEDULE 4.38 a spousal consent in the form attached
hereto as EXHIBIT H.
(k) The Company shall have delivered the audited financial
statements as required by SECTION 6.12.
(l) The offer and sale of the Shares to Purchaser pursuant to this
Agreement shall be exempt from the registration, prospectus and qualification
requirements of all applicable securities laws.
(m) Since the date of this Agreement, there shall have been no
Material Adverse Change in the business, operations, prospects, condition
(financial or otherwise) or results of operations of the Company.
(n) Purchaser shall have received from the Company all documents
and other materials requested by Purchaser for the purpose of examining and
determining the Company's rights in and to any technology, products and
proprietary assets now used, proposed to be used in, or necessary to, the
Company's business as now conducted and proposed to be conducted, and the status
of the Company's ownership rights in and to all such technology, products and
proprietary assets shall be reasonably satisfactory to Purchaser.
(o) Purchaser shall have received the letters of resignation of
each of the directors of the Company, effective as of the Closing Date.
(p) Any updated, corrected or supplemented Schedules provided to
Purchaser pursuant to SECTION 6.15 shall not contain any matters or events that
could reasonably be expected to have a Material Adverse Effect on the Company.
ARTICLE VIII.
TERMINATION
8.1. TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
49
(a) by mutual written consent of Purchaser, the Company and the
Shareholders;
(b) by Purchaser or the Company and the Shareholders if (i) any
governmental authority shall have issued a final order, decree or ruling or
taken any other final action restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such order, decree, ruling or other action
is or shall have become nonappealable or (ii) subject to the following, the
transactions contemplated hereby have not been consummated by March 31, 2001
(the "OUTSIDE DATE"); PROVIDED, HOWEVER, that no party may terminate this
Agreement pursuant to this clause (ii) if such party's failure to fulfill any of
its obligations under this Agreement shall have been the reason that the Closing
Date shall not have occurred on or before said date;
(c) by the Company and the Shareholders if (i) there shall have
been a breach of any representation or warranty on the part of Purchaser or
Parent set forth in this Agreement or if any representation or warranty of
Purchaser or Parent shall have become untrue, in either case such that the
conditions set forth in SECTION 7.2(a) would be incapable of being satisfied by
the Outside Date or (ii) there shall have been a breach by Purchaser or Parent
of any of their respective covenants or agreements hereunder having a Material
Adverse Effect on Purchaser or Parent or materially adversely affecting (or
materially delaying) the consummation of the transactions contemplated hereby,
and Purchaser or Parent has not cured such breach or event within twenty (20)
Business Days after notice by the Company thereof; PROVIDED that the Company has
not breached any of its obligations hereunder; or
(d) by Purchaser if (i) there shall have been a breach of any
representation or warranty on the part of the Company or the Shareholders set
forth in this Agreement or if any representation or warranty of the Company or
the Shareholders shall have become untrue in either case such that the
conditions set forth in SECTION 7.3(a) would be incapable of being satisfied by
the Outside Date or (ii) there shall have been a breach by the Company or the
Shareholders of any of their respective covenants or agreements hereunder having
a Material Adverse Effect on the Company or materially adversely affecting (or
materially delaying) the consummation of the transactions contemplated hereby,
and the Company or the Shareholders, as the case may be, have not cured such
breach or event within twenty (20) Business Days after notice by Purchaser
thereof; PROVIDED that Purchaser or Parent has not breached any of its
respective obligations hereunder.
8.2. EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to SECTION 8.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its Affiliates, directors, officers or stockholders other
than the provisions of SECTION 6.3, this SECTION 8.2, the arbitration provisions
of SECTION 9.3(b) and SECTION 10.12 hereof. Nothing contained in this SECTION
8.2 shall relieve any party from liability for any breach of this Agreement.
50
ARTICLE IX.
INDEMNIFICATION
9.1. SURVIVAL OF REPRESENTATIONS. All statements contained in any
schedule or in any certificate or other document delivered by or on behalf of
the parties pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
parties hereunder. The representations and warranties of the Company, the
Shareholders and Purchaser contained herein shall survive the Closing Date until
the later to occur of (a) forty five days after the delivery of the audited
financial statements for the Fiscal Year ending December 31, 2002 and (b) June
30, 2003; PROVIDED, HOWEVER, that: (i) the representations and warranties set
forth in SECTIONS 4.4, 4.33 and 5.2 ("Due Authorization"), 4.2
("Capitalization"), 4.20 ("Environmental Matters"), SECTION 4.21 ("Employee
Benefit Plans"), 4.25 ("Compliance with Law"), 4.29 and 5.6 ("No Brokers") and
SECTION 5.7 ("Valid Issuance of Stock") shall survive until the third
anniversary of the Closing Date and (ii) the representations and warranties in
SECTION 4.19 ("Taxes") and SECTION 4.34 ("Title to Shares") shall survive the
Closing Date until sixty days following the expiration of any applicable statute
of limitations (including any extensions thereof). In the case of actual fraud,
intentional misrepresentation or active concealment, the representations and
warranties of such breaching party shall survive until the expiration of the
applicable statute of limitations. Any claims under this Agreement with respect
to a breach of a representation and warranty must be asserted by written notice
within the applicable survival period contemplated by this SECTION 9.1, and if
such a notice is given, the survival period for such representation and warranty
shall continue until the claim is fully resolved. The right to indemnification
or other remedy based on the representations, warranties, covenants and
agreements herein will not be affected by any investigation conducted with
respect to, or any knowledge acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the Closing, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant or agreement. All representations
and warranties of each party set forth in this Agreement shall be deemed to have
been made again by such party at and as of the Closing Date. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or agreement, will not affect the
right to indemnification or other remedy based on such representations,
warranties, covenants and agreements, unless such right is also expressly
waived.
9.2. INDEMNIFICATION.
(a) Subsequent to the Closing, subject to the limitations described
below in SECTION 9.5, the Named Shareholders shall, as provided in SECTION
9.5(b), indemnify Purchaser and its respective Affiliates (including, after the
Closing, the Company), and each of its respective officers, directors,
employees, shareholders, partners and agents ("PURCHASER INDEMNIFIED PARTIES")
against, and hold each of the Purchaser Indemnified Parties harmless from, any
damage, claim, loss, cost, Liability or expense, including without limitation,
interest, penalties, reasonable attorneys' fees and expenses of investigation
(other than those expressly allocated pursuant to SECTION 9.3(b)(3)),
consequential damages, response action, removal action or remedial action
(collectively "DAMAGES") incurred by such Purchaser Indemnified Party that arise
out of or relate to, whether directly or indirectly: (i) any misrepresentation
or breach of any
51
warranty on the part of the Company or the Named Shareholders contained in this
Agreement or in any agreement, certificate or other instrument delivered by the
Company or the Shareholders pursuant to this Agreement or (ii) any breach or
non-performance by the Company or the Shareholders of any of their respective
covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by the Company or the Shareholders
pursuant to this Agreement.
(b) Subsequent to the Closing, subject to the limitations described
below in SECTION 9.5, the Shareholders shall severally, but not jointly,
indemnify the Purchaser Indemnified Parties against, and hold each of the
Purchaser Indemnified Parties harmless from, any Damages incurred by such
Purchaser Indemnified Party that arise out of or relate to, whether directly or
indirectly: (i) any misrepresentation or breach of any warranty on the part of
such Shareholder contained in this Agreement or in any agreement, certificate or
other instrument delivered by such Shareholder pursuant to this Agreement or
(ii) any breach or non-performance by such Shareholder of any of his, her or its
covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by such Shareholder pursuant to this
Agreement.
(c) Each of Purchaser and Parent shall jointly and severally
indemnify each of the Shareholders ("SHAREHOLDER INDEMNIFIED PARTIES"), against,
and hold each of the Shareholder Indemnified Parties harmless from, any Damages
incurred by such Shareholder Indemnified Party that arise out of or relate to,
whether directly or indirectly: (i) any breach of any representation or warranty
of Purchaser or Parent contained in this Agreement or in any agreement,
certificate or other instrument delivered by Purchaser or Parent pursuant to
this Agreement or (ii) any breach or non-performance by Purchaser or Parent of
its covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by Purchaser or Parent pursuant to
this Agreement.
(d) The term "DAMAGES" as used in this SECTION 9.2 is not limited
to matters asserted by third parties against Shareholder Indemnified Parties or
Purchaser Indemnified Parties, but includes Damages incurred or sustained by
such persons in the absence of third-party claims, and payments by the
indemnitee shall not be a condition precedent to recovery.
9.3. NOTICE OF CLAIMS.
(a) Any Purchaser Indemnified Party or Shareholder Indemnified
Party (the "INDEMNIFIED PARTY") seeking indemnification hereunder shall, within
the relevant limitation period provided for in Section 9.1 above, give to the
party obligated to provide indemnification to such Indemnified Party (the
"INDEMNITOR") a notice (a "CLAIM NOTICE") describing in reasonable detail the
facts giving rise to any claims for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any agreement, certificate or instrument executed pursuant hereto or in
connection herewith upon which such claim is based; PROVIDED, that a Claim
Notice in respect of any action at law or suit in equity by or against a third
Person as to which indemnification will be sought shall be given promptly after
the action or suit is commenced; and PROVIDED FURTHER, that failure to give such
notice shall not
52
relieve the Indemnitor of its obligations hereunder except to the extent it
shall have been prejudiced by such failure.
(b) Indemnitor shall have thirty days after the giving of any Claim
Notice pursuant hereto to (i) agree to the amount or method of determination set
forth in the Claim Notice and to pay such amount to such Indemnified Party in
immediately available funds or (ii) to provide such Indemnified Party with
notice that it disagrees with the amount or method of determination set forth in
the Claim Notice (the "DISPUTE NOTICE"). Within fifteen days after the giving of
the Dispute Notice, a representative of Indemnitor and such Indemnified Party
shall negotiate in a BONA FIDE attempt to resolve the matter. In the event that
the controversy is not resolved within thirty days of the giving of the Dispute
Notice, the parties shall proceed to binding arbitration pursuant to the
following procedures:
(i) Any party may send another party written notice identifying
the matter in dispute and invoking the procedures of this SECTION 9.3. Within 14
days, each party involved in the dispute shall meet at a mutually agreed
location in New York, New York, or such other location as mutually agreed by the
parties, for the purpose of determining whether they can resolve the dispute
themselves by written agreement, and, if not, whether they can agree upon a
third-party arbitrator to whom to submit the matter in dispute for final and
binding arbitration.
(ii) If such parties fail to resolve the dispute by written
agreement or agree on the arbitrator within said 14-day period, any such party
may make written application to the American Arbitration Association ("AAA") for
the appointment of a panel of three arbitrators (collectively, the "ARBITRATOR")
to resolve the dispute by arbitration. At the request of AAA the parties
involved in the dispute shall meet with AAA at its offices within ten calendar
days of such request to discuss the dispute and the qualifications and
experience which each party respectively believes the Arbitrator should have;
PROVIDED, HOWEVER, that the selection of the Arbitrator shall be the exclusive
decision of AAA and shall be made within 30 days of the written application to
AAA.
(iii) Within 120 days of the selection of the Arbitrator, the
parties involved in the dispute shall meet in New York, New York, or such other
location as mutually agreed by the parties, with such Arbitrator at a place and
time designated by such Arbitrator after consultation with such parties and
present their respective positions on the dispute. The arbitration proceeding
shall be held in accordance with the rules for commercial arbitration of the AAA
in effect on the date of the initial request by for appointment of the
Arbitrator, that gave rise to the dispute to be arbitrated (as such rules are
modified by the terms of this Agreement or may be further modified by mutual
agreement of the parties) Each party shall have no longer than five days to
present its position, the entire proceedings before the Arbitrator shall be no
more than ten consecutive days, and the decision of the Arbitrator shall be made
in writing no more than 30 days following the end of the proceeding and shall
set forth in writing the grounds or basis of the Arbitrator's decision. Such an
award shall be a final and binding determination of the dispute and shall be
fully enforceable as an arbitration decision in any court having jurisdiction
and venue over such parties. Each party shall pay its own attorneys' fees and
expenses in connection with such proceeding. The parties shall equally bear the
Arbitrator's fees and expenses.
53
9.4. THIRD PERSON CLAIMS. If a claim by a third Person is made against
an Indemnified Party, and if such party intends to seek indemnity with respect
thereto under this ARTICLE IX, such Indemnified Party shall promptly notify the
Indemnitor in writing of such claims, setting forth such claims in reasonable
detail. The Indemnitor shall be relieved of its indemnification obligations
hereunder to the extent that notice is not delivered promptly and the Indemnitor
is prejudiced thereby. The Indemnitor shall have twenty days after receipt of
such notice to undertake, conduct and control, through counsel of its own
choosing and at its own expense, the settlement or defense thereof, and the
Indemnified Party shall cooperate with it in connection therewith; provided that
the Indemnified Party may participate in such settlement or defense through
counsel chosen by such Indemnified Party and paid at its own expense; and
PROVIDED FURTHER that, if in the reasonable opinion of counsel for the
Indemnitor, there is a reasonable likelihood of a conflict of interest between
the Indemnitor and the Indemnified Party, the Indemnitor shall be responsible
for reasonable fees and expenses of one counsel to such Indemnified Party in
connection with such defense. So long as the Indemnitor is reasonably contesting
any such claim in good faith, the Indemnified Party shall not pay or settle any
such claim without the consent of the Indemnitor. If the Indemnitor does not
notify the Indemnified Party within ten days after receipt of the Indemnified
Party's notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof, the Indemnified Party shall have the right to undertake, at
Indemnitor's cost, risk and expense, the defense, compromise or settlement of
the claim but shall not thereby waive any right to indemnity therefore pursuant
to this Agreement. The Indemnitor shall not, except with the consent of the
Indemnified Party, enter into any settlement that does not include as an
unconditional term thereof the giving by the person or persons asserting such
claim to all Indemnified Parties (I.E., the Shareholder Indemnified Party or the
Purchaser Indemnified Party, as the case may be) of an unconditional release
from all liability with respect to such claim or consent to entry of any
judgment.
9.5. LIMITATION ON INDEMNITY.
(a) Notwithstanding the foregoing, an Indemnitor shall not be
obligated to indemnify an Indemnified Party under SECTIONS 9.2(a) or (b) unless
and until the aggregate of all Damages suffered by such Indemnified Parties
hereunder exceeds U.S.$200,000 (the "THRESHOLD AMOUNT"), whereupon, provided the
other requirements of this ARTICLE IX have been complied with, the full amount
of such Damages, and all subsequent Damages, shall become due and payable.
Notwithstanding the foregoing, (a) no Threshold Amount shall apply to the
Company's representations and warranties set forth in SECTIONS 4.2, 4.4, 4.19
and 4.28 hereof, (b) no Threshold Amount shall apply to Parent's and Purchaser's
representations and warranties set forth in SECTION 5.6 hereof and (c) no
Threshold Amount shall apply to the obligations of any party hereto to the
extent a breach results from actual fraud, intentional misrepresentation or
active concealment.
(b) The total indemnity obligations of the Shareholders shall not
exceed the sum of U.S.$5,000,000 and all Earn-Out Amounts (the "CAP"). With
respect to indemnification pursuant to SECTION 9.2(a), each Named Shareholder's
maximum individual indemnity obligations shall be the product of the Cap
multiplied by such Named Shareholder's percentage ownership of the Company
immediately prior to the Closing Date, as reflected on SCHEDULE I attached
hereto, as amended immediately prior to the Closing, grossed up such that the
total individual indemnity obligations of the Named Shareholders shall be equal
to 100% of the Cap.
54
The Cap shall not limit indemnification with respect to breaches by the
Shareholders or the Company of the representations and warranties set forth in
4.2, 4.4, 4.19, 4.28, 4.33 and 4.34.
(c) Except as provided in SECTION 9.5(a), the Threshold Amount and
Cap shall apply to all Damages regardless of whether asserted as a breach under
the Agreement or under any other theory or cause of action.
9.6. RIGHT OF OFFSET. Purchaser shall have the right to offset any
Damages suffered by the Purchaser Indemnified Parties, as finally determined in
accordance with this ARTICLE IX, not previously indemnified by the Shareholders
against any Earn-Out Amount to be paid to the Shareholders prior to payment by
Purchaser of such Earn-Out Amount. In addition, Purchaser shall have the right
to offset any Damages suffered by the Purchaser Indemnified Parties, in an
amount not to exceed U.S.$5,000,000, even if not finally determined in
accordance with this ARTICLE IX, against any Earn-Out Amount to be paid to the
Shareholders with respect to the Fiscal Year ending December 31, 2001 prior to
payment by Purchaser of such Earn-Out Amount.
9.7. REMEDIES. The remedies in this ARTICLE IX shall be the exclusive
remedies of the parties with respect to any breach of the respective
representations, warranties, covenants and agreements pursuant to this Agreement
or otherwise arising out of this Agreement, regardless of the theory or cause of
action plead, except for the remedies of specific performance, injunction and
other equitable relief; PROVIDED, HOWEVER, that no party hereto shall be deemed
to have waived any rights, claims, causes of action or remedies if and to the
extent such rights, claims, causes of action or remedies may not be waived under
applicable law or actual fraud, intentional misrepresentation or active
concealment is proven on the part of a party by another party hereto.
ARTICLE X.
MISCELLANEOUS
10.1. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, their successors and permitted
assigns, in accordance with the terms hereof. Neither this Agreement nor any of
the rights or obligations hereunder may be assigned by the Company or the
Shareholders without the prior written consent of Purchaser, or by Purchaser
without the prior written consent of the Shareholders, except that Purchaser
may, without such consent, assign the rights and obligations hereunder (both
before and after the Closing Date), to an Affiliate of Purchaser; PROVIDED,
HOWEVER, that no such assignment shall release Purchaser of any of its
obligations under this Agreement. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and no other Person shall have any right,
benefit or obligation hereunder.
10.2. NOTICES. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered in person or by courier, telegraphed, telexed
or by facsimile transmission or mailed by registered or certified mail, postage
prepaid, return receipt requested (such mailed notice to be effective on the
date of such receipt is acknowledged), as follows:
55
If to Purchaser or Parent:
Ticketmaster Online-CitySearch, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Torys
Maritime Life Tower
Box 270, TD Centre
Toronto, Ontario
M5K IN2 Canada
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company or the Shareholders:
ReserveAmerica Holdings, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
Suite 2100, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
56
Attention: ▇▇▇▇▇▇ ▇. May and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, from time to time, designate any other address to which
any such notice to such party shall be sent. Any such notice shall be deemed to
have been delivered upon receipt.
10.3. CHOICE OF LAW. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
Delaware, as applied to agreements among Delaware residents entered into and
wholly to be performed within the State of Delaware (without reference to any
choice of law rules that would require the application of the laws of any other
jurisdiction).
10.4. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement,
together with the Ancillary Agreements and all exhibits and schedules hereto and
thereto, constitutes the entire agreement among the parties pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties. No
supplement, modification or other amendment or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
10.5. COUNTERPARTS. This Agreement may be executed by facsimile and in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.6. SEVERABILITY. If any provision of this Agreement is deemed or
held to be illegal, invalid or unenforceable, this Agreement shall be considered
divisible and inoperative as to such provision to the extent it is deemed to be
illegal, invalid or unenforceable, and in all other respects this Agreement
shall remain in full force and effect; PROVIDED, HOWEVER, that if any provision
of this Agreement is deemed or held to be illegal, invalid or unenforceable
there shall be added hereto automatically a provision as similar as possible to
such illegal, invalid or unenforceable provision that is legal, valid and
enforceable. Further, should any provision contained in this Agreement ever be
reformed or rewritten by any judicial body of competent jurisdiction, such
provision as so reformed or rewritten shall be binding upon all parties hereto.
10.7. HEADINGS. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
10.8. SCHEDULES. The Schedules and the Exhibits referenced in this
Agreement are a material part hereof and shall be treated as if fully
incorporated into the body of the Agreement.
10.9. NO THIRD PARTY BENEFICIARIES. Nothing expressed or referred to in
this Agreement will be construed to give any Person other than the parties to
this Agreement (and their
57
successors and assigns) any legal or equitable right, remedy, or claim under or
with respect to this Agreement or any provision of this Agreement.
10.10. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity without the necessity of demonstrating the inadequacy of
monetary damages.
10.11. NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
10.12. EXPENSES. Except as otherwise specifically provided in this
Agreement, (a) Purchaser will pay its and Parent's fees and expenses incident to
this Agreement and the transactions contemplated hereby, including legal and
accounting fees, investment banking fees, fees and points to any lender,
consulting fees and related disbursements in connection with any of the
foregoing ("TRANSACTION FEES"), (b) the aggregate Transaction Fees of the
Company and the Shareholders shall be paid by the Shareholders.
10.13. DISCLOSURE SCHEDULES. Any information disclosed on a particular
Schedule or Schedules shall also be deemed to have been disclosed for purposes
of any other Schedule, even if not actually disclosed on such other Schedule,
unless such disclosure is of a nature that does not reasonably inform or notify
the reader of its applicability to a Schedule in which it is required to be
disclosed.
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10.14. SHAREHOLDERS' REPRESENTATIVE.
(a) By executing this Agreement, each Shareholder irrevocably
constitutes and appoints ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as the true and lawful agent and
attorney-in-fact (hereinafter referred to as the "SHAREHOLDERS' REPRESENTATIVE")
of each Shareholder, with full powers of substitution, to act in the name, place
and stead of each Shareholder with respect to the transactions contemplated
hereby in accordance with the provisions of this Agreement and the Escrow
Agreement, including, without limitation, to grant waivers on behalf of each
Shareholder or to enter into amendments to this Agreement and to do or refrain
from doing all such further acts and things, to execute all such certificates,
instruments and other documents, as such Shareholders' Representative may deem
necessary or appropriate in connection with any of the transactions contemplated
under this Agreement or the Escrow Agreement, to give and receive notices and
communications, to authorize delivery to Purchaser of the Escrowed Shares or
other property from the Escrow Account in satisfaction of claims by Purchaser,
to object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims and to take all actions
necessary or appropriate in the judgment of the Shareholders' Representative for
the accomplishment of the foregoing. Such agency may be changed by the
Shareholder from time to time upon not less than thirty days prior written
notice to Purchaser; PROVIDED, HOWEVER, that the Shareholders' Representative
may not be removed unless holders of a two-thirds interest in the Escrow Account
agree to such removal and to the identity of the substituted shareholders'
representative. Any vacancy in the position of Shareholders' Representative may
be filled by approval of the holders of a majority in interest of the Escrow
Account. The Shareholders agree that any such action, if material to the rights
and obligations of the Shareholders in the reasonable judgment of the
Shareholders' Representative, shall be taken in the same manner with respect to
all Shareholders, unless otherwise agreed by each Shareholder. The appointment
of the Shareholders' Representative shall be deemed coupled with an interest and
shall be irrevocable, and Purchaser, Parent and any other Person may
conclusively and absolutely rely, without inquiry, upon any actions of the
Shareholders' Representative as the act of the Shareholders in all matters
referred to in this Agreement. The Shareholders' Representative shall not be
liable for any act done or omitted hereunder as Shareholders' Representative
while acting in good faith and in the exercise of reasonable judgment.
(b) The power of attorney granted in this section is not intended
to be a continuing power of attorney within the meaning of and governed by the
Substitute Decisions Act (Ontario) or any similar power of attorney under
equivalent legislation in any other jurisdiction (a "CPOA"). The execution of
this Agreement shall not terminate any such CPOA granted by any Shareholder
previously and shall not be terminated by the execution by that Shareholder in
the future of a CPOA, and each Shareholder hereby agrees not to take any action
in the future (other than as expressly permitted by this section) which results
in the termination of this power of attorney.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year herein above first written.
CITYSEARCH CANADA, INC.,
an Ontario corporation
By:
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Name:
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Title:
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TICKETMASTER ONLINE-CITYSEARCH, INC.,
a Delaware corporation
By:
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Name:
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Title:
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RESERVEAMERICA HOLDINGS, INC.,
an Ontario corporation
By:
-----------------------------------
Name:
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Title:
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SHAREHOLDERS:
By:
-----------------------------------
Name:
-----------------------------
By:
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Name:
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By:
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Name:
-----------------------------