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SHARE PURCHASE AGREEMENT
BETWEEN
Q-ZAR INC.
AND
SEIBU CORPORATION
MADE AS OF
FEBRUARY 12, 1996
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TABLE OF CONTENTS
PAGE
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ARTICLE 1
INTERPRETATION
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1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.3 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4 Inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.5 Knowledge of the Vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.8 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 2
SALE AND PURCHASE
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2.1 Purchase of Purchased Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Delivery of Purchased Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 3
PURCHASE PRICE
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3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Restrictions on and Sale and Transfer of Consideration Shares and Additional
Consideration Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Representations and Warranties Relating to the Vendor . . . . . . . . . . . . . . . . . . . 14
4.2 Representations and Warranties Relating to the Company . . . . . . . . . . . . . . . . . . 16
4.3 Survival of Representations, Warranties and Covenants of the Vendor . . . . . . . . . . . . 26
4.4 Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . 26
4.5 Survival of Representations, Warranties and Covenants of Purchaser . . . . . . . . . . . . 29
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ARTICLE 5
CERTAIN OTHER COVENANTS OF THE PARTIES
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5.1 Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Operations During Interim Period . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3 Consents to Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4 Exclusive Dealings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.5 TSE Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.6 Payment of Indebtedness of the Company . . . . . . . . . . . . . . . . . . . . . . . 32
5.7 Dealings Relating to Consideration Shares . . . . . . . . . . . . . . . . . . . . . . 32
5.8 Advances to Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 6
INDEMNIFICATION
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6.1 Indemnification by the Vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 Indemnification by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.3 Limitation on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 7
CLOSING CONDITIONS
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7.1 Conditions of Closing for the Benefit of the Purchaser . . . . . . . . . . . . . . . 34
7.2 Termination by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.3 Conditions of Closing for the Benefit of the Vendor . . . . . . . . . . . . . . . . . 37
7.4 Termination by Vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 8
CLOSING ARRANGEMENTS
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8.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.2 Closing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.3 Deliveries of the Vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.4 Deliveries of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 9
GENERAL
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9.1 Commissions, Legal Fees, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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9.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.7 Amendments and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.10 Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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SHARE PURCHASE AGREEMENT
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THIS AGREEMENT made as of February 12, 1996;
B E T W E E N:
Q-ZAR INC., a corporation incorporated under the laws of New
Brunswick (the "Purchaser")
OF THE FIRST PART
- and -
SEIBU CORPORATION, a corporation incorporated under the laws
of Texas (the "Vendor")
OF THE SECOND PART
WHEREAS:
1. The authorized capital of the Company consists of 10,000,000
Common Shares, of which 1,000,000 Common Shares are issued and outstanding and
fully paid and non-assessable;
2. The Vendor is the registered and beneficial owner of all of
the issued and outstanding Common Shares of the Company;
3. The Purchaser desires to purchase the Purchased Shares from
the Vendor, which Purchased Shares constitute all of the issued and outstanding
Common Shares of the Company, and the Vendor desires to sell and transfer the
Purchased Shares in exchange for the Consideration Shares and Additional
Consideration Shares;
4. Through franchisees the Company carries on the business of
operating family entertainment centers, under the names "Fun Time - World of
Entertainment" and "Fun Time Pizza", focused on children under 12 years of age,
with Master Franchise Development Licenses in Asia, the Middle East, South
America and North America;
5. The parties intend that the exchange of shares contemplated by
this Agreement shall be a tax free reorganization within the meaning of Section
368(a)(1)(B) of the Code and to that end, the Purchaser desires to purchase the
Purchased Shares from the Vendor, which constitute all of the issued and
outstanding Common Shares of the Company, and the Vendor
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desires to sell and transfer the Purchased Shares in exchange for the
Consideration Shares and the Additional Consideration Shares.
NOW THEREFORE in consideration of the premises and the mutual
covenants and agreements hereinafter contained, the parties agree as follows:
ARTICLE 1
INTERPRETATION
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1.1 DEFINITIONS
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In this Agreement and in the Schedules and recitals hereto,
and in any amendments hereto, unless the context otherwise requires, the
following words and phrases shall have the meanings set forth after them:
"ADDITIONAL CONSIDERATION SHARES" has the meaning ascribed
thereto in Section 3.1;
"AFFILIATE" means, with respect to any Person, any other
Person who directly or indirectly controls, is controlled by,
or is under direct or indirect common control with, such
Person, and without limiting the foregoing, shall include any
Person in like relation to an Affiliate. A Person shall be
deemed to control a Person if such Person possesses, directly
or indirectly, the power to direct or cause the direction of
the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise;
and the term "controlled" shall have a similar meaning;
"AGREEMENT" means this agreement and all Schedules and all
instruments supplemental hereto or in amendment or
confirmation hereof;
"ASSETS" means, in respect of any Person, the undertaking,
property and assets of such person of every kind and
description and wheresoever situated;
"AUDITED FINANCIAL STATEMENTS" means the audited financial
statements of the Company as at December 31, 1995 consisting
of a consolidated balance sheet as at December 31, 1995 and
consolidated statements of operation and changes in financial
position for the year then ended, copies of which are attached
hereto as Schedule 4.2(j);
"AVERAGE CLOSING PRICE PER SHARE" has the meaning ascribed
thereto in Section 3.1(a)(ii).
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"BOOKS AND RECORDS" means all books, records, books of
account, sales and purchase records, lists of suppliers and
customers, business reports and all other documents, files,
records, correspondence, and other data and information,
financial or otherwise, including all data and information
stored on computer-related media, research materials and
research and development files relating to the Company, the
Subsidiary or the Business or with respect to the Purchased
Shares; provided, however, that such term does not include any
projections, forecasts or unaudited financial statements
relating to the Company;
"BUSINESS" means the business carried on at the date hereof by
the Company and the Subsidiary which consists of operating
family entertainment centers, which include games and food
service focused on families with children under 12 years of
age. The Company currently conducts the Business with Master
Franchise Development Licenses in Asia, the Middle East, South
America and North America;
"BUSINESS DAY" means any day, other than a Saturday, Sunday or
statutory holiday, in Dallas, Texas;
"CANADIAN FILINGS" has the meaning ascribed thereto in Section
4.4(d);
"CINEMARK" means ENT Holdings, Inc., a Texas corporation;
"CINEMARK AGREEMENT" means the agreement dated May 16, 1995
among Cinemark USA, Inc., Cinemark Corporation, Cinemark, ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, the Vendor, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇ and the Company, a copy of which is attached hereto
as Schedule 4.2(z);
"CINEMARK CONVERTIBLE DEBT" means the $600,000 convertible
promissory note due May 16, 2005 issued by the Company to
Cinemark pursuant to the Cinemark Agreement in the form
attached hereto as Schedule 4.2(z);
"CINEMARK NOTE" means the 10% promissory note in the principal
amount of $200,000 due May 15, 1996 issued by the Company to
Cinemark pursuant to the Cinemark Agreement, a copy of which
is attached hereto as Schedule 4.2(z);
"CLOSING" means the completion of the purchase of the
Purchased Shares provided for in this Agreement;
"CLOSING DATE" means February 26, 1996 or such other date as
may be agreed to in writing between the Vendor and the
Purchaser;
"CODE" means the Internal Revenue Code of 1986, as amended;
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"COMMON SHARES" means shares of Common Stock of the Company;
"COMPANY" means Entertainment Technologies, Inc., successor by
merger to the operations of the Predecessor, and prior to the
merger, the Predecessor;
"COMPANY'S AUDITORS" means ▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.P., Certified
Public Accountants;
"CONFIDENTIAL INFORMATION" has the meaning ascribed thereto in
Section 5.1(b);
"CONSIDERATION SHARES" has the meaning ascribed thereto in
Section 3.1;
"CONTRACT" means any agreement, obligation, contract,
understanding, commitment, indenture or instrument, whether
written, oral or implied;
"EMPLOYEES" means all of the employees of the Company and the
Subsidiary whether salaried or otherwise employed by them
including, without limitation, those on any temporary lay-off,
leave of absence or sick leave at that time;
"EMPLOYMENT AGREEMENT" has the meaning ascribed thereto in
paragraph (l) of Section 7.1;
"ENCUMBRANCE" means any mortgage, charge, pledge, claim,
hypothecation, lien, encumbrance, restriction, option, right
of others or security interest of any kind, whether fixed or
floating, absolute, contingent or conditional;
"ENVIRONMENTAL LAWS" means all Laws relating in any way to the
environment, public or occupational health or safety or the
manufacture, processing, importation, handling, distribution,
use, transportation, storage, disposal or treatment of any
hazardous materials or substances;
"ENVIRONMENTAL ORDERS" means any Governmental Notices,
decisions, rules, or the like issued by any Governmental Body
relating to or pursuant to any Environmental Law;
"FTM LETTER AGREEMENT" means the letter agreement dated June
1, 1995, among the Company, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇▇ relating to the ownership of the Subsidiary, a copy of
which is attached hereto as Schedule 4.2(g);
"GAAP" means the US generally accepted accounting principles;
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"GOVERNMENTAL AUTHORIZATION" means any approval,
authorization, certificate, commitment, consent, franchise,
grant, license, order, permit, privilege, quota, registration
or right, or the like which may be issued or granted by any
Governmental Body;
"GOVERNMENTAL BODY" means any government, parliament,
legislature, regulatory authority, governmental department,
agency, commission, board, tribunal, crown corporation, or
court or other law, rule or regulation making entity having or
purporting to have jurisdiction on behalf of any nation or
state or province or other subdivision thereof or any
municipality, district or other subdivision thereof;
"GOVERNMENTAL NOTICE" means any citation, directive, order,
claim, litigation, investigation, notice, proceeding,
judgment, letter or other communication, written or oral,
actual or threatened, from any Governmental Body;
"INDEBTEDNESS" means, with respect to any Person, any
liability of any type or kind whatsoever, whether absolute,
contingent or otherwise;
"INTERIM PERIOD" means the period commencing on the date
hereof and ending at the Time of Closing;
"INTELLECTUAL PROPERTY" means Trade-Marks, Technology and all
copyrights, industrial designs and other industrial or
intellectual property of, or pertaining to, or used in
connection with the Business and all licenses, permissions,
agreements and other contracts and commitments relating to any
of the foregoing to which the Company or a Subsidiary is a
party;
"LAWS" means any and all applicable federal, provincial,
municipal or local laws, statutes, regulations, ordinances,
rules, guidelines, policies, notices, orders and directions or
other requirements of any government or political subdivision,
agency or instrumentality thereof, or of any court, tribunal
or similar body;
"MASTER FRANCHISE DEVELOPMENT LICENSES" means has the meaning
ascribed thereto in paragraph (r) of Section 4.2;
"MATERIAL ADVERSE CHANGE" means any change or other
circumstance or event which has had or could reasonably be
expected to have a material adverse effect on the condition
(financial or otherwise) of the Company, the Subsidiary and
the Business taken as a whole, having regard to its earnings,
liabilities, properties, operations and prospects;
"MATERIAL AGREEMENTS" has the meaning ascribed thereto in
paragraph (t) of Section 4.2;
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"PERMITS" means all Governmental Authorizations relating to or
required for the operation of the Company, the Subsidiary and
the Business;
"PERSON" means any individual, legal or personal
representative, partnership, company, corporation,
incorporated syndicate, unincorporated association, trust or
Governmental Body or any other entity however designated or
constituted and words importing "persons" have a similar
meaning;
"PERSONAL PROPERTY LEASES" has the meaning ascribed thereto in
paragraph (q) of Section 4.2;
"PREDECESSOR" means Funtime International, L.C., a Texas
limited liability Company merged with and into the Company
effective December 31, 1995;
"PREMISES LEASES" has the meaning ascribed thereto in
paragraph (p) of Section 4.2;
"PURCHASE PRICE" has the meaning ascribed thereto in Section
3.1;
"PURCHASED SHARES" has the meaning ascribed thereto in Section
2.1;
"PURCHASER" means Q-Zar Inc., the party of the first part;
"PURCHASER'S AUDITORS" means KPMG Peat Marwick ▇▇▇▇▇▇,
Chartered Accountants;
"PURCHASER'S COUNSEL" means Blake, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇;
"PURCHASER REPRESENTATIVES" has the meaning ascribed thereto
in Section 5.1(b);
"SCHEDULES" means the schedules attached to and forming part
of this Agreement and listed in Section 1.8;
"SECURITIES ACT" means the United States Securities Act of
1933, as amended;
"SCRIP CERTIFICATE" has the meaning ascribed thereto in
Section 3.1;
"SHAREHOLDER LOAN" means the $100,000 10% promissory note
originally due December 31, 1995, and amended to be due March
31, 1996, of the Company issued to ▇▇▇▇▇▇ ▇▇▇▇▇, copies of
which are attached hereto as Schedule 4.2(z);
"SUBSIDIARY" means Fun Time Pizza de Mexico, S.A. de C.V., a
company owned 50% by the Company;
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"SUNBELT NOTE" means the promissory note, dated July 13, 1995,
issued by the Company, in the original principal amount of
$205,692;
"TAX" means any tax, duty, excise, fee, impost, assessment,
deduction, charge or withholding tax including federal and
state sales tax, goods and services tax, land transfer tax,
property purchase tax, income taxes, business tax, capital
tax, and other provincial and federal taxes, municipal tax,
local tax, and all liabilities with respect thereto, including
without limitation any penalty and interest payable with
respect thereto;
"TECHNOLOGY" means all patterns, plans, designs, research and
other compilations of data, trade secrets and other
proprietary know-how and show-how, processes, production
techniques, production formulations, formulae, drawings, blue
prints, flow sheets, equipment and parts lists and
descriptions and related instructions, manuals, data, records
and procedures, all computer and data processing systems and
all software programs and computer support documentation
pertaining to or used in connection with the Business;
"TIME OF CLOSING" means 11:00 a.m. (Dallas Time) on the
Closing Date or such other time as may be agreed upon by the
parties hereto in writing;
"TRADE-MARKS" means all registered and unregistered
trade-marks, trade names, business names, brand names, brands,
designs, logos, identifying indicia and service marks
pertaining to or used in connection with the Business and all
registrations and applications relating thereto;
"TSE" means The Toronto Stock Exchange;
"U.S. FILINGS" has the meaning ascribed thereto in Section
4.4(d);
"VENDOR" means Seibu Corporation, the party of the second
part;
"VENDOR'S COUNSEL" means ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.; and
"WESTWOOD AGREEMENT" means the agreement dated [October 19],
1995 between the Company and Westwood pursuant to which the
Company has retained Westwood Capital to raise additional
capital for the Business, a copy of which is attached hereto
as Schedule 4.2(g).
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1.2 HEADINGS
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The division of this Agreement into Articles and Sections and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereto", "hereunder" and similar expressions mean and
refer to this Agreement. Unless something in the subject matter or context is
inconsistent therewith, references herein to articles or sections are to
articles and sections of this Agreement.
1.3 GENDER AND NUMBER
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In this Agreement words importing the singular number only
shall include the plural and vice versa and words importing the masculine
gender shall include the feminine and neuter genders and vice versa.
1.4 INCLUSION
---------
Where the word "including" or "includes" is used in this
Agreement it means "including (or includes) and without limitation".
1.5 KNOWLEDGE OF THE VENDOR
-----------------------
Reference herein to "the Vendor's knowledge" or "knowledge of
the Vendor" shall mean to the best of the knowledge, information and belief of
the Vendor after having made reasonable inquiries of the senior management and
operating personnel of the Company and after having reviewed such books,
records and information relating to the Business or with respect to the
Purchased Shares as is reasonable in the circumstances.
1.6 CURRENCY
--------
All references to currency herein are to lawful money of the
United States of America.
1.7 GOVERNING LAW
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(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and the laws of the United
States applicable thereunder.
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(b) The Purchaser hereby irrevocably consents to the
bringing of any legal action or proceedings against the Purchaser arising out
of this Agreement in any court of the State of Texas or any Federal Court of
the United States of America located in the City of Dallas, State of Texas, as
the Vendor may elect, and by execution and delivery of this Agreement, the
Purchaser hereby submits to and accepts with regard to any such action or
proceeding the jurisdiction of such courts. The Purchaser further irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Purchaser at the address set forth
below. In addition, the Purchaser does hereby irrevocably constitute Q-Zar
(USA) Inc., an Affiliate of the Purchaser with corporate offices at ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, its true and lawful attorney upon
which service of process may be served out of any of the aforementioned courts
in any action or proceeding arising out of or relating to this Agreement.
(c) Each of the parties hereto hereby irrevocably waives
any objection which it may now or hereafter have to the laying of the venue of
any suit, action or proceeding arising out of or relating to this Agreement in
the City of Dallas, State of Texas, and hereby further waives any claim that
the City of Dallas, State of Texas is not a convenient forum for any such suit,
action or proceeding.
1.8 SCHEDULES
---------
The following are the Schedules annexed hereto and
incorporated by reference and deemed to be part hereof:
Schedule 3.1 - Scrip Certificate
Schedule 3.2A - Notice of Sale of Shares by the Vendor
Schedule 3.2B - Instructions by the Purchaser to its Transfer Agent to Issue and Deliver Unlegended
Share Certificate(s)
Schedule 4.2(c) - Articles of Incorporation and By-laws of the Company
Schedule 4.2(e) - Subsidiaries and Investments
Schedule 4.2(g) - FTM Letter Agreement and Westwood Agreement
Schedule 4.2(j) - Audited Financial Statements
Schedule 4.2(n) - Intellectual Property
Schedule 4.2(p) - Premises Leases
Schedule 4.2(q) - Personal Property Leases
Schedule 4.2(r) - Master Franchise Development Agreements
Schedule 4.2(s) - Contracts
Schedule 4.2(w) - Employees
Schedule 4.2(x) - Employee Plans
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Schedule 4.2(z) - Copies of Shareholder Loan, the Cinemark Convertible Debt, the Cinemark Promissory
Note and the Cinemark Agreement
Schedule 4.2(ab) - Litigation
Schedule 4.2(ae) - Permits
Schedule 4.2(ai) - Customers and Suppliers
Schedule 4.2(an) - Schedule
Schedule 7.1(k) - Form of Opinion of Vendor's Counsel
Schedule 7.1(l) - Form of Employment Contract
Schedule 7.1(n) - Certificate
Schedule 7.3(i) - Form of Opinion of Purchaser's Counsel
ARTICLE 2
SALE AND PURCHASE
-----------------
2.1 PURCHASE OF PURCHASED SHARES
----------------------------
Subject to the terms and conditions hereof and based upon the
representations and warranties herein contained, the Purchaser agrees to
purchase 1,000,000 Common Shares (the "Purchased Shares") from the Vendor and
the Vendor agrees to sell, transfer and assign the Purchased Shares to the
Purchaser at the Time of Closing.
2.2 DELIVERY OF PURCHASED SHARES
----------------------------
At the Time of Closing, the Vendor shall deliver to the
Purchaser certificates representing all the Purchased Shares and will cause the
transfer of such shares to be duly and regularly recorded on the books of the
Company in the name of the Purchaser. All such share certificates shall be
fully transferable on the books of the Company and endorsed in blank for
transfer in a manner satisfactory to Purchaser's Counsel.
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ARTICLE 3
PURCHASE PRICE
--------------
3.1 PURCHASE PRICE
(a) The purchase price (the "Purchase Price") for the
Purchased Shares shall be $8,000,000 which shall be paid and satisfied by the
delivery by the Purchaser to the Vendor at the Closing of the following:
(i) a share certificate(s) registered in the name of the Vendor
representing 788,955 common shares of the Purchaser (the
"Consideration Shares"), which number of shares is equal to
the quotient obtained by dividing (x) $4,000,000 U.S. by (y)
an amount equal to the simple average of the U.S. dollar
equivalent of the closing price per share on the TSE of the
common shares of the Purchaser on each of the trading days on
which there was a closing price on the TSE during the period
from October 1, 1995 to December 31, 1995 converted from
Canadian to U.S. dollars based on the December 29, 1995 rate
of exchange, namely .7329 Canadian dollars to one U.S. dollar;
and
(ii) a scrip certificate (the "Scrip Certificate"), substantially
in the form of Schedule 3.1, registered in the name of Vendor
evidencing the Vendor's right to receive on December 16, 1996
additional common shares of the Purchaser (the "Additional
Consideration Shares") which number of shares shall be equal
to the quotient obtained by dividing:
(x) $4,000,000 U.S. by
(y) an amount equal to the greater of (A) the
minimum price per share set forth in the notice of
approval by the TSE of the issuance of the
Consideration Shares pursuant to this Agreement
converted from Canadian to U.S. dollars based on the
February 9, 1996 rate of exchange, namely .7290
Canadian dollars to One U.S. dollar or (B) $4.25 U.S.
or (C) the Average Closing Price Per Share (as
hereinafter defined). The Average Closing Price Per
Share shall mean one-half of the sum of (X) $5.38
U.S. (being the U.S. dollar equivalent of the closing
price per share of the common shares of the Purchaser
on the TSE on the date of this Agreement and (Y) an
amount equal to the simple average of the U.S. dollar
equivalent of the Closing Price Per Share on the TSE
of the common shares of the Purchaser on each of the
trading days on which there is a closing price on the
TSE during the 31 day period commencing November 11,
1996 and ending December 11, 1996 converted from
16
- 12 -
Canadian to U.S. dollars based on the November 26,
1996 rate of exchange of Canadian dollars to U.S.
dollars;
(iii) Immediately after December 11, 1996, the Purchaser shall
calculate the number of Additional Consideration Shares to be
issued to the Vendor in accordance with the foregoing
provisions of this Section 3.1, provide a copy of such
calculations to the Vendor and instruct its transfer agent,
Equity Transfer Services Inc., to issue and deliver to the
Vendor a share certificate(s) registered in the name of the
Vendor representing the Additional Consideration Shares on
December 16, 1996 upon delivery of the Scrip Certification for
cancellation. In the event that the Vendor and the Purchaser
are unable within a period of two days following receipt of
such calculations by the Vendor to agree upon the number of
Additional Consideration Shares issuable pursuant to this
Agreement, the issue as to the number of Additional
Consideration Shares shall be referred to an independent
internationally recognized accounting firm selected by the
Purchaser's Auditors or in the absence of any selection within
such two day period, by a firm selected by the Vendor and the
decision of such accounting firm shall be binding on the
parties hereto.
(iv) If any of the events set forth in ANNEX I of the Scrip
Certificate shall occur at any time or from time to time prior
to the issuance of the Additional Consideration Shares, the
Purchaser shall negotiate with the Vendor in good faith
appropriate adjustments in the Additional Consideration Shares
and the number thereof issuable pursuant to this Agreement and
the Share Certificate. In the event that the Vendor and the
Purchaser are unable within a period of 30 days following the
occurrence of any such event to agree upon such adjustments,
the issue of appropriate adjustments to the Additional
Consideration Shares and the number thereof issuable shall be
referred to an independent internationally recognized
accounting firm selected by the Purchaser's Auditors or in the
absence of any selection within such 30 day period, by a firm
selected by the Vendor, and the decision of such accounting
firm shall be binding on the parties hereto.
(b) Certificates representing the Consideration Shares
and the Additional Consideration Shares will bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE ▇▇▇
▇▇
- ▇▇ -
▇▇▇▇▇▇ ▇▇▇▇▇▇ IN ACCORDANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER, IF AVAILABLE, OR (D) IN COMPLIANCE WITH CERTAIN
OTHER PROCEDURES SATISFACTORY TO THE CORPORATION. DELIVERY OF
THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A
NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL
CONSTITUTE "GOOD DELIVERY" MAY BE OBTAINED FROM EQUITY
TRANSFER SERVICES INC. UPON DELIVERY OF THIS CERTIFICATE AND
A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO EQUITY
TRANSFER SERVICES INC. AND THE CORPORATION TO THE EFFECT THAT
THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE
IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT.
3.2 RESTRICTIONS ON AND SALE AND TRANSFER OF CONSIDERATION SHARES
-------------------------------------------------------------
AND ADDITIONAL CONSIDERATION SHARES
-----------------------------------
(a) The Purchaser covenants and agrees to use all reasonable
efforts to ensure that the Consideration Shares and the Additional
Consideration Shares are free and clear of any hold or escrow provision imposed
by the TSE or applicable Canadian law or otherwise after the expiration of six
months following the Closing Date.
(b) The Vendor covenants and agrees not to sell any Consideration
Shares during the period of six months following the Closing Date; provided,
however, that the Vendor shall have the power to pledge the Consideration
Shares prior to the expiration of such six month period, provided that any
pledgee of the Consideration Shares agrees, in the event of foreclosure of such
Consideration Shares, to hold such shares until the expiration of such six
month period.
(c) After the expiration of six months from the Closing Date and
immediately after receipt from the Vendor of a notice from the Vendor to the
Purchaser at any time and from time to time in the form of Schedule 3.3A to the
effect that the Vendor intends to sell Consideration Shares or Additional
Consideration Shares on the Toronto Stock Exchange, the Purchaser shall execute
and deliver a letter to the Vendor with a copy thereof to the transfer agent
for the Purchaser, Equity Transfer Services Inc., in the form of Schedule 3.3B
to the effect that the Vendor is entitled to receive a new share certificate(s)
representing the number of Consideration Shares or Additional Consideration
Shares to be sold by the Vendor free and clear of any legend
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or other restriction whatsoever and registered in the name of the Vendor and
instructing the transfer agent for the Purchaser to issue and deliver to the
Vendor such a new share certificate(s) upon surrender of a share certificate(s)
representing Consideration Shares or Additional Consideration Shares.
(d) The Vendor agrees not to sell, dispose of or in any way
encumber the Consideration Shares without the approval of each of ▇▇▇▇▇▇ ▇▇▇▇▇
and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ at any time prior to December 31, 1996.
(e) The Vendor agrees to vote the Consideration Shares and the
Additional Consideration Shares held by the Vendor as directed by ▇▇▇▇▇▇ ▇▇▇▇▇
until December 31, 1996.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 REPRESENTATIONS AND WARRANTIES RELATING TO THE VENDOR
-----------------------------------------------------
The Vendor hereby represents and warrants to the Purchaser as
follows and acknowledges that the Purchaser is relying on these representations
and warranties in connection with the entering into of this Agreement and the
transactions contemplated hereunder:
(a) Incorporation and Power. The Vendor is a corporation duly
incorporated under the laws of Texas and is duly organized and
validly subsisting in good standing under such laws. The
Vendor has the corporate power and authority to execute and
deliver this Agreement and all other agreements and
instruments to be executed by it as contemplated by this
Agreement and to carry out the transactions and perform its
obligations provided for in this Agreement and in those other
agreements and instruments. The execution and delivery of
this Agreement and such other agreements and instruments and
the consummation of the transactions contemplated by this
Agreement and such other agreements and instruments have been
duly and validly authorized by all necessary corporate action
on the part of the Vendor.
(b) Enforceability of Obligations. This Agreement constitutes a
valid and binding obligation of the Vendor enforceable against
it in accordance with its terms subject, however, to the
limitations with respect to enforcement imposed by law in
connection with bankruptcy, insolvency, re-organization or
other laws affecting creditors' rights generally, including
the availability of equitable remedies, such as specific
performance and injunction which are only available in the
discretion of the court from which they are sought.
19
- 15 -
(c) Ownership of Shares. The Vendor is the sole and beneficial
owner, and the holder of record, of the Purchased Shares, has
good and marketable title thereto, free and clear of any and
all Encumbrances and has the exclusive right to sell, transfer
and assign the Purchased Shares.
(d) No Agreement to Sell Shares and No Options. There is no
Contract, option or any other right of any person binding the
Vendor to sell, transfer, pledge, charge, mortgage or in any
other way dispose of or encumber any of the Purchased Shares
other than pursuant to the provisions of this Agreement. The
Purchased Shares are not subject to any voting trust,
shareholder agreement or voting agreement.
(e) No Violation. The execution and delivery of this Agreement by
the Vendor and all other agreements required to be delivered
by it hereunder and the performance of the transactions
contemplated hereby and thereby will not result in: (i) the
violation of any of the terms or provisions of the articles of
incorporation or by-laws of the Vendor or of any Contract to
which the Vendor may be a party or by which it is bound; or
(ii) the creation of any Encumbrance on the Purchased Shares.
(f) Government Approvals. No governmental, regulatory or other
authorization, approval, order, consent or filing is required
on the part of the Vendor in connection with the execution,
delivery and performance of this Agreement or any other
agreement to be delivered hereunder by the Vendor and the
consummation by the Vendor of the transactions contemplated
hereby.
(g) Investment Intent. The Vendor is acquiring the Consideration
Shares and the Additional Consideration Shares for its own
account for investment and not with a view to, or for sale or
other disposition in connection with, any distribution of all
or any part thereof in the United States of America, except in
compliance with applicable United States federal and state
securities laws.
(h) Investment Experience. The Vendor acknowledges that it has
significant experience in the operation and franchising of
domestic and international family entertainment
establishments. In addition, the Vendor acknowledges that it
is able to fend for itself, can bear the economic risk of its
investment in the Consideration Shares and Additional
Consideration Shares and has such knowledge and experience of
financial and business matters that it is capable of
evaluating the merits and risks of an investment in the
Consideration Shares and Additional Consideration Shares. The
Vendor represents that it has not been organized for the
purpose of acquiring the Consideration Shares and Additional
Consideration Shares and has total assets in excess of
$5,000,000.
20
- 16 -
(i) Restricted Securities. The Vendor understands that the
Consideration Shares and Additional Consideration Shares have
not been, and will not be, registered in the United States
pursuant to the Securities Act or any applicable state
securities laws, that the Consideration Shares and the
Additional Consideration Shares will be characterized as
"restricted securities" under United States federal securities
laws, and that under such laws and applicable regulations the
Consideration Shares and the Additional Consideration Shares
cannot be sold or otherwise disposed of in the United States
without registration under the Securities Act or an exemption
therefrom.
(j) Independent Investigation. The Vendor hereby acknowledges and
affirms that it has completed its own independent
investigation and analysis of the publicly available
information with respect to the Purchaser and that in making
its decision to enter into this Agreement and to consummate
the transactions contemplated hereby it has relied solely on
(i) its own independent investigation, analysis and evaluation
of such publicly available information, (ii) the U.S. Filings
(iii) the Canadian Filings and (iv) the representations and
warranties of the Purchaser contained herein.
4.2 REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY
------------------------------------------------------
The Vendor hereby represents and warrants to the Purchaser as
follows and acknowledges that the Purchaser is relying upon these
representations and warranties in connection with the entering into of this
Agreement and the transactions contemplated hereunder:
(a) Incorporation and Power. Each of the Company and the
Subsidiary is a corporation duly incorporated under the laws
of its jurisdiction of its incorporation and is duly organized
and validly subsisting in good standing under such laws. Each
of the Company and its Subsidiary has the corporate power and
authority and is qualified to own, lease, dispose of or own
its Assets and to carry on the Business in all jurisdictions
in which it carries on its Business as presently carried on
except for jurisdictions in which the failure to be so
qualified would not, individually or in the aggregate have a
material adverse effect on the Business of the Company and the
Subsidiary.
(b) [Intentionally omitted]
(c) Articles of Incorporation and By-Laws. Attached hereto as
Schedule 4.2(c) are true and complete copies of the articles
of incorporation and by-laws of the Company, such articles of
incorporation and by-laws are in full force and effect and no
amendments have been made thereto. The Purchaser has been
provided with true and complete copies of the articles of
incorporation and by-laws of the
21
- 17 -
Subsidiary, such articles of incorporation and by-laws are
in full force and effect and no amendments have been made
thereto.
(d) Authorized and Issued Capital. The authorized capital of the
Company consists of 10,000,000 Common Shares, of which
1,000,000 Common Shares (and no more) have been duly issued
and are outstanding as fully paid and non-assessable shares.
The Purchased Shares constitute all of the issued and
outstanding Common Shares in the capital of the Company.
(e) Subsidiary. Schedule 4.2(e) attached hereto lists (i) the
jurisdiction and year of incorporation of the Subsidiary and
the jurisdiction(s) in which the Subsidiary carries on
business, (ii) the authorized and issued share capital of the
Subsidiary, and (iii) particulars of the registered and
beneficial owners of the issued shares of the Subsidiary.
Fifty percent of the outstanding shares in the capital of the
Subsidiary by Corporations are beneficially owned by and
registered in the name of the Company with good and marketable
title free and clear of all mortgages, liens, charges,
security interests, adverse claims, pledges, encumbrances and
demands whatsoever.
(f) Corporate Records and Minute Books. The minute books of the
Predecessor, the Company and of the Subsidiary, which have
been provided to the Purchaser, contain complete and accurate
copies of the articles of incorporation of the Company and the
Subsidiary and contain minutes of all meetings of the
directors and shareholders of the Company and of the
Subsidiary held to date since their respective incorporations;
all such meetings have been duly called and held and the share
certificate books, register of shareholders, register of
transfers, and registers of the directors of the Company and
of the Subsidiary are complete and accurate.
(g) No Agreement to Sell Shares and No Options. Except for the
Cinemark Convertible Debt, the FTM Letter Agreement and the
Westwood Agreement, no Person has any Contract or option or
any right or privilege (whether by law, pre-emptive right or
Contract) capable of becoming a Contract, including
convertible securities, warrants or convertible obligations of
any nature, for any purchase, subscription, allotment or
issuance of any shares (including the Common Shares) or any
other securities of the Company or of the Subsidiary. True
and complete copies of the FTM Letter Agreement and the
Westwood Agreement are attached hereto as Schedule 4.2(g).
(h) No Repurchase, Redemption, Etc. There are no outstanding
Contracts of the Company or the Subsidiary to repurchase,
redeem or otherwise acquire any of the outstanding shares
(including the Common Shares) of the Company and the
Subsidiary or restricting their ability to issue securities.
22
- 18 -
(i) Subsidiary and Investments. Except as shown in Schedule
4.2(e), neither the Company nor the Subsidiary owns, nor since
August 31, 1995 owned, directly or indirectly, any interest or
investment (whether equity or debt) in any Person. Neither
the Company, nor the Subsidiary, has any agreements of any
nature to acquire any such investments or to acquire or lease
the business property or assets of any Person out of the
ordinary course of business.
(j) Financial Statements. The Audited Financial Statements,
copies of which are attached hereto as Schedule 4.2(j), have
been prepared in accordance with GAAP applied on a consistent
basis (except as may be indicated in the notes thereto), and
the balance sheet contained in such Financial Statements,
fairly present the financial position of the Predecessor as at
December 31, 1995 and the statements of earnings and retained
earnings, fairly present the results of operations and changes
in financial positions for the period indicated.
(k) Books and Records. The Books and Records fairly and correctly
set out and disclose in all material respects the results and
the financial position of the Business, and all financial
transactions relating to the Business have been accurately
recorded in such Books and Records.
(l) Title to and Condition of Assets. Except as otherwise
disclosed herein and except for Encumbrances on personal
property incurred in the ordinary course of business, each of
the Company and, to the Vendor's knowledge, the Subsidiary now
has good and marketable title to all its Assets, free and
clear of any and all Encumbrances, except for such
imperfections or irregularities of title, if any, as (A) are
not substantial in character, amount or extent and do not
materially detract from the value of the property subject
thereto, (B) do not materially interfere with either the
present or intended use of such property, and (C) do not,
individually or in the aggregate, materially interfere with
the conduct of the Company's or the Subsidiary's normal
operations. To the knowledge of the Vendor, all of such
Assets are in reasonably good working condition, reasonable
wear and tear excepted.
(m) Accounts Receivable. All accounts receivable, book debts and
other debts due or accruing to the Company and to the Vendor's
knowledge the Subsidiary, are valid obligations which arose in
the ordinary course of business and are collectable subject to
an allowance for doubtful accounts taken in accordance with
GAAP and reflected in the Audited Financial Statements.
(n) Intellectual Property. Schedule 4.2(n) contains a complete
and accurate listing of all material Intellectual Property.
Except as specifically noted on Schedule 4.2(n), the
Intellectual Property and all registrations of the
Intellectual Property are valid and subsisting. To the
Vendor's knowledge, the Company and the
23
- 19 -
Subsidiary are the sole and exclusive owner of the
Intellectual Property, free and clear of any and all
Encumbrances, except for such Encumbrances that do not
individually, or in the aggregate, materially interfere with
the conduct of the Company's or the Subsidiary's normal
operations and without payment of any royalty or other fee and
the Intellectual Property and, to the Vendor's knowledge, the
conduct of the Business in connection with the Intellectual
Property does not infringe upon or breach the Intellectual
Property rights of any other Person. Except as disclosed on
Schedule 4.2(n), neither the Company nor, to the Vendor's
knowledge, the Subsidiary has received any notice challenging
their rights to the Intellectual Property and to the knowledge
of the Vendor there are no facts upon which such a challenge
could be made. There are no outstanding rights or licenses
granted to any Person to use the Intellectual Property other
than those set out in the Master Franchise Development
Agreements.
(o) Real Property. Neither the Company nor the Subsidiary own any
real property and nor are any of them a party to any Contract
or subject to any option capable of becoming a Contract for
the purchase of any real property, other than as disclosed on
Schedule 4.2(s).
(p) Leases of Real Property. Schedule 4.2(p) lists all material
leases of real property used in connection with the Business
or to which the Company or a Subsidiary is a party or by which
it is bound (the "Premises Leases"). Neither the Company nor
the Subsidiary is aware of any basis upon which the landlord
under any of the Premises Leases would be entitled to
terminate any such lease.
(q) Leases of Personal Property. Schedule 4.2(q) lists all
material leases of personal property used in the Business or
to which the Company or a Subsidiary is a party or by which it
is bound (the "Personal Property Leases").
(r) Master Franchise Development Agreements. Schedule 4.2(r)
lists all franchise agreements (the "Master Franchise
Development Agreements") between the Company, as franchisor,
and other Persons, as franchisees, relating to the operation
of the Business. Schedule 4.2(r) also contains a development
chart which sets out particulars of fees and royalties payable
by the franchisees under the Master Franchisee Development
Agreement and sites owned or to be opened by such franchisees.
Except as set forth on Schedule 4.2(r), the Company has not
received any written notices or letters citing any breach by
the Company of the Master Franchise Development Agreements or
any material dispute or disagreement between the Company and
any franchises.
(s) Contracts. Other than the Premises Leases, the Master
Franchise Development Agreements, the Personal Property Leases
and the Contracts set forth in Schedule 4.2(s), there are no
outstanding Contracts of any kind or nature whatsoever
24
- 20 -
relating to the Company or to the Subsidiary to which
it is a party or by which it is bound, that is material to the
Company, the Subsidiary or the Business. Schedule 4.2(s) sets
out the particulars of all correspondence and written material
to or from the Company and/or the Subsidiary and any
franchisee, any landlord of the Company, the Subsidiary or a
franchisee or Cinemark relating to any material dispute or
complaint other than disclosed herein. Except as set out in
Schedule 4.2(s), there are no disputes between the Company or
the Subsidiary and any franchisee, landlord or Cinemark.
(t) Contracts in Good Standing. The Purchaser has been provided
with true and accurate copies of the Premises Leases, the
Personal Property Leases, the Master Franchise Development
Agreements and the Contracts set out in Schedule 4.2(s)
(collectively, the "Material Agreements"). Except as set
forth on Schedule 4.2(s), each of the Material Agreements is
in full force and effect, unamended by oral or written
agreement and the Company and the Subsidiary, as the case may
be, is entitled to the full benefit and advantage of such
agreements in accordance with their respective terms. Except
as set forth on Schedule 4.2(s), neither the Company nor to
the Vendor's knowledge the Subsidiary is in default under, nor
in breach of, in any material respect, nor has it received any
notice of default or termination under any Material Agreement
to which it is a party or by which it is bound and there
exists no state of facts which after notice or lapse of time
or both would constitute such a default or breach, and all of
the Material Agreements are in good standing and the Company
or the Subsidiary, as the case may be, is entitled to all
benefits thereunder.
(u) Contracts Affected by Change of Control. Neither the Company
nor the Subsidiary is a party to or bound by any outstanding
Contract which requires the prior approval of any change of
control of the Company from the Vendor to the Purchaser
resulting from the transactions contemplated hereby.
(v) Employee Agreements. Neither the Company nor the Subsidiary
is a party to or bound by any employment agreement, sales
representative agreement, consulting agreement, collective
bargaining agreement or any other agreement or commitment with
any Employee or former employee, any labor or trade union or
employee association or employer's association, in connection
with or relating to the Business.
(w) Employees. Schedule 4.2(w) contains a complete and accurate
list of all Employees and sets forth for each Employee, the
position, salary, past salary history, years of service, date
of hire and particulars of all written reviews or reports made
with the six month period prior to the date of this Agreement
with respect to each employee. The Vendor has disclosed to
the Purchaser in writing all terms and conditions of
employment of the Employees, including details of
25
- 21 -
wages, salaries, vacation pay, bonuses, commissions and
all other benefits. None of the Employees is on long term
disability, on extended sick leave or receiving worker's
compensation benefits. All salaries, wages, vacation pay,
bonuses, commissions and other emoluments for or in respect of
the Employees have been paid or accrued in the Books and
Records. Notwithstanding the foregoing, there are no bonuses
presently accruing, due or payable to any of the Employees.
The Company and the Subsidiary are in compliance in all
material respects with all Laws respecting employment,
employment practices, pay equity terms and conditions of
employment, wages and hours and is not in arrears in the
payment of any wages, pension or other benefits or
contributions in respect thereof and no dispute or grievance
exists with respect thereto. All amounts withheld, required
to be withheld, paid or required to be paid prior to the Time
of Closing in respect of the Employees pursuant to any Law
including, without limitation, statutes relating to income and
other Taxes, unemployment insurance, employment standards,
health insurance, workers' compensation and statutory pension
plans have been withheld, paid, discharged or otherwise
settled by the Company and the Subsidiary.
(x) Employee Plans. Schedule 4.2(x) sets forth all the employee
benefit, health, welfare, supplemental unemployment benefit,
bonus, pension, profit sharing, executive compensation,
deferred compensation, stock compensation, stock purchase,
stock option, retirement, hospitalization insurance, medical,
dental, salary continuation, legal and disability insurance
and similar plans or arrangements or practices relating to the
Employees or former Employees which are currently maintained
or were maintained by the Company or the Subsidiary or with
respect to which the Company or the Subsidiary has any
liability or obligation (the "Employee Plans"). All of the
Employee Plans are and have been established, registered,
qualified, invested and administered, in all material
respects, in accordance with all Laws and with the terms of
such plans. All obligations regarding the Employee Plans have
been satisfied, there are no outstanding defaults or
violations by any party thereto and no Taxes, penalties or
fees are owing or exigible under any of the Employee Plans.
All contributions or premiums required to be made by the
Company or the Subsidiary under the terms of the Employee
Plans or in accordance with all Laws have been made in a
timely fashion and neither the Company nor the Subsidiary has,
and as of the Time of Closing will not have, any liability
(other than liabilities accruing after the Closing) with
respect to any of the Plans. No amendments have been made to
the Employee Plans and no improvements to the Employee Plans
have been promised and no amendments or improvements to the
Employee Plans will be made or promised prior to the Closing.
There have been no improper withdrawals or transfers of assets
from the Employee Plans or the funds relating thereto, and
none of the Vendor or the Company, or the Subsidiary, nor any
of their agents, has been in breach of any fiduciary
obligation with respect to the
26
- 22 -
administration of the Employee Plans or the funds
relating thereto. The Vendor has furnished to the Purchaser
true and complete copies of all the Employee Plans as amended
as of the date hereof together with all related documentation
(e.g. funding agreements, actuarial reports, funding and
financial information and plan summaries, booklets and
personnel manuals). All of the Employee Plans are fully
funded or fully insured on both an ongoing and solvency basis.
No insurance policy or any other contract or agreement
affecting the Employee Plans requires or permits a retroactive
increase in premiums or payments due thereunder. The level of
insurance reserves under each insured Employee Plan is
reasonable and sufficient to provide for all incurred but
unreported claims.
(y) No Guarantees, Etc. Neither the Company nor the Subsidiary is
a party to, or bound by, any Contract or guarantee,
indemnification, assumption or endorsement or any other like
commitment of the obligations (contingent or otherwise) or
Indebtedness of any other Person.
(z) Outstanding Securities and Indebtedness. Other than as
reflected in this Agreement or as set out in the Audited
Financial Statements, neither the Company nor the Subsidiary
has outstanding any Securities or Indebtedness and neither the
Company nor the Subsidiary is a party to any Contract to
create or issue any Securities or Indebtedness. True and
complete copies of the Shareholder Loan, the Cinemark
Convertible Debt and the Cinemark Promissory Note are attached
as Schedule 4.2(z).
(aa) Liabilities. The accounts payable and other debts and
liabilities of the Company and the Subsidiary have been
accounted for in accordance with GAAP and were created or
incurred in the ordinary course of business of the Company.
The Company does not have any liabilities, whether accrued,
absolute, contingent or otherwise, which are not disclosed
pursuant to this Agreement, other than liabilities incurred in
the ordinary course of business and liabilities which, in the
aggregate, are not material to the Company and the submission
considered as a whole.
(ab) No Litigation or Outstanding Judgments. Except as set forth
on Schedule 4.2(ab), there are no outstanding claims, actions,
suits, investigations or proceedings at law or equity or
before any Governmental Body existing or pending, and to the
knowledge of the Vendor, threatened against or relating to the
Company, the Subsidiary, the Business, the Assets of the
Company and the Subsidiary or the transactions contemplated by
this Agreement which, individually or in the aggregate, might
reasonably be expected to have a Material Adverse Effect on
the Company or the Subsidiary and to the knowledge of the
Vendor, there is no factual or legal basis which could give
use in the future to any such claim, action, suit,
investigation or proceeding. Copies of attorney responses to
27
- 23 -
auditor's requests for information on the matters
referred to in Schedule 4.2(ab) have been provided to the
Purchaser.
(ac) Taxes. All material returns and reports in respect of Taxes
required to be filed on or prior to the Closing Date by or
with respect to the Company or the Subsidiary have been filed
with the appropriate governmental authorities in all
jurisdictions in which such returns and reports are required
to be filed. All such returns and reports are true and
correct and complete and no assessments or re- assessments are
pending in connection therewith. All Taxes due and payable by
the Company or the Subsidiary in respect of all periods ending
on or prior to December 31, 1995 have been fully paid or
adequate provisions have been made on the books of the Company
for all Taxes payable by the Company in respect of all
taxation periods ending on or prior to the Time of Closing,
except Taxes that are being contested in good faith by
appropriate legal proceedings and for which adequate reserves
have been set aside in the Audited Financial Statements and
except for Taxes which have not been paid and the nonpayment
of which will not have a material adverse effect on the
Company.
(ad) Conduct of Business. Except as otherwise set forth on the
Schedules to this Agreement, since December 31, 1995, (a) each
of the Company and the Subsidiary have conducted the Business
in the ordinary course, and (b) other than as herein provided
or in the ordinary course of business, neither the Company nor
the Subsidiary has entered into any material agreements, made
any significant personnel changes, or granted any material
salary increases or bonuses, or disposed of any material
assets.
(ae) Government Authorities and Permits. To the Vendor's
knowledge, the Company and the Subsidiary have all necessary
Governmental Authorizations and Permits required to enable it
to carry on the Business as conducted by them and there are no
Governmental Authorizations or Permits which are material to
the conduct of the Business other than those of a routine
nature. All such Permits are listed in Schedule 4.2(ae). To
the Vendor's knowledge, there have been no material violations
of any Permit and no proceedings are pending or, to the
knowledge of the Vendor, threatened, which could result in the
revocation, cancellation, suspension or any adverse
modification or limitation thereof.
(af) General Compliance with Laws. The Company and the Subsidiary
have conducted and are conducting the Business in compliance
in all material respects with all applicable Laws and Permits
of each jurisdiction in which the Business is carried on, are
not in material breach of any such Laws or Permits and no
notice of any such material breach of any such Laws or Permits
has been received by any or all of the Company and the
Subsidiary.
28
- 24 -
(ag) Environmental Matters. To the Vendor's knowledge, the conduct
of the Company and the Subsidiary in carrying on the Business
has been and is in material compliance with all Environmental
Laws and Environmental Orders. Neither the Company nor to the
Vendor's knowledge the Subsidiary has ever received notice of,
or been prosecuted for, and to the knowledge of the Vendor,
there are no facts which could give rise to, material
non-compliance with any Environmental Laws or Environmental
Orders. There are no claims, actions, prosecutions, charges,
investigations, hearings or other proceedings or to the
Vendor's knowledge contemplated investigations or proceedings
of any kind in any court or tribunal or before any
Governmental Body, and no notice has been received by the
Company or to the Vendor's knowledge by the Subsidiary of any
such proceeding or contemplated proceeding, which alleges the
violation of or non-compliance with any Environmental Law or
Environmental Order. It being understood by the parties that
the Vendor makes no representation or warranty with respect to
Environmental Laws or Environmental Orders relating to or
affecting the operations of its franchisees and customers).
(ah) Insurance. The Company and the Subsidiary maintain such
polices of insurance issued by responsible insurers against
such risks as management of the Company considers adequate and
appropriate to the Business and such insurance coverage is in
full force and effect.
(ai) Customers and Suppliers. Schedule 4.2(ai) sets out the major
customers of the Company (being those customers of the Company
accounting for more than 5% of sales for the twelve months
ended December 31, 1995) and the major suppliers of the
Company (being those suppliers of the Company accounting for
more than 5% of purchases for the twelve months ended December
31, 1995). There has been no termination or cancellation of
and no modification or change in the Company's business
relationship with any major customer or supplier or group of
major customers or suppliers. Except as disclosed on Schedule
4.2(ai) to the knowledge of the Vendor, the benefits of any
relationship with any of the major customers or suppliers of
the Company will continue after the Closing Date in
substantially the same manner as prior to the date of this
Agreement.
(aj) Affiliated Transactions. Except as disclosed in the Audited
Financial Statements and for the Shareholder's Loan, there are
no outstanding advances, loan guarantees or agreements,
related to the Business between the Company or the Subsidiary
and any of its Affiliates, shareholders, officers, directors
or Employees, or with any Person not dealing at arm's length
with the Company.
(ak) Sale of Assets. Except for the FTM Letter Agreement, there is
no agreement, option or other right or privilege outstanding
in favor of any Person for the
29
- 25 -
purchase from the Company or the Subsidiary of the
Business or any of the Assets out of the ordinary course of
business.
(al) Absence of Certain Changes or Events. Except as set forth on
the Schedules to this Agreement and the Audited Financial
Statements since December 31, 1995, and except as otherwise
disclosed in this Agreement, neither the Company nor the
Subsidiary has:
(i) suffered any Material Adverse Change;
(ii) incurred additional debt, other than the advances
under the Circle Trade Services Agreement, for
borrowed money or any other Liabilities, except in
the ordinary course of business;
(iii) paid or settled any liabilities, claim, dispute,
proceeding, suit or appeal, pending or threatened
against it or any of its Assets or properties, except
in the ordinary course of business;
(iv) mortgaged, pledged, otherwise encumbered or subjected
to any Encumbrance any of the Assets;
(v) made any expenditure for the purchase, acquisition,
construction or improvement of a capital asset,
except in the ordinary course of business and the
aggregate amount of all such expenditures and
commitments made in the ordinary and usual course of
business has not exceeded $100,000;
(vi) entered into any transaction or contract, except in
the ordinary course of business or not involving an
amount in excess of $100,000;
(vii) changed its accounting methods or practices
(including, without limitation, any change in
depreciation or amortization policies or rates);
(viii) revalued any of its Assets;
(ix) increased the salary or other compensation payable to
or to become payable to any of its Employees, or
declared, paid or committed to pay bonus or other
additional salary or compensation to any Person
except in accordance with then current compensation
levels and practices;
(x) executed, created, amended or terminated any
contract, agreement or license to which it is a party
or by which its properties are bound, except in the
ordinary course of business;
30
- 26 -
(xi) directly or indirectly declared or paid any
dividends, or declared or made any other distribution
on any of its shares of any class, and has not
directly or indirectly redeemed, purchased or
otherwise acquired any of its shares of any class or
agreed to do so;
(xii) made any loan to any Person or guaranteed any loan;
and
(xiii) agreed or committed to do any of the matters
described in the preceding subparagraphs (i) through
(xii) of this Section.
(am) Correctness of Provided Information. All of the information,
including without limitation, the financial, marketing and
sales and operational information on a historical basis, which
has been provided to the Purchaser in respect of the Business
and the Company and of the Subsidiary is true and correct in
all material respects and no material fact or facts have been
omitted therefrom which would make such information
misleading.
(an) Bank Accounts. Schedule 4.2(an) set forth the particulars of
all bank accounts and signing authorities in respect of such
bank accounts maintained by the Company and by the Subsidiary.
4.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
------------------------------------------------------------
VENDOR
------
(a) Representations and Warranties. The representations and
warranties of the Vendor set forth in Sections 4.1 and 4.2 shall survive the
Closing and, notwithstanding such Closing and any investigation made by or on
behalf of the Vendor, shall continue in full force and effect for the benefit
of the Purchaser for a period of 18 months from the Closing Date and shall
thereupon terminate and be of no further force or effect.
(b) Covenants. The covenants of the Vendor set forth in this
Agreement shall survive the completion of the sale and purchase of the
Purchased Shares herein provided for and, notwithstanding such completion,
shall continue in full force and effect for the benefit of the Purchaser in
accordance with the terms thereof.
4.4 REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
The Purchaser represents and warrants to the Vendor as follows
(and acknowledges that the Vendor is relying upon these representations and
warranties in connection with the entering into of this Agreement and the sale
of the Purchased Shares):
31
- 27 -
(a) Incorporation and Power. The Purchaser is a corporation duly
incorporated, organized under the laws of New Brunswick and
has all requisite right, power and authority to enter into,
execute and deliver this Agreement and all other agreements
required to be delivered by it hereunder and to perform its
obligations hereunder and thereunder. Subject to approval of
the Purchaser's Board of Directors, the entering into,
execution and delivery of this Agreement and all other
agreements to be delivered by the Purchaser, and the
performance of its obligations hereunder and thereunder have
been duly and validly authorized and approved by all necessary
corporate action on its part including but not limited to its
board of directors.
(b) Enforceability of Obligations. This Agreement has been
validly authorized, executed and delivered by the Purchaser,
and is a valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms
and all other agreements required to be delivered pursuant to
this Agreement including the Scrip Certificate when executed
and delivered by the Purchaser will be validly authorized,
executed and delivered and will thereupon be valid and legally
binding obligations of the Purchaser enforceable against it in
accordance with their respective terms, subject however, to
the limitations with respect to enforcement imposed by law in
connection with bankruptcy, insolvency, re- organization or
other laws affecting creditors' rights generally, including
the availability of equitable remedies, such as specific
performance and injunction which are only available in the
discretion of the court from which they are sought.
(c) Authorized and Issued Capital. The authorized capital of the
Purchaser consists of an unlimited number of common shares
without par value and 1,600,000 preferred shares of which
21,565,573 common shares and 1,515,000 preferred shares (and
no more) have been duly issued and are outstanding as fully
paid and non-assessable shares.
(d) Securities Laws Filings. The Purchaser has delivered to the
Vendor accurate and complete copies of (i) its quarterly
reports for each of the quarters ended June 30, 1995 and
September 30, 1995 filed with the TSE, (ii) its listing
application with the TSE dated June 27, 1995 ((i) and (ii),
collectively referred to as the "Canadian Filings"), (iii) its
Registration Statement on Form F-20 filed with the Securities
and Exchange Commission on February 12, 1996 and declared
effective on that date (the "US, Filings").
(e) Consents and Approvals. Except for the approval of the TSE of
this Agreement and the issue of the Consideration Shares and
the Additional Consideration Shares to the Vendor pursuant to
the terms hereof, no governmental regulatory or other
authorization, approval, order, consent or filing is required
on the part of the
32
- 28 -
Purchaser in connection with the execution, delivery
and performance of this Agreement or any other agreement to be
delivered hereunder by the Purchaser and the consummation by
the Purchaser of the transactions contemplated hereby.
(f) Correctness of Provided Information. All the information,
including without limitation, the financial, marketing and
sales and operational information on a historical basis, which
has been provided to the Vender in respect of the Purchaser's
operations and the Purchaser is true and correct in all
material respects.
(g) Consideration Shares. The Consideration Shares, the Scrip
Certificate and the Additional Consideration Shares to be
issued by Purchaser at the Closing will have been duly
authorized for issuance and, when issued and delivered by the
Purchaser in accordance with the provisions of this Agreement,
will be validly issued, fully paid and non-assessable. At the
Time of Closing, the Consideration Shares and the Additional
Consideration Shares will be duly listed on the TSE, subject
to official notice of issuance. The issuance of the
Consideration Shares and the Additional Consideration Shares
under this Agreement is not subject to any pre-emptive or
similar rights.
(h) Investment Intent. The Purchaser is acquiring the Purchased
Shares for its own account for investment and not with a view
to, or for sale or other disposition in connection with, any
distribution of all or any part thereof, in the United States
of America, except in compliance with applicable United States
federal and state securities laws.
(i) Investment Experience. The Purchaser acknowledges that it has
significant experience in the operation and franchising of
domestic and international family entertainment
establishments. In addition, the Purchaser acknowledges that
it is able to fend for itself, can bear the economic risk of
its investment in the Purchased Shares and has such knowledge
and experience of financial and business matters that it is
capable of evaluating the merits and risks of an investment in
the Purchased Shares. The Purchaser represents that it has
not been organized for the purpose of acquiring the Purchased
Shares.
(j) Restricted Securities. The Purchaser understands that the
Purchased Shares will not have been registered in the United
States pursuant to the Securities Act or any applicable state
securities laws, that the Purchased Shares will be
characterized as "restricted securities" under United States
federal securities laws, and that under such laws and
applicable regulations the Purchased Shares cannot be sold or
otherwise disposed of in the United States without
registration under the Securities Act or an exemption thereof.
33
- 29 -
(k) Absence of Certain Changes. Since September 30, 1995 there
has not been any material adverse change in the business,
assets, results of operation, condition (financial or
otherwise) or prospects of the Purchaser and its subsidiaries
considered as a whole.
(l) Independent Investigation. The Purchaser hereby acknowledges
and affirms that it has completed its own independent
investigation, analysis and evaluation of the Company and the
Subsidiary, that it has made all such reviews and inspections
of the Business, Assets, results of operations, condition
(financial or otherwise) and prospects of the Company and the
Subsidiary as it has deemed necessary or appropriate, and that
in making its decision to enter into this Agreement and to
consummate the transactions contemplated hereby it has not
relied on any forecasts, projections or unaudited financial
statements of the Company provided to the Purchaser by the
Company or the Vendor and has relied solely on (i) its own
independent investigation, analysis and evaluation of the
Company and the Subsidiary and (ii) the representations and
warranties of the Vendor and the Company contained herein.
(m) Additional Representations. For a period of three years
following the consummation of the transactions contemplated
hereby, the Purchaser will not cause the Company to issue
additional shares of the Company's stock that would result in
the Purchaser losing control of the Company within the meaning
of Section 368(c) of the Code. The Purchaser has no present
plan or intention after the consummation of the transactions
contemplated hereby to liquidate the Company, to merge the
Company with and into another corporation, or otherwise
dispose of the stock of the Company, or cause the Company to
sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C) of the Code. For
a period of three years following the consummation of the
transactions contemplated hereby, the Purchaser will cause the
Company to continue its historic business or use a significant
portion of its Assets in the Business.
4.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS OF
--------------------------------------------------------
PURCHASER
---------
(a) Representations and Warranties. The representations and
warranties of the Purchaser set forth in Section 4.4 shall survive the Closing
and, notwithstanding such Closing and investigation made by, or on behalf of,
the Vendor shall continue in full force and effect for the benefit of the
Vendor for a period of 18 months from the Closing Date and shall thereupon
terminate and be of no further force or effect.
(b) Covenants. The covenants of the Purchaser set forth in this
Agreement shall survive the completion of the sale and purchase of the
Purchased Shares herein provided for and,
34
- 30 -
notwithstanding such completion, shall continue in full force and effect for
the benefit of the Vendor in accordance with the terms thereof.
ARTICLE 5
CERTAIN OTHER COVENANTS OF THE PARTIES
--------------------------------------
5.1 INVESTIGATION AND AVAILABILITY OF DOCUMENTS AND RECORDS
-------------------------------------------------------
(a) During the Interim Period, the Vendor shall make available to
the Purchaser at the Company's premises all documents, and other data,
technical or otherwise, which are owned by or in the possession of the Vendor
or the Company or the Subsidiary at the date hereof, which relate to the
Business or the Company or the Subsidiary including without limitation, all
books, records, books of account, sales and purchase records, lists of
suppliers, lists of customers and clients, recipes and formulae, business
reports, plans and projections and all other documents, files, records,
correspondence and other data and information, financial or otherwise,
including without limitation, all data and information stored on magnetic tape
or other computer-related media. Up until the Closing, the Vendor and the
Company shall permit the Purchaser, its agents, including without limitation,
accountants, appraisers, advisors and other representatives, full and complete
access to the Company, the Assets, the Employees, title documentation,
Contracts, premises and Books and Records, and such other financial or
operating data or information with respect to the Company, the Subsidiary or
the Business for the purpose of investigating their affairs and each of the
Vendor and the Company shall cause the Company's Auditors to give the
Purchaser's Auditors during normal business hours, full and complete access to
the audit working papers of the Company's Auditors with respect to the
Financial Statements. The provision and review of such documentation and the
investigations made by or on behalf of the Purchaser shall not limit, waive or
diminish the scope of, or otherwise affect in any way the representations and
warranties made by the Vendor herein.
(b) The Purchaser agrees that all Confidential Information (as
defined below) shall be kept confidential by the Purchaser as required by this
Section; provided, however, that (i) any of such Confidential Information may
be disclosed to such directors, officers, employees and authorized
representatives of the Purchaser (collectively, for purposes of this Section,
"Purchaser Representatives") as need to know such information for the purpose
of evaluating the transactions contemplated hereby (it being understood that
such Purchaser Representatives shall be informed by the Purchaser of the
confidential nature of such information and shall be required to treat such
information confidentially), (ii) any disclosure of Confidential Information
may be made to the extent to which the Company consents in writing, and (iii)
Confidential Information may be disclosed by the Purchaser or any Purchaser
Representative to the extent that, in the opinion of counsel for the Purchaser
or such Purchaser Representative, the Purchaser or such Purchaser
Representative is legally compelled to do so, provided that, prior to making
such disclosure, the Purchaser or such Purchaser Representative, as the case
may be, advises and
35
- 31 -
consults with the Company regarding such disclosure and provided further that
the Purchaser or such Purchaser Representative, as the case may be, discloses
only that portion of the Confidential Information as is legally required. The
Purchaser agrees that none of the Confidential Information will be used for any
purpose other than in connection with the transactions contemplated hereby.
The term "Confidential Information", as used herein, means all information
obtained by or on behalf of the Purchaser from the Vendor or the Company
pursuant to this Section and all similar information obtained from the Vendor
or the Company by or on behalf of the Purchaser prior to the date of this
Agreement, other than information which (i) was or becomes generally available
to the public other than as a result of disclosure by the Purchaser or any
Purchaser Representative, (ii) was or becomes available to the Purchaser on a
non- confidential basis prior to disclosure to the Purchaser by the Vendor or
the Company or their respective representatives, or (iii) was or becomes
available to the Purchaser from a source other than the Vendor or the Company
and their respective representatives, provided that such source is not known by
the Purchaser to be bound by a confidentiality agreement with the Vendor or the
Company.
(c) If this Agreement is terminated pursuant to the terms
contained herein, the Purchaser shall promptly return, and shall use its
reasonable best efforts to cause all Purchaser Representatives to promptly
return, all Confidential Information to the Vendor or the Company without
retaining any copies thereof, provided that such portion of the Confidential
Information as consists of notes, compilations, analyses, reports or other
documents prepared by the Purchaser or Purchaser Representatives shall be
destroyed.
5.2 OPERATIONS DURING INTERIM PERIOD
--------------------------------
During the Interim Period, the Vendor shall cause the Company
and the Subsidiary:
(a) to carry on the Business in the ordinary and normal course;
(b) not to enter into any material Contracts or Contracts outside
of the ordinary course of business without the prior written
approval of the Purchaser;
(c) to maintain compensation payable, or to become payable, by the
Company, or the Subsidiary, to any Employee, or agent of the
Company, or the Subsidiary, at the levels on the date of this
Agreement except for wage and salary raises in the ordinary
course of business;
(d) to refrain from making any bonus, pension, retirement or
insurance payment or arrangement to or with any Employee or
agent of the Company, or the Subsidiary, except those that may
have accrued or which are payable in accordance with any
existing plan or arrangements;
36
- 32 -
(e) to refrain from making any changes to the Employee Plans or
Pension Plans, including without limitation changes to funding
levels; and
(f) to refrain from opening any new bank accounts or from changing
the signing authorities in respect of their existing bank
accounts.
5.3 CONSENTS TO CHANGE OF CONTROL
-----------------------------
The Vendor shall obtain, prior to the Closing Date, the
consents, if any, required by virtue of a change of control of the Company and
the Subsidiary pursuant to any Contract to which the Company or the Subsidiary
is a party or by which it is bound.
5.4 EXCLUSIVE DEALINGS
------------------
During the Interim Period, the Vendor shall not take any
action, directly or indirectly, to encourage, initiate or engage in discussions
or negotiations with, or provide any information to any Person, other than the
Purchaser and its designated and authorized representatives, concerning any
sale, purchase, merger or similar transaction involving the Company, the
Purchased Shares, or the Assets, save for transactions entered into in the
ordinary course of business or approved in writing by the Purchaser.
5.5 TSE APPROVALS
-------------
The Purchaser shall use its best efforts to obtain prior to
the Closing Date the consent of the TSE to the transactions provided for in
this Agreement and the issue of the Consideration Shares, the Scrip Certificate
and the Additional Consideration Shares to the Vendor in accordance with the
terms of this Agreement.
5.6 PAYMENT OF INDEBTEDNESS OF THE COMPANY
--------------------------------------
The Purchaser agrees to indemnify the Vendor, ▇▇▇▇▇▇ ▇▇▇▇▇ and
▇▇▇▇ ▇▇▇▇▇▇▇▇ from any loss or expense resulting from the failure of the
Company to pay any amounts due for the Cinemark Note and the Sunbelt Note of
the Company.
5.7 DEALINGS RELATING TO CONSIDERATION SHARES
-----------------------------------------
The Vendor agrees that until such time as the Additional
Consideration Shares are issued to the Vendor, the Vendor will not deal with
any of the persons listed below, or any of their Affiliates, with respect to
the sale or disposition of the Consideration Shares or with respect
37
- 33 -
to margining or lending against the security of the Consideration Shares
without the prior written consent of the Purchaser:
▇▇▇▇▇▇ Capital Corporation
Majendie Securities Ltd.
▇▇▇▇▇▇ & ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, Inc.
▇▇▇▇▇▇▇ & Co.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Any institution known by the Vendor to be a shareholder of the Purchaser
5.8 ADVANCES TO AFFILIATE
---------------------
The Vendor agrees to repay the outstanding receivable to the
Company as reflected in Note 2 of the Audited Financial Statements within 90
days of Closing.
ARTICLE 6
INDEMNIFICATION
---------------
6.1 INDEMNIFICATION BY THE VENDOR
-----------------------------
The Vendor agrees to indemnify and hold harmless the Purchaser
from and against all claims, actions, suits, losses, costs, damages, expenses
and liabilities including, reasonable legal fees, directly or indirectly
suffered by the Purchaser, as a result of or relating in any manner whatsoever
to:
(i) any breach of any covenant of the Vendor contained in
this Agreement; or
(ii) any breach of, or any inaccuracy in, any
representation or warranty by the Vendor under this
Agreement or any other agreement or instrument
executed and delivered pursuant to this Agreement.
6.2 INDEMNIFICATION BY THE PURCHASER
--------------------------------
The Purchaser agrees to indemnify and hold harmless the Vendor
from and against all claims, actions, suits, losses, costs, damages, expenses
and liabilities, including reasonable legal fees, directly or indirectly
suffered by the Vendor, as a result of or relating in any manner whatsoever to:
38
- 34 -
(i) any breach of any covenant of the Purchaser contained
in this Agreement; or
(ii) any breach of, or any or misrepresentation in, any
representation or warranty set forth by the Purchaser
under this Agreement or any other agreement or
instrument executed and delivered pursuant to this
Agreement.
6.3 LIMITATION ON INDEMNIFICATION
-----------------------------
(a) Neither the Vendor nor the Purchaser shall be
obligated to indemnify and reimburse the other for any amount due under this
Article 6 until the aggregate amount of damages resulting from, arising out of
or relating to matters for which an indemnified party is entitled to
indemnification under this Article 6 exceeds $100,000 and such amount shall not
be treated as a deductible against the indemnification obligations of the
indemnifying party.
(b) The aggregate indemnification obligations of either
party under this Article 6 shall not exceed $8,000,000.
ARTICLE 7
CLOSING CONDITIONS
------------------
7.1 CONDITIONS OF CLOSING FOR THE BENEFIT OF THE PURCHASER
------------------------------------------------------
The Purchaser shall not be obliged to purchase the Purchased
Shares and complete the transactions contemplated by this Agreement unless the
following terms and conditions, which are for the exclusive benefit of the
Purchaser and which may be waived by it in whole or in part, shall be performed
or complied with, or shall have transpired, prior to or at the Time of Closing:
(a) Representations and Warranties. The representations and
warranties of the Vendor contained in this Agreement shall be
true and correct in all material respects as of the date
hereof and on and as of the Time of Closing, with the same
force and effect as though such representations and warranties
were made on, and as of the Time of Closing.
(b) Performance of Terms. All of the terms and conditions of this
Agreement to be complied with or performed by the Vendor at or
before the Time of Closing shall have been complied with or
performed at or prior to the Time of Closing.
39
- 35 -
(c) No Material Adverse Change. During the Interim Period there
shall have been no Material Adverse Change.
(d) Consents and Authorizations. There shall have been obtained:
(i) all Government Authorizations, exemptions and certificates
from all appropriate Governmental Bodies as are required by
the Vendor to permit the transactions contemplated herein;
(ii) all consents and approvals from all applicable
governmental or regulatory authorities required by the
Purchaser to complete the transactions contemplated herein,
including, without limitation, the consent of the TSE to the
transactions contemplated by this Agreement and the issuance
of the Consideration Shares and the Additional Consideration
Shares to the Vendor as provided in Section 3.1; and (iii) all
consents required under any Contract to which the Company is a
party or by which it is bound by virtue of the transactions
contemplated by this Agreement.
(e) Approval from Board. The Board of Directors of the Purchaser
shall have approved the transactions contemplated by this
Agreement and the issue of the Consideration Shares and the
Additional Consideration Shares pursuant hereto.
(f) No Litigation. No action or proceeding shall be pending or
threatened by any Person or Governmental Body:
(i) to enjoin, restrict or prohibit the sale or purchase
of the Purchased Shares contemplated hereby; or
(ii) which may impose any condition on the consummation of
the transactions contemplated hereby.
(g) Due Diligence. As a result of its investigations carried out
pursuant to Section 5.1, the Purchaser shall have confirmed or
verified to its satisfaction, acting reasonably, the truth and
accuracy of the representations and warranties contained in
this Agreement.
(h) Receipt of Closing Documents. All documents required to be
delivered by each of the Vendor and ▇▇▇▇▇▇ ▇▇▇▇▇ pursuant to
this Agreement prior to or at the Time of Closing shall have
been delivered to the Purchaser prior to or at the Time of
Closing. The Purchaser shall be furnished with such
certificates or other instruments of the Vendor as the
Purchaser or the Purchaser's Counsel considers necessary to
effect the transfer of the Purchased Shares and to establish
that the terms, covenants and conditions contained in this
Agreement have been performed or complied with at or prior to
the Time of Closing.
40
- 36 -
(i) Good Title to Shares. The Purchaser shall have received a
stock certificate or certificate representing the Purchased
Shares, registered in the name of the Purchaser with
appropriate Stock powers expected by the Vendor.
(j) Directors. All of the directors of the Company other than
▇▇▇▇▇▇ ▇▇▇▇▇ shall have resigned, the number of directors of
the Company shall have changed to four directors and three
nominees of the Purchaser shall have been elected or appointed
to the board of directors of the Company.
(k) Opinion of Vendor's Counsel. The Purchaser shall have
received, at the Time of Closing, a favorable opinion of the
Vendor's Counsel, substantially in the form attached hereto as
Schedule 7.1(k).
(l) Employment Agreement. ▇▇▇▇▇▇ ▇▇▇▇▇ shall have entered into a
Memorandum of Agreement ("Employment Agreement") providing for
the employment by the Purchaser of ▇▇▇▇▇▇ ▇▇▇▇▇ effective as
of the Closing Date in substantially the form of Schedule
7.1(l). The parties acknowledge that the Employment Agreement
does not constitute consideration under this Agreement.
(m) Termination of Consulting Agreement. The Consulting Agreement
made as of June 1, 1995 between the Vendor and the Company
referred to in Schedule 4.2(s) shall have been terminated
without cost to the Company.
(n) Receipt of Officer's Certificate. A certificate of ▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇ in their personal capacity as to the
accuracy to the best of their knowledge after reasonable
inquiry of the representations of the Vendor in the form
attached hereto as Schedule 7.1(n).
(o) Shareholder's Loan. The Shareholder's Loan shall have been
repaid.
7.2 TERMINATION BY PURCHASER
------------------------
In the event that any condition in Section 7.1 shall not have
been performed or fulfilled on or prior to the Time of Closing, the Purchaser
in its sole discretion may either (a) terminate this Agreement by notice in
writing to the Vendor, in which event the Purchaser shall be released from all
obligations or all then remaining obligation as the case may be, under this
Agreement; or (b) waive compliance with any of such conditions without
prejudice to its right of termination in the event of non-fulfillment of any
other condition in whole or in part.
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7.3 CONDITIONS OF CLOSING FOR THE BENEFIT OF THE VENDOR
---------------------------------------------------
The Vendor shall not be obliged to complete the transaction
contemplated by this Agreement unless the following terms and conditions, which
are for the exclusive benefit of the Vendor and which may be waived by the
Vendor in whole or in part, shall be performed or complied with, or shall have
transpired, prior to or at the Time of Closing:
(a) Representations and Warranties. The representations and
warranties of the Purchaser contained in this Agreement shall
be true and correct in all material respects as of the date
hereof and on and as of the Time of Closing with the same
force and effect as though such representations and warranties
were made on and as of the Time of Closing.
(b) Performance of Terms. All of the terms, covenants,
obligations and conditions of this Agreement to be complied
with or performed by the Purchaser at or before the Time of
Closing, shall have been complied with or performed at or
prior to the Time of Closing.
(c) No Material Adverse Change. During the Interim Period there
shall have been no material adverse change with respect to the
Purchaser.
(d) Receipt of Closing Documents. All documents required to be
delivered by the Purchaser pursuant to this Agreement prior to
or at the Time of Closing shall have been delivered to the
Vendor prior to or at the Time of Closing. The Vendor shall
be furnished with such certificates or other instruments of
the Purchaser as the Vendor or the Vendor's counsel considers
necessary to effect the transfer of the Purchased Shares and
to establish that the terms, covenants and conditions
contained in this Agreement have been performed or complied
with at or prior to the Time of Closing.
(e) Good Title to and Ability to Sell Shares. The Vendor shall
have received a stock certificate or certificates representing
the Consideration Shares, and registered in the name of the
Vendor and duly executed by the Purchaser. The Consideration
Shares to be issued to the Vendor pursuant to this Agreement
shall have been approved for listing, subject to official
notice of issuance, by the TSE and a copy of such approval
shall be furnished to the Vendor at Closing. The Vendor shall
have received the Scrip Certificate which shall be registered
in the name of the Vendor and duly executed by the Purchaser.
The Additional Consideration Shares shall have been approved
for listing, subject to official notice of issuance, to the
TSE and a copy of such approval shall be furnished to the
Vendor at Closing. The Vendor shall also have received such
assurance from the TSE or otherwise as it deems reasonably
satisfactory to the effect that the Consideration Shares will
be fully and freely tradeable and saleable by the Vendor on
the TSE
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upon the expiration of six months following the Closing
Date without any limitation, restriction or condition and that
the Additional Consideration Shares will be fully and freely
tradeable and saleable by the Vendor on the TSE upon issuance
of the Additional Consideration Shares, without any
limitation, restriction or condition.
(f) Consents and Authorizations. There shall have been obtained
(i) all Governmental Authorizations, exemptions and
certificates from all appropriate Governmental Bodies as are
required by the Purchaser to permit the transactions
contemplated herein, and (ii) all approvals from the TSE and
other regulatory authorities required by the Purchaser to
issue the Consideration Shares, the Scrip Certificate and the
Additional Consideration Shares to the Purchaser as provided
in Section 3.1.
(g) No Litigation. No action or proceeding shall be pending or
threatened by any Person or Governmental Body:
(i) to enjoin, restrict or prohibit the sale or
purchase of the Purchased Shares contemplated
hereby; or
(ii) which may impose any condition on the
consummation of the transactions contemplated
hereby.
(h) Opinion of Purchaser's Counsel. The Vendor shall have
received, at the Time of Closing, a favorable opinion of
Purchaser's Counsel, substantially in the form attached as
Schedule 7.3(i). The Vendor shall have also received, at the
Time of Closing, a letter, in form acceptable to the Vendor,
from ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ of Toronto, Canada, special
Canadian counsel for the Vendor to the effect that the Vendor
is justified in relying on the portions of the foregoing
opinion of Purchaser's counsel relating to the listing of the
Consideration Shares and the Additional Consideration Shares
on the TSE and the sale and trading of the Consideration
Shares and the Additional Consideration Shares by the Vendor
on the TSE.
(i) Employment Agreement. The Purchaser shall have entered into
the Employment Agreement. The parties acknowledge that the
Employment Agreement does not constitute consideration under
this Agreement.
7.4 TERMINATION BY VENDOR
---------------------
In the event that any condition in Section 7.3 shall not have
been performed or fulfilled on or prior to the Time of Closing Vendor in its
sole discretion may, without
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limiting any rights or remedies otherwise available at law or equity either (a)
terminate this Agreement by notice in writing to the Purchaser, in which event
the Vendor shall be released from all obligations or all then outstanding
obligations as the case may be, under this Agreement; or (b) waive compliance
with any of such conditions without prejudice to its right of termination in
the event of non-fulfillment of any other condition in whole or in part.
ARTICLE 8
CLOSING ARRANGEMENTS
--------------------
8.1 CLOSING. The closing of the transactions provided for in this
Agreement shall be completed at the Time of Closing, at the office of ▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇, P.C., ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇, or at such
other place as may be agreed upon by the Purchaser and the Vendor.
8.2 CLOSING PROCEDURES
------------------
At or before Closing, the Vendor and the Purchaser shall take,
or cause to be taken, all actions, steps, proceedings, necessary or desirable
to validly and effectively approve or authorize the completion of the
transactions contemplated by this Agreement and the instruments executed, or to
be executed, and delivered under this Agreement.
8.3 DELIVERIES OF THE VENDOR
------------------------
Upon fulfillment of all of the conditions set forth in Section
7.3 which have not been waived, as provided in Section 7.3, the Vendor shall at
the Closing deliver or cause to be delivered to the Purchaser all documents
required to be delivered under the Agreement, including:
(a) share certificates or other documents of title representing
the Purchased Shares, in accordance with Section 2.2;
(b) a certified copy of the resolution of the Vendor authorizing
the transfer of the Purchased Shares;
(c) a certificate of the Vendor, to the effect that:
(i) during the Interim Period, there has been no Material
Adverse Change;
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(ii) all of the terms and conditions to be complied with
or performed by the Vendor at or prior to Closing
have been complied with or performed by the Vendor
and ▇▇▇▇▇▇ ▇▇▇▇▇ at or prior to Closing; and
(iii) the representations and warranties set forth in
Sections 4.1 and 4.2 are true and correct in all
material respects at and as of the Time of Closing
with the same force and effect as if such
representations and warranties were made at and as of
such time;
(d) resignations of the directors of the Company other than ▇▇▇▇▇▇
▇▇▇▇▇;
(e) a release from each director and shareholder of the Company,
in form satisfactory to Purchaser's Counsel, to the effect
that such Person releases all of his claims, actions,
liabilities, demands, suits, causes of actions and debts
whatsoever against the Company, whether as an officer,
director, shareholder, employee or otherwise;
(f) all necessary consents of the directors, shareholders or other
Persons which may be necessary under the articles of
incorporation or by-laws of the Company or any Contracts or
otherwise to enable the Purchased Shares to be transferred to
the Purchaser;
(g) the Employment Agreement executed by ▇▇▇▇▇▇ ▇▇▇▇▇;
(h) the Certificate of ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇ referred to
in Section 7.1(n).
(i) the opinion of the Vendor's Counsel, satisfactory in form and
substance to the Purchaser; and
(j) all other agreements, documents, instruments and certificates
or evidence required or contemplated by this Agreement or as
Purchaser's Counsel considers reasonably necessary or
desirable to validly and effectively complete the transactions
contemplated by this Agreement.
8.4 DELIVERIES OF PURCHASER
-----------------------
Upon fulfillment of all of the condition set forth in Section
8.3 and upon fulfillment of all of the Conditions set forth in Section 7.1
which have not been waived as provided in Section 7.1, the Purchaser shall
deliver at the Closing or cause to be delivered to the Vendor all documents and
payments required to be delivered under this Agreement, including:
45
- 41 -
(a) share certificates representing the Consideration Shares
deliverable at the Closing required pursuant to Section 3.1;
(b) Scrip Certificate representing the Additional Consideration
Shares deliverable at the Closing required pursuant to Section
3.1;
(c) a certified copy of the resolutions of the Purchaser
authorizing the issue of the Consideration Shares, the
Additional Consideration Shares, and Scrip Certificate;
(d) a certificate of the Purchaser, to the effect that:
(i) all of the terms and conditions to be complied with
or performed by the Purchaser at or prior to Closing
having been complied with, or performed, by the
Purchaser at or prior to Closing; and
(ii) the representations and warranties set forth in
Section 4.4 are true and correct in all material
respects at and as of the Time of Closing with the
same force and effect as if such representations and
warranties were made at and as of such time;
(e) the Employment Agreement executed by the Purchaser;
(f) the opinion of the Purchaser's Counsel, satisfactory in form
and substance to the Vendor; and
(g) all other agreements, documents, instruments and certificates
or evidence required or contemplated by this Agreement or as
Vendor's Counsel considers reasonably necessary or desirable
to validly and effectively complete the transactions
contemplated by this Agreement.
ARTICLE 9
GENERAL
---------
9.1 COMMISSIONS, LEGAL FEES, ETC.
-----------------------------
Each of the parties hereto shall pay their respective fees,
costs and expenses incurred in connection with the transactions contemplated by
this Agreement and the preparation, execution and delivery of this Agreement
and all documents and instruments executed pursuant hereto and any other costs
and expenses whatsoever or howsoever incurred.
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9.2 DISCLOSURE
----------
Each of the Schedules to this Agreement shall be deemed to
include and incorporate all disclosures made on the other Schedules to this
Agreement. It is understood and agreed that the specification of any dollar
amount in the representations and warranties contained in this Agreement or the
inclusion of any specific item in the Schedules is not intended to imply that
such amounts or higher or lower amounts, or the items so included or other
items, are or are not material, and no party shall use the fact of the setting
of such amounts or the fact of the inclusion of any such item in the Schedules
in any dispute or controversy between the parties as to whether any obligation,
item, or matter not described herein or included in a Schedule is or is not
material for purposes of this Agreement.
9.3 FURTHER ASSURANCES
------------------
Each of the parties hereto shall with reasonable diligence do
all things and provide all reasonable assurances as may be required to complete
the transactions contemplated by this Agreement, and each of such parties shall
provide such further documents or instruments required by any other party as
may be reasonably necessary or desirable to give effect to this Agreement and
carry out its provisions, whether before or after the Closing.
9.4 PUBLIC ANNOUNCEMENTS
--------------------
Except as required by law, or the by-laws and rules of any
applicable stock exchange (in which case each party hereto shall use its
reasonable efforts to deliver to the other parties a copy of same before such
announcement is made), no public disclosure, or public announcement with
respect to this Agreement or any of the transactions contemplated hereby shall
be made by any party without the prior written consent of the other parties
hereto.
9.5 SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall enure to the benefit of and be binding
upon the respective successors and permitted assigns of the parties hereto.
9.6 ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes any
prior understandings and agreements, verbal or written, between the parties
hereto with respect thereto. There are no representations,
47
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warranties, terms, conditions, undertakings or collateral agreements, express,
implied or statutory, between the parties other than as expressly set forth in
this Agreement.
9.7 AMENDMENTS AND WAIVER
---------------------
No modifications of or amendments to this Agreement shall be
valid or binding unless set forth in writing and duly executed by all the
parties hereto and no waiver of any breach of any term or provision to this
Agreement shall be effective or binding unless made in writing and signed by
the party purporting to give the same and, unless otherwise provided, shall be
limited to the specific breach waived.
9.8 ASSIGNMENT
----------
Neither this Agreement nor any part thereof nor any rights or
obligations under this Agreement may be assigned by any of the parties hereto
without the written consent of each of the other parties.
9.9 NOTICES
-------
Any demand, notice or other communication to be given in
connection with this Agreement shall be given in writing and shall be given by
personal delivery, by registered mail or by electronic means of communication
addressed to the recipient as follows:
To the Purchaser:
Q-Zar Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
Lock ▇▇▇ ▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Mr. ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
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To the Vendor:
Seibu Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇. ▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address, individual or electronic communication number as may
be designated by notice given by any party to the others. Any demand, notice
or other communication given by personal delivery shall be conclusively deemed
to have been given on the date of actual delivery thereof and, if given by
registered mail, on the third Business Day following the deposit thereof in the
mail and, if given by electronic communication, on the day of transmittal
thereof if given during the normal business hours of the recipient and on the
Business Day during which such normal business hours next occur if not given
during such hours on any day. If the party giving any demand, notice or other
communication knows or ought reasonably to know of any difficulties with the
postal system which might affect the delivery of mail, any such demand, notice
or other communication shall not be mailed but shall be given by personal
delivery or by electronic communication.
9.10 INVALIDITY OF PROVISIONS
------------------------
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision hereof and any such invalid or unenforceable provisions shall be
deemed to be severable.
9.11 COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts,
each of which when executed and delivered is an original but all of which,
taken together, constitute one and the same instrument and any party may
execute this Agreement by signing any counterpart of it.
49
- 45 -
IN WITNESS WHEREOF the parties have executed this Agreement.
Q-ZAR INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇
----------------------------------
▇▇▇ ▇▇▇▇▇▇, President
SEIBU CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary