Exhibit 10.1
Draft: December 30, 2002
ALLIANCE ATLANTIS COMMUNICATIONS INC.
- and -
POINT.360
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SHARE PURCHASE AGREEMENT
________, 2003
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THIS SHARE PURCHASE AGREEMENT is made as of _______, 2003 BETWEEN:
Alliance Atlantis Communications Inc., a corporation governed by the
laws of Canada, ("AACI")
-and-
Point.360, a corporation governed by the laws of the State of
California, (the "Purchaser").
RECITALS:
A. AACI owns and controls all of the issued and outstanding shares of
Tattersall Casablanca Sound Inc., a corporation governed by the laws of the
Province of Ontario ("TCSI"), Calibre Digital Design Inc., a corporation
governed by the laws of the Province of Ontario ("CDI"), and ▇▇▇▇▇▇ Street
Digital Limited, a corporation governed by the laws of Canada ("SSDL",
collectively with TCSI and CDI, the "Purchased Companies").
B. AACI has agreed to sell to the Purchaser and the Purchaser has agreed to
purchase from AACI all of the issued and outstanding shares of the Purchased
Companies, on the terms and conditions of this Agreement.
THEREFORE, in consideration of the mutual covenants and agreements contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1 DEFINITIONS
Whenever used in this Agreement, the following words and terms shall
have the meanings set out below:
"AACI Accounts Receivable" shall have the meaning given to such term in
Section 9.9;
"Accounts Receivable" means any and all amounts which the Purchased
Companies have invoiced their respective customers for goods and services
actually sold or provided to them on credit in the ordinary course of business,
bills receivable, trade accounts, commissions receivable, book debts and
insurance claims recorded as receivable in the Books and Records of the
Purchased Companies and any other amount due to the Purchased Companies
including any refunds and rebates, and the benefit of all security (including
cash deposits), guarantees and other collateral held by the Purchased Companies;
"affiliate" shall have the meaning given to such term in the Canada
Business Corporations Act;
"Agreement" means this Share Purchase Agreement, including the
Disclosure Letter, all schedules, and all instruments supplementing or amending
or confirming this Agreement and references to "Article" or "Section" mean and
refer to the specified Article or Section of the Share Purchase Agreement;
"Alliance Atlantis Stock Option Plans" means the stock option plans as
disclosed in Part 4.19(c) of the Disclosure Letter;
"Audited Statements" means, for each of each of the Purchased Companies,
the audited balance sheet as of December 31, 2002, and a statement of operations
and a statement of cash flows for the year ended December 31, 2002, together
with all notes and the auditors' report thereon, all as prepared by
PricewaterhouseCoopers LLP;
"Bonuses" means the discretionary annual bonuses given to the Employees
pursuant to the Bonus Plans or pursuant to any Contract relating to the
Employees;
"Bonus Plans" means the Alliance Atlantis Management Bonus Plan and the
Alliance Atlantis Employee Bonus Plan;
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"Business Day" means a day, other than a Saturday or Sunday, on which
the principal commercial banks located in Toronto are open for business during
normal banking hours, and the principal commercial banks located in Los Angeles,
California, are open for business during normal banking hours;
"Claim" means any claim, demand, action, cause of action, damage, loss,
cost, liability or expense, including reasonable professional fees;
"Closing" means the completion of the sale to and purchase by the
Purchaser of the Purchased Shares under this Agreement;
"Closing Date" means the date the Parties may agree in writing as the
date upon which the Closing shall take place, which date shall be no later than
the 10th day following the date of the exercise of the Option (as that term is
defined in the Option Agreement), and in any event, no later than March 31,
2003;
"Closing Date Balance Sheet" shall have the meaning given in Section
3.2;
"Closing Time" means 10 o'clock a.m. Toronto time, on the Closing Date
or such other time on such date as the Parties may agree in writing as the time
at which the Closing shall take place;
"Contract" includes a lease, indenture, deed, contract, instrument,
undertaking or other agreement or binding commitment of any kind, whether
written or oral;
"control" has the meaning given in the Canada Business Corporations Act;
"Deposit" means the non-refundable deposit described in Section 2.1(b);
"Disclosure Letter" means the disclosure letter delivered by AACI to the
Purchaser concurrently with the execution and delivery of this Agreement;
"Employees" means all persons employed by the Purchased Companies;
"Encumbrances" means any pledge, lien, charge, security interest, lease,
title retention agreement, mortgage, easement, right-of-way, title defect,
option or adverse claim, or encumbrance of any kind or character whatsoever;
"Equipment Contracts" means all motor vehicle leases, equipment leases,
conditional sales contracts, title retention agreements and other similar
agreements relating to equipment used by the Purchased Companies;
"Fixed Asset Adjustment" shall have the meaning given in Section 3.3;
"Fixed Assets" means the fixed assets, machinery, equipment, fixtures,
furniture, furnishings, vehicles, computers, networking equipment and software
owned, leased, rented or licensed by the Purchased Companies;
"Government Tax Credit Receivables" means any tax credits or similar
receivables due from any Governmental Authority that remain outstanding as of
the Closing Date in respect of work performed prior to December 30, 2002;
"Governmental Authorities" means any government, regulatory authority,
governmental department, agency, commission, board, tribunal, crown corporation,
or court or other law, rule or regulation-making entity having jurisdiction on
behalf of any nation, or province or state or other subdivision thereof or any
municipality, district or other subdivision thereof;
"Indemnified Party" shall have the meaning given in Section 10.1;
"Indemnifying Party" shall have the meaning given in Section 10.1;
"Intellectual Property" shall have the meaning given in Section 4.15;
"Interim Services Agreement" means the services agreement between AACI
and the Purchaser dated July 3, 2002, as amended as of December 30, 2002;
"Knowledge" means the actual knowledge of a person after reasonable
investigation. When referring to the Purchaser, "knowledge" shall mean the
actual knowledge of the executive officers of the Purchaser who are identified
as executive officers of that company in the Purchaser's proxy statement
prepared for the annual meeting held on December 5, 2002. When referring to
AACI, "knowledge" shall mean the actual knowledge of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, and ▇▇▇▇▇▇ ▇▇▇▇▇. If any of ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇, or ▇▇▇▇▇▇ ▇▇▇▇▇ are no longer associated with their respective
Purchased Companies, "knowledge" shall mean the principal executive officer of
such Purchased Company on the date of this Agreement.
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"Laws" means all applicable laws, by-laws, rules, statutes, regulations,
decrees, orders, ordinances, protocols, codes, guidelines, policies, notices,
directions and judgments or other requirements of any Governmental Authority;
"Leased Real Property" means all premises which are leased, subleased,
licensed or otherwise occupied by the Purchased Companies and the interest of
each of the Purchased Companies in all plants, buildings, structures, fixtures,
erections, improvements, easements, rights-of-way and other appurtenances
situated on or forming part of such premises;
"Legal Proceedings" shall have the meaning given in Section 4.20;
"Material Adverse Effect" means, when used with reference to a Party or
a Purchased Company, a material adverse effect on the business, financial
condition, properties, profitability or operations of such Party or Purchased
Company.
"Material Contracts" means any Contract which any of the Purchased
Companies is a party to or bound by which (i) involves the performance of
services or the delivery of goods of any amount or value in excess of CAD
$10,000.00 or (ii) cannot be terminated on 60 days or less of notice;
"Material Equipment Contract(s)" shall have the meaning given in Section
4.16;
"Non-Disclosure Agreement" means the non-disclosure agreement entered
into by the Parties, dated as of June 6, 2002;
"Notice" shall have the meaning given in Section 11.3;
"Option Agreement" means the amended and restated option agreement
between the Purchaser and AACI dated as of December 30, 2002;
"Owned Real Property" means all freehold lands which are owned or
purported to be owned, in fee simple, by the Purchased Companies including all
plants, buildings, structures, fixtures, erections, improvements, easements,
rights-of-way, spur tracks and other appurtenances situated on or forming part
of such lands;
"Parties" means AACI and the Purchaser collectively, and "Party" means
any one of them;
"Party Claim" shall have the meaning given in Section 10.2;
"Permitted Encumbrances" means the Encumbrances listed in Part 4.4 of
the Disclosure Letter;
"Person" means any individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate, Governmental Authority, and a natural
person in such person's capacity as trustee, executor, administrator or other
legal representative;
"Purchased Companies' Books and Records" means all books and records of
the Purchased Companies or of AACI relating to the Purchased Companies,
including financial, corporate, operations and sales books, records, books of
account, sales and purchase records, list of suppliers and customers, formulae,
business reports, plans and projections. For greater certainty, books and
records of AACI which contain consolidated information aggregated at the parent
level relating to the Purchased Companies are not included in the meaning of
"Purchased Companies' Books and Records";
"Purchased Companies Intercompany Loans" shall have the meaning given in
Section 9.9;
"Purchase Price" shall have the meaning given in Section 3.1;
"Purchased Shares" means all of the issued and outstanding shares in the
capital of the Purchased Companies. If any additional shares of capital stock of
any of the Purchased Companies are issuable as a result of the contribution of
any Intercompany Loans to the Purchased Companies pursuant to Section
9.9(b)(iv), the term "Purchased Shares" shall include all such additional
shares;
"Real Property Leases" means those agreements to lease, leases,
subleases or licences or other occupancy rights pursuant to which the Purchased
Companies use or occupy the Leased Real Property, including all amendments and
supplements thereto;
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"Referee" shall have the meaning given in Section 3.2;
"Services Agreement" means the services agreement dated the date hereof,
pursuant to which AACI agrees to grant to the Purchaser and/or the Purchased
Companies a right of first refusal to perform for AACI certain post-production
work required by the Alliance Atlantis Entertainment Group;
"Stated Price" shall have the meaning given in Section 3.1;
"Tattersall Options" means the options to purchase some of the Purchased
Shares described in a buy-back option agreement dated as of April 1, 2000 among
AACI, Tattersall Sound Inc., Casablanca Sound & Picture Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
and others;
"Tax Returns" means all returns, reports, declarations, elections,
notices, filings, information returns and statements filed or required to be
filed in respect of Taxes;
"Taxes" means all taxes, duties, fees, premiums, assessments, imposts,
levies and other charges of any kind whatsoever imposed by any Governmental
Authority, together with all interest, penalties, fines, additions to tax or
other additional amounts imposed in respect thereof, including those levied on,
or measured by, or referred to as income, gross receipts, profits, capital,
transfer, land transfer, sales, goods and services, use, value-added, excise,
stamp, withholding, business, franchising, property, employer health, payroll,
employment, health, social services, education and social security taxes, all
surtaxes, all customs duties and import and export taxes, all license, franchise
and registration fees and all employment insurance, health insurance and Canada,
Quebec and other government pension plan premiums or contributions;
"Third Party" shall have the meaning given in Section 10.4;
"Third Party Claim" shall have the meaning given in Section 10.2; and
"Working Capital" for the Purchased Companies means (i) the sum of all
accounts receivable from parties other than AACI and its affiliates plus all
prepaid expenses, less (ii) all accounts payable to parties other than AACI and
its affiliates and all deferred revenues.
1.2 CERTAIN RULES OF INTERPRETATION
In this Agreement:
(a) Time - time is of the essence in the performance of the Parties'
respective obligations;
(b) Headings - descriptive headings of Articles and Sections are inserted
solely for convenience of reference and are not intended as complete or accurate
descriptions of the content of such Articles or Sections;
(c) Singular, etc. - use of words in the singular or plural, or with a
particular gender, shall not limit the scope or exclude the application of any
provision of this Agreement to such person or persons or circumstances as the
context otherwise permits;
(d) Calculation of Time - unless otherwise specified, time periods within
or following which any payment is to be made or act is to be done shall be
calculated by excluding the day on which the period commences and including the
day on which the period ends and by extending the period to the next Business
Day following if the last day of the period is not a Business Day;
(e) Currency - all amounts in this Agreement are stated and shall be paid
in lawful currency of the United States of America. Where currency is to be
converted from United States dollars to Canadian dollars, the rate to be used
will be the noon buying rate in the City of New York for cable transfers in
Canadian dollars as certified for customs purposes by the Federal Reserve Bank
of New York in effect on the relevant date (or the inverse of such rate if
appropriate);
(f) Business Day - whenever any payment is to be made or action to be taken
under this Agreement is required to be made or taken on a day other than a
Business Day, such payment shall be made or action taken on the next Business
Day following such day; and
(g) Inclusion - where the words "including" or "includes" appear in this
Agreement, they mean "including (or includes) without limitation".
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1.3 ENTIRE AGREEMENT
This Agreement together with the other documents to be delivered
pursuant to this Agreement, including the Services Agreement, constitute the
entire agreement between the Parties pertaining to the subject matter of this
Agreement and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties, including that certain
letter of intent between the Parties, dated June 20, 2002, that certain option
agreement dated July 3, 2002, and the Option Agreement. There are no warranties,
conditions or representations (including any that may be implied by statute),
and there are no agreements in connection with such subject matter, except as
specifically set forth or referred to in this Agreement. No reliance is placed
on any warranty, representation, opinion, advice or assertion of fact made
either prior to, contemporaneous with, or after entering into this Agreement, or
any amendment or supplement thereto, by any party to this Agreement or its
directors, officers, employees or agents, to any other party to the Agreement or
its directors, officers, employees or agents, except to the extent that the same
has been reduced to writing and included as a term of this Agreement, and none
of the Parties has been induced to enter into this Agreement or any amendment or
supplement by reason of any such warranty, representation, opinion, advice or
assertion of fact not included in this Agreement. Accordingly, there shall be no
liability, either in tort or in contract, assessed in relation to any such
warranty, representation, opinion, advice or assertion of fact, except to the
extent contemplated above.
1.4 INVALIDITY OF PROVISIONS
Each of the provisions contained in this Agreement is distinct and
severable and a declaration of invalidity or unenforceability of any such
provision or part thereof by a court of competent jurisdiction shall not affect
the validity or enforceability of any other provision hereof. To the extent
permitted by applicable law, the parties waive any provision of law which
renders any provision of this Agreement invalid or unenforceable in any respect.
1.5 MODIFICATION AND WAIVER
No supplement, modification or waiver or termination of this Agreement
shall be binding unless executed in writing by the Party to be bound thereby. No
waiver of any provision of this Agreement shall constitute a waiver of any other
provision nor shall any waiver of any provision of this Agreement constitute a
continuing waiver unless otherwise expressly provided.
1.6 APPLICABLE LAW; JURISDICTION
This Agreement shall be construed in accordance with the laws of the
Province of Ontario and the laws of Canada applicable therein and shall be
treated, in all respects, as an Ontario contract. Any proceeding initiated by
the Purchaser against AACI involving a dispute under this Agreement shall be
conducted in Toronto, Canada, and any proceeding initiated by AACI against the
Purchaser involving a dispute under this Agreement shall be conducted in Los
Angeles, California.
1.7 ACCOUNTING PRINCIPLES
All reference to generally accepted accounting principles means to
principles recommended, from time to time, in the Handbook of the Canadian
Institute of Chartered Accountants and all accounting terms not otherwise
defined in this Agreement have the meanings assigned to them in accordance with
Canadian generally accepted accounting principles.
1.8 DISCLOSURE LETTER AND SCHEDULES
The disclosures in the Disclosure Letter and the Schedules attached to
this Agreement are an integral part of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 ACTION BY AACI AND PURCHASER
Subject to the terms and conditions of this Agreement, at the Closing
Time:
(a) Purchase and Sale of Purchased Shares - AACI shall sell and the
Purchaser shall purchase the Purchased Shares for the Purchase Price payable as
provided in this Agreement;
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(b) Payment of Purchase Price - the Purchaser shall deliver a bank
certified check or a wire transfer of funds to the account of AACI, as directed
by AACI, in an amount equal to the Stated Price less (i) the $300,000 payment
(the "Deposit") the Purchaser delivered to Torys LLP, as escrow agent, on
December 30, 2002 pursuant to that certain escrow agreement entered into by
AACI, the Purchaser and Torys LLP, and (ii) interest that has accrued on the
foregoing $300,000 Deposit held in the escrow account. The Deposit held in the
escrow account plus all interest that has accrued thereon shall be delivered by
Torys LLP to AACI at the Closing;
(c) Transfer and Delivery of the Purchased Shares - AACI shall transfer and
deliver to the Purchaser share certificates representing all of the Purchased
Shares duly endorsed in blank for transfer, or accompanied by irrevocable powers
of attorney duly executed in blank, in either case by AACI as the holder of
record, and shall take such steps as shall be necessary to cause the Purchased
Companies to enter the Purchaser or its nominee(s) upon the books of the
Purchased Companies as the holder of the Purchased Shares and to issue one or
more share certificates to the Purchaser or its nominee(s) representing the
Purchased Shares; and
(d) Other Documents - AACI and Purchaser shall each deliver such other
documents as may be necessary to complete the transactions provided for herein,
including evidence reasonably satisfactory to the Parties that all conditions
and covenants have been fully performed or waived.
2.2 PLACE OF CLOSING
The Closing shall take place at the Closing Time at the principal office
of Alliance Atlantis Communications Inc. located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, or at such other place as may be agreed upon by AACI
and the Purchaser.
2.3 TENDER
Any tender of documents under this Agreement may be made upon the
Parties or their respective counsel and money may be tendered to the Parties by
official bank draft drawn upon a Canadian chartered bank or by negotiable cheque
payable in Canadian funds and certified by a Canadian chartered bank or trust
company or, with the consent of the Party entitled to payment, by wire transfer
of immediately available funds to the account specified by that Party.
ARTICLE 3
PURCHASE PRICE
3.1 PURCHASE PRICE
The Purchaser shall pay US$11,600,000 (the "Stated Price") for the
Purchased Shares, which shall be allocated as provided in Part 3.1 of the
Disclosure Letter. The Stated Price shall be adjusted as set out in Section 3.3
(the Stated Price, after such adjustments, if any, is herein referred to as the
"Purchase Price").
3.2 CLOSING DATE BALANCE SHEET
(a) Not later than 60 days after the Closing Date, AACI shall cause, at its
sole expense, a balance sheet of each of the Purchased Companies as at the
Closing Date to be prepared, which balance sheets shall be prepared in
accordance with generally accepted accounting principles in a manner consistent
with that of the balance sheet comprising part of the Audited Statements, and a
consolidated balance sheet as at the Closing Date for all three Purchased
Companies that shall reflect the three foregoing Closing Date balance sheets on
a consolidated basis (the foregoing consolidated balance sheet is herein
referred to as the "Closing Date Balance Sheet"). AACI shall cause each of the
three Purchased Company balance sheets and the Closing Date Balance Sheet to be
delivered to the Purchaser within 60 days after the Closing Date. AACI agrees to
permit the Purchaser, at its sole expense, or the Purchaser's auditors to review
such balance sheets and underlying financial data during the foregoing 60 day
period and the 30-day period referred to in Section 3.2(b). The Closing Date
Balance Sheet shall take into account, on a pro forma basis, the adjustments
contemplated by Sections 9.8 and 9.9.
(b) Each Party will receive a copy of the Closing Date Balance Sheet not
later than 60 days after the Closing Date and will have 30 days thereafter to
review the Closing Date Balance Sheet and the underlying three balance sheets
and financial data. If, within such 30 day period neither Party notifies the
other that it has a disagreement with the Closing Date Balance Sheet, the
Closing Date Balance Sheet shall be conclusive and binding on the Purchaser and
AACI and the Parties shall be deemed to have agreed thereto.
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(c) If either Party notifies the other of its disagreement with the Closing
Date Balance Sheet within such period, then the Purchaser and AACI shall
attempt, in good faith, to resolve their differences with respect thereto within
15 days after the receipt of the notice of disagreement by the other Party. If
the Parties are unable to resolve their differences within such 15 day period,
each Party will, within 5 days thereafter, nominate a partner of a nationally
recognized accounting firm (other than that Party's own auditors) (a "Referee")
and both Referees will, within 2 days thereafter choose a third Referee (other
than a member of a nationally recognized accounting firm which acts for either
Party) to resolve the dispute. The Referees will, by a majority vote taken
within 10 days after their selection, choose between final and complete
proposals presented by each of the Parties.
3.3 PURCHASE PRICE ADJUSTMENTS
On the second Business Day after the Parties have agreed, pursuant to
Section 3.2, to the Closing Date Balance Sheet, the Stated Price may be
decreased as follows:
(a) if AACI does not discharge any Material Equipment Contract(s) which it
is required to discharge within the time frames set out in and pursuant to
Section 9.8 (after giving effect to any requests by the Purchaser not to
discharge certain Material Equipment Contract(s)), then the Stated Price shall
be reduced by an amount equal to the amount required to discharge such Material
Equipment Contract(s); and
(b) if any Fixed Asset owned by the Purchased Companies as of December 31,
2002 is sold (other than in the ordinary course of business) or is destroyed or
damaged and not replaced or repaired by the Closing Date (a "Fixed Asset
Adjustment"), the Stated Price shall be reduced by the book value of such Fixed
Asset as of December 31, 2002; provided that the aggregate value of such Fixed
Asset Adjustment is not less than $25,000.
3.4 FINANCIAL CONDITION
At the Closing Date, no Purchased Company shall have any indebtedness or
liabilities other than (i) accounts payable, including, without limitation,
Taxes payable and deferred Taxes, to Persons other than AACI and that arose in
the ordinary course of business, and (ii) liabilities under Material Equipment
Contracts that the Purchaser has instructed AACI and AACI has agreed, not to
discharge pursuant to Section 9.8.
At the Closing Date, the Purchased Companies shall, on a consolidated
basis, have positive Working Capital, as shown on the Closing Date Balance
Sheet, in an amount not less than $300,000. In the event that the Closing Date
Balance Sheet Working Capital of the Purchased Companies, on a consolidated
basis, is less than $300,000, AACI shall, within five business days of the
determination of the Working Capital as shown on the Closing Date Balance Sheet,
contribute to the Purchased Companies an amount of cash equal to the amount by
which the Working Capital is less than $300,000.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
AACI hereby represents and warrants to the Purchaser the matters set out
below, and acknowledges that the Purchaser is relying on the following
representations and warranties in completing the transactions contemplated
herein:
4.1 INCORPORATION
The Purchased Companies are corporations duly incorporated and validly
existing under the laws of their respective jurisdictions of incorporation. Each
of the Purchased Companies has all necessary corporate power, authority and
capacity to own its property and assets and to carry on its business as
presently conducted and is duly registered, licensed or otherwise qualified to
carry on business, and is in good standing, in each jurisdiction in which it
carries on business or in which it is required to be registered, licensed or
otherwise qualified. In the case of TCSI and CDI, the Province of Ontario, and
in the case of SSDL, the Province of Nova Scotia, are the only jurisdictions in
which the nature of the business or the assets owned or leased by them makes
such registration, license or qualification necessary.
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4.2 RIGHT TO SELL
AACI is a corporation duly incorporated and validly existing under the
laws of its jurisdiction of incorporation. AACI is the sole registered and
beneficial owner of the Purchased Shares, as described in the recitals hereto,
free and clear of all Encumbrances at the Closing Time. AACI has the exclusive
right to dispose of the Purchased Shares as provided in this Agreement and such
disposition does not violate, contravene, breach or offend against or result in
any default under any indenture, mortgage, lease, agreement, obligation,
instrument, charter or by-law provision, licence, permit or Law to which AACI is
a party or subject or by which AACI is bound or affected. Upon the consummation
of the transactions contemplated hereby, the Purchaser will acquire title to the
Purchased Shares, free and clear of all Encumbrances.
4.3 CAPITALIZATION AND SUBSIDIARIES
The authorized and issued share capital of each of the Purchased
Companies is as set forth in Part 4.3 of the Disclosure Letter. All of the
Purchased Shares have been validly issued and are outstanding as fully paid and
non-assessable shares of the Purchased Companies. There are no options, warrants
or other rights to purchase shares or other securities of the Purchased
Companies and no securities or obligations convertible into or exchangeable for
shares or other securities of the Purchased Companies are outstanding. None of
the Purchased Companies owns any shares in the capital of any other corporation,
other than Nerve F/X Inc., a corporation governed by the laws of the Province of
Ontario, (a wholly-owned subsidiary of CDI), or is a party to any Contract
pursuant to which it has agreed to acquire any shares in the capital of any
other corporation.
4.4 PERMITTED ENCUMBRANCES
Each of the Purchased Companies is the sole beneficial owner of all of
assets and interest in assets set forth in the Audited Statements (other than
such assets as may have been sold since the date of such Audited Statements in
the ordinary course of business), with good and valid title, free and clear of
all Encumbrances other than the Permitted Encumbrances listed in Part 4.4 of the
Disclosure Letter.
4.5 DUE AUTHORIZATION
AACI has all necessary corporate power, authority and capacity to enter
into this Agreement and to carry out its obligations under this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of AACI.
4.6 ENFORCEABILITY OF OBLIGATIONS
This Agreement, and the other documents and agreements executed and
delivered by AACI in connection with this Agreement and the transactions
contemplated hereby, constitute and at the Closing will constitute valid and
binding obligations of each of AACI enforceable against it in accordance with
their terms, except that the enforcement hereof and thereof may be limited by
bankruptcy, insolvency, reorganization or other similar laws now or hereafter in
effect relating to creditors' rights generally, and the remedy of specific
performance may be subject to equitable defenses.
4.7 ABSENCE OF CONFLICTING AGREEMENTS
The Purchased Companies are not parties to, bound or affected by or
subject to any indenture, mortgage, lease, agreement, obligation, instrument,
charter or by-law provision, licence, permit or Law which would be violated,
contravened, breached by, or under which default would occur or an Encumbrance
would be created, or under which any license, permit, right, privilege or title
to property held or owned by any of the Purchased Companies would be lost or
materially impaired, as a result of the execution and delivery of this Agreement
or any other agreement or document to be entered into under the terms of this
Agreement, or the performance by AACI or the Purchased Companies of any of their
respective obligations provided for under this Agreement or any other agreement
or document contemplated in this Agreement. No party to a Material Contract with
any of the Purchased Companies shall have the right to terminate such agreement
with the Purchased Companies as a result of the execution of this Agreement or
the consummation of the transactions contemplated hereby. Neither AACI nor AACI
is a party to any agreement or understanding regarding the sale of any of the
Purchased Companies, or the assets or businesses of any of the Purchased
Companies, which agreement or understanding would be breached by the execution
and performance of this Agreement.
8
4.8 REGULATORY APPROVALS
No approval, order, consent of or filing with any Governmental Authority
is required on the part of AACI or the Purchased Companies, in connection with
the execution, delivery and performance of this Agreement or any other documents
and agreements to be delivered pursuant to this Agreement or the performance of
AACI's obligations pursuant to this Agreement or any other documents and
agreements to be delivered under this Agreement.
4.9 FINANCIAL STATEMENTS
The Audited Statements have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with that of the
preceding periods and the Audited Statements present fairly in all material
respects:
(a) all of the assets, liabilities (including all contingent liabilities),
shareholders' equity and financial position of each of the Purchased Companies
as at the date of such Audited Statements; and
(b) the sales, earnings, results of operation and changes in financial
position of each of the Purchased Companies for the periods ended as of the date
of such Audited Statements.
4.10 ACCOUNTS RECEIVABLE
A true and complete list of all Accounts Receivable outstanding as of
____, 2002 [date of the most recently ended month] is set forth in Part 4.10 of
the Disclosure Letter. All Accounts Receivable (i) shown in the Audited
Statements and (ii) listed in Part 4.10 of the Disclosure Letter, have been bona
fide created in good faith in the ordinary course of business, and, in the case
of the Accounts Receivable shown in the Audited Statements, the reserves for
doubtful accounts established in connection therewith and shown in the Audited
Statements are adequate and calculated consistent with past practice. There is
no contest, claim, or right of set-off under any Contract with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable.
4.11 ABSENCE OF UNDISCLOSED LIABILITIES
Except as disclosed in Part 4.11 of the Disclosure Letter, none of the
Purchased Companies has incurred any material liabilities or obligations
(whether accrued, absolute, contingent or otherwise) except for liabilities or
obligations reflected or reserved against in the Audited Statements or which are
incurred in the ordinary course of business.
4.12 ABSENCE OF CHANGES AND UNUSUAL TRANSACTIONS
Since the date of the Audited Statements, there has not been any
material change in the financial condition, operations, or prospects of any of
the Purchased Companies other than changes in the ordinary and usual course of
business, none of which has been materially adverse, and to the knowledge of
AACI no event has occurred or circumstance exists that may result in such a
material adverse change.
4.13 CONDITION OF ASSETS
The Fixed Assets are in good condition, repair and (where applicable)
proper working order, having regard to their use and age and such assets have
been properly and regularly maintained.
4.14 LICENCES AND PERMITS
Each of the Purchased Companies holds all licenses, permits and
authorizations requisite for, and each Purchased Company has complied with all
Laws applicable to, the conduct of its business, except where the failure to
hold any license, permit or authorization, or the failure to comply with any Law
would not have a Material Adverse Effect on such Purchased Company.
4.15 INTELLECTUAL PROPERTY
Part 4.15 of the Disclosure Letter contains a complete and accurate
list, separately for each of the Purchased Companies, of all registered patents,
patent applications, registered and unregistered trade-marks, registered
copyrights, trade names, proprietary computer software programs and websites
9
owned or used by any of the Purchased Companies (collectively, the "Intellectual
Property"). One or more of the Purchased Companies is the owner of all right,
title, and interest in and to each of the Intellectual Properties, free and
clear of all liens, security interests, charges, encumbrances, entities, and
other adverse claims. The Purchased Companies have the right to use, without
payment obligation to a third party, all of the Intellectual Property and have
not granted any licence or other right to any other Person in respect of any
Intellectual Property which they own. To the best knowledge of AACI, the use by
the Purchased Companies of the Intellectual Property does not infringe, and the
Purchased Companies have not received any notice, complaint, threat or claim
alleging any infringement of any patent, trademark, trade name, copyright,
industrial design, trade secret or other intellectual property or proprietary
right of any other Person, and the conduct of the Purchased Companies does not
include any activities which may constitute passing off.
4.16 EQUIPMENT CONTRACTS
Attached as Part 4.16 of the Disclosure Letter is a list of all of the
Equipment Contracts. Part 4.16 identifies all Equipment Contracts that are
material to the operations and business of each of the Purchase Companies (the
"Material Equipment Contracts"). All of the Equipment Contracts (other than
those that are required to be discharged pursuant to Section 9.8) are (i) in
full force and effect and no default exists on the part of the Purchased
Companies, or, to the knowledge of AACI, on the part of any of the other parties
thereto, and (ii) are not subject to any Encumbrances.
4.17 OWNED REAL PROPERTY
There is no Owned Real Property.
4.18 LEASED REAL PROPERTY
(a) Part 4.18 of the Disclosure Letter sets forth a complete and accurate
list of the Leased Real Property.
(b) The Real Property Leases have not been altered or amended.
(c) There are no agreements or understandings between the landlord and
tenant, or sublandlord and subtenant, other than as contained in the Real
Property Leases, pertaining to the rights and obligations of the parties thereto
relating to the use and occupation of the Leased Real Property.
(d) All interests held by the Purchased Companies as lessee or occupant
under the Real Property Leases are free and clear of all Encumbrances of any
nature and kind whatsoever.
(e) All payments required to be made by the Purchased Companies pursuant to
the Real Property Leases have been duly paid, the Purchased Companies are not
otherwise in default, and no event that, with notice or lapse of time or both,
would constitute a default exists with respect to any of the Real Property
Leases.
(f) To AACI's knowledge, none of the landlords, sublandlords, tenants or
subtenants under any of the Real Property Leases is in default in meeting any of
its material obligations under Real Property Leases to which it is a party.
(g) To the knowledge of AACI, no party to any of the Real Property Leases
has repudiated any provision thereof, nor are there any disputes regarding any
Real Property Lease.
4.19 EMPLOYMENT MATTERS
(a) Part 4.19 of the Disclosure Letter sets forth a complete list,
separately for each of the Purchased Companies, of all Employees, together with
the titles and material terms of employment or retainer, including current
wages, salaries, or hourly rate of pay, benefits, vacation entitlements,
commissions, and most recent bonus paid or payable to each such Employee, and
the date upon which each such Employee was first hired. Except as disclosed in
Part 4.19 of the Disclosure Letter, no Employee is on short-term or long-term
disability leave, extended absence or receiving workers' compensation benefits.
(b) Except as listed in Part 4.19(b) of the Disclosure Letter, there are no
employment agreements that have been entered into with any Employees which are
not terminable on the giving of reasonable notice in accordance with applicable
law, nor are there any management agreements, retention bonuses, or employment
contracts providing for cash or other compensation or benefits upon the closing
of the transactions herein contemplated.
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(c) Except as described in Part 4.19(c) of the Disclosure Letter, there are
no employment policies or plans, including policies or plans regarding incentive
compensation (other than the Bonus Plans), stock options, severance pay or other
terms or conditions of employment or terms or conditions upon which Employees
may be terminated, which are binding upon the Purchased Companies other than
those applicable at law or as contained in the employment agreements listed in
Part 4.19(b) of the Disclosure Letter. The Purchased Companies have made all
payments or contributions required to be made by them under any of the Employee
plans and policies, including those listed in Part 4.19(c) of the Disclosure
Letter, whether such payment or contribution is required to be made on behalf of
the Purchased Companies or the Employees. Any Employee plans and policies
existing prior to the Closing will automatically terminate upon the Closing with
respect to the Employees without any liability to the Purchased Companies.
(d) None of the Purchased Companies has or after the Closing shall have any
obligation or liability to any of their Employees under any of the Bonus Plans,
other than such obligations that AACI has agreed to assume and satisfy.
(e) The Purchased Companies have been and are being operated in material
compliance with all Laws relating to employees, including employment standards,
human rights, labour relations, pay equity and employment equity.
(f) Part 4.19(e) of the Disclosure Letter sets out those Employees who
currently hold stock options or share purchase rights pursuant to the Alliance
Atlantis Stock Option Plans. Neither the Purchased Companies nor the Purchaser
has or after the Closing will have any obligation to the Employees under the
Alliance Atlantis Stock Option Plans.
(g) Other than agreements that affect all industry participants, including
without limitation guild agreements such as that with the Directors Guild of
Canada, the Purchased Companies are not parties, either directly, voluntarily or
by operation of law, to any collective agreement, letters of understanding,
letters of intent or other written communication with any trade union or
association which may qualify as a trade union, which would cover any of their
respective Employees or any independent contractors of the Purchased Companies.
(h) To the best of AACI's knowledge, the Purchased Companies do not have
any labour problems that might materially affect the value of the Purchased
Companies or lead to an interruption of their operations at any location.
(i) None of the Purchased Companies is currently making any payments to, or
is currently required to make any payments to any former employee or such former
employee's dependants, or to a deceased employee's dependants, including any
payment of any pension benefits, retiree medical insurance coverage, or other
benefits.
(j) The Purchased Companies have taken all actions required under the
employee plans or policies, and have not taken any prohibited actions with
respect to any employee plan or policy of any of the Purchased Companies. As of
the date hereof, no charge, complaint, action or other proceeding by any
Employee or Governmental Authority is pending or, to the knowledge of AACI,
threatened with respect to (i) the administration or implementation of any
employee plan or policy, or (ii) the compliance by any of the Purchased
Companies with the applicable laws respecting employment and employment
practices.
4.20 LITIGATION
Part 4.20 of the Disclosure Letter sets forth an accurate summary of
each suit, action, litigation, investigation, claim, complaint, grievance or
proceeding, including appeals and applications for review, in progress, or, to
the knowledge of AACI, pending or threatened against or relating to the
Purchased Companies before any Governmental Authority, commission, board,
bureau, agency or arbitration panel (the "Legal Proceedings"). None of the Legal
Proceedings, if determined adversely to the Purchased Companies, would,
individually or collectively,
(a) have a Material Adverse Effect on any of the Purchased Companies,
(b) enjoin, restrict or prohibit the transfer of all or any part of the
Purchased Shares as contemplated by this Agreement, or
(c) prevent AACI or the Purchased Companies from fulfilling all of their
respective obligations set out in this Agreement or arising from this Agreement.
11
AACI has no knowledge of any existing ground on which any Legal
Proceeding might be commenced against any of the Purchased Companies with any
reasonable likelihood of success. There is not presently outstanding against the
Purchased Companies any judgment, decree, injunction, rule or order of any
court, Governmental Authority, commission, board, bureau, agency or arbitrator.
4.21 INSURANCE
Each of the Purchased Companies maintains such policies of insurance,
issued by responsible insurers, as are appropriate to its operations, property
and assets, in such amounts and against such risks as, in the opinion of AACI,
are customarily carried and insured against by owners of comparable businesses,
properties and assets. All such policies of insurance are in full force and
effect and each of the Purchased Companies are not in default, as to the payment
of premium or otherwise, under the terms of any such policy.
4.22 TAX MATTERS
(a) Each of the Purchased Companies has since January 1, 1999 duly and
timely filed its Tax Returns with the appropriate Governmental Authority and has
duly, completely and correctly reported all income and all other amounts and
information required to be reported thereon, and all Taxes for such prior
periods have been duly paid.
(b) Each of the Purchased Companies has duly and timely paid all Taxes,
including all installments on account of Taxes for the current year that are due
and payable by it whether or not assessed by the appropriate Governmental
Authority. Each of the Purchased Companies has established reserves that are
reflected on the Audited Statements that are at least equal to the amount of the
liability of each of the Purchased Companies for all Taxes that are not yet due
and payable as of the date of the Audited Statements.
(c) Each of the Purchased Companies has not requested or entered into any
agreement or other arrangement or executed any waiver providing for any
extension of time within which (i) to file any Tax Return covering any Taxes for
which it is or may be liable; (ii) to file any elections, designations or
similar filings relating to Taxes for which it is or may be liable; (iii) it is
required to pay or remit any Taxes or amounts on account of Taxes; or (iv) any
Governmental Authority may assess or collect Taxes for which it is or may be
liable.
(d) The Canadian federal and provincial income and capital tax liabilities
of each of the Purchased Companies have been assessed by the relevant
Governmental Authority and notices of assessment have been issued to each of the
Purchased Companies by the relevant Governmental Authority for all taxation
years prior to and including the taxation year ended March 31, 2001.
(e) No audits by any Governmental Authorities with respect to any Taxes for
any of the Purchased Companies are in progress, or to the knowledge of AACI,
threatened.
4.23 PURCHASED COMPANIES' BOOKS AND RECORDS
The Purchased Companies' Books and Records fairly and accurately set out
and disclose in all material respects (where applicable, in accordance with
generally accepted accounting principles) the financial position of each of the
Purchased Companies and all material financial transactions of each of the
Purchased Companies have been properly recorded in such Purchased Companies'
Books and Records.
4.24 CORPORATE RECORDS AND MINUTE BOOKS
The corporate records and minute books of each of the Purchased
Companies contain complete and accurate minutes of all material meetings of the
directors and shareholders and committees of directors (if any) thereof held
since incorporation or acquisition by AACI as the case may be (or written
resolutions in lieu of meetings), all such meetings were duly called and held,
and such minutes (or written resolutions in lieu of meetings) accurately reflect
all material transactions and commitments approved by the directors and
shareholders relating to such corporation and the share certificate books,
register of shareholders, register of transfers, and register of directors of
each of the Purchased Companies are complete and accurate in all material
respects.
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4.25 THIRD PARTY CONSENTS
Part 4.25 of the Disclosure Letter sets out a complete list of all
notifications, approvals and consents required to be obtained by any of the
Purchased Companies from any third party (including the parties to the Material
Contracts and Real Property Leases) in connection with the execution, delivery
and performance of this Agreement or any other documents and agreements to be
delivered under this Agreement. Any such notifications, approvals and consents
have been obtained or shall be obtained prior to the Closing.
4.26 NON-ARM'S LENGTH DEBT
None of the Purchased Companies is indebted to any officer, director,
employee or shareholder of such company, and none of the Purchased Companies is
indebted to any Person not dealing with the Purchased Companies at arm's length
(within the meaning of the Income Tax Act (Canada)).
4.27 NO GUARANTEES
None of the Purchased Companies is a party to or bound by any Contract
or guarantee, indemnification, assumption, endorsement or any like commitment
of, or with respect to, the debts, liabilities (contingent or otherwise) or
obligations of any other Person.
4.28 RESIDENCE OF AACI
AACI is not a non-resident for the purposes of the Income Tax Act
(Canada).
4.29 MATERIAL CONTRACTS
Part 4.29 of the Disclosure Letter contains a complete and accurate list
of all Material Contracts. Each of the Material Contracts is in full force and
effect and, except for the Material Equipment Contracts that will be discharged
pursuant to Section 9.8, will remain in full force and effect following the
Closing. There are no existing material defaults by any of the Purchased
Companies under any of the Material Contracts.
4.30 ENVIRONMENTAL MATTERS
To the knowledge of AACI, each of the Purchased Companies is in material
compliance with all applicable environmental laws imposed by any Governmental
Authority.
4.31 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 4.31 of the Disclosure Letter, since the
date of the Audited Statements, the Purchased Companies have conducted their
business only in the ordinary course of business and, without limiting the
foregoing, since such date none of the following changes or events have
occurred:
(a) increase in the salaries of any Employees;
(b) termination of, or receipt of notice of termination of any Material
Contract (other than the discharge of Material Equipment Contracts pursuant to
Section 9.8);
(c) payment of any dividend or other distribution by any of the Purchased
Companies to any of their shareholders; or
(d) disposition of any assets or the Encumbrance of any asset of any
Purchased Company, other than sales in the ordinary course of business.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to AACI the matters set out
below. The Purchaser acknowledges that AACI is relying on the representations
and warranties in completing the transactions contemplated herein.
5.1 INCORPORATION
The Purchaser is a corporation duly incorporated and validly existing
under the laws of the State of California.
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5.2 DUE AUTHORIZATION
The Purchaser has all necessary corporate power, authority and capacity
to enter into this Agreement and to carry out its obligations under this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated under this Agreement have been duly authorized by
all necessary corporate action of the Purchaser.
5.3 ENFORCEABILITY OF OBLIGATIONS
This Agreement, and the other documents and agreements executed and
delivered by the Purchaser in connection with this Agreement and the
transactions contemplated hereby, constitutes and at the Closing will constitute
valid and binding obligations of the Purchaser enforceable against it in
accordance with their terms, except that the enforcement hereof and thereof may
be limited by bankruptcy, insolvency, reorganization or other similar laws now
or hereafter in effect relating to creditors' rights generally, and the remedy
of specific performance may be subject to equitable defenses.
5.4 THIRD PARTY CONSENTS
Schedule 5.4 to this Agreement sets out a complete list of all
notifications, approvals and consents required to be obtained by the Purchaser
in connection with the execution, delivery and performance of this Agreement or
any other documents and agreements to be delivered under this Agreement.
5.5 ABSENCE OF CONFLICTING AGREEMENTS
The Purchaser is not a party to, bound or affected by or subject to any
indenture, mortgage, lease, agreement, obligation, instrument, charter or by-law
provision, licence, permit or Law which would be violated, contravened, breached
by the execution and delivery of this Agreement or any other agreement or
documents to be entered into under the terms of this Agreement, or the
performance by the Purchaser of any of its obligations provided for under this
Agreement or any other agreement or document contemplated in this Agreement.
5.6 REGULATORY APPROVALS
No approval, order, consent of or filing with any Governmental Authority
other than as set forth in Section 5.4 is required on the part of the Purchaser
in connection with the execution, delivery and performance of this Agreement or
any other documents and agreements to be delivered pursuant to this Agreement or
the performance of the Purchaser's obligations pursuant to this Agreement or any
other documents and agreement to be delivered under this Agreement, other than
filings to be made after the Closing under the U.S. Securities Exchange Act of
1934, as amended.
ARTICLE 6
NON-WAIVER; SURVIVAL
6.1 NATURE AND SURVIVAL
(a) Subject to subsection (b), all representations, warranties and
covenants (to the extent they have not already been performed at the Closing
Time) contained in this Agreement on the part of each of the Parties shall
survive the Closing, the execution and delivery under this Agreement of any
share or security transfer instruments or other documents of title to any of the
Purchased Shares and the payment of the consideration for the Purchased Shares
for a period of two (2) years from the Closing Date.
(b) Representations and warranties concerning tax matters set out in
Section 4.23 shall survive for a period of ninety days after the relevant
Governmental Authorities shall no longer be entitled to assess or reassess
liability for Taxes against any of the Purchased Companies for any particular
taxation period ended on or prior to the Closing Date, having regard without
limitation, to any waivers in respect of any taxation year. All other
representations and warranties shall only survive for a period of two (2) years
from the Closing Date.
(c) If no claim shall have been made under this Agreement against a Party
for any incorrectness in or breach of any representation or warranty made in
this Agreement prior to the expiry of the survival periods set out in this
Section 6.1, such Party shall have no further liability under this Agreement
with respect to such representation or warranty.
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ARTICLE 7
PURCHASER'S CONDITIONS PRECEDENT
The obligation of the Purchaser to complete the purchase of the
Purchased Shares under this Agreement shall be subject to the satisfaction of,
or compliance with, at or before the Closing Time, each of the following
conditions precedent (each of which is acknowledged to be inserted for the
exclusive benefit of the Purchaser and may be waived by it in whole or in part).
7.1 PERFORMANCE OF OBLIGATIONS
AACI shall have performed or complied with, in all material respects,
all its obligations, covenants and agreements under this Agreement.
7.2 RECEIPT OF CLOSING DOCUMENTATION
All documentation relating to the due authorization and completion of
the sale and purchase of the Purchased Shares under this Agreement and all
actions and proceedings taken on or prior to the Closing in connection with the
performance by AACI of its obligations under this Agreement shall be
satisfactory to the Purchaser, acting reasonably, and the Purchaser shall have
received copies of all such documentation or other evidence as it may reasonably
request in order to establish the consummation of the transactions contemplated
by this Agreement and the taking of all corporate proceedings in connection with
such transactions in compliance with these conditions, in form (as to
certification and otherwise) and substance satisfactory to the Purchaser.
7.3 OPINION OF COUNSEL FOR AACI
The Purchaser shall have received an opinion dated the Closing Date from
in-house counsel for AACI, in a form satisfactory to the Purchaser and its
counsel, acting reasonably.
7.4 CONSENTS, AUTHORIZATIONS AND REGISTRATIONS
All consents, approvals, orders and authorizations of any person (or
registrations, declarations, filings or recordings with any such authorities),
required to be obtained by AACI in connection with the completion of any of the
transactions contemplated by this Agreement, the execution of this Agreement,
the Closing or the performance of any of the terms and conditions of this
Agreement shall have been obtained at or before the Closing Time.
7.5 CORPORATE ACTION
AACI and the Purchased Companies shall have taken all corporate action
in connection with the completion of any of the transactions contemplated by
this Agreement, the execution of this Agreement, the Closing or the performance
of any of the terms and conditions hereof.
7.6 WAIVER OF THE TATTERSALL OPTIONS
The Tattersall Options shall have been waived.
7.7 SERVICES AGREEMENT
The Purchaser and AACI shall have entered into a services agreement in
substantially the form of the Interim Services Agreement attached hereto as
Schedule 7.7, which services agreement shall terminate and replace the Interim
Services Agreement. [NOTE: The services agreement to be entered into at the
closing shall be substantially the same as the Interim Services Agreement except
that (i) it shall have a three-year term and (ii) shall contain a new section
pursuant to which AACI will agree to provide PTSX or the Purchased Companies
with at least Cnd. $1 million of library restoration work during 2003, of which
no less than Cdn. $700,000 shall be provided in 2003 after the Closing. The
library restoration work shall consist of digital duplication of tape based
masters of existing library material and digital restoration of selected library
materials.]
7.8 DIRECTOR RESIGNATIONS
At or prior to the Closing, all directors of each of the Purchased
Companies, other than those specified by the Purchaser, shall resign as
directors, effective as of the Closing Time.
15
If any of the foregoing conditions in this Article has not been
fulfilled by Closing, the Purchaser may terminate this Agreement by notice in
writing to AACI, in which event the Purchaser is released from all obligations
under this Agreement, and unless the Purchaser can show that the condition
relied upon could reasonably have been performed by AACI, AACI is also released
from all obligations under this Agreement. However, the Purchaser may waive
compliance with any condition in whole or in part if it sees fit to do so,
without prejudice to its rights of termination in the event of non-fulfilment of
any other condition, in whole or in part, or to its rights to recover damages
for the breach of any representation, warranty or covenant (but not condition)
contained in this Agreement other than a representation, warranty or covenant
which has been specifically waived by the Purchaser in writing.
ARTICLE 8
AACI'S CONDITIONS PRECEDENT
The obligations of AACI to complete the sale of the Purchased Shares
under this Agreement shall be subject to the satisfaction of or compliance with,
at or before the Closing Time, each of the following conditions precedent (each
of which is acknowledged to be inserted for the exclusive benefit of AACI and
may be waived by AACI in whole or in part).
8.1 PERFORMANCE OF OBLIGATIONS
The Purchaser shall have performed or complied with, in all material
respects, all its obligations, covenants and agreements under this Agreement.
8.2 RECEIPT OF CLOSING DOCUMENTATION
All documentation relating to the due authorization and completion of
the sale and purchase of the Purchased Shares under this Agreement and all
actions and proceedings taken on or prior to the Closing in connection with the
performance by the Purchaser of its obligations under this Agreement shall be
satisfactory to AACI, acting reasonably, and AACI shall have received copies of
all such documentation or other evidence as they may reasonably request in order
to establish the consummation of the transactions contemplated by this Agreement
and the taking of all corporate proceedings in connection with such transactions
in compliance with these conditions, in form (as to certification and otherwise)
and substance satisfactory to AACI.
8.3 OPINION OF COUNSEL FOR AACI
AACI shall have received an opinion dated the Closing Date from counsel
for the Purchaser, in a form satisfactory to AACI and its counsel, acting
reasonably.
8.4 CONSENTS, AUTHORIZATIONS AND REGISTRATIONS
All consents, approvals, orders and authorizations of any person (or
registrations, declarations, filings or recordings with any such authorities),
required to be obtained by the Purchaser in connection with the completion of
any of the transactions contemplated by this Agreement, the execution of this
Agreement, the Closing or the performance of any of the terms and conditions of
this Agreement shall have been obtained at or before the Closing Time.
8.5 CORPORATE ACTION
The Purchaser shall have taken all corporate action required in
connection with the completion of any of the transactions contemplated in this
Agreement, the execution of this Agreement, the Closing or the performance of
any of the terms and conditions hereof.
If any of the foregoing conditions in this Article has not been
fulfilled by Closing, AACI may terminate this Agreement by notice in writing to
the Purchaser, in which event AACI is released from all obligations under this
Agreement, and unless AACI can show that the condition relied upon could
reasonably have been performed by the Purchaser, the Purchaser is also released
from all obligations under this Agreement. However, AACI may waive compliance
with any condition in whole or in part if it sees fit to do so, without
prejudice to its rights of termination in the event of non-fulfilment of any
other condition, in whole or in part, or to its rights to recover damages for
the breach of any representation, warranty or covenant (but not condition)
contained in this Agreement other than a representation, warranty or covenant
which has been specifically waived by AACI in writing.
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ARTICLE 9
OTHER COVENANTS OF THE PARTIES
9.1 CONDUCT OF BUSINESS PRIOR TO CLOSING
During the period, if any, from the date of this Agreement to the
Closing Time, AACI will cause the Purchased Companies to conduct their
respective businesses in the ordinary and normal course, consistent with past
practice.
9.2 ACCESS TO RECORDS AND CONFIDENTIALITY
(a) During the period, if any, from the date of this Agreement to the
Closing Time, AACI will provide and will cause each of the Purchased Companies
to provide, access to and shall permit the Purchaser, through its
representatives, to make such investigation of the business, operations,
properties, assets and records of the Purchased Companies and of their
respective financial and legal conditions as the Purchaser deems necessary or
advisable, acting reasonably, to familiarize itself with such business,
operations, properties, assets, records and other matters. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Closing Time, AACI shall permit the Purchaser and its representatives,
without interference to the ordinary conduct of the Purchased Companies and
whenever possible outside of normal business hours, to have reasonable access to
the Leased Real Property and any other premises.
(b) In accordance with the terms of the Non-Disclosure Agreement, prior to
the Closing, the Purchaser shall, except as otherwise agreed to by AACI, keep
confidential all information disclosed to it by AACI or their agents relating to
the Purchased Companies.
(c) After the Closing, AACI shall keep confidential all information
relating to the Purchased Companies, except information which:
(i) is or becomes generally available to the public;
(ii) AACI received after Closing from an independent third party, who had
obtained the information lawfully and was under no obligation of secrecy;
or
(iii) AACI must disclose in order to comply with the requirements of being
a reporting issuer as such term is defined in the Securities Act (Ontario)
or a publicly traded company listed on both The Toronto Stock Exchange and
the Nasdaq Stock Market.
9.3 EMPLOYMENT MATTERS
The Purchaser shall ensure that the terms and conditions of employment
of the Employees including salary, incentive compensation and benefits
applicable immediately following the Closing Date are substantially similar in
the aggregate to those presently received by the Employees. AACI covenants that
to the extent that any of the Employees are entitled to a Bonus or would have
otherwise received a Bonus in accordance with the terms of either of the Bonus
Plans in respect of the fiscal year commencing April 1, 2002 but for the fact
that such Employees are no longer eligible to receive a Bonus under either of
the Bonus Plans as a result of the sale of the Purchased Companies to the
Purchaser, AACI shall provide the Purchaser with a list of such eligible
Employees along with the necessary funds to pay such Bonuses. The Purchaser
covenants, upon receipt of the funds necessary to satisfy such Bonuses, to pay
such Bonuses to the eligible Employees in accordance with AACI'ss instructions.
This Section 9.3 only applies to Employees that remain employed by the Purchaser
or the Purchased Companies at the time such Bonuses are paid.
9.4 ACTIONS TO SATISFY CLOSING CONDITIONS
Each of the Parties agrees to take all such actions as are within its
power to control, and to use its reasonable efforts to cause other actions to be
taken which are not within its power to control, so as to ensure compliance with
each of the conditions and covenants set forth in Articles 7, 8 or 9 which are
for the benefit of any other Party.
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9.5 ▇▇▇▇▇▇ STREET DIGITAL LIMITED NAME CHANGE
Within 60 days following the Closing Date, the Purchaser shall undertake
all necessary steps to ensure that it discontinues use of the words "▇▇▇▇▇▇
Street" in association with SSDL and its business. For greater certainty, the
Purchaser agrees to effect a name change of SSDL, to amend SSDL's articles of
continuance, and to thereafter conduct its business and operations under a new
name that does not include the words "▇▇▇▇▇▇ Street."
9.6 NON-COMPETITION
(a) Until the later of (i) the third anniversary of the Closing Date, or
(ii) the termination of the Services Agreement, AACI shall not, and shall not
permit any of its current and subsequently acquired affiliated companies to,
directly or indirectly, in any manner whatsoever, including without limitation,
either individually or in partnership or jointly or in conjunction with any
other Person, as principal, agent, representative, consultant, lender,
contractor, employer, employee, investor or shareholder (except to the extent
that AACI holds 5% or less of the equity of a public company), to engage in a
Competitive Business (as defined below).
As used herein, a "Competitive Business" means a business which provides
standard definition and high definition on-line video editing, DVD authoring,
sound and picture editing, sound mixing and design video post-production,
descriptive video, video and audio compression, quality control, duplication,
transcripts, computer generated imaging and other post-production services
currently conducted by any of the Purchased Companies; provided however, that
the term "Competitive Business" expressly excludes those activities of Alliance
Atlantis Broadcasting Inc.'s post-production group which the Parties jointly
acknowledge currently provide certain of the Services in the Territory and shall
continue to do so.
(b) The Parties hereto agree that the provisions of this Section 9.6 are
binding on AACI and all of its current and subsequently acquired affiliated
companies but shall not bind any companies that become affiliates of AACI (but
in any event continues to bind AACI) in connection with a change of control of
AACI nor do the provisions of this Section 9.6 in any way preclude AACI from
acquiring or otherwise being involved with an entity, the principal business of
which is not a Competitive Business.
(c) The Parties hereto agree that the provisions of this Section 9.6 are
reasonable and intend that such provisions be enforced as written. However, if
any such provision, or part thereof, is held to be unenforceable because of the
duration thereof, the area covered thereby, or the types of activities
restricted thereby, the parties hereto agree that a court of competent
jurisdiction making such determination shall have the power to reduce the
duration of the provision, the geographic area of the provision, the types of
activities specified and to delete specific words or phrases, and that in its
reduced form, such provision shall then be enforceable.
9.7 POST-CLOSING CO-OPERATION
Subsequent to the Closing Date, AACI agree to provide such assistance
and co-operation, including without limitation appropriate data transfer and
other information technology matters (outlined in Part 9.7), as the Purchaser
may reasonably request to ensure a smooth transfer of the Purchased Companies
and the continuing operation of their respective businesses.
9.8 SATISFACTION OF MATERIAL EQUIPMENT CONTRACTS
Within 45 days after the Closing Date, AACI shall, at its expense,
discharge all Material Equipment Contracts held by the Purchased Companies, and
shall take all such other actions as may be necessary for full title (without
any Encumbrances) to the equipment, assets and properties underlying the
Material Equipment Contracts to be transferred to, and vested in, the Purchased
Companies. Notwithstanding the foregoing, if within three Business Days
following the exercise of the Option (as that term is defined in the Option
Agreement), the Purchaser notifies AACI in writing that AACI should not
discharge one or more of the Material Equipment Contracts, then AACI shall not
discharge that Material Equipment Contract; provided however, that in such
event, AACI shall not be so obligated unless the Purchaser arranges, on terms
satisfactory to AACI, in its sole discretion, for any guaranty to be released
and all obligations of AACI or its affiliates to be discharged or assumed by the
Purchaser or the Purchaser's nominee without further recourse to AACI or its
affiliates in respect of any Material Equipment Contract that is guaranteed by
or otherwise imposes obligations on AACI or its affiliates. The Stated Price
shall be reduced in the manner specified in Section 3.2 in respect of any
Material Equipment Contract(s) that are not discharged in accordance with this
Section 9.8.
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9.9 INTERCOMPANY INDEBTEDNESS
(a) In the ordinary course of business AACI has incurred Accounts
Receivable payable by AACI to the Purchased Companies (the "AACI Accounts
Receivable") and AACI has advanced funds to the Purchased Companies to enable
them to fund their operations (the "Purchased Companies Intercompany Loans").
(b) Immediately prior to the Closing:
(i) AACI and each Purchased Company shall cause the AACI Accounts
Receivable to offset and cancel, on a dollar for dollar basis, some or all
of the Purchased Companies Intercompany Loans;
(ii) the Purchased Companies shall transfer to AACI, or as directed by
AACI, all Government Tax Credit Receivables in consideration of a
reduction, on a dollar for dollar basis, of the Purchased Companies
Intercompany Loans; provided however that if such Government Tax Credit
Receivables are paid directly to the Purchased Companies or to the
Purchaser, the Purchaser shall and shall cause the Purchased Companies to,
promptly remit the amount of such Government Tax Credit Receivables to AACI
or as directed by AACI;
(iii) any cash balances held by the Purchased Companies on the Closing Date
shall be used by AACI to reduce any outstanding Purchased Companies
Intercompany Loans; and
(iv) to the extent that any Purchased Companies Intercompany Loans remain
outstanding after the foregoing adjustments, AACI shall contribute or
otherwise convert the unpaid portion of such Purchased Company Intercompany
Loans to common equity of the relevant Purchased Company on a dollar for
dollar basis, which contribution or conversion shall result in the
cancellation of the remaining unpaid portion of the Purchased Companies
Intercompany Loans.
(c) Subject to Section 9.10, the Parties acknowledge that it is the
intention of the Parties that none of the Purchased Companies shall, immediately
after the Closing, owe any indebtedness or liability to AACI with respect to
actions occurring prior to the Closing.
9.10 PURCHASED COMPANY TAX RETURNS
Any liability of the Purchased Companies for Taxes arising from the
contribution by AACI to the Purchased Companies of the Purchased Companies
Intercompany Loans, as provided in Section 9.9 above, shall be for the account
of, and payable by, AACI. If the Purchaser or any of the Purchased Companies
pays any Taxes arising from such liability, AACI shall promptly reimburse the
Purchaser or the Purchased Companies in full for any such payment.
9.11 TAX FILING COVENANT
AACI will duly and timely file all Tax Returns for each of the Purchased
Companies with the appropriate Governmental Authority, at AACI's sole expense,
for the taxation period beginning April 1, 2002 through, and including, the
Closing Date, and will duly, completely and correctly report all income and all
other amounts and information required to be reported thereon.
9.12 FINANCIAL CONDITION ADJUSTMENT
If the Closing Date Balance Sheet indicates that the statements
contained in Section 3.4 of this Agreement regarding the financial condition of
the Purchased Companies on the Closing Date are not true and accurate as of the
Closing Date, AACI shall, promptly after such determination, take such action as
it deems necessary (by way of example only, by making additional cash
contributions or assuming or repaying certain liabilities of the Purchased
Companies), in its sole discretion, to make such statements true and accurate as
of the Closing Date.
ARTICLE 10
INDEMNIFICATION
10.1 INDEMNIFICATION BY THE PARTIES
Effective as and from the Closing Time, AACI shall indemnify and save
the Purchaser and the Purchaser shall indemnify and save AACI harmless for and
from (the Party agreeing to indemnify being referred to in this Section as the
"Indemnifying Party" and the Party so indemnified being referred to in this
Section as the "Indemnified Party") from and against all Claims which may be
made or brought against or by an Indemnified Party, or which it may suffer or
incur, directly or indirectly, as a result of or in connection with:
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(a) any non-fulfilment of any covenant or agreement on the part of the
Indemnifying Party under this Agreement;
(b) any incorrectness in or breach of any representation or warranty of the
Indemnifying Party pursuant to this Agreement; or
(c) in any certificate or other document furnished by the Indemnifying
Party pursuant to this Agreement.
10.2 NOTICE OF CLAIM
The Indemnified Party shall give prompt written notice and in any event,
within 20 days of the Indemnified Party receiving notice of such Claim, to the
Indemnifying Party of any claim for indemnification pursuant to Section 10.1.
Such notice shall specify whether the Claim arises as result of a claim by a
Person other than a Party to this Agreement (a "Third Party Claim") or whether
the Claim does not so arise (a "Party Claim"), and shall also specify with
reasonable particularity (to the extent that the information is available):
(a) the factual basis for the Claim; and
(b) the amount of the Claim, or, if an amount is not then determinable, an
approximate and reasonable estimate of the likely amount of the Claim.
10.3 PROCEDURE FOR INDEMNIFICATION
(a) Party Claims. With respect to Party Claims, following receipt of notice
from the Indemnified Party of a Claim, the Indemnifying Party shall have 30 days
to make such investigation of the Claim as the Indemnifying Party consider
necessary or desirable. For the purpose of such investigation, the Indemnified
Party shall make available to the Indemnifying Party the information relied upon
by the Indemnified Party to substantiate the Claim. If the Indemnified Party and
the Indemnifying Party agree at or prior to the expiration of such 30 day period
(or any mutually agreed upon extension thereof) to the validity and amount of
such claim, the Indemnifying Party shall immediately pay to the Indemnified
Party the full agreed upon amount of the claim.
If the Indemnified Party and the Indemnifying Party do not agree within
such period (or any mutually agreed upon extension thereof), the Indemnified
Party and the Indemnifying Party agree that the Indemnified Party shall be
entitled to bring an action in a court of law to recover the full amount of the
Claim and any costs incidental to the action.
(b) Third Party Claims.
(i) With respect to any Third Party Claim, the Indemnifying Party shall
have the right, at its own expense, to participate in or assume control of
the negotiation, settlement or defence of such Third Party Claim and, in
such event, the Indemnifying Party shall reimburse the Indemnified Party
for all the Indemnified Party's out-of-pocket expenses as a result of such
participation or assumption. If the Indemnifying Party elects to assume
such control, the Indemnified Party shall cooperate with the Indemnifying
Party, shall have the right to participate in the negotiation, settlement
or defence of such Third Party Claim at its own expense and shall have the
right to disagree on reasonable grounds with the selection and retention of
counsel, in which case counsel satisfactory to the Indemnifying Party and
the Indemnified Party shall be retained by the Indemnifying Party.
(ii) If the Indemnifying Party, having elected to assume control as
contemplated in Section 10.3(b)(i) thereafter fails to defend any such
Third Party Claim within a reasonable time, the Indemnified Party shall be
entitled to assume such control and the Indemnifying Party shall be bound
by the results obtained by the Indemnified Party with respect to such Third
Party Claim.
10.4 ADDITIONAL RULES AND PROCEDURES
The obligations of the Indemnifying Party to indemnify the Indemnified
Party in respect of Claims shall also be subject to the following:
(a) Any Claim arising as a result of a breach of a representation, warranty
or covenant contained in Article 3 or Article 4 shall be made not later than the
date on which, pursuant to Section 6.1, such representation, warranty or
covenant is terminated.
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(b) An Indemnifying Party's obligation to indemnify the Indemnified Party
shall only apply if the Claims in respect of which such Indemnifying Party has
given an indemnity, in the aggregate, exceed US$50,000. If the aggregate amount
of Claims exceeds US$50,000, then the Indemnifying Party shall be responsible
for all such Claims.
(c) If any Third Party Claim is of a nature such that the Indemnified Party
is required by applicable law to make a payment to any Person (a "Third Party")
with respect to such Third Party Claim before the completion of settlement
negotiations or related legal proceedings, the Indemnified Party may make such
payment and the Indemnifying Party shall, forthwith after demand by the
Indemnified Party, reimburse the Indemnified Party for any such payment. If the
amount of any liability of the Indemnified Party under the Third Party Claim in
respect of which such a payment was made, as finally determined, is less than
the amount which was paid by the Indemnifying Party to the Indemnified Party,
the Indemnified Party shall, forthwith after receipt of the difference from the
Third Party, pay the amount of such difference to the Indemnifying Party.
(d) Except in the circumstance contemplated by Sections 10.4(c) and
10.3(b)(ii) and whether or not the Indemnifying Party assume control of the
negotiation, settlement or defence of any Third Party Claim, the Indemnified
Party shall not negotiate, settle, compromise or pay any Third Party Claim
except with the prior written consent of the Indemnifying Party (which consent
shall not be unreasonably withheld).
(e) The Indemnified Party shall not permit any right of appeal in respect
of any Third Party Claim to terminate without giving the Indemnifying Party
notice thereof and an opportunity to contest such Third Party Claim.
(f) The Indemnified Party and the Indemnifying Party shall cooperate fully
with each other with respect to Third Party Claims, and shall keep each other
fully advised with respect thereto (including supplying copies of all relevant
documentation promptly as it becomes available).
(g) Notwithstanding Section 10.3(b)(ii), the Indemnifying Party shall not
settle any Third Party Claim or conduct any related legal or administrative
proceeding in a manner which would, in the opinion of the Indemnified Party,
acting reasonably, have a material adverse impact on the Indemnified Party.
(h) The maximum amount that may be claimed in the aggregate by any Party
pursuant to this Article 10 is the Purchase Price.
10.5 INDEMNIFICATION CLAIMS
The parties agree that this Article 10 sets out the sole and exclusive
manner by which the Indemnified Party may seek monetary compensation from the
Indemnifying Party for any matter in respect of which the Indemnified Party may
make a Claim under Section 10.1, including, for greater certainty, any matter
that could be made a Claim under that Section but for Section 10.4(b).
10.6 LIMITATION OF LIABILITY
Each Party's liability to the other, except for liability arising from
such Party's fraud, gross negligence or willful misconduct, is expressly limited
to the Purchase Price.
ARTICLE 11
GENERAL
11.1 PUBLIC NOTICES
Prior to the Closing Date, all public notices to third parties and all
other publicity concerning the transactions contemplated by this Agreement shall
be jointly planned and coordinated by AACI and the Purchaser and no Party shall
act unilaterally in this regard without the prior approval of the other Party,
such approval not to be unreasonably withheld, except where required to do so by
(i) law or by the applicable regulations or policies of any provincial, state,
federal, or other regulatory agency of competent jurisdiction of either Canada
or the United States or (ii) the Nasdaq Stock Market, in circumstances where
prior consultation with the other Party is not practicable.
11.2 EXPENSES
Each of the Parties shall pay their respective legal, accounting, and
other professional advisory fees, costs and expenses incurred in connection with
the purchase and sale of the Purchased Shares and the preparation, execution and
delivery of this Agreement and all documents and instruments executed pursuant
to this Agreement and any other costs and expenses incurred.
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11.3 NOTICES
Any notice or other writing required or permitted to be given under this
Agreement or for the purposes of this Agreement (in this Section referred to as
a "Notice") shall be in writing and shall be sufficiently given if delivered, or
if sent by prepaid registered mail or if transmitted by facsimile or other form
of electronic communication tested prior to transmission to such Party:
(a) in the case of a Notice to AACI at:
Alliance Atlantis Communications Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) in the case of a Notice to the Purchaser at:
Point.360
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. Bagerdjian
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address as the Party to whom such Notice is to be given shall
have last notified the Party giving the same in the manner provided in this
Section. Any Notice delivered to the Party to whom it is addressed as provided
above shall be deemed to have been given and received on the day it is so
delivered at such address, provided that if such day is not a Business Day then
the Notice shall be deemed to have been given and received on the next Business
Day. Any Notice sent by prepaid registered mail shall be deemed to have been
given and received on the fifth Business Day following the date of its mailing.
Any Notice transmitted by facsimile or other form of electronic communication
shall be deemed given and received on the first Business Day after its
transmission, if a copy of such notice is mailed by first class mail to the
recipient within 24 hours of such electronic transmission.
11.4 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, and those in any supplement
thereto, must relate only to the representations and warranties in the Section
of the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body of
this Agreement and those in the Disclosure Letter (other than an exception
expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
11.5 ASSIGNMENT
Neither this Agreement nor any benefits or burdens under this Agreement
shall be assignable by any Party without the prior written consent of each of
the other Parties. Subject to the foregoing, this Agreement shall enure to the
benefit of and be binding upon the Parties and their respective successors
(including any successor by reason of amalgamation or merger of any Party) and
permitted assigns.
11.6 FURTHER ASSURANCES
The Parties shall, with reasonable diligence, do all such things and
provide all such reasonable assurances as may be required to consummate the
transactions contemplated by this Agreement, and each Party shall provide such
further documents or instruments required by any other Party as may be
reasonably necessary or desirable to effect the purpose of this Agreement and
carry out its provisions, whether before or after the Closing.
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11.7 COUNTERPARTS
This Agreement may be executed by the Parties in separate counterparts
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument.
11.8 EXECUTION BY TELECOPY
This Agreement may be executed by the parties and transmitted by
telecopy and, if so executed and transmitted, this Agreement will be for all
purposes as effective as if the parties had delivered an executed original
Agreement.
IN WITNESS OF WHICH the Parties have duly executed this Agreement.
ALLIANCE ATLANTIS COMMUNICATIONS INC.
By:
Name:
Title:
By:
Name:
Title:
POINT.360
By:
Name:
Title:
By:
Name:
Title:
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