Exhibit 10.1 - Stock Purchase Agreement.
This Agreement is included as an exhibit to the Form 8-K to provide information
regarding its terms. Except for its status as the contractual document between
the parties with respect to the transaction described herein, it is not intended
to provide factual information about the parties. The representations and
warranties contained in this Agreement were made only for purposes of this
agreement and as of specific dates, were solely for the benefit of the parties
hereto, and may be subject to limitations agreed by the contracting parties,
including being qualified by disclosures between the parties. These
representations and warranties may have been made for the purposes of allocating
contractual risk between the parties to the agreement instead of establishing
these matters as facts, and may be subject to standards of materiality
applicable to the contracting parties that differ from those applicable to
investors. They should be viewed by investors in this context.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT made as of March 28, 2006 by and among
ZIM Corporation, a company existing under the laws of Canada (the "Purchaser"),
Advanced Telecom Services, Inc., a Delaware corporation (the "Shareholder") and
Advanced Internet, Inc., a Delaware corporation (the "Company");
WHEREAS the Shareholder is the registered and beneficial owner of an
aggregate of one hundred (100) shares of common stock of the Company (the
"Shares"), being all of the issued and outstanding shares of capital stock of
the Company;
AND WHEREAS the Shareholder has agreed to sell to the Purchaser and the
Purchaser has agreed to purchase from the Shareholder all of the Shares
effective as of the Closing Date (as defined below);
AND WHEREAS the Shareholder, the Company and the Purchaser have entered
into a letter of intent dated as of January 25, 2006 (the "Term Sheet") setting
forth the general terms in respect of the purchase and sale of the Shares, with
such changes as were agreed to by the parties, which general terms are fully
defined under the herein Agreement;
NOW THEREFORE, THIS AGREEMENT WITNESSES that for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in consideration of the premises and mutual covenants herein contained, the
parties hereto agree as follows:
1. PURCHASE AND SALE. As of the Closing Date, subject to the terms hereof, the
Shareholder hereby agrees to sell the Shares to the Purchaser and the Purchaser
agrees to purchase from the Shareholder all of its Shares on the Closing Date.
The sale of the Shares by the Shareholder to the Purchaser shall be completed by
the parties on the Closing Date, by delivery by the Shareholder to the Purchaser
of the documents set forth in Section 3 hereof against delivery by the Purchaser
of the consideration specified in Section 2 hereof.
2. PURCHASE PRICE.
2.1 The entire purchase price payable by the Purchaser to the Shareholder for
the Shares (the "Purchase Price") is and shall be fully satisfied as set forth
in this Section 2.
2.2 Subject to the provisions of this Agreement, the Purchase Price shall be (I)
a total of ten million (10,000,000) common shares in the capital of the
Purchaser (the "Consideration Shares"), (II) two hundred and fifty thousand US
dollars (US$250,000) (the "Consideration Cash"), and (III) the Option, as
hereinafter defined, which shall be paid and satisfied on the Closing Date by
way of:
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(a) delivery to the Shareholder or its designated agent of share
certificates representing nine million (9,000,000) of the Consideration
Shares (the "Closing Shares");
(b) the entry into by the Shareholder, the Purchaser and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Professional Corporation (as escrow agent) (the "Escrow Agent") of an
escrow agreement in the form attached as Schedule "A" hereto (the
"Escrow Agreement") pursuant to which Escrow Agreement, certificates
representing one million (1,000,000) of the Consideration Shares (the
"Escrow Shares") shall be issued to the Shareholder and delivered to
the Escrow Agent, to be held in escrow in accordance with the
provisions of Section 2.4 hereof;
(c) the delivery by the Purchaser to the Shareholder of a non-interest
bearing senior secured promissory note in the principal amount of the
Consideration Cash in the form attached as Schedule "B" hereto (the
"Note"), which note shall be senior in priority of security and payment
to all other debt of the Purchaser other than Permitted Indebtedness
(as defined below), and a general security agreement securing the
Purchaser's obligations to the Shareholder under the Note in the form
attached as Schedule "C" hereto (the "Security Agreement" and, together
with the Escrow Agreement and the Note, the "Ancillary Agreements").
"Permitted Indebtedness" for the purposes of the foregoing means (i)
the indebtedness of the Purchaser under its credit facilities with the
Royal Bank of Canada and (ii) indebtedness secured by "Permitted
Encumbrances", as defined in the Security Agreement; and
(d) issuance and delivery to the Shareholder of an option to purchase five
hundred thousand (500,000) common shares in the capital of the
Purchaser at a price per share equal to the average daily closing price
of the common shares in the capital of the Purchaser (the "ZIM Shares")
on the Nasdaq Over the Counter Bulletin Board (the "OTCBB") for a
period of twenty (20) trading days prior to the Closing Date (the
"Option"), which Option shall be governed in accordance with the
Purchaser's employee stock option plan and shall expire upon the third
anniversary of its date of grant.
2.3 The Purchaser hereby covenants to use its best efforts to file with the
United States Securities and Exchange Commission (the "SEC") a registration
statement (the "Registration Statement") under the United States Securities Act
of 1933, as amended (the "US Act"), on or before six months from the Closing
Date (the "Filing Deadline") in order to effect the registration of the resale
by the Shareholder of the Consideration Shares with the SEC. The Purchaser's
obligation to take any action pursuant to this Agreement in respect of
registration of the resale of the Consideration Shares is conditional upon the
Shareholder furnishing to the Purchaser such information regarding itself and
its intended method of disposition of the Consideration Shares as may be
required to affect such registration and the Purchaser's other obligations
hereunder. Without detracting from the Purchaser's obligations to use its best
efforts as stated above, the Shareholder acknowledges that the Purchaser may be
unable, despite its best efforts, to effect the filing of the Registration
Statement by the Filing Deadline due to circumstances beyond the control of the
Purchaser (including, without limitation, impediments to such filing which may
arise due to the review by the SEC of the Purchaser Reports (as defined in
Section 7.9 hereof).
2.4 The Purchaser also agrees to use its best efforts to cause the Registration
Statement to be declared effective as soon as reasonably practicable.
Notwithstanding the foregoing, the Purchaser and the Shareholder hereby
expressly acknowledge that the resale of the Consideration Shares may never be
so registered with, and that such Registration Statement may never be declared
effective by, the SEC, notwithstanding the best efforts of the Purchaser and
that, if the resale of the Consideration Shares is not so registered with the
SEC, they will not be freely tradable for a period of twelve (12) months
following the Closing Date, subsequent to which twelve (12) month period, the
Consideration Shares (or some portion thereof as determined in accordance with
applicable laws) may be freely tradable pursuant to the provisions of Rule 144
under the US Act.
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2.5 All expenses related to the preparation, filing and declaration of
effectiveness of the Registration Statement, other than any direct costs of the
Shareholder or the Company related to the preparation of the Registration
Statement (including, without limitation, any legal fees, commissions and other
offering costs and other expenses incurred by the Shareholder) all of which
direct costs shall be borne by the Shareholder, shall be borne by the Purchaser.
Notwithstanding the foregoing, the Shareholder acknowledges and agrees that all
expenses related to the preparation of audited financial statements for the
Company for the period prior to the Closing Date in a form suitable for filing
which the SEC in the reasonable judgment of the Purchaser shall be borne by the
Shareholder.
2.6 Once filed and declared effective, the Purchaser shall, subject to the
provisions of Section 2.7 hereof, take all actions necessary to maintain the
effectiveness of the Registration Statement until such time, if any, that the
Consideration Shares have been disposed of or may be freely sold by the
Shareholder pursuant to Rule 144 under the US Act during any ninety (90) day
period.
2.7 The Shareholder agrees that it will comply with all applicable laws and
regulations in connection with resales of any Consideration Shares. Without
limiting the generality of the forgoing, the Shareholder agrees that it shall
(a) comply with the prospectus delivery requirements of the US Act as applicable
to it in connection with sales of Consideration Shares, (b) not offer or sell
any Consideration Shares pursuant to any registration hereunder until it has
received copies of the applicable prospectus as then in effect and notice from
the Purchaser that such registration statement and any post-effective amendments
thereto have become effective, (c) comply with the provisions of Regulation M
promulgated by the SEC as applicable to it in connection with sales of
Consideration Shares pursuant to any such registration statement and (d) not
offer or sell any Consideration Shares pursuant to any such registration
statement during the effectiveness of any stop order with respect to such
registration statement. Upon receipt of any notice from the Purchaser of the
existence of any circumstance or the occurrence of any event as a result of
which (i) any such registration statement contains an untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein not misleading or (ii) any such prospectus contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, the Shareholder shall not offer or sell any
Consideration Shares pursuant to any such registration statement until the
Shareholder receives from the Purchaser copies of a supplemented or amended
prospectus and notice that any related post-effective amendment has become
effective, and, if so directed by the Purchaser, the Shareholder shall deliver
to the Purchaser all copies in its possession, other than permanent file copies
then in such the Shareholder's possession, of the prospectus as theretofore in
effect.
2.8 At any time until such time, if any, that the Consideration Shares have been
disposed of or may be freely sold by the Shareholder pursuant to Rule 144 under
the US Act during any ninety (90) day period, if the Purchaser shall determine
to register the sale of any of its securities under the US Act either for its
own account or the account of a security holder or holders, other than a
registration relating solely to employee benefit plans, a registration relating
to the offer and sale of debt securities (other than convertible debt
securities), a registration solely in connection with a merger with or
acquisition of a third party, or a registration on any registration form that
does not permit secondary sales, the Purchaser will at least fifteen (15)
Business Days prior to the proposed date of such registration give the
Shareholder written notice thereof and, subject to the provisions of Sections
2.9 to 2.13 hereof, include in such registration, and in any underwriting
involved therein, if legally possible, such number of Consideration Shares
specified in a written request by the Purchaser and received by the Purchaser
within ten (10) Business Days after the written notice from the Purchaser is
delivered by the Purchaser. Such written request may specify all or a part of
the Consideration Shares held by the Purchaser at such date.
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2.9 If the registration of which the Purchaser gives notice under Section 2.8 is
for a registered public offering or distribution involving an underwriting, the
Purchaser shall so advise the Shareholder as a part of the written notice given
pursuant to Section 2.8 hereof and, in such event, the right of the Shareholder
to registration pursuant to Section 2.8 hereof shall be conditional upon the
Shareholder's participation in such underwriting and the inclusion of any
Consideration Shares in the underwriting to the extent provided herein. If the
Shareholder proposes to distribute any Consideration Shares through such
underwriting, then the Shareholder (together with the Purchaser and the other
holders of securities of the Purchaser distributing their securities through
such underwriting) will enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected by the
Purchaser.
2.10 Notwithstanding any other provision of Sections 2.8 and 2.9 hereof, if the
managing underwriter determines that marketing factors require a limitation of
the number of securities to be underwritten, the managing underwriter may limit
the Consideration Shares and other securities to be distributed through such
underwriting and the number of shares that may be included in the underwriting
shall be allocated: (a) first, to the Purchaser; and (ii) second, to the
Shareholder and any other shareholder of the Purchaser on a pro rata basis, and
the Purchaser shall so advise the Shareholder.
2.11 If the Shareholder does not agree to the terms of any such underwriting
(including the terms of the underwriting agreement referred to in Section 2.9
hereof), the Shareholder shall be excluded therefrom by written notice from the
Purchaser or the underwriter. Any Consideration Shares or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.
2.12 The Purchaser shall have the right, without the consent of the Shareholder,
to terminate or withdraw any registration initiated by it under Section 2.8
hereof prior to the effectiveness of such registration whether or not the
Shareholder has elected to include Consideration Shares in such registration.
2.13 The Shareholder may withdraw its Consideration Shares from the proposed
registration by giving written notice to the Purchaser and the managing
underwriter, if any, on or before the tenth Business Day prior to the proposed
date of the effectiveness of such registration.
2.14 The Escrow Shares shall be held by the Escrow Agent in escrow for the
Purchaser pursuant to the terms and conditions of the Escrow Agreement and
Section 9 of this Agreement. On the first anniversary of the Closing (the
"Release Date") if any Escrow Shares remain held by the Escrow Agent and no
claims are then outstanding against such Escrow Shares, then all (or the
unclaimed balance) of such Escrow Shares shall be released to the Shareholder on
the Release Date.
3. CLOSING.
3.1 Time of the Essence. Time shall be of the essence of this Agreement.
3.2 Closing. The closing of the transactions contemplated by this Agreement (the
"Closing") shall be effective at 12:01 am (Ottawa, Ontario time) on April 1,
2006 or as soon as practicable thereafter after the conditions to Closing have
been satisfied or waived (the "Closing Date") by facsimile and/or e-mail
transmission with follow-up of original Closing documents by overnight courier
to the parties' addresses set forth in Section 11.7 hereto, or at such other
place and at such other time as may be approved in writing by the parties
hereto.
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3.3 Closing Procedures. At or prior to the Closing, the Shareholder, the Company
and the Purchaser shall take or cause to be taken all actions, steps and
corporate proceedings necessary or desirable to validly and effectively approve
or authorize the completion of the transactions herein provided for; and, upon
fulfillment of all of the conditions set forth in Sections 4 and 5 hereof which
have not been waived in writing as provided for therein, the Shareholder shall
deliver or cause to be delivered to the Purchaser all documents required to be
delivered hereunder, including, but not limited to the following:
(a) all of the certificates representing all of the Shares duly endorsed in
blank (or accompanied by duly executed stock powers) for transfer to
the Purchaser;
(b) the minute books, share certificate books and corporate seals of the
Company;
(c) each of the Ancillary Agreements, executed by each of the respective
parties thereto;
(d) an opinion of legal counsel to the Company in respect of the valid
subsistence of the Company, the capitalization of the Company and the
due authorization and enforceability of this Agreement and all related
instruments addressed to the Purchaser in a form acceptable to the
Purchaser and its legal counsel acting reasonably;
(e) a certificate dated the Closing Date executed by a senior officer of
the Company and by the Shareholder attesting to (i) the truth and
accuracy of each of the representations and warranties of the Company
and the Shareholder set forth in Section 6 hereof as if each such
representation and warranty were made on and as of the Closing Date and
(ii) the satisfaction of each of the conditions set forth in Section 4
hereof to be satisfied by the Company and the Shareholder;
(f) the information required for full access (FTP, VPN and/or any other
required means) to the Company's online system's software including,
without limitation, Source Code (as defined below) and production
systems, database and all of the Shareholder's and/or the Company's
related technical and user documentation, together with a certificate
of each of the Company and the Shareholder certifying that there are no
other copies of the Company's online system's software, Source Code,
production systems and/or database provided, however, that for greater
certainty, the Shareholder shall not be required to create any new
technical and/or user documentation under this sub-section 3.3(f) where
such documentation has not been previously existed with respect to the
Company's online system's software;
(g) all such other releases, assurances, certificates, consents,
agreements, documents and instruments as may reasonably be required by
the Purchaser to complete the transactions contemplated by this
Agreement; and
the Purchaser shall deliver or cause to be delivered to the Shareholder all
documents required to be delivered hereunder, including, but not limited to the
following:
(h) the Note and a certificate representing the Closing Shares;
(i) an opinion of legal counsel to the Purchaser in respect of the valid
subsistence of the Purchaser and the due authorization and
enforceability of this Agreement and all related instruments and
issuance of the Consideration Shares and Option, addressed to the
Shareholder in a form acceptable to the Shareholder and its legal
counsel acting reasonably;
Page 8
(j) each of the Ancillary Agreements executed by the Purchaser and, where
applicable, the Escrow Agent;
(k) a certificate dated the Closing Date executed by a senior officer of
the Purchaser attesting to (i) the truth and accuracy of each of the
representations and warranties of the Purchaser set forth in Section 7
hereof as if each such representation and warranty were made on and as
of the Closing Date, and (ii) the satisfaction of each of the
conditions set forth in Section 5 hereof to be satisfied by the
Purchaser; and
(l) all such other assurances, certificates, consents, agreements,
documents and instruments as may reasonably be required by the
Shareholder to complete the transactions contemplated by this
Agreement.
Upon the fulfillment of the foregoing provisions of this Section 3 and upon
fulfillment of all of the conditions set forth in Sections 4 and 5 hereof which
have not been waived in writing as therein provided, the Purchaser shall pay the
Purchase Price on the terms and conditions specified in Section 2 hereof.
3.4 Pre-Closing Covenants. Between the date hereof and the Closing Date, the
Company shall conduct its business consistent with the following:
(a) Ordinary Course. The Company shall carry on its business in the usual
and ordinary course in substantially the same manner as heretofore
conducted and, consistent with its current practice, and use all
reasonable efforts to perform its obligations under its current
agreements and to preserve its relationships with customers, suppliers
and others having business dealings with it, to the end that the
business shall not have experienced any change resulting in a Material
Adverse Change (as defined below) at the Closing Date;
(b) Additional Agreements. The Company shall not enter into or assume any
agreement, contract or commitment, except (a) purchases of supplies and
sales of inventories in the ordinary course of business consistent with
prior practice and (b) agreements, contracts or commitments which,
individually or in the aggregate, are not material to the Company taken
as a whole, nor otherwise make any material change in the conduct of
the business or operations of the Company; and
(c) Indebtedness. The Company shall not (a) create, incur or assume any
long-term debt (including obligations in respect of capital leases);
(b) create, incur or assume any short-term debt representing
indebtedness for borrowed money; (c) enter into any agreements
requiring the maintenance of a specific net worth; (d) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
person; or (e) make any loans, advances or capital contributions to, or
investments in, any other person.
4. CONDITIONS FOR THE BENEFIT OF THE PURCHASER. The Purchaser shall not be
obliged to complete the purchase of the Shares unless, at or prior to
the Closing, each of the following conditions shall have been
satisfied, it being understood that the said conditions are included
for the exclusive benefit of the Purchaser and may be waived in writing
by the Purchaser at any time, and the Shareholder covenants and agrees
with the Purchaser to use its best efforts to ensure that such
conditions are fulfilled at or prior to the Closing:
Page 9
(d) Company Assets. All assets used by and essential for the business of
the Company shall be held by and, as may be necessary, shall have been
transferred (free and clear of any and all Liens (as defined below))
to, the Company (excluding any computer and telephony equipment owned
by the Shareholder and used by the Company but which is not necessary
to the business of the Company as will be carried on subsequent to the
Closing due to the fact that such equipment shall be provided to the
Company by the Purchaser);
(e) Representations and Warranties. The representations and warranties set
forth in Section 6 hereof shall be true and correct in all material
respects at Closing;
(f) Compliance. All of the terms, covenants and agreements set forth in
this Agreement to be complied with or performed at or prior to the
Closing shall have been complied with or performed at or prior to the
Closing in all material respects;
(g) Material Adverse Change. During the period from the date hereof to the
Closing Date, there shall have been no Material Adverse Change;
(h) Good Title. The Shareholder shall have good and marketable title to the
Shares free and clear of any and all claims, commitments, rights,
options, liens, charges, encumbrances and security interests of any
nature and kind whatsoever (each, a "Lien");
(i) Consents and Approvals. All consents and approvals required to be
obtained by the Shareholder and/or the Company in connection with the
execution and delivery of this Agreement and the completion of the
transactions contemplated by this Agreement by the Shareholder
including, without limitation, consents of contractual counterparties
to agreements with the Shareholder and/or the Company (the "Shareholder
Consents and Approvals") shall have been obtained;
(j) Notices. All notices (the "Shareholder Notices") required to be given
by the Shareholder and/or the Company in connection with the execution
and delivery of this Agreement and the completion of the transactions
contemplated hereby by the Shareholder shall have been given;
(k) Inter-Company Matters. At the Closing Date there will be no
inter-company payables or receivables between the Company and the
Shareholder;
(l) Working Capital. There shall be $10,000 of Working Capital in the
Company on the Closing Date and immediately prior to the Closing;
(m) Certificate of Non-Foreign Status. A certificate in the form required
by United States Internal Revenue Code Section 1445(b)(2) and the
regulations promulgated thereunder that the Shareholder is not a
"foreign person" within the meaning of United States Internal Revenue
Code Section 1445; and
(n) Deliveries. The Shareholder shall have executed and delivered to the
Purchaser the documents contemplated in Section 3.3 hereof and
otherwise pursuant to this Agreement.
If any of the foregoing conditions shall not have been fulfilled
at or prior to the Closing, the Purchaser in its sole
discretion may either: (A) terminate this Agreement by notice
in writing to the Shareholder, in which event the Purchaser
shall be released from all obligations under this Agreement,
Page 10
and unless the Purchaser can show that the condition for which
the Purchaser has terminated this Agreement could reasonably
have been performed or complied with or caused to have been
performed or complied with by the Shareholder, then the
Shareholder shall also be released from all obligations
hereunder; or (B) waive compliance with any such condition if
it shall see fit to do so, without prejudice to its right of
termination in the event of non-fulfillment of any other
condition hereof in whole or in part.
5. CONDITIONS FOR THE BENEFIT OF THE SHAREHOLDER. The Shareholder shall not be
obliged to complete the sale of the Shares unless, at or prior to the Closing,
each of the following conditions shall have been satisfied, it being understood
that the said conditions are included for the exclusive benefit of the
Shareholder and may be waived in writing by the Shareholder at any time, and the
Purchaser covenants and agrees with the Shareholder to use its best efforts to
ensure that such conditions are fulfilled at or prior to the Closing:
(a) Representations and Warranties. The representations and warranties set
forth in Section 7 hereof shall be true and correct in all material
respects at Closing;
(b) Compliance. All of the terms, covenants and agreements set forth in
this Agreement to be complied with or performed at or prior to the
Closing shall have been complied with or performed at or prior to the
Closing in all material respects;
(c) Consents and Approvals. All consents and approvals (the "Purchaser
Consents and Approvals") required to be obtained by the Purchaser in
connection with the execution and delivery of this Agreement and the
completion of the transactions contemplated by this Agreement by the
Purchaser shall have been obtained;
(d) Notices. All notices (the "Purchaser Notices") required to be given by
the Purchaser in connection with the execution and delivery of this
Agreement and the completion of the transactions contemplated hereby by
the Purchaser shall have been given;
(e) Material Adverse Change. During the period from the date hereof to the
Closing Date, there shall have been no material adverse change in the
business, financial condition, assets, or results of operations of the
Purchaser; and
(f) Deliveries. The Purchaser shall have executed and delivered to the
Shareholder the documents contemplated in Section 3.3 hereof and
otherwise pursuant to this Agreement.
If any of the foregoing conditions shall not have been fulfilled at or prior to
the Closing, the Shareholder, in its sole discretion, may either: (A) terminate
this Agreement by notice in writing to the Purchaser, in which event the
Shareholder shall be released from all obligations under this Agreement, and
unless the Shareholder can show that the condition for which the Shareholder has
terminated this Agreement could reasonably have been performed or complied with
or caused to have been performed or complied with by the Purchaser, then the
Purchaser shall also be released from all obligations hereunder; or (B) waive
compliance with any such condition if he shall see fit to do so, without
prejudice to the Shareholder's right of termination in the event of
non-fulfillment of any other condition hereof in whole or in part.
Page 11
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER. As a
material inducement to the Purchaser entering into this Agreement and completing
the transactions contemplated by this Agreement and acknowledging that the
Purchaser is entering into this Agreement in reliance upon the representations
and warranties of the Shareholder set forth in this Section 6, the Company and
the Shareholder, jointly and severally, hereby represent and warrant to the
Purchaser as follows:
6.1 Authorization by Shareholder. The Shareholder has the corporate power and
authority to enter into this Agreement and all other agreements and instruments
to be executed by the Shareholder as contemplated by this Agreement and to carry
out the Shareholder's obligations under this Agreement and such other agreements
and instruments. The execution and delivery of this Agreement and such other
agreements and instruments and the completion of the transactions contemplated
by this Agreement and such other agreements and instruments have been duly
authorized by the Shareholder.
6.2 Enforceability of Shareholder's Obligations. This Agreement constitutes a
valid and binding obligation of the Shareholder enforceable against the
Shareholder in accordance with its terms subject, however, to limitations on
enforcement imposed by bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of the rights of creditors and others and to the
extent that equitable remedies such as specific performance and injunctions are
only available in the discretion of the court from which they are sought. The
Shareholder is not Insolvent (as defined below) and will not become an insolvent
person as a result of the Closing. In this Agreement, "Insolvent" means either
having total liabilities in excess of total assets or being unable to satisfy
one's existing and reasonably foreseeable debts, liabilities and obligations,
whether or not liquidated, matured, asserted or contingent, as they become due
in the ordinary course of business.
6.3 Organization and Residence of Shareholder. The Shareholder is a corporation
incorporated, validly subsisting and in good standing under the laws of the
State of Delaware.
6.4 Ownership of the Shares. The Shareholder is, and at the Closing will be, the
registered and beneficial owner of all of the Shares with good and marketable
title thereto, free and clear of all Liens other than Liens listed in Schedule
6.4 hereto. No person other than the Purchaser has any agreement, option, right
or privilege capable of becoming an agreement for the acquisition of any of the
Shares. The delivery of the Shares (with any required Shareholder Consents and
Approvals and Shareholder Notices) by the Shareholder to the Purchaser pursuant
to the provisions of this Agreement will transfer good and valid title to the
Shares to the Purchaser free and clear of all Liens.
6.5 Consents and Approvals. All of the Shareholder Consents and Approvals are
listed in Schedule 6.5 hereto. Except for such Shareholder Consents and
Approvals, no consent or approval of any person is required in connection with
the execution and delivery of this Agreement and the completion of the
transactions contemplated by this Agreement or to permit the Company to carry on
its business after the Closing Date as such business is currently carried on by
the Company.
6.6 Notices. All of the Shareholder Notices are listed in Schedule 6.6 hereto.
Except for such Shareholder Notices, no notice is required to be delivered to
any person in connection with the execution and delivery of this Agreement and
the completion of the transactions contemplated by this Agreement or to permit
the Company to carry on its business after the Closing Date as such business is
currently carried on by the Company.
6.7 Absence of Conflicting Agreements. The execution, delivery and performance
of this Agreement by the Shareholder and the Company and the completion (with
any required Shareholder Consents and Approvals and Shareholder Notices) of the
transactions contemplated by this Agreement do not and will not result in or
constitute any of the following:
Page 12
(a) a default, breach or violation or an event that, with notice of lapse
or time or both, would be a default, breach or violation of any of the
terms, conditions or provisions of the certificate of incorporation (as
amended to the Closing Date) and/or by-laws of either the Shareholder
or the Company;
(b) an event which, pursuant to the terms of any contract, license or
permit, causes any material right or interest of the Company to come to
an end or be amended in any way that is detrimental to the business of
the Company or entitles any other person to terminate or amend any such
right or interest that, in either case, would cause a Material Adverse
Change;
(c) the creation or imposition of any Lien on any asset of the Company or
on any of the Shares; or
(d) the violation of any applicable law by the Shareholder or the Company.
For greater certainty, it is expressly acknowledged that should the Shareholder
or the Company fail to obtain the Shareholder Consents and Approvals and/or
Shareholder Notices listed at Schedule 6.7 hereto on or prior to the Closing
Date, and the Purchaser waives the condition to closing relating to any such
Shareholder Consents and Approvals and Shareholder Notices, such failure shall
not constitute a breach of the provisions of this Section 6.7, provided that the
provisions of the foregoing clause shall in no way derogate from the
Shareholder's obligations under Section 10.6 hereof.
6.8 Organization of the Company. The Company is a corporation duly incorporated,
validly subsisting and in good standing under the laws of the State of Delaware.
Except as set forth in Schedule 6.8 hereto, the Company does not have any
subsidiaries or agreements of any nature to acquire any subsidiary or to acquire
or lease any business operation. The Company is licensed, registered and
qualified to conduct business in each of the jurisdictions set forth on Schedule
6.8 hereto (collectively, the "Applicable Jurisdictions"), which jurisdictions
are the only jurisdictions under the laws of which the character or the location
of the properties owned by the Company or any subsidiary of the Company or the
nature of the business conducted by it requires licensing, registration or
qualification unless any failure to be so licensed, registered or qualified
would not, individually or in the aggregate, cause a Material Adverse Change.
The Company has full corporate power to carry on its business and to own and
operate its assets, properties and business as now carried on and owned and
operated. Schedule 6.8 hereto sets forth a complete list of officers, directors
and shareholders of the Company and its respective subsidiaries.
6.9 Share Capital.
(a) The authorized capital of the Company consists of 100 shares of common
stock, of which there are 100 shares issued and outstanding as fully
paid and non-assessable. The Company does not have any stock option
plan and the Company has not granted any options to purchase any shares
of stock of the Company. There are no outstanding securities of the
Company convertible into or exchangeable for any shares of stock or any
rights (either pre-emptive or other) to subscribe for or to purchase,
or any options, rights or warrants for the purchase of, or any
agreements providing for the issuance of, or any calls, commitments or
claims of any character relating to the issuance of, any securities in
the stock of the Company.
Page 13
(b) Except as set forth in Schedule 6.9 hereto, the Company has not, since
the date of its incorporation, declared or made any payment of any
dividend or other distribution in respect of its shares and has not
redeemed, purchased or otherwise acquired any shares. There are no
outstanding securities convertible into or exchangeable for any shares
of capital stock or any rights (either pre-emptive or other) to
subscribe for or to purchase, or any options, rights or warrants for
the purchase of, or any agreements providing for the issuance of, any
securities in the capital stock of any of the subsidiaries of the
Company.
6.10 Corporate Records. The minute books of the Company provided to the
Purchaser contains true, correct and complete copies of its certificate of
incorporation, by-laws, minutes of every meeting of its board of directors and
every committee thereof and of its shareholders and every written resolution of
its directors and shareholders since its date of incorporation. The share
certificate books, register of shareholders, register of transfers and register
of directors and officers of the Company are complete and accurate in all
material respects.
6.11 Legal Matters. The business of the Company has at all times been conducted
in all material respects in accordance with applicable laws and regulations in
the Applicable Jurisdictions and in any relevant other jurisdiction and there is
no investigation or inquiry, order, decree or judgment of any court of competent
jurisdiction or any governmental agency or regulatory body outstanding or to the
Shareholder's knowledge and belief anticipated against the Company and/or any
subsidiary thereof which may cause a Material Adverse Change.
6.12 Short Codes. The Company is the owner of the short codes used in connection
with its business set forth in Schedule 6.12. The Company is not currently and
has not previously been in violation of any applicable law, regulation, edict,
order or guidelines of any applicable governmental authority, nor to its
knowledge has it violated the privacy or other rights of any third party, in its
past or present use in any manner of the short codes. The Company has not
received notice that any short code will be terminated nor is it aware of any
circumstance which is or is reasonably likely to give rise to any such
termination.
6.13 Bankruptcy. The Company is not Insolvent and has not made an assignment in
favour of its creditors nor filed a voluntary petition under the US Bankruptcy
Code nor had any involuntary petition filed in respect of it. The Company has
not initiated proceedings with respect to a compromise or arrangement with its
creditors or for its winding up, liquidation or dissolution. No receiver has
been appointed in respect of the Company or any of its assets or the Shares and
no execution or distress has been levied on any of such assets or the Shares.
6.14 Financial Statements. The Shareholder has furnished the Purchaser with the
unaudited financial statements of the Company for the years ended December 31,
2005 and 2004 (collectively, the "Financial Statements"), true and complete
copies of which are annexed to Schedule 6.14 hereto. The Financial Statements
have been prepared in accordance with accounting principals generally accepted
in the United States of America. The balance sheets contained in such Financial
Statements fairly present in all material respects the financial position (or
forecasted financial position, as applicable) of the Company as of their
respective dates and the statements of earnings and retained earnings contained
in the Financial Statements fairly present in all material respects the results
(or forecasted results, as applicable) of operations for the periods indicated.
Since December 31, 2005, the Company has carried on its business in the ordinary
course and there has been no material adverse change in the business, financial
condition, assets, or results of operations of the Company taken as a whole (a
"Material Adverse Change").
Page 14
6.15 Assets. The assets of the Company are listed on Schedule 6.15 hereto.
Except as disclosed in Schedule 6.15 hereto, the Company has good and marketable
title to all of its assets, free and clear of any and all Liens except for (i)
any Lien for current taxes (as defined in the last sentence of this Section
6.15) not yet due and payable, and (ii) minor Liens that have arisen in the
ordinary course of the Company's business and that do not (individually or in
the aggregate) materially detract from the value of, or the ability of the
Company to exploit, any such asset subject thereto or materially impair the
operations of the Company. Schedule 6.15 hereto sets out a complete and accurate
list of all locations where the assets of the Company are situated, including a
brief description of the assets situated at each such location. All machines,
machinery, equipment, tools or other moveable or mechanical property forming
part of such assets are in good operating condition and are in a state of good
repair and maintenance, reasonable wear and tear excepted. There is no
agreement, option or other right or privilege outstanding in favour of any
person for the purchase from the Company and/or any Shareholder of the business
of the Company or of any of such assets out of the ordinary course of business.
Such assets are sufficient to permit the continued operation of the business of
the Company in substantially the same manner as conducted in the year ended on
the date of this Agreement except for any computer and telephony equipment owned
by the Shareholder and used by the Company, all of which is listed in Schedule
6.15 hereto and which is not necessary to the business of the Company as will be
carried on subsequent to the closing due to the fact that such equipment will be
provided to the Company by the Purchaser. For the purposes of this Agreement,
"taxes" refers to any and all federal, provincial, regional, state, municipal,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities relating to taxes, together with all interest,
penalties and additions imposed with respect to such amounts and including any
liability for taxes of a predecessor entity.
6.16 Premises. The Company neither owns nor leases any premises.
6.17 Material Contracts. Schedule 6.17 hereto lists all the contracts to which
the Company is a party which are material to the operation of its business
("Material Contracts"). The Company is not in default under any Material
Contract and there has not occurred any event, which, with the lapse of time or
giving of notice or both, would constitute a default under any Material Contract
by the Company or any other party to such a Material Contract, other than any
default which would not be likely to result in a Material Adverse Change. Each
Material Contract is in full force and effect, unamended by written or oral
agreement. Neither the Company nor the Shareholder has received any notice of a
default by any party under any Material Contract or notice of any dispute
between the Company and any other party in respect of any Material Contract.
6.18 Intellectual Property.
(a) Schedule 6.18(a)(i) hereto sets forth, with respect to each Proprietary
Asset (as defined below) owned by the Company and registered with any
governmental body or for which an application has been filed with any
governmental body, (i) a brief description of each such Proprietary
Asset, (ii) the names of the jurisdictions covered by the applicable
registration or application and (iii) the application or registration
number and date of issuance or filing. Schedule 6.18(a)(ii) hereto
identifies and provides a brief description of each Proprietary Asset
owned by the Company that is material to the business of the Company.
Schedule 6.18(a)(iii) hereto identifies and provides a brief
description of, and identifies any ongoing license fee, royalty or
payment obligations which, either alone or in the aggregate, are or in
the future may be, in excess of five thousand United States dollars
(US$5,000) with respect to, each Proprietary Asset that is licensed or
otherwise made available to or used by the Company by any person and is
material to the business of the Company, and identifies and provides a
description of (1) the agreement under which such Proprietary Asset is
being licensed or otherwise made available to or used by the Company,
(2) whether such Proprietary Asset is embedded or bundled with a
Proprietary Asset set out in Schedule 6.18(a)(ii) hereto or
independently distributed by the Company (and if so embedded or
bundled, the specific Proprietary Asset set out in Schedule 6.18(a)(ii)
hereto with which such Proprietary Asset is embedded or bundled), and
(3) if so embedded or bundled or independently distributed, any
representations, warranties, support obligations, indemnities or other
commitments made by the Company in respect of such Proprietary Asset
which are not fully supported by a similar commitment under the
applicable agreement in favour of the Company.
Page 15
(b) The Company has good and valid title to all of its Proprietary Assets
as identified or required to be identified in Schedules 6.18(a)(i) and
(ii) hereto, free and clear of all Liens, except for (i) any Lien for
current taxes not yet due and payable, and (ii) minor Liens that have
arisen in the ordinary course of the Company's business and that do not
(individually or in the aggregate) materially detract from the value
of, or the ability of the Company to exploit, such Proprietary Asset
subject thereto or materially impair the operations of the Company. The
Company has the exclusive right to bring actions against any person
that is infringing any of the Company's Proprietary Assets as
identified in Schedules 6.18(a)(i) and (ii) hereto. The Company has a
valid right to use, license and otherwise exploit all of the Company's
Proprietary Assets as identified or required to be identified in
Schedule 6.18(a)(iii) hereto. There is no agreement (with the exception
of escrow agreements, end user license agreements, support agreements,
consulting agreements and other customer contracts in the standard
forms previously delivered by the Company to the Purchaser) pursuant to
which any person has any right (whether or not currently exercisable)
to use, license or otherwise exploit any of the Company's Proprietary
Assets.
(c) The Company has taken reasonable measures and precautions to protect
and maintain the confidentiality, secrecy and value of all of the
Company's material Proprietary Assets (except Proprietary Assets whose
value would be unimpaired by disclosure). No current or former
employee, officer, director, shareholder, consultant or independent
contractor of the Company has any right, claim or interest in or with
respect to any of the Company's Proprietary Assets.
(d) All Proprietary Assets designed, created, developed, assembled,
manufactured, sold or held by the Company are valid, enforceable and
subsisting and none of the Company's Proprietary Assets and no
Proprietary Asset that is currently being developed by the Company
(either by itself or with any other person) infringes, misappropriates,
makes unlawful or unauthorized use of or conflicts with any Proprietary
Asset owned or used by any other person. Except as set forth on
Schedule 6.18(d) hereto, the Company has not received any notice, claim
or other communication (in writing or otherwise) of (i) any actual,
alleged, possible or potential infringement, misappropriation or
unlawful or unauthorized use or misuse of, any Proprietary Asset owned
or used by any other person, or (ii) suggesting that any other person
has or may have any claim of legal or beneficial ownership or other
claim or interest in any of the Company's Proprietary Assets. To the
knowledge of the Company and the Shareholder, no other person is
infringing, misappropriating or making any unlawful or unauthorized use
of, and no Proprietary Asset owned or used by any other person
infringes or conflicts with, any of the Company's material Proprietary
Assets.
(e) There are no legal opinions that the Company has received with respect
to the Company's Proprietary Assets relating to validity,
enforceability, or to official actions or other notices from any
regulatory authority or governmental department, office or agency
relating to any of the subject matters or claims of pending
applications for registration constituting any of such Proprietary
Assets.
(f) The Company has not granted any person any right, license or permission
to use any of the marks which are part of the Company's Proprietary
Assets and none of such marks has been or is now involved in any
opposition or cancellation proceedings, nor are any such proceedings
threatened to the knowledge of the Company and each Shareholder.
Page 16
(g) The Company has not disclosed or delivered to any person, or permitted
the disclosure or delivery to any escrow agent or other person, of any
of the Company's Source Code, nor has it entered into any commitments
to do so under any circumstances.
(h) Except with respect to demonstration or trial copies, no product,
system, program or software module designed, developed, sold, licensed
or otherwise made available by the Company to any person contains any
"back door," "time bomb," "Trojan horse," "worm," "drop dead device,"
"virus" or other software routines or hardware components designed to
permit unauthorized access or to disable or erase software, hardware or
data without the consent of the user.
In this Agreement, the following capitalized terms have the following meanings:
(A) "Proprietary Asset" shall mean any: (1) patent, patent application,
trade-▇▇▇▇ (whether registered or unregistered), trade-▇▇▇▇
application, trade name, fictitious business name, service ▇▇▇▇
(whether registered or unregistered), service ▇▇▇▇ application,
copyright (whether registered or unregistered), copyright application,
maskwork, maskwork application, trade secret, know-how, customer list,
franchise, system, computer software, computer program, Source Code,
object code, model, algorithm, formula, compound, invention, design,
blueprint, engineering drawing, proprietary product, technology,
proprietary right or other intellectual property right or intangible
asset; and (2) any and all rights to use or exploit any of the
foregoing; and
(B) "Source Code" shall mean any source code, or any portion, aspect or
segment of any source code, relating to any Proprietary Asset.
6.19 Undisclosed Liabilities. Except as disclosed in Schedule 6.19 hereto, the
Company does not have any liabilities, obligations, indebtedness or commitments,
whether accrued, absolute, contingent or otherwise, which are not disclosed in
the Financial Statements or disclosed herein, other than liabilities,
obligations and indebtedness (i) incurred in the normal course of business; and
(ii) which do not exceed in the aggregate ten thousand United States dollars
(US$10,000).
6.20 Litigation. Except as disclosed in Schedule 6.20 hereto, there is no demand
by any party or any action, suit, proceeding, claim, application, complaint or
investigation in any court or before any arbitrator or before any regulatory
body or governmental or non-governmental body pending or, to the knowledge of
the Company or the Shareholder, threatened by or against the Company and/or the
Shareholder related to their respective businesses, operations or capital or the
transactions contemplated by this Agreement, and to the knowledge of the Company
and the Shareholder, there is no factual or legal basis which could give rise to
any such action, suit, proceeding, claim, application, complaint or
investigation.
6.21 Employee Matters. The Company currently has one employee, has at no time in
the past had more than three employees, and has no outstanding commitments or
liabilities of any nature to any prior employees and there are no orders,
charges, levies, assessments or penalties of any type against the Company in
respect of any prior employees.
6.22 Benefit Plans. For purposes of this Agreement, the term "Benefit Plan"
means any plan, contract or arrangement (regardless of whether funded or
unfunded, or foreign or domestic) which is sponsored by Seller, or to which
Seller makes contributions or which covers any employee of Seller in his or her
capacity as an employee, to which Seller has any obligation with respect to any
current employee, and which is (i) an "Employee Benefit Plan" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"); (ii) a severance contract with (an) employee(s) or any
Page 17
severance plan applicable to employees; or (iii) a stock option plan or any
other plan of deferred compensation. Neither the Company nor the Shareholder has
any existing qualified pension plans and profit sharing plans under ERISA. The
Company has performed all obligations required to be performed by it under, is
not in default or violation of, and has no knowledge of any default or violation
by any other party to each Benefit Plan, and each Benefit Plan has been
maintained and administered in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to each such Benefit Plan. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Benefit Plan activities) has been brought, or to Company's knowledge, is
threatened, against or with respect to any such Benefit Plan. There are no
audits, inquiries or proceedings pending or, to the Company's and the
Shareholder's knowledge, threatened by any Governmental Entity with respect to
any Benefit Plan. No unfunded liabilities or solvency deficiencies exist for any
Benefit Plan. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby will (either alone or upon
the occurrence of any additional or subsequent events) constitute an event under
any Benefit Plan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee of the Company. For purposes of this Section, "Governmental
Entity" shall mean any government, parliament, legislature, regulatory
authority, agency, commission, board 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 including any
municipality or district.
6.23 Affiliated Transaction. The Company is not liable in respect of advances,
loans, guarantees to or on behalf of the Shareholder, or any officer, director,
employee or subsidiary of the Company or any other person with whom the Company
does not deal with at arm's length other than an inter-company payable to the
Shareholder and, at the Closing Date, there will be no inter-company payables or
receivables between the Company and the Shareholder.
6.24 Tax Filings. The Company has prepared and filed on time with all
appropriate taxing authorities all returns, declarations, remittances,
information returns, reports and other documents of every nature required to be
filed by on behalf of the Company in respect of any taxes or in respect of any
other provision in any domestic or foreign federal, provincial, municipal,
state, territorial or other taxing statute for all fiscal period ending on or
before the Closing. All such returns, declarations, remittances, information
returns, reports and other documents are correct and complete in all material
respects. No extension of time in which to file any such returns, declarations,
remittances, information returns, reports or other documents is in effect. All
taxes shown on all such returns, or on any assessments or reassessments in
respect of any such returns, have been paid in full. To each of the
Shareholder's and the Company's respective knowledge, no action, proceeding or
investigation has been threatened by any governmental authority for the
assessment or collection of any taxes for which the Company would be liable.
There are no Liens for taxes (other than taxes not yet due and payable) upon the
Company or any of its assets. For the purposes of Sections 6.24 to 6.26 hereof,
all references to the Company or any tax liability of the Company shall include
a reference to the Shareholder if and to the extent that the Company's income or
results of operations are required to be reported on a tax return of the
Shareholder by reason of the treatment of the Company as a qualified subchapter
S subsidiary of the Shareholder within the meaning of Section 1361 of the United
States Internal Revenue Code.
6.25 Taxes Paid; Tax Status; and Related Tax Matters. The Company has paid in
full all taxes required to be paid on or prior to the date hereof and has made
adequate provision in the Financial Statements in accordance with accounting
principles generally accepted in the USA for the payment of all taxes in respect
of all fiscal periods on or before the Closing. The Shareholder is an "S
corporation" within the meaning of Sections 1361 and 1362 of the United States
Internal Revenue Code. The Company is a "qualified subchapter S subsidiary" of
the Company within the meaning of Section 1361 of the United States Internal
Revenue Code. The Company and its assets do not constitute all or substantially
all of the assets of the Shareholder within the meaning of Revenue Procedure
77-27. Neither the Company nor the Shareholder will be liable for any tax under
Sections 1374 or 1375 of the United States Internal Revenue Code (or similar
provisions of state, local or foreign law) in connection with the consummation
of the transactions contemplated by this Agreement.
Page 18
6.26 Audits and Related Matters.
(a) There are no reassessments of the Company's taxes that have been issued
and are outstanding and there are no outstanding issues which have been
raised and communicated to the Company by any governmental body for any
taxation year in respect of which a tax return of the Company has been
audited. The Company is not and has not been the subject of any audit,
administrative or judicial proceeding relating to taxes. No
governmental body has challenged, disputed or questioned the Company in
respect of any returns, filings or other reports filed under any
statute providing for taxes. The Company is not negotiating any draft
assessment or reassessment with any governmental body. The Shareholder
is not aware of any contingent liabilities for taxes (other than in
respect of current taxation periods) or any grounds for assessment or
reassessment of the Company, including, without limitation, unreported
benefits conferred on the Shareholder, aggressive treatment of income,
expenses, credits or other claims for deduction under any return or
notice other than as disclosed in the Financial Statements. Neither the
Company nor the Shareholder has received any indication from any
governmental body that an assessment, reassessment or challenge of the
Company is proposed in respect of any taxes, regardless of its merits.
The Company has not executed or filed with any government body any
agreement or waiver extending the period for assessment, reassessment
or collection of any taxes.
(b) The Company has not been a member of an affiliated group (within the
meaning of United States Internal Revenue Code Section 1504(a) or any
similar provision of applicable state, local or foreign law) filing a
consolidated tax return or report, other than a group, the common
parent of which was the Shareholder.
(c) The Company has not used the installment method under Section 453 of
the United States Internal Revenue Code (or any similar provision of
applicable state, local or foreign law) to defer any material income to
any taxable period ending after the Closing Date. The Company has not
agreed, nor is it required, to make any adjustment under United States
Internal Revenue Code Section 481(a) (or any similar provision of
applicable state, local or foreign law) by reason of a change in
accounting method or otherwise.
6.27 Withholdings and Remittances. The Company has withheld from each payment
made to any person, including but not limited to its respective present or
former employees, officers and directors all amounts required by law to be
withheld, and furthermore, has remitted all such withheld amounts within the
prescribed periods to the appropriate governmental body or bodies. The Company
has remitted all contributions, employment insurance premiums, employer health
taxes, workers compensation premiums and other taxes payable by it in respect of
its respective employees and has remitted such amounts to the proper
governmental body or bodies within the time required under the applicable
legislation. The Company has charged, collected and remitted on a timely basis
all taxes as required under applicable legislation on each respective sale,
supply or delivery whatsoever, made by the Company.
Page 19
6.28 Absence of Certain Changes of Events. Except as set forth in Schedule 6.28
hereto, since December 31, 2005 the Company has not:
(a) suffered any Material Adverse Change;
(b) amended its certificate of incorporation in any manner whatsoever;
(c) declared or made any payment of any dividend or other distribution in
respect of its shares and has not redeemed, purchased or otherwise
acquired any shares, except that the Company will make certain
distributions to the Shareholder immediately prior to the Closing
provided that at the Closing the Company shall have net working capital
of $10,000, which distributions shall not be deemed to result in a
Material Adverse Change;
(d) issued or sold any shares or other securities or issued, sold or
granted any option, warranty or right to purchase any of its shares or
other securities;
(e) disposed of any of assets reflected on its balance sheet forming part
of the Financial Statements, except sales of assets in the normal
course of the Company's business;
(f) changed any accounting or costing systems or methods in any material
respect;
(g) incurred or assumed any liabilities, obligations or indebtedness
(whether accrued, absolute, contingent or otherwise), except unsecured
current liabilities, obligations and indebtedness incurred in the
normal course of business and not in excess of ten thousand United
States dollars (US$10,000);
(h) made or granted any bonus, increased the compensation paid (other than
for normal merit and cost of living increases) or made loans or
advances to any director, officer or employee;
(i) mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets, except in the normal course of business
and in amounts which, individually and in the aggregate are not
material to its financial condition or operation of it business;
(j) entered into any Material Contract or any other transaction that was
not in the normal course of business; or
(k) terminated, cancelled or modified in any material respect or received
notice or a request for termination, cancellation or modification in
any material respect of any Material Contract.
6.29 Brokerage Fees. Neither the Shareholder nor the Company has entered into
any agreement which would entitle any person to any valid claim against the
Company or the Purchaser for a broker's commission, finder's fee or any like
payment in respect of the purchase and sale of the Shares or any other matters
contemplated by this Agreement.
6.30 Personal Property. All personal property used by the Company for its
business is in good operating condition and repair, ordinary wear and tear
excepted.
6.31 Real Property. The Company owns no real property.
6.32 Personal Property Leases. Each personal property lease covering property
used by the Company is in full force and effect and has not been amended. There
has not been any material default by the Company or to the knowledge of each of
the Shareholder and the Company by any other party under any personal property
lease nor has there been any dispute between the Company or, to the knowledge of
the Company, any other party under any personal property lease.
Page 20
6.33 Insurance. The business, properties and assets of the Company are insured
for the benefit of the Company in amounts deemed adequate by the Company's
management against risk usually insured against by persons operating a business
similar to the business of the Company in the localities where such properties
are located. All such insurance policies are in full force and effect and the
Company is not in material default, whether as to payment of premiums or
otherwise, under the terms of such policies.
6.34 Receivables. The receivables as disclosed in the books of the Company at
the Closing Date are bona fide obligations which arose in the ordinary course of
its business and are enforceable and fully collectible accounts in the ordinary
course of business subject to the reasonable allowance for doubtful accounts as
recorded on the books and records of the Company on or before the Closing Date
and, to the knowledge of the Shareholder, are not subject to any set off or
counterclaim. None of the receivables are due from a person with whom the
Company does not deal at arm's length.
6.35 Environmental Matters. To the knowledge of the Company and the Shareholder,
the business of the Company and the assets as carried on or used by the Company
have been carried on and used and are currently carried on and used in
compliance with all environmental laws. To the knowledge of the Company and the
Shareholder, the Company is not nor has been subject to any proceedings alleging
the violation by the Company or its employees, agents or others for whom it is
responsible of any environmental law and in relation to the business or assets
of the Company. To the knowledge of the Company and the Shareholder, there are
no proceedings nor, to the knowledge of the Shareholder, any circumstances or
material facts which would be likely, if true, to give rise to any proceedings,
in which it is alleged that the Company is potentially responsible for a
domestic or foreign federal, provincial, state, municipal or local clean-up or
remediation of lands contaminated with hazardous substances or for any other
remedial or corrective action under an environmental law.
6.36 Customers and Suppliers. Schedule 6.36 lists the five (5) largest customers
and the five (5) largest suppliers of the Company (or such additional customers
and/or suppliers of the Company which were sufficient to constitute five percent
(5%) or more of the Company's total sales or purchases, as the case may be) for
the six month period ending December 31, 2005 and the aggregate amount which
each such customer was invoiced and each such supplier was paid during such
period. To the knowledge of the Company and the Shareholder, the Company has not
received notice of any intention on the part of any customer or any supplier of
the Company to cease doing business with the Company or to modify or change in
any material manner any existing arrangement with the Company. To the knowledge
of the Company and the Shareholder, the relationships of the Company with each
of its respective principal customers and suppliers is satisfactory and there
are no unresolved disputes with any such customers or suppliers.
6.37 Product Warranties. Except as disclosed in Schedule 6.37, there are no
material claims against the Company greater than one thousand United States
dollars (US$1,000) on account of product warranties or with respect to the
production or sale of defective or inferior products.
6.38 Full Disclosure. None of the foregoing representations and warranties in
this Section 6 contain any untrue statement of a material fact or omit to state
any material fact necessary to make any such statement or representation not
misleading.
6.39 Representations Required for SEC Compliance.
a) The Shareholder is acquiring the Consideration Shares for its own
account for investment only and not with a view toward the public sale
or distribution thereof and not with a view to or for sale in
connection with any distribution thereof.
Page 21
b) The Shareholder is an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the US Act and is
(i) experienced in making investments of the kind described in this
Agreement and the related documents, (ii) able, by reason of its
business and financial experience and the business and financial
experience of its professional advisors (if any) to protect its own
interests in connection with the transactions described in this
Agreement and the related documents and (iii) able to afford the entire
loss of its investment in the Consideration Shares.
c) All subsequent offers, sales and other transfers of the Consideration
Shares by the Shareholder shall be made pursuant to an effective
registration statement with respect to the resale of the Consideration
Shares under the US Act and applicable state laws or pursuant to an
exemption from registration.
d) The Shareholder acknowledges that the Consideration Shares are being
offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities
laws and that the Purchaser is relying upon the truth and accuracy of,
and the Shareholder's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Shareholder set
forth herein in order to determine the availability of such exemptions
and the eligibility of the Shareholder to acquire the Consideration
Shares.
e) The Shareholder and its advisors, if any, have been furnished with
materials relating to the business, finances and operations of
Purchaser and materials relating to the offer and sale of the
Consideration Shares which have been requested by the Shareholder. The
Shareholder and its advisors, if any, have been afforded the
opportunity to ask questions of Purchaser and have received complete
and satisfactory answers to any such inquiries.
f) The Shareholder understands that its investment in the Consideration
Shares involves a high degree of risk.
g) The Shareholder understands that no United States federal or state
agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Consideration Shares.
h) The Shareholder acknowledges that: (i) the Consideration Shares have
not been and may not, despite the best efforts of the Purchaser, be
successfully registered in future under the provisions of the US Act
and may not be transferred unless (A) subsequently registered
thereunder or (B) the Shareholder shall have delivered to Purchaser an
opinion of counsel, reasonably satisfactory in form, scope and
substance to Purchaser, to the effect that the Consideration Shares to
be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; and (ii) any sale of the
Consideration Shares made in reliance on Rule 144 promulgated under the
US Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such
Consideration Shares under circumstances in which the seller, or the
person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the US Act, may require compliance
with some other exemption under the US Act or the rules and regulations
of the SEC promulgated thereunder.
i) The Shareholder acknowledges and agrees that the Consideration Shares
shall bear a restrictive legend in substantially the following form:
Page 22
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED.
6.40 No Additional Representations. The Company and the Shareholder have not
made nor has any other person acting on behalf of the Company or the Shareholder
made, any representation or warranty, express or implied, oral or written, as to
the accuracy or completeness of any information regarding the Shares, the
Company or the business of the Company except as expressly set forth in this
Agreement, any schedules and/or exhibits to this Agreement.
7 PURCHASER'S REPRESENTATIONS AND WARRANTIES. As a material inducement to the
Shareholder entering into this Agreement and completing the transactions
contemplated by this Agreement and acknowledging that the Shareholder is
entering into this Agreement in reliance upon the representations and warranties
of the Purchaser set forth in this Section 7, the Purchaser hereby represents
and warrants to the Shareholder as follows:
7.1 Incorporation of Purchaser. The Purchaser is a corporation incorporated and
validly subsisting under the laws of the jurisdiction of its incorporation. The
Purchaser has the corporate power and authority and is qualified to purchase the
Shares. No act or proceeding has been taken by or against the Purchaser in
connection with the dissolution, liquidation, winding up, bankruptcy or
reorganization of the Purchaser.
7.2 Authorization by Purchaser. The Purchaser has the corporate power, authority
and capacity to enter into this Agreement and all other agreements and
instruments to be executed by it as contemplated by this Agreement and to carry
out its obligations under the Agreement and such other agreements and
instruments. The execution and delivery of this Agreement and such other
agreements and instruments and the completion of the transactions contemplated
by this Agreement and such other agreements and instruments have been duly
authorized by all necessary corporate action on the part of the Purchaser.
7.3 Enforceability of the Purchaser's Obligations. This Agreement constitutes a
valid and binding obligation of the Purchaser enforceable against the Purchaser
in accordance with its terms subject, however, to limitations on enforcement
imposed by bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of the rights of creditors and others and to the extent that
equitable remedies such as specific performance and injunctions are only
available in the discretion of the court from which they are sought.
7.4 Consents and Approvals. All consents and approvals required to be obtained
by the Purchaser in connection with the execution and delivery of this Agreement
and the completion of the transactions contemplated by this Agreement have been
obtained.
7.5 Notices. All notices required to be given by the Purchaser in connection
with the execution and delivery of this Agreement and the completion of the
transactions contemplated by this Agreement have been given.
7.6 Litigation. There is no action, suit, proceeding, claim, application,
complaint or investigation in any court or before any arbitrator or before any
regulatory body or governmental or non-governmental body pending or threatened
by or against the Purchaser related to its business, operations or capital or
the transactions contemplated by this Agreement, and to the knowledge of the
Purchaser, there is no factual or legal basis which could give rise to any such
action, suit, proceeding, claim, application, complaint or investigation.
Page 23
7.7 Absence of Conflicting Agreements. The execution, delivery and performance
of this Agreement by the Purchaser and the completion (with any required
consents and approvals and notices) of the transactions contemplated by this
Agreement do not and will not result in or constitute any of the following:
(a) a default, breach or violation or an event that, with notice or lapse
of time or both, would be a default, breach or violation of any of the
terms, conditions or provisions of the articles or by-laws of the
Purchaser;
(b) an event which, pursuant to the terms of any contract, license or
permit, causes any right or interest of the Purchaser to come to an end
or be amended in any way that is detrimental to the business of the
Purchaser or entitles any other person to terminate or amend any such
right or interest;
(c) the creation or imposition of any lien, charge, encumbrance or security
interest on any asset of the Purchaser; or
(d) the violation of any applicable law by the Purchaser.
7.8 Common Shares. The Consideration Shares will, on Closing, be validly issued
and delivered by the Purchaser, in compliance with applicable securities and
other laws and regulations, as fully paid and non-assessable shares in the
capital of the Purchaser and will not be subject to any statutory hold period.
7.9 Purchaser Reports. The Purchaser has previously made available to the
Shareholder complete and accurate copies of its annual report for the year ended
March 31, 2005 and its quarterly reports for the Purchaser's fiscal quarters
ended June 30, 2005, September 30, 2005 and December 31, 2005, and any
amendments to all such reports as filed with the SEC and its management
information circular for the annual and special meeting of its shareholders
dated September 22, 2005 (collectively, the "Purchaser Reports"). Except as
disclosed in Schedule 7.9 hereto, as of their respective dates, the Purchaser
Reports did not, at the time that they were filed (or if amended or superseded
by a filing before the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein in the
light of the circumstances under which they were made not misleading. Except as
disclosed in Schedule 7.9 hereto, the financial statements of the Purchaser
contained in the Purchaser Reports fairly present, in conformity with generally
accepted accounting principles in the United States applied on a consistent
basis throughout the periods covered thereby, in all material respects the
financial condition of the Purchaser on a consolidated basis at the dates of
such statements and the results of its operations and its cash flows for the
periods covered thereby. Except as disclosed in Schedule 7.9 hereto, such
financial statements consisting in each case of a balance sheet and the
accompanying statements of income, retained earnings and changes in financial
position for the period then ended and notes to such financial statements,
together with the report of the auditors thereon are complete and accurate in
all material respects.
7.10 No Material Adverse Change. There has been no material adverse change in
the business, financial condition, assets, or results of operations of the
Purchaser taken as a whole since December 31, 2005 except as set forth on
Schedule 7.10.
7.11 Undisclosed Liabilities. Except as disclosed in Schedule 7.11 hereto, the
Purchaser does not have any liabilities, obligations, indebtedness or
commitments, whether accrued, absolute, contingent or otherwise, which are not
disclosed in the financial statements contained in the Purchaser Reports or
disclosed herein, other than liabilities, obligations and indebtedness (i)
incurred in the normal course of business; or (ii) which do not exceed in the
aggregate twenty-five thousand United States dollars (US$25,000).
Page 24
7.12 Disclosure. Except as disclosed in Schedule 7.12 hereto, all material facts
and material changes regarding the Purchaser or its securities that have
occurred since December 31, 2005 have been disclosed in accordance Section 13 or
Section 15(d) of the United States Securities Exchange Act of 1934, as amended.
7.13 Legal Matters. The business of the Purchaser has at all times been
conducted in all material respects in accordance with applicable laws and
regulations in the Province of Ontario and in any relevant other jurisdiction
and there is no investigation or inquiry, order, decree or judgment of any court
of competent jurisdiction or any governmental agency or regulatory body
outstanding or to the Purchaser's knowledge and belief anticipated against the
Purchaser and/or any subsidiary thereof which may result in a material adverse
change in the business, financial condition, assets, or results of operations of
the Purchaser taken as a whole.
7.14 Registration Status. The Purchaser is a registrant and reporting company
the United States Securities Exchange Act of 1934, as amended.
7.15 No Cease Trade Order. No securities commission or other regulatory
authority has issued any order preventing or suspending the trading of the
Purchaser's securities or prohibiting the sale of the Consideration Shares to be
delivered hereunder, and, to the Purchaser's knowledge, no proceedings for such
purpose are pending or threatened.
7.16 Bankruptcy. The Purchaser is not an "insolvent person" and has not
committed an act of bankruptcy within the meaning of the Bankruptcy and
Insolvency Act (Canada) or the similar laws of any other applicable
jurisdiction, will not become an "insolvent person" as a result of the Closing,
and has not made an assignment in favour of its creditors nor made a proposal in
bankruptcy to its creditors or any class thereof nor had any petition for a
receiving order presented in respect of it. The Purchaser has not initiated
proceedings with respect to a compromise or arrangement with its creditors or
for its winding up, liquidation or dissolution. No receiver has been appointed
in respect of the Purchaser or any of its assets or its capital stock and no
execution or distress has been levied on any of such assets or stock.
7.17 Employee Matters. There is no labour strike, dispute, slowdown or stoppage
actually pending or involving or, to the knowledge of the Purchaser, threatened
against the Purchaser. No union representation question exists respecting the
employees of the Purchaser in connection with its business and no collective
bargaining agreement is in place or currently being negotiated by the Purchaser.
There are no wages, salaries or bonuses owing or promised to any of the
employees of the Purchaser other than wages accruing and unpaid commissions in
the normal course of business for the most recent pay period to the Closing and
in respect of accrued vacation. No notice has been received by the Purchaser of
any complaint which has not been resolved, filed by any of its employees
claiming that the Purchaser has violated applicable employment standards or
human rights or similar legislation or policies in any jurisdiction in which the
Purchaser operates, or of any complaints or proceedings which have not been
resolved of any kind involving the Purchaser, to the Purchaser's knowledge, any
of the employees of the Purchaser before any labour relations board. There are
no outstanding orders or charges against the Purchaser under any applicable
occupational and/or employment health and safety legislation in the any
jurisdiction in which the Purchaser carries on business. All levies, assessments
and penalties made against the Purchaser pursuant to the workers' compensation
legislation in any jurisdiction in which the Purchaser carries on business have
been paid by the Purchaser and the Purchaser has not been reassessed under such
legislation except with respect to any such reassessments as have been resolved
prior to the date hereof.
Page 25
7.18 Affiliated Transaction. Except as set out in Schedule 7.18 hereto, the
Purchaser is not liable in respect of advances, loans, guarantees to or on
behalf of any shareholder, officer, director, employee or subsidiary of the
Purchaser or any other person with whom the Purchaser does not deal with at
arm's length.
7.19 Tax Filings. The Purchaser has prepared and filed on time with all
appropriate taxing authorities all returns, declarations, remittances,
information returns, reports and other documents of every nature required to be
filed by on behalf of the Purchaser in respect of any taxes or in respect of any
other provision in any domestic or foreign federal, provincial, municipal,
state, territorial or other taxing statute for all fiscal period ending on or
before the Closing. All such returns, declarations, remittances, information
returns, reports and other documents are correct and complete in all material
respects. No extension of time in which to file any such returns, declarations,
remittances, information returns, reports or other documents is in effect. All
taxes shown on all such returns, or on any assessments or reassessments in
respect of any such returns have been paid in full. To the Purchaser's
knowledge, no action, proceeding or investigation has been threatened by any
governmental authority for the assessment or collection of any taxes for which
the Purchaser would be liable. There are no Liens for taxes (other than taxes
not yet due and payable) upon the Purchaser or any of its assets.
7.20 Taxes Paid. The Purchaser has paid in full all taxes required to be paid on
or prior to the date hereof and has made adequate provision in the financial
statements contained in the Purchaser Reports in accordance with accounting
principals generally accepted in Canada for the payment of all taxes in respect
of all fiscal periods on or before the Closing.
7.21 Environmental Matters. To the knowledge of the Purchaser, the business of
the Purchaser and the assets as carried on or used by the Purchaser have been
carried on and used and are currently carried on and used in compliance with all
environmental laws. The Purchaser is not nor has been subject to any proceedings
alleging the violation by the Purchaser or its employees, agents or others for
whom it is responsible of any environmental law and in relation to the business
or assets of the Purchaser. There are no proceedings nor, to the knowledge of
the Purchaser, any circumstances or material facts which would be likely to, if
true, give rise to any proceedings, in which it is alleged that the Purchaser is
potentially responsible for a domestic or foreign federal, provincial, state,
municipal or local clean-up or remediation of lands contaminated with hazardous
substances or for any other remedial or corrective action under an environmental
law.
7.22 Customers and Suppliers. Except as set out in Schedule 7.22 hereto, the
Purchaser has not received notice of any intention on the part of any customer
or any supplier of the Purchaser to cease doing business with the Purchaser or
to modify or change in any material manner any existing arrangement with the
Purchaser. The relationships of the Purchaser with each of its respective
principal customers and suppliers is satisfactory and to the knowledge of the
Purchaser there are no unresolved written disputes with any such customers or
suppliers.
7.23 Product Warranties. There are no material claims against the Purchaser
greater than five thousand United States dollars (US$5,000) on account of
product warranties or with respect to the production or sale of defective or
inferior products.
7.24 Material Contracts. The Purchaser is not in default under any of its
material contracts and there has not occurred any event which, with the lapse of
time or the giving of notice, would constitute a default under any of the
Purchaser's material contracts by the Purchaser or, to the Purchaser's
knowledge, any other party to any such material contract, other than a default
that would not result in a material adverse change in the business, financial
condition, assets, or results of operations of the Purchaser taken as a whole.
The Purchaser has not received any notice of a default by any party under any of
its material contracts.
Page 26
7.25 Intellectual Property.
(a) The Purchaser has good and valid title to all of its material
Proprietary Assets, free and clear of all Liens, except for (i) any
Lien for current taxes not yet due and payable, (ii) Liens granted to
secured lenders to the Purchaser and (iii) minor Liens that have arisen
in the ordinary course of the Purchaser's business and that do not
(individually or in the aggregate) materially detract from the value
of, or the ability of the Purchaser to exploit, such Proprietary Asset
subject thereto or materially impair the operations of the Purchaser.
The Purchaser has a valid right to use, license and otherwise exploit
all of the Purchaser's Proprietary Assets. None of the Purchaser's
Proprietary Assets are subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use thereof or
restricting the sale, transfer, assignment or licensing thereof. The
Purchaser has not developed jointly with any other person any of the
Purchaser's Proprietary Assets that are material to the business of the
Purchaser and with respect to which such other person has any rights.
There is no agreement (with the exception of escrow agreements, end
user license agreements, support agreements, consulting agreements and
other standard customer contracts) pursuant to which any person has any
right (whether or not currently exercisable) to use, license or
otherwise exploit any of the Purchaser's Proprietary Assets.
(b) The Purchaser has taken reasonable measures and precautions to protect
and maintain the confidentiality, secrecy and value of all of the
Company's material Proprietary Assets owned by the Purchaser. No
current or former employee, officer, director, shareholder, consultant
or independent contractor of the Purchaser has any right, claim or
interest in or with respect to any of the Purchaser's Proprietary
Assets.
(c) None of the Purchaser's Proprietary Assets and, to the knowledge of the
Purchaser, no Proprietary Asset that is currently being developed by
the Purchaser (either by itself or with any other person) infringes,
misappropriates or conflicts with any Proprietary Asset owned or used
by any other person. The Purchaser has not received any notice, claim
or other communication (in writing or otherwise) of (i) any actual,
alleged, possible or potential infringement, misappropriation or
unlawful or unauthorized use or misuse of, any Proprietary Asset owned
or used by any other person, or (ii) suggesting that any other person
has or may have any claim of legal or beneficial ownership or other
claim or interest in any of the Purchaser's Proprietary Assets. To the
knowledge of the Purchaser, no other person is infringing,
misappropriating or making any unlawful or unauthorized use of, and no
Proprietary Asset owned or used by any other person infringes or
conflicts with, any of the Purchaser's material Proprietary Assets.
(d) There are no legal opinions to the effect that any of the subject
matters of the Purchaser's Proprietary Assets may be or are invalid or
unenforceable, or official actions or other notices from any regulatory
authority or governmental department, office or agency that any of the
subject matters or claims of pending applications for registration
constituting any of such Proprietary Assets are not registrable.
7.26 Full Disclosure. None of the foregoing representations and warranties in
this Section 7 contain any untrue statement of a material fact or omit to state
any material fact necessary to make any such statement or representation not
misleading.
Page 27
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations, warranties
and covenants of the Company and the Shareholder contained in Section 6 hereof
and of the Purchaser contained in Section 7 hereof shall survive the completion
of the transactions contemplated herein and shall continue in full force and
effect for the benefit of the Purchaser and the Shareholder, respectively, for a
period of eighteen (18) months following the Closing Date, after which time the
Company, the Shareholder and the Purchaser shall be released from all respective
obligations in respect of such representations and warranties except with
respect to any Claim (as defined below) attested to by a party in writing before
the expiration of such period, provided, however, that the survival of the
representations and warranties set forth in Section 6 and Section 7 hereof
which:
(a) relate to tax matters shall be time limited to the statutory expiration
of Claims thereon;
(b) relate to intellectual property matters or to the capitalization of a
party or ownership or issuance of the Shares or the Consideration
Shares shall survive for a period of four (4) years following the
Closing Date;
(c) relate to Claims made by or in respect of any unlawful usage by or
through the Company of its short codes set forth on Schedule 6.12 such
as Claims of "spam" or similar types of Claims by any mobile service
provider or operator (any such Claim, a "Usage Claim") shall survive
for a period of thirty (30) months following the Closing Date; and
(d) have been fraudulently made or given shall, notwithstanding any other
provision of this Section 8, survive for a period of four (4) years
following the Closing Date.
9. INDEMNIFICATION.
9.1 Indemnity. The Shareholder (with respect to the covenants, representations
and warranties of the Company and the Shareholder hereunder) and the Purchaser
(with respect to the covenants, representations and warranties of the Purchaser
hereunder) (each such person, an "Indemnifying Party"), shall indemnify and hold
the Purchaser or the Shareholder, as may be applicable, and all of such
indemnified party's respective affiliates and their respective directors,
officers, employees, agents and representatives (the "Indemnified Parties")
harmless in respect of any claim, demand, action, cause of action, damage, loss,
cost, liability or expense (each, a "Claim") which may be made or brought
against any of the Indemnified Parties or which any of such Indemnified Parties
may suffer or incur directly or indirectly as a result of, in respect of or
arising out of any of the following (collectively, "Breaches"):
(a) any incorrectness in or breach of any representation, warranty or
covenant of such Indemnifying Party contained in this Agreement or
under any other agreement, certificate or instrument executed and
delivered pursuant to this Agreement;
(b) any breach of or any non-fulfillment of any covenant or agreement on
the part of such Indemnifying Party under this Agreement or under any
other agreement, certificate or instrument executed and delivered
pursuant to this Agreement; or
(c) in the case of the Purchaser as Indemnified Party, any liability (i)
for taxes payable to any level of government in any jurisdiction
(including any related interest, penalty or costs) which may be payable
by the Company in respect of any period (or portion thereof) ending or
prior to the Closing Date and which are not disclosed on the Financial
Statements and/or (ii) of the Company for any taxes of any other person
pursuant to Treas. Reg ss. 1.1502-6 (or any similar provision of
applicable state, local or foreign law) as a transferee or successor,
by contract or otherwise.
9.2 Notice of Claim. If an Indemnified Party becomes aware of a Claim in respect
of which indemnification is provided for pursuant to Section 9.1 hereof, such
Indemnified Party shall promptly give written notice of the Claim to the
Indemnifying Parties. Such notice shall specify whether the Claim arises as a
result of a claim by a person against the Indemnified Party (a "Third Party
Claim") or whether the Claim does not so arise (a "Direct Claim"), an shall also
specify with reasonable particularity (to the extent that such information is
available):
Page 28
(a) the factual basis for the Claim; and
(b) the amount of the Claim, if known.
If, through the fault of an Indemnified Party, any Indemnifying Party does not
receive notice of any Claim in time effectively to contest the determination of
any liability susceptible of being contested, then the liability of such
Indemnifying Party to such Indemnified Party hereunder shall be reduced by the
amount of any losses incurred by either such Indemnifying Party or such
Indemnified Party resulting from such Indemnified Party's failure to give such
notice on a timely basis.
9.3 Direct Claims. In the case of a Direct Claim, each Indemnifying Party shall
have thirty (30) days from receipt of notice of the Claim within which to make
such investigation of the Claim as such Indemnifying Party considers necessary
or desirable. For the purpose of such investigation, the Indemnified Party shall
make available to such Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information as such Indemnifying Party may reasonably request. If both parties
agree at or before the expiration of such thirty (30) day period (or any
mutually agreed upon extension thereof) to the validity and amount of such
Claim, such Indemnifying Party shall immediately pay to the Indemnified Party
the full agreed upon amount of the Claim, failing which the matter shall be
referred to binding arbitration in such manner as the parties may agree or shall
be determined by a court of competent jurisdiction.
9.4 Third Party Claims. In the case of a Third Party Claim, each Indemnifying
Party shall have the right, at its expense, to participate in or assume control
of the negotiation, settlement or defense of the Claim. If any such Indemnifying
Party elects to assume such control, such Indemnifying Party shall reimburse the
Indemnified Party for all of the Indemnified Party's out-of-pocket expenses
incurred as a result of such participation or assumption. The Indemnified Party
shall have the right to participate in the negotiation, settlement or defense of
such Third Party Claim to retain counsel to act on its behalf, provided that the
fees and disbursements of such counsel shall be paid by the Indemnified Party
unless any such Indemnifying Party consents to the retention of such counsel at
its expense or unless named parties to any action or proceeding include both
such Indemnifying Party and the Indemnified Party and a representation of both
such Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential differing interests between them
(such as the availability of different defenses). The Indemnified Party shall
cooperate with any such Indemnifying Party as to permit such Indemnifying Party
to conduct such negotiation, settlement and defense and for this purpose shall
preserve all relevant documents in relation to the Third Party Claim, allow such
Indemnifying Party access on reasonable notice and take copies of all such
documents and require its personnel to provide such statements as such
Indemnifying Party may reasonably require and to attend and give evidence at any
trial or hearing in respect of the Third Party Claim. If having elected to
assume control of the negotiation, settlement or defense of the Third Party
Claim, any Indemnifying Party thereafter fails to conduct such negotiation,
settlement or defense with reasonable diligence, then such Indemnified Party
shall be entitled to assume such control and such Indemnifying Party shall be
bound by the results obtained by the Indemnified Party with respect to such
Third Party Claim.
9.5 Settlement of Third Party Claims. If any Indemnifying Party fails to assume
control of the defense of any Third Party Claim, the Indemnified Party shall
have the exclusive right to contest, settle or pay the amount claimed.
9.6 Threshold Basket for Indemnification; Insurance Recoveries. No party to this
Agreement shall be entitled to indemnification under this Agreement until the
aggregate amount for which indemnification is sought exceeds twenty-five
thousand United States dollars (US$25,000), whether represented by one or more
claims, and then only to the extent such aggregate amount exceeds twenty-five
thousand United States dollars (US$25,000). In addition, for purposes of Claims
brought under this Agreement, damages or losses shall be calculated net of any
insurance proceeds realized by and paid to the Indemnified Party in respect of
such claim.
Page 29
9.7 Payment of Indemnification by Shareholder. The liability of the Shareholder
pursuant to the provisions of this Section 9 shall be limited absolutely to the
value of the Escrow Shares received by the Shareholder (based on the value of
the ZIM Shares at the Closing Date), however, that the liability of the
Shareholder hereunder (i) shall be limited to an amount equal to fifty percent
(50%) of the value of the Consideration Shares, with respect to any Usage Claim,
and (ii) shall be unlimited as to any Claim relating to fraud committed by the
Shareholder related to the transactions contemplated by this Agreement. Subject
to the provisions of Section 9.9 hereof, the Shareholder may pay any obligation
to any Indemnified Party hereunder by, at the discretion of the Shareholder, (a)
set off by the Purchaser against the Shareholder's Escrow Shares, (b) surrender
to the Purchaser for cancellation by any ZIM Shares held by the Shareholder or
(c) the payment of cash by the Shareholder to the Purchaser.
9.8 Payment of Indemnification by the Purchaser. The liability of the Purchaser
pursuant to the provisions of this Section 9 shall be limited absolutely to the
value of the Escrow Shares portion of the Purchase Price; provided, however,
that the liability of the Purchaser hereunder shall be unlimited with respect to
any Claim relating to fraud committed by the Purchaser related to the
transactions contemplated by this Agreement. Subject to the provisions of
Section 9.9 hereof, the Purchaser may pay any obligation to any Indemnified
Party hereunder by, at the discretion of the Purchaser, (a) the issuance by the
Purchaser of ZIM Shares or (b) the payment of cash by the Purchaser to the
Shareholder.
9.9 Valuation of ZIM Shares. The value of any ZIM Shares used to pay out any
obligation of an Indemnifying Party under this Section 9 shall be determined at
and as of the date at which such obligation becomes due and payable.
9.10 Exclusive Remedy. Except for claims arising from fraud and any claims
brought under sub-section 10.2 hereof, the indemnification provisions contained
in this Section 9 shall be deemed to be, to the extent permitted by law, the
exclusive remedy or exclusive means to obtain relief, as the case may be, of any
party hereto in the event of any breach of any representation, warranty,
covenant or agreement contained herein by any other party hereto. Except for
claims arising from fraud and any claims brought under sub-section 10.2 hereof,
Claims pursuant to this Section 9 shall be in lieu of any other rights or
remedies that may be available to any party at law, in equity or otherwise.
10. POST CLOSING COVENANTS.
10.1 Financial Statements. The Shareholder shall use its best efforts to prepare
and deliver, or cause to be prepared and delivered, to the Purchaser at the
Shareholder's sole cost and expense the Company's audited financial statements
for the year ended December 31, 2005 as soon as reasonably practicable after the
date hereof. If requested by the Purchaser, the Shareholder shall take all
actions reasonably necessary to assist the Purchaser in preparing a pro forma
consolidated balance sheet and pro forma consolidated statements of income in
compliance with, and for the periods required by, the rules and regulations
promulgated by the SEC, including Regulation S-X under the US Act.
10.2 Non-Competition / Non-Solicitation.
Page 30
(a) The Shareholder shall not, and shall ensure that its affiliates do not,
without the prior written consent of the Purchaser, at any time within
the period of two (2) years following the date of this Agreement (the
"Non-Competition Period"), either individually or in partnership or
jointly or in conjunction with any person, as principal, agent,
employer, investor or shareholder, or in any other manner whatsoever,
directly or indirectly, advise, manage, carry on, establish, acquire
control of, be engaged in or invest in, a business that engages in the
sale or distribution through the internet of "ringtones" or "wallpaper"
for mobile phones (with the exception of adult entertainment) worldwide
(with the exception of through the Shareholder's 50% owned joint
venture in the Czech Republic, ATS Praha, or through its 25% owned
venture in the UK).
(b) The Shareholder hereby agrees, and it shall ensure that its affiliates
agree, that during the Non-Competition Period, the Shareholder shall
not, directly or indirectly, solicit any customer of the Company to
terminate such customer's relationship with the Company or to enter
into any relationship with the Shareholder or any affiliate of the
Shareholder pursuant to which the Shareholder or such affiliate
performs services for such customer equivalent to those performed by
the Company for such customer as of the Closing.
(c) Without limiting the generality of any provision of this Agreement, the
Shareholder expressly acknowledges that the Shareholder shall not and
shall ensure that its affiliates do not, without the prior written
consent of the Purchaser, at any time within the Non-Competition
Period, either individually or in partnership or jointly or in
conjunction with any person, as principal, agent, employer, investor or
shareholder, by way of e-mail, SMS text message, or in any other manner
whatsoever, directly or indirectly, access any previous customers of
the Company for the purposes of providing mobile entertainment for
mobile phones to any such persons.
(d) The Shareholder acknowledges that a breach by it or its affiliates of
any of the covenants contained in this Section 10.2 would result in
damages to the Company and the Purchaser and that the Company and/or
the Purchaser may not be adequately compensated for such damages by
monetary award alone. Accordingly, the Shareholder agrees that in the
event of any such breach, in addition to any other remedies available
at law or otherwise, the Company and the Purchaser shall be entitled as
a matter of right to apply to a court of competent jurisdiction for
relief by way of injunction, restraining order, decree or otherwise as
may be appropriate to ensure compliance by the Shareholder and its
affiliates with the provisions of this Section 10.2. Any remedy
expressly set out in this Section 10.2 shall be in addition to and not
inclusive of or dependent upon the exercise of any other remedy
available at law or otherwise.
(e) The parties agree that all restrictions in this Section 10.2 are
necessary and fundamental to the protection of the respective
businesses of the parties and are reasonable and valid. All defences to
the strict enforcement of this Section 10.2 against the parties or any
of their respective affiliates are hereby waived.
(f) The Shareholder acknowledges and agrees that the subject matter,
duration, and geographic scope of this Section 10.2 are reasonable. If
any court of competent jurisdiction shall determine any of the
foregoing covenants to be unenforceable with respect to the term
thereof or the scope of the subject matter or geography covered
thereby, such remaining covenants shall nonetheless be enforceable by
such court against such other party or parties or upon such shorter
term or within such lesser scope to the maximum extent permissible
under applicable law. If the scope of any restriction contained in this
Section 10.2 is too broad to permit enforcement of such restriction to
its full extent, then such restriction shall be enforced to the maximum
extent permitted by law, and the Shareholder hereby consents and agrees
that such scope may be judicially modified accordingly in any
proceeding brought to enforce such restriction. The invalidity or
unenforceability of any particular provision of this Section 10.2 as
determined by a court of competent jurisdiction shall not affect the
other provisions hereof and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.
Page 31
10.3 REPAYMENT OF DEBT. So long as any amounts remain outstanding under the
Note, the Purchaser shall not repay any other debt owed to any other party other
than debt incurred in bona fide transactions in the ordinary course of business
consistent with past practices and owed to unsecured trade creditors that are
not affiliated with the Purchaser, and debt owed to the Royal Bank of Canada
under the Purchaser's existing line of credit facility. Notwithstanding the
foregoing, the Shareholder acknowledges and agrees that any outstanding amount
on the line of credit provided to Purchaser by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (or his
affiliates) may at any time be converted to ZIM Shares at then-prevailing market
price for the ZIM Shares on the OTCBB without giving rise to a breach of this
Section 10.3 and without any notice to, or consent of, the Shareholder.
10.4 FURTHER ASSURANCES; MISDIRECTED PAYMENTS. Following the Closing, the
parties will execute and deliver to each other such documents and take such
other actions as they may reasonably request in order to consummate the
transaction contemplated by this Agreement. After the Closing Date, in the event
payment for any amounts due the Purchaser is received by the Shareholder,
Shareholder will promptly turn the same over to the Purchaser, and in the event
payment for any amounts due the Shareholder are received by the Purchaser, the
Purchaser will promptly turn the same over to the Shareholder.
10.5 PRO RATION OF CERTAIN MARKETING COSTS. The parties agree to pro rate
reasonable costs for online marketing campaigns conducted by or on behalf of the
Company that cover the periods (a) immediately prior to and including the
Closing Date (the "Prior Period") and (b) following the Closing Date (the "Post
Period"), including, without limitation, any such campaigns described on
Schedule 10.5 hereto, so that the Shareholder shall be responsible for and shall
promptly reimburse the Purchaser for any such reasonable marketing costs that
the Purchaser and/or the Company incurs or has incurred with respect to the
Prior Period, and the Purchaser shall be responsible for and shall promptly
reimburse the Shareholder for any such reasonable marketing costs that the
Shareholder incurs or has incurred with respect to the Post Period. Amounts due
to any party pursuant to this Section 10.5 shall be calculated on or as soon as
practicable after the Closing Date, and the party that owes any payment under
this Section 10.5 shall pay the other party such amount promptly after receipt
of the information that determines the amount due.
10.6 TRANSITION ASSISTANCE.
(a) Following the Closing and for a period of six (6) months thereafter,
the Shareholder shall make available to the Purchaser, at the
Purchaser's reasonable request at times that are reasonably agreed
upon, and at no cost to the Purchaser, up to twenty (20) hours of
services of appropriate members of the Shareholder's staff to assist
Purchaser with matters arising from the transitioning of the Company
business and technology to Purchaser. After twenty (20) hours of free
assistance, Shareholder shall make further assistance available to the
Purchaser, at the Purchaser's reasonable request at times that are
reasonably agreed upon, for a fee of $75 per hour.
(b) Without limiting the generality of any other provision of this
Agreement, following the Closing and for a period of sixty (60) days
thereafter, the Shareholder shall make available to the Purchaser, at
the Purchaser's reasonable request at times that are reasonably agreed
upon, and at no cost to the Purchaser, all reasonable assistance that
the Purchaser may require to (i) secure new agreements with suppliers
of the Company where current arrangements with such suppliers are
either with the Shareholder (not the Company) or not in writing, (ii)
secure the assignment and/or consent of counterparties to agreements
with the Shareholder and/or the Company which require Shareholder
Consents and/or Approvals and Shareholder Notices which have not been
obtained on or prior to the Closing. Any assistance provided by the
Shareholder under this sub-section 10.6(b) shall not derogate from the
Shareholder's obligations under sub-section 10.6(a) hereof or any other
provision of this Agreement.
Page 32
(c) After the date hereof, the Shareholder shall use its best efforts to
aid the Purchaser and the third party service provider contracted by
the parties hereto or any of them in documenting the installation and
set up configuration instruction procedures for the Company's online
systems, which efforts shall include, without limitation, providing all
back-up documentation and other information that may be reasonably
necessary to assist with documenting the installation and set up
configuration instruction procedures for the Company's online systems.
In furtherance of the foregoing, the Shareholder agrees to pay fifty
percent (50%) of the fees payable to such third party service provider
to document such installation and set up configuration instruction
procedures, up to a maximum of US$2,500 provided, however, that for
greater certainty, the Shareholder shall not be required to create any
new documentation under this sub-section 10.6(c) where such
documentation has not been previously existed with respect to the
Company's online systems. Notwithstanding the foregoing, if, for
reasons substantially beyond the control of the Purchaser, such
documentation has not been completed and delivered to the Purchaser by
the date that is forty-five (45) days after the Closing Date, then the
Shareholder shall be responsible to pay for all fees for hosting the
Company's online system until such time as such documentation is
provided to the Purchaser and the Purchaser shall be entitled to claim
against the Escrow Shares for any such amount which is not otherwise
paid by the Shareholder forthwith upon demand therefor.
(d) The Purchaser shall prepare or cause to be prepared and file or cause
to be filed all tax returns for the Company that are filed after the
Closing Date, other than tax returns with respect to periods for which
a consolidated, unitary or combined tax return of the Shareholder will
or should include the operations of the Company.
11. GENERAL.
11.1 When the term "to the knowledge" of a party that is not an individual is
used in this Agreement, it shall mean the conscious awareness of facts or
information by an executive officer of such party. In the case of the Company
and the Shareholder, such executive officers shall be ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇, and in the case of Purchaser such executive
officers shall be ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
11.2 This Agreement, together with the delivery by the Shareholder of
certificates representing the Shares, shall constitute the actual conveyance of
the Shares as of the Closing Date, but each party agrees with each other party
to do, execute, acknowledge and deliver all such further documents, assignments,
transfers, agreements and other assurances as may be reasonably necessary or
desirable to give full effect to this Agreement.
11.3 The parties hereto acknowledge that they have had an opportunity to obtain
independent financial and/or legal advice before signing this Agreement and
agrees that either such advice has been obtained or that they do not wish to
seek or obtain such independent advice. The parties hereto acknowledge that that
have read this Agreement and fully understand the nature and effect of it and
the terms contained herein and that the said terms are fair and reasonable and
correctly set out the parties' understanding and intention. The parties hereto
agree that this Agreement shall not be construed for or against any party hereto
in any interpretation thereof.
Page 33
11.4 Each party hereto shall be responsible for its own legal and other expenses
incurred in connection with the negotiation, execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
11.5 This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Province of Ontario and the federal laws of
Canada applicable therein. The parties hereto irrevocably attorn to the
jurisdiction of the Superior Court of Justice (Ontario) and the Court of Common
Pleas of the Commonwealth of Pennsylvania with respect to any and all matters
relating to this Agreement and the transactions contemplated hereby.
11.6 This Agreement is for the benefit of the parties and shall be binding upon
their respective heirs, executors, administrators, successors and assigns, as
applicable.
11.7 Any notice, certificate, consent, determination or other communication
required or permitted to be given or made under this Agreement shall be in
writing and shall be effectively given and made if (I) delivered personally,
(ii) sent by prepaid courier or mail, or (iii) sent prepaid by fax or other
similar means of electronic communication, in each case to the applicable
address set out below:
(a) if to the Shareholder, to:
Advanced Telecom Services, Inc.
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ ▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to:
Advanced Telecom Services, Inc.
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ ▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Page 34
(c) if to the Purchaser, to:
ZIM Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Professional Corporation
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇, ext. 268
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any such communication so given or made shall be deemed to have been given or
made and to have been received on the day of delivery if delivered, or on the
day of faxing or sending by other means of recorded electronic communication,
provided that such day in either event is a business day and the communication
is so delivered, faxed or sent before 5:00 p.m. (Ottawa, Canada time) on such
day. Otherwise, such communication shall be deemed to have been given and made
and to have been received on the next following business day following the
mailing thereof; provided, however, that no such communication shall be mailed
during any actual or apprehended disruption of postal services. Any such
communication given or made in any other manner shall be deemed to have been
given or made and to have been received only upon actual receipt thereof. Any
party may from time to time change its address under this section by notice to
the other party given in the manner provided by this section.
11.8 A waiver of any default, breach or non-compliance under this Agreement
shall not be effective unless delivered in writing signed by the party to be
bound by the waiver. No waiver shall be inferred from or implied by any failure
to act or delay in acting by a party in respects of any default, breach or
non-observance or by anything done or omitted to be done by the other party. The
waiver by a party of any default, breach or non-compliance under this Agreement
shall not operate as a waiver of that party's rights under this Agreement in
respect of any continuing or subsequent default, breach or non-observance
(whether of the same or any other nature).
11.9 Each party hereby agrees that all provisions of this Agreement, other than
(a) the conditions in Sections 4 and 5 hereof and (b) the representations and
warranties contained in Sections 6 and 7 hereof and the related indemnities in
Section 9 hereof (which shall be subject to the special arrangements provided
for in such section and in Section 8 hereof) shall survive the execution,
delivery and performance of this Agreement, Closing and the execution, delivery
and performance of any and all documents delivered in connection with this
Agreement in accordance with the relevant statute of limitations period.
11.10 This Agreement and the terms hereof shall constitute the entire agreement
between the parties hereto with respect to all of the matters herein and its
execution has not been induced by, nor do any of the parties hereto rely upon or
regard as material, any representations or writings whatsoever no incorporated
herein and made a part hereof. If any paragraph, section or portion in this
Agreement is determined to be unenforceable or invalid for any reason
whatsoever, that unenforceability or invalidity shall not affect the
enforceability or validity of the remaining portions of this Agreement and such
unenforceable or invalid paragraph, section or portion of this Agreement shall
be deemed to be severed from the remainder of this Agreement. Upon execution of
this Agreement, the Term Sheet shall be terminated and cease to be of any force
and effect.
Page 35
11.11 Each party hereto shall promptly do, execute, deliver or cause to be done,
executed and delivered such further acts, documents and things in connection
with this Agreement that any other party hereto may reasonably require for the
purposes of giving effect to this Agreement.
11.12 This Agreement shall inure to the benefit of, and be binding on, the
parties and their respective successors and permitted assigns. No party may
assign or transfer, whether absolutely, by way of security or otherwise, all or
any part of its respective rights or obligations hereunder without the prior
written consent of the other parties hereto.
11.13 This Agreement may be signed by manual or facsimile signature in several
counterparts of like form, each of which when so executed shall be deemed to be
an original and such counterparts together shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
11.14 The Company and the Shareholder each acknowledge the terms of Section 2 of
the Term Sheet and agree to comply with such terms until the earlier of the
termination of this Agreement in accordance with its terms or the Closing Date.
For the purposes of the foregoing, the terms of Section 2 of the Term Sheet are
hereby incorporated by reference into this Agreement.
11.15 If the transactions contemplated by this Agreement are not consummated,
except as provided below, each party shall bear its own fees and expenses
incurred in connection therewith. If the transactions contemplated by this
Agreement are consummated, (1) the Purchaser shall be responsible for (a) all
fees and expenses of the Purchaser's agents, representatives, advisors and
counsel in preparing this Agreement, the Ancillary Agreements, the Registration
Statement (except as otherwise provided herein) and the other agreements and
documents contemplated hereby and thereby, and (b) all audit and other
accounting-related fees and expenses incurred by any party in connection with
this Agreement and the transactions contemplated hereby, and (2) the Shareholder
shall be responsible for (a) all fees and expenses of its and the Company's
agents, representatives, advisors and counsel in connection with this Agreement
and the transactions contemplated hereby (including with respect to the
preparation and filing of the sections of the Registration Statement that relate
to and are required to be provided by the Shareholder as expressly provided
herein) and (b) all other fees and expenses of the Shareholder and the Company
in connection with this Agreement and the transactions contemplated hereby not
otherwise expressed to be payable by the Purchaser under this Section 11.15. The
fees and expenses of the Escrow Agent shall be borne by the Purchaser, on one
hand, and the Shareholder on the other hand, in equal amounts.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Page 36
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date first written above.
ZIM CORPORATION
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Signed:-------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Title: Chief Executive Officer
ADVANCED INTERNET, INC.
Signed: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Title: President
-------------------------------
ADVANCED TELECOM
SERVICES, INC.
Signed: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Title: President
Page 37
SCHEDULES
The following schedules and exhibits are omitted in reiance on Item 601(b)(2)
of Regulation S-B but will be furnished supplementally to the Commission upon
request.
Schedule "A"-Form of Escrow Agreement
Schedule "A"-Form of Note
Schedule "A"-Form of Security Agreement
Shareholder and Company Disclosure Schedule
Purchaser Disclosure Schedule
Page 38