ACQUISITION AGREEMENT
BY AND BETWEEN
ADVANCED KNOWLEDGE, INC.,
A DELAWARE CORPORATION
AND
SOCCER MAGIC INC.,
AN ONTARIO CORPORATION
As of December 14, 1999
TABLE OF CONTENTS
ARTICLE PAGE
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ONE THE ACQUISITION
1.01 The Acquisition 1
1.02 Possible Automatic Rescission of the Acquisition 1
TWO CALCULATION OF EXCHANGE RATIO AND AKI SHARES TO BE ISSUED
2.01 Calculation of Exchange Ratio 2
2.02 Calculation of AKI Shares to Be Issued 2
THREE CLOSING AND EFFECTIVE TIME OF THE ACQUISITION
3.01 The Closing 2
3.02 Escrow Agreement and Possible Automatic Rescission 2
3.03 The Effective Time 4
3.04 Directors of AKI at the Effective Time 4
3.05 Officers of AKI at the Effective Time 4
3.06 Remedy for False Representation and Warranty 4
FOUR REPRESENTATIONS AND WARRANTIES OF SMI
4.01 Organization and Good Standing 5
4.02 Due Authorization 5
4.03 Agreement Not in Breach of Other Instruments 5
4.04 Absence of Certain Changes 5
4.05 Real Property Leases 6
4.06 Equipment Leases 7
4.07 Trade Names 7
4.08 Contracts and Commitments 7
4.09 Licenses and Permits 8
4.10 Litigation 8
4.11 Insurance 8
4.12 Inventories 8
4.13 Compliance with Law 8
4.14 Capitalization 9
4.15 Labor and Employment Matters 9
4.16 Taxes 10
4.17 Environmental Compliance 11
4.18 Subsidiaries and Affiliates 11
4.19 Banking Facilities 11
4.20 No Assets Owned by Affiliates 11
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4.21 Indebtedness to and from Officers, Directors and
Shareholders 11
4.22 Related Party Transactions 11
4.23 No Legal Bar 11
4.24 Finder's Fees and Brokerage Fees 11
4.25 Required Consents 12
4.26 Other Information 12
4.27 SMI Unaudited Financial Statements 12
4.28 Regulatory Investigations 12
4.29 Corporate Records 12
4.30 Representations 12
FIVE REPRESENTATIONS OF AKI
5.01 Organization, Standing and Power 13
5.02 Due Authorization 13
5.03 Agreement Not in Breach of Other Agreements 13
5.04 Status of Common Stock 13
5.05 No Bankruptcy 13
5.06 Absence of Certain Changes 13
5.07 Contracts and Commitments 14
5.08 Litigation 14
5.09 Compliance with Law 15
5.10 Capitalization 15
5.11 Taxes 16
5.12 Environmental Compliance 16
5.13 Subsidiaries and Affiliates 16
5.14 Indebtedness to and from Officers, Directors and
Stockholders 16
5.15 No Legal Bar 16
5.16 Finder's Fees and Brokerage Fees 16
5.17 Other Information 17
5.18 AKI Financial Statements 17
5.19 Qualification to Use Form S-8 for Consultant Shares 17
5.20 Reporting Company 17
5.21 Securities Filings 17
5.22 OTC Bulletin Board 17
5.23 Stop Trade Orders 17
5.24 Regulatory Investigations 17
5.25 Corporate Records 17
5.26 Representations 18
5.27 Government Approvals 18
5.28 Required Consents 18
SIX COVENANTS AND AGREEMENTS OF SMI
6.01 Conduct of Business 18
6.02 Fulfillment of Conditions and Covenants 19
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6.03 Status of Assets 19
6.04 Access to Information 19
6.05 Financial Records and Unaudited Financial Statements 19
6.06 Audited Financial Statements 19
6.07 Consents 20
6.08 Transfer of Licenses, Permits and Authorizations 20
6.09 Employees 20
6.10 Agreement with Respect to Other Regulatory Filings 20
6.11 Solicitation of Inquiries 20
6.12 Purchase and Sale Agreements 20
6.13 Public Announcements 20
6.14 Resignations of New AKI Directors and Officers 20
6.15 Appointment of Successor Directors 21
6.16 Payment of Legal Fees 21
6.17 Instruction Letter to Transfer Agent 21
6.18 Conduct of Business Prior to Close of Escrow 21
6.19 Assumption of Liabilities and Obligations 21
SEVEN COVENANTS AND AGREEMENTS OF AKI
7.01 Fulfillment of Conditions and Covenants 21
7.02 Access to Information 22
7.03 Compliance with Applicable Securities Laws 22
7.04 Resignations of Existing Directors and Officers 22
7.05 Appointment of New Directors and Officers 22
7.06 Conduct of Business 22
7.07 Financial Records 23
7.08 Agreement with Respect to Other Regulatory Filings 23
7.09 Solicitation of Inquiries 23
7.10 Public Announcements 23
7.11 Representation Letter 23
EIGHT CONDITIONS PRECEDENT IN FAVOR OF SMI
8.01 Accuracy of and Certificate as to Representations
and Warranties 24
8.02 Compliance with Covenants 24
8.03 Action/Proceeding 24
8.04 Consents 24
8.05 Compliance with Law 24
8.06 Opinion of Counsel for AKI 24
8.07 Delivery of Resolutions 25
8.08 Delivery of AKI Shares 25
8.09 Asset Sale Agreement 26
8.10 Purchase and Sale Agreements 26
8.11 Other Information 26
8.12 Adverse Change 26
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8.13 Corporate Authorization 26
8.14 Certificate of Status 26
8.15 Incumbency Certificate 26
8.16 UCC Search Report 26
8.17 Stockholder Notice 26
8.18 Delivery of All Escrow Items 26
NINE CONDITIONS PRECEDENT IN FAVOR OF AKI
9.01 Accuracy of and Certificate as to Representations
and Warranties 27
9.02 Compliance with Covenants 27
9.03 Action/Proceeding 27
9.04 Consents 27
9.05 Compliance with Law 27
9.06 Purchase and Sale Agreements 27
9.07 Opinion of Counsel for SMI 27
9.08 Securities Law Compliance 28
9.09 Other Information 28
9.10 Adverse Change 29
9.11 Corporate Authorization 29
9.12 Certificate of Status 29
9.13 Transfer and Delivery of SMI Shares 29
9.14 Asset Sale Agreement 29
9.15 Incumbency Certificate 29
9.16 Stockholder Notice 29
9.17 Delivery of All Escrow Items 29
9.18 PPSA Search Report 29
TEN TERMINATION AND ABANDONMENT OF THE ACQUISITION
10.01 Termination 30
10.02 Notice of Termination 30
10.03 Effect of Termination 30
ELEVEN INDEMNIFICATION
11.01 Survival of Representations and Warranties 31
11.02 Indemnification 31
11.03 Indemnification Notice 31
11.04 Dispute 32
TWELVE LITIGATION COSTS
12.01 Litigation Costs 32
THIRTEEN CERTAIN ADDITIONAL AGREEMENTS OF THE PARTIES
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13.01 Due Diligence Review 33
13.02 Confidentiality 33
13.03 Provincial Takeover Laws 33
13.04 Procedure for Replacement of New AKI Directors 34
FOURTEEN MISCELLANEOUS
14.01 Notices 34
14.02 Assignment 35
14.03 Expenses 35
14.04 Governing Law 35
14.05 Dispute 35
14.06 Entire Understanding 35
14.07 Further Assurances 35
14.08 Waiver 35
14.09 Headings 36
14.10 Counterparts 36
14.11 Severability 36
14.12 Binding on Successors 36
SIGNATURE PAGE 37
LIST OF ATTACHED SCHEDULES 38
LIST OF EXHIBITS 39
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ACQUISITION AGREEMENT
ACQUISITION AGREEMENT ("Agreement"), dated as of December 14, 1999, by and
between Advanced Knowledge, Inc., a Delaware corporation ("AKI") and Soccer
Magic Inc., an Ontario corporation ("SMI"), each herein sometimes being referred
to individually as a "party" and collectively as the "parties," is made with
reference to the following facts:
R E C I T A L S
A. AKI is a publicly held corporation engaged in the development,
production and distribution of management and general workforce training videos.
B. SMI is a privately held corporation which, through two wholly-owned
subsidiaries, is engaged in the design, construction, ownership and operation of
indoor soccer facilities (the "Business").
C. The parties propose, as of the Effective Time (as hereinafter defined),
that AKI shall acquire ownership of 100% of the outstanding common shares of SMI
(the "Acquisition"), as a result of which (a) SMI will become a wholly-owned
subsidiary of AKI and (b) the current holders of the outstanding common shares
of SMI (the "SMI Shareholders") will receive as consideration for the
Acquisition shares of AKI common stock as hereinafter set forth.
D. The parties wish to establish a means for rescinding the Acquisition if
certain conditions are not satisfied by the Private Placement Deadline (as
hereinafter defined).
E. The Acquisition is to be effectuated as a non-taxable reorganization
under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
ARTICLE ONE
THE ACQUISITION
1.01 THE ACQUISITION. On the terms and subject to the conditions set forth
in this Agreement, AKI shall acquire 100% of the outstanding common shares of
SMI (the "SMI Shares") in exchange for a total of 10,000,000 newly issued shares
of AKI common stock (the "AKI Shares") to be issued to the SMI Shareholders in
amounts calculated in accordance with Article Two.
1.02 POSSIBLE AUTOMATIC RESCISSION OF THE ACQUISITION. The Acquisition
shall be subject to a possible automatic rescission, as provided in Section 3.02
hereof.
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ARTICLE TWO
CALCULATION OF EXCHANGE RATIO AND AKI SHARES TO BE ISSUED
2.01 CALCULATION OF EXCHANGE RATIO. The number of AKI Shares to be issued
to each of the SMI Shareholders for their respective SMI Shares shall be
calculated in accordance with the formula in Section 2.02, using an exchange
ratio of 0.8424408206385 (the "Exchange Ratio"). The Exchange Ratio was derived
by dividing the total number of AKI Shares to be issued (10,000,000) by the
total number of SMI Shares (11,870,270).
2.02 CALCULATION OF AKI SHARES TO BE ISSUED. The number of AKI Shares to be
issued to each of the SMI Shareholders for their respective shares shall be
calculated by (i) multiplying (a) the total number of SMI Shares held by each
SMI Shareholder by (b) the Exchange Ratio and (ii) rounding the product to the
nearest whole number (subject to other reasonable adjustments needed to maintain
the total number of AKI Shares to be issued at 10,000,000). No fractional shares
of AKI common stock shall be issued in connection with the Acquisition.
ARTICLE THREE
CLOSING AND EFFECTIVE TIME OF THE ACQUISITION
3.01 THE CLOSING. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place as soon as practicable after or upon
the satisfaction or waiver in writing of all of the conditions precedent to the
obligations of the parties hereto, on such date as may be designated by mutual
consent of the parties (the "Closing Date"). The parties will conduct the
Closing at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other place as the parties may
mutually agree. At the Closing, the parties will determine that each condition
to the obligations of the parties hereunder has been satisfied or waived or
will, at such Closing, be satisfied or waived.
3.02 ESCROW AGREEMENT AND POSSIBLE AUTOMATIC RESCISSION. At or prior to the
Closing, the parties shall enter into an escrow agreement (the "Escrow
Agreement") in substantially the form attached as Exhibit A, with an independent
third party acceptable to the parties serving under that agreement as escrow
agent (the "Escrow Agent").
(a) ESTABLISHMENT OF ESCROW. Under the terms of Section 2 of the
Escrow Agreement, the Escrow Agent shall accept delivery at the Closing of the
following items (collectively, the "Escrowed Items") and shall hold them in
escrow until required by the terms of Section 3 of the Escrow Agreement to
release and deliver them:
(i) The certificates representing the SMI Shares and the
accompanying stock powers or other documentation transferring ownership of the
SMI Shares from the SMI Shareholders to AKI (the "SMI Escrowed Items"), delivery
of which the Escrow Agent shall receive for purposes of the Closing of the
Acquisition as agent for AKI.
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(ii) The certificates representing the AKI Shares, issued in
amounts which have been calculated in accordance with Article Two hereof and
registered in the respective names of the SMI Shareholders (the "AKI Escrowed
Items"), delivery of which the Escrow Agent shall receive for purposes of the
Closing of the Acquisition as agent for SMI.
(iii) The conditional written resignations of each of the New AKI
Directors, as defined in Section 3.04 hereof (the "New Director Resignations"),
which shall become effective only as provided in Section 3(b)(iv) of the Escrow
Agreement.
(iv) The conditional written resignations of each of the New AKI
Officers, as defined in Section 3.05 hereof (the "New Officer Resignations"),
which shall become effective only as provided in Section 3(b)(v) of the Escrow
Agreement. (v) The resolutions of the New AKI Directors appointing ▇▇▇▇▇ ▇▇▇▇▇,
L. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ to serve as directors of AKI (the
"Successor Directors"), and also appointing ▇▇▇▇▇ ▇▇▇▇▇ to serve as chairman of
AKI's board of directors (the "Successor Chairman"), to become effective only as
contemplated by Section 3(b)(ii) of the Escrow Agreement (the "Successor
Director Resolutions"). Delivery to the Escrow Agent of the Successor Director
Resolutions shall be deemed to occur immediately after the Effective Time, i.e.,
after the appointment of the New AKI Directors has become effective.
(vi) The written acceptances of ▇▇▇▇▇ ▇▇▇▇▇, L. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ to serve as the Successor Directors, and the written
acceptance of ▇▇▇▇▇ ▇▇▇▇▇ to serve as the Successor Chairman, if and when the
Successor Director Resolutions become effective, as contemplated by Section
3(b)(ii) of the Escrow Agreement (the "Successor Director Acceptances").
(b) DEFINITIONS. For purposes of this Agreement and the Escrow
Agreement, the terms listed below shall be defined as follows:
(i) "Private Placement" shall mean a private placement of newly
issued shares of AKI common stock made by the New AKI Officers which raises
gross proceeds for AKI of at least US$2,700,000.
(ii) "Private Placement Deadline" shall mean 5:00 p.m. Pacific
Time on June 30, 2000.
(c) RELEASE AND DELIVERY FROM ESCROW. The Escrow Agent shall be
required under the terms of the Escrow Agreement to release and deliver all of
the Escrowed Items as follows:
(i) NO RESCISSION. If the Private Placement is completed prior to
the Private Placement Deadline and AKI is then current in making all required
filings with the U.S. Securities and Exchange Commission (the "Commission")
under Sections 13(a) and 14 of the Securities Exchange Act of 1934, as amended,
the president and secretary of AKI shall jointly certify such facts in writing
to the Escrow Agent (the "Joint Certification"), whereupon the Escrow Agent
shall be required to release all of the Escrowed Items and deliver them as set
forth in Section 3(a) of the Escrow Agreement.
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(ii) RESCISSION. If the Escrow Agent does not receive a Joint
Certification from the president and secretary of AKI prior to the Private
Placement Deadline, then the Acquisition shall be rescinded and the Escrow Agent
shall release all of the Escrowed Items and deliver them as set forth in Section
3(b) of the Escrow Agreement.
3.03 THE EFFECTIVE TIME. The Acquisition shall become effective when all of
the items required by this Agreement to be delivered at the Closing have been
delivered (the "Effective Time"). For purposes of this Agreement, the SMI
Escrowed Items and the AKI Escrowed Items shall be deemed to have been delivered
at the Closing when delivered to the Escrow Agent, as agent for the respective
parties, as contemplated by Section 3.02 hereof.
3.04 DIRECTORS OF AKI AT THE EFFECTIVE TIME. SMI shall have the right to
nominate up to three new persons to serve as directors of AKI at and after the
Effective Time of the Acquisition. SMI shall identify any such nominees in
Schedule 3.04. As provided in Section 7.05 hereof, the AKI board of directors
shall adopt resolutions appointing such persons (the "New AKI Directors") as
directors (the "New Director Resolutions"), which by their terms shall become
operative only at the Effective Time of the Acquisition.
3.05 OFFICERS OF AKI AT THE EFFECTIVE TIME. SMI shall identify in Schedule
3.05 those persons it desires to nominate for appointment as the new officers of
AKI at and after the Effective Time of the Acquisition. As provided in Section
7.05 hereof, the AKI board of directors shall adopt resolutions appointing such
persons as the new officers of AKI (the "New AKI Officers") (the "New Officer
Resolutions"), which by their terms shall become operative only at the Effective
Time of the Acquisition.
3.06 REMEDY FOR FALSE REPRESENTATION AND WARRANTY. If, after the Effective
Time and before the Private Placement Deadline, SMI believes that the
representation and warranty made and given by ▇▇▇▇▇ ▇▇▇▇▇ in the Representation
Letter (defined in Section 7.11) was untrue in any material respect when AKI
delivered the Representation Letter to SMI at the Closing, SMI may submit the
issue to arbitration pursuant to Section 14.05. If the arbitrator finds, based
on the evidence presented to it, that such representation and warranty in the
Representation Letter was, in fact, untrue in any material respect at the time
of the Closing (the "Finding"), SMI may deliver or cause to be delivered to the
Escrow Agent a certified written report of the arbitrator's Finding, whereupon
(i) the Acquisition shall be rescinded and the Escrow Agent shall be required to
release all of the Escrowed Items and deliver them as set forth in Section 3(b)
of the Escrow Agreement, and (ii) SMI and the SMI Shareholders shall be released
from their obligations under this Agreement. The right of rescission set forth
in this Section 3.06 shall be the exclusive legal and equitable remedy available
to SMI and the SMI Shareholders with respect to the Representation Letter;
provided, however, that the Representation Letter and this Section 3.06 shall
not be deemed to restrict or qualify the availability of any remedies for
breaches of the representations and warranties made and given by AKI in this
Agreement. The Escrow Agreement shall include all provisions which are necessary
to implement the purposes of this Section 3.06.
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ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF SMI
SMI represents and warrants to AKI with respect to SMI and its subsidiaries
as follows:
4.01 ORGANIZATION AND GOOD STANDING. SMI is a corporation duly organized,
validly existing and in good standing under the laws of the Province of Ontario
and has all requisite corporate power and authority to own or lease its assets
as now owned or leased by it and to otherwise conduct its business. SMI has two
subsidiaries, Soccer Magic (London) Inc. and Soccer Magic (Kingston) Inc., each
of which is wholly owned by SMI and each of which is a corporation duly
organized, validly existing and in good standing under the laws of the Province
of Ontario and has all requisite corporate power and authority to own or lease
its assets as now owned or leased by it and to otherwise conduct its business.
All corporate proceedings required by law or by the provisions of this Agreement
to be taken by SMI on or before the Closing Date in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been or will be duly and
validly taken.
4.02 DUE AUTHORIZATION. This Agreement and each other agreement
contemplated hereby to be executed in connection herewith by SMI have been (or
upon execution will have been) duly executed and delivered by SMI and constitute
(or upon execution will constitute) legal, valid and binding obligations of SMI
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganization or other laws affecting generally the
enforcement of creditors' rights.
4.03 AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. Except as noted on
Schedule 4.03, the execution and delivery of this Agreement by SMI and the
consummation of the transactions contemplated hereby will not result in a breach
of any of the terms and provisions of, or constitute a default under, or
conflict with, any material agreement, indenture or other instrument to which
SMI or any subsidiary of SMI is a party or by which they or their assets are
bound.
4.04 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 4.04,
since August 31, 1999 there has not been any material adverse change in the
working capital, financial condition, assets, liabilities, reserves, contractual
allowances, business operations or prospects of SMI, and neither SMI nor any
subsidiary of SMI has:
(a) Engaged in any material transaction outside the ordinary course of
business;
(b) Made any capital expenditures other than in the ordinary course of
business;
(c) Paid, loaned or advanced (other than the payment of salaries or
reimbursement of expenses in the ordinary course of business) any amounts to, or
sold, transferred or leased any properties or assets to or entered into any
other transactions with any of its officers or directors, any of its affiliates,
or any officer or director of its affiliates;
(d) Made any material change in any method of accounting or accounting
practice;
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(e) Incurred any material indebtedness or leasehold expense in excess
of $5,000;
(f) Entered into any material guaranties or otherwise incurred or
suffered to exist any material contingent liabilities;
(g) Paid or declared any dividend or other distribution in respect of
its capital stock, or set aside any sums for the payment of any such dividend or
other distribution;
(h) Issued or sold any common shares or other equity security, granted
any stock option or warrant, or otherwise issued any security convertible into
capital stock;
(i) Canceled any indebtedness due it except upon full payment thereof;
(j) Increased the compensation payable or to become payable by SMI to
any of its respective directors, officers, employees or agents, or any bonus
payments or arrangement made to or with any thereof;
(k) Agreed, whether in writing or otherwise, to do any of the
foregoing;
(l) Suffered any labor trouble or any controversies with any of its
employees;
(m) Suffered any damage, destruction or loss, whether or not covered
by insurance, materially adversely affecting the business or properties of SMI;
or
(n) Received notice that any person or entity with which SMI has a
significant business relationship intends to cancel or terminate such business
relationship.
4.05 REAL PROPERTY LEASES. SMI has delivered to AKI correct and complete
copies of the real property leases described on Schedule 4.05 hereto (the "Real
Property Leases"), as amended to date, which constitute all of the real property
leases to which SMI or any subsidiary of SMI is a party. With respect to each
Real Property Lease:
(a) The lease is legal, valid, binding and enforceable and in full
force and effect;
(b) The lease will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the Closing;
(c) No party to the lease is in breach or default, and no event has
occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification or acceleration thereunder;
(d) no party to the lease has repudiated any provision thereof;
(e) there are no disputes, oral agreements or forbearance programs in
effect as to the lease;
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(f) Neither SMI nor any subsidiary of SMI has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the lease;
and
(g) All facilities leased thereunder have received all approvals of
governmental authorities (including licenses and permits) required in connection
with the operation thereof and have been operated and maintained in accordance
with applicable laws, rules and regulations.
4.06 EQUIPMENT LEASES. SMI has delivered to AKI correct and complete copies
of the equipment leases described on Schedule 4.06 hereto (the "Equipment
Leases"), as amended to date, which constitute all of the equipment property
leases to which SMI or any subsidiary of SMI is a party. Each Equipment Lease is
a valid and binding obligation of SMI or a subsidiary of SMI and, to the
knowledge of SMI, each of the other parties thereto; and to the knowledge of
SMI, no party to any Equipment Lease is in default with respect to any material
term or condition thereof, nor has any event occurred which through the passage
of time or the giving of notice, or both, would constitute a default thereunder,
except as it may relate to the assignments pursuant hereto.
4.07 TRADE NAMES. Attached hereto as Schedule 4.07 is a true and correct
description of all trade names, trademarks and service marks ("Trade Names")
utilized by SMI or its subsidiaries in the conduct of their business. Except as
indicated in Schedule 4.07 hereto:
(a) SMI or a subsidiary of SMI is the legal and beneficial owner in
Canada of all right, title and interest in and to the Trade Names identified in
Schedule 4.07 free and clear of all liens, encumbrances, equities and other
adverse claims (and any agreement or commitment to grant any of such), and, with
respect to the Trade Names, no other person, corporation or firm has been
authorized to make any use whatsoever of any of the same. SMI shall, at its
cost, cause all conditions, restrictions, liens or other matters listed on
Schedule 4.07 to be fully satisfied or removed on or prior to the Closing Date,
unless otherwise agreed to in writing by AKI; and
(b) SMI or a subsidiary of SMI has the right and authority to use the
Trade Names in connection with the conduct of their business in the manner
presently conducted, and such use does not conflict with, infringe upon or
violate any trade name, trademark or service ▇▇▇▇, or any registration or
pending application relating thereto, or involve the unlicensed use of
confidential information of any other person, firm or corporation.
4.08 CONTRACTS AND COMMITMENTS. All references to SMI in this Section 4.08
shall be deemed to refer to both SMI and its subsidiaries. Attached as Schedule
4.08 is a list of all agreements which materially affect SMI, to which SMI is a
party or by which SMI or any of its property is bound which exist as of the date
of execution of this Agreement (including, without limitation, joint venture or
partnership agreements, personal property leases, conditional sales contracts,
notes or other evidence of indebtedness, or other contracts, agreements, or
commitments) (collectively, the "Contracts"). SMI now has, and at the Closing
will have, valid and enforceable interests in and to the Contracts. Except as
set forth in Schedules 4.03 and 4.08, SMI is not in default with respect to any
material term or condition of any such Contract, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder. SMI has received no notice that any party to a
Contract intends to cancel or terminate such Contract or to exercise or not to
exercise any option thereunder.
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4.09 LICENSES AND PERMITS. Schedule 4.09 lists all licenses ("Licenses")
and permits ("Permits") held by SMI and its subsidiaries in connection with the
operation of their business as currently conducted or to the occupancy and use
of the premises upon which their business is conducted. No breach of any such
License or Permit currently exists, nor has any event occurred which through the
passage of time or the giving of notice, or both, would constitute a breach
thereunder.
4.10 LITIGATION. All references to SMI in this Section 4.10 shall be deemed
to refer to both SMI and its subsidiaries. Except as listed in Schedule 4.10 and
except for collection actions instituted by SMI involving less than Cdn$5,000
individually:
(a) there is no action, suit or proceeding to which SMI is a party
(either as a plaintiff or defendant) pending before any court or governmental
agency, authority or body, or any arbitrator or arbitral body, which, if decided
or concluded adversely, would have a materially adverse impact upon the
operation by SMI of the Business or on SMI's ability to consummate the
transactions contemplated herein, and SMI has no knowledge that any such action,
suit or proceeding has been threatened against SMI;
(b) SMI has not been permanently or temporarily enjoined by any order,
judgment or decree of any court or tribunal or any other agency from engaging in
or continuing any conduct or practice in connection with the Business; and
(c) There is not in existence on the date hereof any order, judgment
or decree of any court or other tribunal or other agency or any arbitrator or
arbitral body, enjoining or requiring SMI to take any action of any kind with
respect to the business, properties or assets of the Business.
4.11 INSURANCE. All of the properties, business and operations of SMI and
its subsidiaries are adequately insured consistent with businesses of the same
or similar nature, and all such policies of insurance are described in Schedule
4.11, which schedule reflects the policies' numbers, identity of insurers,
terms, amounts and coverage which exist as of the date of execution of this
Agreement. All of such policies have been, are now and will be until the Closing
in full force and effect with no premium arrearages. Copies of all such policies
and any endorsements thereto have been or will be delivered to AKI prior to the
Closing.
4.12 INVENTORIES. All the inventory and supplies of SMI and its
subsidiaries on hand as of the date of execution of this Agreement are, and as
of the Effective Time will be, of a quality and quantity usual in the ordinary
course of the business of SMI.
4.13 COMPLIANCE WITH LAW. Except as set forth in Schedule 4.13:
8
(a) SMI and its subsidiaries currently have no outstanding notice or
notification from any court or governmental agency, authority or body that, with
respect to the operations of the Business, it is in violation in any material
respect of or not in substantial compliance with any federal, provincial or
local laws, statutes, ordinances, rules, regulations, decrees, orders, permits
or other similar items (including, but not limited to, those related to employee
safety, employment discrimination and environmental protection or conservation)
or that upon the passage of time it will be in violation in any material respect
of any of the foregoing;
(b) The conduct of the Business within the five-year period prior to
the date hereof has not been in violation of any federal, provincial or local
laws, statutes, ordinances, rules, regulations, decrees, orders, permits or
other similar items (including, but not limited to, those related to employee
safety, employment discrimination and environmental protection or conversation)
in force on the date hereof, the enforcement of which would materially and
adversely affect the condition (financial or otherwise), business or properties
of SMI or its subsidiaries;
(c) Neither SMI, its subsidiaries, nor any shareholder, officer,
employee or agent of SMI or its subsidiaries has, directly or indirectly, within
the five year period prior to the date hereof given or agreed to give any gift
or similar benefit to any customer, supplier, competitor or governmental
employee or official or has engaged in any other practice, which in any such
case would subject SMI to any damage or penalty in any civil, criminal or
governmental litigation or proceeding or which would be grounds for termination
or modification of any material contract, license or other instrument to which
SMI or any subsidiary of SMI is a party; and
(d) All outstanding securities issued by SMI (including all common
stock and securities convertible into or exercisable for common stock) were
issued in compliance with all applicable securities laws. All of the outstanding
common shares of SMI are, and any common shares of SMI issuable upon conversion
or exercise of any other security, when issued pursuant to such conversion or
exercise will be, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, the charter documents
of SMI or any agreement to which SMI is a party or is bound.
4.14 CAPITALIZATION. The authorized capital stock of SMI consists of an
unlimited number of common shares, of which 11,870,270 shares are outstanding on
the date hereof. Such issued and outstanding shares have been duly and validly
authorized and are fully paid and nonassessable. There are no other shares of
capital stock of SMI outstanding, authorized or reserved for issuance; there are
no outstanding options, warrants, or rights to purchase or acquire, or
securities convertible into or exchangeable for, any shares of capital stock of
SMI, and there are no contracts, commitments, agreements, understandings,
arrangements or restrictions which require SMI to issue, sell or deliver any
shares of capital stock of SMI. Attached as Schedule 4.14 is a list of the
shareholders of SMI as of the date hereof, indicating the number of SMI common
shares owned by them beneficially and of record.
4.15 LABOR AND EMPLOYMENT MATTERS. All references to SMI in this Section
4.15 shall be deemed to refer to both SMI and its subsidiaries.
9
(a) GENERAL. Except as set forth in Schedule 4.15, there is no
collective bargaining agreement, service or employment contract or other labor
or employment agreement or scheme to which SMI is a party or by which SMI is
bound; no profit sharing, deferred compensation, bonus, stock option, stock
purchase, pension, retainer, consulting, retirement, welfare or incentive plan,
contract, arrangement or scheme to which SMI is a party or by which SMI is
bound; and no plan, contract, arrangement or scheme under which fringe benefits
(including, but not limited to, vacation plans or programs, sick leave plans or
programs and related benefits) are afforded to employees of SMI. Except as set
forth in Schedule 4.15, all accrued material obligations of SMI (whether arising
by operation of law, contract or past custom) for payments by SMI pursuant to
any plan, contract, arrangement or scheme listed in Schedule 4.15 have been
paid.
(b) PERFORMANCE. Except as set forth in Schedule 4.15, neither SMI
nor, to the best knowledge of SMI, any other party to any agreement, plan or
contract set forth in Schedule 4.15, is in default with respect to any material
term or condition thereof, nor has any event occurred which through the passage
of time or the giving of notice, or both, would constitute a default thereunder.
SMI has withheld and paid to the appropriate governmental authorities or is
withholding for payment not yet due to such authorities, all amounts required to
be withheld from employees of SMI, and SMI is not liable for any arrears of
wages, taxes, penalties or other sums for failure to comply with any of the
foregoing.
(c) LABOR DISPUTES. Except as set forth in Schedule 4.15, there is no
pending unfair labor practice complaint (or the equivalent) against SMI before
any federal, provincial, local or foreign agency; pending labor strike affecting
SMI; grievance or unfair dismissal proceeding pending against SMI; pending
representation question respecting the employees of SMI; pending arbitration
proceeding arising out of or under any collective bargaining agreement to which
SMI is a party; or any basis for which a material claim may be made against SMI
under any service or employment contract, collective bargaining agreement or
other labor scheme to which SMI is a party or by which it is bound.
(d) GOVERNMENTAL BENEFIT OBLIGATIONS. Except as set forth in Schedule
4.15, all accrued material obligations of SMI (whether arising by operation of
law, by contract or past custom) for payments by SMI to trusts or other funds or
to any governmental agency, with respect to unemployment compensation benefits,
social security or similar benefits, health or welfare benefits or any other
governmental benefits for employees of SMI with respect to employment of said
employees have been paid.
4.16 TAXES. All taxes and other governmental charges in respect of the
properties, income, sales and payrolls of SMI and its subsidiaries have been
duly paid or reserved. There are no pending questions with governmental agencies
relating to, or claims or assessments for, taxes payable by SMI or its
subsidiaries, and SMI and its subsidiaries have not given, and have not been
requested to give, any waivers extending the statutory period of limitation
applicable to any income tax return for any period; and proper and accurate
amounts have been withheld by SMI and its subsidiaries from their employees for
all periods in full and complete compliance with the tax withholding provisions
of all applicable laws.
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4.17 ENVIRONMENTAL COMPLIANCE. All references to SMI in this Section 4.17
shall be deemed to refer to both SMI and its subsidiaries. There have been no
uses, disposals, burials or releases of Hazardous Materials (as defined) on any
premises used in the Business, either before or after SMI's occupancy of such
premises, except in substantial compliance with applicable laws. For purposes of
this Section 4.17, the term "Hazardous Materials" shall mean any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "toxic substances" and similar terms under any
applicable federal, provincial or local laws or regulations. The operations of
SMI at SMI's premises have been in material compliance with all applicable
federal, provincial or local environmental laws or regulations. SMI shall
indemnify and hold harmless AKI and its successors and assigns from and against
any and all claims, demands, damages, actions, penalties, liabilities, causes of
action and government proceedings of any kind or nature whatsoever, arising out
of or in any manner directly or indirectly connected with the presence prior to
Closing of Hazardous Materials at such premises or the violation prior to
Closing of any applicable federal, provincial or local environmental laws or
regulations at such premises, including, but not limited to, any claims of
indemnification or contribution under any federal, provincial or local laws or
regulations.
4.18 SUBSIDIARIES AND AFFILIATES. Except for the two subsidiaries of SMI
named in Section 4.01 and except as set forth in Schedule 4.18, SMI does not
have, directly or indirectly, an equity investment in any corporation,
partnership, joint venture or other business entity which investment represents
or upon conversion would represent more than ten percent (10%) of the voting
power or interest in the profits of such entity.
4.19 BANKING FACILITIES. Attached hereto as Schedule 4.19 is a true and
complete list of each bank, savings and loan or similar financial institution in
which SMI has an account or with which SMI has a credit facility.
4.20 NO ASSETS OWNED BY AFFILIATES. There are no properties, tangible or
intangible, owned by the shareholders of SMI, or owned by any affiliate or
relative of such shareholders, which have been used in the normal day-to-day
operations of the Business any time since November 1, 1998.
4.21 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND SHAREHOLDERS. Except
as set forth in Schedule 4.21, SMI is not indebted to any officer, director, or
shareholder of SMI in any amount whatsoever other than for salaries or services
rendered since the start of SMI's current pay period and for reimbursable
business expenses, nor is any such officer, director or shareholder indebted to
SMI except for advances made in the ordinary course of business to meet
anticipated reimbursable business expenses to be incurred by such obligor.
4.22 RELATED PARTY TRANSACTIONS. All references to SMI in this Section 4.22
shall be deemed to refer to both SMI and its subsidiaries. Except as set forth
in Schedules 4.21 and 4.22, no officer, director, or shareholder of SMI, nor any
affiliate or relative of any such person, now has or within the last three (3)
years has had, either directly or indirectly, a material interest in any
contract, agreement or commitment to which SMI is or was a party, or under which
SMI is or was obligated or bound, or to which any of SMI's properties may be or
may have been subject, other than any contract, agreement or commitment between
SMI and such persons in their capacities as employees, officers or directors of
SMI.
4.23 NO LEGAL BAR. SMI is not prohibited by any order, writ, injunction or
decree of any body of competent jurisdiction from consummating the transactions
contemplated by this Agreement, and no such action or proceeding is pending
against SMI which questions the validity of this Agreement or any of the
transactions contemplated hereby.
4.24 FINDER'S FEES AND BROKERAGE FEES. Except as set forth in Schedule
4.24, SMI has not had any dealings with any person which would entitle such
person to any finder's fee or brokerage fees in connection with this Agreement
or any transaction contemplated hereby.
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4.25 REQUIRED CONSENTS. Except as set forth in Schedule 4.25 hereto (the
"Required Consents"), no consent, waiver or other authorization of any third
party (including, without limitation, any third party to a Real Property Lease,
Equipment Lease, Contract, License, Permit or other instrument to which SMI or
any subsidiary of SMI is a party or by which SMI or any subsidiary of SMI is
bound) is required to the consummation of the transactions contemplated by this
Agreement.
4.26 OTHER INFORMATION. SMI has disclosed or will, prior to the Closing,
disclose to AKI all information requested by AKI and known to SMI (after
reasonable investigation and inquiry) to be material to the condition (financial
or otherwise), business or properties of SMI and its subsidiaries. The
information concerning SMI and its subsidiaries set forth in this Agreement, in
the schedules hereto furnished by SMI, and in any other document, statement or
certificate furnished or to be furnished to AKI pursuant hereto, does not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary to make the
statements and facts contained herein or therein, in light of the circumstances
in which they are made, not false or misleading. All information contained or
referred to in the schedules hereto furnished by SMI is accurate in all material
respects and SMI (after having made reasonable inquiry) is not aware of any
other fact or matter which renders any such information materially misleading.
Copies of all documents heretofore or hereafter delivered or made available to
AKI were or will be complete and accurate copies of such documents on the date
such copies are delivered.
4.27 SMI UNAUDITED FINANCIAL STATEMENTS. SMI has delivered to AKI its
unaudited consolidated financial statements for the year ended October 31, 1998
and the ten months ended August 31, 1999, and such financial statements are true
and correct and fully represent the financial condition of SMI at such dates and
the results of operations, shareholders equity and cash flows of SMI for the
periods covered. SMI has also delivered to AKI its unaudited consolidated
financial statements for the nine months ended October 31, 1997 and the three
months ended January 31, 1998, and such financial statements are true and
correct and fully represent the financial condition of SMI at such dates and the
results of operations, shareholders equity and cash flows of SMI for the periods
covered, and comply with Canadian generally accepted accounting principles
consistently applied throughout the periods covered.
4.28 REGULATORY INVESTIGATIONS. To SMI's knowledge, there are no
investigations or inquiries pending against SMI or its directors or officers by
any stock exchange, securities regulatory authority, taxing authority or any
other governmental department or agency.
4.29 CORPORATE RECORDS. All of the minute books and corporate and financial
records of SMI are, or prior to the Closing will be, in all material respects,
complete, up to date and accurate.
4.30 REPRESENTATIONS. All representations and warranties of SMI are true,
accurate and complete in all material respects as of the date hereof and will be
true, accurate and complete as of the Closing as if made at such time, except
with respect to the effect of transactions in the ordinary course of business
and transactions contemplated or permitted by this Agreement. Any exception to a
representation or warranty of SMI which is disclosed in any of the schedules
hereto furnished by SMI shall be deemed to apply only to the representation or
warranty referenced by such schedule, and shall not, unless scheduled
separately, be considered an exception to any other representation or warranty
of SMI in this Agreement.
12
ARTICLE FIVE
REPRESENTATIONS OF AKI
AKI represents and warrants to SMI as follows:
5.01 ORGANIZATION, STANDING AND POWER. AKI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own or lease its assets
as now owned or leased by it and to otherwise conduct its business. All
corporate proceedings required by law or by the provisions of this Agreement to
be taken by AKI on or before the Closing Date in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been or will be duly and validly taken.
5.02 DUE AUTHORIZATION. This Agreement and each other agreement
contemplated hereby to be executed in connection herewith by AKI or have been
(or upon execution will have been) duly executed and delivered by AKI and
constitute (or upon execution will constitute) legal, valid and binding
obligations of AKI enforceable in accordance with their respective terms, except
as limited by bankruptcy, insolvency, reorganization or other laws affecting
generally the enforcement of creditors' rights.
5.03 AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. The execution and
delivery of this Agreement by AKI and the consummation of the transactions
contemplated hereby will not result in a breach of any of the terms and
provisions of, or constitute a default under, or conflict with, any material
agreement, indenture or other instrument to which AKI is a party or by which it
or its properties are bound.
5.04 STATUS OF COMMON STOCK. Upon consummation of the transactions
contemplated by this Agreement, the AKI Shares to be issued to the SMI
Shareholders, when issued and delivered, will be duly authorized, validly
issued, fully paid and non-assessable and free of any and all liens, claims or
encumbrances, but subject to the terms of the Escrow Agreement.
5.05 NO BANKRUPTCY. Neither AKI nor its assets are the subject of any
proceeding involving either a voluntary or an involuntary bankruptcy, insolvency
or receivership.
5.06 ABSENCE OF CERTAIN CHANGES. Since August 31, 1999, there has not been
any material adverse change in the financial condition, assets or liabilities of
AKI, and AKI has not:
(a) Engaged in any material transaction outside the ordinary course of
business;
(b) Made any capital expenditures other than in the ordinary course of
business;
(c) Paid, loaned or advanced (other than the payment of salaries or
reimbursement of expenses in the ordinary course of business) any amounts to, or
sold, transferred or leased any properties or assets to or entered into any
other transactions with any of its officers or directors, any of its affiliates,
or any officer or director of its affiliates;
13
(d) Made any material change in any method of accounting or accounting
practice;
(e) Incurred any material indebtedness or leasehold expense in excess
of $5,000;
(f) Entered into any material guaranties or otherwise incurred or
suffered to exist any material contingent liabilities;
(g) Paid or declared any dividend or other distribution in respect of
its capital stock, or set aside any sums for the payment of any such dividend or
other distribution;
(h) Issued or sold any shares of common stock or any other equity
security, granted any stock option or warrant, or otherwise issued any security
convertible into capital stock, except that AKI has agreed to issue a total of
2,000,000 shares of common stock pursuant to individual consulting agreements
with ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ Lighter and ▇▇▇▇▇▇ ▇▇▇▇▇▇ (the
"Consulting Agreements");
(i) Agreed, whether in writing or otherwise, to do any of the
foregoing;
(j) Suffered any labor trouble or any controversies with any of its
employees; or
(k) Suffered any damage, destruction or loss, whether or not covered
by insurance, materially adversely affecting the business or properties of AKI.
5.07 CONTRACTS AND COMMITMENTS. All agreements which materially affect AKI,
to which AKI is a party or by which AKI or any of its property is bound which
exist as of the date of execution of this Agreement have been filed as exhibits
to documents filed by AKI with the Commission under the Securities Exchange Act
of 1934 (collectively, the "Contracts"). AKI is not in default with respect to
any material term or condition of any such Contract, nor has any event occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder.
5.08 LITIGATION.
(a) There is no action, suit or proceeding to which AKI is a party
(either as a plaintiff or defendant) pending before any court or governmental
agency, authority or body, or any arbitrator or arbitral body, which, if decided
or concluded adversely, would have a materially adverse impact upon the
operation by AKI of its business or on AKI's ability to consummate the
transactions contemplated herein, and AKI has no knowledge that any such action,
suit or proceeding has been threatened against AKI;
(b) AKI has not been permanently or temporarily enjoined by any order,
judgment or decree of any court or tribunal or any other agency from engaging in
or continuing any conduct or practice in connection with its business; and
(c) There is not in existence on the date hereof any order, judgment
or decree of any court or other tribunal or other agency or any arbitrator or
arbitral body, enjoining or requiring AKI to take any action of any kind with
respect to its business, properties or assets.
14
5.09 COMPLIANCE WITH LAW.
(a) AKI currently has no outstanding notice or notification from any
court or governmental agency, authority or body that, with respect to the
operations of AKI's business, it is in violation in any material respect of or
not in substantial compliance with any federal, state or local laws, statutes,
ordinances, rules, regulations, decrees, orders, permits or other similar items
(including, but not limited to, those related to employee safety, employment
discrimination and environmental protection or conservation) or that upon the
passage of time it will be in violation in any material respect of any of the
foregoing;
(b) The conduct of AKI's business within the five-year period prior to
the date hereof has not been in violation of any federal, state or local laws,
statutes, ordinances, rules, regulations, decrees, orders, permits or other
similar items (including, but not limited to, those related to employee safety,
employment discrimination and environmental protection or conversation) in force
on the date hereof, the enforcement of which would materially and adversely
affect the condition (financial or otherwise), business or properties of AKI;
(c) Neither AKI nor any shareholder, officer, employee or agent of AKI
has, directly or indirectly, within the five year period prior to the date
hereof given or agreed to give any gift or similar benefit to any customer,
supplier, competitor or governmental employee or official or has engaged in any
other practice, which in any such case would subject AKI to any damage or
penalty in any civil, criminal or governmental litigation or proceeding or which
would be grounds for termination or modification of any material contract,
license or other instrument to which AKI is a party; and
(d) All outstanding securities issued by AKI (including all common
stock and securities convertible into or exercisable for common stock) were
issued in compliance with all applicable securities laws. All of the outstanding
shares of AKI common stock are, and any shares of AKI common stock issuable upon
conversion or exercise of any other security, when issued pursuant to such
conversion or exercise will be, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, the
charter documents of AKI or any agreement to which AKI is a party or is bound.
5.10 CAPITALIZATION. The authorized capital stock of AKI consists of
25,000,000 shares of common stock, of which 4,000,000 shares are outstanding on
the date hereof. Such issued and outstanding shares have been duly and validly
authorized and are fully paid and nonassessable. Other than 2,000,000 shares of
common stock which are reserved for issuance by AKI under the Consulting
Agreements, there are no other shares of capital stock of AKI outstanding,
authorized or reserved for issuance, there are no outstanding options, warrants,
or rights to purchase or acquire, or securities convertible into or exchangeable
for, any shares of capital stock of AKI, and there are no contracts,
commitments, agreements, understandings, arrangements or restrictions which
require AKI to issue, sell or deliver any shares of capital stock of AKI.
Attached as Schedule 5.10 is a list of the stockholders of AKI indicating the
number of AKI common shares owned of record by them as of a recent date.
15
5.11 TAXES. All tax returns required to be filed with respect to AKI have
been duly filed and all taxes and other governmental charges as reflected on
such tax returns as being due and owing in respect of the properties, income,
sales and payrolls of AKI have been duly paid. There are no pending questions
with governmental agencies relating to, or claims or assessments for, taxes
payable by AKI, and AKI has not given, and has not been requested to give, any
waivers extending the statutory period of limitation applicable to any income
tax return for any period; and proper and accurate amounts have been withheld by
AKI from its employees for all periods in full and complete compliance with the
tax withholding provisions of all applicable laws.
5.12 ENVIRONMENTAL COMPLIANCE. There have been no uses, disposals, burials
or releases of Hazardous Materials (as defined) on any premises used in AKI's
business, either before or after AKI's occupancy of such premises, except in
substantial compliance with applicable laws. For purposes of this Section 5.12,
the term "Hazardous Materials" shall mean any substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "toxic substances" and similar terms under any applicable federal,
state or local laws or regulations. The operations of AKI at AKI's premises have
been in material compliance with all applicable federal, state or local
environmental laws or regulations. AKI shall indemnify and hold harmless SMI and
its successors and assigns from and against any and all claims, demands,
damages, actions, penalties, liabilities, causes of action and government
proceedings of any kind or nature whatsoever, arising out of or in any manner
directly or indirectly connected with the presence prior to Closing of Hazardous
Materials at such premises or the violation prior to Closing of any applicable
federal, state or local environmental laws or regulations at such premises,
including, but not limited to, any claims of indemnification or contribution
under any federal, state or local laws or regulations.
5.13 SUBSIDIARIES AND AFFILIATES. AKI has no direct or indirect equity
investment in any corporation, partnership, joint venture or other business
entity.
5.14 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND STOCKHOLDERS. Except
as described in AKI's annual report on Form 10-KSB for the fiscal year ended
August 31, 1999 (the "AKI Annual Report") and Schedule 5.14, AKI is not indebted
to any officer, director, or stockholder of AKI in any amount whatsoever other
than for salaries or services rendered since the start of AKI's current pay
period and for reimbursable business expenses, nor is any such officer, director
or stockholder indebted to AKI except for advances made in the ordinary course
of business to meet anticipated reimbursable business expenses to be incurred by
such obligor.
5.15 NO LEGAL BAR. AKI is not prohibited by any order, writ, injunction or
decree of any body of competent jurisdiction from consummating the transactions
contemplated by this Agreement, and no such action or proceeding is pending
against AKI which questions the validity of this Agreement or any of the
transactions contemplated hereby.
5.16 FINDER'S FEES AND BROKERAGE FEES. AKI has not had any dealings with
any person which would entitle such person to any finder's fee or brokerage fees
in connection with this Agreement or any transaction contemplated hereby.
16
5.17 OTHER INFORMATION. AKI has disclosed or will, prior to the Closing,
disclose to SMI all information requested by SMI and known to AKI (after
reasonable investigation and inquiry) to be material to the condition (financial
or otherwise), business or properties of AKI. The information concerning AKI set
forth in this Agreement, in the AKI Annual Report (including the audited
financial statements contained therein (the "AKI Financial Statements")), in any
schedules hereto furnished by AKI, and in any other document, statement or
certificate furnished or to be furnished to AKI pursuant hereto, does not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary to make the
statements and facts contained herein or therein, in light of the circumstances
in which they are made, not false or misleading. All information contained or
referred to in the schedules hereto furnished by AKI is accurate in all material
respects and AKI (after having made reasonable inquiry) is not aware of any
other fact or matter which renders any such information materially misleading.
Copies of all documents heretofore or hereafter delivered or made available to
AMI were or will be complete and accurate copies of such documents on the date
such copies are delivered.
5.18 AKI FINANCIAL STATEMENTS. The AKI Financial Statements fully represent
the financial condition of AKI at August 31, 1999 and the results of operations,
shareholders equity and cash flows of AKI for the periods covered. The AKI
Financial Statements comply with generally accepted accounting principles
consistently applied throughout the periods covered.
5.19 QUALIFICATION TO USE FORM S-8 FOR CONSULTANT SHARES. AKI qualifies to
use Form S-8 to register under the Securities Act of 1933 the 2,000,000 shares
of AKI common stock which AKI has agreed to issue pursuant to the Consulting
Agreements (the "Consultant Shares"). The Consultant Shares, when issued under
an effective Form S-8 registration statement after delivery by AKI of the
required Form S-8 prospectus, will be unrestricted securities, will not be
required to bear a legend under applicable securities laws, and will have been
validly issued as fully paid and non-assessable shares of AKI.
5.20 REPORTING COMPANY. AKI is a reporting company registered under Section
12(g) of the Securities Exchange Act of 1934 and is in compliance with all laws,
rules and regulations applicable to reporting companies generally.
5.21 SECURITIES FILINGS. AKI is current with respect to all required
filings with state and federal securities regulatory authorities and the
contents of all such filings are complete and accurate in all material respects.
5.22 OTC BULLETIN BOARD. AKI's common stock is posted for trading on the
OTC Bulletin Board under the symbol "AVKN."
5.23 STOP TRADE ORDERS. There are no pending, and there have never been
any, stop trade orders issued against AKI or any of its directors or officers or
those of any affiliates of AKI by any securities regulatory authority whether in
the United States or in any other jurisdiction.
5.24 REGULATORY INVESTIGATIONS. To AKI's knowledge, there are no
investigations or inquiries pending against AKI or its directors or officers by
any stock exchange, securities regulatory authority, taxing authority or any
other governmental department or agency.
5.25 CORPORATE RECORDS. All of the minute books and corporate and financial
records of AKI are, or prior to the Closing will be, in all material respects,
complete, up to date and accurate.
17
5.26 REPRESENTATIONS. All representations and warranties of AKI are true,
accurate and complete in all material respects as of the date hereof and will be
true, accurate and complete as of the Closing as if made at such time, except
with respect to the effect of transactions in the ordinary course of business
and transactions contemplated or permitted by this Agreement. Any exception to a
representation or warranty of AKI which is disclosed in any of the schedules
hereto furnished by AKI shall be deemed to apply only to the representation or
warranty referenced by such schedule, and shall not, unless scheduled
separately, be considered an exception to any other representation or warranty
of AKI in this Agreement.
5.27 GOVERNMENT APPROVALS. Other than (i) the pre-Closing filing and
delivery to stockholders of the Stockholder Notice described in Section 8.17 and
(ii) the post-Closing filing of securities exemption notice filings required in
the State of California and the Province of Ontario, no governmental notices,
filings, approvals or consents are required in order for AKI to complete the
transactions contemplated by this Agreement.
5.28 REQUIRED CONSENTS. No consent, waiver or other authorization of any
third party (including, without limitation, any third party to a real property
lease, equipment lease, contract, license, permit or other instrument to which
AKI is a party or by which AKI is bound) is required to the consummation of the
transactions contemplated by this Agreement.
ARTICLE SIX
COVENANTS AND AGREEMENTS OF SMI
All references to SMI in this Article shall be deemed to refer to both SMI
and its subsidiaries, except where the context requires otherwise. SMI hereby
covenants and agrees, between the date hereof and the Closing (and, with respect
to Sections 6.06, 6.10, and 6.15 through 6.19, also after the Closing), as
follows:
6.01 CONDUCT OF BUSINESS. SMI shall conduct the operations of its Business
only in the ordinary course and in a manner consistent with a maximization of
the value of the Business. SMI shall use reasonable efforts to preserve the
goodwill of its customers and others with whom it has business relations. Except
as otherwise contemplated by this Agreement or consented to by AKI in writing,
between the date of this Agreement and the Closing, SMI shall not:
(a) Engage in any material transaction outside the ordinary course of
business;
(b) Make any capital expenditures other than in the ordinary course of
business;
(c) Enter into any material guaranties or otherwise incur or suffer to
exist any material contingent liabilities;
(d) Enter into any material new indebtedness, or cancel any
indebtedness due it except upon full payment thereof;
18
(e) Make any payment of dividends or other unusual distribution of
cash or assets to shareholders or employees, including repayment of outstanding
indebtedness;
(f) Make any material change in any method of accounting or accounting
practice;
(g) Enter into or engage in any transaction with any officer,
director, shareholder or affiliate, except for the payment of salaries and other
activities in the ordinary course of business;
(h) Fail to pay when due, or fail to maintain a reserve adequate for
the payment when due of, any applicable local, provincial or federal taxes;
(i) Issue or sell any common shares or other equity security, grant
any stock option or warrant, or otherwise issue any security convertible into
capital stock;
(j) Take any other action which would render any representation or
warranty of SMI herein inaccurate as of the date such action is taken; or
(k) Agree, whether in writing or otherwise, to do any of the
foregoing.
6.02 FULFILLMENT OF CONDITIONS AND COVENANTS. SMI shall not voluntarily
undertake any course of action inconsistent with the satisfaction of the
requirements or conditions applicable to it as set forth in this Agreement and
shall promptly do all acts and take all such steps as it deems necessary or
appropriate to enable it to perform as early as possible the obligations herein
provided.
6.03 STATUS OF ASSETS. SMI's title to its assets shall be maintained and
preserved at all times from the date hereof until completion of the Closing in
material accordance with the representations and warranties of SMI set forth in
Article Four hereof.
6.04 ACCESS TO INFORMATION. Upon reasonable notice from AKI, SMI shall
deliver to the representatives of AKI, or grant such representatives access
during normal business hours to, the books, records and financial statements of
SMI to make such reviews, examinations and investigations thereof as ▇▇▇ ▇▇▇▇▇
necessary.
6.05 FINANCIAL RECORDS AND UNAUDITED FINANCIAL STATEMENTS. SMI shall
accurately maintain its books and records and promptly advise AKI in writing of
any material adverse change in the condition (financial or otherwise), assets,
liabilities, earnings or Business of SMI.
6.06 AUDITED FINANCIAL STATEMENTS. SMI agrees that it shall use its best
efforts to complete, at its own cost, as soon as practicable following the date
of this Agreement, an audit of the financial statements of SMI in conformance
with the requirements of Form 8-K (items 2 and 7) and other applicable rules and
regulations of the Commission. Such audit shall, in any event, be completed in
time for AKI to timely file the audited financial statements of SMI, together
with all required pro forma financial statements, with the Commission on Form
8-K, i.e., within 75 days after the Effective Time.
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6.07 CONSENTS. Between the date hereof and the Closing, SMI shall, at its
cost, obtain from third parties any Required Consents in writing; provided,
however, that the terms and conditions of any agreements as to which such
consents are obtained shall not be less favorable following the Acquisition than
those terms and conditions to which SMI is currently subject.
6.08 TRANSFER OF LICENSES, PERMITS AND AUTHORIZATIONS. Between the date
hereof and the Closing, SMI shall, if required by applicable law or regulations,
at its cost, obtain new Licenses and Permits or transfers of existing Licenses
and Permits and any governmental or other consents or authorizations required
for the consummation of the Acquisition and the conduct of SMI's Business
following the Closing; provided, however, that the terms and conditions of such
new or transferred Licenses and Permits shall not be less favorable than those
terms and conditions to which SMI is currently subject.
6.09 EMPLOYEES. Between the date hereof and the Closing, SMI shall use its
best efforts to ensure that all of the key employees of SMI shall remain as
employees of SMI (subject to Section 14.05 below).
6.10 AGREEMENT WITH RESPECT TO OTHER REGULATORY FILINGS. SMI agrees that it
shall cooperate with AKI in the preparation of any document or other material
which may be required by any governmental agency as a predicate to or result of
the transactions herein contemplated.
6.11 SOLICITATION OF INQUIRIES. From the date hereof to the earlier to
occur of (i) the Closing or (ii) the termination of this Agreement pursuant to
Article Ten hereof (which period shall be referred to herein as the "No-Shop
Period"), neither SMI nor its directors, employees, agents or representatives
shall, without the prior written consent of AKI, solicit from any other person,
firm or corporation any inquiry or proposal relating to a merger, consolidation,
amalgamation, purchase or sale of assets, exchange of securities or similar
transaction involving SMI, other than in the ordinary course of business, nor
shall they deliver to any other person any information concerning SMI or its
business, financial affairs or prospects for the purpose or with the intent of
permitting such person or entity to evaluate the possibility of such a
transaction involving SMI.
6.12 PURCHASE AND SALE AGREEMENTS. SMI shall distribute to each of the SMI
Shareholders a Purchase and Sale Agreement in substantially the form attached as
Exhibit B (the "Purchase and Sale Agreement") to be signed by them and returned
to SMI for delivery to AKI at the Closing. SMI shall also distribute to each of
the SMI Shareholders for informational purposes (i) a copy of the AKI Annual
Report, (ii) a copy of this Agreement and (iii) a copy of the Escrow Agreement.
6.13 PUBLIC ANNOUNCEMENTS. Except as required by any applicable law, rule
or regulation, prior to the Closing SMI shall not issue nor permit to be issued
any press release or otherwise make or permit to be made any public statement
with respect to the transactions contemplated by this Agreement without the
prior written consent of AKI.
6.14 RESIGNATIONS OF NEW AKI DIRECTORS AND OFFICERS. SMI shall deliver to
the Escrow Agent at the Closing the conditional written resignations of each of
the New AKI Directors and New AKI Officers.
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6.15 APPOINTMENT OF SUCCESSOR DIRECTORS. The persons to be appointed as the
New AKI Directors at the Effective Time shall adopt the Successor Director
Resolutions and shall deliver an original signed copy of such resolutions to the
Escrow Agent in connection with the Closing as provided in Section 3.02(a)(v).
6.16 PAYMENT OF LEGAL FEES. SMI agrees to pay to ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, at the
time of the Closing, one-half of its total legal fees and costs for all services
rendered as counsel to AKI in connection with the transactions contemplated by
this Agreement.
6.17 INSTRUCTION LETTER TO TRANSFER AGENT. SMI agrees to deliver to AKI's
stock transfer agent, in connection with the Closing, an irrevocable letter of
instructions in substantially the form attached hereto as Exhibit C.
6.18 CONDUCT OF BUSINESS PRIOR TO CLOSE OF ESCROW. SMI covenants and
agrees, at all times after the Effective Date while any of the Escrowed Items
continue to be held in escrow under the terms of the Escrow Agreement, as
follows:
(a) SMI and its subsidiaries will operate their businesses separate
and apart from AKI;
(b) SMI and its subsidiaries will not transfer or assign to AKI,
directly or indirectly, by any means whatsoever, any of SMI's liabilities,
debts, expenses, losses, judgments, claims, damages or other obligations and
will not cause AKI to incur any liabilities, debts, expenses, losses, judgments,
claims, damages or other obligations on behalf or for the benefit of SMI or its
subsidiaries; and
(c) SMI and its subsidiaries will pay in a timely manner all legal,
accounting and other costs and expenses of AKI incurred in connection with the
Private Placement and incurred for any other purpose, including, but not limited
to, costs and expenses of effecting a change of AKI's corporate name, preparing
and filing reports and statements under the Securities Exchange Act of 1934, and
satisfying all other applicable laws and regulations.
6.19 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. Upon the occurrence of any
rescission of the Acquisition under the terms of this Agreement and the Escrow
Agreement, SMI hereby assumes and agrees to pay and satisfy in a timely manner
any and all liabilities, debts, expenses, losses, judgments, claims, damages and
other obligations of AKI which may be in existence at that time.
ARTICLE SEVEN
COVENANTS AND AGREEMENTS OF AKI
AKI hereby covenants and agrees, between the date hereof and the date of
Closing (and, with respect to Section 7.08, also after the Closing), as follows:
7.01 FULFILLMENT OF CONDITIONS AND COVENANTS. AKI shall not voluntarily
undertake any course of action inconsistent with the satisfaction of the
requirements and conditions applicable to it as set forth in this Agreement, and
AKI shall promptly do all acts and take all such measures as may be necessary or
appropriate to enable it to perform as early as possible the obligations herein
provided.
21
7.02 ACCESS TO INFORMATION. Upon reasonable notice from SMI, AKI shall
deliver to the representatives of SMI, or grant such representatives access
during normal business hours to, the books, records and financial statements of
AKI to make such reviews, examinations and investigations thereof as SMI deems
necessary.
7.03 COMPLIANCE WITH APPLICABLE SECURITIES LAWS. AKI agrees to use its best
efforts to comply with all applicable securities laws in connection with the
offer and sale of the AKI Shares to the SMI Shareholders and will pay all
expenses incident thereto.
7.04 RESIGNATIONS OF EXISTING DIRECTORS AND OFFICERS. The board of
directors of AKI shall obtain written resignations of each of the existing
directors and officers of AKI, to become effective at the Effective Time, and
shall deliver them to SMI at the Closing.
7.05 APPOINTMENT OF NEW DIRECTORS AND OFFICERS. The board of directors of
AKI shall adopt the New Director Resolutions (as defined in Section 3.04) and
the New Officer Resolutions (as defined in Section 3.05) and shall deliver
certified copies of such resolutions to SMI at the Closing.
7.06 CONDUCT OF BUSINESS. AKI shall conduct the operations of its business
only in the ordinary course. Except as otherwise contemplated by this Agreement
or consented to by SMI in writing, between the date of this Agreement and the
Closing, AKI shall not:
(a) Engage in any material transaction outside the ordinary course of
business;
(b) Make any capital expenditures other than in the ordinary course of
business;
(c) Enter into any material guaranties or otherwise incur or suffer to
exist any material contingent liabilities;
(d) Enter into any material new indebtedness, or cancel any
indebtedness due it except upon full payment thereof;
(e) Make any payment of dividends or other unusual distribution of
cash or assets to stockholders or employees, including repayment of outstanding
indebtedness;
(f) Make any material change in any method of accounting or accounting
practice;
(g) Enter into or engage in any transaction with any officer,
director, shareholder or affiliate, except for the payment of salaries and other
activities in the ordinary course of business;
(h) Fail to pay when due, or fail to maintain a reserve adequate for
the payment when due of, any applicable local, state or federal taxes;
(i) Issue or sell any shares of common stock or other equity security,
grant any stock option or warrant, or otherwise issue any security convertible
into capital stock;
22
(j) Take any other action which would render any representation or
warranty of AKI herein inaccurate as of the date such action is taken; or
(k) Agree, whether in writing or otherwise, to do any of the
foregoing.
7.07 FINANCIAL RECORDS. AKI shall accurately maintain its books and records
and promptly advise SMI in writing of any material adverse change in the
condition (financial or otherwise), assets, liabilities or business of AKI.
7.08 AGREEMENT WITH RESPECT TO OTHER REGULATORY FILINGS. AKI agrees that it
shall cooperate with SMI in the preparation of any document or other material
which may be required by any governmental agency as a predicate to or result of
the transactions herein contemplated.
7.09 SOLICITATION OF INQUIRIES. Unless otherwise permitted by this
Agreement, during the No-Shop Period (as defined in Section 6.11) neither AKI
nor its directors, employees, agents or representatives shall, without the prior
written consent of SMI, solicit from any other person, firm or corporation any
inquiry or proposal relating to a merger, consolidation, amalgamation,
arrangement, purchase or sale of assets, exchange of securities or similar
transaction involving AKI, other than in the ordinary course of business, nor
shall they deliver to any other person any information concerning AKI or its
business, financial affairs or prospects for the purpose or with the intent of
permitting such person or entity to evaluate the possibility of such a
transaction involving AKI.
7.10 PUBLIC ANNOUNCEMENTS. Except as required by any applicable law, rule
or regulation, prior to the Closing AKI shall not issue nor permit to be issued
any press release or otherwise make or permit to be made any public statement
with respect to the transactions contemplated by this Agreement without the
prior written consent of SMI.
7.11 REPRESENTATION LETTER. AKI shall deliver to SMI at the Closing a
representation letter signed by ▇▇▇▇▇ ▇▇▇▇▇ in substantially the form attached
hereto as Exhibit D (the "Representation Letter").
ARTICLE EIGHT
CONDITIONS PRECEDENT IN FAVOR OF SMI
The obligations of SMI contemplated herein are subject to the satisfaction,
at or before the Closing, of all of the conditions set out hereinbelow. If any
such condition is not satisfied, SMI shall have the right, at its sole election,
either to waive the condition in question and proceed with the Closing or, in
the alternative, to terminate this Agreement without liability. In the event
that SMI elects to waive the condition in question and proceed with the Closing,
the condition in question shall be deemed to have been satisfied and shall have
no further force or effect hereunder in the absence of any misrepresentation of
AKI to SMI with respect to such condition.
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8.01 ACCURACY OF AND CERTIFICATE AS TO REPRESENTATIONS AND WARRANTIES. The
representations and warranties of AKI contained herein and in all documents to
be delivered pursuant hereto shall be true and correct in all material respects
as of the Closing, as if made at such time, and SMI shall have received from AKI
a certificate, dated as of the Closing and signed by an executive officer of
AKI, certifying that all such representations and warranties of AKI remain true
and correct as of the Closing.
8.02 COMPLIANCE WITH COVENANTS. AKI shall have performed and complied in
all material respects with all covenants, agreements and conditions required by
this Agreement to be performed or satisfied by AKI.
8.03 ACTION/PROCEEDING. No court shall have issued an order effective
against a party to restrain or prohibit the transactions herein contemplated.
8.04 CONSENTS. SMI shall have obtained all Required Consents from the
parties from whom consent is required, as listed on Schedule 4.25 hereto, and
from any other third party (including any federal, provincial or local
governmental agency or instrumentality) as may be necessary or appropriate in
connection with the execution and delivery of this Agreement, or to the
consummation of the transactions contemplated hereby, and SMI shall have
obtained documentation or other evidence confirming same.
8.05 COMPLIANCE WITH LAW. There shall have been obtained any and all
permits, approvals and consents of all governmental bodies or agencies which
counsel for SMI may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance in all material respects with applicable laws.
8.06 OPINION OF COUNSEL FOR AKI. SMI shall have received an opinion of
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel to AKI, dated as of the Closing, which is addressed to
SMI and the SMI Shareholders and is satisfactory in form and substance to SMI
and its counsel, to the effect that:
(a) AKI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware;
(b) AKI is qualified to do business in the State of California;
(c) AKI has corporate power and authority to enter into this
Agreement, the Escrow Agreement, the Purchase and Sale Agreements and the Asset
Sale Agreement and to perform its obligations thereunder, and AKI has corporate
power and authority to own its properties and assets and to conduct its present
business;
(d) The execution, delivery and performance of the agreements to be
delivered pursuant hereto by AKI have been duly authorized and approved by AKI
and constitute the valid and binding obligations of AKI duly enforceable in
accordance with their terms except as such enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting the rights of creditors
generally, and will not contravene constating documents, by-laws, contracts or
instruments by which AKI or its assets are bound or to which they are subject;
(e) The AKI Shares to be issued and delivered at the Closing are duly
authorized, validly issued, fully paid and nonassessable, and free of
pre-emptive rights;
24
(f) The offer and sale of the AKI Shares to be issued and delivered at
the Closing does not require registration, qualification or delivery of a
prospectus under the Securities Act of 1933 or any state securities laws;
(g) Other than (i) the pre-Closing filing and delivery to stockholders
of the Stockholder Notice described in Section 8.17 and (ii) the post-Closing
filing of securities exemption notice filings required in the State of
California and the Province of Ontario, no governmental notices, filings,
approvals or consents are required in order for AKI to complete the transactions
contemplated by this Agreement;
(h) To counsel's knowledge, without investigation, AKI is not a party
to any litigation or the subject of any judgment or actual or threatened claim;
(i) To counsel's knowledge, without investigation, AKI has not been
the subject of any investigation, stop order or legal action by the Commission
or any state securities authorities having jurisdiction;
(j) The transactions contemplated by this Agreement will not
contravene any applicable law, rule or regulation to which AKI is subject;
(k) To counsel's knowledge, based solely on a recently dated search
report in respect of registrations under the California Uniform Commercial Code
("UCC") made against AKI, provided by a professional search service (the
"California Report"), AKI is not referenced as a debtor in the California
Report, other than in respect of those filings described in the California
Report; and
(l) The Consultant Shares, when issued under an effective Form S -8
registration statement after delivery by AKI of the required Form S-8
prospectus, will not be "restricted securities" as defined by Rule 144 under the
Securities Act of 1933, will not be required to bear a legend under applicable
U.S. securities laws, and will have been validly issued as fully paid and
non-assessable shares of AKI.
In rendering its opinion, counsel for AKI may rely upon certificates of
officers of AKI and certificates of governmental authorities as to factual
matters.
8.07 DELIVERY OF RESOLUTIONS. The board of directors of AKI shall have
adopted the New Director Resolutions (as defined in Section 3.04) and the New
Officer Resolutions (as defined in Section 3.05) and shall have delivered
certified copies of such resolutions to SMI at the Closing.
8.08 DELIVERY OF AKI SHARES. Pursuant to the terms of the Escrow Agreement,
AKI shall have delivered to the Escrow Agent at the Closing the certificates
representing the AKI Shares (which may be done concurrently with the delivery by
SMI to the Escrow Agent of the certificates representing the SMI Shares and
related stock powers or other transfer documentation as provided in Section 9.13
hereof).
25
8.09 ASSET SALE AGREEMENT. AKI shall have entered into an Asset Sale
Agreement in substantially the form attached hereto as Exhibit E providing for
the transfer by AKI to ▇▇. ▇▇▇▇▇ or an entity owned or controlled by him (the
"Buyer") immediately after the Effective Time of the Acquisition of all of the
assets and liabilities held by AKI immediately prior to the Effective Time of
the Acquisition, and AKI and the Buyer shall have taken all appropriate steps to
be ready to complete such transfer of assets and liabilities.
8.10 PURCHASE AND SALE AGREEMENTS. SMI shall have received properly
executed Purchase and Sale Agreements from all of the SMI Shareholders for
delivery to AKI at the Closing.
8.11 OTHER INFORMATION. SMI shall have received such other certificates,
opinions and other documents as it or its counsel may reasonably require in
order to consummate the transactions contemplated hereby, all of which shall be
in form and substance satisfactory to it and its counsel.
8.12 ADVERSE CHANGE. AKI shall not have suffered any material change, loss
or damage, whether or not covered by insurance, since the date of execution of
this Agreement.
8.13 CORPORATE AUTHORIZATION. AKI shall have delivered to SMI certified
copies of all appropriate resolutions of AKI's board of directors authorizing
the transactions contemplated by this Agreement.
8.14 CERTIFICATE OF STATUS. AKI shall have delivered to SMI a certificate
of good standing and a tax clearance certificate from the Delaware Secretary of
State with respect to AKI dated not more than ten (10) days prior to the
Closing.
8.15 INCUMBENCY CERTIFICATE. AKI shall have delivered to SMI a certificate
of incumbency with respect to those persons who are the directors and officers
of AKI at the time of the Closing.
8.16 UCC SEARCH REPORT. AKI shall have delivered to SMI a copy of the
California Report made as of a recent date.
8.17 STOCKHOLDER NOTICE. At least ten days prior to the Closing, AKI shall
have filed with the Commission and sent to AKI's stockholders the notice which
is required by Section 14(f) of the Securities Exchange Act of 1934 and Rule
14f-1 promulgated thereunder (the "Stockholder Notice") with respect to the
anticipated change in control of AKI's board of directors at the Effective Time.
8.18 DELIVERY OF ALL ESCROW ITEMS. AKI shall have delivered to the Escrow
Agent all items which AKI is required to deliver in connection with the Closing
under the Escrow Agreement.
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ARTICLE NINE
CONDITIONS PRECEDENT IN FAVOR OF AKI
The obligations of AKI contemplated herein are subject to the satisfaction,
at or before the Closing, of all of the conditions set out hereinbelow. If any
such condition is not satisfied, AKI shall have the right, at its sole election,
either to waive the condition in question and proceed with the Closing or, in
the alternative, to terminate this Agreement without liability. In the event
that AKI elects to waive the condition in question and proceed with the Closing,
the condition in question shall be deemed to have been satisfied and shall have
no further force or effect hereunder in the absence of any misrepresentation of
SMI to AKI with respect to such condition.
9.01 ACCURACY OF AND CERTIFICATE AS TO REPRESENTATIONS AND WARRANTIES. The
representations and warranties of SMI contained herein and in all documents to
be delivered pursuant hereto shall be true and correct in all material respects
as of the Closing, as if made at such time, and AKI shall have received from SMI
a certificate, dated as of the Closing and signed by an authorized officer of
SMI, certifying that all such representations and warranties of SMI remain true
and correct as of the Closing.
9.02 COMPLIANCE WITH COVENANTS. SMI shall have performed and complied in
all material respects with all covenants, agreements and conditions required by
this Agreement to be performed or satisfied by SMI.
9.03 ACTION/PROCEEDING. No court shall have issued an order effective
against a party to restrain or prohibit the transactions herein contemplated.
9.04 CONSENTS. SMI shall have obtained all Required Consents from the
parties from whom consent is required, as listed on Schedule 4.25 hereto, and
from any other third party (including any federal, provincial or local
governmental agency or instrumentality) as may be necessary or appropriate in
connection with the execution and delivery of this Agreement, or to the
consummation of the transactions contemplated hereby, and AKI shall have
obtained from SMI documentation or other evidence confirming same.
9.05 COMPLIANCE WITH LAW. There shall have been obtained any and all
permits, approvals and consents of all governmental bodies or agencies which
counsel for AKI may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be in
compliance in all material respects with applicable laws.
9.06 PURCHASE AND SALE AGREEMENTS. SMI shall have delivered to AKI a
properly executed Purchase and Sale Agreement from each of the SMI Shareholders.
9.07 OPINION OF COUNSEL FOR SMI. AKI shall have received an opinion from
▇▇▇▇▇▇ Pundit Pathak & ▇▇▇▇▇▇▇▇, counsel to SMI, which is dated as of the
Closing and is satisfactory in form and substance to AKI and its counsel, to the
effect that:
(a) SMI and each of its subsidiaries are corporations duly organized,
validly existing and in good standing under the laws of the Province of Ontario;
(b) SMI and each of its subsidiaries are qualified to do business in
the Province of Ontario;
(c) SMI has corporate power and authority to enter into this
Agreement, the Escrow Agreement and the Asset Sale Agreement and to perform its
obligations thereunder, and SMI and its subsidiaries have corporate power and
authority to own their respective properties and assets and to conduct their
present businesses;
27
(d) The execution, delivery and performance of the agreements to be
delivered pursuant hereto by SMI have been duly authorized and approved by SMI
and constitute the valid and binding obligations of SMI duly enforceable in
accordance with their terms except as such enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting the rights of creditors
generally, and will not contravene constating documents, by-laws, contracts or
instruments by which SMI, its subsidiaries, or the assets of SMI or its
subsidiaries are bound or to which they are subject;
(e) The SMI Shares to be delivered at the Closing are duly authorized,
validly issued, fully paid and nonassessable, and free of pre-emptive rights;
(f) The sale to AKI of the SMI Shares at the Closing is exempt from
all applicable provincial takeover statutes, rules and regulations;
(g) No governmental notices, filings, approvals or consents are
required in order for SMI to complete the transactions contemplated by this
Agreement;
(h) To counsel's knowledge, without investigation, SMI is not a party
to any litigation or the subject of any judgment or actual or threatened claim
except as disclosed in the Agreement or the schedules thereto;
(i) To counsel's knowledge, without investigation, SMI has not been
the subject of any investigation, stop order or legal action by any securities
authorities having jurisdiction; and
(j) The transactions contemplated by this Agreement will not
contravene any applicable law, rule or regulation to which SMI is subject; and
(k) To counsel's knowledge, based solely on a recently dated search
report in respect of registrations under the Personal Property Act (Ontario)
made against SMI, provided by a professional search service (the "Ontario PPSA
Report"), SMI is not referenced as a debtor in the Ontario PPSA Report, other
than in respect of those filings described in the Ontario PPSA Report.
In rendering its opinion, counsel for SMI may rely upon certificates
of officers of SMI and certificates of governmental authorities as to factual
matters.
9.08 SECURITIES LAW COMPLIANCE. All applicable securities laws have been
satisfied in connection with the offer and sale of the AKI Shares.
9.09 OTHER INFORMATION. AKI shall have received such other certificates,
opinions and other documents as it or its counsel may reasonably require in
order to consummate the transactions contemplated hereby, all of which shall be
in form and substance satisfactory to it and its counsel.
28
9.10 ADVERSE CHANGE. No material adverse change in the results of
operations or the financial condition of SMI which materially impairs SMI's
ability to conduct its Business shall have occurred other than for changes which
occur from the fact that SMI has entered into this Agreement with AKI, and SMI
shall not have suffered any material change, loss or damage, whether or not
covered by insurance, since the date of execution of this Agreement, which
change, loss or damage materially affects or impairs the ability of SMI to
conduct its Business. Without limitation of the foregoing, there shall not have
occurred any destruction of or damage or loss to all or any part of the assets
of SMI from any cause whatsoever, including, but not limited to, fire, flood,
accident, acts of God, earthquake, insurrection, riot or any other cause
commonly referred to as FORCE MAJEURE, which destruction, damage or loss shall
not have been fully repaired to AKI's satisfaction.
9.11 CORPORATE AUTHORIZATION. SMI shall have delivered to AKI certified
copies of all appropriate resolutions of SMI's board of directors authorizing
the transactions contemplated by this Agreement.
9.12 CERTIFICATE OF STATUS. SMI shall have delivered to AKI a certificate
of status from the Ministry of Consumer Commercial Relations of Ontario with
respect to SMI and each of its subsidiaries dated not more than ten (10) days
prior to the Closing.
9.13 TRANSFER AND DELIVERY OF SMI SHARES. Pursuant to the terms of the
Escrow Agreement, SMI shall have delivered to the Escrow Agent at the Closing
the certificates representing the SMI Shares, together with stock powers or
other transfer documentation pursuant to which the SMI Shareholders have
transferred ownership of their respective SMI Shares to AKI (which may be done
concurrently with the delivery by AKI to the Escrow Agent of the certificates
representing the AKI Shares as provided in Section 8.08 hereof).
9.14 ASSET SALE AGREEMENT. AKI shall have entered into an Asset Sale
Agreement in substantially the form attached hereto as Exhibit E providing for
the transfer by AKI to ▇▇. ▇▇▇▇▇ or an entity owned or controlled by him (the
"Buyer") immediately after the Effective Time of the Acquisition of all of the
assets and liabilities held by AKI immediately prior to the Effective Time of
the Acquisition, and AKI and the Buyer shall have taken all appropriate steps to
be ready to complete such transfer of assets and liabilities.
9.15 INCUMBENCY CERTIFICATE. SMI shall have delivered to AKI a certificate
of incumbency with respect to those persons who are the directors and officers
of SMI at the time of the Closing.
9.16 STOCKHOLDER NOTICE. At least ten days prior to the Closing, AKI shall
have filed with the Commission and sent to AKI's stockholders the Stockholder
Notice described in Section 8.17.
9.17 DELIVERY OF ALL ESCROW ITEMS. SMI shall have delivered to the Escrow
Agent all items which SMI is required to deliver in connection with the Closing
under the Escrow Agreement.
9.18 PPSA SEARCH REPORT. SMI shall have delivered to AKI a copy of the
Ontario PPSA Report made as of a recent date.
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ARTICLE TEN
TERMINATION AND ABANDONMENT OF THE ACQUISITION
10.01 TERMINATION. This Agreement may be terminated and the Acquisition
abandoned (notwithstanding any shareholder approval of the Acquisition) prior to
the Effective Time:
(a) by mutual written consent of AKI and SMI at any time;
(b) by SMI at any time after February 29, 2000, provided that SMI is
not in material breach of any covenant, agreement, representation or warranty
made by it in this Agreement;
(c) by AKI at any time after February 29, 2000, provided that AKI is
not in material breach of any covenant, agreement, representation or warranty
made by it in this Agreement;
(d) by AKI or SMI at any time if an order is entered by any court or
governmental agency having jurisdiction enjoining AKI or SMI, respectively, from
consummating any of the transactions contemplated by this Agreement and such
order shall not have been vacated, reversed or withdrawn on or before the
thirtieth (30th) day after the date on which such order was first issued; or
(e) by AKI or SMI if (i) any representation or warranty of the other
hereunder shall not have been true and correct as of the time at which made, or
(ii) any conditions precedent to the obligations of such party as set forth in
Article Eight or Nine are not satisfied in a timely fashion, or (iii) default
shall be made by the other hereunder in the due and timely observance or
performance of any of its covenants and agreements herein contained, in either
event only if such representation or warranty cannot be made true and correct or
such default cannot be cured on or prior to the fifteenth (15th) day after the
non-defaulting or breaching party notifies the other in writing of such default
or breach, specifying the nature thereof.
10.02 NOTICE OF TERMINATION. The power of termination provided for by
Section 10.01 hereof may be exercised only by a notice given in writing and
signed on behalf of AKI by ▇▇▇▇▇ ▇▇▇▇▇ and on behalf of SMI by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇.
10.03 EFFECT OF TERMINATION. In the event of termination and abandonment
pursuant to this Article Ten, this Agreement shall become void and have no
effect, without any liability on the part of any of the parties, except as
otherwise provided in Articles Eleven and Twelve hereof. Any announcement of the
termination of this Agreement and the abandonment of the Acquisition shall be
made by means of a press release issued jointly by AKI and SMI unless otherwise
required to be made by AKI pursuant to the federal or state securities laws.
30
ARTICLE ELEVEN
INDEMNIFICATION
11.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each party hereto shall survive the Closing and shall not be
affected by any investigation made by or on behalf of AKI or SMI, as the case
may be. The representations and warranties set forth in this Agreement shall
expire with, and be terminated and extinguished upon, the expiration of the
applicable statute of limitations with respect to the matters referenced
therein. After the applicable expiration with respect to any particular
representation or warranty, neither AKI nor SMI shall be under any liability
whatsoever with respect to any such representation or warranty. All covenants
and agreements of the parties contained herein shall survive the Closing Date
and shall continue for the period required to fulfill the applicable covenant or
agreement.
11.02 INDEMNIFICATION. The parties shall indemnify each other as follows:
(a) SMI'S INDEMNITY. SMI hereby agrees to indemnify, defend and hold
harmless AKI and its stockholders, directors, officers and agents from and
against all losses, judgments, liabilities, claims, damages, or expenses
(including reasonable attorneys' fees) of every kind, nature and description,
whether known or unknown, absolute or contingent, joint or several ("Loss"),
arising out of or relating to (i) any misrepresentation, breach of any
representation or warranty, or non-fulfillment, non-performance, failure to
timely or fully perform, or breach of any covenant, agreement or other
obligation to be performed by SMI contained in this Agreement or any exhibit or
schedule hereto, (ii) the conduct of SMI's Business prior to the Effective Time,
or (iii) the conduct of SMI's business after the Effective Time and prior to any
rescission of the Acquisition.
(b) AKI'S INDEMNITY. AKI hereby agrees to indemnify, defend and hold
harmless SMI, the SMI Shareholders and SMI's directors, officers and agents from
and against any Loss arising out of or relating to (i) any misrepresentation,
breach of any representation or warranty, or non-fulfillment, non-performance,
failure to timely or fully perform, or breach of any covenant, agreement or
other obligation to be performed by AKI contained in this Agreement or any
exhibit or schedule hereto, or (ii) the conduct of AKI's business prior to the
Effective Time.
11.03 INDEMNIFICATION NOTICE.
(a) THIRD PARTY CLAIM. In the event that SMI, AKI or any other party
entitled to indemnification under Section 11.02 hereof shall choose to assert a
claim for Loss or potential Loss based upon a claim by a third party ("Third
Party Claim"), the party seeking indemnification ("Indemnified Party") shall
notify the party against which indemnification is sought ("Indemnifying Party")
in writing of such claim, promptly following the occurrence of the event giving
rise thereto, certifying that such a claim has been asserted and the basis
therefor which shall be set forth in reasonable detail ("Notification").
31
(i) The Indemnifying Party shall acknowledge receipt of the
Notification and advise the Indemnified Party in writing twenty (20) days after
receipt thereof as to whether the Indemnifying Party agrees to such Third Party
Claim and whether the defense of the Third Party Claim shall be undertaken by
counsel of the choice of and at the expense of the Indemnifying Party. If the
Indemnifying Party so agrees, the Indemnifying Party shall be deemed to have
accepted any indemnifiable Loss suffered arising from such Third Party Claim,
the defense of which has been assumed by the Indemnifying Party. If the
Indemnifying Party advises the Indemnified Party that it shall undertake the
defense of the Third Party Claim, the Indemnified Party shall deliver all the
documents related to the Third Party Claim to the Indemnifying Party or to its
counsel, after which the responsibility of the Indemnified Party for the defense
of the Third Party Claim shall cease, except that the Indemnified Party shall
make available all documents, books and records in its possession related to the
Third Party Claim, at no expense to the Indemnifying Party, and shall fully
cooperate with counsel for the Indemnifying Party, including providing its
personnel who are acquainted with the facts or the documents or books and
records related to the Third Party Claim.
(ii) If the Indemnifying Party advises the Indemnified Party that
the defense of the Third Party Claim will not be undertaken, either the
Indemnified Party shall settle such Third Party Claim (in which case, the amount
of such settlement and all attorneys' fees attendant to the achievement of such
settlement shall be deemed included in any computation to determine Loss), or
the Indemnified Party shall notify the Indemnifying Party of the identity of the
counsel for the Indemnified Party who has been selected to defend the Third
Party Claim. The Indemnifying Party shall fully cooperate with the Indemnified
Party and its counsel to the extent that the Indemnifying Party has knowledge of
the facts or circumstances relating to the Third Party Claim and the Indemnified
Party shall cause its counsel to be available to the Indemnifying Party or its
counsel to respond to any inquiries of the Indemnifying Party concerning the
progress of such defense. In the event that the Indemnified Party shall assert a
claim for Loss as a result of any loss suffered by the Indemnified Party in
settling or defending such Third Party Claim, the Indemnified Party shall notify
the Indemnifying Party in writing of such claim. The Indemnifying Party shall
pay all costs related to the settlement or the defense within thirty (30) days
after a demand for the Loss or any component part is made.
(b) NON-THIRD PARTY CLAIM. In the event the Indemnified Party shall
choose to assert a claim for Loss or potential Loss by reason of other than a
Third Party Claim, the Indemnified Party shall notify the Indemnifying Party in
writing of such claim and the reasons therefor, which reasons shall be set forth
in reasonable detail. The Indemnifying Party shall pay to the Indemnified Party
the amount of the Loss within thirty (30) days of demand pursuant to this
Section 11.03.
11.04 DISPUTE.
(a) If the Indemnifying Party disputes any claim for indemnification
or its obligation to indemnify any claim pursuant to this Article Eleven, the
Indemnifying Party shall notify the Indemnified Party of such dispute within
twenty (20) days of receipt of the Notification. If the matter cannot be
reconciled by mutual agreement, the matter shall be submitted to binding
arbitration as provided in Section 14.05 hereof.
(b) If the Indemnifying Party fails to fulfill its obligations under
this Article, the Indemnified Party may submit the matter to binding arbitration
as provided in Section 14.05 hereof.
ARTICLE TWELVE
LITIGATION COSTS
12.01 LITIGATION COSTS. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees, court costs and other costs
incurred in such action or proceeding, in addition to any other relief to which
it or they may be entitled.
32
ARTICLE THIRTEEN
CERTAIN ADDITIONAL AGREEMENTS OF THE PARTIES
13.01 DUE DILIGENCE REVIEW. The parties hereto acknowledge and agree that
as of the date of this Agreement neither AKI nor SMI has had the opportunity to
conduct a full and complete due diligence investigation of the other.
Consequently, each party shall continue to conduct their due diligence
investigation of the other after the execution hereof, and each party agrees to
provide the other with all materials which may be required in order for the
other to complete this investigation. In this regard, SMI acknowledges that SMI
has retained its own counsel in connection with the transactions contemplated by
this Agreement, that SMI's counsel will advise SMI as to due diligence issues,
and that SMI is not relying on AKI or counsel for AKI for the satisfaction of
SMI's own due diligence requirements.
If, in the course of such due diligence investigation, either party
determines prior to the Closing that any facts or circumstances exist with
respect to the other which are materially inconsistent with the representations
and warranties contained in this Agreement, then such party may terminate this
Agreement by written notice to the other prior to Closing as provided in Article
Ten hereof. Any waiver by either party of its right to terminate under this
Section shall not constitute a waiver of any other condition for the benefit of
such party set forth in this Agreement.
13.02 CONFIDENTIALITY. Except as may be required by law or as otherwise
permitted herein, the parties hereto shall cause all information obtained by
them in connection with the negotiation and performance of this Agreement to be
treated as confidential and will not use, and will not knowingly permit others
to use, any such information in any manner detrimental to the other.
Notwithstanding the foregoing, such information may be disclosed (i) in
connection with any filings or permit applications with governmental authorities
as may be necessary in order to complete the transactions contemplated by this
Agreement; (ii) as necessary in order to obtain any Required Consents of third
parties to the transactions contemplated by this Agreement; or (iii) as
otherwise necessary in order for AKI to close the transactions contemplated by
this Agreement. The provisions of this Section shall survive any termination of
this Agreement.
13.03 PROVINCIAL TAKEOVER LAWS. If any provincial takeover laws or
regulations shall be applicable to the transactions contemplated by this
Agreement, AKI and SMI shall use their reasonable best efforts to take such
actions and obtain such approvals as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize the effects
of such provisions on the transactions contemplated by this Agreement.
33
13.04 PROCEDURE FOR REPLACEMENT OF NEW AKI DIRECTORS. If any New AKI
Director resigns, is removed, or otherwise ceases to serve as a director of AKI
prior to the Private Placement Deadline, the vacancy thereby created on the AKI
board of directors may be filled by the election or appointment of a new
director prior to any release of Escrowed Items pursuant to Section 3 of the
Escrow Agreement only if the person who is to become a director delivers his or
her conditional written resignation to the Escrow Agent in substantially the
same form as the New Director Resignations received by the Escrow Agent from the
New AKI Directors at the Closing. In such a case, that person's conditional
written resignation shall for all purposes be deemed to be a New Director
Resignation and shall become effective in the event of a rescission as provided
in Section 3(b)(iv) of the Escrow Agreement.
ARTICLE FOURTEEN
MISCELLANEOUS
14.01 NOTICES. All notices, waivers or other communications required or
contemplated hereby shall be deemed given if delivered personally, or sent by
registered or certified mail or air courier, postage prepaid, return receipt
requested, or by telex or telecopier addressed to the parties so to be served as
follows:
If to SMI:
▇▇. ▇▇▇▇▇ ▇▇▇▇▇
Soccer Magic Inc.
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ #▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
With a copy to:
Manoj Pundit, Esq.
▇▇▇▇▇▇ Pundit Pathak & ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
If to AKI:
▇▇. ▇▇▇▇▇ ▇▇▇▇▇
Advanced Knowledge, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to:
J. ▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
34
Service of any such notice or demand so made by mail shall be deemed
complete on the date of actual delivery thereof as shown by the addressee's
registry or certification receipt, or upon the expiration of seven days
following the date of mailing. Any party hereto from time to time by notice in
writing served upon the other as aforesaid may designate a different mailing
address to which, or a different or additional person to whom, all such notices
or demands thereafter shall be addressed.
14.02 ASSIGNMENT. Neither the Agreement nor any of the rights hereunder may
be assigned by either party without the prior written consent of the other.
14.03 EXPENSES. Except as otherwise provided in this Agreement, each party
hereto shall bear all expenses and costs incurred by it with respect to this
Agreement and the transactions contemplated hereby.
14.04 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the internal law of the State of California without reference to
its rules as to conflicts of law.
14.05 DISPUTE. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, including without limitation claims against any
party or its affiliates, employees, professionals, officers or directors shall
be settled by binding arbitration in Los Angeles, California, in accordance with
the Commercial Rules of the American Arbitration Association. The arbitrator
shall be an active member of the California bar. In the proceeding, the
arbitrator shall apply California substantive law and the California Evidence
Code. The arbitrator shall prepare an award in writing, which shall include
factual findings and any legal conclusions on which the decision is based.
Judgment upon any award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. In any such proceeding, the prevailing party shall
be entitled, in addition to any other relief awarded or adjudged, such sum as
the arbitrator may fix as and for reasonable attorneys' fees and costs, and the
same shall be included in the award and any judgment.
14.06 ENTIRE UNDERSTANDING. All prior agreements, representations,
discussions, negotiations, commitments and understandings between the parties
are incorporated in this Agreement and the exhibits and schedules attached
hereto which constitute the entire contract between the parties. The terms of
this Agreement are intended by the parties as a final expression of their
agreement with respect to such terms as are included herein and may not be
contradicted by evidence of any prior or contemporaneous written or oral
representations, agreements or understandings, whether express or implied. The
parties further intend that this Agreement constitutes the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial proceeding, if any, involving this Agreement. No
amendment or variation of the terms of this Agreement shall be valid unless made
in writing and signed by each of the parties.
14.07 FURTHER ASSURANCES. Each party, both prior to and after the Closing,
shall reasonably cooperate with the other, at the other's request, in furnishing
information, documents, testimony and other assistance in connection with the
transactions contemplated hereby.
14.08 WAIVER. Each party may at any time waive compliance by the other with
any covenants or conditions contained in this Agreement, but only by a written
instrument executed by the party waiving such compliance. If either party waives
a condition of Closing, the other party shall have no liability hereunder with
respect to the matters so waived.
35
14.09 HEADINGS. All Section and Article headings are included for
convenience only and are not intended to be full or accurate descriptions of the
contents thereof.
14.10 COUNTERPARTS. This Agreement may be executed simultaneously in one or
more counterparts, each of which may be deemed an original but all of which
together shall constitute one and the same instrument. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
counterpart.
14.11 SEVERABILITY. If any provision of this Agreement, as applied to any
party or to any circumstance, shall be adjudged by a court to be void, invalid
or unenforceable, the same shall in no way affect any other provision of this
Agreement, the application of such provision in any other circumstance or the
validity or enforceability of this Agreement.
14.12 BINDING ON SUCCESSORS. All of the terms, provisions and conditions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, successors, assigns and legal
representatives.
[REST OF PAGE INTENTIONALLY BLANK]
36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in multiple originals as of the day and year first above written.
"AKI"
ADVANCED KNOWLEDGE, INC.
By:______________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: President and Chief Executive Officer
By:______________________________________
Name: L. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Secretary
"SMI"
SOCCER MAGIC INC.
By:______________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer
By:______________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
37
LIST OF ATTACHED SCHEDULES
SCHEDULE DESCRIPTION
3.04 New AKI Directors
3.05 New AKI Officers
4.03 Breaches and Defaults
4.04 Certain Changes
4.05 Real Property Leases
4.06 Equipment Leases
4.07 Trade Names
4.08 Contracts and Commitments
4.09 Licenses and Permits
4.10 Litigation
4.11 Insurance Policies
4.13 Compliance with Law
4.14 Shareholders of SMI
4.15 Matters Relating to Labor and Employment
4.18 Subsidiaries and Affiliates
4.19 Banking Facilities
4.21 Indebtedness to and from Affiliates
4.22 Related Transactions
4.24 Finder's Fees and Brokerage Fees
4.25 Required Consents
5.10 Stockholders of AKI
5.14 Indebtedness to and from Officers, Directors and Stockholders
38
LIST OF EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Purchase and Sale Agreement
Exhibit C Instruction Letter
Exhibit D Representation Letter
Exhibit E Asset Sale Agreement
39
SCHEDULE 3.04
NEW AKI DIRECTORS
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
40
SCHEDULE 3.05
NEW AKI OFFICERS
▇▇▇▇▇ ▇▇▇▇▇
Chairman and Chief Executive Officer
▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
President
▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Secretary/Treasurer
▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
41
SCHEDULE 4.03
BREACHES AND DEFAULTS
Soccer Magic (Kingston) Inc. is in default, as at October 31, 1999, with respect
to payments in arrears on the following contractual commitments:
Real property lease with ABNA Investments Ltd.
(4 payments of Cdn$3,300) Cdn$13,200
Property taxes owing under the terms of the real
property lease with ABNA Investments Ltd. Cdn$62,641
Air structure leases with Four Courts Limited
(3 payments of Cdn$6,285) Cdn$18,855
GE Capital Modular Sales Limited (6 payments of Cdn$3,743) Cdn$22,458
Soccer Magic (London) Inc. is in default, as at October 31, 1999, with respect
to payments in arrears on the following contractual commitments:
Property taxes owing under the terms of the real property
lease with Carlton Realty (London) Limited Cdn$54,158
Air structure leases with Four Courts Limited
(3 payments of Cdn$6,185) Cdn$18,555
GE Capital Modular Sales Limited (6 payments of Cdn$3,743) Cdn$22,458
42
SCHEDULE 4.04
CERTAIN CHANGES
None.
43
SCHEDULE 4.05
REAL PROPERTY LEASES
Soccer Magic (Kingston) Inc. - ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, leased from
ABNA Investments Ltd., ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇#▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Soccer Magic (London) Inc. - ▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, leased from
Carlton Realty (London) Ltd. c/o ICORR Properties, ▇▇▇ - ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
44
SCHEDULE 4.06
EQUIPMENT LEASES
Soccer Magic (Kingston) Inc.
Air Structure lease with Four Courts Limited, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇ Air Lock lease with Four Courts Limited, ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇ Clubhouse modular building
lease with GE Capital Modular Sales, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
Soccer Magic (London) Inc.
Air Structure lease with Four Courts Limited, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇ Air Lock lease with Four Courts Limited, ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇ Clubhouse modular building
lease with GE Capital Modular Sales, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
45
SCHEDULE 4.07
TRADE NAMES
Trademarks registered in Canada only:
"Soccer Magic"
"In a league of its own"
46
SCHEDULE 4.08
CONTRACTS AND COMMITMENTS
1. Lease agreement between Soccer Magic (Kingston) Inc. ("SMI Kingston"), as
tenant, and Abna Investments Ltd., as landlord, in respect of the lease of
approximately 2 acres situated at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, for a
term of ten years from September 1, 1997, for annual rent of approximately
$42,000;
2. Lease agreement between Soccer Magic (London) Inc. ("SMI London"), as
tenant, and Carlton Realty (London) Ltd., as landlord, in respect of the
lease of approximately 2.1 acres situated at ▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, for a term of ten years from November 1, 1997, for annual rent of
approximately $45,000;
3. Master equipment lease agreement between Four Courts Limited ("FCL") and
SMI Kingston, dated June 16, 1997, in respect of the lease of certain
equipment by SMI Kingston from FCL including the dome, furnace, inflation
unit, ventilation fan and related equipment, for monthly payments of $6,000
over a term of 120 months commencing February 1, 1998; which FCL has
assigned to Republic National Bank of New York (Canada) Inc.;
4. Master equipment lease agreement between FCL and SMI London, dated July 21,
1997, in respect of the lease of certain equipment by SMI Kingston from FCL
including the dome, furnace, inflation unit, ventilation fan and related
equipment, for monthly payments of $5,900 over a term of 120 months
commencing March 1, 1998; which FCL has assigned to Republic National Bank
of New York (Canada) Inc.;
5. Finance lease between General Electric Capital Canada, Inc., as the lessor,
and SMI Kingston, as the lessee, in respect of the lease of the
prefabricated building leading to the dome, providing for a down payment of
$30,000 and monthly payments of $3,743 over a term of 60 months, commencing
February 1, 1998, secured by an assignment of all insurance proceeds on the
leased assets, with an option to purchase the leased assets for $1.00;
6. Finance lease between General Electric Capital Canada, Inc., as the lessor,
and SMI London, as the lessee, in respect of the lease of the prefabricated
building leading to the dome, providing for a down payment of $30,000 and
monthly payments of $3,743 over a term of 60 months, commencing March 1,
1998, secured by an assignment of all insurance proceeds on the leased
assets, with an option to purchase the leased assets for $1.00;
47
7. Loan agreement between SMI Kingston and Hong Kong Bank of Canada (the
"Bank"), dated August 29, 1997, in respect of a demand loan of $250,000,
repayable in monthly principal payments plus interest, with interest
accruing on the principal amount at the Bank's prime rate plus 2.25%; a
general security agreement dated September 8, 1997, pursuant to which SMI
Kingston has granted the Bank a security interest in all of SMI Kingston's
property. As additional security, SMI Kingston has executed a general
assignment of accounts receivable in favour of the Bank, dated as of
September 8, 1997, and has assigned all risk insurance over all of its
assets (except for assets under the capital leases) indicating the Bank as
first loss payee; additionally, Soccer Magic Inc. has guaranteed SMI
Kingston's obligations to the Bank pursuant to an agreement dated as of
September 8, 1997. SMI has postponed and subordinated all indebtedness and
obligations of SMI Kingston to SMI in favor of the security held by the
Bank in respect of SMI Kingston's debt to the Bank. Each of ▇▇▇▇▇ ▇. ▇▇▇▇▇
and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ has executed a limited personal guarantee of SMI's
indebtedness to the Bank under the loan agreement to a maximum of $62,500.
8. Loan agreement between SMI London and the Bank, dated August 29, 1997, in
respect of a demand loan of $250,000, repayable in monthly principal
payments plus interest, with interest accruing on the principal amount at
the Bank's prime rate plus 2.25%; a general security agreement dated
September 8, 1997, pursuant to which SMI London has granted the Bank a
security interest in all of SMI London's property. As additional security,
SMI London has executed a general assignment of accounts receivable in
favour of the Bank, dated as of September 8, 1997, and has assigned all
risk insurance over all of its assets (except for assets under the capital
leases) indicating the Bank as first loss payee; additionally, Soccer Magic
Inc. has guaranteed SMI London's obligations to the Bank pursuant to an
agreement dated as of September 8, 1997. SMI has postponed and subordinated
all indebtedness and obligations of SMI London to SMI in favor of the
security held by the Bank in respect of SMI London's debt to the Bank. Each
of ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ has executed a limited personal
guarantee of SMI's indebtedness to the Bank under the loan agreement to a
maximum of $62,500.
48
SCHEDULE 4.09
LICENSES AND PERMITS
None.
49
SCHEDULE 4.10
LITIGATION
By statement of claim dated February 17, 1998, ▇▇▇▇▇ Excavating Inc. has
commenced an action in the Supreme Court of Ontario (previously, Ontario Court
(General Division)) against Soccer Magic Inc. and Carlton Realty (London)
Limited, pursuant to the Construction Lien Act (Ontario), for (I) the sum of
$54,275.36; or (II) all proper directions to be given that in default of payment
of the said $54,275.36 and costs by the defendants, the lands municipally known
as ▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, be sold and the proceeds applied towards
payment of the plaintiff's claim and costs; and (III) pre-judgment interest and
post-judgment interest pursuant to the provisions of the Courts of Justice Act;
and (IV) its costs of the action on a solicitor and client basis; and (V) such
further and other relief as the nature of this case may require.
50
SCHEDULE 4.11
INSURANCE POLICIES
Commercial/comprehensive
CGU Group: Policy (▇▇▇▇▇▇) # ▇▇▇▇▇-▇▇ ▇▇▇▇▇▇▇▇▇ October 30, 1999 to October
30, 2000
Liability
▇▇▇▇▇▇▇ Special Risk: Policy # 891496 Effective September 16, 1999 to
September 16, 2000
51
SCHEDULE 4.13
COMPLIANCE WITH LAW
1. Federal and Provincial Corporate Income Tax Returns have not been filed
since incorporation for Soccer Magic Inc. ("SMI"), Soccer Magic (Kingston)
Inc. ("SMI Kingston") and Soccer Magic (London) Inc. ("SMI London").
2. Premiums have not been paid under applicable legislation to Workplace
Safety and Insurance Board ("WSIB") by any of SMI, SMI Kingston or SMI
London; an estimated Cdn.$8,000 is owed to WSIB.
52
SCHEDULE 4.14
SHAREHOLDERS OF SMI
DATE NAME SHARES HELD
---- ---- -----------
1. 01/29/97 ▇▇▇▇▇, ▇▇▇▇▇ 3,385,500 Common
2. 01/29/97 ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 878,400 Common
3. 01/29/97 ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 878,400 Common
4. 01/29/97 ▇▇▇▇▇▇▇▇, ▇▇▇▇▇, in trust 805,200 Common
for: ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
5. 01/29/97 ▇▇▇▇▇▇▇▇, ▇▇▇▇▇, in trust 823,500 Common
for: ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
6. 01/29/97 N.R. Holdings Limited 1,647,000 Common
7. 01/29/97 ▇▇▇▇▇▇▇, ▇▇▇▇ 640,500 Common
8. 01/29/97 ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 640,500 Common
9. 01/29/97 ▇▇▇▇▇▇▇, ▇▇▇▇▇ 640,500 Common
10. 01/29/97 ▇▇▇▇▇, ▇▇▇▇▇▇▇ 640,500 Common
12. 07/21/99 B&M Shebib Investments 890,270 Common
Limited
53
SCHEDULE 4.15
MATTERS RELATING TO LABOR AND EMPLOYMENT
None.
54
SCHEDULE 4.18
SUBSIDIARIES AND AFFILIATES
None.
55
SCHEDULE 4.19
BANKING FACILITIES
HSBC Bank Canada
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Bank of Nova Scotia
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇▇▇▇ Trust
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
56
SCHEDULE 4.21
INDEBTEDNESS TO AND FROM AFFILIATES
The following are balances owing to shareholders and related corporations as at
August 31, 1999 (in Canadian dollars):
Institutional Promotions of Canada Limited $1,391,205
▇▇. ▇▇▇▇▇ ▇▇▇▇▇ $813,113
▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ $90,000
NR Holdings Limited $80,050
▇▇▇▇▇ ▇▇▇▇▇▇▇ $75,000
B&M Shebib Investments Limited $70,000
▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ $14,110
57
SCHEDULE 4.22
RELATED PARTY TRANSACTIONS
None.
58
SCHEDULE 4.24
FINDER'S FEES AND BROKERAGE FEES
None.
59
SCHEDULE 4.25
REQUIRED CONSENTS
None.
60
SCHEDULE 5.10
AKI STOCKHOLDER LIST
Attached.
61
SCHEDULE 5.14
INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND STOCKHOLDERS
1. See Item 12, "Certain Relationships and Related Transactions," in AKI's
annual report on Form 10-K for the year ended August 31, 1999, for a
description of AKI's indebtedness under the Note and Security Agreement (as
defined) to ▇▇▇▇▇ ▇▇▇▇▇, who is the chairman, chief executive officer and
chief financial officer and a principal stockholder of AKI. As of November
30, 1999, AKI owed principal and interest to ▇▇. ▇▇▇▇▇ under the Note and
Security Agreement totaling $182,962.
62
