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Annotated Version
ASSET PURCHASE AGREEMENT BETWEEN [NAME OF PURCHASER CORPORATION] and [NAME OF VENDOR CORPORATION] and [NAME OF PRINCIPAL SHAREHOLDER OF VENDOR] Prepared by A. Paul Mahaffy, Jordan E. Dolgin and David R. Street ASSET PURCHASE AGREEMENT THIS AGREEMENT made as of the . day of ., 20., BETWEEN:
Annotation: Including the Shareholder of the Vendor as a Party is a matter of negotiation and depends to a large extent upon whether the Purchaser insists that the Shareholder be jointly and severally liable with the Vendor for some or all of the representations, covenants and indemnities contained in the Agreement. A person may be bound by only a few, selected provisions of the Agreement, such as the confidentiality or exclusivity provisions, or have its liability restricted to only a few representations. Another person may guarantee only certain financial obligations. However restricted the role any person may play in the Transactions, such person should be made a Party to the Agreement to ensure its cooperation in getting the Transactions closed. It's preferable, especially when the Interim Period is expected to be lengthy, that each of the parties to the other documents required for Closing sign the Agreement as a Party wherever possible. This helps not only to determine early on the identity of any other party who might be substituted for an original Party at the last minute before Closing, but also increases the likelihood that the other parties will produce the required documents bearing their respective signatures on Closing. Some substitute parties may not be known when the Agreement is executed. It is not unusual for a Purchaser to insist on a right to assign its interest in the Agreement to a substitute party in order to achieve the most tax-effective structure, and the tax planning may take considerable time to complete. The substitute may be an existing member of the Purchaser's corporate group, or a special purpose entity to be incorporated by the Purchaser for the acquisition. The original Party should continue to be directly liable on, or at least guarantee, the covenants and indemnities contained in the Agreement notwithstanding the Agreement's subsequent assignment to, and assumption by, a substitute party. A. The Vendor carries on the business of . under the name . (the "Business"). B. The Purchaser wishes to purchase, and the Vendor wishes to sell, substantially all of the assets, property and undertaking of the Business on the terms and conditions herein contained. C. The Shareholder controls the Vendor. The Parties agree as follows: ARTICLE 1 1.1 Definitions In this Agreement and in the schedules, the following terms and expressions will have the following meanings: (a) "Agreement" means this share purchase agreement and all instruments amending it; "hereof", "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular Article, Section, or other subdivision; "Article", "Section" or other subdivisions of this Agreement followed by a number means and refers to the specified Article, Section or other subdivision of this Agreement; (b) "assessment" shall include a reassessment or additional assessment and the term "assessed" shall be interpreted in the same manner; (c) "Assumed Liabilities" means all the debts, liabilities (whether accrued, absolute or contingent or whether liquidated or unliquidated) and obligations of the Vendor relating to the Business or the Purchased Assets existing as at the Closing Date other than the Excluded Liabilities, but including all customer product warranties listed in Schedule 3.1(33) and all other warranties, express or implied, relating to products manufactured or sold or services performed by the Vendor in connection with the Business on or before the Closing Date to the extent they are not Excluded Liabilities; Annotation: This definition attempts to make the Purchaser responsible for all of the liabilities incurred by the Vendor in operating the Business which are not itemized in the definition of Excluded Liabilities. Although it makes specific mention of product or service warranties being assumed by the Purchaser, it could also mention bank indebtedness, employee benefits, or any other liability which the Purchaser is prepared to assume but which would ordinarily be excluded in an asset transaction. Since it includes many contractual and other liabilities which are not specifically recorded in the Audited Financial Statements or Interim Financial Statements, the Purchaser will attempt to determine the extent of such liabilities in its due diligence review prior to signing the Agreement. Considering that many purchasers prefer to structure their business acquisitions as asset transactions for the sole purpose of avoiding vendor liabilities, the list of specifically assumed liabilities is generally shorter than the list of specifically excluded liabilities. However, for those purchasers concerned about the possible defection of existing customers or suppliers once the Business has changed hands, while recognizing the advantages of maintaining direct contact with them afterwards, assuming certain liabilities may be necessary. For example, since the Vendor may not be as inclined as the Purchaser to promptly pay off trade creditors, or as capable as the Purchaser to effectively deal with warranty claims from disgruntled customers, after Closing, the Purchaser may be prepared to assume all of the payables and warranties in order to ensure that the suppliers and customers remain loyal to the Business. (a) "Audited Financial Statements" means the audited financial statements of the Vendor for the fiscal year ended ., consisting of a balance sheet, an income statement, a statement of changes in financial position and a statement of retained earnings together with the accompanying notes and the opinion of the Vendor's auditors thereon, a copy of which is attached as Schedule 3.1(10); Annotation: The financial statements included in this definition are those referred to in the General Regulation made under the Business Corporations Act (Ontario) as the annual financial statements to be delivered to shareholders under clause 154(1)(a) of that Act. However, the Purchaser may be prepared to base its purchase decision on information acquired through other sources and decide it doesn't need to review a full set of audited annual financial statements for the Vendor's most recent fiscal year before signing the Agreement, especially if it is the Vendor's normal practice to forego an annual audit. While the Purchaser may agree to rely upon only unaudited annual financial statements before signing, it may be less inclined to accept unaudited Closing Date Financial Statements which are used to facilitate the determination of any post-Closing adjustments made pursuant to Section 2.4. This Agreement provides that both the Vendor's latest annual financial statements and the Closing Date Financial Statements are to be audited. (b) "Audited Statements Date" means the date of the balance sheet included in the Audited Financial Statements; (c) "Business" means the business carried on by the Vendor at the Closing Date which primarily involves . and all operations related thereto; (d) "Business Day" means any day other than a Saturday, a Sunday or a statutory holiday in the Province of Ontario or any other day on which the principal chartered banks located in the City of . are not open for business during normal banking hours; (e) "Claim" has the meaning ascribed in Section 7.3; (f) "Closing" means the completion of the Transactions pursuant to this Agreement at the Closing Time; (g) "Closing Date" means . or such other date as the Parties may agree upon; (h) "Closing Date Financial Statements" means the balance sheet of the Vendor as at the Closing Time and the income statement for the . month period then ended to be prepared in accordance with Section 2.4; Annotation: Instead of choosing the Closing Date as the date of the final financial statements upon which the various adjustments to the Purchase Price will be determined in accordance with the provisions of section 2.4, the Parties and their accountants may prefer to use an effective date which is more convenient or tax effective. They may choose a date which falls at the end of the Vendor's standard billing cycle or coincides with its regular inventory count, or a date by which beneficial ownership must be transferred for tax purposes. If such a date is chosen, a definition of "Effective Date" should be added to the Agreement, and the "Closing Date Financial Statements" should be renamed "Effective Date Financial Statements". If the Effective Date will precede the Closing Date by a considerable period of time, the Purchaser may wish to impose upon the Vendor during this period the kinds of controls imposed during the Interim Period. This period will become the Interim Period if the Effective Date and the date of the Agreement are the same date, as is often the case. (i) "Closing Time" means . in the City of . on the Closing Date or such other time on the Closing Date as the Parties may agree upon as the time at which the Closing shall take place; (j) "Closing Time Year" means the taxation year of the Vendor ending at the Closing Time; (k) "Consent" means a license, permit, approval, consent, certificate, registration or authorization (including, without limitation, those made or issued by a Regulatory Authority, in respect of a Contract, or otherwise); (l) "Contract" means any agreement, understanding, indenture, contract, lease, deed of trust, license, option, instrument or other commitment, whether written of oral; (m) "Deposit" has the meaning ascribed in Section 2.3; (n) "Employee Plans" has the meaning ascribed in Section 3.1(32)(a); (o) "Encumbrances" means mortgages, charges, pledges, security interests, liens, encumbrances, actions, claims, demands and equities of any nature whatsoever or howsoever arising and any rights or privileges capable of becoming any of the foregoing; (p) "Environmental Consents" has the meaning ascribed in Section 3.1(31)(a)(ii); (q) "Environmental Laws" has the meaning ascribed in Section 3.1(31)(a)(i); (r) "ETA" means the Excise Tax Act (Canada); (s) "Excluded Assets" means: Annotation: Although this definition attempts to exclude from the Purchased Assets only cash, possible income tax refunds and the Vendor's minute book and other corporate records, and may reflect the Vendor's desire to end up merely as a "corporate shell" after Closing with only cash to be distributed to the Shareholder, the Parties may decide otherwise. The Vendor may wish to retain ownership of certain Real Properties or the Intellectual Property, and lease or license them to the Purchaser instead. The Purchaser may wish to avoid acquiring certain machinery and equipment because of excess manufacturing capacity it already has at another facility, or certain inventory because of obsolescence, or certain receivables because of serious doubts over collectibility. The Purchaser may also wish to avoid any the "frills" which the Vendor enjoys in running the Business by excluding aircraft, luxury cars, executive condominiums, artwork, etc. Given that cash is often excluded, the Vendor should be restricted in its ability to convert the Purchased Assets into cash during the Interim Period other than in the ordinary course, with the restrictions in Section 4.1(1) possibly expanded to deal with specific assets. (i) all cash on hand or in banks or other depositories held by or for the account of the Vendor; (ii) all income tax instalments paid by the Vendor and the right to receive any refund of income taxes paid by the Vendor under the ITA, including the right to claim scientific research and experimental development credits under the ITA for expenses incurred by the Business up to the Closing Date; and (iii) all corporate, financial, taxation and other records of the Vendor not pertaining exclusively or primarily to the Business or Purchased Assets; (t) "Excluded Liabilities" means: (iv) any liability of the Vendor to any bank or other financial institution by way of loan or other credit facility; (v) any liability of the Vendor for any personal injuries claims arising by reason of the occurrence on or before the Closing Date of any injury, accident or other alleged damage-causing event with respect to the operations of the Vendor on or prior to the Closing Date or relating to products manufactured or sold or services performed by the Vendor on or before the Closing Date that provide the basis for a personal injury claim after the Closing Date; (vi) any liability of the Vendor to its shareholders, affiliates or associates or any other person not dealing at arm's length with any of them; (vii) any liability of the Vendor for any claims, demands, actions or proceedings relating to the Excluded Assets: (viii) any liability of the Vendor for any breach by the Vendor of any Laws, including Environmental Laws, relating to the operation of the Business or use of the Purchased Assets up to the Closing Date; (ix) any liability of the Vendor for any deferred income tax, or for any other taxes, duties or similar charges (including penalties, fines and interest); and (x) any liability of the Vendor for wages, salary, bonus, vacation pay or other remuneration, or under the Employee Plans, or for any claims pursuant to workers' compensation or similar legislation, relating to any employee while employed by the Vendor in the Business; (u) "GAAP" means the generally accepted accounting principles so described and promulgated by the Canadian Institute of Chartered Accountants which are applicable on the date on which any calculation is to be effective or at the date of any financial statements referred to herein, as the case may be; (v) "Hazardous Substance" has the meaning ascribed in Section 3.1(31)(a)(iii); (w) "Indemnified Party" has the meaning ascribed in Section 7.3; (x) "Indemnifying Party" has the meaning ascribed in Section 7.3; (y) "Intellectual Property" has the meaning ascribed in Section 3.1(34); (z) "Interim Financial Statements" means the unaudited financial statements of the Vendor for the . month period ended . consisting of a balance sheet and an income statement, a copy of which is attached as Schedule 3.1(10); Annotation: Depending on the length of time which has elapsed since the date of the Vendor's most recent audited annual financial statements, the Purchaser may insist on at least being given an unaudited interim balance sheet and income statement for such period before signing the Agreement. As the Purchaser may be particularly concerned about the accounts receivable, this Agreement provides a representation in Section 3.1(23) for accounts receivable which specifically refers to the amounts recorded on the Interim Financial Statements. (aa) "Interim Period" means the period from and including the date of this Agreement to and including the Closing Date; (bb) "ITA" means the Income Tax Act (Canada); (cc) "Law" or "Laws" means all requirements imposed by statutes, regulations, rules, ordinances, by-laws, decrees, codes, policies, judgments, orders, rulings, decisions, approvals, notices, permits, guidelines or directives of any Regulatory Authority; (dd) "Leased Premises" means the premises leased or subleased by the Vendor under the Leases; (ee) "Leases" means the leases, subleases, agreements to lease and tenancy agreements included in the Purchased Assets under which the Vendor leases or subleases any real property as lessee or sublessee, as listed in Schedule 3.1(30)(c); (ff) "Lessee" has the meaning ascribed in Section 3.1(30)(c); (gg) "Net Worth" of the Vendor as determined from any balance sheet means the amount by which the aggregate value of all of the Purchased Assets as shown on such balance sheet exceeds the aggregate value of all of the Assumed Liabilities as shown on such balance sheet; Annotation: As also discussed in the annotation below for Section 2.4, the Parties may decide to adjust the Purchase Price based upon changes in the "net worth" of the Business, described in this definition as the difference between the value of the Purchased Assets less the value of the Assumed Liabilities as recorded on the Vendor's balance sheet. Or the Parties may prefer to use changes in something else, such as changes to the "working capital" of the Business, which might be defined as the difference between the current assets included in the Purchased Assets and current liabilities included in the Assumed Liabilities. If an alternative benchmark is selected, a definition for it should be inserted in place of the definition of "Net Worth". (hh) "Parties" means the Vendor, the Purchaser, the Shareholder and any other person that may become a party to this Agreement, and Party means any one of them; (ii) "Permitted Encumbrances" means: (xi) liens for Taxes, assessments and governmental charges due and being contested in good faith and diligently by appropriate proceedings (and for the payment of which adequate provision has been made); (xii) servitudes, easements, restrictions, rights of parties in possession, zoning restrictions, encroachments, reservations, rights-of-way and other similar rights in real property or any interest therein, provided the same are not of such nature as to materially adversely affect the validity of title to or the value, marketability or use of the property subject thereto by the Vendor; (xiii) liens for Taxes either not due and payable or due but for which notice of assessment has not been given; (xiv) undetermined or inchoate liens, charges and privileges incidental to current construction or current operations and Encumbrances claimed or held by any Regulatory Authority that have not at the time been filed or registered against the title to the asset or served upon the Vendor pursuant to law or that relate to obligations not due or delinquent; (xv) assignments of insurance provided to landlords (or their mortgagees) pursuant to the terms of any Lease and liens or rights reserved in any Lease for rent or for compliance with the terms of such Lease; (xvi) security given in the ordinary course of the Business to any Regulatory Authority in connection with the operations of the Business, other than security for borrowed money; (xvii) the reservations in any original grants from the Crown of any real property or interest therein and statutory exceptions to title that do not materially detract from the value of the real property concerned or materially impair its use in the operation of the Business; and (xviii) the Encumbrances described in Schedule 1.1(ll); (jj) "person" includes any individual, corporation, partnership, firm, joint venture, syndicate, association, trust, government, governmental agency and any other form of entity or organization; (kk) "Purchased Assets" means all of the property and assets used in connection with or otherwise relating to the Business (other than the Excluded Assets) as a going concern, whether real or personal, tangible or tangible, of every kind and description and, wheresoever situate, including, without limitation: Annotation: This definition attempts to include in the Purchased Assets all of the assets used by the Vendor in carrying on the Business, whether or not they are listed in the applicable schedules, unless they are specifically mentioned in the definition of Excluded Assets. As mentioned above in the annotation to Section 1.1(v) Excluded Assets, the Vendor and Purchaser may have quite different ideas over what assets should be included and what assets should be excluded. For example, considerable time can be spent negotiating whether the accounts receivable should stay with the Vendor or be transferred to the Purchaser, and if they are transferred, how much the Purchaser should have to pay for them. While the Vendor may insist that the Purchaser pay the full face value of the receivables and thereby assume the responsibility of collecting them, the Purchaser may prefer to take them only on an agency basis and remit to the Vendor only the amount collected within a certain period of time after Closing, less any applicable collection expenses. Any which then remain uncollected can be returned to the Vendor to deal with. Alternatively, the Purchaser may acquire the receivables for their full face value, or perhaps at a discount, but on a "recourse" basis, requiring the Vendor to buy back any uncollectible receivables after a certain period of time. Although the Vendor and Purchaser may agree upon which assets are to be transferred, some assets may not be transferable due to the lack of a required Consent, particularly Leases and Contracts. While a landlord may be prepared to consent to the transfer of a leasehold interest by the Vendor upon being satisfied as to the creditworthiness of the Purchaser, a customer may not be prepared to allow the assignment of a long-term service agreement if the customer has reservations about the Purchaser's ability to comply with the agreement's performance standards. For those agreements which cannot be transferred, the Vendor may be required to retain the Purchaser to perform them as a "subcontractor" on the Vendor's behalf, with the Vendor holding in trust and eventually remitting to the Purchaser the revenues earned under them. (xix) Real Property - all real property, together with the buildings, structures, improvements and appurtenances situated thereon, including, without limitation, the real property described in Schedule 3.1(30)(a); (xx) Leases - all rights (whether as lessee or lessor) under leases of real property, together with all leasehold improvements relating thereto, including, without limitation, all rights under the leases described in Schedules 3.1(30)(a) and (b); (xxi) Equipment - all machinery, equipment, fixtures, furniture, furnishings, parts, tooling molds, dies, jigs or patterns and other fixed assets, including, without limitation, the machinery and equipment described in Schedule 1.1(nn)(iii); (xxii) Vehicles - all trucks, cars and other vehicles, including, without limitation, the vehicles described in Schedule 1.1(nn)(iv); (xxiii) Inventories - all inventories, including, without limitation, raw materials, work-in-process, finished goods and replacement parts; (xxiv) Accounts Receivable - all accounts receivable, trade accounts, notes receivable, book debts and other debts due or accruing due to the Vendor and the benefit of all security for such accounts, notes and debts; (xxv) Prepaid Expenses - all prepaid expenses; (xxvi) Agreements - all rights under leases of personal property, orders or Contracts for the provision of goods or services (whether as buyer or seller), distribution and agency agreements, employment and collective agreements, agreements and instruments relating to employee pension or benefit plans and other Contracts not otherwise referred to in this Section 1.1(nn)(viii), including, without limitation, the Contracts described in Schedule 3.1(24). (xxvii) Consents - all Consents, including, without limitation, the Consents described in Schedule 3.1(14); (xxviii) Intellectual Property - all trade or brand names, business names, trade marks, trade mark registrations and applications, service marks, service mark registrations and applications, copyright registrations and applications, patents, patent registrations and applications and other patent rights (including any patents issued on such applications or rights), trade secrets, proprietary manufacturing information and know-how, equipment and parts lists and descriptions, instruction manuals, inventions, inventors' notes, research data, unpatented blue prints, drawings and designs, formulae, processes, technology and other intellectual, industrial or proprietary rights, together with all rights under licences, registered user agreements, technology transfer agreements and other agreements or instruments relating to any of the foregoing, including, without limitation, the Intellectual Property described in Schedule 3.1(34); (xxix) Computer Hardware and Software - all computer hardware and software, including all rights under licenses and other agreements or instruments relating thereto; (xxx) Records - all Records (other than those required by law to be retained by the Vendor, copies of which will be made available to the Purchaser); and (xxxi) Goodwill - all goodwill, together with the exclusive right for the Purchaser to represent itself as carrying on the Business in succession to the Vendor and the right to use any words indicating that the Business is so carried on, including the exclusive right to use the name ., or any variation thereof, as part of the name or style under which the Business or any part thereof is carried on by the Purchaser; (ll) "Purchase Price" has the meaning ascribed in Section 2.2; (mm) "Real Properties" means the real properties included in the Purchased Assets which are owned by the Vendor and which are described in Schedule 3.1(30)(a); (nn) "Records" means all technical, business and financial records relating to the Business, including, without limitation, customer lists, operating data, files, financial books, correspondence, credit information, research materials, contract documents, title documents, leases, surveys, records of past sales, supplier lists, employee documents, inventory data, accounts receivable data, financial statements and any other similar records in any form whatsoever (including written, printed, electronic or computer printout form), but not including those records which are part of the Excluded Assets; (oo) "Regulatory Authority" means any government, regulatory or administrative authority, agency, commission, utility or board (federal, provincial, municipal or local, domestic or foreign) having jurisdiction in the relevant circumstances and any person acting under the authority of any of the foregoing and any judicial, administrative or arbitral court, authority, tribunal or commission having jurisdiction in the relevant circumstances; (pp) "Release" has the meaning ascribed in Section 3.1(31)(a)(iv); (qq) "Replacement Plans" has the meaning ascribed in Section 4.6; (rr) "Tax" and "Taxes" have the meaning ascribed in Section 3.1(29)(a)(i); (ss) "Tax Return" has the meaning ascribed in Section 3.1(29)(a)(ii); (tt) "Transactions" means the purchase and sale of the Purchased Assets and all other transactions contemplated by this Agreement ; and (uu) "Transferred Employee" has the meaning ascribed in Section 4.6. 1.2 Best Knowledge Any reference herein to "the best knowledge" of the Vendor and/or the Shareholder will be deemed to mean the actual knowledge of the . of the Vendor and/or the Shareholder, together with the knowledge which they would have had if they had conducted a diligent inquiry into the relevant subject matter. Annotation: As stated in more detail in the introductory annotation to Article 3, this Agreement does not include "best knowledge" qualifications to any of the representations set out. However, if the Parties agree that some of the representations should be qualified by the phrase "to the best knowledge of the Vendor and the Shareholder" or the phrase "to the best knowledge of the Purchaser", this definition should then be inserted. While there may be little debate amongst the Parties that the best of their knowledge should include their actual knowledge, there may be considerable debate over whether a Party should be under a duty to diligently inquire into the matters involved. The Shareholder or any of the other Parties may strongly object to this standard of diligence being imposed upon them in connection with any representation they are expected to give if they are not actively involved in the Business and if such standard would require them to make inquiries which would be prohibitively time consuming and expensive in what may be a relatively short period allowed before the Closing. This definition provides for the insertion of specific officer titles, such as the president or the chief financial officer, or the names of specific individuals, whose knowledge will be deemed to be the knowledge of the corporate Party involved. 1.3 Currency Unless otherwise indicated, all references to dollar amounts in this Agreement are expressed in Canadian currency. 1.4 Governing Law This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. The Parties hereby irrevocably attorn to the non-exclusive jurisdiction of the courts of Ontario with respect to any matter arising under or related to this Agreement. Annotation: Although Ontario law is selected as governing this Agreement, this Section is often debated. Far from being an innocuous boilerplate provision, the law chosen to govern the Transactions can have substantial cost significance to the Party whose own local law is not chosen. Although the law chosen is often the law of the place where the Business is primarily conducted, a Purchaser located in a foreign jurisdiction may want to use documents (and the law firm) it has used in previous deals in its own home jurisdiction and with which it is already comfortable. In addition to the Parties having to customize the Purchaser's documents to reflect the specific laws applicable to various parts of the Business, the Vendor will be faced with the cost of retaining counsel in the Purchaser's home jurisdiction to assist with document reviews and rendering of a legal opinion regarding the enforceability of the documents under the laws of the Purchaser's home jurisdiction. The choice of forum provision gives rise to the same cost issues, especially if the Purchaser's forum is chosen as the exclusive (which may be of questionable enforceability) or non-exclusive jurisdiction to handle disputes arising in connection with the Agreement. If any of the Parties is or will be located outside of the chosen jurisdiction, it may be preferable to appoint an agent for service on behalf of such Party. 1.5 Interpretation Not Affected by Headings The division of this Agreement into articles and sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.6 Number and Gender In this Agreement, unless the context otherwise requires, any reference to gender shall include both genders and words importing the singular number shall include the plural and vice-versa. 1.7 Time of Essence Time shall be of the essence of every provision of this Agreement. 1.8 Severability Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof. 1.9 Accounting Terms All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP. Annotation: The Parties may generally agree that all accounting terms used in the Agreement and all financial statements for the Vendor, including the Closing Date Financial Statements, should be interpreted or prepared in accordance with GAAP. However, they may decide that certain deviations from or exceptions to GAAP may be appropriate for the Transactions. They may set out in a separate schedule to the Agreement certain assets and liabilities, or certain revenues and expenses, which deserve special treatment in the preparation of the Closing Date Financial Statements. Consequently, the provisions of Sections 2.4(1) and 3.1(10)(a) in this Agreement will have to be amended to refer to any exception. 1.10 Calculation of Time Periods Where a time period is expressed to begin or end at, on or with a specified day, or to continue to or until a specified day, the time period includes that day. Where a time period is expressed to begin after or to be from a specified day, the time period does not include that day. Where anything is to be done within a time period expressed after, from or before a specified day, the time period does not include that day. If the last day of a time period is not a Business Day, the time period shall end on the next Business Day. 1.11 Statutory Instruments Unless otherwise specifically provided in this Agreement, any reference in this Agreement to any Law shall be construed as a reference to such Law as amended or re-enacted from time to time or as a reference to any successor thereto. 1.12 Incorporation of Schedules The following are the schedules attached to and incorporated by reference into this Agreement:
ARTICLE 2 2.1 Purchased Assets On the terms and subject to the fulfilment of the conditions of this Agreement, the Vendor agrees to sell, assign and transfer to the Purchaser, and the Purchaser agrees to purchase from the Vendor at the Closing Time on the Closing Date, all of the Purchased Assets. 2.2 Purchase Price The aggregate purchase price (the "Purchase Price") payable by the Purchaser to the Vendor for the Purchased Assets shall be $., subject to adjustment in accordance with Section 2.4. 2.3 Payment of Purchase Price The Purchase Price shall be paid and satisfied, subject to adjustment in accordance with Section 2.4 and subject to any withholding permitted pursuant to Section 2.5, as follows: Annotation: : How the Purchase Price is to be paid, and how its payment is to be secured if payment is spread out over a number of instalments, need to be set out if applicable to the Transactions. This Agreement provides for a deposit to be paid on signing which is to be held in an interest-bearing bank account, usually in the name of the Vendor's lawyer. It also provides for the payment on Closing of one amount to an escrow agent, to be held pursuant to a separate escrow agreement entered into between the Parties and the escrow agent, and for the payment on Closing of another amount to the Vendor. It also provides for payments to be made in two later instalments under a promissory note which is secured by a charge over the Purchaser's assets, including the Purchased Assets, pursuant to a General Security Agreement. And it provides for the assumption of the Assumed Liabilities pursuant to an Assumption Agreement. Since the Vendor will remain contractually liable to the creditors of the Business under the trade payables and other obligations being assumed by the Purchaser, and thereby runs the risk that the Purchaser may fail to pay such creditors after Closing, the General Security Agreement used to provide security for the payment of the promissory note can also be used to provide security for performance of the Assumption Agreement. The requirement for a deposit is often the subject of much debate and is related to Section 8.6 dealing with the responsibility for expenses incurred by the Parties in proceeding to close the Transactions. The process for buying and selling a business generally involves considerable time and professional fees being spent by the Parties during the due diligence and document preparation stages without any assurance that the deal will actually close. While Section 8.6 states that each Party will be responsible for its own fees and expenses, the Parties incur not only out-of-pocket expenses but, more significantly, an "opportunity cost" of pursuing the Transactions instead of using their resources to best carry on the day-to-day Business or to pursue alternative business opportunities which could prove to be even more financially beneficial. Therefore, in negotiating the Agreement if the subject has not already been addressed in an earlier letter of intent, each Party often explores the possibility of recovering its investment from the other Party should that other Party prevent the Transactions from closing. Although there are a number of possible mechanisms to enable a Party to recover its investment from the other, this Agreement provides only for a fixed sum deposit to be provided by the Purchaser to the Vendor, which is either to be applied on Closing to the Purchase Price owing, or to be forfeited by the Purchaser should the Purchaser fail to close. Depending on the respective bargaining power of the Parties, the Purchaser might be required to pay the Vendor's professional fees and other expenses incurred in respect of the Transactions, up to a prescribed amount, in the event the Purchaser fails to close. Alternatively, the Vendor might be required to pay the Purchaser's fees and expenses, again up to a stated maximum amount, should the Vendor fail to close. These obligations of one Party to pay the fees and expenses incurred by the other are sometimes called "break fees". The Party entitled to be reimbursed runs the risk of being unable to collect from the other. While the placing in escrow of a certain portion of the Purchase Price may be requested by a Purchaser to provide a dedicated fund against which Claims for indemnification may generally be made, some of the Purchase Price might also be placed in escrow to be used to satisfy a liability which is not quantifiable at the Closing Date, such as the amount needed to effectively remediate a polluted Real Property or the amount to be remitted to the Canada Revenue Agency in the absence of a certificate issued under section 116 of the ITA. As an alternative to placing funds in escrow, the Agreement may provide the Purchaser with a right to set-off any Claims for indemnification against any amounts due under the promissory note. As an alternative to, or in addition to, securing payment of the promissory note with a general security agreement from the Purchaser, the Vendor may request a guarantee from the controlling shareholder of the Purchaser (which might in turn be secured by a general security agreement covering that shareholder's assets) or a letter of credit from a financial institution. If a general security agreement is taken from the Purchaser to secure the promissory note, the Vendor will in all likelihood not only have to subordinate its security position to the security taken by the bank which is providing purchase or working capital financing but also postpone its rights to payment under the promissory note if the Purchaser goes into default with the bank. (1) Concurrently with the execution of this Agreement, the Purchaser will pay to . in trust, by certified cheque or bank draft or other means of immediately available funds, the sum of $. (the "Deposit") as a deposit. The Deposit will be deposited in an interest?bearing account of a Canadian chartered bank or trust company in the City of . in the name of . and will be dealt with in accordance with the following provisions. (a) If the Transactions are completed at the Closing Time, the Deposit plus all interest earned thereon will be released from trust to the Vendor and applied toward satisfaction of the Purchase Price. (b) If the Transactions are not completed for any reason at the Closing Time, other than the failure of the Purchaser to satisfy its obligations (which have not been waived in writing) set out in Section 4.3, the Deposit plus all interest earned thereon will be released from trust and returned to the Purchaser. (c) If the Transactions are not completed at the Closing Time due to the failure of the Purchaser to satisfy its obligations (which have not been waived in writing) set out in Section 4.3, then the Deposit plus all interest thereon will be released from trust and forfeited and paid to the Vendor. (d) The release from trust and payment of the Deposit to either Party in accordance with this Section 2.3(1) shall not prejudice the enforcement of any rights either Party may otherwise have under this Agreement. (2) At the Closing Time, the Purchaser will pay to ., in trust, by certified cheque, bank draft or other means of immediately available funds, the sum of $., to be held on the terms and subject to the conditions of an escrow agreement in the form of the draft agreement attached hereto as Schedule 1.3(2). (3) At the Closing Time, the Purchaser will pay to the Vendor, by certified cheque, bank draft or other means of immediately available funds, $. of the balance of the Purchase Price. (4) The Purchaser will pay to the Vendor $. of the balance of the Purchase Price in two equal instalments due on . and . respectively, which obligation shall be evidenced by delivery at the Closing Time of a promissory note of the Purchaser in favour of the Vendor in the form set out in Schedule 1.3(4)A, payment of which note shall be secured by the execution and delivery by the Purchaser at the Closing Time of a general security agreement in the form of the agreement annexed hereto as Schedule 1.3(4)B. (5) The Purchaser will assume the Assumed Liabilities pursuant to an assumption agreement in the form set out in Schedule 2.3(5) executed and delivered by the Purchaser at the Closing Time. 2.4 Final Determination of Purchase Price Annotation: : As mentioned in the Annotation dealing with Section 1.1(jj), the Parties may decide to adjust the Purchase Price based upon any differences between the Net Worth of the Business recorded on the Audited Financial Statements and the Net Worth recorded on the Closing Date Financial Statements. If the Net Worth goes up, the Purchaser pays the amount of the increase to the Vendor, and if the Net Worth goes down, the Vendor pays the amount of the decrease to the Purchaser. Depending upon the size of the adjustment expected and the time limits set for its calculation and payment, the Parties may agree that interest accruing from the Closing Date should also be payable on any adjustment amount. Responsibility for the preparation of the Closing Date Financial Statements is often debated. This Agreement places on the Vendor the obligation and expense of producing them. The Purchaser and its auditors have the right to review what the Vendor and its auditors produce. Sometimes, the Purchaser may insist that its auditors perform the audit, with the costs being included as a downward adjustment to the Purchase Price. Instead of adjustments to the Purchase Price being paid by draft or cheque, they might be satisfied by using a portion of the escrow amount, or by adjusting the amounts of the promissory note delivered for the remaining instalments. (1) Within 90 days following the Closing Date, the Closing Date Financial Statements prepared in accordance with GAAP applied on a basis consistent with the preparation of the Audited Financial Statements shall be delivered by the Vendor to the Purchaser together with a favourable report thereon by the Vendor's auditors. The Purchaser shall provide access, upon every reasonable request, to the Vendor and its auditors, to all working papers and accounting books and records relating to the Business and the appropriate personnel to verify the accuracy, presentation and other matters relating to the preparation of the Closing Date Financial Statements and the Vendor and the Purchaser shall otherwise fully cooperate with each other in the preparation of the Closing Date Financial Statements. The Vendor and the Purchaser shall each bear the fees and expenses of their respective auditors in preparing or reviewing the Closing Date Financial Statements. (2) The Purchaser shall be entitled to review the preparation of the Closing Date Financial Statements and the Purchaser's auditors shall be entitled to have access to and to receive copies of the working papers for the Closing Date Financial Statements prior to their issue. The Closing Date Financial Statements shall be final and binding upon the Parties, absent manifest error, unless the Purchaser notifies the Vendor in writing that it disputes any amounts shown therein within 10 Business Days after receipt by the Purchaser of the Closing Date Financial Statements. (3) If the Purchaser disputes any amount shown in the Closing Date Financial Statements, the Parties will work expeditiously and in good faith in an attempt to resolve such disputes within a further period of 20 Business Days after the date of notification by the Purchaser to the Vendor of such disputes, failing resolution of which such disputes shall be submitted for determination to an independent national firm of chartered accountants mutually agreed to by the Vendor and the Purchaser (and, failing such agreement between the Vendor and the Purchaser within a further period of 5 Business Days, such independent national firm of chartered accountants shall be selected by two such national firms, one nominated by each of the Vendor and the Purchaser). The determination of such third firm of chartered accountants shall be final and binding upon the Parties and not subject to appeal. The third firm of chartered accountants shall be deemed to be acting as experts and not as arbitrators. The costs and expenses of such third firm of chartered accountants shall be borne equally by the Vendor and the Purchaser. The Vendor and the Purchaser shall each bear their own costs in presenting their cases to such third firm of chartered accountants. (4) Within 2 Business Days following the later of (a) the 10 Business Day period referred to in Section 2.4(2) or (b) the resolution of any dispute in accordance with Section 2.4(3), the Purchaser shall pay to the Vendor by bank draft, certified cheque or other means of immediately available funds, the amount by which the Net Worth, as determined from the balance sheet forming part of the Closing Date Financial Statements, exceeds the Net Worth as determined from the balance sheet forming part of the Interim Financial Statements and the Vendor shall pay to the Purchaser, by certified cheque, bank draft or other means of immediately available funds, the amount of such difference, if negative. 2.5 Withholding Where Vendor is Non-Resident If the Vendor is a non-resident of Canada and fails to deliver to the Purchaser at or before the Closing Time a certificate issued pursuant to Section 116 of the ITA in respect of the sale of those Purchased Assets to which Section 116 of the ITA applies containing a certificate limit for the Vendor at least equal to that portion of the Purchase Price allocated hereunder to such Purchased Assets, the Purchaser shall be entitled to withhold from the cash portion of the Purchase Price payable at the Closing Time the amount required to be withheld pursuant to Section 116 of the ITA. Annotation: : The withholding obligations under section 116 of the ITA apply when a Vendor who is not a resident of Canada disposes of taxable Canadian property. The definition of taxable Canadian property in section 248(1) of the ITA includes real property. The failure of the Vendor to obtain a section 116 clearance certificate for Closing has certain implications for the Purchaser. In the absence of a section 116 clearance certificate, the Purchaser is liable to pay to the Canada Revenue Agency under subsections 116(5) and (5.1) of the ITA, on behalf of the Vendor, tax equal to 25 percent (subject to tax treaties) of the value of the Real Properties within 30 days after the month in which the Closing takes place. However, these subsections don't impose liability on the Purchaser if the Purchaser, after making reasonable inquiries, has no reason to believe that the Vendor is not resident in Canada. This due diligence standard is usually satisfied by requiring the Vendor to provide a representation that the Vendor is not a non-resident (and a representation to this effect is given in Section 3.1(29)(d) of this Agreement). If the Vendor is a non-resident, and given the significant tax consequences to the Purchaser, the Purchaser will generally withhold on Closing sufficient funds from the Purchase Price in the absence of a section 116 certificate to ensure that the Purchaser can remit the requisite amount of withholding to the Canada Revenue Agency. Even though the Parties may agree that the payment of the Purchase Price be made in instalments, it may be necessary to provide that the portion of the Purchase Price to be paid at the Closing Time is at least equal to the amount which is required to be withheld and remitted. 2.6 Allocation of Purchase Price The Vendor and Purchaser agree to allocate the Purchase Price among the Purchased Assets in accordance with Schedule 2.6 and to report the sale and purchase of the Purchased Assets for all federal, provincial and local tax purposes in a manner consistent with such allocation, and shall not dispute such allocation in connection with any audit or other proceeding. Annotation: : In an effort to minimize their respective tax liabilities resulting from the Transactions, the Vendor and Purchaser will attempt to allocate the purchase price amongst the various asset categories which comprise the Purchased Assets, while recognizing that a high value allocated to a particular category may be advantageous to one party and disadvantageous to the other. While the Vendor may be concerned about the tax implications of such values for the year of the sale, the Purchaser may be more concerned about the tax implications for those years following the sale and the extent of various deductions then available. For example, a high value allocated to depreciable property may provide the Purchaser with greater deductions for capital cost allowance in subsequent years, but may trigger a recapture of capital cost allowance for the Vendor in the year of the sale. The Purchaser may prefer to allocate high values to inventory, whereas the Vendor may prefer to allocate high values to non-depreciable capital property. Although the Canada Revenue Agency may be entitled to reallocate the purchase price among the Purchased Assets pursuant to section 68 of the ITA if it deems the allocations made by the parties to be unreasonable, the allocations negotiated between arms-length parties are generally upheld. 2.7 ETA Election The Vendor and Purchaser shall, on the Closing Date, elect jointly under subsection 167(1) of the ETA, in the form prescribed for the purposes of that subsection, in respect of the sale and transfer of the Purchased Assets hereunder. The Purchaser shall file such election with the Canada Revenue Agency not later than the day on which it is required to file its GST return for its reporting period which includes the Closing Date and shall provide evidence of such filing to the Vendor. Annotation: : Subsection 167(1) of the ETA provides that the Vendor and Purchaser may elect upon the sale of all or substantially all of the assets of a business (using form GST 44) that GST does not to apply to such sale, provided that they are both GST registrants. "Substantially all" is defined to be 90%. The election is to be filed by the Purchaser with its GST return for the period in which the Closing takes place, and until the Purchaser does so, the Vendor remains liable for collecting and remitting GST on the Transactions. The Vendor should therefore require some evidence from the Purchaser that filing of the election has taken place. In the absence of such an election, the Vendor is generally required to collect GST on the purchase price paid for the assets supplied. Since it is important that the Parties be GST registrants, this Agreement contains warranties of both the Vendor and Purchaser in Sections 3.1 (2) and 3.2(8), respectively, regarding their respective GST registration numbers. An Internet-based GST registry operated by the Canada Revenue Agency allows each Party to confirm that the other Party is registered for GST and whether the GST number provided by that Party is valid. Should a Vendor fail to collect and remit any GST payable while relying on the Purchaser to do so, only to learn after Closing that the Purchaser was not registered despite the Purchaser's warranty to the contrary, the Vendor will not be able to escape liability for the GST despite the Purchaser's misrepresentation. This was the result of the decision of the Tax Court of Canada in Lee Hutton Kaye Maloff & Paul Henriksen v. Canada [2004] T.C.J. No. 429 (QL). 2.8 Transfer Taxes The Purchaser shall be liable for and shall pay all federal and provincial sales taxes (including any retail sales taxes and land transfer taxes) and all other taxes, duties, fees or other like charges of any jurisdiction properly payable in connection with the transfer of the Purchased Assets by the Vendor to the Purchaser. Annotation: : If the Purchased Assets include any Real Properties, provincial land transfer taxes will be payable on the portion of the Purchase Price allocated to the Real Properties. Provincial retail sales taxes generally apply to the transfer of tangible personal property, although inventory purchased for resale is often exempt. 2.9 Income Tax Election The Purchaser and the Vendor shall, on the Closing Date, elect jointly in the prescribed form under section 22 of the ITA as to the sale of the accounts receivable and other assets that are referred to in Section 1.1 (nn)(vi) and described in section 22 of the ITA and to designate in such election an amount equal to the portion of the Purchase Price allocated in Schedule 2.6 to such assets as the consideration paid by the Purchaser therefor. The Purchaser and the Vendor shall each file such election with the Canada Revenue Agency after the Closing Date. Annotation: : In the sale of all or substantially all of the assets of a business, Section 22 of the ITA allows the Vendor and Purchaser to jointly elect (using form T2022) what value is to be allocated to the Vendor's accounts receivable in order to reduce the amount of tax which might otherwise be paid by the Vendor if the face amount of the receivables was taken into the Vendor's income. A Purchase Price allocation to receivables which is for less than their face value creates a loss for the Vendor which can be deducted from its income, but which is included in the Purchaser's income.
ARTICLE 3 3.1 Representations and Warranties of the Vendor and the Shareholder The Vendor and the Shareholder hereby jointly and severally make the following representations and warranties to the Purchaser and acknowledge that the Purchaser is relying on such representations and warranties in entering into this Agreement and completing the Transactions: Annotation: The Vendor's representations and warranties are the Vendor's and the Shareholder's description of the Vendor and the Business. The technical distinction between representations and warranties - representations are statements of past or existing facts while warranties are promises that existing or future facts are or will be true - is no longer relevant in modern practice. For simplicity these Annotations use the term representations. The Vendor's representations serve several purposes. First, they provide the Purchaser with disclosure about the Vendor and the Business. The representations, and the exceptions to them disclosed in the representations themselves or in schedules to the Agreement, should provide the Purchaser with detailed information about the Vendor and the Business which will be relevant to the Purchaser's willingness to complete the Transactions and the price which it is prepared to pay. Second, they may provide a means of escape from the Transactions if the Agreement provides, as does this Agreement in Section 5.1(1), that the obligation of the Purchaser to complete the Transactions is subject to the condition that the representations are true and accurate at the Closing Time. Third, the effect of a representation is to allocate some or all of the risk in relation to a particular matter or liability between the Vendor and the Purchaser. A Purchaser which discovers a breach of a representation after Closing may have a right to indemnification under Article 7. The extent of the Vendor's representations will depend upon the relative bargaining strengths of the Parties. In an auction, where two or more potential Purchasers are competing, the balance of power may shift to the Vendor. If the Vendor is motivated by the desire to sell a money-losing or non-core business, and the Purchaser is aware of that motivation, the Purchaser may have the power to insist on more extensive representations. In some transactions the identity of the Purchaser will affect the scope of the Vendor's representations. If the Purchaser is familiar with the Business (because, for example, it is or was a member of management or is a direct competitor of the Business and is knowledgeable about it), the Purchaser may be willing to accept fewer or more heavily qualified representations. Representations can be qualified by (i) disclosing exceptions to them; (ii) limiting them to the knowledge of the Vendor; or (iii) limiting them by reference to materiality. The Vendor can qualify a representation by disclosing exceptions to it in schedules to the Agreement or in the text of the representation itself. Where disclosure is in the schedules, the Purchaser must review the schedules carefully before signing. Schedules must be reviewed by appropriate persons. For example, schedules with technical disclosure should be reviewed by the Purchaser's technical expert, and schedules with financial disclosure should be reviewed by the Purchaser's financial and accounting experts. From the Purchaser's perspective, the disclosure in schedules should be specific rather than general or vague. A Vendor with relatively strong bargaining power may negotiate the right to update various disclosure schedules during the Interim Period and thereby allocate the risk of any Interim Period exposure to the Purchaser. The Purchaser will also want the Agreement to expressly provide that the Vendor's representations are not qualified or affected by the Purchaser's due diligence. That is, even if the Purchaser discovers facts in its due diligence that if true would mean that a representation is incorrect, the Vendor will not escape liability, subject of course to the applicable limitation periods. This Agreement includes language in the introductory paragraph of Section 3.3 and in Section 4.2 to so protect the Purchaser. The Vendor may try to negotiate the removal of these provisions on the basis that it would be unfair to withhold from it knowledge of a breach of representation with a view to making a Claim following Closing. This issue is further discussed in the Annotations following Section 7.5. As noted in the Annotation to Section 1.2, the Vendor may qualify a representation by limiting it to facts of which it is aware. Knowledge qualifications have the effect of limiting the Vendor's risk and shifting to the Purchaser the burden of proving that the Vendor knew of the breach of representation. Generally, the Purchaser should accept knowledge qualifications only in limited circumstances and in respect of certain types of representations. It might accept a knowledge qualification for matters which are, arguably, beyond the knowledge of the Vendor's management, such as threatened litigation (Section 3.1(20)). The Purchaser may properly resist knowledge qualifiers with respect to representations on matters where the Vendor or its counsel or other advisors are in a position to confirm the truth of the representations. Further, the Purchaser may, even where the Vendor can reasonably argue that it does not know or cannot discover the facts, take the position that, as between the Vendor and the Purchaser, the risks relating to unknown matters should be borne by the Vendor. The third way to qualify a representation is to make it subject to a materiality threshold. For example, the representation in Section 3.1(11) (Records) states that the Records "contain full and accurate records of all material matters relating to the Business." Although the Agreement does not do so, the Parties may attempt to provide more certainty by defining materiality by reference to a monetary test. For example, a "material" Contract might be a Contract which provides for the supply in any twelve month period of goods or services having a value of $100,000. While a definition of material with reference to a specific monetary amount is more objective, the Agreement requires careful drafting to ensure that the representation is meaningful. Consider the case where the Business has many small and few large customers. The Business could be in breach of many of its Contracts, but none of them would individually be considered material because none of them has a value greater than $100,000. The representation should therefore, from the Purchaser's point of view, be drafted broadly enough to capture breaches of Contracts which would be, in the aggregate, material to the Business. In some cases the indemnification provisions of a purchase agreement provide that the Purchaser's right to indemnity for breaches of representations will only arise if damages exceed a specified threshold, or "floor", level. See in this regard Section 7.5(2). In other words, until the Vendor's liability for breaches of representations exceeds a specified monetary amount, the Vendor will not be liable to indemnify the Purchaser for these liabilities. Where such a threshold applies to the indemnity, it may be inappropriate to include materiality qualifications in the representations. Materiality qualifications combined with a "floor" for indemnities will permit the maker of the representation to avoid liability for non-material breaches even though such breaches in the aggregate exceed the "floor" amount. For further discussion of this topic, see the Annotation to Section 7.5(2). (1) Incorporation and Existence of the Vendor The Vendor is a corporation incorporated and existing under the laws of .. (2) GST Registration The Vendor is a registrant for the purposes of the ETA under registration number .. (3) Corporate Power The Vendor has the corporate power and authority to own or lease its property and to carry on the Business as now being conducted by it. Annotation: This representation is limited to corporate power and authority, meaning that the Vendor has the power and authority under the applicable corporation act, and its articles and by-laws, to carry on the Business. It does not extend to laws generally, which are covered by other representations. (4) Qualification The Vendor is duly qualified, licensed or registered to carry on business and is in good standing in the jurisdictions listed in Schedule 2.1(4). The jurisdictions listed in Schedule 2.1(4) include all jurisdictions in which the nature of the Business or the property owned or leased by the Vendor makes such qualification necessary or where the Vendor owns or leases any material properties or assets or conducts any material business. Annotation: This representation elicits important information about where the Business is carried on and may lead to further due diligence by the Purchaser, including corporate, personal property security, litigation and similar searches in those jurisdictions. (5) Subsidiaries The Vendor does not own nor has it agreed to acquire, directly or indirectly, (i) any of the outstanding shares or securities convertible into shares of any other corporation, or (ii) any participating interest in any person. (6) Options Except for the Purchaser's right in this Agreement, no person has any option, warrant, right, call, commitment, conversion right, right of exchange or other agreement or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an option, commitment, conversion right, right of exchange or other agreement for the purchase from the Vendor of any of the Purchased Assets; (7) Validity of Agreement (a) The Vendor has all necessary corporate power to own the Purchased Assets and to enter into and perform its obligations under this Agreement, and the Vendor has all necessary corporate power to enter into and perform its obligations under any other agreements or instruments to be delivered or given by it pursuant to this Agreement. (b) The Vendor's execution and delivery of, and performance of its obligations under, this Agreement and the consummation of the Transactions have been duly authorized by all necessary corporate action on the part of the Vendor. (c) This Agreement or any other agreements entered into pursuant to this Agreement to which the Vendor is a party constitute legal, valid and binding obligations of the Vendor enforceable against it in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and except that equitable remedies may be granted only in the discretion of a court of competent jurisdiction. (8) No Violation The execution and delivery of this Agreement by the Vendor, the consummation of the Transactions and the fulfilment by the Vendor of the terms, conditions and provisions hereof will not (with or without the giving of notice or lapse of time, or both): Annotation: This representation provides the Purchaser with assurance that the Transactions will not violate any applicable Law or Contract held by the Business. This representation does not deal with legal, regulatory or contractual matters generally, which are dealt with under other representations. Rather it focuses on the specific violations or defaults which would result from the completion of the Transactions. In this Agreement, "Transactions" is defined to mean not only the purchase and sale of the Purchased Assets, but also "all other transactions contemplated by this Agreement". This representation therefore covers all of the documents to be delivered and all actions to be taken before or after Closing in connection with the Agreement. This representation addresses the concern of the Purchaser that a violation of or default under any Laws or Contracts applicable to the Vendor might result in a challenge to the Transactions by a third party. The phrase "with or without the giving of notice or lapse of time, or both" means that the Vendor must disclose certain matters even though they are not yet technically violations or defaults. The defined terms of "Law", "Regulatory Authority", "Consent" and "Contract" used in this Agreement, including this representation, are very broad. "Law" for example, is defined to include not only statutes and regulations but also, among other things, rules, ordinances, by-laws, codes, policies, and orders of any Regulatory Authority. The term "Regulatory Authority" includes not only a governmental authority, but includes an administrative authority, agency, commission, utility or board (domestic or foreign). It also includes any federal, administrative or arbitral court. "Consent" includes licenses, permits and approvals (and so on) made or issued by a Regulatory Authority or otherwise. Section 3.1(8)(a)(v) deals with the possible effects of the Transactions on Contracts. This representation covers not only Contracts to which the Vendor is party, but Contracts by which any of its assets are bound. This would include, for example, a contractual covenant which runs with the Real Properties. Generally, the transfer of shares of a corporation will not contravene a typical non-assignment clause. However, some Contracts contain change of control provisions which would be triggered by such a transfer. This representation covers that circumstance. (a) contravene or violate or result in a breach or a default under or give rise to a right of termination, amendment or cancellation or the acceleration of any obligations of the Vendor under: (i) any applicable Law; (ii) any judgment, order, writ, injunction or decree of any Regulatory Authority having jurisdiction over the Vendor; (iii) the articles, by-laws or any resolutions of the board of directors or shareholders of the Vendor; (iv) any Consent held by the Vendor or necessary to the ownership of the Purchased Assets or the operation of the Business; or (v) the provisions of any Contract to which the Vendor is a party or by which it is, or any of its properties or assets are, bound; or (b) result in the creation or imposition of any Encumbrance on any of the Purchased Assets. (9) Regulatory and Contractual Consents There is no requirement to make any filing with, give any notice to or obtain any Consent from any Regulatory Authority as a condition to the lawful consummation of the Transactions, except for: Annotation: Among other things, this representation refers to the Competition Act and the Investment Canada Act. The Competition Act contains a regime for mergers. The term "merger" includes the acquisition, by purchase of assets, of control over or a significant interest in the business of a competitor, supplier, customer or other person. Where, on application by the Commissioner of Competition, the Competition Tribunal finds that a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially, it may order, in the case of a completed merger, the disposal of the assets, or in the case of a proposed merger, the merger not proceed or part of the merger not be proceeded with. The Competition Act allows a party to a proposed merger to apply for a binding advance ruling from the Commissioner of Competition. The Competition Act requires that persons proposing a transaction which exceeds certain thresholds notify the Commissioner of Competition in advance of completion of the transaction. The first threshold is that the parties to the transaction, together with their affiliates, must have assets in Canada or annual gross revenues from sales in, from or into Canada that exceed $400 million. The second threshold (applicable to the acquisition of assets of a corporation carrying on an operating business) is that the value of the assets acquired or the annual gross revenues from sales in or from Canada generated from those assets would exceed $50 million, and the acquirer is, in respect of a private corporation, acquiring at least a 35% interest (or if the acquirer held 35% prior to the transaction, a 50% interest). Once the parties give notice, the parties must wait for a period of not less than 14 days and not more than 42 days, before completing the transaction. The Investment Canada Act applies to, among other things, the acquisition of an existing business in Canada by non-Canadians. All transactions by non-Canadians must be reported to Industry Canada. However, only certain transactions will be reviewable. An investment is reviewable if the asset value of the Canadian business being acquired exceeds the following thresholds: (i) if the investor is a non-Canadian and is not a WTO member (i.e. from a country which is not a member of the World Trade Organization), any investment over $5 million for a direct acquisition and over $50 million for an indirect acquisition. An indirect acquisition where the asset value is $5 million or more but less than $50 million is also reviewable where the Canadian assets acquired represent more than 50 per cent of the asset value of all businesses acquired in the transaction; (ii) if the investor or vendor (excluding Canadians) is a WTO member, any direct investment in excess of $265 million (in 2006) is reviewable. An indirect acquisition is not reviewable unless the value of the assets of the business located in Canada amounts to more than 50% of the asset value of the transaction. However, if the asset value of the Canadian assets represents 50 per cent or more of the asset value of the transaction, the direct acquisition threshold applies. Even for WTO investors, the limits in paragraph (i) apply if the Canadian business: (a) engages in the production of uranium and owns an interest in a producing uranium property in Canada; (b) provides any financial service; (c) provides any transportation services; or (d) is a cultural business. If the acquisition falls below these thresholds, the investor must give notice to Industry Canada prior to the investment or within 30 days of closing. Notwithstanding these limits, any investment which is usually only notifiable and which falls within a specific business category listed in Schedule IV of the Regulations Respecting Investment in Canada may be reviewed in certain circumstances. Categories listed in Schedule IV include the publication, distribution or sale of books, magazines and newspapers and similar activities related to film or video products, music recordings and print music. For reviewable transactions the investor must submit an application to Industry Canada prior to closing. Within 45 days of receipt of the application, the Minister must notify the investor that it is (i) satisfied the investment is likely to be of net benefit to Canada; (ii) unable to complete the review and it requires a further 30 days (or longer if agreed to by the investor) to complete the review; or (iii) not satisfied that the investment is likely to be of net benefit to Canada. There are a number of factors which the Minister may take into account in making a determination, including economic activity, Canadian participation, competition and compatibility with government policies. Additionally, this representation refers to the Bulk Sales Act and the Retail Sales Tax Act. Assuming the Transactions are subject to the provisions of the Bulk Sales Act in the first place (i.e., a sale of "stock in bulk" out of the ordinary course), the Purchaser will generally want the Vendor to comply with this legislation to avoid the risk that an unpaid creditor of the Vendor may exercise statutory rights to set aside/void the Transactions and hold the Purchaser accountable to such creditor up to the value of the Purchased Assets acquired by the Purchaser. Where the Vendor has failed to comply with this legislation, these statutory rights to set aside/void the Transactions are not subject to any limitation period. The Vendor and Purchaser will typically arrange for compliance with this legislation by both (a) delivering/filing the applicable statutory affidavits (listing applicable creditor/payable details) with the applicable court in the jurisdiction of the Purchased Assets within 5 days of Closing and (b) ensuring that satisfactory arrangements are made to satisfy the claims of those creditors of the Vendor listed in such statutory affidavits. Generally, "satisfactory arrangements" would include having such creditors either waive their statutory rights or receive payment in full directly from the Closing proceeds (either at Closing or from the trust account of the Vendor's solicitor). Where the Closing cash portion is insufficient to fully satisfy creditor claims disclosed by the Vendor in its statutory affidavit, the Vendor will be unable to comply with this legislation in this manner and may alternatively seek a court order exempting the Transactions from this legislation or, in rare cases, have the purchase price paid to a trustee. If compliance is not possible, the Purchaser will often waive compliance by the Vendor and accept an indemnity (especially where the unpaid Closing debts of the Vendor are less than the amount of the unpaid purchase price and such unpaid purchase price is paid over a sufficiently long period of time). Note that where the Purchaser elects to satisfy all or part of the purchase price for the Purchased Assets by assuming balance sheet payables of the Vendor, the Vendor should not be expected to comply with this legislation (or at least not to the extent of the level of debt assumption). This legislation will generally not apply to a purchase of Purchased Assets from a Vendor that is a receiver. Where the Transactions are subject to the Bulk Sales Act, Section 6 of the Retail Sales Tax Act requires the Vendor to first obtain a "compliance certificate" that all taxes collectable or payable by the Vendor under this Act have been paid or that the Vendor has entered into an arrangement satisfactory to the Minister of Finance for payment of such taxes. Such an arrangement often requires the Vendor's counsel to provide the Minister with an undertaking to hold back from the Purchase Price in escrow an amount estimated by the Minister as owing by the Vendor for sales tax. Where the Vendor fails to obtain this "compliance certificate", the Purchaser becomes statutorily liable under Section 6(2) to the Minister for all taxes collectable or payable by the Vendor. For this reason, the Purchaser will want the Vendor to deliver at Closing a "compliance certificate" so that the Purchased Assets can be conveyed by the Vendor to the Purchaser free and clear of this statutory lien. However, to the extent this risk is quantifiable, the Purchaser may also deal with this issue on a "waiver & indemnity" basis. (a) the filings, notifications and Consents described in Schedule 3.1(9); (b) the application of the Competition Act (Canada); (c) the application of the Investment Canada Act (Canada); (d) the application of the Bulk Sales Act (Ontario); (e) the application of the Retail Sales Tax Act (Ontario); and (f) [any other legislative or regulatory requirements specific to the Transactions]. There is no requirement under any Contract relating to the Business or to which the Vendor is a party or by which the Vendor is bound to make any filing with, give any notice to, or to obtain the Consent of, any party to such Contract relating to the Transactions except for the filings, notifications or Consents described in Schedule 3.1(9). (10) Financial Statements The Audited Financial Statements, the Interim Financial Statements and the Closing Date Financial Statements: Annotation: A representation with respect to financial statements is a key part of the Purchaser's evaluation of the Business. The Closing Date Financial Statements are used to finally determine the Purchase Price pursuant to Section 2.4 of the Agreement. The Vendor may object to the statement in the representation that the financial statements are "complete and accurate" as that goes beyond the assurances provided by accountants. The Vendor may also object that it is inappropriate to make the statement that the Interim Financial Statements and the Closing Date Financial Statements are presented fairly in accordance with GAAP because these statements do not include year-end adjustments or notes and may seek to qualify the representation in this respect. If the financial statements are not audited but merely prepared on a Notice to Reader compilation basis (such that no GAAP analysis or review is undertaken by the applicable accountant)), the GAAP representations should be qualified to the Vendor's knowledge or possibly not given at all. (a) have been prepared and, in the case of the Closing Date Financial Statements, will be prepared, in accordance with GAAP on a basis consistent with that of prior fiscal periods; (b) are, and in the case of the Closing Date Financial Statements will be, complete and accurate; and (c) present, and in the case of the Closing Date Financial Statements will present, fairly the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of the Vendor at their respective balance sheet dates, and the results of operations of the Vendor. (11) Records The Records have been duly maintained in accordance with all applicable legal requirements and contain full and accurate records of all material matters relating to the Business. All material financial transactions relating to the Business have been accurately recorded in the Records in accordance with GAAP. No Records are in the possession of, recorded, stored, maintained by, or otherwise dependent on, any other person. (12) No Material Adverse Change Since the Audited Statements Date, no material adverse change has occurred in any of the assets, business, financial condition, earnings, results of operations or prospects of the Business nor has any other event, condition, or state of facts occurred or arisen which might have a material adverse effect on the assets, business, financial condition, earnings, results of operations or prospects of the Business. Annotation: The first part of this representation relates to material adverse changes which have occurred in respect of any of the assets, business, financial condition and so on of the Vendor. The Vendor may object that this is overly broad and should be modified to capture matters which are materially adverse to the Business as a whole. This argument would be consistent with the second part of the representation which relates to events or facts which might have a material adverse effect on the assets, business or financial condition of the Vendor. (13) Absence of Undisclosed Liabilities Except to the extent reflected or reserved against in the balance sheet (including the notes thereto) forming part of the Audited Financial Statements or incurred subsequent to the date thereof and disclosed in Schedule 3.1(13) and except in respect of normal trade payables arising in the ordinary course of the Business, the Vendor does not have any outstanding indebtedness or any liabilities (whether accrued, absolute, contingent or otherwise) nor any outstanding commitments or obligations of any kind relating to the Business exceeding $.. (14) Consents The Vendor has conducted the Business in compliance with, and hold all Consents necessary for the lawful operation of the Business, pursuant to all applicable Laws, all of which Consents are listed on Schedule 3.1(14) and all of which are valid and subsisting and in good standing with no violations as of the date of this Agreement. All such Consents are renewable by their terms or in the ordinary course of the Business without the need for the Vendor to comply with any special qualification or procedures or to pay any amounts other than routine filing fees. The Vendor has provided a true and complete copy of each Consent and all amendments thereto to the Purchaser. Annotation: The term "Consents" is defined broadly to include licenses, permits and approvals made or issued by a Regulatory Authority or otherwise. This representation will be particularly important where the Business is subject to extensive regulation. This representation gives the Purchaser comfort that not only are the Consents valid and in good standing, but that they can be routinely renewed. Where Consents are important to the Purchaser, this representation should be supplemented by a thorough due diligence investigation of the Consents, their terms, conditions and expiry dates and the requirements (including fees) for renewal. (15) Compliance with Laws The Vendor has complied, and the Business is now being conducted in compliance, with all Laws applicable to the Business or the Purchased Assets. Annotation: This representation speaks to both present and historical compliance with Laws. The Vendor may wish to amend this representation so that it refers to compliance since a certain date based on the argument that non-compliance prior to that date certain is not relevant. It may also argue, if it has not owned the Business for an extended period, that non-compliance prior to the relevant date is beyond its knowledge. The Parties should consider carefully the potential consequences of making disclosure in the Agreement or schedules of actual or potential violations of Laws as these documents may become available to third parties or Regulatory Authorities. A Vendor with relatively stronger bargaining power may be able to negotiate a materiality qualifier to this representation. (16) Conduct of Business in Ordinary Course Since the Audited Statements Date the Business has been carried on in the ordinary course consistent with past practice. The Business is the only business operation carried on by the Vendor, and the Purchased Assets are sufficient to carry on the Business at the Closing Date. (17) Location of Tangible Personal Property With the exception of inventory in transit, all the tangible personal property included in the Purchased Assets is situate at the locations set out in Schedules 3.1(30)(a) and 3.1(30)(c). (18) Condition of Assets All material tangible personal property included in the Purchased Assets is in good operating condition, repair and proper working order, having regard to its use and age, except only for reasonable wear and tear. (19) Title to Personal and Other Property The Purchased Assets (other than the Real Properties) are owned by the Vendor as the beneficial owner with a good and marketable title, free and clear of all Encumbrances other than the Permitted Encumbrances. (20) Litigation Except as disclosed in Schedule 3.1(20), there are no actions, suits or proceedings, judicial or administrative, (whether or not purportedly on behalf of the Vendor) pending or threatened, by or against or affecting the Vendor, at law or in equity, or before or by any Regulatory Authority. Except for the matters referred to in Schedule 3.1(20), there are no grounds on which any such action, suit or proceeding might be commenced with any reasonable likelihood of success. Except as disclosed in Schedule 3.1(20), there is not presently outstanding against the Vendor any judgment, injunction or other order of any Regulatory Authority. Annotation: The Vendor may request that this representation as it relates to threatened litigation be modified by reference to the Vendor's knowledge. See the general Annotations with respect to Section 3.1. The Purchaser should carefully examine with counsel any disclosed litigation to determine, if possible, the likely outcome and potential liability of the Vendor. As part of its due diligence, the Purchaser should also determine whether any potential liability of the Vendor is covered by the Vendor's insurance and, if so, confirm that it will continue to have the benefit of that insurance following Closing. (21) Capital Expenditures The Vendor is not committed to make any capital expenditures relating to the Business, nor have any capital expenditures been authorized by the Vendor at any time since the Audited Statements Date, except for capital expenditures made in the ordinary course of the Business which, in the aggregate, do not exceed $.. (22) Inventories The inventories of the Vendor do not include any material items that are slow moving, below standard quality or of a quality or quantity not useable or saleable in the ordinary course of the Business, the value of which has not been written down on its books of account to net realizable market value. The inventory levels of the Vendor have been maintained at such amounts as are required for the operation of the Business as previously conducted and as proposed to be conducted, and such inventory levels are adequate for the Business. (23) Accounts Receivable The accounts receivable due or accruing to the Vendor reflected in the Interim Financial Statements and all accounts receivable of the Vendor arising since the date of the Interim Financial Statements arose from bona fide transactions in the ordinary course of the Business and are valid, enforceable and fully collectible accounts (subject to a reasonable allowance, consistent with past practice, for doubtful accounts as reflected in the Interim Financial Statements in accordance with GAAP or as previously disclosed in writing to the Purchaser). Such accounts receivable are not subject to any defence, set?off or counterclaim. Annotation: This representation includes the assurance that the accounts receivable are collectible, subject to a reasonable allowance consistent with past practice for doubtful accounts. In some circumstances the Purchaser will want this representation to provide that the accounts receivable will be fully collected, subject to a reserve, by a date certain. There are other ways in which the Purchaser can get comfort that it can collect the accounts receivable. The Purchaser could require that the Vendor repurchase from the Purchaser any accounts receivable uncollected by a specified date, net of appropriate reserves. This may raise a concern with the Purchaser because the Vendor will then be attempting to collect accounts receivable from the Purchaser's customers. Another alternative would be for the Purchaser to covenant to collect the accounts on behalf of the Vendor, which would retain title to them. Clearly, the simplest mechanism is for the Purchaser to be able to apply the value of uncollected accounts against any holdback or instalment promissory notes. A receivables "collectibility" representation (as opposed to a receivables "bona fide" representation) essentially operates as a "back-door" Purchase Price adjustment. Hence, depending upon the nature of any Purchase Price adjustments, care should be taken to ensure this representation does not result in any "double counting". Moreover, a Vendor with relatively stronger bargaining power may resist a receivables "collectibility" representation altogether on the basis that control over their collection shifts entirely to the Purchaser following Closing. (24) Material Contracts Annotation: In addition to requiring the disclosure of material Contracts, this representation requires the disclosure of specific types of Contracts. Although this may result in some overlap, the listing of specific types of Contracts gives the Purchaser additional comfort that it has been made aware of important commitments of the Business. The term "material" is not defined in the Agreement and therefore may be subject to dispute. Parties wishing more certainty could define materiality by reference to a monetary amount. See the introductory Annotation: to Section 3.1. The definition of "Contracts" is broad and includes, for example, oral agreements and commitments. The contracts listed in Schedule 3.1(24) constitute all the material Contracts of the Vendor included in the Purchased Assets. Without limiting the generality of the foregoing, and except as otherwise set out in Schedules 1.1(ll) and 3.1(24), the Vendor is not a party to or bound by any Contract relating to the Purchased Assets, including any: (a) distributor, sales, advertising, agency or manufacturer's representative Contract; (b) collective bargaining agreement or other Contract with any labour union; (c) continuing Contract for the purchase of materials, supplies, equipment or services involving more than $. in respect of any such Contract; (d) employment or consulting Contract or any other Contract with any officer, employee or consultant other than oral Contracts of indefinite hire terminable by the employer without cause on reasonable notice; (e) profit sharing, bonus, stock option, pension, retirement, disability, stock purchase, medical, dental, hospitalization, insurance or similar plan or agreement providing benefits to any current or former director, officer, employee or consultant; (f) trust indenture, mortgage, promissory note, loan agreement, guarantee or other Contract for the borrowing of money, the provision of financial assistance of any kind or a leasing transaction of a type required to be capitalized in accordance with GAAP, or any Contract creating an Encumbrance relating thereto; (g) commitment for charitable contributions; (h) Contract for capital expenditures in excess of $. in the aggregate; (i) Contract for the sale of any assets, other than sales of inventory to customers in the ordinary course of the Business; (j) Contract pursuant to which the Vendor is a lessor of any machinery, equipment, motor vehicles, office furniture, fixtures or other personal property material to the Business; (k) confidentiality, secrecy or non-disclosure Contract (whether the Vendor is a beneficiary or obligor thereunder) relating to any proprietary or confidential information or any non-competition or similar Contract; (l) license, franchise or other Contract that relates in whole or in part to any Intellectual Property; (m) agreement of guarantee, support, indemnification, assumption or endorsement of, or any other similar commitment with respect to, the obligations, liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness of, or any agreement to provide financial assistance of any kind to, any other person (except for cheques endorsed for collection); (n) Contract that expires, or may expire if the same is not renewed or extended at the option of any person other than the Vendor, more than one year after the date of this Agreement; (o) Contract with any officer, director, employee, shareholder or any other person not dealing at arm's length with the Vendor (within the meaning of the ITA) except for Contracts of employment; or (p) Contract entered into by the Vendor other than in the ordinary course of the Business. The Vendor has performed all of its obligations required to be performed by it and is entitled to all of the benefits under any Contract relating to the Business to which any of them is a party or by which any of them is bound. The Contracts listed in Schedule 2.1(24) are all in full force and effect unamended and no default exists on the part of any of the parties thereto. The Vendor is not in default or in breach of any Contract to which it is a party and there exists no condition, event or act which, with the giving of notice or lapse of time or both would constitute such a default or breach and all such Contracts are in good standing and in full force and effect unamended and the Vendor is entitled to all benefits thereunder. The Vendor has provided to the Purchaser a true and complete copy of each Contract listed in Schedule 3.1(24) and all amendments. (25) Insurance The Vendor has all of the Purchased Assets insured against loss or damage by all insurable hazards or risks on a replacement cost basis and such insurance coverage will be continued in full force and effect to and including the Closing Time. Schedule 3.1(25) sets out all insurance policies (specifying the insurer, the amount of the coverage, the type of insurance, the policy number and any claims) maintained by the Vendor on its property and assets or personnel as of the date of this Agreement and true and complete copies of the most recent inspection reports, if any, received from insurance underwriters or others as to the condition of the Purchased Assets. The Vendor is not in default with respect to any of the provisions contained in any such insurance policy, has not failed to give any notice or present any claim under any such insurance policy in a timely fashion, and has not received notice from any insurer denying any claim. The Vendor has provided to the Purchaser a true copy of each insurance policy referred to in Schedule 3.1(25) and all amendments. (26) Brokers Neither the Vendor nor the Shareholder has engaged any broker or other agent in connection with the Transactions and, accordingly, there is no commission, fee or other remuneration payable to any broker or agent who purports or may purport to act or have acted for the Vendor or the Shareholder. (27) Competition Act The Vendor and its affiliates have assets in Canada with an aggregate value of $., and annual gross revenues from sales in, from or into Canada with an aggregate value of $., as determined in accordance with the Competition Act (Canada). Annotation: See the Annotation with respect to Section 3.1(9) for a discussion of the requirements of the Competition Act. This representation will assist the Parties to determine whether the pre-notification thresholds have been met. Because the threshold set out in Section 109 of the Competition Act relates to the aggregate assets and revenues of the Parties and their affiliates, both the Purchaser and the Vendor make representations in this Agreement with respect to those matters as they relate to their respective corporate group. The Purchaser's representation is set out in Section 3.2(4). (28) Customers and Suppliers Schedule 3.1(28) sets out the major customers and suppliers of the Business (being those customers and suppliers of the Business each accounting for more than . % of sales of or to the Business for the period . to .) and there has been no termination or cancellation of, and no modification or change in, the Vendor's business relationship with any major customer, supplier or group of major customers or suppliers since .. The benefits of all relationships with the major customers or suppliers of the Business will continue after the Closing Date in substantially the same manner as prior to the date of this Agreement. Annotation: The importance of this representation will depend on whether the Business has key customers or suppliers. This representation will not be relevant to a Purchaser if the Business has no large customers and it has immediately available alternative sources of supply. The Vendor may resist making the statement in the last sentence of this representation on the basis that it cannot look into the future, especially with respect to matters involving third parties. A compromise might be to qualify this representation by reference to the Vendor's knowledge. See the introductory Annotation to Section 3.1. (29) Tax Matters Annotation: Consideration will need to be given to whether it is appropriate to have representations as to the tax consequences of any reorganization or other transactions happening prior to or concurrently with Closing. With respect to the representation as to the Vendor's residency status, other provisions are necessary to deal with the need to obtain section 116 certificates pursuant to the ITA in the case of a non-resident Vendor. See Section 2.5 of the Agreement. From the Purchaser's perspective, these representations should be reviewed by all other persons, such as accountants, conducting tax due diligence for the Purchaser, to ascertain whether any clarification or adaptation is appropriate. (a) For purposes of this Section 3.1(29), the following definitions shall apply: (i) "Tax" and "Taxes" shall mean any or all Canadian federal, provincial, local or foreign (i.e. non-Canadian) income, gross receipts, real property gains, goods and services, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, or other taxes, levies, governmental charges or assessments of any kind whatsoever, including, without limitation, any estimated tax payments, interest, penalties or other additions thereto, whether or not disputed. (ii) "Tax Return" shall mean any return, declaration, report, estimate, information return or statement, or claim for refund relating to, or required to be filed in connection with any Taxes, including information returns or reports with respect to withholding at source or payments to third parties, and any schedules or attachments thereto or amendments of any of the foregoing. (b) The Vendor has filed on a timely basis all Tax Returns required to be filed. All such Tax Returns are complete and accurate in all respects. All Taxes due from or payable by the Vendor for periods (or portions thereof) ending on or prior to the date hereof and the Closing Date, as applicable, have been paid or will be provided for in the Closing Date Financial Statements. All instalments or other payments on account of Taxes that relate to periods for which Tax Returns are not yet due have been paid on a timely basis. There are no actions, objections, appeals, suits or other proceedings or claims in progress, pending or threatened by or against the Vendor in respect of any Taxes, and in particular there are no currently outstanding assessments or written enquiries which have been issued or raised by any Regulatory Authority relating to any such Taxes. There are no Encumbrances pending on or with respect to any of the assets of the Vendor that arose in connection with any failure (or alleged failure) to pay any Tax. (c) The Vendor has withheld, collected and paid to the proper Regulatory Authorities all Taxes required to have been withheld, collected and paid in connection with (i) amounts paid, credited or owing to any employee, independent or dependent contractor, creditor, shareholder, non-resident of Canada or other third party, and (ii) goods and services received from or provided to any person. (d) The Vendor is not a non-resident person within the meaning of the ITA. (30) Real Properties and Leased Premises Annotation: The representation in Section 3.1(30)(b) that the Vendor is the absolute beneficial owner of each of the Real Properties forces the Vendor to fully disclose, as an exception to this representation, any ownership structure in which a bare nominee holds registered title for an otherwise undisclosed beneficial owner. If the Vendor makes a disclosure of this nature, the Purchaser should ensure that it obtains and reviews any trust declaration or trust agreement between the bare nominee and the beneficial owner. The provisions of such a trust declaration or agreement may be relevant to the Purchaser's consideration of whether all necessary Consents to the Transactions have been obtained. In addition, the Purchaser may wish to ensure that representations and indemnities which survive Closing are obtained from any beneficial owner as well as from such beneficial owner's nominee. The Vendor will seek to include in many of the representations contained in Section 3.1(30) the qualification that they are made to the best of the Vendor's knowledge. In particular, where the representation is made with respect to both Real Properties and Leased Premises, the Vendor may take the position that it is not reasonable to expect a tenant occupying only a portion of a building to have complete knowledge about such things as whether the building complies with zoning setbacks or whether there are any structural defects in the building. However, where the Vendor is a long-term tenant of all or substantially all of a building, it may be reasonable to require it to make the same unqualified representations as the building's owner would be expected to make. It may be useful for the Purchaser and the Vendor to agree to separately identify those buildings with substantial leases as "Major Leased Premises". The Vendor may then agree to provide unqualified representations with respect to Major Leased Premises if the Purchaser agrees to accept qualified representations with respect to all other Leased Premises. (a) Schedule 3.1(30)(a) lists all Real Properties included in the Purchased Assets which are owned in whole or in part by the Vendor and sets forth the legal descriptions. There are no Contracts to sell, transfer or otherwise dispose of any of the Real Properties, or to purchase or acquire any real properties other than the Real Properties, or which would restrict the ability of the Vendor to transfer any of the Real Properties. (b) The Vendor is the absolute beneficial owner of, and has good and marketable title in fee simple to each of the Real Properties, free and clear of any and all Encumbrances, except for the Permitted Encumbrances. Complete and correct copies of all documents creating those Permitted Encumbrances which affect the Real Properties have been provided to the Purchaser. Except as otherwise disclosed in Schedule 3.1(30)(b), none of the Real Properties is leased or licenced, in whole or in part, to any other person. (c) Schedule 3.1(30)(c) describes all Leases included in the Purchased Assets under which the Vendor leases or subleases any real property as lessee or sublessee (hereinafter in this Section 3.1(30) referred to as the "Lessee"). Other than the Leases, the Vendor is not a party to or is bound, as Lessee, by any lease, sublease, license or other instrument relating to real property. Complete and correct copies of the Leases have been provided to the Purchaser. The Leases are in full force and effect, unamended. The Lessee under each Lease is exclusively entitled to all rights and benefits as Lessee under such Lease, and no Lessee has sublet, assigned, licensed or otherwise conveyed any rights in any of the Leased Premises or in any of the Leases to any other person. (d) All rental and other payments and other obligations required to be paid and performed by the Lessee pursuant to each of the Leases have been duly paid and performed. The Lessee is not in default of any of its obligations under any of the Leases and none of the landlords or other parties to the Leases are in default of any of their obligations under any of the Leases. No waiver, indulgence or postponement of the Lessee's obligations under any of the Leases has been granted by the landlord thereunder. There exists no event of default under any Lease or event, occurrence, condition or act which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default under the Lease. None of the terms and conditions of any of the Leases will be affected by, nor will any of the Leases be in default as a result of, the completion of the Transactions, and all Consents of landlords or other parties to the Leases required in order to complete the Transactions have been obtained, or will have been obtained by the Closing Time, and are, or once obtained will be, in full force and effect. (e) The use by the Vendor of each of the Real Properties and Leased Premises is not in breach of any Laws, including any building, zoning or other statutes or any official plan, or any covenants, restrictions, rights or easements, affecting such Real Property or Leased Premises. All buildings, structures and improvements situated on any of the Real Properties, and those situated on any of the Leased Premises, are located wholly within the boundaries of such Real Property or Leased Premises, as applicable, and comply with all Laws, covenants, restrictions, rights and easements affecting the same. There are no outstanding work orders, non-compliance orders, deficiency notices or other such notices relative to any of the Real Properties or Leased Premises. No part of any of the Real Properties or Leased Premises has been condemned, taken or expropriated by any Regulatory Authority, nor has any notice or proceeding in respect thereof been given, commenced or threatened. Each of the Real Properties and Leased Premises is fully serviced by utilities having adequate capacities for the normal operations of the Business. Each of the Real Properties and Leased Premises has adequate rights of access to and from public streets or highways for the normal operations of the Business and there is no fact or circumstance which could result in the termination or restriction of such access. There is no defect or condition affecting any of the Real Properties or Leased Premises (or the soil or subsoil) or any adjoining property which would impair the current use of such Real Property or Leased Premises. (f) No amounts including, without limitation, municipal property Taxes, local improvement Taxes, levies or assessments, are owing by the Vendor in respect of any of the Real Properties or the Leased Premises to any Regulatory Authority or public utility, other than current accounts which are not in arrears. There are no outstanding appeals on assessments which have been issued or raised by any Regulatory Authority or by the Vendor concerning any realty, business or other Taxes with respect to any of the Real Properties or Leased Premises. All amounts for labour or materials supplied to or on behalf of the Vendor relating to the construction, alteration or repair of or on any of the Real Properties or Leased Premises have been paid in full and no one has filed or has a right to file any construction, builders', mechanics' or similar liens. (g) The buildings and structures comprising the Real Properties and the Leased Premises are free of any structural defect. The heating, ventilating, plumbing, drainage, electrical and air conditioning systems and all other systems used in any of the Real Properties or the Leased Premises are in good working order, fully operational and free of any defect, except for normal wear and tear. (31) Environmental Matters Annotation: The defined term "Environmental Laws" includes Laws related to areas other than strictly environmental matters, and includes, for example, health and safety laws. This representation confirms compliance with all of those Laws. The statement in Section 3.1 (31)(h) with respect to responsibility for any clean-up or corrective action captures the Vendor's potential liability with respect to properties or businesses it no longer owns or operates and to liabilities which it may have under agreement or by operation of law. The Vendor may wish to qualify this representation by reference to its knowledge. The Purchaser may resist this on the basis that as between it and the Vendor, the risk of such liability should be borne by the Vendor. In cases of industrial or commercial properties or businesses giving rise to specific environmental concerns, independent environmental due diligence investigations may be advisable to supplement this representation. (a) For the purposes of this Agreement, the following terms and expressions shall have the following meanings: (i) "Environmental Laws" means all Laws applicable to the environment, occupational health and safety, product safety, product liability and public safety. (ii) "Environmental Consents" includes all Consents issued by or issuable by any Regulatory Authority under Environmental Laws. (iii) "Hazardous Substance" means, any material or substance that may impair the quality of the environment or which under Environmental Laws is deemed to be "hazardous", a "pollutant", "toxic", "deleterious", caustic", "dangerous", a "waste", a "hazardous material", a "source of contamination" or analogous substance including, without limitation, petroleum and petroleum products, asbestos, polychlorinated biphenyls, and flammable and radioactive materials. (iv) "Release" means any release, spill, leak, emission, discharge, leach, dumping, migration, pumping, pouring, emitting, emptying, injecting, spraying, burying, abandoning, incinerating, seeping, escape, disposal or similar or analogous act as defined in any Environmental Laws. (b) Except as disclosed in Schedule 3.1(31), the Vendor, the operation of the Business and all of the Purchased Assets have been and are in compliance with all Environmental Laws, including all Environmental Consents. (c) Except as disclosed in Schedule 3.1(31), (i) the Vendor has not been charged with or convicted of any offence for non-compliance with Environmental Laws, or been fined or otherwise sentenced or settled any prosecution short of conviction; and (ii) there are no notices of judgment or commencement of proceedings of any nature and the Vendor has never been investigated relating to any breach or alleged breach of Environmental Laws. (d) The Vendor has obtained all Environmental Consents necessary to conduct the Business and to own, use and operate the Purchased Assets. All such Environmental Consents are listed in Schedule 3.1(31) and complete and correct copies have been provided to the Purchaser. (e) Except as disclosed in Schedule 3.1(31), there are no Hazardous Substances located on or in or under the surface of any Real Properties or Leased Premises of the Vendor, and no Release of any Hazardous Substances has occurred on, in or from any Real Properties or Leased Premises or has resulted from the operation of the Business and the conduct of activities thereon. (f) Except as disclosed in Schedule 3.1(31), the Vendor has not used any of its Real Properties or Leased Premises to produce, generate, manufacture, treat, store, handle, transport or dispose of any Hazardous Substances except in compliance with Environmental Laws. (g) Except as disclosed in Schedule 3.1(31), there are no underground or above-ground storage tanks or associated piping or appurtenances (active or abandoned), or urea formaldehyde foam insulation, asbestos, polychlorinated biphenyls or radioactive substances located on or in or under the surface of any of the Real Properties or Leased Premises or other assets used thereon. (h) Except as disclosed in Schedule 3.1(31), the Vendor is not, and there is no basis upon which the Vendor could become, responsible for any clean-up or corrective action under any Environmental Laws. The Vendor has provided the Purchaser with copies of any environmental audits, site assessments and studies (including all drafts thereof) concerning any of the Real Properties and Leased Premises, or that are in any way related to the Business, that it has ever conducted or that are in its possession or control. (32) Labour and Employee Matters (a) Schedule 3.1(32) identifies each retirement, pension, bonus, stock purchase, profit sharing, stock option, deferred compensation, severance or termination pay, insurance, medical, hospital, dental, vision care, drug, sick leave, disability, salary continuation, legal benefits, unemployment benefits, vacation, incentive or other compensation plan or arrangement or other employee benefit plan that is maintained or otherwise contributed to, or required to be contributed to, by the Vendor relating to the Business or the Purchased Assets for the benefit of employees or former employees of the Vendor (the "Employee Plans") and a true and complete copy of each Employee Plan has been furnished to the Purchaser. Each Employee Plan has been maintained in compliance with its terms and with the requirements prescribed by any and all Laws that are applicable to such Employee Plan. The Vendor has delivered to the Purchaser the actuarial valuations, if any, prepared for each Employee Plan during the past . years. Except as described in Schedule 3.1(32): (i) all contributions to and payments from each Employee Plan that may have been required to be made in accordance with the terms of any such Employee Plan, or with the recommendation of the actuary for such Employee Plan, and, where applicable, with the Laws that govern such Employee Plan, have been made in a timely manner; (ii) all material reports, returns and similar documents (including applications for approval of contributions) with respect to any Employee Plan required to be filed with any Regulatory Authority or distributed to any Employee Plan participant have been duly filed on a timely basis or distributed; (iii) there are no pending investigations by any Regulatory Authority involving or relating to an Employee Plan, threatened or pending claims (except for claims for benefits payable in the normal operation of the Employee Plans), suits or proceedings against the Vendor in respect of any Employee Plan or assertions of any rights or claims to benefits under any Employee Plan that could give rise to a liability nor are there any facts that could give rise to any liability in the event of such investigation, claim, suit or proceeding; (iv) no notice has been received by the Vendor of any complaints or other proceedings of any kind involving the Vendor or any of the employees of the Vendor before any pension board or committee relating to any Employee Plan or to the Vendor; and (v) the assets of each Employee Plan are at least equal to the liabilities of such Employee Plans based on the actuarial assumptions utilized in the most recent valuation performed by the actuary for such Employee Plan, and neither the Purchaser nor any of its associates or affiliates will incur any liability with respect to any Employee Plan as a result of the Transactions. (b) Except as described in Schedule 3.1(32), the Vendor has not made any Contract with any labour union or employee association nor made commitments to or conducted negotiations with any labour union or employee association with respect to any future agreements and, except as set out in Schedule 3.1(32), there are no current attempts to organize or establish any labour union or employee association with respect to any employees of the Vendor, nor is there any certification of any such union with regard to a bargaining unit. There are no grievances against the Vendor for which the Vendor has received written notice under any collective agreement. (c) Schedule 3.1(32) contains a complete and accurate list of the names of all individuals who are employees of the Vendor specifying: (i) with respect to the unionized employees, the rate of hourly pay, whether or not such employee is absent for any reason such as lay-off, leave of absence or workers' compensation; and (ii) with respect to salaried employees, the length of service, age, title, rate of salary and commission or bonus structure for each such employee. No notice has been received by the Vendor of any complaint filed by any of the employees against the Vendor claiming that the Vendor has violated any Laws applicable to employee or human rights, or of any complaints or proceedings of any kind involving the Vendor or any of the employees of the Vendor before any labour relations board, except as disclosed in Schedule 3.1(32). All levies, assessments and penalties made against the Vendor pursuant to any Laws applicable to workers' compensation have been paid by the Vendor and the Vendor has not been assessed under any such legislation during the past · years. (d) All accruals for unpaid vacation pay, premiums for employment insurance, health premiums, Canada Pension Plan premiums, accrued wages, salaries and commissions and employee benefit plan payments have been reflected in the Records. (33) Product Warranties Schedule 3.1(33) is a complete and accurate list of all express, written warranties given to purchasers of products supplied by the Vendor in connection with the Business. (34) Intellectual Property Schedule 3.1(34) is a complete and accurate list of all (a) domestic and foreign patents, trade-marks, trade names, copyrights, industrial designs, business names, certification marks, service marks, distinguishing guises, business styles and other industrial or intellectual property, whether or not registered, that are owned by or licensed to the Vendor, and all applications in respect thereof; (b) all trade secrets, know-how, inventions, formulas, processes and technology pertaining to the Business; and (c) all computer systems and application software, including all related documentation and the latest revisions of all related object and source codes therefor, owned or used by the Vendor, (collectively the "Intellectual Property"), including particulars of any registration, details of all applications for registration and, where unregistered, the date of first use. The Vendor is the sole owner of the Intellectual Property except in the case of Intellectual Property licensed to the Vendor. Complete and correct copies of all Contracts whereby any rights in respect of Intellectual Property have been granted or licensed to the Vendor have been provided to the Purchaser. Except as disclosed in Schedule 3.1(34), the Vendor has the exclusive right to use all of the Intellectual Property and has not granted any licence or other rights to any other person in respect of the Intellectual Property. The Intellectual Property is free and clear of any Encumbrances other than the Permitted Encumbrances. The Intellectual Property comprises all patents, trade-marks, trade names, copyrights, industrial designs, business names, certification numbers, inventions, know-how, service marks, formulae, processes, technology, trade-secrets, computer systems and application software and other industrial or intellectual property necessary to conduct the Business. The Vendor has not used or enforced, or failed to use or enforce, any of the Intellectual Property in any manner which could limit its validity or result in its invalidity. Except as disclosed in Schedule 3.1(34), there has been no infringement or violation of the Vendor's rights in and to the Intellectual Property or any trade secrets or confidential information, nor any claim of adverse ownership, invalidity or other opposition to or conflict with any of the Intellectual Property. The Vendor is not and has not engaged in any activity that violates or infringes any intellectual property rights of any other person. (35) Privacy Matters The Vendor has conducted and is conducting the Business in compliance with all Laws applicable to privacy and the protection of personal information. Annotation: Laws with respect to privacy and the protection of personal information are wide in scope, in transition and may be difficult to comply with in all respects. The Vendor and its counsel must therefore consider carefully whether this representation should be qualified, or given at all. In those cases where "personal information" is disclosed by the Vendor to the Purchaser in possible contravention of applicable privacy laws and solely to accommodate the Purchaser's formal due diligence requests, it may be appropriate for this representation to be qualified in this regard.
3.2 Representations and Warranties of the Purchaser The Purchaser hereby makes the following representations and warranties to the Vendor and acknowledges that the Vendor is relying on such representations and warranties in entering into this Agreement and completing the Transactions: Annotation: These representations by the Purchaser are much less extensive than those given by the Vendor. To the extent representations are made, they are parallel to those made by the Vendor and Shareholder. The Vendor is concerned primarily with the corporate status, power and authority of the Purchaser and a limited number of other matters. To the extent that a significant part of the Purchase Price is not paid at Closing, the Vendor will legitimately be entitled to further assurances with respect to the Purchaser's financial capability and debt structure. Further, if the Vendor is to receive shares in satisfaction, or partial satisfaction, of the Purchase Price (and will therefore become, in effect, an investor in the Purchaser), it may wish to ask for much more extensive representations which would more closely parallel those given by it to the Purchaser or, where the Purchaser is a public company in any jurisdiction, representations confirming that the Purchaser's existing public disclosure file contains no misrepresentations, etc. (1) Incorporation and Existence The Purchaser is a corporation incorporated and existing under the laws of . . (2) Validity of Agreement
(a) The Purchaser has all necessary corporate power to own the
Purchased Assets. The Purchaser has all necessary corporate
power to enter into and perform its obligations under this
Agreement and any other agreements or instruments to be
delivered or given by it pursuant to this Agreement.
(b) The execution, delivery and performance by the Purchaser of
this Agreement and the consummation of the Transactions
have been duly authorized by all necessary corporate action
on the part of the Purchaser.
(c) This Agreement or any other agreements entered into
pursuant to this Agreement to which the Purchaser is a
party constitute legal, valid and binding obligations of
the Purchaser, enforceable against the Purchaser in
accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency and
other laws affecting the rights of creditors generally and
except that equitable remedies may be granted only in the
discretion of a court of competent jurisdiction. (3) No Violation The execution and delivery of this Agreement by the Purchaser, the consummation of the Transactions and the fulfilment by the Purchaser of the terms, conditions and provisions hereof will not (with or without the giving of notice or lapse of time, or both): contravene or violate or result in a breach or a default under or give rise to a right of termination, amendment or cancellation or the acceleration of any obligations of the Purchaser, under:
(i) any applicable Law;
(ii) any judgment, order, writ, injunction or decree of any
Regulatory Authority having jurisdiction over the
Purchaser;
(iii) the articles, by-laws or any resolutions of the board of
directors or shareholders of the Purchaser;
(iv) any Consent held by the Purchaser; or
(v) the provisions of any Contract to which the Purchaser is
a party or by which it is, or any of its properties or assets
are, bound. (4) Competition Act The Purchaser and its affiliates have assets in Canada with an aggregate value of $., and gross revenues from sales in, from and into Canada with an aggregate value of $., as determined in accordance with the Competition Act (Canada). (5) Investment Canada Act The Purchaser is not a "non-Canadian" within the meaning of the Investment Canada Act (Canada). Annotation: If the Purchaser is a "non-Canadian", the Parties must consider the implications of the Investment Canada Act. See the Annotation to Section 3.1 (9). (6) Brokers The Purchaser has not engaged any broker or other agent in connection with the Transactions and, accordingly, there is no commission, fee or other remuneration payable to any broker or agent who purports or may purport to have acted for the Purchaser. (7) Consents There is no requirement for the Purchaser to make any filing with, give any notice to or obtain any Consent from any Regulatory Authority as a condition to the lawful consummation of the Transactions. (8) GST Registration The Purchaser is a registrant for the purposes of the ETA under registration number .. 3.3 Survival of Covenants, Representations and Warranties of the Vendor and Shareholder To the extent that they have not been fully performed at or prior to the Closing Time, and unless otherwise provided, the covenants, representations and warranties of the Vendor and the Shareholder contained in this Agreement and any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement shall survive the Closing and shall continue for the benefit of the Purchaser for a period of . years notwithstanding such Closing, nor any investigation made by or on behalf of the Purchaser or any knowledge of the Purchaser, except that: Annotation: Determining survival periods is a matter of risk allocation and will reflect the circumstances of the Transactions, the relative bargaining strength of the Parties and the subject matter of the particular representation or covenant. The Purchaser will prefer to have indefinite recourse to the Vendor and the Shareholder. The Vendor will want certainty with respect to when its liabilities will end. Regardless, the Parties and their counsel need to consider how their agreements on these issues will be affected by Ontario's Limitations Act, 2002. Business agreements between parties who are not "consumers" (as defined in the Ontario Consumer Protection Act, 2002) may vary or exclude a basic limitation period, and may vary an ultimate limitation period provided that it may be suspended or extended only if the relevant claim has been discovered.
Section 3.3(1) provides that the representations with respect to fundamental matters, including corporate existence, authority and qualification, title to the Purchased Assets and enforceability survive indefinitely. Section 3.3(2) provides that the representations with respect to tax matters survive until the expiry of any assessment period. The survival period for the covenants and all representations is addressed in the introductory paragraph to Section 3.3. Typically this period ranges from six months to two years. (1)the representations and warranties set out in Section 3.1(1), Sections 3.1(3) to and including 3.1(7), Section 3.1(19) and Section 3.1(30)(b), and the corresponding representations and warranties set out in the certificates to be delivered pursuant to Section 5.1(1), shall survive the Closing and continue in full force and effect without limitation of time; (2) the representations and warranties set out in Section 3.1(29) and the corresponding representations and warranties set out in the certificates to be delivered pursuant to Section 5.1(1) shall survive the Closing and continue in full force and effect until, but not beyond, the expiration of the period, if any, during which an assessment or other form of recognized document assessing liability for Tax, interest or penalties under Laws applicable to Tax in respect of any taxation year to which such representations and warranties extend could be issued under such Laws to the Vendor, including any additional period resulting from the Vendor filing a waiver or other document extending such period prior to the Closing; (3) a claim for breach of any such representation or warranty, to be effective, must be asserted in writing on or prior to the applicable expiration time set out in this Section 3.3, provided that a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement involving fraud or fraudulent misrepresentations may be made at any time following the Closing Date, subject only to applicable limitation periods imposed by Law; and (4) no claim for any breach of any of the covenants, representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement may be made after the applicable expiration time set out in this Section 3.3 notwithstanding that such breach was not objectively discoverable. 3.3 Survival of Covenants, Representations and Warranties of the Purchaser To the extent that they have not been fully performed at or prior to the Closing Time, and unless otherwise provided, the covenants, representations and warranties of the Purchaser contained in this Agreement and in any agreement, instrument, certificate or other document delivered pursuant to this Agreement shall survive the Closing and shall continue for the benefit of the Vendor and the Shareholder for a period of . years notwithstanding such Closing, nor any investigation made by or on behalf of the Vendor or the Shareholder or any knowledge of the Vendor or the Shareholder, except that: (1) the representations and warranties set out in Sections 3.2(1) and 3.2(2), and the corresponding representations and warranties set out in the certificates to be delivered pursuant to Section 5.3(1), shall survive the Closing and shall continue in full force and effect without limitation of time; (2) a claim for breach of any such representation or warranty, to be effective, must be asserted in writing on or prior to the applicable expiration time set out in this Section 3.4, provided that a claim for any breach of any of the representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement involving fraud or fraudulent misrepresentations may be made at any time following the Closing Date, subject only to applicable limitation periods imposed by Law; and (3) no claim for any breach of any of the covenants, representations and warranties contained in this Agreement or in any agreement, instrument, certificate or other document executed or delivered pursuant to this Agreement may be made after the applicable expiration time set out in this Section 3.4 notwithstanding that such breach was not objectively discoverable. ARTICLE 4 Annotation: Article 4 contains covenants by the Parties, but primarily the Vendor, to take or refrain from taking certain actions during the Interim Period and, in the case of Section 4.4 dealing with records retention, after Closing. Compliance by each of the Parties with their covenants is a condition of Closing. The condition may be waived by the Party in whose favour the covenant was made. Alternatively, the non-breaching Party may use the failure to satisfy the condition to terminate the Agreement and not complete the Transactions. Further, subject to Sections 3.3 and 3.4, the failure of a Party to comply with its covenants may give rise to liability to the non-breaching Party pursuant to the indemnification provisions of Article 7. 4.1 Conduct During Interim Period During the Interim Period, without in any way limiting any other obligations of the Vendor and the Shareholder in this Agreement: (1) Conduct Business in the Ordinary Course Annotation: Section 4.1(1) gives the Purchaser some assurance that the Vendor will not take any action or refrain from taking any action which would, in effect, adversely affect the value of the Business prior to Closing. The matters referred to in Section 4.1(1)(i) and (ii) are examples of prohibited actions which the Purchaser may wish to supplement if it has specific concerns about the management of the Business during the Interim Period. The Vendor shall conduct the Business only in the ordinary course of the Business consistent with past practice, and the Vendor shall not, without the prior written consent of the Purchaser, enter into any transaction or refrain from doing any action that would constitute a breach of any representation, warranty, covenant or other obligation of the Vendor or the Shareholder contained herein, and provided further that, without limiting the generality of the foregoing, the Vendor shall not:
(i) transfer, lease, license, sell or otherwise dispose of any
of the Purchased Assets except for inventory, or permit
any Encumbrance to attach to or affect any of the
Purchased Assets, other than in the ordinary course of
the Business consistent with past practice; or
(ii) do any act or thing of the kind described in Sections
3.1(21) or 3.1(26) or enter into any Contract of the kind
described in Sections 3.1(6), 3.1(24), 3.1(29)(h),
3.1(30)(a), or 3.1(30)(c). (2) Continue Insurance The Vendor shall continue to maintain in full force and effect all policies of insurance or renewals now in effect, and shall take out, at the expense of the Purchaser, such additional insurance as may be reasonably requested by the Purchaser, and shall give all notices and present all claims under all policies of insurance in a timely fashion. (3) Regulatory Consents The Vendor shall use its best efforts to make, give or obtain, at or prior to the Closing Time, with, to or from all appropriate Regulatory Authorities, the filings, notifications and Consents described in Schedule 3.1(9). Annotation: The critical point in Sections 4.1(3) and 4.1(4) is that the obligation of the Vendor is qualified, not absolute. It must use its best efforts to obtain the Consents. If it fails to obtain a Consent, the Purchaser may, if the Consent is necessary to the Closing of the Transactions or relates to a material Contract, terminate the Agreement and not complete the Transactions. See Section 5.1(4) and the related Annotation. Provided that the Vendor has used its best efforts to obtain the Consents, the Purchaser will have no claim against the Vendor for breach of contract. The term "best efforts" is not easily defined but clearly requires the Vendor to make good faith attempts to obtain the Consents. While it requires the Vendor to use the internal resources it has available, it does not require the Vendor to make a material expenditure of funds. See Section 8.5. If material expenditures or external resources are required, the Purchaser will want to ensure that the covenant specifically requires the Vendor to make those expenditures and obtain those resources. The Vendor will obviously resist any requirement to incur significant and/ or undetermined additional costs. In any case, it is in both Parties' interest that this issue be thoroughly canvassed prior to execution of the Agreement. See Sections 8.5, 8.6 and related Annotations for further discussion of these topics. (4) Contractual Consents The Vendor shall use its best efforts to make, give or obtain, at or prior to the Closing Time, the filings, notifications and Consents described in Schedule 3.1(9) in respect of Contracts, on such terms as are acceptable to the Purchaser, acting reasonably. (5) Preserve Goodwill The Vendor shall use its best efforts to preserve intact the Business and the Purchased Assets and to carry on the Business as currently conducted, and to promote and preserve for the Purchaser the goodwill of suppliers, customers and others having business relations with the Vendor. (6) Discharge Liabilities The Vendor shall pay and discharge the liabilities of the Vendor relating to the Business in the ordinary course in accordance and consistent with the past practice of the Vendor, except those contested in good faith by the Vendor. (7) Corporate Action The Shareholder and the Vendor shall take all necessary corporate action, steps and proceedings to approve or authorize, validly and effectively, the execution and delivery of this Agreement and the other agreements and documents contemplated by this Agreement and to complete the transfer of the Purchased Assets to the Purchaser free and clear of all Encumbrances except for the Permitted Encumbrances and to cause all necessary meetings of directors and shareholders of the Vendor to be held for such purpose. (8) Exclusive Dealing Neither the Vendor nor the Shareholder shall take any action, directly or indirectly, to encourage, initiate or engage in discussions or negotiations with, or provide any information to any person, other than the Purchaser, concerning any merger, sale of substantial assets or similar transaction involving the Business. Annotation: This "no-shop" provision gives the Purchaser assurance that the Vendor will not attempt to back out of the Agreement in favour of another transaction, which may or may not directly involve the Purchased Assets. As a matter of contract law, this covenant is unnecessary. The Agreement (without regard to this covenant) requires the Vendor, subject to the terms and conditions of the Agreement, to sell the Purchased Assets to the Purchaser and prohibits the Vendor from selling material assets prior to Closing. If the Vendor fails to comply with its obligations in the Agreement, the Purchaser will have an action for breach of contract. Nonetheless, the Purchaser may obtain additional comfort from such a covenant with the view that it will prevent the Vendor from pursuing an alternative transaction and later finding a pretext for termination of the Agreement. 4.2 Access to Information The Vendor shall at all times during the Interim Period make available to the Purchaser and its representatives and advisers for examination all of the Records in the Vendor's possession or under its control, including environmental and health and safety reports. The Vendor shall at all times during the Interim Period give the Purchaser and its representatives and advisers access to the Purchased Assets during normal business hours and upon reasonable notice, in order to make such investigations as the Purchaser shall deem necessary or advisable, including for purposes of conducting any environmental audits, environmental site assessments (including soil and groundwater testing) or other investigations. The Vendor shall give such persons all means necessary to effect such examinations and investigations and shall cause its agents, employees, officers and directors to use their best efforts to aid such persons in such examinations and investigations. The Vendor authorizes and consents to the release by any Regulatory Authority having jurisdiction of any information, and shall sign any documents or forms of consent incidental thereto. The exercise of any rights of access, inspection or examination by or on behalf of the Purchaser shall not affect or mitigate the Vendor's covenants, representations and warranties in this Agreement. The Vendor shall provide the Purchaser and its representatives and advisers at all times during the Interim Period with an opportunity to meet with the auditors and any employees, advisers or personnel of the Vendor. Annotation: Section 4.2 gives the Purchaser the right to continue its due diligence up to Closing. The Purchaser's rights are very broad. The Vendor may argue that they are overly so and will disrupt the Vendor's conduct of the Business during the Interim Period. If the Vendor is in a position of strength, the Vendor may try to require the Purchaser's due diligence to terminate on a date certain prior to Closing. This Agreement does not give the Purchaser a due diligence "out". The Purchaser cannot rely on this Section, or any other Section, to terminate the Agreement and decline to close the Transactions if it discovers facts about the Business which make the acquisition less attractive unless those facts would constitute breaches of representations or covenants which are not remedied by the Vendor prior to Closing. Nonetheless, the Vendor will want certainty as early as possible that the Purchaser is not going to find a reason or excuse to walk from the Transactions. See the Annotation following Section 5.1(5)(h) for further discussion of the due diligence out. The Vendor will want to consider carefully whether it wishes to allow the Purchaser to contact applicable Regulatory Authorities. Again, this may be disruptive to the Business and, if the Transactions do not for any reason close, may affect relations with those authorities. It may also result in the loss of confidentiality with respect to the Transactions. The same concerns apply to contact by the Purchaser with the employees of the Business. See also Section 8.3 and the related Annotation in this regard. The express statement in Section 4.2 that the Purchaser's due diligence will not affect the Vendor's representations and covenants means that if, prior to Closing, the Purchaser discovers a fact which will constitute a breach of a representation or covenant, it can choose to close and then sue the Vendor for damages resulting from the breach. The Purchaser's knowledge of the breach prior to Closing will not insulate the Vendor from liability. Nevertheless, the date on which the Purchaser "discovered" the breach pursuant to the terms of Ontario's Limitations Act, 2002 will always be an important issue in these circumstances. A Vendor in a strong bargaining position may require that the Purchaser make disclosure of all breaches or potential breaches as soon as they are discovered in order to give the Vendor an opportunity to cure them and avoid the Purchaser walking from the Transactions or closing and seeking indemnity for damages. See also in this regard Sections 3.3, 3.4, 7.5 and the related Annotations. 4.3 Satisfaction of Closing Conditions The Vendor and the Shareholder jointly and severally agree to use their best efforts to ensure that the conditions set forth in Section 5.1, and the Purchaser agrees to use its best efforts to ensure that the conditions set forth in Section 5.3, are fulfilled at or prior to the Closing Time. Each of the Parties agrees use its best efforts to ensure that the conditions set forth in Section 5.5 are fulfilled at or prior to the Closing Time. 4.4 Delivery of Records At the Closing Time, the Vendor shall deliver to the Purchaser all the Records (unless part of the Excluded Assets). The Purchaser agrees that it will preserve such Records so delivered to it for a period of six years from the Closing Date, or for such longer period as is required by any applicable Law, and will permit the Vendor or its authorized representatives reasonable access thereto in connection with the affairs of the Vendor, but the Purchaser shall not be responsible or liable to the Vendor for or as a result of any accidental loss or destruction of or damage to any such Records. 4.5 Employees The Vendor agrees to provide the Purchaser with an up-to-date list of the names of all salaried and unionized employees of the Vendor employed in the Business at least two Business Days and not more than four Business Days prior to the Closing Date. The Purchaser agrees that it shall offer employment to all employees on such list, other than the employees listed in Schedule 3.1(32) as excluded employees, effective as at the Time of Closing, on substantially the same terms and conditions of employment as are then applicable to such employees. The Vendor shall indemnify and hold harmless the Purchaser from and against all claims, demands, losses or damages suffered or incurred by the Purchaser (which shall be deemed to be a Claim hereunder) as a result of or arising directly or indirectly out of, in connection with or pursuant to any claims by any employees of the Business, other than claims by those employees (the "Transferred Employees") who accept the Purchaser's offers of employment with respect to their employment with the Purchaser. No employee of the Business shall be entitled to any rights under this Section 4.5 or under any other provisions of this Agreement. The Vendor shall employ all the employees set out in Schedule 3.1(32) until the Time of Closing, except for any employees who prior to the Time of Closing:
(i) are terminated for cause;
(ii) are terminated with the Purchaser's consent, which
consent shall not be unreasonably withheld;
(iii) voluntarily resign; or
(iv) retire. The Vendor shall not attempt in any way to discourage any employee from accepting any offer of employment to be made by the Purchaser and shall not solicit the services of any employee (other than the employees listed in Schedule 3.1(32) as excluded employees) during the . year period following the Closing Date without the consent in writing of the Purchaser, which consent may be unreasonably withheld. Annotation: It is not uncommon for the Purchaser to require the Vendor to fully satisfy/discharge all accrued vacation, salary and other financial obligations of the Vendor to those employees continuing with the Purchaser following closing. 4.6 Employee Plans The Purchaser shall not assume any liability for benefits accrued up to the Time of Closing under any of the Employee Plans. The Purchaser agrees that it will establish replacement plans (the "Replacement Plans") for the Transferred Employees in respect of their employment by the Purchaser from and after the Time of Closing. For the purpose of determining the eligibility of a Transferred Employee for membership or benefits under the Employee Plans and under the Replacement Plans:
(i) their period of employment shall include employment with
both the Vendor and the Purchaser and shall be deemed
not to have been interrupted at the Time of Closing; and
(ii) their period of membership shall include membership in
both the Employee Plans and the Replacement Plans and
shall be deemed not to have been interrupted at the Time
of Closing; provided that no Transferred Employee shall be entitled to benefits under any disability plan sponsored by the Purchaser in respect of any condition existing at or event occurring prior to the Time of Closing. The Transferred Employees shall begin to accrue benefits under the Replacement Plans as of the Time of Closing in respect of their employment by the Purchaser. The Purchaser agrees to obtain the required approvals of the applicable Regulatory Authorities in connection with the establishment and registration of the Replacement Plans. 4.7 Change of Name The Vendor agrees that within . days from the Closing Date it shall change its name to a name that does not include the words . or any part thereof or any similar words. The Vendor agrees that from and after the Closing Date it shall not use the words . or any part thereof or any similar words.
ARTICLE 5
Annotation: Sections 5.1 and 5.3 create "walk rights" in favour of the Purchaser and Vendor, respectively. In other words, each of the Purchaser and Vendor has the right, which it may waive if it so chooses, to terminate the Agreement and not complete the Transactions if one of the conditions in its favour specified in those Sections is not satisfied. These rights need to be contrasted with Section 5.5 which results in automatic termination of the Agreement if the conditions specified therein are not satisfied. For obvious reasons, the conditions precedent in Section 5.5 cannot be waived unilaterally. Understandably, the accuracy of the representations and compliance with the covenants set out in this Agreement constitute important conditions precedent for both the Purchaser and Vendor. Frequently, conditions of Closing are used in order to compliment and/or supplement the representations and covenants in the Agreement. > 5.1 Conditions for the Benefit of the Purchaser The obligation of the Purchaser to complete the Transactions will be subject to the fulfilment of the following conditions at or prior to the Closing Time: (1) Representations, Warranties and Covenants The representations and warranties of the Vendor and the Shareholder made in or pursuant to this Agreement shall be true and accurate at the Closing Time with the same force and effect as though such representations and warranties had been made as of the Closing Time. The Vendor and the Shareholder shall have complied with all covenants and agreements in this Agreement to be performed or caused to be performed by them at or prior to the Closing Time. In addition, the Vendor and the Shareholder shall have delivered to the Purchaser a certificate confirming the foregoing. The receipt of such certificate and the completion of the Transactions shall not be deemed to constitute a waiver of any of the representations, warranties or covenants of the Vendor and the Shareholder contained in this Agreement. Such representations, warranties and covenants shall continue in full force and effect as provided in Section 3.3. Annotation: The Purchaser may wish to include a provision in this Section or Section 5.2 explicitly stating its right to sue the Vendor and/or Shareholder for damages if a condition is not satisfied due to the breach of a covenant or representation by the Vendor or Shareholder. Such a provision would confirm the existence of an additional remedy, which exists at law absent an exclusive remedies provision in the Agreement. Since this Agreement contains an exclusive remedies provision in Section 7.5(8), providing for such an additional remedy in this Section would require a corresponding amendment to Section 7.5(8). On the other hand, the Purchaser may be satisfied with its express indemnity right under Section 7.1(2). (2) No Material Adverse Change Annotation: In Sections 5.1(2) and 5.1(3), the Purchaser may wish to include language stating that any material adverse effect shall in each case be "in the Purchaser's opinion". The Purchaser's objective clearly in inserting this language would be to make the test subjective and bring it within the Purchaser's discretion. The Vendor will usually resist changes of this type on the basis that the test should be more objective. The relative bargaining power of the Parties will determine this issue and frequently the Parties will agree to a compromise position providing that the Purchaser must act reasonably in forming its opinions. Except as has been specifically permitted in this Agreement, since the date of this Agreement there shall not have been:
(a) any material adverse change in any of the assets, financial
condition, earnings, results of operations or prospects of the
Business that has, or threatens to have, a material adverse
effect on the assets, financial condition, earnings, results of
operations or prospects of the Business or which might
materially adversely affect the ability of the Purchaser to
carry on the Business after the Closing substantially as the
Business is being conducted upon the date of this Agreement;
or
(b) any damage, destruction or loss, or other event, development
or condition of any character (whether or not covered by
insurance) which would have a material adverse effect on the
Purchased Assets or the Business. (3) No Action to Restrain/No Adverse Law No Law shall have been made, and no action or proceeding shall be pending or threatened, which is likely to result in an order, decision or ruling imposing any limitations or conditions which may have a material adverse effect on the Transactions or the right of the Purchaser to own the Purchased Assets. Annotation: The Vendor will seek to narrow this "walk right" in several respects. For example, the Vendor may feel that it is inequitable that the Purchaser be entitled to walk away from the Agreement in respect of Laws or proceedings which existed at the time the Purchaser entered into the Agreement. Hence, the Vendor will look to include language limiting the scope of this provision to Laws and proceedings which arise "since the date of this Agreement". Further, the Vendor will have trouble accepting that "threatened litigation" should be a basis for the Purchaser to terminate. Such threatened litigation could be meritless, frivolous or orchestrated by the Purchaser. Likewise, the Vendor will strongly oppose any attempt by the Purchaser to expand this Section to capture "proposed laws". The definition of "Law" in this Agreement does not extend to proposed laws. (4) Consents All filings, notifications and Consents with, to or from Regulatory Authorities and third parties, including the parties to the material Contracts listed on Schedule 3.1(24) and the lessors of the Leased Premises listed on Schedule 3.1(30)(c), required to permit the change of ownership of the Purchased Assets contemplated hereby without resulting in the violation of or a default under or any termination, amendment or acceleration of any obligation under any licence, permit, lease, or material Contract affecting the Business or otherwise adversely affecting the Business, shall have been made, given or obtained on terms acceptable to the Purchaser acting reasonably. Annotation: A Vendor with leverage (for example, in an auction situation) can insist on a definitive list of Consents which must be obtained in order for the Transactions to close. However, more commonly, the Purchaser will insist on including more general language to the effect that all Consents necessary or material to the Business must be tabled. Such a position is reasonable, but the Vendor must be satisfied that the language does not give the Purchaser an excuse not to close if a trivial Consent is not obtained. A Purchaser with superior bargaining power may wish to negotiate the inclusion of Consents which apply to itself. For example, the Purchaser may want to make completion of the Transactions conditional on it obtaining satisfactory financing or the Consent of one of its lenders. (5) Deliveries The Vendor shall have delivered to the Purchaser the following in form and substance satisfactory to the Purchaser:
(a) a favourable opinion of counsel to the Vendor and the
Shareholder substantially in the form set forth in Schedule
4.1(5)(a); Annotation: The opinion to be delivered by counsel to the Vendor et al pursuant to Section 5.1(5)(a) can be addressed in several different ways. If the Parties have sufficient time and wish to avoid the possibility of a dispute later on, they may elect to attach a draft form of opinion as a schedule and indicate that the Vendor's counsel will deliver an opinion "substantially in the form set out in Schedule .". Alternatively, the Parties frequently are comfortable just listing the major issues to be addressed in the opinion and including "basket language" to the effect that the opinion also will cover matters incidental to the foregoing and such other matters typically addressed in a transaction of the type contemplated by the Agreement. Finally, the Purchaser may simply wish to say that the opinion shall be in form and substance satisfactory to it. An interesting issue arises should counsel to the Vendor issue an opinion which is qualified in an unusual manner. The seriousness of the qualification will usually determine whether or not the Purchaser has a right to terminate the Agreement. If serious, the qualification will enable the Purchaser to say the form of opinion is not satisfactory to it. But what if the qualification is minor and represents only a slight deviation from the form of opinion that might be attached to the Agreement? If the opinion fails to conform in a material respect, the Purchaser will likely have a right to terminate the Agreement on the basis that one or more representations and/or conditions are not satisfied. If material agreements are to be delivered by Parties other than the Vendor and Shareholder, the Purchaser may wish to request opinions from counsel to such Parties.
(b) non-competition agreements duly executed by the Vendor,
the Shareholder and . substantially in the form of the
agreement attached as Schedule 4.1(5)(b); If more than one non?competition agreement is being delivered pursuant to Section 5.1(5)(b), the Parties would be prudent to note any differences in duration and/or geographic scope between such agreements.
(c) employment agreements duly executed by . on terms and
conditions satisfactory to the Purchaser; This condition can be a source of serious disagreement and uncertainty if the form of each employment agreement is not attached to the Agreement. Often the form cannot be settled in advance and employees may be difficult or self -interested at such times.
(d) all Records (unless part of the Excluded Assets) of the Vendor
and other documents referred to in this Agreement or any
Schedule; Dealing with the records of a business can become a complicated issue if the Purchaser is buying some but not all of the assets of a business. It becomes important to be specific as to what records the Purchaser will receive.
(e) a certificate issued by the Minister of Finance of Ontario
under subsection 6(1) of the Retail Sales Tax Act (Ontario); As mentioned in the Annotation to Section 3.1(9), in order to obtain the required certificate under section 6 of the Retail Sales Tax Act in time for Closing, it may be necessary for Vendor's counsel to provide the Ontario Minister of Finance with an undertaking to hold back from the Purchase Price in escrow an amount estimated by the Minister as owing by the Vendor for sales tax.
(f) a purchase certificate issued by the Workplace Safety and
Insurance Board;
(g) evidence satisfactory to the Purchaser that the purchase and
sale of the Purchased Assets shall be in compliance with the
provisions of the Bulk Sales Act (Ontario), which compliance
may in the form of an order of the court granted pursuant to
section 3 thereof; As also mentioned in the Annotation to Section 3.1(9), if the Purchaser decides that compliance with the Bulk Sales Act is not possible, it may choose to waive compliance as a condition of Closing so long as it is fully indemnified by the Vendor and Shareholder for any claims for non-compliance which may be bought against the Purchaser after Closing by creditors of the Business.
(h) all documentation and other evidence reasonably requested
by the Purchaser in order to establish the due authorization
and consummation of the Transactions, including the taking of
all corporate proceedings by the boards of directors and
shareholders of the Vendor required to effectively carry out
the obligations of the Vendor pursuant to this Agreement; and Depending on the circumstances of the Transactions, it may be essential that the Purchaser receive certain key agreements or reports of professionals in respect of environmental, tax or financial matters. If the Purchaser is aware of documentation or evidence which it requires in order to feel comfortable about Closing, it should specifically list such materials, rather than trying to rely on the "basket language" in Section 5.1(5)(h). Heavy reliance by the Purchaser on this Section may result in difficult issues arising at or before Closing. Conversely, the Vendor should be careful about agreeing to table deliverables which are vague and/or subjective in nature. For example, the Purchaser may want comfort satisfactory to it that a material customer will continue to do business with the Purchaser following completion of the Transactions. What does this really mean and what can the Vendor reasonably expect to deliver? The Purchaser often wishes to make it a condition of Closing that it has completed and is satisfied with the results of its due diligence. The Vendor will frequently oppose the inclusion of a due diligence out, on the basis that it is too subjective and vague. Such a condition has not been included in this Agreement on the basis that it perhaps tips the scales too much in favour of the Purchaser. The Purchaser should be able to adequately protect itself by expanding on any specific due diligence concerns which it may have and adjusting the other conditions of Closing to address such due diligence concerns. A Purchaser in a superior bargaining position will often succeed in securing such an out.
(i) all necessary deeds, conveyances, bills of sale, discharges,
assurances, transfers, assignments and any other
documentation necessary or reasonably required to
transfer the Purchased Assets to the Purchaser with
a good and marketable title, free and clear of all 5.2 Waiver or Termination by the Purchaser The conditions contained in Section 5.1 are inserted for the exclusive benefit of the Purchaser and may be waived in whole or in part by the Purchaser at any time without prejudice to any of its rights of termination in the event of non-performance of any other condition in whole or in part. If any of the conditions contained in Section 5.1 are not fulfilled or complied with by the time provided for, the Purchaser may, at or prior to the Closing Time, terminate this Agreement by notice in writing after such time required to the Vendor and the Shareholder. In such event the Purchaser shall be released from all obligations in this Agreement (except as set out in Section 5.6) and, unless the condition or conditions which have not been fulfilled are reasonably capable of being fulfilled or caused to be fulfilled by the Vendor or the Shareholder, then the Vendor and the Shareholder shall also be released from all obligations in this Agreement (except as set out in Section 5.6). Annotation: It should be noted in respect of Sections 5.2 and 5.4 that fault of a Party associated with non?fulfillment of a condition is not relevant to the rights of the Purchaser or Vendor, as applicable, to terminate the Agreement. These rights are without qualification. They are not subject to any materiality test. Tests of materiality and reasonableness, if any, are already factored into the representations, covenants and conditions of Closing. Each of Sections 5.2 and 5.4 allow the beneficiary of a condition to terminate this Agreement before the Closing Time if it is a relative certainty that a specified condition cannot be fulfilled at any future time. More specifically, the words "at or prior to the Closing Time" are intended to permit immediate termination of the Agreement, without the relevant Party having to wait until the Closing Time in such circumstances. For example, if it is a condition of Closing that the Purchaser enter into an employment agreement with a key employee of the Vendor and the key employee dies between the date of the Agreement and the Closing Time, the condition is incapable of being satisfied. An interesting issue which often is negotiated relates to whether any cure rights should be permitted with respect to a condition, such as the accuracy of a representation, which may become unfulfilled between the date of signing the Agreement and the Closing Time. The Purchaser may argue that no such cure right should be allowed as it has purchased the "truth" of the Vendor's representations. On the other hand, the Vendor may argue that it should be allowed to cure an unfulfilled condition prior to the Closing Time provided that the cure is effected within a set time period following notice from the Purchaser and provided the Purchaser is not otherwise prejudiced. The latter argument, being more equitable, generally prevails. 5.3 Conditions for the Benefit of the Vendor and Shareholder The obligations of the Vendor and the Shareholder to complete the Transactions will be subject to the fulfilment of the following conditions at or prior to the Closing Time: Annotation: Apart from the condition relating to the accuracy of representations and the performance of covenants in Section 5.3(1), conditions are generally few and far between in favour of the Vendor and Shareholder. Examples of additional conditions in favour of the Vendor might be a legal opinion of Purchaser's counsel, or a release of guarantees provided by the Vendor and/or Shareholder. To the extent any additional conditions are permitted by the Purchaser, it will endeavour to make sure they are as narrowly drafted as possible. It is quite reasonable for the Vendor to require an opinion from the Purchaser's counsel, especially in circumstances where there are continuing obligations of the Purchaser relating to indemnities, price adjustments and holdback amounts. The delivery of Consents in respect of material Contracts is not generally an acceptable condition in favour of the Vendor, unless of course the Vendor and/or Shareholder has in some way guaranteed obligations in respect of the material Contracts in question. (1) Representations, Warranties and Covenants The representations and warranties of the Purchaser made in or pursuant to this Agreement shall be true and accurate at the Closing Time with the same force and effect as though such representations and warranties had been made as of the Closing Time. The Purchaser shall have complied with all covenants and agreements in this Agreement to be performed or caused to be performed by it at or prior to the Closing Time. In addition, the Purchaser shall have delivered to the Vendor and the Shareholder a certificate confirming the foregoing. The receipt of such certificate and the completion of the Transactions shall not be deemed to constitute a waiver of any of the representations, warranties or covenants of the Purchaser contained in this Agreement. Such representations, warranties and covenants shall continue in full force and effect as provided in Section 3.4. 5.4 Waiver or Termination by the Vendor and Shareholder Annotation: See the Annotation to Section 5.2. The conditions contained in Section 5.3 are inserted for the exclusive benefit of the Vendor and the Shareholder and may be waived in whole or in part by the Vendor and the Shareholder at any time without prejudice to any of their rights of termination in the event of non-performance of any other condition in whole or in part. If any of the conditions contained in Section 5.3 are not fulfilled or complied with by the time provided for, the Vendor may, on behalf of itself and the Shareholder, at or prior to the Closing Time, terminate this Agreement by notice in writing after such time to the Purchaser. In such event the Vendor and the Shareholder shall be released from all obligations in this Agreement (except as set out in Section 5.6) and, unless the condition or conditions which have not been fulfilled are reasonably capable of being fulfilled or caused to be fulfilled by the Purchaser or the Vendor, then the Purchaser shall also be released from all obligations in this Agreement (except as set out in Section 5.6). 5.5 Conditions Precedent The purchase and sale of the Purchased Assets is subject to the following conditions to be fulfilled at or prior to the Closing Time, which conditions are true conditions precedent to the completion of the Transactions: (1) No Legal Action No action or proceeding shall be pending or threatened by any person to enjoin, restrict or prohibit any of the Transactions or the right of the Purchaser to conduct the Business after Closing on substantially the same basis as heretofore conducted. Annotation: If legal proceedings have been commenced to prevent the Transactions from being completed, or which will materially restrict the right of the Business to carry on the Business or otherwise result in dramatic adverse changes to the Business, the Parties will usually want to be able to walk away and have the Agreement automatically terminate. The Parties do not want to become embroiled in nasty, lengthy litigation which may be harmful to them and the Business. Likewise, the Purchaser does not want to be forced to purchase the Business if it may be materially adversely affected by the legal proceedings, a situation which would in turn likely result in the Purchaser suing the Vendor for damages. The Parties may want to allow exceptions to this general rule, such as litigation which both Parties consider to be frivolous or without merit. Further, the Parties may reject the notion that "threatened" litigation of this nature alone should result in automatic termination. (2) Investment Canada Act Investment Canada shall have provided a receipt to the Purchaser pursuant to the Investment Canada Act or the Purchaser shall have received evidence satisfactory to it indicating that the acquisition of the Purchased Assets by the Purchaser is not a reviewable investment under the Investment Canada Act and such receipt or other evidence shall be in full force and effect at the Closing Time. Annotation: Certain Transactions cannot proceed by law if Consents from certain Regulatory Authorities are not obtained. As such Consents go to the root of the Transactions, they are listed as "true conditions precedent" which cannot be waived by the Parties, except in the unlikely event that the Parties unanimously agree otherwise. Investment Canada Act and Competition Act Consents are the most commonly cited true conditions precedent. However, depending on the nature of the Parties and the Business, the receipt of other Consents from other persons may be appropriate for inclusion (e.g. Office of the Superintendent of Financial Institutions, Hart Scott Rodino administrators or one or more securities regulators). If the Purchaser's representation in Section 3.2(5) is included, then clearly the Investment Canada Act condition precedent in Section 5.5(2) will be unnecessary. Similarly, if the assets and revenues of the Vendor and the Purchaser as disclosed in 3.1(27) for the Vendor and 3.2(4) for the Purchaser are below the threshold levels for pre-notification, the Competition Act condition precedent in Section 5.5(3) may be unnecessary. (3) Competition Act The Vendor and the Purchaser each have filed all notices and information required under Part IX of the Competition Act (Canada), satisfied any request for additional information and the applicable waiting periods and any extensions shall have expired without the threat of restraint or challenge, or the Parties shall have received an Advance Ruling Certificate pursuant to the Competition Act (Canada) setting out that the Commissioner of Competition under such Act is satisfied he would not have sufficient grounds on which to apply for an order in respect of the Transactions. If any conditions precedent shall not have been fulfilled at or prior to the Closing Time, this Agreement shall be terminated and the Parties shall be released from all obligations under this Agreement, except as set out in Section 5.6. Annotation: In addition to the other events of termination, the Purchaser and the Vendor may wish to also specify that the Agreement may be terminated on their mutual written consent. Frequently, the Parties do not consider it necessary to include such a provision as it basically amounts to a written amendment which the Parties can effect any time in any case. Nevertheless, it may be prudent to include such a provision where there are third party beneficiaries of the Transactions (e.g. key employees, minority shareholders, customers or suppliers) who may have a lot at stake. See the Annotation at 5.5 (2) also. 5.6 Survival following Termination In the event of termination of this Agreement at or prior to the Closing Time pursuant to Sections 5.2, 5.4 or 5.5, the provisions of Articles 1, 7 and 8 and Sections 2.3(1), 5.2, 5.4 or 5.5 shall survive such termination indefinitely. Upon such termination, the Purchaser shall promptly deliver to the Vendor all copies of all Records (unless part of the Excluded Assets) of the Vendor and other written material obtained by the Purchaser from the Vendor or the Shareholder in connection with this Agreement. Sections 5.2, 5.4, 5.5 and 5.6 deal with the effect of termination as between the Parties and not the remedies of the Parties where there is fault on the part of one or more of them. In respect of remedies, the Parties should look to Article 7 dealing with indemnification and, if they decide to delete Section 7.5(8), their rights at law outside of the Agreement. An alternative approach to listing specific provisions would be to use general language such as "… all provisions which either expressly or by their nature are intended to survive shall survive until fully performed or for such lesser period as may be set forth in this Agreement."
ARTICLE 6 6.1 Place of Closing The Closing shall take place at the Closing Time at the offices of .. 6.2 Deliveries at the Closing At the Closing Time, upon fulfillment of all the conditions set out in Article 5 that have not been waived in writing by the Purchaser, the Vendor or the Shareholder, as applicable, the Vendor and the Shareholder shall deliver such documents as are required or contemplated to be delivered by the Vendor, the Shareholder or Vendor's counsel pursuant to this Agreement, the relevant portions of the Purchase Price shall be paid or delivered in the manner provided in Section 2.3, and the Purchaser shall deliver such documents as are required or contemplated to be delivered by the Purchaser or Purchaser's counsel pursuant to this Agreement.
ARTICLE 7 Annotation: These Sections dealing with indemnification are among the most intensely negotiated in the Agreement. The Purchaser wants protection relating to the representations and other continuing covenants of the Vendor. On the other hand, the Vendor wants no continuing responsibilities for the Business which it no longer owns. This negotiation can result in a wide variety of outcomes, depending on the relevant bargaining power and levels of sophistication of the Parties. Some Vendors will agree to give open-ended indemnification rights if selling an "unwanted" business to the only interested Purchaser. Much more frequently, each Party will want to put a ceiling on its total potential liabilities under the Agreement. Further, the Parties will sometimes agree to a fixed amount or formula in respect of certain classes of liability. As an indemnification covenant is only as valuable as the person who is giving it, the Indemnified Party needs to consider whether the indemnity should be buttressed by collateral provisions. For example, the Purchaser may believe it advisable to request a guarantee from an affiliate of the Vendor and/or Shareholder or include substantial holdbacks from the Purchase Price. Similarly, if the Vendor feels sufficiently insecure about payment of deferred portions of the Purchase Price in the form of holdbacks, it may request that the Purchaser provide security for those continuing obligations. 7.1 Indemnification by the Vendor and the Shareholder Subject to Section 3.3, the Vendor and the Shareholder shall, jointly and severally, indemnify and save the Purchaser harmless for and from: (1) any loss, damages or deficiencies suffered by the Purchaser as a result of any claim relating to the Excluded Assets or any failure by the Vendor to fully satisfy and discharge the Excluded Liabilities; (2) any loss, damages or deficiencies suffered by the Purchaser as a result of any breach of representation, warranty or covenant on the part of the Vendor or the Shareholder contained in this Agreement or in any certificate or document delivered pursuant to or contemplated by this Agreement; and (3) all claims, demands, costs and expenses, including reasonable legal fees, in respect of the foregoing. Annotation: The Purchaser may wish to expand the group of persons to be indemnified by the Vendor and the Shareholder such that it includes the Purchaser's other affiliates, and officers, directors or other representatives of any of the foregoing. Depending on the circumstances of the Transactions and the Business, the Purchaser may feel it necessary to include specific indemnity provisions relating to specific risks. These might include: (i) an unknowable environmental risk; (ii) a possible/probable change of Law; (iii) the outcome of a disclosed law suit; or (iv) the loss of a major customer of the Business. Sections 7.1(2) and 7.2(2) must be read with Section 7.5(1). The scope of Sections 7.1(2) and 7.2(2) is quite broad. In each case, the Indemnifying Party is responsible for damages resulting from breaches of representations and covenants not only contained in the Agreement, but also in any certificate or document delivered pursuant to or contemplated by the Agreement. Depending on a Party's circumstances, it may want to leave this language as is and argue that it extends to all documents, including documents reviewed during the due diligence process. Alternatively, a Party may wish to specify that this indemnity right is restricted to documents delivered at the Closing. As mentioned above, if environmental risk is a "hot" topic in the context of the particular Transactions, the Purchaser may wish to include a separate provision addressing only indemnification for environmental matters. Among other things, such provision would provide for the handling of environmental claims and control over clean-up situations. Environmental liability often merits special attention because the degree of risk is usually unknown, any environmental problem can be hugely disruptive to the Business and claims can come from government agencies or third parties who are not bound by the Agreement. Further, whereas many types of liability tend to decrease over time, environmental liabilities almost never do. Another reason why the Parties may elect to include a separate provision dealing with environmental indemnification may be the fact that the Vendor does not feel comfortable giving a representation about which it does not have sufficient knowledge in the circumstances. Alternatively, the Parties may elect to forego including a separate environmental indemnification and may deal with environmental liabilities by way of a price reduction or an increase in any escrow amount or holdback. 7.2 Indemnification by the Purchaser Subject to Section 3.4, the Purchaser shall indemnify and save the Vendor and Shareholder harmless for and from: (1) any loss, damages or deficiencies suffered by the Vendor or the Shareholder as a result of any claim relating to any failure by the Purchaser to fully satisfy and discharge fulfil the Assumed Liabilities; (2) any loss, damages or deficiencies suffered by the Vendor or Shareholder as a result of any breach of representation, warranty or covenant on the part of the Purchaser contained in this Agreement or in any certificate or document delivered pursuant to or contemplated by this Agreement; and (3) all claims, demands, costs and expenses, including reasonable legal fees, in respect of the foregoing. Annotation: Counsel to the Purchaser will frequently not include a provision analogous to Section 7.2 in its first draft of the Agreement. If the Vendor is in a weak bargaining position and if the Purchaser has no surviving obligations or covenants of a material nature, this approach may be acceptable. However, sophisticated Vendors with experienced counsel will insist on the inclusion of such a provision in almost all circumstances. 7.3 Notice of Claim A Party entitled to and seeking indemnification pursuant to the terms of this Agreement (the "Indemnified Party") shall promptly give written notice to the Party or Parties, as applicable, responsible for indemnifying the Indemnified Party (the "Indemnifying Party") of any claim for indemnification pursuant to Sections 7.1 or 7.2 (a "Claim", which term shall include more than one Claim). Such notice shall specify whether the Claim arises as a result of a claim by a person against the Indemnified Party (a "Third Party Claim") or whether the Claim does not so arise (a "Direct Claim"), and shall also specify with reasonable particularity (to the extent that the information is available): (1) the factual basis for the Claim; and (2) the amount of the Claim, or, if any amount is not then determinable, an approximate and reasonable estimate of the likely amount of the Claim. Annotation: Counsel to the Purchaser will frequently not include a provision analogous to Section 7.2 in its first draft of the Agreement. If the Vendor is in a weak bargaining position and if the Purchaser has no surviving obligations or covenants of a material nature, this approach may be acceptable. However, sophisticated Vendors with experienced counsel will insist on the inclusion of such a provision in almost all circumstances. 7.4 Procedure for Indemnification (1) Direct Claims With respect to Direct Claims, following receipt of notice from the Indemnified Party of a Claim, the Indemnifying Party shall have 30 days to make such investigation of the Claim as the Indemnifying Party considers necessary or desirable. For the purpose of such investigation, the Indemnified Party shall make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the Claim. If the Indemnified Party and the Indemnifying Party agree at or prior to the expiration of such 30 day period (or any mutually agreed upon extension thereof) to the validity and amount of such Claim, the Indemnifying Party shall immediately pay to the Indemnified Party the full agreed upon amount of the Claim. If the Indemnified Party and the Indemnifying Party do not agree within such period (or any mutually agreed upon extension), the Indemnified Party and the Indemnifying Party agree that the dispute shall be submitted to arbitration pursuant to the Arbitration Act, 1991 (Ontario). Such dispute shall not be made the subject matter of an action in a court by either the Indemnified Party or the Indemnifying Party unless the dispute has first been submitted to arbitration and finally determined in accordance with the provisions of Schedule 6.4(1). Any such action commenced thereafter shall only be for judgment in accordance with the decision of the arbitrators and the costs incidental to the action. In any such action the decision of the arbitrators shall be conclusively deemed to determine the rights and liabilities as between the Parties to the arbitration in respect of the matter in dispute. Annotation: Arbitration provisions are not appropriate for all clients and/or all Transactions. If technical disputes are anticipated, the Parties may wish to restrict the scope of an arbitration provision to such disputes and specify the types of experts who should be involved. Further, if it is critical that the Parties not be suing each other due to ongoing business relationships between them, an arbitration clause may be suitable. However, a Party in a position of superior bargaining strength (e.g. with significant resources or a substantial purchase price holdback in hand) will usually have no appetite for arbitration clauses. Such a Party will favour taking its chances with possible litigation or a non?arbitrated, informal private settlement process. Some clients oppose arbitration on principle, based on unpleasant past experiences. Competing factors which each Party should consider are the high cost of litigation, whether a slow resolution process is problematic and how important it is to keep the dispute confidential. Ontario's Limitations Act, 2002 clearly impacts the operation of arbitration provisions and the Parties and their counsel should consider the effect of Section 11 of that Act in particular. (2) Third Party Claims With respect to any Third Party Claim, the Indemnifying Party shall have the right, at its own expense, to participate in or assume control of the negotiation, settlement or defence of such Third Party Claim and, in such event, the Indemnifying Party shall reimburse the Indemnified Party for all the Indemnified Party's out?of?pocket expenses incurred as a result of such participation or assumption. If the Indemnifying Party elects to assume such control, the Indemnified Party shall cooperate with the Indemnifying Party, shall have the right to participate in the negotiation, settlement or defence of such Third Party Claim at its own expense and shall have the right to disagree on reasonable grounds with the selection and retention of counsel, in which case counsel satisfactory to the Indemnifying Party and the Indemnified Party shall be retained by the Indemnifying Party. If the Indemnifying Party, having elected to assume such control, thereafter fails to defend any such Third Party Claim within a reasonable time, the Indemnified Party shall be entitled to assume such control and the Indemnifying Party shall be bound by the results obtained by the Indemnified Party with respect to such Third Party Claim. Annotation: When a Third Party Claim arises, the Indemnifying Party (usually, the Vendor) will frequently want a significant role in the defence of such Claim. The Indemnified Party may agree to cede control subject to certain limitations and qualifications. For instance, the Indemnified Party may not want the Indemnifying Party to have carriage of Claims involving tax and environmental matters. Further, the Indemnified Party may want to prevent the Indemnifying Party from assuming control where (i) a conflict of interest would appear to exist; (ii) the Indemnified Party has concerns about the financial capacity of the Indemnifying Party to properly conduct the defence; or (iii) the Indemnified Party has concerns about the counsel chosen by the Indemnifying Party. Finally, the Purchaser, as Indemnified Party, may want to prevent the Vendor from assuming carriage of a defence if the Vendor may at the same time dispute the fact that the proceedings represent an indemnifiable Claim. 7.5 General Indemnification Rules The obligations of the Indemnifying Party to indemnify the Indemnified Party in respect of Claims shall also be subject to the following: Annotation: This Section deals with a wide array of provisions concerning the operation of the indemnity obligations, including the duration of the obligations, threshold levels which must be satisfied before the obligations arise and means by which a Party can collect on its indemnity entitlement. The Purchaser will sometimes insert a provision stating that its rights to indemnification are not affected by its knowledge of a breach of the Agreement prior to Closing. A provision of this nature may be helpful in avoiding a lengthy factual debate between the Parties and prevent the Vendor from alleging that the Purchaser had knowledge in respect of the relevant matter each time a Claim is raised. Such a provision will produce strong debate, and will generally be much broader than the brief related provisions found in Section 4.2 and in the introductory paragraphs to Sections 3.3 and 3.4. The Purchaser may argue that provisions of this nature are appropriate in view of the fact that the Purchaser has bought the Vendor's promise as to the truth of the representations and can sue on it if it so wishes. The Purchaser will be concerned that if it does not include such a provision, the Vendor will argue that the Purchaser, seized with such knowledge, has waived its right to sue or has not relied on the wording of the relevant provision. There are many issues which are not dealt with in Article 7 and which may be of significance to the Parties in the particular circumstances. The Purchaser, as Indemnified Party, may feel that it is appropriate that an Indemnified Party be entitled to interest from the date on which it incurs or pays any indemnifiable expense. A provision such as this may be useful in deterring an Indemnifying Party from frivolously disputing its obligations or delaying payment. If there are escrow amounts or holdbacks, the Purchaser may want to be able to set off against these amounts the amount of its Claims. Any set-off mechanics which are included in the Agreement will need to be dovetailed with related documentation such as promissory notes and any escrow agreement. Set-off is an important tool for an Indemnified Party which may otherwise have difficulty enforcing the indemnities. Consider, for example, the situation of a Purchaser who is attempting to collect from a non?resident Vendor. Obviously, a holdback gives a Purchaser more leverage than an escrow arrangement, as escrow arrangements involve third parties, whereas a holdback is completely within the Purchaser's control. Alternatively, a Purchaser may consider taking security for the Vendor's indemnity obligations in the form of a letter of credit or security interest on collateral of the Vendor. A Vendor will want to limit the set-off rights of the Purchaser to situations where the dispute has been definitively resolved. On the other hand, the Purchaser will want to be able to exercise its rights of set-off when it in good faith believes that it has a Claim. Rights of set-off exist at common law. However, they can be fraught with difficulty and accordingly, it is best to include express rights of set-off. (1) Any Claim arising as a result of a breach of a representation or warranty shall be made not later than the date on which, pursuant to Sections 3.3 and 3.4, such representation and warranty terminated; Annotation: The timing for post-Closing Purchase Price instalment payments or escrow releases needs to be dovetailed with deadlines for making Claims in order that any set-off rights will be available. (2) The Indemnifying Party's obligation to indemnify the Indemnified Party shall only apply to the extent that the Claims in respect of which the Indemnifying Party has given an indemnity, in the aggregate, exceed $. (and shall only apply in respect of such excess) but are less than $., provided that such obligation to indemnify shall only apply in respect of an individual Claim which exceeds $. and any individual Claim below such threshold shall be disregarded by the Indemnifying Party; Annotation: This provision creates both a "floor" and a "ceiling" for indemnification. The floor operates like a deductible in an insurance context and its prime purpose is to avoid Claims for and disputes over minor amounts. A Purchaser with leverage, or one which is more aggressive, will seek to recover all damages, not just damages in excess of the floor amount, once the floor is reached. Sometimes, the Parties will negotiate different floors for different types of liabilities. Concerning the ceiling or "cap", an experienced Vendor will try to limit its obligations to the total amount of the Purchase Price. The Vendor will argue that it should not be in a worse position than if it continued to own and operate the Business. A Purchaser may accept this argument, but will want to exclude from the cap certain items (e.g. tax and environmental matters), or establish separate caps for different heads of liability. With respect to both caps and floors, the Parties may wish to specify that they don't apply in respect of breaches of representations of which the Indemnifying Party had knowledge or in respect of its wilful failure to perform covenants. (3) If any Third Party Claim is of a nature such that the Indemnified Party is required by applicable law to make a payment to any person (a "Third Party") with respect to such Third Party Claim before the completion of settlement negotiations or related legal proceedings, the Indemnified Party may make such payment and the Indemnifying Party shall, forthwith after demand by the Indemnified Party, reimburse the Indemnified Party for any such payment. If the amount of any liability of the Indemnified Party under the Third Party Claim in respect of which such a payment was made, as finally determined, is less than the amount which was paid by the Indemnifying Party to the Indemnified Party, the Indemnified Party shall, forthwith after receipt of the difference from the Third Party, pay the amount of such difference to the Indemnifying Party; (4) Except in the circumstance contemplated by Section 7.5(5), and whether or not the Indemnifying Party assumes control of the negotiation, settlement or defence of any Third Party Claim, the Indemnified Party shall not negotiate, settle, compromise or pay any Third Party Claim except with the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld); (5) The Indemnified Party shall not permit any right of appeal in respect of any Third Party Claim to terminate without giving the Indemnifying Party notice and an opportunity to contest such Third Party Claim; (6) The Indemnified Party and the Indemnifying Party shall cooperate fully with each other with respect to Third Party Claims and shall keep each other fully advised with respect thereto (including supplying copies of all relevant documentation promptly as it becomes available); and (7) Notwithstanding Section 7.4(2), the Indemnifying Party shall not settle any Third Party Claim or conduct any related legal or administrative proceeding in a manner which would, in the opinion of the Indemnified Party, acting reasonably, have a material adverse impact on the Indemnified Party. (8) The provisions of this Article 7 shall constitute the sole remedy available to a Party against another Party with respect to any and all breaches of any agreement, covenant, representation or warranty made by such other Party in this Agreement. This section specifies that the indemnity rights under Article 7 represent the exclusive remedies of the Parties, a position generally preferred by a Vendor. Certain complications may arise under the indemnity language which usually extends to documents delivered with the Agreement, which documents may contain additional separate remedies. The Purchaser will usually want to avoid an exclusive remedies provision in order to preserve its remedies outside of the Agreement relating to, among other things, breach of contract, fraud and certain statutory rights. In fact, the Purchaser may well insist that an express provision be included stating that the Purchaser's remedies are not limited to those set out in Article 7. (9) The amount of any Claim due under this Agreement shall be reduced by:
(a) the amount of any insurance or other reimbursement received
by the Indemnifying Party in relation to the breach or other
event giving rise to the Claim; and
(b) the amount expected to be recovered under any ARTICLE 8 Annotation: This Article typically contains provisions of a general nature relating to continuing covenants, rights and certain points of interpretation. It is also a suitable location to insert a post-Closing covenant that does not easily fit into any other Article. For example, for non-reviewable, notifiable transactions under the Investment Canada Act, the Vendor may require the Purchaser to covenant to file the notice of acquisition required by that Act within 30 days of Closing. A general arbitration of disputes clause has not been included in this Article. See the Annotation at Section 7.4. The Parties may wish to resort to arbitration for specific purposes, but otherwise generally prefer to avoid broad arbitration provisions. 8.1 Confidentiality The Purchaser covenants and agrees that, except as otherwise authorized by the Vendor, neither the Purchaser nor its representatives, agents or employees will disclose to third parties, directly or indirectly, any confidential information or confidential data relating to the Vendor or the Business discovered or received by the Purchaser or its representatives, agents or employees as a result of the Vendor making available to the Purchaser and its representatives, agents or employees the information requested by them in connection with the Transactions. Annotation: The entire agreement provision (see Section 8.8) causes all prior agreements between the Parties to be superseded. Hence, any confidentiality agreement or legally binding confidentiality provision in a letter of intent or term sheet between the Parties technically provides no further protection. Nevertheless, confidentiality will continue to be a concern for the Parties once the Agreement is signed, regardless of whether the Transactions close. Pursuant to Section 5.6, this Section, among others, survives termination of the Agreement. Section 8.1 is a relatively "bare-bones" provision and less sophisticated than many confidentiality provisions which one typically finds in confidentiality agreements. There are many issues which it does not address. However, it will be satisfactory in most instances as the Parties will have hopefully reached a higher level of trust, having largely completed their due diligence. Frequently, the Parties will want to be specific about what constitutes "confidential information". The Vendor will want it to encompass all information provided to the Purchaser or to which the Purchaser has had access in connection with the Transactions. At the other extreme, the Purchaser will want it to be limited to information which has been "stamped confidential". The Parties may also wish to spell out certain specific exceptions to what otherwise might constitute confidential information. These exceptions might include (i) information already in the public domain; (ii) information disclosed for purposes of obtaining Consents required for Closing; or (iii) information required to be disclosed in connection with legal proceedings. 8.2 Notices Annotation: Occasionally, one will see notice provisions which also allow for notice by way of e-mail. This makes sense due to the prevalence of this means of communication and the ease with which attachments and scanned documents can be included. However, such provisions need to be carefully crafted and may not be appropriate for notice in respect of certain classes of issues. (1)Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be delivered in person, transmitted by facsimile or similar means of recorded electronic communication or sent by registered mail, charges prepaid, addressed as follows:
(a) if to the Vendor:
.
(b) if to the Purchaser:
.
(c) if to the Shareholder:
. (2)Any such notice or other communication shall be deemed to have been given and received on the day on which it was delivered or transmitted (or, if such day is not a Business Day, on the next following Business Day) or, if mailed, on the third Business Day following the date of mailing; provided, however, that if at the time of mailing or within three Business Days thereafter there is or occurs a labour dispute or other event that might reasonably be expected to disrupt the delivery of documents by mail, any notice or other communication hereunder shall be delivered or transmitted by means of recorded electronic communication as described. (3)Any Party may at any time change its address for service from time to time by giving notice to the other Parties in accordance with this Section 8.2. 8.3 Public Announcements and Disclosure
The Parties shall consult with each other before issuing any press release or making any other public announcement with respect to this Agreement or the Transactions and, except as required by any applicable Law or stock exchange having jurisdiction, no Party shall issue any such press release or make any such public announcement without the prior written consent of the others, which consent shall not be unreasonably withheld or delayed. Prior to any such press release or public announcement, none of the Parties shall disclose this Agreement or any aspect of the Transactions except to its board of directors, its senior management, its legal, accounting, financial or other professional advisors, any financial institution contacted by it with respect to any financing required in connection with the Transactions and counsel to such institution, or as may be required by any applicable Law or stock exchange having jurisdiction. Annotation: Section 8.3 allows public disclosure without consultation with, or the consent of, the other Parties when such disclosure is required by applicable Law or a stock exchange. Sometimes, the Parties will attempt to place some limits on this exception by requiring the Party obligated to disclose to use its best efforts, without contravening applicable Law, to consult with the other Parties prior to making such disclosure. The Parties may wish to get into specifics of how employees, customers and suppliers will be informed of certain matters or otherwise communicated with. Disclosure to these persons will usually be subject to mutual consultation of the Purchaser and the Vendor. The Purchaser may also insist on being present during the disclosure to these persons. Often, the Parties are comfortable addressing these sorts of details outside of the Agreement and will not feel it necessary to include a specific provision covering them. 8.4 Assignment by Purchaser The Purchaser may assign its rights under this Agreement in whole or in part to any other person; provided, however, that any such assignment shall not relieve the Purchaser from any of its obligations hereunder. Neither the Vendor nor the Shareholder may assign its rights under this Agreement. Annotation: A Vendor with sufficient leverage may require the Purchaser to obtain the Vendor's prior written consent to any assignment of the Purchaser's rights or obligations under the Agreement. In this circumstance, the Vendor may also require that the assignee deliver a document confirming that such assignee will perform all obligations under the Agreement. A Vendor may have legitimate reasons for wanting to limit the Purchaser's rights of assignment. For example, if the Purchaser's assignee turns out to be a non?resident, tax, Investment Canada Act and enforcement issues will likely ensue. Also, the Vendor may wish to prevent assignment to a "shell" corporation with only nominal assets with which to satisfy its obligations, or simply wish to deal with "the devil it knows rather than the one it does not". It should be understood that in the absence of express provisions limiting assignment, the Parties' rights are generally freely assignable at common law. 8.5 Best Efforts The Parties acknowledge and agree that, for all purposes of this Agreement, an obligation on the part of any Party to use its "best efforts" to obtain any waiver, Consent or other document shall not require such Party to make any payment to any person for the purpose of procuring the same, other than payments for amounts due and payable to such person, payments for incidental expenses incurred by such person and payments required by any applicable law or regulation. 8.6 Expenses Unless otherwise provided, each of the Vendor, the Shareholder and the Purchaser shall be responsible for the expenses (including fees and expenses of legal advisers, accountants and other professional advisers) incurred by them, respectively, in connection with the negotiation and settlement of this Agreement and the completion of the Transactions. In the event of termination of this Agreement, the obligation of each Party to pay its own expenses will be subject to any rights of such Party arising from a breach of this Agreement by another Party. Annotation: As the negotiations evolve, the Parties should consider how certain "big ticket" costs will be allocated. The wording in this Section may not be helpful in determining some of these issues, so that exceptions to the rule should be spelled out. For instance, the fee payable to the Competition Bureau's Merger Notification Unit for its review of filings and applications is $50,000. Environmental audit inquiries, which the Purchaser may insist on, can likewise be very expensive. The allocation of responsibility for these costs will reflect the relative bargaining power of the Parties. For example, the fee payable to the Competition Bureau is frequently split, but other allocations do occur depending on the relative leverage of the Parties. The Purchaser may wish to clarify that the Vendor and the Shareholder must pay their expenses with their own money and not that of the Business. The Vendor may push back to some extent on this issue and may legitimately argue that some expenses be incurred by the Business. As a compromise, the Parties frequently agree on a cap for expenses to be absorbed by the Business. The last sentence of Section 8.6 makes it clear that a judgment for damages due to breach of the Agreement overrides the general terms of Section 8.6 to the extent of a conflict. 8.7 Further Assurances Each of the Parties shall promptly do, make, execute, deliver, or cause to be done, made, executed or delivered, all such further acts, documents and things as the other Parties may reasonably require from time to time after Closing at the expense of the requesting Party for the purpose of giving effect to this Agreement and shall use reasonable efforts and take all such steps as may be reasonably within its power to implement to their full extent the provisions of this Agreement. Annotation: Section 8.7 serves two purposes. It helps ensure that each Party will assist in accomplishing certain collateral matters after Closing (often related to non?critical Consents and discharges) and will not be obstructionist with a view to extracting additional consideration. It also addresses ancillary matters that can only be handled post-Closing and which cannot be treated as conditions precedent. It is prudent to only rely on the further assurances provision in respect of fairly minor post-Closing matters. For more material issues, such as environmental clean-ups, the provision by the Vendor of any services on a short-term basis, the discharge of liens and the payment of third party debts, the Parties should include separate covenants which are tied into relevant escrow and holdback provisions. 8.8 Entire Agreement This Agreement, including all Schedules, constitutes the entire agreement between the Parties with respect to the subject matter and supersedes all prior agreements, understandings, negotiations and discussions, whether written or oral, including the term sheet between the Parties dated .. There are no conditions, covenants, agreements, representations, warranties or other provisions, express or implied, collateral, statutory or otherwise, relating to the subject matter except provided in this Agreement. No reliance is placed by any Party on any warranty, representation, opinion, advice or assertion of fact made by any Party or its directors, officers, employees or agents, to any other Party or its directors, officers, employees or agents, except to the extent that it has been reduced to writing and included in this Agreement. Annotation: Both the entire agreement provision and the waiver and amendment provision may not be enforceable in all circumstances. Opinions in respect of purchase agreements typically qualify the enforceability of provisions such as these. There has been some interesting Ontario case law which further buttresses the view that these opinion qualifications are necessary. See for example Shelanu v. Print Three (2003) 64 O.R.(3d) 533 and Gutierrez v. Tropic International Ltd., 2002 Carswell Ontario 2599 (Ontario Court of Appeal). 8.9 Waiver, Amendment Except as expressly provided in this Agreement, no amendment or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided. Annotation: See the Annotation 8.8 8.10 Rights Cumulative The rights and remedies of the Parties are cumulative and not alternative. 8.11 Counterparts This Agreement may be executed in any number of counterparts, and/or by facsimile or e-mail transmission of Adobe Acrobat files, each of which shall constitute an original and all of which, taken together, shall constitute one and the same instrument. Any Party executing this Agreement by fax or Adobe Acrobat file shall, immediately following a request by any other Party, provide an originally executed counterpart of this Agreement provided, however, that any failure to so provide shall not constitute a breach of this Agreement except to the extent that such electronic execution is not otherwise permitted under the Electronic Commerce Act, 2000 (Ontario).
IN WITNESS WHEREOF this Agreement has been executed by the Parties.
[NAME OF PURCHASER
Per:
[NAME OF VENDOR CORPORATION]
Per:
[NAME OF PRINCIPAL
Per:
A.
Paul Mahaffy
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