________________________________________
SUBSCRIPTION AGREEMENT
________________________________________
BY AND AMONG
STRANDEL INC.
GUESS?, INC.
AND
FREEMARK ENTERTAINMENT CORPORATION
July 31, 1999
SUBSCRIPTION AGREEMENT
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MEMORANDUM OF AGREEMENT made at Montreal on the 31st day of July, 1999
BY AND AMONG: STRANDEL INC., a corporation incorporated under
the laws of Canada, with its registered office
at 0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxxxx,
Xxxxxx, X0X 0X0,
the "Corporation");
AND: GUESS?, INC., a corporation incorporated under
the laws of Delaware, with its registered office
at 0000 Xxxxx Xxxxxxx Xxxxxx, Xxx Xxxxxxx,
Xxxxxxxxxx, 00000, U.S.A.,
(the "Purchaser");
AND: FREEMARK ENTERTAINMENT CORPORATION, a
corporation incorporated under the laws of
Canada, with its registered office at 0000
Xxxx Xxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxx, X0X
0X0,
("Freemark").
WHEREAS the Purchaser desires to subscribe for thirty thousand (30,000)
Class A Common Shares from the treasury of the Corporation, in consideration of
an aggregate amount of three million dollars ($3,000,000) (the "Equity
Investment"), which would increase its equity position in the Corporation to
60%, at such price and on such terms as hereinafter set forth (the
"Subscription"); and
WHEREAS the Equity Investment will be used by the Corporation for purposes
of working capital and to become current with trade creditors;
THIS AGREEMENT WITNESSETH THAT, in consideration of the mutual covenants
herein contained, it is agreed by and between the Parties as follows:
ARTICLE I
INTERPRETATION
1.1 Definitions. Where used herein or in any amendments hereto or in any
communication required or permitted to be given hereunder, the following terms
shall have the following meanings, respectively, unless the context otherwise
requires:
(a) "Agreement" shall mean this Subscription Agreement and all instruments
supplemental hereto or in amendment of confirmation hereof; "herein",
"hereof", "hereto", "hereunder" and similar expressions mean and refer to
this Agreement and not to any particular Article, Section, Subsection or
other subdivision; "Article", "Section", "Subsection" or other subdivision
of this Agreement means and refers to the specified Article, Section,
Subsection or other subdivision of this Agreement.
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(b) "Closing" shall mean the delivery to the Purchaser of the share
certificates for the Subscribed Shares and the payment to the Corporation
of the Subscription Price for the Subscribed Shares at the place of closing
on the Closing Date.
(c) "Closing Date" shall have the meaning ascribed thereto at Section 8.1.
(d) "Financial Statements" shall mean the Corporation's audited financial
statements as at March 31, 1999 and the combined audited financial
statements as at January 30, 1999 of 176995 Canada Inc., 3032116 Canada
Inc., 2996197 Canada Inc., 3032507 Canada Inc., 3098605 Canada Inc.,
3133320 Canada Inc., 3133338 Canada Inc., 3138925 Canada Inc. and Spinardi
Inc., copies of which financial statements are annexed hereto as Schedule
1.1(d).
(e) "Indemnified Party" shall have the meaning ascribed thereto at Section 7.3.
(f) "Indemnifying Party" shall have the meaning ascribed thereto at Section
7.3.
(g) "Intellectual Property Rights" shall mean (i) all domestic and foreign
patents, trade marks, trade names, service marks, copyrights, trade
secrets, inventions, know-how, technology, software, licenses, and other
intellectual property, and (ii) all registrations and applications for
registration of intellectual property; and "Intellectual Property Right"
shall mean any one of them.
(h) "Laws" shall mean:
(i) all constitutions, treaties, laws, statutes, codes, ordinances,
orders, decrees, rule, regulations, and municipal by-laws; and
(ii) all judgments, orders, writs, injunctions, decisions, rulings,
decrees, and awards of any governmental authority or body,
in each case binding on or affecting the Party or Person referred to in the
context in which such word is used; and "Law" shall mean any one of them.
(i) "License" and "Licenses" shall have the respective meanings ascribed
thereto at Section 3.1(z).
(j) "Lien" and "Liens" shall mean any pledge, hypothec, charge, claim,
restriction on transfer, mortgage, security interest or encumbrance of any
sort.
(k) "Losses" shall have the meaning ascribed thereto at Section 7.1.
(l) "Parties" shall mean the Purchaser, Freemark and Strandel; and "Party"
shall mean any one of them.
(m) "Person" shall mean an individual, corporation, company, cooperative,
partnership, limited liability company, trust, unincorporated association,
entity with juridicial personality or governmental authority or body, and
pronouns which refer to a Person shall have a similarly extended meaning.
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(n) "Reorganization" shall mean the transfer by the Purchaser and Freemark of
all of the issued and outstanding shares of the capital of 3535762 Canada
Inc. to the Corporation according to the terms disclosed in Schedule 1.1(n)
annexed hereto.
(o) "Subscribed Shares" shall mean 30,000 Class A Common Shares from the
treasury of the Corporation representing, after giving effect to said share
subscription, 40% of the issued and outstanding shares of the share capital
of the Corporation, delivered to the Purchaser.
(p) "Subscription Price" shall have the meaning ascribed thereto at Section
2.1.
(q) "Subsidiaries" shall mean 3535762 Canada Inc., 3106021 Canada Inc.,
Spinardi Inc., 176995 Canada Inc., 3562786 Canada Inc., 3138925 Canada
Inc., 3032507 Canada Inc., 3032116 Canada Inc., 2996197 Canada Inc.,
3098605 Canada Inc., 3133320 Canada Inc. and 3133338 Canada Inc.
(r) "Tax" and "Taxes" shall have the respective meanings ascribed thereto at
Section 3.1(w).
1.2 Schedules. The following is a list of the Schedules attached hereto and
incorporated herein by reference:
Schedule 1.1(d) - Financial Statements
Schedule 1.1(n) - Reorganization
Schedule 3.1(d) - No Conflict
Schedule 3.1(e) - Corporate Chart
Schedule 3.1(f) - Subsidiary
Schedule 3.1(g) - No Options
Schedule 3.1(j) - Liabilities
Schedule 3.1(l) - No Changes; No Unusual Transactions
Schedule 3.1(m) - Permitted Liens
Schedule 3.1(o) - Condition and Sufficiency of Assets; Inventory
Schedule 3.1(p) - Place of Business
Schedule 3.1(q) - Intellectual Property Rights
Schedule 3.1(r) - Contracts
Schedule 3.1(t) - Insurance
Schedule 3.1(u) - Bank Accounts
Schedule 3.1(v) - Outstanding Litigation
Schedule 3.1(w) - Tax Matters
Schedule 3.1(z) - Licenses
Schedule 3.1(bb) - Benefit Plans
Schedule 3.1(cc) - Environmental Matters
Schedule 4.1(c) - Form of Unanimous Shareholders Agreement
Schedule 4.1(d) - Form of Employment Agreements
Schedule 4.1(f) - Form of Loan Agreement
SChedule 4.1(g) - Form of Opinion of Counsel for the Corporation
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ARTICLE II
SUBSCRIPTIONS
2.1 Subscription. Upon and subject to the terms and conditions hereof, the
Purchaser hereby subscribes for the Subscribed Shares for an aggregate
subscription price equal to three million dollars ($3,000,000) (the
"Subscription Price") all of which shall be allocated to the Subscribed Shares.
2.2 Acceptance. The Corporation hereby accepts the subscription of the
Purchaser for the Subscribed Shares indicated in Section 2.1, subject to the
terms and conditions contained herein.
2.3 Payment of the Subscription Price. Purchaser hereby acknowledges receipt of
the Subscribed Shares and the Corporation hereby acknowledges receipt of the
Subscription Price, by way of certified cheque or bank draft. It is understood
that the entire Subscription Price shall be added to the stated capital account
of the Class A Common Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Corporation and Freemark. Each of the
Corporation and Freemark, on a solidary (joint and several) basis, each waiving
the benefits of division and discussion, represents and warrants to the
Purchaser as follows and acknowledges that the Purchaser is relying upon such
representations and warranties in connection with the subscription by the
Purchaser of the Subscribed Shares and that the Purchaser would not have entered
into this Agreement without such representations and warranties:
(a) Due Incorporation. Each of the Corporation, the Subsidiaries and Freemark:
(i) is duly incorporated, validly existing and in good standing under the
Laws of its jurisdiction of incorporation; and
(ii) has all necessary corporate power and authority to own, lease and
operate its properties and to conduct its business as and in the
places where such properties are now owned, leased or operated or such
business is now conducted.
(b) Due Authorization. Each of the Corporation and Freemark has the necessary
corporate power and authority to execute this Agreement and to perform its
obligations hereunder. The execution of this Agreement by each of the
Corporation and Freemark and the performance by each of the Corporation and
Freemark of its obligations hereunder has been duly authorized by all
necessary action on their part. Such execution and performance by the
Corporation and Freemark does not require any action or consent of, any
registration with, or notification to, any Person, or any action or consent
under any Laws to which each of the Corporation and Freemark is subject,
except for any such disclosure as each of the Corporation and Freemark
shall determine to be necessary or appropriate to comply with securities
laws, stock exchange rules and/or covenants in loan agreements.
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(c) Enforceability. This Agreement constitutes a legal, valid and binding
obligation of the Corporation and of Freemark enforceable against them in
accordance with its terms, except to the extent that enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity.
(d) No Conflict. The execution of this Agreement, the consummation of the
transactions contemplated herein, the performance by each of the
Corporation and Freemark of its obligations hereunder and the compliance by
each of the Corporation and Freemark with this Agreement do not:
(i) violate, contravene or breach, or constitute a default under, the
constating instruments or by-laws of the Corporation or of Freemark;
(ii) violate, contravene or breach, or constitute a default under any
contract, agreement, indenture, instrument, or commitment to which the
Corporation or the Subsidiaries may be a party, or their properties
may be subject, or by which either of them is bound or affected,
except for those agreements listed in Schedule 3.1(d);
(iii)result in, or give any Person the right to seek, or to cause (a) the
termination, cancellation, modification, amendment, variation or
renegotiation of any contract, agreement, indenture, instrument or
commitment to which the Corporation or the Subsidiaries or any of
their properties may be a party or subject or by which either of them
is bound or affected, or (b) the acceleration or forfeiture of any
term of payment, or (c) the loss in whole or in part of any benefit
which would otherwise accrue to the Corporation or the
Subsidiaries, except for these agreements listed in Schedule 3.1(d);
(iv) result in, or require the creation of any lien, hypothec, pledge,
charge, prior claim, security interest, adverse claim or other
encumbrance or right of others of any nature, whatsoever or howsoever
arising (individually, a "Lien" and collectively, "Liens"), upon any
of the Subscribed Shares or any of the Subscribed Shares or any
property of the Corporation of the Subsidiaries; or
(v) violate, contravene or breach any Laws.
(e) Authorized and Issued Capital. The authorized capital of the Corporation
consists of an unlimited number of Class A Common Shares, Class B Common
shares, Class A Preferred shares, Class B Preferred Shares, Class C
Preferred shares and Class D Preferred shares, of which thirty thousand
(30,000) Class A Common Shares (and no more) have been (without giving
effect to the Subscription) validly subscribed and issued and are
outstanding as fully paid and non-assessable, free and clear of all Liens.
Immediately following the issuance pursuant hereto of the Subscribed
Shares, the Subscribed Shares represent 40% of all of the issued and
outstanding shares in the capital of the Corporation.
All of the issued outstanding shares in the capital of each of the
Subsidiaries have been validly subscribed and issued, and are outstanding
as fully paid non-assessable, free and clear of all Liens and are
beneficially owned by the Corporation or any of the Subsidiaries, as the
case may be, as the corporate chart sets out in Schedule 3.1(e).
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(f) No Subsidiary. Except as disclosed in Schedule 3.1(f) annexed hereto, the
Corporation does not own, directly or indirectly, any shares in the capital
of any Person and has never had any property interest in any Person.
(g) No Options. Except as disclosed in Schedule 3.1(g). There is no:
(i) outstanding security of the Corporation or any of the Subsidiaries
convertible or exchangeable or exercisable into any share or shares in
the capital of the Corporation or any Subsidiary;
(ii) outstanding subscription, option, warrant, call, commitment or
agreement obligating the Corporation or the Subsidiaries, presently or
in the future, to issue any share or shares of its capital or any
security or securities of any class or kind which in any way relate to
the authorized or issued capital of the Corporation or any Subsidiary;
(iii)agreement (other than this Agreement) which grants to any Person the
right to purchase or otherwise acquire any share or shares issued and
outstanding in the capital of the Corporation or any Subsidiary; or
(iv) voting trust or voting agreement or pooling agreement or proxy with
respect to any shares of the capital of the Corporation or any
Subsidiary.
(h) Books and Records. The minute books of the Corporation and the Subsidiaries
are complete and accurate and contain copies of all by-laws and resolutions
passed by the shareholders and directors (and any committees) since the
respective dates of their incorporation; all of which by-laws and
resolutions have been duly passed.
The share certificate books, registers of shareholders, registers of
transfers and registers of directors of the Corporation and the
Subsidiaries are complete and accurate.
The financial books and records of the Corporation and the Subsidiaries
have been maintained in accordance with sound business practices and
fairly, accurately and completely present and disclose in accordance with
generally accepted accounting principles consistently applied (i) the
financial position of the Corporation and the Subsidiaries, and (ii) all
material transactions of the Corporation and the Subsidiaries.
(i) Financial Statements. The Financial Statements fairly, accurately and
completely present and disclose in all material respects in accordance with
GAAP (i) the financial position of the Corporation and of the Subsidiaries,
(ii) the results of operations of the Corporation and the Subsidiaries, and
(iii) the changes in the financial position of the Corporation and the
Subsidiaries, all as at the dates and for the periods therein specified
(except that in the case of unaudited statements, such statements are
subject to audit and year-end adjustments, and do not have any notes).
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(j) Liabilities. Each of the Corporation and the Subsidiaries has no
liabilities or obligations of any nature whatsoever, whether direct,
indirect, absolute, contingent or otherwise, except for those liabilities
or obligations (i) reflected in or reserved against in their Financial
Statements, (ii) incurred after their respective year ends in the usual and
ordinary course of business consistent with past practice, or (iii) set
forth in Schedule 3.1(j) annexed hereto.
(k) Accounts Receivable. All accounts receivable of the Corporation and the
Subsidiaries are bona fide, result from the ordinary course of business,
have been properly recorded in the ordinary course of business.
(l) No Changes; No Unusual Transactions. Except as disclosed in Schedule 3.1(l)
since the last audited balance sheet date, the Corporation and each of the
Subsidiaries has conducted its business in the ordinary course and there
has not been any material change in either the business, operations,
properties, or condition of the Corporation and the Subsidiaries taken as a
whole, nor any event, condition on contingency that could reasonably be
expected to result in any such material change.
(m) Title to Property. The Corporation and each of the Subsidiaries is the sole
and unconditional owner of, and has a good and valid title to all of its
assets reflected on the Financial Statements, or which have been acquired
on or after January 30, 1999 (other than such assets consumed or disposed
of on or after January 30, 1999 in the ordinary course of business and in a
manner consistent with past practice), in each case free and clear of all
Liens, except for the Permitted Liens described in Schedule 3.1(m).
(n) Immovable. The Corporation and the Subsidiaries do not own any immovable
property.
(o) Condition and Sufficiency of Assets; Inventory. Except as disclosed in
Schedule 3.1(o)annexed hereto, all of the tangible assets of the
Corporation and the Subsidiaries are (i) in good operating condition and
repair, ordinary wear and tear excepted, (ii) not in need of maintenance or
repairs (except ordinary or routine maintenance or repairs that are not
material in nature or costs, individually or collectively), and (iii)
adequate and sufficient for the continuing conduct of the business of the
Corporation and the Subsidiaries as now conducted.
All inventory of each of the Corporation and the Subsidiaries is of a
quality and quantity usable and salable in the ordinary course of business.
(p) Location; Place of Business. Other than inventory in transit and vehicles
used in the transportation of such inventory, each of the Corporation and
the Subsidiaries does not hold, directly or indirectly, any of its moveable
or personal property anywhere other than in the locations set forth in
Schedule 3.1(p) annexed hereto.
(q) Intellectual Property Rights. Other than the license agreement entered into
with the Purchaser or licenses related to the use of software in the
ordinary course of business, the only Intellectual Property Rights used by
the Corporation and the Subsidiaries are related to the use of the name
Strandel. The operations of the business do not infringe the Intellectual
Property Rights of any Person. No proceeding for infringement of the
Intellectual Property Rights of any Person is pending or threatened against
the Corporation or the Subsidiaries in connection with the business of any
of its affiliates (as defined under the Canada Business Corporations
Act).
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(r) Contracts; Leases. Schedule 3.1(r) annexed hereto contains a description of
all written or oral contracts, agreements, indentures, instruments,
commitments and all the leases to which the Corporation or any of the
Subsidiaries is a party or by which it is bound other than (i) involving
receipts or expenditures of the Corporation of less than $100,000 per annum
or (ii) verbal contracts of employment which are terminable on notice
required by law, or (iii) purchase orders issued or received in the
ordinary course of business.
Except as disclosed in Schedule 3.1(d), all leases to which the Company or
any Subsidiary is a party are in good standing and in full force and effect
without amendment thereto, and each of the Corporation and the
Subsidiaries, as the case may be, is entitled to all benefits under such
leases.
(s) Guarantees. Neither the Corporation nor any Subsidiary is party to or bound
either absolutely or on a contingent basis by any comfort letter,
understanding or agreement of guarantee, indemnification, assumption or
endorsement or any like commitment with respect to the liabilities or
obligations of any Person (whether accrued, absolute or otherwise
contingent), except in the ordinary course of business.
(t) Insurance. Schedule 3.1(t) is a true and complete list of all insurance
policies currently maintained by or for each of the Corporation and the
Subsidiaries. The coverage under each such policy is in full force and
effect and each of the Corporation and the Subsidiaries, as the case may
be, is in good standing under such policies.
The Corporation and the Subsidiaries have not received notice of, and
each of Freemark and the Corporation has no knowledge of any fact,
condition or circumstance which might reasonably form the basis of any
claim against the Corporation or any of the Subsidiaries which (i) is not
fully covered by insurance (subject to deductibles) maintained by or for
the Corporation or any of the Subsidiaries, or (ii) could reasonably be
expected to result in any increase in insurance premiums payable by the
Corporation or any of the Subsidiaries.
(u) Bank Accounts. Schedule 3.1(u) annexed hereto sets forth the name of each
Person with whom each of the Corporation and the Subsidiaries maintains an
account or safety deposit box and the names of all Persons authorized to
draw thereon or to have access thereto.
(v) Litigation. Except as disclosed in Schedule 3.1(v) annexed hereto, there
are (i) no actions, claims, investigations, arbitrations, or other
proceedings pending or, to the knowledge of Freemark or the Corporation,
threatened against, any of the Corporation's or any Subsidiary's
properties, which if adversely determined would have a material adverse
effect on the Corporation or the Subsidiaries; and (ii) no outstanding
judgments, orders, decrees, writs, injunctions, decisions, rulings or
awards against, with respect to, or in any manner affecting the Corporation
or any of the Subsidiaries or their respective properties.
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(w) Tax Matters. For the purposes of this Agreement, the term "Tax" or,
collectively, "Taxes" shall mean (i) any and all federal, state,
provincial, municipal, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities including Canada
Pension Plan and Provincial Pension Plan contributions and unemployment
insurance contributions and employment insurance contributions including
taxes based upon or measured by gross receipts, income, profits, sales,
capital use and occupation, goods and services, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and (ii) any liability for
the payment of any amounts of the type described in clause (i) of this
Section 3.1(w) as a result of any express or implied obligation to
indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.
(i) Tax Returns and Audits
1. The Corporation and the Subsidiaries have correctly computed all
Taxes prepared and duly and timely filed all federal, provincial,
local and foreign returns, estimates, information statements and
reports ("Tax Returns"), required to be filed by them, have
timely paid all Taxes which are due and payable and have made
adequate provision in the Financial Statements for the payment of
all Taxes that are or may become payable for any taxation year
ending on or prior to March 31, 1999. The Corporation and the
Subsidiaries have made adequate and timely installments of Taxes
required to be made.
2. With respect to any periods for which Tax Returns the Corporation
and the Subsidiaries have not yet been required to be filed or
for which Taxes are not yet due and payable, they have only
incurred liabilities for Taxes in the ordinary course of its
business and in a manner consistent with prior periods.
3. All Tax Returns of the Corporation and the Subsidiaries have been
assessed through and including each of the dates set forth in
Schedule 3.1(w), and there are no outstanding waivers, except as
set forth in Schedule 3.1(w), of any limitation periods or
agreements providing for an extension of time for the filing of
any Tax Return or the payment of any Tax by the Corporation and
the Subsidiaries or any outstanding objections to any assessment
or reassessment of Taxes. Any deficiencies proposed as a result
of such assessments or reassessments of the Tax Returns through
and including the dates set forth in Schedule 3.1(w) have been
paid and settled with the exception of the GST/PST Taxes
assessments as set forth in Schedule 3.1(j).
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4. There are no contingent Tax liabilities or any grounds that could
prompt an assessment or reasssessment, including, but without
limitation, aggressive treatment of income, expenses, deductions,
credits or other amounts in the filing of earlier or current Tax
Returns, nor have the Corporation and the Subsidiaries received
any indication from any taxation authorities that an assessment
or reassessment of Tax is proposed.
5. The Corporation and the Subsidiaries have withheld form each
payment made to any of their past and present shareholders,
directors, officers, employees and agents the amount of all Taxes
and other deductions required to be withheld and have paid such
amounts when due, in the form required under the appropriate
legislation, or made adequate provision for the payment of such
amounts to the proper receiving authorities.
6. The Corporation and the Subsidiaries have collected from each
receipt from any of the past and present customers (or other
persons paying amounts to the Corporation) the amount of all
Taxes (including goods and services tax and provincial sales
taxes) required to be collected and have remitted such Taxes when
due, in the form required under the appropriate legislation or
made adequate provision for the payment of such amount to the
proper receiving authorities.
7. The Corporation and the Subsidiaries are not subject to any
assessments, levies, penalties or interest with respect to Taxes
which will result in any liability on their part in respect of
any period ending on or prior to the date hereof, in excess of
the amount to be provided for in the Financial Statement.
8. The Corporation and the Subsidiaries have not been and are not
currently required to file any returns, reports, elections,
designations or other filings with any taxation authority located
in any jurisdiction outside Canada or outside the province of
Quebec.
9. Except as disclosed in Schedule 3.1(w), the Ccorporation and the
Subsidiaries have not filed or been party to any election
pursuant to Section 83 or 85 of the Income Tax Act (Canada) (the
"ITA") or the corresponding provisions of any provincial statute.
10. The Corporation and the Subsidiaries have not at any time
benefited from a forgiveness of debt, except pursuant to the
transaction with Pantorama Industries Inc. referred to in
Schedule 3.1(l), or entered into any transaction or arrangement
(including conversion of debt into shares of its share capital)
which could have resulted in the application of Section 80 and
following of the ITA or the relevant provisions of any provincial
statute.
11. Since its data of incorporation, the Corporation and each of the
Subsidiaries has been a "Canadian controlled private corporation"
within the meaning of the ITA and the relevant provincial
legislation.
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12. Except as disclosed in Schedule 3.1(w), the Corporation and the
Subsidiaries are not, nor have they been at any time, associated
(within the meaning of the ITA and the relevant provincial
legislation) with any other corporation.
13. The Corporation and the Subsidiaries have made available to
Purchaser or its legal counsel, copies of all available foreign,
federal, state, provincial and local income and all state and
local sales and use Tax Returns for the Corporation and the
Subsidiary filed for all periods since its inception.
14. There are no Liens on the assets of the Corporation or any
Subsidiaries relating to or attributable to Taxes other than
Liens for Taxes not yet due and payable.
15. As of the Closing, there will not be any contract, agreement,
plan or arrangement, including but not limited to the provisions
of this Agreement, covering any employee or former employee of
the Corporation that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by
the Corporation or the Subsidiaries as an expense under
applicable Law other than reimbursements of a reasonable amount
of travel, entertainment expenses and other nondeductible
expenses that are commonly paid by similarly situated businesses
in reasonable amounts.
16. The Corporation and the Subsidiaries tax basis in their assets
(and the undepreciated capital cost of such assets) for purposes
of determining their future amortization, depreciation and other
Federal and provincial income tax deductions is accurately
reflected on the Corporation's Tax Returns and records.
17. The Corporation and the Subsidiaries have not acquired property
or services from, or disposed of property, or provided services
to a person with whom they do not deal at arm's length (within
the meaning of the ITA and the relevant provincial legislation)
for an amount that is other than the fair market value of such
property or services, or have been deemed to have done so for
purposes of the ITA and the relevant provincial legislation.
(x) Reorganization. All the steps and transactions contemplated by the
Reorganization have been fully implemented and have been effected in
compliance with all Laws and have not caused or resulted, nor shall they as
at the Closing Date cause or resulted, in any (i) adverse financial or Tax
consequences to the Corporation or any of its Subsidiaries, (ii) current or
deferred liability to the Corporation or any of its Subsidiaries or (iii)
any liability for Taxes, interest or penalties under any Tax Laws for the
Corporation. All of the assets of the Corporation are sufficient for the
continuing conduct of the business as currently conducted and as conducted
in the past. The assets of Corporation include all of the assets and rights
necessary for the conduct of the business on a going forward basis. The
Corporation shall be responsible for the costs and expenses incurred in
connection with the preparation of the documents for the implementation of
the Reorganization.
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(y) Paid-up Capital. The paid-up capital for tax purposes of each of the
Subscribed Shares is no less than its stated capital for corporate
purposes.
(z) Licenses, Permits. To the knowledge of the Corporation and Freemark, each
of the Corporation and the Subsidiaries has, and is in full compliance with
and entitled to all of the benefits under, all permits, licenses,
certificates of compliance, consents, approvals and authorizations of, or
registrations with, any governmental, judicial or public authority or
regulatory body (collectively, the "Licenses", and individually a
"License") necessary or required to conduct its business as presently
conducted, and each License has been validly issued and is in full force
and effect. Other than as set forth in Schedule 3.1(z) annexed hereto,
there are no Licenses required to conduct the business of the Corporation
or any of the Subsidiaries as presently conducted.
(aa) Employee Matters. Each of the Corporation and the Subsidiaries has complied
in all material respects, with all applicable Laws relating to employment
matters, including, without limitation, any provisions thereof relating to
wages and hours.
(bb) Benefit Plans. Except as set forth in Schedule 3.1(bb) annexed hereto,
neither the Corporation nor any of the Subsidiaries is a party to any
pension, retirement, bonus, profit sharing, compensation, incentive, stock
purchase, stock option, stock appreciation, severance, change-of-control,
savings, thrift, insurance, medical, hospitalization, disability, death or
other similar program, or practice providing directors, officers,
shareholders or employee benefits (the "Benefit Plans").
(cc) Environmental Matters. Except as set forth at Schedule 3.1(cc) annexed
hereto, the Corporation and the Subsidiaries have at all times conducted,
held and used, and are continuing to conduct, hold and use, their affairs,
business and properties in accordance with all applicable Laws relating in
whole or in part to the environment or its protection.
Except as disclosed at Schedule 3.1(cc) annexed hereto, at no time have nay
contaminants been released, emitted, discharged, deposited, issued,
sprayed, injected, abandoned, buried, spilled, incinerated, disposed,
leaked, poured, emptied, dumped, or placed on, in under or adjacent to any
immovable or real property owned or used by the Corporation or any of the
Subsidiaries.
(dd) Compliance with Laws. Except as may be specifically provided in this
Section 3.1, each of the Corporation and the Subsidiaries has complied and
continues to comply with all Laws in all material respects.
(ee) Full Disclosure. The Corporation and Freemark have made or caused to be
made due inquiry with respect to (i) each covenant, agreement, obligation,
representation and warranty contained in this Agreement, (ii) the Schedules
annexed hereto, and (iii) any certificates or other documents referred to
herein or furnished to the Purchaser pursuant hereto or in connection
herewith, and none of the aforesaid covenants, agreements, obligations,
representations, warranties, Schedules, certificates or documents contains
any untrue statement of a material fact or omits to state a material fact
necessary to make such representation, warranty, Schedule, certificate or
other document not misleading.
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(ff) Resident. The Corporation is not a non-resident of Canada within the
meaning of the ITA).
3.2 Representations and Warranties of the Purchaser. The Purchaser represents
and warrants to the Corporation and Freemark as follows and acknowledges that
the Corporation and Freemark are relying upon such representations and
warranties in connection with the sale by the Corporation of the Subscribed
Shares and that the Corporation and Freemark would not have entered into this
Agreement without such representations and warranties:
(a) Due Incorporation. The Purchaser is duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation and
has the necessary corporate power to own or lease its properties and to
carry on its business as such business is presently conducted.
(b) Due Authorization. The Purchase has the necessary corporate power and
authority to execute this Agreement and to perform its obligations
hereunder. The execution of this Agreement by the Purchaser and the
performance by the Purchaser of its obligations hereunder have been duly
authorized by all necessary corporate action on its part. Such execution
and performance by the Purchaser does not require any action or consent of,
any registration with, or notification to, any Person, or any action or
consent under any Laws to which the Purchaser is subject, except for any
such disclosure as the Purchaser shall determine to be necessary or
appropriate to comply with securities laws, stock exchange rules and/or
covenants in loan agreements.
(c) Enforceability. This Agreement constitutes a legal, valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, except to the extent that enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity.
(d) No Conflict. The execution of this Agreement, the consummation of the
transactions contemplated herein, the performance by the Purchaser of its
obligations hereunder and the compliance by the Purchaser with this
Agreement do not violate, contravene or breach, or constitute a default
under, the constating instruments or by-laws of the Purchaser or any Law
applicable to the Purchaser.
(e) Resident. The Purchaser is a non-resident of Canada within the meaning of
the ITA.
ARTICLE IV
COVENANTS OF THE CORPORATION
4.1 Closing. The Corporation hereby acknowledges having taken the following
actions on the date hereof at the place of Closing:
(a) delivered to the Purchaser and/or its nominee share certificates in its
name representing the Subscribed Shares;
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(b) delivered to the Purchaser copies of resolutions of the shareholders and
directors of the Corporation (in form and substance reasonably satisfactory
to the Purchaser's legal counsel) (i) authorizing and approving the issue
of the Subscribed Shares by the Corporation to the Purchaser and/or its
nominee and their registration in the name of the Purchaser and/or its
nominee and (ii) appointing such new directors, officers and auditors of
the Corporation as may be nominated by the Purchaser;
(c) executed a Unanimous Shareholders Agreement with the Purchaser and Freemark
substantially in the form of Schedule 4.1(c) annexed hereto;
(d) executed employment agreements with Xxxxxxx Xxxxxxxxxxx, Xxxxxxxx
Xxxxxxxxxxx, Xxxx Xxxxxxxxxxx and Xxxxxxx Xxxxxxx in the forms of Schedule
4.1(d) hereto;
(e) executed a loan agreement between the Purchaser and the Corporation in the
form of Schedule 4.1(f) hereto;
(f) delivered to the Purchaser a favourable opinion of Xxxxxxx Xxxxxxxx &
Vineberg substantially in the form of Schedule 4.1(f) annexed hereto.
(g) delivered all such documentation to evidence the completion of the
Reorganization as shall be reasonably requested by Purchaser.
ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
5.1 Survival of Representations and Warranties of the Corporation and Freemark.
The representations and warranties of each of the Corporation and Freemark
contained in this Agreement, in the Schedules annexed hereto or in any
certificate of other document delivered or given pursuant to this Agreement
shall survive the completion of the transactions contemplated by this Agreement,
and notwithstanding such completion or any investigation made by or on behalf of
the Purchaser or any knowledge by the Purchaser of any incorrectness in, or
breach of, such representations or warranties, shall continue in full force and
effect for the benefit of the Purchaser for a period of three (3) years from the
Closing Date; (i) except for any representation and warranty relating to Tax
matters which shall survive until ninety (90) days after the last date on which
the relevant tax authority is entitled to assess or reassess the Corporation or
the Purchaser with respect to such Tax matters, (ii) except for any
representation and warranty in respect of which a claim based on fraud is made,
and (iii) except for the representations and warranties contained in sections
3.1(a), (b), (c), (e), (g) and (p), which in each such case shall be unlimited
as to duration.
5.2 Survival of Representations and Warranties of Purchaser. The representations
and warranties of the Purchaser contained in this Agreement or in any
certificate or other document delivered or given pursuant to this Agreement
shall survive the completion of the transactions contemplated by this Agreement,
and notwithstanding such completion or any investigation made by or on behalf of
the Corporation or any knowledge by the Corporation of any incorrectness in, or
breach of, such representations or warranties, shall continue in full force and
effect for the benefit of, such representations or warranties, shall continue in
full force and effect for the benefit of the Corporation for a period of three
(3) years from the Closing Date; except for any representation and warranty in
respect of which a claim based on fraud is made and except for the
representations and warranties contained in sections 3.2(a), (b) and (c), which
in each such case shall be unlimited as to duration.
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ARTICLE VI
CONDITIONS OF CLOSING
6.1 Conditions for the Benefit of the Purchaser. The subscription of the
Subscribed Shares in accordance with the terms of this Amendment is subject to
the following conditions, each of which is hereby declared to be the exclusive
benefit of the Purchaser. The Corporation and Freemark hereby acknowledge that
each condition has been performed or complied with in all respects at or prior
to the date hereof.
(a) Truth of Representations and Warranties of the Corporation and Freemark.
The representations and warranties of the Corporation and Freemark
contained in this Agreement or in any Schedule annexed hereto or in any
certificate or other document delivered or given pursuant to this Agreement
(considered individually and collectively) shall have been accurate as of
the date of this Agreement, and shall be true and correct as of the date
hereof.
(b) Performance of Covenants by the Corporation and Freemark. All of the
covenants, obligations and agreements that each of the Corporation and
Freemark is required to perform or to comply with pursuant to this
Agreement at or prior to the date hereof (considered individually and
collectively) shall have been performed or complied with in all material
respects at or prior to the date hereof.
(c) Third Party Approvals. There shall have been obtained all approvals,
consents and assurances, in form and substance reasonably satisfactory to
the Purchaser's legal counsel, necessary in order to permit the
transactions contemplated herein to be completed without affecting or
resulting in the termination, cancellation, modification, amendment,
variation or renegotiation of this Agreement including, without limitation,
all consents required (with the exception of the items disclosed in
Schedule 3.1(d)) in order to consummate the transactions contemplated
herein which, if not obtained, could have a material adverse effect on the
ability of the Corporation and its Subsidiaries to carry on their affairs.
(d) Litigation. There shall be no actions, claims, investigations, arbitrations
or other proceedings (whether or not on behalf of the Corporation or any of
the Subsidiaries) pending or threatened to restrain, enjoin or invalidate
any transaction contemplated by this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by the Corporation and Freemark. The Corporation and
Freemark, on a solidary basis, without right of contribution each waiving the
benefits of division and discussion, shall indemnify and hold the Purchaser and
each of its officers, directors, employees, agents, representatives and
affiliates (the "Purchaser Indemnified Parties") harmless from and against any
and all claims, demands, actions, causes of action, judgments, damages, losses
(which shall include any diminution in value of the Subscribed Shares),
liabilities, costs or expenses (including, without limitation, interest,
penalties and reasonable attorneys' and experts' fees and disbursements),
including Tax liabilities, suffered or incurred in connection with the
transactions contemplated herein, (collectively, the "Losses") which may be made
against the Purchaser Indemnified Parties or any of the Corporation and the
Subsidiaries, or which any of them may suffer or incur as a result of, arising
out of or relating to:
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(a) any violation, contravention or breach of any covenant, agreement or
obligation of the Corporation or Freemark under or pursuant to this
Agreement; or
(b) any incorrectness in, or breach of, any representation or warranty made by
the Corporation or Freemark in Section 3.1, the Schedules annexed hereto or
in any certificate or other document delivered or given pursuant to this
Agreement; or
(c) any liabilities or obligations of the Corporation, the Subsidiaries or of
Freemark of any nature whatsoever arising after the Closing Date in respect
of any fact, condition or circumstance existing or occurring on or prior to
the Closing Date (including, without limitation, any liabilities or
obligations of the Corporation or any Subsidiary for Taxes due, together
with any penalties or interest, in connection with any period ending on or
prior to the Closing Date), save and except for any liabilities or
obligations arising after the Closing Date in respect of any fact,
condition or circumstance existing on or prior to the Closing Date which
has been disclosed in writing to the Purchaser prior to the Closing
(including, without limitation, by way of disclosure in this Agreement or
any of the Schedules hereto).
In connection with the foregoing, Freemark hereby waives its right to claim from
the Corporation any amount paid to the Purchaser pursuant to this Article 7.
7.2 Indemnification by Purchaser. The Purchaser shall indemnify and hold the
Corporation harmless from and against any Losses which may be made against the
Corporation or which the Corporation may suffer or incur as a result of, arising
out of or relating to:
(a) any violation, contravention or breach of any covenant, agreement, or
obligation of the Purchaser under or pursuant to this Agreement; or
(b) any incorrectness in, breach of, any representation or warranty made by the
Purchaser in Section 3.2, the Schedules annexed hereto or in any
certificate or other document delivered or given pursuant to this
Agreement.
7.3 Obligation to Reimburse. The Party providing indemnification, hereunder (the
"Indemnifying Party") shall reimbuse, on demand, to the Party being indemnified
hereunder (the "Indemnified Party") the amount of any Losses suffered or
incurred by the Indemnified Party, the whole as of the date that the Indemnified
Party incurs any such Losses, together with interest thereon from the aforesaid
date until payment in full at the rate per annum equal to 8%.
7.4 Notification. Promptly upon obtaining knowledge thereof, the Indemnified
Party shall notify the Indemnifying Party of any cause which the Indemnified
Party has determined has given or could give rise to indemnification under this
Article VII. The omission so to notify the Indemnifying Party shall not relieve
the Indemnifying Party from any duty to indemnify and hold harmless which
otherwise might exist with respect to such cause unless (and only to that
extent) the omission to notify materially prejudices the ability of the
Indemnifying Party to exercise its right to defend provided in this Article VII.
7.5 Defense of Third Party Claim. If any legal proceeding shall be instituted or
any claim or demand shall be asserted by a third party against the Indemnified
Party (each a "Third Party Claim"), then the Indemnifying Party shall have the
right, after receipt of the Indemnified Party's notice under Section 7.4 and
upon giving notice to the Indemnified Party within 30 calendar days of such
receipt, to defend the Third Party Claim at its own cost and expense with
counsel of its own selection, provided that:
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(a) the Indemnified Party shall at all times have the right to fully
participate in the defense at its own expense; and
(b) the Third Party Claim seeks only monetary damages and does not seek any
injunctive or other relief against the Indemnified Party.
Amounts payable by the Indemnifying Party pursuant to a Third Party claim
shall be paid in accordance with the terms of the settlement or, the judgment,
as applicable, but in any event prior to the expiry of any delay for a judgment
to become executory.
7.6 No Compromise. The Indemnifying Party shall not be permitted to compromise
and settle or to cause a compromise and settlement of any Third Party Claim,
without the prior written consent of the Indemnified Party, unless:
(a) the terms of the compromise and settlement require only the payment of
money and do not require the Indemnified Party, the Corporation or any of
the Subsidiaries to admit any of the Subsidiaries to admit any wrongdoing
or take or refrain from taking any action; and
(b) the Indemnified Party receives, as part of the compromise and settlement, a
legally binding and enforceable unconditional satisfaction or release,
which is in form and substance satisfactory to the Indemnified Party,
acting reasonably, from any and all obligations or liabilities it may have
with respect to the Third Party Claim.
7.7 Failure to Defend. If the Indemnifying Party fails within 30 calendar days
from receipt of the notice of a Third Party Claim to give notice of its
intention to defend the Third Party Claim in accordance with Section 7.5 or
fails to promptly assume such defense at any time after such notice has been
given, then the Indemnifying Party shall be deemed to have waived its right to
defend the Third Party Claim and the Indemnified Party shall have the right (but
not the obligation) to undertake or to cause the Corporation, Freemark or any of
the Subsidiaries to undertake the defense of the Third Party Claim and
compromise and settle the Third Party Claim on behalf, for the account and at
the risk and expense of the Indemnifying Party.
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7.8 Expiration of Indemnification. The obligation of indemnification set out in
Sections 7.1 and 7.2 shall survive the Closing Date for the period prescribed by
law. The obligation of indemnification arising from any material incorrectness
in, or material breach of, any representation for warranty made by the
Corporation, Freemark or the Purchaser, as the case may be, in each case shall
be subject to the limitations regarding survival of representations and
warranties set forth in Section 5.1 or 5.2, as the case may be; provided,
however, that the obligation of indemnification shall not expire if a claim for
indemnity is made on or before the expiration dates set forth in Sections 5.1
and 5.2.
ARTICLE VIII
CLOSING
8.1 Date, Time and Place of Closing. The Closing shall take place at the offices
of Stikeman, Elliott, 0000 Xxxx-Xxxxxxxx Xxxx. West, 40th Floor, Montreal,
Quebec on July 31, 1999 (the "Closing Date") at the hour of 10:00 a.m. (Montreal
time) or at such other place, on such other date and/or at such other time as
may be agreed between the parties.
ARTICLE IX
MISCELLANEOUS
9.1 Announcements. Any press release, public announcement or publicity with
respect to the transaction contemplated in this Agreement shall be made only
with the prior written consent of the Parties unless such release, announcement
or publicity is required by Law or the rules of any relevant securities
exchange, in which case the Party required to make such release, announcement of
publicity shall use it best efforts to obtain approval of the other Party to the
form, nature and extent of such disclosure, which approval shall not
unreasonably withheld.
9.2 Further Assurances. Each Party upon the request of the other, whether at or
after the Closing Date, shall do, execute, acknowledge and deliver or cause to
be done, executed, acknowledged or delivered all such further acts, deeds,
documents, assignments, transfers, conveyances, powers of attorney and
assurances as may be reasonably necessary or desirable to effect complete
consummation of the transactions contemplated by this Agreement.
9.3 Successors in Interest. This Agreement and the provisions hereof shall enure
to the benefit of and be binding upon the Parties and their respective
successors and assigns. Neither the Corporation nor Freemark may assign this
Agreement or any of its rights and obligations hereunder without the prior
written consent of the Purchaser. Notwithstanding the foregoing, the Purchaser
may assign or transfer this Agreement and all of the Purchaser's rights and
obligations hereunder to an affiliate (as defined under the Canada Business
Corporations Act).
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9.4 Notices. Any notice, consent, authorization, direction or other
communication required or permitted to be given hereunder shall be in writing
and shall be delivered either by personal delivery or by telex, telecopier or
similar telecommunications device and addressed as follows:
(a) in the case of the Corporation, to it at:
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxx
X0X 0X0
Attention: Xxxx Xxxxxxxxxxx
Telecopier: (000) 000-0000
and
Attention: Xxxxx X. Xxxxxxx
Telecopier: (000) 000-0000
and
Attention: Xxxxx X. Xxxxxxx
Telecopier: (000) 000-0000
(b) in the case of the Purchaser, to it at:
Guess?, Inc.
0000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, XX
XXX 00000
Attention: Xxxxx X. Xxxxxxx
Telecopier: (000) 000-0000
and
Attention: Xxxx X. Xxxxxxx
Telecopier: (000) 000-0000
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With a copy to:
STIKEMAN, XXXXXXX
0000 Xxxx-Xxxxxxxx Xxxx. Xxxx
00xx Xxxxx
Xxxxxxxx, Xxxxxx X0X 0X0
Attention: Xxxxxxx X. Xxxxxxxxx
Telecopier: (000) 000-0000
(c) in the case of Freemark, to it at:
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxx
X0X 0X0
Attention: Xxxx Xxxxxxxxxxx
Telecopier: (000) 000-0000
With a copy to:
XXXXXXX, XXXXXXXX & XXXXXXXX
1501, avenue XxXxxx Xxxxxxx
00xx Xxxxx
Xxxxxxxx, Xxxxxx
X0X 0X0
Attention: Xxxxxx Xxxx
Telecopier: (000) 000-0000
Any notice, consent, authorization, direction or other communication
delivered as aforesaid shall be deemed to have been effectively delivered and
received, if sent by telex, telecopier or similar telecommunications device on
the calendar day next following receipt of such transmission or, if delivered,
to have been delivered and received on the date of such delivery provided,
however, that if such date is not a business day then it shall be deemed to have
been delivered and received on the business day next following such deemed to
have been delivered and received on the business day next following such
delivery. Either Party may change its address for service by notice delivered as
aforesaid.
9.5 Counterparts. This Agreement may be executed in one or more counterparts,
each of which when so executed shall be deemed an original, and such
counterparts together shall constitute one and the same instrument.
9.6 Severability. Any term of provision of this Agreement that is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If the final judgment of a court of competent
jurisdiction or other authority declares that any term or provision hereof is
invalid, void or unenforceable, the parties agree that the court making such
determination shall have the power to reduce the scope, duration, area or
applicability of the term of provision, to delete specific words or phrases, or
to replace any invalid, void or unenforceable term of provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term of provision.
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9.7 Governing Law. This Agreement shall be governed by and interpreted and
construed in accordance with the laws of the Province of Quebec and the laws of
Canada applicable therein.
9.8 Entire Agreement. This Agreement, including the Schedules and the Unanimous
Shareholders' Agreement executed concurrently herewith, constitute the entire
agreement between the Parties pertaining to the subject matter hereof, and
supersedes all prior agreements, understandings, negotiations and discussions of
the Parties.
9.9 Inconsistency. This Agreement shall override the Schedules annexed hereto to
the extent of any inconsistency.
9.10 Gender. Any reference in this Agreement to any gender shall include both
genders and the neuter, and words herein importing the singular number only
shall include the plural and vice-versa.
9.11 Currency. All of the dollar amounts mentioned in this Agreement or in the
Schedules annexed hereto shall be in Canadian Funds.
9.12 Headings. The headings in this Agreement are inserted for convenience of
reference only and shall not affect the interpretation hereof.
9.13 Amendment. No amendment shall be binding unless expressly provided in any
instrument duly executed by the Parties.
9.14 Waiver. No waiver, whether by conduct or otherwise, of any of the
provisions of this Agreement shall be deemed to constitute a waiver of any other
provisions (whether or not similar) nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided in an instrument duly
executed by the Parties to be bound thereby.
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IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and at
the place first above mentioned.
STRANDEL INC.
Per: /s/ Xxxx Xxxxxxxxxxx
---------------------------------------
Xxxx Xxxxxxxxxxx
GUESS ?, INC.
Per: ---------------------------------------
Xxxxxxx Xxxxxxxx
FREEMARK ENTERTAINMENT CORPORATION
Per: /s/ Xxxx Xxxxxxxxxxx
---------------------------------------
Xxxx Xxxxxxxxxxx
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IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and at
the place first above mentioned.
STRANDEL INC.
Per: /s/ Xxxxxxx Xxxxxxxx
---------------------------------------
Xxxx Xxxxxxxxxxx
GUESS ?, INC.
Per: --------------------------------------
Xxxxxxx Xxxxxxxx
FREEMARK ENTERTAINMENT CORPORATION
Per: ---------------------------------------
Xxxx Xxxxxxxxxxx
