Document:

Exhibit 10.1

 

Execution Copy

 

 

ASSET PURCHASE AGREEMENT

 

Dated as of February 14, 2013

 

Among

 

ClearPoint Funding, Inc.

 

as Seller,

 

Descap Mortgage Funding, LLC,

 

as Parent of Seller,

 

Gleacher & Company, Inc.,

 

as the Ultimate Parent of Seller,

 

and

 

Homeward Residential, Inc.

 

as Buyer

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE I
    	
 
    
	
 
    	
 
    	
 
    
	
DEFINITIONS
    	
 
    
	
 
    	
 
    	
 
    
	
1.01
    	
Defined Terms
    	
1
    
	
 
    	
 
    	
 
    
	
1.02
    	
Interpretation
    	
10
    
	
 
    	
 
    	
 
    
	
ARTICLE II
    	
 
    
	
 
    	
 
    	
 
    
	
PURCHASE   AND DELIVERY OF PURCHASED
    	
 
    
	
ASSETS;   ASSUMPTION OF ASSUMED LIABILITIES
    	
 
    
	
 
    	
 
    	
 
    
	
2.01
    	
Delivery of Purchased Assets; Assumption of Assumed   Liabilities
    	
10
    
	
 
    	
 
    	
 
    
	
2.02
    	
Consideration for Purchased Assets
    	
15
    
	
 
    	
 
    	
 
    
	
2.03
    	
Proration of Expenses
    	
15
    
	
 
    	
 
    	
 
    
	
2.04
    	
Allocation of Purchase Price
    	
15
    
	
 
    	
 
    	
 
    
	
ARTICLE III
    	
 
    
	
 
    	
 
    
	
CLOSING,   TRANSFERS AND RELATED ITEMS
    	
 
    
	
 
    	
 
    	
 
    
	
3.01
    	
Closing and Closing Date
    	
16
    
	
 
    	
 
    	
 
    
	
3.02
    	
Closing Deliveries By Buyer
    	
16
    
	
 
    	
 
    	
 
    
	
3.03
    	
Closing Deliveries by Seller
    	
16
    
	
 
    	
 
    	
 
    
	
3.04
    	
Further Assistance and Assurances
    	
17
    
	
 
    	
 
    	
 
    
	
3.05
    	
Other Consents
    	
18
    
	
 
    	
 
    	
 
    
	
ARTICLE IV
    	
 
    
	
 
    	
 
    
	
REPRESENTATIONS   AND WARRANTIES
    	
 
    
	
 
    	
 
    	
 
    
	
4.01
    	
Disclosure Letter
    	
18
    

 

i

 

	
4.02
    	
Representations and Warranties of Seller
    	
19
    
	
 
    	
 
    	
 
    
	
4.03
    	
Representations and Warranties of Parent
    	
30
    
	
 
    	
 
    	
 
    
	
4.04
    	
Representations and Warranties of Buyer
    	
30
    
	
 
    	
 
    	
 
    
	
ARTICLE V
    	
 
    
	
 
    	
 
    
	
COVENANTS
    	
 
    
	
 
    	
 
    	
 
    
	
5.01
    	
Conduct of Business
    	
33
    
	
 
    	
 
    	
 
    
	
5.02
    	
Access; Confidentiality
    	
35
    
	
 
    	
 
    	
 
    
	
5.03
    	
Transition Services Agreement
    	
37
    
	
 
    	
 
    	
 
    
	
5.04
    	
Taking of Necessary Action
    	
37
    
	
 
    	
 
    	
 
    
	
5.05
    	
Disclosure
    	
38
    
	
 
    	
 
    	
 
    
	
5.06
    	
No Solicitation
    	
38
    
	
 
    	
 
    	
 
    
	
5.07
    	
Non-Competition Agreement
    	
38
    
	
 
    	
 
    	
 
    
	
5.08
    	
Non-Solicitation of Employees
    	
39
    
	
 
    	
 
    	
 
    
	
5.09
    	
Parent Guarantee
    	
39
    
	
 
    	
 
    	
 
    
	
5.09
    	
Parent Guarantee
    	
39
    
	
 
    	
 
    	
 
    
	
5.10
    	
Pipeline Loans
    	
39
    
	
 
    	
 
    	
 
    
	
5.11
    	
Use of Name
    	
40
    
	
 
    	
 
    	
 
    
	
ARTICLE VI
    	
 
    
	
 
    	
 
    
	
EMPLOYEE   MATTERS
    	
 
    
	
 
    	
 
    	
 
    
	
6.01
    	
Employees and Service Crediting
    	
40
    
	
 
    	
 
    	
 
    
	
ARTICLE VII
    	
 
    
	
 
    	
 
    
	
CONDITIONS   TO THE CLOSING
    	
 
    
	
 
    	
 
    	
 
    
	
7.01
    	
Conditions to Each Party’s Obligation to Effect the   Purchase
    	
43
    

 

ii

 

	
7.02
    	
Conditions to Obligation of Buyer
    	
44
    
	
 
    	
 
    	
 
    
	
7.03
    	
Conditions to Obligations of Seller
    	
45
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII
    	
 
    
	
 
    	
 
    
	
TERMINATION
    	
 
    
	
 
    	
 
    	
 
    
	
8.01
    	
Termination
    	
46
    
	
 
    	
 
    	
 
    
	
8.02
    	
Effect of Termination and Abandonment
    	
46
    
	
 
    	
 
    	
 
    
	
ARTICLE IX
    	
 
    
	
 
    	
 
    
	
TAX   MATTERS
    	
 
    
	
 
    	
 
    	
 
    
	
9.01
    	
Tax Matters; Access
    	
47
    
	
 
    	
 
    	
 
    
	
ARTICLE X
    	
 
    
	
 
    	
 
    
	
INDEMNIFICATION
    	
 
    
	
 
    	
 
    	
 
    
	
10.01
    	
Indemnification
    	
49
    
	
 
    	
 
    	
 
    
	
10.02
    	
Survival Periods
    	
51
    
	
 
    	
 
    	
 
    
	
10.03
    	
Limitations on Indemnity
    	
51
    
	
 
    	
 
    	
 
    
	
10.04
    	
Third-Party Claims
    	
52
    
	
 
    	
 
    	
 
    
	
ARTICLE XI
    	
 
    
	
 
    	
 
    
	
GENERAL   PROVISIONS
    	
 
    
	
 
    	
 
    	
 
    
	
11.01
    	
Notices
    	
54
    
	
 
    	
 
    	
 
    
	
11.02
    	
Amendment and Modification; Waiver
    	
55
    
	
 
    	
 
    	
 
    
	
11.03
    	
Entire Agreement
    	
55
    
	
 
    	
 
    	
 
    
	
11.04
    	
Fees and Expenses
    	
55
    
	
 
    	
 
    	
 
    
	
11.05
    	
Third Party Beneficiaries
    	
56
    

 

iii

 

	
11.06
    	
Assignment; Binding Effect
    	
56
    
	
 
    	
 
    	
 
    
	
11.07
    	
Governing Law
    	
56
    
	
 
    	
 
    	
 
    
	
11.08
    	
Waiver of Jury Trial
    	
56
    
	
 
    	
 
    	
 
    
	
11.09
    	
Counterparts
    	
56
    
	
 
    	
 
    	
 
    
	
11.10
    	
Severability
    	
57
    
	
 
    	
 
    	
 
    
	
11.11
    	
Affiliates of Buyer
    	
57
    
	
 
    	
 
    	
 
    
	
EXHIBITS
    	
 
    
	
 
    	
 
    	
 
    
	
Assumption and Assignment   Agreement
    	
A
    
	
 
    	
 
    
	
Escrow Agreement
    	
B
    
	
 
    	
 
    
	
List of Key Employees
    	
C
    
	
 
    	
 
    
	
Form of Employment Agreement
    	
D
    
	
 
    	
 
    
	
List of Severance Benefits
    	
E
    
	
 
    	
 
    
	
Transition Services Agreement
    	
F
    
	
 
    	
 
    
	
Form of Legal Opinion
    	
G
    
	
 
    	
 
    
	
Final Settlement Statement
    	
H
    
	
 
    	
 
    
	
Bill of Sale
    	
I
    
	
 
    	
 
    
	
Trademark and Copyright Assignment Agreement
    	
J
    
	
 
    	
 
    
	
Form of Regulatory Legal Opinion
    	
K
    

 

iv

 

ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of February 14, 2013, among Gleacher & Company, Inc., a Delaware corporation (“Parent”), Descap Mortgage Funding, LLC, a Delaware limited liability company and wholly-owned subsidiary of Parent (“Holdco”), ClearPoint Funding, Inc., a Delaware corporation and a wholly-owned subsidiary of Holdco (“Seller”), and Homeward Residential, Inc., a Delaware corporation (“Buyer”).

 

RECITALS

 

A.                                    Parent is the beneficial owner of all of the membership interests of Holdco.

 

B.                                    Holdco is the beneficial owner of all of the outstanding capital stock of Seller.

 

C.                                    Seller is engaged in the Business.

 

D.                                    On the terms and subject to the conditions set forth herein, Seller desires to sell, or cause the sale of, and Buyer desires to purchase, substantially all of the assets of Seller that are used in connection with the Business, other than the Excluded Assets.

 

E.                                     In connection with the acquisition substantially all of the assets of Seller that are used in connection with the Business, Buyer agrees, on the terms and subject to the conditions set forth herein, to assume certain liabilities and obligations of Seller.

 

F.                                      Buyer and each of the Key Employees shall enter into an employment agreement as a condition to the purchase.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

 

ARTICLE I

 

Definitions

 

1.01                        Defined Terms.  The following terms are used in this Agreement with the meanings set forth below:

 

“Action” means any action, suit, arbitration or proceeding by or before any court, Regulatory Authority or other Governmental Authority.

 

“Affiliate” means, with respect to any specified Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with such specified Person.

 

 

“Agency” means FHA, VA, FNMA, FHLMC, GNMA, HUD or State Agency, as applicable.

 

“Agreement” has the meaning set forth in the preamble to this Agreement, as this Agreement may be amended or modified from time to time in accordance with the provisions of this Agreement.

 

“Ancillary Agreements” means the Escrow Agreement, the Transition Services Agreement, the Assumption and Assignment Agreement and the Trademark and Copyright Assignment Agreement.

 

“Applicable Requirements” means and includes, as of the time of reference, with respect to the Mortgage Loans, all of the following: (i) all contractual obligations of Seller with respect to any Mortgage Loan, (ii) all applicable federal, state and local legal and regulatory requirements (including statutes, rules, regulations and ordinances) binding upon Seller, (iii) all other applicable requirements and guidelines of each governmental agency, board, commission, instrumentality and other governmental or quasi-governmental body or office having jurisdiction, including without limitation those of any Investor and any Insurer and (iv) all other applicable judicial and administrative judgments, orders, stipulations, awards, writs and injunctions.

 

“Business” means the business of originating, brokering, marketing, making, purchasing and selling first-lien and subordinate-lien, closed-end and open-end, residential mortgage loans.

 

“Business Day” means any day except a Saturday, Sunday or other day on which national banks generally are required or authorized by law or executive order to close.

 

“Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto.

 

“Compensation and Benefit Plans” means bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, deferred and restricted stock, stock option, employment, termination, severance, compensation, medical, health or other plans, agreements, policies or arrangements sponsored, maintained, or contributed to by Seller that cover Prospective Employees.

 

“Control”, “Controlling” or “Controlled” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

 

“Correspondent Loan PSA” means the Correspondent Loan Purchase and Sales Agreement, dated as of January 7, 2012, by and between Buyer (f/k/a American Home Mortgage Servicing, Inc.) and Seller.

 

2

 

“Damages” means any and all assessments, judgments, claims, liabilities, losses, costs, damages or expenses (including without limitation exemplary damages, punitive damages, interest, penalties and reasonable attorneys’ fees, expenses and disbursements in connection with an action, suit or proceeding).

 

“Employee” means each individual who is employed by Seller at the Closing Date, including any Leave Recipient.

 

“Employment Agreement” means the employment agreement entered into by and between Buyer, on the one hand, and a Key Employee, on the other hand, which agreement shall be in form and substance attached hereto as Exhibit D.

 

“Environmental Laws” means all domestic, federal, state and local laws, regulations, rules and ordinances relating to pollution or protection of the environment, health, and safety including, without limitation, laws relating to releases or threatened releases of Hazardous Substances into the environment (including, without limitation, ambient air, surface water, ground water, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, release, transport or handling of Hazardous Substances.

 

“Equipment Leases” means the leases of personal property constituting Fixed Assets, including without limitation those leases described as “Equipment Leases” in Section 4.01(k) of Seller’s Disclosure Letter.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Escrow Agreement” means that certain Escrow Agreement in the form attached hereto as Exhibit B.

 

“Escrow Amount” means $5,000,000.

 

“FHA” means Federal Housing Administration or any successor thereto.

 

“FHA Loans” means residential mortgage loans that are insured, or are eligible and intended to be insured, by FHA.

 

“FHLMC” means Federal Home Loan Mortgage Corporation or any successor thereto.

 

“FNMA” means Federal National Mortgage Association or any successor thereto.

 

“Forward Commitment” means the optional or mandatory commitment of a Person to purchase from Seller a Pipeline Loan.

 

3

 

“GAAP” means generally accepted accounting principles in the United States which, unless otherwise indicated, are applied on a consistent basis.

 

“GNMA” means Government National Mortgage Association or any successor thereto.

 

“Governmental Authority” means any Agency or other domestic or foreign court, administrative agency, self-regulatory authority or commission or other body acting in an adjudicative capacity or other federal, state or local governmental or self-regulatory authority or instrumentality.

 

“Hazardous Substances” means all substances defined as such, or regulated as such, under any Environmental Law, including, but not limited to, petroleum, asbestos or polychlorinated biphenyls.

 

“Hedging Assets” means all of Seller’s interest rate swaps, caps, floors, collars, options, futures and forward contracts, foreign exchange contracts, currency swaps, principal only trades, treasury trades, or other arrangements, in each case designed to alter the risks arising from fluctuations in interest rates or currency values.

 

“HUD” means United States Department of Housing and Urban Development or any successor thereto.

 

“Insurer” means a Person who insures or guarantees all or any portion of the risk of loss on any Mortgage Loan, including without limitation any Agency and any provider of private mortgage insurance, standard hazard insurance, flood insurance, earthquake insurance or title insurance with respect to any Mortgage Loan or related Mortgaged Property.

 

“Intellectual Property” means each of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice) and any reissue, continuation, continuation-in-part, revision, extension or reexamination thereof (collectively, “Patents”); (ii) trademarks, service marks, trade dress, logos, trade names, the name ‘ClearPoint Funding,’ and Internet domain names together with all goodwill associated therewith, including, without limitation, the use of all translations, adaptations, derivations and combinations of the foregoing (collectively, “Marks”); (iii) copyrights and copyrightable works (including, without limitation, web sites) and all registrations, applications and renewals for any of the foregoing (collectively, “Copyrights”); (iv) information not generally known to the public or that would constitute a trade secret under the Uniform Trade Secrets Act, and confidential information (including, without limitation, know-how, research and development information, designs, plans, proposals, technical data, financial, business and marketing plans, sales and promotional literature, and customer and supplier lists and related information) (collectively, “Trade Secrets”); (v) other intellectual property rights; (vi) all copies and tangible embodiments of the foregoing (in whatever form or medium), along with all income, royalties, damages and payments due or payable after the Closing

 

4

 

including, without limitation, damages and payments for past or future infringements or misappropriations thereof; (vii) the right to sue and recover for past infringements or misappropriations thereof; (viii) any defenses related to any of the above; and (ix) any and all corresponding rights that, now or hereafter, may be secured throughout the world.

 

“Investor” means FHLMC, FNMA, GNMA, a State Agency, Seller or an Affiliate thereof, a Private Investor or any other Person to which Seller sells eligible Mortgage Loans.

 

“IRS” means the Internal Revenue Service of the United States of America or any successor agency or authority.

 

“Key Employees” means the employees of Seller set forth in Exhibit C.

 

“Knowledge” means, with respect to each of Seller and Buyer, the current actual knowledge of any of the persons whose names are set forth in Section 1.01 of the Seller’s Disclosure Letter with respect to Seller and Schedule 1.01 with respect to Buyer, it being understood that actual knowledge shall include knowledge that such person would have obtained after reasonable inquiry.

 

“Leases” means the Office Leases and the Equipment Leases.

 

“Liabilities” means any and all debts, losses, liabilities, offsets, claims, damages, fines, obligations, payments and accounts payable (including, without limitation, those arising out of any award, demand, assessment, settlement, judgment or compromise relating to any Action), and accruals for out-of-pocket costs and expenses (including, without limitation, reasonable attorneys’ fees and reasonable expenses incurred in investigating, preparing or defending any Action).

 

“License” means any license, permit, franchise, approval, order, qualification, waiver or other authorization of any Governmental Authority.

 

“Lien” means with respect to an asset, any lien, pledge, security interest, mortgage, deed of trust, encumbrance, easement, servitude, encroachment, charge or similar right of any Person other than the owner of the asset of any kind or nature whatsoever against the asset.

 

“Material Adverse Effect” means:

 

(a)                                 Any change, circumstance, occurrence, event or effect that has resulted in or is reasonably likely to result in a material adverse change in, or a material adverse effect upon, the Purchased Assets or the results of operations or financial condition of the Business, taken as a whole, excluding any effect or change attributable to or resulting from (1) events, changes or trends in economic, business or financial conditions generally or relating to companies engaged in the mortgage banking business, (2) changes in laws, regulations, interpretations of laws or regulations, GAAP or regulatory accounting

 

5

 

requirements applicable to mortgage banking companies or their holding companies, or (3) actions, or effects of actions, taken by Seller, either required by or contemplated in this Agreement or with the prior written consent of Buyer; provided, however, that none of the changes or occurrences described in clauses (1) — (3) has a materially disproportionate effect on Seller compared to a Person engaged in a similar mortgage banking business.

 

(b)                                 With respect to either of Seller or Buyer, a material impairment of such Person’s ability to perform its material obligations under this Agreement.

 

“Mortgage” means, with respect to a Mortgage Loan, a mortgage, deed of trust or other security instrument creating a Lien upon real property and any other property described therein which secures a Mortgage Note, together with any assignment, reinstatement, extension, endorsement or modification thereof.

 

“Mortgage Loan” means either a Warehouse Loan or Pipeline Loan.

 

“Mortgage Loan Documents” means, with respect to a Mortgage Loan, copies of the Mortgage Note, Mortgage and all other documents relating to Mortgage Loans required to document and service the Mortgage Loan by Applicable Requirements, whether on hard copy, microfiche or its equivalent or in electronic format and, to the extent required by Applicable Requirements, credit and closing packages and disclosures.

 

“Mortgage Note” means, with respect to a Mortgage Loan, a promissory note or notes, or other evidence of indebtedness, with respect to such Mortgage Loan secured by a Mortgage or Mortgages, together with any assignment, reinstatement, extension, endorsement or modification thereof.

 

“Mortgaged Property” means (i) the real property and improvements thereon, (ii) the stock in a residential housing corporation and the lease to the related dwelling unit or (iii) a manufactured home and, as applicable, the real property upon which the home is situated, in each case that secures a Mortgage Note and that are subject to a Mortgage.

 

“Mortgagor” means, with respect to a Mortgage Loan, the borrower of such Mortgage Loan.

 

“Non-Assignable Leases” means those Leases which require the consent of the lessor for the assignment or sublease from Seller to Buyer and with respect to which such consent from either has not been obtained prior to the Closing.

 

“Office Leases” means those certain Leases described as “Office Leases” in Section 4.01(k) of Seller’s Disclosure Letter.

 

“Originator” means, with respect to any Mortgage Loan, the entity or entities that (i) took the relevant Mortgagor’s loan application, (ii) processed the relevant Mortgagor’s loan application or (iii) closed and/or funded such Mortgage Loan.

 

6

 

“Person” means any individual, bank, corporation, partnership, association, limited liability company, business trust, unincorporated organization or similar organization, whether domestic or foreign, or any Governmental Authority.

 

“Pipeline Loans” means each of those pending applications in process for a mortgage loan to be secured by a first- or subordinate-lien on a residential property that has been registered on Seller’s origination system by the Effective Time (including those Pipeline Loans that are pending with an Originator and that otherwise meet Seller’s acquisition criteria for such Pipeline Loans) and that have not closed as of the Effective Time.

 

“Pipeline Loans Consideration” means a price, positive or negative, equal to a mark-to-market based on Buyer’s best efforts correspondent rate sheet pricing for loans and terms similar to that of the Pipeline Loans. The Pipeline Loans Consideration will be reduced by a 2% to account for fallout and production cost following the Closing.  For the avoidance of doubt, there will be no consideration for Pipeline Loans for which there has not been a rate commitment issued by Seller.

 

“Private Investors” means Investors that are not Agencies, which may include Buyer or Buyer’s Affiliates.

 

“Prospective Employee” means each of Seller’s employees who is employed in the Business by Seller at the Closing Date, including any Leave Recipient, to whom Buyer elects to make an offer of employment.

 

“Purchase” means the purchase by Buyer of the Purchased Assets and the assumption of the Assumed Liabilities.

 

“Representatives” means any Person’s attorneys, accountants, officers and other authorized representatives.

 

“Retention Bonuses” means the bonuses paid pursuant to Section 6.01(e) in the amount set forth in Exhibit E hereof.

 

“Severance Benefits” means the benefits paid pursuant to Section 6.01(e) in the amount set forth in Exhibit E hereof.

 

“Software” means each of the following: computer programs, known by any name, whether in use or under development, including all versions thereof, and all related documentation, training manuals and materials, user manuals, technical and support documentation, source code and object code, tools, program files, data files, computer related data, field and data definitions and relationships, data definition specifications, data models, program and system logic, interfaces, program modules, routines, sub-routines, algorithms, program architecture, design concepts, development tools, maintenance tools, system designs, program structure, sequence and organizations, screen displays and report layouts, and all other material related to the said computer programs.

 

7

 

“State Agency” means any state agency or other entity with authority to regulate the mortgage-related activities of Seller or to determine the investment requirements with regard to mortgage loan origination or purchasing performed by Seller.

 

“Subsidiary” means, for any Person, any other person which the initial Person directly or indirectly Controls.

 

“Tax” means any federal, state, local, or foreign income, gross receipts, gains, license, payroll, employment, excise, production, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, occupancy, personal property, sales, use transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto (and any penalty, fine or similar amounts related to any information return or reporting obligation notwithstanding that no tax is otherwise payable or such obligations are properly discharged), whether disputed or not.

 

“Tax Returns” means all returns and reports required to be filed with respect to Taxes.

 

“Third Party Consent” means any consent, authorization, approval, waiver, order, license, certificate or permit or act of or from, or notice to any party to any contract to which Seller is a party or by which any of its assets or properties are bound or affected, or any other Person set forth in Section 7.02(c) of the Seller’s Disclosure Letter.

 

“VA” means the United States Department of Veterans Affairs and any successor thereto.

 

“VA Loans” means residential mortgage loans that are guaranteed, or are eligible and intended to be guaranteed, by VA.

 

“Warehouse Line Lenders” means Credit Suisse First Boston Mortgage Capital LLC and UBS Real Estate Securities Inc.

 

“Warehouse Line Guarantees” means all guarantees of Parent related to the Warehouse Loans.

 

“Warehouse Loan” means a loan secured by a Mortgage that is owned by Seller at the time immediately prior to the Closing, including, for the avoidance of doubt, any loan which is closed but not yet funded.

 

“WARN Act” means the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any applicable state equivalents.

 

8

 

(a)         The following terms shall have the respective meanings set forth in the relevant Section referred to below throughout this Agreement:

 

	
Acquired   Intellectual Property
    	
 
    	
2.01(a)
    
	
Acquired   Intellectual Property Licenses
    	
 
    	
2.01(a)
    
	
Agreement
    	
 
    	
Preamble
    
	
Alternative   Guaranteed Amount
    	
 
    	
5.09
    
	
Applicable   Law
    	
 
    	
4.02(g)
    
	
Assumed   Liabilities
    	
 
    	
2.01(b)
    
	
Buyer
    	
 
    	
Preamble
    
	
Buyer   Indemnified Parties
    	
 
    	
10.01(a)
    
	
Closing
    	
 
    	
3.01
    
	
Closing   Date
    	
 
    	
3.01
    
	
Confidentiality   Agreement
    	
 
    	
5.02(c)
    
	
Cut-Off   Date
    	
 
    	
10.02(a)
    
	
Disclosure   Letter
    	
 
    	
4.01
    
	
Effective   Time
    	
 
    	
3.01
    
	
Excluded   Assets
    	
 
    	
2.01(c)
    
	
Excluded   Liabilities
    	
 
    	
2.01(b)
    
	
Fixed   and Other Assets
    	
 
    	
2.01(a)
    
	
Guaranteed   Amount
    	
 
    	
5.09
    
	
HSR   Act
    	
 
    	
4.02(c)
    
	
Indemnified   Parties
    	
 
    	
10.02
    
	
Indemnifying   Party
    	
 
    	
10.03
    
	
Leave   Recipients
    	
 
    	
6.01(c)
    
	
Other   Assumed Liabilities
    	
 
    	
2.01(b)
    
	
Permitted   Liens
    	
 
    	
4.02(d)
    
	
Seller   Audited Financial Statements
    	
 
    	
4.02(s)
    
	
Seller   Financial Statements
    	
 
    	
4.02(s)
    
	
Seller   Interim Financial Statements
    	
 
    	
4.02(s)
    
	
Purchase   Price
    	
 
    	
2.02(a)
    
	
Purchased   Assets
    	
 
    	
2.01(a)
    
	
Regulatory   Authority
    	
 
    	
4.02(f)
    
	
Restricted   Business
    	
 
    	
5.07
    
	
Retained   Accounts Receivables
    	
 
    	
2.01(c)
    
	
Retained   Cash and Equivalents
    	
 
    	
2.01(c)
    
	
Retained   IP Assets
    	
 
    	
2.01(c)
    
	
Retained   Mortgage Loan Documents
    	
 
    	
2.01(c)
    
	
Seller   Indemnified Parties
    	
 
    	
10.01(b)
    
	
Seller
    	
 
    	
Preamble
    
	
Specified   Contracts
    	
 
    	
4.02(h)
    
	
Third-Party   Claim
    	
 
    	
10.04
    
	
Transfer   Taxes
    	
 
    	
9.01(b)
    
	
Transferred   Employee
    	
 
    	
6.01(a)
    
	
Transition   Services Agreement
    	
 
    	
5.03
    

 

9

 

1.02                        Interpretation.

 

(a)         The table of contents and headings contained in this Agreement are for reference purposes only and do not limit or otherwise affect any of the provisions of this Agreement.

 

(b)         Whenever the words “include”, “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation”.  Any singular term in this Agreement will be deemed to include the plural, and any plural term the singular.  All pronouns and variations of pronouns will be deemed to refer to the feminine, masculine or neuter, singular or plural, as the identity of the person referred to may require.

 

(c)          Whenever the words “herein” or “hereunder” are used in this Agreement, they will be deemed to refer to this Agreement as a whole and not to any specific Section.

 

(d)         Whenever a dollar figure ($) is used in this Agreement, it will mean United States dollars unless otherwise specified.

 

ARTICLE II

 

Purchase And Delivery of Purchased
 Assets; Assumption of Assumed Liabilities

 

2.01                        Delivery of Purchased Assets; Assumption of Assumed Liabilities.

 

(a)         On the terms and subject to the conditions of this Agreement, Seller shall, at the Effective Time, sell, transfer, assign and deliver to Buyer, all right, title and interest of Seller in and to all of the Purchased Assets.  As used herein:

 

“Purchased Assets” means all of Seller’s business, properties and assets, and rights of whatever kind and nature, real or personal, whether owned, leased, or licensed, or in which Seller otherwise has an interest (but only to the extent of such interest) at the Effective Time that are used by Seller in the conduct of the Business and reasonably required by Buyer to enable Buyer to continue to conduct the Business in the future (but specifically excluding to the extent set forth herein the Excluded Assets (as defined in subsection (c) below)) and shall include:

 

(i)                                     All Pipeline Loans;

 

(ii)                                  all Warehouse Loans, provided that the Warehouse Loans shall be purchased by Buyer and sold and delivered by Seller to Buyer pursuant to the terms of the Correspondent Loan PSA. For the avoidance of doubt, Buyer shall purchase all Warehouse Loans that

 

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meet the terms, conditions and requirements of the Correspondent Loan PSA, including, but not limited to FHA Loans;

 

(iii)                               the Acquired Intellectual Property where “Acquired Intellectual Property” means the Intellectual Property owned by Seller and which is used in the conduct of, or which relates to, the Business, and the Intellectual Property described on Seller’s Disclosure Letter other than the Retained IP Assets;

 

(iv)                              the Acquired Intellectual Property Licenses where “Acquired Intellectual Property Licenses” means those agreements granting licenses to Intellectual Property or Software to Seller for use in connection with the Business, including those agreements which are listed in Section 2.01(a)(iv) of Seller’s Disclosure Letter other than licenses for Retained IP Assets;

 

(v)                                 the Office Leases (other than the Non-Assignable Leases) that Buyer elects to assume, it being the understanding that Buyer anticipates assuming substantially all of such Leases;

 

(vi)                              the Equipment Leases (other than the Non-Assignable Leases) that Buyer elects to assume, it being the understanding that Buyer anticipates assuming substantially all of such Leases;

 

(vii)                           the Fixed and Other Assets, where “Fixed and Other Assets” means those assets constituting the real and tangible personal property (including land, buildings, leasehold interests, furniture, fixtures, office equipment, telecommunications equipment and computer equipment), prepaid expenses, security deposits, programs, applications and data bases (whether capitalized or non-capitalized), prospect lists, training materials, procedure manuals, origination and wholesale purchase related forms and documents and other assets related to the Business owned or leased by Seller at the Effective Time, including those assets listed on Schedule 2.01(a)(vii) but excluding assets subject to Equipment Leases which are not assumed by Buyer;

 

(viii)                        Files and Records, where “Files and “Records” means all of the following which are related to or used primarily in connection with the Purchased Assets and the Business: Seller’s books of account, files, records, original documents, papers, customer lists (including those relating to realtors, builders and contractors and borrowers under the Warehouse Loans and Pipeline Loans), data bases, lists of brokers with which Seller has entered into broker agreements, data manuals, warranties and other files and records of any type or form; provided, however, that the term “Files and Records” shall

 

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not include files related to loans closed by Seller prior to the Closing Date or files related to loan applications rejected by Seller prior to the Closing Date; corporate records such as articles of incorporation, bylaws, minutes, and stock register, contracts not assumed by Buyer; employment records; financial books and records, including correspondence with auditors; files and records relating to Excluded Liabilities and Excluded Assets, bank statements and records; regulatory licenses, certificates and approvals; and files, correspondence, documents and materials relating to the foregoing;

 

(ix)                              all Permits that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business, including the Business Permits listed in Section 2.01(a)(ix) of the Disclosure Letter;

 

(x)                                 all telephone numbers, websites and domain names that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business;

 

(xi)                              all rights of Seller and its Affiliates under the Specified Contracts listed on Schedule 2.01(a)(xi) that Buyer elects to assume but excluding Specified Contracts which are Excluded Assets; and

 

(xii)                           all assets described in Section 2.01(a)(xii) of the Disclosure Letter, whether or not now, or at the time of the Closing, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business.

 

The foregoing enumeration of the Purchased Assets shall not be construed to limit in any way the scope of the assets being purchased by Buyer.

 

(b)         On the terms and subject to the conditions of this Agreement, Buyer shall, at the Effective Time, assume all the Assumed Liabilities.  Buyer assumes no Excluded Liability or any other liability of Seller other than the Assumed Liabilities and shall not be required to pay, perform or discharge any liabilities or obligations that are not specifically included in the Assumed Liabilities.  Seller, Holdco and Parent shall (or shall cause an Affiliate to) pay, perform or discharge when due or required to be performed or discharged, or contest in good faith, the Excluded Liabilities.  As used herein:

 

“Assumed Liabilities” means only the commitments and obligations of Seller to be performed after the Effective Time, and the Liabilities of Seller accruing or arising after the Effective Time with respect to:

 

(i)                                     any Purchased Assets;

 

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(ii)                                  all obligations to third party service provides in connection with the Pipeline Loans that are attributable to services provided after the Effective time;

 

(iii)                               the Leases that Buyer elects to assume;

 

(iv)                              Prospective Employees (whether or not Transferred Employees but other than those described in clause (viii)(B) of the definition of “Excluded Liabilities”) relating to employment by Buyer on or after the Effective Time and any other liability, commitment or obligation of Seller specifically agreed to be assumed under Article VI hereof; and

 

(v)                                 the Other Assumed Liabilities, where “Other Assumed Liabilities” means the liabilities, commitments and obligations of Seller identified as liabilities assumed by Buyer in Section 2.01(b)(v) of Seller’s Disclosure Letter.

 

“Excluded Liabilities” means all Liabilities of Seller and all other liabilities of Seller, whether known or unknown, absolute or contingent, past, present, or future, other than Assumed Liabilities, and shall include, without limitation:

 

(vi)                              any liabilities, commitments or obligations for recourse, repurchase, indemnity or warranty of Seller with respect to periods on or prior to the Closing Date;

 

(vii)                           Seller’s obligations for funded debt or borrowed money including any penalties or premiums paid or payable in order to prepay or defease any such debt;

 

(viii)                        Seller’s obligations to Employees (A) who are not Transferred Employees as set forth in Section 2.01(b)(viii) of Seller’s Disclosure Schedule or (B) who are Leave Recipients, but do not become eligible to receive an offer pursuant to Section 6.01(c);

 

(ix)                              all tax liabilities of Seller (except to the extent otherwise provided in Article IX hereof);

 

(x)                                 all liabilities relating to Actions pending or threatened against Seller or its assets prior to the Effective Time;

 

(xi)                              all environmental liabilities;

 

(xii)                           all obligations of Seller under its Compensation and Benefit Plan except for liabilities, if any, expressly assumed by Buyer hereunder; and

 

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(xiii)                        Seller’s obligations to third party service providers in connection with the Pipeline Loans that are attributable to services provided prior to the Effective Time.

 

The foregoing enumeration of the Excluded Liabilities shall not be construed to limit in any way the scope of the liabilities being retained by Seller.

 

(c)          Notwithstanding subsections (a) and (b) of this Section 2.01, no Excluded Assets shall be purchased or sold hereunder.  As used herein:

 

“Excluded Assets” means only the following:

 

(i)                                     the Retained Mortgage Loan Documents, where “Retained Mortgage Loan Documents” means the Mortgage Loan Documents relating to Warehouse Loans;

 

(ii)                                  the Hedging Assets;

 

(iii)                               the Retained Accounts Receivable, where “Retained Accounts Receivables” means those accounts receivable owed to Seller;

 

(iv)                              the Retained Cash and Equivalents, where “Retained Cash and Equivalents” means all cash and cash equivalent assets of Seller;

 

(v)                                 the Retained Real Estate, where “Retained Real Estate” means any real property owned by Seller;

 

(vi)                              the assets relating to the Compensation and Benefit Plans;

 

(vii)                           any individual employment and ancillary agreements with Seller’s employees;

 

(viii)                        all deferred Tax assets and Tax attributes of Seller, including all net operating losses, deductions and credits, refunds, overpayments and prepayments of Taxes and all Tax Returns and related books and records pertaining to the period prior to the Closing Date;

 

(ix)                              the Retained Intellectual Property Assets, where “Retained IP Assets” means all Intellectual Property that relates to any Excluded Assets or Excluded Liabilities and does not relate to any Purchased Assets or Assumed Liabilities;

 

(x)                                 all rights, claims and causes of action that are now, or at the time of the Closing will be, used or held for use in or otherwise related to, useful in or necessary for the conduct of, the Business; and

 

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(xi)                              other Excluded Assets described in Section 2.01(c)(xi) of Seller’s Disclosure Letter with which Buyer reasonably agrees.

 

2.02                        Consideration for Purchased Assets.

 

(a)         In consideration for the Purchased Assets, Buyer will assume the Assumed Liabilities at the Effective Time and will pay to Seller the net payment set forth on the Final Settlement Statement (the “Final Settlement Statement”), in the form attached hereto as Exhibit H, to be delivered by Seller to Buyer one (1) Business Day prior to the Closing Date (the “Purchase Price”).  At the Closing, Buyer will pay the Purchase Price to Seller in immediately available federal funds to an account designated by Seller. For the avoidance of doubt, each of Buyer and Seller acknowledges and agrees that consideration for the Warehouse Loans shall be paid separately, pursuant to the terms of the Correspondent Loan PSA.

 

(b)         On the Closing Date, Seller shall pay the Escrow Amount to the Escrow Agent to be held and disbursed in accordance with the terms of the Escrow Agreement as a source of funds to pay indemnification claims pursuant to Section 10.01 hereof.

 

2.03                        Proration of Expenses.

 

Except as otherwise specifically provided in this Agreement, it is the intention of the parties hereto that Seller shall operate for its own account the Business, until the Effective Time, and that Buyer shall operate for its own account the Business, after the Effective Time.  Thus, except as otherwise specifically provided in this Agreement, with respect to the Purchased Assets and Assumed Liabilities, items of expense, including, but not limited to, non-owner occupation fees, payment of amounts due under service contracts, payments of rent, taxes, utilities, operating costs passed through by the landlords and other amounts required to be paid by the tenant under leases, and all personal property taxes applicable to the personal property to be transferred hereunder, shall be prorated to the Effective Time.  Such proration shall include reimbursement to Seller for any security deposits theretofore made pursuant to any Lease, as well as any security deposits made by Seller in respect of Purchased Assets or Assumed Liabilities, all of which security deposits shall be held, on and after the Closing Date, for the benefit of Buyer.  Seller shall use commercially reasonable efforts to obtain final bills for all items of expense being prorated pursuant to this Section 2.03.

 

2.04                        Allocation of Purchase Price.

 

Seller and Buyer hereby agree to allocate the Purchase Price, the consideration received in respect of the Warehouse Loans and the Assumed Liabilities among the Purchased Assets in accordance with Section 1060 of the Code and file or cause to be filed in a timely fashion any information that may be required pursuant to regulations promulgated under the Code.

 

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ARTICLE III

 

Closing, Transfers and Related Items

 

3.01                        Closing and Closing Date.

 

Unless this Agreement shall have been terminated and the transactions herein abandoned pursuant to Section 8.01, subject to the provisions of Article VII, the closing (the “Closing”) of the purchase and sale of Purchased Assets, the assumption of the Assumed Liabilities and the payment of the amounts required to be paid pursuant to Section 2.02 shall take place on (1) the date which is three (3) Business Days after the conditions set forth in Article VII have been satisfied or waived in accordance with the terms of this Agreement (other than those conditions to be satisfied or waived on the Closing Date), or (2) such other date to which the parties may agree in writing.  The date on which the Closing occurs is herein called the “Closing Date”.  The parties hereby agree that the effective time (the “Effective Time”) of Closing for all purposes shall be 8:00 a.m. E.S.T. on the Closing Date or such other time as shall be agreed to by the parties.

 

3.02                        Closing Deliveries By Buyer.

 

At the Closing, Buyer will deliver or cause to be delivered to Seller:

 

(a)         An amount in cash equal to the Purchase Price by wire transfer of immediately available funds to such account as Seller may direct by written notice to Buyer;

 

(b)         A duly executed counterpart of the Escrow Agreement;

 

(c)          A duly executed counterpart of the assignment and assumption agreement, substantially in the form of Exhibit A (the “Assignment and Assumption Agreement”);

 

(d)         A duly executed counterpart of the assignment and assumption agreements for the Leases that are assigned by Seller in form and substance satisfactory to Seller, Buyer and the landlord (the “Assignment of Leases”);

 

(e)          A duly executed counterpart of the Transition Services Agreement; and

 

(f)           A duly acknowledged counterpart of the trademark and copyright assignment in substantially the form of Exhibit J.

 

3.03                        Closing Deliveries by Seller.

 

At the Closing, Seller and Parent will deliver or cause to be delivered to Buyer:

 

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(a)         An amount in cash equal to the Escrow Amount by wire transfer of immediately available funds to Wilmington Trust, as escrow agent (the “Escrow Agent”), under the Escrow Agreement;

 

(b)         A duly executed counterpart of the Escrow Agreement;

 

(c)          A duly executed original copy of the bill of sale (a “Bill of Sale”) in substantially the form of Exhibit I;

 

(d)         A duly executed counterpart of the Assignment and Assumption Agreement;

 

(e)          A duly executed counterpart of the Assignment of Leases;

 

(f)           A duly executed counterpart of the Transition Services Agreement;

 

(g)          A duly executed counterpart of the trademark and copyright assignment in substantially the form of Exhibit J; and

 

(h)         Such further instruments and documents as may be required to be delivered by Seller, Holdco or Parent pursuant to the terms of this Agreement or as may be reasonably requested by Purchaser in connection with the Closing of the transactions contemplated hereby or to complete the transfer of the Assets and the Business to Buyer, including warranty deeds with respect to the real property being transferred to Buyer by Seller and good, sufficient instruments of assignment with respect to the Intellectual Property being transferred by Seller to Buyer in recordable form, endorsements, consents, assignments and other good and sufficient instruments of conveyance and assignment necessary or appropriate to vest in Buyer all right, title and interest in, to and under the Purchased Assets.

 

3.04                        Further Assistance and Assurances.

 

Seller shall, at any time and from time to time, promptly, upon the reasonable request of Buyer, execute, acknowledge, deliver or perform, all such further acts, deeds, assignments, transfers, conveyances, and assurances as may be required for the better vesting and conferring to Buyer of title in and to the Purchased Assets and to effect the transactions contemplated by this Agreement.  Buyer shall, at any time and from time to time, promptly, upon the reasonable request of Seller, execute, acknowledge, deliver or perform, all such further acts, deeds, assumption agreements, transfers and assurances as may be required for the full assumption and transfer to Buyer of the Assumed Liabilities and to effect the transactions contemplated by this Agreement.  Each party agrees that if it receives any payment or amount after the Closing Date to which another party is entitled, the recipient shall promptly transfer such payment or amount to the party so entitled.  In addition, Seller shall take such steps prior to closing as may be reasonably necessary to assure that Buyer can operate the Business that it acquires on the Closing Date without material interruption and with a smooth transition.

 

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3.05                        Other Consents.

 

Seller shall take all commercially reasonable action, at no cost to Buyer, to obtain such other Third Party Consents as are necessary to permit the sale, transfer, assignment and conveyance to Buyer of the Purchased Assets.  Nothing in this Agreement shall be construed as an attempt or agreement to assign any Purchased Asset or Assumed Liability which is not capable of being validly assigned, conveyed or transferred without the consent of a third party, unless such consent shall have been obtained and remain in full force and effect at the Closing.  If such consent in respect of a Purchased Asset or an Assumed Liability is not obtained prior to the Closing or does not remain in full force and effect at the Closing, Buyer and Seller will use reasonable efforts, at no cost to Buyer, to enter into a mutually agreeable, reasonable and lawful arrangement, including, subcontracting, sublicensing or subleasing, under which Buyer would obtain the benefit and assume the obligations in respect thereto from and after the Closing Date in accordance with this Agreement, and under which Seller would enforce at Buyer’s expense for the benefit of Buyer any and all rights of Buyer against a third party thereto, with Buyer assuming the obligations to the same extent as if they would have constituted an Assumed Liability (“Alternate Consents”), and for these purposes such liabilities would constitute an Assumed Liability.  Following Closing, and until such time that it becomes substantially certain that a particular Third Party Consent cannot be obtained, Buyer and Seller will continue efforts to obtain such Third-Party Consent, and upon obtaining such consent, Seller shall assign and transfer the Purchased Asset to Buyer, and Buyer shall assume such Assumed Liability pursuant to an assignment and assumption instrument reasonably satisfactory to each party.

 

ARTICLE IV

 

Representations and Warranties

 

4.01                        Disclosure Letter.

 

Prior to the execution and delivery of this Agreement, Seller shall deliver to Buyer a letter (the “Disclosure Letter”) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an informational exception to one or more representations or warranties contained in Section 4.02 or to one or more of the covenants contained in Article V.  The disclosure in the Disclosure Letter identifies exceptions only by the specific Section or subsection to which each entry relates.  Except as may be otherwise agreed to by Buyer in its reasonable discretion, such disclosure shall not limit Seller’s indemnity obligations under Section 10.1 hereof (except for Section 10.1(a)(i)).

 

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4.02                        Representations and Warranties of Seller.

 

Except as set forth in the Disclosure Letter, Seller represents and warrants to Buyer as follows as of the date of execution of this Agreement and the Closing Date:

 

(a)         Organization, Standing and Authority.

 

(1)         Each of Seller and Holdco has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of Delaware.

 

(2)         Each of Seller and Holdco has all requisite power and authority to own, license, use, lease and operate its current assets and carry on its business (including the Business) as currently conducted, and is duly qualified in all material respects to do business in each jurisdiction where the ownership or operation of its property and assets or the conduct of its business (including the Business) requires such qualification.

 

(3)         Holdco owns beneficially all of the capital stock of Seller, free and clear of all Liens.  There are no subscriptions, options, warrants, calls, commitments, preemptive rights or other rights of any kind outstanding for the purchase of, nor any securities convertible or exchangeable for, any equity interests of Seller, other than those that may be held by Holdco.  There are no Persons in which Seller owns, of record or beneficially, any direct or indirect equity interest or other interest or right.

 

(b)         Corporate Authority.  This Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action of Seller and Holdco and this Agreement has been duly authorized, executed and delivered by each of Seller and Holdco.  This Agreement is a valid and legally binding obligation of Seller and Holdco, and, assuming due authorization, execution and delivery by Buyer and Parent, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles). Each of Seller and Holdco has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

 

(c)          Regulatory Approvals; No Conflicts.

 

(1)         No consents or approvals of, or filings or registrations with, any Governmental Authority or any third party are required to be obtained or made by Seller in connection with the execution, delivery or performance by Seller of this Agreement or to consummate the transactions contemplated hereby, except for consents, approvals, filings, applications, notices or registrations, and the termination of any applicable waiting periods under (A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), (B) relevant state mortgage

 

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banking licensing or supervisory authorities, (C) the VA, FHA, FNMA, FHLMC and HUD, (D) any applicable foreign laws or regulations or to any foreign Governmental Authority, (E) the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation or any other federal or state bank regulatory agency, (F) as disclosed in Section 4.02(c)(1) of Seller’s Disclosure Letter and (G) Third Party Consents.  As of the date hereof, Seller has no Knowledge of any reason why the approvals or consents (including Alternate Consents) set forth as conditions to closing in Sections 7.01(a) will not be received in a timely manner.  It is expressly understood and agreed that, notwithstanding anything to the contrary in this Agreement, although Seller shall use its commercially reasonable efforts to obtain all Third Party Consents prior to the Closing, the failure to obtain any or all of such consents shall not result in a breach of any representation and warranty in this Agreement.

 

(2)         Subject to receipt of the regulatory approvals referred to in the preceding paragraph, and expiration of related waiting periods, required filings under federal and state securities laws and the third party consents or approvals referred to in the preceding paragraph, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not in any material respect (A) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, or result in the modification or cancellation of, or the loss of a benefit under, any Applicable Law, License, or contract, agreement, Mortgage, indenture or instrument to which Seller or Holdco are now a party, or by which Seller, Holdco, the Business or any of the Purchased Assets and Assumed Liabilities are subject or bound, (B) constitute a breach or violation of, or a default under, Seller’s or Holdco’s certificate of incorporation or by-laws, or (C) require any consent or approval under any such Applicable Law, License, contract, agreement, indenture or instrument.

 

(d)         Title to and Sufficiency of Purchased Assets.

 

(1)         Subject to the receipt of the Third Party Consents, the sale and delivery to Buyer of the Purchased Assets pursuant to the provisions of this Agreement will transfer to Buyer good, valid and marketable title to the Purchased Assets (or, as to any leased property, a valid leasehold interest), free and clear of any Liens (other than (A) Liens that are set forth in Section 4.02(d) of the Disclosure Letter; (B) mechanics’, carriers’, workmen’s, repairmen’s purchase money security interests or other like Liens arising or incurred in the ordinary course of business and Liens for Taxes that are not due and payable or that may thereafter be paid without penalty; and (C) Liens created by Buyer (collectively, “Permitted Liens”).  Other than Persons having an interest in Permitted Liens that are set forth in Section 4.02(d) of the Disclosure Letter, no person other than Seller has any interest in (i) any of the Purchased Assets or (ii)

 

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Seller’s leasehold interest in any leases of real or personal property included in the Purchased Assets.

 

(2)         Subject to the receipt of any required Third Party Consents, and except for the Excluded Assets, the Purchased Assets, together with Buyer’s rights under the Acquired Intellectual Property Licenses, and Ancillary Agreements, constitute all of the assets, properties and rights used in or necessary for the conduct of the Business as heretofore conducted by Seller and are sufficient to operate the Business as it is conducted as of the date hereof and to permit Buyer to perform in the ordinary course of business its obligations under the Assumed Liabilities consistent with the standards set forth therein.

 

(e)          Litigation.  Except as set forth in Section 4.02(e) of the Disclosure Letter, to Seller’s Knowledge, no material litigation, suit, claim, action, arbitration, investigation or similar proceeding is pending against Seller with respect to the Business, or relating to or involving any of the Purchased Assets or Assumed Liabilities and, to Seller’s Knowledge, no such material litigation, suit, claim, action, arbitration, investigation or similar proceeding has been threatened in writing nor, to Seller’s Knowledge, does there exist any fact or circumstance that would be reasonably expected to give rise to any such material litigation, claims, actions, arbitrations or investigations or other proceedings.

 

(f)           Regulatory Matters.  None of Seller or to the Knowledge of Seller, any Key Employee is (or in the last five (5) years has been) a party to or is subject to any suspension, debarment, outstanding order, decree, agreement, memorandum of understanding or similar supervisory arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, any federal or state governmental agency or authority charged with the supervision or regulation of banks and their holding companies, or mortgage banking (including, without limitation, the Federal Reserve Board and any Agency) or the supervision or regulation of Seller (each, a “Regulatory Authority”).

 

(g)          Compliance with Laws.

 

(1)         The Business, including without limitation, the origination, servicing and sale of Mortgage Loans, is being and has been conducted and operated in compliance in all material respects with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto, including without limitation the Real Estate Settlement Procedures Act, the Home Owner’s Equity Protection Act and the Truth in Lending Act and all similar federal, state and local, consumer credit, consumer finance and predatory lending laws and regulations (“Applicable Law”).

 

(2)         Seller holds all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Governmental Authorities that are required in order to own or lease the Purchased

 

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Assets and to conduct the Business in all material respects as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and no event has occurred or other fact exists with respect to such permits, licenses, authorizations, orders and approvals that allows, or after notice or lapse of time or both would allow, for revocation or terminate of any such permits, licenses, authorizations, orders and approvals or any other impairment of the rights of the holder thereof.

 

(h)         Specified Contracts; Defaults.

 

(1)         Section 4.02(h) of the Disclosure Letter lists the following written contracts related to the Business in existence as of the date hereof to which Seller is a party (the “Specified Contracts”), which list includes all such contracts to which Seller is a party:

 

1.                                      any agreement other than loan commitments and loan purchase and sale agreements, if (x) the performance remaining thereunder involves aggregate consideration to or by Seller in excess of $25,000 per annum and (y) such agreement is not cancelable, without material penalty, by Seller on 90 days’ or less notice;

 

2.                                      any agreement which restricts or contains limitations on the ability of Seller to compete in any line of business, to the extent that any such provisions would be binding upon, or enforceable against, Buyer in its operation of the Business or the use of the Purchased Assets after Closing;

 

3.                                      any agreement Seller, on the one hand, and any Key Employee or any of his or her Affiliates, on the other hand, relating to services provided with respect to the Business or the Purchased Assets other than in the ordinary course of their business;

 

4.                                      any individual employment contracts binding on Seller not terminable upon 60 days or less notice by Seller and which provide for aggregate payments to any Prospective Employee in any calendar year in excess of $25,000;

 

5.                                      any mortgage, pledge, indenture or security agreement or similar arrangement constituting a Lien upon the Purchased Assets except for Permitted Liens;

 

6.                                      any agreement for the sale or purchase of personal property (other than loans) having a value individually, with respect to all sales or purchases thereunder after the date hereof, in excess of $10,000;

 

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7.                                      any agreement for the sale or purchase of fixed assets or real estate having a value after the date hereof in excess of $10,000 other than real estate acquired by foreclosure;

 

8.                                      any agreement involving Acquired Intellectual Property or relating to the provision of data processing, network communication or other technical services to or by Seller with annual payments by Seller in excess of $25,000; and

 

9.                                      all material Acquired Intellectual Property Licenses.

 

(2)         (i) Each Specified Contract is in full force and effect and constitutes a legal, valid and binding agreement, enforceable against Seller or its Affiliates and, to the Knowledge of Seller, each other party thereto, in accordance with its terms, except as would not reasonably be expected to result in a Material Adverse Effect, (ii) neither Seller, nor, to the Knowledge of Seller, any other party to any such contract is in violation or breach of or in default under any Specified Contract in any material respect and (iii) to the Knowledge of Seller, there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default.  Seller has delivered to or made available for inspection to Buyer true and correct copies (or if none exist, reasonably complete and accurate written descriptions) of each contract listed in Section 4.02(h) of the Disclosure Letter, together with all amendments and supplements thereto.

 

(i)             No Brokers.  No agent, broker, investment banker, financial advisor or other firm or Person is entitled to any brokerage, finder’s, financial advisor’s or other similar fee or commission for which Buyer could become liable in connection with the transactions contemplated by this Agreement as a result of any action taken by or on behalf of Seller or Holdco.

 

(j)            Taxes.

 

(i)                                     Seller has timely filed all material Tax Returns related to the Business that it was required to file.  All such Tax Returns were correct and complete in all material respects and were prepared in substantial compliance with all Applicable Laws and regulations.  All material Taxes related to the Business owed by Seller (whether or not shown or required to be shown on any Tax Return) have been paid. Seller is not currently the beneficiary of any extension of time within which to file a Tax Return related to the Business.  There are not any outstanding claims in a jurisdiction where Seller does not file Tax Returns that Seller is or may be subject to taxation by that jurisdiction with respect to the Business.

 

(ii)                                  With respect to the Business, Seller has withheld and paid all Taxes required to have been withheld and paid in connection with

 

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any amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, and all forms required with respect thereto have been properly completed and timely filed.

 

(iii)                               No federal, state, local or foreign audits, examinations, other administrative proceedings or court proceedings or, to the Knowledge of Seller, investigations, are currently ongoing, pending or threatened with regard to any Taxes or Tax Returns related to the Business.

 

(iv)                              None of the Assumed Liabilities is an obligation to make a payment that is not deductible under Code Section 280G.

 

(k)         Real Property; Leases.

 

(1)         Seller owns no real property except residential real estate acquired from time to time upon foreclosure.  Section 4.02(k) of the Disclosure Letter sets forth all real property leasehold estates owned by Seller and used in the Business as of the date hereof.  Seller has a valid, subsisting and enforceable leasehold interest in the Office Leases, in each case free and clear of all Liens, other than (A) Permitted Liens, (B) subleases and similar agreements set forth in Section 4.02(k) of the Disclosure Letter, (C) easements, covenants, rights-of-way and other similar restrictions of record which do not materially interfere with Seller’s use of such property in the Business, (D) any conditions that may be shown by a current, accurate survey or physical inspection of any real property made prior to the Closing Date and (E) (i) zoning, building and other similar restrictions, (ii) Liens that have been placed by any developer, landlord or other third party on property over which Seller has easement rights or on any leased property and subordination or similar agreements relating thereto, and (iii) unrecorded easements, covenants, rights-of-way and other similar restrictions.  Seller as lessee has the right under the Office Leases to occupy, use, possess and control all real property leased by such Seller as now occupied by Seller for use in the Business.

 

(2)         Section 4.02(k) of the Disclosure Letter sets forth all fixed asset leasehold estates owned by Seller and used in the Business as of the date hereof.  Seller has a valid, subsisting and enforceable leasehold interest in each such leasehold identified as an Equipment Lease, in each case free and clear of all Liens other than Permitted Liens.

 

(3)         Each Lease is a valid and binding agreement of Seller, and no event has occurred and is continuing which, with or without notice or lapse of time, would constitute a material default or event of default by Seller under any such Lease or, to Seller’s Knowledge, by any other party thereto.

 

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(l)             Insurance.  Section 4.02(l) of the Disclosure Letter sets forth a complete and correct list of all policies of insurance relating to the Purchased Assets and the Business (other than title insurance policies or insurance policies relating exclusively to Mortgage Loans or other loans originated or serviced by Seller) that name Seller as an insured party thereunder including the names and addresses of the insurers, the principal insured and each named insured, the policy number and period of coverage, the expiration dates, the annual premiums and payment terms, a brief description of the interests insured by such policies and the amount of any deductible.  Seller has delivered to or made available for inspection by Buyer a true and correct copy of all such policies together with (i) all riders and amendments thereto and (ii) if completed, the applications for each of such policies.  Neither Seller nor any of its Affiliates maintains any self-insurance arrangement with respect to the Business.  The insurance policies listed in Section 4.02(l) of the Disclosure Letter include all policies of insurance that are required by material contracts relating to the Business, in the amounts required under the respective contracts.  All the insurance policies listed in Section 4.02(l) of the Disclosure Letter are in full force and effect, all premiums due and payable thereon have been paid, no notice of cancellation or termination has been received with respect to any such policy, Seller is not in material default thereunder, and all claims thereunder have been filed in due and timely fashion.

 

(m)     Employee Benefit Plans.

 

(1)         Section 4.02(m) of Seller’s Disclosure Letter sets forth the Compensation and Benefit Plans.  True and complete copies of all such Compensation and Benefit Plans have been delivered to or made available for inspection by Buyer.  All such Compensation and Benefit Plans have been operated and administered in all material respects in accordance with Applicable Law, including but not limited to, ERISA and the Code.  Any Compensation and Benefit Plan intended to be qualified under section 401(a) of the Code has received and is currently entitled to rely on a favorable determination or opinion letter providing that such plan is so qualified.

 

(2)         Neither the execution of this Agreement nor the consummation of the Purchase will entitle any Prospective Employees to severance pay or any increase in severance pay upon any termination of employment after the date hereof.

 

(3)         None of the Compensation and Benefit Plans are “multiemployer plans” or “defined benefit plans” within the meaning of section 3(37) and 3(35) of ERISA, respectively.

 

(4)         There are no pending or, to the Knowledge of Seller, threatened or anticipated material claims by or on behalf of any Compensation and Benefit Plan, by any employee or beneficiary under any such Compensation and Benefit Plan or otherwise involving any such Compensation and Benefit Plan (other than routine claims for benefits).

 

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(n)         Labor Matters.  Seller is not a party to or is bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is Seller the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel Seller to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving Seller pending or, to Seller’s Knowledge, threatened in writing, nor does Seller have any Knowledge of any activity involving employees of Seller seeking to certify a collective bargaining unit or engaging in other organizational activity.  Seller is in material compliance with all Applicable Law respecting employment practices, terms and conditions of employment and wages and hours and has not engaged in any unfair labor practices.

 

(o)         Environmental Matters.

 

(1)         Seller is in compliance in all material respects with all applicable Environmental Laws.

 

(2)         Seller possesses all material permits, licenses, registrations, identification numbers, authorizations and approvals required under applicable Environmental Laws for the operation of the Business as presently conducted.

 

(3)         Seller has not received any written claim, notice of violation or citation concerning any violation or alleged violation of any applicable Environmental Law or any alleged liability involving the presence of any hazardous substance pursuant to any Environmental Law since January 1, 2005.  To the Knowledge of Seller, since January 1, 2005, there have been no releases, spills and discharges of Hazardous Substances that could reasonably be expected to require either reporting or remediation, or to result in material liability pursuant to any Environmental Law on or underneath any Purchased Asset which is real property owned or leased by Seller.

 

(4)         There are no writs, injunctions, decrees, orders or judgments outstanding, or any Actions or, to the Knowledge of Seller, investigations or inquiries pending or, to the Knowledge of Seller, threatened in writing, relating to compliance by Seller with any Environmental Law.

 

(p)         Mortgage Banking Representation.

 

(1)         Mortgage Banking Qualification.  Seller (a) to the extent required for the conduct of the Business as currently conducted, is approved (i) by HUD as an approved mortgagee for FHA Loans, and (ii) by VA as an approved lender for VA Loans, (b) has all other material certifications, authorizations, licenses, permits and other approvals, including without limitation those required by State Agencies, that are necessary to conduct the Business (or, where legally permissible, any waiver of or exemption from any of the foregoing by such

 

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Agency or State Agency) as currently conducted; and (c) is in good standing under all applicable federal, state and local laws and regulations thereunder as a lender.  Seller has not received any notice or information from any Governmental Authority that it intends to terminate or restrict Seller’s or any Key Employee’s status as an approved participant in its programs for which Seller is as of the date hereof registered, approved or authorized.

 

(2)         Repurchase/Indemnification.  Section 4.02(p)(2) of Seller’s Disclosure Letter contains a true and correct list of each written audit, investigation report or complaint in respect of Seller by any Agency, Investor or Insurer received by Seller since January 3, 2011 which asserted a material failure to comply with Applicable Requirements affecting the Business or the Purchased Assets or resulted in (a) a repurchase by Seller of Mortgage Loans and/or REOs acquired as a result of a default under a Mortgage Loan from such Agency, Investor or Insurer, (b) indemnification by Seller in connection with Mortgage Loans, or (c) rescission of an insurance or guaranty contract or agreement applicable to Mortgage Loans.

 

(q)         Corporate Documents.  Seller has delivered to or made available for inspection by Buyer true and correct copies of its current certificate of incorporation and by-laws.

 

(r)            Servicing.  Seller does not service Mortgage Loans in the ordinary course of business; provided, however, that from time to time Seller may service Mortgage Loans on an interim basis prior to the sale of such Mortgage Loans to third parties.

 

(s)           Financial Reports; No Material Adverse Effect.

 

(1)         Section 4.02(s) of the Disclosure Letter sets forth the audited balance sheets and the related statements of operations and comprehensive income, Stockholders’ equity and cash flows of Seller for the fiscal year ended December 31, 2011 (the “Seller Audited Financial Statements”) and unaudited balance sheet and the related statement of operations and comprehensive income for the nine months ended on September 30, 2012 (or ended on such subsequent quarterly period as becomes available on or prior to the Closing Date) (the “Seller Interim Financial Statements,” which, together with the Seller Audited Financial Statements, the “Seller Financial Statements”). Each of the balance sheets contained in the Seller Financial Statements (including the related notes and schedules thereto) fairly presents, in all material respects, the financial position of Seller as of its date, and each of the statements of income and shareholder’s equity and cash flows or equivalent statements contained in the Seller Financial Statements (including any related notes and schedules thereto) fairly presents, in all material respects, the results of operations, consolidated changes in shareholder’s equity and consolidated changes in cash flows, as the case may be, of Seller for the periods to which they relate, in each case in accordance with

 

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GAAP consistently applied during the periods involved except that the unaudited financial statements do not contain notes and are subject audit adjustments and accruals in the ordinary course.

 

(2)         The books, records and accounts of the Business accurately and fairly reflect in all material respects, in reasonable detail, the transactions and the assets and liabilities of the Business.  The Business maintains a system of internal accounting and disclosure controls and procedures which Seller reasonably believes sufficient to record, summarize and report financial data and provide reasonable assurances that (i) transactions are executed in all material respects in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, and (iii) access to assets, properties, books, records and accounts is permitted only in accordance with management’s general or specific authorization.  No fraud has occurred involving management or other employees who have a significant role in such internal controls and procedures.

 

(3)         Since September 30, 2012, (A) Seller has conducted the Business only in the ordinary course of its business (excluding the incurrence of expenses related to this Agreement and the transactions contemplated hereby), (B) Seller has not incurred any material liability other than in the ordinary course of business, (C) no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events, has had or is reasonably likely to have a Material Adverse Effect on the Business and (D) none of the actions set forth in Section 5.01 of this Agreement have occurred with respect to the Business, the Purchased Assets or the Assumed Liabilities.

 

(t)            Intellectual Property.  The following representations are made solely with respect to the Software, Acquired Intellectual Property and Acquired Intellectual Property Licenses.

 

(1)         All Software and Acquired Intellectual Property that is material to the conduct of the business and/or that is the subject of a subsisting registration or issued Patent or pending application for registration or issued Patent is set forth in Section 4.02(t) of Seller’s Disclosure Letter.  All Acquired Intellectual Property Licenses are set forth in Section 4.02(t) of Seller’s Disclosure Letter (except for generally available “shrinkwrap”, over-the-counter, “clickwrap” and other similar licenses that are not enterprise licenses).

 

(2)         Seller has sufficient rights to use all Software, Acquired Intellectual Property and Intellectual Property and Software licensed under the Acquired Intellectual Property Licenses (“Licensed Intellectual Property”) as currently used by it in connection with the Business.

 

(3)         To the Knowledge of Seller, the Software and the Acquired Intellectual Property and Seller’s use of the Software, Acquired Intellectual

 

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Property and Licensed Intellectual Property as currently used by Seller in connection with the Business, does not violate or infringe the Intellectual Property or proprietary rights of any other Person except as set forth in Section 4.02(t)(3) of Seller’s Disclosure Letter.  Except as set forth in Section 4.02(t)(3) of Seller’s Disclosure Letter, in the three (3) years preceding this Agreement, there has not been any suit, action or other proceeding, and to Seller’s Knowledge, no suit, action or other proceeding is pending against Seller concerning any claim that any of Seller’s use of the Software, Acquired Intellectual Property or Licensed Intellectual Property as currently used by Seller in connection with the Business infringes or violates the Intellectual Property rights of any other Person, or that Seller has breached any Acquired Intellectual Property License.  No claim has been asserted in writing against Seller that its use of the Software, Acquired Intellectual Property or Licensed Intellectual Property as currently used by it in connection with the Business infringes or violates the Intellectual Property rights of any other Person, or that Seller has breached any Acquired Intellectual Property License.

 

(4)         There exists no event, condition or occurrence which, with the giving of notice or lapse of time, or both, would reasonably be expected constitute a material breach by any of Seller, or to Seller’s Knowledge another Person, under any Acquired Intellectual Property License.  No party to any Acquired Intellectual Property License has given Seller notice of its intention to cancel, terminate or fail to renew any such Acquired Intellectual Property License.

 

(5)         To Seller’s Knowledge, no Person is infringing or violating any of Seller’s intellectual property rights in the Software or Acquired Intellectual Property.

 

(6)         E business.

 

1.                                      Seller’s web sites are in material compliance with all Applicable Requirements.

 

2.                                      Seller has operated their web sites in material conformance with its privacy policies.

 

(u)         Other than (i) as may be specifically disclosed or reserved against in the Seller Financial Statements, (ii) liabilities incurred in the ordinary course of business after the date of the Seller Interim Financial Statements, (iii) liabilities under the executory portion of any Specified Contract (other than obligations due to breaches or non-performance under such Specified Contracts, none of which would, individually or in the aggregate, reasonably be expected to be material to Seller), (iv) liabilities that constitute transaction expenses of Seller, (v) liabilities that would be required to be accrued under GAAP or (vi) liabilities that individually would not be material to Seller, Seller does not have any liabilities or obligations accrued, contingent or otherwise of any nature.

 

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(v)         Both immediately before the Closing Date and immediately after the consummation of the transactions contemplated by this Agreement, (a) the sum of the assets of Seller, at fair valuation, will exceed its debts, (b) the present fair saleable value of the assets of Seller will be greater than the amount required to pay the liabilities of Seller on its debts as such debts become absolute and mature and (c) Seller will have sufficient capital with which to conduct its businesses.  The transfer, assignment, and conveyance of the Purchased Assets by Seller pursuant to this Agreement are not subject to the bulk transfer provisions or any similar statutory provisions in effect in any jurisdiction, the laws of which apply to such transfer, assignment and conveyance.

 

4.03  Representations and Warranties of Parent.  Except as set forth in the Disclosure Letter, Parent represents and warrants to Buyer as follows as of the date of execution of this Agreement and the Closing Date.

 

(a)         Organization, Standing and Authority. Parent is duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Parent has all requisite power and authority to own, license, use, lease and operate its current assets and carry on its business as currently conducted, and is duly qualified in all material respects to do business in each jurisdiction where the ownership or operation of its property and assets or the conduct of its business requires such qualification.

 

(b)         Corporate Authority.  This Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate actions of Parent. This Agreement has been duly authorized, executed and delivered by Parent.  This Agreement is a valid and legally binding obligation of Parent, and, assuming due authorization, execution and delivery by Seller and Buyer, this Agreement is enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles). Parent has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

 

(c)          Approvals; No Conflicts. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not, in any material respect, (i) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, or result in the modification or cancellation of, or the loss of a benefit under, any Applicable Law, License, contract, agreement, Mortgage, indenture or instrument to which Parent is now a party, or by which Parent is subject or bound; (ii) constitute a breach or violation of, or a default under Parent’s certificate of incorporation or by-laws; or (iii) require any consent or approval under any such Applicable Law, License, contract, agreement, Mortgage, indenture or instrument.

 

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4.04  Representations and Warranties of Buyer.

 

Except as set forth in Section 4.04 of the Disclosure Letter, Buyer represents and warrants to Seller as follows as of the date of execution of this Agreement and the Closing Date:

 

(a)         Organization, Standing and Authority.  Buyer has been duly organized and is existing in good standing as a corporation organized under the laws of the State of Delaware.  Buyer has the requisite power and authority to own its current assets and carry on its business as currently conducted, and is duly qualified to do business in each jurisdiction where the ownership or operation of its property and assets or the conduct of its business requires such qualification.

 

(b)         Corporate Authority. Buyer has full corporate power and authority to execute and deliver the Agreement and to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder.  This Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate action of Buyer and do not require the approval of any shareholder or shareholders and this Agreement has been duly authorized, executed and delivered by Buyer.  This Agreement is a valid and legally binding agreement of Buyer, and, assuming due authorization, execution and delivery by Seller and Parent, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, receivership, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).  Buyer has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

 

(c)          Regulatory Approvals; No Conflicts.

 

(1)         No consents or approvals of, or filings with, any Governmental Authority or any Third Party Consents are required to be obtained or made by Buyer or any of its Affiliates in connection with the execution, delivery or performance by Buyer of this Agreement or to consummate the transactions contemplated hereby, except for consents, approvals, filings, applications, notices or registrations, and the termination of any applicable waiting periods under (A) under the HSR Act, (B) relevant state mortgage banking licensing or supervisory authorities, (C) the VA, FHA, FNMA, FHLMC, GNMA and HUD, (D) any applicable foreign laws or regulations or to any foreign Governmental Authority, and (E) the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation or any other federal or state bank regulatory agency.

 

(2)         Subject to receipt of the regulatory approvals referred to in the preceding paragraph and the expiration of the related waiting periods, the Third Party Consents, or required filings under federal and state securities laws and the

 

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consents and approvals referred to in the preceding paragraph, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not (A) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any Applicable Law, License, or contract, agreement, indenture or instrument of either of Buyer or of any of its Affiliates or to which either of Buyer or any of its Affiliates or their properties is subject or bound, (B) constitute a breach or violation of, or a default under, its certificate of incorporation or by-laws, or (C) require any consent or approval under any such Applicable Law or License, contract, agreement, indenture or instrument.

 

(3)         Buyer (a) to the extent required for the conduct of the Business as currently conducted in respect of the Purchased Assets, is approved or, by the Closing, will be approved, (i) by HUD as an approved mortgagee for FHA Loans, and (ii) by FNMA and FHLMC as an approved seller/servicer of first lien residential mortgages, (b) has all other material certifications, authorizations, Licenses, permits and other approvals, including without limitation those required by State Agencies, that are necessary to conduct the Business in respect of the Purchased Assets (or, where legally permissible, any waiver of or exemption from any of the foregoing by such Agency or State Agency), excluding such approvals that may be required by Buyer solely to be an eligible participant in a program of such state or local Governmental Authorities or State Agencies, and (c) is in good standing under all applicable federal, state and local laws and regulations thereunder as a lender.

 

(d)         Litigation; Regulatory Action.  No litigation, suit, claim, action, arbitration, investigation or other proceeding is pending against Buyer or any of its Affiliates and, to the best of Buyer’s Knowledge, no such litigation, suit, claim, action, arbitration, investigation or other proceeding has been threatened in writing except where such litigation, claim, action, arbitration, investigation, or other proceeding would not have a Material Adverse Effect on Buyer.

 

(e)          No Brokers.  No agent, broker, investment banker, financial advisor or other firm or person is entitled to any brokerage, finder’s, financial advisor’s or other similar fee or commission for which Seller or any of its Affiliates could become liable in connection with the transactions contemplated by this Agreement as a result of any action taken by or on behalf of Buyer or any of its Affiliates.

 

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ARTICLE V

 

Covenants

 

5.01  Conduct of Business.

 

From the date hereof until the Closing Date, except (i) as contemplated by this Agreement, (ii) as required by Applicable Law, Governmental Authority or Regulatory Authority, or (iii) to the extent that Buyer provides prior written consent to do otherwise, which consent may not be unreasonably withheld, Seller shall operate the Business only in the ordinary course and:

 

(a)         Seller shall use best efforts to (i) maintain Seller’s corporate existence in good standing, (ii) maintain the general character of the Business, (iii) maintain proper business and accounting records relative to the Business, (iv) to preserve relationships with Key Employees and other Prospective Employees, customers, suppliers, correspondents, brokers, Investors and Insurers of the Business, (v) maintain the Purchased Assets in good condition and repair, ordinary wear and tear excepted, (vi) maintain procedures for protection of the Acquired Intellectual Property, and (vii) maintain presently existing insurance coverages with respect to the Purchased Assets and the Business; and

 

(b)         Seller shall not:

 

(i)                                     enter into any Specified Contract relating to the Business (other than those contemplated by this Agreement, related to Excluded Assets or Excluded Liabilities, or related to the Warehouse Line Lenders or Warehouse Line Guarantees) or terminate or amend or modify in any material respect any such existing Specified Contracts;

 

(ii)                                  enter into or amend or renew any individual employment agreements with any Prospective Employee which are not terminable upon 60 days or less notice by Seller;

 

(iii)                               except for isolated increases in the ordinary course in connection with annual reviews and not exceeding 5% or other isolated increases as to which Buyer gives its prior written consent which such consent will not be unreasonably withheld, grant any salary or wage increase or increase any employee benefit for any Prospective Employee (including incentive or bonus payments);

 

(iv)                              sell, transfer, assign or otherwise dispose of or encumber any of the Purchased Assets, except for the Warehouse Loans, in one transaction or a series of related transactions;

 

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(v)                                 except as set forth in Section 5.01(b)(v) of the Disclosure Letter, cancel any debt or settle or compromise any claim, action, suit or proceeding pending or threatened against Seller, the Business or the Assets, except in the ordinary course of business;

 

(vi)                              make any capital expenditure or commitment relating to the Business in excess of (A) $7,500 per project or related projects or (B) $15,000 in the aggregate other than expenditures necessary to maintain in good repair existing assets;

 

(vii)                           except with respect to endorsements of negotiable instruments in the ordinary course of their business consistent with past practice or, with respect to their mortgage banking business, the ordinary course of business in accordance with past practice, incur, assume or guarantee or otherwise become responsible for any indebtedness for borrowed money which will constitute an Assumed Liability as of the Closing Date;

 

(viii)                        enter into any joint venture, partnership or other similar arrangement, form any other new material arrangement for the conduct of its business or purchase any material assets or securities of any Person;

 

(ix)                              terminate, cancel or amend any material insurance coverage maintained by Seller with respect to the assets or activities of the Business which is not replaced by an adequate amount of insurance coverage at reasonable cost;

 

(x)                                 merge or consolidate with or into any other Person or permit any other Person to merge or consolidate with or into it;

 

(xi)                              enter into any transaction or any contract with any Affiliate, except in the ordinary course of business;

 

(xii)                           transfer, mortgage, encumber or otherwise dispose of any of the Pipeline Loans, Warehouse Loans or Forward Commitments other than in the ordinary course of business, provided that Seller shall deliver to Buyer all Pipeline Loans that are eligible to be delivered under Buyer’s customary eligibility criteria pursuant to Forward Commitments with Buyer;

 

(xiii)                        make or acquire any residential mortgage loan or issue a commitment for any residential loan except for residential mortgage loans and commitments that are made or acquired in the ordinary course of business consistent with past practice that,

 

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except in isolated incidences, are eligible for sale without a loss under a Forward Commitment;

 

(xiv)                       except as necessary in order to comply with Applicable Laws or the requirements of this Agreement, make any material changes in its policies and practices with respect to (a) underwriting, pricing, originating, acquiring or buying or selling rights to service loans or (b) hedging the Warehouse Loans or Pipeline Loans;

 

(xv)                          make any changes to its accounting methods, practices or policies, except as may be required under law, rule, regulation or GAAP, in each case as concurred in by Seller’s independent public accountant;

 

(xvi)                       except as set forth in Section 5.01(b)(xvi) of the Disclosure Letter, settle any action filed or otherwise instituted against it, the Purchased Assets or the Business if such settlement would contain any relief against the Purchased Assets or Buyer’s operation of the Business other than monetary damages;

 

(xvii)                    agree to do any of the foregoing; or

 

(xviii)                 enter into any new master loan sale agreements with any Investors, originate any new loan products or materially modify any existing loan products.

 

5.02  Access; Confidentiality.

 

(a)         Seller agrees to permit Buyer and its Representatives to have, during the period from the date hereof to the Closing Date, reasonable access to the premises, books and records relating to the Business and the Purchased Assets during normal business hours.  Seller agrees to make available to Buyer upon reasonable advance notice and during normal business hours, the employees of Seller involved in the conduct of the Business and the operation of systems, as Buyer may reasonably request, provided that such availability shall not unreasonably interfere with the normal operations of Seller.  Seller shall furnish Buyer with such financial and operational data and other information relating to the Business as Buyer shall from time to time reasonably request and shall reasonably cooperate with Buyer with respect to Buyer’s need to plan for and coordinate the integration of the Purchased Assets and to prepare to undertake its obligations under the Ancillary Agreements.

 

(b)         Buyer agrees that it will not, and will cause its Representatives not to, use any information obtained pursuant to this Section 5.02 (as well as any other information obtained prior to the date hereof in connection with the entering into of this Agreement) for any purpose unrelated to the consummation of the transactions contemplated by this Agreement.  Subject to the requirements of Applicable Law, and other exceptions set

 

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forth in the Confidentiality Agreement, Buyer will keep confidential, and will cause its Representatives to keep confidential, all information and documents obtained pursuant to this Section 5.02 (as well as any other information obtained prior to the date hereof in connection with the entering into of this Agreement) unless such information (1) was already known to such party, (2) becomes available to such party from other sources not known by Buyer to be bound by a confidentiality obligation, (3) is disclosed with the prior written approval of Seller or (4) is or becomes readily ascertainable from published information or trade sources.  In the event that this Agreement is terminated or the transactions contemplated by this Agreement will otherwise fail to be consummated, Buyer will promptly cause all copies of documents or extracts thereof containing information and data as to Seller, to be returned to Seller at Buyer’s expense, or (at Seller’s option) confirm in writing to Seller that it has completely destroyed all such copies, documents, extracts, information and data.

 

(c)          In addition to the confidentiality arrangements contained in this Agreement, all information provided or obtained in connection with the transactions contemplated by this Agreement (including pursuant to clause (a) above) will be held by Buyer in accordance with and subject to the terms of the Confidentiality Agreement, dated August 28, 2012, between Buyer and Seller (the “Confidentiality Agreement”).  In the event of a conflict or inconsistency between the terms of this Agreement and the Confidentiality Agreement, the terms of the Confidentiality Agreement will govern.

 

(d)         Seller agrees that following the Closing Date, Buyer and its Representatives shall have reasonable access, during normal business hours, to the books, records, documentation, manuals, files and other information or data of Seller to the extent they relate to the Business or Purchased Assets or Assumed Liabilities during the period prior to the Closing Date (and shall permit such Persons to examine and copy such books, records, documentation, manuals, files and other information or data of Seller to the extent reasonably requested by such party), and shall cause the officers and employees of Seller to furnish (to Buyer or any of its Affiliates, or any regulator of Buyer or any of its Affiliates) all information reasonably requested by, and otherwise cooperate with (including, without limitation, causing employees to assist Buyer or any of its Affiliates by requiring such employees to avail themselves for trial, depositions, interviews and other Action-related litigation endeavors) Buyer with respect to the Business, Purchased Assets or Assumed Liabilities, in connection with regulatory compliance, indemnification claim verification, pending or threatened litigation, financial reporting and tax matters (including financial and tax audits and tax contests) and other similar business purposes.  During the period required under the longer of Buyer’s record retention policy or Seller’s record retention policy, Seller shall not destroy or dispose of or permit the destruction or disposition of any such books, records, documentation, manuals, files and other information or data without first offering, in writing, at least sixty (60) days prior to such destruction or disposition to surrender them to Buyer.

 

(e)          Buyer agrees that following the Closing Date, Seller and its Representatives shall have reasonable access, during normal business hours, to the books, records,

 

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documentation, manuals, files and other information or data of Buyer to the extent they relate to the Purchased Assets or Assumed Liabilities during the period prior to the Closing Date (and shall permit such Persons to examine and copy such books, records, documentation, manuals, files and other information or data of Seller to the extent reasonably requested by such party), and shall cause the officers and employees of Buyer to furnish (to Seller or any of its Affiliates, or any regulator of Seller or any of its Affiliates) all information reasonably requested by, and otherwise cooperate with (including, without limitation, causing employees to assist Seller or any of its Affiliates by requiring such employees to avail themselves for trial, depositions, interviews and other Action-related litigation endeavors) Seller with respect to the Purchased Assets or Assumed Liabilities, in connection with regulatory compliance, indemnification claim verification, pending or threatened litigation, financial reporting and tax matters (including financial and tax audits and tax contests) and other similar business purposes.  During the period required under the longer of Buyer’s record retention policy or Seller’s record retention policy, Buyer shall not destroy or dispose of or permit the destruction or disposition of any such books, records, documentation, manuals, files and other information or data without first offering, in writing, at least sixty (60) days prior to such destruction or disposition to surrender them to Seller.

 

(f)           Buyer acknowledges that, in connection with the transfer of the Purchased Assets, and in particular Files and Records and electronically stored data, some portion of such Files and Records and electronically stored data will include information and data that is not part of the Purchased Assets.  To the extent that this data is subject to privacy or other similar regulations, restrictions or rules, Buyer agrees: (i) to maintain all of such information and data in confidence; (ii) not to utilize such data for any purpose whatsoever; and (iii) upon request of Seller, where such information is identified, to transfer and return such data to Seller to the extent reasonably practical.

 

5.03  Transition Services Agreement.  Prior to or simultaneous with the Closing, Seller and Buyer shall execute a transitional services agreement (the “Transition Services Agreement”) in the form attached hereto as Exhibit F, pursuant to which Buyer will agree to perform for Seller certain services and Seller will agree to perform for Buyer certain cervices for a reasonable fee.

 

5.04  Taking of Necessary Action.

 

(a)         Both Seller and Buyer will cooperate and use their respective commercially reasonable efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and Governmental Authorities necessary to consummate the transactions contemplated by this Agreement.  Each of Seller and Buyer will have the right to review in advance, and to the extent practicable each will consult with the other with respect to, all material written information submitted to any third party or any Governmental Authority in connection with the transactions contemplated by this Agreement, in each case subject to Applicable Laws relating to the exchange of information.  In exercising the foregoing right, each of

 

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the parties hereto agrees to act reasonably and as promptly as practicable.  Each of Buyer and Seller commits to submit all required applications or notices to the appropriate Governmental Authorities within 15 Business Days of the date of this Agreement.  Each party hereto agrees that it will consult with the other party hereto with respect to the obtaining of all material permits, consents, approvals and authorizations of all third parties and Governmental Authorities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other party appraised of the status of material matters relating to completion of the transactions contemplated hereby. To the extent necessary, Buyer and Seller shall cause their respective Affiliates to take any action necessary in connection with the foregoing.

 

(b)         On or prior to Closing, Seller shall use commercially reasonable efforts to cause substantially all of its mortgage brokers to consent to an assignment of their existing broker agreements with Seller to Buyer and to execute any document necessary to effectuate such assignment including an addendum to the existing mortgage broker agreement between such broker and Seller.

 

5.05  Disclosure.

 

Except as contemplated by the terms of this Agreement or as may otherwise be required by law, Governmental Authority, Regulatory Authority or the rules and regulations of each stock exchange upon which the securities of any party to this Agreement are listed, neither Seller nor Buyer, nor any of their respective Affiliates, will disclose to any Person not a party hereto (other than Affiliates and Representatives, who shall be bound by this provision) the terms of this Agreement.  Seller and Buyer agree to consult with each other prior to issuing any press release relating to the transactions contemplated by this Agreement.  Seller will not make or deliver any written communication with borrowers or other customers of Seller or with Prospective Employees or Leave Recipients related to the transactions contemplated hereby without the prior consent of Buyer which consent shall not be unreasonably withheld.

 

5.06  No Solicitation.

 

Prior to the Closing only, Seller shall immediately cease and cause to be terminated any activities, discussions or negotiations commenced prior to the date of this Agreement with any parties other than Buyer with respect to the sale of the Business as a whole.

 

5.07  Non-Competition Agreement.

 

For a period from the Closing Date until the third anniversary of the Closing Date, Seller shall not in the United States (i) directly or indirectly, either as a principal, partner, agent, manager, stockholder, director, officer, employee, consultant or in any other capacity, enter into or conduct a business that competes in the Business, other than the disposition of the Excluded Assets to third parties in which no Key Employee has an ownership, employment or consulting interest (the “Restricted Business”); provided,

 

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however, that passive ownership of less than 5% of the voting stock of any corporate entity engaged in the Restricted Business shall not constitute a violation hereof or (ii) acquire or enter into an agreement to acquire or merge or consolidate with any corporation or other business entity whose primary business on a consolidated or combined basis with all its Affiliates is the Restricted Business.  Notwithstanding the foregoing, nothing in this Section 5.07 shall be deemed to restrict any broker dealer or asset management businesses or activities.

 

5.08  Non-Solicitation of Employees.

 

For the period from the Closing Date until the third anniversary of the Closing Date, Seller shall not directly or indirectly solicit for employment, retain as an independent contractor or consultant, induce to terminate employment with Buyer or otherwise interfere with Buyer’s employment relationship with any Transferred Employee as of the date of this Agreement; provided, however, that this Section 5.08 shall not apply (a) if any such employee has been terminated by Buyer or any of its Affiliates for any reason, or by Seller at Buyer’s request or (b) if such employee is hired by a Seller as a result of a general solicitation for employment in newspaper advertisements, websites or other media of general solicitation not specifically targeted to employees of Buyer; or (c) if Buyer indicates by written consent that this Section 5.08 shall not apply to a specific employee.

 

5.09  Parent Guarantee.

 

To induce Buyer to enter into this Agreement, and to enter into and perform various transactions contemplated hereby, for a period of three years from the Closing Date, Parent absolutely, unconditionally and irrevocably guarantees to Buyer and its successors and permitted assigns, the prompt and complete payment and performance as and when due (whether at stated maturity, by acceleration or otherwise), of all existing and future obligations of Seller to Buyer under, pursuant to or in connection with Article X of this Agreement, provided that the maximum liability of Parent with respect to such guarantee shall not exceed $2,500,000 (the “Guaranteed Amount”), provided further that if during the three-year period following the Closing Date the payment of sums from the Escrow Amount is unavailable for immediate payment, for any reason, at the time at which a payment under an indemnity claim made pursuant to the provisions set forth in Article X of this Agreement would otherwise be required to be made pursuant to the terms of the Escrow Agreement and such circumstances have not arisen as a result of full or partial exhaustion of the Escrow Amount by previous indemnity claims of Buyer, Buyer and its successors and permitted assigns may instead pursue payment of such indemnity claim under this guarantee to the extent of the Escrow Amount that is unavailable as a result of the foregoing and in any case only up to a maximum of $7,500,000 (inclusive of the Guaranteed Amount) cumulatively for such claims under such conditions (the “Alternative Guaranteed Amount”).  Buyer shall make all claims against the Guaranteed Amount or the Alternative Guaranteed Amount, as applicable, mutatis mutandis in accordance with the procedures set forth in Section 10.05. Parent’s

 

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obligations hereunder are primary and not secondary and are unconditional and shall not be affected by any other circumstance relating to the guarantee that might otherwise constitute a legal or equitable discharge of or defense to this guarantee (excluding the defense of payment, which is not waived).  This is a guarantee of payment and not a guarantee of collection, and Parent agrees that Buyer may resort to Parent for payment of any of the guarantee owed to it whether or not Buyer shall have proceeded against Seller for any of the obligations giving rise to the guarantee and whether or not Buyer has pursued any other remedy available to it.  Buyer shall not be obligated to file any claim relating to the guarantee in the event that Seller becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of Buyer to so file shall not affect Parent’s obligations hereunder.

 

5.10  Pipeline Loans.

 

On the date that is one (1) Business Day prior to the Closing Date, Seller shall deliver to Buyer a report of Seller’s Pipeline Loans as of such date prepared by the Mortgage Industry Advisory Corporation.

 

5.11  Use of Name.

 

Seller, Holdco and Parent agree, for themselves and their Affiliates, that from and after the Closing none of them will use the name “ClearPoint” or any abbreviation of or derivation from that name or any name similar to it in any form whatsoever, including in respect of advertising and promotional materials, provided that Buyer hereby grants to Seller a limited license permitting Seller to use the name “ClearPoint”, (i) during the term of the Transition Services Agreement, strictly in connection with the services Seller shall provide to Buyer pursuant to the Transition Services Agreement, (ii) in connection with filings with Governmental Authorities and Regulatory Authorities and (iii) in connection with the filing of Tax Returns.  Notwithstanding the foregoing, Buyer acknowledges and agrees that nothing contained in this Agreement shall require Seller to amend its certificate or articles of incorporation or similar governing document to change its legal name.

 

ARTICLE VI

 

Employee Matters

 

6.01                        Employees and Service Crediting.

 

(a)         Offer of Employment with Buyer to Non-Key Employees.  Not later than ten (10) days before the Closing Date, Buyer shall make a written offer of employment to each Employee whom Buyer elects to employ and, subject to subsection (c) below, to each Leave Recipient, and subject to Buyer’s pre-employment background check.  Such offer shall include total cash compensation until December 31, 2013 that is Comparable Cash Compensation, where “Comparable Cash Compensation” means cash compensation that in the aggregate is comparable to the total cash compensation

 

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(including, but not limited to, short-term and long-term bonus opportunities and commission/incentives opportunities) provided by Seller to the relevant employee as of the Closing.  Seller shall cooperate with and use reasonable efforts to assist Buyer in its efforts to secure reasonably satisfactory employment arrangements with the Prospective Employees.  Each Prospective Employee who accepts an offer of employment with Buyer shall become an employee of Buyer on the Closing Date, and shall be referred to herein as a “Transferred Employee”.

 

(b)         Seller Prospective Employees.  Seller shall furnish to Buyer an updated list of all Employees on Seller payroll date up to the Closing.  The list shall indicate each Employee’s name, hire date, job title, supervisor, salary, and employment status.

 

(c)          Special Provisions for Leave Recipients.

 

(1)         With respect to any Prospective Employee who is not actively at work on the Closing Date as a result of short-term disability leave, or other approved personal leave (including, without limitation, military leave with reemployment rights under federal law and leave under the Family Medical Leave Act of 1993) (collectively, the “Leave Recipients”), Buyer will explain to Leave Recipients Buyer’s intention to make an offer of employment in the manner required by Section 6.01(a) contingent on such Prospective Employee’s return to active status at the termination of such disability or approved leave of absence, respectively, provided that he or she returns to active service before the later of (A) the end of the Leave Period or (B) the date such employee’s reemployment rights expire under Applicable Laws or under the Compensation and Benefit Plans.  In no event shall a Leave Recipient exceed six (6) months of leave from the Closing Date to be considered a Transferred Employee, subject to Applicable Laws.

 

(2)         When the Leave Recipient returns to active status pursuant to the terms of clause (1) above, such Leave Recipient shall be considered a Transferred Employee (as defined above) and the following provisions shall apply: (A) the Leave Recipient shall become eligible for coverage and benefits under all employee benefit plans or programs maintained by Buyer under the same terms and conditions that apply to other Transferred Employees; and (B) the Leave Recipient’s period of leave shall be treated as a period of service under the employee benefit plans and programs of Buyer to the same extent as if the Leave Recipient had received benefits under a similar plan or was subject to a similar policy of Seller except to the extent such service credit will result in duplication of benefits to the Leave Recipient.

 

(d)         Recognition of Service. For purposes of eligibility, vesting, paid time off entitlement and severance benefits under all employee compensation and benefit plans of Buyer, each Transferred Employee shall receive full credit from Buyer for all prior service properly credited under the Compensation and Benefit Plans if and to the extent Buyer maintains comparable compensation and benefit plans.  The schedule of service

 

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provided by Seller prior to closing may be conclusively relied upon by Buyer in crediting service in accordance with this Section 6.01(d).  The Buyer shall cause the applicable Buyer’s compensation and benefit plan to accept eligible rollover distributions (as defined in Section 402(c)(4) of the Code and inclusive of any outstanding participant loans) on behalf of the Transferred Employee with respect to any account balances distributed on or after the Closing Date by the applicable Compensation and Benefit Plan.  The distributions and rollovers described herein shall comply with applicable law, and each party shall make all filings and take any actions required of such party under applicable law in connection therewith.  Seller agrees to fully vest each Transferred Employee’s account in the Compensation and Benefit Plans effective as of the Closing Date and, as directed by the Transferred Employee, transfer or cause to be transferred their account balances to the specified Buyer’s compensation and benefit plan.

 

(e)          Certain Severance Obligations.  Buyer and Seller acknowledge that there are certain Employees whom Buyer is willing to employ for a short period following the Closing to assist with the transition, but with respect to whom Buyer does not desire to employ following the transition and would not offer to employ if Buyer was subject to severance obligations with respect to such Employees (each such Employee a “Designated Employee”).  Accordingly, Seller will pay to Buyer (i) the Severance Benefits for each Designated Employee set forth in Exhibit E, in the amounts set forth in Exhibit E and (ii) one-half (1/2) of the Retention Bonuses required to retain each such Designated Employee through the twenty-eight (28) day period after the Closing Date, in the amounts set forth in Exhibit E. Such payments shall be made by Seller at the Closing pursuant to Section 2.02(a).

 

(f)           Welfare Plans and Other Unfunded Plans.  Buyer shall offer coverage under employer-sponsored medical and dental plans and agree to cause each of such medical and dental plans that provides coverage to a Transferred Employee to (A) waive any pre-existing conditions, waiting periods and actively at work requirements under such plans, and (B) cause such plans to honor any expenses (including any expenses paid for purposes of satisfying applicable deductibles, co-insurance and maximum out-of-pocket limits) incurred by the Transferred Employees and their beneficiaries under similar plans of Seller during the portion of the calendar year prior to the Closing Date for purposes of satisfying applicable deductible and maximum out-of-pocket expenses under Buyer’s plans, if and to the extent Buyer maintains comparable plans.

 

(g)          Time Off.  On the Closing Date, Seller shall pay out to each Transferred Employee an amount in cash equal to the time off benefits earned but not yet used by such employee as of the Closing Date, if any.

 

(h)         WARN Act and Health Care Continuance Requirements.  Buyer shall be responsible for providing or discharging any and all notifications, benefits, and liabilities to Transferred Employees and Governmental Authorities required by the WARN Act or by any other Applicable Law relating to plant closings or employee separations or severance pay that are first required to be provided or discharged on or after the Closing

 

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Date, including pre-closing notice or liabilities if actions by Buyer on or after the Closing Date result in a notice requirement or liability under such laws.  Upon Buyer’s reasonable request, during the period between the Effective Time and Closing, Seller shall provide any notification described under the WARN Act to any Prospective Employees identified by Buyer, in order to attempt to minimize Buyer’s liability under the first sentence of this subsection.  Seller shall be responsible for providing or discharging all such notifications, benefits and liabilities to Employees whom Buyer elects not to hire.  Seller shall sponsor and provide coverage under a group health plan (within the meaning of Section 4980B(g)(2) of the Code) to each Employee or former employee of Seller or a subsidiary of Seller (i) who immediately prior to the Closing (or, in the case of a former employee, immediately prior to termination of employment) provided services for Seller (including as a leased employee), (ii) who is not employed by Buyer immediately after the Closing and (iii) to whom Seller or Buyer is obligated to provide continued group health plan benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) on and after the Closing Date.  All employees involuntarily separated from employment by Seller within 90 days of the Closing Date, the involuntary separation of whom could result in a notice requirement covered by this Section, shall be identified on a schedule to be prepared by Seller and submitted to Buyer on the Closing Date.  Buyer and Seller shall cooperate with each other to provide timely notice, if required, to any Governmental Authority of the consummation of this Agreement and the related transfer of employees.  Seller shall retain the obligations with respect to COBRA continuation coverage for all Prospective Employees who are not Transferred Employees.

 

ARTICLE VII

 

Conditions To The Closing

 

7.01  Conditions to Each Party’s Obligation to Effect the Purchase.

 

The respective obligations of each of Seller and Parent, on the one hand, and Buyer, on the other hand, to consummate the Purchase are subject to the fulfillment or written waiver, at or prior to the Closing Date, of each of the following conditions:

 

(a)         Regulatory Approvals.  All Governmental Authority approvals required to consummate the transactions contemplated hereby will have been obtained and will remain in full force and effect and all statutory waiting periods in respect thereof will have expired.

 

(b)         No Injunction.  No Governmental Authority of competent jurisdiction will have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the transactions contemplated by this Agreement as a whole.

 

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7.02  Conditions to Obligation of Buyer.

 

The obligations of Buyer to consummate the Purchase are also subject to the fulfillment or written waiver, at or prior to the Closing Date, of each of the following conditions:

 

(a)         Representations and Warranties.  The representations and warranties of Seller set forth in this Agreement will be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties that by their terms speak as of the date of this Agreement or some other date will be true and correct in all material respects as of such date only) and Buyer will have received certificates, dated the Closing Date, signed on behalf of Seller to such effect; provided, however, that for purposes of determining the satisfaction of this condition, no effect shall be given to any exception or qualification in such representations and warranties relating to materiality or Knowledge.

 

(b)         Performance of Obligations of Seller.  Seller will have performed in all material respects all agreements, covenants and obligations required to be performed by it under this Agreement at or prior to the Closing Date and Buyer will have received certificates, dated the Closing Date, signed on behalf of Seller to such effect.

 

(c)          Third Party Consents.  All material consents or approvals of all Persons, other than Governmental Authorities, required for or in connection with the execution, delivery and performance of this Agreement (including consummation of the Purchase) will have been obtained and will be in full force and effect; provided, however, that all consents and approvals listed in Section 7.02(c) of the Seller’s Disclosure Letter and all consents and approvals with respect to agreements listed in Section 7.02(c) of the Seller’s Disclosure Letter must be obtained and in full force and effect.  Notwithstanding anything in this section to the contrary, the required consents shall mean and include consents by landlords and lessors to assignments of those Leases and consents by landlords and lessors to those subleases to Buyer specifically identified in Section 7.02(c) of the Seller’s Disclosure Letter.

 

(d)         MAE.  A Material Adverse Effect shall not have occurred.

 

(e)          Legal Opinions. Buyer shall have received legal opinions from counsel to Seller dated the Closing Date and addressed to Buyer, in the forms attached hereto as Exhibit G and Exhibit K.

 

(f)           Transition Services Agreement.  Seller and Buyer shall have entered into the Transition Services Agreement.

 

(g)          Key Employees.  The Key Employees shall have entered into Employment Agreements substantially in the form attached hereto as Exhibit D simultaneously with the execution of this Agreement.

 

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(h)         Final Settlement Statement.  Seller shall have delivered the Final Settlement Statement to Buyer at least one (1) Business Day prior to Closing.

 

7.03  Conditions to Obligations of Seller.

 

The obligations of Seller and Parent to consummate the Purchase are also subject to the fulfillment or written waiver, at or prior to the Closing Date, of each of the following conditions:

 

(a)         Representations and Warranties.  The representations and warranties of Buyer set forth in this Agreement will be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties that by their terms speak as of the date of this Agreement or some other date will be true and correct in all material respects as of such date only) and Seller will have received a certificate, dated the Closing Date, signed on behalf of Buyer to such effect; provided, however, that for purposes of determining the satisfaction of this condition, no effect shall be given to any exception or qualification in such representations and warranties relating to materiality or Knowledge.

 

(b)         Performance of Obligations of Buyer.  Buyer will have performed in all material respects all agreements, covenants and obligations required to be performed by it under this Agreement at or prior to the Closing Date and Seller will have received a certificate, dated the Closing Date, signed on behalf of Buyer to such effect.

 

(c)          Third Party Consents. All material consents or approvals of all Persons, other than Governmental Authorities, required for or in connection with the execution, delivery and performance of this Agreement (including consummation of the Purchase) will have been obtained and will be in full force and effect; provided, however, that all consents and approvals listed in Section 7.02(c) of the Seller’s Disclosure Letter and all consents and approvals with respect to agreements listed in Section 7.02(c) of the Seller’s Disclosure Letter must be obtained and in full force and effect.  Notwithstanding anything in this section to the contrary, the required consents shall mean and include consents by landlords to assignments of the leases and consents by landlords to subleases to Buyer.

 

(d)         Consent of Warehouse Line Lenders.  Each of (i) the consent of each of the Warehouse Line Lenders to the transactions contemplated by this Agreement; and (ii) such agreements as are necessary to terminate the Warehouse Line Guarantees and wind down the credit lines provided by the Warehouse Line Lenders shall be in full force and effect.

 

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ARTICLE VIII

 

Termination

 

8.01  Termination.

 

This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date:

 

(a)         Mutual Consent.  By the mutual written consent of Seller and Buyer.

 

(b)         Breach.  By Seller or Buyer, by written notice, in the event of either: (1) a breach in any material respect by the other party of any representation or warranty contained herein, which breach cannot be cured or which has not been cured within 30 days after the giving of written notice to the breaching party of such breach, or (2) a breach in any material respect by the other party of any of the covenants or agreements contained herein, which breach cannot be cured or which has not been cured within 30 days after the giving of written notice to the breaching party of such breach.

 

(c)          Delay.  By Seller or Buyer, by written notice, in the event that the Purchase is not consummated by the first day of the month after the month in which the six-month anniversary of execution of this Agreement occurs, except to the extent that the failure of the Purchase then to be consummated arises out of or results from the action or inaction of the party seeking to terminate pursuant to this Section 8.01(c).

 

(d)         No Approval.  By Seller or Buyer, by written notice, in the event the approval of any Governmental Authority required for consummation of the transactions contemplated hereby will have been denied by final nonappealable action of such Governmental Authority or if such Governmental Authority will have issued an order, decree or ruling or taken any other action in effect permanently restraining, enjoining or otherwise prohibiting consummation of the transactions contemplated by this Agreement, and such order, decree, ruling or other action will have become final and nonappealable, unless the failure to obtain any such approval is not reasonably likely to have a Material Adverse Effect on the Business.

 

8.02  Effect of Termination and Abandonment.

 

In the event of termination of this Agreement and the abandonment of the Purchase pursuant to this Article VIII, no party to this Agreement will have any liability or further obligation to any other party to this Agreement, except (a) for obligations arising under Sections 5.02(b), 5.02(c) and 5.05, this Section 8.02 and Article XI and (b) that termination will not relieve a breaching party from liability for any willful breach of this Agreement giving rise to such termination.

 

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ARTICLE IX

 

Tax Matters

 

9.01  Tax Matters; Access.

 

(a)         Seller shall be liable for and shall pay any and all Taxes applicable to the Business or the Purchased Assets attributable to periods (or portions thereof) ending on the Closing Date.  Buyer shall be liable for and shall pay all Taxes applicable to the Business or the Purchased Assets attributable to periods (or portions thereof) beginning on the day following the Closing Date.  Buyer and Seller agree to utilize, or cause their respective Affiliates to utilize, the standard procedure set forth in Revenue Procedure 90-60 with respect to wage reporting.

 

(b)         Notwithstanding anything else in this Agreement to the contrary, Seller agrees to pay on a timely basis all applicable transfer, sales, use, recording, registration and other similar Taxes (excluding any income or similar Taxes) (collectively, the “Transfer Taxes”) arising out of the sale of the Purchased Assets and the Business to Buyer.  Buyer and Seller shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications or other documents regarding any Transfer Taxes that become payable in connection with the transactions contemplated by this Agreement.  Buyer and Seller shall jointly participate in the defense and settlement of any audit of, dispute with taxing authorities regarding, and any judicial or administrative proceeding relating to the liability for Transfer Taxes incurred in connection with this Agreement; provided, that neither Party shall settle any such audit, examination or proceeding without the prior written consent of the other Party, which consent shall not be unreasonably withheld.  Each Party shall bear its own costs in participating in any such audit, examination or proceeding.

 

(c)          Seller or Buyer, as the case may be, shall reimburse any Tax paid by one Party all or a portion of which is the responsibility of the other Party in accordance with the terms of this Section 9.01.  Within a reasonable time prior to the payment of any such Tax, the Party paying such Tax shall give notice to the other Party of the Tax payable and the portion which is the liability of each Party, although failure to do so will not relieve the other Party from its liability hereunder.

 

(d)         Buyer shall promptly notify Seller in writing upon receipt by Buyer of notice of any pending or threatened federal, state, local or foreign Tax audits, examinations or assessments which may materially affect the Tax liabilities which are the responsibility of Seller pursuant to this Section 9.01.  Seller shall have the sole right to control any Tax audit or administrative or court proceeding relating to Tax periods ending at the time of or before the Closing, and to employ counsel of its choice at its expense.

 

(e)          After the Closing, each of Seller and Buyer shall, as reasonably requested by the other party: (A) assist the other Party in preparing any Tax Returns relating to the Business which such other Party is responsible for preparing and filing; (B) cooperate

 

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fully in preparing for any audit of, or dispute with taxing authorities regarding, and any judicial or administrative proceeding relating to, liability for Taxes, in the preparation or conduct of litigation or investigation of claims, and in connection with the preparation of financial statements or other documents to be filed with any Governmental Entity, in each case with respect to the Business or the Purchased Assets; (C) make available to the other and to any Governmental Entity as reasonably requested all information, records, and documents relating to Taxes relating to the Business or the Assets (at the cost and expense of the requesting party); (D) provide timely notice to the other in writing of any pending or threatened Tax audits or assessments relating to the Business or the Assets for taxable periods for which the other Party is responsible under this Section 9.01; and (E) furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax audit or information request with respect to any Tax periods for which the other is responsible under this Section 9.01.  Any information obtained pursuant to this Section 9.01 or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other schedule relating to Taxes shall be kept confidential by the parties hereto, except to the extent such information is required to be disclosed by law, regulation or judicial order.

 

(f)           Taxes imposed on the Purchased Assets or Business for any taxable period that includes (but does not end on) the Closing Date (a “Straddle Period”), shall be prorated as of the Closing Date, with Seller liable for such Taxes to the extent such items relate to the portion of the period through the end of the Closing Date (the “Pre-Closing Period”).  In the case of any Straddle Period, the amount of any Taxes based on or measured by income or receipts for the Pre-Closing Period shall be determined based on an interim closing of the books as of the close of business on the Closing Date and the amount of other Taxes that relates to the Pre-Closing Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the total number of days in such Straddle Period.  Buyer shall prepare and timely file all Tax Returns required to be filed in connection with the Business or the Purchased Assets for the Straddle Period (such Tax Returns, the “Straddle Period Tax Returns”).  All such Straddle Period Tax Returns shall be prepared and filed in a manner that is consistent with the prior practice, except as required by the Applicable Law.  Buyer shall deliver drafts of all such Straddle Period Tax Returns to Seller for their review at least 10 days prior to the due date of any such Tax Return (taking into account valid extensions) and shall notify Seller of Buyer’s calculation of Seller’s share of the Taxes of the Business for the Straddle Period; provided, however, that such drafts of any such Straddle Period Tax Returns and such calculations of Seller’s share of the Tax liability for such Straddle Period shall be subject to Seller’s review and approval, which approval shall not be unreasonably withheld or delayed.  If Seller disputes any item on such Tax Return, they shall notify Buyer (by written notice within 10 days of receipt of Buyer’s calculation) of such disputed item (or items) and the basis for its objection.  If Seller does not object by written notice within such period, Buyer’s calculation of Seller share of the Taxes for the Straddle Period shall be deemed to have been accepted and agreed upon, and final and conclusive, for all purposes hereof.  The Parties shall act in

 

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good faith to resolve any such dispute prior to the date on which the Tax Return is required to be filed.  If the Parties cannot resolve any disputed item, the item in question shall be resolved by an independent auditor in accordance with the standards set forth in this Section 9.01 and as promptly as practicable.  No later than five (5) days prior to the filing of such Tax Return, Seller shall pay Buyer in immediately available funds the amount of Seller’s share of the Tax liability for the Straddle Period determined under this Section 9.01.  Subject to the preceding sentence, Buyer shall pay or cause to be paid all Taxes due and payable in respect of all such Straddle Period Tax Returns.

 

(g)          On or prior to the Closing Date, Seller will furnish to Buyer a certificate, in the form acceptable to Buyer, stating, under penalties of perjury, Seller’s taxpayer identification number, and that such Seller or relevant Affiliate is not a foreign person in accordance with Section 1445(b)(2) of the Code.

 

ARTICLE X

 

Indemnification

 

10.01  Indemnification.

 

(a)         Seller shall indemnify and hold harmless Buyer and its Affiliates, each of their respective directors, officers, employees and agents, and each of the respective heirs, executors, successors and assigns of any of the foregoing (collectively, the “Buyer Indemnified Parties”) from and against any and all Liabilities incurred by or asserted against any of Buyer Indemnified Parties in connection with or directly or indirectly arising or resulting from:

 

(i)                                     any breach of any representation, warranty or agreement made by, or on behalf of, Seller under this Agreement or the Ancillary Agreements;

 

(ii)                                  any failure by Seller or Parent to duly and timely perform or fulfill any of its covenants or agreements required to be performed by Seller or Parent under this Agreement or the Ancillary Agreements;

 

(iii)                               any Tax or Lien for Taxes imposed upon any of the Excluded Assets, any of the Excluded Liabilities or the Business, the Purchased Assets or the Assumed Liabilities for any period on or prior to the Closing Date and any audit or judicial or administrative proceedings or determinations relating to such Taxes or such Liens;

 

(iv)                              any litigation, claims, actions, arbitrations or investigations or other proceedings before any Governmental Authority pending or

 

49

 

threatened as of the Closing Date against Seller, Purchased Assets or Assumed Liabilities;

 

(v)                                 any Excluded Assets;

 

(vi)                              any Excluded Liabilities, including, for the avoidance of doubt, any acts occurring in connection with the origination, sale or servicing of any Mortgage Loan consistent with the obligations and requirements under the Correspondent Loan PSA, which are incorporated herein by reference; and

 

(vii)                           the operation of the Business or ownership of the Assets prior to the Effective Date, except for any liability under any contract expressly assumed by Buyer, the performance of which was not due or owing on or prior to the Effective Date.

 

provided, however, that any indemnification obligation under Sections 10.01(a)(i) and 10.01(a)(ii) shall be subject to the limitations provided in Section 10.3 and there shall be excluded from the indemnification obligation any Liabilities resulting from a fact or circumstance that constitutes a breach by Buyer of any representation, warranty or agreement set forth in this Agreement.

 

(b)         If the Closing occurs, Buyer shall indemnify and hold harmless Seller and Seller’s Affiliates, each of their respective directors, officers, employees and agents, and each of the respective heirs, executors, successors and assigns of any of the foregoing (collectively, the “Seller Indemnified Parties”) from and against any and all Liabilities incurred by or asserted against any of Seller Indemnified Parties in connection with or directly or indirectly arising or resulting from:

 

(i)                                     any breach of any representation, warranty or agreement made by, or on behalf of, Buyer under this Agreement;

 

(ii)                                  any failure by Buyer to duly and timely perform or fulfill any of its covenants or agreements required to be performed by Buyer under this Agreement or the Ancillary Agreements;

 

(iii)                               any Tax or Lien for Taxes imposed upon any of the Purchased Assets, any of the Assumed Liabilities or the Business for any period after the Closing Date and any audit or judicial or administrative proceedings or determinations relating to such Taxes or such Liens;

 

(iv)                              any Assumed Liabilities;

 

(v)                                 any Purchased Assets; and

 

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(vi)                              the operation of the Business or the Purchased Assets from and after the Closing Date.

 

provided, however, that any indemnification obligations under Sections 10.01(b)(i) and 10.01(b)(ii) shall be subject to the limitations provided in Section 10.3 and there shall be excluded from the indemnification obligation any Liabilities resulting from a fact or circumstance that constitutes a breach by Seller of any representation, warranty or agreement set forth in this Agreement.

 

10.02  Survival Periods.

 

(a)         The obligations to indemnify and hold harmless the Buyer Indemnified Parties and the Seller Indemnified Parties (collectively, the “Indemnified Parties”) will survive the Closing (a) indefinitely with respect to the representations and warranties contained in Sections 4.02(a) [organization, standing and authority], 4.02(b) [corporate authority], 4.02(d)(1) [title to purchased assets], 4.02(i) [no brokers], 4.03(a) [organization, standing and authority], and 4.03(b) [corporate authority], (b) until 60 calendar days after the expiration of all applicable statutes of limitation (including all periods of extension, whether automatic or permissive) with respect to the matters contained in Section 4.02(j) [taxes] and (c) until the third anniversary of the Closing Date (the “Cut-Off Date”) in the case of all other representations and warranties.  Notwithstanding the foregoing, any obligation in respect of a claim for indemnity that is asserted in writing with reasonable specificity as to the nature and, if then determinable, amount of the claim prior to the Cut-Off Date shall survive past such date until finally resolved or settled.

 

(b)         No Action may be commenced or indemnification sought under this Article X unless written notice, setting forth in reasonable detail the claimed breach thereof, shall be delivered pursuant to Sections 10.05 and 11.01 to the party against whom indemnification is sought (the “Indemnifying Party”) prior to the Cut-Off Date.

 

(c)          For purposes of this Agreement, a party’s representations and warranties shall be deemed to include such party’s Disclosure Letter and all other documents or certificates delivered by or on behalf of such party in connection with this Agreement.  No party’s rights hereunder (including rights under this Article X) shall be affected by any investigation conducted by or any knowledge acquired (or capable of being acquired) by such party at any time, whether before or after the execution or delivery of this Agreement or the Closing, or by the waiver of any condition to Closing.

 

10.03  Limitations on Indemnity.

 

(a)         The maximum liability of Seller and Parent under Sections 10.01(a) shall not exceed $7,500,000 in the aggregate.

 

(b)         Nothing in this Agreement shall in any way limit the obligations of, an indemnifying party under Section 10.01 to pay all defense costs in respect of third-party claims.

 

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(c)          Buyer agrees that the amount claimed in respect of each claim asserted for indemnity under Section 10.01 and under the Escrow Agreement shall be asserted by Buyer in good faith and shall bear a reasonable relationship to the estimated Liabilities incurred or to be incurred by Buyer in respect of such claim, to the extent that such amount is then determinable.  Following the Closing and prior to the termination of the Escrow Agreement, all claims for indemnity under Section 10.01(a) shall be paid first out of the Escrow Amount pursuant to the terms of the Escrow Agreement and second out of the Guaranteed Amount or Alternative Guaranteed Amount, as applicable, made available by Parent pursuant to Section 5.09.

 

(d)         In no event shall any party be liable for any incidental, consequential, indirect or special losses or damages (including, without limitation, lost profits, lost revenues or loss of business), whether foreseeable or not, whether occasioned by any failure to perform or the breach of any representation, warranty, covenant or other obligation under this Agreement for any cause whatsoever, other than such damages or losses awarded to a third party.  Without limiting the general applicability of the foregoing, for the purposes of the indemnification obligations of any party, the terms “Liability” and “Damages” shall not include any of the incidental, consequential, indirect or special losses or damages set forth in the preceding sentence, other than such damages or losses awarded to a third party.

 

(e)          Notwithstanding the foregoing, the limitations on liability contained in this Section 10.03 shall not apply to any claim for indemnity based on any of Sections 4.02(a) [organization, standing and authority], 4.02(b) [corporate authority], 4.02(d)(1) [title to purchased assets], 4.02(i) [no brokers], 4.03(a) [organization, standing and authority], 4.03(b) [corporate authority], and Section 4.02(j) [taxes].

 

10.04  Exclusive Remedy.

 

Following the Closing, except for claims for fraud, indemnification pursuant to the provisions of this Article X shall be the sole and exclusive remedy of the parties and the claiming party shall not be entitled to any other monetary remedy.

 

10.05  Notice and Determination of Claims.

 

If any Indemnified Party believes that it has sustained or incurred any Liabilities for which it may be entitled to indemnification, such Indemnified Party shall so notify the Indemnifying Party promptly in writing of any such claim specifying the basis hereunder upon which the Indemnified Party’s claim for indemnification is asserted.

 

10.06  Third-Party Claims.

 

(a)         If a claim by a third party (a “Third-Party Claim”) is made against an Indemnified Party and if such Indemnified Party intends to seek indemnity with respect thereto under this Article X, such Indemnified Party shall promptly notify in writing the Indemnifying Party of such claims; provided that failure to promptly notify the

 

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Indemnifying Party will not relieve the Indemnifying Party of any liability it may have to the Indemnified Party, except to the extent that the Indemnifying Party demonstrates that the defense of such Third Party Claim is prejudiced by the indemnified party’s failure to give notice within such time period.

 

(b)         The Indemnifying Party shall have 30 days after receipt of such notice to undertake, conduct and control, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and the Indemnified Party shall cooperate with it in connection therewith; provided that the Indemnifying Party shall permit the Indemnified Party to participate in such settlement or defense through counsel chosen by such Indemnified Party (subject to the consent of the Indemnifying Party, which consent will not be unreasonably withheld), provided that the fees and expenses of such counsel shall be borne by such Indemnified Party.  If the Indemnifying Party is reasonably contesting any such claim, the Indemnified Party shall not pay or settle any such claim.  The Indemnifying Party shall not enter into any settlement of the Third Party Claim unless (A) there is no finding or admission of any violation of Applicable Law, the sole relief provided is monetary damages that are paid in full by the Indemnifying Party, and the Indemnified Party or its Affiliates shall have no liability with respect to any compromise or settlement of such Third-Party Claim, or (B) the Indemnified Party consents in writing to such settlement, which consent is not to be unreasonably withheld.  If the Indemnified Party withholds its consent to any proposed settlement, and the final resolution of such Third Party Claim is less favorable than the proposed settlement, Indemnified Party shall bear and pay all reasonable costs and expenses incurred by the Indemnified Party following such refusal to settle and any additional settlement or judgment costs.

 

(c)          If the Indemnifying Party does not notify the Indemnified Party in writing within 30 days after the receipt of the Indemnified Party’s written notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement; provided that, in such event, the Indemnified Party shall seek the prior consent of the Indemnifying Party to any such settlement, which such consent will not be unreasonably withheld or delayed.

 

(d)         With respect to any Third-Party Claim subject to indemnification under this Article X, (i) both the Indemnified Party and the Indemnifying Party, as the case may be, shall keep the other party reasonably informed of the status of such Third-Party Claim and any related proceedings at all stages thereof, (ii) render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any Third-Party Claim and (iii) with respect to any Third-Party Claim subject to indemnification under this Article X, cooperate in such a manner as to preserve in full (to the extent possible) the confidentiality of all confidential information and the attorney-client and work-product privileges.

 

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ARTICLE XI

 

General Provisions

 

11.01                 Notices.

 

All notices and other communications required or permitted to be given hereunder shall be in writing and shall be deemed given if delivered personally, transmitted by facsimile (and telephonically confirmed), mailed by registered or certified mail with postage prepaid and return receipt requested, or sent by commercial overnight courier, courier fees prepaid, to the parties at the following addresses:

 

(a)         if to Buyer, to it at:

 

Homeward Residential, Inc.
 1000 Bishops Gate Boulevard, Suite 210
 Mt. Laurel, NJ 08054 
 Attention:  Bruce P. Bowen  
 E-Mail:  bruce.bowen@gohomeward.com 
 Facsimile:                 972-829-7213

 

with copies to:

 

Lowenstein Sandler LLP

251 Avenue of the Americas

7th Floor

New York, New York 10020

Attention:  Jonathan C. Wishnia  
 Facsimile:  973-597-2543

 

(b)         if to Seller, to it at:

 

Gleacher & Company  
 1290 Avenue of the Americas
 New York, NY 10104
 Attention:  Patricia Arciero-Craig    
 Facsimile:  1-800-887-4129

 

with copies to:

 

Covington & Burling LLP

 

54

 

The New York Times Building
 620 Eighth Avenue  
 New York, NY  
 Attention:  Donald J. Murray

Jack S. Bodner

Facsimile:  1-212-841-1010

 

or to such other Person or address as either party shall specify by notice in writing to the other party in accordance with this Section 11.01. All such notices or other communications shall be deemed to have been received on the date of the personal delivery or facsimile transmission (with telephone confirmation) or on the third Business Day after the mailing or dispatch thereof; provided that notice of change of address shall be effective only upon receipt.

 

11.02  Amendment and Modification; Waiver.

 

(a)         This Agreement and the Disclosure Letter may not be amended except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto.

 

(b)         At any time prior to the Closing Date, any party hereto which is entitled to the benefits hereof may, by an instrument in writing, (i) extend the time for the performance of any of the obligations or other acts of the other party, (ii) waive any inaccuracy in the representations and warranties of the other party contained herein or in any schedule hereto or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements of the other party or conditions contained herein.  Any agreement on the part of a party hereto to any such extension or waiver shall be valid if set forth in an instrument in writing signed and delivered on behalf of such party.

 

11.03  Entire Agreement.

 

This Agreement (including the Disclosure Letter and Exhibits (but excluding the Ancillary Agreements)) constitute the entire agreement and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.

 

11.04  Fees and Expenses.

 

Except as otherwise expressly provided herein, Seller shall be responsible for all transfer and recording fees, costs with respect to delivery of the custodial and other loan files and mortgage servicing records relating to the Pipeline Loans and other related costs incurred by Seller in its performance of its obligations under this Agreement, together with fees of Seller’s document custodian, attorneys and accountants.  Buyer shall pay all data processing costs incurred by Buyer in connection with this Agreement, and other related costs of Buyer in its performance of its obligations under this Agreement, together with fees of Buyer’s attorneys and accountants.

 

55

 

11.05  Third Party Beneficiaries.

 

Nothing in this Agreement, express or implied, is intended to confer upon any Person (including, without limitation, employees of Seller) other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

11.06  Assignment; Binding Effect.

 

This Agreement shall not be assigned by Seller (other than Seller may assign any right to payment until payment of the Final Purchase Price hereto) without the prior written consent of Buyer; provided, however, that this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.  This Agreement may not be assigned by Buyer, except to any Affiliate of Buyer or to an entity that acquires the origination business of Buyer.

 

11.07  Governing Law.

 

This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within the State of New York, without regard to the conflicts of law principles of the State of New York.

 

11.08  Waiver of Jury Trial.

 

Each party hereto acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement, or the transactions contemplated by this Agreement.  Each party certifies and acknowledges that (a) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (b) each party understands and has considered the implications of this waiver, (c) each party makes this waiver voluntarily, and (d) each party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 11.08.

 

11.09  Counterparts.

 

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

 

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11.10  Severability.

 

The provisions of this Agreement will be deemed severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof.  If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is found by a court or other Governmental Authority of competent jurisdiction to be invalid or unenforceable, (a) a suitable and equitable provision will be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons, entities or circumstances will not be affected by such invalidity or unenforceability, nor will such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

 

11.11  Affiliates of Buyer.

 

To the extent that this Agreement obligates any Affiliate of Buyer either to take or to refrain from taking certain actions, Buyer shall cause such Affiliate to comply with such covenant.

 

*                   *                   *

 

[The next page is a signature page.]

 

57

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on their behalf by their respective officers hereunto duly authorized.

 

	
 
    	
Seller:
    
	
 
    	
 
    
	
 
    	
CLEARPOINT   FUNDING, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Greg O’Connor
    
	
 
    	
 
    	
Name:   Greg O’Connor
    
	
 
    	
 
    	
Title:   Chief Operating Officer
    
	
 
    	
 
    
	
 
    	
Holdco:
    
	
 
    	
 
    
	
 
    	
DESCAP   MORTGAGE FUNDING, LLC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Ronald DiPasquale
    
	
 
    	
 
    	
Name:   Ronald DiPasquale
    
	
 
    	
 
    	
Title:   Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Parent:
    
	
 
    	
 
    
	
 
    	
GLEACHER &   COMPANY, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John Griff
    
	
 
    	
 
    	
Name:   John Griff
    
	
 
    	
 
    	
Title:   Chief Operating Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Buyer:
    
	
 
    	
 
    
	
 
    	
HOMEWARD   RESIDENTIAL, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Barry Biltz
    
	
 
    	
 
    	
Name:   Barry Biltz
    
	
 
    	
 
    	
Title:   Executive Vice PresidentExhibit 10.1

 

FORM OF SECURITIES PURCHASE AGREEMENT

 

TO:                          METHYLGENE INC. (the “Corporation”)

 

The undersigned (the “Purchaser”) hereby subscribes for and agrees to purchase (i) the number of units of the Corporation (the “Units”) set forth on the following page at a price of C$0.1243 per Unit (the “Subscription Price”); and (ii) C$[ ] principal amount (the “Debenture Subscription Price”) of unsecured convertible debentures issued by the Corporation (the “Debenture”), convertible into Units at a conversion price equal to the Subscription Price. The Purchaser agrees to be bound by the terms and conditions set forth in the attached “Terms and Conditions of Subscription for Debentures, Common Shares and Warrants of MethylGene Inc.”. The Purchaser further agrees, without limitation, that the Corporation may rely upon its representations, warranties and covenants contained in this document. Each Unit purchased will consist of one (1) common share in the capital of the Corporation (a “Common Share”) and thirty one-hundredths (0.30) of a common share purchase warrant (each whole common share purchase warrant, a “Warrant”). Each whole Warrant shall be exercisable for a period of five (5) years following the Closing Date (as defined herein) and entitle the holder thereof to acquire one (1) Common Share (a “Warrant Share”) at a price of C$0.1492. The certificates representing the Debentures, Common Shares and Warrants will be registered and delivered as indicated on the following page.

 

[Signature page follows]

 

 

	
Beneficial Purchaser Information:
    	
 
    	
Number of Units:
    
	
 
    	
 
    	
 
    
	
Name   of Purchaser (please print)
    	
 
    	
 
    
	
 
    	
 
    	
Aggregate Subscription Price for the Units: C$
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
Authorized   Signature
    	
 
    	
Deliver the Debentures, Common Shares and  Warrants as set forth below:
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Official Capacity of Title (please print)
    	
 
    	
 
    
	
 
    	
 
    	
Name
    
	
 
    	
 
    	
 
    
	
Please   print name of individual whose signature 
    	
 
    	
 
    
	
appears   above if different than the name of the purchaser printed above.)
    	
 
    	
Account   Reference, if applicable
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Contact   Name
    
	
Purchaser’s   Address
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Registration Instructions:
    	
 
    	
 
    
	
 
    	
 
    	
Telephone   Number
    
	
Name:
    	
 
    	
 
    
	
 
    	
 
    	
Present Ownership of Securities:
    
	
 
    	
 
    	
List number and type(s) of securities held
    
	
Account   reference, if applicable
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Address
    	
 
    	
 
    

 

ACCEPTANCE:  The Corporation hereby accepts the above subscription and agrees to be bound by the terms and conditions set forth in the attached “Terms and Conditions of Subscription for Debentures, Common Shares and Warrants of MethylGene Inc.” and in this Agreement. The Corporation further agrees, without limitation, that the Purchaser may rely upon its representations, warranties and covenants contained in this document.

 

                      , 2011

 

METHYLGENE INC.

 

	
By:
    	
 
    	
 
    

 

THE “TERMS AND CONDITIONS OF SUBSCRIPTION FOR DEBENTURES, COMMON SHARES AND WARRANTS OF METHYLGENE INC.” AND SCHEDULES THERETO ARE INCORPORATED IN THIS SECURITIES PURCHASE AGREEMENT AND FORM INTEGRAL PARTS HEREOF.

 

[Signature page to SECURITIES PURCHASE AGREEMENT]

 

 

TERMS AND CONDITIONS OF SUBSCRIPTION

FOR DEBENTURES, COMMON SHARES AND WARRANTS OF METHYLGENE INC.

 

ARTICLE 1

DEFINITIONS

 

Certain terms and abbreviations used in this Agreement shall have the meaning given below:

 

“Affiliate” shall have the meaning to such term in NI 45-106. With respect to the Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as the Purchaser will be deemed to be an Affiliate of the Purchaser.

 

“Aggregate Subscription Price” means, as to the Purchaser, the aggregate amount to be paid for Units purchased hereunder as specified on the face page of this Agreement in immediately available funds.

 

“Agreement” means, collectively, the Securities Purchase Agreement attached hereto, the “Terms and Conditions of Subscription for Debentures, Common Shares and Warrants of MethylGene Inc.” and the “Schedules” hereto.

 

“Business Day” means any day (other than a Saturday, Sunday, statutory or civic holiday) on which banks are open during normal business hours in Montreal, Canada.

 

“C$” refers to the dollar currency of Canada. “Closing”

 

means the closing of the sale of the Units. “Closing Date”

 

means the date at which the Closing occurs.

 

“Common Share Equivalents” means any securities of the Corporation which would entitle the holder thereof to acquire at any time Common Shares, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares.

 

“Co-Lead Investors” means Baker Brothers Life Sciences, L.P. and Tavistock Life Sciences.

 

“Corporation Counsel” means Davies Ward Phillips & Vineberg LLP.

 

“Debentures” means, collectively, the unsecured convertible debentures, in the form of the Debenture certificate contained in Schedule B attached hereto delivered to the Co-Lead Investors on the date hereof.

 

“Debenture Shares” means the Common Shares issuable upon the conversion of the Debentures.

 

“Financial Statements” means the audited financial statements of MethylGene Inc. (now 9222-9129 Québec Inc.), the accompanying notes and the auditors’ report thereon for the year ended December 31, 2009 and the unaudited financial statements of the Corporation and the accompanying notes for the nine-month period ended September 30, 2010, all as filed with the securities regulators in each of the provinces of Canada pursuant to the applicable Securities Laws.

 

“Investors” means investors purchasing Units under this Offering, including the Purchaser, and “Investor” means any one of them.

 

 

“knowledge” means the actual knowledge of the senior officers of the Corporation with respect to such matter so long as such individual can demonstrate that he has made due inquiry in the circumstances regarding the relevant matter or, if any such individual cannot so demonstrate, the actual and constructive knowledge such individual would have had after making due inquiry regarding the relevant matter.

 

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal or pre-emptive right.

 

“NI 45-106” means, collectively, National Instrument 45-106 — Prospectus and Registration Exemptions and Regulation 45-106 respecting Prospectus and Registration Exemptions (Québec).

 

“Offering” means the offering and sale by the Corporation of approximately C$34.5 million of Units.

 

“Permanent Information Record” means information concerning the Corporation contained in (i) the Financial Statements; (ii) the management proxy circular dated April 14, 2010, distributed in connection with the annual and special meeting of shareholders of MethylGene Inc. (now 9222-9129 Québec Inc.) held on May 14, 2010, (iii) the annual information form of MethylGene Inc. (now 9222-9129 Québec Inc.) dated March 31, 2010 for the year ended December 31, 2009, (iv) management’s discussion and analysis of the financial condition and results of operations for the financial year ended December 31, 2009 compared to the year ended December 31, 2008 and the quarter ended September 30, 2010 with the quarter ended September 30, 2009, all as filed with the securities regulators in each of the provinces of Canada pursuant to the applicable Securities Laws. Any documents of the type referred to in this paragraph or any material change report (excluding confidential material change reports) or any amendments or restatements thereto filed by the Corporation on SEDAR after the date of this Agreement and prior to the Closing Date, shall be deemed to be included in the definition of “Permanent Information Record” for the purposes of this Agreement.

 

“Permitted Liens” means (i) Liens for taxes not yet due or payable or that are being contested in good faith by appropriate Proceedings for which adequate reserves are maintained by the Corporation, (ii) Liens in favour of vendors, carriers, warehousemen, repairmen, mechanics, workers, materialmen, construction or other Liens arising by operation of law or in the ordinary course of business in respect of obligations that are not yet due or that are being contested in good faith by appropriate Proceedings, for which adequate reserves are maintained by the Corporation, (iii) easements, servitudes, reservations, rights of way, restrictions, covenants, conditions and other similar encumbrances whether of record or apparent on the premises, including road, highway, pipeline, railroad and utility easements and servitudes, and municipal, zoning and building by-laws which do not, individually or in the aggregate, materially interfere with the use, occupancy or operation of the leased real property of the Corporation as currently used, occupied and operated or as intended to be used, occupied and operated; (iv) statutory Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, employment insurance and other social security legislation that are not material; and (v) the Liens listed on Schedule 1.

 

“Person” means any individual (whether acting as an executor, trustee administrator, legal representative or otherwise), corporation, firm, partnership, sole proprietorship, syndicate, joint venture, trustee, trust, unincorporated organization or association, and pronouns have a similar extended meaning.

 

“Phase 2a Trial” means a clinical trial that is intended to meet the requirements of 21 CFR 312.21(b).

 

2

 

“Private Placement” means any offering of securities by the Corporation that benefits from a prospectus exemption under NI 45-106.

 

“Proceeding” means an action, course of action, demand, claim, charge, prosecution, complaint, suit, inquiry, notice of violation, litigation, assessment, reassessment, grievance, arbitration, hearing, investigation or proceeding, whether civil, criminal or administrative, at law or in equity, commenced or threatened.

 

“Public Offering” means any offering of securities by the Corporation that does not benefit from a prospectus exemption under NI 45-106.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Securities” means, collectively, the Debentures, the Common Shares, the Warrants and the Warrant Shares.

 

“Securities Laws” means, as applicable, the securities laws, regulations, rules, rulings and orders in each of the provinces of Canada, in the United States and in each of the member states of the United States, the applicable policy statements issued by the securities regulators in each of the provinces of Canada and in the United States.

 

“SEDAR” means the System for Electronic Document Analysis and Retrieval (www.sedar.com) administered for the Canadian Securities Administrators.

 

“Shareholder Approval” means such approval as will be required by law and by the applicable rules and regulations of the TSX (or any successor entity) from the shareholders of the Corporation with respect to the transactions contemplated by the Transaction Documents.

 

“Subscription Price” means C$0.1243 per Unit.

 

“Subsidiary” means any direct and indirect domestic subsidiaries of the Corporation as of the date hereof.

 

“Transaction Documents” means this Agreement, the certificate representing the Debentures and the certificate representing the Warrants.

 

“TSX” means the Toronto Stock Exchange.

 

“U.S. Person” shall have the meaning assigned to such term by Rule 902 of Regulation S promulgated under the U.S. Securities Act, which definition shall include, but not be limited to, an individual resident in the United States and an estate or trust of which any executor or administrator or trustee, respectively, is a U.S. person, and any partnership or company organized or incorporated under the laws of the United States.

 

“U.S. Securities Act” means the United States Securities Act of 1933, as amended.

 

“United States” means the United States of America, its territories and possessions, any State of the United States and the District of Columbia.

 

“Units” shall have the meaning ascribed to such term on the face page of this Agreement.

 

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“Warrants” means, collectively, the Common Shares purchase warrants, in the form of the Warrant certificate contained in Schedule A attached hereto delivered to the Purchasers at the Closing.

 

“Warrant Shares” means the Common Shares issuable upon the exercise of the Warrants.

 

ARTICLE 2

PURCHASE AND SALE

 

2.1          Closing. On the date hereof, upon the terms and subject to the conditions set forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto, the Corporation agrees to sell, and the Purchaser agrees to purchase, a Debenture in the principal amount of C$[ ]. On the Closing Date, upon the terms and subject to the conditions set forth herein, the Corporation agrees to sell, and the Purchaser agrees to purchase, the number of Units set forth on the face page of this Agreement. On the date hereof, the Purchaser shall deliver to the Corporation via wire transfer or a certified cheque in immediately available funds equal to the Debenture Subscription Price and the Corporation shall deliver to the Purchaser a Debenture in the principal amount of C$[ ]. The Purchaser shall deliver to the Corporation via wire transfer or a certified cheque in immediately available funds equal to their Aggregate Subscription Price and the Corporation shall deliver to the Purchaser its respective Common Shares and Warrants as determined pursuant to Section 2.3(a) and the other items set forth in Section 2.3 issuable at the Closing. The Purchaser understands that pursuant to the Offering, the Corporation intends to offer up to 277,494,756 Units to eligible investors.

 

2.2          Closing Date. The Closing Date shall be on or about April 1, 2011 or such other earlier date as the Corporation and the Investors shall mutually determine and shall, in no event, be later than May 15, 2011, and all events required to occur on the Closing Date shall occur, subject to satisfaction of the conditions set forth in Sections 2.3 or 2.4, at the offices of Corporation Counsel in Montreal, Canada.

 

2.3          Deliveries.

 

(a)           On the date hereof, the Corporation shall deliver or cause to be delivered to the Purchaser the following:

 

(i) this Agreement duly executed by the Corporation; and

 

(ii) a Debenture, in the form of Schedule B attached hereto, registered in the name of the Purchaser in the principal amount of C$[ ].

 

(b)           On the date hereof, the Purchaser shall deliver or cause to be delivered to the Corporation the following:

 

(i) this Agreement duly executed by the Purchaser; and

 

(ii) the Debenture Subscription Price by wire transfer or certified cheque to the account as specified in writing by the Corporation.

 

(c)           On the Closing Date, the Corporation shall deliver or cause to be delivered to the Purchaser the following:

 

(i) the number of Common Shares registered in the name of the Purchaser, that is equal to the number of Units set forth on the face page of this Agreement;

 

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(ii) a Warrant certificate, in the form of Schedule A attached hereto, registered in the name of the Purchaser to purchase up to a number of Common Shares equal to 30% of the number of Common Shares being purchased by the Purchaser pursuant to Section 2.3(a)(i), with an exercise price equal to C$0.1492 exercisable for a period of 5 years following the Closing Date, subject to the adjustments described in the Warrants;

 

(iii) written evidence that holders of more than 50% of the Common Shares currently outstanding are familiar with the terms of the Offering and are in favour of it;

 

(iv) a certificate addressed to the Investors, dated as of the Closing Date, signed by the President and Chief Executive Officer or by the Chief Financial Officer of the Corporation certifying on behalf of the Corporation that the representations and warranties of the Corporation contained herein are true and correct and all the terms and conditions relating to the Corporation contained herein and required to be performed and complied with by the Corporation by or at the time of Closing have been performed and complied with by the Corporation;

 

(v) a certificate dated as of the Closing Date, signed by appropriate officers of the Corporation, addressed to the Investors and the Investors’ counsel, with respect to the articles and by-laws of the Corporation, all resolutions of the Corporation’s board of directors (the “Board”) relating to the Offering and the incumbency and specimen signatures of signing officers; and

 

(vi) an opinion dated as of the Closing Date, of Corporation Counsel addressed to the Investors substantially in the form attached as Schedule 2.3(a)(vi) hereto.

 

(d)           On the Closing Date, the Purchaser shall deliver or cause to be delivered to the Corporation the following:

 

(i) the Purchaser’s Aggregate Subscription Price by wire transfer or certified cheque to the account as specified in writing by the Corporation.

 

2.4          Closing Conditions.

 

(a)           The obligations of the Corporation hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects when made and on the Closing Date (as if made on and as of the Closing Date) of the representations and warranties of the Purchaser contained herein;

 

(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed;

 

(iii) the Corporation shall have received confirmation of any required approvals of the transactions contemplated hereby by all securities regulatory authorities having jurisdiction over such transactions;

 

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(iv) the Corporation shall have received written confirmation that holders of more than 50% of the Common Shares currently outstanding are familiar with the terms of the Offering and are in favour of it;

 

(v) the delivery by the Purchaser of the items set forth in Section 2.3(d) of this Agreement; and

 

(vi) the issue and sale of the Units shall be exempt from the prospectus and registration requirements provided for or obtained under the Securities Laws.

 

(b)           The obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects on the Closing Date (as if made on and as of the Closing Date) of the representations and warranties of the Corporation contained herein;

 

(ii) all obligations, covenants and agreements of the Corporation required to be performed at or prior to the Closing Date shall have been performed;

 

(iii) the Corporation shall have received confirmation of any required approvals of the transactions contemplated hereby by all securities regulatory authorities having jurisdiction over such transactions;

 

(iv) the Corporation shall have received written confirmation that holders of more than 50% of the Common Shares currently outstanding are familiar with the terms of the Offering and are in favour of it;

 

(v) the delivery by the Corporation of the items set forth in Section 2.3(a) of this Agreement;

 

(vi) the issue and sale of the Units shall be exempt from the prospectus and registration requirements provided for or obtained under the Securities Laws; and

 

(vii)        there shall have been no Material Adverse Effect (as defined herein) with respect to the Corporation since the date hereof.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

 

3.1          Representations, Warranties and Covenants of the Corporation. Except as set forth under the corresponding section of the disclosure schedules attached to this Agreement (the “Disclosure Schedules”) which Disclosure Schedules shall be deemed a part hereof, the Corporation hereby makes the representations, warranties and covenants set forth below to the Purchaser.

 

(a)           Subsidiaries. The Corporation owns, directly or indirectly, no equity interest in any Subsidiary.

 

(b)           Organization and Qualification. The Corporation has been duly amalgamated, and is a valid and subsisting corporation under the laws of Canada and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted

 

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and to own or lease its properties and assets. The Corporation is a reporting issuer (or its equivalent) not in default of any material requirement of the Securities Act of each of the provinces of Canada, and the respective regulations thereunder.

 

The Corporation is not in violation or default of any of the provisions of its certificate of amalgamation, bylaws or other organizational or charter documents. The Corporation is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document; (ii) a material adverse effect on the results of operations, assets, business or financial condition of the Corporation; or (iii) a material adverse effect on the Corporation’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and to the Corporation’s knowledge no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c)           Authorization; Enforcement. The Corporation has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder, including to issue, sell and deliver the Debentures and the Units in accordance with this Agreement. The execution and delivery of each of the Transaction Documents by the Corporation and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Corporation and no further action is required by the Corporation in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Corporation and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms except: (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally; and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

(d)           No Conflicts. The execution, delivery and performance of the Transaction Documents by the Corporation and the consummation by the Corporation of the other transactions contemplated thereby do not and will not: (i) conflict with or violate any provision of the articles of the Corporation, bylaws or other organizational or charter documents; or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Corporation, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Corporation debt or otherwise) or other understanding to which the Corporation is a party or by which any property or asset of the Corporation is bound or affected; or (iii) subject to the Required Approvals, conflict with or result in a violation of any applicable law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Corporation is subject, or by which any property or asset of the Corporation is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not have a Material Adverse Effect.

 

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(e)           Filings, Consents and Approvals. The Corporation is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with any governmental authority or other Person in connection with the execution, delivery and performance by the Corporation of the Transaction Documents, other than: (i) the notice and application to the TSX for the issuance and sale of the Debentures, Common Shares and Warrants and the listing of the Common Shares and the Warrants Shares for trading thereon in the time and manner required thereby; (ii) Shareholder Approval, which will be satisfied by providing the TSX with written evidence that holders of more than 50% of the Common Shares are in favour of the Offering; and (iii) such securities filings as are required to be made under applicable Securities Laws (collectively, the “Required Approvals”).

 

(f)            Issuance of the Securities. The Debentures, Common Shares and Warrants are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares and the Debenture Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable, free and clear of all Liens. The Corporation has reserved from its duly authorized share capital up to 83,248,422 Common Shares for issuance of (i) the Warrant Shares on the date hereof, which will constitute, as of the Closing Date, a sufficient number of Common Shares to be issued upon exercise of all the Warrants sold to the Investors in the Offering; and (ii) the Debenture Shares on the date hereof, which constitute, as of the date hereof, a sufficient number of Common Shares to be issued upon conversion of the Debentures sold to the Co-Lead-Investors in the Offering.

 

The Common Shares and the Warrant Shares are and will be at the time of issue to the Purchaser, part of a class of shares of the Corporation that is presently, and will be at the time of issue to the Purchaser, listed and posted for trading on the TSX, and the Common Shares and the Warrant Shares issuable pursuant to this Agreement and/or upon the conversion of the Debentures and/or upon the exercise of the Warrants will, at the time of issue to the Purchaser, have been conditionally approved to be listed and posted for trading on the TSX. The Corporation will take or cause to be taken all steps necessary to comply with all of the requirements of the TSX in connection with the issuance to the Purchaser of the Common Shares, the Debentures, the Warrants and the Warrant Shares pursuant to this Agreement and to permit such Common Shares and Warrant Shares to be listed and posted for trading on the TSX.

 

(g)           Capitalization. The capitalization of the Corporation is set forth on Schedule 3.1(g). No Person has any right of first refusal, pre-emptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as disclosed in the Disclosure Schedules and as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any Common Shares, or contracts, commitments, understandings or arrangements by which the Corporation is or may become bound to issue additional Common Shares or Common Share Equivalents. The issuance and sale of the Securities will not obligate the Corporation to issue Common Shares or other securities to any Person (other than the Investors) and will not result in a right of any holder of Corporation securities to adjust the exercise, conversion, exchange or reset price under such securities. All of the outstanding shares of the Corporation are validly issued, fully paid and non-assessable, have been issued in compliance with all Securities Laws, and none of such outstanding shares was issued in violation of any pre-emptive rights or similar rights to subscribe for or purchase securities. Except as otherwise provided in this Agreement, no

 

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further approval or authorization of any shareholder, the Board or others is required for the issuance and sale of the Securities. There are no shareholders agreements, voting agreements or other similar agreements with respect to the Corporation’s capital stock to which the Corporation is a party or, to the knowledge of the Corporation, between or among any of the Corporation’s shareholders.

 

(h)           Permanent Information Record; Financial Statements. The documents comprising the Permanent Information Record at their applicable dates of filing with the securities regulatory authorities pursuant to the applicable Securities Laws (i) complied in all material respects with the requirements of the Securities Laws; (ii) did not contain any misrepresentations; (iii) constituted full, true and plain disclosure of the material facts relating to the Corporation; and (iv) did not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made. The Financial Statements of the Corporation included in the Permanent Information Record complied in all material respects with applicable accounting requirements and the rules and regulations of Securities Laws with respect thereto as in effect at the time of filing. The Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in the Financial Statements or the notes thereto, and fairly present in all material respects the financial position of the Corporation as of and for the date thereof and the results of operations and cash flows for the period then ended.

 

(i)            Material Changes. Since the date of the Financial Statements, except as specifically disclosed in the Permanent Information Record or the Financial Statements: (i) there has been no event, occurrence or development that has had a Material Adverse Effect; (ii) the Corporation has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Financial Statements pursuant to GAAP or required to be disclosed in filings made with the regulatory authorities; (iii) the Corporation has not altered its method of accounting; (iv) the Corporation has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its share capital; and (v) the Corporation has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Corporation stock option plans. The Corporation does not have pending before any regulatory authorities any request for confidential treatment of information.

 

(j)            Litigation. There are no Proceedings pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation, or any of its respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (collectively, an “Action”) which: (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities; or (ii) could, if there were an unfavourable decision, have a Material Adverse Effect. Except as set forth on Schedule 3.1(j), neither the Corporation, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under the Securities Laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Corporation, there is not pending or contemplated, any investigation by the regulatory authorities involving the Corporation or any current or former director or officer of the Corporation. The regulatory authorities have not issued any stop order or other order suspending the effectiveness of any documents filed by the Corporation under the Securities Laws and the rules and policies of the TSX.

 

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(k)                                 Labour Relations. No material labour dispute exists or, to the knowledge of the Corporation, is imminent with respect to any of the employees of the Corporation.

 

(l)                                     Compliance. The Corporation: (i) is not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Corporation), nor has the Corporation received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived); (ii) is not in violation of any order of any court, arbitrator or governmental body; and (iii) neither is nor has been in material violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, provincial, state and local laws applicable to its business.

 

(m)                             Regulatory Permits. The Corporation possesses all material certificates, authorizations and permits issued by the appropriate Canadian federal, provincial or local regulatory authorities necessary to conduct its business (the “Material Permits”), and the Corporation has not received any notice of Proceedings relating to the revocation or modification of any Material Permit.

 

(n)                                 Title to Assets. The Corporation has good and marketable title to all real property owned by it that is material to the business of the Corporation and good and marketable title in all personal property owned by it that is material to the business of the Corporation, in each case free and clear of all Liens except for Permitted Liens. Any real property and facilities held under lease by the Corporation are held by it under valid, subsisting and enforceable leases of which the Corporation is in material compliance.

 

(o)                                 Patents and Trademarks. The Corporation owns, or has sufficient legal rights to use, all patents, patent applications, trademarks, trade names, copyrights, trade secrets and other proprietary information necessary or material for use in connection with its business as presently conducted (collectively, “Intellectual Property Rights”). The Corporation has not received a written notice that any of the Intellectual Property Rights used by the Corporation violates or infringes upon the existing rights of any Person. To the knowledge of the Corporation, all such Intellectual Property Rights are enforceable and there is no existing infringement by the Corporation of any currently issued and enforceable patents, trademarks, trade names, copyrights or trade secrets of any other Person. To the Corporation’s knowledge, the Corporation has not violated or, by conducting its business as presently conducted or as presently proposed to be conducted, as indicated in the Permanent Information Record, would not violate, any currently issued and enforceable patents, trademarks, trade names, copyrights or trade secrets of any other Person. The Corporation is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Corporation or that would conflict with the Corporation’s business. Except as indicated in the Permanent Information Record, no claim by any third party contesting the validity, enforceability, use or ownership of any of the Corporation’s rights to the Intellectual Property Rights has been made, is currently outstanding or, to the knowledge of the Corporation, is threatened. The Corporation has taken all commercially reasonable actions to maintain and protect all of the Corporation’s Intellectual Property Rights. The Corporation does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to or outside the scope of their employment by the Corporation.

 

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(p)                                 Environment. The Corporation has not received notice that it is in default, in a material manner, under any applicable law requirements relating to the protection and preservation of the environment, occupational health and safety or the manufacture, processing, distribution, sale, use, treatments, storage, disposal, discharge, destruction, packaging, labelling, transport or handling of any pollutants, contaminants, chemicals, dangerous substances, or toxic or hazardous wastes, materials or substances (“Environmental Laws”). The Corporation has not received any notice that it is not in material compliance with any reporting and monitoring requirements under any Environmental Laws. The Corporation has not received any notice that it has not obtained all permits under Environmental Laws (the “Environmental Permits”) materially required for its operations and to own, use and operate its assets. The Corporation has not received any notice that any proceeding would be pending or threatened to revoke or limit any of the Environmental Permits.

 

(q)                                 Insurance. The Corporation is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Corporation is engaged, including, but not limited to, directors and officers insurance coverage at least equal to C$5,000,000. To the best of the Corporation’s knowledge, the Corporation has complied with all material terms and conditions of such insurance contracts and policies, including premium payments, and all such policies are in full force and effect. The Corporation has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

(r)                                    Transactions With Affiliates and Employees. Except as set forth in the Permanent Information Record, none of the officers or directors of the Corporation and, to the knowledge of the Corporation, none of the employees of the Corporation is presently a party to any transaction with the Corporation (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Corporation, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of C$50,000 other than: (i) for payment of salary, directors’ or consulting fees for services rendered; (ii) reimbursement for expenses incurred on behalf of the Corporation; and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Corporation.

 

(s)                                   Internal Accounting Controls. The Corporation has established disclosure controls and procedures for the Corporation and designed such disclosure controls and procedures to ensure that material information relating to the Corporation is made known to the certifying officers by others within the Corporation. The Corporation’s certifying officers have evaluated the effectiveness of the Corporation’s controls and procedures as of December 31, 2009 (the “Evaluation Date”). Since the Evaluation Date, there have been no significant changes in the Corporation’s internal controls or, to the Corporation’s knowledge, in other factors that could significantly affect the Corporation’s internal controls.

 

(t)                                    Certain Fees. Neither the Corporation nor any of its officers has retained any placement agent (the “Intermediary”), other than MTS Securities LLC, with respect to the transactions contemplated by this Agreement and the Corporation shall indemnify and hold harmless the Purchasers from any liability for any compensation to any Intermediary and the fees and expenses of defending against said liability or alleged liability.

 

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(u)                                 Private Placement. Subject to the truth and accuracy of the Purchaser’s representations and warranties set forth in Section 3.2 at the time of the issuance, the issue by the Corporation of the Securities will be exempt from the registration and prospectus requirements under the Securities Laws. As at the Closing Date, the Common Shares and the Warrant Shares will not be subject to a restricted period or statutory hold period under the Securities Laws or to any resale restrictions under the policies of the TSX which extends beyond four (4) months and one (1) day after the Closing Date (except that such shares sold in the U.S. will be “restricted securities” as defined in Rule 144 under the U.S. Securities Act and, as a consequence, subject to certain restrictions on resale). Neither the Corporation nor any Person acting on its behalf: (i) has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the U.S. Securities Act) or any “direct selling efforts” (within the meaning of Regulation S under the U.S. Securities Act) in the United States, in connection with the offer or sale of the Securities; (ii) has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under any circumstances that would require registration of the Securities under the U.S. Securities Act; (iii) except for offers or sales made to Persons outside the United States in accordance with Regulation S under the U.S. Securities Act, has offered or sold the Securities to any Person other than Persons it reasonably believed to be “accredited investors”, as defined in Rule 501(a) under the U.S. Securities Act; or (iv) has issued any Common Shares or shares of any series of preferred stock or other securities or instruments convertible into, exchangeable for or otherwise entitling the holder thereof to acquire Common Shares which would be integrated with the sale of the Securities for purposes of the U.S. Securities Act. The offer and sale to the Investors of the Securities were not made through or as a result of, and the offering of the Securities is not being accompanied by, any advertisement in printed media or printed public media of general and regular paid circulation, radio or television or telecommunications, including electronic display or any other form of general solicitation or advertisement in connection with the offer, sale or purchase of the Securities.

 

(v)                                 U.S. Investment Company Act. The Corporation is not and, after receipt of the proceeds from the sale of the Securities and application of such proceeds as provided herein, will not be, required to register as an “investment company” under the U.S. Investment Company Act of 1940, as amended.

 

(w)                               Foreign Issuer. The Corporation is a “foreign issuer” and reasonably believes that there is no “substantial U.S. market interest” (as such terms are defined in Regulation S under the U.S. Securities Act) with respect to the Common Shares.

 

(x)                                 Listing and Maintenance Requirements. The Corporation’s Common Shares are listed on the TSX and the Corporation has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the listing of the Common Shares nor has the Corporation received any notification that any Person is contemplating terminating such listing. The Corporation has not, in the 12 months preceding the date hereof, received notice from the TSX to the effect that the Corporation is not in compliance with the listing or maintenance requirements of the TSX. The Corporation is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

 

(y)                                 Takeover Protections. The Corporation has not entered into a shareholders rights plan agreement or put in place a shareholders rights plan.

 

(z)                                  Indebtedness. The Permanent Information Record sets forth as of the dates thereof all outstanding secured and unsecured Indebtedness of the Corporation, or for which the

 

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Corporation has commitments. For the purposes of this Agreement, “Indebtedness” shall mean: (a) any liabilities for borrowed money or amounts owed in excess of C$50,000 (other than trade accounts payable and accrued expenses incurred in the ordinary course of business); (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Corporation’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of C$50,000 due under leases required to be capitalized in accordance with GAAP. The Corporation is not in default with respect to any Indebtedness.

 

(aa)                          Tax Status. With such exceptions as are not material to the Corporation, or except as may otherwise be set forth or contemplated in the Permanent Information Record: (a) the Corporation has duly and on a timely basis filed all tax returns required to be filed by it, has paid all taxes due and payable by it and has paid all assessments and reassessments and all other taxes, governmental charges, penalties, interest and other fines due and payable by it and which are claimed by any governmental authority to be due or owing and adequate provision has been made for taxes payable for any completed fiscal period for which tax returns are not yet required to be filed; (b) all filed tax returns are complete and accurate in all material respects; (c) there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any tax return or payment of any tax, governmental charge or deficiency by the Corporation; (d) there are no actions, suits, proceedings, investigations or claims threatened or pending against the Corporation in respect of taxes, governmental charges or assessments; and (e) there are no matters under discussion with any governmental authority relating to taxes, governmental charges or assessments asserted by any such authority.

 

(bb)                          No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Corporation to arise, between the accountants and lawyers formerly or presently employed by the Corporation and the Corporation is current with respect to any fees owed to its accountants and lawyers.

 

(cc)                            PFIC. If the Corporation is a passive foreign investment company during any year in which a Purchaser who is a U.S. person, as defined in the U.S. Internal Revenue Code, holds Common Shares, at such Purchaser’s request, the Corporation will provide the Purchaser with the information needed to report income and gain pursuant to a qualifying electing fund election.

 

(dd)                          Representations and Warranties. The Corporation acknowledges and agrees that the Purchaser has made no representations and warranties with respect to the Offering, the Debentures and the Units other than as specifically set forth in this Agreement.

 

3.2                               Representations, Warranties and Covenants of the Purchaser. The Purchaser hereby represents, warrants and covenants to the Corporation and acknowledges that the Corporation is relying thereon that:

 

(a)                                 It has been independently advised as to restrictions with respect to trading in the Securities imposed by applicable securities legislation in the jurisdiction in which it resides and any applicable restricted period imposed in respect of the Securities by such securities legislation, and it is aware of the risks and other characteristics of the Securities and of the fact that it may not be able to resell such securities except in accordance with applicable securities legislation and regulatory policy and compliance with the other requirements of applicable law.

 

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(b)                                 It has not received nor has it requested, nor does it have any need to receive, any prospectus or offering memorandum which has been prepared for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect of the Debentures and the Units.

 

(c)                                  Except as set forth herein (including the Disclosure Schedules), it has relied solely upon the Permanent Information Record and not upon any verbal or written representation as to fact or otherwise made by or on behalf of the Corporation or any other Person.

 

(d)                                 It is resident in the jurisdiction set out on the face on the cover page hereof and such address was not created and is not being used for the sole purpose of acquiring the Debentures and the Units, and it is not purchasing with a view to the resale or distribution of all or any of the Securities in violation of any applicable Securities Laws.

 

(e)                                  The Purchaser is purchasing the Securities as principal or is deemed to be purchasing as principal under NI 45-106 and is an “accredited investor” as that term is defined in NI 45-106 for the reason that one (1) of the categories set forth in Schedule 3.2(e) attached hereto correctly and in all respects describes the Purchaser, and the Purchaser has so indicated by checking the box opposite such category on Schedule 3.2(e), and any such Purchaser, by signing this Agreement, is certifying that the statements made by checking the appropriate accredited investor category in Schedule 3.2(e) are true and that it was not created or is not used solely to purchase or hold securities as an accredited investor as described in paragraph (m) of the definition of “accredited investor”.

 

(f)                                   If the Purchaser is a U.S. Person or is present in the United States either at the time an offer of the Securities is made to it or when it gives the buy order for the Securities by executing and delivering this Agreement to the Corporation:

 

(i) it is an “accredited investor” (as defined in Rule 501(a) under the U.S. Securities Act) and as indicated in Schedule 3.2(f);

 

(ii) is acquiring the Securities for its own account and for investment purposes and not with a view to any resale or other disposition in violation of U.S. securities laws;

 

(iii) it consents to the Corporation’s stop transfer order, either on the Corporation’s own books or with a transfer agent or registrar, to implement the restrictions on transfer set forth and described herein;

 

(iv) it has no present contract, undertaking, arrangement or agreement to sell, transfer or grant any participation to any other Person with respect to the Securities;

 

(v) it has received copies of all the information it has requested from the Corporation that it considers necessary or appropriate for deciding whether to purchase the Securities or to verify the information contained in the Permanent Information Record without causing the Corporation unreasonable effort or expense to deliver such information and has been afforded the opportunity to ask such questions as it deemed necessary of, and to receive answers from, representatives of the Corporation concerning the terms and conditions of the Offering or the Securities;

 

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(vi) understands and acknowledges that at the Closing Date, the Corporation will deliver certificates representing the Securities to it registered in its name and that such certificates evidencing the Common Shares, any Warrant Shares and any Debenture Shares and all certificates issued in exchange therefor or in substitution thereof, shall bear the following legend, until such time as no longer required under the U.S. Securities Act or applicable state securities laws: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR UNDER ANY U.S. STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF METHYLGENE INC. (THE “CORPORATION”) THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE SALE OF SUCH SECURITIES ONLY, WHETHER DIRECTLY OR INDIRECTLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT; OR (C) PURSUANT TO (I) RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE OR (II) ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, PROVIDED THAT A LEGAL OPINION SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR SECURITIES LAWS OF ANY APPLICABLE JURISDICTION. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE “GOOD DELIVERY”, MAY BE OBTAINED FROM COMPUTERSHARE INVESTOR SERVICES INC. UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE CORPORATION AND COMPUTERSHARE INVESTOR SERVICES INC, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT;

 

and until such time as the same is no longer required under applicable requirements of the U.S. Securities Act or applicable state securities laws, certificates representing the Debentures and the Warrants and all certificates issued in exchange therefor or in substitution thereof, shall bear the following legend: THIS DEBENTURE/WARRANT AND THE SECURITIES DELIVERABLE UPON CONVERSION/EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS DEBENTURE/WARRANT MAY NOT BE CONVERTED/EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS DEBENTURE/WARRANT AND THE SECURITIES DELIVERABLE UPON CONVERSION/EXERCISE THEREOF HAVE BEEN

 

15

 

REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THIS DEBENTURE/WARRANT MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, OR (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT;

 

provided that, if the Securities are being sold under paragraph 3.2(f)(viii)(b) below, and provided that the Corporation is a “foreign issuer” within the meaning of Regulation S under the U.S. Securities Act at the time of sale, the applicable legend may be removed by providing a declaration to Computershare Investor Services Inc., as registrar and transfer agent or warrant agent, in such form as Computershare Investor Services Inc. or the Corporation may from time to time prescribe; provided further, that if any Common Shares, Warrant Shares or Debenture Shares are being sold under paragraph 3.2(f)(viii)(c)(i) below, the applicable legend may be removed by delivery to Computershare Investor Services Inc. of an opinion of counsel, of recognized standing reasonably satisfactory to the Corporation, to the effect that, or such certification or other evidence as the Corporation and Computershare Investor Services Inc. may reasonably require to determine that, such legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws;

 

(vii)                           it understands and acknowledges that the Securities have not been and will not be registered under the U.S. Securities Act, or the securities laws of any state in the United States, based on an exemption from such registration and that the Corporation’s reliance upon such exemption is predicated in part upon its representations contained herein. It further understands and acknowledges that the Securities may not be resold unless subsequently registered under the U.S. Securities Act or an exemption from such registration is available, that: (a) the Corporation is under no obligation to register any Shares under the U.S. Securities Act; and (b) has no present intention of filing a registration statement under the U.S. Securities Act in respect of the Shares;

 

(viii)                        it understands that the Securities are “restricted securities” as defined in Rule 144 under the U.S. Securities Act and it will, in the absence of an effective registration statement covering the sale of the Securities, only dispose of any Securities: (a) to the Corporation; (b) outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act; or (c) in the case of the Common Shares, Warrant Shares or Debenture Shares, pursuant to (i) the exemption from registration provided by Rule 144 under the U.S. Securities Act, if available, or (ii) another available exemption from the registration requirements of the U.S. Securities Act, subject to such procedures, including provision of a legal opinion of seller’s counsel, as either the seller of the Securities or the Corporation deems necessary to document compliance with the U.S. Securities Act, and in each case in accordance with any applicable state securities laws in the United States or securities laws of any other applicable jurisdiction;

 

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(ix) it acknowledges that it has not purchased the Debentures and the Units as a result of any general solicitation or general advertising within the meaning of Regulation D under the U.S. Securities Act, including any advertisement, article, notice, or other communication published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees were invited by general solicitation or general advertising; and

 

(x) it understands that the Corporation will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements in determining its eligibility to purchase the Securities, and it agrees that, if any of the acknowledgements, representations and agreements made by it, or deemed to have been made by it by its purchase of the Securities, is no longer accurate, it shall promptly notify the Corporation.

 

(g)                                  If the Purchaser is not making the representations and warranties in subsection (f), the Purchaser (i) is not a U.S. Person and is not acquiring the Securities for the account or benefit of a U.S. Person and (ii) the offer to it of the Securities was not made in the United States and it was outside the United States when it executed and delivered this Agreement to the Corporation.

 

(h)                                 If not an individual, the Purchaser has been duly incorporated or created, as the case may be, and is valid and subsisting under the laws of its jurisdiction of incorporation or creation and has good and sufficient power, authority and right to enter into and deliver this Agreement and to perform its obligations hereunder.

 

(i)                                      This Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Purchaser, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally or by general principles of equity, the Purchaser has the legal capacity and competence to enter into and be bound by this Agreement and, if the Purchaser is not an individual, all necessary approvals of its directors, shareholders or otherwise have been given and obtained.

 

(j)                                    It understands that the sale and delivery of the Debentures and the Units is conditional upon such offering and sale being exempt from the requirements as to the filing of a prospectus or a registration statement and as to the delivery of an offering memorandum or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or delivering an offering memorandum.

 

(k)                                 If required by applicable securities legislation, regulations, rules, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Purchaser will execute, deliver, file and otherwise use commercially reasonable efforts to assist the Corporation in filing, such reports, undertakings and other documents with respect to the Offering as may be required.

 

(l)                                     The Purchaser is capable of assessing the proposed investment as a result of the Purchaser’s financial experience or as a result of advice received from a registered person other than the Corporation or any affiliates thereof.

 

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(m)                             The Purchaser acknowledges that its subscription hereunder is part of the Offering and that the Corporation proposes to enter into securities purchase agreements with certain other Investors and expects to complete the sale of Units to them.

 

(n)                                 This subscription by the Purchaser is subject to the acceptance of the Corporation and is effective only upon such acceptance.

 

(o)                                 The Purchaser has been advised to consult its legal advisors in connection with applicable statutory hold periods and resale restrictions and it (or such others on behalf of whom it is contracting hereunder) is solely responsible (and the Corporation is not in any way responsible) for compliance with applicable hold periods or resale restrictions.

 

(p)                                 The Purchaser’s ability to transfer the Securities is limited by, among other things, applicable Securities Laws and by the provisions of the certificates representing the Debentures and the Warrants.

 

(q)                                 The certificates representing the Debentures, Common Shares, Warrants and, if issued prior to that date which is four (4) months and one (1) day following the Closing Date, the Warrant Shares will bear, as of the Closing Date, legends as required by and in accordance with Regulation 45-102 respecting Resale of Securities (Québec) and the rules of the TSX.

 

(r)                                    The funds which will be advanced by the Purchaser to the Corporation or its agent hereunder will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) Act (Canada) (the “PCMLA”) and the Purchaser acknowledges that the Corporation may in the future be required by law to disclose the Purchaser’s name and other information relating to this Agreement and the Purchaser’s subscription hereunder, on a confidential basis, pursuant to the PCMLA. To the best of its knowledge: (a) none of the subscription funds to be provided by the Purchaser: (i) have been or will be derived from or related to any activity that is deemed criminal under the law of Canada, the United States, or any other jurisdiction; or (ii) are being tendered on behalf of a Person who has not been identified to the Purchaser; and (b) it shall promptly notify the Corporation if the Purchaser discovers that any of such representations ceases to be true, and to provide the Corporation with appropriate information in connection therewith.

 

(s)                                   The Purchaser acknowledges that this Agreement requires the Purchaser to provide certain personal information to the Corporation. Such information is being collected by the Corporation for the purposes of completing the Offering, which includes, without limitation, determining the Purchaser’s eligibility to purchase the Debentures and the Units under applicable Securities Laws, preparing and registering certificates representing the Securities to be issued to the Purchaser and completing filings required by any stock exchange or securities regulatory authority. The Purchaser’s personal information may be disclosed by the Corporation to: (i) stock exchanges or securities regulatory authorities; (ii) the Corporation’s registrar and transfer agent; and (iii) any of the other parties involved in the Offering, including legal counsel and may be included in record books in connection with the Offering. By executing this Agreement, the Purchaser is deemed to be consenting to the foregoing collection, use and disclosure of the Purchaser’s personal information. The Purchaser also consents to the filing of copies or originals of any documents as may be required to be filed with any stock exchange or securities regulatory authority in connection with the transactions contemplated hereby.

 

(t)                                    For Purchasers of Securities in Ontario, the Purchaser (i) has been notified by the Corporation (A) that the Corporation is required to provide information (“Personal

 

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Information”) pertaining to the Purchaser required to be disclosed in Schedule 1 of Form 45-106F1 under NI 45-106 (including its name, address, telephone number and the number and value of Purchased Shares purchased), which Form 45-106F1 is required to be filed by the Corporation under NI 45-106, (B) that the Personal Information will be delivered to the Ontario Securities Commission (the “OSC”) in accordance with NI 45-106, (C) that such Personal Information is being collected indirectly by the OSC under the authority granted to it pursuant to Securities Laws in Ontario, (D) that such Personal Information is being collected for the purposes of the administration and enforcement of Securities Laws in Ontario, and (E) that the public official in Ontario who can answer questions about the OSC’s indirect collection of the Personal Information is the Administrative Support Clerk at the OSC, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, Telephone: (416) 593-3684, and (ii) has authorized the indirect collection of the Personal Information by the OSC. Further, by purchasing the Securities, the Purchaser acknowledges that its name and other specified information, including the number of the Securities it has purchased, may be disclosed to other Canadian securities regulatory authorities and may become available to the public in accordance with the requirements of applicable laws. The Purchaser consents to the disclosure of that information.

 

(u)                                 It is aware of the characteristics of the Debentures and the Units, of the speculative nature of this subscription and of the fact that the Securities may not be resold or otherwise disposed of except in accordance with the provisions of the applicable securities legislation.

 

(v)                                 It is familiar with the aims and objectives of the Corporation and has been informed of the nature of the Corporation’s activities.

 

(w)                               The Purchaser acknowledges and agrees that the Corporation has made no representations or warranties with respect to the Offering and the Debentures and the Units other than as specifically set forth in this Agreement.

 

ARTICLE 4

OTHER AGREEMENTS OF THE PARTIES

 

4.1                               Pre-Emptive Right. In the event that the Corporation proposes to issue any class or series of the equity securities of the Corporation, any voting securities of the Corporation, or any securities convertible or exchangeable into, or entitling purchase of, any of the foregoing (the “Covered Securities” and, as such securities may be offered and/or issued from time to time by the Corporation, collectively “Offered Securities”), the Corporation shall provide written notice (a “Pre-emption Notice”) to Investors having purchased at least C$3,000,000 worth of Units pursuant to the Offering (the “Pre-emptive Right Investors”) specifying the terms and conditions of the proposed issue (the “Covered Offering”), including the amount of money to be raised, the type of security to be issued, the price per security to be issued and the target completion date. In that event, each Pre-emptive Right Investor shall then have the right, by written notice to the Corporation (the “Notice of Exercise of Pre- emptive Rights”) within four (4) Business Days from the date of receipt of the Pre-emption Notice, in the case of a Covered Offering that is a Private Placement, or within two (2) Business Days from the date of the receipt of the Pre-emption Notice in the case of a Covered Offering that is a Public Offering, to subscribe, upon the terms and conditions set forth in the Pre-emption Notice, for up to the number of Offered Securities which is equal to the number of the Offered Securities offered in the Covered Offering in proportion to the aggregate holding of Covered Securities by the Pre-emptive Right Investor in relation to the total number of Covered Securities issued and outstanding immediately prior to the issuance of Offered Securities (the “Pre-emptive Rights”) for a period until the earlier of: (i) the date that is 24 months following the Closing Date in the event that the Corporation reports initial topline results for the

 

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second to report VVC Phase 2a Trial for MGCD290 on or before the date that is 21 months following the Closing Date; (ii) the date that is three (3) months following the date that the Corporation reports initial topline results from the second to report Phase 2a Trial for MGCD290 in the event that the Corporation reports initial topline results for the second to report Phase 2a Trial for MGCD290 after the date that is 21 months following the Closing Date; or (iii) the date that is 48 months following the Closing Date. The Pre-emptive Rights shall not apply to issuances of Offered Securities pursuant to (i) the Corporation’s stock option plan; (ii) collaboration agreements entered into by the Corporation; (iii) Public Offerings at a price per security at least 100% greater than the Subscription Price; or (iv) the exercise of the Warrants. A Pre-emptive Right Investor shall not be permitted to exercise its Pre-emptive Rights if such exercise would result in such Pre-emptive Right Investor beneficially holding, as defined in section 1.8 of Regulation 62-104 respecting Take-Over Bids and Issuer Bids (Québec), an aggregate number of Common Shares representing more than 19.9% of the issued and outstanding Common Shares immediately after giving effect to such exercise.

 

4.2         Additional Rights. The Co-Lead Investors shall have a right, but not the obligation, to acquire any Offered Securities that are subject to the Pre-emptive Rights but which are not otherwise purchased by the other Pre-emptive Right Investors (the “Additional Rights”). Each of the Co-Lead Investors may exercise its Additional Rights by stating in its Notice of Exercise of Pre-emptive Rights (i) that it shall acquire up to its pro rata share of the Offered Securities which are not otherwise purchased by the other Pre-emptive Right Investors; and (ii) the exact number of Offered Securities to be acquired. Should the Notice of Exercise of Pre-emptive Rights of any Co-Lead Investor not include the information specified in the preceding sentence, any such Co-Lead Investor shall be deemed to waive its Additional Rights. In the event that one of the Co-Lead Investors does not exercise its Additional Rights, the Co- Lead Investor which has exercised its Additional Rights shall have the right, but not the obligation, to acquire the remaining Offered Securities that are subject to the Pre-emptive Rights but that are not otherwise purchased by the other Pre-emptive Right Investors. A Co-Lead Investor shall not be permitted to exercise its Additional Rights if such exercise would result in such Co-Lead Investor beneficially holding, as defined in section 1.8 of Regulation 62-104 respecting Take-Over Bids and Issuer Bids (Québec), an aggregate number of Common Shares representing more than 19.9% of the issued and outstanding Common Shares immediately after giving effect to such exercise.

 

4.3         Rights to Appoint an Observer or a Director. Each of the Co-Lead Investors shall, for a period of two (2) years following the Closing Date, have the right, but not the obligation to appoint one (1) observer to the Board who shall each have the right to receive notice of and attend the meetings of the Board, and shall each have the right to address the Board at any of its meetings, but who shall not have any right to vote thereat. In addition to appointing an observer, each of the Co-Lead Investors shall, for that same period of two (2) years following the Closing Date, have the right, but not the obligation, to nominate one (1) person to the Board; provided, however that if a Co-Lead Investor’s nominated Board member is not independent from the Co-Lead Investor in question, such Co-Lead Investor’s right to appoint one (1) observer to the Board shall terminate upon the appointment of such nominee to the Board. In the event that a Co-Lead Investors’ nominated Board member resigns his/her Board seat, the right of that Co-Lead Investor to appoint or nominate, as the case may be, an observer or a director to the Board shall continue for the remainder of the two (2) year period following the Closing Date.

 

4.4         Securities Laws Disclosure; Publicity. The Corporation shall, within 10 days following the Closing Date, issue a Material Change Report disclosing the material terms of the transactions contemplated hereby. Neither the Corporation nor the Purchaser shall issue any such press release or otherwise make any such public statement in respect of this Offering without prior consultation of the Co- Lead Investors, in the case of the Corporation and the Investors and without the prior consent of the Corporation, in the case of the Purchaser, regarding such public statement or communication, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other

 

20

 

party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Corporation shall not publicly disclose the name of the Purchaser without the prior consent of the Purchaser, except: (i) for any public statement or communication incorporating by reference or otherwise the information contained in the Material Change Report described in this Section 4.4; (ii) as required by the U.S. Securities Act; and (iii) to the extent such disclosure is required by Securities Law or the rules and policies of the TSX or otherwise as described in Sections 3.2(r), 3.2(s) and 3.2(t) above, in which case the Corporation shall provide the Purchaser with prior notice of such disclosure permitted under sub- clause (ii) or (iii) to the extent that such prior notice is permitted by law.

 

4.5         Use of Proceeds. The Corporation shall use the net proceeds from the sale of the Securities hereunder for the purposes of working capital, research, product development and general corporate purposes as set forth in Schedule 4.5 hereto.

 

4.6         Survival of Representations and Warranties. The representations and warranties of the parties contained herein shall survive the date hereof for a period of twelve months from the date hereof except that (i) in the event of fraud, they shall survive indefinitely and (ii) the representations and warranties set forth in Section 3.1(aa) will survive the date hereof for a period of six (6) years from the date hereof and shall in no way be affected by any investigation made by one of the parties.

 

4.7         Indemnification of Purchaser. Subject to the provisions of this Section 4.7, the Corporation will indemnify and hold the Purchaser, its Affiliates and their respective directors, officers, shareholders, partners, employees and agents (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to: (a) any breach of any of the representations, warranties, covenants or agreements made by the Corporation in the Transaction Documents; or (b) any action instituted against a Purchaser Party by any shareholder of the Corporation who is not an Affiliate of the Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of the Purchaser’s representation, warranties or covenants under the Transaction Documents or any conduct by the Purchaser which constitutes fraud, gross negligence or wilful misconduct). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Corporation in writing, and the Corporation shall have the right to assume the defence thereof with counsel of its own choosing. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defence thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that: (i) the employment thereof has been specifically authorized by the Corporation in writing; (ii) the Corporation has failed after a reasonable period of time to assume such defence and to employ counsel; or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Corporation and the position of such Purchaser Party. The Corporation will not be liable to any Purchaser Party under this Agreement: (i) for any settlement by a Purchaser Party effected without the Corporation’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent that a court of competent jurisdiction in a final judgment from which no appeal can be made shall determine that such Purchaser Party breached, defaulted under or failed to comply with any material representation, warranty, term, condition or covenant of this Agreement.

 

4.8         Indemnification of Corporation. Subject to the provisions of this Section 4.8, the Purchaser will indemnify and hold the Corporation, its Affiliates and their respective directors, officers, shareholders, partners, employees and agents (each, a “Corporation Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of

 

21

 

investigation that any such Corporation Party may suffer or incur as a result of or relating to any breach of any of the representations, warranties, covenants or agreements made by the Purchaser in this Agreement or in the other Transaction Documents (unless such action is based upon a breach of the Corporation’s representation, warranties or covenants under the Transaction Documents or any conduct by the Corporation which constitutes fraud, gross negligence or wilful misconduct). If any action shall be brought against any Corporation Party in respect of which indemnity may be sought pursuant to this Agreement, such Corporation Party shall promptly notify the Purchaser in writing, and the Purchaser shall have the right to assume the defence thereof with counsel of its own choosing. Any Corporation Party shall have the right to employ separate counsel in any such action and participate in the defence thereof, but the fees and expenses of such counsel shall be at the expense of such Corporation Party except to the extent that: (i) the employment thereof has been specifically authorized by the Purchaser in writing; (ii) the Purchaser has failed after a reasonable period of time to assume such defence and to employ counsel; or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Purchaser and the position of such Corporation Party. The Purchaser will not be liable to any Corporation Party under this Agreement: (i) for any settlement by a Corporation Party effected without the Purchaser’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent that a court of competent jurisdiction in a final judgment from which no appeal can be made shall determine that such Corporation Party breached, defaulted under or failed to comply with any material representation, warranty, term, condition or covenant of this Agreement.

 

4.9         Acknowledgment Regarding Purchaser’s Purchase of Securities. The Corporation acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Corporation further acknowledges that no Investor is acting as a financial advisor or fiduciary of the Corporation (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Investor or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Investors’ purchase of the Securities. The Corporation further represents to the Purchaser that the Corporation’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Corporation and its representatives.

 

ARTICLE 5

MISCELLANEOUS

 

5.1         Fees and Expenses. The Corporation has agreed to reimburse each of the Co-Lead Investors up to C$50,000 concurrent with the Closing upon presentation of detailed invoices in respect of legal and other costs incurred by the Co-Lead Investors in respect of the Offering. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Corporation shall pay all expenses and transfer agent fees and other taxes and duties levied in connection with the delivery of any Securities.

 

5.2         Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.3         Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of:

 

22

 

(a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 4:30 p.m. (Montreal time) on a Business Day; (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 4:30 p.m. (Montreal time) on any Business Day; (c) the second Business Day following the date of mailing, if sent by a recognized overnight courier service; or (d) upon actual receipt by the party to whom such notice is required to be given. Notwithstanding anything herein to the contrary, in the event notice is sent by facsimile transmission, the sending party shall also send such notification by e-mail if the receiving party has included an e-mail address below or on their respective signature page. The address for such notices and communications shall be as follows:

 

	
If   to Corporation, to:
    	
MethylGene   Inc.
    
	
 
    	
7210   Frederick-Banting
    
	
 
    	
Suite 100
    
	
 
    	
Montreal,   Québec
    
	
 
    	
H4S   2A1 Canada
    
	
 
    	
 
    
	
 
    	
Attention:   Mr. Charles Grubsztajn
    
	
 
    	
President   and Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
Facsimile:   (514) 337-4994
    
	
 
    	
E-mail   address: grubsztajnc@methylgene.com
    
	
 
    	
 
    
	
 
    	
and   a copy (which shall not constitute notice) to:
    
	
 
    	
 
    
	
 
    	
Attention:   Mr. Klaus Kepper
    
	
 
    	
Vice   President, Finance and Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
Facsimile:   (514) 337-4994
    
	
 
    	
E-mail   address: kepperk@methylgene.com
    
	
 
    	
 
    
	
With   a copy (which shall
    	
 
    
	
not   constitute notice) to:
    	
Davies   Ward Phillips & Vineberg LLP
    
	
 
    	
1501   McGill College Avenue
    
	
 
    	
Suite 2600
    
	
 
    	
Montreal,   Québec
    
	
 
    	
H3A   3N9 Canada
    
	
 
    	
 
    
	
 
    	
Attention:   Olivier Désilets
    
	
 
    	
 
    
	
 
    	
Facsimile:   (514) 841-6499
    
	
 
    	
E-mail   address: odesilets@dwpv.com
    
	
 
    	
 
    
	
If   to a Purchaser:
    	
To   the address set forth under such Purchaser’s name on the face   page hereof;
    

 

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

 

5.4         Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Corporation and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this

 

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Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.5         Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

5.6         Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The parties may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party, except that each party shall be entitled to assign this Agreement without having to obtain the other party’s consent to a transferee who is acquiring all or substantially all the assets of such party and provided that the Corporation may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser prior to the Closing.

 

5.7         No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7.

 

5.8         Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the laws of the Province of Québec, without regard to the principles of conflicts of law thereof.

 

5.9         Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

 

5.10      Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

5.11      Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Corporation shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.

 

5.12      Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Corporation will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may

 

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not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defence that a remedy at law would be adequate.

 

5.13      Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are joint between such Purchasers and not solidary (being the equivalent, in the Province of Québec, to obligations that are several and not joint in jurisdictions other than Québec) with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents.

 

5.14      Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.

 

5.15      Language. The parties hereby request that this Agreement and any related documents be drafted only in the English language. Les parties requièrent par les présentes que la présente convention ainsi que tous les documents y afférents soient rédigés en langue anglaise seulement.

 

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SCHEDULE A

 

Common Shares Purchase Warrants

 

 

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE AUGUST [2], 2011.

 

THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THIS WARRANT MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, OR (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT.

 

WARRANT CERTIFICATE Warrants to

 

Purchase Common Shares of

 

METHYLGENE INC.

 

	
WARRANT

CERTIFICATE   NO. 2011-[    ]
    	
[         ]   WARRANTS entitling the holder to acquire, subject to adjustment, one common   share for each whole Warrant represented hereby.
    

 

This certifies that, for value received, [       ] (the “Holder”) has acquired and is the registered holder of [       ] warrants (the “Warrants”) of MethylGene Inc. (the “Corporation”), giving the Holder the right to purchase, upon and subject to the terms and conditions hereinafter referred to, [      ] common shares of the Corporation (the “Common Shares”) at a price equal to

$0.1492 per share (the “Exercise Price Per Warrant”) on or before 5:00 P.M. (Eastern time) on

 

April [1], 2016 (the “Exercise Period”).

 

1.                  The aforesaid right to purchase Common Shares may only be exercised by the Holder within the time required hereinbefore set out, in whole or in part, by (a) surrendering to the Corporation at the address for notice to the Corporation set out in Section 11, or at any other address which from time to time is the principal place of business of the Corporation, the Warrant Certificate, (b) duly completing in the manner indicated and executing the exercise notice in substantially the form attached hereto (the “Exercise Notice”), and (c) paying the

 

 

appropriate purchase price in Canadian dollars for the Common Shares subscribed for together with requisite share transfer tax, if any, either by certified cheque or bank draft payable at par to the order of the Corporation. Upon compliance by the Holder with the exercise procedures in respect of a Warrant Certificate set forth above in items (a), (b) and (c) (the “Exercise Date”), the number of Common Shares subscribed for shall be deemed to have been issued and the person to whom such Common Shares are to be issued shall be deemed to have become the holder of record of such Common Shares on the Exercise Date. Within five days of the Exercise Date, the Corporation shall direct Computershare Investor Services Inc. (or any substitute transfer agent)) to deliver, or shall itself deliver, to the Holder a share certificate for the appropriate number of Common Shares to which the Holder is entitled.

 

Notwithstanding anything contained herein to the contrary, the Holder may, in its sole discretion, exercise the Warrants in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Corporation upon such exercise in payment of the aggregate Exercise Price Per Warrant (and in exchange for the surrender of the right to receive upon such exercise the Common Shares in excess of the “Net Number” of Common Shares, as described below), elect instead to receive upon such exercise the “Net Number” of Common Shares determined according to the following formula:

 

	
Net   Number =
    	
(A x B) - (A x C)
    
	
 
    	
B
    

 

For purposes of the foregoing formula:

 

A= the total number of Common Shares with respect to which this Warrant Certificate is then being exercised.

 

B= the arithmetic average of the closing price of the Common Shares on the TSX during the five trading days immediately preceding the date of the Exercise Notice.

 

C= the Exercise Price then in effect for the applicable Common Shares at the time of such exercise.

 

If the Holder of this Warrant Certificate subscribes for a lesser number of Common Shares than the number of Common Shares referred to in this Warrant Certificate, the said Holder will be entitled to receive a further Warrant Certificate in respect of Common Shares referred to in this Warrant Certificate not subscribed for.

 

To the extent these Warrants have not previously been exercised as to all of the Common Shares subject hereto, and if the arithmetic average of the closing price of the Common Shares on the TSX during the five trading days immediately preceding the last day of the Exercise Period is greater than the Exercise Price Per Warrant, these Warrants shall be deemed automatically exercised pursuant to this Section 1 (even if not surrendered) immediately prior the expiry of the Exercise Period. To the extent these Warrants or any portion thereof are deemed automatically exercised pursuant to this paragraph, the Corporation agrees to promptly notify the

 

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Holder of the number of Common Shares, if any, that the Holder is to receive by reason of such automatic exercise.

 

[INSERT BLOCKER RIDER, IF APPLICABLE]

 

2.                  Any certificate representing the Holder’s Common Shares issued upon the exercise of these Warrants prior to August [2] 2011 will bear the following legend(s):

 

“UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE AUGUST [2], 2011.

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR UNDER ANY U.S. STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF METHYLGENE INC. (THE “CORPORATION”) THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THE SALE OF SUCH SECURITIES ONLY, WHETHER DIRECTLY OR INDIRECTLY: (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT; OR (C) PURSUANT TO (I) RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE OR (II) ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, PROVIDED THAT A LEGAL OPINION SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR SECURITIES LAW OF ANY APPLICABLE JURISDICTION. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE “GOOD DELIVERY”, MAY BE OBTAINED FROM COMPUTERSHARE INVESTOR SERVICES INC. UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE CORPORATION AND COMPUTERSHARE INVESTOR SERVICES INC, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT.”

 

3.                  The holding of a Warrant does not constitute the Holder a shareholder of the Corporation, nor entitle the holder to any right or interest in respect thereof except as expressly provided in this Warrant Certificate.

 

4.                  The Holder of this Warrant Certificate upon surrender hereof to the Corporation at its principal place of business, may exchange this Warrant Certificate for other Warrant

 

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Certificates entitling the bearer to purchase in the aggregate the same number of Common Shares referred to in this Warrant Certificate.

 

5.                  The Holder hereof, by acceptance of this Warrant Certificate, agrees that this Warrant Certificate and all rights hereunder are not transferable or assignable, in whole or in part, except: (a) to the Corporation, or (b) outside the United States in accordance with rule 904 of Regulation S under the U.S. Securities Act and in compliance with applicable local laws and regulations. The Warrants evidenced by this Warrant Certificate may only be transferred on the register to be kept at the address for notice to the Corporation set out in Section 11, or at any other address which from time to time is the principal place of business of the Corporation, by delivery of a duly executed notice transfer form in the form attached hereto as Exhibit A by the Holder or its attorney to be appointed by an instrument in writing in form and execution satisfactory to the Corporation in compliance with such reasonable requirements as the Corporation may prescribe.

 

6.                  Subject in all cases to the TSX’s approval, the number of Common Shares to which the Holder is entitled upon exercise of the Warrants and the Exercise Price Per Warrant shall be subject to adjustment from time to time as follows:

 

(a) if and whenever at any time from the date hereof and prior to the expiry of the Exercise Period, the Corporation shall:

 

(i)                                   subdivide its outstanding Common Shares into a greater number of shares;

 

(ii)                                consolidate its outstanding Common Shares into a smaller number of shares; or

 

(iii)                             fix a record date for the issuance of Common Shares or securities convertible into Common Shares by way of stock dividend or other distribution;

 

the number of Common Shares to which the Holder is entitled upon exercise of the Warrants shall be adjusted, at no cost to the Holder, immediately after such record date or the effective date of such subdivision, consolidation, stock dividend or other distribution by multiplying the number of Common Shares theretofore obtainable on the exercise thereof by the fraction of which:

 

(A)                             the numerator shall be the total number of Common Shares outstanding, including the Common Shares issuable from convertible securities that are distributed, immediately after such date, and

 

(B)                             the denominator shall be the total number of Common Shares outstanding immediately prior to such date,

 

and the Exercise Price Per Warrant shall be proportionately adjusted such that the aggregate Exercise Price Per Warrant of this Warrant Certificate shall remain unchanged and

 

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such adjustments shall be made successively whenever any event referred to in this Subsection shall occur (and all adjustments in this Subsection are cumulative). Any such issuance of Common Shares by way of stock dividend shall be deemed to have been made on the record date for such stock dividend;

 

(b) if and whenever at any time from the date hereof and ending at the expiry of the Exercise Period, the Corporation shall fix a record date for the issue of rights, options or warrants to all or substantially all of the holders of Common Shares entitling the holders thereof, within a period expiring not more than 45 days after the record date for such issue, to subscribe for or purchase Common Shares (or securities convertible into or exchangeable for Common Shares) at a price per share (or having a conversion or exchange price per share) less than 95% of the Current Market Price (as defined below) on such record date, then the Exercise Price Per Warrant will be adjusted immediately after such record date so that it will equal the rate determined by multiplying the Exercise Price Per Warrant in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus the number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares so offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible or exchangeable securities so offered) by such Current Market Price, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares so offered for subscription or purchase (or into or for which the convertible or exchangeable securities so offered are convertible or exchangeable). Any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment will be made successively whenever such a record date is fixed, provided that if two or more such record dates or record dates referred to in this paragraph are fixed within a period of 25 trading days, such adjustment will be made successively as if each of such record dates occurred on the earliest of such record dates. To the extent that any such rights, options or warrants are not exercised prior to the expiration thereof, the Exercise Price Per Warrant will then be readjusted to the Exercise Price Per Warrant which would then be in effect based upon the number of Common Shares (or securities convertible into or exchangeable for Common Shares) actually issued upon the exercise of such rights, options or warrants, as the case may be. For the purposes of this Subsection, “Current Market Price” shall mean the volume weighted average trading price of the Common Shares on the TSX (or such other exchange on which the Common Shares are traded) for the five trading days immediately preceding the relevant date;

 

(c) if and whenever at any time from the date hereof and prior to the expiry of the Exercise Period, the Corporation shall issue or distribute to the holders of all or substantially all of the outstanding Common Shares or set a record date for the issuance or distribution to such holders of any securities of the Corporation including rights, options or warrants to acquire Common Shares or securities convertible into or exchangeable for Common Shares or property or assets including evidences of indebtedness, the holder of any Warrant who thereafter shall exercise his right to subscribe for Common Shares hereunder shall be entitled to receive, at no cost to such holder, and shall accept for the same aggregate consideration, in addition to the Common Shares to which he was theretofore entitled upon such exercise, the kind and amount of shares or other securities or property which such holder would have been entitled to receive as a result of such issue or distribution as if, on the effective date thereof, he had been the registered

 

5

 

holder of the number of Common Shares to which he was theretofore entitled upon such exercise;

 

(d) if and whenever at any time from the date hereof and ending on the expiry of the Exercise Period, there is (i) any reclassification of or amendment to the outstanding Common Shares, any change of the Common Shares into other shares or any other reorganization of the Corporation (other than as described above); (ii) any consolidation, amalgamation, arrangement, merger or other form of business combination of the Corporation with or into any other corporation resulting in any reclassification of the outstanding Common Shares, any change of the Common Shares into other shares or any other reorganization of the Corporation; or (iii) any sale, lease, exchange or transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation or entity, then, in each such event, each holder of any Warrant which is thereafter exercised will be entitled to receive, and shall accept, in lieu of the number of Common Shares to which such holder was theretofore entitled upon such exercise, the kind and number or amount of shares or other securities or property which such holder would have been entitled to receive as a result of such event if, on the effective date thereof, such holder had been the registered holder of the number of Common Shares to which such holder was theretofore entitled upon such exercise;

 

(e) appropriate adjustments shall be made as a result of any such subdivision, consolidation, issue or distribution to the rights and interests of the Holder thereafter so that the provisions of this Article shall thereafter apply correspondingly to any shares, other securities or other property thereafter deliverable upon the exercise of any Warrant and any such adjustments shall be made by and set forth in an agreement supplemental hereto approved by the directors and shall for all purposes be conclusively deemed to be an appropriate adjustment;

 

(f) in any case in which this Section shall require that an adjustment shall become effective immediately after a record date for an event referred to herein, the Corporation may defer, until the occurrence of such event, issuing to the holder of any Warrant exercising his subscription rights after such record date the additional Common Shares or other securities or property issuable upon such exercise by reason of the adjustment required by such event; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder’s right to receive such additional Common Shares, other securities or property, as the case may be, upon the occurrence of the event requiring such adjustment and the right to receive any distributions made on such additional Common Shares, other securities or property, as the case may be, declared in favour of holders of record of Common Shares, other securities or property, as the case may be, on and after the date of exercise or such later date as such holder would but for the provisions of this Subsection, have become the holder of record of such additional Common Shares, other securities or property, as the case may be, pursuant to the due exercise of the Warrants held by such holder;

 

(g) all shares of any class or other securities or property which the Holder is at the time in question entitled to receive on the full exercise of his Warrant, whether or not as a result of adjustments made pursuant to this Section shall, for the purposes of the interpretation of this Agreement, be deemed to be Common Shares which the Holder is entitled to subscribe for pursuant to the exercise of such Warrant;

 

6

 

(h) the adjustments provided for in this Section 6 are cumulative and shall, in the case of adjustments to the Exercise Price Per Warrant, be computed to the nearest one-tenth of one cent and shall be made successively whenever an event referred to therein shall occur, subject to the following: (i) no adjustments in the Exercise Price Per Warrant shall be required unless such adjustment would result in a change of at least 1% in the then prevailing Exercise Price Per Warrant and no adjustment shall be made in the number of Common Shares purchasable upon exercise of Warrants unless it would result in a change of at least one one-hundredth of a share; provided, however, that any adjustments which by reason of this Section 6 are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and (ii) if a dispute shall at any time arise with respect to adjustments provided for in this Section 6, such dispute shall be conclusively determined by the Corporation’s auditors, or if they are unable or unwilling to act, by such other firm of independent chartered or public accountants as may be selected by action by the board of directors of the Corporation, and any such determination shall be binding upon the Corporation, the Holder and shareholders of the Corporation. In the event that any such determination is made, the Corporation shall deliver a certificate to the Holder signed by such auditors or accountants describing such determination.

 

7.                  The Corporation hereby represents and warrants that it is authorized to create and issue the Warrants and covenants and agrees that it will cause the Common Shares from time to time subscribed for and purchased in the manner provided in this Warrant Certificate and the certificate or certificates representing such Common Shares to be issued and that, at all times prior to the expiry of the Exercise Period, there will remain unissued a sufficient number of Common Shares to satisfy the right of purchase provided for in this Warrant Certificate. All Common Shares which are issued upon the exercise of the right of purchase provided in this Warrant Certificate, upon payment therefor of the amount at which such Common Shares may be purchased pursuant to the provisions of this Warrant Certificate, shall be and be deemed to be fully paid and non-assessable shares and free from all taxes, liens and charges with respect to the issue thereof. The Corporation hereby represents and warrants that this Warrant Certificate is a valid and enforceable obligation of the Corporation, enforceable in accordance with the provisions of this Warrant Certificate.

 

8.                  Forthwith following the issuance of this Warrant Certificate, the Corporation will apply for the listing of the Common Shares issuable pursuant to this Warrant Certificate on each securities exchange on which the Common Shares are then listed.

 

9.                  The Corporation will not be obligated to issue any fraction of a share on the exercise of Warrants. If the Holder would, on the exercise of Warrants, otherwise have acquired a total number of shares that includes a fraction of a share, the Corporation will pay to the Holder, by cheque, in lieu of and in satisfaction for any right to such fractional share, an amount equal to the equivalent fraction of the market value of such share on the business day immediately preceding the date of such payment.

 

10.                Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of this Warrant Certificate and, if requested by the Corporation, upon delivery of a bond of indemnity satisfactory to the Corporation (or, in the case of mutilation, upon surrender of this Warrant Certificate), the Corporation will issue to the Holder a replacement certificate (containing the same terms and conditions as this Warrant Certificate).

 

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11.                All notices or other communications to be given under this Warrant Certificate shall be delivered by hand or by telecopier and, if delivered by hand, shall be deemed to have been given on the delivery date and, if sent by telecopier, on the date of transmission if sent before 5:00 p.m. on a business day or, if such day is not a business day, on the first business day following the date of transmission.

 

Notices to the Corporation shall be addressed to:

 

7210 Frederick-Banting

Suite 100

Montreal, Québec H4S 2A1

Canada

 

Attention: Chief Financial Officer

Facsimile: (514) 337-0550

 

Notices to the Holder shall be addressed to the address of the Holder set out in the register kept at the address for notice to the Corporation set out in this Section 11, or at any other address which from time to time is the principal place of business of the Corporation.

 

The Corporation and the Holder may change its address for service by notice in writing to the other of them specifying its new address for service under this Warrant Certificate.

 

12.                Time will be of the essence hereof.

 

13.                All monies quoted in this Warrant Certificate shall be stated and paid in lawful money of Canada unless otherwise stated.

 

14.                This Warrant Certificate shall be construed in accordance with the laws of the Province of Québec and the federal laws of Canada applicable therein.

 

15.                The parties hereto acknowledge and confirm that they have requested that this Warrant Certificate as well as all notices and other documents contemplated hereby be drawn up in the English language. Les parties aux présentes reconnaissent et confirment qu’elles ont exigé que la présente convention ainsi que tous les avis et documents qui s’y rattachent soient rédigés en langue anglaise.

 

THIS WARRANT AND THE SECURITIES DELIVERABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”). OTHER THAN AN ORIGINAL U.S. PURCHASER, THIS WARRANT MAY NOT BE EXERCISED BY ANY U.S. PERSON, BY ANY PERSON IN THE UNITED STATES OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON OR A PERSON IN THE UNITED STATES. AS USED HEREIN, THE TERMS “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS ASCRIBED TO THEM IN REGULATION S UNDER THE U.S. SECURITIES ACT AND “ORIGINAL U.S. PURCHASER” MEANS THE ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(A) OF REGULATION D UNDER THE U.S. SECURITIES ACT WHO FIRST PURCHASED THIS WARRANT.

 

8

 

IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate to be signed by its duly authorized officer as of the          day of April, 2011.

 

	
 
    	
 
    
	
 
    	
METHYLGENE INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Name:   
    
	
 
    	
Title:
    

 

 

EXHIBIT “A”  

 

TRANSFER FORM

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to

 

	
 
    	
 
    
	
(full name of   Transferee)
    	
(full address of   Transferee)
    

 

                                                         Warrants of MethylGene Inc. registered in the name of the undersigned on the records of MethylGene Inc. represented by the Warrant Certificate attached and irrevocably appoints                                                  the attorney of the undersigned to transfer the said securities on the books or register with full power of substitution.

 

DATED the                         day of                 ,              .

 

	
 
    	
 
    
	
 
    	
(Signature of   Registered Warrantholder)
    

 

 

Instructions:

 

1.                                    The signature of the Warrantholder must be the signature of the person appearing on the face of this Warrant Certificate.

 

2.                                    If the Transfer Form is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a judiciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Agent and the Corporation.

 

 

EXHIBIT “B”

 

NOTICE OF EXERCISE OF WARRANT FORM

 

(To be executed only upon exercise of Warrants)

 

Capitalized terms referred to but not defined herein have such meanings herein as are given thereto in the accompanying Warrant Certificate.

 

The undersigned registered owner of the accompanying Warrant Certificate hereby elects to exercise                   of the Warrants represented thereby on and subject to the terms and conditions incorporated by reference in the accompanying Warrant Certificate

 

The undersigned hereby certifies that the undersigned is either (i) the Original U.S. Purchaser or (ii) not a U.S. Person or a person in the United States, and is not acquiring any of the Shares issuable upon the exercise of the Warrants for the account or benefit of a U.S. Person or a person in the United States, and none of the persons listed below is a U.S. Person or a person in the United States, unless such person is the Original U.S. Purchaser. In addition to this exercise form, an Original U.S. Purchaser must also provide an executed letter, substantially in the form attached as Exhibit “C” to the Warrant. For purposes hereof “United States” and “U.S. Person” shall have the meanings given to such terms in Regulation S under United States Securities Act of 1933, as amended (the “U.S. Securities Act”), and “Original U.S. Purchaser” means the accredited investor within the meaning of Rule 501(a) of Regulation D under the U.S. Securities Act who first purchased the Warrants.

 

The Holder intends that payment of the Exercise Price shall be made as (check one):

 

o           a “Cash Exercise”; or

 

o           a “Cashless Exercise”.

 

In the event that the Holder has elected a Cash Exercise, the Holder shall pay to the Corporation the aggregate purchase price of $                         in connection with such exercise, the whole in accordance with the terms of the Warrant Certificate.

 

The undersigned hereby directs that the Common Shares acquired by it as a result of such exercise be registered as follows:

 

	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    

 

2

 

	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Dated:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Signature of Registered   Owner)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Address
    

 

3

 

EXHIBIT “C”

 

Form of Letter to be Delivered by

Original U.S. Purchaser

 upon Exercise of Warrants

 

 

MethylGene Inc.

7220 Frederick-Banting Street

Suite 200

St-Laurent, QC H4S 2A1

Canada

 

- and to -

 

Computershare Investor Services Inc.

1500 University Street

Suite 700

Montréal, QC H3A 3S8

Canada

 

Dear Sirs:

 

I am/We are delivering this letter in connection with the purchase of common shares (the “Shares”) of MethylGene Inc. (the “Corporation”), a corporation existing under the laws of Canada, upon the exercise of warrants of the Corporation (“Warrants”), dated as of April [1], 2011.

 

We hereby confirm that:

 

(a)                                                                            I am/we are an “accredited investor” within the meaning of Rule 501 (a) of Regulation D under the United States Securities Act of 1933 (the “U.S. Securities Act”);

 

(b)                                                                            I am/we are purchasing the Shares for my/our own account;

 

(c)                                                                             I/we have such knowledge and experience in financial and business matters that I/we am/are capable of evaluating the merits and risks of purchasing the Shares;

 

(d)                                                                            I/we am/are not acquiring the Shares with a view to distribution thereof or with any present intention of offering or selling any of the Shares, except (A) to the Corporation, (B) outside the United States in accordance with Rule 904 under the U.S. Securities Act or (C) (1) or (2) in accordance with (A) Rule 144 under the U.S. Securities Act, if applicable, or (B) another

 

4

 

available exemption from registration under the U.S. Securities Act and in each instance compliance with applicable state securities laws;

 

(e)                                                                             I/we acknowledge that I/we have had access to such financial and other information as I/we deem necessary in connection with my/our decision to purchase the Shares; and

 

(f)                                                                              I/we acknowledge that I/we are not purchasing the Shares as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising.

 

I/We understand that the Shares are being offered in a transaction not involving any public offering within the United States within the meaning of the U.S. Securities Act and that the Shares have not been and will not be registered under the U.S. Securities Act. I/We further understand that any Shares acquired by me/us will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of paragraph (d) above.

 

I/We acknowledge that you will rely upon my/our confirmations, acknowledgments and agreements set forth herein, and I/we agree to notify you promptly in writing if any of my/our representations or warranties herein ceases to be accurate or complete.

 

 

	
 
    	
(Name   of Purchaser)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Address:
    

 

5

 

SCHEDULEB

 

Unsecured Convertible Debentures

 

 

UNLESS PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE JULY 25, 2011

 

THIS DEBENTURE AND THE SECURITIES DELIVERABLE UPON CONVERSION THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS DEBENTURE MAY NOT BE CONVERTED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS DEBENTURE AND THE SECURITIES DELIVERABLE UPON CONVERSION THEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THIS DEBENTURE MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE BORROWER, OR (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT.

 

Debenture No. ·

 

MethylGene Inc. (amalgamated under the laws of Canada)

 

UNSECURED CONVERTIBLE DEBENTURE

 

	
 
    	
CDN $382,599
    	
 
    	
March [24], 2011
    

 

MethylGene Inc. (the “Borrower”) for value received, hereby acknowledges itself indebted to and unconditionally promises to pay to or to the order of [Investor I / Investor II] (“·” and, together with any assignee of · in accordance with the terms hereof, and their respective successors and assigns, the “Holder”) on demand on the earlier of the Maturity Date (as hereinafter defined) and such earlier date as all, but not less than all, of the Principal Amount (as hereinafter defined) hereof may otherwise become due in accordance with the provisions of this Debenture, the aggregate principal sum of THREE HUNDRED EIGHTY-TWO THOUSAND FIVE HUNDRED NINETY NINE DOLLARS ($382,599) (the “Principal Amount”) and interest accrued thereon in accordance with Section 1.1 hereof advanced to the Borrower by the Holder in accordance with the terms hereof, in lawful money of Canada, on presentation and surrender of this Debenture to the Borrower at its registered office.

 

Unless otherwise indicated, capitalized terms used in this Debenture shall have the respective meanings attributed thereto in Schedule A.

 

 

ARTICLE 1

PAYMENTS

 

1.1.                                                    Interest

 

Interest shall be payable by the Borrower to the Holder in respect of the outstanding Principal Amount at an annual rate of 3% per annum (calculated on a 360 day basis) compounded monthly and payable on the last Business Day of each calendar month until the Maturity Date. For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever any interest or any fee to be paid hereunder or in connection herewith is to be calculated on the basis of a 360-day year, the yearly rate of interest to which the rate used in such calculation is equivalent is the rate so used multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360.

 

1.2.                                                    Mandatory Repayment of Principal Amount

 

Unless payment or conversion is otherwise required or made earlier in accordance with the terms and conditions of this Debenture, on the Maturity Date the full Principal Amount of this Debenture together with interest accrued and unpaid thereon shall be due and payable in a single instalment.

 

1.3.                                                    Optional Prepayment

 

The Borrower may only prepay the Principal Amount of this Debenture and pay the interest accrued thereon with the prior written consent of the Holder.

 

1.4.                                                    Payments Generally

 

Unless otherwise specifically permitted in this Debenture, all payments made pursuant to this Debenture (in respect of principal or otherwise) shall be made by the Borrower to the Holder by way of certified cheque, bank draft or wire transfer by or on behalf of the Borrower to the account specified therefor by the Holder no later than 5:00 p.m. (Montreal time) on the due date therefor. Any payments received after such time shall be considered, for all purposes, as having been made on the next following Business Day unless the Holder otherwise agrees in writing.

 

1.5.                                                    Payments - No Deduction

 

All payments made in respect of this Debenture (including in respect of principal or otherwise) shall be made in full without set-off or counterclaim, and free of and without deduction or withholding for any present or future Taxes, except as required by Applicable Law.

 

1.6.                                                    Extension of Maturity Date

 

At its sole discretion, the Holder shall be entitled to extend the Maturity Date, in 30- day increments, to a date that is up to six (6) months from May 23, 2011, upon five (5) days prior written notice to the Borrower. In the event that the Holder extends the Maturity Date in accordance with the terms of this Section 1.6, the Maturity Date shall be changed to such later date.

 

2

 

1.7.                                                    Taxes

 

All payments hereunder, whether on account of principal, interest (including amounts deemed to be interest under Applicable Law) or otherwise, shall be made free and clear of and without deduction or withholding for any and all Taxes (excluding any Taxes imposed on or measured by reference to the net income or net profits of the Holder, capital taxes or franchise taxes) (such taxes, other than such excluded taxes, being “Indemnifiable Taxes”) unless required by Applicable Law. If any such deduction or withholding of Indemnifiable Taxes is required by such Applicable Law, the payment shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to any additional amounts paid under this Section 1.7), the Holder shall receive an amount equal to the amount it would have received if no such deduction or withholding had been made. Borrower shall furnish to the Holder the original or a certified copy of a receipt, if available, or other reasonably acceptable document to the Holder evidencing payment of Indemnifiable Taxes made by it within 30 days after the date of any payment of such Indemnifiable Taxes.

 

ARTICLE 2

CONVERSION OF DEBENTURE

 

2.1.                                             Optional Conversion Right

 

At any time when this Debenture is not fully repaid or otherwise automatically converted upon the completion of the Financing Transaction pursuant to Section 2.2 hereof, upon the terms and subject to the conditions of this Article, the Holder shall have the right (the “Conversion Right”), at its option, to convert all, or any portion, of the Principal Amount (but not the accrued interest thereon) into Units at a price per security equal to the Subscription Price. Any interest accrued on the Principal Amount shall be payable in cash by the Borrower to the Holder on the Date of Conversion.

 

2.2.                                             Automatic Conversion

 

The outstanding Principal Amount of this Debenture (but not the accrued interest thereon) shall, immediately prior to, and on the date of closing of the Financing Transaction (the “Financing Transaction Completion Date”) be automatically converted into Units at a conversion price equal to the Subscription Price. Any interest accrued on the Principal Amount shall be payable in cash by the Borrower to the Holder on the Date of Conversion.

 

2.3.                                             Manner of Exercise of Conversion Right and Option

 

The following rules apply with respect to the conversion of any amount payable in accordance with this Debenture:

 

	
2.3.1
    	
 
    	
to   exercise the Conversion Right, the Holder shall surrender this Debenture at   the office of the Borrower in the City of Montreal together with written   notice (which shall be irrevocable) in a form satisfactory to the Borrower,   acting reasonably, duly executed by the Holder, stating that the Holder   elects to convert the Principal Amount (but no accrued interest);
    

 

3

 

	
2.3.2
    	
 
    	
upon   automatic conversion pursuant to Section 2.2, the Holder shall surrender   this Debenture at the office of the Borrower in the City of Montreal;
    
	
 
    	
 
    	
 
    
	
2.3.3
    	
 
    	
in   the case of an exercise of the Conversion Right, the surrender of this   Debenture accompanied by the written notice referred to in Subsection 2.3.1   or, in the case of the automatic conversion pursuant to Section 2.2   hereof, the surrender of this Debenture on the Financing Transaction   Completion Date, shall be deemed to constitute a contract between the Holder   and the Borrower whereby: (i) the Holder subscribes for the number of   Units which the Holder shall be entitled to receive on such conversion and   the Borrower shall issue such Units to the Holder as fully paid and   non-assessable securities in the capital of the Borrower; (ii) the   Holder will, at the Borrower’s request in writing and at the cost and expense   of the Borrower, release the Borrower from all liability to pay the Principal   Amount of this Debenture and any accrued interest, if any; and (iii) the   Borrower agrees that the surrender of this Debenture for conversion or the   automatic conversion pursuant to Section 2.2 hereof constitutes full   payment of the subscription price for the Units;
    
	
 
    	
 
    	
 
    
	
2.3.4
    	
 
    	
this   Debenture will be deemed to be surrendered for conversion on the date (the “Date of Conversion”) on which it is so   surrendered in accordance with the provisions of this Article 2 or upon   automatic conversion pursuant to Section 2.2 hereof and, in the event   that this Debenture is surrendered by mail or other means of delivery, on the   date on which it is received by the Borrower during regular business hours;
    
	
 
    	
 
    	
 
    
	
2.3.5
    	
 
    	
the   Holder will be entitled to be entered in the books of the Borrower as at the   applicable Date of Conversion as the holder of the number of Units into which   this Debenture has been converted in accordance with the provisions of this   Article and, as soon as practicable thereafter, the Borrower will deliver   to the Holder certificates representing Common Shares and Warrants for such   Units entered; and
    
	
 
    	
 
    	
 
    
	
2.3.6
    	
 
    	
with   effect as of and from the Date of Conversion, the Borrower will cancel this   Debenture and, upon automatic conversion pursuant to Section 2.2 hereof   and notwithstanding Subsection 2.3.2 hereof, the Holder agrees that its   rights under this Debenture shall be automatically extinguished and that the   interest thereon will cease accruing from the Date of Conversion.
    

 

2.4.                                                    No Requirement to Issue Fractional Securities

 

The Borrower is not required to issue fractional Units upon the conversion of this Debenture. If any fractional interest in a security of the Borrower would, but for the provisions of this Section 2.4, be deliverable upon the conversion of any Principal Amount of this Debenture, the number of Units to which the Holder is entitled upon conversion will be rounded down to the next whole number.

 

4

 

2.5.                                             Borrower to Reserve Securities

 

The Borrower covenants with the Holder that it will at all times reserve and keep available out of its authorized securities, solely for the purpose of issue upon conversion of this Debenture, such number of Units as will then be issuable upon the conversion of the Principal Amount outstanding under this Debenture. The Borrower covenants with the Holder that all Units which will be so issuable, will, on surrender and conversion of this Debenture in accordance with the terms hereof, be duly and validly issued as fully paid and non-assessable securities in the capital of the Borrower.

 

2.6.                                             Adjustment Provisions

 

If, at any time prior to the date on which this Debenture is repaid in full or converted in accordance with the terms hereof, the Borrower:

 

	
2.6.1
    	
 
    	
undertakes   any reclassification or other change in its share capital or in case of the   consolidation, merger, reorganization or amalgamation of the Borrower with or   into any other company or entity which results in any reclassification of the   shares of the Borrower, or in case of any transfer of the undertaking or   assets of the Borrower as an entirety or substantially as an entirety to   another person or entity in which the shareholders of the Borrower are   entitled to receive shares, other securities or property;
    
	
 
    	
 
    	
 
    
	
2.6.2
    	
 
    	
subdivides   any of its shares into a greater number of shares;
    
	
 
    	
 
    	
 
    
	
2.6.3
    	
 
    	
consolidates   any of its shares into a lesser number of shares; or
    
	
 
    	
 
    	
 
    
	
2.6.4
    	
 
    	
issue   shares or convertible securities or property to holders of shares by way of a   distribution on the shares payable in such shares or convertible securities;
    

 

(each, a “Reorganization”)

 

the Holder shall, after the effective date of such Reorganization and upon the conversion of this Debenture, be entitled to receive, and shall accept in lieu of the number of Units to which the Holder was theretofore entitled upon such exercise, the kind and amount of shares and other securities or property which the Holder would have been entitled to receive as a result of such Reorganization if, on the effective date thereof, the Holder had been the registered holder of the number of Units to which the Holder was theretofore entitled upon such conversion. If necessary, appropriate adjustments shall be made in the application of the provisions set forth in this Section 2.6 with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth in this section shall thereafter correspondingly be made applicable as nearly as may be reasonable in relation to any shares or other securities or property thereafter deliverable upon the conversion of this Debenture.

 

5

 

2.7.                                                    Legends

 

Any certificate representing the Common Shares and Warrants comprising the Units issued pursuant to this Article 2 shall bear the legends set forth in, and shall be subject to the restrictions on transfer and exercise set forth in, the Securities Purchase Agreement.

 

ARTICLE 3

SECURITY

 

3.1.                                                    Security

 

This Debenture is the Borrower’s general unsecured senior obligations and ranks pari passu with the Borrower’s existing and future senior unsecured indebtedness, and ranks senior to all the Borrower’s subordinated indebtedness. This Debenture is effectively subordinated to all the Borrower’s secured indebtedness, if any, to the extent of the value of the assets securing such indebtedness. For so long as the Borrower has any Obligations outstanding, Borrower shall not incur any indebtedness that ranks senior to, or pari passu with this Debenture.

 

ARTICLE 4

DEFAULT

 

4.1.                                                    Events of Default

 

The occurrence of any of the following events shall constitute an “Event of Default”:

 

	
4.1.1
    	
 
    	
if   the Borrower defaults in payment of any interest due or any other amount due   hereunder and, after notice in writing has been given by the Holder to the   Borrower as hereinafter provided for, specifying such default and requiring   the Borrower to put an end to the same, the Borrower shall fail to cure such   default within a period of five (5) Business Days, unless the Holder   shall have agreed to a longer period, and in such event, within the period   agreed to by the Holder;
    
	
 
    	
 
    	
 
    
	
4.1.2
    	
 
    	
if   an order shall be made or an effective resolution is passed for the   winding-up, liquidation of either one of the Borrower or in the event of any   liquidation of either one of the Borrower by operation of law; or
    
	
 
    	
 
    	
 
    
	
4.1.3
    	
 
    	
if   the Borrower shall neglect to observe or perform any Obligation or other   obligation, covenant or condition contained in this Debenture to be observed   or performed by it and, after notice in writing has been given by the Holder   to the Borrower as hereinafter provided for, specifying such default and   requiring the Borrower to put an end to the same, the Borrower shall fail to   cure such default within a period of five (5) Business Days, unless the   Holder shall have agreed to a longer period, and in such event, within the   period agreed to by the Holder.
    

 

4.2.                                                    Acceleration on Default

 

In the case of any Event of Default, the Principal Amount of and interest on the Debenture then outstanding shall forthwith become immediately due and payable to the Holder, and the

 

6

 

Borrower shall forthwith pay to the Holder the Principal Amount of and any and all accrued and unpaid interest on the Debenture from the date of the said Event of Default until payment is received by the Holder. Such payment when made shall be deemed to have been made in discharge of the Borrower’s obligations hereunder.

 

4.3.                                                    Notice of Events of Default

 

The Borrower shall promptly notify the Holder of an Event of Default or any event which, with notice or lapse of time or both, would constitute an Event of Default hereunder.

 

Where notice of the occurrence of an Event of Default has been given and the Event of Default is thereafter cured, notice in writing that the Event of Default is no longer continuing shall be given by the Borrower to the Holder within a reasonable time, but not exceeding ten (10) days, after the Borrower becomes aware that the Event of Default has been cured.

 

ARTICLE 5

GENERAL

 

5.1.                                                    Replacement of Debenture

 

	
5.1.1
    	
 
    	
In   case this Debenture shall become mutilated or be lost, destroyed or stolen,   the Borrower shall issue, and thereupon deliver, a new Debenture of like   tenor as the one mutilated, lost, destroyed or stolen in exchange for and   upon surrender and cancellation of such mutilated Debenture or in lieu of and   in substitution for such lost, destroyed or stolen Debenture, and the new   Debenture shall be entitled to the benefit hereof and rank equally in accordance   with its terms with all other Debentures.
    
	
 
    	
 
    	
 
    
	
5.1.2
    	
 
    	
The   applicant for the issue of a new Debenture pursuant to this section shall   bear the cost of the issue thereof and in case of loss, destruction or theft   shall, as a condition precedent to the issue thereof, furnish to the Borrower   a certificate of one of its officers attesting of the ownership and of the   loss, destruction or theft of the Debenture so lost, destroyed or stolen and   such applicant shall pay the reasonable charges of the Borrower in connection   therewith.
    

 

5.2.                                                    Schedules, etc.

 

The following schedule is attached to, and forms part of, this Debenture:

 

	
Schedule   A
    	
-
    	
Definitions.
    

 

5.3.                                                    Amendment and Waiver

 

No amendment or waiver of any provision of this Debenture or consent to any departure by the Borrower from any provision thereof is effective unless it is in writing and signed by the Holder. Such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given.

 

7

 

5.4.                                                    Invalidity, etc.

 

Each of the provisions contained in this Debenture is distinct and severable and a declaration of invalidity, illegality 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.

 

5.5.                                                    Governing Law

 

This Debenture shall be governed by and construed in accordance with the laws of the Province of Québec and the federal laws of Canada applicable therein.

 

5.6.                                                    Actions on Days Other Than Business Days

 

Except as otherwise specifically provided herein, where any payment is required to be made or any other action is required to be taken on a particular day and such day is not a Business Day and, as a result, such payment cannot be made or action cannot be taken on such day, then this Debenture shall be deemed to provide that such payment shall be made or such action shall be taken on the first Business Day after such day.

 

5.7.                                                    Reliance and Non-Merger

 

All covenants, agreements, representations and warranties of the Borrower made herein or in any other Transaction Document to which such Person is a party or in any certificate or other document signed by any of their respective directors or officers and delivered by or on behalf of the Borrower pursuant hereto or thereto are material, shall be deemed to have been relied upon by the Holder notwithstanding any investigation heretofore or hereafter made by the Holder or counsel to or any employee or other representative of any of the Holder and shall survive the execution and delivery of this Debenture and the other Transaction Documents until the Borrower shall have satisfied and performed all of their obligations under the Transaction Documents.

 

5.8.                                                    Notices

 

Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by facsimile or other means of electronic communication or by hand-delivery as hereinafter provided. Any such notice, if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the day of sending, or if delivered by hand shall be deemed to have been received at the time it is delivered to the applicable address noted below. This section shall also govern notice of change of address. Notices and other communications shall be addressed as follows:

 

if to the Borrower, at:

 

7210 Frederick-Banting, Suite 100

Montreal, Québec H4S 2A1

Telecopier:                                 (514) 337-4994

Attention:                                      Vice President, Finance and Chief Financial Officer

 

8

 

with a copy (but which shall not constitute notice) to:

 

Davies Ward Phillips & Vineberg LLP

1501 McGill College Avenue, 26th Floor

Montreal, Québec H3A 3N9

Telecopier:                                 (514) 841-6499

Attention:                                      Olivier Désilets

 

if to·, at:

 

·

Telecopier:                                 ·

Attention:                                      ·

 

with a copy (but which shall not constitute notice) to:

 

·

 

or, for each party, to any other address or any other telecopier number which may be designated by such party in a written notice transmitted to the other parties.

 

5.9.                                                                         Entire Agreement

 

This Debenture, together with the Securities Purchase Agreement, constitutes the entire agreement between the parties pertaining to the subject matter described therein. There are no warranties, conditions, or representations (including any that may be implied by statute) and there are no agreements in connection with such subject matter except as specifically set forth or referred to in this Debenture or in the Securities Purchase Agreement.

 

5.10.                                                                  Assignment

 

5.10.1                                    This Debenture shall enure to the benefit of the Holder and be binding upon the Holder and the Borrower, in each case together with their respective successors and any permitted assignees of some or all of the parties’ rights or obligations under this Debenture.

 

5.10.2                                    The Borrower shall not assign all or any part of their obligations under this Debenture without the prior written consent of the Holder.

 

5.11.                                                                  Currency

 

Except as otherwise specifically stated, all amounts referred to in this Debenture are stated and are to be paid in lawful money of Canada.

 

9

 

5.12.                                                                  Counterparts

 

This Debenture may be signed in counterpart and by facsimile, all counterparts together constituting the whole of this Debenture.

 

[The signature page follows immediately]

 

10

 

IN WITNESS WHEREOF the parties have executed this Debenture this 24th day of March, 2011.

 

	
METHYLGENE INC.
    	
·
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    	
Name:   
    	
 
    
	
 
    	
Title:
    	
Title:
    	
 
    
						

 

11

 

SCHEDULE A

Definitions

 

For the purposes of this Debenture:

 

“Applicable Law” means, in respect of any Person, property, transaction, event or course of conduct, all applicable laws, statutes, rules, by-laws and regulations, regulatory policies and all applicable official directives, orders, judgments and decrees of Governmental Authorities;

 

“Borrower” has the meaning attributed thereto in the first paragraph of this Debenture;

 

“Business Day” means any day other than a Saturday or Sunday on which Canadian chartered banks are open for business in Montreal, Québec;

 

“Common Shares” has the meaning attributed thereto in the Securities Purchase Agreement; “Conversion Right” has the meaning attributed thereto in Section 2.1;

 

“Date of Conversion” has the meaning attributed thereto in Subsection 2.3.4;

 

“Debenture” means this unsecured convertible debenture and all schedules attached hereto, as same may be amended, restated or replaced from time to time; the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this Debenture as a whole and not to any particular article, section, schedule, or other portion hereof;

 

“Event of Default” has the meaning attributed thereto in Section 4.1;

 

“Financing Transaction” means, in the aggregate, the financing transactions contemplated by the terms of the Securities Purchase Agreement;

 

“Financing Transaction Completion Date” has the meaning attributed thereto in Section 2.2;

 

“Governmental Authority” means any government, parliament, legislature, or any regulatory authority, agency, commission or board of any government, parliament or legislature, or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including, without limitation, any stock exchange, securities regulatory authority, central bank, fiscal or monetary authority or authority regulating banks), having jurisdiction in the relevant circumstances;

 

“Holder” has the meaning attributed thereto in the first paragraph of this Debenture; “Indemnifiable Taxes” has the meaning attributed thereto in Section 1.7;

 

“Maturity Date” means May 23, 2011, or such earlier date as the Principal Amount of this Debenture and any accrued but unpaid interest thereon may become due hereunder, or such later date in accordance with Section 1.6 hereof;

 

12

 

“Obligations” means all indebtedness, liabilities and other obligations of the Borrower to the Holder hereunder, in each case, whether actual or contingent, direct or indirect, matured or not, now existing or hereafter arising;

 

“Principal Amount” has the meaning attributed to such term in the first paragraph of this Debenture, as decreased pursuant to the terms and conditions of this Debenture;

 

“Person” has the meaning attributed thereto in the Securities Purchase Agreement;

 

“Reorganization” has the meaning attributed thereto in Section 2.6;

 

“Securities Purchase Agreement” means the Securities Purchase Agreement dated the date hereof between the Borrower, on the one hand, and the Holder, on the other hand, including the “Terms and Conditions of Subscription for Common Shares and Warrants of MethylGene Inc.” and schedules thereto, which are incorporated therein;

 

“Subscription Price” has the meaning ascribed thereto in the Securities Purchase Agreement;

 

“Taxes” includes any taxes, duties, assessments, imposts and levies imposed by any Governmental Authority and includes all interest, penalties, fines, additions to tax or other additional amounts imposed by any Governmental Authority including those levied on, or measured by, or referred to as, income, gross receipts, profits, capital, transfer, land transfer, sales, goods and services, harmonized sales, use, value-added, excise, withholding, business, property, occupancy, employer health, payroll, employment, health, social services, education and social security taxes, all surtaxes, all customs duties and import and export taxes, countervail and anti-dumping and all employment insurance, health insurance and Canada, Québec and other government pension plan and other employer plan premiums, contributions or withholdings;

 

“Transaction Documents” means the Securities Purchase Agreement and the Warrants;

 

“Units” has the meaning attributed thereto in the Securities Purchase Agreement; and

 

“Warrants” has the meaning attributed thereto in the Securities Purchase Agreement.

 

13

 

SCHEDULE 1

Permitted Liens

 

	
 
    	
 
    	
Registration
   number
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Registration Date
    	
 
    	
Nature
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Expiration Date
    	
 
    	
Amount
    	
 
    	
Parties
    	
 
    	
Description of Property (Summary)
    	
 
    	
Comments
    
	
1.
    	
 
    	
06-0248983-0009

May 5, 2006

 

November 4, 2011
    	
 
    	
Rights of ownership of the lessor
    	
 
    	
Lessor:   

Citicorp   Vendor Finance Ltd.; Citicorp Finance Vendeur Ltée 

 

Lessee:   

MethylGene   Inc.
    	
 
    	
1-COPIER   PANASONIC WORKIO DP6030 1-MODULE DE FINITION 2 CASES WITH ALL ATTACHMENTS,   ACCESSORIES AND PROCEEDS THEREOF INCLUDING INSURANCE PROCEEDS AND INDEMNITIES.
    	
 
    	
Deed   under private writing dated May 4, 2006. 

 

Lease   term is 66 months. The quarterly lease payment is $1,676.09 plus applicable   taxes
    
	
2.
    	
 
    	
10-0047659-0003

 

January 28, 2010

 

January 26, 2014
    	
 
    	
Rights resulting from a lease and assignment of rights
    	
 
    	
Lessor:   

Panasonic   Document Systems Direct 

 

Lessee:   

MethylGene   Inc. 

 

Assignee:   

De   Lage Landen Financial Services Canada Inc.
    	
 
    	
Copier   - Digital Copieur - Numerique ALL GOODS SUPPLIED BY THE SECURED PARTY TO THE   DEBTOR, TOGETHER WITH ALL ATTACHMENTS, ACCESSORIES, ACCESSIONS, REPLACEMENTS,   SUBSTITUTIONS, ADDITIONS AND IMPROVEMENTS TO THE FOREGOING. PROCEEDS: GOODS,   CHATTEL PAPER, SECURITIES, ACCOUNTS, INVENTORY, DOCUMENTS OF TITLE,   INSTRUMENTS, MONEY, CROPS, LICENCES AND INTANGIBLES.
    	
 
    	
Deed   under private writing dated January 26, 2010.
    
	
3.
    	
 
    	
10-0320513-0001 

 

May 19, 2010 

 

May 19, 2020
    	
 
    	
Conventional hypothec without delivery 

 

$215,000
    	
 
    	
Creditor:   

GE   Q-Tech Real Estate Holdings Inc. 

 

Debtors:   

7503547   Canada Inc.
    	
 
    	
The   universality of all of 7503547 Canada Inc.(the “Grantor”) Movable Property,   present or future, corporeal or incorporeal, situated in, on about or near   the Premises. 

Definitions   

“Movable   Property” means all movable property, furniture, stock-in-trade, inventory,   trade fixtures and equipment of whatsoever nature or kind, present or future,   situated in, on, about or near the Premises, including, without limitation,   sums of money, shares, bonds, other securities, works of art, books and   records and all indemnities payable pursuant to and rights resulting from all   contracts of insurance relating to the aforesaid property. “Premises” means   those certain premises measuring approximately 9,302 square feet, located on   the second floor of the building bearing the civic address: 7220   Frederick-Banting in the City of Saint-Laurent, in the Province of Quebec,   the whole as more specifically described in the Lease.
    	
 
    	
Deed   under private writing dated May 19, 2010.
    

 

 

	
 
    	
 
    	
Registration
   number
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Registration Date
    	
 
    	
Nature
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Expiration Date
    	
 
    	
Amount
    	
 
    	
Parties
    	
 
    	
Description of Property (Summary)
    	
 
    	
Comments
    
	
4.
    	
 
    	
10-0320513-0002 

 

May 19, 2010 

 

May 19, 2020
    	
 
    	
Conventional hypothec without delivery 

 

$215,000
    	
 
    	
Creditor:   

GE   Q-Tech Real Estate Holdings Inc. 

 

Debtors:   

7503547   Canada Inc.
    	
 
    	
The   universality of all of 7503547 Canada Inc.(the “Grantor”) Movable Property,   present or future, corporeal or incorporeal, situated in, on about or near   the Premises. 

Definitions   

“Movable   Property” means all movable property, furniture, stock-in-trade, inventory,   trade fixtures and equipment of whatsoever nature or kind, present or future,   situated in, on, about or near the Premises, including, without limitation,   sums of money, shares, bonds, other securities, works of art, books and   records and all indemnities payable pursuant to and rights resulting from all   contracts of insurance relating to the aforesaid property, but excluding any   rights in and to any intellectual property owned by or licensed to the   Grantor or in which the Grantor has any rights, including, without   limitation, patents, trade-marks, inventions, copyrights and rights under   license agreements, distribution agreements and manufacturing agreements.   “Premises” means those certain premises measuring approximately 9,900 square   feet, located on the second floor of the building bearing the civic address:   7210 Frederick-Banting in the City of Saint-Laurent, in the Province of   Quebec, the whole as more specifically described in the Lease.
    	
 
    	
Deed   under private writing dated May 19, 2010.
    

 

2

 

	
 
    	
 
    	
Registration
   number
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Registration Date
    	
 
    	
Nature
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Expiration Date
    	
 
    	
Amount
    	
 
    	
Parties
    	
 
    	
Description of Property (Summary)
    	
 
    	
Comments
    
	
5.
    	
 
    	
10-0320513-0003 

 

May 19, 2010

 

May 19, 2020
    	
 
    	
Conventional hypothec without delivery 

 

$346,000
    	
 
    	
Creditor:   

GE   Q-Tech Real Estate Holdings Inc.

 

Debtors:   

7503547   Canada Inc.
    	
 
    	
The   universality of all of 7503547 Canada Inc.(the “Grantor”) Movable Property,   present or future, corporeal or incorporeal, situated in, on about or near   the Premises. 

Definitions   

“Movable   Property” means all movable property, furniture, stock-in-trade, inventory,   trade fixtures and equipment of whatsoever nature or kind, present or future,   situated in, on, about or near the Premises, including, without limitation,   sums of money, shares, bonds, other securities, works of art, books and   records and all indemnities payable pursuant to and rights resulting from all   contracts of insurance relating to the aforesaid property, but excluding any   rights in and to any intellectual property owned by or licensed to the   Grantor or in which the Grantor has any rights, including, without   limitation, patents, trade-marks, inventions, copyrights and rights under   license agreements, distribution agreements and manufacturing agreements.   “Premises” means those certain premises measuring approximately 11,092 square   feet, located on the first floor of the building bearing the civic address:   2525, Marie-Curie Street in the City of Saint-Laurent, in the Province of   Quebec, the whole as more specifically described in the Lease.
    	
 
    	
Deed   under private writing dated May 19, 2010.
    

 

3

 

	
 
    	
 
    	
Registration
   number
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Registration Date
    	
 
    	
Nature
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Expiration Date
    	
 
    	
Amount
    	
 
    	
Parties
    	
 
    	
Description of Property (Summary)
    	
 
    	
Comments
    
	
6.
    	
 
    	
10-0328883-0001 

 

May 25, 2010 

 

May 19, 2010
    	
 
    	
Conventional hypothec without delivery 

 

$66,000
    	
 
    	
Creditor:   

The   Toronto- Dominion Bank — 03611C 

 

Debtor:   

MethylGene   Inc.
    	
 
    	
$55,004.00   BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which   may or may not be listed above, lodged or delivered to the creditor in   substitution therefore and/or as an additional security, which are and shall   be held by the creditor as continuing collateral security, all securities   which may be issued in case of a sale, repurchase, conversion, cancellation   or any other transformation of the above-described assets; all securities   which may be delivered to the Creditor from time to time; and the repurchase   value or any other rights related to these assets. All fruits and revenues,   present and future, emanating from the above charged property, negotiable   instruments, bills, commercial paper, securities, monies, compensation for   expropriation given or paid following a sale, repurchase, distribution or any   other operation concerning any property hereby charged in favour of the   creditor or which has been charged under any other deed.
    	
 
    	
Deed   under private writing dated May 19, 2010.
    

 

4

 

	
 
    	
 
    	
Registration
   number
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Registration Date
    	
 
    	
Nature
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Expiration Date
    	
 
    	
Amount
    	
 
    	
Parties
    	
 
    	
Description of Property (Summary)
    	
 
    	
Comments
    
	
7.
    	
 
    	
10-0328883-0002 

 

May 25, 2010 

 

May 19, 2010
    	
 
    	
Conventional hypothec without delivery 

 

$1,200,000
    	
 
    	
Creditor:   

The   Toronto- Dominion Bank — 03611C 

 

Debtor:   

MethylGene   Inc.
    	
 
    	
$1,000,070.00   BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which   may or may not be listed above, lodged or delivered to the creditor in   substitution therefore and/or as an additional security, which are and shall   be held by the creditor as continuing collateral security, all securities   which may be issued in case of a sale, repurchase, conversion, cancellation   or any other transformation of the above-described assets; all securities   which may be delivered to the Creditor from time to time; and the repurchase   value or any other rights related to these assets. All fruits and revenues,   present and future, emanating from the above charged property, negotiable   instruments, bills, commercial paper, securities, monies, compensation for   expropriation given or paid following a sale, repurchase, distribution or any   other operation concerning any property hereby charged in favour of the   creditor or which has been charged under any other deed.
    	
 
    	
Deed   under private writing dated May 19, 2010.
    

 

5

 

	
 
    	
 
    	
Registration
   number
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Registration Date
    	
 
    	
Nature
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Expiration Date
    	
 
    	
Amount
    	
 
    	
Parties
    	
 
    	
Description of Property (Summary)
    	
 
    	
Comments
    
	
8.
    	
 
    	
10-0328883-0003

May 25, 2010

May 19, 2010
    	
 
    	
Conventional hypothec without delivery

$415,200
    	
 
    	
Creditor:   

The   Toronto- Dominion Bank — 03611C 

 

Debtor:   

MethylGene   Inc.
    	
 
    	
$346,025.00   BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which   may or may not be listed above, lodged or delivered to the creditor in   substitution therefore and/or as an additional security, which are and shall   be held by the creditor as continuing collateral security, all securities   which may be issued in case of a sale, repurchase, conversion, cancellation   or any other transformation of the above-described assets; all securities   which may be delivered to the Creditor from time to time; and the repurchase   value or any other rights related to these assets. All fruits and revenues,   present and future, emanating from the above charged property, negotiable   instruments, bills, commercial paper, securities, monies, compensation for   expropriation given or paid following a sale, repurchase, distribution or any   other operation concerning any property hereby charged in favour of the   creditor or which has been charged under any other deed.
    	
 
    	
Deed   under private writing dated May 19, 2010.
    

 

6

 

	
 
    	
 
    	
Registration
   number
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Registration Date
    	
 
    	
Nature
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Expiration Date
    	
 
    	
Amount
    	
 
    	
Parties
    	
 
    	
Description of Property (Summary)
    	
 
    	
Comments
    
	
9.
    	
 
    	
10-0328883-0004

May 25, 2010 

 

May 19, 2010
    	
 
    	
Conventional hypothec without delivery

$240,000.00
    	
 
    	
Creditor:
   The Toronto- Dominion Bank — 03611C

 

Debtor:
   MethylGene Inc.
    	
 
    	
$200,014.00   BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which   may or may not be listed above, lodged or delivered to the creditor in   substitution therefore and/or as an additional security, which are and shall   be held by the creditor as continuing collateral security, all securities   which may be issued in case of a sale, repurchase, conversion, cancellation   or any other transformation of the above-described assets; all securities   which may be delivered to the Creditor from time to time; and the repurchase   value or any other rights related to these assets. All fruits and revenues,   present and future, emanating from the above charged property, negotiable   instruments, bills, commercial paper, securities, monies, compensation for   expropriation given or paid following a sale, repurchase, distribution or any   other operation concerning any property hereby charged in favour of the   creditor or which has been charged under any other deed.
    	
 
    	
Deed   under private writing dated May 19, 2010.
    

 

7

 

	
 
    	
 
    	
Registration
   number
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Registration Date
    	
 
    	
Nature
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Expiration Date
    	
 
    	
Amount
    	
 
    	
Parties
    	
 
    	
Description of Property (Summary)
    	
 
    	
Comments
    
	
10.
    	
 
    	
10-0328883-0005

   May 25, 2010

 

May 19, 2010
    	
 
    	
Conventional
   hypothec without delivery

$60,750.00
    	
 
    	
Creditor:
   The Toronto-Dominion Bank —03611C 

 

Debtor:   

MethylGene   Inc.
    	
 
    	
$50,629.00   BANKERS ACCEPTANCES ISSUED BY THE TORONTO-DOMINION BANK All securities, which   may or may not be listed above, lodged or delivered to the creditor in   substitution therefore and/or as an additional security, which are and shall   be held by the creditor as continuing collateral security, all securities   which may be issued in case of a sale, repurchase, conversion, cancellation   or any other transformation of the above-described assets; all securities   which may be delivered to the Creditor from time to time; and the repurchase   value or any other rights related to these assets. All fruits and revenues,   present and future, emanating from the above charged property, negotiable   instruments, bills, commercial paper, securities, monies, compensation for   expropriation given or paid following a sale, repurchase, distribution or any   other operation concerning any property hereby charged in favour of the   creditor or which has been charged under any other deed.
    	
 
    	
Deed   under private writing dated May 19, 2010.
    

 

8

 

SCHEDULE 2.3(c)(vi) 

 

Corporation Counsel Opinion 

 

See attached.

 

 

SCHEDULE 3.1(g)

 

Capitalization of the Corporation

 

Issued and outstanding Common Shares: 40,418,580

 

Authorized stock options: 4,072,175

 

Issued stock options: 1,545,976

 

 

SCHEDULE 3.1(j) 

 

Litigation

 

Certain directors and officers of the Corporation have been imposed fees for late filings of insider reports.

 

 

SCHEDULE 3.2(e) 

 

ACCREDITED INVESTOR

 

The Purchaser, and (if applicable) each beneficial purchaser on whose behalf it is contracting under this Securities Purchase Agreement, is an “accredited investor”, as such term is defined in National Instrument 45-106 – Prospectus and Registration Exemptions, for the reason that it is (please check the applicable category):

 

o                                    (a)                                 a Canadian financial institution, or an authorized foreign bank named in Schedule III of the Bank Act (Canada);

 

o                                    (b)                                 the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada);

 

o                                    (c)                                  a subsidiary of any person referred to in paragraph (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary;

 

o                                    (d)                                 a person registered under the securities legislation of a jurisdiction of Canada, as an advisor or dealer, other than a person registered solely as a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador);

 

o                                    (e)                                  an individual registered or formerly registered under the securities legislation of a jurisdiction of Canada, as a representative of a person referred to in paragraph (d);

 

o                                    (f)                                   the government of Canada or a jurisdiction of Canada, or any Crown corporation, agency or wholly-owned entity of the government of Canada or a jurisdiction of Canada;

 

o                                    (g)                                  a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l’île de Montréal or an intermunicipal management board in Québec;

 

o                                    (h)                                 any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government;

 

o                                    (i)                                     a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a pension commission or similar regulatory authority of a jurisdiction of Canada;

 

o                                    (j)                                    an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds C$1,000,000;

 

o                                    (k)                                 an individual whose net income before taxes exceeded C$200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded C$300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year;

 

o                                    (l)                                     an individual who, either alone or with a spouse, has net assets of at least C$5,000,000; 

 

o                                    (m)                             a person, other than an individual or investment fund, that has net assets of at least C$5,000,000 as shown on its most recently prepared financial statements;

 

o                                    (n)                                 an investment fund that distributes or has distributed its securities only to:

 

 

(i)   a person that is or was an accredited investor at the time of the distribution;

 

(ii)  a person that acquires or acquired the securities as principal, with an acquisition cost to the person of not less than C$150,000 paid in cash at the time of the trade, or where such person holds securities of the investment fund with an acquisition cost or net asset value of not less than C$150,000 as at the date of a subsequent trade in further securities of the same class or series; or

 

(iii) a person described in paragraph (i) or (ii) who is a security holder of an investment fund and acquires or acquired the following securities of an investment fund, if the trades are permitted by the plan of the investment fund: (A) securities of the investment fund if dividends or distributions out of earnings, surplus, capital or other sources payable in respect of the investment fund’s securities are applied to the purchase of the security that is of the same class or series as the securities to which the dividends or distributions out of earnings, surplus, capital or other sources are attributable; or (B) securities of the investment fund if the security holder makes optional cash payments to purchase the security of the investment fund that is of the same class or series of securities described in (A) that trade on a marketplace and the aggregate number of securities issued under the optimal cash payment did not exceed, in any financial year of the investment fund during which the trade takes place, 2% of the issued and outstanding securities of the class to which the plan relates as at the beginning of the financial year;

 

o                                    (o)                                 an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Québec, the securities regulatory authority, has issued a receipt;

 

o                                    (p)                                 a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be;

 

o                                    (q)                                 a person acting on behalf of a fully managed account managed by that person, if that person (i) is registered or authorized to carry on business as an advisor or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction; and (ii) in Ontario, is purchasing a security that is not a security of an investment fund;

 

o                                    (r)                                    a registered charity under the Income Tax Act (Canada) that, in regard to the trade, has obtained advice from an eligibility advisor or an advisor registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities being traded;

 

o                                    (s)                                   an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) through (d) and paragraph (i) in form and function;

 

o                                    (t)                                    a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors;

 

o                                    (u)                                 an investment fund that is advised by a person registered as an advisor or a person that is exempt from registration as an advisor; or

 

2

 

o                                    (v)                                 a person that is recognized or designated by the securities regulatory authority or, except in Ontario and Québec, the regulator, as an accredited investor or, in Alberta or British Columbia, an exempt purchaser.

 

For the purposes hereof, all reference to “C$” in this Schedule 3.2(e) are to Canadian dollars unless otherwise specified and the following definitions are included for convenience:

 

“financial assets” means cash, securities or a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation;

 

“fully managed account” means an account of a client for which a person makes the investment decisions if that person has full discretion to trade in securities for the account without requiring the client’s express consent to a transaction;

 

“investment fund” means a mutual fund or a non-redeemable investment fund, and, for greater certainty in British Columbia, includes an employee venture capital corporation that does not have a restricted constitution, and is registered under Part 2 of the Employee Investment Act (British Columbia), and whose business objective is making multiple investments and a venture capital corporation registered under Part 1 of the Small Business Venture Capital Act (British Columbia), whose business objective is making multiple investments;

 

“person” includes (a) an individual; (b) a corporation; (c) a partnership, trust, fund and an association, syndicate, organization or other organized group of persons, whether incorporated or not; and (d) an individual or other person in that person’s capacity as trustee, executor, administrator or personal or other legal representative; and

 

“related liabilities” means: (a) liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets; or (b) liabilities that are secured by financial assets.

 

3

 

SCHEDULE 3.2(f)

 

U.S. ACCREDITED INVESTOR

 

(PLEASE CHECK THE APPLICABLE CATEGORY)

 

“Accredited Investor” means any entity that comes within any of the following categories at the time of the sale of the Securities to such person or entity:

 

o                                   Any bank as defined in section 3(a)(2) of the U.S. Securities Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the U.S. Securities Act whether acting in its individual or fiduciary capacity;

 

o                                   any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934;

 

o                                   Any insurance company as defined in section 2(a)(13) of the U.S. Securities Act;

 

o                                   Any investment company registered under the Investment Company Act of 1940 or any business development company as defined in section 2(a)(48) of that Act;

 

o                                   Any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958;

 

o                                   Any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees if such plan has total assets in excess of U.S.$5,000,000;

 

o                                   Any employee benefit plan within the meaning of title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment advisor, or if the employee benefit plan has total assets in excess of U.S.$5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

 

o                                   Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

 

o                                   Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of U.S.$5,000,000;

 

o                                   Any trust, with total assets in excess of U.S.$5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii);

 

o                                   Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds U.S.$ 1,000,000, excluding the value of the primary residence of such natural person, calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property;

 

 

o                                   Any natural person who had individual income in excess of U.S.$ 200,000 in each of the two most recent years or joint income with that person’s spouse in excess of U.S.$ 300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

 

o                                   Any director, executive officer, or general partner of the issuer of the securities being sold, or any director, executive officer, or general partner of a general partner of that issuer; or

 

o                                   Any entity in which all of the equity owners are accredited investors. (If this box is checked, each equity owner of the Purchaser may be required to complete and execute a separate Securities Purchase Agreement.

 

2

 

SCHEDULE 4.5

 

Use of Proceeds

 

Conduct both acute and chronic VVC Phase 2a Trial for MGCD290 and phase 2a trial for 265 programs; and general corporate purposes.

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