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LOU RATHBURN
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vs. 134™.G JUDICIAL DISTRIGT
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THE SYSTEMS GROUP, INC. and
R. MICHAEL LAGOW DALLAS COUNTY, TEXAS
RO? OD OO DP
DEFENDANTS’ ORIGINAL ANSWER
Defendants THE SYSTEMS GROUP, INC. and R. Michael Lagow file this their
Defendants’ Original Answer and in support thereof would show the Court the following:
1.0 General Denial.
Ll Defendants deny generally and specifically, all and singular, the material
allegations of Plaintiff's petition and demands strict proof thereof.
2.0 Affirmative Defenses.
2.1 Plaintiff has sued the wrong business entity. The promissory note lists the
parties of Safeguard Security Holdings, Inc. (Maker), R. Michael Lagow (guarantor), and
Lou Rathburn (Payee). The Systems Group, Inc. is not a party to the promissory note, the
case against them should be dismissed and the writ of garnishment against its bank
reversed and void. Please see exhibit A (Promissory Note).
2.2 The promissory note sued upon had no consideration made by the
Plaintiff. The Plaintiff never personally paid the $65,000.00 to secure the note.
2.3 Plaintiff has no personal standing to sue on this debt. The only moncytransferred to The Systems Group, Inc. was from Premier Background Services, Inc.
(PBS) of which Lou Rathburn is the President and signed the check in that corporate
capacity. There is no promissory note or any other contractual writing for this transfer of
funds between corporate entities. Please see exhibit B (Copy of draft payment from PBS
to The Systems Group, Inc.).
2.4 Lou Rathburn cannot personally collect and pocket money given by the
PBS corporation, first because she did not personally loan the money and second,
because she does not wholly own PBS. Thus any money transferred or given by PBS
was not wholly owned by the Plaintiff. PBS is owned 41% by Search Global
International, Inc. (SGI) and 59% by Lou Rathburn. SGI and The Systems Group, Inc.
are wholly owned by Safeguard Security Holdings, Inc. In addition, for the Plaintiff to
suc on PBS’ behalf, the true Plaintiff would have to be PBS; and Lou Rathbum as a
Director of the Board of Directors would need 66.66% of the PBS Board of Director
approval, which she does not have. Please see exhibit C (Copy of Shareholder’s
Agreement) and exhibit D (Copy of Subscription Agreement).
3.0 Request for Disclosure.
3.1 Defendant requests that Plaintiff disclose, within thirty (30) days of
service of this request, the information or material described in Rule 194.2.
WHEREFORE, Defendants pray that Plaintiff take nothing by her claim and
for the following relief from Plaintiff:
a. Judgment against Plaintiff,
b. Reversal and voidance ofthe writ of gamishment,against The Systems Group
bank accounts,c. Reasonable attomey’s fees, and
d. All other relief at law or in equity to which Defendant may be justly entitled.
Respectfully submitted,
THE ALMON LAW FIRM
P. O. Box 786
Keller, Texas 76244
Telephone: 817-707-9464
Fax: 817-887-1435
Email: Almonlaw firm@verizon.net
Z.
fohnnie L. Almon Jr.
SBN 24043533
ATTORNEY FOR DEFENDANTS
Certificate of Service
I certify that a true and correct copy of the above was served on the Plaintiff's
attorney of record, Kenneth S. Harter, 1620 E. Beltline Rd., Carrollton, Texas 75006 in
accordance with the Texas Rules of Civil Procedures, by telecopy at 972-446-7976 on
this the 17" day of February, 2011.EXHIBIT APROMISSORY NOTE
$65,000.00 Date: June 10, 2010
SAFEGUARD SECURITY HOLDINGS, INC. (“Maker”) hereby unconditionally
promises to pay to LOU RATHBURN (“Payee”), payable at P.O. Box 930, 1761 FM 1801
(address), Mineola (city), Wood (county), Texas, the principal sum of $65,000.00, (Sixty
Thousand and 0/100, the “Principal Amount”) payable as follows:
‘The entire Principal Amount of $65,000.00 is due and payable
by Maker to Payee on or before July 9, 2010, together with interest
in the amount of $1,606.43. At the option of Payee, upon Payce’s
receipt of the Principal Amount and interest on or before the July 9,
payment date, Payee may re-loan the Principal Amount to Maker. In
the event of the re-loan of the Principal Amount to Maker, the entire
Principal Amount of $65,000.00, plus interest in the amount of
$3,212.86, shall be due and payable by Maker to Payee on August
9, 2010, at which date this Promissory Note shal] mature.
All amounts payable under this Note are payable in lawful money of the United States of
America which shall be tegal tender in payment of alt debts at the time of payment.
At the option of the holder of this Note, the entire unpaid principal balance shall become
due and payable without notice or demand upon a default in the payment of any installment of
principal hereunder following the expiration of five (5) days from Maker’s default.
The failure of the holder hereof to exercise the foregoing option upon the occurrence of
the foregoing events shall not constitute a waiver of the right to exercise the same at any
subsequent time in respect to the same default or any other default.
Al] sums past due under the terms of this Note shall bear interest at the rate of fifteen
percent (15%) per annum.
Maker hereby waives presentment, demand, protests, and all notices of whatever kind or
nature, including but not limited to notice of intention to accelerate, notice of dishonor or other
notice which Payee might otherwise be obligated to provide Maker following an event of default,
specifically except such notice requirements as are expressly set forth herein.
EXCEPT WHERE THE LAWS OF THE UNITED STATES ARE APPLICABLE, THIS
NOTE SHALI. BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS, AND IN THE EVENT OF A DISPUTE INVOLVING THIS
NOTE OR ANY OTHER INSTRUMENTS EXECUTED IN CONNECTION THEREWITH,
THE UNDERSIGNED IRREVOCABLY AGREES THAT VENUE FOR SUCH DISPUTE
SHALL LIE IN ANY COURT OF COMPETENT JURISDICTION IN DALLAS COUNTY,
TEXAS.
The outstanding principal balance under this Note may be voluntarily prepaid by the
Maker in whole or in part any time or from time to time without penalty or premium. Maker shall
not be entitled to re-borrow prepaid amounts of principal.
PROMISSORY NOTE PAGE |The remedies of the holder hereof, as provided in this Note and in any instrument
securing, governing or evidencing the indebtedness evidenced hereby, shal] be cumulative and
concurrent and may be pursued separately, successively or together, as often as occasion
therefore shall arise, at the sole discretion of the holder hereof The acceptance by the holder
hereof of any payment under this Note which is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of the rights of the holder hereof
to exercise the foregoing option or any other option granted to the holder hereof or in any other
instrument securing, governing or evidencing the indebtedness evidenced hereby, at that time or
at any subsequent time, or nullify any prior exercise of any such option.
If this Note is placed in an attomey’s hands for collection, or collected by suit or through
a bankruptcy, or probate, or any other court, either before or after maturity, then in any of said
events, a reasonable amount shall be added and collected as attomey and collection fees, which
upon accrual shall bear the same rate of interest as the principal of this Note.
If any provisions of this Note, or the application thereof to any persons, entities or
circumstances, shall to any extent be legally invalid or unenforceable, the remainder of this Note
or the application of such provision to any other persons, entities or circumstances shall not be
affected thereby, and each provision of this Note shall be valid and enforceable to the fullest
extent permitted by law. There is no intent that any sums of interest charged or collected shall be
usurious. In the event that any such amounts of interest are deemed to be usurious, Payee shall be
afforded an opportunity to refund, reapportion or take any act necessary to cure the usurious
portion of this Note.
This Note and al! covenants, promises and agreements contained herein shall be binding
upon and inure to the benefit of the respective legal representatives, personal representatives,
heirs, devisees, successors and assigns of the holder hereof and the undersigned.
MAKER:
SAFEGUARD SECU: OLDINGS, INC.
For value received, the undersigned Guarantor does hereby irrevocably and unconditionally
personally guarantee payment of this Promissory Note according to its terms to the same extent as if
the undersigned Guarantor were the Maker on this note.
PROMISSORY NOTE PAGE 2EXHIBIT BPBS, INCORPORATED
PO BOX 830
1043
BANKTEXAS:
88-1249-1119
‘tae 200400 © 6/10/2010
ORDER OF _SYSTEMSgroup, Ine {5,000.00
Sixty-Five Thousand and 00/100’
SYSTEMSgroup, Inc
4801 Spring Valley, Suite 125
Dallas, Tx 75244
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PBS, INCORPORATED
SYSTEMSgroup, Inc
Accounts Receivable
PBS, INCORPORATED
SYSTEMSgroup, Inc
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6/10/2010
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(ORE 0 OF ER Ted RECENED FOR ORPO BURLET TO hel ORC OF 1 Le Oe CORMIER COON A AY ARICA COTO nOEXHIBIT CTHIS SHAREHOLDER’S AGREEMENT made effective as of day of August, 2009
BETWEEN:
SEARCHGLOBAL INTERNATIONAL, INC, a
company incorporated and in good standing under
the laws of the State of Nevada
(*86")
- and -
Lou Rathburn, businesswoman,
residing in the State of Texas
(“Rathburn”)
- and -
Premier Background Services, Inc, a corporation
incorporated under the laws of the State of Texas,
with its principal place of business in the City of
Dallas, in the State of Texas
(the “Corporation”)
WHEREAS the Corporation was incorporated under the laws of the State of Texas, by
Corporate Charter, dated on & 70 -¢ 2G 3
AND WHEREAS the Shareholders own all of the issued and outstanding Common Shares in the
following proportion:
SG:
Rathburn:
41% Common Shares
59%Common Sharesvi.
vii.
vill.
-2-
AND WHEREAS the Shareholders have agreed to execute and deliver this Agreement as a
Shareholders’ Agreement as they are desirous of entering into certain arrangements regarding the
purchase and sale of their Common Shares and to restrict in part the powers of the Directors to
manage the business and affairs of the Corporation in the manner hereinafter described.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
respective covenants and agreements of the parties herein contained, it is agreed by and between
the parties as follows:
LARTICLE
DEFINITIONS
a. In this Agreement, the following words and phrases shall have the following respective
meanings unless the context otherwise provides:
“Agreement” means this Agreement and any Schedules hereto,
“Common Share” means a common share in the capital of the Corporation;
“Director” means any director of the board of directors of the Corporation and
“Board of Directors” means the board of directors of the Corporation;
“Prime Rate” means that rate of interest charged by Bank of America, to its best,
most credit worthy commercial customers on unsecured loans of 90 days duration,
on the date on which interest first begins to run according to the terms hereof;
“Proportionate Shareholdings” when used in connection with any Shareholder,
means a fraction the numerator of which is the number of Common Shares held
by such Shareholder and the denominator of which is the total number of issued
and outstanding Common Shares,
“Section” and “Subsection” refer to a section or subsection of this Agreement;
“Shareholder” means either SG or Rathburn, and any person who becomes the
holder of one or more Common Shares in accordance with the provisions of this
Agrecment;
“Shareholder’s Loan” means any loan made by a Shareholder to the Corporation
in accordance with the provisions of this Agreement,-3-
2.ARTICLE
PURPOSE AND INTENT
The partics shall cause the Corporation to carry on the business of conduction
background searches on individuals or others on behalf of their customers and to
generally carry on all ancillary and related activities which in the mutual opinion of the
parties will enhance the Corporation’s income and profit.
The partics agree that the Corporation shall operate under the name of "PREMIER
BACKGROUND SERVICES, INC.”
The Shareholders will irrevocably instruct their nominces and representatives at all the
meetings of the Shareholders and insofar as permitted by law their nominees or
representatives on the Board of Directors always to vote and act in accordance with the
terms of this Agreement so as to give this Agreement full force and effect and to carry
out its intent.
3.ARTICLE
ORGANIZATION
The Corporation shall be organized as follows:
i. There shall be two (2) Directors on the Board of Directors, consisting of one (1)
nominee of SG, and one (1) nominee of the Rathburn, and one (1) nominee of the
Carlton. The first members of the Board of Directors shall be Lou Rathburm as
nominee of the Rathburn holdings, and R. Michael Lagow as nominee of SG
holdings.
ii. The Corporation shail have three (3) officers, namely, President, Secretary and
Treasurer. The parties agree that the following persons will be appointed to hold
the following offices of the Corporation:
President -
Lou Rathburn
Secretary/Treasurer -
R. Michael Lagow
ili. All cheques and other banking documents, deeds, transfers, contracts, agreements
and other documents that are required to be executed by the Corporation from
time to time shall be executed on its behalf by a representative of SG and a
representative of Rathburn, jointly, with the exception of any item under a-4-
cumulative amount of Five Thousand ($5000.00) can be signed by Rathburn,
signing alone.
All share certificates issued or to be issued by the Corporation shall be endorsed
with a memorandum as follows:
“This certificate is subject to a Shareholders’ Agreement dated
effective the (Oday of August, 2009, a copy of which is filed
with the Secretary of the Corporation, and the shares represented
by this certificate cannot be sold, transferred, assigned or otherwise
disposed of or mortgaged, pledged, hypothecated, charged or
otherwise encumbered except pursuant to the terms of the said
Shareholders’ Agreement.”
The by-laws of the Corporation shall provide or shall be deemed hereby to be
amended to provide amongst other things, as follows:
(1)
(2)
(3)
(4)
(5)
(6)
the presence of two (2) Directors shall be required to constitute a quorum
at any mecting of the Board of Directors;
any resolution of the Board of Directors shall require affirmative votes of
at least two (2) Directors;
the presence of two (2) Shareholders holding Common Shares, having
voting rights and representing in person or by proxy Sixty Six and two
thirds (66.66%) per cent of all issued Common Shares shall be required to
constitute a quorum at any meeting of Shareholders;
any resolution of the Shareholders shall require the affirmative votes of
Sixty Six and two thirds (66.66%) per cent of alt issued Common Shares
entitled to voting rights at the meeting at which such resolution is being
passed;
each Director shall have the right at any time and from time to time to call
a meeting of the board of directors on not less than seven (7) days’ notice,
to be held in the City of Dallas, or at such other location as mutually
agreed by the directors,
any Shareholder shall have the right at any time or from time to time to
call a meeting of the Shareholders on not less than seven (7) days’ notice
to be held in the City of Dallas, or at such other location as mutually
agreed by the directors ;-§-
(7) the Chairman presiding at meetings of the Board of Directors shall have
the right to vote in her capacity as Director in the first instance, but shall
have no second or casting vote in case of an equality of votes,
(8) the Chairman presiding at meetings of the Shareholder shall have the right
to vote in the first instance in his capacity as a Shareholder and as a proxy
if so appointed but shall have no second or casting vote in case of an
equality of votes.
4.ARTICLE
CONDUCT OF BUSINESS
The parties agree that the powers of the directors will be restricted and, except with the
written consent of Sharcholders representing at least Sixty Six and two thirds (66.66%)
per cent of the common shares in the company:
iii,
vi.
vii.
vill.
no dividends shali be declared;
no management or consulting fees shall be paid;
no additional shares in the capital stock of the Corporation shall be issued or
allotted;
there shall be no material change in the nature of the business of the Corporation
nor any action taken which may lead to or result in such material change;
the Corporation shal] not directly nor indirectly make loans or advances, give
guarantees for, invest in, or give security for or guarantee the debts of any other
corporation or person;
the Corporation shall not sell, lease, exchange or dispose of its undertaking or any
part thercof as an entirety or substantially as an entirety;
the Corporation shall not hypothecate, mortgage, pledge or otherwise encumber
its assets or any of them except as may be required by its bankers in connection
with its normal banking activities and arrange lines of credit,
the number of Directors shal! not be increased nor decreased;
if at any time or from time to time additional shares in the capital of the
Corporation are to be allotted, issued or sold, then they shall be allotted, issued
and sold to the Shareholders pro rata in relation to their then existing
Proportionate Shareholdings; and-6-
x. there will be no amendments to any of the Corporation’s by-laws or the Articles
of Incorporation.
5.ARTICLE
FINANCING
In the event Sixty Six and two thirds (66.66%) per cent of the Shareholders agree, the
Company will actively pursue and work towards attaining satisfactory bank credit and
financing for the Corporation, it being the intention of the parties that such financing be
sought in the highest amount necessary so that the equity investment required by the
Shareholders should be kept to a minimum.
The Shareholders shall be jointly and severally liable with respect to any guarantees or
other security given by any of the Shareholders, to secure any loans or advances made to
the Corporation by any third party. In the event any Shareholder is called upon to honour
any such guarantee or other sccurity, then such Shareholder shall have the right to
recover any money so paid in excess of the amount which would have been required on
the basis of Proportionate Shareholdings, jointly and severally from the Corporation and
the Shareholders.
Notwithstanding the foregoing, if bank credit and financing cannot be arranged in an
amount sufficient for the Corporation to carry on its business in a proper manner, upon
consent of at least Sixty Six and two thirds (66.66%) per cent of the Shareholders, all
further monies required shall be advanced to the Corporation as a Shareholder’s Loan by
the Shareholders, pro rata in relation to their then existing Proportionate Shareholdings.
Any Shareholder’s Loans, to the extent to which they have been advanced by the
Sharcholders in proportion to their respective Proportionate Shareholdings, shall bear no
interest unless and until at least Sixty Six and two thirds (66.66%) per cent of the
Shareholders agree to the contrary, in which case such loans shal] bear such rate of
interest as is from time 1o time agreed upon. Except as expressly set forth below, none of
the Shareholder’s Loans shall be duc or payable to or called by any of the parties.
Any Shareholder having outstanding a Shareholder’s Loan which bears to ail
Shareholders’ Loans then outstanding a greater proportion than the respective
Proportionate Shareholding of such Shareholder shall be calted the “Credit Shareholder”
and any Shareholder having outstanding a Shareholder’s Loan which bears to all
Shareholders’ Loans then outstanding a lesser proportion that the respective
Proportionate Shareholding of such shareholder shall be called the “Debit Shareholder”.
If for any reason Shareholders’ Loans outstanding to the Shareholders at any time or from
time to time are not exactly in the same proportions as the respective Proportionate
Sharcholdings of the Shareholders, that portion of the Shareholder Loans outstanding to-7-
the Credit Shareholder in excess of its Proportionate Sharcholding shall be payable to it
out of monies available for distribution by the Corporation, and in any such case any
payments made by the Corporation out of any monies available for distribution to the
Shareholders shall be firstly applicd by the Corporation to bring the Shareholders’ Loans
outstanding to the appropriate amount necessary so that the Shareholders’ Loans are
exactly in the same proportion as the respective Proportionate Shareholdings of the
Shareholders.
If at any time or from time to time any Shareholder defaults in advancing forthwith its
proportionate share of any monies which may at any time be required by the Corporation,
then such Shareholder shall be referred to herein as the “Defaulting Sharcholder” and the
others shall be referred to herein as the “Non-defaulting Shareholders”. In the event of
default as aforesaid and provided such default continues for a period of five (5) days after
written notice thereof to the Defaulting Shareholder by the Non-defaulting Shareholders,
the Non-defaulting Shareholders shall have the following rights:
i. Any Non-defaulting Shareholder may advance to the Corporation the amount so
required to be advanced by the Defaulting Shareholder and such amount shall
constitute a debt owing to such Non-defaulting Shareholder by the Defaulting
Shareholder and shall be repaid forthwith by the Defaulting Shareholder to the
Non-defaulting Shareholder, and until repaid, shal] bear interest at the Prime Rate
plus three percent (3%) per annum calculated monthly on the amount from time to
time owed to the Non-defaulting Shareholder by the Defaulting Shareholder as
aforesaid and, until so repaid, such amounts, together with interest thereon as
aforesaid, shall, to the extent thereof, be and constitute a first lien and charge on
and against the Common Shares of the Defaulting Shareholder, on and against the
Shareholder Loans of the Defaulting Shareholder, and on and against all other
interest of the Defaulting Shareholder in the Corporation.
ii. Any Non-defaulting Shareholders may, at its option, borrow from any lender
acting in good faith, on such terms and conditions, and at such rate of interest, as
may be agreed upon between the Non-defaulting Shareholder and such lender, on
behalf of the Corporation and the Defaulting Shareholder, an amount equal to the
amount which would be required to be advanced to the Corporation by the
Defaulting Shareholder to cure the default, and to advance such amount to the
Corporation on behalf of the Defaulting Shareholder and to charge the Defaulting
Shareholder all costs and expenses reasonably incurred by the Non-defaulting
Shareholder in connection with the amount so borrowed, and interest on the
amount so borrowed and advanced at the same rate as that charged by such lender
on the amount from time to time outstanding. All such costs and expenses and all
such advances and interest thereon at the rate aforesaid shall, to the extent thereof,
be and constitute a first lien and charge on and against the Defaulting
Shareholder’s interest in the Corporation by way of shares or advances.iii.
-8-
If the default of the Defaulting Shareholder shail continue for a period of a
hundred and twenty (120) days or more, thereafter, the Non-defaulting
Shareholder shall have the right to acquire in full the said Defaulting
Shareholder’s aggregate shareholdings in, and Sharcholder’s Loans to, the
Corporation for a purchase price therefor equal to the outstanding Shareholder’s
Loans made by the Defaulting Shareholder to the Corporation, plus the sum of
One Dollar ($1.00) and the purchase of the Defaulting Shareholder’s loans and
shares as aforesaid shall be subject to the following terms and conditions:
(1) One Dollar ($1.00) shall be the down payment, and
(2) the balance of the purchase price, without interest, shall be payable in full
only after the Corporation has repaid out of surplus funds on hand to the
Non-defaulting Sharcholder, all monies owed to the Non-defaulting
Shareholders by the Corporation, including the amount of the
Shareholder’s Loans so purchased by the Non-defaulting Shareholder
from the Defaulting Shareholder. The Defaulting Shareholder shall upon
such payment execute all necessary share transfers and other resolutions
and documents in order to fully and effectually transfer the shares of the
Defaulting Shareholder to the Non-defaulting Shareholder.
The Non-defaulting Sharchoider is hereby irrevocably authorized, instructed and
directed for, and on behalf of and as attorney for the Defaulting Shareholder to
execute any and all documents required to be executed by the Corporation or the
Defaulting Shareholder for the purposes set out in Article 5.
All Shareholder’s Loans shall be upon the express understanding that unless specific
terms for such loans are unanimously agreed to by the Shareholders, same will be on the
following terms and conditions:
i.
iii.
all advances and contributions shal! be evidenced by bonds, debentures, sccurity
agreements, or promissory notes (the “Shareholder’s Debt Instrument”) in the
principal amount advanced by each of the Shareholders;
there shall be a separate series of Sharcholder’s Debt Instruments issued by the
Corporation upon the occasion of each advance of funds to the Corporation by the
Shareholders; and
Shareholder’s Debt Instruments shall bear no interest unless unanimously agreed
otherwise by the Shareholders.
The Shareholders agree that at the request of the Board of Directors, with the approval of
at least Sixty Six and two thirds (66.66%) per cent of the Shareholders, they will
subordinate all Shareholder’s Loans (and any interest thereon) to conventional financing
or other borrowing by the Corporation to the extent required by the Board of Directors.6.ARTICLE
ADMINISTRATION
Proper books of account shal] be kept by the Corporation, and entries shall be made
therein of all such matters, terms, transactions and other things as are usually written and
entered in books of account kept by others engaged in an enterprise of a similar nature
and each of the Shareholders shall have free access at all times to inspect, examine and
copy them and shall at all times furnish to the other, correct information, accounts and
statements of and concerning all such transactions without concealment or suppression.
A separate bank account shall be opened and maintained for the Corporation in the name
of the Corporation or in such other name or names as may from time to time be agreed
upon by the parties, at such bank or banks as the parties may from time to time agree
upon. All monies received from time to time on account of the business of the
Corporation shall be paid immediately into such bank account for the time being in
operation and in the same form of drafts, cheques, bills or cash in which they are received
and all disbursements on account of the Corporation shall be made by cheque on such
bank account.
Receipts and revenues of the business of the Corporation from any source whatsoever
shall be applied and distributed in the following order of priority, no distribution being
made in any category set forth below unless and until the preceding category has been
satisfied in full, untess the Shareholders otherwise unanimously agree in writing:
i. the payments of all debts, obligations, liabilities, costs and expenses in connection
with or on account of the business of the Corporation, if any;
i the repayment of Sharcholder Loans;
iii. the distribution of the monies remaining, if any, in such manner as is mutually
agreeable after consultation with the Corporation’s accountants, to the
Shareholders in proportion to their Proportionate Shareholdings.
7.ARTICLE
FIRST RIGHT OF REFUSAL
In the event that any Shareholder (the “Seller”) receives a bona fide offer (the “Offer”)
from a person, firm, or corporation dealing at arm’s length which is not directly or
indirectly controlled by any of the other parties, to purchase all or any part of the
Common Shares owned or controlled by the Seller which the Seller is prepared to accept,-10-
then the Seller shall forthwith send to the other Shareholders (the “Offerees”) notice in
writing of its desire or intention to sell such shares accompanied by a copy of the Offer.
Upon receipt of notice in accordance with the foregoing provisions of this Article 7, each
Offeree shall have fifteen (15) days from the date of receipt within which to give the
Seller notice (the “Intent to Buy”) that it desires and agrees to so purchase the shares
referred to in the Offer on the same terms and conditions as are contained in the Offer,
provided that:
i. if the Offeree shall have given an Intent to Buy, the Offeree shall purchase all of
the Common Shares of the Seller referred to in the Offer;
ii. if the Offeree shall not have given an Intent to Buy within the time provided, then
the Offeree shal] be deemed for all purposes to have refused to purchase the
Common Shares of the Seller; and
iii. if more than one Offeree shall have given an Intent to Buy, then such Offerees
shall purchase all of the Common Shares of the Seller referred to in the Offer pro
rata in proportion to the such Offerees Proportionate Shareholdings.
In the event that each Offeree elects not to purchase or is deemed to have refused to
purchase the Common Shares referred to in the Offer then the Seller may accept the Offer
and proceed to sell the Common Shares referred to in the Offer but only at the price and
on and in accordance with the terms and conditions contained in the Offer provided that,
if the transaction contemplated by the Offer is not completed within a period of twenty-
one (21) days after the expiration of the last day upon which the Offeree has the right to
give an Intent to Buy, then the Seller shall not thereafter sel! the said Common Shares
unless and until it again complies with the provisions contained in this Section .
Any transaction between the Seiler and the Offerce effected pursuant to the provisions of
this Section shall be completed not later than the fifteenth (15th) day after which the
Offeree has become obligated to purchase the said Common Shares.
No sale under this Section to a person who is not a Shareholder at the time of such sale,
shall be completed unti! the purchaser of such Common Shares agrees in writing to be
bound by the terms of this Agreement.
8.ARTICLE
COMPULSORY BUY-SELL
Any Sharcholder (the “Offeror”) may, at any time, make a written Offer (the “Offer”) to
any other Shareholder (the “Offeree”), which Offer shall contain both an offer to
purchase all and not less than all of the Common Shares held by the Offeree, and an offer
to sell to the Offeree all but not jess than all of the Common Shares held by the Offeror.
Upon such an Offer being received by the Offeree, the Shareholders shall not do or cause-ll-
to be done or permit to be done by the Corporation anything except in the ordinary and
usual course of business of the Corporation.
‘The Offer shall stipulate a price for each share to be purchased and shail also contain all
other terms and conditions attached to such Offer to purchase, provided that none of the
other terms and conditions shal] conflict in any way with the terms of this Agreement.
Notwithstanding any other provision contained herein, it is agreed that the purchase price
contained in the Offer shall provide for a payment in cash or by certified cheque of at
least twenty-five percent (25%) of the total purchase price (including the deposit to be
credited towards the purchase price), at the time of the completion of the purchase
transaction and that the balance of any such purchase price shall be evidenced by a
promissory note and be paid over a period of two (2) years from the date of closing of the
said purchase transaction in twenty-four (24) equal monthly instalments of principal
together with interest monthly calculated at the Prime Rate per annum on the outstanding
principal sum from time to time, provided that the note shall be fully open as to
additional payments of principal at any time or times without notice or bonus, and
provided further that in the event of any default in payment, which default continues for a
period of ten (10) days after written notice thereof, the entire balance shall immediately
become due and payable.
The Offcree shall, within fifteen (15) days of the date on which the Offer is delivered,
elect to either:
i. accept the Offer made by the Offeror to purchase all the Common Shares of the
Offeree at the price and upon the conditions contained in the Offer, by an
acceptance in wriling executed by the Offeree, in which event the Offeree shail be
bound to sell all of the Offeree’s Common Shares to the Offeror at the price and
upon the terms and conditions contained in the Offer; or
il. accept the Offer made by the Offeror to sell all of the Offeror’s Common Shares
by a notification in writing executed by the Offeree, in which event the Offeree
shall be bound to purchase from the Offeror all of the Offeror’s Common Shares
at the price and upon the terms and conditions contained in the Offer.
An Offer made pursuant to this Agreement must be delivered by personal service to the
Offeree, and a copy mailed or delivered to the Corporation’s solicitor, and must be
accompanied by a certified cheque drawn in favour of the Corporation’s solicitor in trust
as a deposit, in an amount equal to ten percent (10%) of the total purchase price offered
for the Common Shares of the Offeree. The deposit monies shal] be placed in an interest
earning account or deposit certificate with the bank of the Corporation’s solicitor, to be
credited on account of the total purchase price, or to be retumed without deduction in the
event the Offeree elects to purchase the Common Shares of the Offeror, in which case the
Offeree shall deliver in its place its certified cheque drawn in favour of the Corporation’s
solicitor in trust as a deposit in an amount equal to ten percent (10%) of the total purchase
price for all the Common Shares of the Offeror. The funds so received in trust as a-12-
deposit shall be applied against the purchase price and shall be delivered on closing. If
the purchaser fails to complete the purchase, the vendor may retain such deposit as
liquidated damages and not as a penalty.
In the event the Offeree fails or refuses to deliver an acceptance either under Subsection
8.3(a) or 8.3(b) within the time limit prescribed for such communication, the Offeree
shall be deemed to have communicated to the Offeror an acceptance of the Offer made by
the Offeror to purchase all the Common Shares of the Offeree at the price and upon the
conditions contained in the Offer under Subsection 8.3(a).
Upon the formation of a contract by an acceptance or deemed acceptance of the Offer to
purchase all the Common Shares of the Offeree under Subsection 8.3(a), the Offeror, as
purchaser, shall purchase from the Offeree and the Offeree, as vendor, shall convey,
transfer and assign to the Offeror all of the Common Shares of the Offeree, at and for the
price sct out in the Offer and under the terms and conditions set out therein and in this
Agreement.
Upon the formation of a contract by an acceptance of the Offer to purchase all of the
Common Shares of the Offeror under Subsection 8.3(a), the Offeree, as purchaser, shall
purchase from the Offeror and the Offeror, as vendor, shall convey, transfer and assign to
the Offeree all the Common Shares of the Offeror at and for the price set out in the Offer
and under the terms and conditions set out therein and in this Agreement.
The completion of the sale pursuant to this Section shall be at any time mutually agreed
upon by the parties within thirty (30) days of the formation of a contract hereunder.
Should the parties be unable to mutually agree on a time, then the date for completion of
the sale shall be the thirtieth (30th) day following the date on which the contract was
formed. The completion of the sale shall take place at the offices of the Corporation's
solicitors on the day specified for the closing. In the event the said thirtieth (30) day falls
on a weekend or statutory holiday, the closing date shall be the next following business
day.
When there is a sale of shares pursuant to an Offer made pursuant to this Section 8, the
purchase price shall be paid in accordance with the terms and conditions contained in the
said Offer, subject to any overriding terms and conditions which may be contained in this
Agreement.
9. ARTICLE
BANKRUPTCY, INSOLVENCY
In the event of bankruptcy, insolvency, winding-up or liquidation of a Shareholder, or if a
receiver is appointed in respect of the whole or substantially the whole of such
Shareholder’s Common Shares and Shareholder Loans, or in the event of the transfer,
voluntary or involuntary, by a Shareholder of its said shares to any creditor, in total or
partial satisfaction of any debt, obligation, judgment or other liability (any such assignee,~13-
trustee, receiver or transferee being referred to as the “Special Transferee”, and the said
Shareholder being referred to as the “Insolvent Shareholder”, and each of the other
Shareholders being referred to as the “Solvent Shareholder’), the Solvent Sharehoider
shall have the sole exclusive and irrevocable option exercisable by written notice
delivered to the Special Transferee within thirty (30) days subsequent to such an event
and the Insolvent Shareholder shall be deemed to have granted such option prior to the
event or appointment to purchase the Insolvent Shareholder’s Common Shares and
Shareholder’s Loan at a purchase price equal to eighty percent (80%) of the aggregate of
(3) the net book value of such Common Shares, calculated by multiplying the net worth of
the Corporation as set forth in the Corporation’s most recent fiscal year end balance sheet
by the Insolvent Shareholder’s Proportionate Shareholding, and (ii) the principal and
accrued interest on such Shareholder’s Loan. Ten percent (10%) of the said purchase
price shall be payable in cash to the Special Transferee within thirty (30) days from the
date the option is exercised, and the balance shall be payable in twenty-four (24) equal
monthly instalments together with interest at a rate of eight percent (8.0%) per annum,
calculated monthly, on the outstanding principal balance from time to time.
10.ARTICLE
DEATH OF A SHAREHOLDER
Upon the death of any Shareholder (the “Deceased”), any other Shareholder may elect in
writing delivered to the legal representative of the Deceased and to the other
Shareholders within thirty (30) days of the date of death of the Deceased to have the sale
provisions of this Article apply (an “Election”.
In the event that an Election is made in accordance with the foregoing, the Deceased’s
lega) representative (the “Vendor”), shall sell all of the Common Shares beneficially
owned or controlled by the Vendor to the Corporation upon and subject to the terms and
conditions hereinafter set forth.
Upon the unanimous consent of the board of directors, the Corporation shall place and
maintain in good standing a policy of term insurance on the lives of each of Shareholder,
in amounts to be agreed upon, which amounts shall be proportionately adjusted
simultaneously with the estimation of the fair market value of the Common Shares of the
Corporation as determined in accordance with Section 10.5, or such other amount as the
Shareholders may agree upon.
Each of the Shareholders shall use their best efforts to permit the Corporation to obtain
and maintain any such life insurance, including but not limited to, attending for physical
examinations, answering such questions as may be reasonably necessary and executing
consents to the placing of such insurance coverage.
Each year, within thirty (30) days of the date upon which the Corporation’s annual
financial statements are available for review by the Shareholders, the shareholders, upon
consultation with the Corporation’s accountants, shall estimate and duly note in writing,-14-
the fair market value of the outstanding Common Shares. In the event of a disagreement,
the opinion of the Corporation’s accountants shall prevail.
In the event that the Vendor owns any preference shares of the Corporation, and an
Election is made in accordance with this Article, the Corporation shall redeem such
shares within sixty (60) days of the date of death of the Deceased at the redemption price
of such shares plus any dividends which have been declared thereon prior to the date of
death of the Deceased and which remain unpaid.
In the event that the Vendor owns any Common Shares and the Deceased was insured
pursuant to this Article and an Election is made in accordance with this Anicle, the
Corporation shall purchase such Common Shares for cancellation for a purchase price
equal to the Proportionate Shareholdings of the Deceased multiplied by the fair market
value of all of the issued and outstanding Common Shares of the Corporation, as last
noted and determined in accordance with Section 10.5. The purchase of the Common
Shares as aforesaid shall be completed forthwith upon reccipt by the Corporation of the
insurance proceeds referred to in Section 10.3; provided that any portion of the purchase
price which exceeds the insurance proceeds received by the Corporation shall be payable
in twenty-four (24) equal consecutive monthly payments commencing thirty (30) days
after closing, with interest thereon at the Prime Rate per annum, calculated and payable
monthly, provided that the Corporation shall have the privilege to prepay or repay the
whole or any part of such balance at any time and from time to time without notice or
bonus.
In the event that the Vendor owns any Common Shares and the Deceased was not insured
pursuant to this Article and an Election is made in accordance with this Article, the
Corporation shall purchase such Common Shares for cancellation for a purchase price
equal to the Proportionate Shareholdings of the Deceased multiplied by the fair market
value of all of the issued and outstanding Common Shares of the Corporation, as last
noted and determined in accordance with Section 10.5. The purchase price as aforesaid
shall be payable in twenty-four (24) equal consecutive monthly payments commencing
thirty (30) days after the date of death of the Deceased, with interest thereon at the Prime
Rate per annum, calculated and payable monthly, provided that the Corporation shall
have the privilege to prepay or repay the whole or any part of such balance at any time
and from time to time without notice or bonus.
11L.ARTICLE
PROHIBITION ON SHARE TRANSFERS
Unless otherwise specifically provided for in this Agreement, no Shareholder without the
prior written consent of each of the other Shareholders will sell, assign, transfer, pledge,
mortgage, hypothecate, charge or otherwise transfer or encumber any Common Shares
now or hereinafter beneficially owned by such Sharcholder.-15-
For the purposes of this Agreement, any transfer, sale, assignment, transmission, bequest,
inheritance, mortgage, encumbrance or other disposition of shares of any corporate
shareholder having the result (directly or indirectly and either immediately or subject to
the happening of any contingency) of changing the identity of the person or persons
exercising or who might exercise control of any corporate Shareholder (from the
applicable party exercising control of any such corporate Shareholder as of the date of
execution of this Agreement) shall be deemed to be a transfer by such corporate
Shareholder of its interest hereunder notwithstanding whether such change shall be
voluntary or involuntary on the part of such corporate Shareholder. However, this
covenant shal! not apply to transfers or sales of Common Shares to an immediate member
of the family of a Shareholder of such corporate Shareholder, nominees, companies
owned or controlled by a Shareholder of such corporate Shareholder, or any trust which
may be established for the benefit of any shareholder of such corporate Shareholder, or a
member of his immediate family, provided that at the time of any such transfer or sale,
any successor or assign shall, in writing, agree to be bound by the terms and provisions of
this Agreement and further provided that in the event of a transfer or sale of Common
Shares to a corporation owned or controlled by a shareholder of such corporate
Shareholder, the shareholder of such corporate Shareholder shall covenant not to transfer
the shares of any such transferee corporation to any persons who are not members of his
immediate family.
The Parties hereby acknowledge and agree that Rathbum may transfer its shares in the
Corporation to Cory or Michael Gelmon or partics controlled thereby, at its sole
discretion, and outside the constraints contained in this Article 11. Such wansfer shall be
considered approved by all of the Shareholders of the company and shall fall outside of
the scope of this Shareholders Agreement.
12.ARTICLE
SALE PROVISIONS
In this Article the selling Shareholder is referred to as the “Vendor” and the purchaser is
referred to as the “Purchaser”. In the event of a sale or transfer of shares in the
Corporation pursuant to Sections 8 and 10, and not in any other case, the following
provisions shall apply unless otherwise agreed upon by the Shareholders or unless any
other provision contained herein applies specifically to such a sale or transfer, in which
case, the provision applying specifically to such a sale or transfer shall apply:
i. Upon payment of the monies payable upon closing, the Vendor shall execute and
deliver a transfer of his sharcholdings in the capital of the Corporation to the
Purchaser or as he or she may, in writing, direct and upon such payment, the
Purchaser is hereby irrevocably appointed and constituted attorney for the Vendor
with full power and authority to execute and deliver such transfers and other
documents as may be necessary or desirable to complete such transaction of
purchase and sale.-16-
Unless otherwise herein provided, unui! payment in full of the unpaid balance of
the purchase price, unless proceeds derived from the following are used to repay
the indebtedness of the Purchaser to the Vendor, neither the Purchaser nor the
Corporation shall:
()
Q)
(3)
(4)
(3)
(6)
a”
(8)
(9)
(10)
qu)
(12)
(13)
transfer, redeem, assign, hypothecate or otherwise deal with any shares in
the capital of the Corporation;
declare any dividends;
issue or sell any shares in the capital of the Corporation;
increase or decrease the capital of the Corporation;
dispose of the whole or a substantial part of the Corporation’s assets or
undertaking;
take any proceedings for the winding-up, reorganization or dissolution of
the Corporation,
repay any Shareholders’ Loans;
increase, except for increases to compensate for reasonable cost of living
increases from ume to time, any salary or other remuneration payable to
the Purchaser or other officers or directors of the Corporation, or any other
person or persons, other than bona fide full-time active employees of the
Corporation other than the Purchaser, nor will the Corporation by means
of any directors’ fees, new bonus or pension plan and/or new contract or
commitment increase in any amount the benefits and compensation of any
director, officer, or Shareholder of the Corporation;
carry on the business of the Corporation other than diligently and
substantially in the same manner as prior to such sale;
make any commitments for capital expenditures other than in the ordinary
course of business;
dispose of any of the Corporation’s capital assets other than in the
ordinary course of business;
increase any indebtedness other than that incurred in the ordinary course
of business or incurred pursuant to existing contracts;
amend the Articles of Incorporation or by-laws of the Corporation if such
amendment has a material affect on the sold shares;iii.
vi.
-i7-
(14) fail to keep insured against all risks as prior to such sale all property, real
and personal, owned, leased, or used by the Corporation or fail to use,
operate, maintain and repair such property as it was previously used.
In the event of default of any of the above provisions, the Vendor shall have the
right to require the rectification thereof, and if such breach is not rectified within
ten (10) days of a written request for rectification, any balance of the purchase
price outstanding shall immediately become due and payable.
If at the time of such sale the Vendor shall be liable or responsible for any debts,
liabilities or obligations incurred by or on behalf of the Corporation as guarantor
or otherwise, the Purchaser shall cause any and all such guarantees of
indebtedness of the Corporation to any bank, or other lender to be delivered up
and cancelled, and shall use his best efforts to cause any and all other guarantees
of any of the Corporation's other contractual obligations to be delivered