DUE DILIGENCE IN ASSET ANDSHARE TRANSACTIONS

These materials were originally prepared by William Hood and Robert Little of Priel Stevenson Hood &Thornton law firm, Saskatoon, Saskatchewan, May 1994. The materials have been updated and .expanded by Glen Lekach, of Balfour Moss lawfirm Regina, Saskatchewan for the Saskatchewan LegalEducation Society Inc. seminar, Buying and Selling a Business; April,2000.

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DUE DILIGENCE IN ASSET AND SHARE TRANSACTIONSTABLE OF CONTENTS

ASSET AND SHARE TRANSACTIONS

I. What is due diligence? 1II. Why is due diligence done? 2III. When does due diligence occur? 4IV. Who is responsible for due diligence? 5V. What is done in the due diligence process? 6VI. General discussion of searches and investigations 8

A. Real property searches 11Municipal taxes 12Zoning 12Fire Department search 12Electrical and gas defects search 12Community Health search 13Executions 13Utilities 13Boilers 13Elevators 13Environmental Matters 13Occupational Health 15

B. Real Property leased by a Businessand other Material Contracts 15

C. Personal Property 16D. Provincial Taxes 17E. Federal Taxes 17F. Emplo)'Illent Matters 19

Workers' Compensation Board 20Labour Standards Act 20

G. Other Matters 20Licenses 20Intangibles 21Financial Statement and Corporate Tax Return Review 21Corporate searches and considerations 21Litigation 22Inventories and Receivables 22Equipment 23

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INVESTIGATION CHECKLIST

I. Real Property 24II. Plant, Fixtures, Equipment and Vehicles 25III. Accounts Receivable 25IV. Inventory 26V. Intellectual Property 26VI. Financial Statements 27VII. Corporate Tax Returns , 27VIII. GST, Provincial and Other Taxes 27IX. Employment Matters 27X. Officers and Directors and Key Shareholders 28XI. Licenses 28XII. Major Suppliers 28XIII. Major Customers 29XIV. Material Contracts 29XV. Short-Term and Long-Term Debt 29XVI. Accounts Payable and Other Current Liabilities 30XVII. Banking Resolutions 30XVIII. Investments 30XIX. Legal Proceedings 30XX. Health, Safety and Environment 31XXI. Corporate Matters 31XXII. The Business Generally 32

ENQUIRY SEARCHES CHECKLIST

I. Real Property 33II. Personal Property 33III. Intellectual Property 33IV. Taxes 33V. Employment Matters 34VI. Litigation 34VII. Health, Safety and Environmental Matters 34VIII. Corporate Searches 35IX. Other Public Searches 35

Due Diligence Search Checklist 36Standard Search Letters 37

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DUE DILIGENCE

ASSET AND SHARE TRANSACTIONS

I. WHAT IS DUE DILIGENCE?

1. Due diligence is a process of conducting investigations, searches and inquiries inconnection with a wide range of transactions. The tenn is most often used by lawyers and ismost frequently referred to in connection with the acquisition of a business or the issuance ofsecurities to the public.

2. Due diligence, in the context of a negotiated purchase and sale of business, is a processconducted not only by the lawyers, but also their clients. The due diligence process basicallyfalls into two categories:

(a) legal due diligence; and

(b) business due diligence.

3. Typically, the lawyer is responsible for the legal due diligence and the client for thebusiness due diligence. More often than not these categories overlap and are intertwined.

4. It becomes very important for the lawyer at the outset to detennine what he/she isresponsible for and what the client is responsible for. This shared responsibility should bereviewed from time to time as the transaction progresses. The lawyer should advise the clientwhat investigations are to be done by the client and others. The lawyer should be updated as thetransaction proceeds as to the results of the investigations conducted by the client and others.

5. Due diligence is not the end in and of itself, but rather the means to the end. The end isthe closing of a negotiated purchase and sale transaction. Due diligence is the process ofgathering information in order to enable the lawyers and clients to become familiar with therelevant aspects of the target business in order that the end result can be accomplished. Theproposed purchaser always conducts due diligence reviews of the vendor and/or the corporationwhose shares or assets are being purchased. However, the vendor may also conduct duediligence on the proposed purchaser where, for instance, the vendor is taking back debt, whethersecured or unsecured, as part of the purchase price or is receiving shares or other securities of thepurchaser as part of the purchase price. Generally, however, the vendor's due diligence will notinvolve as extensive a review as the purchaser's. This paper, for ease of reference,refers to duediligence investigations conducted by a purchaser, but applies equally to a vendor who conductsdue diligence on the purchaser, in circumstances outlined above.

6. Due diligence is a fact-finding mission in which the lawyer and the client becomeeducated about the target business. Initially the lawyer starts the process by referring toprecedents, checklists and disclosure provided in the schedules to the draft purchase agreement.As the process continues, however, what first started as a science turns into an art. The results ofone investigation raise red flags which lead to further investigations. Due diligence is likedetective work. The mystery is the complete picture of the target business.

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7. Due diligence is the process of turning up stones to see what you can find. The process isnot unlike a properly conducted examination for discovery.

II. WHY IS DUE DILIGENCE DONE?

8. The objective of the due diligence process from the purchaser's perspective is to fullyunderstand the assets and liabilities of the target business, to identify the problems and avoidsurprises. The purchaser needs to know what is truly being purchased. The due diligence processattempts to confirm statements and representations which have been made by the vendor and itslawyers, especially when such representations do not form part of the final agreement.

9. Due diligence successfully completed, ensures that the client's expectations have beenfulfilled and the purchaser acquires what he has bargained for. To this end, the lawyer shouldfirst become familiar with the client's expectations and objectives.

10. The purchaser needs to know what is actually being purchased. The purchaser's lawyerneeds to be in a position where he/she can verify that the purchaser has acquired good title to theshares or the assets. The due diligence process should discover surprises in the target businessbefore the transaction is closed and the monies paid.

11. There are, however, many other important reasons for conducting due diligence. Theinvestigations process will often determine whether the transaction will proceed or not. Theinvestigations will also influence how the transaction will proceed. Will it be a share purchase oran asset purchase? Many a transaction starts out in one form and changes to the other because ofthe picture which unfolds as a result of the investigations.

12. Part of the purpose of due diligence is to determine what investigations need to be madeby others such as accountants, engineers or environmental consultants.

13. In many cases, the due diligence merely ends up being an exercise in verifying thetruthfulness of the representations and warranties given by the vendor in the agreement. Onecould argue if the vendor is prepared to make these representations and warranties in theagreement, why is it necessary to incur the expense of investigating the veracity of theserepresentations and warranties? In a perfect world this may be a good argument. The vendorwould not make such a representation unless it was true. In the event it was not true, then thepurchaser could claim for damages from the vendor for the loss resulting therefrom. However,the world is not perfect and the fact that the representation was made by the vendor and is untrueis often of little comfort to the purchaser after the deal has been closed and the monies paid. Notonly is the purchaser unhappy, it can even be more discomforting to the lawyer if it issubsequently determined that had the lawyer pursued the necessary investigations and searchesthe lawyer would have determined such representation was untrue prior to closing. A proper duediligence process avoids liability for the lawyer.

14. Some of the representations and warranties made by the vendor in the agreement are notabsolute but are to "the best of the vendor's knowledge". If the substance of the representation is .not true, the vendor's liability can only be established if it can also be proven the vendor hadknowledge. Proper due diligence will assist in providing knowledge.

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15. The lawyer wants to avoid the situation where the client discovers after closing a materialfact which ought to have been discovered by proper due diligence before closing. Not only is thisembarrassing to the lawyer, worse yet the client's confidence and trust in the lawyer isundermined. The trust and confidence that a client has in the lawyer is usually the mostimportant aspect of the lawyer-client relationship. The failure by the lawyer to conduct therequired due diligence may not only expose the lawyer to liability but adversely affect thecontinued business relationship the lawyer has with the client.

16. A lawyer's obligation to his client is three-fold:

(a) discover and disclose to the client the relevant facts (i.e. that which mightreasonably be considered to affect the client's decision);

(b) advise the client as to the legal consequences of these facts; and

(c) take instructions from the client.

Ultimately, after proper disclosure and advice by the lawyer to the client, it is the client'sinstructions which will prevail as to the lengths to which the lawyer will go in making thevarious searches and investigations.

17. In almost every commercial transaction performed by a lawyer there is some amount ofdue diligence undertaken by the lawyer, even if this is not always identified by the lawyer. Whatvaries from one transaction to the other, however, is the degree and intensity of the searches andinvestigations carried out. This often is dependent upon the amount of money involved in thetransaction. It may not be in the purchaser's interest to pay the lawyer the cost of a Cadillacinvestigation where the client is satisfied with a Chevrolet investigation.

18. The lawyer has an obligation to fully understand what searches and investigations can becarried out and the purposes of such searches and investigations. This should be disclosed to theclient. It is then for the client to make a judgment call and instruct the lawyer as to the extent ofwhat is to be done. When the scope of the investigation is unreasonably restricted or limited bythe client's instruction, a prudent lawyer should provide the client with a self-serving letterclearly setting out the parameters of the investigation, the investigations which could be done butare not being done at the client's request, and the consequences which may flow from notcarrying out these investigations. The risk should be fully exposed to and accepted by the client.If there is any doubt as to what the lawyer should or should not do, the lawyer should err on theside of doing more instead ofless.

19. It is my experience that quite often the purchaser is overly optimistic about the businesswhich it intends to acquire. Instead of wanting to look for "skeletons in the closet", it only seesthe good of the targeted business. In these circumstances, the lawyer has an obligation toconvince the client to allow the lawyer to:

(a) conduct the necessary investigations and searches; and

(b) to require the purchaser to carry out its own investigations of the business.

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20. Usually, if the lawyer has succeeded in convincing the client to carry out the duediligence process it becomes apparent to the purchaser that the purchaser did not know as muchas it thought about the business of the vendor. Usually the searches and investigations discoversome surprises which were unknown to the purchaser. Sometimes the surprises are only hurdleswhich can be overcome before the transaction is concluded. Other times the process discoversinsurmountable roadblocks which kill the deal. Even in the rare situation where there are nosurprises, the purchaser can still feel better knowing for certain that that which· the purchaserbelieved to be true in the first instance is in fact true.

21. The purchaser ought to know both the good and bad aspects of the transaction which canonly be discovered by the due diligence process. The results will have an ultimate bearing on notonly whether the transaction proceeds, but on the salient terms of the transaction. The resultsfrom the investigations will affect not only the form but the substance of the final agreementbetween the parties. The results may affect the amount of the consideration to be paid.

22. The investigation process is necessary to determine why a representation or warranty isto be included in the agreement, as well as assisting the purchaser in negotiating the omission ofa particular representation or warranty.

23. The agreement usually provides that the vendor's lawyer is to provide certain opinions atclosing. The lawyer is required to make the necessary investigations and searches to support theopinion which he/she is to provide.

III. WHEN DOES DUE DILIGENCE OCCUR?

24. The investigations start with the client. Initially, the client carries out someinvestigations to determine why it is interested in acquiring the business.

25. The next step in the process is some type of an informal arrangement between the vendorand purchaser concerning the business with the view that lawyers are to be instructed to worktowards a final definitive agreement of purchase and sale. This informal arrangement issometimes characterized by a letter of intent. Other times there may even be an accepted offer topurchase which is subject to certain conditions being satisfied before there is a bindingagreement of purchase and sale. Usually the process of investigation starts in some form oranother, before there is a binding and definitive agreement between the purchaser and vendor.

26. The purchaser should obtain as early as possible the necessary approval from the vendorto conduct the investigations that it intends to make. Sometimes the vendor is reluctant toprovide a blanket approval. The vendor may be concerned that if the investigations and searchestake place and the transaction is not concluded that the vendor may be left with having to dealwith problems that result from these investigations which it otherwise would not have to dealwith had matters been left as is.

27. The vendor will also need to permit the purchaser to have access to the business premisesas well as complete access to the financial records. The vendor will be concerned about theconfidentiality of these investigations at these initial stages. It is reasonable for the vendor torequire the purchaser provide a confidentiality agreement.

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28. The objective is to work towards the negotiation and drafting of a final definitiveagreement between the parties.

29. The second stage of the investigation commences, or better stated, continues, when abinding agreement has been signed and delivered by the purchaser and the vendor. Theinvestigations will continue at least up to and including the closing of the agreement. Eventhough there may have been an extensive and complete investigation at the pre-contract stage, itis prudent for the lawyer and its client to continue the investigation up to the closing. Many ofthe preliminary searches will have to be confirmed at the closing. The investigative processshould continue to satisfy the correctness of the vendor's representations and warranties in theagreement.

30. There are some circumstances where the investigation process continues in the postclosing period. Some agreements by their very nature do not provide the opportunity forinvestigations to be carried out and completed before closing. There may be merit for theinvestigations to be made after closing to verify the accuracy ofrepresentations and warranties inthe binding agreement and the client may accordingly instruct the lawyer to do so. There may bevalue to the purchaser in finding out as early as possible more about the business purchased,even if there is little if anything it can claim against the vendor if there are any unhappysurprises. The purchaser may be able to correct a problem at less cost if it has notice of theproblem earlier instead of later. It is also common in binding agreements to provide that therepresentations and warranties of the vendor survive the closing for a specified period of time(i.e. usually from two to five years) and discovery of a problem within this period, will enablethe purchaser to make a claim against the vendor.

IV. WHO IS RESPONSIBLE FOR DUE DILIGENCE?

31. The due diligence process in a business acquisition is primarily the responsibility of thepurchaser and the purchaser's lawyer. It is the purchaser who has the most to learn.

32. It is important that the lawyer and the client understand the division of due diligence andwhat the particular responsibilities of each party will be. Usually the legal investigations areconducted by the lawyer and the business investigations by the client. However, more often thannot the business investigations intertwine with the legal investigations and there is some sharingof responsibility of the business investigations such that they are done partly by the lawyer andpartly by the client. It is important for the lawyer to identify with the client what businessinvestigation ought to be conducted and who it is that has responsibility for doing it.

33. The due diligence process, by its very nature, involves a certain amount of duplicationbetween the lawyer acting for the purchaser and the lawyer acting for the vendor. For example,Personal Property Registry searches are usually requested at the initial stage of the investigationand updated as of closing. It makes little sense for both lawyers to conduct the same searchunless the circumstances are exceptional. At the front end of the transaction it may well be usefulfor the vendor's lawyer and the purchaser's lawyer to agree upon which searches are to be done,who is to do them and how the information is to be shared. For example, a Personal PropertyRegistry Search Result can be relied upon by the purchaser's lawyer to the same extent as thevendor's lawyer, even if it had only been provided by Personal Property Registry to the vendor'slawyer.(#235155)March 27, 2000

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34. Due diligence will also be carried out by other professionals or consultants retained bythe purchaser. This will include accountants, engineers, environmental consultants, etc.

35. The vendor's lawyer also is responsible for certain investigations. The vendor ought toknow whether the representations and warranties it makes are true. Where the agreementprovides that the vendor's lawyer is to provide an opinion on certain matters, presumably whichare set out in the agreement; it will be necessary for the vendor's lawyer to also conduct thenecessary investigation and searches to support the position in the opinion.

36. The vendor's lawyer will also want to verify with the vendor the extent of the vendor'sknowledge concerning the representations and warranties which the vendor is requested to makein the agreement. Quite often these representations and warranties are very legalistic indraftsmanship and may not be fully understood or appreciated by the unsophisticated vendor.The vendor's lawyer has the obligation to question the vendor to ensure the vendor fullyunderstands and appreciates the significance of the representations. In order to do so, thevendor's lawyer may have to investigate a certain aspect of the vendor's business and conductindependent searches. The degree and intensity of the vendor's lawyer's due diligence processwill vary from transaction to transaction and will depend on the representations and warrantieswhich the vendor makes in the agreement. It will also depend on the vendor's sophistication intransactions of this nature. While the vendor may understand the operation of the business, thevendor may not appreciate the legal ramifications of the representations made in the agreementwithout being advised by the lawyer what these representations mean.

37. The vendor's lawyer will want to discover what agreements the vendor is to be releasedfrom on assumption by the purchaser and what guarantees are to be discharged.

38. There are other circumstances where the vendor and the vendor's lawyer may want toconduct due diligence on the proposed purchaser. One example is if the purchase price has notbeen paid in full on closing and the vendor is taking back debt whether secured or unsecured.The vendor would be interested in satisfying itself as to the validity of the security for the debt ifsecured, and if unsecured as to the ability of the purchaser to pay the debt. Again, this type ofinvestigation is partly legal and partly business and will be shared by the vendor and the vendor'slawyer.

v. WHAT IS DONE IN THE DUE DILIGENCE PROCESS?

39. If it is clear from the start the transaction will be an asset acquisition and not a shareacquisition, some of the investigations and searches which are referred to in the checklists whichare attached will be unnecessary. For example, if assets are being purchased and the assets do notinclude the accounts receivable of the business, it could be argued that it really matters not to thepurchaser as to the correctness of the accounts receivable disclosure. However, the correctness ofthe accounts receivable disclosure may have some bearing on the profitability of the businesswhich in turn may ultimately affect the aggregate consideration which the purchaser is preparedto pay for the business by buying the assets. Thus, while the thoroughness of the investigation inan asset purchase may not be as demanding as in a share purchase, there still will be somebenefit to the purchaser to investigate certain assets and liabilities of the business even if they arenot being purchased or assumed.(#235155)March 27, 2000

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40. The value of the shares of the target corporation are dependent upon the corporation'sassets and liabilities. The purchaser of shares must not only be concerned as to the legalitiesconcerning the title to the shares. The purchaser of shares must also investigate the underlyingassets and liabilities of the target corporation.

41. At the initial stages, the parties should retain a certain amount of flexibility from movingthe transaction to a share purchase from an asset purchase and vice versa. Searches andinvestigations will often be necessary to determine which way the transaction will come together.

42. The legal due diligence involves such matters as corporate structure and organization,some related financial disclosure, corporate searches, title searches, reviews of materialscontracts, etc.

43. The business due diligence, on the other hand, involves an understanding of the materialcontracts and investigation of the current assets of the corporation (inventory, accountsreceivable, etc.), the fixed assets (real and personal) of the corporation, the employee relations,the status of all liabilities (actual and contingent), the banking relations and the like.

44. The focus of the legal and business due diligence will vary slightly depending on whetherthe ultimate transaction is an asset purchase or a share purchase. Generally speaking, the duediligence in an asset purchase transaction is not as demanding as in a share purchase transaction.In an asset purchase transaction, assets that the purchaser does not agree to purchase or liabilitiesthat the purchaser does not agree to assume are not a major concern. In a share purchasetransaction, the purchaser Will want to conduct a comprehensive and thorough review of theconstating documents, directors and shareholders resolutions, shareholders ledgers and sharecertificates to trace and confirm title to the shares which are to be acquired; Except to the extentthat the selling corporation has the proper capacity and authority to sell, the shareholding lineageis of little concern to the purchaser in an asset purchase transaction.

45. The objectives of the due diligence process is to accomplish the following:

(a) to confirm that the vendor owns the shares or assets being sold;

(b) the shares or assets sold are free from unpermitted encumbrances; and

(c) in the case of a share purchase, the assets of the corporation are free fromunpermitted encumbrances and the liabilities actual and contingent, are properlydisclosed.

46. Contingent liabilities of the target corporation are not always easily identified and ifidentified are difficult to quantify. Potential contingent liabilities are often unknown by thedirectors and officers of the target corporation. The due diligence process will often not fullydisclose all these potential contingent liabilities. Examples of such contingent liabilities includetax assessments or reassessments by federal or provincial taxation or other authorities. claims bypotential plaintiffs for liabilities which have not yet materialized, valuation discrepancies oninventory and collection problems on accounts receivable. It may be as a result of the potential

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liabilities that a purchaser will opt to purchase assets rather than shares and avoid these potentialproblems.

47. However, there are certain liabilities which the purchaser may become responsible for,even if the purchaser acquires the assets and did not agree to assume the liabilities. Theprovincial revenue Acts and labour legislation are examples of obligations which flow topurchasers in asset purchase transactions even where the purchaser did not agree to assume theliability.

48. In order for the lawyer to conduct a thorough due diligence review, he or she should beorganized. Checklists and precedents are necessary to assist the lawyer in making an organizedinvestigation. Very seldom, however, is a checklist or precedent which has been developed andused in another transaction sufficient by its own to do a complete due diligence of the presenttransaction. Checklists should be flexible to adapt to the particular transaction at hand. Thelawyer should follow the checklist, but rely upon his or her expertise and experience to identifyother investigations and searches which are required because of the particular transaction.

49. Due diligence involves the investigation of documents which are usually in thepossession of the parties and searches and inquiries made of third parties. The paper flow is oftenoverwhelming and unless the paper is organized on a continuous basis from the start the lawyerwill have a difficult time in knowing what it is he or she has examined and what is stilloutstanding. It may be useful to organize the documents and the searches by subject matter in atabbed 3-ring binder with an index at the front setting out the nature of the content under aparticular tab. Not only will this type of organization assist the lawyer in avoiding unfortunateomissions but it will also make the preparation and delivery of the closing book a less oneroustask. The organized lawyer who can put his finger on the required information on a moment'snotice is less likely to be a lawyer who has missed some relevant information.

50. There are two checklists which have been attached to this paper. The first checklist is aninvestigation checklist which concerns mainly the review of documents. The second checklist isan inquiry or search checklist. It involves third party searches, certificates and the like. There isusually some overlap between the investigation of documents and the inquiry and searches ofthird parties. These checklists are not definitive of the investigations and searches to be done inall transactions. The lawyer should constantly be adding to the checklist new searches andinvestigations which provide meaningful results. Also, the attached checklists do not deal withtransactions involving such issues as foreign investment, competition concerns, foreignsubsidiaries and special circumstances.

VI. GENERAL DISCUSSION OF SEARCHES AND INvESTIGATIONS

51. There are some general rules to follow in the due diligence process:

(a) See the original documents.

(b) Have searches in other jurisdictions conducted by a lawyer licensed to practicelaw in that jurisdiction and who is familiar with the process.

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the same as the target corporation.

(d) In corporate searches identify changes of name and amalgamations and searchfonner names.

(e) The vendor's consent should be requested as soon as possible to the conduct ofsearches where the consent is required.

(t) The lawyer should search the Statutes for legislation which would apply to theparticular transaction. For example, the Railway Act, R.S.C. 1970, when buyingproperty from a railway company, the Canada Shipping Act, R.S.C. 1970, whenthe business assets include ships, the Aeronautics Act, S.C. 1996, c. 10 whenbuying aircraft.

52. In effecting either the purchase of shares or of assets, the following documents should beobtained at the outset to thoroughly investigate the affairs of the vendor and to assist indetennining whether to purchase assets or shares and in preparing to conduct due diligenceinvestigations and searches. If acting for the vendor it should be anticipated that the purchaserwill ask for such documents and the production of the same should be organized with the clientto expedite negotiations and closing.

53. In either an asset or a share purchase, the same due diligence should be effected to thefollowing purposes:

(a) in an asset transaction, it will be necessary to determine if there are any liabilitiesor burdens which the client does not wish to assume so the same may be properlyrecorded as excluded assets; and

(b) in a share purchase, the client needs to be fully infonned of all liabilities, burdensand problems of the business, since on becoming the owner of the shares, it willbe assuming these obligations.

54. Depending on what is uncovered, the deal may need to be restructured as an assetpurchase of share purchaser, to avoid tax and other statutory and practical problems. Therefore,it is necessary to obtain complete disclosure about the target business, including the following:

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(i)

(ii)

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Description of the Business - Documents to describe the business being acquiredincluding past histories, present and past annual reports, financial statements,corporate organizational charges, office and director's manuals, etc.

Tangible Assets • Lists describing all tangible assets owned by the corporationincluding the following:

equipment complete with all operating manuals, manufacturer'swarranties, service agreements;

listings of inventories from most recent count or records concerning same,including supply agreements and production agreements;

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real property documentation including all deeds, mortgages, surveys, taxassessment numbers; and

valuations regarding any of the same.

(iii) Intangible Property - Lists of all tangible property such as:

all intellectual property such as patents, trademarks, industrial property ofall kinds, including particulars of all documents registered to proveownership and register user arrangements;

information concerning any know-how borrowed or obtained from thirdparties and any royalties paid; and

information concerning key employees who are possessed of such know­how and operation processes.

(iv) Leased Properties - Lists ofall leased goods and realty including:

copies of all leases of equipment and motor vehicles together withtelephone numbers and contact parties of such lessors so that assignmentsmay be arranged; and

leases of real property including copies of all such leases with informationregarding registration of notice of the same against title, documentsrelevant to leases such as tax bills and name and contact party for thelandlord.

(v) Employees - All employment records including:

detailed list of all employees by departments such as management, salesand labour and details of salaries, commissions, bonuses or otherremuneration, length of service, age, sex and fringe benefits;

copies of all employee benefit plans, pension plans, drug and health careinsurance;

copies of any employment agreements; and

copies of any consulting agreements with agents or other independentcontractors providing specific services.

(vi) Services - Copies of all supply and service agreements such as snow removal,landscaping, waste removal, railway siding, freight for materials and goods, etc.

(vii) Utilities - Copies of all utilities arrangements such as agreements with Hydro,waste sapling portals for the City, etc.

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(viii) Licensing and Pennits - Copies of all necessary licences to operate the business,including elevator licences, GST and PST numbers and all other governmentfilings.

(ix) Insurance - Copies of all insurance policies necessary for operation of thebusiness and copies of premiums to determine the adequacy and expense ofcoverage;

(x) Litigation - Infonnation concerning all outstanding and pending claims or actionsagainst the company;

(xi) Records, including copies ofor access to:

(A) audited annual financial statements and management prepared monthly orquarterly statements for past years and projections for the future;

(B) infonnation regarding pre-paid expenses and contingent liabilities for suchmatters as intercorporate or shareholder guarantees;

(C) infonnation regarding taxes and copies of returns, assessments, etc.;

(D) infonnation regarding any outstanding obligations such as trust indenturesand banking operations;

(E) customer lists, customer supply agreements, advertising and publicrelations;

(F) listing of accounts receivable aged by 30, 60, 90 and over 90 days,including infonnation on all bad debts; and

(G) environmental and occupational health and safety records.

55. If the transaction includes a purchase of shares, you will also require access to the minutebooks, share ledgers, and other corporate records to ensure that the target corporation has beenproperly incorporated and is duly organized with all requisite proceedings in all necessaryjurisdictions effected. These corporate records will need to be made available so that anydeficiencies can be noted and corrected as soon as possible.

A. Real Property Searches

56. If real property is involved in the business, standard real estate searches and subsearchesshould be conducted. Encumbrances which are registered against title should be reviewedthoroughly and the lawyer should not assume that he knows what the encumbrance is aboutmerely because it looks like a standard utility easement. Copies of the registered instrumentsshould be obtained from land Titles Office and read. If the vendor has obtained appraisals orother expert reports such as environmental reports in respect of the real property, these should beobtained and reviewed as well.(#235155)March 27, 2000

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57. In some circumstances it will be necessary to obtain from Land Titles a copy of therelevant plan so the lawyer and purchaser can be satisfied not only as to the legal description, butas to the location and size of the parcel of land. This may be necessary where a surveyor'scertificate is not available.

58. A survey certificate, if available, should be reviewed to determine whether there are anyencroachments. A survey certificate will be necessary to obtain a building information abstractfrom the municipality. The building information abstract will confirm zoning has been compliedwith and whether or not there are any building infractions or outstanding work orders.

59. In conjunction with the search of tide, there are other searches which should be carriedout to ascertain the existence of outstanding statutory liens, work orders or other violations andthe general condition of the real property being purchased. These searches will include thefollowing:

Municipal Taxes60. A tax certificate should be ordered to determine arrears of taxes, present taxes andwhether there are any local improvement assessments. Unpaid taxes form a first lien on the land.Also, an inquiry should be made of the municipality to confirm there are no outstandingobligations under subdivision or development agreements. This is a concern in Saskatoon whenthe land purchased is raw land which has not been developed. A tax certificate will notnecessarily show certain other levies which can be assessed against the land and are payable atthe time a building permit is applied for. Often an "off-site levy" is assessed against the land toconnect the subject property to the sewer and water mains.

Zoning61. The building information abstract will assist in verifying compliance of the building withuse, set-back, side yard and coverage requirements with the relevant zoning bylaws. If asurveyor's certificate is not available, the purchaser should be advised as to its benefits and giventhe choice of requesting one.

Fire Department Search62. In Saskatoon or Regina the Fire Commissioner will issue a report as to whether or not thepremises have been inspected and their condition so far as meeting safety standards andregulations. The report will set out any outstanding work orders recorded in their file for a fee. ACU11'ent inspection can also be requested of the premises for a fee. The Fire Commissioner hasthe authority under The Fire Prevention Act to close a building if it does not meet currentstandards and to require work orders to be completed. If work orders are not completed by theowner, the Department can complete them and add them to property taxes.

Electrical and Gas Defects Search63. For a fee, SaskPower and SaskEnergy will search their records and advise as to whetherthere are any outstanding deficiencies based on past inspections of the premises. Also for a feethey will inspect the property for defects in the gas and electrical connections and advise whetherthis work has been completed in accordance with the building codes and safety regulations.These inspections are carried out pursuant to The Electrical Inspection Act and The GasInspection Act. If the premises do not comply with the Acts or the Regulations, a work order can(#235155)March 27, 2000

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be issued, services discontinued and the premises ordered to be evacuated and fines imposed.These searches are usually quite infoooative in detennining the condition of the premises andshould be strongly recommended to a purchaser.

Community Health Search64. For a fee, Community Health will advise from a search of their file if there have been anycomplaints or work orders issued with respect to the premises and conduct an inspection.Community Health is concerned with such issues as health and safety, National Building Codeissues and plumbing systems.

Executions65. Search the day book at Land Titles Office and the Sheriffs Office at the Judicial Centrein which the lands are situate to determine if there are outstanding Executions flied against thevendor.

Utilities66. Depending on who supplies the utility, public utility charges may fooo a lien and chargeupon the lands. The provider of utilities, the City, Saskatchewan Power and SaskatchewanEnergy should be contacted to advise as to the status of the utility charges with respect to thepremises. Also, if there is any question as to the supply ofutilities to the lands, an inquiry shouldbe made of the municipality and confiooation received they are paid for. In rural areas, waterpotability and the proper installation and function of septic tanks should be investigated anddetermined. If water is supplied to the premises by Saskatchewan Water Corporation under TheWater Corporation Act pursuant to a contract, an inquiry should be made of the WaterCorporation and the contract reviewed.

Boilers67. Saskatchewan Public Safety will provide a letter advising whether there have been anycontraventions of The Boiler and Pressure Vessel Act with respect to the boilers which arelocated on the premises.

Elevators68. Where the premises contains an elevating device, an inquiry should be directed to PublicSafety for any outstanding work orders or deficiency notices concerning the elevator.

Environmental Matters69. In recent years environmental issues have gained importance in corporate/commercialtransactions. This is understandable when one considers the variety of individuals who arepotentially subject to liability (Le. current and past owners, secured creditors, lessees anddirectors). Additionally, the potential liability may be huge such as where the transactioninvolves numerous facilities with environmental considerations

70. Consequently, environmental assessments or audits have become an important part of thedue diligence conducted by a purchaser to deteooine if any environmental contamination orconcerns exist, including potential ones. There are two principal environmental audits - acompliance audit which, as its name suggests, evaluates the corporation's compliance withenvironmental laws by measuring pollution levels with permitted levels; and a management audit

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which evaluates the corporation's policies, practices and controls and its compliance with theforegoing.

71. Not all transactions will trigger environmental concerns - an example being the sale of aretail clothing store. The degree to which any transaction is environmentally sensitive willdetermine how extensive and detailed the environmental provisions of the purchase agreementwill be and how much, if any, liability will remain with the vendor. At one end of the spectrum,the transaction may be structured on an "as is" basis, with the vendor passing all risk to thepurchaser while taking an indemnity protecting the vendor from any liability it may have as aformer owner. At the other end, the vendor remains liable for all matters existing prior to theclosing and covenants to indemnify the purchaser from any liability with respect to such matters.

72. In an environmentally sensitive transaction, an environmental audit will no doubt becommissioned. When drafting the purchase agreement, the results of that audit should beconsidered and appropriately incorporated. Where the audit discloses existing or potentialenvironmental concerns, the representations and warranties of the vendor will need to bequalified to fully disclose them. This is usually done by qualifying the relevant representationswith appropriate exceptions (Le. "except as disclosed in Schedule A.") Such exceptions are ofextreme importance. Unless further terms and conditions are imposed by the agreement, theeffect of disclosing such environmental concerns as exceptions to the vendor's representationsand warranties, is to force the purchaser to accept them as part of the purchase price. If theindemnity given by the vendor is limited to breaches of representations and warranties, then theindemnity will not extend to cover the cost of any remedial action required relative to theproblems which were disclosed.

73. Generally speaking, the representations and warranties of the vendor will address itscompliance with all environmental laws; that the vendor holds all required permits; that suchpermits are transferable; that there is no proceeding or notice of a review by which any suchpermit may be jeopardized; that all hazardous materials have been treated, transported, storedand disposed of in compliance with all environmental laws; that there is no action or proceedingor claim pending or threatened for non-compliance with environmental laws, including, anyorder imposing remedial action on the vendor; and that none of the properties have been used asa landfill site, have asbestos, PCB waste, radioactive substances, underground storage tanks andno past spills. The scope and detail of the representations and warranties will, as mentioned, bedetermined by how environmentally sensitive the transaction is, the bargaining skills of therespective parties and/or how anxious the vendor may be to sell.

74. As pre-closing obligations to be performed by the vendor, the purchase agreement shouldobligate it to provide the purchaser with access to the properties to permit it to conduct the auditand otherwise investigate the assets being purchased.

75. The purchase agreement may also include as a condition precedent to the purchaser'sobligation to close, that it has received the results of the environmental audit which are todisclose no (or no material) environmental liability or concern. Exceptions may be carved outfrom the vendor's representations and warranties to disclose liabilities or concerns identified bythe audit. Where problems are identified, the parties may agree to resolve them in a variety ofdifferent ways. For example, the purchase agreement may provide for its termination with alldeposits refunded; an adjustment to the purchase price; it may require that certain remedial(#235155)March 27, 2000

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action be taken, when, and how the costs of same are to be borne; or the offending assets may bedeleted from those being sold.

76. How the parties agree to resolve the matter will also be reflected in the form of theindemnity given by the vendor to the purchaser in terms of its scope relative to environmentalmatters, as well as the length of time it applies to such matters after the closing. The scope of theindemnity will vary not only in terms of the types of environmental liabilities it may cover, andwhether it extends to circumstances which existed after as well as prior to the time of closing, butalso in terms of quantum. It may be drafted such that the vendor is not liable under the indemnityunless the damages to the purchaser first exceed a certain threshold amount, and then thevendor's liability may be limited to such excess amount subject to a maximum figure.

77. Pursuant to The Environmental Management and Protection Act and The Clean Air Actof Saskatchewan, a request can be made of Environment and Resource Management to advise ifthere are any outstanding notices of contravention, complaints, investigations, outstanding workorders or other proceedings that are filed or on record for environmental matters. As is customaryin most of these search results, the provincial body will caveat the information which is providedby saying that it is not necessarily conclusive and that the responsibility of determining theenvironmental status of the premises rests with the purchaser. The purchaser should be advisedthat if there is any reason to be concerned about the environmental status of the premises, thatindependent professionals be engaged to conduct the proper investigations with the consent ofthe vendor. A similar search can also be conducted of Environment Canada pursuant to thefederal legislation.

Occupational Health78. Occupational Health and Safety Branch is concerned with the safety aspects of the workplace. A search can be requested to determine the results of any inspections and whether; again,there are any outstanding notices of contravention, complaints or work orders.

79. A prudent lawyer should advise his client to conduct or cause consultants to conductinspections of the buildings, the mechanical equipment and the structural soundness.

B. Real Property Leased by a Business and Other Material Contracts

80. Real property leases are material contracts. All material contracts should be reviewed indetail. Of particular concern is the status of the contract, the ability to assign, and whether theliability of the vendor thereunder ends upon such assignment taking effect, or in the case of ashare purchase whether or not the change of control triggers any rights. In the case of a lease ofreal property, the Certificate of Title should be examined to ensure that the right under the leaseis protected by way ofcaveat or leasehold title and that the landlord actually has an interest in theland being leased by the vendor. If protected by way of caveat, the caveat should be examined toensure that the interest claimed, i.e. right of renewal, first refusal or option to purchase is clearlyspelled out in the caveat.

81. Other specific terms and conditions which should be looked at in the leases and material) contracts are:

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rights of termination;

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(b) events of default;

(c) options for renewal;

(d) deficiencies in the lease or other material contracts;

(e) in the case of leases, an estoppel certificate from the landlord confirming thestatus of the lease, and where the leased property has been mortgaged, a non­disturbance or postponement agreement must be considered.

82. Once the specific terms are determined, confirmation should be obtained from the otherparties to the agreement that the agreement has not been modified. In the case of any debtobligation, confirmation should be obtained as to the outstanding balance and the consent to theassumption. The vendor's lawyer will want to inquire and receive the consent to the release ordischarge of the vendor and its guarantor of the liability under the material contract, either uponassumption or closing ofthe share purchase.

c. Personal Property

83. There is no title registry system for personal property in Saskatchewan. Consequently,one may only make inquiries of public records to determine if liens or encumbrances have beenrecorded against a particular debtor. One cannot say that a person owns a particular item ofpersonally based on public records.

84. Personal Property Registry searches should be conducted in the jurisdictions where thepersonal property is located. The purchaser should be instructed to verify the location of thepersonal property. The serial numbers should be physically checked to ensure that the number onthe corresponding property matches the number disclosed by the vendor. A good example ismotor vehicles. Instead of relying only upon the Certificate of Registration, the serial number onthe vehicle should be checked to ensure accuracy. With respect to corporations, all past, presentand corporate names and all business styles should be searched.

85. In addition to a search of registered financing statements under The Personal PropertySecurity Act, a search can be conducted under Section 427 of the Bank Act with respect to abusiness involved in mining, fishing, agriculture, forestry products or manufacturing.

86. The purchaser should be counseled to verify the condition and/or merchantability of theequipment, quality of the accounts receivable and the merchantability of the inventory.

87. One problem that is often encountered is that some of the personal property located inthe business is not owned by the vendor. Investigation should be made to determine whatproperty is not included in the business if it is a share acquisition. If it is an asset acquisition, theproperty acquired should be identified with sufficient particularity so there is no dispute as towhat is and what is not included. Usually it is the purchaser's job to verify the personal property.

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D. Provincial Taxes

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88. Most businesses in Saskatchewan will involve the collection of a Provincial tax such asEducation and Health Tax or Liquor Consumption Tax. Section 51 (2) of The Revenue andFinancial Services Act requires the vendor to obtain a certificate stating that all taxes have beenpaid to the Minister. If the purchaser fails to obtain a copy of that certificate, the purchaser isliable for all unremitted taxes. Usually two steps are required. The first step is to identify thestatus of these accounts during the course of negotiations. The second step is to request aclearance certificate from the vendor. This certificate is provided post-closing as all taxescollected from the vendor have to be paid to the Department ofFinance before they will issue theclearance certificate. Because of this, appropriate escrow arrangements should be made atclosing to ensure that a clean certificate will be provided by the vendor's lawyer.

E. Federal Taxes

89. It is very important that the purchaser ofa business detennine the extent of the vendor'sexisting liabilities for taxes and ensure that those tax liabilities of the business that arose prior tothe completion of the transaction will remain with the vendor. Due diligence investigation forincome tax purposes is very important, as is the negotiation and drafting of appropriate taxindemnity clause to protect the purchaser. These issues are especially critical on a share sale,although they are also relevant to an asset sale. The nature ofboth the questions to be asked andthe investigations to be carried out are set out below:

Share Sale Investigation

90. In the course of perfonning due diligence the purchaser's representative shoulddetennine:

(i) whether the vendor is the object of a tax assessment or reassessment in respect ofa prior fiscal year, and the status of such assessment or reassessment and theobjections or appeals filed in connection with it;

(ii) whether all income tax returns for prior years, both federal and provincial,together with any other required tax filings, have been completed and filed on atimely basis;

(iii) whether notices of assessment or reassessment have been issued by theappropriate taxation authority in respect of the returns filed and tax electionsmade;

(iv) whether waivers have been filed by the vendor corporation in respect of anytaxation year, which waivers would enable Revenue Canada to reas~ess thevendor corporation after the expiry of the nonnal limitation period (and thespecific subject matter of such waivers);

) (v)

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whether all taxes owing and required tax installments have been paid to theappropriate taxation authority, i.e. Revenue Canada or the Ministry of Revenue inOntario;

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(vi) whether all amounts to be deducted by a payer at source have been so deductedand remitted to the appropriate taxation authority as required under the applicabletax legislation, including any requirements to deduct and remit Part XIII Non­Resident withholding tax, source deductions on payroll, or deductions for CanadaPension Plan and Unemployment Insurance and

(vii) whether any tax elections have been filed in connection with pre-acquisitiontransactions and the nature ofthose elections.

91. Such investigation would review not only income taxes owing and installments againstsuch income tax owing, but also would confinn that all capital taxes, any old federal sales taximposed under the Excise Tax Act, goods and services tax ("GST") and any other fonn of taxcollected by any level of government, have been paid and all accounts are up-to-date. Copies ofall relevant returns, filings, assessments and reassessments should be obtained.

92. If there are losses in the vendor corporation which the purchaser intends to use, the natureof those losses should be reviewed and it should be detennined when they arose, in order toconfinn that they could be utilized forgoing an acquisition ofcontrol.

93. Revenue Canada does not have a fonnal search procedure that would enable a purchaserto independently verify that all tax liabilities have been paid by the vendor. It is recommendedthat a purchaser obtain a letter of confinnation from Revenue Canada that the vendor's taxes forprior years have been paid; that there are no outstanding notices of reassessment; that taxinstallments are current; and that all source deductions for employees have been made.

Sale ofAssets

94. On an acquisition of assets, the purchaser has fewer concerns than with a share saleregarding the vendor's prior outstanding tax liabilities.

95. Notwithstanding, it is important to ensure that there are no claims that may be madeagainst the vendor's assets by Revenue Canada or the Ministry of Revenue for income taxes due.Appropriate representations and warranties should be obtained from the vendor in connectionwith the title which is transferred to the purchaser, being free from all interest, including any thatRevenue Canada or any other tax authority may have, and an indemnity should be obtained toensure that if Revenue Canada attempts to claim rights to such assets, the vendor may be suedfor losses suffered by the purchaser. The purchaser should, as in a share purchase transaction,obtain a letter of confinnation from Revenue Canada in respect of payment of taxes andremittance of source deductions.

96. When buying shares of a corporation, the purchaser takes on all prior liabilities of thevendor. Thus, the purchaser must inquire and confinn that the vendor is a registrant and that inthe past it has collected and remitted GST as required. It would be prudent to review the GSTreturns on which the GST collected and the input tax credits have claimed are summarized,together with supporting documents for these numbers. Also, the vendor should be required to(#235155)March 27, 2000

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disclose whether any elections have been filed or agreements entered into with Revenue Canadain connection with the collection and remittance of GST. The purchaser should review priorinput tax credit claims and require the vendor to provide the infonnation and documents onwhich these input tax credit claims are based, to protect it from subsequent notices ofassessments in connection with invalid input tax credit claims.

97. Finally, the vendor should be required to disclose any notices of assessment which havebeen received to date and those that remain outstanding. Copies of these should be obtained.Appropriate tax indemnity clauses should be included in the acquisition agreement to cover anytax owing which is subsequently claimed by Revenue Canada.

98. Under s. 321 of the Excise Tax Act, if Revenue Canada, Customs and Excise has issued anotice of assessment, it is authorized to order the seizure and sale of the registrant's assets within30 days of issuing the notice of seizure and sale to the defaulting registrant. There is no fonnalmechanism available for a purchaser to detennine whether such an assessment has been issued.Notwithstanding, a purchaser should attempt to confinn with Revenue Canada that the vendor isa registrant for GST purposes, and that it is not subject to any outstanding notices of assessment.The vendor should provide representations and warranties to that effect as well.

F. Employment Matters

99. There are many significant employment and labour relations concerns that requirethorough investigation by a purchaser contemplating the purchase of the shares or assets of abusiness. A purchaser will need full disclosure from the vendor of all matters related to thevendor's employees and any trade union that may represent the employees. The agreement ofpurchase and sale should contain appropriate vendor representations and warranties with respectto the disclosure of all matters involving the vendor's employees, any trade union, and otheremployment related issues. The agreement of purchase and sale should also contain appropriateindemnifications from the vendor for contingent liabilities which a purchaser may incur arisingfrom the period prior to the sale, and a general indemnification for any liabilities that purchasermay incur arising from any employment or labour related matter which the vendor failed todisclose to the purchaser.

100. The distinction between a share purchase and an asset purchase is significant in tenns ofthe obligations and liabilities which the purchaser wold be assuming in each case. Generallyspeaking, the result of a share purchase is that the business which employs the employeescontinues to exist and the purchaser assumes all obligations and liabilities attaching to thebusiness, unless specific provisions to the contrary are made in the agreement of purchase andsale. On the other hand, an asset purchase is more complex. The issues that arise will depend onthe nature of the assets purchased, the number of assets purchased, the employment significanceof the assets purchased, and relevant provisions of any governing labour legislation. Forexample, if a purchaser purchased the real estate and machinery of a functioning unionizedbusiness and carried on similar operations without interruption after such a purchase, thepurchaser would likely be a successor employer under the relevant labour relations legislationand would thus be bound to the collective agreement between the vendor and the unionrepresenting the vendor's employees. On the other hand, if a purchaser purchases aninsignificant asset from another ongoing business, such purchase may not give rise to any labourand employment consequences.(#235155)March 27, 2000

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101. Counsel for a purchaser should be aware that whether an acquisition is by way of sharepurchase or asset purchase, the purchaser may assume particular employment related obligationsof the vendor. These could include union certifications, collective agreements, and obligationsset forth in relevant employment standards legislation. There are also certain employment relatedobligations which a purchaser would not likely assume in an asset purchaser . For example, awritten employment contract between the vendor and an individual employee of the vendorwould not be assumed by the purchaser in an asset purchase transaction, although the purchasermay nevertheless choose to enter into a new employment contract with any such employee thatthe purchaser wishes to hire.

Workers' Compensation Board102. A certificate should be obtained by the purchaser from the Workers' CompensationBoard pursuant to Section 155(1) of The Workers' Compensation Act stating that it has nounsatisfied claim against the vendor. If the certificate is not produced, the purchaser is liable forthe monies due the Workers' Compensation Board by the vendor. The same provisions apply asto the mechanics of obtaining this certificate as obtaining a clearance certificate under TheRevenue and Financial Services Act.

Labour Standards Act103. Pursuant to Section 56 of The Labour Standards Act, the employees have a purchasemoney security interest in the personal property of the business to the extent of the wagesaccruing due or due to the employee. The purchaser should request a certificate from labourStandards pursuant to Section 60 as to the amount ofwages known to be outstanding and payableto employees. Purchasers should also be cognizant of Section 83 of The Labour Standards Actwhich provides for continuous and uninterrupted employment in the event of the sale of abusiness. A prudent purchaser would want to require the vendor to terminate the employees priorto the closing of the sale. The purchaser could then offer new employment and hopefully breakthe continuous chain of employment. This option would not be available to a purchaser on ashare acquisition. A contingent liability which does not show in the financial statements of thetarget business is the liability upon termination of employees. A prudent purchaser will reviewall written employment contracts and also identify the particulars of employment of allemployees where there are no written contracts. An assessment will have to be made as to thepotential liability for severance.

G. Other Matters

Licenses104. In many business acquisitions, there will be federal, provincial or municipal licensingprovisions which will apply and the purchaser's lawyer will have to investigate the status of theselicenses as well as their transferability. Some licenses, like an Education and Health Tax licenseare more or less granted as of right. Other licenses, such as licenses in the communicationsindustry can be very problematic. The business may have little if any value if the licensenecessary to operate the business cannot be transferred. Licenses fail into the followinggroupings:

(i) license granted in respect of a certain location;

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(ii) license granted to a specified person; or

(iii) license granted in respect ofa certain business.

In any business acquisition, the purchaser's lawyer should, as soon as possible, identify allrequired licenses and set in motion the application for a new license or the consent to the transferof an existing license. The agreement which is negotiated should be conditional upon the properissuance to the purchaser or the retention by the company after closing ofall requisite licenses.

Intangibles105. When a distinctive name forms part of the purchase price, the purchaser should conducta NUANS search to determine whether there are similar or confusingly similar names registered.Also a trade mark search should be undertaken to see whether a name conflicts with a trade markused by others. If there are trade marks, patents or copyrights involved, the purchaser's lawyershould review all registrations and licenses. If the purchaser's lawyer does not have the requisiteexpertise in intellectual property, independent counsel who has such expertise should be engagedto handle this aspect of the transaction.

Financial Statement and COrPorate Tax Return Review106. In most cases, the vendor's accountant should be engaged to review financial statementsand corporate tax returns of the business with the purchaser's accountant. The working papers ofthe vendor's accountant should be provided to the purchaser's accountant for review. Unusualtransactions should be identified, as well as transactions and contracts with non-ann's lengthparties. In most cases, non-arm's length payables and receivables are to be cleaned up at closing.Any financial forecasts, budgets or projections and financial reports should be reviewed.

107. The purchaser should be advised of the more favourable tax treatment to the purchaseron the purchase of assets compared to the purchase of shares when the adjusted cost base of theassets is significantly less than market value. The vendor often desires to sell shares to attractcapital gain treatment and avoid recapture. The purchaser of shares should receive somereduction in the purchase price to adjust for this potential liability.

COrPorate Searches and Considerations

108. The purchaser's lawyer should review in detail the contents of the target corporation'sminute book in a share acquisition. The contents of the minute book should be verified by asearch of the corporate records maintained under The Business Names Registration Act and TheBusiness Corporations Act. The purchaser's lawyer wants to be satisfied the shares have beenproperly issued to the vendors, the vendors are in possession of the share certificates and there isno restriction preventing the vendors from transferring their shares to the purchaser. Thepurchaser's lawyer will review the charter documents to identify any restrictions on the transferof shares and the existence of any unanimous shareholders agreements which should beterminated.

109. Also, the purchaser's lawyer will want to examine the rights attached to the differentshares and identify any articles of amendment or amalgamations. All of the names under whichthe corporation may have carried on business should be identified. In this way, the purchaser'slawyer can identify all of the corporate names to be searched.

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110. The purchaser will identify all jurisdictions in which the business is carried on and verifythe extra-provincial registrations in these jurisdictions. In conjunction with this a certificate ofstatus may be requested to ensure that the corporation is in good standing in the appropriateCorporate Registry.

111. In complex corporate structures the purchaser's lawyer will prepare a corporate ororganizational chart to identify the shareholders, percentage of share ownership, the subsidiariesand affiliated corporations.

112. In asset sales the vendor's lawyer will want to identify if the property sold is all orsubstantially all of the property of the corporation which requires special approval of theshareholders. If shareholder approval is required the vendor will want to make the agreementconditional upon such approval and set the wheels in motion for the shareholders meeting.

Litigation113. The vendor should be required to disclose on a schedule to the agreement of purchaseand sale all outstanding litigation and claims actual and pending against it. In addition, searchesmay be done against the vendor's name for actions and judgments in each of the judicial centresin which it maintains locations, to determine if any of the court records reveal that an action ormatter has been commenced.

114. Outstanding litigation for a large claim may necessitate an asset acquisition be effectedto avoid buying the shares of a company subject to such continuing liability. Be concerned withfraudulent preferences and conveyances in such event. In particular, the existence or, or lack of,such litigation and claims may disclose the standard of care exercised by the vendor in theprovision of its goods and services. This in tum, informs the purchaser of difficulties it mayhave to make to revamp systems or product design in order to avoid further claims.

115. If a share transaction is being completed while litigation is outstanding, care should betaken to ensure that insurance coverage is in place that will protect the company. A purchaserwill need to know that if such coverage is called upon, future premiums may become expensiveand detract from the overall profitability of the transaction. When insurance is not affordable,the consequences of self-insurance needs to be understood by the client.

Inventories and Receivables116. On or before closing, representatives of the vendor and purchaser may wish to attend atthe vendor's premises to evaluate inventories as part of determining the outstanding purchaseprice owing. Time to conduct such an evaluation should be worked into the closing schedule,and mechanisms should be created to arrive at a price calculation formula. In addition, thevendor and purchaser may wish jointly to review the vendor's records regarding receivablesoutstanding, with decisions being made as to the value of receivables aged less than 90 days andover 90 days, and as between the parties, who may be prepared to effect collection of thedoubtful accounts.

117. As part of determining the value of the inventories and receivables the following issues:might be addressed:

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(a) outstanding orders;(b) prepaid orders;(c) security deposits;(d) monies held in trust;(e) notification to account customers to now pay the purchaser;(f) accounting for sales made between a closing date and an effective period;(g) accounting for receivables received after the effective date but attributable to sales

made before the effective date;(h) liability for products made by the vendor and sold by the purchaser after closing;(i) returns to suppliers of out-of-date products for credit; andG) identifying goods held in bailment for customers for storage or services to be

performed.

Eguipment118. Presumably the purchaser will attend at the vendor's premises to review all equipment toensure that it is of a standard and in such workable condition as is acceptable. The vendorshould be required to produce all records relevant to such equipment including the following:

(a) acquisition agreements;(b) service and maintenance manuals;(c) operating manuals;(d) drawings and specifications;(e) software licenses and software maintenance agreements;(f) conditional sale agreements, leases, or other equipment financing arrangements

that might be assumed by the purchaser;(g) operating licences that may be transferable;(h) supply arrangements to provide goods that are used up in the operation of the

machines; and(i) parts and supplies, inventories and sources of the same.

119. The vendor will need to produce a detailed listing, to be included as a schedule to theagreement of purchase and sale, describing as many of the items of equipment as possible,including vehicle identification numbers, manufacture serial numbers, or other identifyingmarks.

120. A quick source of a listing for many of these items is the last inventory done for thecompany or for insurance coverage. The parties may agree that to avoid undue paperwork, itemsunder a certain dollar value will not be included on the list while significant and expensive itemsshould be listed and specifically conveyed.

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INVESTIGATION CHECKLIST

I. Real Property

1. Real property owned by vendor or property to be acquired:

(a) Civic address(b) Legal description(c) Topographical survey(d) Engineering and soil tests(e) Surveyor's certificate(f) Title document(g) Valuation and/or appraisals(h) Liens and encumbrances(i) Zoning(j) As-built plans and specifications(k) Warranties for construction and suppliers of equipment

2. Leases of real property, if any:

(a) Civic addresses and legal description(b) Review of leases to detennine:

(i) name ofother party(ii) location, description and use(iii) date, term and renewal rights(iv) guarantees(v) rent(vi) assignability/change of control provisions

(c) Registration and examination of caveat ofreal property leased from others

3. Leased to others:

(a) As above(b) Determine:

(i) security deposits(ii) prepaid rents(iii) occupancy costs

4. Access to real property:

(a) Take measurements(b) Prepare surveys(c) Conduct tests of structures and lands, for example, roof core samples, soil

and ground water tests, bore holes, mechanical inspections ,(d) Obtain independent consultants to provide report as to the general state of 1

repair of the land and buildings

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5.

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(a) Contracts, easements, agreements and commitments relating to realproperty (copies of registered instruments from Land Titles Office shouldbe requested and reviewed)

(b) Contracts relating to the supply of services and utilities to the lands

6. Insurance policies:

(a) Ability to continue adequate coverage or place new coverage

7. Land Outside ofa City or Town:

(a) Does Part VI (Farm Ownership) of The Saskatchewan Farm Securities Actapply?

(b) If so, can an exemption order be obtained from the Farm Land SecurityBoard?

II. Plant, Fixtures, Equipment and Vehicles

1. A listing and location of equipment, fixtures, vehicles and other tangible personalproperty owned.

2. A listing of the equipment, machinery, vehicles and equipment and other tangiblepersonal property leased by the company including copies of the lease contract andparticulars.

3. Details of any security interest against the personal property.

4. Include serial numbers where applicable.

5. Access to ledger and accounting records maintained for fixed assets. For depreciableassets, verify date of acquisition, adjusted cost base, etc.

6. Identification of personal property used in the business but not owned or part of thepurchase.

7. Access to the personal property and repair records to determine the general state of repair("kick the tires").

8. Identify personal property not in possession of company but in which there is a securityinterest, review Personal Property Registry registrations and life ofsecurity.

III. Accounts Receivable

1. Listing of accounts receivable showing amount, names and age.

2. Access to accounts receivable file and invoices to verify accuracy and quality - wereaccounts receivable independently audited, and if so by who and what were the results?

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3. Review bad debt policy and prior period allowances and write-off's.

4. Identify any receivable or payable transaction with principals of the company or partieswho do not deal at arm's length with the company.

IV. Inventory

1. Listing as of the most recent date.

2. Identify who, how and when inventory was counted and how was it priced?

3. Identify and isolate obsolete and redundant inventory.

4. Verify inventory costs against supplier's invoices.

5. Was inventory independently audited and if so, by who and what were the results?

6. Identify location of all inventory.

7. Identify inventory in the possession of but not owned by the business nor included in thepurchase price.

8. Identify security interest in inventory.

9. Identify inventory owned by the business but not in possession of the business.

V. Intellectual Property

1. List and identify all:

(a) Copyrights

(b) Patent and industrial design registrations

(c) Trade marks and trade names

2. Identify agreements with employees concerning inventions, trade secrets andconfidentiality.

3. Identify agreements held by company with respect to the use or license of intellectualproperty owned by others.

4. Identify agreements on intellectual property owned by company but licensed to thirdparties.

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VI. Financial Statements

1. Review corporation's annual financial statements for prior years and most currentfinancial statement. Have client's accountant comment on financial statements anddiscuss accounting policy with accountant who prepared the financial statements for thecorporation.

2. Examine working papers of the accountant who prepared the financial statements and thecorporate tax returns.

3. Are financial statements audited?

VII. Corporate Tax Returns

1. Review corporate tax returns for prior periods.

2. Review Notices of Assessments and any reassessments.

3. Identify any unusual transactions which may give rise to income tax consequences, i.e.rollovers, corporate reorganizations, etc.

4. Identify any elections which have been filed or elections which are required to be filed.

5. Identify adjusted cost base of assets for tax purposes.

VIII. GST, Provincial and other Taxes

1. Identify due but unpaid taxes, penalties, etc.

2. Review all notices from governmental authorities in respect of taxes.

3. Review copies of all GST returns and other Provincial tax returns such as Education &Health Tax.

4. Identify GST registration numbers for vendor, purchaser and target company.

IX. Employment Matters

1. Determine if employees of the business are members of a labour Union or employeeassociation and whether there is any pending application for certification or if anapplication for certification was made in the past. If certified, review the Union contract.

2. Review all existing employment contracts.

3. Identify the name of all employees, length of relationship, amount of pay and time ofpayment.

(#235155)March 27, 2000

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4. In the case of an asset purchase, identify whether employees are to be terminated byvendor prior to sale and deal with notice to employees.

5. Identify bonus plans, profit sharing plans, pension plans, fringe benefit plans (lifeInsurance, short-tenn and long-tenn disability and dental plans). Identify all employeefringe benefits - expense accounts, cars, memberships, etc.

6. Identify particulars of any loan obligations by employees to the company.

7. Identify any unfunded employee benefit and pension plans and amount of liability.

8. Identify and quantify all ongoing obligations to employees including holiday pay.

X. Officers and Directors and Key Shareholders

1. Confinn any requested resignations on closing.

2. Obtain particulars of any indebtedness to the company or any claim against the company.

3. Detennine whether any directors, officers or key shareholders have interests in anymaterial transactions or contracts with the company.

XI. Licenses

1. Identify and obtain copies of all licenses granted to the company to do business. Confinnthat such licenses are current. For example, in the Communication business, radio andtelevision broadcasting licenses granted by the CRTC.

2. Confinn that such licenses can be assigned or in the case of a share purchase that changein control does not negate license.

3. Obtain regulatory approvals for all necessary licenses.

XII. Major Suppliers

1. Identify and review all major contracts and outstanding purchase orders for the purchaseof inventory, equipment and supplies.

2. Identify and review all contracts of commitment for utilities (gas, electricity, water,sewage, etc.).

3. Detennine major tenns and assignability/change of control provisions and obtain consentwhere required.

4. Identify and review all franchise or royalty agreements.

(#235155)March 27, 2000

- 29-

XIII. Major Customers

1. Identify sales agency, distributorship and brokerage agreements.

2. Identify warehousing or consignment agreements.

3. Locate and review all data, files, credit infonnation and other documents relating tomajor customers, product warranty claims, returned goods or customer complaints.

4. Identify a customer list and credit or payment history for customer.

5. Identify pricing practices and discount structures granted to customers.

6. Review customer warranties and guarantees.

7. Review degree ofdependency, if any, on any particular customer.

XIV. Material Contracts

1. Identify, review and understand the material contracts entered into and detennineassignability/change ofcontrol provisions and presence of onerous tenns.

2. Review any contracts proposed to be entered into by the company for the acquisition,sale or lease of assets.

3. Review all loan agreements or other contracts which may restrict the activities of thecompany.

4. Examples of contracts to look for are as follows:

(a) Real property lease agreements(b) Utility supply agreements(c) Non-Competition agreements(d) Construction contracts(e) Purchase contracts(f) Sales contracts(g) Management agreements(h) Employee Contracts(i) Contracts with non-arm's length parties.

xv. Short-Term and Long-Term Debt

1. Obtain a summary of principal holders, amounts, interest rates, securities, copy of loanagreements, particulars of all securities.

) 2. Identify any restrictions or acceleration clauses triggered as a result of the change ofcontrol or assumption of liability.

(#235 ISS)March 27. 2000

- 30-

3. Detennine method ofobtaining the necessary consents to the transfer ofobligations.

4. Identify all documents and security granted with respect to these liabilities includingguarantees, mortgages, indemnity.

5. Identify all other contingent liabilities outstanding such as guarantees, indemnities,letters of credit.

XVI. Accounts Payable and Other Current Liabilities

1. Identify current liabilities including accounts payable by amount, when due and towhom.

2. Reconcile these amounts to the financial statements of the company and to the amountclaimed to whom these monies are payable.

XVII. Banking Relations

1. Identify location, account number, approximate balances of all accounts maintained bythe business.

XVIII. Investments

1. Identify investments of the corporation in all other entities including public corporations,private corporations and partnerships.

2. Identify cross shareholdings, subsidiaries and affiliates.

XIX. Legal Proceedings

1. Identify and confirm Status of all claims in litigation of the company including pendingor threatened litigation.

2. Ascertain whether the company or any of its properties is a subject of any governmental(Provincial, Federal, or Municipal) investigation or enquiry or whether any suchproceeding is threatened.

3. Consider possibility of litigation in the following areas:

(a) Equal employment opportunities(b) Occupational safety and health matters(c) Real estate(d) Product liability and warranty, personal injury(e) Environmental, pollution control or hazardous or toxic substances(f) Taxation(g) Wrongful dismissal

(#235155)March 27, 2000

) 4.

- 31 -

If company has audited financial statements, review outside counsel audit letterscovering the prior years.

)

xx. Health, Safety and Environment

1. Identify any outstanding work orders, any violations, notices of claims of violation ofany law, code, rule, regulation, ordinance, license or pennit including but not limited tothose relating to building, zoning, or environmental matters or employee health andsafety.

2. Review description of each environmental concern which is connected with the businessof the corporation.

3. Review all records of the corporation in connection with the risk associated with theenvironmental matter and the policies in effect by the corporation to reduce the risk.

4. Review copies of all pennits issued by governmental authorities in connection.

5. Consider site history, possible contaminations, environmental audit and clean-up.Address UFI, PCB, asbestos, raydon, auto tire, underground storage tank and otherunderground issues.

XXI. Corporate Matters

1. Review minute books of corporation for existence of certain matters such as:

(a) Material contracts(b) Directors and shareholders resolutions(c) Bylaws(d) Validity of share issuances(e) Share registry(f) Charter documents including Articles of Incorporation, share rights, Articles of

Amendment, Articles ofAmalgamation, Bylaws

2. Review authorized and issued share capital, organization chart of the company.

3. Identify and review unanimous shareholders agreements and buy/sell agreements.

4. Identify residency ofcorporation.

5. Identify if a private corporation or subject to any reporting requirements under TheSecurities Act. If subject to The Securities Act, inquire if all filings are current andabsence of cease trade orders.

6. Identify any compliance requirements under The Securities Act.

(#235155)March 27, 2000

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XXII. The Business Generally

1. Review any partnership~ joint venture~ joint operating or similar agreements relating tothe business.

2. Identify location and method of filing and storing all material business records of thebusiness.

3. Obtain description and understanding of all management and administrative servicesprovided within the business and review organizational chart.

4. Obtain copy of operation manual.

5. Determine the degree of dependency of the business on any particular consultant oremployee.

6. Identify major contracts or business arrangements and the impact they have on thebusiness.

7. Obtain full legal names~ home addresses of the principal owner~ employees~ andmanagement of the business.

8. Identify all jurisdictions in which the corporation carries on business~ holds property andis extra-provincially registered as well as the agents for service in the jurisdictions wereextra-provincially registered.

9. Review budgets and business plan.

10. If business is computerized~ ensure that all operating manuals for equipment andsoftware~ and the original software is made available to the purchaser. Ensure purchaserhas a working knowledge ofhow to access and run the system.

(#235155)March 27, 2000

}

- 33 -

ENQUIRY SEARCHES CHECKLIST

I.

A.

Real Property

Real property owned by the business

1. Land Titles Office(a) Search ofTide(b) Obtain copies of registered encumbrances(c) General Registry search

2. Municipality(a) Outstanding utilities(b) Building Infonnation Abstract(c) Tax Certificate(d) Other pending levies ("off-site levies")

B. Leased real property

1. Land Titles Office search ofTitle or leasehold Title2. Copy of registered Caveat

II. Personal Property

A. Personal property owned by business

1. PPSA search or equivalent in all jurisdictions where property is located. Search tobe conducted by name and serial number where applicable.

B. Personal property in which Company has a security interest

1. Conduct a PPSA search in all jurisdictions where personal property is located inwhich a security interest has been granted therein to the company. The search is tobe conducted by the name of the debtor and serial numbers where applicable.

2. Identify life of registration.

III. Intellectual Property

A. NUANS search ofnamesB. Trade Mark search

IV. Taxes

)

A. Section 51(2) of The Revenue and Financial Services Act certificate re taxes imposedunder the following revenue acts:

(#235155)March 27, 2000

- 34-

1. The Corporation Capital Tax Act2. The Education and Health Tax Act3. The Fire Prevention Act. 19804. The Fuel Tax Act5. The Fuel Tax Act. 19876. The Horse Racing Regulation Act7. The Insurance Premiums Tax Act8. The Liquor Consumption Tax Act9. Part II of The Litter Control Act10. The Motor Vehicle Insurance Premiums Tax Act11. The Tobacco Tax Act

B. GST outstanding remittances

C. Revenue Canada Collections unremitted source deduction

V. Employment Matters

A. The Workers' Compensation Act clearance certificate, Section 155(1)

B. The Labour Standards Act

1. Directors certificate respecting outstanding wage claims, 60(1).

VI. Litigation

A. Sheriffs Certificate from Judicial Centre in which the corporation carries on business.

B. Litigation search in Court of Queen's Bench in relevant Judicial Centre re outstandinglitigation involving the corporation.

VII. Health, Safety and Environmental Matters

A. Fire Commissioner file search.

B. Community Health search (The Public Health Act).

C. Occupational Health search.

D. Electrical defects search (The Electrical Inspection Act).

E. Gas defects search (The Gas Inspection Act).

F. Environment and Resource Management search (Saskatchewan).

G. Environmental Protection Environment Canada search re contravention).

(#235155)March 27, 2000

) H.

- 35 -

Saskatchewan Environment and Public Safety searches re contraventions under:

1. The Boiler and Pressure Vessel Act2. The Passenger and Freight Elevator Act3. The Electrical Licensing Act4. The Gas Licensing Act

)

VIII. Corporate Searches

A. The Business Corporations Act (Saskatchewan)

1. Annual Returns2. Certificate of Good Standing3. Articles of Incorporation and amendments4. Certificate ofAmalgamation5. Appointment of Receiver, s.966. Existence ofUnanimous Shareholders Agreement, s.140(5)7. Notices of change of directors

B. Corporations Branch searches:

1. Copies of Extra-Provincial Certificates ofRegistration

2. Annual Returns and Extra-Provincial registered jurisdictions

C. The Business Names Registration Act

1. Trade names search2. Partnership search

D. The Securities Act

1. Press releases2. Material change reports3. Insider trading reports4. Filing compliance5. Review ofpublic file6. Cease Trading Orders

IX. Other Public Searches

A. the Bank ActB. The Bankruptcy ActC. Saskatchewan PowerD. Saskatchewan Energy

(#235155)March 27, 2000

- 36-

DUE DILIGENCE SEARCH CHECKLISTNAMES TO SEARCH: File No.:

CONSENT DATENEEDED? SEARCH SENT RECEIVED RESULTS

1. Registrar in Bankruptcy2. Bank of Canada3. Sheriff - Regina4. Sheriff - ,5. Local Registrar - .B. Regina6. Local Registrar - .B. ,7. Local Registrar - .B. Court of Appeal8. yes Revenue Division - Department of Finance

(Dennis - 787-6645)Fax: 787-9644 - Gregg PackmanApplication for PST 1-800-667-6102

9. yes Revenue Canada - Source Deductions(Kevin Brylak· 780 -6999) Fax: 757-1412(PAYROLL DEDUCTION NO. NEEDED)

10. yes Revenue Canada- Payment ofTaxes and Filing of Returns

11. yes Excise Tax Office (GST)12. Environmental Canada Regina

(LOCATION(S) OF BUSINESS NEEDED)13. yes Environment Canada - Federal (LOCATIONS NEEDED)14. Saskatchewan Environmental - Public Safety Division

(N. Surtees, P.Eng., Executive Director)(LOCATIONS NEEDED)

15. Saskatchewan Environment-Environmental Protection Division(LOCATIONS NEEDED)

16. SaskPower - Gas Inspection Division(Ron Dutka, Superintendent Gas Inspector(LOCATIONS NEEDED)

17. SaskPower - Electrical Inspection Division(John Chin, P. Eng. J.D. Chief Electrical Inspector)(LOCATIONS NEEDED)

18. Consumer and Commercial Affairs Canadaor Saskatchewan Corporations Branch

19. Workers' Compensation Board20. Saskatchewan Labour Relations Board21. Saskatchewan Human Rights Commission22. Pension Benefits Branch23. Occupational Health & Safety Branch24. Labour Standards Branch25. Business/Property Tax Certificates

(LOCATIONS NEEDED)26. Fire Commissioner27. Personal Property Registry28. Computer Corporate Search29. Land Titles Office Searches

(a) Copy ofTitle/DCT(b) GR Certificate

30. Municipal Planning Office(REGINA - $44IEACH BUILDING CERTIFICATE- NEED SURVEYOR'S CERTIFICATE FOR ONE)

31. Surveyor's Certificate I

(#235155)March 27, 2000

)

(#235155)March 27, 2000

- 37 -

STANDARD SEARCH LETTERS FOR SALEOR PURCHASE OF A BUSINESS

- 38 -

DirectorCorporations Branch1871 Smith StreetRegina, SaskatchewanS4P 3V7

Dear Sirs

Re: Shoe King Ltd.Our File:

Please prepare a certificate of status for the above-captioned company. We are enclosing $15 tocover your fees in this regard.

Yours truly,

(#235155)March 27, 2000

)

- 39-

Canadian Securities Registration SystemsSuite 180, 13571 Commerce ParkwayRichmond, British ColumbiaV6V 2Ll

Dear Sirs:

Re: Shoe King Ltd.Our File:

Please provide our office with a search under section 427 ofthe Bank Act (Canada) with respectto the above-captioned corporate name.

We enclose $8 to cover your fees in this regard.

Yours truly,

(#235155)March 27, 2000

- 40-

The Local RegistrarCourt of Queen's BenchCourt House2425 Victoria AvenueRegina, SaskatchewanS4P 3V7

Dear Sir:

Re: Shoe King Ltd.OUf File:

Please conduct a search of your records respecting the above-captioned corporate name for thepast 10 years.

Please provide us with your certificate evidencing any actions where the company is eithernamed as plaintiffor defendant in any Court of Queen's Bench action. Please deduct your fees inthis regard from our deposit account.

Yours truly,

(#235155)March 27, 2000

- 41 -

CERTIFICATE

I, , Local Registrar of the Court of Queen's Bench, Judicial Centre of

Regina, advise that I have caused a search to be made of the Court ofQueen's Bench records of

this Honourable Court from March 31, 2000 to the date of the taking of this Certificate and

certify that there are actions whereby Shoe King Ltd. is named as Plaintiff and the said

action(s) are as follows:

and there are

as follows:

actions where Shoe King Ltd. is named as Defendant and the said action(s) are

DATED at Regina, Saskatchewan, this day of March, _

)

DEPUTY LOCAL REGISTRAR

(#235155)March 27, 2000

The RegistrarCourt ofAppealCourt House2425 Victoria AvenueRegina, SaskatchewanS4P 3V7

Dear Sir:

Re: SearchesOur File:

- 42-

VIA HAND

Please conduct a search of your records respecting the following business and corporate namesfor the past five years:

Shoe King Ltd.SK Holdings Ltd.

Please provide us with your certificates evidencing any actions wherein the respective companyis either cited as appellant or respondent in any action in the Saskatchewan Court ofAppeal. Weenclose our certificate forms for your use. Please deduct your fees in this regard from ourdeposit account.

(#235155)March 27, 2000

)

- 43 -

IN THE COURT OF APPEAL

FOR THE PROVINCE OF SASKATCHEWAN

I, , ofRegina, Saskatchewan, Deputy

Director of the Court ofAppeal for the Province of Saskatchewan, DO HEREBY CERTIFY that

a search has been made of the records of the Court ofAppeal for the Province of Saskatchewan

and appeals have been commenced in the said Court by or against SHOE KING LTD.

from to------

GIVEN under my hand and seal of the aforesaid Court, at Regina, Saskatchewan,

this day of , 2000.

DEPUTY REGISTRAR

(#235155)March 27, 2000

- 44-

The SheriffJudicial Centre of ReginaCourt House2425 Victoria AvenueRegina, Saskatchewan

Dear Sir:

Re: Shoe King Ltd.Our File:

Please conduct a search of your records respecting the above-captioned corporate name.

Please provide us with your certificates evidencing any writs of execution that have beenregistered against it. Please deduct your fees in this regard from our deposit account.

Yours truly,

(#235155)March 27, 2000

)

- 45-

NOTE: Insolvency searches may be conducted by telephone (613) 941-2863.

Consumer and Commercial Affairs CanadaOffice of the Superintendent ofBankruptcyPlace du PortagePhase II, Commercial165 Hotel de VilleHull, QuebecK2AOC9

Dear Sirs:

Re: Insolvency SearchesOur File:

Please conduct a search of your records and provide our office with your certificate evidencingany petitions or assignments or other proceedings in bankruptcy that have been entered inrelation to each of the following business and corporate names:

Shoe King Ltd.SK Holdings Ltd.

Please deduct your fees in this regard from our deposit account.

Yours truly,

(#235155)March 27, 2000

- 46-

City HallTreasury Department2476 Victoria AvenueRegina, Saskatchewan

Dear Sirs:

Re: Shoe King Ltd., 2400 Toronto Street, Regina, SaskatchewanLot 3, Block 4, Regina, Saskatchewan, Plan 84R30365Our File:

Please provide our office with a business tax certificate and property tax certificate with respectto the above-noted property. Please debit your fees from our deposit account.

Yours truly,

(#235155)March 27, 2000

)

- 47-

The Workers' Compensation Board200 - 1881 Scarth StreetRegina, Saskatchewan

Dear Sirs:

Re: SearchesOur File:

Please conduct a search ofyour records respecting each of the following business and corporatenames:

1. Shoe King Ltd.2. SK Holdings Ltd.

Please provide our office with a letter respecting the status of all payments required to be madeby each company under The Workers' Compensation Act (Saskatchewan).

Yours truly,

(#235155)March 27, 2000

- 48-

R.M.of _

Dear Sirs:

Re: Shoe King Ltd.Lot 3, Block 4, Regina, SaskatchewanPlan No. 84R303652400 Toronto Street, Regina, SaskatchewanOur File:

Please provide our office with a zoning certificate with respect to the above-captioned property

- or-

Please provide our office with written confinnation that the above subject property is correctlyzoned for the purposes of [building an elevator, etc.].

Yours truly,

(#235155)March 27, 2000

Revenue DivisionDepartment of Finance3rd Floor - 2350 Albert StreetRegina, Saskatchewan S4P 4A6

Dear Sirs

Re: SearchesOur File:

- 49-

VIA COURIER

)

Please conduct a search of your records respecting "Shoe King Ltd". The location of thecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal), 2400 Toronto Street, Regina, Saskatchewan (municipal).

Please provide us with a letter advising as to the status of the company's accounts with yourdepartment under The Revenue and Financial Services Act (Saskatchewan) in relation to eachand every "revenue Act" as defined in The Revenue and Financial Services Act.

We herewith enclose your written authority to provide us with the above information. Weunderstand that this matter is urgent and accordingly we would be most appreciative if you couldprovide the status letter on a rush basis.

Yours truly,

(#235155)March 27, 2000

- 50-

[LETTERHEAD OF SHOE KING LTD.]

Revenue DivisionDepartment of Finance3rd Floor2350 Albert StreetRegina, SaskatchewanS4P 4A6

Dear Sirs:

Re: Shoe King Ltd.

By this letter we hereby authorize you to disclose to Balfour Moss, Barristers and Solicitors,700-2103-11 th Avenue, Regina, Saskatchewan, or any representative thereof, any infonnationrequested by Balfour Moss, to be given by you orally or in writing respecting theabove-captioned company in relation to The Revenue and Financial Services Act, including thestatus of the company's obligations and liabilities thereunder.

Yours truly,

SHOE KING LTD.

Per:-----------

(#235155)March 27, 2000

)

Revenue CanadaTaxation DepartmentSource Deductions1955 Smith StreetRegina, Saskatchewan S4P 2N9

Dear Sirs:

Re: SearchesOur File:

- 51 -

VIA COURIER

)

Please conduct a search of your records respecting "Shoe King Ltd.". The location of thecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal); 2400 Toronto Street, Regina, Saskatchewan (municipal).

Please provide us with a letter advising whether or not the company is in good standing withRevenue Canada in relation to all source deductions of whatsoever nature (including withoutlimitation, unemployment insurance and Canada pension plan) for which the company isresponsible, and as to whether or not the company is otherwise in good standing with RevenueCanada.

We herewith enclose your written authority to provide us with the above infonnation. Weunderstand that this matter is urgent and accordingly we would be most appreciative if you couldprovide the status letter on a rush basis.

Yours truly,

(#235155)March 27, 2000

- 52-

[LETTERHEAD OF SHOE KING LTD.]

Revenue DivisionRevenue CanadaTaxation District OfficeSource Deductions1955 Smith StreetRegina, SaskatchewanS4P 2N9

Dear Sirs:

Re: Shoe King Ltd.

By this letter we hereby authorize you to disclose to Balfour Moss, Barristers and Solicitors,700-2103-11 th Avenue, Regina, Saskatchewan, or any representative thereof, any informationrequested by Balfour Moss, to be given by you orally or in writing respecting theabove-captioned company in relation to source deductions of whatsoever nature for which thesaid company is responsible (including, without limitation, for unemployment insurance andCanada Pension Plan), and as to whether or not the said company is otherwise in good standingwith Revenue Canada.

Yours truly,

SHOE KING LTD.

Per:._------------

(#235155)March 27, 2000

)

)

\ )

- 53 -

Revenue CanadaRegina Tax Services Office1955 Smith StreetRegina, SaskatchewanS4P 2N9

Dear Sirs:

Re: SearchesOur File:

Please conduct a search ofyour records respecting "Shoe King Ltd.". The location of thecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal); 2400 Toronto Street, Regina, Saskatchewan (municipal).

We would like to know whether Shoe King Ltd. has filed all income tax returns it is obligated tofile and has paid all taxes, assessments, reassessments and other charges, together with allpenalties, interest and fines in respect thereto, payable to Revenue Canada. We would also liketo know whether or not there are any actions, suits, proceedings, investigations, inquiries or otherclaims now or pending or made or threatened against.

We herewith enclose your written authority to provide us with the above information. Weunderstand that this matter is urgent and accordingly we would be most appreciative if you couldprovide the status letter on a rush basis.

Yours truly.

(#235155)March 27, 2000

- 54-

[LETTERHEAD OF SHOE KING LTD.]

Revenue CanadaTaxation District Office1955 Smith StreetRegina, SaskatchewanS4P 2N9

Dear Sirs:

Re: Shoe King Ltd.

By this letter we hereby authorize you to disclose to Balfour Moss, Barristers and Solicitors,700-2103-11 th Avenue, Regina, Saskatchewan, or any representative thereof, any infonnationrequested by Balfour Moss, to be given by you orally or in writing respecting theabove-captioned company in relation to filing of income tax returns and payment of all incometaxes, penalties and interest for which the said company is responsible and as to whether or notthe said company is otherwise in good standing with Revenue Canada.

The applicable business number(s) is/are as follows: _

Yours truly,

SHOE KING LTD.

Per:-------------

(#235155)March 27, 2000

)

)

- 55-

The District Excise Office5th Floor, Avord Tower2002 Victoria AvenueRegina, SaskatchewanS4P 3A4

Dear Sirs:

Re: Shoe King Ltd.Our File:

Please conduct a search ofyour records respecting "Shoe King Ltd.". The location of thecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal); 2400 Toronto Street, Regina, Saskatchewan (municipal).

Please provide our office with a status letter advising as to the amount of any tax remittancespresently due or outstanding under the Excise Tax Act for which the company is responsible, andadvise as to whether or not the company is otherwise in good standing with Excise Canada.

Enclosed herewith is your written authority to provide us with the above information.

Yours truly,

(#235155)March 27, 2000

- 56-

[LEITERHEAD OF SHOE KING LTD.]

The District Excise Office5th Floor, Avord Tower2002 Victoria AvenueRegina, SaskatchewanS4P 3A4

Dear Sirs:

Re: Shoe King Ltd.

By this letter we hereby authorize you to disclose to Balfour Moss, Barristers and Solicitors,700-2103-11 th Avenue, Regina, Saskatchewan, or any representative thereof, any infonnationrequested by Balfour Moss, to be given by you orally or in writing respecting the above­captioned company in relation to goods and services tax for which the said company isresponsible and as to whether or not the said company is otherwise in good standing with ExciseCanada.

The applicable GST registration number is as follows: _

Yours truly,

SHOE KING LTD.

Per:---------------

(#235155)March 27, 2000

Environment CanadaEnvironmental Protection300 - 2365 Albert StreetRegina, Saskatchewan S4P 4KI

Dear Sirs:

Re: SearchesOur File

- 57-

VIA HAND

Please conduct a search of your records respecting "Shoe King Ltd.". The location of thecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal); 2400 Toronto Street, Regina, Saskatchewan (municipal).

Please provide us with a letter advising whether or not there are any outstanding notices ofcontravention, complaints, investigations, work orders or proceedings ofany nature in relation tothe company which have been filed or submitted to or are otherwise on record with your office.Without limiting the generality of the foregoing searches hereby requested, please include inyour said status letter, particulars as to the status of any license, permit, authorization, approval,right of user or registration issued or granted to or for the benefit of the company under anyfederal legislation within the purview of your jurisdiction.

We would appreciate receiving your written response to our above request as soon as possible.

Yours truly,

(#235155)March 27, 2000

- 58 -

Environment CanadaEnvironmental ProtectionWestern and Northern RegionTwin Atria, #2 - 2nd Floor4999 - 98th AvenueEdmonton, AlbertaT6B2X3

Dear Sirs:

Re: SearchesOur File:

Please conduct a search of your records respecting "Shoe King Ltd.". The location of thecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal); 2400 Toronto Street, Regina, Saskatchewan (municipal).

Please provide us with a status letter advising whether or not there are any outstanding notices ofcontravention, complaints, investigations, work orders or proceedings of any nature in relation tothe company which have been filed or submitted to or are otherwise on record with your office.Without limiting the generality of the foregoing searches hereby requested, please include inyour said status letter, particulars as to the status of any license, permit, authorization, approval,right of user or registration issued or granted to or for the benefit of the company under anyfederal legislation within the purview ofyour jurisdiction.

We herewith enclose your written authority to provide us with the above information. We wouldappreciate receiving your written response to our above request as soon as possible.

Yours truly,

(#235155)March 27, 2000

- 59-

[LETTERHEAD OF SHOE KING LTD.]

Environment CanadaEnvironmental ProtectionWestern and Northern RegionTwin Atria, #2 - 2nd Floor4999 - 98th AvenueEdmonton, AlbertaT6B 2X3

Dear Sirs:

Re: Shoe King Ltd.

By this letter we hereby authorize you to disclose to Balfour Moss, Barristers and Solicitors,700-2103-11 th Avenue, Regina, Saskatchewan, or any representative thereof, any infonnationrequested by Balfour Moss, to be given by you orally or in writing respecting theabove-captioned company relative to the status of any ofits obligations under any federallegislation within the purview of your jurisdiction. Without limiting the generality of theforegoing, we hereby authorize you to disclose, orally or in writing, such infonnation as BalfourMoss may request in relation to outstanding notices of contravention, complaints, investigations,work orders or the like which may have been filed or submitted to or otherwise on record withyour office relative to the above captioned company; and as to the status of nay license, pennit,authorization, approval, right ofuser or registration issued or granted to or for the benefit of theabove-captioned company under any federal legislation within your jurisdiction.

Yours truly,

SHOE KING LTD.

Per:----------

(#235155)March 27, 2000

- 60-

Saskatchewan Environment and Public SafetyProtection Services BranchMunicipal Services Division3rd Floor, 1855 Victoria AvenueRegina, Saskatchewan

Dear Sirs:

Re: SearchesOur File

Please conduct a search of your records respecting "Shoe King Ltd.". The location of thecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal); 2400 Toronto Street, Regina, Saskatchewan (municipal).

Please provide us with a status letter advising as to whether or not there are any outstandingnotices of contravention, complaints, investigations, work orders or proceedings of any nature inrelation to the company which have been filed or submitted to or are otherwise on record withthe Department of Environment and Public Safety, Public Safety Division. Without limiting thegenerality of the foregoing searches hereby requested, please include in your said status letter,particulars as to the status of any license, permit, authorization, approval, right ofuser orregistration issued or granted under any of the following Acts:

(a) The Boiler and Pressure Vessel Act;(b) The Passenger and Freight Elevator Act;(c) The Electrical Licensing Act;(d) The Gas Licensing Act.

We would appreciate receiving your written response to our within request as soon as possible.

YoUrs truly,

(#235155)March 27, 2000

- 61 -

)

SaskatchewanEnvironmentand ResourceManagement

CommercialBranch

Environmental FileSearch Application

THE FOLLOWING INFORMATION WILL BE REQUIRED TO CONDUCT AN ENVIRONMENTAL FILE SEARCH.

A. SEARCH CRITERIA:

NOTE: THE COMPLETENESS OF INFORMATION SUPPLIED WILL AFFECT THE ACCURACY OF THE FILE SEARCH.

(COMPLETE EITHER SECTION A OR B)

(B) RURAL PROPERTY:

Legal Land Description __

(A) URBAN PROPERTY:

Civic Address

W

SITE INFORMATION (PLEASE PRINT OR TYPE INFORMATION ONLY)

1. CURRENT BUSINESS NAME:

2 CURRENT PROPERTY OWNER'S NAME: _

3. CURRENT PROPERTY USE:

4. LOCATION OF PROPERTY:

CITY OR TOWN RURAL MUNICIPALITY

LOT, BLOCK AND PLAN

5. OTHER INFORMATION To ASSIST SEARCH (EG. PREVIOUS OWNER(S), BUSINESS NAME, FACILITY CODE,

PROPERTY USES, CORRESPONDENCE WITH DEPARTMENT, ETC.

B. Acknowledgements:1. THE SEARCH RESPONSE IS COMPILED BY THE DEPARTMENT FROM A COMBINATION OF MANUAL AND

COMPUTERIZED FILE SEARCHES. THE RESPONSE IS SUBJECT TO THE ACCURACY OF INFORMATION AND

MATERIAL SUPPLIED BY OUTSIDE PARTIES AND THE DEPARTMENT MAKES NO REPRESENTATIONS OR

WARRANTIES AS TO THE ACCURACY OR SUFFICIENCY OF IT.

2. THE INTEGRITY OF THE DATA SUPPLIED BY OUTSIDE PARTIES DIMINISHES WITH THE AGE OF THE REPORTED

INFORMATION.

3. THE SEARCH RESPONSE WILL BE SITE SPECIFIC AND MAY NOT REFLECT CONTAMINATION OR THE EXISTENCE

OF A POLLUTANT FROM AN OFF SITE SOURCE

4. THE DEPARTMENT MAKES NO REPRESENTATIONS OR WARRANTIES AS TO WHETHER OR NOT THE PARTY BEING

SEARCHED IS IN COMPLIANCE WITH ANY PROVINCIAL OR FEDERAL ACT, REGULATION, ApPROVAL, LICENCE OR

PERMIT OR AS TO THE RELEVANCE OF THE SEARCH RESPONSE.

5. THE DEPARTMENT MAKES NO REPRESENTATIONS OR WARRANTIES WHETHER OR NOT THERE ARE ANY

ENVIRONMENTAL CONCERNS AS TO THE LAND BEING SEARCHED NOR AS TO THE ENVIRONMENTAL STATUS OF

THE LAND. IT IS RECOMMENDED THAT AN ENVIRONMENTAL AUDIT OR SITE ASSESSMENT BE CONDUCTED BY AN

INDEPENDENT THIRD PARTY CONSULTANT.

(#235155)March 27, 2000

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I, , ACKNOWLEDGE THAT I HAVE READ AND UNDERSTOOD THE ABOVE.

NAME

ADDRESS

c. AVAILABLE INFORMATION:

COMPANY NAME

CITY POSTAL CODE

DATE

TELEPHONE

THE FILE SEARCH WILL INCLUDE INFORMATION SUPPLIED TO THE COMMERCIAL BRANCH PURSUANT TO THE

FOLLOWING REGULATIONS:

THE CLEAN AIR REGULATIONS

THE ENVIRONMENTAL SPILL CONTROL REGULATIONS

THE HAZARDOUS SUBSTANCES AND WASTE DANGEROUS GOODS REGULATIONS

THE PCB WASTE STORAGE REGULATIONS

OZONE-DEPLETING SUBSTANCES CONTROL REGULATIONS

Forward completed form to:

(#235155)March 27, 2000

Saskatchewan Environment andResource Management

Room 3343211 Albert StreetRegina, SaskatchewanS4S5W6

Phone: (306) 787-6542(306) 787-0197

)

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SaskPower2025 Victoria AvenueRegina, Saskatchewan S4P OS 1

Attention: Gas Inspection Division

Dear Sirs:

Re: SearchesOur File:

Please conduct a search ofyour records respecting "Shoe King Ltd.". The location ofthecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal); 2400 Toronto Street, Regina, Saskatchewan (municipal).

Please provide us with a status letter advising as to whether or not there are any outstandingnotices of contravention, complaints, investigations, work orders or proceedings of any nature inrelation to each respective company which have been filed or submitted to or are otherwise onrecord with the Department ofEnvironment and Public Safety, Environmental ProtectionDivision. Without limiting the generality of the foregoing searches hereby requested, pleaseinclude in your said status letter, particulars as to the status ofany license, permit, authorization,approval, right ofuser or registration issued or granted under the following Act:

(a) The Gas Inspection Act.

We would appreciate receiving your written response to our within request as soon as possible.

Yours troly,

(#235155)March 27,2000

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SaskPower2025 Victoria AvenueRegina, Saskatchewan S4P as1

Attention: Electrical Inspection Division

Dear Sirs:

Re: SearchesOur File:

Please conduct a search of your records respecting "Shoe King Ltd.". The location of thecompany's business operations is as follows: Lot 3, Block 4, Regina, Saskatchewan, Plan84R30365 (legal); 2400 Toronto Street, Regina, Saskatchewan (municipal).

Please provide us with a status letter advising as to whether or not there are any outstandingnotices of contravention, complaints, investigations, work orders or proceedings of any nature inrelation to each respective company which have been filed or submitted to or are otherwise onrecord with the Department of Environment and Public Safety, Environmental ProtectionDivision. Without limiting the generality of the foregoing searches hereby requested, pleaseinclude in your said status letter, particulars as to the status of any license, permit, authorization,approval, right ofuser or registration issued or granted under the following Act:

(a) The Electrical Inspection Act.

We would appreciate receiving your written response to our within request as soon as possible.

Yours truly.

(#235155)March 27,2000

Saskatchewan Labour Relations Board652 - 1914 Hamilton StreetRegina, SaskatchewanS4P 4V4

Dear Sirs:

Re:Our File:

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VIA HAND

)

Please conduct a search of your records respecting the above-captioned company.

Please provide our office with a status letter advising whether or not there are any outstandingnotices of contravention, allegations ofunfair labour practices, complaints, investigations, workorders or proceedings of any nature in relation to the company which have been filed orsubmitted to or are otherwise on record with your office.

We would appreciate receiving your written response to our above request as soon as possible.

Yours truly,

(#235155)March 27, 2000

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Saskatchewan Human Rights Commission1942 Hamilton StreetRegina, SaskatchewanS4P 2C4

Dear Sirs:

Re: Shoe King Ltd.Our File:

Please conduct a search of your records respecting the above-captioned company.

Please provide our office with a status letter advising whether or not there are any outstandingnotices of contravention, allegations ofunfair labour practices, complaints, investigations, workorders or proceedings of any nature in relation to the company which have been filed orsubmitted to or are otherwise on record with your office.

We would appreciate receiving your written response to our above request as soon as possible.

Yours truly,

(#235155)March 27, 2000

)

)

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Superintendent ofPensions,Pensions Benefits Branch1871 Smith StreetRegina, Saskatchewan

Dear Sirs:

Re: Shoe King Ltd.Our File:

Please conduct a search of your records respecting the above-captioned company.

Please provide our office with a status letter advising whether or not there are any outstandingnotices ofcontravention, unfunded liabilities, investigations, work orders or proceedings of anynature in relation to the above-captioned company which have been filed or submitted to or areotherwise on record with your office.

We would appreciate receiving your written response to our above request as soon as possible.

Yours truly,

(#235155)March 27, 2000

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Executive Director,Occupational Health & Safety Branch6th Floor, 1870 Albert StreetRegina, Saskatchewan S4P 3V7

Dear Sirs:

Re: Shoe King Ltd.Our File:

Please conduct a search ofyour records respecting the above-captioned company.

Please provide our office with a status letter advising whether or not there are any outstandingnotices of contravention, complaints, investigations, work orders or proceedings of any nature inrelation to the above-captioned company which have been filed or submitted to or are otherwiseon record with your office.

We would appreciate receiving your written response to our above request as soon as Possible.

Yours truly,

(#235155)March 27, 2000

)

)

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Director, Labour Standards Branch4th Floor, 1870 Albert StreetRegina, Saskatchewan S4P 3V7

Dear Sirs:

Re: Shoe King Ltd.Our File

Please conduct a search of your records respecting the above-captioned company.

Please provide our office with a status letter advising whether or not there are any outstandingnotices of contravention, allegations ofunpaid wages, complaints, investigations, work orders orproceedings of any nature in relation to the above-captioned company which have been filed orsubmitted to or are otherwise on record with your office.

We would appreciate receiving your written response to our above request as soon as possible.

Yours truly,

(#235155)March 27, 2000

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City ofRegina,Regina Fire DepartmentInspection Branch1205 Ross AvenueP.O. Box 1790Regina, Saskatchewan S4P 3C8

Dear Sirs:

Re: Shoe King Ltd.2400 Toronto Street, Regina, SaskatchewanLot 3, Block 4, Regina, Saskatchewan, Plan 84R30365Our File:

We are solicitors for ABC Co. Ltd. and we would request the following infonnation:

(a) Has the building(s) been inspected by your department?

(b) Has your department issued a certificate to the owners of the subject building(s)confinning such inspection?

(c) Does the subject building(s) currently meet safety standards and regulations?

We would appreciate receiving a letter or certificate from you certifying that the building(s) fullycomply with current fire and safety standards and regulations.

Yours truly,

(#235155)March 27, 2000

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Department of Energy and MinesPetroleum and Lands Division10th Floor1914 Hamilton StreetRegina, Saskatchewan

Dear Sirs:

Re: GPN 4985 and GPN 1565Our File: 12 45 BMW

This is to confinn your conversation with my secretary this morning to order to searches on theabove noted leases. Please include your statement of fees to cover the cost. We thank you foryour assistance in this regard.

Yours truly,

Note: Searches are $11 each

(#235155)March 27, 2000