UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number 001-38705
GROUPE ALITHYA INC. / ALITHYA GROUP INC.
(Exact name of Registrant as specified in its charter)
Alithya Group inc.
(Translation of Registrant’s name into English)
Québec, Canada
(Jurisdiction of incorporation or organization)
1100 Robert-Bourassa Boulevard, Suite 400, Montréal, Québec, Canada, H3B 3A5
(Address of principal executive offices)
Nathalie Forcier
Chief Legal Officer and Corporate Secretary
1100 Robert-Bourassa Boulevard, Suite 400
Montréal, Québec, Canada, H3B 3A5
Tel: +1 (514) 285-5552
(Name, telephone, email and/or facsimile number and address of Company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | | | | | | | | | | |
| Title of each class | | | Trading Symbol(s) | | | Name of each exchange on which registered | |
| Class A subordinate voting shares, no par value | | | ALYA | | | Nasdaq Stock Market LLC | |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report: At March 31, 2020, 50,904,533 Class A subordinate voting shares, no par value, and 7,168,984 Class B multiple voting shares, no par value, were issued and outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Note—checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | |
Large Accelerated Filer ☐ | Accelerated Filer ☒ |
Non-Accelerated Filer ☐ | Emerging Growth company ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| | | | | | | | |
| U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
Alithya Group inc.
Table of Contents
INTRODUCTION
Unless otherwise indicated, all references in this Annual Report on Form 20-F to “Alithya,” “we,” “our,” “us,” “the Company” or similar terms refer to Alithya Group inc. and its consolidated subsidiaries. We publish our consolidated financial statements in Canadian dollars. In this Annual Report, unless otherwise specified, all monetary amounts are in Canadian dollars, all references to “$,” “C$,” “CDN$,” “CAD$,” and “dollars” mean Canadian dollars and all references to “US$” mean U.S. dollars.
References to the “Edgewater Transaction” refer to, collectively, on November 1, 2018, (i) the Company’s acquisition of Alithya Canada Inc. (formerly Alithya Group Inc.) (“Old Alithya”), by way of a statutory plan of arrangement under the Business Corporations Act (Québec), and (ii) the merger of 9374-8572 Delaware Inc., a wholly-owned subsidiary of the Company (the “U.S. Merger Sub”) with and into Alithya USA, Inc. (formerly Edgewater Technology, Inc.) (“Edgewater”), a Delaware corporation, with Edgewater being the surviving corporation. As a result of the Edgewater Transaction, both Old Alithya and Edgewater became wholly-owned subsidiaries of Alithya.
References to the “subordinate voting shares” and the “multiple voting shares” refer to the Class A subordinate voting shares, no par value, and the Class B multiple voting shares, no par value, of Alithya, respectively.
This Annual Report on Form 20-F contains our audited consolidated financial statements and related notes for the fiscal years ended March 31, 2020, 2019 and 2018 (“Annual Financial Statements”), which are included as Exhibit 15.3 to this Annual Report. Our Annual Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains statements that may constitute “forward-looking information” within the meaning of applicable Canadian securities laws and “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and other applicable U.S. safe harbours (collectively “forward-looking statements”). Statements that do not exclusively relate to historical facts, as well as statements relating to management’s expectations regarding the future growth, results of operations, performance and business prospects of the Company, and other information related to the Company’s business strategy and future plans or which refer to the characterizations of future events or circumstances represent forward-looking statements. Such statements often contain the words “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should,” “project,” “target,” and similar expressions and variations thereof, although not all forward-looking statements contain these identifying words.
Forward-looking statements in this Annual Report include, among other things, information or statements about: (i) our ability to generate sufficient earnings to support our operations; (ii) our ability to take advantage of business opportunities and meet our goals set in our three to five year strategic plan; (iii) our ability to expand our capacities and broaden the scope of our service offerings; (iv) our strategy, future operations, and prospects; (v) our need for additional financing and our estimates regarding our future financing and capital requirements; (vi) our expectations regarding our financial performance, including our revenues, profitability, research and development, costs and expenses, gross margins, liquidity, capital resources, and capital expenditures; (vii) our ability to realize the
expected synergies or cost savings relating to the integration of our business acquisitions, and (viii) the impact of the COVID-19 pandemic and related response measures on our business operations, financial results and financial position and those of our clients and on the economy in general.
Forward-looking statements are presented for the sole purpose of assisting investors and others in understanding the Company’s objectives, strategies and business outlook as well as its anticipated operating environment and may not be appropriate for other purposes. Although management believes the expectations reflected in the Company’s forward-looking statements were reasonable as at the date they were made, forward-looking statements are based on the opinions, assumptions and estimates of management and, as such, are subject to a variety of risks and uncertainties and other factors, many of which are beyond the Company’s control, and which could cause actual events or results to differ materially from those expressed or implied in such statements. Such risks and uncertainties include but are not limited to the factors discussed in our Management’s Discussion and Analysis for the fiscal years ended March 31, 2020, 2019 and 2018, included in and incorporated into this Annual Report and incorporated by reference under Item 3D titled “Risk Factors” and the Company’s other materials made public, including documents filed with Canadian and U.S. securities regulatory authorities from time to time and which are available on SEDAR at www.sedar.com and EDGAR at www.sec.gov. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial could also have a material adverse effect on its financial position, financial performance, cash flows, business or reputation.
Forward-looking statements contained or incorporated by reference in this Annual Report are qualified by these cautionary statements. Forward-looking statements contained herein are made only as of the date of this Annual Report and those contained in other documents incorporated by reference are made only as of the date of such other documents. The Company expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by applicable law. Investors are cautioned not to place undue reliance on forward-looking statements since actual results may vary materially from them.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
See the selected financial data disclosure included under Item 5. – “Operating and Financial Review and Prospects.”
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” — “Risks and Uncertainties” included as Exhibit 15.2 to this Annual Report.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Alithya Group inc. (“Alithya” or the “Company”) (formerly 9374-8572 Québec Inc.) was incorporated on March 8, 2018 under the Business Corporations Act (Québec) (the “QBCA”). The Company was created for the purpose of the business combination between Alithya Canada Inc. (formerly Alithya Group Inc.) (“Old Alithya”), incorporated on April 2, 1992 under the Companies Act (Québec), now the QBCA, Alithya USA, Inc. (formerly Edgewater Technology, Inc.) (“Edgewater”), a corporation governed under the laws of Delaware and previously listed on the NASDAQ Global Market, and 9374-8572 Delaware Inc. (“U.S. Merger Sub”), a corporation governed under the laws of Delaware and a wholly-owned subsidiary of the Company. On November 2, 2018, the Company’s Class A subordinate voting shares commenced trading on the Toronto Stock Exchange (“TSX”) and on the NASDAQ Capital Market (“NASDAQ”) under the symbol “ALYA.”
On March 15, 2018, the Company, Old Alithya, Edgewater, and U.S. Merger Sub, entered into an arrangement agreement, which was amended on September 10, 2018 and October 17, 2018, (the “Arrangement Agreement”). On November 1, 2018, and pursuant to the terms of the Arrangement Agreement, among other things, (i) the Company acquired Old Alithya, by way of a statutory plan of arrangement under the QBCA (the “Arrangement”), and (ii) U.S. Merger Sub merged with and into Edgewater, with Edgewater being the surviving corporation (the “Merger”). The Arrangement and the Merger are, collectively referred to herein, as the “Edgewater Transaction”.
Following completion of the Transaction, shareholders of Old Alithya and Edgewater became shareholders of the Company, and each of Old Alithya and Edgewater became wholly owned subsidiaries of the Company.
On October 30, 2018, Old Alithya closed a private placement, where an aggregate 11,736,055 subscription receipts were issued at a price of $4.50 per subscription receipt (the “Offering”). Each subscription receipt was automatically converted into an Old Alithya common share, immediately prior to the close of the Edgewater Transaction, and then exchanged for one subordinated voting share, pursuant to the Arrangement Agreement. The net proceeds of the Offering were used to reduce indebtedness, fund future growth initiatives and for general corporate purposes.
On October 1, 2019, the Company acquired all the issued and outstanding shares of Matricis Informatique Inc. (“Matricis”), a Canadian consulting firm specialized in advanced applications and systems using techniques derived from the Internet of Things (IoT), Artificial Intelligence (AI), a combination of the aforementioned (AIoT), as well as operational intelligence in the healthcare, industrial, and financial sectors. The acquisition of Matricis was completed for a total consideration of $7,200,000, payable in cash and subordinate voting shares.
On December 13, 2019, the Company acquired, through Alithya Financial Solutions, Inc., an indirect wholly-owned subsidiary, all the issued and outstanding membership interests of Travercent LLC, a US-based cloud-focused Enterprise Resource Planning (ERP) consulting group specialized in the
healthcare sector, now known as Alithya Travercent LLC (“Alithya Travercent”), for a total consideration of US$19,500,000, payable in cash and subordinate voting shares. Alithya Travercent's competencies include implementing Oracle's cloud ERP, Human Capital Management (HCM), Enterprise Performance Management (EPM) and Business Intelligence (BI) applications. Alithya Travercent has also developed a cloud solution named Capsure RFTM, an Oracle cloud extension that optimizes material management processes of healthcare providers for supply chain management and point of use.
On October 2, 2019, Alithya Zero2Ten, Inc. an indirect wholly-owned subsidiary of the Company, sold all the issued and outstanding shares of its wholly-owned subsidiary Zero2Ten EMEA Limited (“Alithya UK”), for a total cash consideration of GBP£800,000.
On February 1, 2020, the Company acquired all the issued and outstanding shares of Groupe Askida Inc., now known as Alithya Askida Solutions Inc., and Askida Consulting Services Inc., now known as Alithya Askida Consulting Services Inc., (collectively “Askida”), a Canadian group with expertise in software quality assurance tools and services, as well as in development and modernization of custom applications, for a total consideration of $16,000,000, payable in cash and subordinate voting shares.
The principal executive offices of Alithya are located at 1100 Robert-Bourassa Boulevard, Suite 400, Montréal, Québec, Canada, H3B 3A5. Alithya’s telephone number is +1 (514) 285-5552. Alithya’s website address is www.alithya.com. Information contained on, or that can be accessed through, Alithya’s website is not part of, or incorporated by reference into, this Annual Report.
B. Business Overview
Alithya is a leader in strategy and digital transformation, with more than 2,000 professionals in Canada, the U.S., and Europe. For over 25 years, Alithya’s experts have advised, guided and assisted clients in their pursuit of innovation and excellence and the achievement of their business objectives through the optimal use of digital technologies.
Alithya deploys solutions, services, and expert consultants to design, build and implement innovative and efficient solutions for the complex business challenges of its clients, tailored to their business needs in the financial services, energy, manufacturing, telecommunications, transportation and logistics, professional services, healthcare and government sectors.
Business Offerings
Business offerings include a comprehensive range of digital technology services to address client needs:
•Business Strategy. Alithya leads clients through essential decision-making processes regarding strategic planning, change management, systems evolution, operational processes, and more. Applying the most recurrent methodologies, we help our clients optimize efficiency and successfully navigate the digital transformation age. We achieve results by leveraging an array of Business Strategy services, including strategic consulting, digital transformation, organizational performance and enterprise architecture.
•Application Services. Alithya’s experts guide clients through all facets of Application Services, from migration of legacy systems into future-ready digital solutions, to the development of completely new solutions using state-of-the-art technologies. Our experts assist our clients in the choice between cloud, on-premise, and hybrid hosting strategies and solutions. Alithya’s Application Solutions services include digital applications DevOps, legacy
systems modernization, control and software engineering, cloud infrastructure, quality assurance and automated testing.
•Enterprise Solutions. Working with key industry partners, including some of the world’s largest vendors of Enterprise Solutions, Alithya’s experts help clients deploy company-wide systems to improve the efficiency of their finance, human capital, operations, and marketing functions. Alithya’s Enterprise Solutions services include Enterprise Resource Planning (ERP), Corporate Performance Management (CPM/EPM), Customer Relationship Management (CRM/CXM) and Human Capital Management (HCM).
•Data and Analytics. Data analysis plays a critical role in the optimization of business processes. Leveraging specialized IT systems and software, Alithya’s data scientists help clients gain business insight and drive better decision-making through enhanced data collection, big data analytics, machine learning automation and reporting. Alithya’s Data and Analytics services include business intelligence, data management, artificial intelligence and machine learning, as well as Internet of Things (IoT).
Geographically, Alithya’s operations span Canada, the United States and Europe, providing a full spectrum of strategy and digital technology services with deep expertise in a range of technologies and business domains.
Industry Dynamics and Opportunity
Today, for many companies, digital systems and infrastructures are among their most important and strategic assets. Not only do these assets require significant investments, but they increasingly serve as key differentiators and drivers of growth for customers.
Accordingly, businesses are seeking solutions that allow them to maintain their ability to differentiate themselves from competitors with proprietary business processes, combined with product customization. That is where digital transformation comes into play, inviting companies to make a shift in their approach and to evolve from traditional information technologies to flexible digital technologies.
As businesses’ technology spending continues to increase, digital technology firms are striving to deliver innovative thinking and in-depth vertical industry expertise, while facilitating business process transformation through the use of the most optimal technologies.
Alithya believes it is well positioned to respond to these trends in clients’ investments in digital technology. Alithya’s business model is built on a philosophy of offering flexible and creative solutions, enabling clients to realize maximum benefits from their digital technology investments. Alithya positions itself as an agile trusted advisor and consulting partner capable of delivering rapid results for its clients.
Clients
Alithya’s clients are mainly concentrated in the financial services, energy, manufacturing, telecommunications, transportation and logistics, professional services, healthcare and government sectors. The majority are large to mid-size companies. Alithya seeks to cultivate collaborative and flexible service engagements that are designed to adapt to clients’ evolving priorities and challenges.
Business Strategic Plan
Alithya has adopted a three to five year strategic plan which sets as a goal to become a North American digital transformation leader.
Under this plan, Alithya will take advantage of its consolidated scale and scope to leverage its geographies, expertise, integrated offerings, and position on the value chain to target growing IT services segments. Alithya believes its specialization in digital technologies and the flexibility of its approach resonates directly with clients and enables it to exceed their expectations.
Alithya has established a three-pronged plan focusing on:
•Increasing scale through organic growth and strategic acquisitions by:
◦Sustaining steady organic growth through innovation, higher-value offerings and client-relationships based on trust;
◦Completing value enhancing acquisitions by way of a North America geographic expansion to complement current market presence, while progressively adding major integrated enterprise solutions offerings and selected specialized expertise;
•Achieving best-in-class employee engagement by:
◦Fostering a culture of collaboration and ownership;
◦Cultivating employee well-being and personal growth;
◦Investing in the development of our leaders and employees;
•Providing our investors, partners and stakeholders with long-term growing return on investment by:
◦Strengthening our existing relationships with clients, as a key trusted advisor, by generating long-term value;
◦Investing in innovation and higher value service offerings;
◦Acting responsibly, with a sustainable and respectful vision for our stakeholders.
Management Philosophy
With a client-centric and flexible service delivery philosophy, Alithya focuses on diligently supporting its clients in identifying and achieving their evolving objectives through exceptional communications and by developing tailor-made solutions that take into account their specific business realities. Alithya strives to sustain high levels of client satisfaction and exceed client expectations which is key to renewal of existing contracts and entry into new ones. Alithya’s agile approach ensures optimal alignment with clients, enabling them to overcome their challenges and attain their goals with seamless technology integration. Alithya’s goal is to become its clients’ trusted advisor by developing long-term relationships that extend beyond just project delivery.
Alithya also seeks to be an active participant in the ongoing consolidation of the digital technology industry and to leverage its expertise and solutions to offer clients an alternative to larger traditional digital technology solution providers. Alithya is continually looking to expand its capacity and broaden the scope of its service offerings through targeted acquisitions. Growth through acquisitions can offer Alithya opportunities to better serve existing clients with additional talent, technology and complementary services. Through such acquisitions, Alithya aims at expanding its existing client relationships by adding capacity in new geographic locations, while opening doors for existing capabilities into new client relationships.
Alithya believes that its growth strategy through acquisitions also helps to provide an opportunity to achieve the scale that is increasingly required for mandates awarded by government and private organizations, and to attract potential acquisition candidates which are poised to benefit from Alithya’s established relationships, better access to market and preferred supplier status.
Sales, Marketing and Strategic Partners
Alithya markets and sells its services directly through its professional staff, senior management and direct sales personnel operating out of its offices, which are strategically located in Canada, the U.S. and France.
In order to provide its clients with the solutions best suited to their needs, Alithya has established strategic partnerships with a number of companies, including Microsoft, Oracle and Amazon Web Services (AWS). These partnerships entail joint marketing efforts, making joint client presentations, and negotiating discounts on license fees, among other benefits. Where such partnership are formalized in written agreements, those agreements are either terminable at will by either party or are for terms of one year or less. Alithya believes it has been successful in establishing strategic partnerships with a strong group of companies who are either industry leaders or well-regarded new entrants.
Competition
Alithya’s competitors include:
•systems integration firms;
•contract programming companies;
•application software companies;
•cloud computing service providers;
•large or traditional consulting firms;
•professional services groups of computer equipment companies;
•infrastructure management and outsourcing companies; and
•boutique digital companies.
In addition, Alithya competes with numerous smaller local companies in the various geographic markets in which it operates. Alithya competes based on the following principal differentiating factors:
•vision and strategic advisory ability;
•digital services capabilities;
•performance and reliability;
•quality of technical support, training and services;
•responsiveness to client needs;
•reputation and experience;
•financial stability and strong corporate governance; and
•competitive pricing of services.
Alithya also relies on the following measures to compete effectively:
•investments to scale its services practice areas;
•a well-developed recruiting, training and retention model;
•a successful service delivery model;
•intrapreneurial culture and approach;
•a broad referral base;
•continual investment in process improvement and knowledge capture;
•investment in infrastructure and research and development;
•continued focus on responsiveness to client needs, quality of services and competitive prices; and
•project management capabilities and technical expertise.
Intellectual Property
Alithya leverages its proprietary innovations, methodologies and other intellectual property when servicing its clients. Alithya actively protects its intellectual property and has registered, or applied for registration of, Canadian, U.S. and international trademarks, service marks, domain names and copyrights. Alithya also owns licenses in a number of trademarks, copyrights, and other intellectual property rights relating to its solutions and services.
Alithya’s intellectual property portfolio includes the following solutions:
•AI-FITM solutions. These solutions leverage Alithya’s range of proprietary applications using artificial intelligence, machine learning, and deep learning techniques. A play on the term hi-fi, short for high fidelity, the AI-FITM brand integrates the concepts of artificial intelligence (and its acronym AI) and fidelity (FI). Alithya’s AI-FITM solutions include:
◦AI-FITM Connect : a plugin-based data connector that enables integration between various data sources, designed to receive data from a source, structure it, replicate the structure to a destination, and automatically send new data to the destination as it becomes available.
◦AI-FITM Ultrasonic : detects wear-induced flaws in a nuclear plant’s fuel channels, a critical aspect of the operation and regulation of these plants.
◦AI-FITM Suitability Assessment : offers companies looking to leverage machine learning an in-depth review of their data and business processes to determine an AI strategy that’s right for them.
◦AI-FITM Enablement : allows organizations to adapt a swift deployment and integration of AI analytics.
•Askida CTTM. Askida CTTM is a solution that allows clients to test the functionality of applications on all platforms and in any programming language, by running a series of systematic and repeatable tests, and which presents the results and status through sophisticated dashboards.
•Capsure RFTM. Capsure RFTM is a cloud-based platform that was purpose built for healthcare providers to maximize inventory management processes. Capsure RFTM is a modern and open technology that has real time integration into Oracle Cloud ERP applications and can be integrated into other systems if necessary. Capsure RFTM’s four main functions are Mobile Supply Chain automation, PAR Inventory, RFID for Inventory / Medical Equipment and Patient Charge Capture or Point of Use.
•CASSITM Analytics and KPIs. These solutions help nuclear plants reduce the work needed to generate and distribute maintenance performance reports and provide insight into opportunities to streamline maintenance. CASSITM software drives accountability and tracks progress against
corporate and site-based performance goals for work week leaders, planners, schedulers, operations and maintenance staff. CASSITM Analytics and KPIs include:
◦CASSITM Analytics for Online Weekly Maintenance : supports the continuous improvement of Nuclear Online Preparation, Execution, Backlog, and Reliability-centered activities.
◦CASSITM Analytics for Outage Management : automates the generation of KPIs and objectively tracks and trends corporate targets.
◦CASSITM Analytics for PetroChem Turnarounds : delivers key performance indicators in support of continuous improvement, essential to a successful turnaround.
◦CASSITM Analytics for Maintenance and Reliability : supports the continuous improvement of Preparation, Execution, Backlog, and Reliability-centered activities for value-based maintenance organizations.
•//SIDERTM. //SIDERTM is a secure solution that facilitates distribution of medical results to healthcare facilities and to centralized electronic health records. It acts as an integrated system for the electronic distribution of results, facilitating the work of all the health professionals, health clinics and laboratory managers involved in monitoring medical results.
While its proprietary intellectual property is important to its success, Alithya believes its business as a whole is not currently materially dependent on any particular intellectual property right.
C. Organizational Structure
Below, and as Exhibit 8.1 to this Annual Report, is the list of our principal subsidiaries as at March 31, 2020, each of which is directly or indirectly wholly-owned by Alithya. Certain subsidiaries whose total assets did not represent more than 10% of Alithya’s consolidated assets or whose revenues did not represent more than 10% of Alithya’s consolidated revenues as at March 31, 2020, based on our Annual Financial Statements, included as Exhibit 15.3 to this Annual Report, have been omitted. These omitted subsidiaries, however, represented, as a group, less than 20% of the consolidated assets and revenues of Alithya as at March 31, 2020.
| | | | | | | | | | | | | | | | | | | | |
| Entity | | Jurisdiction | | Percentage
Ownership | | |
| Alithya Canada Inc. | | Québec, Canada | | | 100% | |
| Alithya Consulting Inc. | | Québec, Canada | | | 100% | |
| Alithya Consulting SAS | | France | | | 100% | |
| Alithya Digital Technology Corporation | | Ontario, Canada | | | 100% | |
| Alithya Financial Solutions, Inc. | | Delaware, USA | | | 100% | |
| Alithya Fullscope Solutions, Inc. | | Delaware, USA | | | 100% | |
| Alithya Ranzal LLC | | Delaware, USA | | | 100% | |
| Alithya Travercent LLC | | Texas, USA | | | 100% | |
| Alithya USA, Inc. | | Delaware, USA | | | 100% | |
D. Property, Plants and Equipment
Alithya is headquartered in Montréal, Canada. It does not own any real property, but has a global presence in Canada, the U.S. and France through leased facilities. As of March 31, 2020, Alithya leased approximately 163,108 square feet related to its 12 principal locations. Alithya believes that its current facilities are adequate to meet its ongoing needs. The following table outlines the facilities that Alithya leased as at the date of this Annual Report:
| | | | | | | | | | | | | | | | | | | | |
| Location | | Square Feet | | Date Lease Ends | | Purpose |
| | | | | | |
| Canada | | | | | | |
| Montréal, Québec | | 19,309 | | June 30, 2020 | | Office space |
| Montréal, Québec | | 78,573 | | March 31, 2030 | | Office space |
| Montréal, Québec | | 10,173 | | April 30, 2022 | | Office space |
| Québec, Québec | | 10,482 | | November 29, 2030 | | Office space |
| Toronto, Ontario | | 16,200 | | April 30, 2030 | | Office space |
| Pickering, Ontario | | 9,130 | | November 30, 2020 | | Office space |
| Gatineau, Québec | | 1,228 | | April 30, 2021 | | Office space |
| | | | | | |
| United States | | | | | | |
| Alpharetta, GA | | 10,970 | | June 30, 2025 | | Office space |
| White Plains, NY | | 1,443 | | January 31, 2021 | | Office space |
| Athens, AL | | 3,842 | | December 31, 2023 | | Office space |
| | | | | | |
| Europe | | | | | | |
| Aix-en-Provence, France | | 1,206 | | December 31, 2024 | | Office space |
| Sophia-Antipolis, France | | 552 | | August 31, 2027 | | Office space |
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following tables set forth our selected consolidated financial data. The selected historical consolidated financial data below should be read in conjunction with our Annual Financial Statements included as Exhibit 15.3 to this Annual Report, as well as Item 4. – “Information on the Company” – of this Annual Report.
We have derived the statements of operations data for the fiscal years ended March 31, 2020, 2019 and 2018 and the consolidated financial position information as at March 31, 2020 and 2019 from our Annual Financial Statements included as Exhibit 15.3 to this Annual Report. Our Annual Financial Statements have been prepared in accordance with IFRS and are presented in thousands of Canadian dollars except where otherwise indicated. Our historical results are not necessarily indicative of the results that should be expected in any future period.
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| | For the fiscal year ended March 31, | | | | | | |
| (In $ Thousands, Except per Share Data) | | 2020 | | 2019 | | 2018 | | 2017 |
| Consolidated Statements of Operations Data: | | $ | | $ | | $ | | $ |
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| |
| | | |
| Revenues | | 279,007 | | 209,478 | | 159,290 | | 115,818 |
| Cost of revenues | | 196,033 | | 155,202 | | 124,597 | | 92,899 |
| Gross margin | | 82,974 | | 54,276 | | 34,693 | | 22,919 |
| | | | | | | | |
| Operating expenses | | | | | | | | |
| Selling, general and administrative expenses | | 76,782 | | 52,615 | | 31,403 | | 19,048 |
| Business acquisitions and integration costs | | 4,637 | | 5,818 | | 2,079 | | 119 |
| Depreciation | | 3,368 | | 980 | | 870 | | 449 |
| Amortization of intangibles | | 11,278 | | 8,092 | | 5,724 | | 5,179 |
| Foreign exchange expense (gain) | | (161) | | (144) | | 58 | | (18) |
| Impairment of intangibles and goodwill | | 28,036 | | — | | — | | — |
| | 123,940 | | 67,361 | | 40,134 | | 24,777 |
| Operating loss | | (40,966) | | (13,085) | | (5,441) | | (1,858) |
| Financial expenses | | 2,347 | | 2,241 | | 2,097 | | 1,631 |
| Gain on sale of subsidiary | | (681) | | — | | — | | — |
| Loss before income taxes | | (42,632) | | (15,326) | | (7,538) | | (3,489) |
| Income tax expense (recovery) | | | | | | | | |
| Current | | 237 | | 289 | | 81 | | (147) |
| Deferred | | (3,202) | | (3,140) | | (395) | | (474) |
| | (2,965) | | (2,851) | | (314) | | (621) |
| Net loss | | (39,667) | | (12,475) | | (7,224) | | (2,868) |
| Basic and diluted loss per share | | (0.70) | | (0.34) | | (0.31) | | (0.16) |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In $ Thousands) | | March 31, | | March 31, | | March 31, | | March 31, |
| Consolidated Statements of Financial Position Data: | | 2020 | | 2019 | | 2018 | | 2017 |
| | | | | | | | |
| Assets | | | | | | | | |
| Current assets | | | | | | | | |
| Cash | | 8,810 | | 12,801 | | 14,465 | | 8,569 |
| Short-term deposits | | — | | 1,324 | | — | | — |
| Accounts receivable and other receivables | | 67,662 | | 67,146 | | 33,762 | | 30,681 |
| Income taxes receivable | | 2,154 | | 1,217 | | 765 | | 343 |
| Unbilled revenue | | 8,015 | | 7,583 | | 6,884 | | 1,096 |
| Tax credits receivable | | 5,889 | | 5,829 | | 7,794 | | 6,636 |
| Prepaids | | 3,195 | | 3,166 | | 767 | | 435 |
| | 95,725 | | 99,066 | | 64,437 | | 47,760 |
| Non-current assets | | | | | | | | |
| Restricted cash | | 2,212 | | 2,165 | | | 2,124 | | | — | |
| Income taxes receivable | | 136 | | 632 | | | — | | | — | |
| Tax credits receivable | | 7,015 | | 2,536 | | | — | | | — | |
| Property and equipment | | 7,172 | | 2,339 | | | 1,821 | | | 1,727 | |
| Right-of-use assets | | 11,492 | | — | | | — | | | — | |
| Intangibles | | 51,804 | | 47,551 | | | 15,149 | | | 14,167 | |
| Deferred tax assets | | 4,652 | | 2,946 | | | 632 | | | 1,112 | |
| Goodwill | | 77,608 | | 79,634 | | | 31,712 | | | 21,523 | |
| | 257,816 | | 236,869 | | | 115,875 | | | 86,289 | |
| | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | |
| Current liabilities | | | | | | | | |
| Line of credit | | — | | — | | | 24,066 | | | — | |
| Accounts payable and accrued liabilities | | 50,327 | | 48,935 | | | 36,801 | | | 34,543 | |
| Deferred revenue | | 9,602 | | 5,998 | | | 2,017 | | | 303 | |
| Current portion of lease liabilities | | 1,559 | | — | | | — | | | — | |
| Current portion of long-term debt | | 1,143 | | 1,000 | | | 2,956 | | | 2,956 | |
| | 62,631 | | 55,933 | | | 65,840 | | | 37,802 | |
| Non-current liabilities | | | | | | | | |
| Long-term debt | | 52,086 | | 27,305 | | | 15,619 | | | 13,278 | |
| Lease liabilities | | 11,673 | | — | | | — | | | — | |
| Deferred lease inducements | | — | | 159 | | | 156 | | | 226 | |
| Deferred tax liabilities | | 4,057 | | 2,016 | | | 2,234 | | | 1,615 | |
| | 130,447 | | 85,413 | | | 83,849 | | | 52,921 | |
| Shareholders' equity | | | | | | | | |
| Share capital | | 195,335 | | 186,861 | | | 54,251 | | | 49,384 | |
| Deficit | | (78,780) | | (39,113) | | | (23,927) | | | (16,738) | |
| Accumulated other comprehensive income | | 6,123 | | 1,469 | | | 558 | | | (137) | |
| Contributed surplus | | 4,691 | | 2,239 | | | 1,144 | | | 859 | |
| | 127,369 | | 151,456 | | | 32,026 | | | 33,368 | |
| | 257,816 | | 236,869 | | | 115,875 | | | 86,289 | |
ALITHYA GROUP INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as Exhibit 15.2 to this Annual Report for a discussion of our financial condition and results of operations as of and for the fiscal years ended March 31, 2020 and 2019. A discussion of our financial condition and results of operations for the fiscal year ended March 31, 2019 as compared to the fiscal year ended March 31, 2018 can be found in our Annual Report on Form 20-F for the fiscal year ended March 31, 2019 filed with the SEC on June 19, 2019.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth certain information relating to our directors and executive officers as of June 5, 2020. Unless otherwise stated, the business address for our directors and officers is c/o Alithya Group inc., 1100 Robert-Bourassa Boulevard, Suite 400, Montréal, Québec, Canada, H3B 3A5. When used in this section, the term “Alithya” shall be deemed to refer to Alithya, Old Alithya or its, as the context so requires.
| | | | | | | | | | | | | | |
| Name |
| Age |
| Position |
| Paul Raymond |
| 56 |
| President and Chief Executive Officer and Director |
| Claude Thibault |
| 55 |
| Chief Financial Officer |
| Claude Rousseau |
| 58 |
| Chief Operating Officer |
| Russell Smith |
| 53 |
| President, Alithya USA |
| Robert Lamarre |
| 55 |
| Chief Information Officer |
| Nathalie Forcier |
| 44 |
| Chief Legal Officer and Corporate Secretary |
| Natalie Piccinin |
| 55 |
| Senior Vice-President, Human Capital |
| Dana Ades-Landy |
| 61 |
| Director |
| Robert Comeau |
| 60 |
| Lead Director |
| Fredrick DiSanto |
| 58 |
| Director |
| Lucie Martel |
| 58 |
| Director |
| James B. Renacci |
| 61 |
| Director |
| Ghyslain Rivard |
| 60 |
| Director |
| C. Lee Thomas |
| 66 |
| Director |
| Pierre Turcotte |
| 60 |
| Director and Chair of the Board of Directors |
Directors and Senior Management Bios
Paul Raymond, President and Chief Executive Officer, and Director
Mr. Paul Raymond has been the President and Chief Executive Officer of Alithya since April 2012. Mr. Raymond joined Alithya as its President and Chief Operating Officer in April 2011, a position he held until March 2012, and has been a member of the Board of Alithya since April 2011. Mr. Raymond is a director of WSP Global Inc., the Québec Technology Association (AQT), the Québec chapter of the Make-A-Wish Foundation and the Chamber of Commerce of Metropolitan Montréal. He is also a Governor of the Conseil du patronat du Québec. Prior to joining Alithya, Mr. Raymond held several key senior management positions in a major information technology firm and served as an officer in the Canadian Armed Forces. Mr. Raymond received the 2020 Investissement Québec CEO of the Year Award from the AQT. Mr. Raymond is a computer engineering graduate from the Royal Military College of Canada, and a member of the Institute of Corporate Directors.
Claude Thibault, Chief Financial Officer
Mr. Claude Thibault is the Chief Financial Officer of Alithya, a position he has held since August 2018 when he joined Alithya. Before joining Alithya, he was the Chief Financial Officer of DCM Group Inc. from 2015 to 2018, of NuEra International Inc. from 2007 to 2015 and of Mediagrif Interactive Technologies Inc. from 2005 to 2007. Mr. Thibault also held various positions at KPMG from 1986 to 1994 and was a Vice-President in the investment banking group of Midland Walwyn Capital / Merrill Lynch Canada from 1994 to 1998. Mr. Thibault is a Chartered Professional Accountant (CPA, CA-CF) and a Chartered Business Valuator (CBV). He holds a Bachelor’s degree in accounting from HEC Montréal and a Master of Business Administration from McGill University and is a member of the Institute of Corporate Directors. He is also a director of the Institut Économique de Montréal.
Claude Rousseau, Chief Operating Officer
Mr. Claude Rousseau is the Chief Operating Officer of Alithya, a position he has held since December 2016. Mr. Rousseau joined Alithya in January 2015 as its Senior Vice-President and Chief Commercial Officer, a position he held until December 2016. Previously, he served as team President of the Group of Québec Remparts from 2008 to 2014, in addition to advising executive management at TELUS Québec. Mr. Rousseau also previously held a series of executive positions at Bell Canada and Bell Mobility over 28 years. Mr. Rousseau is a director of Imprimerie Solisco Inc.
Russell Smith, President, Alithya USA
Mr. Russell Smith is the President, Alithya USA, a position he has held since November 2018 when he joined Alithya. Mr. Smith was previously the President of Fullscope, an Edgewater Technology company acquired by Alithya on November 1, 2018. Mr. Smith was a co-founder of RedKlay Solutions, which provided enterprise applications and consulting services to the manufacturing sector and which Fullscope acquired in 2002, which in turn was acquired by Edgewater in 2009. Prior to that, Mr. Smith held several managing positions at The Pinnacle Group, CSC, and IBM from 1989 to 1996. Mr. Smith holds a Bachelor’s degree in industrial engineering from Auburn University and a Master of Business Administration from Duke University’s Fuqua School of Business.
Robert Lamarre, Chief Information Officer
Mr. Robert Lamarre is the Chief Information Officer of Alithya, a position he has held since April 2016 when he joined Alithya. Before joining Alithya, Mr. Lamarre held various key management positions at CGI, which he joined in 1993 and where he spent most of his career. Mr. Lamarre is a computer engineering graduate from the Royal Military College of Canada.
Nathalie Forcier, Chief Legal Officer and Corporate Secretary
Ms. Nathalie Forcier is the Chief Legal Officer and Corporate Secretary of Alithya, a position she has held since 2018 when she joined Alithya. Before joining Alithya, Ms. Forcier was Vice-President, Legal Affairs at CGI from 2013 to 2017, and previously Director, Legal Affairs at CAE Inc., both TSX and NYSE listed multinational companies. Prior to transferring in-house, Ms. Forcier was a partner in the Business Law Group at McCarthy Tétrault LLP, one of Canada’s largest law firms. Ms. Forcier holds a Bachelor’s degree in civil law from Laval University and is a member of the Québec Bar.
Natalie Piccinin, Senior Vice-President, Human Capital
Ms. Natalie Piccinin is the Senior Vice-President, Human Capital of Alithya, a position she has held since January 2019 when she joined Alithya. In such capacity, she is responsible for managing the global human resources function of Alithya. Before joining Alithya, Ms. Piccinin served as Vice-President, Human Resources and Internal Communications at Belron Canada Inc. from 2010 to 2018. Ms. Piccinin holds a Bachelor’s degree in labor relations from McGill University.
Dana Ades-Landy, Director
Ms. Dana Ades-Landy is Chief Executive Officer of the Heart & Stroke Foundation of Canada (Québec) since 2016. Ms. Ades-Landy has more than 25 years of experience as an executive in the banking industry, her most recent position being Regional Vice-President, Québec & Eastern Ontario, Commercial Banking at Scotiabank from 2013 to 2016. Ms. Ades-Landy serves as director and Chair of the Audit Committee of First Lion Holdings Inc., the parent company of BFL Canada Risk and Insurance Inc. She also serves as director and Chair of the Audit Committee at Canada Mortgage and Housing Corporation, director of Innovaderm Research Inc. and Treasurer and member of the Executive Committee of the Québec chapter of the International Women’s Forum. She previously served as Chair of the Financial Women’s Association of Québec, the Advisory Board of the John Molson School of Business and the Old Brewery Mission. She holds a Bachelor’s degree in microbiology & immunology from McGill University and a Master of Business Administration in finance/accounting from Concordia University and is a member of the Institute of Corporate Directors.
Robert Comeau, Director
Mr. Robert Comeau is a corporate director who serves as lead director of Alithya. Before becoming a corporate director in 2018, he acted as a consultant between 2015 and 2018, and served as Chief Financial Officer of both public and private companies, including Lumenpulse Inc., from 2012 to 2015, Aveos Fleet Performance Inc., from 2009 to 2011, and Emergis Inc., from 2005 to 2008. Mr. Comeau also held various positions over 17 years at Nortel Networks Corporation, including as Vice-President, Finance and Operations. Mr. Comeau serves as a director of H2O Innovation Inc. He previously served as a Special Committee Member of Groupe Conseil FXInnovation Inc. between 2014 and 2017. Mr. Comeau is a Chartered Professional Accountant (CPA, CA) and holds a Bachelor’s degree in accounting from HEC Montréal.
Fredrick DiSanto, Director
Mr. Fredrick DiSanto is the Chairman and Chief Executive Officer of Ancora Holdings Inc., the parent company of Ancora Advisors, LLC, a registered investment advisor since January 2006. Prior to joining Ancora, Mr. DiSanto served as Executive Vice-President and Manager of the Fifth Third Bank’s Investment Advisors Division overseeing investment management, private banking and trust and banking services, and as Chief Operating Officer of Maxus Investment Group before it was acquired by Fifth Third Bank. Mr. DiSanto serves as a director of The Eastern Company and Regional Brands, Inc. He holds a Bachelor’s degree in management science and a Master of Business Administration from Case Western Reserve University.
Lucie Martel, Director
Lucie Martel is the Senior Vice-President and Chief Human Resources Officer of Intact Financial Corporation since September 2011. Previously, Ms. Martel was a Senior Vice-President at AXA Canada, which was acquired by Intact Financial Corporation in September 2011. She has more than 30 years of experience in strategic management of human resources and labour relations, with corporations including Laurentian Bank (where she was Vice-President, Human Resources Management and Development), Direct Film and Uniroyal. Ms. Martel is a director and the Chair of the Human Resources Committee of the Board of Directors of the Société des alcools du Québec and a director of the Montréal Heart Institute Foundation. Ms. Martel holds a Bachelor’s degree in industrial relations from Université de Montréal.
James B. Renacci, Director
Mr. James B. Renacci is the Founder and President of LTC Management Services, Inc., a management and financial consulting services company, since 1985. With more than thirty years of experience and leadership in the operations of numerous entities, Mr. Renacci’s business experience includes manufacturing, healthcare, construction, entertainment and CPA consulting services. He also has in-depth knowledge of mergers and acquisitions. Mr. Renacci currently serves as a director of Custom Glass, Inc. Previously, Mr. Renacci served four consecutive terms as a member of the United States Congress in the House of Representatives from 2011 to 2019. He is a Certified Public Accountant and holds a Bachelor’s degree in Business Administration from Indiana University of Pennsylvania.
Ghyslain Rivard, Director
Mr. Ghyslain Rivard is the founder of Alithya. He acted as Alithya’s President and Chief Executive Officer from its constitution in April 1992 until his retirement in 2012, after more than 35 years in the IT and business services sectors. He currently serves as a director on the Board of Alithya. Mr. Rivard holds a Bachelor’s degree in computer science and mathematics from Sherbrooke University. He is a member of the Institute of Corporate Directors.
C. Lee Thomas, Director
Mr. C. Lee Thomas is a corporate director who holds the office of Executive in Residence in the School of Business, and serves as a trustee and professor, at Baldwin Wallace University. Before becoming a corporate director, Mr. Thomas held various roles with Ernst & Young LLP from 1976 to June 2014, including Managing Partner of its Cleveland office, Leader of its Northeast Ohio Market Segment, and as a global client serving partner. Mr. Thomas previously served as a director of Technical Consumer Products International. Mr. Thomas is a Certified Public Accountant (CPA) and holds a Bachelor’s degree in accounting from Baldwin Wallace University.
Pierre Turcotte, Director
Mr. Pierre Turcotte is a corporate director and the Chair of the Board of Directors of Alithya. Prior to joining Alithya in 2011, he served as Senior Vice-President of CGI in Canada, the U.S. and Europe for more than 27 years, and as Chair of the Board and Chief Executive Officer of ReadBooks SAS. He acts as a director of Poudre Noire Inc., Xpertdoc Technologies Inc., Pointe-à-Callières Museum and
Nouveau Monde Theater, and is an independent member of the McGill University’s Board of Governors’ IT Committee. Mr. Turcotte holds a Bachelor’s degree in computer science and mathematics from Laval University and is a member of the Institute of Corporate Directors.
B. Compensation
Compensation for Executive Officers
Alithya’s executive compensation is intended to attract, motivate and retain high-performing senior executives, encourage and reward superior performance in alignment with the performance of Alithya and value creation for its shareholders. The alignment between the executives’ compensation with the shareholders’ interest is ensured by providing short-term incentives through the payment of bonuses on the basis of performance targets that include adjusted EBITDA, revenue growth, and high level of clients satisfaction and employees engagement, as well as long-term incentives through the grant of stock options under Alithya’s long-term equity incentive plan dated November 1, 2018 (the “Equity Incentive Plan”) which are tied to Alithya’s share price performance. The executive compensation policy was designed to be competitive with the compensation received by executives employed by comparable companies.
The compensation of executive officers is reviewed at least annually and is comprised of (i) base salary; (ii) annual bonus; (iii) long-term incentives consisting of stock options; and (iv) other benefits, consisting of group insurance, matching employer contributions through Alithya’s share purchase plan dated November 1, 2018 (the “Employee Share Purchase Plan”) and Alithya’s 401(k) tax deferred savings plan (the “401(k) Plan”), for US executive officers, as well as other perquisites and personal benefits.
Base Salary
The base salary of an Alithya executive officer takes into consideration the current competitive market conditions, experience, proven or expected performance, and the particular skills of the executive. The base salaries of Alithya’s executive officers are intended to be competitive but to remain relatively constant, generally increasing when there is an increase in the scale, scope, complexity or responsibility of the role or to allow the base salary of appointed executives to move toward market norms as their experience and contributions increase.
Annual Bonus
Executive officers of Alithya are entitled to annual bonuses in accordance with certain prescribed criteria, metrics and other performance targets attributable to each respective executive officer, as determined by Alithya’s Board of Directors (the “Board”), upon the recommendation of the Human Capital and Compensation Committee. Target bonuses vary based on the respective role of each executive officers and are assessed as part of the annual review.
Stock Options
Stock options are granted to Alithya’s executive officers under the Equity Incentive Plan to give such executive officers an interest in preserving and maximizing shareholder value in the longer term, to
enable Alithya to attract and retain individuals with experience and ability, and to reward individuals for current performance and expected future performance. Stock options granted under the Equity Incentive Plan are granted at the discretion of the Board and have typically been based on the executive officer’s performance, level of expertise, responsibilities, length of service to Alithya and comparable levels of remuneration paid to executives of other companies of comparable size and development within the industry. See “—Equity Incentive Plan” below for additional details regarding the Equity Incentive Plan.
Other Benefits
Group Insurance Benefits
Alithya offers to its executive officers long-term and short-term disability, medical and dental insurance (including coverage for eligible dependents) and life insurance. The actual value of these benefits may vary from time to time depending, among other things, on applicable costs.
Employee Share Purchase Plan
Executive officers are entitled to participate in Alithya’s Employee Share Purchase Plan. The purpose of the Employee Share Purchase Plan is to encourage ownership, which supports alignment of employees’ interest with that of the shareholders. The Employee Share Purchase Plan offers its executive officers and employees the opportunity to acquire subordinate voting shares by way of payroll deductions. Alithya also makes certain specified matching contributions under the Employee Share Purchase Plan. See “—Employee Share Purchase Plan” below for additional details regarding the Employee Share Purchase Plan.
401(k) Plan
U.S. executive officers are entitled to participate in Alithya’s 401(k) Plan which is available to all eligible U.S. employees and through which Alithya matches a certain percentage of each participant’s annual contribution made under the 401(k) Plan, up to a certain percentage of each participant’s annual base salary.
Perquisites
Other perquisites and personal benefits also may be provided to executive officers from time to time where the Board feels it appropriate and in line with market practice.
Severance
Messrs. Raymond, Thibault, Rousseau, Smith and Lamarre are each entitled to certain benefits upon a cessation of their employment by Alithya without serious reason. For Messrs. Raymond, Thibault, Rousseau and Lamarre, if their employment is terminated without serious reason, they shall be entitled to receive written notice of termination of their employment and accrued wages, reimbursements of accrued expenses and other amounts due at the time of termination of employment, in addition to an amount in lieu of reasonable notice of termination of employment. Such amount shall be equal to, for Mr. Raymond, 24 months, for Mr. Thibault, 12 months plus one month per year of service, subject to a
maximum of 24 months, for Mr. Rousseau, the greater of (i) the remaining number of months until March 31, 2022 and (ii) 12 months plus one month per year of service, subject to a maximum of 24 months, and for Mr. Lamarre, 12 months plus one month per year of service, subject to a maximum of 18 months, of their annual base salary in effect on the date of termination of employment and the average of their annual bonuses paid for the two fiscal years preceding the date of termination of employment (the “Cash Compensation”). For Mr. Smith, in the event his employment is terminated for any reason other than for cause, he shall be eligible to receive salary continuation for a period of twelve months. Messrs. Raymond, Thibault, Rousseau, Smith and Lamarre shall also be entitled to the continuity of certain group benefits for the duration of their severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by Alithya, as applicable, with the exception of the protection for the long-term disability that shall be discontinued at the date of termination of employment.
Change of Control
Messrs. Raymond, Thibault, Rousseau and Lamarre are each entitled to certain benefits upon a change of control. If 12 months following a change of control event, Alithya terminates the employment of either of Messrs. Raymond, Thibault, Rousseau and Lamarre without serious reason or if either of Messrs. Raymond, Thibault, Rousseau and Lamarre resigns because either (i) their remuneration, including social benefits, was reduced considerably, (ii) they suffered a significant diminution of their responsibilities, authority, status or hierarchy, taken as a whole, without their prior written consent, or (iii) their principal place of work was relocated to a place located more than 100 kilometers from their usual principal place of work, then Messrs. Raymond, Thibault, Rousseau and Lamarre shall be entitled to 24 months of their respective Cash Compensation and shall also be entitled to the continuity of certain group benefits for the duration of their severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by Alithya, as applicable, with the exception of the protection for the long-term disability that shall be discontinued at the date of termination of employment. Mr. Smith’s employment agreement is silent on benefits upon a change of control.
Summary Compensation Table
Alithya’s named executive officers for the fiscal year ended March 31, 2020 were its President and Chief Executive Officer, Paul Raymond, its Chief Financial Officer, Claude Thibault, its Chief Operations Officer, Claude Rousseau, its President, Alithya USA, Russell Smith, and its Chief Information Officer, Robert Lamarre. For the fiscal years ended March 31, 2020 and 2019, the aggregate compensation paid to such executive officers was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Fiscal
Year | | Salary ($) | | Share-Based Awards ($) | | Option-Based Awards(1) ($) | | Non-Equity Incentive Plan Compensation – Annual Incentive Plans(2) ($) | | All Other Compensation(3) ($) | |
Total Compensation ($) |
Paul Raymond | | 2020 | | 495,000 | | – | | 126,840 | | – | | 32,921 | | 654,761 |
President and Chief Executive officer | | 2019 | | 475,000 | | – | | 207,900 | | 356,250 | | 36,705 | | 1,075,855 |
Claude Thibault(4) | | 2020 | | 320,000 | | – | | 65,957 | | – | | 19,380 | | 405,337 |
Chief Financial Officer | | 2019 | | 199,423 | | – | | 72,380 | | 96,514 | | 14,709 | | 383,026 |
Claude Rousseau(5) | | 2020 | | 492,100 | | – | | 91,325 | | – | | 146,810 | | 730,235 |
Chief Operating Officer | | 2019 | | 370,000 | | – | | 113,960 | | 237,300 | | 25,568 | | 746,828 |
Russell Smith(5) | | 2020 | | 432,250 | | – | | 95,080 | | 119,700 | | 39,026 | | 686,056 |
President, Alithya USA | | 2019 | | 426,400 | | – | | 72,380 | | 265,453 | | 29,674 | | 793,907 |
Robert Lamarre | | 2020 | | 275,000 | | – | | 63,420 | | – | | 17,542 | | 355,962 |
Chief Information Officer | | 2019 | | 240,000 | | – | | 72,380 | | 96,000 | | 20,526 | | 428,906 |
(1)The fair value of the option grants is the accounting fair value of the options determined in accordance with IFRS 2 using the Black-Scholes option pricing model. The calculation of the fair value of the stock options granted to the named executive officers yielded a grant date fair value of $1.54 for options granted on November 1, 2018, $1.27 for options granted on June 21, 2019 and $0.56 for options granted on August 16, 2019. The assumptions to determine the Black-Scholes Values were as follows:
| | | | | | | | | | | |
| November 1, 2018 | June 21, 2019 | August 16, 2019 |
| Dividend (%) | 0.00 | 0.00 | 0.00 |
| Expected volatility (%) | 30.00 | 30.00 | 30.00 |
| Risk-free interest rate (%) | 2.42 | 2.02 | 1.14 |
| Expected life (years) | 6.10 | 6.63 | 1.50 |
(2)This column shows the value of the annual bonuses received by the named executive officers for each of the fiscal years ended March 31, 2020 and 2019.
(3)This column includes Alithya’s contributions under the Employee Share Purchase Plan and towards health insurance benefits and related insurance coverage, but excludes the value of perquisites and other personal benefits which in the aggregate was less than $50,000 or 10% of the aggregate salary of the named executive officer for the applicable fiscal year and which is not required to be disclosed. For Mr. Rousseau, this column includes an annual relocation allowance for his relocation from Montréal to Orlando amounting to $79,800 for the fiscal year ended March 31, 2020. For Messrs. Rousseau and Smith, this column also includes $8,849 and $7,731 for the fiscal year ended March 31, 2020 and $954 and $7,674 for the fiscal year ended March 31, 2019, respectively, in respect of employer matching contributions to Alithya’s 401(k) Plan. Matching contributions are made in U.S. dollars; the amounts included are in Canadian dollars converted on the basis of the average exchange rate used in the Company’s audited consolidated financial statements for the fiscal years ended March 31, 2020 and 2019 which was $1.330 and $1.312 for each U.S. dollar respectively.
(4)Claude Thibault joined Alithya on August 13, 2018.
(5)Claude Rousseau (since January 13, 2019) and Russell Smith are paid in U.S. dollars. Except for their option-based awards which are converted on the basis of the exchange rate on the date of grant, the amounts shown are in Canadian dollars converted on the basis of the average exchange rate used in the Company’s audited consolidated financial statements for the fiscal years ended March 31, 2020 and 2019 which was $1.330 and $1.312 for each U.S. dollar respectively.
Outstanding Share-Based and Option-Based Awards
The following table lists all options held by Alithya’s named executive officers as at March 31, 2020, including (i) options originally granted by Old Alithya or Edgewater which were converted, on substantially the same terms and conditions as were applicable under the Old Alithya and Edgewater incentive plans immediately prior to the Edgewater Transaction, into options to acquire a number of subordinate voting shares equal to the number of shares subject to such options for Old Alithya options, and the number of shares of common stock of Edgewater subject to such options multiplied by the equity exchange ratio of 1.1918 for Edgewater options, and (ii) options issued as part of the named executive officers’ compensation during the fiscal years ended March 31, 2020 and 2019. Alithya’s named executive officers do not hold, and did not receive in respect of their compensation for the fiscal year ended March 31, 2020, any share-based awards.
| | | | | | | | | | | | | | | | | | | | |
| Name | Number of Alithya Shares Underlying Unexercised Options (#) | | Option Exercise Price ($) | Option Expiration Date | Option Grant Date | Value of Unexercised in the money Options(1) ($) |
Paul Raymond(2) | 100,000 | | | 1.90 | March 31, 2021 | April 1, 2011 | 56,000 | |
President and | 52,632 | | | 1.90 | March 31, 2021 | April 1, 2012 | 29,474 | |
Chief Executive Officer | 52,632 | | | 1.90 | March 31, 2022 | April 1, 2012 | 29,474 | |
| 52,632 | | | 1.90 | March 31, 2023 | April 1, 2012 | 29,474 | |
| 52,632 | | | 1.90 | March 31, 2024 | April 1, 2012 | 29,474 | |
| 52,632 | | | 1.90 | March 31, 2025 | April 1, 2012 | 29,474 | |
| 100,000 | | | 1.92 | March 31, 2022 | April 1, 2012 | 54,000 | |
| 100,000 | | | 2.46 | March 31, 2023 | April 1, 2013 | — | |
| 100,000 | | | 2.21 | March 31, 2024 | April 1, 2014 | 25,000 | |
| 100,000 | | | 2.87 | March 31, 2025 | April 1, 2015 | — | |
| 100,000 | | | 2.96 | March 31, 2026 | April 1, 2016 | — | |
| 100,000 | | | 3.80 | May 16, 2027 | May 17, 2017 | — | |
| | 135,000 | | 4.50 | October 31, 2028 | November 1, 2018 | — | |
| | 100,000 | | 3.64 | June 20, 2029 | June 21, 2019 | — | |
| 1,198,160 | | |
| | | 282,370 | |
|
| |
|
| | |
Claude Thibault(3) | | 47,000 | | 4.50 | October 31, 2028 | November 1, 2018 | — | |
Chief Financial Officer | | 52,000 | | 3.64 | June 20, 2029 | June 21, 2019 | — | |
| | 99,000 | |
| | | — | |
|
|
|
|
|
| |
Claude Rousseau(4) | | 10,000 | | 2.87 | March 31, 2026 | April 1, 2016 | — | |
Chief Operating Officer | | 25,000 | | 2.96 | March 31, 2026 | April 1, 2016 | — | |
| | 30,000 | | 3.80 | May 16, 2027 | May 17, 2017 | — | |
| | 74,000 | | 4.50 | October 31, 2028 | November 1, 2018 | — | |
| | 72,000 | | 3.90 | June 20, 2029 | June 21, 2019 | — | |
| | 211,000 | |
| | | — | |
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | |
Russell Smith(5)(6) | | 35,754 | | 6.80 | March 5, 2021 | March 5, 2014 | — | |
President, Alithya USA | | 59,590 | | 6.92 | March 6, 2022 | March 6, 2015 | — | |
| | 47,000 | | 4.86 | October 31, 2028 | November 1, 2018 | — | |
| | 37,500 | | 3.90 | June 20, 2029 | June 21, 2019 | — | |
| | 85,000 | | 3.87 | August 15, 2022 | August 16, 2019 | — | |
| | 264,344 | |
| | | — | |
|
|
|
|
|
|
|
| Robert Lamarre | | 20,000 | | 2.96 | April 17, 2026 | April 18, 2016 | — | |
| Chief Information | | 20,000 | | 3.80 | May 16, 2027 | May 17, 2017 | — | |
| Officer | | 47,000 | | 4.50 | October 31, 2028 | November 1, 2018 | — | |
| | 50,000 | | 3.64 | June 20, 2029 | June 21, 2019 | — | |
| | 137,000 | | | | | — | |
(1) Based on $2.46, the closing price of Alithya’s subordinate voting shares on the TSX on March 31, 2020, the last trading day of the fiscal year ended March 31, 2020.
(2)Except for those options of Mr. Raymond which will expire on October 31, 2028 and thereafter, and which entitle him to acquire subordinate voting shares, all other options held by Mr. Raymond were granted by Old Alithya prior to the Edgewater Transaction and entitle him to acquire multiple voting shares.
(3)Mr. Thibault joined Alithya on August 13, 2018.
(4)The exercise price of all of Mr. Rousseau’s options, except those expiring on June 20, 2029, is in Canadian dollars. The exercise price for his options expiring on June 20, 2029 is in U.S. dollars. The exercise price shown is the Canadian dollar equivalent of the U.S. exercise price determined using the March 31, 2020 exchange rate of $1.4118 for each U.S. dollar.
(5)Except for those options of Mr. Smith which expire on October 31, 2018 and thereafter, all other options held by Mr. Smith were originally granted by Edgewater and were converted, on substantially the same terms and conditions as were applicable under the Edgewater equity incentive plans before the Edgewater Transaction, into options to acquire a number of subordinate voting shares equal to the number of shares of common stock of Edgewater subject to such options immediately prior to the Edgewater Transaction multiplied by the equity exchange ratio of 1.1918.
(6)The exercise price of Mr. Smith’s options is in U.S. dollars. The exercise price of his options held prior to the Edgewater Transaction was originally fixed by Edgewater and was reduced by an amount of US$1.15 per option immediately prior to the closing of the Edgewater Transaction in order to reflect the special dividend paid on each Edgewater share of common stock then outstanding to Edgewater stockholders of record on October 31, 2018, and divided by the 1.1918 equity exchange ratio upon closing. The exercise price shown for his options is the Canadian dollar equivalent of the U.S. exercise price determined using the March 31, 2020 exchange rate of $1.4118 for each U.S. dollar.
Compensation for Non-Employee Directors
Alithya’s compensation for its non-employee directors is comprised of an all-inclusive annual retainer, payable in cash (“Cash-Based Component”) and in the form of share-based awards (“Share-Based Component”). The Cash-Based Component varies based on roles held on the Board (e.g. chairing the Board or a committee, and being a committee member), while the Share-Based Component is set at $35,000 for all non-employee directors.
The following table shows the Cash-Based Component and the Share-Based Component of the annual retainer of non-employee directors. All directors are paid in Canadian dollars.
| | | | | | | | |
| Annual Retainer | |
Director Position(1) | Cash-Based Component | Share-Based Component |
Board Chair(2) | $95,000 | $35,000 |
| Director | $40,000 | $35,000 |
| Committee Chair | | |
| Audit and Risk Management Committee Chair, Corporate Governance and Nominating Committee Chair, and Human Capital and Compensation Committee Chair | $35,000 | - |
| Committee Member | | |
| Audit and Risk Management Committee, Corporate Governance and Nominating Committee, and Human Capital and Compensation Committee | $10,000 | - |
(1) There is no additional retainer for acting as the lead director.
(2) The Board Chair retainer is a flat all-inclusive fee. The Board Chair does not receive any additional fee for being the Chair or a member of a committee.
Non-employee directors are required to own subordinate voting shares (or, if applicable, multiple voting shares) or equity-based awards, such as deferred share units (“DSUs”), having an aggregate value equivalent to at least two times the Cash-Based Component of their respective annual retainer, and each non-employee director is required to continue to hold such value throughout his or her tenure as a director. The Director Share Ownership Requirement is to be progressively achieved over a period of three years from their appointment to the Board. Shares are valued at the greater of the price of the subordinate voting shares at the time the subordinate voting shares (or, if applicable, the multiple voting shares) or DSUs were acquired and the market value of such shares or DSUs at the closing price of Alithya’s subordinate voting shares on the TSX on the last trading day preceding the day on which the share ownership level is assessed. In addition, Alithya securities held to comply with the Director Share Ownership Requirement shall not be, during the directors’ tenure, the object of specific monetization procedures or other hedging procedures to reduce the exposure related to their ownership.
The Share-Based Component is an aggregate amount of $35,000 and is paid in DSUs issued pursuant to the Equity Incentive Plan. In addition to the Share-Based Component of their annual retainer, non-employee directors may, prior to the beginning of each calendar year, elect to receive all or part of the value of their Cash-Based Component either in cash, in DSUs issued pursuant to the Equity Incentive Plan, or a combination of both. Directors who do not hold subordinate voting shares (or, if applicable, multiple voting shares) or DSUs having a value equal to at least two times the value of the Cash-Based Component of their annual retainer are, however, required to receive 50% of the value of the Cash-Based Component of their annual retainer in the form of DSUs until such time that they meet the Director Share Ownership Requirement.
Each DSU entitles the beneficiary thereof to receive upon resignation, retirement or death, one subordinate voting share of Alithya. Each non-employee director has an account where DSUs are credited and held until the director leaves the Board. The number of DSUs credited to each director’s account is calculated by dividing the value to be received in DSUs by the closing price of the subordinate voting share on the TSX on the last trading day immediately preceding the date of grant.
Non-employee directors are also reimbursed for their travelling and other reasonable expenses incurred by them in attending meetings of the Board or any committee or in otherwise serving Alithya.
The total compensation earned by the non-employee directors on account of their Board and/or Board committee memberships during the fiscal year ended March 31, 2020 is set forth below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Name(1) | | Cash(2)(3) ($) | | Share-Based Awards(4) ($) | | All Other Compensation ($) | Total ($) | |
| Dana Ades-Landy | | 25,000 | | 60,000 | | – | | 85,000 |
| Robert Comeau | | 46,875 | | 63,125 | | – | | 110,000 |
François Côté(5)(6) | | 48,750 | | 8,750 | | – | | 57,500 |
Fredrick DiSanto(7) | | 32,500 | | 47,500 | | – | | 80,000 |
Lucie Martel(8) | | 18,750 | | 36,250 | | – | | 55,000 |
James B. Renacci(9) | | 5,435 | | 23,505 | | – | | 28,940 |
Ghyslain Rivard(10) | | 60,000 | | 35,000 | | – | | 95,000 |
Jeffrey Rutherford(6)(11) | | 26,250 | | 17,500 | | – | | 43,750 |
| C. Lee Thomas | | 31,250 | | 53,750 | | – | | 85,000 |
| Pierre Turcotte | | 78,375 | | 51,625 | | – | | 130,000 |
(1) As Mr. Raymond is an executive officer, he was not compensated for his services as a director of Alithya. Please refer to the Summary Compensation Table earlier in this document for a summary of his compensation for the fiscal year ended March 31, 2020.
(2)This column shows the value of the Board retainer earned by the non-employee directors in respect of the fiscal year ended March 31, 2020 payable in cash. In reaction to the COVID-19 pandemic, the Board agreed to defer the payment of their Board retainer payable in cash in respect of the last quarter of the fiscal year ended March 31, 2020 to a later date, which remains to be determined. As the Company currently intends to pay such deferred compensation, this column includes the deferred portion of their Board retained in order to illustrate the total amount earned by, and payable to, the non-employee directors in respect of the fiscal year ended March 31, 2020.
(3)For the first, second and third quarter of the fiscal year ended March 31, 2020, non-employee directors elected to receive the Cash-Based Component of their Board retainer in cash. Mses. Ades-Landy and Martel and Messrs. Comeau and Thomas, however, received half of their Cash-Based Component in DSUs during the quarters they did not meet the Director Share Ownership Requirement. For the last quarter of the fiscal year ended March 31, 2020, Ms. Ades-Landy and Messrs. Comeau and Thomas elected to receive half of the Cash-Based Component of their Board retainer in DSUs, Mr. DiSanto and Renacci elected to receive all of the Cash-Based Component of their Board retainer in DSUs, Ms. Martel and Mr. Rivard elected to receive all of the Cash-Based Component of their Board retainer in cash, except that Ms. Martel received half of hers in DSUs as she did not meet the Director Share Ownership Requirement, and Mr. Turcotte elected to receive 70% of the Cash-Based Component of his Board retainer in DSUs.
(4)This column shows the value of the Board retainer earned by the non-employee directors in respect of the fiscal year ended March 31, 2020 and which was paid in DSUs. It includes the Share-Based Component of their annual retainer as well as the value of the Cash-Based Component of their annual retainer they elected to receive in additional DSUs.
(5)Mr. Côté did not seek re-election on the Board and therefore ceased to be a member of the Board and the Chair of the Corporate Governance, Nominating and Compensation Committee (which was split into the Corporate Governance and Nominating Committee and the Human Capital and Compensation Committee) on September 18, 2019. Mr. Côté was also a member of the Audit and Risk Management Committee until June 30, 2019.
(6)The Share-Based Component of the Board retainer of Messrs. Côté and Rutherford for the last quarter during which they acted as members of the Board was paid in cash, pro rata to the number of days they acted as such during that quarter, as they were no longer eligible to receive DSUs under the Equity Incentive Plan on the last day of the quarter.
(7)Mr. DiSanto was appointed as a member of the Corporate Governance and Nominating Committee following the split of the Corporate Governance, Nominating and Compensation Committee on September 18, 2019 and started acting as such at its next meeting on November 12, 2019.
(8)Ms. Martel was elected as a member of the Board and as Chair of the Human Capital and Compensation Committee following the split of the Corporate Governance, Nominating and Compensation Committee on September 18, 2019 and started acting as such at its next meeting on November 12, 2019.
(9)Mr. Renacci was appointed as a member of the Board effective November 12, 2019.
(10)Mr. Rivard, who was a member of the Corporate Governance, Nominating and Compensation Committee (which was split into the Corporate Governance and Nominating Committee and the Human Capital and Compensation Committee), was appointed as a member of both committees on September 18, 2019 and started acting as such at their next meeting on November 12, 2019. He also ceased to be a member of the Audit and Risk Management Committee on November 11, 2019.
(11)Mr. Rutherford ceased to be a member of the Board effective October 31, 2019.
The table below lists all option-based and share-based awards (DSUs) held by non-employee directors as at March 31, 2020. Alithya’s non-employee directors did not receive any option-based awards in respect of their compensation for the fiscal year ended March 31, 2020. The outstanding options were originally granted by Edgewater prior to the Edgewater Transaction.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Option-Based Awards | | | | | | | | | | | Share-Based Awards | | |
| Name | Number of Alithya Shares Underlying Unexercised Options (#) | | Option Exercise Price ($) | | | Option Expiration Date | | Option Grant Date | | Value of Unexer- cised in- the-money Options ($) | | Market or Payout Value of Share- Based Awards That Have Not Vested ($) | Market or Payout Value of Vested Share-Based Awards Not Paid-out or Distributed(1) ($) | |
| Dana Ades-Landy | – | | – | | | – |
| – | | – | | – | 50,961 | |
| Robert Comeau | – | | – | | | – |
| – | | – | | – | 53,616 | |
François Côté(2) | – | | – | | | – |
| – | | – | | – | – | |
Fredrick DiSanto(3)(4) | 20,856 | | 6.28 | | | February 16, 2022 |
| February 16, 2017 | | – | |
| | |
| 6,436 | | 6.92 | | | June 14, 2022 |
| June 14, 2017 | | – | |
| | |
| 27,292 | | | | |
|
|
| | – | | – | 44,740 | |
Lucie Martel(5) | – | | – | | | – |
| – | | – | | – | 29,134 | |
James B. Renacci(6) | – | | – | | | – |
| – | | – | | – | 20,733 | |
Ghyslain Rivard(7) | – | | – | | | – |
| – | | – | | – | 33,048 | |
Jeffrey Rutherford(8) | – | | – | | | – |
| – | | – | | – | 18,986 | |
| C. Lee Thomas | – | | – | | | – |
| – | | – | | – | 46,760 | |
| Pierre Turcotte | – | | – | | | – |
| – | | – | | – | 48,600 | |
(1) Shows the aggregate payout value of DSUs held as at March 31, 2020 based on $2.46, the closing price of Alithya’s subordinate voting shares on the TSX on March 31, 2020, the last trading day of the fiscal year ended March 31, 2020. All DSUs are fully vested at the time of grant.
(2)Mr. Côté did not seek re-election on the Board and therefore ceased to be a member of the Board and the Chair of the Corporate Governance, Nominating and Compensation Committee (which was split into the Corporate Governance and Nominating Committee and the Human Capital and Compensation Committee) on September 18, 2019. Mr. Côté was
also a member of the Audit and Risk Management Committee until June 30, 2019. His DSUs were settled through the issuance of treasury shares on December 17, 2019.
(3)Mr. DiSanto’s options are options that were originally issued by Edgewater and which were converted, on substantially the same terms and conditions as were applicable under the Edgewater equity incentive plans before the Edgewater Transaction, into options to acquire a number of subordinate voting shares equal to the number of shares of common stock of Edgewater subject to such options immediately prior to the Edgewater Transaction multiplied by the equity exchange ratio of 1.1918.
(4)The exercise price of Mr. DiSanto’s options is in U.S. dollars. The exercise price of his options held prior to the Edgewater Transaction was originally fixed by Edgewater and was reduced by an amount of US$1.15 per option, immediately prior to the closing of the Edgewater Transaction in order to reflect the special dividend paid on each Edgewater share of common stock then outstanding to Edgewater stockholders of record on October 31, 2018, and divided by the 1.1918 equity exchange ratio upon closing. The exercise price shown for his options is the Canadian dollar equivalent of the U.S. exercise price determined using the March 31, 2020 exchange rate of $1.4118 for each U.S. dollar.
(5)Ms. Martel was elected as a member of the Board and as Chair of the Human Capital and Compensation Committee following the split of the Corporate Governance, Nominating and Compensation Committee on September 18, 2019 and started acting as such at its next meeting on November 12, 2019.
(6)Mr. Renacci was appointed as a member of the Board effective November 12, 2019.
(7)Mr. Rivard, who was a member of the Corporate Governance, Nominating and Compensation Committee (which was split into the Corporate Governance and Nominating Committee and the Human Capital and Compensation Committee), was appointed as a member of both committees on September 18, 2019 and started acting as such at their next meeting on November 12, 2019. He also ceased to be a member of the Audit and Risk Management Committee on November 11, 2019.
(8)Mr. Rutherford ceased to be a member of the Board effective October 31, 2019. The 20,856 options he held as at the date of the end of his Board mandate were forfeited and canceled on January 31, 2020. The table above shows the market value of his DSUs as at March 31, 2020 (being the reference date for the information disclosed in this table). Mr. Rutherford’s DSUs were settled through the issuance of treasury shares on April 30, 2020.
Equity Incentive Plan
The following summary describes the material terms of the Equity Incentive Plan. It is, however, not a complete description of all the provisions of the Equity Incentive Plan and is qualified in its entirety by reference to the Equity Incentive Plan.
Administration
The Equity Incentive Plan is administered by the Board. The Board has the authority to, among other things, determine eligibility for awards to be granted, determine, modify or waive the type or types of, form of settlement of, and terms and conditions of awards, to accelerate the vesting or exercisability of awards, to adopt rules, guidelines and practices governing the operation of the Equity Incentive Plan as the Board deems advisable, to interpret the terms and provisions of the Equity Incentive Plan and any award agreement, and to otherwise do all things necessary or appropriate to carry out the purposes of the Equity Incentive Plan. To the extent permitted by applicable law, the Board may, from time to time, delegate to a committee of the Board all or any of the powers conferred on it pursuant to the Equity Incentive Plan.
Eligibility
Certain Alithya employees and non-employee directors, and those of its designated affiliates, are eligible to participate in the Equity Incentive Plan. However, eligibility to participate will not confer any right to receive any grant of an award pursuant to the Equity Incentive Plan. The Board has sole and complete authority, in its discretion, to determine the individuals to whom grants may be made.
Authorized Shares
Shares issued upon the exercise or settlement of awards granted under the Equity Incentive Plan are issued from treasury. Subject to adjustment, as described below, the maximum number of subordinate voting shares issuable under the Equity Incentive Plan is equal to 10% of the number of subordinate voting shares and multiple voting shares that are issued and outstanding from time to time.
Subordinate voting shares subject to an award that, for any reason, expires without having been exercised, is cancelled, forfeited, surrendered, or terminated, or otherwise is settled without the issuance of subordinate voting shares will again be available for grant under the Equity Incentive Plan.
Types of Awards
The Equity Incentive Plan provides for awards of (i) stock options, (ii) restricted shares, (iii) restricted share units, (iv) performance share units, (v) deferred share units, and (vi) share appreciation rights.
•Stock Options. The exercise price of stock options may not be less than the market price of the subordinate voting shares at the time of grant. The market price is equal to the closing price of the subordinate voting shares on the TSX or the NASDAQ, whichever is greater at the then current exchange rate, on the day immediately preceding the date of grant. The Board determines at the time of grant the vesting conditions that impact the time or times at which stock options become exercisable and the terms on which stock options remain exercisable. Subject to any accelerated termination as set forth in the Equity Incentive Plan, the maximum term of a stock option is 10 years.
•Restricted Shares. An award of restricted shares is an award of subordinate voting shares subject to certain restrictions and to a risk of forfeiture.
•Restricted Share Units. An award of restricted share units is an award denominated in subordinate voting shares that entitles the participant to receive subordinate voting shares in the future. The delivery of subordinate voting shares under a restricted share unit award may be subject to the satisfaction of performance conditions or other vesting conditions as determined by the Board.
•Performance Share Units. An award of performance share units is an award the vesting and settlement of which is subject to performance objectives and other vesting conditions. Performance objectives may be based upon the achievement of corporate, divisional or individual goals, and may be applied relative to performance of an index or comparator group, or on any other basis determined by the Board.
•Deferred Share Units. An award of deferred share units is an award of a notional investment in subordinate voting shares reflected on an unfunded, book-entry account maintained by Alithya. Deferred share units may be subject to performance conditions or other vesting conditions. Deferred share units are generally settled in subordinate voting shares on the 90th day of the
participant’s termination date, for Canadian participants, and on the 180th day of the participant’s termination date, for U.S. participants.
•Share Appreciation Rights. An award of share appreciation rights is an award that, subject to determination by the Board, will upon exercise provide the participant with a right to receive a specified number of subordinate voting shares equal in value to a specified increase in the market value of the subordinate voting shares. Subject to any accelerated termination as set forth in the Equity Incentive Plan, the maximum term of a share appreciation right is 10 years.
Limits on Grants of Awards
The maximum aggregate number of subordinate voting shares that can be issued, at any time and within any one-year period to insiders of Alithya under the Equity Incentive Plan and any other Alithya security-based compensation arrangements involving newly issued subordinate voting shares, may not exceed 10% of the issued and outstanding subordinate voting shares and multiple voting shares.
Termination of Employment or Directorship
The Board has the authority to determine the vesting schedule applicable to each award and to accelerate the vesting or exercisability of any award. The Board may also determine the effect of termination of directorship on an award. Unless otherwise provided by the Board upon a termination of a participant’s employment or directorship under the following circumstances, the following treatment will apply:
•Death or Disability. All awards shall immediately vest (or cease to be restricted) as of the termination date, and each stock option or share appreciation right held will continue to be exercisable (i) in the case of disability, until the date that is 90 days after the date of disability, or (ii) in the case of death, until the date that is 180 days after the date of death. Any performance targets associated with any award will be deemed to have been met at the target performance level.
•Retirement of an Employee. All unvested awards shall continue to vest and be settled and exercised in accordance with their terms, except that each stock option or share appreciation right held will continue to be exercisable until the date that is 90 days following the last vesting date of such stock option or share appreciation right and, if not exercised on or before such date, will be forfeited and cancelled.
•Voluntary Resignation of Employment (other than pursuant to a Retirement). All unvested awards will be forfeited and cancelled as of the termination date. Stock options and share appreciation rights, that have vested but have not been exercised, will remain exercisable until the earlier of (i) the date that is 90 days after the participant’s termination of employment or (ii) the award’s expiration date. Any performance targets associated with any vested awards will be deemed to have been met at the target performance level.
•Termination of Employment by Alithya for Cause. All awards, whether vested or unvested, will be forfeited and cancelled as of the termination date.
•Termination of Employment by Alithya other than for Cause. All unvested awards will be forfeited and cancelled as of the termination date. Stock options and share appreciation rights, that have vested but have not been exercised, will remain exercisable until the earlier of (i) the date that is 90 days after the participant’s termination of employment or (ii) the award’s expiration date. Any
performance targets associated with any vested awards will be deemed to have been met at the target performance level.
•Termination of Directorship by Alithya for Breach of Fiduciary Duty. All awards, whether vested or unvested, will be forfeited and cancelled as of the termination date.
•Termination of Directorship for any reason other than Death, Disability, or Breach of Fiduciary Duty. The Board may, in its sole discretion, at any time prior to or following the date of termination of directorship, provide for the exercise, vesting or settlement of any or all awards held by the director on the date of termination.
Non-Transferability of Awards
Awards under the Equity Incentive Plan may not be sold, assigned, transferred, alienated, pledged, mortgaged, charged, or otherwise encumbered, and may not be subject to attachment or legal process for the payment of any debts or obligations of the participant other than in accordance with the terms of the Equity Incentive Plan or unless approved by the Board.
Recovery of Compensation
The Board may provide that an award may be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any clawback, recoupment or similar policy adopted by Alithya or in effect on the date of grant of the award, or as otherwise required by law or applicable stock exchange listing standards.
Change in Control
In the event of a Change in Control (as such term is defined in the Equity Incentive Plan), the Board may, without the consent of any participant, take such steps as it deems necessary or desirable, including to cause (i) the conversion or exchange of any outstanding awards into or for, rights or other securities of substantially equivalent value (or greater value), as determined by the Board in its discretion, in any entity participating in or resulting from a Change in Control; (ii) outstanding awards to vest and become exercisable, realizable, or payable, or restrictions applicable to an award to lapse, in whole or in part prior to or upon consummation of such Change in Control, and, to the extent the Board determines, terminate upon or immediately prior to the effectiveness of such Change in Control; (iii) the termination of an award in exchange for an amount of cash and/or property, if any, equal in value to the amount that would have been attained upon the exercise of such award or realization of the participant’s rights as of the date of the occurrence of such Change in Control (and, for the avoidance of doubt, if as of the date of the occurrence of such Change in Control the Board determines in good faith that no amount would have been attained upon the exercise of such award or realization of the participant’s rights, then such award may be terminated by Alithya without payment); (iv) the replacement of such award with other rights or property selected by the Board in its sole discretion; or (v) any combination of the foregoing. In taking any of these actions, the Board will not be required to treat all awards similarly.
Certain Adjustments
Should Alithya effect a subdivision or consolidation of shares or any similar capital reorganization or a payment of a stock dividend (other than a stock dividend that is in lieu of a cash dividend), or should any other change be made in the capitalization of Alithya that does not constitute a Change in Control and would warrant the amendment or replacement of any existing awards in order to adjust the number of subordinate voting shares that may be acquired on the vesting of outstanding awards and/or the terms of any award in order to preserve proportionately the rights and obligations of the participants holding such awards, the Board will, subject to the prior approval of the applicable stock exchange, as applicable, authorize such steps to be taken as it may consider to be equitable and appropriate to that end.
Amendment, Suspension or Termination of the Plan
The Board may from time to time, without notice to or approval of the holders of voting shares of Alithya, amend, modify, change, suspend or terminate the Equity Incentive Plan or any outstanding award, as the Board determines appropriate. However, the Board shall not alter, suspend or terminate the Equity Incentive Plan or any outstanding award without the participant’s consent, if such alteration, suspension or termination of the Equity Incentive Plan or any outstanding award would materially impair the participant’s rights or materially increase the participant’s obligations under the Equity Incentive Plan (unless the Board determines that such adjustment is required or desirable in order to comply with any applicable securities law or stock exchange requirements). Shareholder approval will be required, in addition to the extent required by law, for any amendment, modification or change that (i) increases the percentage of subordinate voting shares reserved for issuance under the Equity Incentive Plan (except with respect to the adjustments described above), (ii) increases or removes the 10% limits on subordinate voting shares issuable or issued to insiders as described above, (iii) reduces the exercise price of an award (except with respect to the adjustments described above), (iv) extends the term of any award granted under the Equity Incentive Plan beyond its original expiration date (except where an expiration date would have fallen within a blackout period applicable to the participant or within five (5) business days following the expiry of such a blackout period), (v) permits awards to be transferred to a person other than a permitted assign (as such term is defined in National Instrument 45-106 - Prospectus exemptions) or other than for normal estate settlement purposes, or (vi) deletes or reduces the range of amendments which require approval of the holders of voting shares of Alithya.
Employee Share Purchase Plan
The following summary describes the material terms of the Employee Share Purchase Plan. It is, however, not a complete description of all provisions of the Employee Share Purchase Plan and is qualified in its entirety by reference to the Employee Share Purchase Plan.
Purpose and Scope
The purpose of the Employee Share Purchase Plan is to encourage and assist eligible employees of Alithya to acquire a proprietary interest in Alithya by providing such eligible employees with a convenient and regular method of acquiring subordinate voting shares. The Employee Share Purchase Plan enables participants to make regular personal investments in subordinate voting shares by way of
payroll deduction. The Employee Share Purchase Plan also provides for matching employer contributions, up to a certain amount, that are also invested in subordinate voting shares.
Administration
The Employee Share Purchase Plan is administered by the Board in its sole and complete authority. Subject to applicable law, the Board may, from time to time, delegate to a committee of the Board all or any of the powers of the Board under the Employee Share Purchase Plan. Alithya has appointed AST Trust Company (Canada) as administrative agent to assist in the administration of the Employee Share Purchase Plan, including to purchase subordinate voting shares in the open market and hold them on behalf of participants as well as maintain records respecting such shares.
Eligibility
All permanent employees of Alithya or any designated affiliate are eligible to participate in the Employee Share Purchase Plan. Alithya reserves the right to restrict eligibility or otherwise limit the number of persons eligible for participation in the Employee Share Purchase Plan at any time.
Termination
A participant’s participation in the Employee Share Purchase Plan shall be terminated immediately upon (i) the participant’s death, (ii) the participant’s cessation of active employment for any reason (including retirement or permanent disability) with Alithya or a designated affiliate, (iii) any judgment, attachment, garnishment or other court order affecting the participant’s compensation or the participant’s account under the Employee Share Purchase Plan is filed or levied upon Alithya, the employer or the administrative agent, or the participant is legally adjudged incompetent or becomes bankrupt, or (iv) the employer ceases to be a designated affiliate of Alithya. A participant may also elect voluntarily to terminate his or her participation at any time.
No Assignment
The interest of any participant under the Employee Share Purchase Plan is not transferable, assignable or alienable by pledge, assignment or in any manner whatsoever.
Amendment, Suspension or Termination of the Plan
The Employee Share Purchase Plan may be amended by the Board at any time in accordance with applicable securities laws or stock exchange rules, and without shareholder approval unless required by such laws or rules. The Board may also suspend the Employee Share Purchase Plan in whole or in part from time to time or terminate it at any time. However, any amendment, suspension or termination shall not adversely affect the entitlement of the participants to the full balance of their accounts, without their written consent.
C. Board Practices
Composition of Alithya’s Board of Directors and Director Term Limits
Alithya’s articles and by-laws provide that the minimum number of directors constituting the Board is three and that the maximum number is fifteen. The Board is currently comprised of nine directors. The minimum and maximum number of directors may be changed by an amendment to Alithya’s articles and by-laws. Under Alithya’s by-laws, directors are elected each year by a simple majority of the votes cast at the annual meeting of shareholders, if a quorum is present, and they remain in office until the next annual meeting of shareholders or until they resign or their successors are appointed. Under the QBCA and Alithya’s articles, shareholders may also, by resolution passed by a majority of the votes cast thereon at any special meeting of shareholders, remove any or all directors from office and elect any qualified person to fill the resulting vacancy. Vacancies that exist on the Board may generally be filled by the Board if the remaining directors constitute a quorum and the Board may, at its discretion, appoint one or more directors, who shall hold office for a term expiring no later than the close of the annual meeting of shareholders following their appointment, except that the total number of directors so appointed may not exceed one third of the number of directors elected at the annual meeting of shareholders preceding their appointment. In the absence of a quorum, the remaining directors shall call a meeting of shareholders to fill the vacancy.
Committees of Alithya’s Board of Directors
Prior to September 18, 2019, the Board had two committees to assist it in fulfilling its mandate: the audit and risk management committee (“Audit Committee”) and the corporate governance, nominating and compensation committee. On September 18, 2019, given the evolving needs of the Board and the extensive mandate of the corporate governance, nominating and compensation committee, the committee was split into two distinct committees: the corporate governance and nominating committee (“Governance Committee”), which continues the work of its predecessor committee, except for human capital and compensation matters which were assigned to the newly formed Human Capital and Compensation Committee (“Compensation Committee”). Each committee reports to the Board. The role and responsibilities of the committees are described below.
Audit and Risk Management Committee
Alithya’s Audit Committee is composed of Robert Comeau, Dana Ades-Landy and C. Lee Thomas, with Mr. Comeau serving as Chair of the committee. The Board has determined that all members of the Audit Committee meet the independence requirements under the rules of NASDAQ, the TSX and National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”) and under Rule 10A-3 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has also determined that Robert Comeau is an “audit committee financial expert” within the meaning of the U.S. Securities and Exchange Commission’s (the “SEC”) regulations and applicable NASDAQ rules.
The purpose of Alithya’s Audit Committee is to fulfill applicable public company obligations respecting Audit Committees and assist the Board in discharging its oversight responsibilities with respect to financial reporting to ensure the transparency and integrity of Alithya’s published financial information. The audit and management committee’s responsibilities include overseeing: (i) the
integrity of Alithya’s financial statements and financial reporting process, including the audit process and Alithya’s internal control over financial reporting, disclosure controls and procedures, and compliance with other related legal and regulatory requirements, (ii) the qualifications, independence, retention, and compensation of Alithya’s external auditors, (iii) the work of Alithya’s financial management, internal auditors and external auditors, (iv) enterprise risk management, privacy and data and information security, and to monitor the same, and (v) the auditing, accounting and financial reporting process generally. The Audit Committee is also responsible for (i) pre-approving all non-audit services to be provided by Alithya’s external auditor, (ii) procedures for the receipt, retention and treatment of complaints received by Alithya regarding accounting, internal accounting controls or audit matters and the confidential anonymous submission by employees of Alithya and its subsidiaries of concerns regarding questionable accounting or auditing matters, and (iii) for any additional matters delegated to the Audit Committee by the Board.
Corporate Governance and Nominating Committee
Alithya’s Governance Committee is composed of Pierre Turcotte, Fredrick DiSanto and Ghyslain Rivard, with Mr. Turcotte serving as Chair of the committee.
Alithya’s Governance Committee serves the principal role of reviewing the Company’s approach to corporate governance matters. The Governance Committee is, among others, responsible for: (i) overseeing and assessing the composition and functioning of the Board and its committees, (ii) the development, recommendation to the Board, implementation and assessment of effective corporate governance practices consistent with the Company’s commitment to high standards of corporate governance, (iii) identifying and addressing potential risks related to corporate governance matters, and (iv) identifying, and recommending to the Board, potential director candidates who possess the qualifications and skills to fulfill the Board responsibilities. In performing its mandate, the Governance Committee annually reviews Alithya’s approach to governance issues and recommends to the Board, where deemed necessary, changes to the Company’s policies, annually assesses the performance and effectiveness of the Board and its committees, as well as, every two years, each individual director, to ensure that they are fulfilling their respective responsibilities and duties, and oversees Alithya’s director orientation and continuing education programs.
Human Capital and Compensation Committee
Alithya’s Compensation Committee is composed of Lucie Martel, Ghyslain Rivard and Pierre Turcotte, with Ms. Martel serving as Chair of the committee.
Alithya’s Compensation Committee serves the principal role of approving, and recommending to the Board, compensation programs for senior management and directors of Alithya. The Compensation Committee is, among others, responsible for: (i) reviewing the compensation structure of executive officers and key senior management employees, and recommending to the Board compensation policies and processes as well as, where applicable, amendments to incentive compensation and equity compensation plans or the adoption of new plans, in order to retain key senior management employees with the skills and expertise needed to enable Alithya to achieve its goals and strategies at a fair and competitive compensation, (ii) reviewing, and recommending to the Board, target performance measures with respect to incentive compensation payable to executive officers and key senior management employees as well as compensation to be paid-out, and (iii) identifying and developing
talent to ensure that Alithya maintains an appropriate pipeline of potential successors at the executive and senior management levels.
D. Employees
As of March 31, 2020, 2019 and 2018, Alithya employed 2,146, 2,028, and 1,550 professionals (including 666, 657 and 730 subcontractors) respectively. The number of professionals by geography as of the end of the period for our fiscal years ended March 31, 2020, 2019 and 2018 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | | 2018 |
| By Geography: | | | | | | |
| Canada | | 1,524 | | 1,461 | | 1,454 |
| U.S. | | 493 | | 434 | | – |
| Europe | | 129 | | 133 | | 96 |
| Total | | 2,146 | | 2,028 | | 1,550 |
The increase in the number of professionals as of March 31, 2020 was primarily as a result of our business acquisitions.
Alithya is not party to any collective bargaining agreements.
In the weeks preceding this Annual Report, in response to the COVID-19 pandemic, Alithya took preventive measures to ensure continued operations and the safety of its professionals. As part of those preventive measures, Alithya temporarily closed its offices and promoted work from home and social distancing. In addition, Alithya established and implemented internal protocols to respond to suspected or diagnosed cases of COVID-19 among its workforce. While offices remain closed as of the date of this Annual Report, Alithya is currently preparing its return to the office measures based on applicable legislation, government recommendations and other best practices. Alithya will continue to monitor the related risks, as well as the measures and programs imposed by governments and will adjust its return to the office program accordingly.
E. Share Ownership
See Item 7. – “Major Shareholders and Related Party Transactions.”
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders.
Security Ownership
The following table sets forth information relating to the beneficial ownership of Alithya’s shares as of June 5, 2020, by:
•each person or group who is known by us, pursuant to, among others, publicly disclosed information, to own beneficially more than 5% of each class of Alithya’s shares;
•each of Alithya’s directors; and
•each of Alithya’s executive officers.
Beneficial ownership is determined in accordance with SEC rules. The information is not necessarily indicative of beneficial ownership for any other purpose. In general, under these rules a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares voting power or investment power with respect to such security. A person is also deemed to be a beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares held by that person.
The percentage of voting shares beneficially owned is computed on the basis of 50,912,251 subordinate voting shares and 7,168,984 multiple voting shares outstanding as of June 5, 2020.
| | | | | | | | | | | | | | | | | |
| Name of Beneficial Owner | | Subordinate Voting Shares Beneficially Owned (#) | Multiple
Voting Shares
Beneficially
Owned
(#) | Percentage of Total Alithya Shares (%) | Percentage
of Total
Voting
Power
(%) |
| Principal Shareholders: | | | | | |
Paul Raymond(1)(2) | | 138,423 | | 1,534,992 | | 2.87 | | 12.63 | |
Ghyslain Rivard(2)(3) | | – | | 4,962,819 | | 8.54 | | 40.48 | |
Pierre Turcotte(2)(4) | | 134,800 | | 1,634,333 | | 3.05 | | 13.44 | |
Capital Régional et Coopératif Desjardins(5) 2, complexe Desjardins, bur. 1717 C.P. 760, succ. Desjardins Montréal, QC H5B 1B8 | | 6,358,742 | | – | | 10.95 | | 5.19 | |
Claret Asset Management Corporation(6) 2000 McGill College Avenue, Suite 1150 Montréal, Québec, Canada H3A 3N4 | | 6,111,334 | | – | | 10.52 | | 4.98 | |
Investissement Québec(7) 600, De La Gauchetière Street West Suite 1500 Montréal, QC H3B 4L8 | | 4,821,286 | | – | | 8.30 | | 3.93 | |
Industrielle Alliance Insurance and Financial Services Inc.(8) 1080 Grande-Allée West Québec, Québec, Canada G1K 7M3 | | 4,509,933 | | – | | 7.76 | | 3.68 | |
Directors:(9) | | | | | |
| Dana Ades-Landy | | 12,725 | | – | | * | | * | |
| Robert Comeau | | 22,300 | | – | | * | | * | |
Fredrick DiSanto(10) | | 1,783,786 | | – | | 3.07 | | 1.45 | |
| Lucie Martel | | – | | – | | * | | * | |
| James B. Renacci | | 60,000 | | – | | * | | * | |
Paul Raymond(1)(2) | | See above | | See above | | See above | | See above | |
Ghyslain Rivard(2)(3) | | See above | | See above | | See above | | See above | |
| C. Lee Thomas | | 26,000 | | – | | * | | * | |
Pierre Turcotte(2)(4) | | See above | | See above | | See above | | See above | |
| | | | | | | | | | | | | | | | | |
Named Executive Officers:(9) | | | – | | | | |
| Paul Raymond | | See above | | See above | | See above | | See above | |
| Claude Thibault | | 75,067 | | – | | * | | * | |
Claude Rousseau(11) | | 112,409 | | – | | * | | * | |
Russell Smith(12) | | 257,796 | | – | | * | | * | |
Robert Lamarre(13) | | 116,205 | | – | | * | | * | |
* Less than 1%.
(1)Includes 963,160 multiple voting shares that Paul Raymond may acquire through the exercise of stock options within 60 days hereof. Also includes 571,832 multiple voting shares held by Fiducie Direxions. Paul Raymond has the power to direct investments and/or power to vote the securities held by Fiducie Direxions.
(2)On November 1, 2018, Paul Raymond, Ghyslain Rivard and Pierre Turcotte entered into a voting agreement, pursuant to which they agreed to, among other things, vote all of the Alithya shares under their control in accordance with decisions made by a majority of them, subject to certain exceptions. See “—Voting Agreement” below.
(3)Includes 4,612,000 multiple voting shares held by Services informatiques MixMédia inc. and 350,819 multiple voting shares held by 9668586 Canada Inc., which are indirectly majority-owned and controlled by Ghyslain Rivard, who has power to direct investments and/or power to vote the securities.
(4)Includes 51,400 subordinate voting shares held by Triaxions Technologie inc. and 1,468,858 multiple voting shares held by 9387-1010 Québec inc., which are indirectly majority-owned and controlled by Pierre Turcotte, who has power to direct investments and/or power to vote the securities.
(5)Information set forth above is based upon Capital Régional et Coopératif Desjardins’ reporting insider filing with the Canadian System for Electronic Disclosure by Insiders (SEDI) and its Schedule 13G filing with the SEC on November 9, 2018.
(6)Information set forth above is based upon Claret Asset Management Corporation’s Schedule 13G/A filing with the SEC on January 15, 2020.
(7)Information set forth above is based upon Investissement Québec’s Schedule 13G filing with the SEC on November 9, 2018.
(8)Information set forth above is based upon Industrielle Alliance Insurance and Financial Services Inc.’s Schedule 13G/A filing with the SEC on January 23, 2020.
(9)The address of each of the directors and named executive officers listed above is c/o Alithya Group inc., 1100 Robert-Bourassa Boulevard, Suite 400, Montréal, Québec, H3B 3A5.
(10)Includes 27,292 subordinate voting shares that Fredrick DiSanto may acquire through the exercise of stock options within 60 days hereof.
(11)Includes 65,000 subordinate voting shares that Claude Rousseau may acquire through the exercise of stock options within 60 days hereof.
(12)Includes 180,344 subordinate voting shares that Russell Smith may acquire through the exercise of stock options within 60 days hereof.
(13)Includes 40,000 subordinate voting shares that Robert Lamarre may acquire through the exercise of stock options within 60 days hereof.
Voting Rights
Each multiple voting share entitles its holder to 10 votes per multiple voting share at any meeting of Alithya shareholders, other than meetings at which only the holders of a particular class or series of shares are entitled to vote due to statutory provisions or the specific attributes of this class or series. Each subordinate voting share entitles its holder to one vote at any meeting of Alithya shareholders, other than meetings at which only the holders of a particular class or series of shares are entitled to vote due to statutory provisions or the specific attributes of this class or series.
Voting Agreement
On November 1, 2018, each of Paul Raymond, Ghyslain Rivard and Pierre Turcotte (collectively, the “Group of 3”) entered into a voting agreement (the “Voting Agreement”). Pursuant to the Voting Agreement, each of the members of the Group of 3 agreed to vote, or cause to be voted, all of the Alithya shares over which he has direct or indirect voting control from time to time and at all times (the “Controlled Shares”) at any shareholders’ meeting of Alithya in a manner as will be decided upon by the decision of at least two of the three members of the Group of 3 (the “Majority Decision”). However, no member of the Group of 3 will be required to comply with the Majority Decision in respect of a particular matter if, for that matter, (a) there is no Majority Decision notified to them by the deadline specified in the Voting Agreement, (b) a member of the Group of 3 holding Controlled Shares is not permitted by applicable law to vote on the matter, or (c) the vote is for the election of any of Paul Raymond, Ghyslain Rivard and Pierre Turcotte to the Board.
Under the Voting Agreement, subject to applicable securities laws and the articles of Alithya, each member of the Group of 3 agreed not to transfer his multiple voting shares or convert them into subordinate voting shares, without first offering those multiple voting shares to the other members of the Group of 3, who will then be entitled to purchase their respective pro rata portion of those multiple voting shares. The price of the offered multiple voting shares will be equal to the product obtained by multiplying the number of multiple voting shares offered for sale by the volume-weighted average trading price of the subordinate voting shares on the TSX for the 20-trading day period immediately prior to the offer date.
The Voting Agreement will remain in effect until unanimously terminated by the Group of 3.
The form of the Voting Agreement is filed as Exhibit 9.1 to Alithya’s registration statement on Form F-4 (File No. 333-227310), filed with the SEC on September 12, 2018, and is incorporated by reference herein.
B. Related Party Transactions
Not applicable.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Financial Statements and Other Financial Information
See Exhibit 15.3 to this Annual Report.
A.7 Legal Proceedings
During the ordinary course of conducting its business, Alithya may be threatened with or become subject to legal proceedings initiated by third parties or Alithya’s clients. Alithya currently has no material legal or regulatory proceedings pending.
A.8 Dividend Policy
Alithya does not currently expect to pay dividends on the subordinate voting shares or the multiple voting shares in the foreseeable future, and Alithya anticipates that it will retain all earnings, if any, to support its operations. Any future determination as to the payment of dividends will, subject to Canadian legal requirements and Alithya’s articles, be at the sole discretion of the Board and will depend on Alithya’s financial condition, results of operations, capital requirements and other factors the Board deems relevant. Currently, the provisions of Alithya’s Credit Facility (as defined below) place certain limitations on the amount of cash dividends that Alithya could pay.
B. Significant Changes
See “Note 23. Subsequent Events” to our Annual Financial Statements included as Exhibit 15.3 to this Annual Report.
ITEM 9. THE OFFER AND LISTING
Not applicable except for Item 9.A.4 and Item 9.C.
The subordinate voting shares have been listed on both the NASDAQ and the TSX since November 2, 2018 under the symbol “ALYA.”
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The information contained under the caption of “Description of New Alithya Shares” in Alithya’s registration statement on Form F-4, filed with the SEC on September 12, 2018 (File No. 333-227310), is incorporated by reference herein.
C. Material Contracts
Except as described below, Alithya was not a party to any material contracts entered into in the ordinary course of business, for the two years immediately preceding the date of this Annual Report.
Employment Agreements
The Company entered into new employment agreements with each of Messrs. Paul Raymond, Claude Thibault, Claude Rousseau and Robert Lamarre to harmonize them with the Company’s new form of employment agreements. Copies of their new employment agreements are attached as Exhibit 4.1 to 4.4 to this Annual Report.
At the time of the Edgewater Transaction, Alithya agreed to assume the employment agreement of Russell Smith originally entered into between Mr. Smith and Edgewater, as well as his then outstanding stay bonus and restrictive covenants agreement. A copy of his employment agreement is
attached as Exhibit 4.5 to this Annual Report and a copy of his then outstanding stay bonus and restrictive covenants agreement is attached as Exhibit 4.6 to this Annual Report.
Credit Agreement
On January 22, 2019, Alithya entered into a credit agreement for the provision of a $60,000,000 senior secured revolving credit facility (the “Credit Facility”), which replaced its previous credit facility. The facility can be drawn in both Canadian and US dollars, and is available in prime rate advances, LIBOR advances, bankers’ acceptances and letters of credit up to $2,500,000. As at March 31, 2020, and up to June 18, 2020, advances beared interest at the Canadian or US prime rate, as applicable, plus an applicable margin ranging from 0.00% to 0.75%, or bankers’ acceptances or LIBOR rates, plus an applicable margin ranging from 1.00% to 2.00%, as applicable for Canadian and US advances, respectively. The applicable margin is determined based on threshold limits for certain financial ratios. On June 18, 2020, the credit agreement was amended to reflect new covenant definitions, the Paycheck Protection Program loan certain of its subsidiaries received on May 5, 2020, a temporary minimum availability test, certain COVID-19 considerations, as well as other administrative clarifications. In addition, the maximum applicable margin for the Canadian and US prime rate advances increased from 0.75% to 1.50%, and the maximum applicable margin for bankers’ acceptances and LIBOR advances increased from 2.00% to 2.75%. As security for the facility, Alithya provided a first ranking hypothec on the universality of its assets excluding leased equipment and Investissement Québec’s first ranking lien on tax credits receivable for the financing tied to refundable tax credits, to a maximum of $7,500,000. Under the terms of the credit agreement, Alithya is required to maintain certain financial covenants. As at March 31, 2020, Alithya was in compliance with its financial covenants. The Credit Facility matures in 2022 and is renewable for additional one-year periods at the lender’s discretion. A copy of the amended and restated credit agreement is attached as Exhibit 4.7 to this Annual Report and is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov.
D. Exchange Controls
Subject to the following paragraph, there is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to non-resident holders of subordinate voting shares, other than withholding tax requirements.
There is no limitation imposed by Canadian law or by Alithya’s articles or other charter documents on the right of a non-resident to hold or vote subordinate voting shares, other than as provided by the Investment Canada Act (Canada) (the “Investment Canada Act”), the North American Free Trade Agreement Implementation Act (Canada) (the “North American Free Trade Agreement”) and the World Trade Organization Agreement Implementation Act. The Investment Canada Act requires notification and, in certain cases, advance review and approval by the Government of Canada of an investment to establish a new Canadian business by a non-Canadian or of the acquisition by a “non-Canadian” of “control” of a “Canadian business”, all as defined in the Investment Canada Act. Generally, the threshold for review will be higher in monetary terms for a member of the World Trade Organization or North American Free Trade Agreement.
Any remittances of dividends to U.S. residents and to other non-residents are, however, subject to withholding tax. See Item 10.E – “Taxation.”
E. Taxation
Certain U.S. Federal Income Tax Considerations
This summary describes certain U.S. federal income tax consequences of the ownership and disposition of subordinate voting shares by U.S. holders.
This summary does not address the U.S. federal income tax consequences of the ownership and disposition by non-U.S. holders of subordinate voting shares. The discussion below is limited to U.S. federal income tax matters. Accordingly, holders should consult their tax advisors regarding the U.S. federal alternative minimum, the Medicare tax on net investment income, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the ownership and disposition of subordinate voting shares.
This summary is based on provisions of the U.S. Internal Revenue Code (the “Code”), U. S. Treasury regulations promulgated thereunder (whether final, temporary, or proposed), administrative rulings, and judicial interpretations thereof, and the Canada-U.S. Tax Treaty, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a holder as a result of the ownership and disposition of subordinate voting shares. In addition, this summary does not take into account the individual facts and circumstances of any particular holder that may affect the U.S. federal income tax consequences to such holder, including specific tax consequences to a holder under applicable tax treaties other than the Canada-U.S. Tax Treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any holder. Holders should consult their tax advisors regarding such tax consequences in light of their individual circumstances.
This summary is limited to considerations relevant for investors holding subordinate voting shares as capital assets (generally, property held for investment). This summary does not discuss all aspects of U.S. federal income taxation that may be important to holders in light of their individual circumstances, including holders subject to special tax rules, such as:
•banks, thrifts, mutual funds, financial institutions, underwriters, insurance companies;
•real estate investment trusts and regulated investment companies;
•tax-exempt organizations, pension funds, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts;
•expatriates or former long-term residents of the U.S.;
•persons holding shares through a partnership, limited liability, or other fiscally or tax transparent entity;
•dealers or traders in securities, commodities or currencies;
•grantor trusts;
•persons subject to the alternative minimum tax;
•U.S. persons whose “functional currency” is not the U.S. dollar;
•partnerships or other pass-through entities;
•persons who received subordinate voting shares through the exercise of incentive stock options or through the issuance of restricted stock under an equity incentive plan or through a tax-qualified retirement plan or through other compensatory arrangements;
•persons who own (directly, indirectly or constructively) 10% or more (by vote or value) of the outstanding shares of Alithya; or
•holders holding subordinate voting shares as a position in a “straddle,” as part of a “synthetic security” or “hedge,” as part of a “conversion transaction” or other integrated investment, or as other than a capital asset.
Holders that are subject to special provisions under the Code, including holders described immediately above, should consult their tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences of the ownership and disposition of subordinate voting shares.
As used in this Annual Report, the term “U.S. holder” means a beneficial owner of subordinate voting shares, that is, for U.S. federal income tax purposes:
•an individual who is a citizen or resident of the U.S.;
•a corporation or other entity taxable as a corporation that is created or organized in or under the laws of the U.S., any state in the U.S. or the District of Columbia;
•an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
•a trust that (i) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons with respect to all of its substantial decisions, or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
As used in this Annual Report, the term “non-U.S. holder” means a beneficial owner (other than a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) of subordinate voting shares, that is not a U.S. holder.
The U.S. federal income tax treatment of a partner in a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) that holds subordinate voting shares generally will depend on the status of the partner and the activities of the partnership. A partnership or partner in a partnership that holds subordinate voting shares should consult its own tax advisor regarding the tax consequences of investing in and disposing of subordinate voting shares.
U.S. Federal Income Tax Consequences to U.S. Holders of the Ownership and Disposition of Subordinate Voting Shares
Distributions on Subordinate Voting Shares
Subject to the discussion under “—Passive Foreign Investment Company Status” below, the gross amount of any distribution on subordinate voting shares (including withheld taxes, if any) made out of Alithya’s current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be taxable to a U.S. holder as ordinary dividend income on the date such distribution is actually or constructively received. Any such dividends paid to corporate U.S. holders generally will not qualify for the dividends-received deduction that may otherwise be allowed under the Code with respect to dividends received from U.S. corporations. Distributions in excess of Alithya’s current and accumulated earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. holder’s basis in such holder’s subordinate voting shares, and thereafter
as capital gain. There can be no assurance that Alithya will maintain calculations of its earnings and profits in accordance with U.S. federal income tax accounting principles. U.S. holders should therefore assume that any distribution with respect to subordinate voting shares will constitute ordinary dividend income.
Dividends paid in currencies other than the U.S. dollar, if any, will generally be taxable to a U.S. holder as ordinary dividend income in an amount equal to the U.S. dollar value of the currency received on the date such distribution is actually or constructively received. Such U.S. dollar value must be determined using the spot rate of exchange on such date, regardless of whether the non-U.S. currency is actually converted into U.S. dollars on such date. The U.S. holder may realize exchange gain or loss if the currency received is converted into U.S. dollars after the date on which it is actually or constructively received. Any such gain or loss will be ordinary and will generally be treated as from sources within the U.S. for U.S. foreign tax credit purposes.
Dividends received by non-corporate U.S. holders (including individuals) from a “qualified foreign corporation” may be eligible for reduced rates of taxation, provided that certain holding period requirements and other conditions are satisfied. For these purposes, a non-U.S. corporation will be treated as a qualified foreign corporation if it is eligible for the benefits of a comprehensive income tax treaty with the U.S. which is determined by the U.S. Treasury Department to be satisfactory for purposes of these rules and which includes an exchange of information provision. The U.S. Treasury Department has determined that the Canada-U.S. Tax Treaty meets these requirements. A non-U.S. corporation is also treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares that are readily tradable on an established securities market in the U.S. U.S. Treasury Department guidance indicates that the common or ordinary shares which are listed on NASDAQ, should be considered readily tradable on an established securities market in the U.S. Accordingly, the subordinate voting shares are expected to satisfy this requirement in respect of the taxable year ended March 31, 2021. However, there can be no assurance that the subordinate voting shares will be considered readily tradable on an established securities market in future years. Notwithstanding the foregoing, Alithya will not constitute a qualified foreign corporation for purposes of these rules if either it is a passive foreign investment company, or “PFIC”, for the taxable year in which it pays a dividend or for the preceding taxable year (see “—Passive foreign investment company status” below).
U.S. holders should consult their own advisors regarding the availability of the lower tax rates applicable to qualified dividend income for any dividends paid on subordinate voting shares.
Subject to certain conditions and limitations, withholding taxes, if any, on dividends paid by Alithya may be treated as foreign taxes eligible for credit against a U.S. holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. For purposes of calculating the U.S. foreign tax credit, dividends paid on subordinate voting shares will generally be treated as income from sources outside the U.S. and will generally constitute passive category income. The rules governing the U.S. foreign tax credit are complex. U.S. holders should consult their tax advisors regarding the availability of the U.S. foreign tax credit under their individual circumstances.
Sale, Exchange, Redemption or Other Taxable Disposition of Subordinate Voting Shares
Subject to the discussion under “—Passive Foreign Investment Company Status” below, a U.S. holder will generally recognize gain or loss on any sale, exchange, redemption, or other taxable disposition of subordinate voting shares in an amount equal to the difference between the U.S. dollar value of the amount realized on the disposition and such holder’s tax basis in the shares (determined in U.S. dollars). Any gain or loss recognized by a U.S. holder on a taxable disposition of subordinate voting
shares will generally be capital gain or loss and will be long-term capital gain or loss if the holder’s holding period in such shares exceeds one year at the time of the disposition. Preferential tax rates apply to long-term capital gains of a U.S. holder that is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. holder that is a corporation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by a U.S. holder on the sale or exchange of subordinate voting shares will generally be treated as U.S. source gain or loss. Each U.S. holder should consult its own tax advisor as to the tax treatment of dispositions of subordinate voting shares in exchange for Canadian dollars.
Passive Foreign Investment Company Status
Notwithstanding the foregoing, certain adverse U.S. federal income tax consequences could apply to a U.S. holder if Alithya is treated as a PFIC for any taxable year during which the U.S. holder holds subordinate voting shares. A non-U.S. corporation, such as Alithya, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year in which, after applying certain look-through rules, either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains.
Alithya is not currently expected to be treated as a PFIC for U.S. federal income tax purposes for its taxable year ended March 31, 2021 or for foreseeable future taxable years. This conclusion is a factual determination, however, that must be made annually at the close of each taxable year and, thus, is subject to change. In addition, certain aspects of the PFIC rules are unclear and subject to differing interpretations. Accordingly, there can be no assurance that Alithya will not be treated as a PFIC for any taxable year.
If Alithya were to be treated as a PFIC, U.S. holders holding subordinate voting shares could be subject to certain adverse U.S. federal income tax consequences with respect to gains realized on a taxable disposition of such shares and certain distributions received on such shares. In addition, dividends received with respect to subordinate voting shares would not constitute qualified dividend income eligible for preferential tax rates if Alithya is treated as a PFIC for the taxable year of the distribution or for its preceding taxable year. Certain elections (including a mark-to-market election) may be available to U.S. holders to mitigate some of the adverse tax consequences resulting from PFIC treatment. U.S. holders should consult their tax advisors regarding the application of the PFIC rules to their investment in subordinate voting shares.
Each current or prospective U.S. holder should consult its own tax advisor regarding potential status of Alithya as a PFIC, the possible effect of the PFIC rules to such holder in their particular circumstances, information reporting required if Alithya were treated as a PFIC and the availability of any election that may be available to the holder to mitigate adverse U.S. federal income tax consequences of holding shares in a PFIC.
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of subordinate voting shares and the proceeds from the sale, exchange, or redemption of subordinate voting shares that are paid to a U.S. holder within the U.S. (and in certain cases, outside the U.S.), unless such holder is an exempt recipient. A backup withholding tax may apply to such payments if the holder fails to provide a
taxpayer identification number (“TIN”) or certification of exempt status or fails to report in full its dividend and interest income (or if such holder otherwise fails to establish an exemption).
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS. The IRS may impose a penalty upon any taxpayer that fails to provide its correct TIN.
Certain U.S. holders holding specified foreign financial assets with an aggregate value in excess of the applicable dollar threshold are required to report information relating to subordinate voting shares, subject to certain exceptions (including an exception for subordinate voting shares held in accounts maintained by certain financial institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, to their tax return, for each year in which they hold subordinate voting shares. Failure to complete such reporting could result in substantial penalties and in the extension of statute of limitations with respect to such holder’s U.S. federal income tax returns. Holders should consult their tax advisors regarding the application of information reporting requirements relating to their ownership of subordinate voting shares.
Certain Canadian Federal Income Tax Considerations
The following is a summary of the principal Canadian federal income tax considerations generally applicable to the holding and disposition of subordinate voting shares by a beneficial owner, and who, at all relevant times, for purposes of the Income Tax Act (Canada) (the “Tax Act”): (i) deals at arm’s length with Alithya; (ii) is not affiliated with Alithya; (iii) holds the subordinate voting shares as capital property; and (iv) has not entered into, with respect to the subordinate voting shares, a “derivative forward agreement”, a “synthetic disposition arrangement” or a “dividend rental arrangement”, each as defined in the Tax Act (a “Holder”). Generally, the subordinate voting shares will be capital property to a Holder provided the Holder does not acquire or hold such subordinate voting shares in the course of carrying on a business or as part of an adventure or concern in the nature of trade.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any Holder. Accordingly, Holders are urged to consult their own tax advisors with respect to their particular circumstances.
This summary is based upon the current provisions of the Tax Act, the regulations thereunder, all specific proposals to amend the Tax Act and the regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof, the Canada-U.S. Tax Convention (1980), as amended (the “Treaty”), the Fifth Protocol to the Treaty signed on September 21, 2007 (the “Protocol”), and Canadian tax counsel’s understanding of the current administrative practices published in writing by the Canada Revenue Agency. This summary does not otherwise take into account any changes in law, whether by legislative, governmental or judicial decision or action, nor does it take into account or consider any provincial, territorial or foreign income tax considerations.
Generally, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of subordinate voting shares must be converted into Canadian dollars based on exchange rates as determined in accordance with the Tax Act. The amount of dividends, if any, required to be included in the income of, and capital gains or capital losses realized by, a Holder may be affected by fluctuations in the Canadian / U.S. dollar exchange rate.
Holders Resident in the U.S.
This portion of the summary is generally applicable to a Holder who, at all relevant times, for purposes of the Tax Act and the Treaty: (i) is a resident of the U.S., (ii) is not, and is not deemed to be, a resident of Canada, and (iii) does not use or hold, and is not deemed to use or hold, the subordinate voting shares in a business carried on in Canada (a “U.S. resident holder”). Special rules, which are not discussed in this summary, may apply to a U.S. resident holder that is an insurer that carries on an insurance business in Canada and elsewhere.
Dividends on Subordinate Voting Shares
Dividends paid or credited, or deemed under the Tax Act to be paid or credited, to a U.S. resident holder on subordinate voting shares are subject to Canadian withholding tax under the Tax Act at the rate of 25%; however, the rate of Canadian withholding tax applicable to a U.S. resident holder is generally reduced to 15% under the Treaty (or 5% in the case of a U.S. resident holder that is a corporation beneficially owning at least 10% of Alithya’s subordinate voting shares). A U.S. resident holder must not be subject to the limitation on benefits restrictions in the Treaty to be entitled to the 15% (or 5%) withholding tax rate on dividends on the subordinate voting shares.
Disposition of Subordinate Voting Shares
A U.S. resident holder for whom subordinate voting shares are not “taxable Canadian property” will not be subject to tax under the Tax Act on the disposition of such shares. Generally, provided that subordinate voting shares are listed on a “designated stock exchange” (which includes the TSX and the NASDAQ), subordinate voting shares will not be taxable Canadian property to a U.S. resident holder at a particular time unless at any time during the 60-month period immediately preceding that time (a) one or any combination of (i) the U.S. resident holder, (ii) persons with whom the U.S. resident holder did not deal at arm’s length, or (iii) partnerships in which the U.S. resident holder or a person with whom the U.S. resident holder did not deal at arm’s length held a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares of any class or series of the capital stock of Alithya, and at that time (b) more than 50% of the fair market value of the subordinate voting shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource properties (as defined in the Tax Act) or an option in respect of, an interest in, or for civil law a right in, any such property, whether or not such property exists. Subordinate voting shares may also be deemed to be taxable Canadian property of a U.S. resident holder in certain circumstances. U.S. resident holders whose subordinate voting shares may constitute taxable Canadian property should consult their own tax advisors.
Holders Resident in Canada
This portion of the summary is generally applicable to a Holder who, at all relevant times, for purposes of the Tax Act, is, or is deemed to be resident in Canada (a “Canadian resident holder”). Certain Canadian resident holders may be entitled to make, or may have already made, the irrevocable election under subsection 39(4) of the Tax Act, the effect of which may be to deem the subordinate voting shares (and all other “Canadian securities” as defined in the Tax Act) owned by such Canadian resident holder to be capital property in the taxation year in which the election is made and in all subsequent taxation years. Canadian resident holders to whom subordinate voting shares might not otherwise be considered capital property should consult their own tax advisors regarding this election.
This portion of the summary is not applicable to a Canadian resident holder (i) that is a “specified financial institution” as defined in the Tax Act, (ii) an interest in which is a “tax shelter investment” as defined in the Tax Act, (iii) that is a “financial institution” for the purposes of the mark-to-market rules in the Tax Act, (iv) that makes or who has made an election under section 261 of the Tax Act to report its “Canadian tax results” as defined in the Tax Act in a currency other than the Canadian currency, or (v) that is a corporation that, or is a corporation that does not deal at arm’s length for purposes of the Tax Act with a corporation resident in Canada that, is or becomes, as part of a transaction or event or series of transactions or events that includes the acquisition of the subordinate voting shares, controlled by (a) a non-resident corporation, (b) a non-resident individual, (c) a non-resident trust, or (d) a group of persons comprised of any combination of persons included in (a) to (c) above that do not deal with each other at arm’s length for the purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Such Canadian resident holders should consult their own tax advisors.
Dividends on Subordinate Voting Shares
Dividends received or deemed to be received on subordinate voting shares by an individual Canadian resident holder (including certain trusts) will be included in computing the individual’s income and will be subject to the gross-up and dividend tax credit rules applicable to taxable dividends received from taxable Canadian corporations, including an enhanced gross-up and dividend tax credit for dividends designated as “eligible dividends” by Alithya. Dividends received or deemed to be received on subordinate voting shares by a Canadian resident holder that is a corporation will be included in computing its income and will generally be deductible in computing taxable income. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by a Canadian resident holder that is a corporation as proceeds of a disposition or a capital gain. A Canadian resident holder that is a “private corporation” or a “subject corporation” (each as defined in the Tax Act) may be liable to pay a 38 1⁄3% refundable tax under Part IV of the Tax Act on dividends received or deemed to be received on the subordinate voting shares to the extent that such dividends are deductible in computing the Canadian resident holder’s taxable income.
Disposition of Subordinate Voting Shares
Generally, a Canadian resident holder who disposes or is deemed to dispose of a subordinate voting share will realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, are greater (or less) than the adjusted cost base of the subordinate voting shares to the Canadian resident holder.
Generally, one-half of any capital gain (a “taxable capital gain”) realized must be included in the Canadian resident holder’s income. Subject to and in accordance with the provisions of the Tax Act, one-half of any capital loss (an “allowable capital loss”) must be deducted against taxable capital gains realized in the year of disposition. Any unused allowable capital losses may be applied to reduce net taxable capital gains realized in any of the three prior years or in any subsequent year in the circumstances and to the extent provided in the Tax Act.
The amount of any capital loss realized by a Canadian resident holder that is a corporation on the disposition of a subordinate voting share may be reduced by the amount of any dividends received (or deemed to be received) by the Canadian resident holder on such subordinate voting share to the extent and under the circumstances prescribed by the Tax Act. Similar rules may apply where a subordinate voting share is owned by a partnership or trust of which a corporation, trust or partnership is a member or beneficiary. Such Canadian resident holders should consult their own tax advisors regarding their particular circumstances.
A Canadian resident holder that is throughout the year a “Canadian-Controlled Private Corporation” (as defined in the Tax Act) may be liable to pay a refundable tax at a rate of 10 2⁄3% on certain investment income, including taxable capital gains. Canadian resident holders that are “Canadian-Controlled Private Corporations” should consult their own tax advisors regarding their particular circumstances.
THE U.S. FEDERAL AND CANADIAN FEDERAL INCOME TAX CONSEQUENCES SUMMARIZED ABOVE ARE FOR GENERAL INFORMATION ONLY. EACH HOLDER OF SUBORDINATE VOTING SHARES SHOULD CONSULT SUCH HOLDER’S TAX ADVISOR AS TO THE CONSEQUENCES OF AN INVESTMENT IN SUBORDINATE VOTING SHARES IN LIGHT OF SUCH HOLDER’S PARTICULAR CIRCUMSTANCES.
F. Dividends and Payment Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
This Annual Report and the related exhibits are available for viewing at our offices at 1100 Robert-Bourassa Boulevard, Suite 400, Montréal, Québec, H3B 3A5, telephone: +1 (514) 285-5552. Copies of our financial statements and other continuous disclosure documents required under Canadian securities laws are available for viewing on SEDAR at www.sedar.com.
We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Alithya's financial instruments consist of cash, short-term deposits, restricted cash, accounts receivable and other receivables, trade accounts payable and accrued liabilities and long-term debt and lease liabilities. Alithya, through its financial assets and liabilities, has exposure to the following risks from its use of financial instruments: interest rate risk, credit risk, liquidity risk and currency risk. Senior management and Board are responsible for setting risk levels and reviewing risk management activities as they determine necessary.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Alithya is exposed to fluctuations in interest rates
with respect to its variable rate on its Credit Facility. The interest rate risk profile of Alithya’s interest-bearing financial instruments was as follows:
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| (In $ Thousands) | | 2020 | | 2019 |
| | $ | | $ |
| Variable rate financial instruments | | | | | |
| Credit facility | | 37,615 | | | | 24,949 | |
| Other long-term debt | | 347 | | | | — | |
| | 37,962 | | | | 24,949 | |
For the year ended March 31, 2020, Alithya has determined that a reasonably possible increase or decrease of 100 basis point in interest rates of the above variable-rate financial liabilities would not have a significant impact on equity and profit or loss. This analysis assumes that all other variables remain constant, in particular foreign currency exchange rates. It has been performed on the same basis for the year ended March 31, 2019.
Alithya does not account for any fixed rate financial liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect equity and profit or loss.
Liquidity risk
Liquidity risk is the risk that Alithya will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Alithya’s activities are financed through a combination of cash flows from operations, borrowings under existing credit facilities, issuance of debt and issuance of equity. As a result of the effect of COVID-19, unanticipated pressures may occur on liquidity. In order to manage its exposure to liquidity risk, Alithya’s primary goal is to maintain an optimal level of liquidity through an active management of assets and liabilities as well as cash flows. Despite the pandemic, Alithya continues to be in regular contact with customers. Also, as at March 31, 2020, Alithya has an unused capacity of approximately $22,000,000 under its authorized secured senior revolving credit facility of $60,000,000.
The following table summarizes the carrying amount and the contractual maturities of both the interest and principal portion of significant financial liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | | | | | | | |
| (In $ Thousands) | | Carrying amount | | Total | | Less than 1 year | | 1-2 years | | 2-5 years | | More than 5 years |
| | $ | | $ | | $ | | $ | | $ | | $ |
| | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | | 28,970 | | | | 28,970 | | | | 28,970 | | | | — | | | | — | | | | — | |
| Credit facility | | 37,615 | | | | 39,775 | | | | 1,178 | | | | 38,597 | | | | — | | | | — | |
| Balances of purchase payable, non-interest bearing | | 15,609 | | | | 17,006 | | | | 1,000 | | | | 3,259 | | | | 12,747 | | | | — | |
| Other (included in long-term debt) | | 347 | | | | 347 | | | | 126 | | | | 101 | | | | 120 | | | | — | |
| Lease liabilities | | 13,232 | | | | 16,091 | | | | 2,020 | | | | 2,018 | | | | 6,464 | | | | 5,589 | |
| | 95,773 | | | | 102,189 | | | | 33,294 | | | | 43,975 | | | | 19,331 | | | | 5,589 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2019 | | | | | | | | | | |
| (In $ Thousands) | | Carrying amount | | Total | | 1 year or less | | 1-2 years | | 2-5 years | | More than 5 years |
| | $ | | $ | | $ | | $ | | $ | | $ |
| | | | | | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | | 28,162 | | | | 28,162 | | | | 28,162 | | | | — | | | | — | | | | — | |
| Credit facility | | 24,949 | | | | 29,149 | | | | 1,493 | | | | 1,493 | | | | 26,163 | | | | — | |
| Balance of purchase payable, non-interest bearing | | 3,765 | | | | 4,100 | | | | 1,000 | | | | 1,000 | | | | 2,100 | | | | — | |
| | 56,876 | | | | 61,411 | | | | 30,655 | | | | 2,493 | | | | 28,263 | | | | — | |
Credit risk
Credit risk is the risk of loss due to a counterparty's inability to meet its obligations. At March 31, 2020 and 2019, Alithya's credit risk exposure consists mainly of the carrying amounts of cash and short-term deposits held with major Canadian banks, accounts receivable and other receivables, and unbilled revenue. The carrying amounts of financial assets and unbilled revenue represent the maximum credit exposure.
Impairment losses recognized in profit or loss is not significant both in 2020 and 2019.
The credit risk in respect of cash balances and short-term deposits is minimal as they are held with reputable financial institutions.
With respect to accounts receivable and unbilled revenue, Alithya is exposed to a concentration of credit risk on significant customers operating in Canada, as identified in Note 4 to our Annual Financial Statements included as Exhibit 15.3 to this Annual Report. However, this credit risk exposure is mitigated by the relative size and nature of the business carried on by such customers. Also, Alithya has a large and diversified client base from clients engaged in various industries, including banks with high credit-rating, government agencies, telecommunications and retails. Historically, Alithya has not made any significant write-offs. Notwithstanding the impact of COVID-19, Alithya’s credit risk exposure remains relatively low. A substantial portion of accounts receivable and unbilled revenues are with customers who operate in industries for which credit risk has not increased significantly following the pandemic. However, if a key customer experiences financial difficulties or fails to comply with its contractual obligations which may occur as the pandemic continues, this could result in a significant financial loss to Alithya.
In order to manage its exposure to credit risk and assess credit quality, Alithya established a credit policy under which collection of account receivable is a priority. Each new customer is analyzed individually for creditworthiness before Alithya enters into contract. The financial stability and liquidity of customers are assessed on a regular basis, which included the review of default risk associated with the industry in which customers operate. Alithya also limits its exposure by setting credit limits when deemed necessary. No significant adjustments were made to allowance for doubtful accounts in connection with this assessment.
For both 2020 and 2019, allowance for doubtful accounts was not significant.
Currency risk
Alithya is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which cash, accounts receivables and other receivables, accounts payables and
accrued liabilities and borrowings are denominated and the respective functional currencies of Alithya’s companies. The currencies in which these financial instruments are mainly denominated is USD. Other currencies have no significant impact on Alithya’s exposure to currency risk.
The summary quantitative data about Alithya’s exposure to currency risk for the significant exchange rates is as follow.
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| (In $ Thousands) | | 2020 | | 2019 |
| | USD | | USD |
| Cash | | 891 | | | | 1,004 | |
| Accounts receivable and other receivables | | 377 | | | | 80 | |
| Accounts payable and accrued liabilities | | (944) | | | | (110) | |
| Credit facility | | (14,000) | | | | (18,550) | |
| Net statement of financial position exposure | | (13,676) | | | | (17,576) | |
The following table illustrates the sensitivity of profit and equity in regards to Alithya’s financial assets and financial liabilities and the USD/Canadian dollars exchange rate ‘all other things being equal’. It assumes a +/- 8% change of the USD/Canadian dollars exchange rate for the year ended March 31, 2020 (2019: +/-6%). This percentage has been determined based on the average market volatility in exchange rate in the previous twelve months. The sensitivity analysis is based on Alithya’s foreign currency financial instruments held at each reporting date.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Profit or loss | | | |
| Effect in Canadian dollar | | | | | | Strengthening | | Weakening | |
| As at March 31, 2020 | | | | | | | | | |
| USD | | 8% | | Movement | | (1,087) | | 1,087 | |
| As at March 31, 2019 | | | | | | | | | |
| USD | | 6% | | Movement | | (1,115) | | 1,115 | |
For further information, including information on the fair value of financial instruments, please see “Note 21. Financial Instruments” to our Annual Financial Statements included as Exhibit 15.3 to this Annual Report.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A. – D. Material Modifications to the Rights of Security Holders
None.
E. Use of Proceeds
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
A. - D.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” — “Management’s Evaluation of our Disclosure Controls and Procedures” included as Exhibit 15.2 to this Annual Report.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
See Item 6.C – “Board Practices” — “Committees of Alithya’s Board of Directors” — “Audit and Risk Management Committee.”
ITEM 16B. CODE OF ETHICS
The Board has adopted a code of business conduct and ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. This code is intended to qualify as a “code of ethics” within the meaning of the applicable rules of the SEC. Our code of business conduct and ethics is available on our website at www.alithya.com/en/who-we-are/governance. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Principal Accountant Fees and Services
The following table summarizes the fees billed by Alithya’s auditors, Raymond Chabot Grant Thornton LLP, for services rendered to Alithya during the fiscal years ended March 31, 2020 and 2019.
| | | | | | | | | | | |
| | For the fiscal year ended March 31, | |
| | 2020 | 2019 |
Audit fees (1) | | $ | 659,000 | | $ | 329,810 | |
Audit-related fees (2) | | $ | 102,344 | | $ | 373,464 | |
Tax fees (3) | | $ | 81,405 | | $ | 111,034 | |
All other fees (4) | | $ | — | | $ | — | |
| Total | | $ | 842,749 | | $ | 814,308 | |
(1) “Audit fees” means the aggregate fees billed in each fiscal year for professional services rendered by Raymond Chabot Grant Thornton LLP for the audit of our annual consolidated financial statements and review of Alithya’s interim condensed consolidated financial statements.
(2) “Audit-related fees” includes assurance and related services reasonably related to the audit of our annual consolidated financial statement not included in audit services which are included in “Audit fees” as well as, for the fiscal year ended March 31, 2020, financial and tax due diligence related to the acquisition of Travercent LLC, and for the fiscal year ended March 31, 2019, accounting and financial reporting services rendered by Raymond Chabot Grant Thornton LLP in connection with Alithya becoming a public issuer.
(3) “Tax fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by Raymond Chabot Grant Thornton LLP for tax compliance and tax advice.
(4) “All other fees” includes the aggregate of all other fees billed in each of the fiscal years. There were no other fees incurred in either fiscal year.
Audit Committee Pre-Approval Policies and Procedures
Alithya’s Audit Committee reviews and pre-approves the scope and the cost of audit services related to Alithya and permissible non-audit services performed by the independent auditors, other than those for de minimis services which are approved by the Audit Committee prior to the completion of the audit. All of the services related to Alithya provided by Raymond Chabot Grant Thornton LLP listed above have been pre-approved by the Audit Committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As a “foreign private issuer” under the U.S. Securities Exchange Act of 1934, as amended, Alithya is permitted, pursuant to NASDAQ Stock Market Rule 5615(a)(3), to follow its home country practice in lieu of certain NASDAQ corporate governance standards provided that it discloses and describes the same. A description of the significant ways in which Alithya’s governance practices currently differ from those followed by domestic companies pursuant to the Rule 5600 series of the NASDAQ Stock Market Rules is set out below:
•NASDAQ Stock Market Rules 5605(d)(2) and 5605(e)(1) provide that each member of a company’s compensation committee and nomination committee must be an independent director, as defined in NASDAQ Stock Market Rule 5605(a)(2). Alithya follows applicable Canadian laws, who do not mandate a compensation committee or a nomination committee to be comprised entirely of independent directors. Alithya’s Governance Committee and Compensation Committee are currently comprised of a majority of independent directors; and
•NASDAQ Stock Market Rule 5620(c) provides that the minimum quorum requirement for a meeting of shareholders is 33⅓% of the outstanding common voting shares. Alithya is governed by the QBCA which permits Alithya to specify a quorum requirement in its by-laws. Under Alithya’s bylaws, a quorum for the transaction of business at any meeting of shareholders is of at least two persons present in person or by proxy and representing at least 25% of the issued and outstanding shares of Alithya carrying the right to vote at the meeting. The rules of the TSX, upon which Alithya’s subordinate voting shares are also listed, do not contain specific quorum requirements.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
See Exhibit 15.3 to this Annual Report.
ITEM 18. FINANCIAL STATEMENTS.
Our Annual Financial Statements are included as Exhibit 15.3 to this Annual Report.
ITEM 19. EXHIBITS.
| | | | | |
| EXHIBIT INDEX |
| |
| 1.1 | |
| 1.2 | |
| 2.1 | |
| 2.2 | |
| 3.1 | |
| 4.1 | |
| 4.2 | |
| 4.3 | |
| 4.4 | |
| 4.5 | |
| 4.6 | |
| 4.7 | |
| 4.8 | |
| 4.9 | |
| 8.1 | |
| 12.1 | |
| 12.2 | |
| 13.1 | |
| 13.2 | |
| | | | | |
| 15.1 | |
| 15.2 | |
| 15.3 | |
| 101.INS | Inline XBRL Instance Document—this instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
†Certain portions of this exhibit have been omitted because they are both: (i) not material; and (ii) would likely cause competitive harm to the Company if publicly disclosed.
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: June 19, 2020
| | | | | |
| ALITHYA GROUP INC. | |
| |
| By: | /s/ Paul Raymond |
| Name: | Paul Raymond |
| Title: | President and Chief Executive Officer |
Exhibit 4.1
EMPLOYMENT AGREEMENT
BETWEEN:
ALITHYA CANADA INC., a company duly constituted under the Business Corporations Act (Québec), represented by Mr. Pierre Turcotte, Chairman of the Board;
(hereinafter the “Corporation”)
AND:
Paul Raymond domiciled and residing at [REDACTED]
(hereinafter the “Officer”)
_________________________________________________________________________
1.PURPOSE AND LOCATION OF WORK
1.1The Officer will hold the position and responsibilities of President and Chief Executive Officer of the Corporation, ALITHYA CANADA INC. (hereinafter the “Corporation”).
1.2Without limiting the generality of the foregoing, the work and services required of the Officer will be the duties, tasks and responsibilities that will be assigned to them as President and Chief Executive Officer by the President and Chief Executive Officer of the Corporation from time to time during the term of employment.
1.3For the purpose of this Employment Agreement (the “Agreement”), the Date of appointment is March 28, 2011 and the Corporation recognizes the seniority of the Officer as of March 28, 2011.
1.4The principal place of employment of the Officer is in the Montreal area subject to reasonable travel that may be required or necessary to render the services hereunder.
2.OBLIGATIONS
2.1The Officer agrees to work exclusively for the Corporation, to make every effort to adequately perform the duties assigned to them and to act at all times in the best interest of the Corporation. The Employee shall refrain from any activity that could be detrimental to the interests of the Corporation. The Employee must act with loyalty towards the Corporation at all times.
2.2The Officer declares that they are free from any obligation to any person, including their former employers, that is inconsistent with this Agreement or that may interfere with the performance of their duties for the Corporation.
2.3The Officer agrees to abide by all guidelines and policies established from time to time, verbally or in writing, by the Corporation.
2.4Without limiting the generality of the foregoing, the Officer acknowledges having been made aware of the guidelines and policies currently in force at the Corporation and more specifically having read, understood and agreed to comply with the conditions set out in the following documents:
•Code of Ethics;
•Policy on Disclosure;
•Insider Trading Policy;
•Minimum Shareholding Policy;
3.TERM
3.1The term of employment is for an indefinite period, subject to the provisions on termination of employment provided for in Section 6 of the present Agreement.
4.COMPENSATION AND BENEFITS
4.1Salary. As compensation for all services to be rendered under this Agreement, the Corporation shall pay to the Officer, during the employment, an annual base salary of $495,000, less applicable deductions, payable every two (2) weeks.
This salary is subject to review in accordance with the Corporation’s policies on salary and at its sole discretion.
4.2Bonus. The Officer is eligible to participate in the discretionary bonus program that may provide annual incentive compensation based on defined performance criteria, the level of achievement of performance targets, and the conditions determined annually by the President and Chief Executive Officer.
As of the date hereof, the Officer's target bonus level is 85 % of his base salary for the effective period (the "Target Bonus"). The maximum aggregate annual bonus is 150 % x Target Bonus.
The bonus will be calculated, where applicable, according to the program approved by the Board of Directors.
Notwithstanding the foregoing, nothing in this present section shall have the effect of guaranteeing to the Officer the payment of an annual bonus by the Corporation.
4.3Long-term incentive. The Officer is eligible to participate in the long-term incentive program that aims to share a portion of the value of the Corporation to which the Officer contributes as result of the performance of their duties within the Corporation.
The program is administered by the Corporation's Board of Directors (the “Board”) and its provisions are subject to its approval.
Long-term incentive awards, if any, will be determined by the Board under the long-term incentive plan in force at the time. This grant and any subsequent award, as the case may be, are conditional on the participation of the Officer in the Corporation’s Share Purchase Plan.
4.4Purchase of shares. The Officer is eligible for a share purchase plan that aims to align his interests with the interests of the shareholders.
The Officer may purchase shares of up to 10 % of their annual base salary and the Corporation will contribute up to 5 % of their annual base salary.
The plan is managed by the Board and its provisions are subject to its approval.
According to the Minimum Shareholding Policy in force, the Officer undertakes to hold shares of a minimum value equal to three (3) times their annual base salary as of the latest of the following dates:
(i)April 1, 2024; or
(ii)The 5th anniversary of the date of the Officer’s appointment.
4.5Expenses. Subject to any policies that may be established from time to time, the Corporation shall pay or reimburse to the Officer all reasonable expenses actually incurred or paid by the Officer during the term of their employment upon presentation of statements of expenses or supporting documents.
4.6Vacation. The Officer is entitled to an annual vacation with pay in accordance with Corporation’s policy, equal to five (5) weeks for each 12-month period beginning on April 1st of each year and taken according to the vacation schedule in effect.
Unused vacation will not be paid out and cannot be accumulated or carried over from one year to the next, unless otherwise agreed between the Officer and the Corporation.
The Officer must take his vacation at a time deemed acceptable by the Corporation, taking into account the needs of the Corporation.
4.7Benefits. Upon assuming office, the Officer shall participate in the Group Insurance Plan and other benefit plans of the Corporation in accordance with the terms of the applicable benefit plans in effect from time to time.
4.8Information. The Officer acknowledges having been expressly informed of the Corporation's policies and plans regarding salaries, expenses and benefits at the time of the signing of the present Agreement.
4.9Car allowance. The Officer is entitled to a car allowance of $25,000 per year.
5.HEALTH
5.1Upon taking office, the Officer confirms, at that date, that to the best of their knowledge, they are in good health and are not affected by any problem likely to prevent them from properly performing their duties.
5.2The Officer agrees to undergo, on an annual basis, a complete medical examination at a medical clinic chosen by the Corporation and at the Corporation's expense, for the duration of this Agreement.
6.TERMINATION OF EMPLOYMENT
6.1Termination of Employment as of Right. The employment of the Officer shall terminate as of right, without the Corporation being required to pay any indemnity whatsoever, upon the death of the Officer or upon the effective date of their resignation.
6.2Termination of employment for serious reason. The Corporation may, at any time, terminate the employment of the Officer without notice or indemnity in lieu thereof, and without any further obligation to the Officer, due to a serious reason.
For the purposes hereof, the expression “serious reason” includes, but is not limited to:
(i)where the Officer is declared bankrupt, insolvent, makes an assignment of property or is prohibited from doing so, situations which the Officer acknowledges are incompatible with continued employment with the Corporation;
(ii)where the Officer contravenes the provisions of the present Agreement;
(iii)where the Officer deliberately refuses to perform the duties reasonably assigned to them by the Chairman of the Board of the Corporation after receiving a written notice to that effect from the Corporation and having been given reasonable notice (usually 10 days) to comply with the instructions of the Chairman of the Board;
(iv)where the Officer commits any fraud, theft, embezzlement, criminal offence, is guilty of gross misconduct or willful negligence in the performance of their duties or any form of dishonesty, financial or otherwise, which could materially harm the normal course of business, reputation or business relations of the Corporation
(v)all other serious reason.
6.3Termination of employment without serious reason. The Corporation may terminate the employment of the Officer without serious reason by providing them with a written notice of termination of employment and accrued wages, reimbursements of accrued expenses and any other amount due to the Officer at the time of termination of employment, in addition to an indemnity in lieu of reasonable notice of termination of employment equal to 24 months’ salary and bonuses (the “Term of severance” for purposes of the present Section) multiplied by the Officer’s Cash Compensation, the whole of which is divided by twelve (12).
The Officer will also be entitled to the continuity of their benefits for the Term of severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by the Corporation, with the exception of the protection for the long-term disability which will be discontinued on the date of termination of employment.
6.4The Officer acknowledges and agrees that payments under the preceding paragraph 6.3 include any remuneration or payment, including benefits, notice, compensatory indemnity, termination payments of any nature whatsoever to which the Officer may be entitled under the applicable laws, in connection with the termination of
employment. The Corporation shall deduct from this amount (a) any legal deduction and any contribution to the benefit plans of the Officer that are regularly made during the term of this Agreement in accordance with the terms of the benefit plan (b) any other amount, certain and due, that the Officer owes to the Corporation.
In addition, the Officer acknowledges and agrees that the provisions of this Section 6 are fair and reasonable and agrees to sign a release upon receipt of sums due as compensation in lieu of notice, if necessary, in the event of the termination of their employment by the Corporation without serious reason or the termination of their employment pursuant to the provisions of paragraphs 6.3 and 6.5.
6.5Termination of employment without serious reason or resignation for cause within 12 months of a Change of Control as defined for the purpose of the Corporation’s Long-Term Incentive Plan. If, in the 12 months following a Change of Control event, the Corporation terminates the employment of the Officer without serious reason or if the Officer resigns in the following cases: (i) their remuneration, including their benefits, are considerably reduced, (ii) without their prior written consent, the Officer suffers a significant reduction of their responsibilities, authority, status or hierarchy, taken as a whole, (iii) the relocation of their principal place of work to a place located more than 100 kilometers from the usual principal place of work, the Officer shall be entitled to 24 months of severance (the “Term of severance” for the purposes of this paragraph 6.5) of his Cash Compensation as defined in paragraph 6.3. The Officer will also be entitled to the continuity of their benefits for the Term of severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by the Corporation, with the exception of the protection for the long-term disability which will be discontinued on the date of termination of employment.
6.6Resignation of the Officer. The Officer may terminate this Agreement by giving the Corporation thirty (30) days written notice at the end of which the Corporation will be fully discharged from its obligations under this Agreement. The Officer undertakes, during this notice period, to make reasonable efforts to assist the Corporation in finding and training their successor. All benefits and other conditions will be maintained during this period.
The Corporation may, in its sole and absolute discretion, waive such notice by the Officer, in whole or in part, and accelerate the departure of the Officer. In such event, the Corporation shall pay to the Officer the compensation that would have been payable for the full thirty (30) days' notice.
6.7Returning of files in the event of an end of employment relationship. As soon as the Officer ceases to be employed by the Corporation, for any reason whatsoever, all software repositories relating to trade secrets or intellectual property as well as all documents, records, computers, telephones, agendas, relating to the Corporation and its subsidiaries, and any Confidential Information, as defined in paragraph 8.3 of the present Agreement, then in the possession or under the control of the Officer, including copies of those, whether prepared by the Officer or third parties, will be returned or delivered without delay to the Corporation without any copies being preserved in any form or medium.
7.NON-COMPETITION AND NON-SOLICITATION
7.1The Officer recognizes that there is strong competition in the industry in which the Corporation operates and that, in the course of their employment with the
Corporation, the Officer will acquire an in-depth knowledge of the Corporation's business, operations, products (current and contemplated), industry and methods of doing business.
7.2The Officer further acknowledges and agrees that, in light of the foregoing, they would have an unfair advantage and would be in a position to cause serious and irreparable harm to the Corporation in the event that, after the termination of their employment with the Corporation, they would compete with the Corporation or solicit clients or employees of the Corporation.
7.3Non-competition
7.3.1During the Officer’s employment with the Corporation and for a period of twelve (12) months following the termination of their employment, the Officer undertakes not to perform, directly or indirectly, in any capacity whatsoever, duties or functions similar or substantially similar to those performed as President and Chief Executive Officer for a company operating in a field of activity that competes with the Corporation's computer consulting services activities, i.e.:
•management consulting services and advanced technologies (such as computer science and engineering);
•recruitment services and decisional support services for recruitment in the field of IT;
•IT infrastructure management services (such as hosting, sharing and outsourcing, IT health check, transition, operations, business continuity planning, business succession planning); and
•application development services (such as process analysis, functional analysis, project management, web development, mobile technology, solution integration),
and this, in the following territory: the province of Quebec (hereinafter the “Territory”).
7.3.2This provision does not prevent the Officer from the purchase or holding of shares or securities of a publically listed company on a recognized stock exchange which do not represent more than five percent (5%) of the voting shares of such company and which do not confer control.
7.4Non-solicitation
During the Officer's employment with the Corporation and for a period of twelve (12) months from the date on which the Officer ceases to be employed by the Corporation, the Officer undertakes not to, in the Territory, directly or indirectly, for any reason whatsoever, in any manner whatsoever :
(i)solicit, directly or indirectly, (i) the clients of the Corporation with whom the Officer did business in the twelve (12) months preceding the termination of this Agreement and (ii) the clients of the Corporation who were known to the Officer in the twelve (12) months preceding the end of their employment. The Officer also undertakes not to allow the use of their name in order to solicit these same
clients and not to do anything to cause or induce any person, including suppliers of goods and services, who did business with the Corporation in the twelve (12) months preceding the end of employment, to terminate, in whole or in part, their business relations with the Corporation
(ii)for the purposes of sub-paragraph 7.4 (i), the term "clients" also includes potential clients with whom the Officer has taken part in steps to establish a business relationship or potential clients for whom the Officer has become aware that steps were being taken by the Corporation to establish business relationships.
(iii)induce, attempt to induce or solicit in any way, directly or indirectly, the personnel of the Corporation to leave their positions with the Corporation.
7.5Reasonableness of non-competition and non-solicitation obligations
The Officer acknowledges and confirms that the obligations and commitments set forth in clauses 7.3 and 7.4 (including all their respective paragraphs and sub-paragraphs) of this Agreement are reasonable and limited to what is necessary to protect the legitimate interests of the Corporation.
7.6Evolving circumstances
It is understood that the duties performed by the Officer with the Corporation may change over time. Consequently, the non-competition clause and the non-solicitation clause may be adjusted to reflect the new reality to the extent necessary to protect the legitimate interests of the Corporation. In such a case, the Officer undertakes to sign a new non-competition and non-solicitation clause.
7.7Nothing in this section shall limit or extinguish the obligations of the Officer arising by law or under this Agreement which survive termination of this Agreement by reason of their nature and in particular, but without limiting the foregoing, the obligations of loyalty and the obligation not to use information of a confidential nature obtained by the Officer in the performance or in connection with their work.
8.CONFIDENTIALITY
8.1The Officer shall not, while employed by the Corporation or at any time thereafter, directly or indirectly, use or disclose to any person any Confidential Information understanding, however, that nothing in this present section prevents the Officer from disclosing or using Confidential Information if (i) the Confidential Information is publicly available or in the public domain at the time of such disclosure or use, without breach of this Agreement, or (ii) disclosure of the Confidential Information is required by law, regulation, agency or government authority or by the order of a court of competent jurisdiction.
8.2The Officer acknowledges and agrees that the Confidential Information is the exclusive property of the Corporation and its subsidiaries and that the obligations under this present section shall remain in force in perpetuity and shall exist and remain in full force notwithstanding any breach or disavowal, or alleged breach, or alleged disavowal of this Agreement by the Corporation.
8.3For the purposes of the present Agreement, “Confidential Information” means any confidential or proprietary information, intellectual and industrial property (including
know-how and trade secrets) and any confidential fact relating to the Corporation or any other business or internal affairs of the Corporation or any of its subsidiaries, including unpublished or undisclosed financial results, current and past client lists, strategies with clients and potential clients of the Corporation or any of its subsidiaries, sales or recruitment strategies, contracts with clients of the Corporation or its subsidiaries, calls for tender, bid response strategies as well as bid response templates, any prices or discounts offered to clients of the Corporation or its subsidiaries and any other information of the same nature or any information relating to employees, or any persons or consultants retained by the Corporation to perform services.
9.INTELLECTUAL PROPERTY
9.1The Corporation is and will be the sole owner of all products resulting from the performance of the Officer's services hereunder, including all materials, ideas, concepts, formats, suggestions, developments, writings, arrangements, software packages, programs and other intellectual property that the Officer may acquire, obtain, develop or create in connection with their employment with the Corporation and during the term of their employment, free and clear of any claim by the Officer (or whoever makes a claim on behalf of the Officer) of any nature whatsoever.
10.GENERAL PROVISIONS
10.1Restrictions on the Conduct of the Corporation. Except as provided in paragraph 6.5 of this Agreement, nothing in this Agreement limits the Corporation in its management of the Corporation and, in particular, the Corporation is free to sell the property of the Corporation as a whole, or to merge or consolidate the Corporation with the business of any other person or to abandon the business.
10.2Currency. All amounts in this Agreement are denominated and paid in Canadian currency.
10.3Notice. Any notice required or permitted to be given hereunder shall be in writing and shall be delivered by hand, fax, or electronic mail, provided written confirmation of receipt is obtained, or by 24-hour courier service or by prepaid registered mail. It shall be deemed to have been given when so delivered by hand, electronic mail or overnight courier or, if mailed, three (3) days after mailing, in the following manner:
| | | | | |
| to the Corporation: | ALITHYA CANADA INC. |
| 700, De la Gauchetière Street West, |
| Suite 2400 |
| Montreal Quebec, Canada, H3B 5M2 |
| To the attention of Mr. Pierre Turcotte |
| Courriel : pierre.turcotte@alithya.com |
| | | | | |
| to the Officer: | PAUL RAYMOND |
| [REDACTED] |
Either party may, by notice to the other party in accordance with this clause, designate another address for the receipt of notices hereunder.
10.4Entirety. This Agreement and the Schedules contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, written or oral, with respect thereto.
10.5Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec. In the event of a dispute with respect to the interpretation of the Agreement or the performance of the parties' obligations hereunder, the courts of the District of Montreal shall have exclusive jurisdiction.
10.6Assignment. Subject to the provisions of Section 6.5 of this Agreement, the Corporation may, without the consent of the Officer, assign its rights under this Agreement with respect to any sale, transfer or other alienation of all or substantially all of its property or business, whether by merger, consolidation or otherwise. The Officer may not assign or attempt to assign, directly or indirectly, all or any part of their rights or interests in this Agreement.
10.7Severability. If any provision of this Agreement is found by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect in all respects, without regard to the invalid or unenforceable portion.
10.8Waiver. The waiver, implied or otherwise, of rights under any provision of this Agreement shall not be construed as a waiver of rights under any other provisions, whether or not similar, and such waiver shall not be deemed to have effect unless otherwise stipulated in a written declaration and duly signed by the party waiving a right.
10.9Survival. Sections 7, 8, and 9, shall survive and remain in force despite the termination, end, or expiration of the present Agreement.
10.10Supersedes. This Agreement supersedes and cancels any oral or written agreement between the parties relating to the functions covered by this Agreement whose content would be contrary to the provisions of this Agreement.
10.11Headings. The headings of this Agreement are provided for reference purposes only and in no way effect the meaning or interpretation of this Agreement.
10.12The Officer acknowledges and agrees that they have read and understood all of the sections and paragraphs of this Agreement and that they have received the necessary explanations on the nature and scope of the sections or paragraphs of this Agreement. The Officer acknowledges that he/she has been advised that this Agreement contains important obligations for the Officer and acknowledges that they have had the opportunity to consult with their legal counsel prior to signing this Agreement. More specifically, the Officer declares that these obligations do not prevent them from earning a reasonable living, taking into account the important consideration that they derive from this Agreement.
IN WITNESS WHEREOF, the parties to the present have signed this Agreement in two (2) copies on the date and location mentioned below.
| | | | | | | | |
Montreal This 25th day of November 2019 | | Montreal This 25th day of November 2019 |
ALITHYA GROUP INC.
/s/ Pierre Turcotte | | /s/ Paul Raymond |
Pierre Turcotte Chairman of the Board | | Paul Raymond Officer |
Exhibit 4.2
EMPLOYMENT AGREEMENT
BETWEEN:
ALITHYA CANADA INC., a company duly constituted under the Business Corporations Act (Québec), represented by Mr. Paul Raymond, President and Chief Executive Officer;
(hereinafter the “Corporation”)
AND:
Claude Thibault domiciled and residing at [REDACTED]
(hereinafter the “Officer”)
_________________________________________________________________________
1.PURPOSE AND LOCATION OF WORK
1.1The Officer will hold the position and responsibilities of Senior Vice President and Chief Financial Officer of the Corporation, ALITHYA CANADA INC. (hereinafter the “Corporation”).
1.2Without limiting the generality of the foregoing, the work and services required of the Officer will be the duties, tasks and responsibilities that will be assigned to them as Senior Vice President and Chief Financial Officer by the President and Chief Executive Officer of the Corporation from time to time during the term of employment.
1.3For the purpose of this Employment Agreement (the “Agreement”), the Date of appointment is August 13, 2018 and the Corporation recognizes the seniority of the Officer as of August 13, 2018.
1.4The principal place of employment of the Officer is in the Montreal area subject to reasonable travel that may be required or necessary to render the services hereunder.
2.OBLIGATIONS
2.1The Officer agrees to work exclusively for the Corporation, to make every effort to adequately perform the duties assigned to them and to act at all times in the best interest of the Corporation. The Employee shall refrain from any activity that could be detrimental to the interests of the Corporation. The Employee must act with loyalty towards the Corporation at all times.
2.2The Officer declares that they are free from any obligation to any person, including their former employers, that is inconsistent with this Agreement or that may interfere with the performance of their duties for the Corporation.
2.3The Officer agrees to abide by all guidelines and policies established from time to time, verbally or in writing, by the Corporation.
2.4Without limiting the generality of the foregoing, the Officer acknowledges having been made aware of the guidelines and policies currently in force at the Corporation and more specifically having read, understood and agreed to comply with the conditions set out in the following documents:
•Code of Ethics;
•Policy on Disclosure;
•Insider Trading Policy;
•Minimum Shareholding Policy;
3.TERM
3.1The term of employment is for an indefinite period, subject to the provisions on termination of employment provided for in Section 6 of the present Agreement.
4.COMPENSATION AND BENEFITS
4.1Salary. As compensation for all services to be rendered under this Agreement, the Corporation shall pay to the Officer, during the employment, an annual base salary of $320,000, less applicable deductions, payable every two (2) weeks.
This salary is subject to review in accordance with the Corporation’s policies on salary and at its sole discretion.
4.2Bonus. The Officer is eligible to participate in the discretionary bonus program that may provide annual incentive compensation based on defined performance criteria, the level of achievement of performance targets, and the conditions determined annually by the President and Chief Executive Officer.
As of the date hereof, the Officer's target bonus level is 50 % of his base salary for the effective period (the "Target Bonus"). The maximum aggregate annual bonus is 150 % x Target Bonus.
The bonus will be calculated, where applicable, according to the program approved by the Board of Directors.
Notwithstanding the foregoing, nothing in this present section shall have the effect of guaranteeing to the Officer the payment of an annual bonus by the Corporation.
4.3Long-term incentive. The Officer is eligible to participate in the long-term incentive program that aims to share a portion of the value of the Corporation to which the Officer contributes as result of the performance of their duties within the Corporation.
The program is administered by the Corporation's Board of Directors (the “Board”) and its provisions are subject to its approval.
Long-term incentive awards, if any, will be determined by the Board under the long-term incentive plan in force at the time. This grant and any subsequent award, as the case may be, are conditional on the participation of the Officer in the Corporation’s Share Purchase Plan.
4.4Purchase of shares. The Officer is eligible for a share purchase plan that aims to align his interests with the interests of the shareholders.
The Officer may purchase shares of up to 10 % of their annual base salary and the Corporation will contribute up to 3.5 % of their annual base salary.
The plan is managed by the Board and its provisions are subject to its approval.
According to the Minimum Shareholding Policy in force, the Officer undertakes to hold shares of a minimum value equal to one (1) times their annual base salary as of the latest of the following dates:
i)April 1, 2024; or
ii)The 5th anniversary of the date of the Officer’s appointment.
4.5Expenses. Subject to any policies that may be established from time to time, the Corporation shall pay or reimburse to the Officer all reasonable expenses actually incurred or paid by the Officer during the term of their employment upon presentation of statements of expenses or supporting documents.
4.6Vacation. The Officer is entitled to an annual vacation with pay in accordance with Corporation’s policy, equal to five (5) weeks for each 12-month period beginning on April 1st of each year and taken according to the vacation schedule in effect.
Unused vacation will not be paid out and cannot be accumulated or carried over from one year to the next, unless otherwise agreed between the Officer and the Corporation.
The Officer must take his vacation at a time deemed acceptable by the Corporation, taking into account the needs of the Corporation.
4.7Benefits. Upon assuming office, the Officer shall participate in the Group Insurance Plan and other benefit plans of the Corporation in accordance with the terms of the applicable benefit plans in effect from time to time.
4.8Information. The Officer acknowledges having been expressly informed of the Corporation's policies and plans regarding salaries, expenses and benefits at the time of the signing of the present Agreement.
5.HEALTH
5.1Upon taking office, the Officer confirms, at that date, that to the best of their knowledge, they are in good health and are not affected by any problem likely to prevent them from properly performing their duties.
5.2The Officer agrees to undergo, on an annual basis, a complete medical examination at a medical clinic chosen by the Corporation and at the Corporation's expense, for the duration of this Agreement.
6.TERMINATION OF EMPLOYMENT
6.1Termination of Employment as of Right. The employment of the Officer shall terminate as of right, without the Corporation being required to pay any indemnity
whatsoever, upon the death of the Officer or upon the effective date of their resignation.
6.2Termination of employment for serious reason. The Corporation may, at any time, terminate the employment of the Officer without notice or indemnity in lieu thereof, and without any further obligation to the Officer, due to a serious reason.
For the purposes hereof, the expression “serious reason” includes, but is not limited to:
(i)where the Officer is declared bankrupt, insolvent, makes an assignment of property or is prohibited from doing so, situations which the Officer acknowledges are incompatible with continued employment with the Corporation;
(ii)where the Officer contravenes the provisions of the present Agreement;
(iii)where the Officer deliberately refuses to perform the duties reasonably assigned to them by the President and Chief Executive Officer of the Corporation after receiving a written notice to that effect from the Corporation and having been given reasonable notice (usually 10 days) to comply with the instructions of the President and Chief Executive Officer;
(iv)where the Officer commits any fraud, theft, embezzlement, criminal offence, is guilty of gross misconduct or willful negligence in the performance of their duties or any form of dishonesty, financial or otherwise, which could materially harm the normal course of business, reputation or business relations of the Corporation
(v)all other serious reason.
6.3Termination of employment without serious reason. The Corporation may terminate the employment of the Officer without serious reason by providing them with a written notice of termination of employment and accrued wages, reimbursements of accrued expenses and any other amount due to the Officer at the time of termination of employment, in addition to an indemnity in lieu of reasonable notice of termination of employment equal to the product of (i) the sum of twelve (12) months plus one (1) month per year of service, subject to a maximum of 24 months (the “Term of severance” for purposes of the present Section) multiplied by (ii) the Officer’s Cash Compensation, the whole of which is divided by twelve (12).
The Cash Compensation is equal to the sum of (i) the annual base salary in effect on the date of termination of employment and (ii) the average of the annual bonuses paid for the two (2) fiscal years preceding the date of termination of employment.
The Officer will also be entitled to the continuity of their benefits for the Term of severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by the Corporation, with the exception of the protection for the long-term disability which will be discontinued on the date of termination of employment.
6.4The Officer acknowledges and agrees that payments under the preceding paragraph 6.3 include any remuneration or payment, including benefits, notice, compensatory indemnity, termination payments of any nature whatsoever to which the Officer may
be entitled under the applicable laws, in connection with the termination of employment. The Corporation shall deduct from this amount (a) any legal deduction and any contribution to the benefit plans of the Officer that are regularly made during the term of this Agreement in accordance with the terms of the benefit plan (b) any other amount, certain and due, that the Officer owes to the Corporation.
In addition, the Officer acknowledges and agrees that the provisions of this Section 6 are fair and reasonable and agrees to sign a release upon receipt of sums due as compensation in lieu of notice, if necessary, in the event of the termination of their employment by the Corporation without serious reason or the termination of their employment pursuant to the provisions of paragraphs 6.3 and 6.5.
6.5Termination of employment without serious reason or resignation for cause within 12 months of a Change of Control as defined for the purpose of the Corporation’s Long-Term Incentive Plan. If, in the 12 months following a Change of Control event, the Corporation terminates the employment of the Officer without serious reason or if the Officer resigns in the following cases: (i) their remuneration, including their benefits, are considerably reduced, (ii) without their prior written consent, the Officer suffers a significant reduction of their responsibilities, authority, status or hierarchy, taken as a whole, (iii) the relocation of their principal place of work to a place located more than 100 kilometers from the usual principal place of work, the Officer shall be entitled to 24 months of severance (the “Term of severance” for the purposes of this paragraph 6.5) of his Cash Compensation as defined in paragraph 6.3. The Officer will also be entitled to the continuity of their benefits for the Term of severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by the Corporation, with the exception of the protection for the long-term disability which will be discontinued on the date of termination of employment.
6.6Resignation of the Officer. The Officer may terminate this Agreement by giving the Corporation thirty (30) days written notice at the end of which the Corporation will be fully discharged from its obligations under this Agreement. The Officer undertakes, during this notice period, to make reasonable efforts to assist the Corporation in finding and training their successor. All benefits and other conditions will be maintained during this period.
The Corporation may, in its sole and absolute discretion, waive such notice by the Officer, in whole or in part, and accelerate the departure of the Officer. In such event, the Corporation shall pay to the Officer the compensation that would have been payable for the full thirty (30) days' notice.
6.7Returning of files in the event of an end of employment relationship. As soon as the Officer ceases to be employed by the Corporation, for any reason whatsoever, all software repositories relating to trade secrets or intellectual property as well as all documents, records, computers, telephones, agendas, relating to the Corporation and its subsidiaries, and any Confidential Information, as defined in paragraph 8.3 of the present Agreement, then in the possession or under the control of the Officer, including copies of those, whether prepared by the Officer or third parties, will be returned or delivered without delay to the Corporation without any copies being preserved in any form or medium.
7.NON-COMPETITION AND NON-SOLICITATION
7.1The Officer recognizes that there is strong competition in the industry in which the Corporation operates and that, in the course of their employment with the Corporation, the Officer will acquire an in-depth knowledge of the Corporation's business, operations, products (current and contemplated), industry and methods of doing business.
7.2The Officer further acknowledges and agrees that, in light of the foregoing, they would have an unfair advantage and would be in a position to cause serious and irreparable harm to the Corporation in the event that, after the termination of their employment with the Corporation, they would compete with the Corporation or solicit clients or employees of the Corporation.
7.3Non-competition
7.3.1During the Officer’s employment with the Corporation and for a period of twelve (12) months following the termination of their employment, the Officer undertakes not to perform, directly or indirectly, in any capacity whatsoever, duties or functions similar or substantially similar to those performed as Senior Vice President and Chief Financial Officer for a company operating in a field of activity that competes with the Corporation's computer consulting services activities, i.e.:
•management consulting services and advanced technologies (such as computer science and engineering);
•recruitment services and decisional support services for recruitment in the field of IT;
•IT infrastructure management services (such as hosting, sharing and outsourcing, IT health check, transition, operations, business continuity planning, business succession planning); and
•application development services (such as process analysis, functional analysis, project management, web development, mobile technology, solution integration),
and this, in the following territory: the province of Quebec (hereinafter the “Territory”).
7.3.2This provision does not prevent the Officer from the purchase or holding of shares or securities of a publically listed company on a recognized stock exchange which do not represent more than five percent (5%) of the voting shares of such company and which do not confer control.
7.4Non-solicitation
During the Officer's employment with the Corporation and for a period of twelve (12) months from the date on which the Officer ceases to be employed by the Corporation, the Officer undertakes not to, in the Territory, directly or indirectly, for any reason whatsoever, in any manner whatsoever :
(i)solicit, directly or indirectly, (i) the clients of the Corporation with whom the Officer did business in the twelve (12) months preceding the termination of this Agreement and (ii) the clients of the Corporation who were known to the Officer in the twelve (12) months preceding the end of their employment. The Officer also undertakes not to allow the use of their name in order to solicit these same clients and not to do anything to cause or induce any person, including suppliers of goods and services, who did business with the Corporation in the twelve (12) months preceding the end of employment, to terminate, in whole or in part, their business relations with the Corporation
(ii)for the purposes of sub-paragraph 7.4 (i), the term "clients" also includes potential clients with whom the Officer has taken part in steps to establish a business relationship or potential clients for whom the Officer has become aware that steps were being taken by the Corporation to establish business relationships.
(iii)induce, attempt to induce or solicit in any way, directly or indirectly, the personnel of the Corporation to leave their positions with the Corporation.
7.5Reasonableness of non-competition and non-solicitation obligations
The Officer acknowledges and confirms that the obligations and commitments set forth in clauses 7.3 and 7.4 (including all their respective paragraphs and sub-paragraphs) of this Agreement are reasonable and limited to what is necessary to protect the legitimate interests of the Corporation.
7.6Evolving circumstances
It is understood that the duties performed by the Officer with the Corporation may change over time. Consequently, the non-competition clause and the non-solicitation clause may be adjusted to reflect the new reality to the extent necessary to protect the legitimate interests of the Corporation. In such a case, the Officer undertakes to sign a new non-competition and non-solicitation clause.
7.7Nothing in this section shall limit or extinguish the obligations of the Officer arising by law or under this Agreement which survive termination of this Agreement by reason of their nature and in particular, but without limiting the foregoing, the obligations of loyalty and the obligation not to use information of a confidential nature obtained by the Officer in the performance or in connection with their work.
8.CONFIDENTIALITY
8.1The Officer shall not, while employed by the Corporation or at any time thereafter, directly or indirectly, use or disclose to any person any Confidential Information understanding, however, that nothing in this present section prevents the Officer from disclosing or using Confidential Information if (i) the Confidential Information is publicly available or in the public domain at the time of such disclosure or use, without breach of this Agreement, or (ii) disclosure of the Confidential Information is required by law, regulation, agency or government authority or by the order of a court of competent jurisdiction.
8.2The Officer acknowledges and agrees that the Confidential Information is the exclusive property of the Corporation and its subsidiaries and that the obligations under this present section shall remain in force in perpetuity and shall exist and
remain in full force notwithstanding any breach or disavowal, or alleged breach, or alleged disavowal of this Agreement by the Corporation.
8.3For the purposes of the present Agreement, “Confidential Information” means any confidential or proprietary information, intellectual and industrial property (including know-how and trade secrets) and any confidential fact relating to the Corporation or any other business or internal affairs of the Corporation or any of its subsidiaries, including unpublished or undisclosed financial results, current and past client lists, strategies with clients and potential clients of the Corporation or any of its subsidiaries, sales or recruitment strategies, contracts with clients of the Corporation or its subsidiaries, calls for tender, bid response strategies as well as bid response templates, any prices or discounts offered to clients of the Corporation or its subsidiaries and any other information of the same nature or any information relating to employees, or any persons or consultants retained by the Corporation to perform services.
9.INTELLECTUAL PROPERTY
9.1The Corporation is and will be the sole owner of all products resulting from the performance of the Officer's services hereunder, including all materials, ideas, concepts, formats, suggestions, developments, writings, arrangements, software packages, programs and other intellectual property that the Officer may acquire, obtain, develop or create in connection with their employment with the Corporation and during the term of their employment, free and clear of any claim by the Officer (or whoever makes a claim on behalf of the Officer) of any nature whatsoever
10.GENERAL PROVISIONS
10.1Restrictions on the Conduct of the Corporation. Except as provided in paragraph 6.5 of this Agreement, nothing in this Agreement limits the Corporation in its management of the Corporation and, in particular, the Corporation is free to sell the property of the Corporation as a whole, or to merge or consolidate the Corporation with the business of any other person or to abandon the business.
10.2Currency. All amounts in this Agreement are denominated and paid in Canadian currency.
10.3Notice. Any notice required or permitted to be given hereunder shall be in writing and shall be delivered by hand, fax, or electronic mail, provided written confirmation of receipt is obtained, or by 24-hour courier service or by prepaid registered mail. It shall be deemed to have been given when so delivered by hand, electronic mail or overnight courier or, if mailed, three (3) days after mailing, in the following manner:
| | | | | |
| to the Corporation: | ALITHYA CANADA INC. |
| 700, De la Gauchetière Street West, |
| Suite 2400 |
| Montreal Quebec, Canada, H3B 5M2 |
| To the attention of Mr. Paul Raymond |
| Email: paul.raymond@alithya.com |
| | | | | |
| to the Officer: | CLAUDE THIBAULT |
| [REDACTED] |
Either party may, by notice to the other party in accordance with this clause, designate another address for the receipt of notices hereunder.
10.4Entirety. This Agreement and the Schedules contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, written or oral, with respect thereto.
10.5Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec. In the event of a dispute with respect to the interpretation of the Agreement or the performance of the parties' obligations hereunder, the courts of the District of Montreal shall have exclusive jurisdiction.
10.6Assignment. Subject to the provisions of Section 6.5 of this Agreement, the Corporation may, without the consent of the Officer, assign its rights under this Agreement with respect to any sale, transfer or other alienation of all or substantially all of its property or business, whether by merger, consolidation or otherwise. The Officer may not assign or attempt to assign, directly or indirectly, all or any part of their rights or interests in this Agreement.
10.7Severability. If any provision of this Agreement is found by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect in all respects, without regard to the invalid or unenforceable portion.
10.8Waiver. The waiver, implied or otherwise, of rights under any provision of this Agreement shall not be construed as a waiver of rights under any other provisions, whether or not similar, and such waiver shall not be deemed to have effect unless otherwise stipulated in a written declaration and duly signed by the party waiving a right.
10.9Survival. Sections 7, 8, and 9, shall survive and remain in force despite the termination, end, or expiration of the present Agreement.
10.10Supersedes. This Agreement supersedes and cancels any oral or written agreement between the parties relating to the functions covered by this Agreement whose content would be contrary to the provisions of this Agreement.
10.11Headings. The headings of this Agreement are provided for reference purposes only and in no way effect the meaning or interpretation of this Agreement.
10.12The Officer acknowledges and agrees that they have read and understood all of the sections and paragraphs of this Agreement and that they have received the necessary explanations on the nature and scope of the sections or paragraphs of this Agreement. The Officer acknowledges that he/she has been advised that this Agreement contains important obligations for the Officer and acknowledges that they have had the opportunity to consult with their legal counsel prior to signing this Agreement. More specifically, the Officer declares that these obligations do not prevent them from earning a reasonable living, taking into account the important consideration that they derive from this Agreement.
IN WITNESS WHEREOF, the parties to the present have signed this Agreement in two (2) copies on the date and location mentioned below.
| | | | | | | | |
Montreal This 5th day of December 2019 | | Montreal This 5th day of December 2019 |
ALITHYA GROUP INC.
| | |
/s/ Paul Raymond | | /s/ Claude Thibault |
Paul Raymond President and Chief Executive Officer
| | Claude Thibault Officer |
Exhibit 4.3
EMPLOYMENT AGREEMENT
INTERVENED in Montreal in March 2018, amended in November 2018 and further amended on December 5, 2019
BETWEEN:
ALITHYA FINANCIAL SOLUTIONS, INC., a company duly constituted under the Business Corporations Act (Québec), represented by Mr. Paul Raymond, President and Chief Executive Officer;
(hereinafter the “Corporation”)
AND:
CLAUDE ROUSSEAU domiciled and residing at [REDACTED]
(hereinafter the “Officer”)
______________________________________________________________________
1.EMPLOYMENT
1.1Employment. The Corporation hereby hires the Officer to render services with respect to GROUP ALITHYA INC. (hereinafter the “Parent Corporation”). The Officer will hold the position and responsibilities of Senior Vice President and Chief Operating Officer of the Corporation, and all its subsidiaries worldwide. Without limiting the generality of the foregoing, the work and services required of the Officer will be the duties, tasks and responsibilities that will be assigned to them as Senior Vice President and Chief Operating Officer of the Corporation by the President and Chief Executive Officer of the Corporation from time to time during the term of employment. For the purpose of this Agreement, the Date of appointment is January 26, 2015 and the Corporation recognizes the seniority of the Officer as of January 26, 2015.
1.2Acceptance. The Officer accepts employment on the terms and conditions set out in this Agreement and agrees to devote all of his time and attention to his employment hereunder. The Officer agrees to act in the best interests of the Corporation with fidelity and loyalty and within the limits of his duties and to comply with the instructions given by the Corporation.
1.3Place of work. The principal place of employment of the Officer is in the United States subject to reasonable travel that may be required or necessary to render the services hereunder.
2.TERM
Notwithstanding the date of signature of this Agreement, the duration of the present contract is for the period from November 1, 2018 to March 31, 2022, the
fixed part of the contract, subject to the provisions of termination of employment provided for in Section 4 hereof.
3.COMPENSATION AND BENEFITS
3.1Salary. As compensation for all services to be rendered under this Agreement, the Corporation shall pay to the Officer, during the employment, an annual base salary set out in the Appendix A in force, payable every two (2) weeks in accordance with the Corporation’s salary policies which may be reviewed from time to time in accordance with the practice of the Corporation and the performance of the holder, but at least on an annual basis, net of deductions that must be made under applicable laws and regulations.
3.2Bonus. The Officer is eligible for a bonus program that may provide annual incentive compensation based on defined performance criteria, the level of achievement of performance targets, and the conditions determined annually by the President and Chief Executive Officer, as more fully detailed in the Appendix A in force. Notwithstanding the foregoing, nothing in this present section shall have the effect of guaranteeing to the Officer the payment of an annual bonus by the Corporation.
3.3Long-term incentive. The Officer is eligible for a long-term incentive program that aims to share a portion of the value of the Parent Corporation to which the Officer contributes during his service with the Corporation. The program is administered by the Corporation's Board of Directors (the “Board”). The conditions for the participation of the Officer will be communicated to him annually in accordance with the Appendix A in force.
3.4Purchase of shares. The Officer is eligible for a share purchase plan that aims to align his interests with the interests of the shareholders. The plan is managed by the Board. The conditions for the participation of the Officer will be communicated to him annually in accordance with the Appendix A in force.
3.5Expenses. Subject to any policies that may be established from time to time, the Corporation shall pay or reimburse to the Officer all reasonable expenses actually incurred or paid by the Officer during the term of their employment upon presentation of statements of expenses or supporting documents.
3.6Vacation. The Officer is entitled to vacation in accordance with Corporation’s policy, equal to the number of weeks described in the Appendix A in force. Vacations are non-redeemable and cannot be accumulated or carried over from one year to the next, unless otherwise agreed between the Officer and the Corporation. The Officer must take his vacation at a time deemed acceptable by the Corporation, taking into account the needs of the Corporation.
3.7Benefits. Upon assuming office, the Officer shall participate in the Group Insurance Plan and other benefit plans of the Corporation in accordance with the terms of the applicable benefit plans in effect from time to time.
3.8Information. The Officer acknowledges having been expressly informed of the Corporation's policies and plans regarding salaries, expenses and benefits at the time of the signing of the present Agreement.
4.TERMINATION OF EMPLOYMENT
4.1Termination of employment for serious reason. The Corporation may, at any time, terminate the employment of the Officer without notice or indemnity in lieu thereof, and without any further obligation to the Officer, due to a serious reason.
For the purposes hereof, the expression “serious reason” includes, but is not limited to:
(i)conduct involving the theft or misappropriation of property of the Corporation or any of its subsidiaries or corporations or any of its successors or assigns;
(ii)any form of dishonesty, financial or otherwise, that could materially interfere with the normal course of business, the reputation or business relationship of the Corporation;
(iii)the deliberate refusal to perform the duties reasonably assigned to them by the President and Chief Executive Officer of the Corporation after receiving a written notice to that effect from the Corporation and having been given reasonable notice (usually 10 days) to comply with the instructions of the President and Chief Executive Officer;
(iv)failure to fulfill substantially all of their duties as an Officer as provided herein; and
(v)gross negligence by the Officer in the performance of his duties.
4.2Termination of employment without serious reason. The Corporation may terminate the employment of the Officer without serious reason by providing them with a written notice of termination of employment and accrued wages, reimbursements of accrued expenses and any other amount due to the Officer at the time of termination of employment, in addition to an indemnity in lieu of reasonable notice of termination of employment equal to the greater of the following amounts: (i) the remaining portion of the period determined by the duration of the contract as defined in paragraph 2 and the Appendix A, or (ii) the product of (i) the sum of twelve (12) months plus one (1) month per year of service, subject to a maximum of 24 months (the “Term of severance” for purposes of the present Section) multiplied by (ii) the Officer’s Cash Compensation, the whole of which is divided by twelve (12). The Cash Compensation is equal to the sum of (i) the annual base salary in effect on the date of termination of employment and (ii) the average of the annual bonuses paid for the two (2) fiscal years preceding the date of termination of employment. The Officer will also be entitled to the continuity of their benefits for the Term of severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by the Corporation, with the exception of the protection for the long-term disability which will be discontinued on the date of termination of employment. In addition, the Officer will receive for the period of severance the relocation to the United States allowance, if he is still receiving such allowance at the date of termination of employment without serious reason.
4.3The Officer acknowledges and agrees that payments under the preceding paragraph include any remuneration or payment, including benefits, notice,
compensatory indemnity, termination payments of any nature whatsoever to which the Officer may be entitled under the applicable laws, in connection with the termination of employment. The Corporation shall deduct from this amount (a) any legal deduction and any contribution to the benefit plans of the Officer that are regularly made during the term of this Agreement in accordance with the terms of the benefit plan or (b) any other amount, certain and due, that the Officer owes to the Corporation. In addition, the Officer acknowledges and agrees that the provisions of this Section 4 are fair and reasonable and agrees to sign a release upon receipt of sums due as compensation in lieu of notice, if necessary, in the event of the termination of their employment by the Corporation without serious reason or the termination of their employment pursuant to the provisions of paragraphs 4.4 and 4.5.
4.4Termination of employment without serious reason or resignation for cause within 12 months of a Change of Control as defined for the purpose of the Corporation’s Long-Term Incentive Plan. If, in the 12 months following a Change of Control event, the Corporation terminates the employment of the Officer without serious reason or if the Officer resigns in the following cases: (i) their remuneration, including their benefits, are considerably reduced, (ii) without their prior written consent, the Officer suffers a significant reduction of their responsibilities, authority, status or hierarchy, taken as a whole, (iii) the relocation of their principal place of work to a place located more than 100 kilometers from the usual principal place of work, the Officer shall be entitled to a severance equal to the greater of following amounts: (i) the remaining portion of the fixed part of the contract, or (ii) 24 months (the “Term of severance” for the purposes of this paragraph 4.4) of his Cash Compensation as defined in paragraph 4.2. The Officer will also be entitled to the continuity of their benefits for the Term of severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by the Corporation, with the exception of the protection for the long-term disability which will be discontinued on the date of termination of employment.
4.5Resignation of the Officer. The Officer may terminate this Agreement by giving the Corporation thirty (30) days written notice at the end of which the Corporation will be fully discharged from its obligations under this Agreement. The Officer undertakes, during this notice period, to make reasonable efforts to assist the Corporation in finding and training their successor. All benefits and other conditions will be maintained during this period. The Corporation may, in its sole and absolute discretion, waive such notice by the Officer, in whole or in part, and accelerate the departure of the Officer. In such event, the Corporation shall pay to the Officer the compensation that would have been payable for the full thirty (30) days' notice.
4.6Termination of employment in the event of death. The employment of the Officer hereunder will automatically terminate upon the death of the Officer.
4.7Returning of files in the event of an end of employment relationship. As soon as the Officer ceases to be employed by the Corporation, for any reason whatsoever, all software repositories relating to trade secrets or intellectual property as well as all documents, records, computers, telephones, agendas, relating to the Corporation and its subsidiaries, and any Confidential Information, as defined in paragraph 5.4 of the present Agreement, then in the possession or under the control of the Officer, including copies of those, whether prepared by the Officer or third parties, will be returned or delivered without delay to the Corporation without any copies being preserved in any form or medium.
5.NON-SOLICITATION AND NON-DISCLOSURE PROVISIONS
5.1Acknowledgment by the Officer. For the purpose of these non-solicitation, non-disclosure and non-competition provisions, the Officer acknowledges that:
5.1.1The Corporation provides information technology consulting services such as management consulting services and advanced technologies (such as computer and engineering), recruitment and decision support services in IT recruitment, managed IT infrastructure services (such as hosting, colocation and outsourcing, IT check-up, transition, operations, business continuity plan, succession plan), development services applications (such as process analysis, functional analysis, project management, web development, mobile technology, solution integration) (hereafter collectively referred to as “Services Provided by the Corporation”);
5.1.2his work for the Corporation will give him access to the industrial secrets of the Corporation and its subsidiaries as well as to Confidential Information, as defined in section 5.3;
5.1.3the Corporation would not have entered into this Agreement without the agreements set out in this Section; and
5.1.4the agreements set out in this Section are essential to protect the Business and goodwill of the Corporation;
5.2Non-solicitation. The Officer agrees in favor of the Corporation, for a period of twelve (12) months, if any, following the termination of his employment for whatever reason, in the territory of the Province of Quebec, not to: soliciting, directly or indirectly, for Services Provided by the Corporation or for any other product or service sold or rendered by the Corporation or any of its subsidiaries on the date of termination of employment of the Officer, any client or relationship business with which the Corporation or any of its subsidiaries does business or has done business within twelve (12) months of the termination of the employment of the Officer, for the purpose of obtaining or taking business, contracts or orders from such customers to the detriment of the Corporation or any of its subsidiaries, or deploy, directly or indirectly, efforts to take advantage of contracts with the Corporation or any of its subsidiaries; and to solicit, directly or indirectly, for hiring purposes or hire as an independent contractor any employee of the Corporation or any of its subsidiaries or any person of whom the Corporation or any or all of the other of its subsidiaries has retained the services as an employee or independent contractor during the twelve (12) months preceding the date of the termination of the employment of the Officer.
5.3Confidentiality. The Officer shall not, while employed by the Corporation or at any time thereafter, directly or indirectly, use or disclose to any person any Confidential Information provided, however, that nothing in this Section prevents the Officer from disclosing or using Confidential Information if:
5.3.1Confidential Information is publicly available or is in the public domain at the time of such disclosure or use, without breach of this Agreement; or if
5.3.2the disclosure of the Confidential Information is required by the laws, regulations, agencies or governmental authorities or by order of the competent courts.
The Officer acknowledges and agrees that the Confidential Information is the exclusive property of the Corporation and its subsidiaries and that the obligations under this paragraph shall remain in force for life and shall exist and remain in full force notwithstanding any alleged breach or disavowal or breach, or the alleged disavowal of this Agreement by the Corporation. For the purposes hereof, “Confidential Information” means any confidential or proprietary information, intellectual and industrial property (including know-how and trade secret) and any confidential fact relating to the Corporation or any other business and internal of the Corporation or any of its subsidiaries, including unpublished or undisclosed financial results, current and past client lists, strategies with customers and potential customers of the Corporation or any of its subsidiaries, its subsidiaries, sales or recruitment strategies, contracts with customers of the Corporation or its subsidiaries tenders, bid response strategies as well as bid response templates, any prices or discounts offered to customers of the Corporation or its subsidiaries and any other information of the same nature or any information relating to employees, any person s or consultants retained by the Corporation.
5.3.3Non-competition. The Officer undertakes, for the duration of his employment with the Corporation and for a period of 12 months, if any, from the date on which he ceases to be employed by the Corporation for any reason, to not, for himself or for any other person, directly or indirectly, in any capacity whatsoever, including without limiting himself, as a shareholder, employer, employee, principal, agent, franchise, franchisor, distributor or advisor, to carrying on activities or functions that are identical or similar, in whole or in part, to those that he has exercised for the benefit of the Corporation, in the sectors of activity to which the Corporation and its subsidiaries as detailed in paragraph 5.1.1 of this Agreement, and that, in the territory of the Province of Quebec.
Failure to comply with the foregoing provisions of this article will cause the Corporation serious and irreparable prejudice that renders a final judgment ineffective in damages; therefore, in the event of such a violation, the Corporation may immediately use the appropriate procedures to get an injunction order as quickly as possible; otherwise, and in any event, the payment of any penalty for any suit, action or claim brought by the Corporation to obtain such payment shall in no way constitute an authorization for such default to occur or continue.
6.INTELLECTUAL PROPERTY
6.1The Corporation is and will be the sole owner of all products resulting from the performance of the Officer's services hereunder, including all materials, ideas, concepts, formats, suggestions, developments, writings, arrangements, software packages, programs and other intellectual property that the Officer may acquire, obtain, develop or create in connection with their employment with the Corporation and during the term of their employment, free and clear of any claim by the Officer (or whoever makes a claim on behalf of the Officer) of any nature whatsoever
7.GENERAL PROVISIONS
7.1Restrictions on the Conduct of the Corporation. Except as provided in paragraph 4.4 of this Agreement, nothing in this Agreement limits the
Corporation in its management of the Corporation and, in particular, the Corporation is free to sell the property of the Corporation as a whole, or to merge or consolidate the Corporation with the business of any other person or to abandon the business.
7.2Currency. All amounts in this Agreement are denominated and paid in U.S. currency if the Principal Residence of the Officer continues to be in the United States as part of the requirements of his employment.
7.3Notice. Any notice required or permitted to be given hereunder shall be in writing and shall be delivered by hand, fax, or electronic mail, provided written confirmation of receipt is obtained, or by 24-hour courier service or by prepaid registered mail. It shall be deemed to have been given when so delivered by hand, electronic mail or overnight courier or, if mailed, three (3) days after mailing, in the following manner:
| | | | | | | | | | | |
| to the Corporation: | | ALITHYA FINANCIAL SOLUTIONS, INC. 700, De la Gauchetière Street West, Suite 2400 Montreal Quebec, Canada, H3B 5M2 To the attention of Mr. Paul Raymond Email: paul.raymond@alithya.com |
| | | |
| to the Officer: | | CLAUDE ROUSSEAU [REDACTED] |
Either party may, by notice to the other party in accordance with this clause, designate another address for the receipt of notices hereunder.
7.4Entirety. This Agreement and the Appendices contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, written or oral, with respect thereto.
7.5Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec. In the event of a dispute with respect to the interpretation of the Agreement or the performance of the parties' obligations hereunder, the courts of the District of Montreal shall have exclusive jurisdiction.
7.6Assignment. Subject to the provisions of paragraph 4.4 of this Agreement, the Corporation may, without the consent of the Officer, assign its rights under this Agreement in respect of any sale, transfer or other disposition of the whole or any substantially all of its property or activities, whether by merger, amalgamation or otherwise. The Officer may not assign or attempt to assign, directly or indirectly, all or part of his rights or interests in this Agreement.
7.7Severability. If any provision of this Agreement is found by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect in all respects, without regard to the invalid or unenforceable portion.
7.8Waiver. The waiver, implied or otherwise, of rights under any provision of this Agreement shall not be construed as a waiver of rights under any other provisions, whether or not similar, and such waiver shall not be deemed to have
effect unless otherwise stipulated in a written declaration and duly signed by the party waiving a right.
7.9Survival. Sections 5 and 6 shall survive and remain in force despite the termination, end, or expiration of the present Agreement.
7.10Supersedes. This Agreement supersedes and cancels any oral or written agreement between the parties relating to the functions covered by this Agreement whose content would be contrary to the provisions of this Agreement.
7.11Headings. The headings of this Agreement are provided for reference purposes only and in no way effect the meaning or interpretation of this Agreement.
8.AGREEMENT BY THE OFFICER
The Officer acknowledges and agrees that they have read and understood all of the sections and paragraphs of this Agreement and that they have received the necessary explanations on the nature and scope of the sections or paragraphs of this Agreement. The Officer acknowledges that he/she has been advised that this Agreement contains important obligations for the Officer and acknowledges that they have had the opportunity to consult with their legal counsel prior to signing this Agreement. More specifically, the Officer declares that these obligations do not prevent them from earning a reasonable living, taking into account the important consideration that they derive from this Agreement.
IN WITNESS WHEREOF, the parties have signed the present Agreement effective on December 5, 2019.
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ALITHYA FINANCIAL SOLUTIONS, INC.
/s/ Paul Raymond | | |
Paul Raymond President and Chief Executive Officer
| | |
| /s/ Claude Rousseau | | |
| CLAUDE ROUSSEAU | | |
APPENDIX A
INTERVENED IN CLAUDE ROUSSEAU’S AGREEMENT
DATED APRIL 1, 2019
| | | | | |
| Effective Contractual Period: | From November 1, 2018 to March 31, 2022. |
| |
| Annual Base Salary: | $370,000 annual review as at April 1st, 2020. |
| |
| Annual Vacations: | Five (5) weeks progressively cumulated for each 12-month period starting April 1st of each year and taken according to the vacation calendar in force. |
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| Short-Term Incentive: | The Officer will be eligible to a target bonus of 70% of his base salary for the effective period (the “Target Bonus”). The maximum overall bonus is 150% x Target Bonus. |
| The Bonus will be calculated in accordance with the Short-Term Incentive Plan approved by the Board. |
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| Share Purchase Plan: | The Officer is eligible to the Share Purchase Plan. He may contribute up to 10% of his annual base salary and the Corporation will contribute up to 3.5% of his annual base salary. |
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| Long-Term Incentive: | The Long-Term Incentive grants are determined by the Board under the Long-Term Incentive Plan in force. All grants are subject to the Officer’s participation in the Corporation’s Share Purchase Plan. |
| |
| Share Ownership Requirement: | In accordance with the Share Ownership Requirement policy in force, the Officer commits to owning shares which total value equals at least one (1) time his base salary as of the farthest of the following dates: i) April 1st 2024; or ii) The 5th anniversary date of his appointment. |
| |
| Share Ownership Requirement: | In accordance with the Share Ownership Requirement policy in force, the Officer commits to owning shares which total value equals at least one (1) time his base salary as of the farthest of the following dates: i) April 1st 2024; or ii) The 5th anniversary date of his appointment |
| |
| Annual Medical Exam: | The Corporation requires that the Officer undertakes a complete annual medical exam at a Medical Clinic chosen and paid for by the Corporation. |
| |
| | | | | |
Tax Consultation: | The Corporation will reimburse or pay for Tax Consultation within reasonable limits in order for the Officer to comply with his tax declaration. |
| |
| Monthly Relocation Allowance: | A monthly allowance in the amount of $5,000.00 is authorized for the whole duration of the Employment Agreement. |
| |
| Travel Expenses: | All travel between Orlando and Montreal including travel for family reasons will be paid by the Corporation, including more specifically airfare, car rental and hotel, etc. |
| |
| Sporting Club Fees: | Each year, the Corporation will reimburse sporting club fees up to $10,000 plus applicable taxes. |
SIGNED BY,
| | | | | | | | |
ALITHYA FINANCIAL SOLUTIONS, INC.
/s/ Paul Raymond | | |
Paul Raymond President and Chief Executive Officer
| | |
| /s/ Claude Rousseau | | |
| CLAUDE ROUSSEAU | | |
Exhibit 4.4
EMPLOYMENT AGREEMENT
BETWEEN:
ALITHYA CANADA INC., a company duly constituted under the Business Corporations Act (Québec), represented by Mr. Paul Raymond, President and Chief Executive Officer;
(hereinafter the “Corporation”)
AND:
Robert Lamarre domiciled and residing at [REDACTED]
(hereinafter the “Officer”)
_________________________________________________________________________
1.PURPOSE AND LOCATION OF WORK
1.1The Officer will hold the position and responsibilities of Senior Vice President and Chief Information Officer of the Corporation, ALITHYA CANADA INC. (hereinafter the “Corporation”).
1.2Without limiting the generality of the foregoing, the work and services required of the Officer will be the duties, tasks and responsibilities that will be assigned to them as Senior Vice President and Chief Information Officer by the President and Chief Executive Officer of the Corporation from time to time during the term of employment.
1.3For the purpose of this Employment Agreement (the “Agreement”), the Date of appointment is April 18, 2016 and the Corporation recognizes the seniority of the Officer as of April 18, 2016.
1.4The principal place of employment of the Officer is in the Montreal area subject to reasonable travel that may be required or necessary to render the services hereunder.
2.OBLIGATIONS
2.1The Officer agrees to work exclusively for the Corporation, to make every effort to adequately perform the duties assigned to them and to act at all times in the best interest of the Corporation. The Employee shall refrain from any activity that could be detrimental to the interests of the Corporation. The Employee must act with loyalty towards the Corporation at all times.
2.2The Officer declares that they are free from any obligation to any person, including their former employers, that is inconsistent with this Agreement or that may interfere with the performance of their duties for the Corporation.
2.3The Officer agrees to abide by all guidelines and policies established from time to time, verbally or in writing, by the Corporation.
2.4Without limiting the generality of the foregoing, the Officer acknowledges having been made aware of the guidelines and policies currently in force at the Corporation and more specifically having read, understood and agreed to comply with the conditions set out in the following documents:
•Code of Ethics;
•Policy on Disclosure;
•Insider Trading Policy;
•Minimum Shareholding Policy;
3.TERM
3.1The term of employment is for an indefinite period, subject to the provisions on termination of employment provided for in Section 6 of the present Agreement.
4.COMPENSATION AND BENEFITS
4.1Salary. As compensation for all services to be rendered under this Agreement, the Corporation shall pay to the Officer, during the employment, an annual base salary of $275,000, less applicable deductions, payable every two (2) weeks.
This salary is subject to review in accordance with the Corporation’s policies on salary and at its sole discretion.
4.2Bonus. The Officer is eligible to participate in the discretionary bonus program that may provide annual incentive compensation based on defined performance criteria, the level of achievement of performance targets, and the conditions determined annually by the President and Chief Executive Officer.
As of the date hereof, the Officer's target bonus level is 40 % of his base salary for the effective period (the "Target Bonus"). The maximum aggregate annual bonus is 150 % x Target Bonus.
The bonus will be calculated, where applicable, according to the program approved by the Board of Directors.
Notwithstanding the foregoing, nothing in this present section shall have the effect of guaranteeing to the Officer the payment of an annual bonus by the Corporation.
4.3Long-term incentive. The Officer is eligible to participate in the long-term incentive program that aims to share a portion of the value of the Corporation to which the Officer contributes as result of the performance of their duties within the Corporation.
The program is administered by the Corporation's Board of Directors (the “Board”) and its provisions are subject to its approval.
Long-term incentive awards, if any, will be determined by the Board under the long-term incentive plan in force at the time. This grant and any subsequent award, as the case may be, are conditional on the participation of the Officer in the Corporation’s Share Purchase Plan.
4.4Purchase of shares. The Officer is eligible for a share purchase plan that aims to align his interests with the interests of the shareholders.
The Officer may purchase shares of up to 10 % of their annual base salary and the Corporation will contribute up to 3.5 % of their annual base salary.
The plan is managed by the Board and its provisions are subject to its approval.
According to the Minimum Shareholding Policy in force, the Officer undertakes to hold shares of a minimum value equal to one (1) times their annual base salary as of the latest of the following dates:
i.April 1, 2024; or
ii.The 5th anniversary of the date of the Officer’s appointment.
4.5Expenses. Subject to any policies that may be established from time to time, the Corporation shall pay or reimburse to the Officer all reasonable expenses actually incurred or paid by the Officer during the term of their employment upon presentation of statements of expenses or supporting documents.
4.6Vacation. The Officer is entitled to an annual vacation with pay in accordance with Corporation’s policy, equal to five (5) weeks for each 12-month period beginning on April 1st of each year and taken according to the vacation schedule in effect.
Unused vacation will not be paid out and cannot be accumulated or carried over from one year to the next, unless otherwise agreed between the Officer and the Corporation.
The Officer must take his vacation at a time deemed acceptable by the Corporation, taking into account the needs of the Corporation.
4.7Benefits. Upon assuming office, the Officer shall participate in the Group Insurance Plan and other benefit plans of the Corporation in accordance with the terms of the applicable benefit plans in effect from time to time.
4.8Information. The Officer acknowledges having been expressly informed of the Corporation's policies and plans regarding salaries, expenses and benefits at the time of the signing of the present Agreement.
5.HEALTH
5.1Upon taking office, the Officer confirms, at that date, that to the best of their knowledge, they are in good health and are not affected by any problem likely to prevent them from properly performing their duties.
5.2The Officer agrees to undergo, on an annual basis, a complete medical examination at a medical clinic chosen by the Corporation and at the Corporation's expense, for the duration of this Agreement.
6.TERMINATION OF EMPLOYMENT
6.1Termination of Employment as of Right. The employment of the Officer shall terminate as of right, without the Corporation being required to pay any indemnity
whatsoever, upon the death of the Officer or upon the effective date of their resignation.
6.2Termination of employment for serious reason. The Corporation may, at any time, terminate the employment of the Officer without notice or indemnity in lieu thereof, and without any further obligation to the Officer, due to a serious reason.
For the purposes hereof, the expression “serious reason” includes, but is not limited to:
i.where the Officer is declared bankrupt, insolvent, makes an assignment of property or is prohibited from doing so, situations which the Officer acknowledges are incompatible with continued employment with the Corporation;
ii.where the Officer contravenes the provisions of the present Agreement;
iii.where the Officer deliberately refuses to perform the duties reasonably assigned to them by the President and Chief Executive Officer of the Corporation after receiving a written notice to that effect from the Corporation and having been given reasonable notice (usually 10 days) to comply with the instructions of the President and Chief Executive Officer;
iv.where the Officer commits any fraud, theft, embezzlement, criminal offence, is guilty of gross misconduct or willful negligence in the performance of their duties or any form of dishonesty, financial or otherwise, which could materially harm the normal course of business, reputation or business relations of the Corporation
v.all other serious reason.
6.3Termination of employment without serious reason. The Corporation may terminate the employment of the Officer without serious reason by providing them with a written notice of termination of employment and accrued wages, reimbursements of accrued expenses and any other amount due to the Officer at the time of termination of employment, in addition to an indemnity in lieu of reasonable notice of termination of employment equal to the product of (i) the sum of twelve (12) months plus one (1) month per year of service, subject to a maximum of 18 months (the “Term of severance” for purposes of the present Section) multiplied by (ii) the Officer’s Cash Compensation, the whole of which is divided by twelve (12).
The Cash Compensation is equal to the sum of (i) the annual base salary in effect on the date of termination of employment and (ii) the average of the annual bonuses paid for the two (2) fiscal years preceding the date of termination of employment.
The Officer will also be entitled to the continuity of their benefits for the Term of severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by the Corporation, with the exception of the protection for the long-term disability which will be discontinued on the date of termination of employment.
6.4The Officer acknowledges and agrees that payments under the preceding paragraph 6.3 include any remuneration or payment, including benefits, notice, compensatory indemnity, termination payments of any nature whatsoever to which the Officer may
be entitled under the applicable laws, in connection with the termination of employment. The Corporation shall deduct from this amount (a) any legal deduction and any contribution to the benefit plans of the Officer that are regularly made during the term of this Agreement in accordance with the terms of the benefit plan (b) any other amount, certain and due, that the Officer owes to the Corporation.
In addition, the Officer acknowledges and agrees that the provisions of this Section 6 are fair and reasonable and agrees to sign a release upon receipt of sums due as compensation in lieu of notice, if necessary, in the event of the termination of their employment by the Corporation without serious reason or the termination of their employment pursuant to the provisions of paragraphs 6.3 and 6.5.
6.5Termination of employment without serious reason or resignation for cause within 12 months of a Change of Control as defined for the purpose of the Corporation’s Long-Term Incentive Plan. If, in the 12 months following a Change of Control event, the Corporation terminates the employment of the Officer without serious reason or if the Officer resigns in the following cases: (i) their remuneration, including their benefits, are considerably reduced, (ii) without their prior written consent, the Officer suffers a significant reduction of their responsibilities, authority, status or hierarchy, taken as a whole, (iii) the relocation of their principal place of work to a place located more than 100 kilometers from the usual principal place of work, the Officer shall be entitled to 24 months of severance (the “Term of severance” for the purposes of this paragraph 6.5) of his Cash Compensation as defined in paragraph 6.3. The Officer will also be entitled to the continuity of their benefits for the Term of severance or a lump sum payment equivalent to the portion of the cost of the group insurance premiums assumed by the Corporation, with the exception of the protection for the long-term disability which will be discontinued on the date of termination of employment.
6.6Resignation of the Officer. The Officer may terminate this Agreement by giving the Corporation thirty (30) days written notice at the end of which the Corporation will be fully discharged from its obligations under this Agreement. The Officer undertakes, during this notice period, to make reasonable efforts to assist the Corporation in finding and training their successor. All benefits and other conditions will be maintained during this period.
The Corporation may, in its sole and absolute discretion, waive such notice by the Officer, in whole or in part, and accelerate the departure of the Officer. In such event, the Corporation shall pay to the Officer the compensation that would have been payable for the full thirty (30) days' notice.
6.7Returning of files in the event of an end of employment relationship. As soon as the Officer ceases to be employed by the Corporation, for any reason whatsoever, all software repositories relating to trade secrets or intellectual property as well as all documents, records, computers, telephones, agendas, relating to the Corporation and its subsidiaries, and any Confidential Information, as defined in paragraph 8.3 of the present Agreement, then in the possession or under the control of the Officer, including copies of those, whether prepared by the Officer or third parties, will be returned or delivered without delay to the Corporation without any copies being preserved in any form or medium.
7.NON-COMPETITION AND NON-SOLICITATION
7.1The Officer recognizes that there is strong competition in the industry in which the Corporation operates and that, in the course of their employment with the Corporation, the Officer will acquire an in-depth knowledge of the Corporation's business, operations, products (current and contemplated), industry and methods of doing business.
7.2The Officer further acknowledges and agrees that, in light of the foregoing, they would have an unfair advantage and would be in a position to cause serious and irreparable harm to the Corporation in the event that, after the termination of their employment with the Corporation, they would compete with the Corporation or solicit clients or employees of the Corporation.
7.3Non-competition
7.3.1During the Officer’s employment with the Corporation and for a period of twelve (12) months following the termination of their employment, the Officer undertakes not to perform, directly or indirectly, in any capacity whatsoever, duties or functions similar or substantially similar to those performed as Senior Vice President and Chief Information Officer for a company operating in a field of activity that competes with the Corporation's computer consulting services activities, i.e.:
•management consulting services and advanced technologies (such as computer science and engineering);
•recruitment services and decisional support services for recruitment in the field of IT;
•IT infrastructure management services (such as hosting, sharing and outsourcing, IT health check, transition, operations, business continuity planning, business succession planning); and
•application development services (such as process analysis, functional analysis, project management, web development, mobile technology, solution integration),
and this, in the following territory: the province of Quebec (hereinafter the “Territory”).
7.3.2This provision does not prevent the Officer from the purchase or holding of shares or securities of a publically listed company on a recognized stock exchange which do not represent more than five percent (5%) of the voting shares of such company and which do not confer control.
7.4Non-solicitation
During the Officer's employment with the Corporation and for a period of twelve (12) months from the date on which the Officer ceases to be employed by the Corporation, the Officer undertakes not to, in the Territory, directly or indirectly, for any reason whatsoever, in any manner whatsoever :
i.solicit, directly or indirectly, (i) the clients of the Corporation with whom the Officer did business in the twelve (12) months preceding the termination of this Agreement and (ii) the clients of the Corporation who were known to the Officer in the twelve (12) months preceding the end of their employment. The Officer also undertakes not to allow the use of their name in order to solicit these same clients and not to do anything to cause or induce any person, including suppliers of goods and services, who did business with the Corporation in the twelve (12) months preceding the end of employment, to terminate, in whole or in part, their business relations with the Corporation
ii.for the purposes of sub-paragraph 7.4 (i), the term "clients" also includes potential clients with whom the Officer has taken part in steps to establish a business relationship or potential clients for whom the Officer has become aware that steps were being taken by the Corporation to establish business relationships.
iii.induce, attempt to induce or solicit in any way, directly or indirectly, the personnel of the Corporation to leave their positions with the Corporation.
7.5Reasonableness of non-competition and non-solicitation obligations
The Officer acknowledges and confirms that the obligations and commitments set forth in clauses 7.3 and 7.4 (including all their respective paragraphs and sub-paragraphs) of this Agreement are reasonable and limited to what is necessary to protect the legitimate interests of the Corporation.
7.6Evolving circumstances
It is understood that the duties performed by the Officer with the Corporation may change over time. Consequently, the non-competition clause and the non-solicitation clause may be adjusted to reflect the new reality to the extent necessary to protect the legitimate interests of the Corporation. In such a case, the Officer undertakes to sign a new non-competition and non-solicitation clause.
7.7Nothing in this section shall limit or extinguish the obligations of the Officer arising by law or under this Agreement which survive termination of this Agreement by reason of their nature and in particular, but without limiting the foregoing, the obligations of loyalty and the obligation not to use information of a confidential nature obtained by the Officer in the performance or in connection with their work.
8.CONFIDENTIALITY
8.1The Officer shall not, while employed by the Corporation or at any time thereafter, directly or indirectly, use or disclose to any person any Confidential Information understanding, however, that nothing in this present section prevents the Officer from disclosing or using Confidential Information if (i) the Confidential Information is publicly available or in the public domain at the time of such disclosure or use, without breach of this Agreement, or (ii) disclosure of the Confidential Information is required by law, regulation, agency or government authority or by the order of a court of competent jurisdiction.
8.2The Officer acknowledges and agrees that the Confidential Information is the exclusive property of the Corporation and its subsidiaries and that the obligations under this present section shall remain in force in perpetuity and shall exist and
remain in full force notwithstanding any breach or disavowal, or alleged breach, or alleged disavowal of this Agreement by the Corporation.
8.3For the purposes of the present Agreement, “Confidential Information” means any confidential or proprietary information, intellectual and industrial property (including know-how and trade secrets) and any confidential fact relating to the Corporation or any other business or internal affairs of the Corporation or any of its subsidiaries, including unpublished or undisclosed financial results, current and past client lists, strategies with clients and potential clients of the Corporation or any of its subsidiaries, sales or recruitment strategies, contracts with clients of the Corporation or its subsidiaries, calls for tender, bid response strategies as well as bid response templates, any prices or discounts offered to clients of the Corporation or its subsidiaries and any other information of the same nature or any information relating to employees, or any persons or consultants retained by the Corporation to perform services.
9.INTELLECTUAL PROPERTY
9.1 The Corporation is and will be the sole owner of all products resulting from the performance of the Officer's services hereunder, including all materials, ideas, concepts, formats, suggestions, developments, writings, arrangements, software packages, programs and other intellectual property that the Officer may acquire, obtain, develop or create in connection with their employment with the Corporation and during the term of their employment, free and clear of any claim by the Officer (or whoever makes a claim on behalf of the Officer) of any nature whatsoever
10.GENERAL PROVISIONS
10.1Restrictions on the Conduct of the Corporation. Except as provided in paragraph 6.5 of this Agreement, nothing in this Agreement limits the Corporation in its management of the Corporation and, in particular, the Corporation is free to sell the property of the Corporation as a whole, or to merge or consolidate the Corporation with the business of any other person or to abandon the business.
10.2Currency. All amounts in this Agreement are denominated and paid in Canadian currency.
10.3Notice. Any notice required or permitted to be given hereunder shall be in writing and shall be delivered by hand, fax, or electronic mail, provided written confirmation of receipt is obtained, or by 24-hour courier service or by prepaid registered mail. It shall be deemed to have been given when so delivered by hand, electronic mail or overnight courier or, if mailed, three (3) days after mailing, in the following manner:
| | | | | |
| to the Corporation: | ALITHYA CANADA INC. |
| 700, De la Gauchetière Street West, |
| Suite 2400 |
| Montreal Quebec, Canada, H3B 5M2 |
| To the attention of Mr. Paul Raymond |
| Email: paul.raymond@alithya.com |
| | | | | |
| to the Officer: | ROBERT LAMARRE |
| [REDACTED] |
Either party may, by notice to the other party in accordance with this clause, designate another address for the receipt of notices hereunder.
10.4This Agreement and the Schedules contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, written or oral, with respect thereto.
10.5This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec. In the event of a dispute with respect to the interpretation of the Agreement or the performance of the parties' obligations hereunder, the courts of the District of Montreal shall have exclusive jurisdiction.
10.6Assignment. Subject to the provisions of Section 6.5 of this Agreement, the Corporation may, without the consent of the Officer, assign its rights under this Agreement with respect to any sale, transfer or other alienation of all or substantially all of its property or business, whether by merger, consolidation or otherwise. The Officer may not assign or attempt to assign, directly or indirectly, all or any part of their rights or interests in this Agreement.
10.7Severability. If any provision of this Agreement is found by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect in all respects, without regard to the invalid or unenforceable portion.
10.8Waiver. The waiver, implied or otherwise, of rights under any provision of this Agreement shall not be construed as a waiver of rights under any other provisions, whether or not similar, and such waiver shall not be deemed to have effect unless otherwise stipulated in a written declaration and duly signed by the party waiving a right.
10.9Survival. Sections 7, 8, and 9, shall survive and remain in force despite the termination, end, or expiration of the present Agreement.
10.10Supersedes. This Agreement supersedes and cancels any oral or written agreement between the parties relating to the functions covered by this Agreement whose content would be contrary to the provisions of this Agreement.
10.11Headings. The headings of this Agreement are provided for reference purposes only and in no way effect the meaning or interpretation of this Agreement.
10.12The Officer acknowledges and agrees that they have read and understood all of the sections and paragraphs of this Agreement and that they have received the necessary explanations on the nature and scope of the sections or paragraphs of this Agreement. The Officer acknowledges that he/she has been advised that this Agreement contains important obligations for the Officer and acknowledges that they have had the opportunity to consult with their legal counsel prior to signing this Agreement. More specifically, the Officer declares that these obligations do not prevent them from earning a reasonable living, taking into account the important consideration that they derive from this Agreement.
IN WITNESS WHEREOF, the parties to the present have signed this Agreement in two (2) copies on the date and location mentioned below.
| | | | | | | | |
Montreal This 25th day of November 2019 | | Montreal This 25th day of November 2019 |
ALITHYA GROUP INC.
| | |
/s/ Paul Raymond | | /s/ Robert Lamarre |
Paul Raymond President and Chief Executive Officer
| | Robert Lamarre Officer |
Exhibit 4.6
EDGEWATER TECHNOLOGY, INC.
STAY BONUS AGREEMENT
This Stay Bonus Agreement (this “Agreement”), dated as of December 22, 2017, is by and between Edgewater Technology, Inc. (the “Company”) and Russell Smith (“Recipient”).
WHEREAS, in an effort to incentivize Recipient and to retain Recipient’s services with the Company and its Subsidiaries (collectively, the “Company Group”) through certain specified dates and events, the Company wishes to enter into this Agreement and provide for the payment of a Stay Bonus (defined below), subject to all of the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree to the following:
1.Definitions; Interpretation. Capitalized terms used but not otherwise defined herein shall have the meaning assigned to such terms in the Edgewater Technology, Inc. 2017 Omnibus Incentive Plan. Recipient agrees that any dispute or disagreement that may arise in connection with this Agreement shall be resolved by the Administrator, in its sole discretion, and that any interpretation by the Administrator of the terms of this Agreement and any determination made by the Administrator under this Agreement may be made in the sole discretion of the Administrator and shall be final, binding, and conclusive.
2.Stay Bonus.
(a) Bonus. Recipient shall be eligible to receive either (but not both of) the Sale Bonus or the Retention Bonus (collectively referred to herein as the “Stay Bonus”), subject to Recipient’s continued employment through the specified dates.
i. Subject to the conditions set forth herein, in the event a Sale Event is consummated on or before March 31, 2018 (a “Qualifying Sale Event”), Recipient shall receive an aggregate cash payment in an aggregate amount equal to $450,000 (the “Sale Bonus”). The Sale Bonus shall be paid to Recipient as follows: (A) 50% of the Sale Bonus shall be paid to Recipient within 30 days following the date of consummation of the Qualifying Sale Event, subject to Recipient’s continued employment with the Company Group through such date; and (B) 50% of the Sale Bonus shall be paid to Recipient within 30 days following the one-year anniversary of the date of consummation of the Qualifying Sale Event (the “Anniversary Date”), subject to Recipient’s continued employment with the Company Group (or its successor) through such Anniversary Date.
ii. Subject to the conditions set forth herein, in the event a Qualifying Sale Event is not consummated, Recipient shall receive an aggregate cash payment in an amount equal to $225,000 (the “Retention Bonus”). The Retention Bonus shall be paid to Recipient within 30 days following March 31, 2018 (the “Retention Date”), subject to Recipient’s continued employment with the Company Group through the Retention Date.
iii. For purposes hereof, “Sale Event” shall mean the earlier to occur of (A) a Corporate Transaction (other than a sale of all or substantially all of the Company’s assets) or (B) a sale, divestiture or other disposition of the Company’s Fullscope division, whether by a disposition of the equity of the applicable Subsidiary or the disposition of all or substantially all of the assets of such division.
(b) Employment. Notwithstanding the provisions of Section 2(a) hereof, in the event of Recipient’s termination of employment prior to the Retention Date by the Company Group without Cause and other than as a result of Recipient’s death or Disability, (i) Recipient shall be entitled to receive payment of the full amount of the Retention Bonus as of the date of such termination, payable within 30 days following the date of termination of employment and (ii) Recipient shall forfeit all rights to the Sale Bonus; provided that in the event such termination of employment occurs following the consummation of a Qualifying Sale Event but prior to the Anniversary Date, Recipient shall be entitled to receive payment of the unpaid portion of the Sale Bonus. For the sake of clarity, any voluntary termination of employment by Recipient, or any termination of employment following Recipient’s provision of a notice of termination of employment, shall not be treated as a termination by the Company Group without Cause for purposes of this Agreement. Subject to the first sentence of this Section 2(b) hereof, in the event of Recipient’s termination of employment with the Company Group for any reason (or no reason) prior to the Retention Date (or, if applicable, the Anniversary Date), Recipient shall forfeit Recipient’s right to receive such unpaid portion of the Stay Bonus hereunder.
(c) Divestiture. Notwithstanding any other provision of this Agreement to the contrary, the termination of Recipient’s employment with the Company Group in connection with a Sale Event or other sale, divestiture or other disposition of a Subsidiary or “Division” (as hereinafter defined) (or part thereof) (a “Divestiture”) shall not be deemed to be a termination of employment of Recipient for purposes of this Agreement. “Division” shall mean a business unit or other substantial business operation within the Company Group that is operated as a separate profit center, which may or may not be maintained by the Company as a separate legal entity.
(d) Tax Withholding. Payment of the Stay Bonus hereunder shall be subject to all applicable income and employment taxes and any other amounts that the Company Group is required by any applicable law to deduct and withhold therefrom.
3.Conditions to Payment of Stay Bonus.
(a) Cooperation; Compliance. As a condition to receiving the Stay Bonus, the Recipient shall be required to actively and satisfactorily cooperate and consult with and provide all reasonable assistance to the Company Group and any of their officers, employees or representatives through each applicable payment date, as reasonably determined by the Company, including actively and satisfactorily cooperating and participating in any sale process undertaken by the Company Group. Further, as a condition to receiving the Stay Bonus, Recipient must be in continued compliance with the terms of this Agreement, including, without limitation, Section 5 and Section 6 hereof.
(b) General Release. Payment of the Stay Bonus to Recipient shall be conditioned upon Recipient’s execution of a general release of claims upon the Retention Date or, if earlier, the date of consummation of a Qualifying Sale Event substantially in the form set forth on Exhibit A attached hereto (the “Release”). In the event Recipient does not timely sign the Release or revokes the Release within the time period specified in the Release, Recipient will forfeit Recipient’s rights to the Stay Bonus and, if applicable, Recipient will be required to immediately repay any portion of the Stay Bonus previously paid. Recipient acknowledges and agrees that Recipient shall consider the terms of the Release from the date of execution of this Agreement through the Retention Date or Qualifying Sale Event, as applicable; provided that Recipient shall have at least 21 days to consider the Release.
(c) Expiration. Notwithstanding any other provisions herein to the contrary, except as expressly set forth in Section 2(b) hereof, in the event of Recipient’s termination of employment with the Company Group, Section 2 of this Agreement shall expire automatically as of the date of termination of
employment, and thereafter, all of Recipient’s rights under Section 2 of this Agreement shall become null and void and without any further legal force or effect whatsoever. Further, in the event a Qualifying Sale Event does not occur, Recipient shall immediately forfeit all rights to the Sale Bonus as of the close of business on March 31, 2018.
4.Unfunded Arrangement. The Stay Bonus hereunder shall not be deemed to create a trust or other funded arrangement. Recipient’s rights with respect to the Stay Bonus shall be those of a general unsecured creditor with respect to any applicable payor hereunder, and under no circumstances shall Recipient have any other interest in any assets of the Company Group by virtue of the award of the Stay Bonus.
5.Confidentiality. During the course of Recipient’s employment and service with the Company Group, Recipient will have access to Confidential Information. For purposes of this Agreement, “Confidential Information” means all data, information, ideas, concepts, discoveries, trade secrets, inventions (whether or not patentable or reduced to practice), innovations, improvements, know-how, developments, techniques, methods, processes, treatments, drawings, sketches, specifications, designs, plans, patterns, models, plans and strategies, and all other confidential or proprietary information or trade secrets in any form or medium (whether merely remembered or embodied in a tangible or intangible form or medium) whether now or hereafter existing, relating to or arising from the past, current or potential business, activities and/or operations of the Company Group (or any of their respective predecessors, successors or permitted assigns), including, without limitation, any such information relating to or concerning a Sale Event, finances, sales, marketing, advertising, transition, promotions, pricing, personnel, customers, prospective customers, suppliers, vendors, partners and/or competitors. Recipient agrees that Recipient shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of Recipient’s assigned duties and for the benefit of the Company Group any Confidential Information or other confidential or proprietary information received from third parties subject to a duty on the Company Group’s part to maintain the confidentiality of such information, and to use such information only for certain limited purposes strictly for the benefit of the Company Group. The restrictions on the disclosure of Confidential Information set forth in this Section 5 shall apply during the period of Recipient’s employment and service with the Company Group and for the five year period thereafter; provided to the extent that such information is a “trade secret” as that term is defined under a state or federal law, this subparagraph is not intended to, and does not, limit the Company Group’s rights or remedies thereunder, and the time period for prohibition on disclosure or use of such information is until such information becomes generally known to the public through the act of one who has the right to disclose such information without violating any legal right or privilege of the Company Group. Further, the terms and conditions of this Agreement shall remain strictly confidential, and Recipient hereby agrees not to disclose the terms and conditions hereof to any person or entity, other than immediate family members, legal advisors or personal tax or financial advisors, or, solely for the purpose of disclosing the limitations on Recipient’s conduct imposed by the provisions of this Agreement, prospective future employers who, in each case, agree to keep such information confidential. Recipient further agrees that Recipient will not improperly use or disclose any confidential information or trade secrets, if any, of any former employers or any other person to whom Recipient has an obligation of confidentiality, and will not bring onto the premises of the Company Group any unpublished documents, intangibles or any property belonging to any former employer or any other person to whom Recipient has an obligation of confidentiality unless consented to in writing by the former employer or other person. Nothing in this Agreement shall prohibit or impede Recipient from communicating, cooperating or filing a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency or entity (collectively, a “Governmental Entity”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise making disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation, provided that in each case such communications and disclosures are consistent with applicable law. Recipient understands and acknowledges that an individual shall not be held criminally or civilly liable under any federal or state
trade secret law for the disclosure of a trade secret that is made (i) in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Recipient understands and acknowledges further that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order. Notwithstanding the foregoing, under no circumstance will Recipient be authorized to disclose any information covered by attorney-client privilege or attorney work product of the Company Group without prior written consent of the Company’s Chief Executive Officer or other officer designated by the Company.
6.Restrictive Covenants. Recipient agrees that to preserve the confidentiality of the Confidential Information, to prevent the theft or misuse of the Confidential Information, to protect the Company Group’s relationships with both its potential and existing customers, to protect the Company Group’s goodwill, and to protect the Company Group from improper or unfair competition, Recipient will not, directly or indirectly:
(a) Non-Competition. During Recipient’s employment with the Company Group and for a period of 12 months following the termination of Recipient’s employment, for any reason, whether such termination is voluntary or involuntary, Recipient shall not participate in the ownership or control of, act as an employee, agent, or contractor of, or provide any services to, or for, any business that is engaged in the Restricted Business within any state of the United States in which Recipient had any responsibility, or conducted any business, on behalf of the Company’s Fullscope Division in the three years prior to Recipient’s termination of employment with the Company Group; provided that the Company agrees that Recipient may own up to 2% of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934. The “Restricted Business” shall mean the business of selling, marketing or providing business or information technology consulting services which are competitive with the services provided by the Company’s Fullscope Division. In consideration for the covenant in this Section 6(a) , upon a termination of Recipient’s employment with the Company Group for any reason other than a termination by the Company Group for Cause, the Company Group shall: (i) continue to pay to Recipient his base salary in effect as of such employment termination (exclusive of any bonus or benefits) during the 12-month restrictive covenant period following the date of such employment termination, payable in equal installments over such 12 month period in accordance with the Company Group’s normal payroll practices; and (ii) subject to Recipient’s timely election of continuation coverage, continue to provide health insurance coverage for Recipient under the applicable insurance plan of the Company Group, subject to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), for a cost to Recipient equal to the monthly premium being paid by Recipient at the time of employment termination (with the Company paying the balance of such cost) until the earliest of (A) the expiration of the 12-month restrictive covenant period, (B) Recipient obtaining other employment with an employer that offers group health insurance benefits in which Recipient is eligible to participate or (C) the date Recipient ceases to be eligible for COBRA continuation coverage for any reason, including plan termination. In the event of a violation by Recipient of this Agreement, including, without limitation, this Section 6(a), any amounts being paid to Recipient under this Section 6(a) or otherwise shall immediately cease, and any amounts previously paid to Recipient under this Section 6(a) shall be immediately repaid to the Company. For the sake of clarity, in the event Recipient violates this Section 6(a), the Company shall have the right to cease making the payments and providing the benefits set forth hereunder, but Recipient shall remain subject to the covenants set forth in this Section 6(a).
(b) Non-Solicitation of Employees. During Recipient’s employment with the Company Group and for a period of 24 months following the termination of Recipient’s employment, for any
reason, whether such termination is voluntary or involuntary, solicit, divert, or attempt to solicit or divert, from the Company Group any employee or any person providing services to, or on behalf of, the Company Group, or influence any such person to no longer serve as an employee or provide services to, or for, the Company Group.
(c) Non-Solicitation of Customers or Potential Customers. During Recipient’s employment with the Company Group and for a period of 24 months following the termination of Recipient’s employment, for any reason, whether such termination is voluntary or involuntary, solicit, divert, or attempt to solicit or divert from the Company’s Fullscope Division, any work or business related to the business of the Company’s Fullscope Division, or otherwise related to any activity that is competitive with the Company’s Fullscope Division, from any customer or potential customer of the Company’s Fullscope Division for either the Recipient or any other entity that may employ, engage or associate with the Recipient in any fashion. For purposes of applying the covenant in this Section 6(c) after the termination of Recipient’s employment, a “customer” of the Company’s Fullscope Division is any customer to whom Company’s Fullscope Division has sold products or rendered services at any time during the two year period preceding the date of employment termination. For purposes of this Section 6(c) only, Recipient will not be deemed to have violated this Section 6(c) in the event Recipient becomes employed, engaged or associated with another entity that conducts business with a customer or potential customer of the Company’s Fullscope Division provided Recipient does not have any direct or indirect interaction with such customer or potential customer in violation of this Section 6(c). Recipient shall, no later than the date of termination with the Company Group, whether voluntary or involuntary, inform the Company Group of any known prospective business opportunities.
(d) Non-Work with Customers or Potential Customers. During Recipient’s employment with the Company Group and for a period of 24 months following the termination of Recipient’s employment, for any reason, whether such termination is voluntary or involuntary, manage, operate, be connected with, employed by, sell goods to, or perform services for, or on behalf of, in any manner, any customer or potential customer, of the Company’s Fullscope Division either on Recipient’s behalf or on behalf of any other entity that may employ, engage or associate with the Recipient in any fashion except with the written consent of the Company (which the Company agrees shall not be unreasonably withheld). For purposes of applying the covenant in this Section 6(d) after the termination of Recipient’s employment, a “customer” of the Company’s Fullscope Division is any customer to whom Company’s Fullscope Division has sold products or rendered services at any time during the two year period preceding the date of employment termination.
(e) Non-Interference with Vendors. During Recipient’s employment with the Company Group and for a period of 24 months following the termination of Recipient’s employment, for any reason, whether such termination is voluntary or involuntary, interfere, or seek to interfere, with the continuance of supplies to the Company Group (or the terms relating to such supplies) from any vendors which supplied goods or services to the Company Group.
(f) General Release. Payment of the consideration contemplated in Section 6(a) hereof to Recipient shall be conditioned upon Recipient’s execution of the Release. In the event Recipient does not timely sign the Release or revokes the Release within the time period specified in the Release, Recipient will forfeit Recipient’s rights to the consideration contemplated in Section 6(a) hereof and, if applicable, Recipient will be required to immediately repay any portion of the consideration contemplated in Section 6(a) hereof previously paid. Recipient acknowledges and agrees that Recipient shall consider the terms of the Release from the date of execution of this Agreement through the date of Recipient’s termination of employment with the Company Group; provided that Recipient shall have at least 21 days to consider the Release.
7.Non-Disparagement. Subject to Section 11 hereof, Recipient agrees not to make negative comments or otherwise disparage the Company Group or any of its products or services. The foregoing shall not be violated by truthful statements in response to legal process, required governmental testimony or filings, or administrative or arbitral proceedings (including, without limitation, depositions in connection with such proceedings).
8.Inventions. Recipient acknowledges and agrees that all ideas, methods, inventions, discoveries, improvements, work products, developments or works of authorship (“Inventions”) and all underlying rights therein in all forms of media now known or later devised, whether or not patentable or copyrightable, (a) that relate to Recipient’s work with the Company Group, made or conceived by Recipient, solely or jointly with others, during the period of Recipient’s employment and service with the Company Group, or (b) suggested by any work that Recipient performs in connection with the Company Group, either while performing Recipient’s duties with the Company Group or on Recipient’s own time, shall belong exclusively to the Company (or its designee), whether or not patent or copyright applications are filed thereon. Recipient hereby irrevocably conveys, transfers and assigns to the Company the Inventions and all patents and copyrights (and all renewals, revivals and extensions thereof) that may issue thereon in any and all countries, whether during or subsequent to the period of Recipient’s employment and service with the Company Group, together with the right to file, in Recipient’s name or in the name of the Company (or its designee), applications for patents, copyrights, and equivalent rights (the “Applications”). The Inventions shall also be deemed Works for Hire, as that term is defined under the copyright laws of the United States, on behalf of the Company Group. Recipient will, at any time during and subsequent to the period of Recipient’s employment and service with the Company Group, and at the Company Group’s expense, make such applications, sign such papers, take all rightful oaths, and perform all acts as may be reasonably requested from time to time by the Company Group with respect to the Inventions. Recipient will also execute assignments to the Company (or its designee) of the Applications, and give the Company Group and its attorneys all reasonable assistance (including the giving of testimony) to obtain the Inventions for the Company’s benefit, all without additional compensation to Recipient from the Company Group. If the Company Group is unable for any other reason to secure Recipient’s signature on any document for this purpose, then Recipient hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Recipient’s agent and attorney in fact, to act for and in Recipient’s behalf and stead to execute any documents and to do all other lawfully permitted acts in connection with the foregoing. In addition, Recipient hereby waives any so-called “moral rights” with respect to the Inventions. The provisions of this Section 8 shall not apply to an Invention for which no equipment, supplies, facility, or trade secret information of the Company Group was used and which was developed entirely on Recipient’s own time, unless (i) the Invention relates (A) to the business of the Company Group, or (B) to the Company Group’s actual or demonstrably anticipated research or development, or (ii) the Invention results from any work performed by Recipient for the Company Group.
9.Return of Property. On the date of Recipient’s termination of employment with the Company Group for any reason (or at any time prior thereto at the Company Group’s request), Recipient shall return all Confidential Information or other property belonging to the Company Group (including, but not limited to, any Company Group-provided laptops, computers, cell phones, wireless electronic mail devices or other equipment, or documents and property belonging to the Company Group). Upon termination of Recipient’s employment for any reason, Recipient will promptly remove from any social media accounts Recipient maintains reference to purport that employment with the Company Group is current.
10.Reasonableness. In signing this Agreement, Recipient has carefully read and considered all of the terms and conditions of this Agreement. Recipient agrees that these restraints are necessary for the reasonable and proper protection of the Company Group and their trade secrets and confidential information and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area, and that these restraints, individually or in the aggregate, will not prevent Recipient from obtaining other suitable employment during the period in which Recipient is bound by the restraints. Recipient acknowledges that each of these covenants has a unique, very substantial and immeasurable value to the Company Group and that Recipient has sufficient assets and skills to provide a livelihood while such covenants remain in force. Recipient hereby covenants that Recipient will not challenge the reasonableness or enforceability of any of the covenants set forth in this Agreement. Recipient will reimburse the Company Group for all costs (including reasonable attorneys’ fees) incurred in connection with any action to enforce any of the provisions of this Agreement if the Company Group prevails on any matter in such dispute. It is also agreed that each member of the Company Group will have the right to enforce all of Recipient’s obligations to that member under this Agreement and shall be third party beneficiaries hereunder. Recipient acknowledges and agrees that the restrictive covenants set forth in this Agreement are independent covenants and shall be in addition to, and shall not supersede or be deemed to be in lieu of, any restrictive covenants set forth in any other agreement between Recipient and the Company Group. Without limiting the remaining provisions of this Agreement, the “Company Group” shall include the respective predecessors and successors of each member of the Company Group, including, without limitation, a successor Subsidiary or Division in connection with a Divestiture or Sale Event.
11.Reformation. If it is determined by a court of competent jurisdiction in any state that any restriction in this Agreement is excessive in duration or scope or is unreasonable or unenforceable under applicable law, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the laws of that state. This Agreement does not, in any way, restrict or impede Recipient from exercising Recipient’s rights under Section 7 of the National Labor Relations Act or exercising other protected rights to the extent that such rights cannot be waived by agreement. In the event of any violation of the provisions of this Agreement, Recipient acknowledges and agrees that the post-termination restrictions contained in this Agreement shall be extended by a period of time equal to the period of such violation, it being the intention of the parties hereto that the running of the applicable post-termination restriction period shall be tolled during any period of such violation.
12.Remedies. Recipient acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and, in recognition of this fact, Recipient agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company Group shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available, without the necessity of showing actual monetary damages or the posting of a bond or other security.
13.At-Will Employment; No Right to Continued Employment. Recipient acknowledges and agrees that Recipient’s employment with the Company Group is and shall remain “at-will” and Recipient’s employment with the Company Group may be terminated at any time and for any reason (or no reason) by Recipient or the Company Group, with or without notice. Nothing in this Agreement shall confer upon Recipient any right to continued employment with the Company Group (or its respective successors) or to interfere in any way with the right of the Company Group (or its respective successors) to terminate Recipient’s employment at any time.
14.Other Benefits. The Stay Bonus is a special incentive payment to Recipient and shall not be taken into account in computing the amount of salary or compensation for purposes of determining any bonus, incentive, pension, retirement, death or other benefit under any other bonus, incentive pension, retirement, insurance or other employee benefit plan of the Company Group, unless such plan or agreement expressly provides otherwise.
15.Code Section 280G. If any payment or benefit Recipient would receive pursuant to this Agreement or otherwise, including, without limitation, accelerated vesting of any equity compensation (“Payment”) would (a) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (b) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (i) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (ii) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Recipient’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order: (A) cash payments shall be reduced first and in reverse chronological order such that the cash payment owed on the latest date following the occurrence of the event triggering such excise tax will be the first cash payment to be reduced; (B) accelerated vesting of stock awards shall be cancelled/reduced next and in the reverse order of the date of grant for such stock awards (i.e., the vesting of the most recently granted stock awards will be reduced first), with full-value awards reduced before any stock option or stock appreciation rights are reduced; and (C) employee benefits shall be reduced last and in reverse chronological order such that the benefit owed on the latest date following the occurrence of the event triggering such excise tax will be the first benefit to be reduced. Any good faith determinations by the Company (or its accountants) under this Section 15 shall be final, binding and conclusive upon the Company Group and Recipient.
16.Section 409A Compliance. Although the Company Group does not guarantee the tax treatment of any payment hereunder, the intent of the parties is that payments under this Agreement comply with Section 409A of the Code and the regulations and guidance promulgated thereunder and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted in a manner consistent therewith. In no event whatsoever shall the Company Group be liable for any additional tax, interest or penalty that may be imposed on Recipient by Code Section 409A or damages for failing to comply with Code Section 409A. Recipient’s right to receive installment payments pursuant to the Agreement shall be treated as a right to receive a series of separate and distinct payments.
17.Governing Law; Venue. This Agreement and any claim, controversy or dispute arising under or related to this Agreement or the relationship of the parties shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Each of the parties agrees that any dispute between the parties shall be resolved only in the courts of the State of Massachusetts or the United States District Court for the District of Massachusetts and the appellate courts having jurisdiction of appeals in such courts.
18.Severability. The provisions of this Agreement shall be deemed severable. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by applicable law.
19.Non-Assignment; Successors. This Agreement is personal to each of the parties hereto. Except as provided in this Section 19, no party may assign or delegate any rights or obligations hereunder without first obtaining the advanced written consent of the other parties hereto. Any purported assignment or delegation by Recipient in violation of the foregoing shall be null and void ab initio and of no force and effect. The Company may assign this Agreement to a person or entity that is an affiliate of the Company or to any successor to all or substantially all of the business and/or assets of the Company or any member of the Company Group. “Company” shall mean the Company and any successor to its business and/or assets.
20.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
21.No Obligation; Company Discretion. No provision of this Agreement shall be interpreted to impose an obligation on the Company Group to accept, agree to or otherwise consummate a Sale Event. The decision to consummate a Sale Event, and all terms and conditions of such transaction, including the amount, timing and form of consideration to be provided in connection therewith, shall be within the sole and absolute discretion of the Company.
22.No Third Party Beneficiaries. Except as expressly provided herein, no term or provision of this Agreement is intended to be, or shall be, for the benefit of any person not a party hereto, and no such other person shall have any right or cause of action hereunder.
23.Entire Agreement; Amendment. This Agreement constitutes the entire agreement by Recipient and the Company with respect to the subject matter hereof, and supersedes any and all prior agreements or understandings between Recipient and the Company with respect to the subject matter hereof, whether written or oral. This Agreement may be amended or modified only by a written instrument executed by Recipient and the Company.
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EXECUTED as of the date first written above.
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| RECIPIENT: | | |
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| By: | | /s/ Russell Smith |
| Name: | | Russell Smith |
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COMPANY: Edgewater Technology, Inc. | | |
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| By: | | /s/ Jeffrey L. Rutherford |
Name: Title: | | Jeffrey L. Rutherford, Interim President and Chief Executive Officer |
GENERAL RELEASE
I, Russell Smith (“Recipient”), in consideration of and subject to the performance by Edgewater Technology, Inc. (together with its subsidiaries, the “Company”), of its obligations under the Stay Bonus Agreement, dated December 22, 2017 (the “Agreement”), do hereby release and forever discharge (the “General Release”) as of the date hereof the Company and its respective affiliates and all present, former and future managers, directors, officers, employees, successors and assigns of the Company and its affiliates and direct or indirect owners (collectively, the “Released Parties”) to the extent provided herein (this “Release Agreement”). The Released Parties are intended to be third-party beneficiaries of this General Release, and this General Release may be enforced by each of them in accordance with the terms hereof in respect of the rights granted to such Released Parties hereunder. Terms used herein but not otherwise defined shall have the meanings given to them in the Agreement.
1.Recipient understands that the additional payments or benefits paid or granted to Recipient under the Agreement represent, in part, consideration for signing this Release Agreement and are not salary, wages or benefits to which Recipient was already entitled. Recipient understands and agrees that Recipient will not receive certain of the payments and benefits specified in the Agreement unless Recipient executes this Release Agreement and does not revoke this Release Agreement within the time period permitted hereafter. Such payments and benefits will not be considered compensation for purposes of any employee benefit plan, program, policy or arrangement maintained or hereafter established by the Company or its affiliates.
2.Except as provided in paragraphs 2 and 3 below and except for the provisions of the Agreement which expressly survive the termination of Recipient’s employment with the Company, Recipient knowingly and voluntarily (for Recipient, Recipient’s heirs, executors, administrators and assigns) releases and forever discharges the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date that this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which Recipient, Recipient’s spouse, or any of Recipient’s heirs, executors, administrators or assigns, may have, which arise out of or are connected with Recipient’s employment with the Company (including, but not limited to, any allegation, claim or violation, arising under the following (to the maximum extent permitted by applicable law): Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters). Recipient represents that Recipient has made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by this paragraphs. Recipient understands and agrees that this General Release does not waive or release any rights or claims that Recipient may have under the Age Discrimination in Employment Act of 1967 that arise after the date Recipient executes this General Release.
3.Recipient hereby waives all rights to sue or obtain equitable, remedial or punitive relief from any or all Released Parties, respectively, of any kind whatsoever in respect of any claim released hereunder. Notwithstanding the above, Recipient further acknowledges that Recipient is not waiving and is not being required to waive any right that cannot be waived under law, including the right to file an administrative charge or participate in an administrative investigation or proceeding; provided, however, that Recipient disclaims and waives any right to share or participate in any monetary award resulting from the prosecution of such charge or investigation or proceeding.
4.In signing this Release Agreement, Recipient acknowledges and intends that it shall be effective as a bar to each and every one of the claims released hereunder. Recipient expressly consents that this Release Agreement shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected claims (notwithstanding any state or local statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated claims), if any, as well as those relating to any other
claims hereinabove mentioned or implied. Recipient hereby waives any right, claim or cause of action that might arise as a result of any different or additional claims or facts of which Recipient may become aware and Recipient hereby expressly waives any and all rights and benefits confirmed upon Recipient by the provisions of California Civil Code Section 1542, which provides as follows: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.” Being aware of such provisions of law, Recipient agrees to expressly waive any rights Recipient may have thereunder, as well as under any other statute or common law principles of similar effect. Recipient further agrees that in the event Recipient should bring a claim seeking damages related to a claim released above, this Release Agreement shall serve as a complete defense to such claims to the maximum extent permitted by law. Notwithstanding anything in this Release Agreement to the contrary, this Release Agreement shall not relinquish, diminish, or in any way affect any rights or claims arising out of any breach of the Agreement after the date hereof.
5.Whenever possible, each provision of this Release Agreement shall be interpreted in, such manner as to be effective and valid under applicable law, but if any provision of this Release Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Release Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. This Release Agreement shall be governed by the laws of the State of Delaware, without regard for choice-of-law provisions.
BY SIGNING THIS RELEASE AGREEMENT, RECIPIENT REPRESENTS AND AGREES THAT: (1) RECIPIENT HAS READ IT CAREFULLY; (2) RECIPIENT UNDERSTANDS ALL OF ITS TERMS AND KNOWS THAT RECIPIENT IS GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED; (3) RECIPIENT HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND RECIPIENT HAS DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION, RECIPIENT HAS CHOSEN NOT TO DO SO OF RECIPIENT’S OWN VOLITION; (4) RECIPIENT HAS HAD AT LEAST 21 DAYS FROM THE DATE OF RECIPIENT’S RECEIPT OF THIS RELEASE TO CONSIDER IT; (5) RECIPIENT UNDERSTANDS THAT RECIPIENT HAS SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED (THE “RELEASE EFFECTIVE DATE”); (6) ON THE RELEASE EFFECTIVE DATE, THIS RELEASE AGREEMENT SHALL BE EFFECTIVE AND ENFORCEABLE, UNLESS PREVIOUSLY REVOKED IN WRITING BY RECIPIENT; (7) RECIPIENT HAS SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE RECIPIENT WITH RESPECT TO IT; AND (8) RECIPIENT AGREES THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY RECIPIENT.
6.To revoke this Release Agreement, Recipient must provide a written notice of revocation to the Company’s Human Resources Department on or before the end of the Release Effective Date.
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| RECIPIENT | | | |
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| Signed: | /s/ Russell Smith | Dated: | December 22, 2017 |
| Name: | Russell Smith | | |
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL AND (ii) WOULD BE LIKELY TO CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED. SUCH EXCLUDED INFORMATION IS DENOTED BY AS FOLLOWS: “[REDACTED]” AMENDED AND RESTATED CREDIT AGREEMENT among ALITHYA GROUP INC. as Borrower EACH OF THE GUARANTORS IDENTIFIED HEREIN as Guarantors THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTIES HERETO as Lenders THE BANK OF NOVA SCOTIA as Underwriter, Documentation Agent, Syndication Agent and Administrative Agent June 18, 2020
- i - TABLE OF CONTENTS PAGE ARTICLE 1 INTERPRETATION ...............................................................................................2 1.1 Definitions....................................................................................................................... 2 1.2 Computation of Time Periods ....................................................................................... 30 1.3 Headings and Table of Contents ................................................................................... 30 1.4 References ..................................................................................................................... 30 1.5 Singular and Plural; Gender .......................................................................................... 31 1.6 Generally Accepted Accounting Principles .................................................................. 31 1.7 Rateable Portion of Accommodations .......................................................................... 31 1.8 Incorporation of Exhibits and Schedules ...................................................................... 32 1.9 Divisions ....................................................................................................................... 32 ARTICLE 2 REPRESENTATIONS AND WARRANTIES ....................................................32 2.1 Representations and Warranties .................................................................................... 32 2.2 Survival of Representations and Warranties ................................................................. 40 ARTICLE 3 THE CREDIT FACILITY ....................................................................................40 3.1 Obligations of the Lenders and Use of Proceeds .......................................................... 40 3.2 Advances under the Credit Facility............................................................................... 41 3.3 Notice Provisions .......................................................................................................... 42 3.4 Pro Rata Treatment ....................................................................................................... 42 3.5 Accounts kept by the Agent .......................................................................................... 43 3.6 Accounts kept by each Lender ...................................................................................... 43 3.7 Conversion Option ........................................................................................................ 43 3.8 Letters of Credit ............................................................................................................ 43 3.9 Swingline Loans............................................................................................................ 44 ARTICLE 4 ACCORDION ........................................................................................................45 4.1 Accordion ...................................................................................................................... 45 ARTICLE 5 EXTENSION OF MATURITY DATE ................................................................46 5.1 Extension of Maturity Date ........................................................................................... 46 ARTICLE 6 REPAYMENT .......................................................................................................47 6.1 Mandatory Repayment of the Loans ............................................................................. 47 6.2 Optional Repayments .................................................................................................... 48 6.3 Requirements for Optional Repayments and Conversions ........................................... 48 6.4 Authority to Debit ......................................................................................................... 49 6.5 LIBOR Loans – Renewals and Deemed Conversions .................................................. 50 6.6 Sharing of Payments ..................................................................................................... 50 ARTICLE 7 INTEREST AND FEES ........................................................................................50 7.1 Interest........................................................................................................................... 50 7.2 Payment of Interest on Prime Rate Loans (excluding the Swingline Loan) ................. 50
7.3 Payment of Interest on LIBOR Loans .......................................................................... 51 7.4 Payment of Interest on US Base Rate Loans (excluding the Swingline Loan) ............ 51 7.5 Payment of Interest on the Swingline Loan .................................................................. 51 7.6 Selection of Interest Periods ......................................................................................... 51 7.7 Default Interest.............................................................................................................. 51 7.8 Determination of Interest Rates .................................................................................... 52 7.9 Acceptance Fee ............................................................................................................. 53 7.10 Standby Fees ................................................................................................................. 53 7.11 Agency Fee ................................................................................................................... 53 7.12 Other Fees ..................................................................................................................... 53 ARTICLE 8 BANKERS’ ACCEPTANCES ..............................................................................54 8.1 Bankers’ Acceptances ................................................................................................... 54 8.2 Payments at Maturity and Renewals ............................................................................. 54 8.3 BA Equivalent Advances .............................................................................................. 55 8.4 Purchase of Bankers’ Acceptances ............................................................................... 56 8.5 Power of Attorney ......................................................................................................... 56 ARTICLE 9 LETTERS OF CREDIT ........................................................................................56 9.1 Letter of Credit Commitment........................................................................................ 56 9.2 Letter of Credit Participations ....................................................................................... 57 9.3 Repayment of Participants ............................................................................................ 57 9.4 Role of the Issuing Bank ............................................................................................... 57 9.5 Obligations of Each Lender Absolute ........................................................................... 58 9.6 Reinstatement and Survival .......................................................................................... 58 9.7 Procedure for Issuance and Renewal of Letters of Credit ............................................ 59 9.8 Reimbursement of the Issuing Bank ............................................................................. 60 9.9 Commissions, Fees and Charges................................................................................... 61 9.10 Interest on Amounts Disbursed under Letters of Credit ............................................... 61 9.11 Further Assurances........................................................................................................ 62 9.12 Nature of Obligations; Indemnities ............................................................................... 62 9.13 Payments upon any Event of Default............................................................................ 63 ARTICLE 10 PAYMENTS, TAXES, EXPENSES AND INDEMNITY ................................64 10.1 Payments to Agent ........................................................................................................ 64 10.2 Payments to Swingline Lender ..................................................................................... 64 10.3 Payments by Lenders to Agent ..................................................................................... 64 10.4 Payments by Agent to Borrower ................................................................................... 64 10.5 Distribution to Lenders ................................................................................................. 65 10.6 Currency of Payment .................................................................................................... 65 10.7 Set-Off........................................................................................................................... 65 10.8 Taxes ............................................................................................................................. 65 10.9 Application of Payments Before an Event of Default .................................................. 65 10.10 Application of Payments and Proceeds of Realization of Assets After an Event of Default ...................................................................................................................................... 65 10.11 Supplying Documents and Indemnity ........................................................................... 66 10.12 Non-Receipt by Agent .................................................................................................. 67 - ii -
10.13 Survival of Indemnification Obligations ...................................................................... 67 ARTICLE 11 CONDITIONS OF LENDING ...........................................................................67 11.1 Conditions Precedent to the Effectiveness of this Agreement ...................................... 67 11.2 Conditions Precedent to each Advance......................................................................... 69 11.3 Waiver ........................................................................................................................... 69 ARTICLE 12 COVENANTS ......................................................................................................70 12.1 Affirmative Covenants .................................................................................................. 70 12.2 Financial Covenants ...................................................................................................... 73 12.3 Negative Covenants ...................................................................................................... 74 12.4 Reporting and Information ............................................................................................ 78 12.5 Insurance ....................................................................................................................... 81 ARTICLE 13 SECURITY DOCUMENTS ................................................................................83 13.1 Security Documents ...................................................................................................... 83 13.2 Provisions in Respect of the Security Documents ........................................................ 84 13.3 Monetary Claims ........................................................................................................... 85 ARTICLE 14 DEFAULT AND REMEDIES ............................................................................86 14.1 Events of Default .......................................................................................................... 86 14.2 Effect of a Default ......................................................................................................... 89 14.3 Remedies Cumulative; No Waiver ............................................................................... 90 14.4 Set-Off........................................................................................................................... 90 ARTICLE 15 JUDGMENT CURRENCY.................................................................................91 15.1 Judgment Currency ....................................................................................................... 91 ARTICLE 16 MISCELLANEOUS ............................................................................................91 16.1 Appointment of Hypothecary Representative ............................................................... 91 16.2 Deliveries, etc. .............................................................................................................. 92 16.3 Assignment by the Obligors.......................................................................................... 92 16.4 Amendments to Article 7 of the Provisions .................................................................. 92 16.5 Decision-Making........................................................................................................... 92 16.6 Severability ................................................................................................................... 94 16.7 Direct Obligation .......................................................................................................... 94 16.8 Sharing of Information .................................................................................................. 94 16.9 Use of Credit ................................................................................................................. 94 16.10 Term of Agreement ....................................................................................................... 94 16.11 Further Assurances........................................................................................................ 94 16.12 Standard Provisions ...................................................................................................... 95 16.13 Whole Agreement ......................................................................................................... 95 16.14 Termination of Benchmark Rates ................................................................................. 95 16.15 No Novation .................................................................................................................. 95 16.16 Language ....................................................................................................................... 96 - iii -
- 1 - AMENDED AND RESTATED CREDIT AGREEMENT THIS AGREEMENT is executed as of June 18, 2020. AMONG: ALITHYA GROUP INC., a corporation incorporated under the laws of Québec (the “Borrower”) AND: EACH OF THE GUARANTORS IDENTIFIED HEREIN (individually, a “Guarantor” and collectively, the “Guarantors”) AND: EACH OF THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTIES HERETO (individually, a “Lender” and collectively, the “Lenders”) AND: THE BANK OF NOVA SCOTIA (the “Administrative Agent”) PRELIMINARY STATEMENT: WHEREAS certain parties to this Agreement are parties to a credit agreement dated as of January 22, 2019 (as supplemented by the joinder agreement dated as of March 6, 2019 among Alithya Solutions Canada Inc., Alithya Zero2Ten, Inc., the Borrower, the Agent and the Lenders, by the joinder agreement dated as of January 13, 2020 among Alithya Travercent LLC, the Borrower, the Agent and the Lenders, and by the joinder agreement dated as of March 3, 2020 among Alithya Askida Consulting Services Inc. and Alithya Askida Solutions Inc., the Borrower, the Agent and the Lenders, and as such agreement may hereafter be further amended, supplemented, replaced, restated or otherwise modified from time to time, the “Original Credit Agreement”); AND WHEREAS the parties hereto have agreed to amend certain terms and conditions of the Original Credit Agreement and are entering into this Agreement to amend and restate the Original Credit Agreement, to provide for amended terms and conditions on which the Original Credit Agreement will be continued;
- 2 - NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE 1 INTERPRETATION 1.1 Definitions In this Agreement unless something in the subject matter or the context otherwise is inconsistent therewith: 1.1.0 “Acceptance” – means the acceptance by a Lender of any Bankers’ Acceptance pursuant to Section 8.1 and a BA Equivalent Advance pursuant to Section 8.3, including by way of Conversion Advances pursuant to Section 3.7, or renewals pursuant to Section 8.2. 1.1.1 “Acceptance Fee” – means the fee payable at the time of the Acceptance of any Bankers’ Acceptance established by multiplying the face amount of such Bankers’ Acceptance by the Applicable Margin at the time of Acceptance and by multiplying the product so obtained by a fraction having a numerator equal to the number of days in the term of such Bankers’ Acceptance and a denominator of 365 (or 366 in a leap year). 1.1.2 “Adjusted EBITDA” – means, for any relevant period, an amount equal to the Borrower’s Net Income or net loss for the period, calculated on a consolidated basis in accordance with IFRS, plus amounts deducted, or minus amounts added, in calculating net income or net loss in respect of: (i) total interest expense; interest or dividend income; income taxes (whether or not deferred); depreciation and amortization; unrealized foreign exchange gain or loss; (ii) any gain or loss attributable to the sale, conversion or other disposition of property out of the ordinary course; (iii) gains resulting from the write-up of property and losses resulting from the write-down of property (except allowances for doubtful accounts receivable); (iv) non-cash expense attributable to compensating directors, officers and employees of the Borrower through the issuance of equity interests or options or rights to equity interests of the Borrower; (v) amounts that are attributable to persons other than Guarantors or to minority interests in Guarantors;
- 3 - (vi) upfront, underwriting, agency, investment banking, legal and accounting fees incurred by the Borrowers as they relate to Permitted Acquisitions, with all items subject to Lenders’ consent. (vii) any other item arising from an event or transaction that (a) possesses a high degree of abnormality and is of a type clearly unrelated to, or only incidentally related to, ordinary course activities of the Borrower, (b) is not reasonably expected to recur in the foreseeable future, and (c) does not depend primarily on decisions or determinations by management or owners of the Borrower in each case taking into account the environment in which the Borrower operate, with all items subject to Lenders’ consent; (viii) [Redacted] The Adjusted EBITDA calculation for covenant purposes will reflect acquisitions or dispositions of any business on a pro-forma basis, as if the acquisitions or dispositions had been completed the first day of the applicable covenant calculation period. Detailed calculations of Adjusted EBITDA are set forth in Schedule 1.1.2. 1.1.3 “Advance” – means (a) a direct advance by the Lenders to the Borrower by way of a Prime Rate Advance (including a Swingline Advance), a US Base Rate Advance (including a Swingline Advance), a LIBOR Advance pursuant to Section 3.2, (b) the Acceptance of Bankers’ Acceptances pursuant to ARTICLE 8, and (c) the issuance (or deemed issuance) on behalf of the Borrower of a Letter of Credit pursuant to ARTICLE 9 and (d) unless the context otherwise requires, a Swingline Advance. 1.1.4 “Affiliate” – shall have the meaning ascribed to such term in the Provisions. 1.1.5 “Agent” or “Administrative Agent” – means The Bank of Nova Scotia, in its capacity as administrative agent for the Lenders pursuant to Section 7.1 of the Provisions and shall include, where the context so requires, the Attorney. 1.1.6 “Agreement” – means this agreement, as it may be amended, supplemented, replaced, restated or otherwise modified from time to time. 1.1.7 “Alithya Canada” – means Alithya Canada Inc. (formerly known as Alithya Group Inc.) and its successors and assigns. 1.1.8 “Anti-Corruption Law” – means the FCPA and any law, rule or regulation of any jurisdiction concerning or relating to bribery or corruption that are applicable to any Obligor or any Subsidiary or Affiliate. 1.1.9 “Anti-Money Laundering Laws” – means any and all laws, statutes, regulations or obligatory government orders, decrees, ordinances or rules
- 4 - applicable to an Obligor or its Subsidiaries related to terrorism financing or money laundering, including any applicable provision of the Patriot Act. 1.1.10 “Applicable Law” – shall have the meaning ascribed to such term in the Provisions. 1.1.11 “Applicable Margin” – means, with respect to the Credit Facility, the annual nominal percentage rates set forth below opposite the applicable Level: [Redacted] provided that,
- 5 - 1.1.12 “Arm’s Length” – has the meaning ascribed thereto for the purposes of the Income Tax Act (Canada), as in effect as of the date of this Agreement. 1.1.13 “Assets” – of a Person means any present and future property, rights and assets, real and personal, movable and immovable, corporeal and incorporeal, of such Person of whatever nature and wheresoever situated. 1.1.14 “Asset Disposition” – means, with respect to any Person, any transaction in which such Person sells, conveys, transfers, leases (as lessor) or otherwise disposes of any of its Assets other than in the normal course of its business. 1.1.15 “Attorney” – means the hypothecary representative appointed pursuant to Article 2692 of the Civil Code of Québec and referred to in Section 16.1, and includes its successors and assigns in such capacity. 1.1.16 “Auditors” – means an accounting firm of nationally recognized standing which acts as the auditors of the Borrower. 1.1.17 “Available Commitment” – means, at any time, with respect to the Lenders, the amount at such time of the Total Commitment less the amount of the Loan at such time in CDollars and less the Equivalent Amount in CDollars of the Loan at such time in US Dollars and, with respect to any one Lender, the amount of the Available Commitment multiplied by the Participation of such Lender, subject to any adjustment required pursuant to Section 3.9 to prevent the Participation of the Swingline Lender from exceeding their portion of the Total Commitment. 1.1.18 “BA Equivalent Advance” – means an Advance contemplated as such in Section 8.3. 1.1.19 “BA Equivalent Interest Period” – shall have the meaning ascribed to such term in Section 8.3. 1.1.20 “Bankers’ Acceptance” – means a non-interest bearing draft drawn by the Borrower in CDollars in the form of either a depository bill subject to the DBNA or a non-interest bearing bill of exchange, as defined in the Bills of Exchange Act (Canada), in either case issued by the Borrower which has been
- 6 - accepted and, if applicable, purchased by a Lender at the request of the Borrower pursuant to Section 8.4. 1.1.21 “Banking Day” – means a day, other than a Saturday or a Sunday, on which banking institutions in Montreal and Toronto, Canada, are generally open for business and, in the case of any US Base Rate Advance, such day must also be a day on which banks are open for business in New York, New York and, in the case of any LIBOR Loan, on which commercial banks in London, England are not required by Applicable Law to remain closed. 1.1.22 “Bank Products” – means any of the following products, services or facilities extended to any Obligor by a Lender or any of its Affiliates, provided that the Agent has received prior written notice of such products, services or facilities: (a) Treasury Management Services, (b) commercial credit card and merchant card services, and (c) other banking products or services as may be requested by the Obligors. 1.1.23 “Bank Product Debt” – means Debt and other obligations of the Obligors relating to Bank Products. 1.1.24 “Beneficial Ownership Certification” – means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation. 1.1.25 “Beneficial Ownership Regulation” – means 31 C.F.R. § 1010.230. 1.1.26 “BNS” – means The Bank of Nova Scotia and its successors and Eligible Assignees. 1.1.27 “Borrower” – means Alithya Group Inc (formerly known as 9374-8572 Québec Inc.), and includes its successors and permitted assigns. 1.1.28 “Borrowing” – means a utilization by the Borrower of the Credit Facility by way of Advances. 1.1.29 “Branch of Account” – means the branch of the Agent situated at 1002 Sherbrooke Street West, Suite 250, Montreal, Quebec, H3A 3L5, or such other Canadian office or branch of the Agent as the Agent may specify from time to time. 1.1.30 “Business” – means the business of strategy and digital technology consulting services and ancillary lines of business related thereto. 1.1.31 “Canadian Benefit Plan” – means any employee benefit plan maintained or contributed to by any Obligor in virtue of a legal obligation to maintain or contribute to such a plan that is not a Canadian Pension Plan including, without limitation, all profit-sharing, savings, supplemental retirement, retiring allowance, severance, deferred compensation, welfare, bonus, supplementary
- 7 - unemployment benefit plans or arrangements and all life, health, dental and disability plans and arrangements in which the employees or former employees of any Obligor employed in Canada participate or are eligible to participate, but excluding all stock option or stock purchase plans, and any plan maintained by the Government of Canada or the Government of any province of Canada including the Canada Pension Plan, the Quebec Pension Plan, Employment Insurance and workers’ compensation benefit plans. 1.1.32 “Canadian Pension Plan” – means any plan, program, arrangement or understanding that is a pension plan for the purpose of any applicable pension benefits or tax laws of Canada or a province or territory thereof (whether or not registered under any such laws) which is maintained, administered or contributed to by (in virtue of a legal obligation to maintain, administer or contribute to such a plan, program, arrangement or understanding) any Obligor in respect of any Person’s employment in Canada or a province or territory thereof with any Obligor, all related funding agreements and all related agreements, arrangement and understandings in respect of, or related to, any benefits to be provided thereunder or the effect thereof on any other compensation or remuneration of any employee, but does not include the Canada Pension Plan or the Quebec Pension Plan as maintained by the Government of Canada or the Province of Quebec. 1.1.33 “Capital Expenditures” – means, with respect to any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including expenditures for Capital Lease Obligations) by the Obligors (net of trade-ins and proceeds of Asset Disposition) during such period which in conformity with IFRS are included in or reflected by “capital expenditures”, “additions to property, plant or equipment” or comparable items (or in intangible accounts subject to amortization) on the consolidated balance sheet of the Borrower for such period. 1.1.34 “Capital Lease Obligations” – means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Assets, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under IFRS as in effect on the date of this Agreement and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with IFRS as in effect on the date of this Agreement. 1.1.35 “Capital Stock” – means any and all shares (including any preferred shares), interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing, whether voting or non-voting.
- 8 - 1.1.36 “CARES Act” – means the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act and applicable rules and regulations, as amended from time to time. 1.1.37 “CDollars” and the symbol “C$” – each means lawful money of Canada. 1.1.38 “CDOR Rate” – means, on any day, the annual rate of interest which is the rate determined by the Agent as being the arithmetic average (rounded upwards, if necessary, to the nearest 0.01%) of the rates applicable to CDollar bankers’ acceptances having identical issue and comparable maturity dates as the Bankers’ Acceptances proposed to be issued by the Borrower and to be presented for Acceptance by the Lenders and displayed and identified as such on the display referred to as the “CDOR Page” (or any display substituted therefor) of Reuter Monitor Money Rates Services as at approximately 10:15 a.m. (Montreal time) on such day, or if such day is not a Banking Day, then on the immediately preceding Banking Day (as adjusted by the Agent in good faith after 10:15 a.m. (Montreal time) to reflect any error in a posted rate of interest); provided, however, if such a rate does not appear on such CDOR Page, then the CDOR Rate, on any day, shall be the discount rate quoted by the Agent (determined as of 10:15 a.m. (Montreal time) on such day) which would be applicable in respect of an issue of bankers’ acceptances in a comparable amount and with comparable maturity dates to the Bankers’ Acceptances proposed to be issued by the Borrower and to be presented for Acceptance by the Lenders on such day, or if such day is not a Banking Day, then on the immediately preceding Banking Day, provided that the CDOR Rate shall never be less than 1.00%. 1.1.39 “Change of Control” – means that (a) each of Ghyslain Rivard, Pierre Turcotte and Paul Raymond shall cease to, directly or indirectly, own and control, individually and collectively, more voting Capital Stock of the Borrower than any other Person (or group of Persons acting in concert); or (b) the Borrower shall cease to, directly or indirectly, own and control 100% of the Capital Stock of each Subsidiary which is not a Non-Guarantor Subsidiary. 1.1.40 “Citizens Bank” – means Citizens Bank, N.A. and its successors and assigns. 1.1.41 “Closing Date” – means the date on which this Agreement has been executed and all conditions of lending set forth in Section 11.1 and Section 11.2 shall have been met to the satisfaction of the Agent, the Lenders and Lenders’ Counsel. 1.1.42 “Code” – means the Internal Revenue Code of 1986, as amended, and any successor statute thereto. 1.1.43 “Collateral” – means all of the Assets of the Obligors intended to be subject to a Lien in the manner set forth in Section 13.1.
- 9 - 1.1.44 “Commodity Exchange Act” – means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute. 1.1.45 “Compliance Certificate” – means a certificate of a Responsible Officer of the Borrower delivered to the Agent pursuant to Section 12.4.1.3 substantially in the form of Schedule 1.1.45. 1.1.46 “Contaminant” – means any pollutants, dangerous or hazardous substances, liquid or solid waste, industrial waste, hauled liquid waste, toxic substances, hazardous wastes or materials or contaminants as defined or dealt with in any Environmental Law. 1.1.47 “Control” – shall have the meaning ascribed to it in the Provisions. 1.1.48 “Controlled Group” – means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with any US Obligor, are treated as a single employer under Section 414 of the Code. 1.1.49 “Conversion Advance” and “Converted Advance” – shall each have the respective meaning ascribed to such terms in Section 3.7. 1.1.50 “Conversion Date” – means a day which the Borrower has notified the Agent in a Notice of Conversion as the date on which the Borrower will convert Borrowings under a Credit Facility, or a portion thereof, in accordance with Section 3.7. 1.1.51 “Covid-19 Event” – shall have the meaning ascribed to it in Section 2.1.10. 1.1.52 “Credit Facility” – means the committed revolving credit facility in the maximum amount of sixty million CDollars (C$60,000,000) or the Equivalent Amount in USDollars, which the Lenders will make available to the Borrower pursuant to, and in accordance with the terms of, ARTICLE 3 and the other provisions of this Agreement. 1.1.53 “Current Accounts” – means collectively (i) the CDollars and USDollars accounts maintained by the Borrower with BNS at the Branch of Account for the purposes of operating the Credit Facility and, (ii) with respect to the Swingline Loan, the CDollars and USDollars accounts maintained by the Borrower with BNS at the Branch of Account. 1.1.54 “DBNA” – means the Depository Bills and Notes Act (Canada). 1.1.55 “Debt” – means all indebtedness of any Obligor and includes, without duplication (in each case, whether such indebtedness is with full or limited recourse):
- 10 - For greater certainty, deferred compensation to employees of the Borrower or any of its Subsidiaries incurred in the ordinary course of business shall not be considered a Debt. 1.1.56 “Default” – means any event or circumstance which constitutes an Event of Default or which, with the giving of notice or lapse of time or both, would constitute an Event of Default unless cured or waived. 1.1.57 “Defaulting Lender” – means any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Banking Days of the date such Loans were required to be funded hereunder, or (ii) pay to the Agent or any Lender any other amount required to be paid by it hereunder within two (2) Banking Days of the date when due, (b) has notified the Borrower or the Agent in writing that it does not intend to comply with its funding obligations hereunder, (c) has failed, within ten (10) Banking Days after written request by the Agent or the
- 11 - Borrower, to confirm in writing to the Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Agent and the Borrower), or (d) has (i) become the subject of a bankruptcy proceeding, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or Assets, including the Federal Deposit Insurance Corporation or any other federal or provincial regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within Canada or the United States of America or from the enforcement of judgments or writs of attachment on its Assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. 1.1.58 “Discount Rate” – means, with respect to Bankers’ Acceptances issued pursuant to this Agreement and having the same date of issue and the same maturity date, the annual rate which is (a) for Lenders which are Schedule I Canadian chartered banks, the CDOR Rate determined by the Agent as the CDOR Rate for bankers’ acceptances outstanding for the period of such Bankers’ Acceptances on the date of issue of such Bankers’ Acceptances, and (b) for Lenders which are not Schedule I Canadian chartered banks, the CDOR Rate determined by the Agent as the CDOR Rate for bankers’ acceptances outstanding for the period of such Bankers’ Acceptances on the date of issue of such Bankers’ Acceptances, plus 0.10%. 1.1.59 “Discounted Proceeds” – means, in respect of any Bankers’ Acceptance to be accepted and purchased by a Lender hereunder on any day, an amount (rounded to the nearest whole cent, and with one-half of one cent being rounded up) calculated on such day by multiplying (i) the face amount of such Bankers’ Acceptance by (ii) the price (rounded up or down to the fifth decimal place with 0.000005 being rounded up), where the price is determined by dividing one by the sum of one plus the product of (A) the Discount Rate (expressed as a decimal), and (B) a fraction, the numerator of which is the number of days in the term of such Bankers’ Acceptance and the denominator of which is 365. 1.1.60 “Distribution” – means any payment in cash or in kind that provides an income (including interest or dividend) or a return on, or constitutes a distribution, redemption or purchase of, the Capital Stock of a Person and the setting apart of Assets for such purpose (other than by way of the issuance of new Capital Stock) to any shareholder, director or officer of an Obligor. For greater certainty, a Distribution shall not include (i) bonuses and long term incentive plans payments paid in the ordinary course of business including for the purpose
- 12 - of any new hire, or (ii) salaries and directors’ attendance tokens paid in the ordinary course of business. 1.1.61 “Drawdown Date” – means (i) a day which the Borrower has notified the Agent in a Notice of Borrowing as the date on which the Borrower requests an Advance in accordance with Section 3.2, or (ii) a day on which the Borrower has requested the issuance of a Letter of Credit in accordance with Section 9.1, or (iii) a day on which a Swingline Lender makes a Swingline Advance. 1.1.62 “Eligible Assignee” – shall have the meaning ascribed to such term in the Provisions. 1.1.63 “Environmental Activity” – means any activity, event or circumstances in respect of a Contaminant including, without limitation, its storage, use, holding, collection, purchase, accumulation, assessment, generation, manufacture, construction, processing, treatment, stabilization, disposition, handling or transportation, or its Release, escape, leaching, dispersal or migration into the natural environment, including the movement through or in the air, land surface or subsurface strata, surface water or groundwater. 1.1.64 “Environmental Claims” – means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, Liens, notices of non- compliance or violation, investigations or proceedings relating in any way to any Environmental Law or any environmental permit (hereinafter in this definition, “Claims”) including, without limitation: 1.1.65 “Environmental Laws” – means any and all Applicable Laws relating to pollution or protection of human health and safety or the environment or any Environmental Activity. 1.1.66 “Equivalent Amount” – means, on any date, the amount in CDollars or USDollars, as the case may be (the “Currency”), which would be obtained on the conversion of an amount in any other currency into the Currency, at the rate published by the Bank of Canada at around 4:30 p.m. (Montreal time) for the purchase of the Currency with such other currency, as quoted or published or otherwise made available by the Bank of Canada on such date; provided that in the event no such rate is published by the Bank of Canada, the Equivalent
- 13 - Amount of one Currency into the other Currency shall be determined by the Agent. 1.1.67 “ERISA” – means the Employee Retirement Income Security Act of 1974 of the United States, as amended from time to time, or any successor statute thereto. 1.1.68 “Event of Default” – means any of the events specified in Section 14.1, provided that any requirement specified therein for the giving of notice, the lapse of time, or both, has been satisfied. 1.1.69 “Excess Availability” – means, as of any date of determination by the Agent, the maximum amount available under the Credit Facility minus the Equivalent Amount in CDollars of all outstanding Loans under the Credit Facility as of the close of business on such date. 1.1.70 “Excluded Swap Obligation” – means, with respect to any US Obligor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee Agreement of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason not to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Guarantor or the grant of such security interest becomes effective with respect to such related Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal. 1.1.71 “FCPA” – means the Foreign Corrupt Practices Act, 15 U.S.C. §§78dd-1, et seq. 1.1.72 “Federal Funds Overnight Rate” – means, for any day, an interest rate per annum (based on a 360 day year and rounding up, if necessary, to the nearest 1/16 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System of the United States of America arranged by federal funds brokers, as published for such day by the Federal Reserve Bank of New York or, if such rate is not published for any day which is a Banking Day, the average of the quotations for such day on such transactions received by the Agent from three (3) federal funds brokers of recognized standing selected by it, provided that in the case of a day which is not a Banking Day, the Federal Funds Overnight Rate for such day shall be the Federal Funds Overnight Rate for the immediately preceding Banking Day, the whole determined in accordance with the Agent’s usual practice.
- 14 - 1.1.73 “Fee Letter” – means the supplemental fee letter agreement between the Agent and the Borrower dated as of the date hereof in connection with the Credit Facility, as it may be amended, supplemented or restated from time to time. 1.1.74 “Fixed Charge Coverage Ratio” – means, for any period, with reference to the Borrower on a consolidated basis, the ratio of (a) Adjusted EBITDA less (i) cash income taxes paid, (ii) Distributions, (iii) Unfunded Capital Expenditures divided by (b) aggregate Interest Expense of the Borrower during such period and regular scheduled principal repayments on Total Debt during such period including, for greater clarity, debt-like instruments such as balance of sale and vendor take-backs and any principal repayment on Subordinated Debt. 1.1.75 “FX Agreement” – means each Hedging Agreement entered into between the Borrower and a Lender for the purpose of hedging currency risk incurred by the Borrower in the normal course of its business and not for speculation purposes, the whole in form, substance and content acceptable to such Lender. 1.1.76 “Governmental Authority” – shall have the meaning ascribed to such term in the Provisions. 1.1.77 “Guarantee Agreement” – shall have the meaning ascribed thereto in Section 13.1.1. 1.1.78 “Guarantors” – means collectively all existing and future Subsidiaries (excluding the Non-Guarantor Subsidiaries) of the Borrower as determined by the Lenders, including (i) each Person named on Schedule 1.1.78, (ii) any Person who shall become a Guarantor in accordance with Section 12.1.9, and (iii) any successor of any Guarantor, including any Person resulting from the amalgamation of a Guarantor with another Person. 1.1.79 “Hazardous Materials” – means:
- 15 - 1.1.80 “Hedging Agreement” – means any agreement or similar arrangement designed to protect against or mitigate the effect of fluctuations in interest rates or currencies which the Borrower enters into from time to time and which constitutes a Permitted Hedging Agreement. 1.1.81 “IFRS” – means as of any date, the International Financial Reporting Standards, which includes the accounting principles adopted by the International Accounting Standards Board, applied by the Borrower and its Subsidiaries on a basis consistent with the preparation of the Borrower’s most recent financial statements furnished to the Agent pursuant to this Agreement, and subject to the provisions of Section 1.6; 1.1.82 “Interest Expense” – means, with reference to any period, the sum of all interest charges (including imputed interest charges with respect to Capitalized Lease Obligations and all amortization of debt discount and expense) payable by the Borrower during such period, on a consolidated basis, determined in accordance with IFRS. 1.1.83 “Interest Payment Date” – means (a) in respect of any Prime Rate Advance or US Base Rate Advance, as applicable, the last Banking Day of each and every month, and the Maturity Date, and (b) in respect of any LIBOR Advance, the last day of each Interest Period and the Maturity Date. 1.1.84 “Interest Period” – for each LIBOR Loan Portion means (a) the first period of approximately one month, two months or three months selected by the Borrower and notified to the Agent in accordance with Section 7.6, which period shall commence on the Drawdown Date or Conversion Date, as the case may be, of such LIBOR Loan Portion, and (b) each of the successive periods of approximately one month, two months or three months in respect of such LIBOR Loan Portion selected by the Borrower and notified to the Agent in accordance with Section 7.6, each of which shall commence on the last day of the immediately preceding Interest Period in respect of such LIBOR Loan Portion. 1.1.85 “Interest Rate Agreement” – means any Hedging Agreement including swap agreement, forward rate agreement, cap agreement, collar agreement or similar agreement or arrangement designed to protect against or mitigate the effect of fluctuations in interest rates which a Lender may enter into with the Borrower from time to time. 1.1.86 “IQ” – means Investissement Québec and its successors and assigns; 1.1.87 “IQ Loan Facility” – means any extension of credit to an Obligor by IQ from time to time for the purpose of financing tax credits for any specific taxation year provided that the aggregate amount of such IQ Loan Facility does not exceed $7,500,000 at any time, each as amended, restated or renewed from time to time.
- 16 - 1.1.88 “IQ Security” – means a deed of movable hypothec on a universality of claims made by Alithya Canada in favour of IQ dated as of February 23, 2017 for an amount of $5,400,000 and registered at the Québec register of personal and movable real rights under number 17-0196984-0001, and each subsequent deed of movable hypothec or other security document granted by any Obligor in favour of IQ to finance an IQ Loan Facility. 1.1.89 “ISDA Master Agreement” – means the applicable standard Master Agreement of the International Swaps and Derivatives Association, Inc. in effect from time to time and includes all its schedules, credit support annexes and all confirmations documented pursuant thereto. 1.1.90 “Issuing Bank” – has the meaning ascribed to such term in the Provisions. On the date hereof, BNS is an Issuing Bank. 1.1.91 “ITA” – means the Income Tax Act (Canada) and the regulations promulgated thereunder, as amended, supplemented or re-enacted from time to time. 1.1.92 “Landlord Agreement” – means a landlord agreement entered into from time to time among the applicable Obligor, the Agent and the landlord of the premises leased by such Obligor where inventory of the Obligor may be situated from time to time, including those landlords who hold or may hold a Lien on any of the Assets of the Borrower or any other Obligor in form and substance reasonably satisfactory to the Agent. 1.1.93 “Leased Premises” – means the real and immovable property listed in Schedule 2.1.12 and any future real or immovable property leased by any of the Obligors, excluding any leases for the use of temporary offices and common spaces shared with other tenants or users. 1.1.94 “Lenders” – means, collectively, all of the banks and other financial institutions named as lenders on the signature pages of this Agreement and other lenders party from time to time hereto and their respective successors and Eligible Assignees who shall have executed an Assignment and Assumption as contemplated by Section 9.2 (F) of the Provisions, and “Lender” means any one of them. For greater certainty, and without limiting the generality of the foregoing, the term “Lender” includes BNS in its capacity as a Swingline Lender and Issuing Bank. 1.1.95 “Lenders’ Counsel” – means Borden Ladner Gervais LLP and, in respect of any jurisdiction other than Québec, Ontario, Alberta and British Columbia, such other counsel in such jurisdictions as may be retained as counsel by or on behalf of the Agent and the Lenders. 1.1.96 “Letter of Credit” – means a letter of credit, documentary letter of credit or letter of guarantee issued by an Issuing Bank for the account of the Borrower in accordance with Section 9.1 denominated CDollars, USDollars or any other
- 17 - major currency then offered by such Issuing Bank having a term of up to 364 days and otherwise in form, substance and content acceptable to the Issuing Bank, which is either a standby letter of credit, documentary letter of credit or a letter of guarantee in respect of obligations of the Borrower incurred in the ordinary course of its business, other than for the purpose of guaranteeing obligations of any Person other than the Obligors which are Guarantors at such time. 1.1.97 “Letter of Credit Application” – has the meaning ascribed to such term in Section 9.7.1. 1.1.98 “Letter of Credit Commission” – means the non-refundable commission referred to in the definition of Applicable Margin payable by the Borrower to the Issuing Bank pursuant to Section 9.9. 1.1.99 “Letter of Credit Exposure” – means at a particular time, the sum of (i) the undrawn and unexpired aggregate amount of all Letters of Credit outstanding in CDollars plus the Equivalent Amount in CDollars of all Letters of Credit outstanding in USDollars or any other currency, and (ii) the aggregate amount of drawings under the Letters of Credit in CDollars plus the Equivalent Amount in CDollars of drawings under the Letters of Credit in USDollars or any other currency which have not been reimbursed pursuant to Section 9.8. 1.1.100 “LIBOR” – means, for any Interest Period for each LIBOR Loan Portion, an interest rate per annum equal to the aggregate of (a) the rate per annum (expressed on the basis of a 360 day year) determined by the Agent as being the rate shown on Reuters Screen LIBOR01 Page (or such other commercially available source providing such quotations as may be designated by the Agent from time to time) as of 11:00 a.m. (London, England time), two (2) Banking Days prior to the first day of such Interest Period, for USDollars deposits for a period comparable to such Interest Period, and if different rates are quoted for USDollars deposits in varying amounts, in an amount which is closest to such LIBOR Loan or if such rate is not available for any reason, a comparable or successor rate that is approved by all Lenders plus (b) the Applicable Margin, provided that LIBOR (before applying the Applicable Margin) shall never be less than 1.00%. 1.1.101 “LIBOR Advance” – means an advance in USDollars to which LIBOR is applicable pursuant to Section 3.2. 1.1.102 “LIBOR Loan” – means, at any time during the term of this Agreement, the Loans, or that portion of the Loans, which the Borrower has elected, in accordance with the requirements of this Agreement, to denominate in USDollars and upon which interest is payable at LIBOR.
- 18 - 1.1.103 “LIBOR Loan Portion” – means the amount of the LIBOR Loan, or any portion of the LIBOR Loan, in respect of which the Borrower has selected an Interest Period commencing on the same date and having the same duration. 1.1.104 “Lien” – means a mortgage, conventional hypothec, legal hypothec, prior claim, pledge, privilege, lien, charge or encumbrance, whether fixed or floating, on, or any security interest in any Asset or a pledge or hypothecation thereof or trust or presumed or deemed trust or any other mechanism or right benefiting the holder thereof or any conditional sale agreement or other title retention agreement or equipment trust relating thereto or any Capital Lease Obligation for which a Lien is registered. 1.1.105 “Loan” – means, at any time, the aggregate amount of all Advances, including Conversion Advances, outstanding at such time in CDollars or USDollars by way of Prime Rate Loans, US Base Rate Loans and LIBOR Loans, plus the face amount of all Bankers Acceptances which have been accepted by the Lenders under the Credit Facility prior to their respective maturity dates, plus the amount of the Letter of Credit Exposure. 1.1.106 “Loan Documents” – means, collectively, this Agreement, the Security Documents, the negative pledge agreement referred to in Section 13.1.3, the Permitted Hedging Agreements, the ISDA Master Agreement for any Permitted Hedging Agreement, the Letter of Credit Applications, and all other documents, instruments and agreements executed and delivered by any Obligor in connection with this Agreement or the Credit Facility, any Permitted Hedging Agreement, any Borrowing, any Bank Products or otherwise referred to or contemplated under or by this Agreement. 1.1.107 “Loss” or “loss” – means any loss, including any expense, cost, damage, penalty, fine, liability or obligation, which results or may result, directly or indirectly, from any event, fact or circumstance or series of events, facts or circumstances. 1.1.108 “Majority Lenders” – means at any time (including after the occurrence of any Event of Default): 1.1.109 “Mark to Market Value” – means on any day with respect to any Permitted Hedging Agreement, the amount determined by the counter-party of the Borrower under such Permitted Hedging Agreement, using the standard methodology of such counter-party, as being the mark-to-market value of such Permitted Hedging Agreement as of such day.
- 19 - 1.1.110 “Material Adverse Effect” – means a material adverse effect on (i) the ability of the Borrower or any other Obligor to perform and discharge its Obligations under this Agreement or any of the other Loan Documents, (ii) the Agent or any Lender’s ability to enforce its rights under this Agreement or any of the other Loan Documents, or (iii) the business, operations, prospects, Assets or financial condition of the Borrower or of the other Obligors taken as a whole. 1.1.111 “Material Contract” – means the contracts listed in Schedule 1.1.111 and any other contract related to the Business to which any Obligor is a party that, if terminated and not replaced, would have a Material Adverse Effect to a level which would prevent the Borrower to carry on its Business, taken as a whole, as a going concern, as each may hereafter be amended, supplemented, replaced or restated from time to time. 1.1.112 “Maturity Date” – means January 22, 2022, or such other date thereafter as may be agreed pursuant to an extension under Section 5.1, or such earlier date on which the Credit Facility is terminated pursuant to Section 14.2. 1.1.113 “Minimum Liquidity Amount” – means an amount corresponding to the Excess Availability plus cash held in the Bank of Nova Scotia’s accounts and other financial institutions for which a satisfactory deposit account control agreement in favor of the Agent has been put in place. 1.1.114 “Minor Title Defects” – means title defects, zoning restrictions, servitudes or other restrictions or title irregularities which are of a minor nature and in the aggregate will not substantially impair the use of the property affected by such title defect or irregularity for the purposes for which it is held by the owner thereof, nor substantially diminish any Lien for the benefit of the Agent and the Lenders thereon. 1.1.115 “Multiemployer Plan” – means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by any Obligor or any ERISA Affiliate and which is covered by Title IV of ERISA. 1.1.116 “Net Income” – means, with reference to any period, the net income (or net loss) of the Borrower for such period as computed on a consolidated basis in accordance with IFRS. 1.1.117 “Non-Guarantor Subsidiaries” – means collectively (i) Alithya Consulting USA Inc., Alithya Consulting SAS, 9332-7625 Québec Inc., SWI Systems, LLC, Matricis Informatique Inc. and (ii) any future Subsidiary of the Borrower specifically designated by the Borrower as a Non-Guarantor Subsidiary provided that the Borrower remains at all times in compliance with the covenant set forth in Section 12.1.12. 1.1.118 “Notice of Borrowing” – means a notice addressed to the Agent in substantially the form of Schedule 1.1.118 specifying, in respect of a proposed Borrowing
- 20 - by way of Acceptances or a LIBOR Advance, the Drawdown Date, the amount, the proposed currency, and, in respect of a proposed Borrowing to which LIBOR will be applicable, the initial Interest Period, and, in respect of a proposed Borrowing by way of Acceptances, the Banking Day upon which the Bankers’ Acceptances will mature. 1.1.119 “Notice of Conversion” – means an irrevocable notice delivered by the Borrower pursuant to Section 3.7 substantially in the form of Schedule 1.1.119. 1.1.120 “Notice of Optional Repayment” – means an irrevocable notice delivered by the Borrower pursuant to Section 6.3.1 in substantially the form of Schedule 1.1.120 with respect to the Credit Facility. 1.1.121 “Obligations” – means in respect of the Obligors, in each case whether now existing or hereafter arising, the aggregate outstanding principal of and interest on the Loans (including, for greater certainty, the Swingline Loan), all obligations under Permitted Hedging Agreements, all interest accrued and to accrue thereon and all other amounts owing or which may become owing by the Obligors, or any one or more of them, to the Agent and the Lenders, or any one or more of them, or any of their respective Affiliates, under or pursuant to this Agreement, the other Loan Documents and the Bank Product Debt including, without limitation, fees, expenses, indemnities and contingent liabilities, and all covenants and other obligations of the Obligors, or any one or more of them, to the Agent and the Lenders, or any one or more of them, under or pursuant to this Agreement, the other Loan Documents and the Bank Product Debt; provided, however, that, with respect to any US Obligor, Obligations guaranteed by such Guarantor shall exclude all Excluded Swap Obligations. 1.1.122 “Obligors” – means collectively the Borrower and the Guarantors, and “Obligor” means any one of them. 1.1.123 “OFAC” – means The Office of Foreign Assets Control of the U.S. Department of the Treasury. 1.1.124 “Optional Repayment Date” – means a day on which the Borrower has notified the Agent in a Notice of Optional Repayment as the date on which the Borrower shall repay Borrowings under the Credit Facility in accordance with Section 6.3.1. 1.1.125 “Participant” – has the meaning specified in Section 10.4 of the Provisions. 1.1.126 “Participation” – of a Lender means the percentage of the Total Commitment indicated opposite its name in Schedule with respect to the Credit Facility, as it may be adjusted pro rata or otherwise further to an assignment or otherwise or, as the context requires, the amount of such Participation in any Advance or in any repayment thereof. For the purposes of the calculation set forth in
- 21 - Section 3.9.2, the Participation of the Swingline Lender shall be deemed to include the Swingline Limit. 1.1.127 “Patriot Act” – means the USA Patriot Act (Title III of Pub. L. 107 56 (signed into law October 26, 2001)). 1.1.128 “PBGC” – means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. 1.1.129 “Permitted Acquisition” – [Redacted] 1.1.130 “Permitted Debt” – means, at any time, any one or more of the following:
- 22 - 1.1.131 “Permitted Hedging Agreement” – means any Hedging Agreement entered into between the Borrower and any Permitted Hedge Provider. 1.1.132 “Permitted Hedge Provider” – means any Lender or any of its Affiliates. 1.1.133 “Permitted Liens” – means, as at any time, any one or more of the following:
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- 25 - 1.1.134 “Person” – shall have the meaning ascribed to such term in the Provisions. 1.1.135 “Plan” – means any employee pension benefit plan covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code that either (a) is maintained by a member of the Controlled Group for employees of a member of the Controlled Group or (b) is maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. 1.1.136 “Prime Rate” – means, at any time, the aggregate of (a) the rate of interest per annum equal to the higher of (i) the fluctuating annual rate of interest established by the Agent as the reference rate of interest it will use at such time to determine interest rates for loans in Canadian dollars to its Canadian commercial borrowers in Canada and designated as its prime rate; and (ii) one month CDOR Rate plus 1.0% per annum, plus (b) the Applicable Margin; in each case adjusted automatically with each change in such rate or the Applicable Margin, all without the necessity of any notice to the Borrower or any other Person. 1.1.137 “Prime Rate Advance” – means an Advance in CDollars to which the Prime Rate is applicable. 1.1.138 “Prime Rate Basis” – means the calculation of interest as provided under Section 7.1 and Section 7.2. 1.1.139 “Prime Rate Loan” – means at any time the Loans, or that portion of the Loans, upon which interest is payable at the Prime Rate. 1.1.140 “Proceeds” of any Asset means any identifiable or traceable Asset, in any form whatsoever, derived directly or indirectly from the disposition, realization or other transaction involving such Asset or the proceeds thereof, including any payment made as an indemnity or reimbursement for the loss of or damage to such Asset or the proceeds thereof. 1.1.141 “Properly Contested” – means, with respect to any obligation of an Obligor, (a) such obligation is subject to a bona fide dispute regarding the amount or the Obligor’s liability to pay, (b) the obligation is being properly contested in good faith by appropriate proceedings promptly instituted and diligently pursued, (c) appropriate reserves have been established in accordance with IFRS, (d) non- payment could not reasonably be expected to have a Material Adverse Effect, (e) no Lien is imposed on Assets of the Obligor, unless bonded and stayed to the satisfaction of Agent, and (f) if the obligation results from the entry of a judgment or other order, such judgment or order is stayed pending appeal or other judicial review.
- 26 - 1.1.142 “Provisions” – shall have the meaning ascribed to such term in Schedule 16.12. 1.1.143 “Purchase Money Mortgage” – means: 1.1.144 “QBCA” – means, collectively, the Business Corporations Act (Québec), R.S.Q., s-31.1 and the regulations made thereunder. 1.1.145 “Reimbursement Obligation” – means the obligations of the Borrower to reimburse the Issuing Bank pursuant to Section 9.8. 1.1.146 “Release” – means discharge, spray, inject, inoculate, abandon, deposit, spill, leak, seep, pour, emit, empty, throw, dump, place and exhaust, and when used as a noun has a similar meaning. 1.1.147 “Responsible Officer” – means, with respect to any Person, the president, the chief executive officer, an executive vice president, the chief financial officer, the treasurer or the secretary of such Person or, in the case of a limited partnership, of its general partner, provided that, with respect to financial matters, means the chief financial officer or the treasurer of such Person. 1.1.148 “Sanctions” – means any and all economic or financial sanctions, sectoral sanctions, secondary sanctions, trade embargoes and anti-terrorism laws, including but not limited to those imposed, administered or enforced from time to time by the U.S. government (including those administered by OFAC or the U.S. Department of State), the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority with jurisdiction over any Lender, the Borrower or any of its Subsidiaries or Affiliates. 1.1.149 “Sanctioned Country” – means at any time, a country or territory which is itself the subject or target of any Sanctions (including, as of the Closing Date, Cuba, Iran, North Korea, Sudan, Syria, Russia and Crimea).
- 27 - 1.1.150 “Sanctioned Person” – at any time, (a) any Person listed in any Sanctions- related list of designated Persons maintained by OFAC (including, without limitation, OFAC’s Specially Designated Nationals and Blocked Persons List and OFAC’s Consolidated Non-SDN List), the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in clauses (a) and (b), including a Person that is deemed by OFAC to be a Sanctions target based on the ownership of such legal entity by Sanctioned Person(s). 1.1.151 “SBA” – means the U.S. Small Business Administration. 1.1.152 “SBA PPP Loan” – means a loan incurred by any US Obligor under 15 U.S.C. 636(a)(36) (as added to the Small Business Act by Section 1102 of the CARES Act). 1.1.153 “SBA PPP Loan Date” – means the date on which any US Obligor receives the proceeds of the SBA PPP Loan. 1.1.154 “Securities Account” – has the meaning set out in An Act respecting the transfer of securities and the establishment of security entitlements (Québec). 1.1.155 “Security Documents” – means collectively the agreements and instruments contemplated in Section 13.1, all amendments, supplements, restatements and other modifications thereof, and each other agreement or writing pursuant to which an Obligor grants a Lien to or for the benefit of the Agent and the Lenders, or any of them, alone or together with any other Person, on any of its Assets, in each case to secure all or part of the Obligations. 1.1.156 “Senior Debt” – means, at any time, with respect to the Borrower on a consolidated basis, its Total Debt less any Subordinated Debt, less amounts owing and outstanding under any IQ Loan Facility and less any cash and cash equivalents not exceeding the sum of C$5,000,000 and held in any Current Account or in any other deposit account maintained by the Borrower in respect of which the account bank has executed an account control agreement in favor of the Agent in form and substance acceptable to the Agent. 1.1.157 "Small Business Act" – means the Small Business Act (15 U.S. Code Chapter 14A – Aid to Small Business). 1.1.158 “Solvent” – means, when used with respect to any Person, that:
- 28 - 1.1.159 “Standby Fee” – means any standby fee payable pursuant to Section 7.10. 1.1.160 “Subordinated Debt” – of a Person means indebtedness of such Person for borrowed money, which is validly and effectively subordinated and postponed in right of payment of principal, interest and premium if any, to the payment in full of all amounts owing from time to time under or pursuant to the Obligations by way of an agreement in form and substance satisfactory to the Agent and the Lenders; 1.1.161 “Subsidiary” – means any Person which now or hereafter is Controlled, directly or indirectly, by the Borrower, and “Subsidiary” of any other Person means another Person controlled by that Person. 1.1.162 “Swap Obligation” – means, with respect to any US Obligor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act. 1.1.163 “Swingline Advance” – means, with respect to the Borrower, the creation or the increase of any overdraft in its Current Accounts, as provided in Section 3.9. 1.1.164 “Swingline Availment” – means, at any time, the aggregate of all amounts debited to the Current Accounts (including, without limitation, cheques, transfers, withdrawals, interest, costs, charges and fees) in excess of the aggregate of all amounts credited to the Current Accounts. 1.1.165 “Swingline Lender” – means collectively BNS and its successors and Eligible Assignees in such capacity.
- 29 - 1.1.166 “Swingline Limit” – means the sum of five million Canadian Dollars (C$5,000,000) or the Equivalent Amount in USDollars. 1.1.167 “Swingline Loan” – means the swingline loan not exceeding the Swingline Limit which the Swingline Lender will make available to the Borrower pursuant to, and in accordance with, Section 3.9. 1.1.168 “Tax” – shall have the meaning ascribed to such term in the Provisions. 1.1.169 “Total Commitment” – means, at any time, the aggregate of the amounts set opposite each Lender’s name in Schedule representing the respective portion of the Total Commitment of each Lender, less any amount by which it shall have been cancelled, terminated or reduced pursuant to this Agreement, as it may be adjusted pro rata or otherwise further to an assignment or otherwise. 1.1.170 “Total Debt” – means, at any time, with respect to the Borrower on a consolidated basis, the sum of all its Debt but excluding amounts owing and outstanding under any IQ Loan Facility and any cash and cash equivalents not exceeding the sum of C$5,000,000 and held in any Current Account or in any other deposit account maintained by the Borrower in respect of which the account bank has executed an account control agreement in favor of the Agent in form and substance acceptable to the Agent. 1.1.171 “Treasury Management Services” – means any treasury or cash management services provided from time to time by the Lenders or any of their Affiliates to the Borrower or any of its Subsidiaries including automatic clearinghouse, controlled disbursements, depository, electronic funds transfer, information reporting, lockbox, stop payment, overdraft, return items, interstate depository network, netting and/or wire transfer services. 1.1.172 “Unfunded Capital Expenditures” – means, with respect to any period, the sum (without duplication) of all capital expenditures made by a Person during such period, where such expenditures are not funded (either in whole or in part) by way of a capital lease, equipment loan or for which no long term debt is assumed to finance such expenditure. For greater certainty, capital expenditures financed by the Credit Facility are considered unfunded. 1.1.173 “Unfunded Vested Liabilities” – means, for any Plan at any time, the amount (if any) by which the present value of all vested nonforfeitable accrued benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. 1.1.174 “US Base Rate” – means at any time the aggregate of (a) the rate of interest per annum equal to the higher of (i) the variable annual rate of interest established
- 30 - by the Agent from time to time as being the reference rate of interest it will use at such time in Canada to determine rates of interest on USDollar commercial loans to Canadian residents in Canada and designated at its US base rate, and (ii) the Federal Funds Overnight Rate plus one-half of one percent (0.5%) per annum, plus (b) the Applicable Margin; in each case adjusted automatically with each change in such established, quoted or published rate or the Applicable Margin, all without the necessity of any notice to the Borrower or any other Person. 1.1.175 “US Base Rate Advance” – means an Advance in USDollars to which the US Base Rate is applicable. 1.1.176 “US Base Rate Loan” – means at any time the Loans, or that portion of the Loans, which the Borrower has elected or is deemed to have elected to denominate in USDollars and upon which interest is payable at the US Base Rate. 1.1.177 “USDollars” and the symbol “US$” – each means the lawful money for the time being of the United States of America in same day immediately available funds or, if such funds are not available, the form of money of the United States of America which is customarily used in the settlement of international banking transactions on that day. 1.1.178 “US Obligors” – means any Obligor organized and existing under the laws of any United States jurisdiction. 1.1.179 “Welfare Plan” – means a “welfare plan” as defined in Section 3(1) of ERISA. 1.1.180 “written” or “in writing” – shall include printing, typewriting, or any electronic means of communication capable of being visibly reproduced at the point of reception including telecopier and electronic data interchange. 1.2 Computation of Time Periods In this Agreement, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”. 1.3 Headings and Table of Contents The headings of Articles and Sections and the table of contents are inserted for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.4 References Unless otherwise specified or the context otherwise requires, all references to Sections, Articles and Schedules are to Sections, Articles and Schedules in this Agreement.
- 31 - 1.5 Singular and Plural; Gender In this Agreement, where the context admits, the singular includes the plural and vice versa; and gender is used as a reference term only and applies with the same effect whether the parties are of masculine or feminine gender, corporate or other form. 1.6 Generally Accepted Accounting Principles Unless otherwise specifically provided herein, any accounting term used in this Agreement shall have the meaning customarily given such term in accordance with IFRS and all financial computations hereunder shall be computed in accordance with IFRS consistently applied. That certain items or computations are explicitly modified by the phrase “in accordance with IFRS” shall in no way be construed to limit the foregoing. If any “Accounting Changes” (as defined below) occur and such changes result in a change in the calculation of the financial covenant set forth in Section 12.2, standards or terms used in this Agreement or any other Loan Documents, then the Borrower, the Agent and the Lenders agree to enter into negotiations in good faith in order to amend such provisions of this Agreement or such other Loan Documents so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of any Obligor shall be substantially the same after such Accounting Changes as if such Accounting Changes had not been made; provided, however, that the agreement of the Majority Lenders to any required amendments of such provisions shall be sufficient to bind all Lenders. “Accounting Changes” means (i) changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Canadian Institute of Chartered Accountants (or successor thereto or any agency with similar functions), (ii) changes in accounting principles concurred in by the Borrower’s independent chartered accountants, and (iii) the reversal of any reserves established as a result of purchase accounting adjustments. All such adjustments resulting from expenditures made subsequent to the date of this Agreement (including capitalization of costs and expenses or the payment of liabilities incurred prior to the date of this Agreement) shall be treated as expenses in the period the expenditures are made and deducted as part of the calculation of Adjusted EBITDA in such period. If the Agent, the Borrower and the Majority Lenders agree upon the required amendments (and all other Obligors shall be deemed to agree to such amendments so agreed to by the Borrower), then after appropriate amendments have been executed and the underlying Accounting Change with respect thereto has been implemented, any reference to IFRS contained in this Agreement or in any other Loan Documents shall, only to the extent of such Accounting Change, refer to IFRS, consistently applied after giving effect to the implementation of such Accounting Change. Until such time as the Agent, the Borrower and the Majority Lenders agree upon the required amendments, all financial statements delivered and all calculations of financial covenants and other standards and terms in accordance with this Agreement and the other Loan Documents shall be prepared, delivered and made without regard to the underlying Accounting Change. 1.7 Rateable Portion of Accommodations References in this Agreement to “on a pro rata basis”, “shared by each Lender pro rata” or similar expressions shall mean and refer to a rateable portion or share as nearly as may be rateable in the circumstances, as determined in good faith by the Agent. Each such determination by the Agent shall be prima facie evidence of such rateable share.
- 32 - 1.8 Incorporation of Exhibits and Schedules The exhibits and schedules attached hereto shall, for all purposes hereof, form an integral part of this Agreement. 1.9 Divisions For all purposes under the Loan Documents, in connection with any division or plan of division: (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its equity interests at such time. ARTICLE 2 REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties Each Obligor represents and warrants to each Lender and the Agent, acknowledging and confirming that each Lender and the Agent are relying thereon in entering into this Agreement and providing accommodations hereunder, that: 2.1.1 Organization: it is duly incorporated or constituted, as applicable, organized and validly existing and in good standing under the laws of its jurisdiction of incorporation or organization; 2.1.2 Power: it is duly authorized to do business wherever the nature of its material Assets or activities requires authorization, and has the power and authority and all governmental licences, authorizations, consents, registrations and approvals required to (i) own and lease its Assets and to conduct the Business, and (ii) enter into and perform its obligations under this Agreement and the other Loan Documents to which it is a party; 2.1.3 Validity and Enforceability: each of this Agreement and the other Loan Documents to which it is a party has been duly authorized by all necessary actions (corporate or otherwise) and constitutes valid and legally binding obligations of it enforceable against it in accordance with its terms, except to the extent such enforcement may be restricted by any applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors’ rights generally and subject to the discretion of a court in regard to the remedy of specific performance and other equitable remedies; 2.1.4 No Governmental Authorizations Required: no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for the due execution, delivery and performance by it of this Agreement or any other Loan Document to which it is a party, except
- 33 - for such authorizations or approvals or other action or notice or filings as have been validly obtained, given or filed or as to which failure to obtain or give could not, individually or in the aggregate, have a Material Adverse Effect; 2.1.5 Breach: neither the execution and delivery of this Agreement and the other Loan Documents by it nor compliance with the terms and provisions hereof or thereof will: 2.1.6 No Litigation: except as disclosed in Schedule 2.1.6, there is no litigation, action, suit or arbitration proceeding and there are no legal proceedings including, without limitation, insolvency proceedings and Environmental Claims, pending or to the best of its knowledge and belief, after due enquiry, threatened in writing involving it before any court or administrative agency or tribunal of any country or jurisdiction which could, if determined adversely, separately or in the aggregate, have a Material Adverse Effect; 2.1.7 No Default: no event has occurred and is continuing which constitutes a Default or an Event of Default which has not been waived or cured; 2.1.8 No Judgments, etc.: there are no outstanding judgments, writs of execution, work orders, notices of deficiency capable of resulting in work orders, injunctions or directives against it or any of its Assets which could, if determined adversely, separately or in the aggregate, have a Material Adverse Effect; 2.1.9 Full Disclosure: the statements and information when furnished to the Agent and the Lenders by it in connection with the negotiation of this Agreement, the other Loan Documents and the commitment by the Agent and the Lenders to provide all or part of the financing contemplated hereby do not contain any untrue statements of a material fact or omit a material fact necessary to make
- 34 - the material statements contained herein or therein not misleading in any material respect. 2.1.10 Financial Statements of the Obligors: with respect to financial statements delivered to the Agent pursuant to Section 12.4.1, the consolidated balance sheet of the Obligors as of the financial year then ended or the financial quarter then ended and the related consolidated statement of income and retained earnings and cash flow of the Obligors for the relevant period (subject to year- end adjustments and footnotes) then ended, are complete and accurate and fairly present in all material respects the consolidated financial condition of the Obligors as at such dates and the results of the operations of the Obligors for the periods ended on such dates, all in accordance with IFRS in effect on the date such statements were prepared; except as disclosed or reflected in such financial statements or elsewhere in the Loan Documents (including schedules hereto), as at the Closing Date, neither the Borrower nor any other Obligor had any liability, contingent or otherwise, or any unrealized or anticipated loss, that, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect; other than the events in respect of the Covid-19 pandemic and related impacts on the Canadian economy (individually, a “Covid-19 Event”); since February 13, 2020, there has been no change in the consolidated financial condition of the Obligors from that set forth in the said consolidated financial statements which could have a Material Adverse Effect other than any Covid- 19 Event; 2.1.11 Title to Assets; No Liens; Leases: it is the owner of, and has good and marketable title to, all its Assets, and the same are free and clear of all Liens, except for Permitted Liens; it has the right to and does enjoy peaceful and undisturbed possession under all leases under which it is leasing Assets; all such leases are valid, subsisting and in full force and effect in all material respects; it is not in default in the performance, observance or fulfilment of any of its obligations under any provision of any such leases; 2.1.12 Real and Immovable Property: Schedule 2.1.12 sets forth the address of each real or immovable Asset owned by it and the Leased Premises leased by it as of the date hereof and in the case such Leased Premises, the owner of record thereof. It owns or leases no other real or immovable property as of the date hereof, other than temporary offices and common spaces shared with other tenants or users; 2.1.13 Insurance: a policy of insurance or policies of insurance in compliance with the requirements of Section 12.5 is or are in effect in respect of it; 2.1.14 Intellectual Property: Schedule 2.1.14 sets forth all trademarks, patents, industrial designs and other intellectual property; it possesses all the trademarks, trade names, copyrights, patents, industrial designs, licences or rights in any thereof, reasonably necessary for the conduct of its business as now conducted and presently proposed to be conducted and, to the best of its
- 35 - knowledge, it is not infringing or alleged to be infringing on the rights of any Person with respect to any patent, trademark, trade name, copyright (or any application or registration respecting any thereof), discovery, improvement, process, formula, know-how, data, plans, specification, drawing or the like, which infringement could reasonably be expected to have a Material Adverse Effect; 2.1.15 Compliance with Laws: it is not in violation of any Applicable Law which violation could reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing: (i) it is in compliance in all material respects with all applicable Environmental Laws, and (ii) it has not received any communication, whether written or oral, whether from a Governmental Authority, citizens group, employee or otherwise, which communication alleges that it has not complied in all material respects with any Environmental Law; (i) there is no Environmental Claim pending or, to the best of its knowledge, threatened against it which could reasonably be expected to have a Material Adverse Effect, and (ii) there are no present or past actions, activities, circumstances, conditions, events or incidents (including, without limitation, the Release of any Hazardous Materials) that could form the basis of any Environmental Claims against it; it has not received any notice or order advising it that it has or may have any remedial obligation with respect to any such Releases of any Hazardous Materials or that it is or may be responsible for the costs of any remedial action taken or to be taken by any other Persons with respect to any such Releases of any Hazardous Materials; 2.1.16 Taxes: it has filed all federal, provincial and other tax returns which are required to be filed and, and except for matters that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, has paid all federal, provincial and other Taxes, interest and penalties, if any, which have become due pursuant to such returns or pursuant to any assessment received by it and adequate provision for payment has been made for Taxes not yet due, except any such payment obligation which is being Properly Contested. The
- 36 - charges, accruals and reserves on its books in respect of Taxes are adequate in all material respects; 2.1.17 Future Financial Statements: the financial statements delivered from time to time to the Agent pursuant to Section 12.4 are complete and correct in all material respects and present fairly, in accordance with IFRS (except for changes therein or departures therefrom that are described in the Compliance Certificate accompanying such statements and that have been approved in writing by the Auditors), the consolidated or non-consolidated, as the case may be, financial position of the Obligors, as at their respective dates and the consolidated or non-consolidated, as the case may be, results of operations, retained earnings and cash flows of the Obligors for the respective periods to which such statements relate, and the furnishing of the same to the Agent shall constitute a representation and warranty by the Obligors made on the date the same are furnished to the Agent to that effect and to the further effect that, except as disclosed or reflected in such financial statements, as at the respective dates thereof, neither the Borrower nor any other Obligor had any liability, contingent or otherwise, or any unrealized or anticipated loss, that, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect; 2.1.18 Forecasts and Information Supplied: forecasts and projections supplied to the Agent and the Lenders were based on good faith estimates and assumptions, adequately disclosed therein at the time supplied, believed by it to be reasonable at the time made, it being recognized by the Agent and the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by such projections may differ from projected (at the time thereof) results of or the prospects for its business. The information included in the Beneficial Ownership Certification, as updated in accordance with Section 12.1.8 is true and correct in all material respects; 2.1.19 No Material Adverse Effect: since February 13, 2020, there is no fact known to it which could reasonably be expected to have a Material Adverse Effect which has not been fully disclosed to the Agent other than a Covid-19 Event; 2.1.20 Licences; No Burdensome Restrictions, etc.: except as disclosed in Schedule 2.1.20, it possesses all franchises, certificates, licences, permits and other authorizations or exemptions from regulatory authorities and other Governmental Authorities, free from burdensome restrictions or known conflict with the rights of others, that are necessary under Applicable Laws for the ownership, lease, maintenance and operation of its Assets and the conduct of its business as now conducted and as proposed to be conducted, and it is not in violation of any thereof, which failure to possess or violation could reasonably be expected to have a Material Adverse Effect; 2.1.21 Withholding of Taxes, etc.: except for matters that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect and except as disclosed in Schedule 2.1.21, it has deducted and withheld
- 37 - amounts from all employees for all periods in full and complete compliance with all tax, social security, unemployment and other provisions of Applicable Laws, and has paid or remitted such deductions or withholdings when due to the relevant Governmental Authorities; 2.1.22 Subsidiaries Jurisdiction and Capital Stock: each Obligor is listed on Schedule 2.1.22 together with (i) its current jurisdiction of incorporation or constitution and its full current name, (ii) a list of the true owners of all of its issued and outstanding Capital Stock and the nature and percentage of such ownership interest, (iii) the jurisdiction where its minute books are kept and where its registered office and chief executive office is located, (iv) a description of any outstanding warrants, subscriptions, securities, instruments or other rights of any type or nature which are convertible into, exchangeable for or otherwise provide for or permit the issuance of Capital Stock of any Obligor, and (v) the location of all of its places of business and corporeal and tangible Assets; 2.1.23 Material Contracts: it is not (i) party to or bound by any Material Contract other than the Material Contracts listed in Schedule 1.1.111, (ii) in default to perform or observe in any material respect its obligations under any Material Contract; the Material Contracts are in full force and effect, and no notice nor consent is required to be given or obtained under any Material Contract in connection with this Agreement; 2.1.24 Debt: it has no Debt, other than Permitted Debt; 2.1.25 Corporate Chart: the corporate structure of the Borrower and the other Obligors is set forth in Schedule 2.1.25; 2.1.26 Banking: As of the Closing Date, all of the bank accounts of the Obligors are listed in Schedule 2.1.26, save for those bank accounts maintained with BNS; 2.1.27 Fiscal Year End: the financial year end of the Borrower is March 31; 2.1.28 Labour Matters: except as disclosed in Schedule 2.1.28, there are no strikes or other labour disputes against it and pending or, to the best of its knowledge and belief after due inquiry, anticipated which could reasonably be expected to have a Material Adverse Effect and there are no complaints or charges against it pending or, to the best of its knowledge and belief, after due inquiry, threatened in writing to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by it which could reasonably be expected to have a Material Adverse Effect; 2.1.29 Canadian Benefit and Pension Plans: the Canadian Pension Plans are duly registered under the provisions of the ITA and any other Applicable Law and no event has occurred which is reasonably likely to cause the loss of such
- 38 - registered status. The Canadian Pension Plans and the Canadian Benefits Plans have been administered in accordance, in all material respects, with the ITA and all other Applicable Laws. All its material obligations (including fiduciary and funding obligations) required to be performed in connection with the Canadian Pension Plans and the funding media therefor have been performed. No promises of benefit improvements under the Canadian Pension Plans or the Canadian Benefit Plans have been made except where such improvements could not reasonably be expected to have a Material Adverse Effect. There have been no improper withdrawals or applications of the Assets of the Canadian Pension Plans or the Canadian Benefit Plans. Each of the Canadian Pension Plan and Canadian Benefit Plans is funded to the extent required by Applicable Law and there exist no going concern unfunded actuarial liabilities or solvency deficiencies in respect of such plans except to the extent that the failure to so comply could not reasonably be expected to have a Material Adverse Effect; 2.1.30 Solvency: it is Solvent; 2.1.31 No Omissions: it has not withheld from the Agent or any Lender any material information relating to its financial condition or business which would reasonably be expected to be material to a prospective lender contemplating a loan of the size and nature contemplated in this Agreement; 2.1.32 Representations and Warranties Concerning the US Obligors: The Borrower hereby represents and warrants with respect to each US Obligor, that:
- 39 -
- 40 - 2.2 Survival of Representations and Warranties All representations and warranties of each Obligor contained herein and in any certificate or material delivered hereunder or pursuant to any of the other Loan Documents shall be deemed to have been relied upon by each Lender and the Agent notwithstanding any investigation heretofore or hereafter made by each Lender or the Agent or by their respective counsel or by any other representative of each Lender or the Agent. All such representations and warranties shall be deemed to be given on the date of this Agreement and, except for the representations and warranties set forth in Section 2.1.10 (which shall be read as if they referred to the most recent financial statements delivered by the Borrower to the Agent pursuant to Section 12.4), on each Drawdown Date, on each Conversion Date and on each date of renewal of a Bankers’ Acceptance hereunder, with the same effect, subject to and to the extent consistent with the transactions contemplated hereby, as if made at and as of each such date, by reference to the facts and circumstances then prevailing. ARTICLE 3 THE CREDIT FACILITY 3.1 Obligations of the Lenders and Use of Proceeds 3.1.1 Credit Facility: Relying on each of the representations and warranties set out in ARTICLE 2 and subject to the terms of this Agreement, each Lender severally and not jointly or solidarily, agrees to make its respective portion of the Total Commitment under the Credit Facility available to the Borrower in one or more Advances from the Closing Date until the Maturity Date, in CDollars by way of Prime Rate Advances or Bankers’ Acceptances, in USDollars by way of US Base Rate Advances or LIBOR Advances, or in CDollars, USDollars or any other currency acceptable to the Issuing Bank by way of Letters of Credit; provided that the Lenders shall have no obligation to make any Advance or Conversion Advance which would result in Borrowings exceeding the amount of the Available Commitment or at any time that a Default or an Event of Default has occurred and is continuing under this Agreement. Advances can also be made to the Borrower by way of overdraft in CDollars or in USDollars in the Current Accounts, but only as a means of availment of the Swingline Loan. 3.1.2 Use of Funds: The Borrower agrees to use the proceeds of Advances to finance working capital and for general corporate purposes, and to finance Permitted Acquisitions. 3.1.3 Termination of the Available Commitment: The Total Commitment shall terminate on the Maturity Date.
- 41 - 3.2 Advances under the Credit Facility 3.2.1 Subject to the terms and conditions hereof, from time to time from the Closing Date until the Maturity Date, the Borrower may borrow from the Lenders, through the Agent, upon giving to the Agent prior written notice in accordance with Section 3.3 by means of a Notice of Borrowing in respect of a proposed Borrowing (other than a Swingline Advance, for which no Notice of Borrowing is required), up to the amount of the Available Commitment: 3.2.2 Any overdraft utilization by the Borrower in any Current Account under the Swingline Loan relating to the Credit Facility shall be deemed to be a request for a Prime Rate Advance for a utilization in CDollars, or a US Base Rate Advance for a utilization in USDollars, and the credit balance in any Current Account shall be applied by the Agent in reduction of the Prime Rate Loans or US Base Rate Loans, as applicable, outstanding under the Loan. 3.2.3 In each Notice of Borrowing in which the Borrower has requested a LIBOR Advance, the Borrower shall specify the initial Interest Period of such LIBOR Advance in accordance with Section 7.3. 3.2.4 In each Notice of Borrowing in which the Borrower has requested an Advance by way of Bankers’ Acceptances, the Borrower shall specify the maturity date of such Bankers’ Acceptances in accordance with Section 8.1.3. Borrowings by way of Bankers’ Acceptances shall be made in accordance with ARTICLE 8. 3.2.5 Each Notice of Borrowing shall be irrevocable and be binding on the Borrower. In all cases the Drawdown Date shall be a Banking Day.
- 42 - 3.2.6 Within the limits of the Available Commitment, and subject to the other terms and conditions of this Agreement, the Borrower may borrow under this Section 3.2, repay pursuant to Section 6.2 and re-borrow under this Section 3.2. 3.3 Notice Provisions 3.3.1 For each Borrowing (other than a Swingline Advance), each optional repayment and each conversion with respect to the Credit Facility, the Agent shall have received prior to 10:00 a.m. (Montreal time) from the Borrower a Notice of Borrowing, a Notice of Optional Repayment or a Notice of Conversion, as the case may be, in accordance with the following: 3.3.2 If the Borrower gives a Notice of Borrowing to the Agent in accordance with Section 3.3.1, the Agent shall, on the same day it receives such Notice of Borrowing, notify each Lender by telecopier of the particulars of such request for a Borrowing and of such Lender’s Participation in the proposed Borrowing and each Lender shall, no later than 2:00 p.m. (Montreal time) on the Drawdown Date, make or procure to be made its Participation in the Borrowing available to the Agent. 3.3.3 Subject to the terms hereof, the Agent shall make each such Borrowing available to the Borrower for value on the Drawdown Date. 3.4 Pro Rata Treatment Except for Swingline Advances which shall be requested only from the Swingline Lender and be made available to the Borrower by way of overdraft in the relevant Current Accounts, the Borrower agrees to request through the Agent any Borrowing under the Credit Facility from the Lenders pro rata in all respects according to their respective portion of the Total Commitment determined without regard to the Swingline Limit, and the Lenders agree to make each such Borrowing available to the Borrower, through the Agent, pro rata in all respects according to their respective portion of the Total Commitment determined without regard to the Swingline Limit. A
- 43 - Lender shall not be responsible for the respective portion of the Total Commitment of any other Lender. Without prejudice to the rights of the Borrower against a Defaulting Lender, the failure or incapacity of a Lender to make available its Participation in a Borrowing to the Borrower in accordance with its obligations under this Agreement does not release the other Lenders from their obligations. 3.5 Accounts kept by the Agent The Agent shall keep in its books accounts for the Loan and other amounts payable by the Borrower under this Agreement. The Agent shall keep appropriate registers showing the amount of the indebtedness of the Borrower in respect of the Loan and showing each payment or repayment of principal and interest made in respect of such indebtedness. Such registers shall constitute, in the absence of manifest error, prima facie evidence of their content against the Borrower and the Lenders; provided that the obligation of the Borrower to pay or repay any indebtedness and liability in accordance with the terms and conditions of this Agreement shall not be affected by the failure of the Agent to keep such registers. The Agent shall supply any Lender and the Borrower, on demand, with copies of such registers. 3.6 Accounts kept by each Lender Each Lender shall keep in its books, in respect of its Participation in the Credit Facility, accounts for the Loan and other amounts payable by the Borrower to it under this Agreement. Each Lender shall make appropriate entries showing, as debits, the amount of the indebtedness of the Borrower towards it in respect of the Loan, the amount of all accrued interest and any other amount due to such Lender pursuant hereto and, as credits, each payment or repayment of principal and interest made in respect of such indebtedness as well as other amounts paid to such Lender pursuant hereto. 3.7 Conversion Option At any time prior to the Maturity Date, subject to Section 6.3 and provided that no Default or Event of Default has occurred and is continuing, the Borrower may elect to convert, by Notice of Conversion received by the Agent, and on the Conversion Date set forth therein the Borrower shall convert, any Prime Rate Loan, Bankers’ Acceptance, LIBOR Loan or US Base Rate Loan or any portion thereof outstanding under the Credit Facility (each, a “Converted Advance”) into another basis of funding under the Credit Facility (each, a “Conversion Advance”). The provisions of this Agreement relating to Prime Rate Advances, US Base Rate Advances, LIBOR Advances and Acceptances shall apply, mutatis mutandis, to Conversion Advances comprising Prime Rate Advances, US Base Rate Advances, LIBOR Advances and Acceptances, respectively. 3.8 Letters of Credit Subject to the terms and conditions hereof and provided no Default or Event of Default has occurred and is continuing, during the period from the date hereof until the Maturity Date, the Borrower may request the issue of Letters of Credit in accordance with ARTICLE 9.
- 44 - 3.9 Swingline Loans 3.9.1 At any time that the Borrower is entitled to obtain Advances, and subject to this Section 3.9, the Borrower shall be entitled to create or increase an overdraft in the Current Accounts. Any such Swingline Availment shall be made by way of a Prime Rate Advance or a US Base Rate Advance. 3.9.2 The Borrower undertakes not to permit the Swingline Availment at any time to exceed the Swingline Limit at such time. For greater certainty and notwithstanding any other provision of this Agreement, the Swingline Lender shall not be obligated to permit a Swingline Advance if at such time (A) the amount of such Swingline Advance would exceed the Available Commitment, or (B) after giving effect to any such Swingline Advance (i) the Loan plus the Swingline Availment would exceed the Total Commitment at such time; or (ii) the Swingline Availment would exceed the Swingline Limit. 3.9.3 It is the intention of the parties hereto that the Swingline Loan be available to the Borrower pending the obtaining of Advances pursuant to Section 3.2. Accordingly, if on any Banking Day the Swingline Availment exceeds the Swingline Limit or, from time to time, as the Swingline Lender, in its sole and entire discretion, deem it appropriate, the Swingline Lender shall deliver a written notice to the Agent (which in turn will provide notice to, in accordance with the provisions of this Agreement, each Lender and the Borrower), requiring repayment of the Swingline Availment then outstanding or any portion thereof in the manner set forth in the following sentences of this Section 3.9.3. Such written notice from the Swingline Lender to the Agent shall be delivered not later than 10:00 a.m. (Montreal time) one (1) Banking Day prior to the proposed date of repayment of the Swingline Availment then outstanding or any portion thereof and any repayment amount specified in such notice shall be in a minimum amount of C$1,000,000 and in multiples of C$100,000 in excess thereof. The Borrower shall be deemed to have given at such time a Notice of Borrowing to the Agent requesting a Prime Rate Advance under the Credit Facility in an amount equal to the portion of the Swingline Availment owing by the Borrower and to be repaid as specified by the Swingline Lender. If the aggregate principal amount of all such requested Advances and the Loan outstanding would not exceed the Total Commitment at such time, the Lenders shall make such requested Advances on the next Banking Day and the Agent shall apply the proceeds thereof in full or partial repayment, as the case may be, of the Swingline Availment then outstanding. The Agent shall promptly notify the Borrower of any such Advance made, and the Borrower agrees to accept each such Advance and hereby irrevocably authorizes and directs the Agent to apply the proceeds thereof in payment of the Swingline Loan as aforesaid. 3.9.4 If at any time that the Total Commitment has been terminated following an Event of Default as provided in Section 14.2 and the Loan is not outstanding
- 45 - rateably from the Lenders (with the outstanding Swingline Availment being deemed for such purpose outstanding under the Swingline Lender’s Total Commitments), any Lender from which excess Advances are outstanding (the “Surplus Lender”) shall sell to any Lender from which deficit Advances are outstanding (the “Deficit Lender”), and the Deficit Lender shall purchase from the Surplus Lender, for cash, at par, without representation or warranty from or recourse to the Surplus Lender, an interest in such of the Advances outstanding from the Surplus Lender as results in the ratio of the Advances outstanding from all Lenders being equal to the ratio of their Total Commitments. The intention of this Section 3.9.4 is that when any and all purchases and sales required hereby have been completed, the outstanding Advances under the Credit Facility will be outstanding rateably from the Lenders. The Agent, upon consultation with the Lenders, shall have the power to settle any documentation required to evidence any such purchase and sale and, if deemed advisable by the Agent, to execute any document as attorney for any Lender in order to complete any such purchase and sale. The Borrower and the Lenders acknowledge that the foregoing arrangements are to be settled by the Lenders among themselves, and the Borrower expressly consents to the foregoing arrangements among such Lenders. 3.9.5 Each Lender shall indemnify and save harmless the Swingline Lender on a rateable basis based on the Total Commitment of each Lender against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, payments or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Swingline Lender in any way related to or arising out of the Swingline Loan or any Swingline Advance made by the Swingline Lender, except for any such liabilities resulting from the gross or intentional fault of the Swingline Lender. ARTICLE 4 ACCORDION 4.1 Accordion The Borrower shall have the right to request, upon at least sixty (60) days written notice to the Agent, to increase the amount of the Credit Facility by up to C$15,000,000 in the aggregate at any time, subject to a minimum amount of C$10,000,000 for each request, on or before the Maturity Date, to the extent that the Agent has received binding commitments from existing Lenders for the entire amount requested (the “New Commitments”), provided that (i) no Default or Event of Default shall have occurred and then be continuing (without having been cured or waived as provided in this Agreement) or shall result from such increase, (ii) no commitment of any Lender shall be increased without the written consent of such Lender, (iii) no Default or Event of Default shall have occurred or be continuing on the date such increase may take effect or after giving effect to the New Commitments, including without limitation, compliance with the financial covenants set forth in Section 12.2, (iv) the New Commitments of the Lenders shall be effected pursuant to an amendment to this Agreement in form and substance acceptable to the Agent
- 46 - executed and delivered by the Borrower, the other Obligors, the Lenders and the Agent, (v) the Borrower shall deliver or cause to be delivered any legal opinions or other documents reasonably requested by the Agent in connection with such transaction, and (vi) the Borrower shall pay to the Agent a fee to be determined at the time the request to draw the Accordion is made. No Lender shall be under any obligation or commitment to agree to any request under this ARTICLE 4 and if all conditions set forth herein for the New Commitments are not being complied with, the amount of the Credit Facility shall not be increased. ARTICLE 5 EXTENSION OF MATURITY DATE 5.1 Extension of Maturity Date 5.1.1 Subject to the terms and conditions of this Agreement and provided that no Default or Event of Default has occurred and is continuing, by notice in writing to the Agent no more than one hundred and twenty (120) days and no less than ninety (90) days prior to each anniversary of the Closing Date occurring at any time after the second anniversary of the Closing Date, the Borrower may request that the then current Maturity Date of the Credit Facility be extended by one (1) additional year (a “Request”). The Agent shall forthwith on receipt of a Request give a copy of such Request to each Lender. 5.1.2 Each Lender may, in its sole discretion, by notice in writing to the Agent (a “Confirmation Notice”) no later than sixty (60) days after the date of receipt by the Agent of the Request, either agree to such Request or refuse to agree to such Request, and if a Lender fails to give such a notice within such delay it shall be deemed to have refused to agree to such Request. Any agreement by a Lender to such Request shall be deemed for all purposes to be conditional upon all Lenders having given the Agent a notice agreeing to such Request no later than sixty (60) days after the date of receipt by the Agent of such Request. 5.1.3 If the Agent shall have received by no later than sixty (60) days after the date of the receipt by the Agent of such Request a notice from each Lender by which each Lender agrees to such Request, the Agent shall forthwith send a Confirmation Notice confirming that the Lenders agree to such Request, and that the then current Maturity Date of the Credit Facility shall thereupon be extended by one (1) additional year. 5.1.4 No Lender shall be under any obligation or commitment to agree to any Request. If no Borrower sends any Request when it was entitled to do so or if any Lender does not agree to any Request as hereinabove provided, and as a result of any such failure to agree by any Lender, the Agent does not send a Confirmation Notice within the delay indicated in Section 5.1.3, then the current Maturity Date of the Credit Facility shall not be extended and the Borrower shall have no further rights to request any further extension of the Maturity Date of the Credit Facility.
- 47 - 5.1.5 On the Maturity Date of the Credit Facility, any undrawn portion of such Credit Facility shall be automatically cancelled and the Commitment shall be automatically terminated. ARTICLE 6 REPAYMENT 6.1 Mandatory Repayment of the Loans 6.1.1 Credit Facility. The Borrower shall repay in full the Loan to the Lenders on the Maturity Date together with all unpaid interest accrued and other amounts owing and unpaid under or pursuant to this Agreement and the other Loan Documents in respect of or in connection with the Credit Facility. In the event that on the Maturity Date there are any outstanding Bankers’ Acceptances or Letters of Credit under the Credit Facility, the Borrower shall thereupon provide the Agent for the account of the Lenders with funds for the full face amount of all such Bankers’ Acceptances and for the full amount of the Letter of Credit Exposure, it being understood and agreed that, subject to the compensation rights of the Agent and the Lenders, all funds provided by the Borrower to the Lenders to cover any Letter of Credit Exposure shall be returned by the Agent to the Borrower to the extent any Letters of Credit then outstanding are not drawn upon. Should the amount of any payment by the Borrower be applied against repayment of any LIBOR Loan Portion on a day other than the last day of the then current Interest Period with respect of such LIBOR Loan Portion, the Borrower shall, in addition, pay the amount calculated as set forth in Section 10.11.3. 6.1.2 Mandatory repayments. In addition to the repayment requirements set out in Section 6.1.1, the Borrower shall repay the Loan from (i) the net proceeds of Assets sales made outside of the ordinary course of business of the Obligors (other than sales of inventory in the ordinary course of business) exceeding an aggregate amount of C$2,500,000 per annum, unless such proceeds are reinvested by the Obligors in its working capital within 180 days after the receipt of such proceeds, (ii) insurance proceeds in an aggregate amount exceeding C$2,500,000 per annum (other than business interruption insurance proceeds) not otherwise reinvested by the Obligors within 180 days after the receipt of such proceeds, (iii) 100% of equity offerings, Debt (other than equity offering or Debt otherwise permitted under this Agreement or related to a Permitted Acquisition or Debt otherwise approved by the Lenders), private placement of debt or any other debt related vehicle providing additional funding to any Obligor. All such mandatory prepayments shall be made without penalty or premium (except for breakage costs, if any) and shall be applied in reduction of the Credit Facility, the whole as determined by the Agent. Notwithstanding anything contained in this Agreement, the incurrence by the US Obligors of a
- 48 - SBA PPP Loan shall not trigger a mandatory prepayment or constitute a prepayment event under this Agreement. 6.1.3 Excess Resulting From Exchange Rate Change. Any time that, following one or more fluctuations in the exchange rate of the US Dollars against the Canadian Dollar, the sum of: 6.1.4 the Equivalent Amount in Canadian Dollars of Obligations in US Dollars; and 6.1.5 the Obligations in Canadian Dollars; exceeds the amount of the Credit Facility then available, the Borrower shall promptly make the necessary payments or repayments to the Agent to reduce the Obligations under the Credit Facility to an amount equal to or less than the available amount under such Credit Facility. Without in any way limiting the foregoing provisions, the Agent shall, on a monthly basis, make the necessary exchange rate calculations to determine whether any such excess exists on such date and, if there is an excess, it shall so notify the Borrower. 6.2 Optional Repayments 6.2.1 Repayment of the Loan. At any time prior to the Maturity Date, subject to Section 6.3, the Borrower may elect to repay without penalty any Prime Rate Loan or US Base Rate Loan outstanding under the Credit Facility with interest accrued to the date of such repayment. Bankers Acceptances and LIBOR Loans, subject to breakage costs set forth in Section 10.11.3, cannot be repaid prior to their maturity. Within the limits of the Available Commitment, and subject to the terms of this Agreement, the Borrower may reborrow under the Credit Facility any amount so repaid; for greater certainty, the Borrower may not reborrow any amount prepaid after the Maturity Date. The provisions of this Section 6.2.1 and Section 6.3 shall not apply to the repayment of Swingline Advances, which repayment may be made by the Borrower at any time and without notice. 6.2.2 Repayment of Letters of Credit. Any outstanding Letter of Credit may not be repaid or discharged prior to the expiry date of such Letter of Credit, except by the Issuing Bank, the Agent and the Lenders being fully released and discharged of all of their liabilities and obligations arising from such Letter of Credit and by written evidence reasonably satisfactory to the Agent of such full release and discharge being delivered to the Agent together with the original of such Letter of Credit which shall be returned to the Issuing Bank. 6.3 Requirements for Optional Repayments and Conversions Each optional repayment pursuant to Section 6.2 and conversion pursuant to Section 3.7 shall be subject to the following terms and conditions:
- 49 - 6.3.1 Each optional repayment shall be subject to the delivery of a Notice of Optional Repayment to the Agent at least two (2) Banking Days prior to such repayment and shall be made on such Optional Repayment Date specified in such Notice of Optional Prepayment. 6.3.2 Each conversion from a Prime Rate Loan shall be in a minimum amount of C$500,000 or such larger amount as is an integral multiple of C$100,000 and shall be made on the Banking Day specified in the Notice of Conversion. 6.3.3 Each conversion from a US Base Rate Loan shall be in a minimum amount of US$500,000 or such larger amount as is an integral multiple of US$100,000 and shall be made on the Banking Day specified in the Notice of Conversion. 6.3.4 Each conversion from a LIBOR Loan shall be in a minimum amount of US$1,000,000 or such larger amount as is an integral multiple of US$500,000 and shall be made on the Banking Day specified in the Notice of Conversion. 6.3.5 Each conversion from a Banker’s Acceptance shall be in a minimum amount of C$1,000,000 or such larger amount as is an integral multiple of C$500,000 and shall be made on the Banking Day specified in the Notice of Conversion. 6.3.6 The Borrower shall have given the Agent notice in accordance with Section 3.3 for each repayment and each conversion, each notice stating the proposed date of the repayment or conversion and either the aggregate principal amount and currency of the repayment or the aggregate principal amount and currency of the Converted Advance and the type of Conversion Advance. 6.3.7 Each Notice of Optional Repayment shall be irrevocable and be binding on the Borrower, and the Borrower shall repay on the Optional Repayment Date specified in such notice in the relevant currency, as applicable, the amount stated in such notice with accrued interest to the date of such repayment. Each Notice of Conversion shall be irrevocable and be binding on the Borrower. 6.3.8 Any repayment or conversion of any LIBOR Loan or Bankers’ Acceptance shall be made only on the last day of the then current Interest Period of such LIBOR Loan or on the maturity date of such Bankers’ Acceptance. 6.3.9 Any such repayment or conversion which results in the repayment or conversion of any LIBOR Loan on a day other than the last day of its then current Interest Period or of any Banker’s Acceptance on a day other than the maturity date thereof shall be subject to the payment by the Borrower of the breakage expenses specified in Section 10.11.3. 6.4 Authority to Debit In respect of all amounts payable by any Obligor under this Agreement or the other Loan Documents, each Obligor hereby irrevocably authorizes and instructs the Agent or any Lender to
- 50 - withdraw from or debit, from time to time when such amounts become due and payable, any account of such Obligor maintained with BNS or any other Lender or any of their respective Affiliates for the purpose of satisfying payment thereof. 6.5 LIBOR Loans – Renewals and Deemed Conversions At least three (3) Banking Days prior to the last day of the then current Interest Period of each LIBOR Loan Portion, the Borrower shall either (a) give a Notice of Conversion pursuant to Section 3.7 to convert such LIBOR Loan Portion into another basis of funding, or (b) by written notice to the Agent, select a new Interest Period in accordance with Section 7.6 applicable to such LIBOR Loan Portion commencing on the last day of such Interest Period. If the Borrower fails to give a Notice of Conversion or a notice selecting a new Interest Period in accordance with the foregoing, then on the last day of the Interest Period in respect of such LIBOR Loan Portion, the Borrower shall be deemed to have notified the Agent of its intention to convert such LIBOR Loan Portion into a US Base Rate Loanon the last day of the Interest Period of such LIBOR Loan Portion, and on the last day of such Interest Period, such LIBOR Loan Portion shall be converted into a US Base Rate Loan and interest thereon shall be payable at the US Base Rate. 6.6 Sharing of Payments Notwithstanding Article 5 of the Provisions, prior to the occurrence and continuation of any Event of Default, the Swingline Lender may obtain any payment in any manner whatsoever of any amount forming part of the Swingline Loan, retain any such payment and apply same against the Swingline Loan and any other amounts owing in respect of the Swingline Loan (including, without limitation, interest thereon) and the Swingline Lender shall have no obligation to remit to or share with the other Lenders any such payment. ARTICLE 7 INTEREST AND FEES 7.1 Interest The Borrowings shall bear interest from the date of each Advance, calculated on a daily basis and payable in arrears, on a Prime Rate Loan at the Prime Rate, on a US Base Rate Loan at the US Base Rate and on each LIBOR Loan at the applicable LIBOR for such LIBOR Loan for the then current Interest Period, and all overdue amounts shall bear interest in accordance with Section 7.7. All outstanding amounts shall bear interest both before and after default and before and after judgment at the rates determined as aforesaid. 7.2 Payment of Interest on Prime Rate Loans (excluding the Swingline Loan) On each Interest Payment Date in respect of a Prime Rate Loan, the Borrower shall pay to the Agent interest at the Prime Rate. The Borrower will pay this interest in arrears for the period up to but excluding such Interest Payment Date. The Agent will compute the interest on the basis of the actual number of days elapsed in the period for which such interest is payable divided by the actual number of days of the year. The applicable rate of interest for a Prime Rate Loan will change simultaneously with any change in the Prime Rate or the Applicable Margin.
- 51 - 7.3 Payment of Interest on LIBOR Loans On each Interest Payment Date in respect of each LIBOR Loan, the Borrower shall pay to the Agent interest at LIBOR for the applicable Interest Period. Upon determination of the applicable rate of interest on any LIBOR Loan, the Agent shall notify the Borrower of this rate. The Agent will compute the interest on the basis of the actual number of days elapsed in the period for which such interest is payable divided by three hundred and sixty (360). The applicable rate of interest for each LIBOR Loan will change simultaneously with any change in LIBOR or the Applicable Margin. 7.4 Payment of Interest on US Base Rate Loans (excluding the Swingline Loan) On each Interest Payment Date in respect of a US Base Rate Loan, the Borrower shall pay to the Agent interest at the US Base Rate. The Borrower will pay this interest in arrears for the period up to but excluding such Interest Payment Date. The Agent will compute the interest on the basis of the actual number of days elapsed in the period for which such interest is payable divided by the actual number of days of the year. The applicable rate of interest for a US Base Loan will change simultaneously with any change in the US Base Rate or the Applicable Margin. 7.5 Payment of Interest on the Swingline Loan On each Interest Payment Date in respect of a Swingline Loan, the Borrower shall pay to the Swingline Lender interest at the Prime Rate or the US Base Rate, as applicable. The Borrower shall pay this interest in arrears for the period up to but excluding such Interest Payment Date. The Swingline Lender will compute the interest on the basis of the actual number of days elapsed in the period for which such interest is payable divided by the actual number of days of the year. The applicable rate of interest for a Swingline Loan will change simultaneously with any change in the Prime Rate, the US Base Rate or the Applicable Margin. 7.6 Selection of Interest Periods In each Notice of Borrowing delivered pursuant to Section 3.2 and each Notice of Conversion delivered pursuant to Section 3.7 in which the Borrower has elected a Borrowing or Conversion Advance by way of a LIBOR Loan, the Borrower shall, and at least three (3) Banking Days prior to the last day of each Interest Period in respect of such LIBOR Loan, select the Interest Period applicable to such LIBOR Loan commencing on the Drawdown Date, Conversion Date or last day of the Interest Period, as the case may be, and ending on a Banking Day, which period shall be one (1) month, two (2) months or three (3) months, as the Borrower may elect, but not exceeding the Maturity Date. 7.7 Default Interest To the extent permitted under the Interest Act (Canada), if the Borrower defaults in any payment of principal, interest or any other amount due pursuant to this Agreement, or if any other Default occurs under this Agreement, the Borrower shall pay to the Agent for the account of the Lenders (or the Swingline Lender in respect of the Swingline Loan) on demand interest on such overdue principal, interest or other amount, from the date such amount is due until the date it is
- 52 - paid in full, and all interest on overdue principal, all overdue interest and all interest on overdue interest shall be compounded monthly, at the following rates per annum: 7.7.1 with respect to the LIBOR Loan and any LIBOR Advance which is not paid when due, the Borrower shall be deemed to have elected that the amount of principal of such LIBOR Loan or such LIBOR Loan or LIBOR Advance shall thereupon automatically cease to be a LIBOR Loan or a LIBOR Advance and shall be converted into a US Base Rate Advance and the Borrower shall pay interest on all such overdue principal, interest and interest on interest at the US Base Rate plus Level IV of the Applicable Margin plus two percent (2%) per annum; 7.7.2 on overdue principal of, and overdue interest on, the Prime Rate Loan and any other amounts owing in CDollars, including by way of Bankers’ Acceptance, at the Prime Rate plus Level IV of the Applicable Margin plus two percent (2%) per annum; 7.7.3 on overdue principal of, and overdue interest on, the US Base Rate Loan and any other amounts owing in USDollars, at the US Base Rate plus Level IV of the Applicable Margin plus two percent (2%) per annum. 7.8 Determination of Interest Rates 7.8.1 Each determination by the Agent from time to time of the Prime Rate, the US Base Rate, LIBOR, any Discount Rate and any Applicable Margin shall, in the absence of manifest error, be final, conclusive and binding upon the Borrower and the Lenders. 7.8.2 For the purposes of the Interest Act (Canada):
- 53 - 7.9 Acceptance Fee If the Borrower notifies the Agent pursuant to Section 3.3 that a Borrowing, a Conversion Advance or a renewal is to be made by way of Bankers’ Acceptances or BA Equivalent Advances, the Borrower shall pay in CDollars at or prior to the time of the Acceptance of each Bankers’ Acceptance an Acceptance Fee on the face value of each Bankers’ Acceptance accepted by a Lender. The Acceptance Fee shall be computed on the basis of the actual number of days of the Bankers’ Acceptance divided by the actual number of days of the year. 7.10 Standby Fees 7.10.1 In the case of the Credit Facility, the Borrower shall pay to the Agent, on the last Banking Day of each calendar quarter, a Standby Fee calculated on a daily basis on the amount of the unused portion of the Credit Facility during such period at the rate per annum equal to the Applicable Margin for such Standby Fee. 7.10.2 Such Standby Fee shall accrue from day to day and be calculated on the basis of a year of 365 (or 366 in a leap year) days for the actual number of days elapsed. Under no circumstances shall any such Standby Fee be refundable, either in whole or in part, even if no Advance is ever made under the terms hereof. 7.10.3 For purpose of determining the Standby Fee in respect of any unused portion of the Credit Facility, the Equivalent Amount of any Advances in any currency other than CDollars shall be determined by reference to the Bank of Canada noon spot rate (or the rate published by the Bank of Canada around 4:30 p.m. when the Bank of Canada stops publishing noon rate) in effect on the first Banking Day of each calendar month. 7.11 Agency Fee The Borrower agrees to pay the Agent an annual agency fee, payable in advance on the Closing Date and annually on each anniversary date of the Closing Date thereafter during the term of this Agreement, in accordance with the provisions of the Fee Letter. 7.12 Other Fees The Borrower shall pay any other fees set forth in the Fee Letter in accordance with the provisions thereof.
- 54 - ARTICLE 8 BANKERS’ ACCEPTANCES 8.1 Bankers’ Acceptances Subject to the terms and conditions hereof, the Borrower may borrow from the Lenders on any Banking Day up to the amount of the Available Commitment of each Lender, as applicable, by way of Acceptances upon giving to the Agent prior written notice in accordance with Section 3.3, by means of a Notice of Borrowing, and provided that: 8.1.1 each Bankers’ Acceptance is denominated in CDollars and the minimum aggregate amount of each Borrowing by way of Bankers’ Acceptances shall be C$1,000,000 or in integral multiples of C$500,000 in excess of such amount; 8.1.2 each Lender shall have received a Bankers’ Acceptance in the principal amount of such Lender’s proportion of such Borrowing from such Lender in due and proper form duly completed and executed by the Borrower, or by each Lender on its behalf pursuant to the provisions of Section 8.5, and presented for acceptance to such Lender prior to 10:00 a.m. (Montreal time) on the Drawdown Date and the Acceptance Fee shall have been paid to the Agent, for the account of such Lender, at or prior to such time; 8.1.3 each Bankers’ Acceptance shall be stated to mature on a Banking Day no later than the Maturity Date which is approximately twenty-eight (28) to ninety-two (92) days from the date of its Acceptance, the whole subject to market availability; 8.1.4 no Bankers’ Acceptance may be prepaid prior to its maturity date; 8.1.5 no days of grace shall be permitted on any Bankers’ Acceptance; and 8.1.6 the aggregate face amount of the Bankers’ Acceptances to be accepted by a Lender shall be determined by the Agent by reference to such Lender’s respective portion of the Total Commitment, except that, if the face amount of a Bankers’ Acceptance which would otherwise be accepted by a Lender pursuant to a Borrowing would not for any reason be a whole multiple of C$500,000, such face amount shall be increased or reduced by the Agent in its sole discretion to the nearest whole multiple of C$500,000, as appropriate. 8.2 Payments at Maturity and Renewals Prior to the maturity date of each Bankers’ Acceptance, the Borrower shall either (a) give a Notice of Conversion pursuant to the relevant Section hereof to convert such Bankers’ Acceptance into another basis of funding, or (b) by written notice to the Agent, request that the Loan or that part referred to in such notice outstanding by way of Bankers’ Acceptance be renewed in the same form of Borrowing for a term commencing on the maturity date of such Bankers’ Acceptance, and the provisions of this Agreement relating to Bankers’ Acceptances shall apply
- 55 - mutatis mutandis to such renewal. If for any reason the Borrower fails to give a Notice of Conversion or a renewal notice in accordance with the foregoing, it shall be deemed for all purposes to have received on the maturity date of each such Bankers’ Acceptance a Prime Rate Advance in an amount equal to the face value of each such Bankers’ Acceptance (which Banker’s Acceptance shall be repaid with the proceeds of said Prime Rate Advance) and it shall pay interest thereon at the Prime Rate until repayment thereof in full, the whole notwithstanding the fact that any Bankers’ Acceptances may be held by a Lender in its own right at maturity. Thereupon the Borrower acknowledges, agrees and confirms with the Lenders that the records of each Lender in respect of payment of any Bankers’ Acceptance by such Lender shall be binding on the Borrower and shall be conclusive evidence, in the absence of manifest error, of a Prime Rate Advance to the Borrower and of an amount owing by the Borrower to such Lender. The Borrower further agrees that if an Event of Default shall occur prior to the date upon which any Bankers’ Acceptance is issued by the Borrower are payable by a Lender, thereupon the Borrower shall provide such Lender with funds for the full face amount of all such Bankers’ Acceptances, notwithstanding the fact that any such Bankers’ Acceptance may be held by such Lender in its own right at maturity; provided, however, that if for any reason the Borrower fails to make such payment in respect of any Bankers’ Acceptance, thereupon the Borrower shall be deemed for all purposes to have received a Prime Rate Advance in an amount equal to the face amount of such Bankers’ Acceptance and the Borrower shall pay interest thereon at the Prime Rate until repayment thereof in full. 8.3 BA Equivalent Advances In the event a Lender is unable to accept Bankers’ Acceptances, such Lender shall have the right at the time of accepting drafts to require the Borrower to accept an Advance from such Lender in lieu of the issue and acceptance of a Bankers’ Acceptance requested by the Borrower to be accepted so that there shall be outstanding while the Bankers’ Acceptances are outstanding BA Equivalent Advances from such Lender as contemplated herein. The principal amount of each BA Equivalent Advance shall be that amount which, when added to the face amount of interest (calculated at the Discount Rate) which will accrue during the BA Equivalent Interest Period shall be equal, at maturity, to the face amount of the drafts which would have been accepted by such Lender had it accepted Bankers’ Acceptances. The “BA Equivalent Interest Period” for each BA Equivalent Advance shall be equal to the term of the drafts presented for acceptance as Bankers’ Acceptances on the relevant Drawdown Date or Conversion Date. On the relevant Drawdown Date, Conversion Date or renewal date, the Borrower shall pay to the Agent a fee equal to the Acceptance Fee which would have been payable to such Lender if it were a Lender accepting drafts having a term to maturity equal to the applicable BA Equivalent Interest Period and an aggregate face amount equal to the sum of the principal amount of the BA Equivalent Advance and the interest payable thereon by the Borrower for the applicable BA Equivalent Interest Period. The provisions of this Agreement dealing with Bankers’ Acceptances shall apply, mutatis mutandis, to BA Equivalent Advances.
- 56 - 8.4 Purchase of Bankers’ Acceptances Each Bankers’ Acceptance issued pursuant to this Agreement shall be purchased by the Lender accepting such Bankers’ Acceptance for the applicable Discounted Proceeds thereof. In each case, upon receipt of such Discounted Proceeds from the Lenders and upon fulfilment of the applicable conditions set forth in ARTICLE 11, the Agent shall make such funds available to the Borrower in accordance with this Agreement. Upon each issue of Bankers’ Acceptances as a result of the conversion of outstanding Borrowings into Bankers’ Acceptances or renewal of Bankers’ Acceptances, the Borrower shall, concurrently with the conversion, pay in advance to the Agent on behalf of the Lenders, the amount by which the face value of such Bankers’ Acceptances exceeds the Discounted Proceeds of such Bankers’ Acceptances, to be applied against the principal amount of the Borrowing being so converted. The Borrower shall at the same time pay to the Agent the applicable Acceptance Fee. The Borrower acknowledges and agrees that each Lender may, at any time, arrange for its Participant or Eligible Assignee to accept and purchase Bankers’ Acceptances hereunder. Any such acceptance by a Participant or Eligible Assignee shall be deemed to be an Acceptance by such Lender for the purposes of this Agreement. 8.5 Power of Attorney In order to facilitate issuance of Bankers’ Acceptances pursuant hereto, in accordance with the instructions given from time to time by the Borrower, the Borrower hereby authorizes each Lender, and for this purpose appoints each Lender its lawful attorney, to complete and sign Bankers’ Acceptances on its behalf, in handwritten or facsimile or mechanical signature or otherwise, and once so completed, signed and endorsed, and following acceptance of them as Bankers’ Acceptances, to purchase, discount or negotiate such Bankers’ Acceptances in accordance with the provisions of this ARTICLE 8, and to provide the net Discounted Proceeds to the Agent in accordance with the provisions hereof. Drafts so completed, signed, endorsed and negotiated on behalf of the Borrower by any Lender shall bind the Borrower as fully and effectively as if so performed by an authorized officer of the Borrower. Each Lender shall maintain a record with respect to such instruments (i) received by it hereunder, (ii) voided by it for any reason, (iii) accepted by it hereunder, and (iv) cancelled at their respective maturities. Each Lender agrees to provide such records to the Borrower promptly upon request and, at the request of the Borrower, to cancel such instruments which have been so completed and executed and which are held by such Lender and have not yet been issued hereunder. ARTICLE 9 LETTERS OF CREDIT 9.1 Letter of Credit Commitment Subject to the terms and conditions hereof, BNS, as initial Issuing Bank, on behalf of the Lenders, and in reliance on the agreements of the Lenders set forth in Section 9.2 agrees to issue, for the account of the Borrower, Letters of Credit in CDollars, USDollars or any other currency acceptable to the Issuing Bank under the Credit Facility on any Banking Day during the period
- 57 - from the date hereof until the date occurring one month prior to the Maturity Date; provided that the term of any Letter of Credit shall not exceed 364 days or end after the Maturity Date, the Letter of Credit Exposure in respect of such Letters of Credit shall not cause the then Total Commitment to be exceeded, and the Letter of Credit Exposure in respect of such Letters of Credit shall not exceed C$2,500,000 at any time. 9.2 Letter of Credit Participations The Issuing Bank irrevocably grants, and in order to induce the Issuing Bank to issue its Letters of Credit hereunder, each Lender irrevocably accepts and hereby purchases for its own account and risk from the Issuing Bank, on the terms and conditions hereinafter stated, an undivided interest equal to such Lender’s Participation in the Issuing Bank’s obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Bank thereunder. Each Lender unconditionally and irrevocably agrees with the Issuing Bank that, on or before the close of business of the Issuing Bank, on each day on which a draft is paid under a Letter of Credit for which the Issuing Bank is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, including, without limitation, pursuant to Section 9.8.1 (a “Participation Date”), such Lender will pay to the Agent for the account of the Issuing Bank at the Agent’s office specified in Section 10.1 such Lender’s Participation of any unpaid Reimbursement Obligation. This obligation of each Lender is unconditional and, for greater certainty, shall apply both before and after the occurrence of any Default or Event of Default, both before and after the Maturity Date and both before and after the termination or cancellation of the Total Commitment. The Issuing Bank shall notify the Agent and each Lender of the occurrence of a Participation Date, and the amount payable by it to the Issuing Bank based on such Lender’s Participation. Any such notice may be oral if promptly confirmed in writing (including telecopy). If any Lender fails to make any such payment on or prior to the first Banking Day after such Lender receives notice as provided above, then interest shall accrue on such Lender’s obligation to make such payment during the period from such Banking Day to the day such Lender makes such payment (or if earlier, the date on which the Borrower reimburses the Issuing Bank for such unpaid Reimbursement Obligation) at the rate specified in Section 6.1 of the Provisions; such interest shall be payable by such Lender. 9.3 Repayment of Participants Upon and only upon receipt by the Issuing Bank of funds from the Borrower in full or partial reimbursement of any draft paid under a Letter of Credit with respect to which any Lender has theretofore paid the Agent for the account of the Issuing Bank in full for such Lender’s participation pursuant to Section 9.2 and in full or partial payment of interest, commissions or fees on such draft paid under a Letter of Credit, the Issuing Bank will pay to such Lender, in the same funds as those received by the Issuing Bank, or net against any then due obligation of such Lender under Section 9.2 to make any payment to the Issuing Bank, such Lender’s Participation of such funds. 9.4 Role of the Issuing Bank The Issuing Bank will exercise and give the same care and attention to each Letter of Credit as it gives to its other letters of credit and similar obligations, and the Issuing Bank’s sole liability
- 58 - to each Lender shall be to distribute pursuant to Section 9.3 promptly, as and when received by the Issuing Bank, each Lender’s Participation of any payments made to the Issuing Bank by the Borrower. Each Lender agrees that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than as required by such Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of any Person delivering any such document. Neither the Issuing Bank nor any of its representatives, officers, employees or agents shall be liable to any Lender for (a) any action taken or omitted to be taken in connection herewith at the request or with the approval of the Majority Lenders, (b) any action taken or omitted to be taken in the absence of intentional or gross fault, (c) any recitals, statements, representations or warranties contained in any document distributed to any Lender, (d) the creditworthiness of the Borrower, or (e) the execution, effectiveness, genuineness, validity, or enforceability of any Letter of Credit, or any other document contemplated thereby. The Issuing Bank shall not incur any liability (i) by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telecopier or similar writing) believed by it to be genuine or to be signed by the proper party or parties or (ii) by acting as permitted under Section 9.12. The obligations of the Lenders hereunder are joint and not solidary, and no Lender shall be liable for the performance or non-performance of the obligations of any other Lender under this ARTICLE 9. In the event of intentional or gross fault on the part of the Issuing Bank in the payment of any draft under a Letter of Credit, the Issuing Bank shall repay to each Lender any amount paid by such Lender to the Issuing Bank pursuant to Section 9.2. 9.5 Obligations of Each Lender Absolute Each Lender acknowledges that its obligations to the Issuing Bank under this ARTICLE 9, including the obligation to purchase and fund a participation in the obligations and rights of the Issuing Bank under each Letter of Credit and any unpaid Reimbursement Obligation, is absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, (i) the occurrence and continuance of a Default or an Event of Default, (ii) the fact that a condition precedent to the issuance of any Letter of Credit was not in fact satisfied, (iii) any failure or inability of any other Lender to purchase or fund such a participation hereunder, or (iv) any other failure by any other Lender to fulfil its obligations hereunder. Each payment by a Lender to the Issuing Bank for its own account or the Agent for the account of the Issuing Bank shall be made without any offset, compensation, abatement, withholding or reduction whatsoever. 9.6 Reinstatement and Survival Notwithstanding anything herein to the contrary, if the Issuing Bank is required at any time whether before or after the Maturity Date to make any payment under a Letter of Credit which was outstanding on or before the Maturity Date, each Lender shall pay over to the Issuing Bank, in accordance with the provisions of this ARTICLE 9, the amount of such Lender’s Participation of such amount. If the Issuing Bank is required at any time (whether before or after the Maturity Date) to return to the Borrower or to a trustee, receiver, liquidator, custodian or other similar official any portion of the payments made by or on behalf of the Borrower to the Issuing Bank in reimbursement of Reimbursement Obligations and interest thereon, each Lender shall, on demand of the Issuing Bank, forthwith pay over to the Issuing Bank for its account or the Agent for the
- 59 - account of the Issuing Bank such Lender’s Participation of such amount, plus interest thereon from the day such demand is made to the day such amount is returned by such Lender to the Issuing Bank at the rate specified in Section 6.1 of the Provisions. 9.7 Procedure for Issuance and Renewal of Letters of Credit 9.7.1 The Borrower may request the Issuing Bank, with a copy to the Agent, to issue a Letter of Credit under the Credit Facility by delivering to the Issuing Bank a commercial letter of credit application or a standby letter of credit application or a letter of guarantee application, as appropriate, on the Issuing Bank’s then customary form for a commercial letter of credit or standby letter of credit or letter of guarantee, respectively (each such form, as it may be modified from time to time, a “Letter of Credit Application”), completed to the reasonable satisfaction of the Issuing Bank, together with the proposed form of such Letter of Credit (which shall comply with the applicable requirements set forth herein) and such other certificates, documents and other papers and information as the Issuing Bank may reasonably request; provided that in the event of a conflict between this Agreement and the applicable Letter of Credit Application, this Agreement shall govern with respect to such conflict. 9.7.2 Following the date on which the Issuing Bank shall have received a Letter of Credit Application including the form of the Letter of Credit then requested, and such additional certificates, documents and other papers and information as the Issuing Bank may have reasonably requested in satisfaction of all conditions to the issuance thereof, the Issuing Bank shall, provided the conditions of ARTICLE 11 have been complied in all material respects with, issue such Letter of Credit (if the Borrower shall have requested that such Letter of Credit be issued immediately) or (if the Borrower shall have requested in the related Letter of Credit Application that such Letter of Credit be issued at a later date) the Agent shall notify the Borrower that the Issuing Bank shall, provided the conditions of ARTICLE 11 have been complied with in all material respects, issue such Letter of Credit on such later date, or that the Issuing Bank shall not issue such Letter of Credit by reason of a provision set forth herein. 9.7.3 The Borrower may request the extension or renewal for up to 364 days of a Letter of Credit issued for its account hereunder which is not automatically renewed in accordance with the terms contained therein, by giving written notice to the Agent and the Issuing Bank at least ten (10) Banking Days prior to the then current expiry date of such Letter of Credit (provided that the Issuing Bank may accommodate notices on shorter notice in its sole discretion). If the conditions precedent in Section 11.2 shall have been fulfilled as required thereby, the Issuing Bank shall promptly issue such extension or renewal. 9.7.4 Notwithstanding anything to the contrary in this Agreement, the Issuing Bank shall have no obligation to extend or renew any Letter of Credit issued hereunder to a maturity date extending beyond the Maturity Date or at any time when a Default or an Event of Default has occurred and is continuing.
- 60 - 9.7.5 Each Letter of Credit shall be issued upon terms and conditions acceptable to the Issuing Bank and the Borrower. 9.7.6 In the event that on the Maturity Date there are any outstanding Letters of Credit under the Credit Facility, the Borrower shall thereupon provide the Issuing Bank with funds for the full amount of the Letter of Credit Exposure. 9.8 Reimbursement of the Issuing Bank 9.8.1 In the event that any drawing shall be made under any Letter of Credit, and if no Event of Default shall have occurred and be continuing, 9.8.2 In the event that any drawing shall be made under any Letter of Credit and a Default or an Event of Default shall have occurred and be continuing, no Prime Rate Advance or US Base Rate Advance, as applicable, shall be deemed to have been made in respect of such drawing and the Borrower (i) shall reimburse the Issuing Bank for the amount paid on each draft drawn under each Letter of Credit not later than the close of business on the day on which it receives notice of such drawing, and (ii) shall pay, (A) all charges and expenses relating to such drawing as may be payable in accordance with Section 9.9, and (B) interest at the rate specified in Section 9.10 on the amount of such drawing for the period commencing on the date of such drawing and ending on the date reimbursement is received by the Issuing Bank.
- 61 - 9.9 Commissions, Fees and Charges 9.9.1 The Borrower agrees to pay for each Letter of Credit which it has requested to be issued, to (A) the Issuing Bank (solely for the account of the Issuing Bank) a non-refundable fronting fee with respect to each Letter of Credit, in an amount equal to [Redacted] per annum of the face amount thereof, provided that such non-refundable fronting fee shall only be payable to the Issuing Bank with respect to any Letter of Credit while there is more than one (1) Lender under this Agreement during the period when such Letter of Credit is outstanding, and (B) the Agent for the account of each Lender, a non-refundable Letter of Credit Commission, computed at a rate equal to the Applicable Margin with respect to the calculation of Letter of Credit Commission times such Lender’s Participation of the aggregate amount available to be drawn under such Letter of Credit. 9.9.2 Such fronting fee, to the extent payable hereunder, shall be calculated based on the actual number of days elapsed in the period divided by the actual number of days of the year and is payable quarterly in advance, at the rate specified above and in the currency of such Letter of Credit, commencing on the date of issuance of such Letter of Credit and thereafter on the last day of each March, June, September and December so long as such Letter of Credit shall remain outstanding. The Letter of Credit Commission shall be payable quarterly in arrears for the number of days outstanding, at the rate specified above and in the currency of such Letter of Credit, commencing on the last day of each March, June, September and December and on the Maturity Date, so long as such Letter of Credit shall remain outstanding. 9.9.3 The Agent shall promptly distribute, at the end of each calendar quarter, all Letter of Credit Commissions received for the account of each Lender by the Agent during such calendar quarter, together with a statement from the Agent reconciling the collection and distribution of such commissions. 9.10 Interest on Amounts Disbursed under Letters of Credit The Borrower agrees to pay to the Issuing Bank interest on any and all amounts disbursed by the Issuing Bank under any Letter of Credit from the date of disbursement until reimbursed in full at the Prime Rate, if such Letter of Credit was in CDollars, or at the US Base Rate, if such Letter of Credit was in USDollars. Interest accrued hereunder shall be payable on demand. For the purposes of computing the number of days for which interest shall accrue on amounts disbursed under Letters of Credit, payments received by the Issuing Bank after 1:00 P.M., Montréal time, shall be deemed to have been received on the next following Banking Day. All payments (including prepayments) by the Borrower to the Issuing Bank, whether on account of the Borrower’s reimbursement obligation under this Section 9.10 or interest thereon, on account of any fees due hereunder or otherwise, shall be made in the currency of the Letter of Credit and in immediately available funds without set off, compensation or counterclaim to the Issuing Bank.
- 62 - 9.11 Further Assurances The Borrower hereby agrees from time to time, to do and perform any and all acts and to execute any and all further instruments required or reasonably requested by the Issuing Bank to more fully effect the purposes of this ARTICLE 9 and the issuance of the Letters of Credit hereunder. 9.12 Nature of Obligations; Indemnities 9.12.1 The obligations of the Borrower hereunder shall be absolute and unconditional under any and all circumstances and irrespective of any set off, compensation, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Bank or any beneficiary of a Letter of Credit. The Borrower assumes all risks of the acts or omissions of the users of the Letters of Credit and all risks of the misuse of the Letters of Credit. Neither the Issuing Bank, nor any of its correspondents shall be responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document specified in any Letter of Credit Application, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any of the Letters of Credit or any of the rights or benefits thereunder or proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of any draft to bear any reference or adequate reference to any of the Letters of Credit, or failure of anyone to note the amount of any draft on the reverse of any of the Letters of Credit or to surrender or to take up any of the Letters of Credit or to send forward any such document apart from drafts as required by the terms of any of the Letters of Credit; (iv) for error, omissions, interruptions or delays in transmission or delivery of any messages, by mail, email, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for any error, neglect, default, suspension or insolvency of any correspondents of the Issuing Bank; (vi) for error in translation or for errors in interpretation of technical terms; (vii) for any loss or delay, in the transmission or otherwise, of any such document or draft or of proceeds thereof; or (viii) for any other circumstances whatsoever in making or failing to make payment under a Letter of Credit; provided that in each of the circumstances referred to in clauses (i) through (viii) above the Borrower shall have nevertheless and notwithstanding the foregoing a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to indirect, damages suffered by the Borrower which the Borrower proves were caused by the Issuing Bank’s intentional or gross fault. None of the above shall affect, impair or prevent the vesting of any of the rights or powers of the Issuing Bank. 9.12.2 In furtherance and extension and not in limitation of the specific provisions hereinabove in this ARTICLE 9 set forth, (i) any action taken or omitted by the Issuing Bank or by any of its correspondents under or in connection with any
- 63 - of the Letters of Credit, if taken or omitted in good faith and without intentional or gross fault, shall be binding upon the Borrower and shall not put the Issuing Bank or its correspondents under any resulting liability to the Borrower, and (ii) the Issuing Bank may, without intentional or gross fault, accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; provided, that if the Issuing Bank shall receive written notification from both the beneficiary of a Letter of Credit and the Borrower that sufficiently identifies (in the opinion of the Issuing Bank) documents to be presented to the Issuing Bank which are not to be honoured, the Issuing Bank agree that they will not honour such documents. 9.12.3 The Borrower hereby agrees at all times to protect, indemnify and save harmless the Issuing Bank and each Lender participating in a Letter of Credit, from and against any and all claims, actions, suits and other legal proceedings, and from and against any and all losses, claims, demands, liabilities and damages, which it may, at any time, sustain or incur by reason of or in consequence of or arising out of the issuance of any of the Letters of Credit issued for its account (all of the foregoing, collectively, the “indemnified liabilities”), it being the intention of the parties that this Agreement shall be construed and applied to protect and indemnify the Issuing Bank and each Lender participating in a Letter of Credit against any and all risks involved in the issuance of all of the Letters of Credit, all of which risks, whether or not foreseeable, being hereby assumed by the Borrower, including, without limitation, any and all risks of all acts by any Governmental Authority and any and all claims by correspondents used in connection with a Letter of Credit, provided that the Borrower shall not have any obligation hereunder to an indemnified party with respect to indemnified liabilities arising from the intentional or gross fault of such indemnified party. Neither the Issuing Bank nor any Lender shall, in any way, be liable for any failure by it or anyone else to pay a draft drawn under any of the Letters of Credit as a result of any acts, whether rightful or wrongful, of any Governmental Authority or any correspondent used in connection with a Letter of Credit or any other cause not readily within its control or the control of its respective correspondents. Without limiting the generality of the foregoing, the Borrower shall be responsible for, and shall reimburse the Issuing Bank forthwith upon its receipt of any demand therefor, any and all commissions, fees and other charges paid or payable by the Issuing Bank to any foreign lender which shall be an advising lender or a beneficiary of a Letter of Credit which shall, in reliance thereon, have issued its own letter of credit in respect of obligations of the Borrower. 9.13 Payments upon any Event of Default The Borrower agrees that upon the occurrence and during the continuance of any Event of Default, in addition to all its other rights and remedies, the Issuing Bank shall, at the request, or may with the consent of the Majority Lenders, by notice to the Borrower, demand immediate
- 64 - delivery of cash collateral and the Borrower agrees to deliver such cash collateral upon demand, in an amount equal to the maximum amount that may be available to be drawn at any time prior to the stated expiry of all outstanding Letters of Credit issued for the account of the Borrower, provided that such cash collateral shall be immediately due and payable upon the occurrence of any Event of Default described in Section 14.1.8. Such cash collateral shall be deposited in a special cash collateral account to be held by the Issuing Bank as collateral security and as a pledge for the payment and performance of the Borrower’s obligations under this Agreement to the Issuing Bank and the Lenders under the Credit Facility. ARTICLE 10 PAYMENTS, TAXES, EXPENSES AND INDEMNITY 10.1 Payments to Agent Unless otherwise specifically provided for, the Borrower shall make each payment (other than payments in respect of the Swingline Loan) pursuant to this Agreement before 1:00 p.m. (Montreal time) on the day specified for payment. All such payments shall be made by the Borrower in immediately available funds having same day value to, unless otherwise specifically provided for herein, the Agent, for its account or for the account of the Lenders, at the Branch of Account. Whenever a payment is due to be made on a day that is not a Banking Day, the day for payment shall be the following Banking Day. 10.2 Payments to Swingline Lender Unless otherwise specifically provided for, the Borrower shall make each payment due to the Swingline Lender pursuant to this Agreement before 1:00 p.m. (Montreal time) on the day specified for payment. All such payments shall be made by the Borrower in immediately available funds having same day value to the Swingline Lender, for its own account, at the Branch of Account, or at any other office and in the accounts designated from time to time by the Swingline Lender. Whenever a payment is due to be made on a day that is not a Banking Day, the day for payment shall be the following Banking Day. 10.3 Payments by Lenders to Agent All payments to be made by any Lender to the Agent shall be made in immediately available funds having same day value to the Agent, for the Borrower’s account (unless otherwise specified), at the Branch of Account, and at the time designated herein. 10.4 Payments by Agent to Borrower Any payments received by the Agent from the Lenders for the account of the Borrower shall be advanced by the Agent in funds having same day value to the Borrower on the date of receipt, or if such date is not a Banking Day or if received after 1:00 p.m. on a Banking Day, on the next Banking Day, to the Current Account designated in writing from time to time by the Borrower to the Agent.
- 65 - 10.5 Distribution to Lenders Except as otherwise indicated herein, all payments made to the Agent by the Borrower for the account of the Lenders in connection herewith shall be distributed on the same day or, if such day is not a Banking Day or if received after 1:00 p.m. on a Banking Day, on the next Banking Day, by the Agent in funds having same day value among the Lenders to the accounts last designated in writing by the Lenders respectively to the Agent pro rata in accordance with their Participation. 10.6 Currency of Payment Principal, interest and interest on overdue amounts on any LIBOR Loan or US Base Rate Loan payable by the Borrower shall be paid in USDollars and principal, interest and interest on overdue amounts on any Prime Rate Loan and amounts payable in respect of Acceptances shall be paid in CDollars. Letters of Credit denominated in USDollars shall be paid in USDollars, Letters of Credit denominated in CDollars shall be paid in CDollars and Letters of Credit denominated in any other currency shall be paid in CDollars. All other amounts payable by the Borrower under this Agreement shall be payable in CDollars. 10.7 Set-Off The Borrower shall make all payments hereunder regardless of any counterclaim, compensation or set-off. 10.8 Taxes The Borrower shall make all payments required under this Agreement free and clear of, and exempt from, and without deduction for, or on account of, any Tax. 10.9 Application of Payments Before an Event of Default All payments made by or on behalf of the Borrower to the Agent for the account of the Lenders pursuant to this Agreement shall, in each instance prior to the occurrence and continuance of a Default or an Event of Default, be applied by the Agent, as applicable, in the following order: 10.9.1 to amounts due hereunder other than those amounts described in Sections 10.9.2 and 10.9.3; 10.9.2 to amounts due to the Lenders pursuant to ARTICLE 7; and 10.9.3 to repayments of other amounts due in respect of the Loans. 10.10 Application of Payments and Proceeds of Realization of Assets After an Event of Default All payments and proceeds of realization of Collateral received by the Agent after the occurrence and continuance of a Default or an Event of Default shall be applied against the outstanding Obligations in the following order:
- 66 - 10.10.1 in payment of all costs and expenses incurred by the Agent and the Lenders in connection with such realization, including legal, accounting and other professional fees and disbursements; 10.10.2 in payment, on a pari passu basis, of all outstanding Obligations owed to the Agent, the Lenders, the Permitted Hedge Providers and the holders of any Bank Product Debt under the Loan Documents; 10.10.3 if all Obligations have been paid and satisfied in full, any surplus shall be paid to the Borrower, or as otherwise required in accordance with Applicable Law. 10.11 Supplying Documents and Indemnity 10.11.1 Each Obligor shall supply all statements, reports, certificates, opinions, appraisals and other documents or information required to be furnished to the Lenders or the Agent pursuant to this Agreement and the other Loan Documents without cost to any Lender or to the Agent. 10.11.2 Without prejudice to the rights of the Lenders under the provisions of Section 7.7, the Borrower agrees to indemnify each Lender against any loss or expense which it may sustain or incur in obtaining or redeploying deposits as a result of the failure by the Borrower to pay when due any principal of the Loans or for any reason to borrow in accordance with a Notice of Borrowing given by the Borrower, to the extent that any such loss or expense is not recovered pursuant to any other provisions hereof. A certificate of a Lender or the Agent setting forth the basis for the determination of the interest due on overdue principal or interest and of the amounts necessary to indemnify such Lender in respect of such loss or expense, submitted to the Borrower, shall be conclusive and binding for all purposes except in case of manifest error. 10.11.3 Notwithstanding any other provision of this Agreement, if for any reason, including the acceleration of the maturity of the Loans or as a result of the application of Section 3.3 or Section 3.4 of the Provisions, the Borrower repays or converts all or any portion of any LIBOR Loan on a day other than the last day of its then current Interest Period or all or any portion of any Bankers’ Acceptance on a day other than the maturity date thereof, or if the Borrower, after having given a Notice of Borrowing requesting a LIBOR Advance, fails for any reason to effect such Borrowing or fails for any reason to fulfil on or before the Drawdown Date for such Borrowing the applicable conditions precedent set forth in Section 11.2, the Borrower shall on demand pay to the Agent, for the account of each Lender, the amount required to indemnify each Lender for any loss, cost or expense incurred by such Lender as a result of such repayment or conversion or failure to fulfil such conditions including, without limitation, any loss or expense incurred in liquidating or in maintaining or redeploying deposits or other funds obtained by such Lender to fund or maintain an Acceptance or a LIBOR Loan. A certificate of a Lender setting out the basis
- 67 - of the determination of the amount necessary to indemnify it shall, in the absence of manifest error, be conclusive and binding for all purposes. 10.11.4 Notwithstanding any other provision of this Agreement, if for any reason, including the acceleration of the maturity of the Loans or as a result of the application of Section 3.3 or Section 3.4 of the Provisions, a Permitted Hedging Agreement is terminated on a day other than the maturity date thereof, the Borrower shall on demand pay to each Lender party to such Permitted Hedging Agreement the amount required to indemnify such Lender for any loss, cost or expense incurred by it as a result of such early termination. Such indemnity shall be calculated in accordance with the provisions of any applicable ISDA Master Agreement. A certificate of a Lender setting out the basis of the determination of the amount necessary to indemnify it shall, in the absence of manifest error, be conclusive and binding for all purposes. 10.12 Non-Receipt by Agent Without prejudice to the rights of the Agent under Article 6 of the Provisions, where a sum is to be paid hereunder to the Agent for the account of another party hereto, the Agent shall not be obliged to make the same available to that other party hereto until it has been able to establish that it has actually received such sum. 10.13 Survival of Indemnification Obligations Without prejudice to the survival or termination of any other agreement of the Borrower under this Agreement, the obligations of the Borrower under Sections 9.12.3 and 10.11, Sections 3.1 and 3.2 of the Provisions and Article 9 of the Provisions shall survive the execution hereof, the termination of the Credit Facility and the repayment in full of the Loans. ARTICLE 11 CONDITIONS OF LENDING 11.1 Conditions Precedent to the Effectiveness of this Agreement This effectiveness of this Agreement is subject to and conditional upon the prior fulfilment of the following conditions to the satisfaction of the Agent, the Lenders and the Lenders’ Counsel: 11.1.1 The Agent shall have received from the Borrower, the following, each dated as of a date satisfactory to the Lenders and in form and substance satisfactory to the Lenders and the Lenders’ Counsel:
- 68 - 11.1.2 the Lenders shall be satisfied in their entire discretion that no event or circumstance has occurred since February 13, 2020 which could have a Material Adverse Effect other than a Covid-19 Event; 11.1.3 the Agent shall have received such additional financial and other information, certificates and documentation as the Lenders may reasonably request in respect of any Obligor in order for the Lenders to comply with legal and internal requirements in respect of money laundering legislations, proceeds of crime legislation and “know your customer” requirements; 11.1.4 all amounts due and payable by the Borrower, including the legal fees of the Agent and the Lenders, shall have been paid concurrently with the signature of this Agreement; and 11.1.5 the Agent and the Lenders shall have received such other information, certificates and documentation as they may reasonably request
- 69 - 11.2 Conditions Precedent to each Advance The obligation of each Lender to make each Advance (including the initial Advance and any Conversion Advance) hereunder is subject to and conditional upon the prior fulfilment of the following conditions to the satisfaction of the Lenders and of the Agent: 11.2.1 the Agent shall have received, as applicable, a Letter of Credit Application or a Notice of Borrowing prior to any Drawdown Date or a Notice of Conversion prior to any Conversion Date; 11.2.2 on the date of each such Advance or Conversion Advance or of the issuance of each Letter of Credit, as applicable, the following statements shall be true to the satisfaction of the Agent, and the acceptance by the Borrower of the proceeds of such Advance or Conversion Advance or the issuance of such Letter of Credit, as applicable, shall be deemed to constitute a representation and warranty by the Borrower that on the date of such Advance or Conversion Advance or the issuance of a Letter of Credit such statements are true: 11.3 Waiver The terms and conditions of Sections 11.1 and 11.2 are inserted for the sole benefit of the Lenders and may be waived by the Agent on instruction from the Majority Lenders in whole or in part, with or without terms or conditions, in respect of any Advance or Conversion Advance or the issuance of any Letter of Credit, as applicable, without prejudicing the right of the Lenders to assert these terms and conditions in whole or in part in respect of any subsequent Advance or Conversion Advance or any other issuance of a Letter of Credit, as applicable.
- 70 - ARTICLE 12 COVENANTS 12.1 Affirmative Covenants So long as any amount owing under this Agreement or the other Loan Documents remains unpaid or any Lender has any Commitment under this Agreement, and unless consent is given in accordance with Section 16.5, each Obligor covenants and agrees that: 12.1.1 Duly Pay and Perform: it will duly and punctually pay all sums of money due by it under the terms of this Agreement, the other Loan Documents or otherwise at the times and places and in the manner provided for by this Agreement, the other Loan Documents or any other applicable agreement and shall duly and punctually perform and observe in all material respects all other obligations on its part to be performed or observed hereunder or thereunder at the times and in the manner provided for herein or therein; 12.1.2 Payment of Taxes: it will promptly cause to be paid and discharged all lawful Taxes assessed against it or imposed upon its income and profits, or upon any of its Assets, before the same shall become in default, as well as all lawful claims for labour, materials and supplies which, if unpaid, might become a Lien other than a Permitted Lien upon such Assets or any part thereof, provided, however, that it shall not be required to cause to be paid and discharged any such Tax or lawful claims as long as the amount or validity thereof shall be Properly Contested; 12.1.3 Books and Records: it shall at all times keep proper books and records in a manner to allow its financial statements to be prepared in all material respects in accordance with IFRS; 12.1.4 Material Contracts: it shall advise the Agent of the expiry, termination or non- renewal of any Material Contract, except if such expiry, termination or non- renewal could not reasonably be expected to have a Material Adverse Effect; 12.1.5 Permit Inspections: it shall permit the Agent, upon five (5) Banking Days prior written notice or with no prior notice following the occurrence of an Event of Default that has not been waived and at the expense of the Obligors, by its representatives and agents, to visit or inspect any of its Assets no more than twice per year or at such frequency after the occurrence and during the continuance of an Event of Default as the Agent may determine, including, without limitation, corporate books, computer files and tapes and financial records, to examine and make copies of its books of accounts and other financial records and to discuss its affairs, finances and accounts with, and to be advised as to the same by, its senior officers, all at such reasonable times during normal business hours and intervals as the Agent may designate, but subject always to the security requirements of the Obligors in effect from time to time;
- 71 - 12.1.6 Preservation of Corporate Existence and Related Matters: it shall at all times cause to be done all things necessary to preserve and keep in full force and effect its corporate or limited liability company existence, subject to any corporate reorganization which would be required in connection with a Permitted Acquisition and all rights, franchises, licences and privileges necessary to the conduct of its business; conduct its business substantially as presently conducted and qualify and remain qualified as a foreign corporation or limited liability company and authorized to do business in each jurisdiction which requires such qualification and authorization, except where failure to do so could not reasonably be expected to have a Material Adverse Effect; 12.1.7 Operation and Maintenance of Assets: it shall operate, maintain and preserve in good repair, working order and condition (ordinary wear and tear and damage by casualty excepted), all its Assets necessary for the proper conduct of its business, except where failure to do so could not reasonably be expected to have a Material Adverse Effect; 12.1.8 Compliance with Laws, including Environmental Laws; Notices: it shall at all times comply with all Applicable Laws including, without limitation, all Applicable Laws and Environmental Laws of any jurisdiction applicable to it or any of its Assets, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; it will maintain in effect and enforce policies and procedures designed to ensure compliance by US Obligors, their Subsidiaries and their respective directors, officers, employees and agents with all Anti-Corruption Laws, Anti-Money Laundering Laws and applicable Sanctions; it shall provide Agent and the Lenders (i) any information regarding Borrower, each other Obligor, and each of their respective owners, Affiliates, and Subsidiaries necessary for the Agent and each Lender to comply in all material respects with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions; subject however, in the case of Affiliates, to the Borrower’s ability to provide information applicable to them and (ii) without limiting the foregoing, notification of any change in the information provided in the Beneficial Ownership Certification that would result in a change to the list of beneficial owners identified therein; 12.1.9 New Subsidiaries: within fifteen (15) days after any Person having become a Subsidiary, the Borrower shall notify the Agent that such Person has become a Subsidiary (and such notice shall mention any designation of such Subsidiary as a Non-Guarantor Subsidiary, if applicable) and furnish the Agent all details thereof such as name, date and jurisdiction of incorporation, names of shareholders or other owners and percentages of ownership, description of businesses and addresses, and provide an updated Schedule 2.1.22 reflecting such Subsidiary and, shall, within thirty (30) days after such Person having become a Subsidiary, except if such Subsidiary has been designated as a Non- Guarantor Subsidiary, shall cause to be executed and delivered by such Subsidiary to the Agent a Guarantee Agreement and such other Security
- 72 - Documents and other Loan Documents reasonably requested by the Agent consistent with the terms of this Agreement, including an acknowledgement and consent by such Subsidiary to this Agreement, and such other documents or information as the Agent shall reasonably request including, without limitation, officer’s certificates, financial statements, search reports, resolutions, charter documents, legal opinions and any other documents referred to in Section 11.1, all in form and substance reasonably satisfactory to the Agent, the Lenders and Lenders’ Counsel; 12.1.10 Security Documents: it shall ensure at all times that all of its present and future Obligations are fully secured by valid and enforceable first ranking Liens for the benefit of the Agent and the Lenders on its Collateral, subject only to Permitted Liens, as and in the manner required by ARTICLE 13; and do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such additional and future acts, deeds, instruments and assurances as are necessary, or as the Agent or any Lender may reasonably require, to document, consummate and comply with this Section 12.1.10 and ARTICLE 13; 12.1.11 Bank Accounts: in consideration of the Lenders authorizing it to collect its claims until such authorization is withdrawn in accordance with the provisions of the Security Documents, each Obligor shall maintain all of its Canadian bank accounts and other Canadian banking services, including Treasury Management Services for risk management purposes, but excluding commercial credit card and merchant card services, exclusively with the Lenders, provided that, in the event that any such Canadian bank account is held with a Lender other than BNS and in respect of any bank accounts maintained or used by a US Obligor with a US financial institution, such bank accounts shall be subject to an account control agreement to the extent required pursuant to Section 13.1.4, as applicable; 12.1.12 Minimum Value of the Obligors: The Adjusted EBITDA and the total Assets of the Non-Guarantor Subsidiaries shall never represent more than fifteen percent (15%) of (i) the Adjusted EBITDA of the Borrower, or (ii) the total Assets of the Borrower, each on a consolidated basis. 12.1.13 ERISA: in the case of the US Obligors, promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed could reasonably be expected to have a Material Adverse Effect or in the imposition of a Lien against any of its Property, and promptly notify the Agent of the occurrence of any event with respect to any Plan which would result in the incurrence by it of any material liability, fine or penalty, or any material increase in its contingent liability with respect to any post-retirement Welfare Plan benefit which, in all cases, could reasonably be expected to have a Material Adverse Effect.
- 73 - 12.1.14 Patriot Act: in the case of the US Obligors, the Borrower acknowledges and agrees that pursuant to the provisions of the USA Patriot Act (Title III of the Pub. L. 107-56) (the “Patriot Act”), the Agent and any Lender may be required to obtain, verify and record information with respect to the US Obligors; and the Borrower hereby agrees to cooperate with the Agent and each Lender and provide them with all information they may require in order to fulfil their obligations under the Patriot Act; and without limiting the generality of the foregoing, the Borrower agrees to use commercially reasonable efforts to obtain the consent of any of its officers, directors and employees whose consent to the disclosure of any such information is required under applicable privacy legislation in Canada. 12.1.15 Post-Closing Matters: it will take all actions and provide the Agent with the documents listed on Schedule 12.1.15 in form and substance reasonably satisfactory to the Agent, within the delay provided in Schedule 12.1.15 in respect of each action and document. 12.1.16 SBA PPP Loan: The Obligors shall use commercially reasonable efforts to conduct their business in a manner that maximizes the amount of the SBA PPP Loan that is forgiven in accordance with the applicable laws and regulations related to such SBA PPP Loan. 12.1.17 Other Information: furnish to the Agent such other documents, reports and information respecting its condition or operations, financial or otherwise, or its Assets, as the Agent may from time to time reasonably request. 12.2 Financial Covenants 12.2.1 For the period beginning on April 1, 2020 and ending on March 31, 2021 and so long as any amount owing under this Agreement or the other Loan Documents remains unpaid or any Lender has any commitment under this Agreement, and unless consent is given in accordance with Section 16.5, the Borrower shall, as of each testing date set forth below: 12.2.2 For the period up to and including March 31, 2020 and for the subsequent period beginning on April 1, 2021 and so long as any amount owing under this Agreement or the other Loan Documents remains unpaid or any Lender has any
- 74 - commitment under this Agreement, and unless consent is given in accordance with Section 16.5, the Borrower shall, as of each testing date set forth below: 12.2.3 If the Borrower proceeds with a Permitted Acquisition for an amount exceeding $20,000,000, the ratios set forth in Sections 12.2.2.1 and 12.2.2.2 will be increased by 0.50 for a period of twelve months following such Permitted Acquisition. 12.2.4 Each of the ratios described in Section 12.2.2 shall be calculated quarterly on the last day of each full fiscal quarter of the Borrower on a rolling twelve (12) month basis, based on the consolidated financial statements of the Borrower except for the Minimum Liquidity Amount which shall be tested on a monthly basis. 12.2.5 Notwithstanding anything contained in this Agreement, the SBA PPP Loan (other than interest thereon, to the extent not eligible for forgiveness) shall be disregarded for purposes of calculating financial covenants in this Agreement, except that if any portion of the SBA PPP Loan is not forgiven, for purposes of calculating financial covenants in this Agreement, the unforgiven portion (a) will not be disregarded in the calculation of Total Debt, but will be disregarded in the calculation of Senior Debt and (b) will be deemed to have been incurred as of the SBA PPP Loan Date. 12.3 Negative Covenants So long as any amount owing under this Agreement or the other Loan Documents remains unpaid or the Borrower is entitled to borrow under this Agreement, unless consent is given in accordance with Section 16.5, each Obligor covenants and agrees not to: 12.3.1 Debt: create, incur, assume or suffer to exist any Debt, other than Permitted Debt. Notwithstanding anything contained in this Agreement, including any restrictions on the ability of any Obligor to incur Debt, the US Obligors may incur Debt in the form of the SBA PPP Loan. 12.3.2 Liens: create, incur, assume or suffer to exist any Lien on any of its Assets other than Permitted Liens;
- 75 - 12.3.3 Mergers, Etc.: merge or consolidate with any other Person or enter into any transaction or series of transactions (whether by way of reconstruction, reorganization, consolidation, amalgamation, winding up, merger, transfer, sale, lease or otherwise) whereby all or any substantial part of its undertaking or Assets would become the property of any other Person or, in the case of any such amalgamation, arrangement or merger, of the continuing corporation resulting therefrom; nor whereby it acquires all or substantially all of the Assets or business of any other Person; unless, in each case, an Obligor is the surviving entity and: 12.3.4 Disposal of Assets Generally: make any Asset Disposition to any Person (except for any Asset Dispositions to another Obligor) for an aggregate amount exceeding C$2,500,000 during any fiscal year of the Borrower, except if the proceeds of such Asset Disposition are reinvested, or used to repay the Credit Facility, within one hundred and eighty (180) days of such Asset Disposition in accordance with Section 6.1.2, and provided further that if the Asset Disposition to another Obligor relates to substantially all of the property or assets of the transferor, the latter (if not the Borrower) may wind-up or dissolve itself after completion of such disposition. 12.3.5 Acquisitions: make any acquisitions of any majority portion of the Capital Stock of any Person or acquire all or substantially all of the enterprise of a Person or otherwise create or acquire new Subsidiaries, except for (i) Permitted Acquisitions, and (ii) transactions permitted in Section 12.3.3, in each case only
- 76 - if at the time of any such transaction and immediately thereafter there is no Default or Event of Default. Notwithstanding the above, no acquistion shall be done until March 31, 2021 without the Lenders’ prior written consent; 12.3.6 Investments: make any investments in the Capital Stock of any Person for an aggregate amount in excess of C$10,000,000, except for investments (i) in the Capital Stock of a Subsidiary, or (ii) for the purpose or in the context of a Permitted Acquisition (but without duplication), only if at the time of any such transaction and immediately thereafter there is no Default or Event of Default. Notwithstanding the above, no investment in the Capital Stock of any Person shall be done until March 31, 2021 without the Lenders’ prior written consent; 12.3.7 Change in Business: cease its business or change the nature of the Business; 12.3.8 Limitations on Financial Assistance: provide financial assistance in an aggregate amount exceeding C$1,000,000 at any given time during the term of the Credit Facility including by way of advances, loans or guarantees, to any shareholders or directors or any other Person other than (i) to or for the benefit of another Obligor and (ii) to secure performance, warranty and indemnity obligations of any other Obligor or their respective Subsidiaries under or in connection with a contract with any customer of such Obligor or Subsidiary; 12.3.9 Ownership Control: sell, transfer or otherwise dispose of, or permit the sale, transfer or other disposition of Capital Stock of any Obligor unless the transferee is an Obligor or any new Subsidiary who becomes an Obligor after giving effect to the requirements of Section 12.1.9, nor change or permit any Change of Control of any Obligor, unless such Change of Control is in favour of another Obligor or any new Subsidiary who becomes an Obligor after giving effect to the requirements of Section 12.1.9; 12.3.10 Constating Documents: amend, supplement or terminate any constating document of any Obligor or any provision thereof in a manner which may materially and adversely affect the rights and remedies of the Agent or the Lenders under this Agreement or any other Loan Documents; 12.3.11 Financial Year: change the Borrower’s fiscal year; 12.3.12 Transactions with Affiliates, Etc.: directly or indirectly (a) purchase, acquire or lease any Asset from, (b) sell, transfer or lease any Asset to, or (c) permit any of its Subsidiaries to purchase, acquire or lease any Asset from, or sell, transfer or lease any Asset to, any Affiliate of any Obligor, except for:
- 77 - 12.3.13 Compromise of Accounts Receivable: compromise or adjust, or permit any of its Subsidiaries to compromise or adjust, any of its accounts receivable or extend the time for payment thereof or grant any discounts, allowances or credits thereon, in each case other than in the normal course of business; 12.3.14 Business Outside Certain Jurisdictions: have its domicile and head or registered office or any place of business or keep or store, or permit any of its Subsidiaries to have its domicile, chief executive office and head office or any place of business or keep or store, any corporeal Assets outside of those jurisdictions set forth in Schedule 2.1.22, except upon fifteen (15) days’ prior written notice thereof to the Agent and then only if the relevant Obligor has done all such acts and things and executed and delivered all such deeds, transfers, assignments and instruments as the Agent may reasonably require for creating and perfecting a first ranking Lien (subject only to Permitted Liens) for the benefit of the Lenders in its Assets to the satisfaction of the Agent and the Lenders; 12.3.15 Corporate Structure: modify or permit any of its Subsidiaries to modify its issued or authorized Capital Stock nor issue or permit any of its Subsidiaries to issue Capital Stock or any options, warrants or securities convertible into Capital Stock other than to an Obligor or in the context of a Permitted Acquisition; 12.3.16 Hedging Agreements: enter into any Hedging Agreement, other than Permitted Hedging Agreements; 12.3.17 Distributions to Shareholders: declare, make or pay or set aside for payment any dividends upon any of its Capital Stock, or purchase, redeem, retire or otherwise acquire, directly or indirectly, any shares in its Capital Stock, or make any other Distribution among the holders of its Capital Stock, other than: (i) payment of Distributions by an Obligor to another Obligor, or (ii) payment of Distributions by the Borrower to its shareholders, subject to Lenders’ consent , if, as applicable: (a) until March 31, 2021, the Borrower’s Minimum Liquidity Amount is at least equal to $15,000,000 both before and after such Distribution; or (b) from April 1, 2021 and at all times thereafter, the Total Debt to Adjusted EBITDA Ratio is less than 4.50:1 both before and after such Distribution; being understood that notwithstanding the above, no Distributions shall be declared, made or paid at any time where any Default or Event of Default shall
- 78 - have occurred and be continuing or shall exist or would result from such Distributions; 12.3.18 Capital Expenditures: incur any Capital Expenditures in excess of 115% of the annual budget submitted to the Lenders pursuant to Section 12.4.1.4; and 12.3.19 Material Contracts: amend or allow any amendment, modify, restate, supplement, change the terms and conditions of or terminate any Material Contract or waive compliance or fail to comply with any of the terms of any Material Contract except if such action could not reasonably be expected to have a Material Adverse Effect; 12.4 Reporting and Information So long as any amount owing under this Agreement or the other Loan Documents remains unpaid or the Borrower is entitled to borrow under this Agreement, the Borrower shall: 12.4.1 Financial and Other Information: furnish to the Agent: confirming, to the best of his knowledge after reasonable enquiry, compliance by the Obligors with all of the representations and warranties in ARTICLE 2 and the covenants in ARTICLE 12 and certifying that no Event of Default or Default has occurred and is continuing or, if an Event of Default or Default has occurred and is continuing, a
- 79 - statement as to the nature thereof and the action which the Borrower proposes to take with respect thereto; certifying that the financial statements delivered to the Agent fairly present in all material respects the consolidated financial condition of the Borrower as of the date indicated and its consolidated results of operations and cash flows for the period indicated; certifying the minimum value of the Non-Guarantor Subsidiaries and the Obligors in accordance with Section 12.1.12; and setting forth as at the end of the relevant period, in reasonable detail, the amounts and calculations required to determine compliance by the Borrower with the financial covenants set forth in Section 12.2;
- 80 - any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder; a notice of intent to terminate or withdraw from any Plan or any action taken by an Obligor to terminate or withdraw from any Plan; receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor; the complete or partial withdrawal from a Multiemployer Plan that results in liability under Section 4201 or 4204 of ERISA or the receipt of notice from a Multiemployer Plan that it is in reorganization or insolvency or that it intends to terminate or has terminated; the institution of a proceeding by a fiduciary of any Multiemployer Plan to enforce Section 515 of ERISA, which proceeding is not dismissed within thirty (30) days; and the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code, would result in the loss of tax-exempt status of the trust of which such Plan is a part if security has not been provided in accordance with the provisions of these Sections; and
- 81 - the occurrence of any event with respect to any Plan which would result in the incurrence by any US Obligor of any material liability, fine or penalty, or any material increase in the contingent liability of any US Obligor with respect to any post-retirement Welfare Plan benefit. 12.5 Insurance 12.5.1 Insurance: In addition to any and all requirements in any Security Documents, each Obligor shall effect and maintain, at its expense, insurance on its Assets of an insurable nature for the full replacement cost thereof against loss or damage by fire, theft, flood, explosion, sprinklers, collision and such other risks as are customarily insured against by Persons engaged in businesses similar to that of such Obligor in similar locations with such companies, in such amounts and under policies in such form as shall be satisfactory to the Agent. Each Obligor shall also effect and maintain, at its expense, any other insurance as the Agent may require within a sixty (60) days prior notice. Evidence satisfactory to the Agent of such insurance and all renewals and replacements thereof shall be delivered to the Agent forthwith on request, together with evidence of payment of all premiums therefor. Each insurance policy shall contain an endorsement, in form and substance reasonably acceptable to the Agent, showing loss under such insurance policy payable to the Agent and the Attorney, in each case for the benefit of the Lenders, and to the Lenders. Such endorsement, or an independent instrument furnished to the Agent, shall contain a standard mortgage clause, shall provide that the insurance company shall give the Agent at least thirty (30) days written notice before any such policy of insurance is cancelled and that no act, whether wilful or negligent, or default of any Obligor or any other Person shall affect the right of the Agent, the Attorney or any Lender to recover under such policy of insurance in case of loss or damage. Each Obligor hereby directs all insurers under such policies of
- 82 - insurance to pay all proceeds payable thereunder directly to the Agent, the Attorney and the Lenders; provided, however, that prior to the occurrence of an Event of Default, payments by the insurer of any claim in excess of C$1,000,000 shall be made to the joint order of the Agent and the relevant Obligor and payments of any other claim may be made alone to the relevant Obligor, as the case may be. Upon the occurrence of an Event of Default which is continuing, each Obligor irrevocably makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent) as its true and lawful attorney and mandatary for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of such Obligor on any cheque, draft, instrument or other item of payment for the proceeds of such policies of insurance and making all determinations and decisions with respect to such policies of insurance. 12.5.2 Public Liability: Each Obligor shall effect and maintain, at its expense, such public liability and third party property damage insurance as is customary for Persons engaged in businesses similar to that of such Obligor with such companies and in such amounts, with such deductibles and under policies in the form as shall be reasonably satisfactory to the Agent. Evidence of such insurance and all renewals and replacements thereof shall be delivered to the Agent on reasonable request, together with evidence of payment of all premiums therefor. Each such policy shall provide that the insurance company shall give the Agent at least thirty (30) days written notice before any such policy shall be cancelled. 12.5.3 Failure to insure: Should any Obligor at any time or times hereafter fail to obtain or maintain any of the policies of insurance required above or in any of the Security Documents or to pay any premium in whole or in part relating thereto, then the Agent, without waiving or releasing any obligation or default by such Obligor hereunder, may (but shall be under no obligation to) obtain and maintain such policies of insurance and pay such premiums and take such other actions with respect thereto as the Agent deems advisable. All sums disbursed by the Agent in connection with any such actions, including, without limitation, court costs, expenses, other charges relating thereto and reasonable attorneys’ fees, shall be payable on demand by such Obligor to the Agent, for its own account and, until paid, shall bear interest at the Prime Rate, if owing in CDollars, or at the US Base Rate, if owing in USDollars. 12.5.4 Notice of Loss: Each Obligor shall promptly give notice to the Agent of any loss or damage by fire, theft, flood, explosion, sprinklers, collision or otherwise to its Assets where the Assets affected by such loss or damage are worth more than C$1,000,000. 12.5.5 Application of Insurance Proceeds: So long as no Event of Default shall have occurred and continuing, (a) each Obligor shall be entitled to make, settle and adjust claims of less than C$1,000,000 under its policies of insurance, and (b)
- 83 - the Agent agrees that if it receives proceeds of insurance with respect to any damage or loss of Assets it will, at the request of such Obligor, deposit such proceeds to the account of the Borrower and to be dealt with in accordance with the provisions of this Agreement. Upon the occurrence of an Event of Default and for so long as it is continuing, (a) all proceeds of insurance with respect to any damage to or loss of Collateral shall be paid to the Agent, to be applied as the Majority Lenders may, in their sole discretion, decide, (b) each Obligor shall cooperate with the Agent in the making, settlement and adjustment of claims, and (c) any proceeds of insurance received by any Obligor shall be held by it for the benefit and as mandatary of and in trust for the Agent and shall be forthwith paid over to the Agent. 12.5.6 Use of Insurance Proceeds: All proceeds of insurance received by any Obligor shall be used to repair or replace the lost or damaged Assets within a period of time acceptable to the Agent, unless otherwise previously approved in writing by the Majority Lenders. ARTICLE 13 SECURITY DOCUMENTS 13.1 Security Documents 13.1.1 Guarantees: The payment and performance when due of all Obligations of the Borrower shall at all times be guaranteed by each Guarantor by way of an unconditional solidary guarantee agreement in favour of the Agent in form and substance acceptable to the Agent and Lender’s Counsel (a “Guarantee Agreement”). 13.1.2 First Ranking Liens: The payment and performance when due of all Obligations shall at all times be secured by Liens for the benefit of the Agent and the Lenders as follows: 13.1.3 Negative Pledge Agreement: the Agent shall obtain an agreement signed by the Borrower and each of its Subsidiaries located outside Canada and US, whereby
- 84 - such Subsidiaries will undertake not to grant any Lien (other than Permitted Liens) on their Assets without the Lenders’ prior written consent. 13.1.4 Account Control Agreements: the Agent shall have entered into account control agreements with each bank or financial institutions other than BNS maintaining bank accounts held in the name of any Obligor, provided that: 13.1.5 Other Security: The payment and performance when due of all Obligations of the Borrower shall also be secured by such other Security Documents as may be required by the Agent, acting reasonably. 13.2 Provisions in Respect of the Security Documents Each agreement or other document creating, evidencing or relating to the Liens referred to in Section 13.1 shall be in form and substance reasonably satisfactory to the Lenders and the Agent, shall be duly registered, recorded, filed and all other action shall have been taken, in each case so the Liens created, granted or evidenced therein shall constitute valid and enforceable first ranking perfected Liens for the benefit of the Agent, the Attorney and the Lenders on all the Assets stated to be subject thereto, subject to only to Permitted Liens, including (a) in each jurisdiction in which an Obligor granting such Liens shall have its head office or chief place of business, and (b) in each jurisdiction in which any corporeal movable Assets of an Obligor are located. Liens granted by an Obligor for the benefit of the Agent and the Lenders may be granted, at the option of the Lenders, to the Agent, to the Attorney, or to the Lenders or any of them. All Liens under the Security Documents shall be subject to the terms of this Agreement.
- 85 - 13.3 Monetary Claims 13.3.1 Each Obligor and each Lender which, at any time and from time to time, maintains Financial Accounts (as defined below) for the benefit of the Obligors (a “Depositary Lender”), including the Financial Accounts referred to in Schedule 2.1.26, acknowledges and agrees that such Financial Accounts are subject to the Liens granted pursuant to the Security Documents and are under the control of the Agent. As such, and for the purposes of Article 2713.4 of the Civil Code of Québec, each Depositary Lender hereby covenants and agrees to (i) comply with all instructions it receives from the Agent (including in its capacity as hypothecary representative) directing it to transfer, redeem, or permit the withdrawal of any property from any such Financial Account (collectively, “Account Instructions”) without further consent of the relevant Obligor, and (ii) at any time following the occurrence and continuance of a Default or Event of Default, no longer comply with Account Instructions originating from the Obligors. 13.3.2 With respect to any Financial Account maintained by the Agent for the benefit of the Obligors, the parties hereto acknowledge and agree that any such Financial Accounts are subject to the Liens granted pursuant to the Security Documents and are under the control of the Agent. As such, and for the purposes of Article 2713.4 of the Civil Code of Québec, the Obligors acknowledge and agree that at any time following the occurrence and continuance of a Default or Event of Default, the Agent will no longer comply with Account Instructions originating from the Obligors. 13.3.3 The parties hereto acknowledge and agree that (i) the provisions of this Section 13.3 shall constitute a “control agreement” within the meaning of Article 2713.4 of the Civil Code of Quebec, and (ii) the credit balance of each of the Financial Accounts constitutes a “monetary claim” of the applicable Obligor against the applicable Depository Lender within the meaning of Article 2713.1 of the Civil Code of Québec. 13.3.4 Each Depository Lender represents and warrants that it has not entered into an agreement with any person other than the Agent pursuant to which the Depository Lender is obligated to comply with Account Instructions originated from such person in respect of any Financial Account of the Obligors and as such, the Depository Lender has not entered into a “control agreement” (within the meaning of Article 2713.4 of the Civil Code of Québec) in respect of any of the Financial Accounts, other than the provisions hereof. 13.3.5 Notwithstanding this Section 13.3, each Depositary Lender shall have the right, prior to or after any Default or Event of Default, to debit to any account held with the Depositary Lender (including any credit balance therein) or to deduct from funds to be transferred at the direction of the Agent:
- 86 - 13.3.6 The Agent shall reimburse each Depositary Lender for any amount that the Depositary Lender is entitled to debit to any account of the Obligors in accordance with Section 13.3 if there are not sufficient funds in such account (including as a result of the Depositary Lender having complied with any funds transfer instruction from the Agent) or if such account has been closed. The reimbursement obligation of the Agent shall not exceed the aggregate of all amounts transferred further to the Agent’s instructions. In addition, the Agent shall be bound to effectuate a reimbursement only if (i) the Obligor has failed to reimburse the amount concerned within 10 days from a demand sent to the Obligor at its last known address, and (ii) the Depositary Lender has sent to the Agent a demand for reimbursement within 120 days from the last funds transfer made further to instructions from the Agent. 13.3.7 For the purposes of this Agreement, the term “Financial Account” has the meaning ascribed to it in Article 2713.6 of the Civil Code of Québec. 13.3.8 The parties hereby confirm that any activation notice provided for in any deposit account control agreement to transfer any funds held by a Depositary Lender to the Agent shall only be sent after the occurrence of a Default or Event of Default. ARTICLE 14 DEFAULT AND REMEDIES 14.1 Events of Default The occurrence of any of the following events shall constitute an Event of Default under this Agreement: 14.1.1 Default in Payment of Principal of Loans: the Borrower shall fail to make any payment of principal on the Loans when due, whether due by acceleration or otherwise; or
- 87 - 14.1.2 Other Payment Defaults: the Borrower shall fail to make any payment of interest, fees or other amounts (other than a payment referred to in Section 14.1.1) due under this Agreement, or the Borrower fails to make any payment due under any Loan Document, in each case within five (5) Banking Days of its due date, whether due by acceleration or otherwise; or 14.1.3 Inaccurate Representations or Information: any representation, warranty, statement or certificate made or delivered to any Lender or to the Agent in writing or any representation or warranty deemed, pursuant to Section 2.2 or Section 11.2, to have been made to the Agent or any Lender or any financial statement or other information delivered in writing to the Agent or any Lender by any Obligor or any of its officers in, or in connection with, this Agreement is incorrect or misleading in any material respect; or 14.1.4 Default in Certain Covenants: any Obligor shall fail to perform, observe or comply with any of the financial or negative covenants contained in Sections 12.2 or 12.3; or 14.1.5 Default in Other Covenants: any Obligor or any Subsidiary shall fail to perform, observe or comply with any term, covenant or agreement contained in this Agreement or any other Loan Document on its part to be performed, observed or complied with and not specifically dealt with in this Section 14.1 and such failure shall remain unremedied for a period of thirty (30) days following notice thereof by the Agent to the relevant Obligor or Subsidiary; or 14.1.6 Judgment: a final non-appealable judgment or order for the payment of money in excess of C$2,500,000 is rendered against any Obligor and such judgment or order shall continue unsatisfied and unstayed (or shall not have been vacated) for a period of thirty (30) consecutive days; or 14.1.7 Cross-Default to Debt: any Obligor shall fail to pay any of its Debts (other than that Debt referred to in Sections 14.1.1 and 14.1.2), including in respect of any IQ Loan Facility, or any interest or premium thereon, when due (whether at scheduled maturity or by required prepayment, acceleration, demand or otherwise), the amount of which individually or in the aggregate at any time exceeds C$1,500,000 or the Equivalent Amount in another currency and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other default which has not been cured or waived under any agreement or instrument relating to any such Debt, the amount of which individually or in the aggregate at any time exceeds C$1,500,000 or the Equivalent Amount in any other currency, of any Obligor, or any other event shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt, the amount of which individually or in the aggregate at any time exceeds C$1,500,000 or the Equivalent Amount in any other currency, shall be declared to be due and payable, or required to be
- 88 - prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or 14.1.8 Insolvency; Bankruptcy; etc.: any Obligor shall not pay its Debts generally as they become due, or shall admit in writing its inability to pay its Debts generally as they become due, or shall make a general assignment for the benefit of its creditors; or any proceeding shall be commenced or instituted by or against any Obligor seeking to adjudicate it bankrupt or insolvent, or seeking winding-up, reorganization, arrangement, adjustment, dissolution, protection, relief, liquidation or composition of such Obligor on its Debt (including a notice of intention or a proposal under the Bankruptcy and Insolvency Act (Canada)) under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking appointment of a receiver, trustee, sequestrator or other similar official for any Obligor or for any material part of its Assets or seeking the suspension of the operations of any Obligor and, in the case of any such proceeding instituted against any Obligor and in respect of which the relevant Obligor has not by any act indicated its consent to, approval of, or acquiescence in, such proceeding shall remain undismissed for a period of thirty (30) days; or any Obligor shall take corporate action to authorize any of the actions set forth above in this Section 14.1.8; or 14.1.9 Security Documents: any Lien created or intended to be created by any Security Document on any Collateral representing a material portion of the Collateral shall cease to constitute a first ranking Lien on the Assets of the relevant Obligor, subject only to Permitted Liens; or 14.1.10 Exercise of Remedies by Other Creditors: any creditor or other holder of any Lien on all or any part of the Assets of any Obligor, other than the Agent and the Lenders, shall take any action or proceedings, or shall authorize or instruct any other Person on its behalf to take any action or proceedings, to commence any enforcement or realisation under, or exercise or pursue any rights, recourses or remedies under, any agreement or other instrument creating a Lien on any of such Assets, unless in each case such action, proceedings, enforcement or exercise of rights, recourses and remedies is dismissed or withdrawn within thirty (30) days of its commencement, or unless the validity thereof is being Properly Contested and any such action has not proceeded to final non- appealable judgment and any other enforcement or exercise of rights or remedies has not proceeded to a stage where the Assets of the relevant Obligor may be sold or the rights of the Agent and the Lenders in such Assets impaired or reduced in value; or 14.1.11 Seizure, etc.: a seizure or attachment is made of, or enforcement made against, any undertaking or Assets of any Obligor (other than in respect of a Lien contemplated in Section 14.1.10) which Assets in the aggregate have a net book value in excess of C$1,000,000, provided that such seizure, enforcement or taking of possession or control continues in effect and remains undischarged
- 89 - for a period of sixty (60) days, or unless the validity thereof is being Properly Contested; or 14.1.12 Change of Control: there shall occur a Change of Control of any Obligor unless such Change of Control is in favour of another Obligor; or 14.1.13 Material Adverse Effect: any event occurs which could reasonably be expected to have a Material Adverse Effect other than a Covid-19 Event; 14.1.14 Termination of Guarantee: if any Guarantor gives notice to the Agent of the termination of its guarantee of the Obligations or any part thereof; or 14.1.15 ERISA: any US Obligor or any member of its Controlled Group, shall fail to pay when due an amount or amounts aggregating for all such Persons in excess of USD$1,500,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of USD$1,500,000 (collectively, a “Material Plan”) shall be filed under Title IV of ERISA by any US Obligor or any other member of its Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against any US Obligor or any Subsidiary of a US Obligor, or any member of its Controlled Group, to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within sixty (60) days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated. 14.2 Effect of a Default Upon the occurrence and during the continuation of any Event of Default, the Agent shall at the request, or may with the consent, of the Majority Lenders, by notice to the Obligors (i) declare the Credit Facility and the obligation of each of the Lenders to make Advances to the Borrower to be terminated, whereupon the same shall forthwith terminate, and/or (ii) declare the Loans, all interest accrued and unpaid thereon and all other amounts payable by the Obligors under or pursuant to this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Loans, all such accrued interest and all such other amounts shall become and be forthwith immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Obligors. Thereupon the Obligors shall immediately pay to the Agent all such amounts due and payable. In addition to the foregoing, if an Event of Default pursuant to Section 14.1.8 shall occur, the Credit Facility and the obligation of each Lender to make Advances shall automatically be terminated and the Loans, all interest accrued and unpaid thereon and all other amounts payable by the Obligors under or pursuant to this Agreement and the other Loan Documents shall automatically be and become immediately due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Obligors, and thereupon the Obligors shall immediately pay to the
- 90 - Agent all such amounts due and payable. For greater certainty, the Obligors will be considered to be in default of their obligations hereunder by the mere lapse of time provided for performing such obligations, without any requirement of further notice or other act of the Agent or the Lenders unless a notice is specifically required hereunder. If an Event of Default shall have occurred and be continuing, the Lenders and/or the Agent on behalf of itself and the Lenders shall at the request of, or may with the consent of, the Majority Lenders immediately exercise all rights and remedies they may have under this Agreement and the other Loan Documents and by Applicable Law, all without any additional notice, presentment, demand, protest, notice of dishonour and enter into possession of any of the Collateral, or any other action, of all of which are expressly waived by the Obligors. 14.3 Remedies Cumulative; No Waiver For greater certainty, it is expressly understood and agreed that the rights and remedies of the Lenders and the Agent under this Agreement and the other Loan Documents are cumulative and are in addition to, not in substitution for, any rights or remedies provided by Applicable Law; no failure on the part of the Lenders or the Agent to exercise, and no delay in exercising, any right or remedy hereunder or thereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Lenders or the Agent of any right or remedy for a default or breach of any term, covenant, condition or agreement herein contained prejudice or preclude any other or further exercise thereof or the exercise of any other right or remedy for the same or any other default or breach and shall not waive, alter, affect or prejudice any other right or remedy. 14.4 Set-Off (a) In addition to, and not in limitation of, any rights now or hereafter granted under Applicable Law, the Agent and the Lenders are hereby expressly authorized (but not obliged), at any time or from time to time, upon the occurrence and during the continuation of an Event of Default, to set off or compensate and to appropriate and to apply any and all deposits, general or special, matured or unmatured, and any other indebtedness at any time held by or owing by the Agent or any Lender to, or for the credit of, or the account of, the Borrower or any other Obligor against and on account of the obligations and liabilities of the Borrower or the other Obligors due and payable to the Agent and the Lenders under this Agreement and the other Loan Documents including, without limitation, all claims of any nature or description arising out of, or connected with, this Agreement and the other Loan Documents, irrespective of whether or not any demand therefor has been made and although such obligations and liabilities of, or claims against, the Borrower and the other Obligors are contingent or unmatured. The Agent shall upon any such set- off, compensation or appropriation give notice thereof to the Borrower. (b) If an Event of Default has occurred and is continuing, the provisions of ARTICLE 4 of the Provisions shall apply.
- 91 - ARTICLE 15 JUDGMENT CURRENCY 15.1 Judgment Currency 15.1.1 If for any purpose, including the obtaining of judgment in any court, it is necessary to convert a sum due hereunder from the currency in which it is payable (the “Payment Currency”) into another currency (the “Judgment Currency”), the parties hereto agree, to the fullest extent that they may lawfully and effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Agent could purchase the Payment Currency with the Judgment Currency in the New York foreign exchange market on the Banking Day preceding the date of final judgment or other determination. 15.1.2 The obligation of the Obligors in respect of any sum due from any of them to the Lenders or the Agent hereunder shall, notwithstanding any judgment or payment in a currency other than the Payment Currency, be discharged only to the extent that on the Banking Day following receipt by the Agent of any sum so paid or adjudged to be so due in the Judgment Currency the Agent may in accordance with normal banking procedures, purchase the Payment Currency with the amount of the Judgment Currency so paid or adjudged to be due; if the amount in the Payment Currency so purchased is less than the sum originally due to the Lenders and the Agent in the Payment Currency, the Obligors agree, as a separate obligation and additional cause of action and notwithstanding any such payment or judgment, to indemnify the Lenders and the Agent against such loss and if the amount in the Payment Currency so purchased exceeds the sum originally due to the Lenders and the Agent in the Payment Currency, the Lenders and the Agent agree to remit to the Obligors such excess. 15.1.3 The term “rate of exchange” in this Section 15.1 means the spot rate at which the Agent, in accordance with normal practices, is able on the relevant date to purchase the Payment Currency with the Judgment Currency and includes any premium and costs of exchange payable in connection with the purchase. ARTICLE 16 MISCELLANEOUS 16.1 Appointment of Hypothecary Representative Each Lender confirms the appointment and designation of The Bank of Nova Scotia (or any successor thereto) as the hypothecary representative (“fondé de pouvoir”) of the Lenders within the meaning of Article 2692 of the Civil Code of Québec for the purposes of holding the hypothecary security under each deed of hypothec to be granted by an Obligor under the laws of the Province of Québec pursuant hereto and, in such capacity, the Attorney shall hold the hypothecs granted under the laws of the Province of Québec as such hypothecary representative for all present and future Lenders in the exercise of the rights conferred thereunder. Each future
- 92 - Lender that becomes a party to this Agreement, by becoming a party to this Agreement, shall be deemed to have ratified and confirmed the appointment of the Attorney as hypothecary representative. 16.2 Deliveries, etc. As between the Obligors, on the one hand, and the Agent and the Lenders, on the other hand: 16.2.1 all statements, certificates, consents and other documents which the Agent purports to deliver to the Obligors or any of them on behalf of the Lenders shall be binding on each of the Lenders, and no Obligor shall be required to ascertain or confirm the authority of the Agent in delivering such documents; 16.2.2 all certificates, statements, notices and other documents which are delivered by the Obligors or any of them to the Agent in accordance with this Agreement shall be deemed to have been duly delivered to each of the Lenders; 16.2.3 all payments which are delivered by the Obligors or any of them to the Agent in accordance with this Agreement shall be deemed to have been duly delivered to each of the Lenders. 16.3 Assignment by the Obligors No Obligor shall have the right to assign any of its rights or obligations hereunder or any interest herein without the prior written consent of all the Lenders. 16.4 Amendments to Article 7 of the Provisions The Agent and the Lenders may amend any provision in Article 7 of the Provisions without prior notice to or the consent of any Obligor, and the Agent shall provide a copy of any such amendment to the Obligors reasonably promptly thereafter; provided however if any such amendment would adversely affect any rights, entitlements, obligations or liabilities of the Obligors (other than in a de minimus manner), such amendment shall not be effective until the Obligors provide their written consent thereto, such consent not to be unreasonably withheld or arbitrarily delayed. 16.5 Decision-Making 16.5.1 Neither this Agreement nor any other Loan Documents nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing, signed by the Majority Lenders or the Agent on their behalf and the Borrower; provided that no such change, waiver, discharge or termination shall, without the consent of each Lender:
- 93 - 16.5.2 Partial Release: The Agent and the Attorney may from time to time, without notice to or the consent of the Lenders, execute and deliver partial releases of the Security Documents from time to time in respect of any item of Collateral to the extent expressly permitted in this Agreement or in respect of Collateral having an aggregate value (as disclosed to the Agent in writing by the Obligor which is the owner thereof) of less than C$1,000,000 in any fiscal year of the Borrower. 16.5.3 Approval by Majority Lenders: Except for the matters described in Sections 16.5.1 and 16.5.2 and subject to any other provision of this Agreement which specifically requires the consent of each Lender for a matter, any action to be taken or decision to be made by the Lenders pursuant to this Agreement (specifically including, for greater certainty, the issuance of a demand for payment of the Obligations or the provision of any waiver in respect of a breach of any covenant) shall be effective if approved by the Majority Lenders pursuant to Article 7 of the Provisions; and any such decision or action shall be final and binding upon all the Lenders. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver, consent, discharge or termination hereunder, except that the portion of the Total Commitment of such Lender may not be increased or extended without the consent of such Lender.
- 94 - 16.6 Severability Any provision of this Agreement which is or becomes prohibited or unenforceable in any jurisdiction shall not invalidate, affect or impair the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction does not invalidate or render unenforceable any such provision in any other jurisdiction. 16.7 Direct Obligation Notwithstanding any other provision hereof, the Borrower shall be obligated directly towards each Lender in respect of its Participation, as well as any other amounts which may be payable by the Obligors to such Lender pursuant to or in connection with this Agreement, any other Loan Document or any Borrowings. The obligations of each Lender are independent from one another, are not solidary, and may not be increased, reduced, extinguished or otherwise affected due to the default of another Lender pursuant hereto. Any default of any party hereto in the performance of its obligations shall not release any of the other parties hereto from the performance of any of their respective obligations. 16.8 Sharing of Information Each Obligor agree that the Agent and the Lenders may share amongst themselves and their respective Affiliates any information which any of them may possess concerning any Obligor in respect of its undertakings, obligations or indebtedness towards any Lender pursuant to this Agreement, the other Loan Documents or otherwise, as well as any payment received from any Obligor by any Lender. Without limiting the generality of the foregoing, the Agent may disclose to any Lender and any Obligor any information contained in any notices, consents, certificates, documents or other instruments or writings delivered to it under or pursuant to this Agreement or any other Loan Document. 16.9 Use of Credit The Borrower acknowledges that any Loan and other financial assistance hereby provided is for the exclusive use of the Borrower and the other Obligors and can only be used for their legitimate business purposes. 16.10 Term of Agreement This Agreement shall continue in full force and effect until the Total Commitment of the Lenders is terminated and all Obligations of the Obligors have been indefeasibly paid and satisfied in full. 16.11 Further Assurances The Obligors agree to do, execute, acknowledge, deliver, or cause to be done, executed, acknowledged or delivered, all such further acts, deeds, documents, opinions and assurances as may be reasonably requested by the Agent or any Lender from time to time during the term hereof for the purpose of effecting the transactions contemplated hereby and by the Loan Documents.
- 95 - 16.12 Standard Provisions The model credit agreement provisions set forth in Schedule 16.12 form part of this Agreement. For the purposes of Schedule 16.12, the following shall apply: 16.12.1 The amount referred to in Section 10.2(f) of the Provisions is C$5,000; 16.12.2 The Province referred to in Sections 11.1 and 11.2 of the Provisions is the Province of Québec; and 16.12.3 The following sentence is added at the end of Section 7.1 of the Provisions: For greater certainty, the Administrative Agent, as part of its duties as Administrative Agent, is hereby appointed and shall serve as the hypothecary representative of the Lenders and the Issuing Bank pursuant to Article 2692 of the Civil Code of Québec for the purposes of any deed of hypothec granted after the date hereof by any Obligor. 16.13 Whole Agreement This Agreement, the other Loan Documents, the Fee Letter and any amendment or supplement thereto entered into in writing between the parties hereto constitute the whole agreement between the parties hereto in respect of the Credit Facility. 16.14 Termination of Benchmark Rates In the event that LIBOR ceases to be made available, then the Borrower and the Agent shall enter into discussions with a view to determining a comparable successor or alternative interbank rate for deposits in USDollars that is, at such time, broadly accepted as the prevailing market practice for syndicated leveraged loans of this type; provided that, if such alternative rate of interest shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement. Upon the Borrower and the Agent agreeing on such a rate, the Borrower and the Lenders party hereto shall enter into documentation to amend the provisions hereof to refer to such rate and make all other adjustments incidental thereto. The parties hereto agree that such amendment shall require the consent of the Majority Lenders. Until an alternative rate of interest shall be determined in accordance with this Section 16.14, (x) any notice requesting to convert or continue any Loan as a Libor Loan shall be ineffective, and (y) the Borrower may repay or convert any Libor Loan then outstanding in accordance with Section 3.5 of the Provisions, which shall apply mutatis mutandis. 16.15 No Novation Upon the date hereof, the indebtedness and other liabilities of the Obligors previously governed by the Original Credit Agreement shall continue in full force and effect, but shall be governed by the terms and conditions set forth in this Agreement. Such liabilities, together with any and all additional liabilities incurred by such Obligors hereunder or under any of the other
- 96 - Loan Documents, shall continue to be secured by the Security Documents. The execution and delivery of this Agreement shall not constitute a novation or repayment of the indebtedness outstanding under the Original Credit Agreement, all of which indebtedness continues to be obligations secured under the Security Documents. Each Obligor hereby acknowledges and agrees that any and all references in any Loan Document to the Original Credit Agreement shall be deemed to be amended to refer to this Agreement, as further amended, supplemented or restated from time to time. Each Obligor hereby reaffirms its obligations, liabilities and indebtedness arising under each of the Loan Documents existing on the date hereof to which it is a party, in each case after giving effect to the provisions of the preceding sentence, and confirms that each Loan Document to which it is a party remains in full force and effect. 16.16 Language The parties hereby confirm their express wish that this Agreement and all documents and agreements directly and indirectly related thereto, including notices, be drawn up in English. Notwithstanding such express wish, the parties agree that any of such documents, agreements and notices or any part thereof or of this Agreement may be drawn up in French. Les parties reconnaissent leur volonté expresse que la présente convention ainsi que tous les documents et conventions qui s’y rattachent directement ou indirectement, y compris les avis, soient rédigés en langue anglaise. Nonobstant telle volonté expresse, les parties conviennent que n’importe quel desdits documents, conventions et avis ou toute partie de ceux-ci ou de cette convention puissent être rédigés en langue française. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives thereunto duly authorized as of the date first above written. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGES AND SCHEDULES FOLLOW.] 112246257:V9
- S1 - Borrower: Address for notices to the Borrower and each ALITHYA GROUP INC. Guarantor: Prior to June 19, 2020: By: (s) Authorized Signing Officer_______ 700 de la Gauchetière Street West, Suite 2400, Name: Montréal, QC, H3B 5M2 Title: As of June 19, 2020: 1100, Robert-Bourassa Boulevard, Suite 400 Montréal, QC, H3B 3A5 Attention: President & CEO Telecopier: 514-221-2204 Signature page Amended and Restated Credit Agreement Alithya Group Inc.
- S2 - Guarantors: ALITHYA USA, INC. By: (s) Authorized Signing Officer _ Name: Title: ALITHYA CANADA INC. By: (s) Authorized Signing Officer _ Name: Title: ALITHYA FINANCIAL SOLUTIONS, INC. By: (s) Authorized Signing Officer _ Name: Title: ALITHYA RANZAL, INC. By: (s) Authorized Signing Officer __ Name: Title: Signature page Amended and Restated Credit Agreement Alithya Group Inc.
- S3 - ALITHYA FULLSCOPE SOLUTIONS, INC. By: (s) Authorized Signing Officer _ Name: Title: ALITHYA CONSULTING INC. By: (s) Authorized Signing Officer __ Name: Title: ALITHYA DIGITAL TECHNOLOGY CORPORATION By: (s) Authorized Signing Officer __ Name: Title PRO2P SERVICES CONSEILS INC. By: (s) Authorized Signing Officer __ Name: Title: Signature page Amended and Restated Credit Agreement Alithya Group Inc.
- S4 - ALITHYA SOLUTIONS CANADA INC. By: (s) Authorized Signing Officer __ Name: Title ALITHYA ZERO2TEN, INC. By: (s) Authorized Signing Officer __ Name: Title ALITHYA TRAVERCENT LLC By: (s) Authorized Signing Officer __ Name: Title ALITHYA ASKIDA CONSULTING SERVICES INC. By: (s) Authorized Signing Officer __ Name: Title Signature page Amended and Restated Credit Agreement Alithya Group Inc.
- S5 - ALITHYA ASKIDA SOLUTIONS INC. By: (s) Authorized Signing Officer __ Name: Title: Signature page Amended and Restated Credit Agreement Alithya Group Inc.
- S6 - Address for notices: Administrative Agent: THE BANK OF NOVA SCOTIA, The Bank of Nova Scotia as Administrative Agent Global Wholesale Operations 720 King St. West, 2nd Floor Toronto, ON M5V 2T3 By: (s) Authorized Signing Officer _ Attention: Senior Manager Name Title: Email: GWSLoanOps.CdnAgency@scotiabank.com By: (s) Authorized Signing Officer __ and to: Name Title: In the case of all matters related to financial reporting, security documentation and credit: The Bank of Nova Scotia Loan Syndications 55th Floor, Scotia Plaza 40 King St. West Toronto, ON M5H 1H1 Attention: Head of Agency Service Email: agency.services@scotiabank.com Signature page Amended and Restated Credit Agreement Alithya Group Inc.
- S7 - Lenders: Address for notices: THE BANK OF NOVA SCOTIA The Bank of Nova Scotia 1002 Sherbrooke Street West By: (s) Authorized Signing Officer __ Suite 250 Name Montréal, QC H3A 3L5 Title: Attention: Director and Head, National Accounts, Québec By: (s) Authorized Signing Officer __ Name Title: Email: peter.clair@scotiabank.com Signature page Amended and Restated Credit Agreement Alithya Group Inc.
- S8 - Address for notices: FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC By: (s) Authorized Signing Officer _ Name Attention: Title: Email: By: (s) Authorized Signing Officer __ Name Title: Signature page Amended and Restated Credit Agreement Alithya Group Inc.
Schedule 1.1.2 ADJUSTED EBITDA CALCULATION This schedule has been added to calculate the Adjusted EBITDA for a specific reference period, and will be reported if applicable in Schedules I, II and III : Date of the calculation : _____________ (In thousands of C$) Q[●] Q[●] Q[●] Q[●] TTM 1 Net Income: $ B1 Plus (minus) the following items : 2 Total interest expense; interest $ B2 or dividend income; income taxes (whether or not deferred); depreciation and amortization; unrealized foreign exchange gain or loss; 3 any gain or loss attributable to $ B3 the sale, conversion or other disposition of property out of the ordinary course; 4 gains resulting from the write- $ B4 up of property and losses resulting from the write-down of property (except allowances for doubtful accounts receivable); 5 non-cash expense attributable $ B5 to compensating directors, officers and employees of the Borrower through the issuance of equity interests or options or rights to equity interests of the Borrower: 6 amounts that are attributable to $ B6 persons other than Guarantors or to minority interests in Guarantors;
- 2 - 7 upfront, underwriting, agency, $ B7 investment banking, legal and accounting fees incurred by the Borrowers as they relate to Permitted Acquisitions with all items subject to Lenders’ consent; 8 any other item arising from an $ B8 event or transaction that (a) possesses a high degree of abnormality and is of a type clearly unrelated to, or only incidentally related to, ordinary course activities of the Borrower, (b) is not reasonably expected to recur in the foreseeable future, and (c) does not depend primarily on decisions or determinations by management or owners of the Borrower in each case taking into account the environment in which the Borrower operate, with all items subject to Lenders’ consent. 9 Non-recurring costs related to $ B9 severance, ERP implementation and other costs 10 Adjusted EBITDA (sum of B1 $ B10 plus B2 to B9):
Schedule 1.1.45 Compliance Certificate The Bank of Nova Scotia, as Agent Global Wholesale Operations 720 King St. West, 2nd Floor Toronto, ON M5V 2T3 Attention: Senior Manager Email: GWSLoanOps.CdnAgency@scotiabank.com Dear Sirs: I, the undersigned being the duly appointed [chief financial officer/treasurer] of Alithya Group inc. (the “Borrower”), do hereby certify to the Agent and the Lenders, solely in such capacity and without personal liability, that: 1. This certificate is delivered pursuant to the amended and restated credit agreement dated as of June 18, 2020 among Alithya Group inc., as Borrower, each of the guarantors identified therein, as Guarantors, the financial institutions from time to time parties thereto, as Lenders, and The Bank of Nova Scotia, as Administrative Agent (as amended, supplemented, replaced, restated or otherwise modified, the “Credit Agreement”). Unless otherwise defined herein, all capitalized terms appearing in this certificate (including its Schedule I, II and III) which are defined in the Credit Agreement shall have the meanings assigned to such terms in the Credit Agreement; 2. I am familiar with and have examined the provisions of the Credit Agreement (including, without limitation, the financial covenants and ratios set forth in Article 12.2 thereof and the representations, warranties and other covenants set forth in the Credit Agreement), and I have made all appropriate investigations of the records of the Obligors and have asked all questions to the other executives and officers of the Obligors as I have deemed necessary or useful to allow me to give this certificate knowledgeably; 3. Based on the foregoing, the calculations set forth below (on a consolidated basis) are true and correct and have been made in accordance with the Credit Agreement; 4. The Adjusted EBITDA calculations set forth in Schedule 1.1.2 are hereby attached; 5. The period to which the following calculations and details relate commenced on and ended on (the “Reference Period”): 5.1 Senior Debt to Adjusted EBITDA Ratio [to be included in certificates delivered in respect of each financial quarter of the Borrower ending after April 1, 2021] I hereby certify to the Lenders and the Agent that the Borrower is in compliance with Section 12.2.2.1 of the Credit Agreement. At the end of the Reference Period,
- 2 - the said ratio was _____:1.00, the whole as more fully appears from Schedule I hereto. 5.2 Total Debt to Adjusted EBITDA Ratio [to be included in certificates delivered in respect of each financial quarter of the Borrower ending after April 1, 2021] I hereby certify to the Lenders and the Agent that the Borrower is in compliance with Section 12.2.2.2 of the Credit Agreement. At the end of the Reference Period, the said ratio was _____:1.00, the whole as more fully appears from Schedule II hereto. 5.3 Fixed Charge Coverage Ratio [to be included in certificates delivered in respect of each financial quarter of the Borrower ending after April 1, 2021] I hereby certify to the Lenders and the Agent that the Borrower is in compliance with Section 12.2.2.3 of the Credit Agreement. At the end of the Reference Period, the said ratio was :1.00, the whole as more fully appears from Schedule III hereto. 5.4 Quarterly EBITDA [to be included in certificates delivered in respect of the financial quarters ending on June 30, 2020, September 30, 2020, December 31, 2020 and March 31, 2021] I hereby certify to the Lenders and the Agent that the Borrower is in compliance with Section 12.2.1.1 of the Credit Agreement. At the end of the Reference Period, the Adjusted TTM EBITDA was ________________. 6. During the current fiscal year, the Obligors conducted one or more Asset Disposition for a combined aggregate amount of C$_______________ which does not exceed the sum of C$2,500,000. 7. I hereby certify, to the best of my knowledge, after reasonable enquiry, that the Obligors comply with the covenants in ARTICLE 12 of the Credit Agreement as of the date hereof and that all representations and warranties of the Obligors set out in the Credit Agreement and in any other Loan Documents are true and correct as of the date hereof. 8. I hereby certify that I have no knowledge of any Default or Event of Default that has occurred and is continuing. 9. The financial statements of the Borrower for the Reference Period are delivered to the Agent together with this Certificate in accordance with the Credit Agreement. Such financial statements present fairly and in all material respects the financial condition of the Borrower as at the dates of such financial statements and the results of the operations of the Borrower for the periods covered by such financial statements, all in accordance with IFRS consistently applied (subject to normal year end adjustments and lack of footnote disclosure in the case of interim financial statements).
- 3 - 10. I hereby certify that the Adjusted EBITDA and the total Assets of the Non-Guarantor Subsidiaries hereby represent ____ percent (____%) of (i) the Adjusted EBITDA of the Borrower, and (ii) ____ percent (____%) of the total Assets of the Borrower, each on a consolidated basis. I hereby certify that the Adjusted EBITDA and the total Assets of the Obligors hereby represent ____ percent (____%) of (i) the Adjusted EBITDA of the Borrower, and (ii) ____ percent (____%) of the total Assets of the Borrower, each on a consolidated basis. 11. I hereby certify that the information and disclosures provided in all of the schedules to the Credit Agreement, as previously updated or corrected, are true and complete in all respects.
- 4 - Dated this _________ day of __________________, 20____. ALITHYA GROUP INC. By:____________________________________ Name: Title:
- 5 - SCHEDULE I SENIOR DEBT TO ADJUSTED EBITDA RATIO 1. Senior Debt : C$ (1) Cash in BNS Current Accounts C$ (2) 2. or in accounts under Deposit Accounts Control Agreements (not exceeding C$5,000,000) 3. (1) - (2) C$ (3) 4. Adjusted EBITDA : C$ (4) 5. Ratio of line (3) to (4): :1.00 (5)
- 6 - SCHEDULE II TOTAL DEBT TO ADJUSTED EBITDA RATIO 1. Total Debt : C$ (1) Cash in BNS Current Accounts C$ (3) 2. or in accounts under Deposit Account Control Agreements (not exceeding C$5,000,000) 3. (1)+ (2) C$ (3) 4. Adjusted EBITDA : C$ (4) 5. Ratio of line (3) to (4): :1.00 (5)
- 7 - SCHEDULE III FIXED CHARGE COVERAGE RATIO 1. Adjusted EBITDA for the past twelve $ (1) (12) months: 2. Cash income taxes paid during the $ (2) past twelve (12) months: 3. Distributions paid during the past $ (3) twelve (12) months: 4. Unfunded Capital Expenditures for $ (4) the past twelve (12) months: 5. Add lines (2), (3) and (4): $ (5) 6. Subtract line (5) from line (1): $ (6) 7. Principal repayments on Total Debt $ (7) for past twelve (12) months: 8. Interest Expense for past twelve (12) $ (8) months: 9. Add lines (7) and (8) $ (9) 10. Ratio of line (6) to (9): :1.00 (10) Line (10) ratio must not be less than 1.25:1.00.
Schedule 1.1.169 Total Commitment Name Facility A Commitments and Participations 1. The Bank of Nova Scotia C$45,000,000 75 % 2. Fédération des Caisses C$15,000,000 Desjardins du Québec 25 %
Schedule 1.1.78 List of Guarantors 1. Alithya Canada Inc. 2. Alithya USA, Inc. 3. Alithya Financial Solutions, Inc. 4. Alithya Fullscope Solutions, Inc. 5. Alithya Consulting Inc. 6. Pro2P Services Conseils Inc. 7. Alithya Ranzal, LLC 8. Alithya Digital Technology Corporation 9. Alithya Solutions Canada Inc. 10. Alithya Zero2 Ten, Inc. 11. Alithya Travercent LLC 12. Alithya Askida Consulting Services Inc. 13. Alithya Askida Solutions Inc.
Schedule 1.1.111 Material Contract Nil
Schedule 1.1.118 Notice of Borrowing TO: The Bank of Nova Scotia, as Agent Global Wholesale Operations 720 King St. West, 2nd Floor Toronto, ON M5V 2T3 Attention: Senior Manager Email: GWSLoanOps.CdnAgency@scotiabank.com Gentlemen: We refer to the amended and restated credit agreement dated as of June 18, 2020 (the “Credit Agreement”) among Alithya Group inc., as Borrower, each of the guarantors identified therein, as Guarantors, the financial institutions from time to time parties thereto, as Lenders, and The Bank of Nova Scotia, as Administrative Agent, and hereby: 1. give you notice, irrevocably, that the Borrower hereby requests a Borrowing under the Credit Agreement, in the aggregate amount of C$___________________ plus US$__________________ to be made on _________________________, ____, consisting of: (a) C$_______________________ by way of Prime Rate Advances; (b) C$_______________________ by way of Acceptances and we hereby select the Bankers’ Acceptances or BA Equivalent Advances shall mature on , ; (c) US$______________________ by way of US Base Rate Advance; (d) US$_____________________ by way of LIBOR Advances and we hereby select an initial Interest Period of ___________________ in respect of each LIBOR Loan Portion. 2. confirm that the Lenders are to make the Borrowing available in accordance with Article 3 of the Credit Agreement. 3. confirm that no Default or Event of Default has occurred and is continuing and, without limiting the generality of the foregoing, that all representations and warranties set out in the Credit Agreement and the other Loan Documents are true and correct. The expressions defined in the Credit Agreement shall have the same meaning when used herein as that assigned to them in the Credit Agreement. Dated: ___________________________, ________. Yours truly,
- 2 - ALITHYA GROUP INC. By: Name: Title:
Schedule 1.1.119 Notice of Conversion TO: The Bank of Nova Scotia, as Agent Global Wholesale Operations 720 King St. West, 2nd Floor Toronto, ON M5V 2T3 Attention: Senior Manager Email: GWSLoanOps.CdnAgency@scotiabank.com Gentlemen: We refer to the amended and restated credit agreement dated as of June 18, 2020 (the “Credit Agreement”) among Alithya Group inc., as Borrower, each of the guarantors identified therein, as Guarantors, the financial institutions from time to time parties thereto, as Lenders, and The Bank of Nova Scotia, as Administrative Agent, and hereby: 1. give you notice, irrevocably, that the Borrower hereby requests a Conversion Advance under the Credit Agreement to be made on _____________________, ______, the aggregate Conversion Advances to be as follows: Converted Advance: Conversion Advance (state details of part (a) Prime Rate Advances in CDollars of Loan to be converted) (b) Bankers’ Acceptances and we hereby select USDollars/CDollars_________________ the Bankers’ Acceptances or BA Equivalent Outstanding as: _________________ Advances shall mature on (insert Prime Rate Advances, US Base Rate _________________, ______; Advances, LIBOR Advances or Bankers’ Acceptances) (c) US Base Rate Advance in USDollars; (d) LIBOR Advance in USDollars and we hereby select an initial Interest Period of ____ months in respect of each LIBOR Loan Portion. 2. confirm that the Lenders are to make the Conversion Advance in accordance with the Credit Agreement. 3. confirm that no Default or Event of Default has occurred and is continuing and, without limiting the generality of the foregoing, that all representations and warranties set out in the Credit Agreement and the other Loan Documents are true and correct.
- 2 - The expressions defined in the Credit Agreement shall have the same meaning when used herein as that assigned to them in the Credit Agreement. Dated: ___________________________, ________. Yours truly, ALITHYA GROUP INC. By: Name: Title:
Schedule 1.1.120 Notice of Optional Repayment TO: The Bank of Nova Scotia, as Agent Global Wholesale Operations 720 King St. West, 2nd Floor Toronto, ON M5V 2T3 Attention: Senior Manager Email: GWSLoanOps.CdnAgency@scotiabank.com Gentlemen: We refer to the amended and restated credit agreement dated as of June 18, 2020 (the “Credit Agreement”) among Alithya Group inc., as Borrower, each of the guarantors identified therein, as Guarantors, the financial institutions from time to time parties thereto, as Lenders, and The Bank of Nova Scotia, as Administrative Agent, and hereby give you notice, irrevocably, that the Borrower shall make an optional repayment under the Credit Agreement on __________________, _______, in the aggregate amount of C$_______________ and/or US$_______________. The expressions defined in the Credit Agreement shall have the same meaning when used herein as that assigned to them in the Credit Agreement. Dated: ___________________________, ____. Yours truly, ALITHYA GROUP INC. By: Name: Title:
Schedule 1.1.133.14 Additional Permitted Liens - The hypothecs in favour of Banque de Développement du Canada registered at the register of personal and movable real rights (the “RPMRR”) under numbers 16-0685451-0001, 17-0459371-0001, 18-0356804-0001, respectively guaranteeing the obligations under loans 011501-10, 011501-11 and 011501-12. - The hypothec in favour of Investissement Québec registered at the RPMRR under number 16-0428219-0001.
Schedule 2.1.6 Litigation Nil
Schedule 2.1.12 Real and Immovable Property I. OWNED PROPERTIES [Redacted] II. LEASED PREMISES [Redacted]
Schedule 2.1.14 Intellectual Property [Redacted]
Schedule 2.1.20 Licenses Nil.
Schedule 2.1.21 Withheld Taxes None
Schedule 2.1.22 Subsidiaries Jurisdiction and Shares A) Alithya Group inc. (i) Jurisdiction of organization: Québec (ii) Shareholders: n/a (iii) Jurisdiction of registered office, chief executive office and location of minute books: Québec (iv) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: Share options and deferred share units. (v) Location of places of business and corporeal and tangible Assets: [Redacted] B) Alithya USA, Inc. (i) Jurisdiction of organization: Delaware (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office: Delaware (iv) Jurisdiction of chief executive office: Québec (v) Jurisdiction of location of minute books: New York (vi) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (vii) Location of places of business and corporeal and tangible Assets: [Redacted] C) Alithya Canada Inc. (i) Jurisdiction of organization: Québec (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office, chief executive office and location of minute books: Québec
- 11 - (iv) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (v) Location of places of business and corporeal and tangible Assets: [Redacted] D) Alithya Financial Solutions, Inc. (i) Jurisdiction of organization: Delaware (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office: Delaware (iv) Jurisdiction of chief executive office: Québec (v) Jurisdiction of location of minute books: New York (vi) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (vii) Location of places of business and corporeal and tangible Assets: [Redacted] E) Alithya Ranzal LLC (i) Jurisdiction of organization: Delaware (ii) Shareholders/Members: [Redacted] (iii) Jurisdiction of registered office: Delaware (iv) Jurisdiction of chief executive office: Québec (v) Jurisdiction of location of minute books: New York (vi) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (vii) Location of places of business and corporeal and tangible Assets: [Redacted] F) Alithya Fullscope Solutions, Inc. (i) Jurisdiction of organization: Delaware
- 12 - (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office: Delaware (iv) Jurisdiction of chief executive office: Québec (v) Jurisdiction of location of minute books: New York (vi) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (vii) Location of places of business and corporeal and tangible Assets: [Redacted] G) Alithya Consulting Inc. (i) Jurisdiction of organization: Québec (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office, chief executive office and location of minute books: Québec (iv) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (v) Location of places of business and corporeal and tangible Assets: [Redacted] H) Pro2P Services Conseils Inc. (i) Jurisdiction of organization: Canada (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office, chief executive office and location of minute books: Québec (iv) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (v) Location of places of business and corporeal and tangible Assets: [Redacted]
- 13 - I) Alithya Digital Technology Corporation (i) Jurisdiction of organization: Canada (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office, chief executive office and location of minute books: Ontario (iv) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (v) Location of places of business and corporeal and tangible Assets: [Redacted] J) Alithya Zero2Ten, Inc. (i) Jurisdiction of organization: Delaware (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office: Delaware (iv) Jurisdiction of chief executive office: Québec (v) Jurisdiction of location of minute books: New York (vi) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (vii) Location of places of business and corporeal and tangible Assets: [Redacted] K) Alithya Solutions Canada Inc. (i) Jurisdiction of organization: Canada (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office, chief executive office and location of minute books: Québec (iv) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None.
- 14 - (v) Location of places of business and corporeal and tangible Assets: [Redacted] L) Alithya Travercent LLC (i) Jurisdiction of organization: Texas (ii) Shareholders/Members: [Redacted] (iii) Jurisdiction of registered office: Texas (iv) Jurisdiction of chief executive office: Québec (v) Jurisdiction of location of minute books: New York (vi) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (vii) Location of places of business and corporeal and tangible Assets: [Redacted] M) Alithya Askida Solutions Inc. (i) Jurisdiction of organization: Québec (ii) Shareholders: [Redacted] (iii) Jurisdiction of registered office, chief executive office and location of minute books: Québec (iv) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (v) Location of places of business and corporeal and tangible Assets: [Redacted] N) Alithya Askida Consulting Services Inc. (i) Jurisdiction of organization: Québec (ii) Shareholders: [Redacted]
- 15 - (iii) Jurisdiction of registered office, chief executive office and location of minute books: Québec (iv) Description of outstanding warrants, subscriptions, securities, instruments or other convertible or exchangeable rights: None. (v) Location of places of business and corporeal and tangible Assets: [Redacted]
Schedule 2.1.25 Corporate Chart [Redacted]
Schedule 2.1.26 Banking [Redacted]
Schedule 2.1.28 Labour Matters None.
Schedule 12.1.15 Post Closing Matters 1. Within thirty (30) days from the Closing Date, account control agreements executed between the Agent and [Redacted]
Schedule 12.2.1.1 Adjusted TTM EBITDA • Q1-2021 TTM (Jun.30/2020) : C$10,078,000 @85% = C$8,566,000 ; • Q2-2021 TTM (Sep.30/2020) : C$6,105,000 @85% = C$5,189,000 ; • Q3-2021 TTM (Dec.31/2020) : C$5,181,000 @85% = C$4,404,000 ; • Q4-2021 TTM (Mar.31/2021) : C$7,058,000 @85% = C$5,999,000
- 2 - Schedule 12.4.1.4 Minimum Liquidity Amount Certificate The Bank of Nova Scotia, as Agent Global Wholesale Operations 720 King St. West, 2nd Floor Toronto, ON M5V 2T3 Attention: Senior Manager Email: GWSLoanOps.CdnAgency@scotiabank.com Dear Sirs: I, the undersigned being the duly appointed [chief financial officer/treasurer] of Alithya Group Inc. (the “Borrower”), do hereby certify to the Agent and the Lenders, solely in such capacity and without personal liability, that: 1. This certificate is delivered pursuant to the amended and restated credit agreement dated as of June 18, 2020 among Alithya Group Inc., as Borrower, each of the guarantors identified therein, as Guarantors, the financial institutions from time to time parties thereto, as Lenders, and The Bank of Nova Scotia, as Administrative Agent (as amended, supplemented, replaced, restated or otherwise modified, the “Credit Agreement”). Unless otherwise defined herein, all capitalized terms appearing in this certificate (including its Schedule I, II and III) which are defined in the Credit Agreement shall have the meanings assigned to such terms in the Credit Agreement; 2. I am familiar with and have examined the provisions of the Credit Agreement (including, without limitation, the financial covenants and ratios set forth in Article 12.2 thereof and the representations, warranties and other covenants set forth in the Credit Agreement), and I have made all appropriate investigations of the records of the Obligors and have asked all questions to the other executives and officers of the Obligors as I have deemed necessary or useful to allow me to give this certificate knowledgeably; 3. Based on the foregoing, the calculations set forth below (on a consolidated basis) are true and correct and have been made in accordance with the Credit Agreement; 4. I hereby certify to the Lenders and the Agent that the Borrower is in compliance with Section 12.2.1.2 of the Credit Agreement. At the end of the month of _______________, the Minimum Liquidity Amount was ________________. 5. I hereby certify that I have no knowledge of any Default or Event of Default that has occurred and is continuing. 6. I hereby certify that the information and disclosures provided in all of the schedules to the Credit Agreement, as previously updated or corrected, are true and complete in all respects.
- 3 - Dated this _________ day of __________________, 20____. ALITHYA GROUP INC. By:____________________________________ Name: Title:
Schedule 16.12 Model Credit Agreement Provisions The attached model credit agreement provisions, which have been revised under the direction of the Canadian Bankers’ Association Secondary Loan Market Specialist Group from provisions prepared by The Loan Syndications and Trading Association, Inc., form part of this Agreement, except for the footnotes to the model credit agreement provisions, if any, and subject to the following variations: 1. The definition of “Change in Law” shall be replaced as follow: “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Applicable Law, (b) any change in any Applicable Law or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any Applicable Law by any Governmental Authority provided, however, that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Agent for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, issued or implemented. 2. Section 10.8 of the Credit Agreement shall be subject to the provisions of Section 3.2 of these Provisions. 3. The application of Article 5 is limited by the provisions of Section 10.10 of the Agreement. 4. Article 7 is subject to amendment in accordance with the provisions of Section 16.4 of the Agreement. 5. Section 10.2(a) of the Provisions is hereby amended by deleting the words “in the case of any assignment in respect of a revolving facility, or $1,000,000 in the case of any assignment in respect of a term facility” in the twelve and thirteenth lines of this Section. 6. Any reference in the Provisions to “jointly and severally” and “severally” shall be replaced, respectively, by the words “solidarily” and “jointly”.
- 2 - Model Credit Agreement Provisions 1. Definitions “Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent. “Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. “Agreement” means the amended and restated credit agreement of which these Provisions form part. “Applicable Law” means (a) any domestic or foreign statute, law (including common and civil law), treaty, code, ordinance, rule, regulation, restriction or by-law (zoning or otherwise); (b) any judgement, order, writ, injunction, decision, ruling, decree or award; (c) any regulatory policy, practice, guideline or directive; or (d) any franchise, licence, qualification, authorization, consent, exemption, waiver, right, permit or other approval of any Governmental Authority, binding on or affecting the Person referred to in the context in which the term is used or binding on or affecting the property of such Person, in each case whether or not having the force of law. “Applicable Percentage” means with respect to any Lender, the percentage of the Total Commitments represented by such Lender’s Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be the percentage of the total outstanding Loans and participations in respect of Letters of Credit represented by such Lender’s outstanding Loans and participations in respect of Letters of Credit. “Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. “Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee and accepted by the Administrative Agent, in substantially the form of Exhibit A or any other form approved by the Administrative Agent. “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Applicable Law, (b) any change in any Applicable Law or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any Applicable Law by any Governmental Authority. “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have corresponding meanings. “Default” means any event or condition that constitutes an Event of Default or that would constitute an Event of Default except for satisfaction of any condition subsequent required to make the event or condition an Event of Default, including giving of any notice, passage of time, or both.
- 3 - “Eligible Assignee” means any Person (other than a natural person, any Obligor or any Affiliate of an Obligor), in respect of which any consent that is required by Section 10.2 has been obtained. “Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of an Obligor hereunder, (a) taxes imposed on or measured by its net income, and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its Applicable Lending Office is located, (b) any branch profits taxes or any similar tax imposed by any jurisdiction in which the Lender is located and (c) in the case of a Foreign Lender (other than (i) an assignee pursuant to a request by the Borrower under Section 3.3(b), (ii) an assignee pursuant to an Assignment and Assumption made when an Event of Default has occurred and is continuing or (iii) any other assignee to the extent that the Borrower has expressly agreed that any withholding tax shall be an Indemnified Tax), any withholding tax that (A) is not imposed or assessed in respect of a Loan that was made on the premise that an exemption from such withholding tax would be available where the exemption is subsequently determined, or alleged by a taxing authority, not to be available and (B) is required by Applicable Law to be withheld or paid in respect of any amount payable hereunder or under any Loan Document to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.2(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from an Obligor with respect to such withholding tax pursuant to Section 3.2(a). For greater certainty, for purposes of item (c) above, a withholding tax includes any Tax that a Foreign Lender is required to pay pursuant to Part XIII of the Income Tax Act (Canada) or any successor provision thereto. “Foreign Lender” means any Lender that is not organized under the laws of the jurisdiction in which the Borrower is resident for tax purposes and that is not otherwise considered or deemed in respect of any amount payable to it hereunder or under any Loan Document to be resident for income tax or withholding tax purposes in the jurisdiction in which the Borrower is resident for tax purposes by application of the laws of that jurisdiction. For purposes of this definition Canada and each Province and Territory thereof shall be deemed to constitute a single jurisdiction and the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. “Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. “Governmental Authority” means the government of Canada or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including any supra-national bodies such as the European Union or the European Central Bank and including
- 4 - a Minister of the Crown, Superintendent of Financial Institutions or other comparable authority or agency. “Indemnified Taxes” means Taxes other than Excluded Taxes. “Issuing Bank” means the Person named elsewhere in this Agreement as the issuer of Letters of Credit on the basis that it is “fronting” for other Lenders and not on the basis that it is the attorney of other Lenders to sign Letters of Credit on their behalf, or any successor issuer of Letters of Credit. For greater certainty, where the context requires, references to “Lenders” in these Provisions include the Issuing Bank. “Loan” means any extension of credit by a Lender under this Agreement, including by way of bankers’ acceptance or LIBO Rate Loan, except for any Letter of Credit or participation in a Letter of Credit. “Obligors” means, collectively, the Borrower and each of the guarantors of the Borrower’s obligations that are identified elsewhere in this Agreement. “Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. “Participant” has the meaning assigned to such term in Section 10.4. “Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. “Provisions” means these model credit agreement provisions. “Related Parties” means, with respect to any Person, such Person’s Affiliates and the directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates. “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
- 5 - 2. Terms Generally 2.1. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein (including this Agreement) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented, restated or otherwise modified (subject to any restrictions on such amendments, supplements, restatements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) unless otherwise expressly stated, all references in these Provisions to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, these Provisions, but all such references elsewhere in this Agreement shall be construed to refer to this Agreement apart from these Provisions, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. 2.2. If there is any conflict or inconsistency between these Provisions and the other terms of this Agreement, the other terms of this Agreement shall govern to the extent necessary to resolve the conflict or inconsistency. 3. Yield Protection 3.1. Increased Costs (a) Increased Costs Generally. If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender; (ii) subject any Lender to any Tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof, except for Indemnified Taxes or Other Taxes covered by Section 3.2 and the imposition, or any change in the rate, of any Excluded Tax payable by such Lender; or
- 6 - (iii)impose on any Lender or any applicable interbank market any other condition, cost or expense affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or any other amount), then upon request of such Lender the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) Capital Requirements. If any Lender determines that any Change in Law affecting such Lender or any lending office of such Lender or such Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or the Letters of Credit issued or participated in by such Lender, to a level below that which such Lender or its holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of its holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or its holding company for any such reduction suffered. (c) Certificates for Reimbursement. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section, including reasonable detail of the basis of calculation of the amount or amounts, and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation, except that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefore, unless the Change in Law giving rise to such increased costs or reductions is retroactive, in which case the nine-month period referred to above shall be extended to include the period of retroactive effect thereof. 3.2. Taxes
- 7 - (a) Payments Subject to Taxes. If any Obligor, the Administrative Agent, or any Lender is required by Applicable Law to deduct or pay any Indemnified Taxes (including any Other Taxes) in respect of any payment by or on account of any obligation of an Obligor hereunder or under any other Loan Document, then (i) the sum payable shall be increased by that Obligor when payable as necessary so that after making or allowing for all required deductions and payments (including deductions and payments applicable to additional sums payable under this Section) the Administrative Agent or Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions or payments been required, (ii) the Obligor shall make any such deductions required to be made by it under Applicable Law and (iii) the Obligor shall timely pay the full amount required to be deducted to the relevant Governmental Authority in accordance with Applicable Law. (b) Payment of Other Taxes by the Borrower. Without limiting the provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with Applicable Law. (c) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by an Obligor to a Governmental Authority, the Obligor shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Status of Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall, at the request of the Borrower, deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by Applicable Law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by Applicable Law as will permit such payments to be made without withholding or at a reduced
- 8 - rate of withholding. In addition, (a) any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to withholding or information reporting requirements, and (b) any Lender that ceases to be, or to be deemed to be, resident in Canada for purposes of Part XIII of the Income Tax Act (Canada) or any successor provision thereto shall within five days thereof notify the Borrower and the Administrative Agent in writing. (f) Treatment of Certain Refunds and Tax Reductions. If the Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which an Obligor has paid additional amounts pursuant to this Section or that, because of the payment of such Taxes or Other Taxes, it has benefited from a reduction in Excluded Taxes otherwise payable by it, it shall pay to the Borrower or Obligor, as applicable, an amount equal to such refund or reduction (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower or Obligor under this Section with respect to the Taxes or Other Taxes giving rise to such refund or reduction), net of all out-of- pocket expenses of the Administrative Agent or such Lender, as the case may be, and without interest (other than any net after-Tax interest paid by the relevant Governmental Authority with respect to such refund). The Borrower or Obligor as applicable, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower or Obligor (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender if the Administrative Agent or such Lender is required to repay such refund or reduction to such Governmental Authority. This paragraph shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person, to arrange its affairs in any particular manner or to claim any available refund or reduction. 3.3. Mitigation Obligations: Replacement of Lenders (a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.1, or requires the Borrower to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.2, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.1 or 3.2 , as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all
- 9 - reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) Replacement of Lenders. If any Lender requests compensation under Section 3.1, if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.2, if any Lender’s obligations are suspended pursuant to Section 3.4 or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon 10 days’ notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10), all of its interests, rights and obligations under this Agreement and the related other Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that: (i) the Borrower pays the Administrative Agent the assignment fee specified in Section 10.2(f); (ii) the assigning Lender receives payment of an amount equal to the outstanding principal of its Loans and participations in disbursements under Letters of Credit, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any breakage costs and amounts required to be paid under this Agreement as a result of prepayment to a Lender) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts); (iii)in the case of any such assignment resulting from a claim for compensation under Section 3.1 or payments required to be made pursuant to Section 3.2, such assignment will result in a reduction in such compensation or payments thereafter; and (iv) such assignment does not conflict with Applicable Law. A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. 3.4. Illegality If any Lender determines that any Applicable Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its Applicable Lending Office to make or maintain any Loan (or to maintain its obligation to make any Loan), or to participate in, issue or maintain any Letter of Credit (or to maintain its obligation to participate in or to issue any Letter of Credit), or to determine or charge interest rates based upon any particular rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender with respect to the activity that is unlawful shall be suspended until
- 10 - such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if conversion would avoid the activity that is unlawful, convert any Loans, or take any necessary steps with respect to any Letter of Credit in order to avoid the activity that is unlawful. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted. Each Lender agrees to designate a different Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be materially disadvantageous to such Lender. 3.5. Inability to Determine Rates Etc. If the Majority Lenders determine that for any reason a market for bankers’ acceptances does not exist at any time or the Lenders cannot for other reasons, after reasonable efforts, readily sell bankers’ acceptances or perform their other obligations under this Agreement with respect to bankers’ acceptances, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the Borrower’s right to request the acceptance of bankers’ acceptances shall be and remain suspended until the Majority Lenders determine and the Agent notifies the Borrower and each Lender that the condition causing such determination no longer exists. 4. Right of Setoff If an Event of Default has occurred and is continuing, each of the Lenders and each of their respective Affiliates is hereby authorized at any time and from time to time to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of any Obligor against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender has made any demand under this Agreement or any other Loan Document and although such obligations of the Obligor may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each the Lenders and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff, consolidation of accounts and bankers’ lien) that the Lenders or their respective Affiliates may have. Each Lender agrees to promptly notify the Borrower and the Administrative Agent after any such setoff and application, but the failure to give such notice shall not affect the validity of such setoff and application. If any Affiliate of a Lender exercises any rights under this Section 4, it shall share the benefit received in accordance with Section 5 as if the benefit had been received by the Lender of which it is an Affiliate. 5. Sharing of Payments by Lenders If any Lender, by exercising any right of setoff or counterclaim or otherwise, obtains any payment or other reduction that might result in such Lender receiving payment or other reduction of a proportion of the aggregate amount of its Loans and accrued interest thereon or other obligations hereunder greater than its pro rata share thereof as provided herein, then the Lender receiving such payment or other reduction shall (a) notify the Administrative Agent of such fact,
- 11 - and (b) purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders rateably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that 5.1. if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, 5.2. the provisions of this Section shall not be construed to apply to (x) any payment made by any Obligor pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in disbursements under Letters of Credit to any assignee or participant, other than to any Obligor or any Affiliate of an Obligor (as to which the provisions of this Section shall apply); and 5.3. the provisions of this Section shall not be construed to apply to (w) any payment made while no Event of Default has occurred and is continuing in respect of obligations of the Borrower to such Lender that do not arise under or in connection with the Loan Documents, (x) any payment made in respect of an obligation that is secured by a Permitted Lien or that is otherwise entitled to priority over the Borrower’s obligations under or in connection with the Loan Documents, (y) any reduction arising from an amount owing to an Obligor upon the termination of derivatives entered into between the Obligor and such Lender, or (z) any payment to which such Lender is entitled as a result of any form of credit protection obtained by such Lender. The Obligors consent to the foregoing and agree, to the extent they may effectively do so under Applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against each Obligor rights of setoff and counterclaim and similar rights of Lenders with respect to such participation as fully as if such Lender were a direct creditor of each Obligor in the amount of such participation. 6. Administrative Agent’s Clawback 6.1. Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any advance of funds that such Lender will not make available to the Administrative Agent such Lender’s share of such advance, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with the provisions of this Agreement concerning funding by Lenders and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable advance available to the Administrative Agent, then the applicable Lender shall pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at a rate determined by the
- 12 - Administrative Agent in accordance with prevailing banking industry practice on interbank compensation. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such advance. If the Lender does not do so forthwith, the Borrower shall pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon at the interest rate applicable to the advance in question. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that has failed to make such payment to the Administrative Agent. 6.2. Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of any Lender hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute the amount due to the Lenders. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at a rate determined by the Administrative Agent in accordance with prevailing banking industry practice on interbank compensation. 7. Agency 7.1. Appointment and Authority. Each of the Lenders and the Issuing Bank hereby irrevocably appoints the Person identified elsewhere in this Agreement as the Administrative Agent to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Bank, and no Obligor shall have rights as a third party beneficiary of any of such provisions. 7.2. Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with any Obligor or any Affiliate thereof as if such Person were not the Administrative Agent and without any duty to account to the Lenders. 7.3. Exculpatory Provisions
- 13 - (a) The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent: (i) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing; (ii) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Majority Lenders (or such other number or percentage of the Lenders as shall be expressly provided for in the Loan Documents), but the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or Applicable Law; and (iii)shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity. (b) The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Majority Lenders (or such other number or percentage of the Lenders as is necessary, or as the Administrative Agent believes in good faith is necessary, under the provisions of the Loan Documents) or (ii) in the absence of its own gross or intentional fault. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing the Default is given to the Administrative Agent by the Borrower or a Lender. (c) Except as otherwise expressly specified in this Agreement, the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition specified in this Agreement, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
- 14 - 7.4. Reliance by Administrative Agent The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the Issuing Bank, the Administrative Agent may presume that such condition is satisfactory to such Lender or the Issuing Bank unless the Administrative Agent shall have received notice to the contrary from such Lender or the Issuing Bank prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. 7.5. Indemnification of Administrative Agent Each Lender agrees to indemnify the Administrative Agent and hold it harmless (to the extent not reimbursed by the Borrower), rateably according to its Applicable Percentage (and not jointly or jointly and severally) from and against any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel, which may be incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or the transactions therein contemplated. However, no Lender shall be liable for any portion of such losses, claims, damages, liabilities and related expenses resulting from the Administrative Agent’s intentional or gross fault. 7.6. Delegation of Duties The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub- agents appointed by the Administrative Agent from among the Lenders (including the Person serving as Administrative Agent) and their respective Affiliates. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The provisions of this Article and other provisions of this Agreement for the benefit of the Administrative Agent shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. 7.7. Replacement of Administrative Agent (a) The Administrative Agent may at any time give notice of its resignation to the Lenders, the Issuing Bank and the Borrower. Upon receipt of any such notice of resignation, the Majority Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a Lender having a
- 15 - Commitment to a revolving credit if one or more is established in this Agreement and having an office in Toronto, Ontario or Montréal, Québec, or an Affiliate of any such Lender with an office in Toronto or Montréal. The Administrative Agent may also be removed at any time by the Majority Lenders upon 30 days’ notice to the Administrative Agent and the Borrower as long as the Majority Lenders, in consultation with the Borrower, appoint and obtain the acceptance of a successor within such 30 days, which shall be a Lender having a Commitment to a revolving credit if one or more is established in this Agreement and having an office in Toronto or Montréal, or an Affiliate of any such Lender with an office in Toronto or Montréal. (b) If no such successor shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications specified in Section 7.7(a), provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Majority Lenders appoint a successor Administrative Agent as provided for above in the preceding paragraph. (c) Upon a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the former Administrative Agent, and the former Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided in the preceding paragraph). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the termination of the service of the former Administrative Agent, the provisions of this Section 7 and of Section 9 shall continue in effect for the benefit of such former Administrative Agent, its sub- agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the former Administrative Agent was acting as Administrative Agent.
- 16 - 7.8. Non-Reliance on Administrative Agent and Other Lenders Each Lender and the Issuing Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder. 7.9. Collective Action of the Lenders Each of the Lenders hereby acknowledges that to the extent permitted by Applicable Law, any collateral security and the remedies provided under the Loan Documents to the Lenders are for the benefit of the Lenders collectively and acting together and not severally and further acknowledges that its rights hereunder and under any collateral security are to be exercised not severally, but by the Administrative Agent upon the decision of the Majority Lenders (or such other number or percentage of the Lenders as shall be expressly provided for in the Loan Documents). Accordingly, notwithstanding any of the provisions contained herein or in any collateral security, each of the Lenders hereby covenants and agrees that it shall not be entitled to take any action hereunder or thereunder including, without limitation, any declaration of default hereunder or thereunder but that any such action shall be taken only by the Administrative Agent with the prior written agreement of the Majority Lenders (or such other number or percentage of the Lenders as shall be expressly provided for in the Loan Documents). Each of the Lenders hereby further covenants and agrees that upon any such written agreement being given, it shall co-operate fully with the Administrative Agent to the extent requested by the Administrative Agent. Notwithstanding the foregoing, in the absence of instructions from the Lenders and where in the sole opinion of the Administrative Agent, acting reasonably and in good faith, the exigencies of the situation warrant such action, the Administrative Agent may without notice to or consent of the Lenders take such action on behalf of the Lenders as it deems appropriate or desirable in the interest of the Lenders. 7.10. No Other Duties. etc. Anything herein to the contrary notwithstanding, none of the Bookrunners, Arrangers or holders of similar titles, if any, specified in this Agreement shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder. 8. Notices: Effectiveness; Electronic Communication 8.1. Notices Generally Except in the case of notices and other communications expressly permitted to be given by telephone (and except as-provided in Section 8.2 below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service,
- 17 - mailed by certified or registered mail or sent by telecopier to the addresses or telecopier numbers specified elsewhere in this Agreement or, if to a Lender, to it at its address or telecopier number specified in the Register or, if to an Obligor other than the Borrower, in care of the Borrower. Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given on a business day between 9:00 a.m. and 5:00 p.m. local time where the recipient is located, shall be deemed to have been given at 9:00 a.m. on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in Section 8.2 below, shall be effective as provided in said Section 8.2. 8.2. Electronic Communications Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender of Loans to be made or Letters of Credit to be issued if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor. 8.3. Change of Address, Etc. Any party hereto may change its address or telecopier number for notices and other communications hereunder by notice to the other parties hereto. 9. Expenses; Indemnity: Damage Waiver 9.1. Costs and Expenses The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the
- 18 - provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Administrative Agent, any Lender or the Issuing Bank, including the reasonable fees, charges and disbursements of counsel, in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. 9.2. Indemnification by the Borrower The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the Issuing Bank, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by any Obligor arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance or non-performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation or non-consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by any Obligor, or any Environmental Liability related in any way to any Obligor, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by an Obligor and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from the intentional or gross fault of such Indemnitee or (y) result from a claim brought by the Borrower or any other Obligor against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Obligor has obtained a final and non-appealable judgment in its favour on such claim as determined by a court of competent jurisdiction, nor shall it be available in respect of matters specifically addressed in Sections 3.1, 3.2 and 9.1. 9.3. Reimbursement by Lenders To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under Section 9.1 or 9.2 to be paid by it to the Administrative Agent (or any sub-agent thereof), the Issuing Bank or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Issuing Bank or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time
- 19 - that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the Issuing Bank in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or Issuing Bank in connection with such capacity. The obligations of the Lenders under this Section 10.3 are subject to the other provisions of this Agreement concerning several liability of the Lenders. 9.4. Waiver of Consequential Damages, Etc. To the fullest extent permitted by Applicable Law, the Obligors shall not assert, and hereby waive, any claim against any Indemnitee, on any theory of liability, for indirect, consequential, punitive, aggravated or exemplary damages (as opposed to direct damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby (or any breach thereof), the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby. 9.5. Payments All amounts due under this Section shall be payable promptly after demand therefor. A certificate of the Administrative Agent or a Lender setting forth the amount or amounts owing to the Administrative Agent, Lender or a sub-agent or Related Party, as the case may be, as specified in this Section, including reasonable detail of the basis of calculation of the amount or amounts, and delivered to the Borrower shall be conclusive absent manifest error. 10. Successors and Assigns 10.1. Successors and Assigns Generally The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Obligor may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of Section 10.2, (ii) by way of participation in accordance with the provisions of Section 10.4, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.6 (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 10.4 and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. 10.2. Assignments by Lenders
- 20 - Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that: (a) except if an Event of Default has occurred and is continuing or in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment being assigned (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loan of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $5,000,000, in the case of any assignment in respect of a revolving facility, or $1,000,000, in the case of any assignment in respect of a term facility, unless each of the Administrative Agent and, so long as no Default has occurred and is continuing, the Borrower otherwise consents to a lower amount (each such consent not to be unreasonably withheld or delayed); (b) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, except that this clause (b) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate credits on a non-pro rata basis; (c) any assignment of a Commitment relating to a credit under which Letters of Credit may be issued must be approved by any Issuing Bank (such approval not to be unreasonably withheld or delayed) unless the Person that is the proposed assignee is itself already a Lender with a Commitment under that credit; (d) any assignment must be approved by the Administrative Agent (such approval not to be unreasonably withheld or delayed) unless: (i) in the case of an assignment of a Commitment relating to a revolving credit, the proposed assignee is itself already a Lender with the same type of Commitment, (ii) no Event of Default has occurred and is continuing, and the assignment is of a Commitment relating to a non-revolving credit that is fully advanced, or (iii)the proposed assignee is a bank whose senior, unsecured, non-credit enhanced, long term debt is rated at least A3, A- or A low by at least two of Moody’s Investor Services Inc., Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. and Dominion Bond Rating Service Limited, respectively;
- 21 - (e) any assignment must be approved by the Borrower (such approval not to be unreasonably withheld or delayed) unless the proposed assignee is itself already a Lender with the same type of Commitment or a Default has occurred and is continuing; and (f) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in an amount specified elsewhere in this Agreement and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 10.3, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement and the other Loan Documents, including any collateral security, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3 and 9, and shall continue to be liable for any breach of this Agreement by such Lender, with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this section shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.4. Any payment by an assignee to an assigning Lender in connection with an assignment or transfer shall not be or be deemed to be a repayment by the Borrower or a new Loan to the Borrower. 10.3. Register The Administrative Agent shall maintain at one of its offices in Toronto, Ontario or Montréal, Québec a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. 10.4. Participations Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person, an Obligor or any Affiliate of an Obligor) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain
- 22 - unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any payment by a Participant to a Lender in connection with a sale of a participation shall not be or be deemed to be a repayment by the Borrower or a new Loan to the Borrower. Subject to Section 10.5, the Borrower agrees that each Participant shall be entitled to the benefits of Section 3 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.2. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 4 as though it were a Lender, provided such Participant agrees to be subject to Section 5 as though it were a Lender. 10.5. Limitations upon Participant Rights A Participant shall not be entitled to receive any greater payment under Sections 3.1 and 3.2 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.2 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.2(e) as though it were a Lender. 10.6. Certain Pledges Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, but no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. 11. Governing Law: Jurisdiction: Etc. 11.1. Governing Law This Agreement shall be governed by, and construed in accordance with, the laws of the Province specified elsewhere in this Agreement and the laws of Canada applicable in that Province. 11.2. Submission to Jurisdiction Each Obligor irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the Province specified elsewhere in this Agreement, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
- 23 - Nothing in this Agreement or in any other Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Obligor or its properties in the courts of any jurisdiction. 11.3. Waiver of Venue Each Obligor irrevocably and unconditionally waives, to the fullest extent permitted by Applicable Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in Section 11.2. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 12. Waiver of Jury Trial EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 13. Counterparts: Integration: Effectiveness: Electronic Execution 13.1. Counterparts, Integration: Effectiveness This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in the conditions precedent Section(s) of this Agreement, this Agreement shall become effective when it has been executed by the Administrative Agent and when the Administrative Agent has received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or by sending a scanned copy by electronic mail shall be effective as delivery of a manually executed counterpart of this Agreement.
- 24 - 13.2. Electronic Execution of Assignments The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Applicable Law, including Parts 2 and 3 of the Personal Information Protection and Electronic Documents Act (Canada), the Electronic Commerce Act, 2000 (Ontario) and other similar federal or provincial laws based on the Uniform Electronic Commerce Act of the Uniform Law Conference of Canada or its Uniform Electronic Evidence Act, as the case may be. 14. Treatment of Certain Information: Confidentiality 14.1. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to it, its Affiliates and its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority), (c) to the extent required by Applicable Laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap, derivative, credit-linked note or similar transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent or any Lender on a non-confidential basis from a source other than an Obligor. 14.2. For purposes of this Section, “Information” means all information received in connection with this Agreement from any Obligor relating to any Obligor or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a non-confidential basis prior to such receipt. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. In addition, the Administrative Agent may disclose to any agency or organization that assigns standard identification numbers to loan facilities such basic information describing the facilities provided hereunder as is necessary to assign unique identifiers
- 25 - (and, if requested, supply a copy of this Agreement), it being understood that the Person to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to make available to the public only such Information as such Person normally makes available in the course of its business of assigning identification numbers. 14.3. In addition, and notwithstanding anything herein to the contrary, the Administrative Agent may provide the information described on Exhibit B concerning the Borrower and the credit facilities established herein to Loan Pricing Corporation and/or other recognized trade publishers of information for general circulation in the loan market.
- 26 - EXHIBIT A ASSIGNMENT AND ASSUMPTION This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full. For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including without limitation any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under Applicable Law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan-transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as, the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor. 1. Assignor: ________________________________________ 2. Assignee: ________________________________________ [and is an Affiliate/Approved Fund of [identify Lender]] 3. Borrower: ________________________________________ 4. Administrative Agent: _______________________, as the administrative agent under the Credit Agreement 5. Credit Agreement: [The [amount] Credit Agreement dated as of _______ among [name of Borrower], the Lenders parties thereto, [name of Administrative Agent], as Administrative Agent, and the other agents parties thereto]
- 27 - 6. Assigned Interest: Facility Assigned Aggregate Amount of Amount of Percentage Assigned CUSIP Number Commitment/Loans Commitment/Loans of for all Lenders Assigned Commitment/Loans $ $ % $ $ % $ $ % [7. Trade Date: _______________________________] Effective Date: ___________, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.] The terms set forth in this Assignment and Assumption are hereby agreed to: ASSIGNOR [Name of Assignor] By: _______________________________ Title: ASSIGNEE [Name of Assignee] By: _______________________________ Title: [Consented to and] Accepted: [NAME OF ADMINISTRATIVE AGENT], as Administrative Agent By _______________________________ Title: [Consented to:] [NAME OF RELEVANT PARTY]
- 28 - By _______________________________ Title:
- 29 - ANNEX 1 to Assignment and Assumption [______________________] STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT AND ASSUMPTION 1. Representations and Warranties 1.1. Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document. 1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement (subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to the relevant Section thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
- 30 - 2. Payments From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to, on or after the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 3. General Provisions This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy or by sending a scanned copy by electronic mail shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law governing the Credit Agreement.
- 31 - EXHIBIT B LOAN MARKET DATA TEMPLATE Recommended Data Fields - At Close The items highlighted in bold are those that Loan Pricing Corporation (LPC) deem essential. The remaining items are those that LPC has seen become more prominent over time as transparency has increased in the U.S. Loan Market. Company Level Deal Specific Facility Specific Issuer Name Currency/Amount Currency/Amount Location Date Type SIC (Cdn) Purpose Purpose Identification Number(s) Sponsor Tenor Revenue Financial Covenants Term Out Option Expiration Date Target Company Facility Signing Date Measurement of Risk* Assignment Language Pricing S&P Sr. Debt Law Firms Base Rate(s)/Spread(s)/BA/LIBOR S&P Issuer MAC Clause Initial Pricing Level Moody’s Sr. Debt Springing lien Pricing Grid (tied to, levels) Moody’s Issuer Cash Dominion Grid Effective Date Fitch Sr. Debt Mandatory Prepays Fees Fitch Issuer Restrc’d Payments (Neg Participation Fee (tiered also) S&P Implied Covs) (internal assessment) Other Restrictions Commitment Fee DBRS Other Ratings Annual Fee *Industry Classification Utilization Fee Moody’s Industry LC Fee(s) S&P Industry BA Fee Parent Prepayment Fee Financial Ratios Other Fees to Market Security Secured/Unsecured Collateral and Seniority of Claim Collateral Value Guarantors Lenders Names/Titles Lender Commitment(s) Committed/Uncommitted Distribution method Amortization Schedule
- 32 - Borrowing Base/Advance Rates New Money Amount Country of Syndication Facility Rating (Loss given default) S&P Bank Loan Moody’s Bank Loan Fitch Bank Loan DBRS Other Ratings * These items would be considered useful to capture from an analytical perspective
Exhibit 8.1
SUBSIDIARIES OF ALITHYA GROUP INC.
| | | | | | | | |
| Entity | Jurisdiction | Percentage Ownership |
| Alithya Canada Inc. | Québec, Canada | 100% |
| Alithya Consulting Inc. | Québec, Canada | 100% |
| Alithya Consulting SAS | France | 100% |
| Alithya Digital Technology Corporation | Ontario, Canada | 100% |
| Alithya Financial Solutions, Inc. | Delaware, USA | 100% |
| Alithya Fullscope Solutions, Inc. | Delaware, USA | 100% |
| Alithya Ranzal LLC | Delaware, USA | 100% |
| Alithya Travercent LLC | Texas, USA | 100% |
| Alithya USA, Inc. | Delaware, USA | 100% |
Exhibit 12.1
SECTION 302 CERTIFICATION
I, Paul Raymond, certify that:
1.I have reviewed this annual report on Form 20-F of Alithya Group inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4.The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and
5.The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.
Date: June 19, 2020
| | |
|
| /s/ Paul Raymond |
| Paul Raymond |
| President and Chief Executive Officer |
Exhibit 12.2
SECTION 302 CERTIFICATION
I, Claude Thibault, certify that:
1.I have reviewed this annual report on Form 20-F of Alithya Group inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4.The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and
5.The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.
Date: June 19, 2020
| | |
|
| /s/ Claude Thibault |
| Claude Thibault |
| Chief Financial Officer |
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 20-F for the fiscal year ended March 31, 2020 (the “Report”) by Alithya Group inc. (the “Company”), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
•the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
•the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 19, 2020
| | |
|
| /s/ Paul Raymond |
| Paul Raymond |
| President and Chief Executive Officer |
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 20-F for the fiscal year ended March 31, 2020 (the “Report”) by Alithya Group inc. (the “Company”), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
•the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
•the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 19, 2020
| | |
|
| /s/ Claude Thibault |
| Claude Thibault |
| Chief Financial Officer |
Raymond Chabot Grant Thornton LLP Suite 2000
National Bank Tower
600 De La Gauchetière Street West Montréal, Quebec H3B 4L8
Consent of Independent T 514-878-2691
Registered Public Accounting Firm
We have issued our report dated June 18, 2020, with respect to the consolidated financial statements included in the Annual Report of Alithya Group inc. on Form 20-F for the year ended March 31, 2020.
We hereby consent to the incorporation by reference of said report in the Registration Statement of Alithya Group inc. on Form S-8 (File No. 333-228487).
Montréal, Canada
June 19, 20201
1 CPA auditor, CA, public accountancy permit no. A121855
Member of Grant Thornton International Ltd rcgt.com
Exhibit 15.2
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya Group inc. For the year ended March 31, 2020 |
Table of Contents
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| 1. |
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| 2. |
| Forward-Looking Statements | |
| 3. |
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| 5. |
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| 5.2 | | |
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| 9. |
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| 9.1 | | |
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| 12.6 | | |
| 12.7 | Deferred Share Units | |
| 12.8 | | |
| 13. |
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| 15. |
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| 16.1 | | |
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| 18. |
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| 18.2 | | |
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| 18.4 | | |
| 19. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |3
1. Basis of Presentation
This Management’s Discussion and Analysis (“MD&A”) provides a review of the results of operations, financial condition and cash flows for Alithya Group inc. for the three-month and twelve-month periods ended March 31, 2020. References to “Alithya”, the “Company”, the “Group”, “we”, “our” and “us” in this MD&A refer to Alithya Group inc. and its subsidiaries or any one or more of them, unless the context requires otherwise. This document should be read in conjunction with the information contained in the Company’s audited consolidated financial statements and accompanying notes for the years ended March 31, 2020, 2019 and 2018. The MD&A, the financial statements, the Company’s Annual Report on Form 20-F, and additional information regarding the business of the Company are available under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and the Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”) at www.sec.gov.
Management's Discussion and Analysis of the Financial Condition and Results of Operations of the Group for the year ended March 31, 2018 was previously included in the section “Results of Operations” in the Company's Annual Report on Form 20-F for the fiscal year ended March 31, 2019, as filed with the SEC on June 19, 2019, and has not been included in this report.
For reporting purposes, the Company prepared the consolidated financial statements in Canadian dollars in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Unless otherwise indicated, all dollar (“$”) amounts and references in this MD&A are in Canadian dollars and references to “US$” are to US dollars. Variances, ratios and percentage changes in this MD&A are based on unrounded numbers.
This MD&A contains both IFRS and non-IFRS financial measures. See the section titled “Non-IFRS Measures”.
Unless otherwise stated, in preparing this MD&A, the Company has considered information available to it up to June 18, 2020, the date the Company’s Board of Directors (“Board”) approved this MD&A and the consolidated financial statements for the year ended March 31, 2020.
2. Forward-Looking Statements
This MD&A contains statements that may constitute “forward-looking information” within the meaning of applicable Canadian securities laws and “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and other applicable U.S. safe harbours (collectively “forward-looking statements”). Statements that do not exclusively relate to historical facts, as well as statements relating to management’s expectations regarding the future growth, results of operations, performance and business prospects of Alithya, and other information related to Alithya’s business strategy and future plans or which refer to the characterizations of future events or circumstances represent forward-looking statements. Such statements often contain the words “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should,” “project,” “target,” and similar expressions and variations thereof, although not all forward-looking statements contain these identifying words.
Forward-looking statements in this MD&A include, among other things, information or statements about: (i) our ability to generate sufficient earnings to support our operations; (ii) our ability to take advantage of business opportunities and meet our goals set in our three to five year strategic plan; (iii) our ability to expand our capacities and broaden the scope of our service offerings; (iv) our strategy, future operations, and prospects; (v) our need for additional financing and our estimates regarding our future financing and capital requirements; (vi) our expectations regarding our financial performance, including our revenues, profitability, research and development, costs and expenses, gross margins, liquidity, capital resources, and capital expenditures; (vii) our ability to realize the expected synergies or cost savings relating to the integration of our business acquisitions, and (viii) the impact of the COVID-19 pandemic and related response measures on our business operations, financial results and financial position and those of our clients and on the economy in general.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |1
Forward-looking statements are presented for the sole purpose of assisting investors and others in understanding Alithya’s objectives, strategies and business outlook as well as its anticipated operating environment and may not be appropriate for other purposes. Although management believes the expectations reflected in Alithya’s forward-looking statements were reasonable as at the date they were made, forward-looking statements are based on the opinions, assumptions and estimates of management and, as such, are subject to a variety of risks and uncertainties and other factors, many of which are beyond Alithya’s control, and which could cause actual events or results to differ materially from those expressed or implied in such statements. Such risks and uncertainties include but are not limited to those discussed in the section titled “Risks and Uncertainties” of this MD&A and in Alithya's other materials made public, including documents filed with Canadian and U.S. securities regulatory authorities from time to time and which are available on SEDAR at www.sedar.com and EDGAR at www.sec.gov. Additional risks and uncertainties not currently known to Alithya or that Alithya currently deems to be immaterial could also have a material adverse effect on its financial position, financial performance, cash flows, business or reputation.
Forward-looking statements contained in this MD&A are qualified by these cautionary statements and are made only as of the date of this MD&A. Alithya expressly disclaims any obligation to update or alter statements containing any forward-looking statements, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by applicable law. Investors are cautioned not to place undue reliance on forward-looking statements since actual results may vary materially from them.
3. Business Overview
Alithya is a leader in strategy and digital transformation, with more than 2,000 professionals in Canada, the U.S., and Europe. For over 25 years, Alithya’s experts have advised, guided and assisted clients in their pursuit of innovation and excellence and the achievement of their business objectives through the optimal use of digital technologies.
Alithya deploys solutions, services, and expert consultants to design, build and implement innovative and efficient solutions for the complex business challenges of its clients, tailored to their business needs in the financial services, energy, manufacturing, telecommunications, transportation and logistics, professional services, healthcare and government sectors.
Business Offerings
Business offerings include a comprehensive range of digital technology services to address client needs:
•Business Strategy. Alithya leads clients through essential decision-making processes regarding strategic planning, change management, systems evolution, operational processes, and more. Applying the most recurrent methodologies, we help our clients optimize efficiency and successfully navigate the digital transformation age. We achieve results by leveraging an array of Business Strategy services, including strategic consulting, digital transformation, organizational performance and enterprise architecture.
•Application Services. Alithya’s experts guide clients through all facets of Application Services, from migration of legacy systems into future-ready digital solutions, to the development of completely new solutions using state-of-the-art technologies. Our experts assist our clients in the choice between cloud, on-premise, and hybrid hosting strategies and solutions. Alithya’s Application Solutions services include digital applications DevOps, legacy systems modernization, control and software engineering, cloud infrastructure, quality assurance and automated testing.
•Enterprise Solutions. Working with key industry partners, including some of the world’s largest vendors of Enterprise Solutions, Alithya’s experts help clients deploy company-wide systems to improve the efficiency of their finance, human capital, operations, and marketing functions. Alithya’s Enterprise Solutions services include
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |2
Enterprise Resource Planning (ERP), Corporate Performance Management (CPM/EPM), Customer Relationship Management (CRM/CXM) and Human Capital Management (HCM).
•Data and Analytics. Data analysis plays a critical role in the optimization of business processes. Leveraging specialized IT systems and software, Alithya’s data scientists help clients gain business insight and drive better decision-making through enhanced data collection, big data analytics, machine learning automation and reporting. Alithya’s Data and Analytics services include business intelligence, data management, artificial intelligence and machine learning, as well as Internet of Things (IoT).
Geographically, Alithya’s operations span Canada, the United States and Europe, providing a full spectrum of strategy and digital technology services with deep expertise in a range of technologies and business domains.
Competitive Environment
Today, for many companies, digital systems and infrastructures are among their most important and strategic assets. Not only do these assets require significant investments, but they increasingly serve as key differentiators and drivers of growth for customers.
Accordingly, businesses are seeking solutions that allow them to maintain their ability to differentiate themselves from competitors with proprietary business processes, combined with product customization. That is where digital transformation comes into play, inviting companies to make a shift in their approach and to evolve from traditional information technologies to flexible digital technologies.
As businesses’ technology spending continues to increase, digital technology firms are striving to deliver innovative thinking and in-depth vertical industry expertise, while facilitating business process transformation through the use of the most optimal technologies.
Alithya believes it is well positioned to respond to these trends in clients’ investments in digital technology. Alithya’s business model is built on a philosophy of offering flexible and creative solutions, enabling clients to realize maximum benefits from their digital technology investments. Alithya positions itself as an agile trusted advisor and consulting partner capable of delivering rapid results for its clients.
4. Business Strategic Plan
Alithya has adopted a three to five year strategic plan which sets as a goal to become a North American digital transformation leader.
Under this plan, Alithya will take advantage of its consolidated scale and scope to leverage its geographies, expertise, integrated offerings, and position on the value chain to target growing IT services segments. Alithya believes its specialization in digital technologies and the flexibility of its approach resonates directly with clients and enables it to exceed their expectations.
Alithya has established a three-pronged plan focusing on:
•Increasing scale through organic growth and strategic acquisitions by:
◦Sustaining steady organic growth through innovation, higher-value offerings and client-relationships based on trust;
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |3
◦Completing value enhancing acquisitions by way of a North America geographic expansion to complement current market presence, while progressively adding major integrated enterprise solutions offerings and selected specialized expertise;
•Achieving best-in-class employee engagement by:
◦Fostering a culture of collaboration and ownership;
◦Cultivating employee well-being and personal growth;
◦Investing in the development of our leaders and employees;
•Providing our investors, partners and stakeholders with long-term growing return on investment by:
◦Strengthening our existing relationships with clients, as a key trusted advisor, by generating long-term value;
◦Investing in innovation and higher value service offerings;
◦Acting responsibly, with a sustainable and respectful vision for our stakeholders.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |4
5. Financial Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Results of Operations | | Three months ended March 31, | | | | Year ended March 31, | | | | |
| (in $ thousands) | | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ | | $ | | $ |
| Revenues | | 73,181 | | | 72,643 | | | 279,007 | | | 209,478 | | | 159,290 | |
| Net Loss | | (33,975) | | | (2,730) | | | (39,667) | | | (12,475) | | | (7,224) | |
EBITDA (1) | | (1,596) | | | 654 | | | 2,397 | | | (4,013) | | | 1,153 | |
EBITDA Margin (1) | | (2.2) | % | | 0.9 | % | | 0.9 | % | | (1.9) | % | | 0.7 | % |
Adjusted EBITDA (1) | | 2,015 | | | 2,227 | | | 11,792 | | | 6,209 | | | 10,227 | |
Adjusted EBITDA Margin (1) | | 2.8 | % | | 3.1 | % | | 4.2 | % | | 3.0 | % | | 6.4 | % |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Other | | March 31, | | March 31, | | March 31, |
| (in $ thousands) | | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ |
| Total Assets | | 257,816 | | | 236,869 | | | 115,875 | |
Net Bank Borrowing (2) | | 26,940 | | | 8,659 | | | 19,433 | |
Distribution of Cash Dividends (3) | | — | | | 2,531 | | | — | |
| | | | | | | |
| | | | | | | | |
| Shares and Stock Options Outstanding | | June 16, |
| | 2020 |
| Class A subordinate voting shares ("Subordinate Voting Shares") | | 50,912,251 | |
| Class B multiple voting shares ("Multiple Voting Shares") | | 7,168,984 | |
Options (4) | | 3,129,089 | |
| | | |
1 These are non-IFRS financial measures defined below and accompanied by a reconciliation to the most directly comparable IFRS financial measure. Refer to the section below titled “Non-IFRS Financial Measures”.
2 This is a non-IFRS financial measure as defined below. Refer to the section below titled “Non-IFRS Financial Measures” and to section 11.6 for the calculated amount.
3 Old Alithya dividends. Refer to the section below titled "Share Capital and Dividends".
4 Includes 863,160 stock options to purchase Multiple Voting Shares.
5.1Q4 2020 Highlights
•Revenues increased 0.7% to $73.2 million, compared to $72.6 million for the same quarter last year, and increased 10.5% sequentially from $66.2 million in Q3-2020
•Adjusted EBITDA reached $2.0 million, down 9.6% from $2.2 million for the same quarter last year
•Net loss of $34.0 million, or $0.59 per share, which includes an impairment charge on intangibles and goodwill of $28.0 million, taken notably in the context of COVID-19 and the consolidation of the Company's tradenames
•Net cash used in operating activities was $3.0 million, an improvement compared to $6.9 million of cash used for the same quarter last year
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |5
•Quickly implemented a comprehensive business continuity plan in response to the COVID-19 pandemic
5.2Fiscal 2020 Highlights
•Revenues increased 33.2% to $279.0 million, compared to $209.5 million for fiscal 2019
•Gross margin percentage increased to 29.7%, from 25.9% for the same period last year
•Adjusted EBITDA increased 90.1% to $11.8 million, from $6.2 million last year
•Net loss of $39.7 million, or $0.70 per share, which includes an impairment charge on intangibles and goodwill of $28.0 million, taken notably in the context of COVID-19 and the consolidation of the Company's tradenames
•Net cash from operating activities was $8.7 million, an improvement compared to $19.6 million of cash used for the same period last year
•Solid financial position with cash and restricted cash of $11.0 million and net bank borrowing of $26.9 million at year end
•Completed the integration of Edgewater Technology and rolled out Oracle’s ERP cloud solution in the U.S.
6. Business Highlights
•Acquisition of Matricis Informatique, a leader namely in Internet of Things (IoT) and artificial intelligence, on October 1, 2019
•Acquisition of Travercent, a leading US-based cloud-focused ERP consulting group specialized in the healthcare sector, on December 13, 2019
•Acquisition of Groupe Askida Inc. and Services Conseils Askida Inc., a group specializing in software quality assurance and application development and modernization, on February 1, 2020
•Divestiture of Zero2Ten EMEA Limited ("Alithya UK"), an indirect wholly-owned subsidiary of the Company, on October 2, 2019
•Continued the integration of acquired companies
7. Business Combinations and Divestiture
Matricis Informatique Inc.
Overview
On October 1, 2019, the Company acquired 100% of the issued and outstanding shares of Matricis Informatique Inc. (“Matricis’) (the “Matricis Acquisition”), a Canadian consulting firm specializing in advanced applications and systems using techniques derived from the Internet of Things (IoT), Artificial Intelligence (AI), a combination of the aforementioned (AIoT), as well as operational intelligence in the healthcare, industrial, and financial sectors.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |6
The Matricis Acquisition was completed for total consideration of $7,200,000, consisting of $3,600,000, in cash, payable in two equal instalments on October 1, 2019, subject to working capital adjustments and other adjustments as necessary, and October 1, 2022 and $3,600,000, in aggregate, in share consideration payable by way of 947,292 Subordinate Voting Shares, of which 473,646 were issued on October 1, 2019 and 473,646 will be issued in equal portions on October 1, 2020, 2021 and 2022. The Subordinate Voting Shares to be issued on October 1, 2020 and subsequently, having a value of $1,800,000, in aggregate, will be recognized as share-based compensation over three years.
The fair value of the assets acquired, liabilities assumed, and the purchase consideration is preliminary pending completion of their valuation. Should new information, obtained within one year of the date of acquisition, about the facts and circumstances that existed at the date of the Matricis Acquisition, result in adjustments to the below amounts, or require additional provisions for conditions that existed at the date of the Matricis Acquisition, the fair value will then be revised. The Matricis Acquisition is being accounted for using the acquisition method of accounting.
For the year ended March 31, 2020, the Company incurred acquisition-related costs of approximately $157,000. These costs have been recorded in the consolidated statement of operations in business acquisitions and integration costs.
Purchase Price Allocation
The preliminary allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| | | | | |
| Acquisition of Matricis | |
| (in $ thousands) | $ |
| Current assets | |
| Cash | 467 | |
| Accounts receivable and other receivables | 584 | |
| Unbilled revenue | 288 | |
| Prepaids | 94 | |
| 1,433 | |
| Non-current assets | |
| Property and equipment | 85 | |
| Tax credits receivable | 1,059 | |
| Deferred tax assets | 111 | |
| Intangibles | 1,820 | |
| Goodwill | 2,566 | |
| Total assets acquired | 7,074 | |
| |
| Current liabilities | |
| Accounts payable and accrued liabilities | 596 | |
| Deferred revenue | 415 | |
| Current portion of long-term debt | 544 | |
| 1,555 | |
| Non-current liabilities | |
| Deferred lease inducements | 6 | |
| Deferred tax liabilities | 624 | |
| Total liabilities assumed | 2,185 | |
| |
| Net assets acquired | 4,889 | |
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |7
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, as well as its workforce. The Company does not expect any of the goodwill to be deductible for income tax purposes.
Consideration paid
The following table summarizes the acquisition date fair value of each class of consideration:
| | | | | |
| Acquisition of Matricis | |
| (in $ thousands) | $ |
| Cash paid | 1,578 | |
| Issuance of 473,646 Subordinate Voting Shares | 1,800 | |
| Balance of purchase payable | 1,511 | |
| Total consideration | 4,889 | |
| |
Matricis’ contribution to the Group’s results
The Matricis business contributed revenues of approximately $2,497,000, a gross margin of $1,100,000 and a loss before income taxes of $84,000 to the Group for the period October 1, 2019 to March 31, 2020. If the acquisition had occurred on April 1, 2019, consolidated pro-forma revenue, gross margin and loss before income taxes for the year ended March 31, 2020 would have been $4,824,000, $2,028,000 and $144,000, respectively. These amounts have been calculated using Matricis’ results and adjusting for:
•differences in accounting policies between the Group and Matricis;
•the removal of transaction costs incurred by Matricis from April 1, 2019 to September 30, 2019; and
•the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from April 1, 2019.
Alithya Travercent LLC
Overview
On December 13, 2019, the Company acquired 100% of the issued and outstanding membership interest of Travercent LLC (the “Travercent Acquisition”), a US-based cloud-focused ERP consulting group specialized in the healthcare sector, now known as Alithya Travercent LLC (“Alithya Travercent”). Alithya Travercent's competencies include implementing Oracle's cloud ERP, HCM, EPM and Business Intelligence applications. Alithya Travercent has also developed a cloud solution named CAPSURE RFTM, an Oracle cloud extension that optimizes material management processes, of healthcare providers, for supply chain management and point of use.
The Travercent Acquisition was completed for total consideration of US$19,500,000 ($25,802,849), consisting of US$13,650,000 ($18,061,994), in cash, payable in two equal instalments on December 13, 2019, subject to working capital and other adjustments as necessary, and December 13, 2022 and US$5,850,000 ($7,740,855), in aggregate, in share consideration payable by way of Subordinate Voting Shares, of which 1,274,510 were issued on December 13, 2019 (the "Closing Share Consideration") with a value of US$2,925,000 ($3,870,427) and a number of Subordinate Voting Shares on each of December 13, 2020, 2021 and 2022 equal to US$975,000 ($1,290,142) divided by the volume weighted average trading price of Subordinate Voting Shares on the TSX prior to each such issuance as determined in the purchase agreement. If such subsequent price of the Subordinate Voting Shares is lower than the price used for the Closing Share
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |8
Consideration, the Company has the option of paying each such amount in cash. The Subordinate Voting Shares to be issued on December 13, 2020 and subsequently, having a value of US$2,925,000 ($3,870,427), in aggregate, will be recognized as share-based compensation over three years.
The fair value of the assets acquired, liabilities assumed, and the purchase consideration is preliminary pending completion of their valuation. Should new information, obtained within one year of the date of acquisition, about the facts and circumstances that existed at the date of the Travercent Acquisition, result in adjustments to the below amounts, or require additional provisions for conditions that existed at the date of the Travercent Acquisition, the fair value will then be revised. The Travercent Acquisition is being accounted for using the acquisition method of accounting.
For the year ended March 31, 2020, the Company incurred acquisition-related costs of approximately $565,000. These costs have been recorded in the consolidated statement of operations in business acquisitions and integration costs.
Purchase Price Allocation
The preliminary allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| | | | | |
| Acquisition of Alithya Travercent | |
| (in $ thousands) | $ |
| Current assets | |
| Cash | 2,118 | |
| Accounts receivable and other receivables | 1,391 | |
| Unbilled revenue | 1,458 | |
| Prepaids | 49 | |
| 5,016 | |
| Non-current assets | |
| Intangibles | 15,720 | |
| Goodwill | 3,374 | |
| Total assets acquired | 24,110 | |
| |
| Current liabilities | |
| Accounts payable and accrued liabilities | 1,331 | |
| Deferred revenue | 2,301 | |
| Total liabilities assumed | 3,632 | |
| |
| Net assets acquired | 20,478 | |
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |9
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, as well as its workforce and expertise. The amount of goodwill is expected to be deductible for income tax purposes.
Consideration paid
The following table summarizes the acquisition date fair value of each class of consideration:
| | | | | |
| Acquisition of Alithya Travercent | |
| (in $ thousands) | $ |
| Cash paid | 8,958 | |
| Issuance of 1,274,510 Subordinate Voting Shares | 3,870 | |
| Balance of purchase payable | 7,650 | |
| Total consideration | 20,478 | |
| |
Alithya Travercent’s contribution to the Group’s results
The Alithya Travercent business contributed revenues of approximately $4,833,000, a gross margin of $1,909,000 and a profit before income taxes of $1,029,000 to the Group for the period December 13, 2019 to March 31, 2020. If the acquisition had occurred on April 1, 2019, consolidated pro-forma revenue, gross margin and profit before income taxes for the year ended March 31, 2020 would have been $15,789,000, $6,329,000 and $4,319,000, respectively. These amounts have been calculated using Alithya Travercent’s results and adjusting for:
•differences in accounting policies between the Group and Alithya Travercent;
•the removal of transaction costs incurred by Alithya Travercent from April 1, 2019 to December 12, 2019; and
•the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from April 1, 2019.
Askida
Overview
On February 1, 2020, the Company acquired 100% of the issued and outstanding shares of Group Askida Inc., now known as Alithya Askida Solutions Inc., and Askida Consulting Services Inc., now known as Alithya Askida Consulting Services Inc. (collectively “Askida”) (the “Askida Acquisition”), a Canadian group with expertise in software quality assurance tools and services, as well as in development and modernization of custom applications.
The Askida Acquisition was completed for total consideration of $16,000,000, consisting of $11,655,000, in cash payable in two instalments as follows: $8,396,250 on February 1, 2020, subject to working capital adjustments, and $3,258,750 on February 1, 2022, plus $4,345,000, in aggregate, in share consideration payable by way of the issuance of 1,200,765 Subordinate Voting Shares, of which 600,384 were issued on February 1, 2020 and 300,189 and 300,192 to be issued on February 1, 2021 and 2022, respectively. The Subordinate Voting Shares to be issued on February 1, 2021 and 2022, having a stated value of $2,172,500, in aggregate, will be recognized as share-based compensation over two years.
The fair value of the assets acquired, liabilities assumed, and the purchase consideration is preliminary pending completion of their valuation. Should new information, obtained within one year of the date of acquisition, about the facts and circumstances that existed at the date of the Askida Acquisition, result in adjustments to the below amounts, or require
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |10
additional provisions for conditions that existed at the date of the Askida Acquisition, the fair value will then be revised. The Askida Acquisition is being accounted for using the acquisition method of accounting.
For the year ended March 31, 2020, the Company incurred acquisition-related costs of approximately $265,000. These costs have been recorded in the consolidated statement of operations in business acquisitions and integration costs.
Purchase Price Allocation
The preliminary allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| | | | | |
| Acquisition of Askida | |
| (in $ thousands) | $ |
| Current assets | |
| Cash | 616 | |
| Accounts receivable and other receivables | 4,324 | |
| Unbilled revenue | 581 | |
| Tax credits receivable | 2,709 | |
| Prepaids | 229 | |
| 8,459 | |
| Non-current assets | | |
| Tax credits receivable | 956 | |
| Property and equipment | 244 | |
| Right-of-use assets | 193 | |
| Intangibles | 8,410 | |
| Goodwill | 4,324 | |
| Total assets acquired | 22,586 | |
| | |
| Current liabilities | | |
| Line of credit | 1,022 | |
| Demand loan | 2,131 | |
| Accounts payable and accrued liabilities | 1,789 | |
| Income taxes payable | 62 | |
| Deferred revenue | 318 | |
| Current portion of lease liabilities | 84 | |
| Current portion of long-term debt | 561 | |
| 5,967 | |
| Non-current liabilities | | |
| Lease liabilities | 109 | |
| Deferred tax liabilities | 3,024 | |
| Total liabilities assumed | 9,100 | |
| | |
| Net assets acquired | 13,486 | |
| |
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, as well as its workforce. The Company does not expect any of the goodwill to be deductible for income tax purposes.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |11
Consideration paid
The following table summarizes the acquisition date fair value of each class of consideration paid:
| | | | | |
| Acquisition of Askida | |
| (in $ thousands) | $ |
| Cash paid | 8,396 |
| Issuance of 600,384 Subordinate Voting Shares | 2,173 |
| Balance of purchase payable | 2,917 |
| Total consideration transferred | 13,486 |
| |
The Askida business contributed revenues of approximately $1,708,000, a gross margin of $210,000 and a loss before income taxes of $499,000 to the Group for the period February 1, 2020 to March 31, 2020. If the acquisition had occurred on April 1, 2019, consolidated pro-forma revenue, gross margin and loss before incomes taxes for the year ended March 31, 2020 would have been $12,465,000, $3,914,000 and $87,000, respectively. These amounts have been calculated using Askida’s results and adjusting for:
•differences in accounting policies between the Group and Askida;
•the removal of transaction costs incurred by Askida from April 1, 2019 to January 31, 2020; and
•the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from April 1, 2019.
Zero2Ten EMEA Limited
On October 2, 2019, Alithya Zero2Ten, Inc. an indirect wholly-owned subsidiary of the Company, sold 100% of the issued and outstanding shares of its wholly-owned subsidiary, Zero2Ten EMEA Limited (“Alithya UK”), for total cash consideration of GBP£800,000 (approximately $1,302,000), of which GBP£350,000 (approximately $570,000) was paid on October 2, 2019, and a balance of sale receivable of GBP£450,000 (approximately $791,000 ), was due on April 1, 2020 and is recorded in accounts receivable and other receivables. The balance of sale receivable was received on April 1, 2020.
The divestiture of Alithya UK resulted in a gain on disposal of subsidiary as follows:
| | | | | |
| Divestiture of Zero2Ten EMEA Limited | |
| (in $ thousands) | $ |
| Consideration received in cash | 565 | |
| Balance of sale receivable | 728 | |
| Total consideration | 1,293 | |
| Net assets divested | 612 | |
| Gain on sale of subsidiary | 681 | |
| |
Alithya USA, Inc. (formerly Edgewater Technology, Inc.)
Overview
On March 15, 2018, the Company, Alithya Canada Inc. (formerly Alithya Group Inc.) (“Old Alithya”), Edgewater Technology, Inc. (“Edgewater”), and 9374-8572 Delaware Inc. (“U.S. Merger Sub”), entered into an arrangement agreement, as amended on September 10, 2018 and October 17, 2018 (the “Arrangement Agreement”).
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |12
On November 1, 2018, and pursuant to the terms of the Arrangement Agreement, among other things, (i) the Company acquired Old Alithya, by way of a statutory plan of arrangement under the Business Corporations Act (Québec) (the “Arrangement”), and (ii) U.S. Merger Sub merged with and into Edgewater, with Edgewater being the surviving corporation (the “Merger”). The Arrangement and the Merger are, collectively referred to herein, as the “Edgewater Transaction”.
As consideration for the Arrangement, former shareholders of Old Alithya received, for each common share of Old Alithya (“Old Alithya Common Shares”), held immediately prior to the Edgewater Transaction, one newly issued Subordinate Voting Share and, for each multiple voting share of Old Alithya (“Old Alithya Multiple Voting Shares”) held immediately prior to the Edgewater Transaction, one newly issued Multiple Voting Share. As consideration for the Merger, former shareholders of Edgewater received, for each share of common stock of Edgewater (“Edgewater Common Stock”) held immediately prior to the Edgewater Transaction, 1.1918 Subordinate Voting Shares of the Company.
Following completion of the Edgewater Transaction, former shareholders of Old Alithya and Edgewater became shareholders of the Company, and each of Old Alithya and Edgewater became wholly-owned subsidiaries of the Company.
In connection with the Edgewater Transaction, and pursuant to the terms of the Arrangement Agreement, Edgewater declared to the Edgewater shareholders of record immediately prior to the closing date of the Edgewater Transaction, a special dividend equal to US $1.15 per share, approximately $22,108,000 (US $16,840,000), in aggregate, in cash. In addition, the exercise price of Edgewater stock options outstanding, immediately prior to the closing date of the Edgewater Transaction, was reduced by the special dividend amount of US $1.15 per stock option and, upon completion of the Edgewater Transaction, divided by the 1.1918 equity exchange ratio.
The Edgewater Transaction was approved by the respective shareholders of Old Alithya and Edgewater on October 25, 2018 and October 29, 2018, respectively.
On October 30, 2018, Old Alithya closed a private placement, where an aggregate 11,736,055 subscription receipts were issued at a price of $4.50 per subscription receipt (the “Offering”). Each subscription receipt automatically converted into an Old Alithya common share, immediately prior to the close of the Edgewater Transaction, and then exchanged for one Subordinate Voting Share of the Company, pursuant to the Arrangement Agreement. The net proceeds of the Offering were used to reduce indebtedness, fund future growth initiatives and for general corporate purposes. Costs related to the share issuance under the private placement, for the year ended March 31, 2019 of $2,764,885, net of deferred income taxes of $714,000 have been recorded in equity as share issue costs.
Purchase Price Allocation
Old Alithya is considered as the acquirer of Edgewater, as the Company was formed only to issue equity instruments to effect the Edgewater Transaction. In addition, Old Alithya shareholders held the majority of the voting rights of the Company once the Edgewater Transaction was completed. The Edgewater Transaction constituted a business combination as Edgewater meets the definition of a business. Since Old Alithya was considered the acquirer, the consolidated financial statements are presented as a continuation of Old Alithya. As such, the 2018 comparative figures presented in the consolidated financial statements are those of Old Alithya. The assets acquired and the liabilities assumed were recorded at their fair value at the time of the closing of the Edgewater Transaction, being November 1, 2018.
For the year ended March 31, 2019, the Company incurred acquisition-related costs of approximately $3,929,908. These costs have been recorded in the consolidated statements of operations in business acquisitions and integration costs.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |13
The allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| | | | | |
| Acquisition of Edgewater | |
| (in $ thousands) | $ |
| Current assets | |
| Cash | 24,869 | |
| Accounts receivable and other receivables | 27,705 | |
| Income taxes receivable | 1,770 | |
| Unbilled revenue | 1,741 | |
| Prepaids | 1,076 | |
| 57,161 | |
| Non-current assets | |
| Property and equipment | 510 | |
| Intangibles | 39,410 | |
| Goodwill | 47,161 | |
| Total assets acquired | 144,242 | |
| |
| Current liabilities | |
| Line of credit | 15,749 | |
| Accounts payable and accrued liabilities | 22,312 | |
| Dividend payable | 22,108 | |
| Deferred revenue | 3,751 | |
| 63,920 | |
| Non-current liabilities | |
| Deferred lease inducements | 64 | |
| Deferred tax liabilities | 1,322 | |
| Total liabilities assumed | 65,306 | |
| |
| Net assets acquired | 78,936 | |
| |
Identifiable net assets
The fair value of the accounts receivable and other receivables acquired as part of the acquired business amounted to $27,705,000, with a gross contractual amount of $28,500,000. As at the acquisition date, the Group’s best estimate of the contractual cash flow not expected to be collected amounted to $795,000.
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, work force and expected synergies from integrating Edgewater into the Group’s existing business. The goodwill will not be deductible for tax purposes.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |14
Consideration transferred
The following table summarizes the acquisition date fair value of each major class of consideration transferred:
| | | | | |
| Acquisition of Edgewater | |
| (in $ thousands) | $ |
Issuance of 17,458,348 shares | 78,364 | |
| Stock-based payments | 572 | |
| Total consideration transferred | 78,936 | |
| |
The subscription receipt issue price, under the private placement, of $4.50 per subscription receipt, having been determined with third-party investors, can be a reasonable reference for the fair value of the shares issued.
Following the closing of the Edgewater Transaction, the issued and outstanding stock options of Edgewater were converted into stock options of the Company and are deemed to be issued as part of the consideration of the Edgewater Transaction. Their fair value has been estimated at $572,000 using the Black-Scholes option pricing model with the following assumptions:
| | | | | | | | |
| Weighted average assumptions | | |
| Share price | $4.94 | |
| Exercise price | $3.52 – $7.61 | |
| Risk-free interest rate | 1.72% – 2.37% | |
| Expected volatility* | 30% | |
| Dividend yield | | — | |
| Expected option life (years) | 0.04 – 3.19 | |
| | |
* Determined on the basis of observed volatility in publicly traded companies operating in similar industries.
Edgewater’s contribution to the Group’s results
The Edgewater business contributed revenues of approximately $50,229,000, a gross margin of $19,401,000 and a loss before income taxes of $2,097,000 to the Group for the period November 1, 2018 to March 31, 2019. If the acquisition had occurred on April 1, 2018, consolidated pro-forma revenue and loss before income taxes for the year ended March 31, 2019 would have been $282,386,000 and $17,296,000, respectively. These amounts have been calculated using Edgewater’s results and adjusting for:
•differences in the accounting policies between the Group and its subsidiaries;
•the removal of results from a business segment not acquired;
•the removal of transaction costs incurred by Edgewater from April 1, 2018 to November 1, 2018; and
•the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from April 1, 2018.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |15
8. Non-IFRS Measures
This MD&A includes certain measures which have not been prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. These measures should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with IFRS.
The non-IFRS measures used by Alithya are described below:
•“EBITDA” refers to net income before adjusting for income tax expense (recovery), financial expenses, amortization of intangibles, depreciation of property and equipment and right-of-use assets, and impairment of intangibles and goodwill. Management believes that EBITDA is a useful measure as it provides an indication of the results generated by Alithya’s main business activities prior to taking into consideration how those activities are financed and taxed. For a reconciliation of net loss to EBITDA, see the section titled “EBITDA and Adjusted EBITDA” below.
•“EBITDA Margin” refers to the percentage of total revenue that EBITDA represents for a given period. See the section titled “EBITDA and Adjusted EBITDA” below.
•"Adjusted EBITDA” refers to net income before adjusting for income tax expense (recovery), financial expenses, foreign exchange, amortization of intangibles, depreciation of property and equipment and right-of-use assets, impairment of intangibles and goodwill, share-based compensation, business acquisitions and integration costs, severance, internal ERP systems implementation and other redundant and non-recurring items. Management believes that adjusted EBITDA is a useful measure as it provides an indication of the results generated by Alithya’s main business activities prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration the non-cash and other items listed above. For a reconciliation of net loss to adjusted EBITDA, see the section titled “EBITDA and adjusted EBITDA” below.
•“Adjusted EBITDA Margin” refers to the percentage of total revenue that adjusted EBITDA represents for a given period. See the section titled “EBITDA and Adjusted EBITDA” below.
•“Net Bank Borrowing” refers to long-term debt, less balances of purchase payable, unamortized transaction costs, cash, short-term deposits, and restricted cash. For the calculation of net bank borrowing, see the section titled “Long-Term Debt and Net Bank Borrowing” below.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |16
9. Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | | | | For the year ended March 31, | | |
| (in $ thousands, except for per share data) | | 2020 | | 2019 | | 2020 | | 2019 |
| | $ | | $ | | $ | | $ |
| Revenues | | 73,181 | | | 72,643 | | | 279,007 | | | 209,478 | |
| Cost of revenues | | 52,228 | | | 51,391 | | | 196,033 | | | 155,202 | |
| Gross margin | | 20,953 | | | 21,252 | | | 82,974 | | | 54,276 | |
| | | | | | | | |
| Operating expenses | | | | | | | | |
| Selling, general and administrative expenses | | 21,534 | | | 20,153 | | | 76,782 | | | 52,615 | |
| Business acquisitions and integration costs | | 1,173 | | | 592 | | | 4,637 | | | 5,818 | |
| Depreciation | | 894 | | | 324 | | | 3,368 | | | 980 | |
| Amortization of intangibles | | 3,480 | | | 2,663 | | | 11,278 | | | 8,092 | |
| Foreign exchange gain | | (158) | | | (147) | | | (161) | | | (144) | |
| Impairment of intangibles and goodwill | | 28,036 | | | | — | | | | 28,036 | | | | — | |
| | 54,959 | | | 23,585 | | | 123,940 | | | 67,361 | |
| Operating loss | | (34,006) | | | (2,333) | | | (40,966) | | | (13,085) | |
| Financial expenses | | 668 | | | 622 | | | 2,347 | | | 2,241 | |
| Gain on sale of subsidiary | | — | | | — | | | (681) | | | — | |
| Loss before income taxes | | (34,674) | | | (2,955) | | | (42,632) | | | (15,326) | |
| Income tax expense (recovery) | | | | | | | | |
| Current | | 295 | | | (359) | | | 237 | | | 289 | |
| Deferred | | (994) | | | 134 | | | (3,202) | | | (3,140) | |
| | (699) | | | (225) | | | (2,965) | | | (2,851) | |
| Net loss | | (33,975) | | | (2,730) | | | (39,667) | | | (12,475) | |
| Basic and diluted loss per share | | (0.59) | | | (0.05) | | | (0.70) | | | (0.34) | |
| | | | | | | | |
* Certain figures have been reclassified to conform to the current three-month and twelve-month presentation.
9.1Revenues
Revenues amounted to $73.2 million for the three months ended March 31, 2020, a $0.6 million increase, or 0.7%, from $72.6 million for the three months ended March 31, 2019.
Revenues in Canada and Europe increased on a sequential basis compared to the three months ended December 31, 2019, however, decreased year-over-year by $1.8 million. During the three months ended March 31, 2020, the Company generated growth in its higher value-added services with new and existing clients while experiencing a decline as a result of reduced external spending at a few of its largest Canadian clients. As such, in Canada, for the fourth quarter and on a year-over-year basis, higher value-added service revenues increased, while lower margin service revenues decreased. This decline also reflects the impact of COVID-19 at the end of the quarter, which was partially offset by additional revenues from the acquisitions of Matricis Informatique and Askida.
US revenues increased by $2.3 million, driven primarily by additional revenues from our recent US acquisition, Travercent, compared to the same quarter last year, partially offset by revenues lost from the divestiture of our UK subsidiary. US revenues were also negatively impacted by decreased revenues from Oracle legacy products and services, which management believes will be bolstered in future quarters by the expertise and capabilities acquired with the acquisition of Travercent.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |17
The Company's strategy to offer an increasing proportion of higher value-added services continued to unfold. In each of our markets, the expanded service offering attracted a growing number of new clients.
Revenues amounted to $279.0 million for the year ended March 31, 2020, a $69.5 million increase, or 33.2%, from $209.5 million for the year ended March 31, 2019. US revenues increased by $72.1 million, driven primarily by additional months of revenues from our US acquisitions (Edgewater Technology and Travercent) compared to the same period last year, partially offset by revenues lost from the divestiture of our UK subsidiary.
Revenues in Canada and Europe decreased by $2.6 million, which was partially offset by additional revenues from the acquisitions of Matricis Informatique and Askida. In Canada and Europe, higher value-added service revenues increased, while lower margin service revenues decreased, for the year ended March 31, 2020, compared to the year ended March 31, 2019.
During the year ended March 31, 2020, certain important historical customers of the Company experienced a notable, cyclical decline in their IT spending totaling $21.0 million in revenues, year-over-year. Alithya maintains preferred vendor status with each of these customers, and continues to play a key role in their respective, evolving, IT and digital transformation needs. During the same period, revenues from all other Canadian customers, including a number of new ones, grew by 14.6% before acquisitions.
The Company also recorded a decrease from Oracle legacy products and services in the US. The Company has mitigated the decline through growth, in Canada and the US, with new and existing clients, supported by the growth of its higher value-added, digital transformation services and the commercial benefits of its larger scale.
9.2Gross Margin
Gross margin decreased by $0.4 million, or 1.5%, to $20.9 million for the three months ended March 31, 2020, from $21.3 million for the three months ended March 31, 2019. Gross margin as a percentage of revenues decreased to 28.6% for the three months ended March 31, 2020, from 29.3% for the three months ended March 31, 2019. The decrease was driven primarily by reduced gross margin from Europe, in part due to the earlier impact of COVID-19, and in the US, partially offset by increased gross margin in Canada, due in part to the changing mix of revenues described above.
The Company’s long-term strategy to move towards higher value, digital transformation services, as well as the increasing use of permanent employees compared to contractors, also contributed to an increase in gross margin.
Gross margin increased by $28.7 million, or 52.9%, to $83.0 million for the year ended March 31, 2020, from $54.3 million for the year ended March 31, 2019. Gross margin as a percentage of revenues increased to 29.7% for the year ended March 31, 2020, from 25.9% for the year ended March 31, 2019. The improvement was driven primarily by increased gross margin from acquisitions (Edgewater Technology, Travercent, and Matricis Informatique) and growth in higher value-added service revenues. US gross margin remained strong, while gross margin in Canada increased on a year-to-date basis, due in part to the changing mix of revenues described above.
The Company’s long-term strategy to move towards higher value, digital transformation services, as well as the increasing use of permanent employees compared to contractors, also contributed to the increase in gross margin.
9.3Segment Reporting
An operating segment is a component of a company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of Alithya’s other segments.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |18
Based on the information received and analyzed by decision-makers on a regular basis, Alithya has determined that it has a single reportable segment. Within this single reportable segment, results can be analyzed by geographic location (Canada, USA and Europe).
The following table presents total external revenues by geographic location:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | | | | | | | | For the year ended March 31, | | | | | | |
| (in $ thousands) | | | 2020 | | | | 2019 | | | | 2020 | | | | 2019 | | |
| | | | $ | | % | | $ | | % | | $ | | % | | $ | | % |
| Canada | | | | 38,181 | | | | 52.2 | | | | 38,521 | | | | 53.0 | | | | 147,821 | | | | 53.0 | | | 149,064 | | | 71.1 | |
| USA | | | | 31,468 | | | | 43.0 | | | | 29,129 | | | | 40.1 | | | | 118,125 | | | | 42.3 | | | 45,982 | | | 22.0 | |
| Europe | | | | 3,532 | | | | 4.8 | | | | 4,993 | | | | 6.9 | | | | 13,061 | | | | 4.7 | | | 14,432 | | | 6.9 | |
| | | | 73,181 | | | | 100.0 | | | | 72,643 | | | | 100.0 | | | | 279,007 | | | | 100.0 | | | 209,478 | | | 100.0 | |
| | | | | | | | | | | | | | | | |
* Certain figures have been reclassified to conform to the current three-month and twelve-month presentation.
9.4Operating Expenses
9.4.1Selling, General and Administrative Expenses
Selling, general and administrative expenses include salary, wages and other benefits for selling and administrative employees, professional fees, occupancy costs, information technology and communications costs, share-based compensation, public listing and investor fees, and other administrative expenses.
Selling, general and administrative expenses totaled $21.5 million for the three months ended March 31, 2020, an increase of $1.3 million, or 6.8%, from $20.2 million for the three months ended March 31, 2019. The additional expenses from the Travercent, Matricis Informatique and Askida acquisitions, accounted for $2.0 million of the increased expenses, and were partially offset by a $0.9 million decrease in expenses from Edgewater Technology due to the divestiture of our UK subsidiary and certain non-recurring items. Expenses in Canada and Europe increased by $0.3 million, or 2.4%, to $11.3 million for the three months ended March 31, 2020, from $11.0 million for the three months ended March 31, 2019, as increases of $0.4 million in employee compensation costs, used primarily to enhance operations and sales, and increased share-based compensation of $0.9 million, were partially offset by a $0.5 million decrease in occupancy costs mainly due to the adoption of IFRS 16 – Leases and decreased business development and travel costs of $0.3 million and $0.2 million, respectively. For more details regarding the adoption of IFRS 16 – Leases, refer to section 16.1 of this document. As previously discussed, management targets to continue decreasing administrative expenses as consolidation synergies materialize.
Selling, general and administrative expenses totaled $76.8 million for the year ended March 31, 2020, an increase of $24.2 million, or 45.9%, from $52.6 million for the year ended March 31, 2019. The additional expenses from acquisitions (Edgewater Technology, Travercent, Matricis Informatique and Askida) compared to the same period last year, accounted for $19.5 million of the increased expenses, and were partially offset by the divestiture of our UK subsidiary and certain non-recurring items. Expenses in Canada and Europe increased by $4.7 million, mainly due to a $4.3 million increase in employee compensation costs, used primarily to enhance operations and sales, and a $0.5 million increase in professional fees required in order to adequately manage the additional duties related to becoming a public company, increased share-based compensation of $1.1 million, increased insurance costs of $0.4 million, and increased public listing fees of $0.3 million, partially offset by a $1.8 million decrease in occupancy costs mainly due to the adoption of IFRS 16 – Leases.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |19
9.4.2Share-Based Compensation
Share-based compensation is included in cost of revenues and selling, general and administrative expenses and is detailed in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | | | | For the year ended March 31, | | |
| (in $ thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
| | $ | | $ | | $ | | $ |
| Stock option plan | | 187 | | | | 136 | | | | 745 | | | | 372 | |
| Share purchase plan – employer contribution | | 173 | | | | 172 | | | | 633 | | | | 593 | |
| Share-based compensation on shares vested during the year, issued on business acquisitions | | 1,184 | | | | 268 | | | | 1,868 | | | | 1,075 | |
| Deferred share units | | 141 | | | | 91 | | | | 305 | | | | 209 | |
| | 1,685 | | | | 667 | | | | 3,551 | | | | 2,249 | |
| | | | | | | | |
Share-based compensation amounted to $1.7 million for the three months ended March 31, 2020, representing an increase of $1.0 million, or 152.6%, from $0.7 million for the three months ended March 31, 2019. The increase in share-based compensation was driven primarily by increased expenses related to the vesting of shares granted as share-based compensation to employees of previous business acquisitions.
Share-based compensation amounted to $3.6 million for the year ended March 31, 2020, representing an increase of $1.3 million, or 57.9%, from $2.2 million for the year ended March 31, 2019. The increase in share-based compensation was driven primarily by increased expenses related to the vesting of shares granted as share-based compensation to employees of previous business acquisitions and stock options.
9.4.3Business Acquisitions and Integration Costs
Business acquisitions and integration costs amounted to $1.2 million for the three months ended March 31, 2020, representing an increase of $0.6 million, from $0.6 million for the three months ended March 31, 2019, driven by an increase in acquisition costs mainly related to the acquisitions of Travercent and Askida.
Business acquisitions and integration costs amounted to $4.6 million for the year ended March 31, 2020, representing a decrease of $1.2 million, from $5.8 million for the year ended March 31, 2019. Decreased acquisition costs of $2.9 million were partially offset by an increase of $1.7 million in integration costs related to the acquisition of Edgewater, consisting mainly of professional fees and retention and severance costs.
9.4.4Depreciation
Depreciation totaled $0.9 million for the three months ended March 31, 2020, compared to $0.3 million for the three months ended March 31, 2019. These costs consisted primarily of depreciation on Alithya’s property and equipment and right-of-use assets.
Depreciation related to property and equipment amounted to $0.5 million for the three months ended March 31, 2020, representing an increase of $0.2 million, from $0.3 million for the three months ended March 31, 2019. Due to the adoption of IFRS 16 – Leases, depreciation related to right-of-use assets amounted to $0.5 million for the three months ended March 31, 2020. As IFRS 16 – Leases was applied using a modified retrospective approach, no amount was recognized for the three months ended March 31, 2019.
Depreciation totaled $3.4 million for the year ended March 31, 2020, compared to $1.0 million for the year ended March 31, 2019. These costs consisted primarily of depreciation on Alithya’s property and equipment and right-of-use assets.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |20
Depreciation related to property and equipment amounted to $1.3 million for the year ended March 31, 2020, representing an increase of $0.3 million, from $1.0 million for the year ended March 31, 2019. Due to the adoption of IFRS 16 – Leases, depreciation related to right-of-use assets amounted to $2.1 million for the year ended March 31, 2020. As IFRS 16 – Leases was applied using a modified retrospective approach, no amount was recognized for the year ended March 31, 2019. For more details regarding the adoption of IFRS 16 – Leases, refer to section 16.1 of this document.
9.4.5Amortization of Intangibles
Amortization of intangibles increased by $0.8 million, to $3.5 million for the three months ended March 31, 2020, from $2.7 million for the three months ended March 31, 2019. These costs consisted primarily of amortization of customer relationships recognized on acquisitions. Amortization of intangibles increased by $3.2 million, to $11.3 million for the year ended March 31, 2020, from $8.1 million for the year ended March 31, 2019.
Alithya amortizes customer relationships over a period of three to ten years and recorded $2.5 million and $2.4 million of customer relationship amortization expense for the three months ended March 31, 2020 and 2019, respectively. Alithya recorded $10.1 million of customer relationship amortization expense for the year ended March 31, 2020, an increase of $2.5 million, or 32.7%, from $7.6 million for the year ended March 31, 2019. The increase was related primarily to the amortization expense on the customer relationships recognized from the acquisition of Edgewater.
9.4.6Foreign Exchange Gain
Foreign exchange gain was immaterial for the three-month and twelve-month periods ended March 31, 2020 and 2019.
9.4.7Impairment of Intangibles and Goodwill
An impairment loss of $13.3 million was recognized as at March 31, 2020 for the tradenames related to the EPM and the ERP US operations, both stemming from the Edgewater Transaction. The recoverable amount of the asset is its value-in-use, as determined by management. The continued development and promotion of the Alithya tradename, and its resulting increased recognition and value, has reduced the use, relative importance and value, of the Company’s past acquisitions’ historical tradenames. The tradenames will nevertheless continue to be registered and protected, where appropriate, for competitive considerations. For the year ended March 31, 2019, no impairment was recognized.
The Company has performed its annual goodwill impairment testing, on March 31, 2020, in the context of the COVID-19 pandemic and the significantly increased uncertainty surrounding global economic conditions in general, and the outlook of the Company’s clients’ different markets and industries in particular. As a result, the Company recorded a total goodwill impairment of $14.7 million. The immediate and long-term impacts of the COVID-19 pandemic, including related government and central bank interventions are unknown at this time and any estimate thereof is subject to significant uncertainty. The effects of the pandemic may therefore differ from those used in the impairment calculations. The Group completed an annual impairment test as at March 31, 2019 and concluded no impairment occurred.
For more details on impairment testing of intangibles and goodwill, refer to section 15.6 of this document.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |21
9.5Other Income and Expenses
9.5.1Financial Expenses
Financial expenses are summarized in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | | | | For the year ended March 31, | | |
| (in $ thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
| | $ | | $ | | $ | | $ |
| Interest on long-term debt | | 275 | | | 125 | | | 1,155 | | | 687 | |
| Interest and financing charges | | 61 | | | 452 | | | 306 | | | 1,202 | |
| Interest on lease liabilities | | 98 | | | — | | | 375 | | | — | |
| Amortization of finance costs | | 48 | | | 8 | | | 231 | | | 144 | |
| Interest accretion on balances of purchase payable | | 191 | | | 37 | | | 318 | | | 211 | |
| Interest income | | (5) | | | — | | | (38) | | | (3) | |
| | 668 | | | 622 | | | 2,347 | | | 2,241 | |
| | | | | | | | |
Financial expenses amounted to $0.7 million and $0.6 million for the three months ended March 31, 2020 and 2019, respectively. They were mainly driven by interest on long-term debt and interest accretion on balances of purchase payable during the three months ended March 31, 2020, and by interest and financing charges and interest on long-term debt during the three months ended March 31, 2019.
Financial expenses amounted to $2.3 million and $2.2 million for the years ended March 31, 2020 and 2019, respectively. They were mainly driven by interest on long-term debt and interest and financing charges, and, specifically for the year ended March 31, 2020, by interest on lease liabilities due to the adoption of IFRS 16.
9.5.2Income Taxes
Income tax recovery was $0.7 million for the three months ended March 31, 2020, representing an increase of $0.5 million, from a recovery of $0.2 million for the three months ended March 31, 2019, due primarily to an increase in tax losses in Alithya’s loss position entities.
Income tax recovery was $3.0 million for the year ended March 31, 2020, representing an increase of $0.1 million, or 4.0%, from a recovery of $2.9 million for the year ended March 31, 2019, due primarily to an increase in tax losses in Alithya’s loss position entities.
9.6Net Loss and Loss per Share
Alithya’s net loss for the three months ended March 31, 2020 was $34.0 million, an increase of $31.2 million, from $2.7 million for the three months ended March 31, 2019. The impairment charge accounted for $28.0 million of the increased loss. The increase was also driven by decreased EBITDA, increased amortization of intangibles and depreciation, and increased income tax recovery in the three months ended March 31, 2020, compared to the three months ended March 31, 2019. On a per share basis, this translated into a basic and diluted net loss per share of $0.59 for the three months ended March 31, 2020, compared to a net loss of $0.05 for the three months ended March 31, 2019.
Alithya’s net loss for the year ended March 31, 2020 was $39.7 million, an increase of $27.2 million, from $12.5 million for the year ended March 31, 2019. The impairment charge accounted for $28.0 million of the increased loss. The increase was also the result of increased EBITDA, increased amortization of intangibles and depreciation, and increased income tax recovery in the year ended March 31, 2020, compared to the year ended March 31, 2019. On a per share basis, this
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |22
translated into a basic and diluted net loss per share of $0.70 for the year ended March 31, 2020, compared to a net loss of $0.34 for the year ended March 31, 2019.
10. EBITDA and Adjusted EBITDA
The following table reconciles net loss to EBITDA and adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | | | | For the year ended March 31, | | |
| (in $ thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
| | $ | | $ | | $ | | $ |
| Revenues | | 73,181 | | | 72,643 | | | 279,007 | | | 209,478 | |
| Net loss | | (33,975) | | | (2,730) | | | (39,667) | | | (12,475) | |
| Financial expenses | | 668 | | | 622 | | | 2,347 | | | 2,241 | |
| Income tax recovery | | (699) | | | (225) | | | (2,965) | | | (2,851) | |
| Depreciation | | 894 | | | 324 | | | 3,368 | | | 980 | |
| Amortization of intangibles | | 3,480 | | | 2,663 | | | 11,278 | | | 8,092 | |
| Impairment of intangibles and goodwill | | 28,036 | | | — | | | 28,036 | | | — | |
EBITDA(1) | | (1,596) | | | 654 | | | 2,397 | | | (4,013) | |
EBITDA Margin(1) | | (2.2) | % | | 0.9 | % | | 0.9 | % | | (1.9) | % |
| Adjusted for: | | | | | | | | | | | | |
| Gain on sale of subsidiary | | — | | | — | | | (681) | | | — | |
| Foreign exchange gain | | (158) | | | (147) | | | (161) | | | (144) | |
| Share-based compensation | | 1,685 | | | 667 | | | 3,551 | | | 2,249 | |
| Business acquisitions and integration costs | | 1,173 | | | 592 | | | 4,637 | | | 5,818 | |
| Premise relocation expenses | | 126 | | | — | | | 330 | | | — | |
| Severance | | 384 | | | 53 | | | 554 | | | 652 | |
| Internal ERP systems implementation | | 401 | | | 408 | | | 1,165 | | | 1,647 | |
Adjusted EBITDA(1) | | 2,015 | | | 2,227 | | | 11,792 | | | 6,209 | |
Adjusted EBITDA Margin(1) | | 2.8 | % | | 3.1 | % | | 4.2 | % | | 3.0 | % |
| | | | | | | | |
1 Non-IFRS measure. See “Non-IFRS Measures” above.
* Certain figures have been reclassified to conform to the current three-month and twelve-month presentation.
EBITDA amounted to a loss of $1.6 million for the three months ended March 31, 2020, representing a decrease of $2.3 million, from a positive EBITDA of $0.7 million for the three months ended March 31, 2019. EBITDA Margin was equal to (2.2)% for the three months ended March 31, 2020, compared to 0.9% for the three months ended March 31, 2019.
Adjusted EBITDA amounted to $2.0 million for the three months ended March 31, 2020, representing a decrease of $0.2 million, or 9.6%, from $2.2 million for the three months ended March 31, 2019. The positive contribution from the acquisitions of Travercent, Matricis Informatique and Askida, increased margins from higher value business and a positive impact of $0.5 million from the adoption of IFRS 16 – Leases, were offset by a combination of recurring and non-recurring expenses related to expanding the business and the initial impact of COVID-19. Adjusted EBITDA Margin was 2.8% for the three months ended March 31, 2020, compared to 3.1% for the three months ended March 31, 2019.
EBITDA amounted to $2.4 million for the year ended March 31, 2020, representing an increase of $6.4 million, from a loss of $4.0 million for the year ended March 31, 2019. EBITDA Margin was equal to 0.9% for the year ended March 31, 2020, compared to (1.9)% for the year ended March 31, 2019.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |23
Adjusted EBITDA amounted to $11.8 million for the year ended March 31, 2020, representing an increase of $5.6 million, or 90.1%, from $6.2 million for the year ended March 31, 2019. The positive contribution from the acquisitions of Edgewater Technology, Travercent, Matricis Informatique and Askida, increased margins from higher value business and a positive impact of $2.1 million from the adoption of IFRS 16 – Leases, were partially offset by a combination of recurring and non-recurring expenses related to being a public company and expanding the business, as well as some initial impacts of COVID-19. Adjusted EBITDA Margin was equal to 4.2% for the year ended March 31, 2020, compared to 3.0% for the year ended March 31, 2019.
11. Liquidity and Capital Resources
11.1Consolidated Statements of Cash Flows
Alithya’s ongoing operations and growth are financed through a combination of operating cash flows, borrowings under its existing credit facility, and the issuance of equity. Alithya seeks to maintain an optimal level of liquidity through the active management of its assets and liabilities, as well as its cash flows. The following table summarizes Alithya’s cash flow activities for the three and twelve months ended March 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | | | | For the year ended March 31, | | |
| (in $ thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
| | $ | | $ | | $ | | $ |
| Net cash from (used in) operating activities | | (2,971) | | | (6,915) | | | 8,692 | | | (19,573) | |
| Net cash from (used in) investing activities | | (8,095) | | | (1,586) | | | (18,204) | | | 21,996 | |
| Net cash from (used in) financing activities | | (1,214) | | | 6,050 | | | 4,942 | | | (5,623) | |
| Effect of exchange rate changes | | 1,299 | | | (195) | | | 579 | | | 1,536 | |
| Net change in cash | | (10,981) | | | (2,646) | | | (3,991) | | | (1,664) | |
| Cash at the beginning of the period | | 19,791 | | | 15,447 | | | 12,801 | | | 14,465 | |
| Cash at the end of the period | | 8,810 | | | 12,801 | | | 8,810 | | | 12,801 | |
| | | | | | | | |
11.2Cash Flows from (Used in) Operating Activities
For the three months ended March 31, 2020, net cash used in operating activities was $3.0 million, representing an improvement of $3.9 million, from $6.9 million of cash used for the three months ended March 31, 2019. The cash flows for the three months ended March 31, 2020 resulted primarily from the net loss of $34.0 million, plus $33.4 million of non-cash adjustments to the net loss consisting primarily of impairment of intangibles and goodwill and depreciation and amortization, partially offset by deferred taxes, and $2.4 million in unfavorable changes in non-cash working capital items. In comparison, the cash flows for the three months ended March 31, 2019 resulted primarily from the net loss of $2.7 million, plus $2.9 million of non-cash adjustments to the net loss, consisting primarily of depreciation and amortization, and $7.1 million in unfavorable changes in non-cash working capital items.
Unfavorable changes in non-cash working capital items of $2.4 million during the three months ended March 31, 2020 consisted primarily of a $3.9 million increase in accounts receivable and other receivables, a $1.1 million decrease in deferred revenue, and a $0.2 million increase in tax credits receivable, partially offset by a $2.3 million decrease in unbilled revenue, a $0.3 million decrease in prepaids, and a $0.2 million decrease in income taxes receivable. For the three months ended March 31, 2019, unfavorable changes in non-cash working capital items of $7.1 million consisted primarily of a $6.6 million increase in accounts receivable and other receivables, a $1.1 million increase in tax credits receivable, a $0.4 million increase in prepaids and a $0.3 million increase in unbilled revenue, partially offset by a $1.4 million increase in accounts payable and accrued liabilities.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |24
For the year ended March 31, 2020, net cash from operating activities was $8.7 million, representing an increase of $28.3 million, from $19.6 million of cash used for the year ended March 31, 2019. The cash flows for the year ended March 31, 2020 resulted primarily from the net loss of $39.7 million, plus $42.6 million of non-cash adjustments to the net loss consisting primarily of impairment of intangibles and goodwill, depreciation and amortization and share-based compensation, partially offset by the gain on the divestiture of Alithya UK and deferred taxes, and $5.7 million in favorable changes in non-cash working capital items. In comparison, the cash flows for the year ended March 31, 2019 resulted primarily from the net loss of $12.5 million, plus $7.7 million of non-cash adjustments to the net loss including depreciation and amortization and share-based compensation, partially offset by deferred taxes, and $14.8 million in unfavorable changes in non-cash working capital items.
Favorable changes in non-cash working capital items of $5.7 million during the year ended March 31, 2020 consisted primarily of a $7.6 million decrease in accounts receivable and other receivables, a $2.2 million decrease in unbilled revenue, a $0.4 million increase in deferred revenue and a $0.4 million decrease in prepaids, partially offset by a $4.7 million decrease in accounts payable and accrued liabilities and a $0.4 million increase in income taxes receivable. For the year ended March 31, 2019, unfavorable changes in non-cash working capital items of $14.8 million consisted primarily of a $9.8 million decrease in accounts payable and accrued liabilities, a $5.1 million increase in accounts receivable and other receivables, a $1.3 million increase in prepaids and a $0.6 million increase in tax credits receivable, partially offset by a $1.1 million decrease in unbilled revenue, and a $0.7 million decrease in income taxes receivable.
11.3Cash Flows from (Used in) Investing Activities
For the three months ended March 31, 2020, net cash used in investing activities was $8.1 million, representing an increase of $6.5 million, from $1.6 million of cash used for the three months ended March 31, 2019. The cash used in the three months ended March 31, 2020 resulted primarily from the acquisition of Askida and purchases of property and equipment mainly related to the relocation of certain office premises and computer equipment acquired to facilitate teleworking due to COVID-19. In comparison, the cash used in the three months ended March 31, 2019 resulted primarily from purchases of short-term deposits and purchases of property and equipment as part of the ordinary course of business.
For the year ended March 31, 2020, net cash used in investing activities was $18.2 million, representing a decrease of $40.2 million, from $22.0 million of cash generated for the year ended March 31, 2019. The cash flows for the year ended March 31, 2020 resulted primarily from the acquisitions of Matricis Informatique, Travercent and Askida and purchases of property and equipment mainly related to the relocation of certain office premises. In comparison, the cash generated in the year ended March 31, 2019 resulted primarily from the cash acquired in the Edgewater Transaction, partially offset by purchases of property and equipment and intangibles as part of the ordinary course of business and purchases of short-term deposits.
11.4 Cash Flows from (Used in) Financing Activities
For the three months ended March 31, 2020, net cash used in financing activities was $1.2 million, representing a decrease of $7.3 million, from $6.1 million of cash generated for the three months ended March 31, 2019. The cash flows for the three months ended March 31, 2020 resulted primarily from $21.1 million in long-term debt repayments and $3.2 million in line of credit repayments, partially offset by $23.4 million in proceeds from long-term debt, net of related transaction costs. In comparison, the cash generated for the three months ended March 31, 2019 resulted primarily from $26.8 million in proceeds from long-term debt, net of related transaction costs, partially offset by $18.4 million in net repayments under a line of credit and $2.6 million in long-term debt repayments.
For the year ended March 31, 2020, net cash from financing activities was $4.9 million, representing an increase of $10.6 million, from $5.6 million of cash used for the year ended March 31, 2019. The cash flows for the year ended March 31, 2020 resulted primarily from $64.1 million in proceeds from long-term debt, net of related transaction costs, partially offset by $54.4 million in long-term debt repayments and $3.2 million in line of credit repayments. In comparison, the cash flows for the year ended March 31, 2019 resulted primarily from $40.5 million in net repayments under a line of credit, $24.0 million in
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |25
dividends paid in connection with the Edgewater Transaction and $20.4 million in long-term debt repayments, partially offset by $50.0 million in proceeds from the issuance of shares as part of a private placement and $29.5 million in proceeds from long-term debt, net of related transaction costs.
11.5Capital Resources
Alithya’s capital consists of cash, restricted cash, long-term debt and total equity. Alithya’s main objectives when managing capital are to provide a strong capital base in order to maintain shareholders’, creditors’ and other stakeholders’ confidence and to sustain future growth and development of the business, to maintain a flexible capital structure that optimizes the cost of capital at an acceptable risk level and preserves the ability to meet its financial obligations, to ensure sufficient liquidity to pursue its organic growth strategy and undertake selective acquisitions, and to provide returns on investment to shareholders.
In managing its capital structure, Alithya monitors performance throughout the year to ensure anticipated working capital requirements and maintenance capital expenditures are funded from operations, available cash on deposit and, where applicable, borrowings.
In the context of COVID-19, governments in certain jurisdictions offer a number of financial assistance programs. The Company keeps track of such programs in order to verify its eligibility, on an ongoing basis. As such, certain subsidiaries of the Company are benefiting from certain programs in Canada, the US and France (refer to section 13 of this document).
11.6 Long-Term Debt and Net Bank Borrowing
Alithya has a $60.0 million senior secured revolving credit facility (the “Credit Facility”), which can be drawn in Canadian and US dollars, and is available in prime rate advances, LIBOR advances, bankers’ acceptances and letters of credit up to $2.5 million. The advances bear interest at the Canadian or US prime rate, plus an applicable margin ranging from 0.00% to 0.75%, or bankers’ acceptances or LIBOR rates, plus an applicable margin ranging from 1.00% to 2.00%, as applicable for Canadian and US advances, respectively. The applicable margin is determined based on threshold limits for certain financial ratios.
The Credit Facility is secured by a first ranking hypothec on the universality of Alithya’s assets, excluding leased equipment and Investissement Quebec’s first ranking lien on tax credits receivable for the financing tied to refundable tax credits, to a maximum of $7,500,000. The Credit Facility matures in 2022 and is renewable for additional one-year periods at the lender’s discretion.
Under the terms of the Credit Facility, Alithya is required to maintain certain financial covenants. As at March 31, 2020, Alithya was in compliance with its financial covenants.
On June 18, 2020, the Credit Facility was amended to reflect new covenant definitions, the Paycheck Protection Program (the “PPP”) loan received on May 5, 2020 (refer to section 13 of this document), a temporary minimum availability test, certain other COVID-19 considerations, as well as certain other administrative clarifications. In addition, the maximum applicable margin for the Canadian and US prime rate advances increased from 0.75% to 1.50%, and maximum applicable margin for bankers’ acceptances and LIBOR advances increased from 2.00% to 2.75%. The financial covenants associated with the Credit Facility were eased as part of the amendment.
As at March 31, 2020, cash amounted to $8.8 million, restricted cash held in trust as required by contractual obligations arising from business acquisitions was $2.2 million, and $38.0 million was drawn under the Credit Facility and classified as long-term debt. In comparison, as at March 31, 2019, cash amounted to $12.8 million, restricted cash held in trust as required by contractual obligations arising from business acquisitions was $2.2 million, short-term deposits totaled $1.3 million, and $24.9 million was drawn under the Credit Facility and classified as long-term debt.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |26
The following table reconciles long-term debt to net bank borrowing:
| | | | | | | | | | | | | | |
| As at | | March 31, | | March 31, |
| (in $ thousands) | | 2020 | | 2019 |
| | $ | | $ |
| Current portion of long-term debt | | 1,143 | | | 1,000 | |
| Long-term debt | | 52,086 | | | 27,305 | |
| Total long-term debt | | 53,229 | | | 28,305 | |
| Less: | | | | | | |
| Balances of purchase payable | | 15,609 | | | 3,765 | |
| Unamortized transaction costs | | (342) | | | (409) | |
| Cash | | 8,810 | | | 12,801 | |
| Short-term deposits | | — | | | 1,324 | |
| Restricted cash | | 2,212 | | | 2,165 | |
| | 26,289 | | | 19,646 | |
Net Bank Borrowing(1) | | 26,940 | | | 8,659 | |
| | | | | |
(1) Non-IFRS measure. See “Non-IFRS Measures” above.
During the year ended March 31, 2020, Alithya increased its net bank borrowing primarily in order to fund acquisitions, including the cash portion of the purchase price, acquisition-related costs and the repayment of debt acquired.
11.7 Contractual Obligations
The following table summarizes the carrying amounts and the contractual maturities of both the interest and principal portions of significant financial liabilities, as well as minimum payments on leases and contracted expenditures for operating commitments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | | | | | | | |
| (in $ thousands) | | Carrying amount | | Total | | Less than 1 year | | 1-2 years | | 2-5 years | | More than 5 years |
| | $ | | $ | | $ | | $ | | $ | | $ |
| Accounts payable and accrued liabilities | | 28,970 | | | 28,970 | | | 28,970 | | | — | | | — | | | — | |
| Credit Facility | | 37,615 | | | 39,775 | | | 1,178 | | | 38,597 | | | — | | | — | |
| Balances of purchase payable, non-interest bearing | | 15,609 | | | 17,006 | | | 1,000 | | | 3,259 | | | 12,747 | | | — | |
| Other (included in long-term debt) | | 347 | | | 347 | | | 126 | | | 101 | | | 120 | | | — | |
| Lease liabilities | | 13,232 | | | 16,091 | | | 2,020 | | | 2,018 | | | 6,464 | | | 5,589 | |
| Operating Leases | | — | | | 4,809 | | | 351 | | | 468 | | | 1,404 | | | 2,586 | |
| Operating commitments | | — | | | 3,822 | | | 2,600 | | | 1,193 | | | 29 | | | — | |
| | 95,773 | | | 110,820 | | | 36,245 | | | 45,636 | | | 20,764 | | | 8,175 | |
| | | | | | | | | | | | |
11.8Off-Balance Sheet Arrangements
Alithya uses off-balance sheet financing for operating leases for certain premises that do not meet the right-of-use asset and lease liability recognition criteria and operating commitments for technology licenses and infrastructure, as disclosed in the section above titled "Contractual Obligations". Other than as disclosed in the section above and Note 13 of the consolidated financial statements, there have been no material changes with respect to off-balance sheet arrangements since March 31, 2019 outside of Alithya’s ordinary course of business.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |27
12. Share Capital and Dividends
In the context of the discussion on share capital and dividends, Alithya Group inc. will be referred to as “Alithya” or the “Company”, and the Company and its subsidiaries will be referred to as the “Group”.
12.1Authorized
As at March 31, 2020 and 2019, the Company had an unlimited number of shares without par value as follows:
•Subordinate Voting Shares, carrying one vote per share, ranking pari passu with the Multiple Voting Shares as to the right to receive dividends and the remainder of the Company’s property in the event of a voluntary or involuntary winding-up or dissolution, or any other distribution of assets among shareholders for the purposes of winding up the Company’s affairs;
•Multiple Voting Shares, carrying ten votes per share, ranking pari passu with the Subordinate Voting Shares as to the right to receive dividends and the remainder of the Company’s property in the event of a voluntary or involuntary winding-up or dissolution, or any other distribution of assets among shareholders for the purpose of winding-up the Company’s affairs, each share being convertible at the holder’s entire discretion into Subordinate Voting Shares on a share for share basis, and being automatically converted upon their transfer to a person who is not a permitted holder or upon the death of a permitted holder, unless otherwise acquired by any of the remaining permitted holders in accordance with the terms of the voting agreement entered into between permitted holders; and
•Preferred Shares, issuable in series, each series ranking pari passu with other series but prior to any class ranking junior thereto, as well as prior to Subordinate Voting Shares and Multiple Voting Shares as to the right to receive dividends, and the remainder of the Company’s property in the event of a voluntary or involuntary winding-up or dissolution, or any other distribution of assets among shareholders for the purposes of winding up the Company’s affairs. If and when issued, preferred shares will have such voting rights and conversion rights as may be determined by the Company’s Board at the time of issuance thereof.
On October 31, 2018 the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinate Voting Shares, an unlimited number of Multiple Voting Shares and an unlimited number of preferred shares, all without par value. The sole common share previously issued for cash consideration of $1.00 was cancelled.
Prior to October 31, 2018, Old Alithya had an unlimited number of shares without par value as follows:
•Classes A, A CRCD and A IQ shares, voting and participating, ranking pari passu;
•Classes A CRCD and A IQ, convertible into Class A shares;
•Class AA shares, super voting (10 votes per share) and participating;
•Class B shares, non-voting and non-participating, non-cumulative, discretionary, variable dividend, retractable at the paid-up capital amount;
•Class C shares, non-voting and non-participating, non-cumulative dividend from 0% to 15%, retractable at the paid-up capital amount;
•Class D shares, non-voting and non-participating, non-cumulative dividend from 0% to 15%, retractable at the paid-up capital amount;
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |28
•Class E shares, non-voting and non-participating, dividend payable upon death of the holder from the life insurance capital dividend account;
•Class F shares, super voting (100 votes per share) and non-participating, non-cumulative dividend from 0% to 15%, retractable or upon death of the holder at the paid-up capital amount;
•Class G shares, super voting (10 votes per share) and participating;
•Class H shares, non-voting and non-participating, preferred cumulative dividend at an annual rate of 10%, redeemable or mandatorily retractable five years after issuance;
•Class I shares, non-voting and non-participating, preferred cumulative quarterly dividend at a rate equal to the Bank of Canada prime rate effective on January 1 of each year, redeemable quarterly over a five years period as of the date of issue, at an annual rate of 20%, at the issue price, convertible into Class A shares;
•Class J shares, voting and participating, preferred cumulative dividend at an annual rate of 10%, convertible into Class A shares at the holder's option;
•Class K shares, voting and participating, preferred cumulative dividend at an annual rate of 4% of the paid up capital amount at the issue date, convertible into Class A shares at the holder's option; and
•Class L shares, voting and participating, preferred cumulative dividend at an annual rate of 4% of the paid up capital amount at the issue date, convertible into Class A shares at the holder's option.
12.2Issued
During the year ended March 31, 2020, the following transactions occurred:
•As part of the Matricis Acquisition, 473,646 Subordinate Voting Shares, with a total value of $1,800,000, were issued as partial settlement of the acquisition ;
•As part of the Travercent Acquisition,1,274,510 Subordinate Voting Shares, with a total value of $3,870,000, were issued as partial settlement of the acquisition;
•As part of the Askida Acquisition, 600,384 Subordinate Voting Shares, with a total value of $2,172,500, were issued as partial settlement of the acquisition;
•53,987 stock options were exercised and 53,987 Subordinate Voting Shares were issued with an approximate value of $201,000, for cash consideration of $165,000, with $36,000 reclassified from contributed surplus; and
•5,514 deferred share units ("DSU") were settled and 5,514 Subordinate Voting Shares were issued with an approximate value of $23,000, reclassified from contributed surplus.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |29
As at March 31, 2020, the issued share capital of the Company is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Subordinate Voting Shares | | | | Multiple Voting Shares | | |
| (in $ thousands) | | Number of shares | | $ | | Number of shares | | $ |
| As at March 31, 2019 | | 48,496,492 | | | 183,346 | | | 7,168,984 | | | 3,515 | |
| Share-based compensation on shares vested during the period, issued on business acquisitions | | — | | | 407 | | | — | | | — | |
| Business acquisition of Matricis | | 473,646 | | | 1,800 | | | — | | | — | |
| Business acquisition of Alithya Travercent | | 1,274,510 | | | 3,870 | | | — | | | — | |
| Business acquisition of Askida | | 600,384 | | | 2,173 | | | — | | | — | |
| Exercise of stock options | | 53,987 | | | 201 | | | — | | | — | |
| Settlement of DSU | | 5,514 | | | 23 | | | — | | | — | |
| As at March 31, 2020 | | 50,904,533 | | | 191,820 | | | 7,168,984 | | | 3,515 | |
| | | | | | | | | | | | |
In addition, during the year ended March 31, 2020, the following share-based compensation was recognized:
•In relation to the Subordinate Voting Shares, to be issued as part of the Matricis Acquisition, an amount of $550,000;
•In relation to the Subordinate Voting Shares, to be issued as part of the Travercent Acquisition, an amount of $272,000;
•In relation to the Subordinate Voting Shares, to be issued as part of the Askida Acquisition, an amount of $639,000;
•As part of a previous year’s business acquisition, Alithya Digital Technology Corporation ("ADT"), Class A shares previously issued to employees as share-based compensation on the acquisition date vested during the period. The value of the vested shares for the year ended March 31, 2020 was $326,000; and
•As part of a previous year’s business acquisition, Pro2p Services Conseils Inc. (“Pro2p”), Class A shares previously issued to employees as share-based compensation on the acquisition date vested during the period. The value of the vested shares for the year ended March 31, 2020 was $81,000.
During the year ended March 31, 2019, the following transactions occurred:
Due to restrictions imposed on Old Alithya in connection with the Edgewater Transaction, it was determined that Old Alithya could not fairly issue or repurchase securities of its share capital nor determine the fair market value thereof. The private placement, having been completed with third party investors could be a reasonable reference for the fair market value of the shares, at a price of $4.50 per share. On October 31, 2018, immediately prior to the Edgewater Transaction, Old Alithya completed the following transactions settling outstanding obligations, at a price of $4.50 per share, being the price of the private placement:
•Accumulated dividends on the Class K and L shares were declared and paid through the issuance of 103,704 and 44,444 Class A shares, respectively having a stated value of $466,667 and $200,000, in the aggregate, respectively;
•The issuance of 68,615 Class AA shares and 307,230 Class A shares in respect of the settlement of obligations, amounting to $308,769 and $1,384,421, respectively, owed as employee compensation, professional services rendered and employee share purchase plan; and
•The repurchase, from past employees, of 95,970 Class A shares, having a stated value of $251,615 in aggregate, for cash consideration of $431,752, with the difference resulting in a premium on share redemption of $180,137 recorded to deficit.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |30
In addition, Old Alithya completed the following transactions:
•Accumulated dividends, on October 31, 2018, on the Class J shares were declared and paid, in cash, for the aggregate amount of $1,864,383; and
•Under the private placement, 11,736,055 Class A shares of Old Alithya were issued for cash consideration of $52,812,248. The Company incurred share issue costs in the amount of $2,764,885, net of deferred income taxes of $714,000.
The transaction activity related to the Class A and AA shares of Old Alithya for the period from April 1, 2018 to October 31, 2018 is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | October 31, 2018 | | | | | | |
| | Class A | | | | Class AA | | |
| (in $ thousands) | | Number of shares | | $ | | Number of shares | | $ |
| Beginning balance (Old Alithya balance) | | 12,009,378 | | | 30,948 | | | 7,100,369 | | | 3,206 | |
| Issued in relation to dividends and employee compensation | | 455,378 | | | 2,051 | | | 68,615 | | | 309 | |
| Issued for private placement | | 11,736,055 | | | 50,761 | | | — | | | — | |
| Redeemed | | (95,970) | | | (252) | | | — | | | — | |
| Share-based compensation on shares vested during the period, issued on business acquisitions | | — | | | 807 | | | — | | | — | |
| Ending balance | | 24,104,841 | | | 84,315 | | | 7,168,984 | | | 3,515 | |
| | | | | | | | |
On November 1, 2018, all the issued and outstanding shares of Old Alithya were cancelled and automatically exchanged on a one for one basis into Subordinate Voting Shares and Multiple Voting Shares of the Company, summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Subordinate Voting Shares | | | | Multiple Voting Shares | | |
| (in $ thousands) | | Number of shares | | $ | | Number of shares | | $ |
| Class A | | 24,104,841 | | | 84,315 | | | — | | | — | |
| Class A CRCD | | 1,773,212 | | | 5,250 | | | — | | | — | |
| Class A IQ | | 1,637,204 | | | 4,847 | | | — | | | — | |
| Class AA | | — | | | — | | | 7,168,984 | | | 3,515 | |
| Class J | | 1,742,342 | | | 5,000 | | | — | | | — | |
| Class K | | 1,182,164 | | | 3,500 | | | — | | | — | |
| Class L | | 506,642 | | | 1,500 | | | — | | | — | |
| Ending balance before business acquisition | | 30,946,405 | | | 104,412 | | | 7,168,984 | | | 3,515 | |
| Subordinate Voting Shares issued on business acquisition | | 17,458,348 | | | 78,364 | | | — | | | — | |
| Ending balance | | 48,404,753 | | | 182,776 | | | 7,168,984 | | | 3,515 | |
| | | | | | | | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |31
The transaction activity related to the Subordinate Voting Shares and Multiple Voting Shares of the Company for the period November 2, 2018 to March 31, 2019 is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Subordinate Voting Shares | | | | Multiple Voting Shares | | |
| (in $ thousands) | | Number of shares | | $ | | Number of shares | | $ |
| Beginning balance (New Alithya balance after conversion) | | 48,404,753 | | | 182,776 | | | 7,168,984 | | | 3,515 | |
| Share-based compensation on shares vested during the period, issued on business acquisitions | | — | | | 268 | | | — | | | — | |
| Exercise of stock options | | 91,739 | | | 302 | | | — | | | — | |
| Ending balance | | 48,496,492 | | | 183,346 | | | 7,168,984 | | | 3,515 | |
| | | | | | | | |
In addition, during the year ended March 31, 2019, the following share-based compensation was recognized:
•As part of a previous year’s business acquisition of ADT, Class A shares previously issued to employees as share-based compensation on the acquisition date vested during the period. The value of the vested shares for the year ended March 31, 2019 was $815,000; and
•As part of a previous year’s business acquisition of Pro2p, Class A shares previously issued to employees as share-based compensation on the acquisition date vested during the period. The value of the vested shares for the year ended March 31, 2019 was $260,000.
12.3Dividends
The Company did not declare dividends during the year ended March 31, 2020.
Old Alithya declared the following dividends during the period April 1, 2018 to October 31, 2018:
| | | | | | | | | | | | | | |
| Year ended | | March 31, | | |
| (in $ thousands) | | 2019 | | 2018 |
| Class J | | 1,864 | | | — | |
| Class K | | 467 | | | — | |
| Class L | | 200 | | | — | |
| Total | | 2,531 | | | — | |
| | | | |
As at March 31, 2018, dividends in arrears totaled $1,571,233 in connection with the Class J shares, $385,000 in connection with the Class K shares and $165,000 in connection with the Class L shares.
12.4Share Purchase Plan
Under the Company’s share purchase plan, the Group contributes an amount equal to a percentage of the employee’s basic contribution, depending on the position held by the employee. The employee may make additional contributions, for total employee contributions, including basic contributions, of up to 10% of the annual gross salary. However, the Group does not match contributions in the case of such additional contributions. The employee and the Group’s contributions are remitted to an independent administrative agent who purchases Subordinate Voting Shares on the open market on behalf of the employee through either the TSX or NASDAQ. The Group's contribution expense is recognized as share-based compensation.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |32
12.5Long-Term Incentive Plan (the “Plan”)
The Company operates a plan which provides for awards of stock options, restricted shares, restricted share units, performance share units, DSU, and share appreciation rights to eligible employees and directors of the Company and its subsidiaries, all of which once exercised or settled result in the issuance of Subordinate Voting Shares.
12.6 Stock Options
Under the Company’s Plan, the Board may grant, at its discretion, stock options to purchase Subordinate Voting Shares to eligible employees and directors of the Company and its subsidiaries. The Board establishes the exercise price at the time the stock options are granted, where the exercise price must in all cases be not less than the greater of the closing price of such shares on the TSX and NASDAQ on the business day immediately prior to the grant date. Stock options vest, as set out in the applicable award agreement between the participant and the Company, which may include performance-based vesting conditions. Vesting is generally four years from the date of grant and the stock options are to be exercised not later than the tenth anniversary of the grant date, except in the event of death, disability, retirement or termination of employment. The Plan provides that the aggregate number of Subordinate Voting Shares issuable pursuant to any type of awards under the Plan shall not exceed 10% of the aggregate number of Subordinate Voting Shares and Multiple Voting Shares issued and outstanding from time to time.
The following table presents information concerning stock option activity for the respective years:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended | | March 31, 2020 | | | | March 31, 2019 | | | | March 31, 2018 | | |
| | Number of stock options | | Weighted
average
exercise price | | Number of stock options | | Weighted
average
exercise price | | Number of stock options | | Weighted
average
exercise price |
| | | | $ | | | | $ | | | | $ |
| Beginning balance | | 2,623,542 | | | 3.80 | | | 1,296,660 | | | 2.66 | | | 1,040,160 | | | 2.36 | |
| Granted | | 970,500 | | | 3.63 | | | 680,000 | | | 4.48 | | | 314,000 | | | 3.80 | |
| Deemed issuance of replacement options on business acquisition | | — | | | — | | | 910,461 | | | 5.17 | | | — | | | — | |
| Forfeited | | (137,151) | | | 4.88 | | | (170,946) | | | 5.82 | | | (55,000) | | | 3.12 | |
| Expired | | (230,615) | | | 3.66 | | | (894) | | | 2.66 | | | — | | | — | |
| Exercised | | (53,987) | | | 3.10 | | | (91,739) | | | 2.66 | | | (2,500) | | | 2.21 | |
| Ending balance | | 3,172,289 | | | 3.72 | | | 2,623,542 | | | 3.80 | | | 1,296,660 | | | 2.66 | |
| Exercisable at year end | | 1,513,789 | | | 3.43 | | | 1,478,542 | | | 3.60 | | | 788,160 | | | 2.15 | |
| | | | | | | | | | | | |
Included in the 1,513,789 and 1,478,542 of stock options exercisable as at March 31, 2020 and 2019, respectively, 863,160 stock options are available to purchase Multiple Voting Shares.
During the year ended March 31, 2020, the Company issued the following stock options:
•On June 21, 2019, Alithya issued 435,000 and 190,500 stock options, to purchase a total of 625,500 Subordinate Voting Shares, subject to terms set out in the grant letters at an exercise price of $3.64 and US$2.76, respectively;
•On August 16, 2019, Alithya issued 85,000 and 95,000 stock options, to purchase a total of 180,000 Subordinate Voting Shares, subject to terms set out in the grant letters at a weighted average exercise price of $3.65 and US$2.78, respectively; and
•On December 18, 2019, Alithya issued 165,000 stock options, to purchase a total of 165,000 Subordinate Voting Shares subject to terms set out in the grant letters at an exercise price of US$2.64.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |33
The weighted average share price per share of the stock options exercised was $3.85.
During the year ended March 31, 2019, the Company issued the following stock options:
•On November 1, 2018, concurrent with the closing of the Edgewater Transaction, and during the period, November 2, 2018 to March 31, 2019, Alithya issued 660,000 and 20,000 stock options, respectively, to purchase 660,000 and 20,000 Subordinate Voting Shares, respectively, subject to terms set out in the grant letters at an exercise price of $4.50 and $3.90, respectively.
The weighted average share price per share of the stock options exercised at the date of exercise was $3.75 (2018 – $3.80).
The following tables summarize the number of stock options outstanding by currency, exercise price and the weighted average remaining exercise period, expressed in number of years:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | March 31, 2019 | | | | March 31, 2018 | | |
| Exercise price (CAD) | | Number of options | | Weighted average
remaining exercise
period – in years | | Number of options | | Weighted average
remaining exercise
period – in years | | Number of options | | Weighted average
remaining exercise
period – in years |
| $ | | | | | | | | | | | | |
| 1.90 | | 363,160 | | | 2.45 | | 363,160 | | | 3.45 | | 363,160 | | | 4.50 |
| 1.92 | | 100,000 | | | 2.00 | | 100,000 | | | 3.00 | | 100,000 | | | 4.50 |
| 2.21 | | 115,000 | | | 4.02 | | 115,000 | | | 5.03 | | 115,000 | | | 6.00 |
| 2.46 | | 100,000 | | | 3.00 | | 100,000 | | | 4.00 | | 100,000 | | | 5.00 |
| 2.87 | | 120,000 | | | 5.09 | | 120,000 | | | 6.09 | | 120,000 | | | 7.00 |
| 2.96 | | 186,000 | | | 6.01 | | 188,500 | | | 7.01 | | 192,000 | | | 8.00 |
| 3.29 | | 2,000 | | | 6.67 | | 4,000 | | | 7.67 | | 4,000 | | | 8.70 |
| 3.64 | | 418,000 | | | 9.23 | | — | | | — | | | — | | | — | |
| 3.65 | | 85,000 | | | 2.38 | | — | | | — | | | — | | | — | |
| 3.80 | | 249,500 | | | 7.14 | | 262,500 | | | 8.16 | | 302,500 | | | 9.16 |
| 3.90 | | 20,000 | | | 8.88 | | 20,000 | | | 9.89 | | — | | | — | |
| 4.50 | | 463,000 | | | 8.59 | | 503,500 | | | 9.59 | | — | | | — | |
| | 2,221,660 | | | 6.12 | | 1,776,660 | | | 6.63 | | 1,296,660 | | | 6.52 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | March 31, 2019 | | |
| Exercise price range (USD) | | Number of options | | Weighted average
remaining exercise
period – in years | | Number of options | | Weighted average
remaining exercise
period – in years |
| $ | | | | | | | | |
| 2.26 to 3.85 | | 599,960 | | | 7.98 | | 415,766 | | | 4.04 |
| 3.86 to 4.45 | | 23,240 | | | 1.74 | | 44,096 | | | 2.81 |
| 4.59 to 4.85 | | 154,141 | | | 1.10 | | 198,834 | | | 2.12 |
| 4.90 to 5.45 | | 173,288 | | | 2.42 | | 188,186 | | | 3.39 |
| | 950,629 | | | 5.70 | | 846,882 | | | 3.38 |
| | | | | | | | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |34
12.7Deferred Share Units
Under the Plan, the Board, subject to the provisions of the Plan and such other terms and conditions, may grant DSU to obtain Subordinate Voting Shares to qualified employees and directors of the Company and its subsidiaries. The DSU shall be settled on the date as set out in the applicable award agreement, between the participant and the Company, however not earlier than the participant’s termination date. If the agreement does not establish a settlement date then it shall be the 90th day following the participant’s termination date for eligible Canadian participants and not earlier than the date that is six months after the termination date for eligible US participants.
During the year ended March 31, 2020, the Company issued the following fully vested DSU:
•On September 30, 2019, December 31, 2019 and March 31, 2020, 20,937, 22,299 and 53,370 fully vested DSU, respectively, in aggregate, were granted to non-employee directors of the Company at a fair value of $3.97, $3.66 and $2.63, respectively, per DSU, for an aggregate fair value of $83,120, $81,614 and $140,363, respectively. The amounts have been recorded in share-based compensation expense.
During the year ended March 31, 2019, the Company issued the following fully vested DSU:
•On November 1, 2018, concurrent with the closing of the Edgewater Transaction, 25,928 fully vested DSU in aggregate, were granted to non-employee directors of the Company at a fair value of $4.50 per DSU for an aggregate fair value of $116,676. The amount has been recorded in share-based compensation expense; and
•On March 26, 2019, 23,865 fully vested DSU in aggregate, were granted to non-employee directors of the Company at a fair value of $3.85 per DSU for an aggregate fair value of $91,880. The amount has been recorded in share-based compensation expense.
12.8Share-Based Compensation
The number of Alithya stock options granted to employees during the year, the related compensation expense recorded, and the assumptions used to determine share-based compensation expense, using the Black-Scholes stock option pricing model, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year ended | | March 31, | | | | |
| (in $ thousands, except for per share data) | | 2020 | | 2019 | | 2018 |
| Compensation expense related to the options granted | | 318 | | 141 | | 289 |
| Number of stock options granted | | 970,500 | | 680,000 | | 314,000 |
| Weighted average fair value of options granted | | $1.13 | | $1.54 | | $1.50 |
| Aggregate fair value of options granted | | 1,096 | | 1,045 | | 470 |
| Weighted average assumptions | | | | | | |
| Share price | | $3.63 | | $4.48 | | $3.80 |
| Exercise price | | $3.63 | | $4.48 | | $3.80 |
| Risk-free interest rate | | 1.79 | % | | | 2.42 | % | | | 1.07 | % |
| Expected volatility* | | 30 | % | | 30 | % | | 35 | % |
| Dividend yield | | — | | | — | | | — | |
| Expected option life (years) | | 5.7 | | 6.1 | | 7.5 |
| Vesting conditions – time (years) | | 2.7 | | 3.3 | | 3.0 |
| | | | | | |
* Determined on the basis of observed volatility in publicly traded companies operating in similar industries.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |35
13. Subsequent Events
COVID-19
COVID-19 has created unprecedented uncertainty in the global economy and to Alithya’s business, most of its customers not being much impacted while others facing significant challenges. Of note, the Group and many of its customers operate in sectors which have been declared to be essential or priority services by the Quebec and Ontario governments.
The Group continues to take measures to protect the health and safety of its employees, work with its customers to minimize potential disruptions and address the challenges and opportunities posed by this global pandemic. The Group and its employees have transitioned to working remotely, relatively seamlessly, allowing Alithya to continue supporting its customers without material disruption.
This outbreak has had impacts on Alithya’s business, with disruptions to its operations, including temporary office closures, reduced activity with certain clients, slower procurement decisions in some cases, and possible changes to customers’ spending and investment priorities.
While the extent and the duration of the impacts of COVID-19 remain uncertain, the Group has to date implemented several measures to protect its financial position and preserve liquidity, and strict cost containment measures including management salary reductions, and reduced work weeks and temporary layoffs for a limited number of employees, some of which have returned to normal as of today.
Government programs
As a result of the COVID-19 pandemic, on May 5th, 2020, certain US subsidiaries of the Company were accepted under the PPP of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") administered by the U.S. Small Business Administration ("SBA") and entered into unsecured promissory notes (the "Notes") in the aggregate principal amount of US$6,300,000 ($8,900,000). The Notes have a term of five years at an interest rate of 1% per annum, with a deferral of payments for the initial six months of the loan, with respect to any portion of the Notes which is not forgiven as described below.
Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations and ongoing rule making by the SBA, based on the timely use of loan proceeds for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest costs and the maintenance of employee and compensation levels. While there is no assurance the Company will obtain forgiveness of the PPP loan in whole or in part, the Company intends to use the proceeds of the Notes for qualifying expenses.
Certain subsidiaries within the Group have applied for COVID-19 financial relief in Canada under the Canada Emergency Wage Subsidy (“CEWS”) program. The CEWS program is a wage subsidy program launched by the Canadian federal government to qualifying employers to subsidize payroll costs during the COVID-19 pandemic. The qualified subsidy amounts received under the CEWS program are non-repayable. In June 2020, the subsidiaries applied for $1,471,000 of subsidy funding under the CEWS program for the period of March 15, 2020 to May 9, 2020, of which $446,000 was recorded as of March 31, 2020.
Alithya Consulting SAS, a subsidiary located in France, received approximately €170,000 ($260,000) pursuant to the French government’s partial activity program, representing two months of salary assistance. The program is subject to certain annual limits per employee.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |36
14. Eight Quarter Summary
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | | | | |
| (in $ thousands, except for per share data) | | Jun 30, | Sep 30, | Dec 31, | Mar 31, | Jun 30, | Sep 30, | Dec 31, | Mar 31, |
| | 2018 | 2018 | 2018 | 2019 | 2019 | 2019 | 2019 | 2020 |
| Revenues | | 41,574 | | 37,093 | | 58,168 | | 72,643 | | 72,218 | | 67,363 | | 66,245 | | 73,181 | |
| Cost of revenues | | 32,718 | | 29,372 | | 41,721 | | 51,391 | | 51,041 | | 46,680 | | 46,084 | | 52,228 | |
| Gross margin | | 8,856 | | 7,721 | | 16,447 | | 21,252 | | 21,177 | | 20,683 | | 20,161 | | 20,953 | |
| | 21.3 | % | 20.8 | % | 28.3 | % | 29.3 | % | 29.3 | % | 30.7 | % | 30.4 | % | 28.6 | % |
| Operating expenses | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | 8,066 | | 7,949 | | 16,447 | | 20,153 | | 18,927 | | 18,576 | | 17,745 | | 21,534 | |
| Business acquisitions and integration costs | | 1,015 | | 1,033 | | 3,178 | | 592 | | 674 | | 1,416 | | 1,374 | | 1,173 | |
| Depreciation | | 221 | | 197 | | 238 | | 324 | | 786 | | 810 | | 878 | | 894 | |
| Amortization of intangibles | | 1,495 | | 1,489 | | 2,445 | | 2,663 | | 2,551 | | 2,531 | | 2,716 | | 3,480 | |
| Foreign exchange expense (gain) | | 32 | | (86) | | 57 | | (147) | | 54 | | (87) | | 30 | | (158) | |
| Impairment of intangibles and goodwill | | — | | — | | — | | — | | — | | — | | — | | 28,036 | |
| | 10,829 | | 10,582 | | 22,365 | | 23,585 | | 22,992 | | 23,246 | | 22,743 | | 54,959 | |
| Operating loss | | (1,973) | | (2,861) | | (5,918) | | (2,333) | | (1,815) | | (2,563) | | (2,582) | | (34,006) | |
| Financial expenses | | 532 | | 545 | | 542 | | 622 | | 621 | | 450 | | 608 | | 668 | |
| Gain on sale of subsidiary | | — | | — | | — | | — | | — | | — | | (681) | | — | |
| Loss before income taxes | | (2,505) | | (3,406) | | (6,460) | | (2,955) | | (2,436) | | (3,013) | | (2,509) | | (34,674) | |
| Income tax recovery | | (309) | | (1,283) | | (1,034) | | (225) | | (889) | | (683) | | (694) | | (699) | |
| Net loss | | (2,196) | | (2,123) | | (5,426) | | (2,730) | | (1,547) | | (2,330) | | (1,815) | | (33,975) | |
| Basic and diluted loss per share | | (0.09) | | (0.09) | | (0.12) | | (0.05) | | (0.03) | | (0.04) | | (0.03) | | (0.59) | |
| | | | | | | | | | |
* Certain figures have been reclassified to conform to the current three-month and twelve-month presentation.
Quarterly variances in Alithya's results are due primarily to seasonality. The revenues generated by Alithya's consultants are impacted by the number of working days in a particular quarter, which can vary as a result of vacations and other paid time off and statutory holidays. Similarly, customer information technology investment cycles are also affected by the seasonality of their own operations. Finally, quarterly variations can be attributed to the timing of acquisitions.
15. Critical Accounting Estimates
The preparation of Alithya’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reported as assets, liabilities, income and expenses in the consolidated financial statements. Actual results could differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which they occur and in any future periods affected.
Alithya’s significant accounting policies are fully described in Note 2 of Alithya’s annual audited consolidated financial statements. Management believes the critical accounting policies described below reflect the more significant estimates and assumptions used in the preparation of Alithya’s consolidated financial statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |37
Assessment of COVID-19 impact
As a result of the continued and uncertain economic and business impact of the COVID-19 pandemic, the Group has reviewed its estimates, judgments and assumptions used in the preparation of its consolidated financial statements, including the determination of whether indicators of impairment exist for its tangible and intangible assets, including goodwill, the credit risk of its counterparties, and the estimates and judgments used for the measurement of its deferred tax assets.
Due to the pandemic and the significantly increased uncertainty surrounding global economic conditions in general, and the outlook of the Company’s clients’ different markets and industries in particular, the Group has made revisions to estimates and assumptions used in the determination of impairment of goodwill to reflect the increased uncertainty and risks.
As the situation is dynamic and the impact of COVID-19 on the Group’s operations and financial conditions will be impacted by the duration of government-mandated measures and overall customer demand, revisions may be required in future periods to estimates and assumptions. Although management expects COVID-19 related disruptions to continue during fiscal 2021, management believes that the Group’s long-term estimates and assumptions do not require further revisions, however we continue to monitor and evaluate the situation and its impact on the Group’s business.
15.1Revenue Recognition, Unbilled Revenue and Deferred Revenue
The Group generates revenue principally through the provision of consulting services in the areas of information technology including systems implementation and strategy. These services are provided under arrangements with varying pricing mechanisms.
To determine whether to recognize revenue, the Group follows a 5-step process:
•Identifying the contract with a customer;
•Identifying the performance obligations;
•Determining the transaction price;
•Allocating the transaction price to the performance obligations; and
•Recognizing revenue when/as performance obligation(s) are satisfied.
The total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. Revenue is recognized either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.
The Group recognizes contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognizes either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.
Certain of the Group’s arrangements may include client acceptance clauses. Each clause is analyzed to determine whether the earnings process is complete when the service is performed. Formal client sign-off is not always necessary to recognize revenue, provided that the Group objectively demonstrates that the criteria specified in the acceptance provisions are satisfied. Some of the criteria reviewed include historical experience with similar types of arrangements, whether the acceptance provisions are specific to the client or are included in all arrangements, the length of the acceptance term and historical experience with the specific client.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |38
Time and materials arrangements - Revenue from consulting services and systems implementations under time and materials arrangements is recognized as the services are rendered.
Fixed-fee arrangements - Revenue from consulting services and systems implementations under fixed-fee arrangements where the outcome of the arrangements can be estimated reliably is recognized using the percentage-of-completion method over the service periods. The Group primarily uses labour costs or labour hours to measure the progress towards completion. This method relies on estimates of total expected labour costs or total expected labour hours to complete the service, which are compared to labour costs or labour hours incurred to date, to arrive at an estimate of the percentage of revenue earned to date. Management regularly reviews underlying estimates of total expected labour costs or hours. If the outcome of an arrangement cannot be estimated reliably, revenue is recognized to the extent of arrangement costs incurred that are likely to be recoverable.
Unbilled revenue and deferred revenue - Amounts recognized as revenue in excess of billings are classified as unbilled revenue. Amounts received in advance of the performance of services are classified as deferred revenue.
Retainer based arrangements - The client pays a recurring fee in exchange for a monthly recurring service (typically support). The revenue for these arrangements is recognized over time (using an hours-based input method). Revenue recognition over time is based on customer simultaneously receiving and consuming the benefit of the services provided.
Estimated losses on revenue-generating contracts - Estimated losses on revenue-generating contracts may occur due to additional contract costs which were not foreseen at the inception of the contract. Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract. The estimated losses on revenue-generating contracts are recognized in the period when it is determined that a loss is probable. The expected loss is first applied to impair the related capitalized contract costs, if any, with the excess recorded in accounts payable and accrued liabilities. Management regularly reviews arrangement profitability and underlying estimates.
Software revenue - Software revenue is generated from the resale of certain third-party off-the-shelf software and maintenance. The majority of the software sold by the Group is delivered electronically. For software that is delivered electronically, the Group considers transfer of control to have occurred when the customer either (a) takes possession of the software via a download (that is, when the customer takes possession of the electronic data on its hardware), or (b) has been provided with access codes that allow the customer to take immediate possession of the software on its hardware pursuant to an agreement or purchase order for the software. In all instances, the resale of third-party software and maintenance is recorded on a net basis. Group created software, and the associated maintenance, is reported on a gross basis, however it is immaterial in all periods presented.
Third party software and maintenance revenue are recognized upon delivery of the software, as all related warranty and maintenance is performed by the primary software vendor and not the Group.
The Group enters into arrangements with multiple performance obligations which typically include software, post-contract support (or maintenance), and consulting services. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Group has determined standalone selling price for each of the performance obligations in connection with the evaluation of arrangements with multiple performance obligations. The Group has established standalone selling price for consulting services based on a stated and consistent rate per hour range in standalone transactions. The Group has established standalone selling price for software through consistent stated rates for software components. The Group has established standalone selling price for maintenance based on observable prices for standalone renewals.
15.2Business Combinations
The Group accounts for its business combinations using the acquisition method. Under this method the consideration transferred is measured at fair value. Acquisition-related and integration costs associated with the business combination are
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |39
expensed as incurred. The Group recognizes goodwill as the excess of the cost of the acquisition over the net identifiable tangible and intangible assets acquired and liabilities assumed at their acquisition date fair values and any non-controlling interest in the acquiree. The fair value allocated to tangible and intangible assets acquired and liabilities assumed are based on management’s assumptions, including assumptions that would be made by market participants, acting in their economic best interest. These assumptions include the future expected cash flows arising from the intangible assets identified. The goodwill recognized is composed of the future economic value associated to acquired work force and any identified synergies with the Group’s operations which are primarily due to reduction of costs and new business opportunities. The determination of fair value involves making estimates relating to acquired intangible assets, property and equipment, litigation, provision for estimated losses on revenue-generating contracts, other onerous contracts, tax and other contingency reserves. Estimates include the forecasting of future cash flows and discount rates. Subsequent changes in fair values are adjusted against the cost of acquisition, if they qualify as measurement period adjustments. The measurement period is the period between the date of acquisition and the date where all significant information necessary to determine the fair values is available, not to exceed 12 months. All other subsequent changes are recognized in the consolidated statements of operations.
15.3Government Assistance – Tax Credits
Certain subsidiaries are eligible for research and development (“R&D”) activities and tax credits for the development of e-business. These tax credits are accounted for as government assistance, following the income approach. Under this method, tax credits are recorded when there is reasonable assurance that the assistance will be received and that the subsidiary will comply with all relevant conditions. Tax credits related to operating expenditures are then recorded as a reduction of the related expense and recognized in the period in which the related expenditures are charged to operations. Tax credits related to capital expenditures are recorded as a reduction of the cost of the related asset.
The tax credits recorded are based on management's best estimates of amounts expected to be received and are subject to audit by the tax authorities.
The ultimate tax treatment is only determinable once a notice of assessment is issued by the relevant taxation authority and payment has been received. Any differences arising between the final resolution and the original assumptions made may result in adjustments to the tax credits receivable and income tax expense in subsequent periods.
Alithya recognized amounts of $1.3 million and $4.8 million as reductions of cost of sales for the three-month and twelve-month periods ended March 31, 2020, respectively, in connection with the tax credits, compared to $1.1 million and $3.7 million for the three-month and twelve-month periods ended March 31, 2019, respectively.
15.4Intangibles
Intangible assets consist mainly of customer relationships, non-compete agreements, internal-use business solutions and software licenses and tradenames. Internal use business solutions and software licenses (“Software”) are recorded at cost. In addition, internal-use business solutions developed internally are capitalized when they meet specific capitalization criteria related to technical and financial feasibility and when the Group demonstrates its ability and intention to use them. Amortization of internal-use business solutions commences once the solution is available for use. Customer relationships, internal-use business solutions and software licenses acquired through business combinations are initially recorded at their fair value. The Group amortizes its intangible assets using the straight-line method over their estimated useful lives.
The residual value, depreciation method and useful life of each asset are reviewed at least once a year, at the reporting date.
Net intangible assets amounted to $51.8 million at March 31, 2020 and $47.6 million at March 31, 2019.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |40
15.5Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition and it is measured net of accumulated impairment losses. Goodwill is not amortized, but instead tested for impairment annually, or more frequently, should events or changes in circumstances indicate that the goodwill may be impaired.
Goodwill amounted to $77.6 million at March 31, 2020 and $79.6 million at March 31, 2019.
15.6Impairment of Property and Equipment, Intangibles and Goodwill
Timing of impairment testing
The carrying amounts of the Group's property and equipment, right-of-use assets, intangible assets and goodwill are reviewed for impairment when events or changes in circumstances indicate that the carrying value may be impaired. At each reporting date, the Group assesses whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the impairment is tested at least annually, typically as at March 31.
Impairment testing
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit", or "CGU"). For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in consolidated earnings. Impairment losses recognized in respect of CGUs that include goodwill are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis not beyond the highest of:
•The fair value less costs of disposal; and
•Value in use of the individual asset, if determinable.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Alithya performed its annual impairment test at March 31, 2020 using the approach described above and recorded an impairment charge on intangibles and goodwill of $28.0 million.
15.7Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The Group’s provisions may consist of litigation and claim provisions
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |41
arising in the ordinary course of business and decommissioning liabilities for operating leases of office buildings. The Group may record restructuring provisions related to business combinations and termination of employment costs incurred as part of the Group's productivity improvement initiatives. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions are discounted using a current pre-tax rate when the impact of the time value of money is material. The increase in the provision due to the passage of time is recognized as a finance cost. The accrued litigation and legal claim provisions are based on historical experience, current trends and other assumptions that are believed to be reasonable under the circumstances. Estimates include the period in which the underlying cause of the claim occurred and the degree of probability of an unfavorable outcome.
In the case of decommissioning liabilities pertaining to operating leases of buildings where certain arrangements require premises to be returned to their original state at the end of the lease term, the provision is determined using the present value of the estimated future cash outflows.
Restructuring provisions, consisting primarily of severance, are recognized when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, appropriate timelines and has been communicated to those affected by it.
Provisions amounted to $0.5 million at March 31, 2020 and $0.2 million at March 31, 2019.
15.8Income Taxes
Income taxes are accounted for using the liability method of accounting.
Current income taxes are recognized with respect to the amounts expected to be paid or recovered under the tax rates and laws that have been enacted or substantively enacted at the reporting date. Deferred income tax assets and liabilities are determined based on deductible or taxable temporary differences between the amounts reported for financial statement purposes and tax values of the assets and liabilities using enacted or substantively enacted tax rates that will be in effect for the year in which the differences are expected to be recovered or settled. Deferred income tax assets and liabilities are recognized in earnings, other comprehensive income or in equity based on the classification of the item to which they relate.
Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets amounted to $4.7 million and deferred tax liabilities amounted to $4.1 million at March 31, 2020, compared to $2.9 million and $2.0 million, respectively, at March 31, 2019.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |42
15.9Translation of Foreign Currencies
The Group’s consolidated financial statements are presented in Canadian dollars, which is also the parent company’s functional currency. Each entity in the group determines its own functional currency and items included in the consolidated financial statements of each entity are measured using that functional currency. Functional currency is the currency of the primary economic environment in which the entity operates.
Foreign currency transactions and balances
Revenue, expenses and non-monetary assets and liabilities denominated in foreign currencies are recorded at the rate of exchange prevailing at the transaction date, except for non-monetary items measured at fair value, which are translated using the exchange rates at the date when the fair value was determined. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates prevailing at the reporting date. Unrealized and realized translation gains and losses, resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency, are reflected in the consolidated statements of operations.
Foreign operations
In the Group’s consolidated financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the Canadian dollar are translated into Canadian dollars upon consolidation. The functional currencies of entities within the Group have remained unchanged during the reporting period. Upon consolidation, assets and liabilities have been translated into Canadian dollars at the closing rate at the reporting date. Goodwill and fair value adjustments arising from the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Canadian dollars at the closing rate. Revenue and expenses have been translated into Canadian dollars at the average rate over the reporting period. Exchange differences are charged or credited to other comprehensive income and recognized in the currency translation reserve in equity. On disposal of a foreign operation, the related cumulative translation differences recognized in equity are reclassified to the consolidated statements of operations and are recognized as part of the gain or loss on disposal.
Alithya recognized a cumulative translation adjustment on consolidation of its foreign subsidiaries, in other comprehensive income in the amounts of $7.1 million and $4.7 million for the three-month and twelve-month periods ended March 31, 2020, respectively, compared to $(2.0) million and $0.9 million for the three-month and twelve-month periods ended March 31, 2019.
16. New Standards and Interpretations Adopted as at April 1, 2019
16.1IFRS 16 – Leases
Adoption
IFRS 16 - Leases replaces IAS 17 - Leases along with three interpretations (IFRIC 4 - Determining whether an Arrangement Contains a Lease, SIC 15 - Operating Leases - Incentives and SIC 27 - Evaluating the Substance of Transactions Involving the Legal Form of a Lease). The new standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16, if any, being recognized in equity as an adjustment to the opening balance of deficit for the current period. Prior periods have not been restated.
In applying IFRS 16 – Leases for the first time, the Group has used the following practical expedients permitted by the standard:
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For the year ended March 31, 2020 |43
•applying the definition of a lease from IAS 17 and IFRIC 4, for contracts in place at the date of the initial application, and has not applied IFRS 16 to arrangements that were previously not identified as leases under IAS 17 and IFRIC 4;
•excluding initial direct costs from the measurement of the right-of-use assets at the date of initial application;
•measuring the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition;
•relying on the assessment of whether leases are onerous immediately before the date of initial application as an alternative to performing an impairment review;
•excluding from the recognition of right-of-use assets all leases previously accounted for as operating leases with a remaining lease term of less than 12 months and all leases of low-value assets but to account for the lease expense on a straight-line basis over the remaining lease term;
•using hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease; and
•applying a single discount rate to a portfolio of leases with reasonably similar characteristics.
On transition to IFRS 16, the weighted average incremental borrowing rate applied to lease liabilities recognized under IFRS 16 was 4.16%
The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 as at April 1, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in $ thousands) | | Carrying amount as at March 31, 2019 | | Reclassification | | Remeasurement | | IFRS 16 carrying amount as at April 1, 2019 |
| | $ | | $ | | $ | | $ |
| Right-of-use assets | | — | | | | (159) | | | | 6,668 | | | | 6,509 | |
| Deferred lease inducements | | (159) | | | | 159 | | | | — | | | | — | |
| Lease liabilities | | — | | | | — | | | | (6,668) | | | | (6,668) | |
| | | | | | | | |
The following is a reconciliation of total operating lease commitments as at March 31, 2019 to the lease liabilities recognized as at April 1, 2019.
| | | | | | | | |
| (in $ thousands) | | $ |
| Total operating lease commitments disclosed as at March 31, 2019 | | 14,228 | |
| Recognition exemptions: | | | |
| Variable payments | | (6,426) | |
| Leases with remaining lease term of less than 12 months | | (119) | |
| Operating lease liabilities before discounting | | 7,683 | |
| Discounted using incremental borrowing rate | | (1,015) | |
| Total lease liabilities recognized under IFRS 16 as at April 1, 2019 | | 6,668 | |
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |44
Policy applicable from April 1, 2019
The Group as a lessee
For any new contracts entered into on or after April 1, 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as a “contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration”. To apply this definition, the Group assesses whether the contract meets three key evaluations which are whether:
•the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group;
•the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and
•the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right to direct “how and for what purpose” the asset is used throughout the period of use.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognizes a right-of-use asset and a lease liability on the statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in-substance fixed payments), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. The Group has elected not to recognize separately non-lease components of leases for office space (buildings). Accordingly, lease payments and the lease liability include payments relating to lease and non-lease components.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or net loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in the consolidated statements of operations on a straight-line basis over the lease term.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |45
The Group as a lessor
The accounting policy under IFRS 16 for lessors has not changed.
As a lessor, the Group classifies its leases as either operating or finance leases.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset, and classified as an operating lease if it does not.
Policy applicable before April 1, 2019
The Group as a lessee
Leases were classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases were classified as operating leases.
Lease payments under operating leases were charged to the consolidated statements of operations on a straight-line basis over the lease term. Operating lease incentives, typically for premises, were recognized as a reduction in the rental expense over the lease term and recorded on the statements of financial position as deferred lease inducements.
Rental income, including contingent rent, from operating leases is recognized over the term of the contract and is reflected in revenue. Contingent rent may arise when payments due under contracts are not fixed in amount but vary based on future amount of usage.
Leases
Right-of-use assets
The following right-of-use assets relate to right-of-use real estate:
| | | | | | | | |
| As at | | March 31, 2020 |
| (in $ thousands) | | $ |
| Beginning balance as at April 1, 2019 | | 6,509 | |
| Additions | | 7,262 | |
| Terminations | | (381) | |
| Depreciation | | (2,090) | |
| Lease inducement allowance | | 3 | |
| Exchange rate effect | | 189 | |
| Ending balance | | 11,492 | |
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |46
Lease liabilities
| | | | | | | | |
| As at | | March 31, 2020 |
| (in $ thousands) | | $ |
| Beginning balance as at April 1, 2019 | | 6,668 | |
| Additions | | 7,257 | |
| Terminations | | (381) | |
| Lease payments | | (2,129) | |
| Lease incentives | | 1,249 | |
| Lease interest | | 375 | |
| Exchange rate effect | | 193 | |
| Ending balance | | 13,232 | |
| Current portion | | 1,559 | |
| | 11,673 | |
| | |
Contractual lease payments under the lease liabilities as at March 31, 2020 are as follows:
| | | | | | | | |
| As at | | March 31, 2020 |
| (in $ thousands) | | $ |
| Less than one year | | 2,020 | |
| One to two years | | 2,018 | |
| Two to five years | | 6,464 | |
| More than five years | | 5,589 | |
| Total undiscounted lease payments at period end | | 16,091 | |
| | |
Amounts recognized in net loss
| | | | | | | | |
| Year ended | | March 31, 2020 |
| (in $ thousands) | | $ |
| Interest on lease liabilities | | 375 | |
| Expenses relating to short-term leases | | 122 | |
| Variable lease payments | | 1,134 | |
| | 1,631 | |
| | |
Total cash outflow for leases for the year ended March 31, 2020 was $3,385,000.
17. Future Accounting Standards
At the date of authorization of the consolidated financial statements, certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective and have not been adopted early by the Group. Management anticipates that all the relevant pronouncements will be adopted in the first reporting period following the date of application. Information on new standards, amendments and interpretations, and improvements to existing standards, which could potentially impact the Group’s consolidated financial statements, are detailed as follows:
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya
For the year ended March 31, 2020 |47
17.1Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 - Presentation of Financial Statements, to clarify the classification of liabilities as current or non-current. The amendments are effective for annual periods beginning on or after January 1, 2022. Early adoption is permitted.
For the purposes of non-current classification, the amendments removed the requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period.
The amendments also clarify how a company classifies a liability that includes a counterparty conversion option. The amendments state that:
•settlement of a liability includes transferring a company’s own equity instruments to the counterparty; and
•when classifying liabilities as current or non-current a company can ignore only those conversion options that are recognized as equity.
Management is currently assessing but has not yet determined the impact of this new standard on the Group’s consolidated financial statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s consolidated financial statements.
18. Risks and Uncertainties
18.1Risks Related to the Market
18.1.1Economic risks and political uncertainty
Alithya’s results of operations are affected by the level of business activity of its customers, which in turn is affected by the level of economic activity in the industries and markets that they serve as well as political uncertainty. Economic conditions and political uncertainty could cause some customers to reduce or defer their expenditures for digital technology consulting services and a significant prolonged decline in the level of business activity of Alithya’s customers could have a material adverse effect on its revenues and profit margin. Alithya has implemented and will continue to implement cost-savings initiatives to manage its expenses as a percentage of revenues.
18.1.2COVID-19 pandemic
In December 2019, a novel strain of coronavirus (SARS-CoV-2) causing an infectious disease called COVID-19 quickly spread around the world, impacting the markets in which Alithya operates towards the end of Alithya’s fiscal year ended March 31, 2020. The COVID-19 pandemic and the measures taken in response to it, including travel bans, self-imposed quarantine periods, mandated business closures and social distancing measures, as well as unprecedented uncertainty in the global economy, have imposed significant pressure on businesses in general and has had and will likely continue to have an adverse impact on the global economy in the short and long term, which poses the risk that Alithya’s customers, contractors and partners may, temporarily or permanently, be prevented from conducting business as they have historically or previously expected to, which could in turn have an adverse impact on Alithya’s business and results of operations. Although Alithya, and most of its customers, are fortunate to operate as essential services providers by the Québec and Ontario governments, the COVID-19 outbreak has had impacts on Alithya’s business, with disruptions to its operations,
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For the year ended March 31, 2020 |48
including temporary office closures, reduced activity with certain clients, slower procurement decisions in some cases, and possible changes to customers’ spending and investment priorities. The continued spread of the COVID-19 pandemic could further result in: (i) reduced customer demand for Alithya’s services and solutions; (ii) customer pressure on pricing and payment terms; (iii) difficulty in invoice collection; (iv) demands from customers to change or terminate existing contracts or work orders; (v) the non-renewal of expiring customer contracts; (vi) reduction in budgets for government programs that may be used by Alithya to support its research and growth; (vii) delays and disruptions in services from Alithya’s third party service providers; and (viii) devotion of substantial amount of management time and resources and increased operating costs to mitigate the impact of the pandemic. Also, while the COVID-19 pandemic could create an increase for digital technologies and services in certain industry segments, which could benefit Alithya, there is no assurance that Alithya will be able to respond to such demand while providing services remotely or observing government recommendations.
The Company has taken and continues to take measures to protect the health and safety of its employees, work with its customers to minimize potential disruptions and address the challenges and opportunities posed by this global pandemic. The Company and its employees have transitioned to working remotely, relatively seamlessly, allowing us to continue supporting our customers without material disruption. The Company has also implemented several measures to protect its financial position and preserve liquidity, and strict cost containment measures including management salary reductions, and reduced work weeks and temporary layoffs for a limited number of employees, some of which have returned to normal as of today. To ensure business continuity and retain existing highly trained and experienced technical consultants on which Alithya’s success depends in large part, certain subsidiaries of the Company are benefiting from governmental financial assistance programs in Canada, the US and France.
As the Company continues to monitor the issues raised by the COVID-19 pandemic, it may take further actions that alter its business operations as may be required by governmental authorities, or that it determines are in the best interests of its employees, clients, partners and shareholders, and the Company cannot predict the potential effects any such alterations or modifications may have on its business, including the impact on its financial results. The extent to which the COVID-19 pandemic may further adversely impact Alithya’s business and results of operations depends on numerous evolving factors that are highly uncertain, difficult to predict and outside of Alithya’s control, including: (i) the duration and scope of the pandemic; (ii) actions taken by governments and other parties in response to the pandemic; (iii) the impact of the pandemic on the level of general economic activity; (iv) the effect of the pandemic on Alithya’s customers and customer demand for its services and solutions; (v) the ability of Alithya’s customers to pay for its services and solutions on time or at all; and (vi) Alithya’s ability to sell and provide its services and solutions to existing and prospective clients. Also, although Alithya has a business continuity plan in the event the health of any of its key employees would become at risk as a result of contracting COVID-19, there is no assurance that the implementation of such business continuity plan would be successful. While Alithya closely monitors the COVID-19 pandemic situation, as this pandemic is unprecedented and continuously evolving, it could affect Alithya’s business and results of operations in a manner that is not presently known or in a manner that Alithya does not currently consider will present significant risks to its operations. As such, the global impact of the COVID-19 pandemic on Alithya remains unknown at this time. Furthermore, the trading price for Alithya’s Subordinate Voting Shares and the securities of other companies in the industry has been volatile as a result of the COVID-19 pandemic and a recession, slowdown or other sustained adverse market event resulting from the COVID-19 pandemic could materially and adversely affect the financial markets, the value of Alithya’s Subordinate Voting Shares and Alithya’s ability to obtain equity or debt financing on favorable or acceptable terms or at all.
18.2Risks Related to Alithya's Industry
18.2.1Competition in the digital technology consulting services market
Competition in the digital technology consulting services market is intense and Alithya may lose projects to, or face pricing pressure from, its competitors or prospective customers’ internal IT departments. The market for digital technology consulting services providers is highly competitive. In many cases, Alithya competes for specialty digital technology consulting services work with in-house technical staff, and other international digital technology consulting firms. In addition, there are many
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For the year ended March 31, 2020 |49
small, boutique digital technology consulting firms that have developed services similar to those offered by Alithya. Alithya believes that competition will continue to be strong and may increase in the future, especially if Alithya’s competitors continue to reduce their price for digital technology consulting services. Any pricing pressure could have a material adverse impact on Alithya’s revenues and margins and limit its ability to provide competitive services.
Alithya’s target market is rapidly evolving and is subject to continuous technological change. While Alithya strives to remain competitive, Alithya’s competitors may be better positioned to address technological changes or may react more favorably to these changes, which could have a material adverse effect on Alithya’s business. Alithya competes on the basis of a number of factors, many of which may be beyond its control. Existing or future competitors may develop or offer digital technology consulting services that provide significant technological, creative, performance, price or other advantages over the services Alithya offers.
Some of Alithya’s competitors have longer operating histories and benefit from significantly greater financial, technical, marketing and managerial resources than Alithya. There are relatively low barriers to entry in Alithya’s business. Alithya currently has no patented technology that would preclude or inhibit competitors from entering its digital technology consulting services market. Therefore, Alithya must rely on the skill of its personnel and the quality of its customer service. In addition, as the costs to start a digital technology consulting services firm are relatively low, Alithya expects that it will continue to face additional competition from new entrants into the market in the future, offshore providers and larger integrators and it is subject to the risk that its employees may leave and start competing businesses. Any one or more of these factors could have a material adverse impact on Alithya’s business, financial condition and results of operations.
18.2.2Reliance on highly-trained and experienced personnel
Alithya’s success depends in large part on its ability to attract new qualified employees and retain existing highly-trained and experienced technical consultants, project management consultants, business analysts and sales and marketing professionals of various experience levels. The markets that Alithya serves are highly competitive and competition for skilled employees in the digital technology consulting industry is intense. If Alithya fails to attract new employees or retain its existing employees, Alithya may be unable to complete existing projects or bid for new projects of similar size, which could adversely affect its revenues. Even if Alithya is able to grow and expand its employee base, the additional resources required to attract new employees and retain existing employees may adversely affect its operating margins.
18.2.3Failure to enhance existing services and solutions and to develop new services and solutions
The markets for technology, digital and outsourcing services are characterized by rapid technological change, evolving industry standards, changing customer preferences and new services and solutions introductions. Alithya is currently in the midst of a shift towards increasing customer demand for digital technologies and services. Alithya’s future success depends on its ability to develop digital and other services and solutions that keep pace with changes in the markets in which it operates. Alithya may not be successful in developing digital and other new services and solutions addressing evolving technologies in a timely or cost-effective manner and there is no assurance that any services and solutions it does develop will be successful in the marketplace. Alithya’s failure to address the demands of the rapidly evolving technological environment could have a material adverse effect on its ability to retain and attract customers and on its competitive position, which could in turn have a material adverse effect on its business, financial condition and results of operations.
18.2.4Government sponsored programs
Alithya benefits from government sponsored programs designed to support research and development, labor and economic growth. Government programs reflect government policy and depend on various political and economic factors. There can be no assurance that such government programs will continue to be available to Alithya in the future, or will not be reduced, amended or eliminated. Any future government program reduction, elimination or other amendment to the government
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For the year ended March 31, 2020 |50
sponsored programs from which Alithya benefits could increase operating or capital expenditures incurred by Alithya and have a material adverse effect on its net earnings or cash flow.
18.2.5Intellectual property rights
Our success depends in part on our ability to protect our proprietary methodologies, processes, know-how, techniques, tools and other intellectual property that we use to provide our services. Alithya has registered, and applied for the registration of, trademarks, domain names and copyrights. Alithya also owns a number of trademarks and copyrights and holds licenses, which vary in duration, relating to its solutions and services. Existing trade secret and copyright laws, however, afford Alithya only limited protection. Third parties may attempt to disclose, obtain or use Alithya’s solutions or technologies. Others may also independently develop and obtain patents or copyrights for technologies that are similar or superior to Alithya’s technologies and should that happen, Alithya may need to license these technologies and may not be able to obtain licenses on reasonable terms, if at all. If Alithya is unsuccessful in any intellectual property litigation, it may be forced to do one or more of the following: (i) cease selling or using technology that incorporates the challenged intellectual property; (ii) obtain a license, which may not be available on reasonable terms or at all, to use the relevant technology; (iii) rebrand Alithya’s services and solutions, which could result in a loss of brand recognition and could require Alithya to devote additional resources to advertising and marketing its new brands; (iv) configure services to avoid infringement; and (v) refund license fees or other payments that were previously received.
As Alithya develops software applications for specific customer engagements, issues relating to the ownership of, and the rights to use of, software applications and frameworks could arise. Alithya relies on a combination of copyright, trademark, unfair competition and trade secret laws, as well as intellectual property assignment and confidentiality agreements and other methods to protect Alithya’s intellectual property rights. Protection of intellectual property rights and confidentiality in some countries in which Alithya operates may not be as effective as in Canada or other countries with more developed intellectual property protections. Also, Alithya may have to pay economic damages in the event of lost disputes relating to intellectual property rights, which could adversely affect its results of operations and financial condition. Further, Alithya cannot provide assurance that competitors will not infringe Alithya’s intellectual property rights, or that Alithya will have adequate resources to enforce its intellectual property rights. If Alithya does enforce its intellectual property rights through litigation, Alithya may not be successful and the litigation may result in substantial costs and diversion of resources and management attention.
18.2.6Infringing on the intellectual property rights of others
When developing solutions and providing services for its customers, Alithya utilizes its own, and may also enter into licensing agreements with third parties for the right to use patents, trademarks, copyrights, trade secrets and other intellectual property rights. Alithya may also develop intellectual property rights on its own or together with its customers when developing solutions and providing services for such customers. Although Alithya uses reasonable efforts to ensure that no intellectual property rights of others are infringed, third parties or even Alithya’s customers may assert claims against Alithya. In addition, certain agreements to which Alithya is a party may contain indemnity clauses pursuant to which Alithya would be required to indemnify its clients against liability and damages arising from third-party claims of intellectual property right infringement as part of its service contracts with its customers and, in some instances, the amount of these indemnity claims may exceed the revenues Alithya generates under the contracts or the coverage provided by Alithya’s insurance.
Any intellectual property claims or litigation against Alithya could incur substantial costs, consume the time and energy of Alithya’s management, harm Alithya’s reputations, require Alithya to enter into additional licensing arrangements or prevent Alithya from providing some solutions or services. Any limitation on Alithya’s ability to sell or use solutions or services that utilize intellectual property rights that are the subject of a claim could cause Alithya to lose revenues or incur additional expenses to modify its solutions and services for future projects.
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For the year ended March 31, 2020 |51
18.2.7Regulatory risks
Alithya’s operations require compliance with laws on many matters in different jurisdictions, including anti-corruption, intellectual property, trade restrictions, immigration, taxation, antitrust, data privacy, labor relations, environment and securities. Complying with these diverse requirements is a challenge and consumes significant resources. Also, some of these laws may impose conflicting requirements or restrictions on the movement of cash and other assets and on the repatriation of Alithya’s earnings and thereby reduce its earnings. These legal requirements may also expose Alithya to potential penalties for non-compliance and harm its reputation.
18.3Risks Related to Alithya's Business
18.3.1Changes in the nature of revenues
Any change in the mix of Alithya's arrangements with its customers could have an impact upon its periodic operating performance, including gross margin. Alithya generates revenues principally through the provision of consulting services in the areas of digital technology. These services are provided under arrangements with varying pricing mechanisms. Alithya's revenues-generating customer contracts generally fall into one of the following four categories: (i) time and materials arrangements for which revenues are recognized as the services are rendered and which represent the majority of Alithya's revenues, (ii) fixed-fee arrangements where the outcome can be estimated reliably and for which revenues are recognized using the percentage-of-completion method over the service periods and labor costs or labor hours are used to measure the progress towards completion, (iii) retainer-based arrangements for which customers pay a recurring fee in exchange for a monthly recurring service (typically support) for which revenues are recognized over time using an hours-based input method, and (iv) resale of third-party off-the-shelf software and maintenance for which revenues are recognized on a net basis and resale of Alithya-created software and maintenance for which revenues are reported on a gross basis. Alithya also sometimes enters into arrangements with multiple performance obligations which typically include software, post-contract support and consulting services and which require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.
Alithya also provides a payrolling service through which contractor candidates recruited and selected by clients are hired by Alithya and then assigned to client projects. Alithya assumes all administrative responsibilities related to these candidates and invoices the client for time and materials. The sale of payrolling services is recognized on a net basis. As Alithya’s overall business volume increases, management intends to continue to gradually phase-out this relatively low margin business.
18.3.2Customer concentration
Alithya derives a significant portion of its revenues from its major customers and expects this to continue for the foreseeable future. The increased breadth of Alithya’s services and solutions offerings has also resulted and may continue to result in larger and more complex projects and contracts with these major customers. Retaining these customers requires Alithya to foster close relationships with them and achieve a thorough understanding of their operations and needs in order to continue to provide high-quality services. Alithya’s ability to maintain such relationships depends on a number of factors, including the proficiency of its professionals and its management personnel. There can be no assurance that each such customer will continue to be satisfied with Alithya’s services and utilize Alithya on the same terms, or at all, in the future. Failure to maintain close relationship with these customers could result in termination of customer contracts and potential liability for significant penalties or damages, any of which could have a material adverse effect on Alithya’s business, financial condition and results of operations.
18.3.3Fluctuation of business and financial results
Alithya’s ability to maintain and increase its revenues is affected not only by its success in implementing its strategy, but also by a number of other factors, which could cause Alithya’s financial results to fluctuate. These factors include: (i) its ability to
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For the year ended March 31, 2020 |52
introduce and deliver new services and business solutions; (ii) its potential exposure to a lengthened sales cycle; (iii) the cyclicality of the purchases of its technology services; and (iv) the nature of its customer’s business (for example, if a customer encounters financial difficulty, it may be forced to cancel, reduce or defer existing contracts with Alithya). These, and other factors, make it difficult to predict financial results for any given period.
18.3.4Early termination risk
If Alithya fails to deliver its services in accordance with the terms and conditions of its contractual agreements or as a result of other circumstances, which may be beyond Alithya’s or its customers’ control, some of its customers could elect to terminate their contracts before their agreed expiry date, which would result in a reduction of Alithya’s earnings and cash flow and may impact the value of its backlog of orders. Early contract termination can result from the exercise of a legal right or when circumstances that are beyond Alithya’s or its customers’ control prevent the contract from continuing. In cases of early termination, Alithya may not be able to eliminate ongoing costs incurred to support the contract.
18.3.5Costs of services
In order to generate acceptable margins, Alithya’s pricing for services depends on its ability to accurately estimate the costs and timing for completing projects, which can be based on a customer’s bid specification, sometimes in advance of the final determination of the full scope and design of the contract. In addition, a portion of Alithya’s project-oriented contracts are performed on a fixed-price basis. Billing for fixed-price engagements is carried out in accordance with the contractual terms agreed upon with Alithya’s customers, and revenues are recognized based on the percentage of effort incurred to date in relation to the total estimated efforts to be incurred over the duration of the respective contract. These estimates reflect Alithya’s best judgment regarding the efficiencies of its methodologies and professionals as it plans to apply them to the contracts in accordance with Alithya’s standards of contract management. If Alithya is unsuccessful in accurately estimating the time or resources required to fulfill its obligations under a contract, or if unexpected factors, including those outside of its control, arise, there may be an impact on costs or the delivery schedule which could have a material adverse effect on Alithya’s expected net earnings.
18.3.6Teaming agreements and subcontracts
Alithya derives revenues from contracts where it enters into teaming agreements with other providers. In some teaming agreements, Alithya is the primary contractor, whereas in others, Alithya acts as a subcontractor. In both cases, Alithya relies upon its relationships with other providers to generate business and expects to continue to do so in the foreseeable future. Where Alithya acts as the primary contractor, if it fails to maintain its relationships with other providers, Alithya may have difficulty attracting suitable participants in its teaming agreements. Similarly, where it acts as subcontractor, if its relationships are impaired, other providers might reduce the work they award to Alithya, award that work to Alithya’s competitors or choose to offer the services directly to the customers in order to compete with Alithya’s business. In either case, if Alithya fails to maintain its relationship with these providers or if its relationship with these providers is otherwise impaired, Alithya’s business, prospects, financial condition and results of operations could be materially adversely affected.
18.3.7Partners’ ability to deliver on their commitments
Increasingly large and complex contracts may require Alithya to rely upon third party subcontractors, including software and hardware suppliers, to help Alithya fulfill its commitments. Under such circumstances, Alithya’s success depends on the ability of third parties to perform their obligations within agreed upon budgets and time frames. If Alithya’s partners fail to deliver, Alithya’s ability to complete ongoing contracts may be adversely affected, which could have an unfavorable impact on its profitability. In addition, Alithya may not be able to replace the functions provided by these third parties if their software components or solutions become obsolete, defective or incompatible with future versions of Alithya’s solutions and services, or if they are not adequately maintained or updated. Third-party suppliers of software or other intellectual property assets
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could also be unwilling to permit Alithya to use or to continue to use their intellectual property and this could impede or disrupt the use of their solutions or services by Alithya’s customers and Alithya.
18.3.8Guarantee and indemnification risks
In the normal course of business, Alithya enters into agreements that may provide for indemnification and guarantees to counterparties in transactions such as consulting services, business divestitures, lease agreements and financial obligations. These indemnification undertakings and guarantees may require Alithya to compensate counterparties for costs and losses incurred as a result of various events, including breaches of representations and warranties, intellectual property right infringement, claims that may arise while providing services or as a result of litigation that may be suffered by counterparties. If Alithya is required to compensate counterparties due to such arrangements and its insurance does not provide adequate coverage, its business, prospects, financial condition and results of operations could be materially adversely affected.
18.3.9Utilization rates
In order to maintain and grow revenues levels, Alithya has to maintain an appropriate level of availability of professional resources in each of its geographic regions by having a high utilization rate while still being able to assign additional resources to new work. Maintaining an efficient utilization rate, however, requires Alithya to forecast its need for professional resources accurately and to manage recruitment activities, professional training programs, attrition rates and restructuring activities appropriately. To the extent that it fails to do so, Alithya’s utilization rates may be reduced and thereby adversely affect its revenues and profitability. In addition, Alithya may find that it does not have sufficient resources to deploy against new business opportunities, in which case its ability to grow its revenues would suffer.
18.3.10Services for government departments and agencies
Changes in government spending policies or budget priorities could directly affect Alithya’s financial performance. Among the factors that could harm Alithya’s government contracting business are: (i) the curtailment of governments’ use of consulting and IT services firms; (ii) a significant decline in spending by governments in general, or by specific departments or agencies in particular; (iii) the adoption of new legislation and/or actions affecting companies that provide services to governments; (iv) delays by governments in the payment of its invoices; and (v) general economic and political conditions.
These and other factors could cause government departments and agencies to reduce their purchases under contracts, to exercise their right to terminate contracts, to issue temporary stop work orders, or not to exercise options to renew contracts, any of which would cause Alithya to lose future revenues. Government spending reductions or budget cutbacks at departments or agencies to which Alithya provides services or expects to provide services could materially harm Alithya’s continued performance or limit the award of additional contracts.
18.3.11Tax obligations
In estimating its income tax payable, Alithya uses accounting principles to determine income tax positions that are likely to be sustained by applicable tax authorities. However, there is no assurance that Alithya’s tax benefits or tax liability will not materially differ from its estimates or expectations. The tax legislation, regulation and interpretation that apply to Alithya’s operations are continually changing. In addition, future tax benefits and liabilities are dependent on factors that are inherently uncertain and subject to change, including future earnings, future tax rates, and anticipated business mix in the various jurisdictions in which Alithya operates. Moreover, Alithya’s tax returns are continually subject to review by applicable tax authorities, which determine the actual amounts of taxes payable or receivable, of any future tax benefits or liabilities and of income tax expense that Alithya may ultimately recognize and such determinations may become final and binding on Alithya.
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Any of the aforementioned factors could have a material adverse effect on Alithya’s net income or cash flow by affecting its operations and profitability, the availability of tax credits, the cost of the services it provides, and the availability of deductions for operating losses as it develops its international service delivery capabilities.
18.3.12Foreign exchange
Foreign exchange risk is the risk that the fair value of assets or liabilities, or future cash flows, will fluctuate because of changes in foreign exchange rates. Alithya’s functional and reporting currency is the Canadian dollar. As a significant portion of Alithya’s revenues, earnings and net assets is denominated in foreign currencies, including in US dollars and Euros, fluctuations in exchange rates between the Canadian dollar and such currencies could have an adverse effect on its financial condition and results of operations. This risk is partially mitigated by a natural hedge in matching Alithya’s costs with revenues denominated in the same currency.
Future events that may significantly increase or decrease the risk of future movement in the exchange rates for these currencies cannot be predicted. Although Alithya does not currently have an exchange rate risk policy that would materially affect its results of operations, it is still subject to foreign exchange risk.
18.3.13Legal claims
During the ordinary course of conducting its business, Alithya may be threatened with or become subject to legal proceedings initiated by third parties or Alithya’s customers. For instance, Alithya’s solutions may suffer from defects that adversely affect their performance, may not meet its customers’ requirements or may fail to perform in accordance with applicable service levels. Such problems could subject Alithya to legal liability. Alithya uses reasonable efforts to include provisions in its contracts which are designed to limit its exposure to legal claims relating to its services and the applications it develops and obtain liability insurance coverage. However, Alithya may not always be able to include such provisions or obtain sufficient insurance coverage and, where it is successful in doing so, they may not protect Alithya adequately or may not be enforceable under some circumstances or under the laws of some jurisdictions. Defending lawsuits against Alithya could require substantial amounts of management’s attention and incur significant attorney fees, damage awards and fines or penalties for which Alithya may not be fully insured and which could harm its reputation and adversely affect its business, financial condition and results of operations.
18.3.14IT systems and infrastructure
To deliver its services and solutions to its customers, Alithya relies upon high speed networks, including satellite, fiber optic and land lines operated by third parties, to provide reliable communications between its main operating offices, other global delivery centers and the offices of its customers and associates worldwide. Any systems failure or outage or a significant disruption in such communications or in Alithya’s IT systems and infrastructure could result in curtailed operations, a loss of customers and reputational damage, which would have an adverse effect on Alithya’s business, financial condition and results of operations.
18.3.15Security and cybersecurity risks
In the current environment, there are numerous and evolving security risks, especially from cybersecurity threats, including criminal hackers, hacktivists, state sponsored organizations, industrial espionage, insider or employee misconduct or negligence and human or technological error. Alithya’s business could be negatively impacted by these physical and cybersecurity threats, which could affect its future sales and financial position or increase its costs and expenses. These security threats to Alithya include potential attacks not only on its own solutions, services and systems, but also those of its customers, contractors, partners, suppliers and other third parties. Alithya seeks to detect and investigate all security incidents and to prevent their occurrence or recurrence by continuously investing in security infrastructure, data security and privacy controls, threat protections, detection and mitigation policies, procedures and controls, and employee security
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awareness and trainings. However, because of the evolving nature and sophistication of these security threats, Alithya may be unable to detect or prevent all of these threats. Additionally, with advances in computer capabilities and data protection requirements to address ongoing threats, Alithya may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems caused by security breaches. Alithya’s Chief Information Security Officer is responsible for overseeing its security measures, the prevention of security incidents and the detection and investigation of incidents in the event of the occurrence of threats by implementing security measures to ensure an appropriate level of control based on the nature of the information and the inherent risks attached thereto. Alithya’s security management framework provides a foundation for a risk-based approach to the development, review and regular improvements of policies, processes, standards and controls related to information security, data privacy, physical security and business continuity. In addition, while Alithya selects third-party suppliers carefully and includes safeguards in its contractual terms, it does not control their actions. Any security breaches caused by the negligence or misconduct of these third parties could adversely affect Alithya’s ability to safeguard its information technology infrastructure and deliver solutions and services to its customers and otherwise conduct business. Furthermore, while Alithya’s liability insurance policy covers cyber risks, there is no assurance that such insurance coverage will be sufficient in type or amount to cover the costs, damages, liabilities or losses that could result from security breaches, cyber-attacks and other related breaches. The occurrence of any of these aforementioned security threats could expose Alithya, its customers or other third parties to potential liability, litigation, and regulatory action, as well as the loss of customer confidence, loss of existing or potential customers, loss of sensitive government contracts, damage to brand and reputation and other financial loss.
18.3.16Risks from security breaches or disclosure of sensitive data or failure to comply with data protection laws and regulations
Alithya is dependent on IT networks and systems to process, transmit, host and securely store electronic information and to communicate among its locations around the world and with its customers, contractors and partners. Security breaches, employee negligence or malfeasance or human or technological error could lead to shutdowns or disruptions of Alithya’s operations and potential unauthorized disclosure of sensitive data, which in turn could jeopardize projects that are critical to the operations of Alithya’s customers’ businesses. The theft and/or unauthorized use or disclosure of Alithya’s or its customers’ and their customers’ confidential information or other proprietary business information as a result of such an incident could adversely affect Alithya’s competitive position and reduce marketplace acceptance of its services. Any failure in the networks or computer systems used by Alithya or its customers could also result in a claim for substantial damages against Alithya and significant reputational harm, regardless of Alithya’s responsibility for the failure.
In addition, as a global service provider with customers in a broad range of industries, Alithya often has access to or is required to manage, utilize, collect and store sensitive data subject to various regulatory regimes, including but not limited to US or Canadian federal and state or provincial laws governing the protection of personal information and the European Union’s General Data Protection Regulation. Alithya’s Chief Information Security Officer oversees its compliance with the laws that protect the privacy of personal information. If unauthorized access to or disclosure of personal information in Alithya’s possession or control occurs or it otherwise fails to comply with applicable laws and regulations in this regard, Alithya could be exposed to civil or criminal enforcement actions and penalties, as well as lawsuits brought by its customers, its customers’ customers, their customers or third parties for breaching contractual confidentiality and security provisions or data protection laws. Laws and expectations relating to data protections continue to evolve in ways that may limit Alithya’s access, use and disclosure of sensitive data, and may require increased expenditures by Alithya or may dictate that it no longer continues to offer certain types of services.
18.3.17Reputational risks
Alithya’s reputation as a capable and trustworthy service provider and long-term business partner is key to its ability to compete effectively in the market for IT services. The nature of Alithya’s operations exposes it to the potential loss, unauthorized access to, or destruction of its customers’ information, as well as temporary service interruptions. Depending on the nature of the information or services, such events may have a negative impact on how Alithya is perceived in the
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marketplace. Under such circumstances, Alithya’s ability to obtain new customers and retain existing customers could suffer with a resulting impact on its revenues and net earnings.
18.3.18Operational, financial and other internal controls and systems
Alithya’s historic and anticipated growth places significant demands on its management and other resources, and requires Alithya to continue to develop and improve its operational, financial and other internal controls. In particular, Alithya’s growth has presented and will continue to present challenges with respect to: (i) recruiting, training and retaining technical, finance, marketing and management personnel with the knowledge, skills and experience that its business model requires; (ii) maintaining high levels of customer satisfaction; (iii) developing and improving its internal administrative infrastructure, particularly its operational, financial and other internal control systems; (iv) preserving its culture, values and entrepreneurial environment; and (v) effectively managing its personnel and operations and effectively communicating to its personnel worldwide its core values, strategies and goals.
In addition, the increasing size and scope of Alithya’s operations increases the possibility that a member of its personnel will engage in unlawful or fraudulent activity, breach its contractual obligations, or otherwise expose Alithya to unacceptable business risks, despite its efforts to train its personnel and maintain internal controls to prevent such instances. If Alithya does not continue to develop and implement the right processes and tools to manage its enterprise, its business, results of operations and financial condition could be adversely affected.
Due to the inherent limitations of internal controls including the circumvention or overriding of controls or fraud, there can, however, only be reasonable assurance that Alithya’s internal controls will detect and prevent a misstatement. If Alithya is unable to design, implement, monitor and maintain effective internal controls throughout its different business environments, the efficiency of its operations might suffer, resulting in a decline in revenues and profitability, and the accuracy of its financial reporting could be impaired.
18.3.19Commitment of substantial resources for growth
Growing the Alithya business over the longer-term may require commitment of continued investment in the operations of Alithya. Alithya’s future capital requirements will depend on many factors, including many of those discussed above, such as: (i) the results of Alithya’s operations and the rate of its revenues growth; (ii) the development of new service offerings; (iii) the successful integration of its business acquisitions; (iv) hiring and retaining key personnel; (v) maintaining customer relationships; and (vi) the identification of suitable future acquisition opportunities.
Alithya’s funds may not be sufficient to fund these activities if opportunities arise, and Alithya may be unable to expand its business if it does not have sufficient capital or cannot borrow or raise additional capital on attractive terms.
18.3.20Implementation of the strategy of growing through acquisitions
Alithya’s ability to grow through acquisitions requires that it identifies suitable acquisition targets and that it correctly evaluates their potential as transactions that will meet Alithya’s financial and operational objectives. There can be no assurance that Alithya will be able to identify suitable acquisition candidates and consummate additional acquisitions that meet its economic thresholds, or that future acquisitions will be successfully integrated into its operations and yield the tangible accretive value that had been expected. If Alithya is unable to implement its strategy, it will likely be unable to maintain its historic or expected growth rates.
The successful integration of new operations arising from Alithya’s acquisition strategy requires that a substantial amount of management time and attention be focused on integration activities and management time that is devoted to integration activities may divert management’s normal operations focus on growing the business organically with resulting pressure on the revenues and earnings from its existing operations. In addition, Alithya may face complex and potentially time-consuming
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challenges in implementing its uniform standards, controls, procedures and policies across new operations when harmonizing their activities with those of its existing business units. Integration activities can result in unanticipated operational problems, expenses and liabilities. If Alithya is not successful in executing its integration strategies in a timely and cost-effective manner, it will have difficulty achieving its growth and profitability objectives. Additional risks and uncertainties relating to acquisitions and other strategic transactions include: (i) difficulties in the assimilation and retention of key employees and in maintaining relationships with present and potential customers, contractors and partners; (ii) difficulties managing and integrating operations in geographically dispersed locations; (iii) the risk that the targeted markets do not evolve as anticipated and that technologies acquired prove to be inferior to Alithya’s expectations; (iv) difficulties in combining or managing different corporate cultures; (v) potential deficiencies in internal controls at acquired companies; (vi) cybersecurity and compliance related issues; and (vii) exposure to unanticipated liabilities of acquired companies.
In connection with acquisitions, Alithya may incur debt, issue equity securities, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could cause Alithya’s earnings to decline.
18.3.21Dependence on certain key personnel
Alithya depends on certain key personnel, and the loss of their services may adversely affect Alithya’s business. Alithya believes that its success depends on the continued employment of its senior management team and other key personnel. This dependence is particularly important to Alithya’s business because personal relationships are a critical element in obtaining and maintaining customer engagements. If one or more members of Alithya’s senior management team or other key personnel were unable or unwilling to continue in their present positions, Alithya’s business could be adversely affected. Furthermore, other companies seeking to develop in-house business capabilities may hire away some of Alithya’s key personnel.
18.3.22History of losses
Alithya generated a net loss of $39.7 million and $12.5 million for the fiscal years ended March 31, 2020 and 2019, respectively. Alithya intends to continue to expend significant funds to increase its capability to win new contracts, expand and improve its existing operations and make additional acquisitions. As it continues to grow, Alithya expects the aggregate amount of these expenses will also continue to grow. Alithya’s efforts to grow its business may, however, be more costly than expected and Alithya may not be able to increase its revenue enough to offset higher operating expenses. Alithya may also incur significant losses in the future for a number of reasons, including as a result of unforeseen expenses, difficulties, complications and delays, the other risks described herein and other unknown events. The amount of future net losses, if any, will depend, in part, on the growth of Alithya’s future expenses and its ability to generate revenue. Any future net losses of Alithya or its inability to maintain profitability and positive cash flows from operating activities, among other things, may have an adverse effect on Alithya shareholders’ equity and working capital.
18.3.23Goodwill
Alithya recognizes an accounting value for goodwill and other intangible assets in connection with its business acquisitions. Under IFRS, goodwill must be assessed at least annually and potentially more frequently, in the event the value of goodwill and other indefinite-lived intangible assets has been impaired. Amortizing intangible assets will be assessed for impairment in the event of an impairment indicator. Any reduction or impairment of the value of goodwill or other intangible assets will result in a charge against earnings, which could materially adversely affect Alithya’s results of operations and shareholders’ equity in future periods.
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18.4 Risks Related to Subordinate Voting Shares
18.4.1Limited voting rights
Alithya’s Multiple Voting Shares are similar to its Subordinate Voting Shares except that each Multiple Voting Share has ten times the voting rights of each Subordinate Voting Share. As a result, holders of Multiple Voting Shares have a disproportionate level of control over matters submitted to Alithya shareholders for approval, which may reduce the ability of holders of Subordinate Voting Shares to influence corporate matters and, as a result, Alithya may take actions that they do not view as beneficial.
18.4.2Market price of Subordinate Voting Shares
Alithya cannot predict the price of Subordinate Voting Shares. The stock market may experience significant price and volume fluctuations that are often unrelated or disproportionate to the operating performance of companies. These broad market and industry factors, together with other economical circumstances, may materially harm the market price of Alithya’s Subordinate Voting Shares, regardless of Alithya’s operating performance. In addition, the price of Alithya’s Subordinate Voting Share may be dependent upon the valuations and recommendations of the analysts who cover the Alithya business, and if Alithya’s results do not meet the analysts’ forecasts and expectations, Alithya’s share price could decline as a result of analysts lowering their valuations and recommendations or otherwise. In the past, following periods of volatility in the market, securities class-action litigations have often been instituted against companies. Such litigations, if instituted against Alithya, could result in substantial costs and diversion of management’s attention and resources.
18.4.3Raising additional capital
Alithya’s future growth is contingent on the execution of its business strategy, which, in turn, is dependent on its ability to grow the business organically as well as through business acquisitions. In the event Alithya would need to fund any currently unidentified or unplanned future acquisitions and other growth opportunities, Alithya may have to raise additional capital through a combination of public and private equity offerings and debt financings and there can be no assurance that such funding will be available in amounts and on terms acceptable to Alithya. Alithya’s ability to raise the required funding depends on the capacity of the capital markets to meet Alithya’s equity and/or debt financing needs in a timely fashion and on the basis of interest rates and/or share prices that are reasonable in the context of Alithya’s commercial objectives. Increasing interest rates, volatility in Alithya’s share price, and the capacity of Alithya’s current lenders to meet Alithya’s additional liquidity requirements are all factors that may have a material adverse effect on any acquisitions or growth activities that Alithya may, in the future, identify or plan. If Alithya is unable to obtain the necessary funding, it may be unable to achieve its growth objectives.
To the extent that Alithya raises additional capital through the sale of equity or convertible debt securities, the ownership interests of Alithya’s shareholders will be diluted, and the terms may include liquidation or other preferences that could adversely affect the rights of Alithya’s shareholders. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on Alithya’s ability to incur additional debt and other operating restrictions that could adversely impact its ability to conduct its business.
18.4.4Active market
If an active market for Alithya’s Subordinate Voting Shares is not sustained, holders of Subordinate Voting Shares may be unable to sell their investments on satisfactory terms. Declines in the value of Subordinate Voting Shares may adversely affect the liquidity of the market for Subordinate Voting Shares. Factors unrelated to Alithya’s performance may also have an effect on the price and liquidity of Subordinate Voting Shares including the extent of analyst coverage of Alithya, lower trading volume and general market interest in Subordinate Voting Shares, the size of Alithya’s public float and any event resulting in a delisting of Subordinate Voting Shares from the TSX or the NASDAQ.
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18.4.5Dividends
Alithya does not expect to pay dividends in the immediate future and anticipates that it will retain all earnings, if any, to support its operations. Any future determination as to the payment of dividends will, subject to Canadian legal requirements and Alithya’s articles of incorporation, be at the sole discretion of Alithya’s board of directors and will depend on Alithya’s financial condition, results of operations, capital requirements and other factors the board of directors deems relevant. Holders of Subordinate Voting Shares must therefore rely on potential increases in the trading price of their shares for returns on their investment in the foreseeable future.
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19. Management’s Evaluation of our Disclosure Controls and Procedures
Disclosure Controls and Procedures
The Company has established and maintains disclosure controls and procedures designed to provide reasonable assurance that the material information relating to the Company is made known to the Chief Executive Officer and Chief Financial Officer by others, particularly during the period in which annual and interim filings are prepared and that information required to be disclosed by the Company in its annual, interim filings or other reports filed or submitted by the Company under Canadian and US securities laws is recorded, processed, summarized and reported within the time periods specified under those laws and the related rules. The effectiveness of these disclosure controls and procedures, as defined under National Instrument 52-109 – Issuers’ annual and interim filings (“NI 52-109”) adopted by Canadian securities regulators and in Rule 13a-15(e) and 15d-15(e) under the US Securities Exchange Act of 1934, as amended, was evaluated under the supervision of and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer as at the end of the Company’s most recently completed financial year ended March 31, 2020. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as at March 31, 2020.
Internal Control over Financial Reporting
The Company has also established and maintains adequate internal control over financial reporting, as defined under NI 52-109 adopted by Canadian securities regulators and in Rule 13a-15(f) and 15d-15(f) under the US Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and effected by management and other key employees, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. The effectiveness of the Company’s internal control over financial reporting was evaluated under the supervision of and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer as at the end of the Company’s most recently completed financial year ended March 31, 2020 based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal control over financial reporting was effective as at March 31, 2020.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the year ended March 31, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Auditor’s Report on Internal Control over Financial Reporting
This report does not include an attestation report on the effectiveness of the Company’s internal controls over financial reporting from an independent registered public accounting firm as the Company is an emerging growth company under the rules of the US Securities and Exchange Commission.
Limitations on Effectiveness of Disclosure Controls and Procedures and Internal Control over Financial Reporting
The Company’s management recognizes that any disclosure controls and procedures and internal control over financial reporting, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect all errors or misstatements on a timely basis.
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For the year ended March 31, 2020 |61
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Exhibit 15.3
| | |
Annual Consolidated Financial Statements of Alithya Group inc.
For the years ended March 31, 2020, 2019 and 2018 |
|
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Alithya Group inc.
Raymond Chabot Grant Thornton LLP
Suite 2000
National Bank Tower
600 De La Gauchetière Street West Montréal, Quebec
H3B 4L8
T 514-878-2691
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Alithya Group inc. (hereafter “the Company”) as of March 31, 2020 and 2019, the related consolidated statements of operations, changes in shareholders’ equity, comprehensive loss, and cash flows for each of the three years in the period ended March 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2020 and 2019, and the results of its consolidated operations and its consolidated cash flows for each of the three years in the period ended March 31, 2020, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2020 due to the adoption of IFRS 16 – Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
Member of Grant Thornton International Ltd rcgt.com
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 3 |
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2012.
Montréal, Canada,
June 18, 2020
1 CPA auditor, CA public accountancy permit no. A121855
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 4 |
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the year ended March 31, | | | | |
| (in thousands of Canadian dollars, except per share data) | | | | 2020 | | 2019 | | 2018 |
| | Notes | | $ | | $ | | $ |
| Revenues | | 2 | | 279,007 | | | | 209,478 | | | | 159,290 | |
| Cost of revenues | | 2 | | 196,033 | | | | 155,202 | | | | 124,597 | |
| Gross margin | | | | 82,974 | | | | 54,276 | | | | 34,693 | |
| | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | 17 | | 76,782 | | | | 52,615 | | | | 31,403 | |
| Business acquisitions and integration costs | | | | 4,637 | | | | 5,818 | | | | 2,079 | |
| Depreciation | | 5, 6 | | 3,368 | | | | 980 | | | | 870 | |
| Amortization of intangibles | | 7 | | 11,278 | | | | 8,092 | | | | 5,724 | |
| Foreign exchange expense (gain) | | | | (161) | | | | (144) | | | | 58 | |
| Impairment of intangibles and goodwill | | 7, 8 | | 28,036 | | | — | | | — | |
| | | | 123,940 | | | | 67,361 | | | | 40,134 | |
| Operating loss | | | | (40,966) | | | | (13,085) | | | | (5,441) | |
| Financial expenses | | 18 | | 2,347 | | | | 2,241 | | | | 2,097 | |
| Gain on sale of subsidiary | | 3 | | (681) | | | | — | | | | — | |
| Loss before income taxes | | | | (42,632) | | | | (15,326) | | | | (7,538) | |
| Income tax expense (recovery) | | | | | | | | | | | | | |
| Current | | 11 | | 237 | | | | 289 | | | | 81 | |
| Deferred | | 11 | | (3,202) | | | | (3,140) | | | | (395) | |
| | | | (2,965) | | | | (2,851) | | | | (314) | |
| Net loss | | | | (39,667) | | | | (12,475) | | | | (7,224) | |
| Basic and diluted loss per share | | 15 | | (0.70) | | | | (0.34) | | | | (0.31) | |
| | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 5 |
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| | | | | | | | | | | | | | | | | | | | |
| As at | | | | March 31, | | March 31, |
| (in thousands of Canadian dollars) | | | | 2020 | | 2019 |
| | Notes | | $ | | $ |
| Assets | | | | | | |
| Current assets | | | | | | |
| Cash | | | | 8,810 | | 12,801 |
| Short-term deposits | | | | — | | 1,324 |
| Accounts receivable and other receivables | | 4 | | 67,662 | | 67,146 |
| Income taxes receivable | | | | 2,154 | | 1,217 |
| Unbilled revenue | | | | 8,015 | | 7,583 |
| Tax credits receivable | | | | 5,889 | | 5,829 |
| Prepaids | | | | 3,195 | | 3,166 |
| | | | 95,725 | | 99,066 |
| Non-current assets | | | | | | |
| Restricted cash | | | | 2,212 | | 2,165 |
| Income taxes receivable | | | | 136 | | 632 |
| Tax credits receivable | | | | 7,015 | | 2,536 |
| Property and equipment | | 5 | | 7,172 | | 2,339 |
| Right-of-use assets | | 6 | | 11,492 | | — |
| Intangibles | | 7 | | 51,804 | | 47,551 |
| Deferred tax assets | | 11 | | 4,652 | | 2,946 |
| Goodwill | | 8 | | 77,608 | | 79,634 |
| | | | 257,816 | | 236,869 |
| | | | | | |
| Liabilities and Shareholders' Equity | | | | | | |
| Current liabilities | | | | | | |
| Accounts payable and accrued liabilities | | 9 | | 50,327 | | 48,935 |
| Deferred revenue | | | | 9,602 | | 5,998 |
| Current portion of lease liabilities | | 6 | | 1,559 | | — |
| Current portion of long-term debt | | 10 | | 1,143 | | 1,000 |
| | | | 62,631 | | 55,933 |
| Non-current liabilities | | | | | | |
| Long-term debt | | 10 | | 52,086 | | 27,305 |
| Lease liabilities | | 6 | | 11,673 | | — |
| Deferred lease inducements | | | | — | | 159 |
| Deferred tax liabilities | | 11 | | 4,057 | | 2,016 |
| | | | 130,447 | | 85,413 |
| Shareholders' equity | | | | | | |
| Share capital | | 12 | | 195,335 | | 186,861 |
| Deficit | | | | (78,780) | | (39,113) |
| Accumulated other comprehensive income | | | | 6,123 | | 1,469 |
| Contributed surplus | | | | 4,691 | | 2,239 |
| | | | 127,369 | | 151,456 |
| | | | 257,816 | | 236,869 |
| Business combinations, divestiture and private placement | | 3 | | | | |
| Commitments and contingencies | | 13 | | | | |
| Subsequent events | | 23 | | | | |
| | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 6 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended March 31
(in thousands of Canadian dollars, except share data) | | | | | | | | | | | | | | |
| | Notes | | Shares
outstanding | | Share capital | | Deficit | | Accumulated other
comprehensive
income (loss) | | Contributed
surplus | | Total |
| | | | Number | | $ | | $ | | $ | | $ | | $ |
| Balance as at March 31, 2019 | | | | 55,665,476 | | | | 186,861 | | | | (39,113) | | | | 1,469 | | | | 2,239 | | | | 151,456 | |
| Net loss | | | | — | | | | — | | | | (39,667) | | | | — | | | | — | | | | (39,667) | |
| Cumulative translation adjustment on consolidation of foreign subsidiaries | | | | — | | | | — | | | | — | | | | 4,654 | | | | — | | | | 4,654 | |
| Total comprehensive loss | | | | — | | | | — | | | | (39,667) | | | | 4,654 | | | | — | | | | (35,013) | |
| Share-based compensation | | 12 | | — | | | | — | | | | — | | | | — | | | | 1,050 | | | | 1,050 | |
| Issuance of Subordinate Voting Shares from exercise of stock options | | 12 | | 53,987 | | | | 201 | | | | — | | | | — | | | | (36) | | | | 165 | |
| Share-based compensation on shares vested during the year, issued on business acquisitions | | 12 | | — | | | | 407 | | | | — | | | | — | | | | 1,461 | | | | 1,868 | |
| Issuance of Subordinate Voting Shares from settlement of DSU | | 12 | | 5,514 | | | | 23 | | | | — | | | | — | | | | (23) | | | | — | |
| Acquisition of Matricis | | 3, 12 | | 473,646 | | | | 1,800 | | | | — | | | | — | | | | — | | | | 1,800 | |
| Acquisition of Alithya Travercent | | 3, 12 | | 1,274,510 | | | | 3,870 | | | | — | | | | — | | | | — | | | | 3,870 | |
| Acquisition of Askida | | 3, 12 | | 600,384 | | | | 2,173 | | | | — | | | | — | | | | — | | | | 2,173 | |
| Total contributions by, and distributions to, shareholders | | | | 2,408,041 | | | | 8,474 | | | | — | | | | — | | | | 2,452 | | | | 10,926 | |
| Balance as at March 31, 2020 | | | | 58,073,517 | | | | 195,335 | | | | (78,780) | | | | 6,123 | | | | 4,691 | | | | 127,369 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as at March 31, 2018 | | | | 25,951,311 | | | | 54,251 | | | | (23,927) | | | | 558 | | | | 1,144 | | | | 32,026 | |
| Net loss | | | | — | | | | — | | | | (12,475) | | | | — | | | | — | | | | (12,475) | |
| Cumulative translation adjustment on consolidation of foreign subsidiaries | | | | — | | | | — | | | | — | | | | 911 | | | | — | | | | 911 | |
| Total comprehensive loss | | | | — | | | | — | | | | (12,475) | | | | 911 | | | | — | | | | (11,564) | |
| Share-based compensation | | 12 | | — | | | | — | | | | — | | | | — | | | | 581 | | | | 581 | |
| Issuance of class A shares | | 12 | | 12,191,433 | | | | 52,812 | | | | — | | | | — | | | | — | | | | 52,812 | |
| Issuance of class AA shares | | 12 | | 68,615 | | | | 309 | | | | — | | | | — | | | | — | | | | 309 | |
| Redemption of class A shares and related share redemption premium | | 12 | | (95,970) | | | | (252) | | | | (180) | | | | — | | | | — | | | | (432) | |
| Dividends | | 12 | | — | | | | — | | | | (2,531) | | | | — | | | | — | | | | (2,531) | |
Issuance of Subordinate Voting Shares from exercise of stock
options | | 12 | | 91,739 | | | | 302 | | | | — | | | | — | | | | (58) | | | | 244 | |
| Exchange of shares pursuant to the Edgewater Transaction | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exchange of shares of Old Alithya for shares of Alithya | | 12 | | (38,115,389) | | | | (107,927) | | | | — | | | | — | | | | — | | | | (107,927) | |
| Issuance of Subordinate Voting Shares of Alithya | | 12 | | 30,946,405 | | | | 104,412 | | | | — | | | | — | | | | — | | | | 104,412 | |
| Issuance of Multiple Voting Shares of Alithya | | 12 | | 7,168,984 | | | | 3,515 | | | | — | | | | — | | | | — | | | | 3,515 | |
| Issuance of shares on business acquisition | | 3, 12 | | 17,458,348 | | | | 78,364 | | | | — | | | | — | | | | 572 | | | | 78,936 | |
| Share-based compensation on shares vested during the year, issued on business acquisitions | | | | — | | | | 1,075 | | | | — | | | | — | | | | — | | | | 1,075 | |
| Total contributions by, and distributions to, shareholders | | | | 29,714,165 | | | | 132,610 | | | | (2,711) | | | | — | | | | 1,095 | | | | 130,994 | |
| Balance as at March 31, 2019 | | | | 55,665,476 | | | | 186,861 | | | | (39,113) | | | | 1,469 | | | | 2,239 | | | | 151,456 | |
| | | | | | | | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 7 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT’D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notes | | Shares
outstanding | | Share capital | | Deficit | | Accumulated other
comprehensive
income (loss) | | Contributed
surplus | | Total |
| Balance as at March 31, 2017 | | | | 24,601,490 | | | 49,384 | | | | (16,738) | | | | (137) | | | | 859 | | | | 33,368 | |
| Net loss | | | | — | | | — | | | | (7,224) | | | | — | | | | — | | | | (7,224) | |
| Cumulative translation adjustment on consolidation of foreign subsidiary | | | | — | | | — | | | | — | | | | 695 | | | | — | | | | 695 | |
| Total comprehensive income | | | | — | | | — | | | | (7,224) | | | | 695 | | | | — | | | | (6,529) | |
| Share-based compensation | | 12 | | — | | | — | | | | — | | | | — | | | | 289 | | | | 289 | |
| Issuance of Class A shares | | | | 344,459 | | | 1,309 | | | | — | | | | — | | | | — | | | | 1,309 | |
| Issuance of Class A shares on business acquisition | | | | 1,146,707 | | | 1,425 | | | | — | | | | — | | | | — | | | | 1,425 | |
| Issuance of Class A shares from the exercise of stock options | | | | 2,500 | | | 8 | | | | — | | | | — | | | | (4) | | | | 4 | |
| Share-based compensation on shares vested during the year, issued on business acquisitions | | | | — | | | 2,701 | | | | — | | | | — | | | | — | | | | 2,701 | |
| Redemption of Class A shares and related share redemption premium | | | | (143,845) | | | (576) | | | | 35 | | | | — | | | | — | | | | (541) | |
| Total contributions by, and distributions to, shareholders | | | | 1,349,821 | | | 4,867 | | | | 35 | | | | — | | | | 285 | | | | 5,187 | |
| Balance as at March 31, 2018 | | | | 25,951,311 | | | 54,251 | | | | (23,927) | | | | 558 | | | | 1,144 | | | | 32,026 | |
| | | | | | | | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 8 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended March 31, | | | | |
| (in thousands of Canadian dollars) | | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ |
| Net loss | | (39,667) | | | | (12,475) | | | | (7,224) | |
| Other comprehensive income (loss) | | | | | | | | | | | |
| Items that may be classified subsequently to profit or loss | | | | | | | | | | | |
| Cumulative translation adjustment on consolidation of foreign subsidiaries | | 4,654 | | | | 911 | | | | 695 | |
| | 4,654 | | | | 911 | | | | 695 | |
| Comprehensive loss | | (35,013) | | | | (11,564) | | | | (6,529) | |
| | | | | | |
The accompanying notes are an integral part of these consolidated financial statements
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 9 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the year ended March 31, | | | | |
| (in thousands of Canadian dollars) | | | | 2020 | | 2019 | | 2018 |
| | Notes | | $ | | $ | | $ |
| Operating activities | | | | | | | | |
| Net loss | | | | (39,667) | | (12,475) | | (7,224) |
| Items not affecting cash | | | | | | | | |
| Depreciation and amortization | | | | 14,646 | | 9,072 | | 6,594 |
| Amortization of deferred lease inducements | | | | — | | (69) | | (70) |
| Amortization of finance costs | | 18 | | 231 | | 144 | | 28 |
| Share-based compensation | | 12 | | 2,918 | | 1,656 | | 4,163 |
| Unrealized foreign exchange | | | | 354 | | (171) | | — |
| Interest accretion on balances of purchase payable | | 18 | | 318 | | 211 | | 232 |
| Gain on sale of subsidiary | | 3 | | (681) | | — | | — |
| Impairment of intangibles and goodwill | | | | 28,036 | | — | | — |
| Deferred taxes | | | | (3,202) | | (3,140) | | (395) |
| Changes in non-cash working capital items | | 19 | | 5,739 | | (14,801) | | (1,638) |
| | | | 48,359 | | (7,098) | | 8,914 |
| Net cash from (used in) operating activities | | | | 8,692 | | (19,573) | | 1,690 |
| | | | | | | | |
| Investing activities | | | | | | | | |
| Additions to property and equipment, net of disposals | | 5, 19 | | (4,488) | | (984) | | (463) |
| Additions to intangibles | | 7 | | (49) | | (524) | | (961) |
| Short-term deposits | | | | 1,324 | | (1,324) | | — |
| Restricted cash | | | | (47) | | (41) | | (2,124) |
| Business acquisitions and divestiture, net of cash acquired | | 3 | | (15,166) | | 24,869 | | (13,396) |
| Right-of-use assets | | | | 222 | | — | | — |
| Net cash from (used in) investing activities | | | | (18,204) | | 21,996 | | (16,944) |
| | | | | | | | |
| Financing activities | | | | | | | | |
| Line of credit and demand loan drawn (repaid) | | 16 | | (3,153) | | (40,547) | | 24,066 |
| Increase of long-term debt, net of related transaction costs | | 16 | | 64,093 | | 29,459 | | — |
| Repayment of long-term debt | | 16 | | (54,409) | | (20,422) | | (2,385) |
| Exercise of stock options | | | | 165 | | 244 | | — |
| Repayment of lease liabilities | | | | (1,754) | | — | | — |
| Payment of dividends and assumed dividend | | 3, 12 | | — | | (23,972) | | — |
| Share issuance, net of share issue costs | | 3, 12 | | — | | 50,047 | | 8 |
| Share redemption | | 3, 12 | | — | | (432) | | (541) |
| Net cash from (used in) financing activities | | | | 4,942 | | (5,623) | | 21,148 |
| | | | | | | | |
| Effect of exchange rate changes | | | | 579 | | 1,536 | | 2 |
| Net change in cash | | | | (3,991) | | (1,664) | | 5,896 |
| Cash, beginning of year | | | | 12,801 | | 14,465 | | 8,569 |
| Cash, end of year | | | | 8,810 | | 12,801 | | 14,465 |
| Cash paid (included in cash flow used in operating activities) : | | | | | | | | |
| Interest paid | | | | 1,562 | | 1,789 | | 897 |
| Income taxes paid | | | | 420 | | 308 | | 830 |
| | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 10 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
1.GOVERNING STATUTES AND NATURE OF OPERATIONS
Alithya Group inc. (“Alithya” or the “Company”) (formerly 9374-8572 Québec Inc.) was incorporated on March 8, 2018 under the Business Corporations Act (Quebec). The Company was created for the purpose of the business combination (note 3) between Alithya Canada Inc. (formerly Alithya Group Inc.) (“Old Alithya”), incorporated on April 2, 1992 under the Companies Act (Québec), now the Business Corporations Act (Québec), Alithya USA, Inc. (formerly Edgewater Technology, Inc.) (“Edgewater”), a corporation governed under the laws of Delaware and previously listed on the NASDAQ Global Market and 9374-8572 Delaware Inc. (“U.S. Merger Sub”), a corporation governed under the laws of Delaware and a wholly-owned subsidiary of the Company. As of the opening of markets, on November 2, 2018, the Company’s Class A subordinate voting shares (the “Subordinate Voting Shares”) commenced trading on the Toronto Stock Exchange (“TSX”) and on the NASDAQ Capital Market (“NASDAQ”) under the symbol “ALYA”.
The Company and its subsidiaries (the “Group”) are leaders in strategy and digital transformation. Alithya's integrated offering is based on four pillars of expertise: business strategy, application services, enterprise solutions and data and analytics. The Group deploys solutions, services, and skill sets to craft tools tailored to its client’s unique business needs in the financial services, manufacturing, energy, telecommunications, transportation and logistics, professional services, healthcare, and government sectors.
The Company is the Group’s ultimate parent company and its head office is located at 1100, Robert-Bourassa Boulevard, Suite 400, Montréal, Quebec, Canada, H3B 3A5.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were approved and authorized for issue by the Board of Directors (the “Board”) on June 18, 2020.
Basis of Measurement and Comparative Figures
These consolidated financial statements have been prepared on an accrual basis and under the historical cost basis except for certain assets and liabilities initially recognized in connection with business combinations.
Certain figures have been reclassified to conform to the current year presentation.
PRINCIPLES OF CONSOLIDATION
Subsidiaries
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed or has the right to variable returns from its relationship with the entity and is able to affect those returns through its power over the activities of the entity. The subsidiaries’ financial statements are included in these consolidated financial statements from the date of commencement of control until the date that control ceases.
Subsidiaries’ accounting policies have been adjusted, when necessary, to align with the policies adopted by the Group.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 11 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
All intercompany balances and transactions, and any unrealized income and expenses arising from intra-company transactions, are eliminated on consolidation.
These consolidated financial statements include the accounts of the Company and the accounts of its wholly-owned subsidiaries. All subsidiaries have a reporting date of March 31. The Company’s primary subsidiaries are as follows:
| | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| Entity | Jurisdiction | | Percentage Ownership | | Percentage Ownership |
| | | | | |
| Alithya Canada Inc. | Quebec, Canada | | 100% | | 100% |
| Alithya Consulting Inc. | Quebec, Canada | | 100% | | 100% |
| Alithya Digital Technology Corporation | Ontario, Canada | | 100% | | 100% |
| Alithya Consulting SAS | France | | 100% | | 100% |
| Pro2p Services Conseils Inc. | Canada | | 100% | | 100% |
| Alithya USA, Inc. | Delaware, USA | | 100% | | 100% |
| Alithya Financial Solutions, Inc. | Delaware, USA | | 100% | | 100% |
| Alithya Ranzal LLC | Delaware, USA | | 100% | | 100% |
| Alithya Zero2Ten, Inc. | Delaware, USA | | 100% | | 100% |
| Alithya Fullscope Solutions, Inc. | Delaware, USA | | 100% | | 100% |
| Zero2Ten EMEA Limited | United Kingdom | | - | | 100% |
| Alithya Solutions Canada Inc. | Canada | | 100% | | 100% |
| Matricis Informatique Inc. | Quebec, Canada | | 100% | | - |
| Alithya Travercent LLC | Texas, USA | | 100% | | - |
| Alithya Askida Consulting Services Inc. | Quebec, Canada | | 100% | | - |
| Alithya Askida Solutions Inc. | Quebec, Canada | | 100% | | - |
| | | | | |
BUSINESS COMBINATIONS
The Group accounts for its business combinations using the acquisition method. Under this method the consideration transferred is measured at fair value. Acquisition-related and integration costs associated with the business combination are expensed as incurred. The Group recognizes goodwill as the excess of the cost of the acquisition over the net identifiable tangible and intangible assets acquired and liabilities assumed at their acquisition date fair values and any non-controlling interest in the acquiree. The fair value allocated to tangible and intangible assets acquired and liabilities assumed are based on management’s assumptions, including assumptions that would be made by market participants, acting in their economic best interest. These assumptions include the future expected cash flows arising from the intangible assets identified. The goodwill recognized is composed of the future economic value associated to acquired work force and any identified synergies with the Group’s operations which are primarily due to reduction of costs and new business opportunities. The determination of fair value involves making estimates relating to acquired intangible assets, property and equipment, litigation, provision for estimated losses on revenue-generating contracts, other onerous contracts, tax and other contingency reserves. Estimates include the forecasting of future cash flows and discount rates. Subsequent changes in fair values are adjusted against the cost of acquisition, if they qualify as measurement period adjustments. The measurement period is the period between the date of acquisition and the date where all significant information necessary to determine the fair values is available, not to exceed 12 months. All other subsequent changes are recognized in the consolidated statements of operations.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 12 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
TRANSLATION OF FOREIGN CURRENCIES
The Group’s consolidated financial statements are presented in Canadian dollars, which is also the parent company’s functional currency. Each entity in the group determines its own functional currency and items included in the consolidated financial statements of each entity are measured using that functional currency. Functional currency is the currency of the primary economic environment in which the entity operates.
Foreign currency transactions and balances
Revenue, expenses and non-monetary assets and liabilities denominated in foreign currencies are recorded at the rate of exchange prevailing at the transaction date, except for non-monetary items measured at fair value, which are translated using the exchange rates at the date when the fair value was determined. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates prevailing at the reporting date. Unrealized and realized translation gains and losses, resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency, are reflected in the consolidated statements of operations.
Foreign operations
In the Group’s consolidated financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the Canadian dollar are translated into Canadian dollars upon consolidation. The functional currencies of entities within the Group have remained unchanged during the reporting period. Upon consolidation, assets and liabilities have been translated into Canadian dollars at the closing rate at the reporting date. Goodwill and fair value adjustments arising from the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Canadian dollars at the closing rate. Revenue and expenses have been translated into Canadian dollars at the average rate over the reporting period. Exchange differences are charged or credited to other comprehensive income and recognized in the currency translation reserve in equity. On disposal of a foreign operation, the related cumulative translation differences recognized in equity are reclassified to the consolidated statements of operations and are recognized as part of the gain or loss on disposal.
SEGMENTED REPORTING
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to the transactions with any of the Group’s other segments.
Based on the information received and analyzed by the decision-makers on a regular basis, the Group has determined that it has a single reportable segment.
REVENUE RECOGNITION, UNBILLED REVENUE AND DEFERRED REVENUE
The Group generates revenue principally through the provision of consulting services in the areas of information technology including systems implementation and strategy. These services are provided under arrangements with varying pricing mechanisms.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 13 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
To determine whether to recognize revenue, the Group follows a 5-step process:
•Identifying the contract with a customer;
•Identifying the performance obligations;
•Determining the transaction price;
•Allocating the transaction price to the performance obligations; and
•Recognizing revenue when/as performance obligation(s) are satisfied.
The total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. Revenue is recognized either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.
The Group recognizes contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognizes either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.
Certain of the Group’s arrangements may include client acceptance clauses. Each clause is analyzed to determine whether the earnings process is complete when the service is performed. Formal client sign-off is not always necessary to recognize revenue, provided that the Group objectively demonstrates that the criteria specified in the acceptance provisions are satisfied. Some of the criteria reviewed include historical experience with similar types of arrangements, whether the acceptance provisions are specific to the client or are included in all arrangements, the length of the acceptance term and historical experience with the specific client.
Time and materials arrangements - Revenue from consulting services and systems implementations under time and materials arrangements is recognized as the services are rendered.
Fixed-fee arrangements - Revenue from consulting services and systems implementations under fixed-fee arrangements where the outcome of the arrangements can be estimated reliably is recognized using the percentage-of-completion method over the service periods. The Group primarily uses labour costs or labour hours to measure the progress towards completion. This method relies on estimates of total expected labour costs or total expected labour hours to complete the service, which are compared to labour costs or labour hours incurred to date, to arrive at an estimate of the percentage of revenue earned to date. Management regularly reviews underlying estimates of total expected labour costs or hours. If the outcome of an arrangement cannot be estimated reliably, revenue is recognized to the extent of arrangement costs incurred that are likely to be recoverable.
Unbilled revenue and deferred revenue - Amounts recognized as revenue in excess of billings are classified as unbilled revenue. Amounts received in advance of the performance of services are classified as deferred revenue.
Retainer based arrangements - The client pays a recurring fee in exchange for a monthly recurring service (typically support). The revenue for these arrangements is recognized over time (using an hours-based input method). Revenue recognition over time is based on customer simultaneously receiving and consuming the benefit of the services provided.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 14 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Estimated losses on revenue-generating contracts - Estimated losses on revenue-generating contracts may occur due to additional contract costs which were not foreseen at the inception of the contract. Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract. The estimated losses on revenue-generating contracts are recognized in the period when it is determined that a loss is probable. The expected loss is first applied to impair the related capitalized contract costs, if any, with the excess recorded in accounts payable and accrued liabilities. Management regularly reviews arrangement profitability and underlying estimates.
Software revenue - Software revenue is generated from the resale of certain third-party off-the-shelf software and maintenance. The majority of the software sold by the Group is delivered electronically. For software that is delivered electronically, the Group considers transfer of control to have occurred when the customer either (a) takes possession of the software via a download (that is, when the customer takes possession of the electronic data on its hardware), or (b) has been provided with access codes that allow the customer to take immediate possession of the software on its hardware pursuant to an agreement or purchase order for the software. In all instances, the resale of third-party software and maintenance is recorded on a net basis. Group created software, and the associated maintenance, is reported on a gross basis, however it is immaterial in all periods presented.
Third party software and maintenance revenue are recognized upon delivery of the software, as all related warranty and maintenance is performed by the primary software vendor and not the Group.
The Group enters into arrangements with multiple performance obligations which typically include software, post-contract support (or maintenance), and consulting services. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Group has determined standalone selling price for each of the performance obligations in connection with the evaluation of arrangements with multiple performance obligations. The Group has established standalone selling price for consulting services based on a stated and consistent rate per hour range in standalone transactions. The Group has established standalone selling price for software through consistent stated rates for software components. The Group has established standalone selling price for maintenance based on observable prices for standalone renewals.
FINANCIAL INSTRUMENTS
Recognition and Derecognition
Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the financial instrument.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 15 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Classification and Initial Measurement of Financial Assets
Except for those accounts receivables and other receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).
Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:
•amortized cost;
•fair value through profit or loss (FVTPL); and
•fair value through other comprehensive income (FVOCI).
In the years presented, the Company does not have any financial assets categorized as FVOCI or FVTPL.
The classification is determined by both:
•the entity’s business model for managing the financial asset; and
•the contractual cash flow characteristics of the financial asset.
All income and expenses relating to financial assets that are recognized in profit or loss presented within financial expense, except for impairment of accounts receivables and other receivables, which is presented within selling, general and administrative expenses.
Subsequent measurement of financial assets
Financial assets at amortized cost
Financial assets are measured at amortized cost if the assets meet the following conditions (and are not designated as FVTPL):
•they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows; and
•the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.
After initial recognition, these are measured at amortized cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash, restricted cash, short-term deposits and accounts receivable and other receivables fall into this category of financial instruments.
Impairment of financial assets and unbilled revenues
IFRS 9’s impairment requirements use forward-looking information to recognize expected credit losses – the ‘expected credit loss (ECL) model’. Instruments within the scope of IFRS 9’s impairment requirements included loans and other debt-type financial assets measured at amortized cost and FVOCI, accounts receivables and other receivables recognized and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 16 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
The Group considers a range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
•financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and
•financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’).
‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.
‘12-month expected credit losses’ are recognized for the first category while ‘lifetime expected credit losses’ are recognized for the second category. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
Accounts Receivable and Other Receivables and Unbilled Revenues
The Group makes use of the simplified approach in accounting for accounts receivable and other receivables and unbilled revenues and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.
The Group assesses impairment of accounts receivables and other receivables on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due.
Classification and measurement of financial liabilities
The Group’s financial liabilities include trade accounts payable and accrued liabilities, lease liabilities and long-term debt.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortized cost using the effective interest method and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognized in profit or loss.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 17 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
All interest-related charges and, if applicable, changes in an instrument’s fair value are reported in the consolidated statements of operations within financial expenses.
Transaction Costs
Transaction costs related to financial assets classified as fair value through profit and loss are expensed as incurred. Transaction costs related to loans and receivables and liabilities are considered as part of the carrying value of the asset or liability and are then amortized over the expected life of the instrument using the effective interest rate method.
Financial Income and Expenses
Financial income includes interest income on cash and short-term deposits. Interest income is recognized as it accrues in earnings, using the effective interest method. Financial expenses include interest expense on borrowings, effective interest on non-interesting bearing vendor financing arising from business combinations, amortization of unwinding of the discount on provisions, impairment losses recognized on financial assets and other interest and bank charges.
EARNINGS PER SHARE
Basic earnings (loss) per share is calculated by dividing the net earnings (loss) attributable to the holders of Common Shares (as defined further herein) by the weighted average number of Common Shares outstanding during the period, including the effect of stock options exercised and deferred share units. The net earnings (loss) attributable to the holders of Common Shares corresponds to the net earnings (loss) adjusted by deducting earnings allocated to preferred shares.
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the weighted average number of additional Common Shares that would have been outstanding assuming the conversion of all dilutive potential equity instruments.
Dilutive potential outstanding stock options include the total number of additional Common Shares that would have been issued by the Company assuming stock options with exercise prices below the average market price for the year were exercised and reduced by the number of shares that the Company could have repurchased if it had used the assumed proceeds from the exercise of stock options to repurchase them on the open market at the average share price for the period.
“Common Shares” include the Subordinate Voting Shares and Multiple Voting Shares (as defined further herein) starting November 1, 2018 and Class A and Class AA shares prior to November 1, 2018.
RESTRICTED CASH
Restricted cash represents amounts held in trust as required by contractual obligations arising from business acquisitions. Restricted cash that is not expected to become unrestricted within the next twelve months is included in non-current assets on the statements of financial position.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 18 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
GOVERNMENT ASSISTANCE - TAX CREDITS
Certain subsidiaries are eligible for research and development (“R&D”) activities and tax credits for the development of e-business. These tax credits are accounted for as government assistance, following the income approach. Under this method, tax credits are recorded when there is reasonable assurance that the assistance will be received and that the subsidiary will comply with all relevant conditions. Tax credits related to operating expenditures are then recorded as a reduction of the related expense and recognized in the period in which the related expenditures are charged to operations. Tax credits related to capital expenditures are recorded as a reduction of the cost of the related asset.
The tax credits recorded are based on management's best estimates of amounts expected to be received and are subject to audit by the tax authorities.
The ultimate tax treatment is only determinable once a notice of assessment is issued by the relevant taxation authority and payment has been received. Any differences arising between the final resolution and the original assumptions made may result in adjustments to the tax credits receivable and income tax expense in subsequent periods.
PROPERTY AND EQUIPMENT (“P&E”)
Property and equipment are recorded at cost and amortized over their estimated useful lives, using the following methods:
| | | | | | | | | | | | | | |
| | Method | | Rates |
| Furniture, fixtures and equipment | | Declining balance | | 20 | % |
| Computer equipment | | Declining balance | | 30 | % |
| Leasehold improvements | | Straight line | | Over the term of the lease |
| | | | |
The residual value, depreciation method and useful life of each asset are reviewed at least once a year, at the reporting date.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 19 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
INTANGIBLES
Intangible assets consist mainly of customer relationships, non-compete agreements, internal-use business solutions and software licenses and tradenames. Internal use business solutions and software licenses (“Software”) are recorded at cost. In addition, internal-use business solutions developed internally are capitalized when they meet specific capitalization criteria related to technical and financial feasibility and when the Group demonstrates its ability and intention to use them. Amortization of internal-use business solutions commences once the solution is available for use. Customer relationships, internal-use business solutions and software licenses acquired through business combinations are initially recorded at their fair value. The Group amortizes its intangible assets using the straight-line method over their estimated useful lives, as follows :
| | | | | | | | | | | | | | |
| | Method | | Period |
| Customer relationships | Straight line | | | 3 - 10 years |
| Non-compete agreements | Straight line | | | 3 - 10 years |
| Software | Straight line | | | 3 years |
| Tradenames | | - | | Indefinite |
| | | | |
The residual value, depreciation method and useful life of each asset are reviewed at least once a year, at the reporting date.
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition and it is measured net of accumulated impairment losses. Goodwill is not amortized, but instead tested for impairment annually, or more frequently, should events or changes in circumstances indicate that the goodwill may be impaired.
IMPAIRMENT OF P&E, RIGHT-OF-USE ASSETS, INTANGIBLES AND GOODWILL
Timing of impairment testing
The carrying amounts of the Group's P&E, right-of-use assets, intangible assets and goodwill are reviewed for impairment when events or changes in circumstances indicate that the carrying value may be impaired. At each reporting date, the Group assesses whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the impairment is tested at least annually, typically as at March 31.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 20 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Impairment testing
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit", or "CGU"). For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in consolidated earnings. Impairment losses recognized in respect of CGUs that include goodwill are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis not beyond the highest of:
•The fair value less costs of disposal; and
•Value in use of the individual asset, if determinable.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
PROVISIONS
Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The Group’s provisions may consist of litigation and claim provisions arising in the ordinary course of business and decommissioning liabilities for operating leases of office buildings. The Group may record restructuring provisions related to business combinations and termination of employment costs incurred as part of the Group's productivity improvement initiatives. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions are discounted using a current pre-tax rate when the impact of the time value of money is material. The increase in the provision due to the passage of time is recognized as a finance cost. The accrued litigation and legal claim provisions are based on historical experience, current trends and other assumptions that are believed to be reasonable under the circumstances. Estimates include the period in which the underlying cause of the claim occurred and the degree of probability of an unfavorable outcome.
In the case of decommissioning liabilities pertaining to operating leases of buildings where certain arrangements require premises to be returned to their original state at the end of the lease term, the provision is determined using the present value of the estimated future cash outflows.
Restructuring provisions, consisting primarily of severance, are recognized when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, appropriate timelines and has been communicated to those affected by it.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 21 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
INCOME TAXES
Income taxes are accounted for using the liability method of accounting.
Current income taxes are recognized with respect to the amounts expected to be paid or recovered under the tax rates and laws that have been enacted or substantively enacted at the reporting date. Deferred income tax assets and liabilities are determined based on deductible or taxable temporary differences between the amounts reported for financial statement purposes and tax values of the assets and liabilities using enacted or substantively enacted tax rates that will be in effect for the year in which the differences are expected to be recovered or settled. Deferred income tax assets and liabilities are recognized in earnings, other comprehensive income or in equity based on the classification of the item to which they relate.
Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
SHARE CAPITAL
Common Shares and preferred shares that are not redeemable or are redeemable only at the Group's option are classified as equity. Incremental costs directly attributable to the issue of Common Shares and preferred shares and stock options are recognized as a deduction from equity, net of any tax effects. Dividends payable by the Company to its Common Shares and preferred shareholders, which are determined at the discretion of the Board and in accordance with the terms of each category of preferred shares (notes 12), are recorded when declared. Dividends on Common Shares and preferred shares are recognized as distributions within equity. When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from share capital for the shares' assigned value, any excess being allocated to contributed surplus to the extent that contributed surplus was created by a net excess of proceeds over cost on cancellation or resale of shares of the same class (charged to retained earnings if no contributed surplus for the same class of shares exists), and any discount being assigned to contributed surplus. Repurchased shares are made available to eligible employees for purchase at the price (fair value) then in effect, in the context of the share purchase plan described in note 12.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 22 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
SHARE-BASED COMPENSATION PLANS
Share purchase plan
The Company operates a share purchase plan for eligible employees of the Company and its subsidiaries. Under this plan, the Group matches the contributions made by employees up to a maximum percentage of the employee's salary. The Group’s contributions to the plan are recognized in salaries within cost of revenues and selling, general and administrative.
Long-term incentive plan
The Company operates a long-term incentive plan for eligible employees and directors of the Company and its subsidiaries which provides for various types of awards.
Stock options
Stock option expense is based on the grant date fair value of the stock option expected to vest over the vesting period. Forfeitures are estimated at the time of the grant and are included in the measurement of the expense and are subsequently adjusted to reflect actual events. For stock options with graded vesting, the fair value of each tranche is recognized on a straight-line basis over its vesting period.
Any consideration paid by participants on exercise of stock options is credited to capital stock together with any related share-based compensation expense originally recorded in contributed surplus. If the amount of the tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense for stock options, this indicates that the tax deduction relates not only to remuneration expense but also to an equity item. In this situation, the Company recognizes the excess of the associated current or deferred tax to contributed surplus prior to an award being exercised, and any such amounts are transferred to capital stock upon exercise of the stock options.
Deferred share units (“DSU”)
DSU are settled in Subordinate Voting Shares of the Company and the expense is based on the grant date fair value of the awards with a corresponding adjustment through contributed surplus.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 23 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
SIGNIFICANT MANAGEMENT JUDGEMENT IN APPLYING ACCOUNTING POLICIES AND ESTIMATION UNCERTAINTY
The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reported as assets, liabilities, income and expenses in the consolidated financial statements. Actual results could differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which they occur and in any future periods affected.
Assessment of COVID-19 impact
As a result of the continued and uncertain economic and business impact of the COVID-19 pandemic, the Group has reviewed its estimates, judgments and assumptions used in the preparation of its consolidated financial statements, including the determination of whether indicators of impairment exist for its tangible and intangible assets, including goodwill, the credit risk of its counterparties, and the estimates and judgments used for the measurement of its deferred tax assets.
Due to the pandemic and the significantly increased uncertainty surrounding global economic conditions in general, and the outlook of the Company’s clients’ different markets and industries in particular, the Group has made revisions to estimates and assumptions used in the determination of impairment of goodwill (note 8) to reflect the increased uncertainty and risks.
As the situation is dynamic and the impact of COVID-19 on the Group’s operations and financial conditions will be impacted by the duration of government-mandated measures and overall customer demand, revisions may be required in future periods to estimates and assumptions. Although management expects COVID-19 related disruptions to continue during fiscal 2021, management believes that the Group’s long-term estimates and assumptions do not require further revisions, however we continue to monitor and evaluate the situation and its impact on the Group’s business.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 24 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Information related to critical judgements required in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following note:
•Revenue recognition – please refer to Fixed-fee arrangements;
•Determination of the aggregation of operating segments - the Group uses judgment in the aggregation of operating segments for financial reporting and disclosure purposes. The Group has examined its activities and has determined that it has one single reportable segment due to similar characteristics including the nature of services provided to its customers, types of customers comprising its customer base and the regulatory environment in which the Group operates (note 20); and
•Income taxes (note 11);
Information related to assumptions and estimation uncertainties described below with a significant risk of resulting in material adjustments within the next year are included within the following notes:
•Tax credits – please refer to GOVERNMENT ASSISTANCE - TAX CREDITS;
•Impairment considerations on long-lived assets and goodwill, particularly future cash flows and cost of capital (notes 5 to 8);
•Fair value measurement – management uses valuation techniques to determine the fair value of financial instruments and non-financial assets, where active market quotes are not available. These techniques involve the development of estimates and assumptions to determine how a market participant would price the instrument. Management bases its assumptions on observable data to the extent available. In the absence of observable data, management uses the best information available. Estimated fair values may vary from actual prices obtained in an arm’s length transaction at the reporting date;
•Business combinations, divestiture and private placement (note 3);
•Useful lives of depreciable assets (notes 5, 6 and 7);
•Right-of-use assets and lease liabilities (note 6);
•Deferred tax assets (note 11);
•Share-based compensation (note 12); and
•Provisions (note 9).
NEW STANDARDS AND INTERPRETATIONS ADOPTED AS AT APRIL 1, 2019
IFRS 16 – Leases
Adoption
IFRS 16 - Leases replaces IAS 17 - Leases along with three interpretations (IFRIC 4 - Determining whether an Arrangement Contains a Lease, SIC 15 - Operating Leases - Incentives and SIC 27 - Evaluating the Substance of Transactions Involving the Legal Form of a Lease). The new standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16, if any, being recognized in equity as an adjustment to the opening balance of deficit for the current period. Prior periods have not been restated.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 25 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
In applying IFRS 16 – Leases for the first time, the Group has used the following practical expedients permitted by the standard:
•applying the definition of a lease from IAS 17 and IFRIC 4, for contracts in place at the date of the initial application, and has not applied IFRS 16 to arrangements that were previously not identified as leases under IAS 17 and IFRIC 4;
•excluding initial direct costs from the measurement of the right-of-use assets at the date of initial application;
•measuring the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition;
•relying on the assessment of whether leases are onerous immediately before the date of initial application as an alternative to performing an impairment review;
•excluding from the recognition of right-of-use assets all leases previously accounted for as operating leases with a remaining lease term of less than 12 months and all leases of low-value assets but to account for the lease expense on a straight-line basis over the remaining lease term;
•using hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease; and
•applying a single discount rate to a portfolio of leases with reasonably similar characteristics.
On transition to IFRS 16, the weighted average incremental borrowing rate applied to lease liabilities recognized under IFRS 16 was 4.16%.
The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 as at April 1, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying amount as at March 31, 2019 | | Reclassification | | Remeasurement | | IFRS 16 carrying amount as at April 1, 2019 |
| | $ | | $ | | $ | | $ |
| Right-of-use assets | | — | | | | (159) | | | | 6,668 | | | | 6,509 | |
| Deferred lease inducements | | (159) | | | | 159 | | | | — | | | | — | |
| Lease liabilities | | — | | | | — | | | | (6,668) | | | | (6,668) | |
| | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 26 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
The following is a reconciliation of total operating lease commitments as at March 31, 2019 to the lease liabilities recognized as at April 1, 2019.
| | | | | | | | |
| | $ |
| Total operating lease commitments disclosed as at March 31, 2019 | | 14,228 | |
| Recognition exemptions: | | | |
| Variable payments | | (6,426) | |
| Leases with remaining lease term of less than 12 months | | (119) | |
| Operating lease liabilities before discounting | | 7,683 | |
| Discounted using incremental borrowing rate | | (1,015) | |
| Total lease liabilities recognized under IFRS 16 as at April 1, 2019 | | 6,668 | |
| | |
Policy applicable from April 1, 2019
The Group as a lessee
For any new contracts entered into on or after April 1, 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as a “contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration”. To apply this definition, the Group assesses whether the contract meets three key evaluations which are whether:
•the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group;
•the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and
•the Group has the right to direct the use of the identified asset throughout the period of use. The Group assesses whether it has the right to direct “how and for what purpose” the asset is used throughout the period of use.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognizes a right-of-use asset and a lease liability on the statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 27 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in-substance fixed payments), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. The Group has elected not to recognize separately non-lease components of leases for office space (buildings). Accordingly, lease payments and the lease liability include payments relating to lease and non-lease components.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or net loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in the consolidated statements of operations on a straight-line basis over the lease term.
The Group as a lessor
The accounting policy under IFRS 16 for lessors has not changed.
As a lessor, the Group classifies its leases as either operating or finance leases.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset, and classified as an operating lease if it does not.
Policy applicable before April 1, 2019
The Group as a lessee
Leases were classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases were classified as operating leases.
Lease payments under operating leases were charged to the consolidated statements of operations on a straight-line basis over the lease term. Operating lease incentives, typically for premises, were recognized as a reduction in the rental expense over the lease term and recorded on the statements of financial position as deferred lease inducements.
Rental income, including contingent rent, from operating leases is recognized over the term of the contract and is reflected in revenue. Contingent rent may arise when payments due under contracts are not fixed in amount but vary based on future amount of usage.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 28 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
FUTURE ACCOUNTING STANDARDS
At the date of authorization of these consolidated financial statements, certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective and have not been adopted early by the Group. Management anticipates that all the relevant pronouncements will be adopted in the first reporting period following the date of application. Information on new standards, amendments and interpretations, and improvements to existing standards, which could potentially impact the Group’s consolidated financial statements, are detailed as follows:
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 - Presentation of Financial Statements, to clarify the classification of liabilities as current or non-current. The amendments are effective for annual periods beginning on or after January 1, 2022. Early adoption is permitted.
For the purposes of non-current classification, the amendments removed the requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period.
The amendments also clarify how a company classifies a liability that includes a counterparty conversion option. The amendments state that:
•settlement of a liability includes transferring a company’s own equity instruments to the counterparty; and
•when classifying liabilities as current or non-current a company can ignore only those conversion options that are recognized as equity.
Management is currently assessing but has not yet determined the impact of this new standard on the Group’s consolidated financial statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s consolidated financial statements.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 29 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT
Matricis Informatique Inc.
Overview
On October 1, 2019, the Company acquired 100% of the issued and outstanding shares of Matricis Informatique Inc. (“Matricis’) (the “Matricis Acquisition”), a Canadian consulting firm specializing in advanced applications and systems using techniques derived from the Internet of Things (IoT), Artificial Intelligence (AI), a combination of the aforementioned (AIoT), as well as operational intelligence in the healthcare, industrial, and financial sectors.
The Matricis Acquisition was completed for total consideration of $7,200,000, consisting of $3,600,000 in cash, payable in two equal instalments on October 1, 2019, subject to working capital adjustments and other adjustments as necessary, and October 1, 2022 and $3,600,000, in aggregate, in share consideration payable by way of 947,292 Subordinate Voting Shares, of which 473,646 were issued on October 1, 2019 and 473,646 will be issued in equal portions on October 1, 2020, 2021 and 2022. The Subordinate Voting Shares to be issued on October 1, 2020 and subsequently, having a value of $1,800,000, in aggregate, will be recognized as share-based compensation over three years.
The fair value of the assets acquired, liabilities assumed, and the purchase consideration is preliminary pending completion of their valuation. Should new information, obtained within one year of the date of acquisition, about the facts and circumstances that existed at the date of the Matricis Acquisition, result in adjustments to the below amounts, or require additional provisions for conditions that existed at the date of the Matricis Acquisition, the fair value will then be revised. The Matricis Acquisition is being accounted for using the acquisition method of accounting.
For the year ended March 31, 2020, the Company incurred acquisition-related costs of approximately $157,000. These costs have been recorded in the consolidated statement of operations in business acquisitions and integration costs.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 30 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
Purchase Price Allocation
The preliminary allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| | | | | |
| Acquisition of Matricis | $ |
| Current assets | |
| Cash | 467 | |
| Accounts receivable and other receivables | 584 | |
| Unbilled revenue | 288 | |
| Prepaids | 94 | |
| 1,433 | |
| Non-current assets | |
| Property and equipment | 85 | |
| Tax credits receivable | 1,059 | |
| Deferred tax assets | 111 | |
| Intangibles | 1,820 | |
| Goodwill | 2,566 | |
| Total assets acquired | 7,074 | |
| |
| Current liabilities | |
| Accounts payable and accrued liabilities | 596 | |
| Deferred revenue | 415 | |
| Current portion of long-term debt | 544 | |
| 1,555 | |
| Non-current liabilities | |
| Deferred lease inducements | 6 | |
| Deferred tax liabilities | 624 | |
| Total liabilities assumed | 2,185 | |
| |
| Net assets acquired | 4,889 | |
| |
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, as well as its workforce. The Company does not expect any of the goodwill to be deductible for income tax purposes.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 31 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
Consideration paid
The following table summarizes the acquisition date fair value of each class of consideration:
| | | | | |
| Acquisition of Matricis | $ |
| Cash paid | 1,578 | |
Issuance of 473,646 Subordinate Voting Shares (note 12) | 1,800 | |
| Balance of purchase payable (note 10) | 1,511 | |
| Total consideration | 4,889 | |
| |
Matricis’ contribution to the Group’s results
The Matricis business contributed revenues of approximately $2,497,000, a gross margin of $1,100,000 and a loss before income taxes of $84,000 to the Group for the period October 1, 2019 to March 31, 2020. If the acquisition had occurred on April 1, 2019, consolidated pro-forma revenue, gross margin and loss before income taxes for the year ended March 31, 2020 would have been $4,824,000, $2,028,000 and $144,000, respectively. These amounts have been calculated using Matricis’ results and adjusting for:
•differences in accounting policies between the Group and Matricis;
•the removal of transaction costs incurred by Matricis from April 1, 2019 to September 30, 2019; and
•the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from April 1, 2019.
Alithya Travercent LLC
Overview
On December 13, 2019, the Company acquired 100% of the issued and outstanding membership interest of Travercent LLC (the “Travercent Acquisition”), a US-based cloud-focused Enterprise Resource Planning (“ERP”) consulting group specialized in the healthcare sector, now known as Alithya Travercent LLC (“Alithya Travercent”). Alithya Travercent's competencies include implementing Oracle's cloud ERP, Human Capital Management (“HCM”), Enterprise Performance Management (“EPM”) and Business Intelligence (“BI”) applications. Alithya Travercent has also developed a cloud solution named CAPSURE RFTM, an Oracle cloud extension that optimizes material management processes, of healthcare providers, for supply chain management and point of use.
The Travercent Acquisition was completed for total consideration of US$19,500,000 ($25,802,849), consisting of US$13,650,000 ($18,061,994), in cash, payable in two equal instalments on December 13, 2019, subject to working capital and other adjustments as necessary, and December 13, 2022 and US$5,850,000 ($7,740,855), in aggregate, in share consideration payable by way of Subordinate Voting Shares, of which 1,274,510 were issued on December 13, 2019 (the "Closing Share Consideration") with a value of US$2,925,000 ($3,870,427) and a number of Subordinate Voting Shares on each of December 13, 2020, 2021 and 2022 equal to US$975,000 ($1,290,142) divided by the volume weighted average trading price of Subordinate Voting Shares on the TSX prior to each such issuance as determined in the purchase agreement. If such subsequent price of the Subordinate Voting Shares is lower than the price used for the Closing Share Consideration, the Company has the option of paying each such amount in cash. The Subordinate Voting Shares to be issued on December 13, 2020 and subsequently, having a value of US$2,925,000 ($3,870,427), in aggregate, will be recognized as share-based compensation over three years.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 32 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
The fair value of the assets acquired, liabilities assumed, and the purchase consideration is preliminary pending completion of their valuation. Should new information, obtained within one year of the date of acquisition, about the facts and circumstances that existed at the date of the Travercent Acquisition, result in adjustments to the below amounts, or require additional provisions for conditions that existed at the date of the Travercent Acquisition, the fair value will then be revised. The Travercent Acquisition is being accounted for using the acquisition method of accounting.
For the year ended March 31, 2020, the Company incurred acquisition-related costs of approximately $565,000. These costs have been recorded in the consolidated statement of operations in business acquisitions and integration costs.
Purchase Price Allocation
The preliminary allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| | | | | |
| Acquisition of Alithya Travercent | $ |
| Current assets | |
| Cash | 2,118 | |
| Accounts receivable and other receivables | 1,391 | |
| Unbilled revenue | 1,458 | |
| Prepaids | 49 | |
| 5,016 | |
| Non-current assets | |
| Intangibles | 15,720 | |
| Goodwill | 3,374 | |
| Total assets acquired | 24,110 | |
| |
| Current liabilities | |
| Accounts payable and accrued liabilities | 1,331 | |
| Deferred revenue | 2,301 | |
| Total liabilities assumed | 3,632 | |
| |
| Net assets acquired | 20,478 | |
| |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 33 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, as well as its workforce and expertise. The amount of goodwill is expected to be deductible for income tax purposes.
Consideration paid
The following table summarizes the acquisition date fair value of each class of consideration:
| | | | | |
| Acquisition of Alithya Travercent | $ |
| Cash paid | 8,958 | |
Issuance of 1,274,510 Subordinate Voting Shares (note 12) | 3,870 | |
| Balance of purchase payable (note 10) | 7,650 | |
| Total consideration | 20,478 | |
| |
Alithya Travercent’s contribution to the Group’s results
The Alithya Travercent business contributed revenues of approximately $4,833,000, a gross margin of $1,909,000 and a profit before income taxes of $1,029,000 to the Group for the period December 13, 2019 to March 31, 2020. If the acquisition had occurred on April 1, 2019, consolidated pro-forma revenue, gross margin and profit before income taxes for the year ended March 31, 2020 would have been $15,789,000, $6,329,000 and $4,319,000, respectively. These amounts have been calculated using Alithya Travercent’s results and adjusting for:
•differences in accounting policies between the Group and Alithya Travercent;
•the removal of transaction costs incurred by Alithya Travercent from April 1, 2019 to December 12, 2019; and
•the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from April 1, 2019.
Askida
Overview
On February 1, 2020, the Company acquired 100% of the issued and outstanding shares of Group Askida Inc., now known as Alithya Askida Solutions Inc., and Askida Consulting Services Inc., now known as Alithya Askida Consulting Services Inc. (collectively “Askida”) (the “Askida Acquisition”), a Canadian group with expertise in software quality assurance tools and services, as well as in development and modernization of custom applications.
The Askida Acquisition was completed for total consideration of $16,000,000, consisting of $11,655,000, in cash payable in two instalments as follows: $8,396,250 on February 1, 2020, subject to working capital adjustments, and $3,258,750 on February 1, 2022, plus $4,345,000, in aggregate, in share consideration payable by way of the issuance of 1,200,765 Subordinate Voting Shares, of which 600,384 were issued on February 1, 2020 and 300,189 and 300,192 to be issued on February 1, 2021 and 2022, respectively. The Subordinate Voting Shares to be issued on February 1, 2021 and 2022, having a stated value of $2,172,500, in aggregate, will be recognized as share-based compensation over two years.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 34 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
The fair value of the assets acquired, liabilities assumed, and the purchase consideration is preliminary pending completion of their valuation. Should new information, obtained within one year of the date of acquisition, about the facts and circumstances that existed at the date of the Askida Acquisition, result in adjustments to the below amounts, or require additional provisions for conditions that existed at the date of the Askida Acquisition, the fair value will then be revised. The Askida Acquisition is being accounted for using the acquisition method of accounting.
For the year ended March 31, 2020, the Company incurred acquisition-related costs of approximately $265,000. These costs have been recorded in the consolidated statement of operations in business acquisitions and integration costs.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 35 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
Purchase Price Allocation
The preliminary allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| | | | | |
| Acquisition of Askida | $ |
| Current assets | |
| Cash | 616 | |
| Accounts receivable and other receivables | 4,324 | |
| Unbilled revenue | 581 | |
| Tax credits receivable | 2,709 | |
| Prepaids | 229 | |
| 8,459 | |
| Non-current assets | | |
| Tax credits receivable | 956 | |
| Property and equipment | 244 | |
| Right-of-use assets | 193 | |
| Intangibles | 8,410 | |
| Goodwill | 4,324 | |
| Total assets acquired | 22,586 | |
| | |
| Current liabilities | | |
| Line of credit | 1,022 | |
| Demand loan | 2,131 | |
| Accounts payable and accrued liabilities | 1,789 | |
| Income taxes payable | 62 | |
| Deferred revenue | 318 | |
| Current portion of lease liabilities | 84 | |
| Current portion of long-term debt | 561 | |
| 5,967 | |
| Non-current liabilities | | |
| Lease liabilities | 109 | |
| Deferred tax liabilities | 3,024 | |
| Total liabilities assumed | 9,100 | |
| | |
| Net assets acquired | 13,486 | |
| |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 36 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, as well as its workforce. The Company does not expect any of the goodwill to be deductible for income tax purposes.
Consideration paid
The following table summarizes the acquisition date fair value of each class of consideration paid:
| | | | | |
| Acquisition of Askida | $ |
| Cash paid | 8,396 |
Issuance of 600,384 Subordinate Voting Shares (note 12) | 2,173 |
| Balance of purchase payable (note 10) | 2,917 |
| Total consideration transferred | 13,486 |
| |
Askida’s contribution to the Group’s results
The Askida business contributed revenues of approximately $1,708,000, a gross margin of $210,000 and a loss before income taxes of $499,000 to the Group for the period February 1, 2020 to March 31, 2020. If the acquisition had occurred on April 1, 2019, consolidated pro-forma revenue, gross margin and loss before incomes taxes for the year ended March 31, 2020 would have been $12,465,000, $3,914,000 and $87,000, respectively. These amounts have been calculated using Askida’s results and adjusting for:
•differences in accounting policies between the Group and Askida;
•the removal of transaction costs incurred by Askida from April 1, 2019 to January 31, 2020; and
•the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from April 1, 2019.
Zero2Ten EMEA Limited
On October 2, 2019, Alithya Zero2Ten, Inc. an indirect wholly-owned subsidiary of the Company, sold 100% of the issued and outstanding shares of its wholly-owned subsidiary, Zero2Ten EMEA Limited (“Alithya UK”), for total cash consideration of GBP£800,000 (approximately $1,302,000), of which GBP£350,000 (approximately $570,000) was paid on October 2, 2019, and a balance of sale receivable of GBP£450,000 (approximately $791,000 ), was due on April 1, 2020 and is recorded in accounts receivable and other receivables. The balance of sale receivable was received on April 1, 2020.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 37 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
The divestiture of Alithya UK resulted in a gain on disposal of subsidiary as follows:
| | | | | |
| Divestiture of Zero2Ten EMEA Limited | $ |
| Consideration received in cash | 565 | |
| Balance of sale receivable | 728 | |
| Total consideration | 1,293 | |
| Net assets divested | 612 | |
| Gain on sale of subsidiary | 681 | |
| |
Alithya USA, Inc. (formerly Edgewater Technology, Inc.)
Overview
On March 15, 2018, the Company, Old Alithya, Edgewater, and U.S. Merger Sub, entered into an arrangement agreement, as amended on September 10, 2018 and October 17, 2018 (the “Arrangement Agreement”).
On November 1, 2018, and pursuant to the terms of the Arrangement Agreement, among other things, (i) the Company acquired Old Alithya, by way of a statutory plan of arrangement under the Business Corporations Act (Québec) (the “Arrangement”), and (ii) U.S. Merger Sub merged with and into Edgewater, with Edgewater being the surviving corporation (the “Merger”). The Arrangement and the Merger are, collectively referred to herein, as the “Edgewater Transaction”.
As consideration for the Arrangement, former shareholders of Old Alithya received, for each common share of Old Alithya (“Old Alithya Common Shares”), held immediately prior to the Edgewater Transaction, one newly issued Subordinate Voting Share and, for each multiple voting share of Old Alithya (“Old Alithya Multiple Voting Shares”) held immediately prior to the Edgewater Transaction, one newly issued Class B multiple voting share of the Company (the “Multiple Voting Shares”). As consideration for the Merger, former shareholders of Edgewater received, for each share of common stock of Edgewater (“Edgewater Common Stock”) held immediately prior to the Edgewater Transaction, 1.1918 Subordinate Voting Shares of the Company.
Following completion of the Edgewater Transaction, former shareholders of Old Alithya and Edgewater became shareholders of the Company, and each of Old Alithya and Edgewater became wholly-owned subsidiaries of the Company.
In connection with the Edgewater Transaction, and pursuant to the terms of the Arrangement Agreement, Edgewater declared to the Edgewater shareholders of record immediately prior to the closing date of the Edgewater Transaction, a special dividend equal to US $1.15 per share, approximately $22,108,000 (US $16,840,000), in aggregate, in cash. In addition, the exercise price of Edgewater stock options outstanding, immediately prior to the closing date of the Edgewater Transaction, was reduced by the special dividend amount of US $1.15 per stock option and, upon completion of the Edgewater Transaction, divided by the 1.1918 equity exchange ratio.
The Edgewater Transaction was approved by the respective shareholders of Old Alithya and Edgewater on October 25, 2018 and October 29, 2018, respectively.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 38 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
On October 30, 2018, Old Alithya closed a private placement, where an aggregate 11,736,055 subscription receipts were issued at a price of $4.50 per subscription receipt (the “Offering”). Each subscription receipt automatically converted into an Old Alithya common share, immediately prior to the close of the Edgewater Transaction, and then exchanged for one Subordinate Voting Share of the Company, pursuant to the Arrangement Agreement. The net proceeds of the Offering were used to reduce indebtedness, fund future growth initiatives and for general corporate purposes. Costs related to the share issuance under the private placement, for the year ended March 31, 2019 of $2,764,885, net of deferred income taxes of $714,000 have been recorded in equity as share issue costs.
Purchase Price Allocation
Old Alithya is considered as the acquirer of Edgewater, as the Company was formed only to issue equity instruments to effect the Edgewater Transaction. In addition, Old Alithya shareholders held the majority of the voting rights of the Company once the Edgewater Transaction was completed. The Edgewater Transaction constituted a business combination as Edgewater meets the definition of a business. Since Old Alithya was considered the acquirer, the consolidated financial statements are presented as a continuation of Old Alithya. As such, the 2018 comparative figures presented in these consolidated financial statements are those of Old Alithya. The assets acquired and the liabilities assumed were recorded at their fair value at the time of the closing of the Edgewater Transaction, being November 1, 2018.
For the year ended March 31, 2019, the Company incurred acquisition-related costs of approximately $3,929,908. These costs have been recorded in the consolidated statements of operations in business acquisitions and integration costs.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 39 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
The allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| | | | | |
| Acquisition of Edgewater | |
| Current assets | |
| Cash | 24,869 | |
| Accounts receivable and other receivables | 27,705 | |
| Income taxes receivable | 1,770 | |
| Unbilled revenue | 1,741 | |
| Prepaids | 1,076 | |
| 57,161 | |
| Non-current assets | |
| Property and equipment | 510 | |
| Intangibles | 39,410 | |
| Goodwill | 47,161 | |
| Total assets acquired | 144,242 | |
| |
| Current liabilities | |
| Line of credit | 15,749 | |
| Accounts payable and accrued liabilities | 22,312 | |
| Dividend payable | 22,108 | |
| Deferred revenue | 3,751 | |
| 63,920 | |
| Non-current liabilities | |
| Deferred lease inducements | 64 | |
| Deferred tax liabilities | 1,322 | |
| Total liabilities assumed | 65,306 | |
| |
| Net assets acquired | 78,936 | |
| |
Identifiable net assets
The fair value of the accounts receivable and other receivables acquired as part of the acquired business amounted to $27,705,000, with a gross contractual amount of $28,500,000. As at the acquisition date, the Group’s best estimate of the contractual cash flow not expected to be collected amounted to $795,000.
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, work force and expected synergies from integrating Edgewater into the Group’s existing business. The goodwill will not be deductible for tax purposes.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 40 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
3. BUSINESS COMBINATIONS, DIVESTITURE AND PRIVATE PLACEMENT (CONT’D)
Consideration transferred
The following table summarizes the acquisition date fair value of each major class of consideration transferred:
| | | | | | | | |
| | $ |
Issuance of 17,458,348 shares (note 12) | | 78,364 | |
| Stock-based payments | | 572 | |
| Total consideration transferred | | 78,936 | |
| | |
The subscription receipt issue price, under the private placement, of $4.50 per subscription receipt, having been determined with third-party investors, can be a reasonable reference for the fair value of the shares issued.
Following the closing of the Edgewater Transaction, the issued and outstanding stock options of Edgewater were converted (note 12) into stock options of the Company and are deemed to be issued as part of the consideration of the Edgewater Transaction. Their fair value has been estimated at $572,000 using the Black-Scholes option pricing model with the following assumptions:
| | | | | | | | | | | |
| Weighted average assumptions | | | |
| Share price | $4.94 | | |
| Exercise price | $3.52 – $7.61 | | |
| Risk-free interest rate | 1.72% – 2.37% | | |
| Expected volatility* | 30% | | |
| Dividend yield | | — | | |
| Expected option life (years) | 0.04 – 3.19 | | |
| | | |
* Determined on the basis of observed volatility in publicly traded companies operating in similar industries.
Edgewater’s contribution to the Group’s results
The Edgewater business contributed revenues of approximately $50,229,000, a gross margin of $19,401,000 and a loss before income taxes of $2,097,000 to the Group for the period November 1, 2018 to March 31, 2019. If the acquisition had occurred on April 1, 2018, consolidated pro-forma revenue and loss before income taxes for the year ended March 31, 2019 would have been $282,386,000 and $17,296,000, respectively. These amounts have been calculated using Edgewater’s results and adjusting for:
•differences in the accounting policies between the Group and its subsidiaries;
•the removal of results from a business segment not acquired;
•the removal of transaction costs incurred by Edgewater from April 1, 2018 to November 1, 2018; and
•the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from April 1, 2018.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 41 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
4. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
| | | | | | | | | | | |
| As at | March 31, | | |
| 2020 | | 2019 |
| $ | | $ |
Trade accounts receivable, net (a) | 59,537 | | | | 57,011 | |
| Trade accounts receivable from shareholders exercising significant influence | 6,718 | | | | 9,653 | |
| Other receivables | 1,407 | | | | 482 | |
| 67,662 | | | | 67,146 | |
| | | |
(a) As at March 31, 2020, amounts owing from one client represented 10% of the total trade accounts receivable (one client represented 14% of the total trade accounts receivable as at March 31, 2019).
During the year ended March 31, 2020, no client generated more than 10% of total revenue. During the year ended March 31, 2019, two clients, individually, generated more than 10% of total revenue and, globally, generated 25% of total revenue (two clients individually generated more than 10% of total revenue and globally generated 32% of total revenue in 2018).
5. PROPERTY AND EQUIPMENT
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | | | | March 31, 2019 | | | | | |
| | Furniture,
fixtures &
equipment | | Computer
equipment | | Leasehold improvements | | Total | Furniture,
fixtures &
equipment | | Computer
equipment | | Leasehold improvements | Total |
| | $ | | $ | | $ | | $ | $ | | $ | | | $ |
| Cost | | 1,435 | | | 2,800 | | | | 1,844 | | | | 6,079 | | 1,234 | | | | 2,062 | | | | 1,262 | | 4,558 | |
| Additions | | 1,313 | | | 886 | | | | 3,724 | | | | 5,923 | | 196 | | | | 227 | | | | 584 | | 1,007 | |
| Additions through business acquisitions | | 67 | | | 239 | | | | 22 | | | | 328 | | 16 | | | | 494 | | | | — | | 510 | |
| Disposals / retirements | | (490) | | | (855) | | | | — | | | | (1,345) | | (10) | | | | (13) | | | | — | | (23) | |
| Foreign currency translation adjustment | | 8 | | | 120 | | | | 21 | | | | 149 | | (1) | | | | 30 | | | | (2) | | 27 | |
| Subtotal | | 2,333 | | | 3,190 | | | | 5,611 | | | | 11,134 | | 1,435 | | | | 2,800 | | | | 1,844 | | 6,079 | |
| Accumulated depreciation | | 866 | | | 1,874 | | | | 1,000 | | | | 3,740 | | 690 | | | | 1,435 | | | | 612 | | 2,737 | |
| Depreciation expense | | 226 | | | 543 | | | | 509 | | | | 1,278 | | 179 | | | | 409 | | | | 392 | | 980 | |
| Disposals / retirements | | (397) | | | (762) | | | | — | | | | (1,159) | | (5) | | | | 2 | | | | — | | (3) | |
| Foreign currency translation adjustment | | 4 | | | 97 | | | | 2 | | | | 103 | | 2 | | | | 28 | | | | (4) | | 26 | |
| Subtotal | | 699 | | | 1,752 | | | | 1,511 | | | | 3,962 | | 866 | | | | 1,874 | | | | 1,000 | | 3,740 | |
| Net carrying amount | | 1,634 | | | 1,438 | | | | 4,100 | | | | 7,172 | | 569 | | | | 926 | | | | 844 | | 2,339 | |
| | | | | | | | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 42 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
6. LEASES
Right-of-use assets
The following right-of-use assets relate to right-of-use real estate:
| | | | | | | | |
| As at | | March 31, 2020 |
| | $ |
| Beginning balance as at April 1, 2019 | | 6,509 | |
| Additions | | 7,262 | |
| Terminations | | (381) | |
| Depreciation | | (2,090) | |
| Lease inducement allowance | | 3 | |
| Exchange rate effect | | 189 | |
| Ending balance | | 11,492 | |
| | |
Lease liabilities
| | | | | | | | |
| As at | | March 31, 2020 |
| | $ |
| Beginning balance as at April 1, 2019 | | 6,668 | |
| Additions | | 7,257 | |
| Terminations | | (381) | |
| Lease payments | | (2,129) | |
| Lease incentives | | 1,249 | |
| Lease interest | | 375 | |
| Exchange rate effect | | 193 | |
| Ending balance | | 13,232 | |
| Current portion | | 1,559 | |
| | 11,673 | |
| | |
Contractual lease payments under the lease liabilities as at March 31, 2020 are as follows:
| | | | | | | | |
| As at | | March 31, 2020 |
| | $ |
| Less than one year | | 2,020 | |
| One to two years | | 2,018 | |
| Two to five years | | 6,464 | |
| More than five years | | 5,589 | |
| Total undiscounted lease payments at period end | | 16,091 | |
| | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 43 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
6. LEASES (CONT’D)
Amounts recognized in net loss
| | | | | | | | |
| Year ended | | March 31, 2020 |
| | $ |
| Interest on lease liabilities | | 375 | |
| Expenses relating to short-term leases | | 122 | |
| Variable lease payments | | 1,134 | |
| | 1,631 | |
| | |
Total cash outflow for leases for the year ended March 31, 2020 was $3,385,000. Please see note 13 for leases that do not meet the right-of-use assets and lease liability recognition criteria as at March 31, 2020.
7. INTANGIBLES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | March 31, 2020 | | | | | | | | | | March 31, 2019 | | | | | | | | |
| Customer
relationships | | Software | | Tradenames | | Non-
compete
agreements | | Total | | Customer
relationships | | Software | | Tradenames | | Non-
compete
agreements | | Total |
| $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ |
| Cost | 55,823 | | | | 1,355 | | | | 12,604 | | | | 316 | | | | 70,098 | | | | 28,348 | | | | 1,256 | | | | — | | | | — | | | | 29,604 | |
| Additions, purchased | — | | | | 49 | | | | — | | | | — | | | | 49 | | | | 425 | | | | 1 | | | | — | | | | — | | | | 426 | |
| Additions through business acquisitions | 16,077 | | | | 2,909 | | | | — | | | | 6,964 | | | | 25,950 | | | | 26,701 | | | | — | | | | 12,398 | | | | 311 | | | | 39,410 | |
| Additions, internally generated | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 98 | | | | — | | | | — | | | | 98 | |
| Foreign currency translation adjustment | 1,822 | | | | 64 | | | | 732 | | | | 250 | | | | 2,868 | | | | 349 | | | | — | | | | 206 | | | | 5 | | | | 560 | |
| Subtotal | 73,722 | | | | 4,377 | | | | 13,336 | | | | 7,530 | | | | 98,965 | | | | 55,823 | | | | 1,355 | | | | 12,604 | | | | 316 | | | | 70,098 | |
| Accumulated amortization | 21,837 | | | | 644 | | | | — | | | | 66 | | | | 22,547 | | | | 14,203 | | | | 252 | | | | — | | | | — | | | | 14,455 | |
| Amortization | 10,133 | | | | 598 | | | | — | | | | 547 | | | | 11,278 | | | | 7,634 | | | | 392 | | | | — | | | | 66 | | | | 8,092 | |
| Impairment | — | | | | — | | | | 13,336 | | | | — | | | | 13,336 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Foreign currency translation adjustment | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Subtotal | 31,970 | | | | 1,242 | | | | 13,336 | | | | 613 | | | | 47,161 | | | | 21,837 | | | | 644 | | | | — | | | | 66 | | | | 22,547 | |
| Net carrying amount | 41,752 | | | | 3,135 | | | | — | | | | 6,917 | | | | 51,804 | | | | 33,986 | | | | 711 | | | | 12,604 | | | | 250 | | | | 47,551 | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 44 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
7. INTANGIBLES (CONT’D)
An impairment loss of $13,336,000 was recognized as at March 31, 2020 for the tradenames related to the EPM and the ERP US operations, both stemming from the Edgewater Transaction (note 3). The recoverable amount of the asset is its value-in-use, as determined by management. The continued development and promotion of the Alithya tradename, and its resulting increased recognition and value, has reduced the use, relative importance and value, of the Company’s past acquisitions’ historical tradenames. The tradenames will nevertheless continue to be registered and protected, where appropriate, for competitive considerations. For the year ended March 31, 2019, no impairment was recognized.
8. GOODWILL
The Group completed the annual impairment test as at March 31, 2020 for its CGU’s which are categorized as follows: (i) the operations in Canada excluding Alithya Digital Technology Corporation (“ADT”), (ii) the operations of ADT, (iii) the operations in France, (iv) EPM US operations and (v) ERP US operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | | | | | | | |
| | Canada | | ADT | | France | | EPM US | | ERP US | | Total |
| | $ | | $ | | $ | | $ | | $ | | $ |
| Beginning balance | | 20,060 | | | | 9,794 | | | | 1,836 | | | | 12,296 | | | | 35,648 | | | | 79,634 | |
| Business acquisitions (note 3) | | 6,890 | | | | — | | | | — | | | | 3,374 | | | | — | | | | 10,264 | |
| Divestiture of subsidiary | | — | | | | — | | | | — | | | | — | | | | (576) | | | | (576) | |
| Impairment | | — | | | | (2,100) | | | | (1,700) | | | | (6,600) | | | | (4,300) | | | | (14,700) | |
| Foreign currency translation adjustment | | — | | | | — | | | | 14 | | | | 942 | | | | 2,030 | | | | 2,986 | |
| Net carrying amount | | 26,950 | | | | 7,694 | | | | 150 | | | | 10,012 | | | | 32,802 | | | | 77,608 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2019 | | | | | | | | | | |
| | Canada | | ADT | | France | | EPM US | | ERP US | | Total |
| | $ | | $ | | $ | | $ | | $ | | $ |
| Beginning balance | | 20,060 | | | | 9,794 | | | | 1,858 | | | | — | | | | — | | | | 31,712 | |
| Business acquisition (note 3) | | — | | | | — | | | | — | | | | 12,095 | | | | 35,066 | | | | 47,161 | |
| Foreign currency translation adjustment | | — | | | | — | | | | (22) | | | | 201 | | | | 582 | | | | 761 | |
| Net carrying amount | | 20,060 | | | | 9,794 | | | | 1,836 | | | | 12,296 | | | | 35,648 | | | | 79,634 | |
| | | | | | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 45 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
8. GOODWILL (CONT’D)
The Company has performed its annual goodwill impairment testing, on March 31, 2020, in the context of the COVID-19 pandemic and the significantly increased uncertainty surrounding global economic conditions in general, and the outlook of the Company’s clients’ different markets and industries in particular. As a result, the Company recorded a total goodwill impairment of $14,700,000, relating to certain CGU’s as indicated in the above table. The immediate and long-term impacts of the COVID-19 pandemic, including related government and central bank interventions are unknown at this time and any estimate thereof is subject to significant uncertainty. The effects of the pandemic may therefore differ from those used in the above impairment calculations. The Group completed an annual impairment test as at March 31, 2019 and concluded no impairment occurred.
In assessing whether goodwill is impaired, the carrying amount of the CGU was compared to its recoverable amount. The recoverable amount of each CGU was determined based on the value-in-use calculations, covering a detailed three-year forecast, which reflect such increased uncertainty and risks, followed by an extrapolation of expected cash flows for the remaining useful lives using the declining growth rate determined by management. The present value of the expected cash flows of each CGU is determined by applying a suitable after tax value Weighted Average Cost of Capital (“WACC”) reflecting current market assessments of the time value of money and the CGU-specific risks.
Key assumptions used in impairment testing by CGU are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | | | | | |
| | Canada | | ADT | | France | | EPM US | | ERP US |
| | % | | % | | % | | % | | % |
| After tax WACC | | 14.0 | | | 14.0 | | | 16.0 | | | 16.5 | | 17.0 |
| Long-term growth rate of net operating cash flows* | | 3.0 | | | 4.0 | | | 3.0 | | | 3.0 | | 3.0 |
| | | | | | | | | | |
* The long-term growth rate is based on published industry research.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2019 | | | | | | | | |
| | Canada | | ADT | | France | | EPM US | | ERP US |
| | % | | % | | % | | % | | % |
| After tax WACC | | 12.4 | | | 12.4 | | | 14.2 | | | 13.6 | | 13.6 |
| Long-term growth rate of net operating cash flows* | | 3.5 | | | 3.5 | | | 3.5 | | | 3.5 | | 3.5 |
| | | | | | | | | | |
* The long-term growth rate is based on published industry research.
Two key assumptions were identified that, if changed, could cause the carrying amount to exceed its recoverable amount. Varying the assumptions in the values of the recoverable amount calculation would have the following effects for the year ended March 31, 2020, assuming all other variables remain constant:
| | | | | | | | | | | | | | |
| | Incremental increase in after tax WACC | | Incremental decrease in long-term growth rate of net operating cash flows |
| | % | | % |
| Canada | | 4.2 | | | 5.7 |
| | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 46 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| | 2020 | | 2019 |
| | $ | | $ |
| Trade accounts payable | | 14,972 | | | | 19,004 | |
| Accrued liabilities | | 13,998 | | | | 9,158 | |
| Accrued compensation | | 18,411 | | | | 18,182 | |
| Consumption taxes payable | | 2,241 | | | | 1,505 | |
| Performance obligations in customer contracts | | 219 | | | | 932 | |
| Provision | | 486 | | | | 154 | |
| | 50,327 | | | | 48,935 | |
| | | | |
The following table summarizes the provision recorded by the Group:
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| | 2020 | | 2019 |
| | $ | | $ |
| Beginning balance | | 154 | | | | 929 | |
| Paid or otherwise settled | | — | | | | (775) | |
| Additional provision | | 332 | | | | — | |
| Ending balance | | 486 | | | | 154 | |
| | | | |
The provision as at March 31, 2020 was in respect of a former employee claim and in respect of certain claims from a business acquisition. The provision as at March 31, 2019 was in respect of former employee claims.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 47 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
10. LONG-TERM DEBT
The following table summarizes the Group’s long-term debt:
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| | 2020 | | 2019 |
| | $ | | $ |
Senior secured revolving credit facility (the "Credit Facility") (a) | | 37,615 | | | | 24,949 | |
Balance of purchase payable with a nominal value of $5,100,000, non-interest bearing (5.8% effective interest rate), $1,000,000 payable April 3, 2020, and $2,100,000 payable April 3, 2022 | | 2,877 | | | | 3,765 | |
Balance of purchase payable with a nominal value of $1,800,000, non-interest bearing (6.0% effective interest rate), payable on October 1, 2022 | | 1,556 | | | | — | |
Balance of purchase payable with a nominal value of $9,635,269 ($6,825,000 US), non-interest bearing (6.0% effective interest rate), payable on December 13, 2022 | | 8,232 | | | | — | |
Balance of purchase payable with a nominal value of $3,258,750, non-interest bearing (5.7% effective interest rate) payable on February 1, 2022 | | 2,944 | | | | — | |
| Other | | 347 | | | | — | |
Unamortized transaction costs (net of accumulated amortization of $234,858 and $11,424) | | (342) | | | | (409) | |
| | 53,229 | | | | 28,305 | |
| Current portion of long-term debt | | 1,143 | | | | 1,000 | |
| | 52,086 | | | | 27,305 | |
| | | | |
(a) The senior secured revolving credit facility is available to a maximum amount of $60,000,000 and can be drawn in Canadian and the equivalent amount in US dollars. It is available in prime rate advances, LIBOR advances, bankers’ acceptances and letters of credit up to $2,500,000.
The advances bear interest at the Canadian or US prime rate, plus an applicable margin ranging from 0.00% to 0.75%, or bankers’ acceptances or LIBOR rates, plus an applicable margin ranging from 1.00% to 2.00%, as applicable for Canadian and US advances, respectively. The applicable margin is determined based on threshold limits for certain financial ratios.
As at March 31, 2020, the advance drawn on the Credit Facility amount to US$14,000,000 ($19,764,654) (2019 - US$18,550,000 ($24,749,000)), and $17,850,000 (2019 - $200,000). The US advances bear interest at the US base rate of 5.50% plus applicable margin and the Canadian advances bear interest at 3.95% plus applicable margin.
As security for the Credit Facility, Alithya provided a first ranking hypothec on the universality of its assets excluding leased equipment and Investissement Quebec’s first ranking lien on tax credits receivable for the financing related to refundable tax credits, to a maximum of $7,500,000. Under the terms of the agreement, the Group is required to maintain certain financial covenants, which are measured on a quarterly basis. The Credit Facility matures in 2022 and is renewable for additional one-year periods at the lender’s discretion.
The Group was in compliance with all of its financial covenants at March 31, 2020 and 2019 (note 22).
On June 18, 2020, the Credit Facility was amended to reflect new covenant definitions, the Paycheck Protection Program (the “PPP”) loan received on May 5, 2020 (note 23), a temporary minimum availability test, certain other COVID-19 considerations, as well as certain other administrative clarifications. In addition, the maximum applicable margin for the Canadian and US prime rate advances increased from 0.75% to 1.50%, and maximum applicable margin for bankers’ acceptances and LIBOR advances increased from 2.00% to 2.75%. The financial covenants associated with the Credit Facility were eased as part of the amendment.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 48 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
11. INCOME TAXES
Income tax expense (recovery) for the year is as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year ended | | March 31, | | | | |
| | 2020 | | 2019 | | 2018 |
| Current tax expense (recovery) | | $ | | $ | | $ |
| Current tax expense (recovery) for the year | | 237 | | | | 289 | | | | 81 | |
| Total current tax expense (recovery) | | 237 | | | | 289 | | | | 81 | |
| | | | | | | | | | | |
| Deferred tax expense (recovery) | | | | | | | | | | | |
| Origination and reversal of temporary differences | | (3,202) | | | | (3,140) | | | | (395) | |
| Total deferred tax expense (recovery) | | (3,202) | | | | (3,140) | | | | (395) | |
| Total tax recovery | | (2,965) | | | | (2,851) | | | | (314) | |
The Group’s effective income tax rate differs from the combined Federal, US State and Provincial Canadian statutory tax rate as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended | | March 31, | | | | | | | | | | |
| | 2020 | | | | 2019 | | | | 2018 | | |
| | % | | $ | | % | | $ | | % | | $ |
| Loss before income taxes | | | | | | (42,632) | | | | | | | | (15,326) | | | | | | | | (7,538) | |
| Company's statutory tax rate | | 26.5 | | | | (11,297) | | | | 26.7 | | | | (4,092) | | | | 26.7 | | | | (2,013) | |
| Non-deductible share-based compensation expense | | (1.6) | | | | 689 | | | | (4.2) | | | | 642 | | | | (13.3) | | | | 1,004 | |
| Other non-deductible and tax exempt items | | (1.1) | | | | 490 | | | | (2.7) | | | | 409 | | | | (9.2) | | | | 695 | |
| Change in unrecognized deferred tax assets | | (15.9) | | | | 6,795 | | | | (2.3) | | | | 361 | | | | — | | | | — | |
| Impairment of intangibles and goodwill | | (0.7) | | | | 310 | | | | — | | | | — | | | | — | | | | — | |
| Other | | (0.1) | | | | 48 | | | | 1.1 | | | | (171) | | | | — | | | | — | |
| Effective income tax rate | | 7.1 | | | | (2,965) | | | | 18.6 | | | | (2,851) | | | | 4.2 | | | | (314) | |
| | | | | | | | | | | | |
The Group’s applicable tax rate is the Canadian combined rates applicable in the jurisdictions in which the Group operates.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 49 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
11. INCOME TAXES (CONT’D)
Deferred income tax assets and liabilities
The amounts recognized in the consolidated statement of financial position consist of:
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| | 2020 | | 2019 |
| | $ | | $ |
| Deferred tax liabilities | | (4,057) | | | | (2,016) | |
| Deferred tax assets | | 4,652 | | | | 2,946 | |
| | 595 | | | | 930 | |
| | | | |
Movements in temporary differences during the year were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | March 31, 2020 | | | | | | | | | March 31, 2019 | | | | | | | | |
| Opening
balance | | Recognized
in earning | | Recognized
in equity | | Business acquisition | | Total | Opening
balance | | Recognized
in earning | | Recognized
in equity | | Business acquisition | | Total |
| $ | | $ | | $ | | | | $ | $ | | $ | | | | $ | | $ |
| Losses available for carryforward and other tax deductions | 13,669 | | | | (2,884) | | | | — | | | | 267 | | | | 11,052 | | 3,395 | | | | 1,141 | | | | — | | | | 9,133 | | | | 13,669 | |
| Deferred financing costs | 908 | | | | (211) | | | | — | | | | 3 | | | | 700 | | 39 | | | | 155 | | | | 714 | | | | — | | | | 908 | |
| Total deferred tax assets | 14,577 | | | | (3,095) | | | | — | | | | 270 | | | | 11,752 | | 3,434 | | | | 1,296 | | | | 714 | | | | 9,133 | | | | 14,577 | |
| Intangibles and goodwill | (11,499) | | | | 6,310 | | | | — | | | | (2,684) | | | | (7,873) | | (2,906) | | | | 1,862 | | | | — | | | | (10,455) | | | | (11,499) | |
| Tax credits | (1,909) | | | | 52 | | | | — | | | | (1,125) | | | | (2,982) | | (1,752) | | | | (157) | | | | — | | | | — | | | | (1,909) | |
| Other | (239) | | | | (65) | | | | — | | | | 2 | | | | (302) | | (378) | | | | 139 | | | | — | | | | — | | | | (239) | |
| Total deferred tax liability | (13,647) | | | | 6,297 | | | | — | | | | (3,807) | | | | (11,157) | | (5,036) | | | | 1,844 | | | | — | | | | (10,455) | | | | (13,647) | |
| Net carrying amount | 930 | | | | 3,202 | | | | — | | | | (3,537) | | | | 595 | | (1,602) | | | | 3,140 | | | | 714 | | | | (1,322) | | | | 930 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 50 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
11. INCOME TAXES (CONT’D)
| | | | | | | | |
| Losses available for carryforward for which no deferred tax asset was recognized | | |
Expiry date (¹) | | USA |
| | $ |
| 2037 | | 12,802 | |
| Indefinite | | 10,144 | |
| | 22,946 | |
| | |
(1)Net operating losses amounting to $20,070,000 of which $12,802,000 will expire in 2037, are limited due to the U.S. tax rules applicable on the acquisition of Edgewater. In addition, the Company has i) state losses amounting to approximatively $28,280,000 (with expiry dates ranging from 2021 to 2039) and ii) deductible temporary differences totalling approximately $28,983,000 for which no deferred tax benefit has been recognized.
12. SHARE CAPITAL AND DIVIDENDS
AUTHORIZED
As at March 31, 2020 and 2019, the Company had an unlimited number of shares without par value as follows:
•Subordinate Voting Shares, carrying one vote per share, ranking pari passu with the Multiple Voting Shares as to the right to receive dividends and the remainder of the Company’s property in the event of a voluntary or involuntary winding-up or dissolution, or any other distribution of assets among shareholders for the purposes of winding up the Company’s affairs;
•Multiple Voting Shares, carrying ten votes per share, ranking pari passu with the Subordinate Voting Shares as to the right to receive dividends and the remainder of the Company’s property in the event of a voluntary or involuntary winding-up or dissolution, or any other distribution of assets among shareholders for the purpose of winding-up the Company’s affairs, each share being convertible at the holder’s entire discretion into Subordinate Voting Shares on a share for share basis, and being automatically converted upon their transfer to a person who is not a permitted holder or upon the death of a permitted holder, unless otherwise acquired by any of the remaining permitted holders in accordance with the terms of the voting agreement entered into between permitted holders; and
•Preferred Shares, issuable in series, each series ranking pari passu with other series but prior to any class ranking junior thereto, as well as prior to Subordinate Voting Shares and Multiple Voting Shares as to the right to receive dividends, and the remainder of the Company’s property in the event of a voluntary or involuntary winding-up or dissolution, or any other distribution of assets among shareholders for the purposes of winding up the Company’s affairs. If and when issued, preferred shares will have such voting rights and conversion rights as may be determined by the Company’s Board at the time of issuance thereof.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 51 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
On October 31, 2018 the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinate Voting Shares, an unlimited number of Multiple Voting Shares and an unlimited number of preferred shares, all without par value. The sole common share previously issued for cash consideration of $1.00 was cancelled.
Prior to October 31, 2018, Old Alithya had an unlimited number of shares without par value as follows:
•Classes A, A CRCD and A IQ shares, voting and participating, ranking pari passu;
•Classes A CRCD and A IQ, convertible into Class A shares;
•Class AA shares, super voting (10 votes per share) and participating;
•Class B shares, non-voting and non-participating, non-cumulative, discretionary, variable dividend, retractable at the paid-up capital amount;
•Class C shares, non-voting and non-participating, non-cumulative dividend from 0% to 15%, retractable at the paid-up capital amount;
•Class D shares, non-voting and non-participating, non-cumulative dividend from 0% to 15%, retractable at the paid-up capital amount;
•Class E shares, non-voting and non-participating, dividend payable upon death of the holder from the life insurance capital dividend account;
•Class F shares, super voting (100 votes per share) and non-participating, non-cumulative dividend from 0% to 15%, retractable or upon death of the holder at the paid-up capital amount;
•Class G shares, super voting (10 votes per share) and participating;
•Class H shares, non-voting and non-participating, preferred cumulative dividend at an annual rate of 10%, redeemable or mandatorily retractable five years after issuance;
•Class I shares, non-voting and non-participating, preferred cumulative quarterly dividend at a rate equal to the Bank of Canada prime rate effective on January 1 of each year, redeemable quarterly over a five years period as of the date of issue, at an annual rate of 20%, at the issue price, convertible into Class A shares;
•Class J shares, voting and participating, preferred cumulative dividend at an annual rate of 10%, convertible into Class A shares at the holder's option;
•Class K shares, voting and participating, preferred cumulative dividend at an annual rate of 4% of the paid up capital amount at the issue date, convertible into Class A shares at the holder's option; and
•Class L shares, voting and participating, preferred cumulative dividend at an annual rate of 4% of the paid up capital amount at the issue date, convertible into Class A shares at the holder's option.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 52 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
ISSUED
During the year ended March 31, 2020, the following transactions occurred:
•As part of the Matricis Acquisition, 473,646 Subordinate Voting Shares, with a total value of $1,800,000, were issued as partial settlement of the acquisition ;
•As part of the Travercent Acquisition,1,274,510 Subordinate Voting Shares, with a total value of $3,870,000, were issued as partial settlement of the acquisition;
•As part of the Askida Acquisition, 600,384 Subordinate Voting Shares, with a total value of $2,172,500, were issued as partial settlement of the acquisition;
•53,987 stock options were exercised and 53,987 Subordinate Voting Shares were issued with an approximate value of $201,000, for cash consideration of $165,000, with $36,000 reclassified from contributed surplus; and
•5,514 DSU were settled and 5,514 Subordinate Voting Shares were issued with an approximate value of $23,000, reclassified from contributed surplus.
As at March 31, 2020, the issued share capital of the Company is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Subordinate Voting Shares | | | | Multiple Voting Shares | | |
| | Number of shares | | $ | | Number of shares | | $ |
| As at March 31, 2019 | | 48,496,492 | | | 183,346 | | | 7,168,984 | | | 3,515 | |
| Share-based compensation on shares vested during the period, issued on business acquisitions | | — | | | 407 | | | — | | | — | |
| Business acquisition of Matricis | | 473,646 | | | 1,800 | | | — | | | — | |
| Business acquisition of Alithya Travercent | | 1,274,510 | | | 3,870 | | | — | | | — | |
| Business acquisition of Askida | | 600,384 | | | 2,173 | | | — | | | — | |
| Exercise of stock options | | 53,987 | | | 201 | | | — | | | — | |
| Settlement of DSU | | 5,514 | | | 23 | | | — | | | — | |
| As at March 31, 2020 | | 50,904,533 | | | 191,820 | | | 7,168,984 | | | 3,515 | |
| | | | | | | | | | | | |
In addition, during the year ended March 31, 2020, the following share-based compensation was recognized:
•In relation to the Subordinate Voting Shares, to be issued as part of the Matricis Acquisition (note 3), an amount of $550,000;
•In relation to the Subordinate Voting Shares, to be issued as part of the Travercent Acquisition (note 3), an amount of $272,000;
•In relation to the Subordinate Voting Shares, to be issued as part of the Askida Acquisition (note 3), an amount of $639,000;
•As part of a previous year’s business acquisition, ADT, Class A shares previously issued to employees as share-based compensation on the acquisition date vested during the period. The value of the vested shares for the year ended March 31, 2020 was $326,000; and
•As part of a previous year’s business acquisition, Pro2p Services Conseils Inc. (“Pro2p”), Class A shares previously issued to employees as share-based compensation on the acquisition date vested during the period. The value of the vested shares for the year ended March 31, 2020 was $81,000.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 53 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
During the year ended March 31, 2019, the following transactions occurred:
Due to restrictions imposed on Old Alithya in connection with the Edgewater Transaction, it was determined that Old Alithya could not fairly issue or repurchase securities of its share capital nor determine the fair market value thereof. The private placement (note 3), having been completed with third party investors could be a reasonable reference for the fair market value of the shares, at a price of $4.50 per share. On October 31, 2018, immediately prior to the Edgewater Transaction (note 3), Old Alithya completed the following transactions settling outstanding obligations, at a price of $4.50 per share, being the price of the private placement:
•Accumulated dividends on the Class K and L shares were declared and paid through the issuance of 103,704 and 44,444 Class A shares, respectively having a stated value of $466,667 and $200,000, in the aggregate, respectively;
•The issuance of 68,615 Class AA shares and 307,230 Class A shares in respect of the settlement of obligations, amounting to $308,769 and $1,384,421, respectively, owed as employee compensation, professional services rendered and employee share purchase plan; and
•The repurchase, from past employees, of 95,970 Class A shares, having a stated value of $251,615 in aggregate, for cash consideration of $431,752, with the difference resulting in a premium on share redemption of $180,137 recorded to deficit.
In addition, Old Alithya completed the following transactions:
•Accumulated dividends, on October 31, 2018, on the Class J shares were declared and paid, in cash, for the aggregate amount of $1,864,383; and
•Under the private placement (note 3), 11,736,055 Class A shares of Old Alithya were issued for cash consideration of $52,812,248. The Company incurred share issue costs in the amount of $2,764,885, net of deferred income taxes of $714,000.
The transaction activity related to the Class A and AA shares of Old Alithya for the period from April 1, 2018 to October 31, 2018 is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | October 31, 2018 | | | | | | |
| | Class A | | | | Class AA | | |
| | Number of shares | | $ | | Number of shares | | $ |
| Beginning balance (Old Alithya balance) | | 12,009,378 | | | 30,948 | | | 7,100,369 | | | 3,206 | |
| Issued in relation to dividends and employee compensation | | 455,378 | | | 2,051 | | | 68,615 | | | 309 | |
| Issued for private placement (note 3) | | 11,736,055 | | | 50,761 | | | — | | | — | |
| Redeemed | | (95,970) | | | (252) | | | — | | | — | |
| Share-based compensation on shares vested during the period, issued on business acquisitions | | — | | | 807 | | | — | | | — | |
| Ending balance | | 24,104,841 | | | 84,315 | | | 7,168,984 | | | 3,515 | |
| | | | | | | | |
On November 1, 2018, all the issued and outstanding shares of Old Alithya were cancelled and automatically exchanged on a one for one basis into Subordinate Voting Shares and Multiple Voting Shares of the Company, summarized as follows:
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 54 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Subordinate Voting Shares | | | | Multiple Voting Shares | | |
| | Number of shares | | $ | | Number of shares | | $ |
| Class A | | 24,104,841 | | | 84,315 | | | — | | | — | |
| Class A CRCD | | 1,773,212 | | | 5,250 | | | — | | | — | |
| Class A IQ | | 1,637,204 | | | 4,847 | | | — | | | — | |
| Class AA | | — | | | — | | | 7,168,984 | | | 3,515 | |
| Class J | | 1,742,342 | | | 5,000 | | | — | | | — | |
| Class K | | 1,182,164 | | | 3,500 | | | — | | | — | |
| Class L | | 506,642 | | | 1,500 | | | — | | | — | |
| Ending balance before business acquisition | | 30,946,405 | | | 104,412 | | | 7,168,984 | | | 3,515 | |
| Subordinate Voting Shares issued on business acquisition (note 3) | | 17,458,348 | | | 78,364 | | | — | | | — | |
| Ending balance | | 48,404,753 | | | 182,776 | | | 7,168,984 | | | 3,515 | |
| | | | | | | | |
The transaction activity related to the Subordinate Voting Shares and Multiple Voting Shares of the Company for the period November 2, 2018 to March 31, 2019 is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Subordinate Voting Shares | | | | Multiple Voting Shares | | |
| | Number of shares | | $ | | Number of shares | | $ |
| Beginning balance (New Alithya balance after conversion) | | 48,404,753 | | | 182,776 | | | 7,168,984 | | | 3,515 | |
| Share-based compensation on shares vested during the period, issued on business acquisitions | | — | | | 268 | | | — | | | — | |
| Exercise of stock options | | 91,739 | | | 302 | | | — | | | — | |
| Ending balance | | 48,496,492 | | | 183,346 | | | 7,168,984 | | | 3,515 | |
| | | | | | | | | | | | |
In addition, during the year ended March 31, 2019, the following share-based compensation was recognized:
•As part of a previous year’s business acquisition of ADT, Class A shares previously issued to employees as share-based compensation on the acquisition date vested during the period. The value of the vested shares for the year ended March 31, 2019 was $815,000; and
•As part of a previous year’s business acquisition of Pro2p, Class A shares previously issued to employees as share-based compensation on the acquisition date vested during the period. The value of the vested shares for the year ended March 31, 2019 was $260,000.
Dividends
The Company did not declare dividends during the year ended March 31, 2020.
Old Alithya declared the following dividends during the period April 1, 2018 to October 31, 2018:
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 55 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
| | | | | | | | | | | | | | |
| Year ended | | March 31, | | |
| | 2019 | | 2018 |
| Class J | | 1,864 | | | — | |
| Class K | | 467 | | | — | |
| Class L | | 200 | | | — | |
| Total | | 2,531 | | | — | |
| | | | |
As at March 31, 2018, dividends in arrears totaled $1,571,233 in connection with the Class J shares, $385,000 in connection with the Class K shares and $165,000 in connection with the Class L shares.
Share purchase plan
Under the Company’s share purchase plan, the Group contributes an amount equal to a percentage of the employee’s basic contribution, depending on the position held by the employee. The employee may make additional contributions, for total employee contributions, including basic contributions, of up to 10% of the annual gross salary. However, the Group does not match contributions in the case of such additional contributions. The employee and the Group’s contributions are remitted to an independent administrative agent who purchases Subordinate Voting Shares on the open market on behalf of the employee through either the TSX or NASDAQ. The Group's contribution expense is recognized as share-based compensation.
Long-Term Incentive Plan (the “Plan”)
The Company operates a plan which provides for awards of stock options, restricted shares, restricted share units, performance share units, DSU, and share appreciation rights to eligible employees and directors of the Company and its subsidiaries, all of which once exercised or settled result in the issuance of Subordinate Voting Shares.
Stock options
Under the Company’s Plan, the Board may grant, at its discretion, stock options to purchase Subordinate Voting Shares to eligible employees and directors of the Company and its subsidiaries. The Board establishes the exercise price at the time the stock options are granted, where the exercise price must in all cases be not less than the greater of the closing price of such shares on the TSX and NASDAQ on the business day immediately prior to the grant date. Stock options vest, as set out in the applicable award agreement between the participant and the Company, which may include performance-based vesting conditions. Vesting is generally four years from the date of grant and the stock options are to be exercised not later than the tenth anniversary of the grant date, except in the event of death, disability, retirement or termination of employment. The Plan provides that the aggregate number of Subordinate Voting Shares issuable pursuant to any type of awards under the Plan shall not exceed 10% of the aggregate number of Subordinate Voting Shares and Multiple Voting Shares issued and outstanding from time to time.
The following table presents information concerning stock option activity for the respective years:
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 56 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | March 31, 2019 | | | | March 31, 2018 | | |
| | Number of stock options | | Weighted average
exercise price | | Number of stock options | | Weighted average
exercise price | | Number of stock options | | Weighted average
exercise price |
| | | | $ | | | | $ | | | | $ |
| Beginning balance | | 2,623,542 | | | 3.80 | | | 1,296,660 | | | 2.66 | | | 1,040,160 | | | 2.36 | |
| Granted | | 970,500 | | | 3.63 | | | 680,000 | | | 4.48 | | | 314,000 | | | 3.80 | |
| Deemed issuance of replacement options on business acquisition (note 3) | | — | | | — | | | 910,461 | | | 5.17 | | | — | | | — | |
| Forfeited | | (137,151) | | | 4.88 | | | (170,946) | | | 5.82 | | | (55,000) | | | 3.12 | |
| Expired | | (230,615) | | | 3.66 | | | (894) | | | 2.66 | | | — | | | — | |
| Exercised | | (53,987) | | | 3.10 | | | (91,739) | | | 2.66 | | | (2,500) | | | 2.21 | |
| Ending balance | | 3,172,289 | | | 3.72 | | | 2,623,542 | | | 3.80 | | | 1,296,660 | | | 2.66 | |
| Exercisable at year end | | 1,513,789 | | | 3.43 | | | 1,478,542 | | | 3.60 | | | 788,160 | | | 2.15 | |
| | | | | | | | | | | | |
Included in the 1,513,789 and 1,478,542 of stock options exercisable as at March 31, 2020 and 2019, respectively, 863,160 stock options are available to purchase Multiple Voting Shares.
During the year ended March 31, 2020, the Company issued the following stock options:
•On June 21, 2019, Alithya issued 435,000 and 190,500 stock options, to purchase a total of 625,500 Subordinate Voting Shares, subject to terms set out in the grant letters at an exercise price of $3.64 and US$2.76, respectively;
•On August 16, 2019, Alithya issued 85,000 and 95,000 stock options, to purchase a total of 180,000 Subordinate Voting Shares, subject to terms set out in the grant letters at a weighted average exercise price of $3.65 and US$2.78, respectively; and
•On December 18, 2019, Alithya issued 165,000 stock options, to purchase a total of 165,000 Subordinate Voting Shares subject to terms set out in the grant letters at an exercise price of US$2.64.
The weighted average share price per share of the stock options exercised was $3.85.
During the year ended March 31, 2019, the Company issued the following stock options:
•On November 1, 2018, concurrent with the closing of the Edgewater Transaction, and during the period, November 2, 2018 to March 31, 2019, Alithya issued 660,000 and 20,000 stock options, respectively, to purchase 660,000 and 20,000 Subordinate Voting Shares, respectively, subject to terms set out in the grant letters at an exercise price of $4.50 and $3.90, respectively.
The weighted average share price per share of the stock options exercised at the date of exercise was $3.75 (2018 – $3.80).
The following tables summarize the number of stock options outstanding by currency, exercise price and the weighted average remaining exercise period, expressed in number of years:
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 57 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | March 31, 2019 | | | | March 31, 2018 | | |
| Exercise price (CAD) | | Number of options | | Weighted average
remaining exercise
period – in years | | Number of options | | Weighted average
remaining exercise
period – in years | | Number of options | | Weighted average
remaining exercise
period – in years |
| $ | | | | | | | | | | | | |
| 1.90 | | 363,160 | | | 2.45 | | 363,160 | | | 3.45 | | 363,160 | | | 4.50 |
| 1.92 | | 100,000 | | | 2.00 | | 100,000 | | | 3.00 | | 100,000 | | | 4.50 |
| 2.21 | | 115,000 | | | 4.02 | | 115,000 | | | 5.03 | | 115,000 | | | 6.00 |
| 2.46 | | 100,000 | | | 3.00 | | 100,000 | | | 4.00 | | 100,000 | | | 5.00 |
| 2.87 | | 120,000 | | | 5.09 | | 120,000 | | | 6.09 | | 120,000 | | | 7.00 |
| 2.96 | | 186,000 | | | 6.01 | | 188,500 | | | 7.01 | | 192,000 | | | 8.00 |
| 3.29 | | 2,000 | | | 6.67 | | 4,000 | | | 7.67 | | 4,000 | | | 8.70 |
| 3.64 | | 418,000 | | | 9.23 | | — | | | — | | — | | | — |
| 3.65 | | 85,000 | | | 2.38 | | — | | | — | | — | | | — |
| 3.80 | | 249,500 | | | 7.14 | | 262,500 | | | 8.16 | | 302,500 | | | 9.16 |
| 3.90 | | 20,000 | | | 8.88 | | 20,000 | | | 9.89 | | — | | | — |
| 4.50 | | 463,000 | | | 8.59 | | 503,500 | | | 9.59 | | — | | | — |
| | 2,221,660 | | | 6.12 | | 1,776,660 | | | 6.63 | | 1,296,660 | | | 6.52 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | March 31, 2019 | | |
| Exercise price range (USD) | | Number of options | | Weighted average
remaining exercise
period – in years | | Number of options | | Weighted average
remaining exercise
period – in years |
| $ | | | | | | | | |
2.26 to 3.85 | | 599,960 | | | 7.98 | | 415,766 | | | 4.04 |
3.86 to 4.45 | | 23,240 | | | 1.74 | | 44,096 | | | 2.81 |
4.59 to 4.85 | | 154,141 | | | 1.10 | | 198,834 | | | 2.12 |
4.90 to 5.45 | | 173,288 | | | 2.42 | | 188,186 | | | 3.39 |
| | 950,629 | | | 5.70 | | 846,882 | | | 3.38 |
| | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 58 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
DSU
Under the Plan, the Board, subject to the provisions of the Plan and such other terms and conditions, may grant DSU to obtain Subordinate Voting Shares to qualified employees and directors of the Company and its subsidiaries. The DSU shall be settled on the date as set out in the applicable award agreement, between the participant and the Company, however not earlier than the participant’s termination date. If the agreement does not establish a settlement date then it shall be the 90th day following the participant’s termination date for eligible Canadian participants and not earlier than the date that is six months after the termination date for eligible US participants.
During the year ended March 31, 2020, the Company issued the following fully vested DSU:
•On September 30, 2019, December 31, 2019 and March 31, 2020, 20,937, 22,299 and 53,370 fully vested DSU, respectively, in aggregate, were granted to non-employee directors of the Company at a fair value of $3.97, $3.66 and $2.63, respectively, per DSU, for an aggregate fair value of $83,120, $81,614 and $140,363, respectively. The amounts have been recorded in share-based compensation expense.
During the year ended March 31, 2019, the Company issued the following fully vested DSU:
•On November 1, 2018, concurrent with the closing of the Edgewater Transaction, 25,928 fully vested DSU in aggregate, were granted to non-employee directors of the Company at a fair value of $4.50 per DSU for an aggregate fair value of $116,676. The amount has been recorded in share-based compensation expense; and
•On March 26, 2019, 23,865 fully vested DSU in aggregate, were granted to non-employee directors of the Company at a fair value of $3.85 per DSU for an aggregate fair value of $91,880. The amount has been recorded in share-based compensation expense.
Share-Based Compensation
The number of Alithya stock options granted to employees during the year, the related compensation expense recorded, and the assumptions used to determine share-based compensation expense, using the Black-Scholes stock option pricing model, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year ended | | March 31, | | | | |
| | 2020 | | 2019 | | 2018 |
| Compensation expense related to the options granted | | 318 | | | 141 | | 289 |
| Number of stock options granted | | 970,500 | | 680,000 | | 314,000 |
| Weighted average fair value of options granted | | $1.13 | | $1.54 | | $1.50 |
| Aggregate fair value of options granted | | 1,096 | | 1,045 | | 470 |
| Weighted average assumptions | | | | | | |
| Share price | | $3.63 | | $4.48 | | $3.80 |
| Exercise price | | $3.63 | | $4.48 | | $3.80 |
| Risk-free interest rate | | 1.79 | % | | | 2.42 | % | | | 1.07 | % |
| Expected volatility* | | 30 | % | | 30 | % | | 35 | % |
| Dividend yield | | — | | | — | | | — | |
| Expected option life (years) | | 5.7 | | 6.1 | | 7.5 |
| Vesting conditions – time (years) | | 2.7 | | 3.3 | | 3.0 |
| | | | | | |
* Determined on the basis of observed volatility in publicly traded companies operating in similar industries.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 59 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
12. SHARE CAPITAL AND DIVIDENDS (CONT’D)
Total share-based compensation expense for the years ended March 31, 2020, 2019 and 2018 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year ended | | March 31, | | | | |
| | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ |
| Stock option plan | | 745 | | | | 372 | | | | 289 | |
| Share purchase plan – employer contribution | | 633 | | | | 593 | | | | 439 | |
| Share-based compensation on shares vested during the period, issued on business acquisitions | | 1,868 | | | | 1,075 | | | | 2,701 | |
| Deferred share units | | 305 | | | | 209 | | | | — | |
| Accrued management bonuses and other compensation | | — | | | | — | | | | 734 | |
| | 3,551 | | | | 2,249 | | | | 4,163 | |
| | | | | | |
13. COMMITMENTS AND CONTINGENCIES
Leases
The Company entered into a long-term lease agreement for the rental of a premise, which as at March 31, 2020, does not meet the right-of-use asset and lease liability recognition criteria. Minimum lease payments are as follows:
| | | | | | | | |
| Year ended | | March 31, 2020 |
| Long-term lease agreements | | Total |
| 2021 | | 351 | |
| 2022 | | 468 | |
| 2023 | | 468 | |
| 2024 | | 468 | |
| 2025 | | 468 | |
| Thereafter | | 2,586 | |
| | 4,809 | |
| | |
For the year ended March 31, 2019 and 2018, expenses recorded in consolidated net loss relating to these operating leases, prior to the adoption of IFRS 16 (note 2), amounted to approximately $2,922,000 and $2,440,000, respectively.
The Group’s minimum contingent rental revenue, from the leasing of premises, amounts to approximately $260,000 for 2021.
Contingencies
From time to time, the Group may become involved in various claims and litigation as part of its normal course of business. While the final outcome thereof cannot be predicted, based on the information currently available, management believes the resolution of current pending claims and litigation will not have a material impact on the Group’s financial position and results of operations. Claims for which there is a probable unfavorable outcome are recorded in provisions.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 60 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
13. COMMITMENTS AND CONTINGENCIES (CONT’D)
Guarantees
In 2019, the Company had issued letters of credit in the aggregate amount of $1,324,000 to secure a contract with a customer. This amount is secured by short-term deposits, consisting of guaranteed investments certificates, of an aggregate equivalent amount, bearing interest at 0.6% and have matured in January 2020.
Operating commitments
Operating expenditures contracted for at the end of the reporting period but not yet incurred are as follows:
| | | | | | | | |
| Year ended | | March 31, 2020 |
| Technology licenses, infrastructure and other | | Total |
| 2021 | | 2,600 | |
| 2022 | | 1,193 | |
| 2023 | | 19 | |
| 2024 | | 5 | |
| Thereafter | | 5 | |
| | 3,822 | |
| | |
14. RELATED PARTIES
Ultimate controlling party
As at March 31, 2020, the holders of Multiple Voting Shares, directly or indirectly, collectively owned or exercised control over Subordinate Voting Shares and Multiple Voting Shares representing approximately 58.70% of the total voting rights of Alithya. As of November 1, 2018, they also entered into a voting agreement, pursuant to which they agreed to, among other things, vote all of the Subordinate Voting Shares and Multiple Voting Shares under their control in accordance with decisions made by a majority of them, subject to certain exceptions.
Transactions with directors and key management personnel
Key management includes members of the Group’s Executive Committee. Certain key management of Alithya participate in the share purchase plan and the stock options plan. The compensation paid or payable to directors and to key management for services is shown below:
| | | | | | | | | | | | | | | | | | | | |
| Year ended | | March 31, | | | | |
| | 2020 | | 2019 | | 2018 |
| Director compensation, and key management salaries and benefits* | | 3,626 | | 2,743 | | 2,516 |
| Share based compensation | | 646 | | 417 | | 327 |
| Termination benefits | | — | | 100 | | 149 |
| | 4,272 | | 3,260 | | 2,992 |
| | | | | | |
* Salaries and benefits include short-term incentive compensation.
In addition to the above amounts, the Group is committed to pay incremental benefits to certain members of key management up to $4,633,000 (2019 - $3,006,000, 2018 – $2,484,000) in the event of termination without cause.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 61 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
14. RELATED PARTIES (CONT’D)
Operating transactions with shareholders
In the normal course of operations, the Company concluded the following transactions with shareholders exercising significant influence. The transactions have been recorded at the exchange amount, which represents the contractual amount of consideration established and accepted by the related parties.
| | | | | | | | | | | | | | | | | | | | |
| Year ended | | March 31, | | | | |
| | 2020 | | 2019 | | 2018 |
| Consulting fee revenue* | | 24,554 | | | | 36,672 | | | | 59,674 | |
| Employee benefits | | 41 | | | | 19 | | | | 634 | |
| Communications | | — | | | | 219 | | | | 414 | |
| Professional fees | | — | | | | — | | | | 323 | |
| Transaction fees | | — | | | | 866 | | | | — | |
| | | | | | |
* One of the shareholders exercising significant influence has committed to minimum amounts of revenue and EBITDA over a four year period ending in July 2020, which may be extended to July 2021 under certain conditions. Should the minimum contracted amounts not be met, the shareholder in question and another one of the shareholders will jointly reimburse Alithya an amount up to $4 million.
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| | 2020 | | 2019 |
| | $ | | $ |
| Trade accounts receivable | | 6,718 | | 9,653 |
| Trade accounts payable | | 153 | | — |
| | | | |
Other expenses concluded with shareholders exercising significant influence included employee benefits and communications expenses. However, these amounts were not significant.
15. EARNINGS PER SHARE
| | | | | | | | | | | | | | | | | | | | |
| | March 31, | | | | |
| | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ |
| Net loss | | (39,667) | | (12,475) | | (7,224) |
| Allocation of loss net of dividends to shareholders of preferred shares | | — | | 268 | | 357 |
| Net loss to shareholders of common shares | | (39,667) | | (12,207) | | (6,867) |
| | | | | | |
| Weighted average number of common shares outstanding | | 56,399,499 | | 36,129,647 | | 22,292,548 |
| Basic and diluted loss per share | | (0.70) | | (0.34) | | (0.31) |
| | | | | | |
The stock options mentioned in note 12 were not included in the calculation of diluted earnings per share since the Company suffered losses and the inclusion of these stock options would have an antidilutive effect.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 62 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
16. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
The changes in the Group’s liabilities arising from financing activities can be classified as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | | | | | March 31, 2019 | | | | | | |
| | Line of credit and demand loan | | Current
portion of
long-term
debt | | Long-term
debt | | Total | | Line of credit and demand loan | | Current
portion of
long-term
debt | | Long-term
debt | | Total |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ |
| Beginning balance | | — | | | | 1,000 | | | | 27,305 | | | | 28,305 | | | | 24,066 | | | | 2,956 | | | | 15,619 | | | | 42,641 | |
| Repayment | | (3,153) | | | | (4,273) | | | | (50,136) | | | | (57,562) | | | | (40,547) | | | | (6,343) | | | | (14,079) | | | | (60,969) | |
| Proceeds | | — | | | | 2,517 | | | | 61,576 | | | | 64,093 | | | | — | | | | — | | | | 29,459 | | | | 29,459 | |
| Total cash flow | | (3,153) | | | | (756) | | | | 38,745 | | | | 34,836 | | | | (16,481) | | | | (3,387) | | | | 30,999 | | | | 11,131 | |
| Acquisition | | 3,153 | | | | 1,105 | | | | 11,856 | | | | 16,114 | | | | 15,749 | | | | — | | | | — | | | | 15,749 | |
| Amortization of financing fees | | — | | | | — | | | | 231 | | | | 231 | | | | — | | | | — | | | | 144 | | | | 144 | |
| Interest accretion on balances of purchase payable | | — | | | | — | | | | 318 | | | | 318 | | | | — | | | | — | | | | 211 | | | | 211 | |
| Foreign currency translation adjustment | | — | | | | — | | | | 1,730 | | | | 1,730 | | | | 732 | | | | — | | | | 338 | | | | 1,070 | |
| Reclassification | | — | | | | 794 | | | | (794) | | | | — | | | | — | | | | 4,387 | | | | (4,387) | | | | — | |
| Total non cash | | 3,153 | | | | 1,899 | | | | 13,341 | | | | 18,393 | | | | 16,481 | | | | 4,387 | | | | (3,694) | | | | 17,174 | |
| Ending balance | | — | | | | 1,143 | | | | 52,086 | | | | 53,229 | | | | — | | | | 1,000 | | | | 27,305 | | | | 28,305 | |
| | | | | | | | | | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 63 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
17. ADDITIONAL INFORMATION ON CONSOLIDATED LOSS
The following table provides additional information on the consolidated loss:
| | | | | | | | | | | | | | | | | | | | |
| | March 31, | | | | |
| As at | | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ |
| Revenue – contingent rental (a) | | 1,532 | | | | 1,814 | | | | 1,319 | |
| Employee compensation costs | | 194,678 | | | | 129,521 | | | | 85,368 | |
| Tax credits | | (4,815) | | | | (3,650) | | | | (4,017) | |
| Selling expenses | | 44,084 | | | | 20,527 | | | | 9,168 | |
| General and administrative expenses | | 32,698 | | | | 32,088 | | | | 22,235 | |
| Depreciation of property and equipment | | 1,278 | | | | 980 | | | | 870 | |
| Depreciation of right-of-use assets | | 2,090 | | | | — | | | | — | |
| | | | | | | |
(a)The Company acts as a lessor in operating leases related to the use of premises to a shareholder exercising significant influence.
18. FINANCIAL EXPENSES
The following table summarizes financial expenses:
| | | | | | | | | | | | | | | | | | | | |
| | March 31, | | | | |
| As at | | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ |
| Interest on long-term debt | | 1,155 | | | | 687 | | | | 1,156 | |
| Interest and financing charges | | 306 | | | | 1,202 | | | | 695 | |
| Interest on lease liabilities | | 375 | | | | — | | | | — | |
| Amortization of finance costs | | 231 | | | | 144 | | | | 28 | |
| Interest accretion on balances of purchase payable | | 318 | | | | 211 | | | | 232 | |
| Interest income | | (38) | | | | (3) | | | | (14) | |
| | 2,347 | | | | 2,241 | | | | 2,097 | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 64 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
19. SUPPLEMENTARY CASH FLOW INFORMATION
Net change in non-cash working capital items is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | March 31, | | | | |
| As at | | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ |
| Accounts receivable and other receivables | | 7,622 | | | | (5,121) | | | | 2,152 | |
| Income taxes receivable | | (407) | | | | 716 | | | | (422) | |
| Unbilled revenue | | 2,200 | | | | 1,072 | | | | (4,976) | |
| Tax credits receivable | | 185 | | | | (571) | | | | (1,158) | |
| Prepaids | | 377 | | | | (1,305) | | | | (118) | |
| Accounts payable and accrued liabilities | | (4,673) | | | | (9,760) | | | | 1,279 | |
| Deferred revenue | | 435 | | | | 168 | | | | 1,605 | |
| | 5,739 | | | | (14,801) | | | | (1,638) | |
| | | | | | |
Non-cash investing and financing activities, for the year ended March 31, 2020, included the acquisition of leasehold improvements from the lessor as lease incentives in an amount of $1,249,000 (2019 – nil).
20. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company has examined its activities and has determined that, based on information received on a regular basis by the decision-makers, that it has a single reportable segment.
Revenues by geographic location
The following table presents total external revenues by geographic location:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, | | | | | | | | | | |
| | | | 2020 | | | | 2019 | | | | 2018 | | |
| | | | $ | | % | | $ | | % | | $ | | % |
| Canada | | | | 147,821 | | | | 53.0 | | | 149,064 | | | 71.1 | | | 148,768 | | | 93.4 | |
| USA | | | | 118,125 | | | | 42.3 | | | 45,982 | | | 22.0 | | | — | | | — | |
| Europe | | | | 13,061 | | | | 4.7 | | | 14,432 | | | 6.9 | | | 10,522 | | | 6.6 | |
| | | | 279,007 | | | | 100.0 | | | 209,478 | | | 100.0 | | | 159,290 | | | 100.0 | |
| | | | | | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 65 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
20. SEGMENT AND GEOGRAPHICAL INFORMATION (CONT’D)
Long-lived assets by geographic location
The following table presents the total net book value of the Group’s long-lived assets by geographic location:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, | | | | | | |
| | 2020 | | | | 2019 | | |
| | $ | | % | | $ | | % |
| Canada | | 61,743 | | | | 41.7 | | | | 40,451 | | | | 31.3 | |
| USA | | 82,607 | | | | 55.8 | | | | 86,454 | | | | 66.7 | |
| Europe | | 3,726 | | | | 2.5 | | | | 2,619 | | | | 2.0 | |
| | 148,076 | | | | 100.0 | | | | 129,524 | | | | 100.0 | |
| | | | | | | | |
For the year ended March 31, 2020, no client generated more than 10% of total revenue (2019 - two customers for approximately $52,144,000; 2018 – two customers for approximately $50,760,000).
An analysis of the Group’s revenue from customers for each major service category is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, | | | | | | | | | | |
| | | | 2020 | | | | 2019 | | | | 2018 | | |
| | | | $ | | % | | $ | | % | | $ | | % |
| System integration and consulting services | | | 270,345 | | | | 96.9 | | | 204,526 | | | 97.6 | | | 157,561 | | | 98.9 | |
| Payrolling services | | | 1,289 | | | | 0.5 | | | 1,461 | | | 0.7 | | | 1,721 | | | 1.1 | |
| Software revenue | | | 7,373 | | | | 2.6 | | | 3,491 | | | 1.7 | | | 8 | | | — | |
| | | | 279,007 | | | | 100.0 | | | 209,478 | | | 100.0 | | | 159,290 | | | 100.0 | |
| | | | | | | | | | | | |
21. FINANCIAL INSTRUMENTS
The Group's financial instruments consist of cash, short-term deposits, restricted cash, accounts receivable and other receivables, trade accounts payable and accrued liabilities and long-term debt and lease liabilities. The Group, through its financial assets and liabilities, has exposure to the following risks from its use of financial instruments: interest rate risk, credit risk, liquidity risk and currency risk. Senior management and Board are responsible for setting risk levels and reviewing risk management activities as they determine necessary.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is exposed to fluctuations in interest rates with respect to its variable rate on its Credit Facility. The interest rate risk profile of the Group's interest-bearing financial instruments was as follows:
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 66 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
21. FINANCIAL INSTRUMENTS (CONT’D)
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| | 2020 | | 2019 |
| | $ | | $ |
| Variable rate financial instruments | | | | | |
| Credit Facility (note 10) | | 37,615 | | | | 24,949 | |
| Other long-term debt (note 10) | | 347 | | | | — | |
| | 37,962 | | | | 24,949 | |
| | | | | | | |
For the year ended March 31, 2020, the Group has determined that a reasonably possible increase or decrease of 100 basis point in interest rates of the above variable-rate financial liabilities would not have a significant impact on equity and profit or loss. This analysis assumes that all other variables remain constant, in particular foreign currency exchange rates. It has been performed on the same basis for the year ended March 31, 2019.
The Group does not account for any fixed rate financial liabilities at FVPTL. Therefore, a change in interest rates at the reporting date would not affect equity and profit or loss.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s activities are financed through a combination of cash flows from operations, borrowings under existing credit facilities, issuance of debt and issuance of equity. As a result of the effect of COVID-19, unanticipated pressures may occur on liquidity. In order to manage its exposure to liquidity risk, the Group’s primary goal is to maintain an optimal level of liquidity through an active management of assets and liabilities as well as cash flows. Despite the pandemic, the Group continues to be in regular contact with customers. Also, as at March 31, 2020, the Group has an unused capacity of approximately $22,000,000 under its authorized secured senior revolving credit facility of $60,000,000.
The following table summarizes the carrying amount and the contractual maturities of both the interest and principal portion of significant financial liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2020 | | | | | | | | | | |
| | Carrying amount | | Total | | Less than 1 year | | 1-2 years | | 2-5 years | | More than 5 years |
| | $ | | $ | | $ | | $ | | $ | | $ |
| Accounts payable and accrued liabilities | | 28,970 | | | | 28,970 | | | | 28,970 | | | | — | | | | — | | | | — | |
| Credit Facility | | 37,615 | | | | 39,775 | | | | 1,178 | | | | 38,597 | | | | — | | | | — | |
| Balances of purchase payable, non-interest bearing | | 15,609 | | | | 17,006 | | | | 1,000 | | | | 3,259 | | | | 12,747 | | | | — | |
| Other (included in long-term debt) | | 347 | | | | 347 | | | | 126 | | | | 101 | | | | 120 | | | | — | |
| Lease liabilities | | 13,232 | | | | 16,091 | | | | 2,020 | | | | 2,018 | | | | 6,464 | | | | 5,589 | |
| | 95,773 | | | | 102,189 | | | | 33,294 | | | | 43,975 | | | | 19,331 | | | | 5,589 | |
| | | | | | | | | | | | |
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 67 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
21. FINANCIAL INSTRUMENTS (CONT’D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | March 31, 2019 | | | | | | | | | | |
| | Carrying amount | | Total | | 1 year or less | | 1-2 years | | 2-5 years | | More than 5 years |
| | $ | | $ | | $ | | $ | | $ | | $ |
| Accounts payable and accrued liabilities | | 28,162 | | | | 28,162 | | | | 28,162 | | | | — | | | | — | | | | — | |
| Credit Facility | | 24,949 | | | | 29,149 | | | | 1,493 | | | | 1,493 | | | | 26,163 | | | | — | |
| Balance of purchase payable, non-interest bearing | | 3,765 | | | | 4,100 | | | | 1,000 | | | | 1,000 | | | | 2,100 | | | | — | |
| | 56,876 | | | | 61,411 | | | | 30,655 | | | | 2,493 | | | | 28,263 | | | | — | |
| | | | | | | | | | | | |
Credit risk
Credit risk is the risk of loss due to a counterparty's inability to meet its obligations. At March 31, 2020 and 2019, the Group's credit risk exposure consists mainly of the carrying amounts of cash and short-term deposits held with major Canadian banks, accounts receivable and other receivables, and unbilled revenue. The carrying amounts of financial assets and unbilled revenue represent the maximum credit exposure.
Impairment losses recognized in profit or loss is not significant both in 2020 and 2019.
The credit risk in respect of cash balances and short-term deposits is minimal as they are held with reputable financial institutions.
With respect to accounts receivable and unbilled revenue, the Group is exposed to a concentration of credit risk on significant customers operating in Canada, as identified in note 4. However, this credit risk exposure is mitigated by the relative size and nature of the business carried on by such customers. Also, the Group has a large and diversified client base from clients engaged in various industries, including banks with high credit-rating, government agencies, telecommunications and retails. Historically, the Group has not made any significant write-offs. Notwithstanding the impact of COVID-19, the Group’s credit risk exposure remains relatively low. A substantial portion of accounts receivable and unbilled revenues are with customers who operate in industries for which credit risk has not increased significantly following the pandemic. However, if a key customer experiences financial difficulties or fails to comply with its contractual obligations which may occur as the pandemic continues, this could result in a significant financial loss to the Group.
In order to manage its exposure to credit risk and assess credit quality, the Group established a credit policy under which collection of account receivable is a priority. Each new customer is analyzed individually for creditworthiness before the Group enters into contract. The financial stability and liquidity of customers are assessed on a regular basis, which included the review of default risk associated with the industry in which customers operate. The Group also limits its exposure by setting credit limits when deemed necessary. No significant adjustments were made to allowance for doubtful accounts in connection with this assessment.
For both 2020 and 2019, allowance for doubtful accounts was not significant.
| | | | | |
Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 68 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
21. FINANCIAL INSTRUMENTS (CONT’D)
Currency risk
The Group is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which cash, accounts receivables and other receivables, accounts payables and accrued liabilities and borrowings are denominated and the respective functional currencies of Group’s companies. The currencies in which these financial instruments are mainly denominated is USD. Other currencies have no significant impact on the Group’s exposure to currency risk.
The summary quantitative data about the Group’s exposure to currency risk for the significant exchange rates is as follow.
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| | 2020 | | 2019 |
| | USD | | USD |
| Cash | | 891 | | | | 1,004 | |
| Accounts receivable and other receivables | | 377 | | | | 80 | |
| Accounts payable and accrued liabilities | | (944) | | | | (110) | |
| Credit Facility | | (14,000) | | | | (18,550) | |
| Net statement of financial position exposure | | (13,676) | | | | (17,576) | |
| | | | |
The following table illustrates the sensitivity of profit and equity in regards to the Group’s financial assets and financial liabilities and the USD/Canadian dollars exchange rate ‘all other things being equal’. It assumes a +/- 8% change of the USD/Canadian dollars exchange rate for the year ended March 31, 2020 (2019: +/-6%). This percentage has been determined based on the average market volatility in exchange rate in the previous twelve months. The sensitivity analysis is based on the Group’s foreign currency financial instruments held at each reporting date
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Profit or loss | | | |
| Effect in Canadian dollar | | | | | | Strengthening | | Weakening | |
| As at March 31, 2020 | | | | | | | | | |
| USD | | 8% | | Movement | | (1,087) | | 1,087 | |
| As at March 31, 2019 | | | | | | | | | |
| USD | | 6% | | Movement | | (1,115) | | 1,115 | |
Fair Value of Financial Instruments
Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
•Level 1 - Valuation based on quoted prices observed in active markets for identical assets or liabilities.
•Level 2 - Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•Level 3 - Valuation techniques with significant unobservable market inputs. A financial instrument is classified at the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.
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Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 69 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
21. FINANCIAL INSTRUMENTS (CONT’D)
The fair value of the long-term debt is estimated by discounting expected cash flows at rates that would be currently offered to the Group for debts of the same remaining maturities and conditions (level 2). For both 2020 and 2019, the Group has determined that the fair value of the Credit Facility and the balance of purchase payable are not significantly different than their carrying amount of approximately $37,615,000 and $15,609,000 as at March 31, 2020, respectively ($24,949,000 and $3,765,000 as at March 31, 2019, respectively).
22. CAPITAL DISCLOSURES
The Group's capital consists of cash, short-term deposits, restricted cash, long-term debt and total shareholders’ equity. The Group's main objectives when managing capital are:
•to provide a strong capital base in order to maintain shareholder, creditor and stakeholder confidence and to sustain future growth development of the business;
•to maintain a flexible capital structure that optimizes the cost of capital at acceptable risk and preserves the ability to meet financial obligations;
•to ensure sufficient liquidity to pursue its organic growth strategy and undertake selective acquisitions; and
•to provide a rewarding return on investment to shareholders.
In managing its capital structure, the Group monitors performance throughout the year to ensure anticipated working capital requirements and maintenance capital expenditures are funded from operations, available cash and, where applicable, bank borrowings. Alithya manages its capital structure and may make adjustments to it, in order to support the broader corporate strategy or in response to changes in economic conditions and risk. In order to maintain or adjust its capital structure, the Group may purchase shares from existing shareholders, issue new shares, issue new debt, issue new debt to replace existing debt (with different characteristics), or reduce the amount of existing debt. Total capital as at March 31, 2020 and 2019 is calculated as follows:
| | | | | | | | | | | | | | |
| As at | | March 31, | | |
| | 2020 | | 2019 |
| | $ | | $ |
| Cash | | (8,810) | | | | (12,801) | |
| Short-term deposits | | — | | | | (1,324) | |
| Restricted cash | | (2,212) | | | | (2,165) | |
| Current portion of long-term debt | | 1,143 | | | | 1,000 | |
| Long-term debt | | 52,086 | | | | 27,305 | |
| Share capital | | 195,335 | | | | 186,861 | |
| Deficit | | (78,780) | | | | (39,113) | |
| Accumulated other comprehensive income | | 6,123 | | | | 1,469 | |
| Contributed surplus | | 4,691 | | | | 2,239 | |
| | 169,576 | | | | 163,471 | |
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Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 70 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
22. CAPITAL DISCLOSURES (CONT’D)
The Group monitors capital using a number of financial metrics, including but not limited to:
•the senior debt to adjusted EBITDA (as defined further herein) ratio, defined as senior debt to 12-month trailing adjusted EBITDA (as defined in the Credit Facility);
•the total debt to adjusted EBITDA ratio, defined as total debt to 12-month trailing adjusted EBITDA; and
•the fixed charge coverage ratio, defined as adjusted EBITDA minus taxes, distributions and capital expenditures to aggregate interest expense and regular scheduled principal repayments.
The Group uses Operating income, Adjusted EBITDA (defined as earnings before interest, income taxes, depreciation, amortization, share-based compensation and non-recurring costs) and Free Cash Flow (defined as operating cash flows less additions to P&E and additions to intangibles other than business combinations) as measurements to monitor operating performance. EBITDA and Free Cash Flow, as presented, are not recognized for financial statement presentation purposes under IFRS, and do not have a standardized meaning. Therefore, they are not likely to be comparable to similar measures presented by other entities.
The continued availability of the Credit Facility is subject to the Group’s ability to maintain certain senior debt, debt service and fixed charge coverage covenants, as well as other affirmative and negative covenants, including certain limitations of distributions in the form of dividends or equity repayments in any given fiscal year, as set out in the credit agreement.
The Group is subject to financial covenants pursuant to the credit facility agreement, which are measured on a quarterly basis. The covenants are senior debt to adjusted EBITDA, total debt to adjusted EBITDA and fixed charge coverage ratios. The Group was in compliance with all such covenants at March 31, 2020 and 2019.
23. SUBSEQUENT EVENTS
COVID-19
COVID-19 has created unprecedented uncertainty in the global economy and to Alithya’s business, most of its customers not being much impacted while others facing significant challenges. Of note, the Group and many of its customers operate in sectors which have been declared to be essential or priority services by the Quebec and Ontario governments.
The Group continues to take measures to protect the health and safety of its employees, work with its customers to minimize potential disruptions and address the challenges and opportunities posed by this global pandemic. The Group and its employees have transitioned to working remotely, relatively seamlessly, allowing Alithya to continue supporting its customers without material disruption.
This outbreak has had impacts on Alithya’s business, with disruptions to its operations, including temporary office closures, reduced activity with certain clients, slower procurement decisions in some cases, and possible changes to customers’ spending and investment priorities.
While the extent and the duration of the impacts of COVID-19 remain uncertain, the Group has to date implemented several measures to protect its financial position and preserve liquidity, and strict cost containment measures including management salary reductions, and reduced work weeks and temporary layoffs for a limited number of employees, some of which have returned to normal as of today.
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Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 71 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables)
23. SUBSEQUENT EVENTS (CONT’D)
Government programs
As a result of the COVID-19 pandemic, on May 5th, 2020, certain US subsidiaries of the Company were accepted under the PPP of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") administered by the U.S. Small Business Administration ("SBA") and entered into unsecured promissory notes (the "Notes") in the aggregate principal amount of US$6,300,000 ($8,900,000). The Notes have a term of five years at an interest rate of 1% per annum, with a deferral of payments for the initial six months of the loan, with respect to any portion of the Notes which is not forgiven as described below.
Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations and ongoing rule making by the SBA, based on the timely use of loan proceeds for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest costs and the maintenance of employee and compensation levels. While there is no assurance the Company will obtain forgiveness of the PPP loan in whole or in part, the Company intends to use the proceeds of the Notes for qualifying expenses.
Certain subsidiaries within the Group have applied for COVID-19 financial relief in Canada under the Canada Emergency Wage Subsidy (“CEWS”) program. The CEWS program is a wage subsidy program launched by the Canadian federal government to qualifying employers to subsidize payroll costs during the COVID-19 pandemic. The qualified subsidy amounts received under the CEWS program are non-repayable. In June 2020, the subsidiaries applied for $1,471,000 of subsidy funding under the CEWS program for the period of March 15, 2020 to May 9, 2020, of which $446,000 was recorded as of March 31, 2020.
Alithya Consulting SAS, a subsidiary located in France, received approximately €170,000 ($260,000) pursuant to the French government’s partial activity program, representing two months of salary assistance. The program is subject to certain annual limits per employee.
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Alithya Group inc. – Consolidated Financial Statements for the years ended March 31, 2020, 2019 and 2018 | | 72 |
