EXHIBIT 2.1
MADE as of the 25th day of February, 2004
AMONG:
CRAY INC.
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▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ LIMITED
-and-
OCTIGABAY SYSTEMS CORPORATION
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ARRANGEMENT AGREEMENT
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Fraser ▇▇▇▇▇▇ Casgrain LLP
Barristers and Solicitors
15th Floor - ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
TABLE OF CONTENTS
1.0 INTERPRETATION ................................................................................. 1
1.1 Definitions ........................................................................... 1
1.2 Interpretation Not Affected by Headings, etc. ......................................... 11
1.3 Currency .............................................................................. 12
1.4 Number, etc. .......................................................................... 12
1.5 Date For Any Action ................................................................... 12
1.6 Entire Agreement ...................................................................... 12
1.7 Accounting Matters .................................................................... 12
1.8 Construction .......................................................................... 12
1.9 Knowledge ............................................................................. 13
1.10 Exhibits .............................................................................. 13
1.11 Qualifications to Intellectual Property Representations ............................... 13
2.0 THE ARRANGEMENT ................................................................................ 14
2.1 Implementation Steps by Target ........................................................ 14
2.2 Implementation Steps by Purchaser Parties ............................................. 14
2.3 Interim Order ......................................................................... 14
2.4 Articles of Arrangement ............................................................... 15
2.5 Target Proxy Circular ................................................................. 16
2.6 Securities Compliance ................................................................. 16
2.7 Preparation of Filings ................................................................ 17
3.0 REPRESENTATIONS AND WARRANTIES ................................................................. 18
3.1 Representations and Warranties of Target .............................................. 18
3.1.1 Incorporation and Organization of Target ................................... 19
3.1.2 Capitalization ............................................................. 19
3.1.3 Authority and No Violation ................................................. 19
3.1.4 No Defaults ................................................................ 21
3.1.5 Issued Shares and Options .................................................. 22
3.1.6 Subsidiaries ............................................................... 22
3.1.7 Financial Statements ....................................................... 23
3.1.8 Interim Statements ......................................................... 23
3.1.9 Liabilities ................................................................ 23
3.1.10 Debt Instruments ........................................................... 24
3.1.11 Accounts Receivable ........................................................ 24
3.1.12 Accuracy of Books and Records .............................................. 24
3.1.13 Guarantees ................................................................. 24
3.1.14 Inventories ................................................................ 24
3.1.15 Business Carried on in Ordinary Course ..................................... 25
3.1.16 Partnerships or Joint Ventures ............................................. 27
3.1.17 Minute Books and Corporate Records ......................................... 27
3.1.18 Interested Persons ......................................................... 27
3.1.19 Directors and Officers ..................................................... 28
3.1.20 Employment and Employee Benefit Matters .................................... 28
3.1.21 Pension and Retirement Plans ............................................... 29
3.1.22 Real Property .............................................................. 30
3.1.23 Leases and Leased Property ................................................. 30
ii
3.1.24 Insurance .................................................................. 30
3.1.25 Material Agreements ........................................................ 31
3.1.26 No Breach of Material Agreements ........................................... 32
3.1.27 Business Plans ............................................................. 32
3.1.28 Obligations to Customers and Suppliers ..................................... 32
3.1.29 Warranties and Indemnities ................................................. 33
3.1.30 Legal Proceedings .......................................................... 33
3.1.31 Banking Information ........................................................ 33
3.1.32 Tax Matters ................................................................ 33
3.1.33 Compliance with Applicable Laws ............................................ 34
3.1.34 Consents and Approvals ..................................................... 34
3.1.35 No Business Restrictions .................................................. 35
3.1.36 Environmental Matters ...................................................... 35
3.1.37 Condition and Sufficiency of Assets ........................................ 35
3.1.38 Intellectual Property ...................................................... 35
3.1.39 Information Technology ..................................................... 40
3.1.40 Commitments for Purchases or Sales at Losses ............................... 41
3.1.41 Significant Customers ...................................................... 41
3.1.42 Significant Suppliers ...................................................... 41
3.1.43 Government Programs ........................................................ 41
3.1.44 GST Registration ........................................................... 41
3.1.45 Personal Information ....................................................... 41
3.1.46 Advisory Fees .............................................................. 41
3.1.47 Other Negotiations; Brokers; Third Party Expenses .......................... 42
3.1.48 Disclosure ................................................................. 42
3.1.49 Approval of Arrangement .................................................... 42
3.2 Representations and Warranties of Purchaser ........................................... 42
3.2.1 Incorporation and Organization ............................................. 42
3.2.2 Capitalization ............................................................. 43
3.2.3 Authority and No Violation ................................................. 43
3.2.4 No Defaults ................................................................ 45
3.2.5 Ownership of Exchangeco and Newco and Business of Exchangeco ............... 45
3.2.6 Absence of Certain Changes or Events ....................................... 45
3.2.7 Disclosure ................................................................. 45
3.2.8 SEC Documents; Purchaser Financial Statements .............................. 45
3.2.9 Exchangeable Shares ........................................................ 46
3.2.10 Purchaser Common Shares .................................................... 46
3.2.11 Other Transactions ......................................................... 48
3.2.12 Not a Foreign Investment Entity ............................................ 48
3.3 Non-Waiver ............................................................................ 48
3.4 Survival .............................................................................. 48
4.0 ESCROW PROVISIONS .............................................................................. 48
4.1 Establishment of the Escrow Fund ...................................................... 48
4.2 Recourse to the Escrow Fund ........................................................... 49
4.3 Escrow Period; Distribution of Escrow Fund upon Termination of Escrow Period .......... 49
4.4 Minimum Threshold ..................................................................... 49
5.0 COVENANTS ...................................................................................... 49
5.1 Retention of Goodwill ................................................................. 49
iii
5.2 Covenants of Target ................................................................... 50
5.3 Covenants of the Purchaser Parties .................................................... 54
5.4 Tax Deferred Status ................................................................... 57
5.5 Applications for Regulatory Approvals ................................................. 57
5.6 Section 85 Elections .................................................................. 57
5.7 Covenants Regarding Non-Solicitation .................................................. 57
5.8 Notice by Target of Superior Proposal Determination ................................... 59
5.9 Access to Information ................................................................. 60
5.10 Covenant Regarding Representations and Warranties ..................................... 61
5.11 Closing Matters ....................................................................... 61
5.12 Indemnification of Directors and Officers ............................................. 61
5.13 Employment and Related Matters ........................................................ 61
5.14 Assignment of Key-Man Insurance ....................................................... 62
5.15 Prohibition on Voluntary Liquidation .................................................. 62
6.0 CONDITIONS ..................................................................................... 62
6.1 Mutual Conditions Precedent ........................................................... 62
6.2 Additional Conditions Precedent to the Obligations of the Purchaser Parties ........... 63
6.3 Additional Conditions Precedent to the Obligations of Target .......................... 64
6.4 Notice and Cure Provisions ............................................................ 65
6.5 Satisfaction of Conditions ............................................................ 66
7.0 AMENDMENT AND TERMINATION ...................................................................... 66
7.1 Amendment ............................................................................. 66
7.2 Mutual Understanding Regarding Amendments ............................................. 66
7.3 Termination ........................................................................... 67
7.4 Break Fee ............................................................................. 68
7.5 Liquidated Damages .................................................................... 69
7.6 Remedies .............................................................................. 69
7.7 Effect of Break Fee Payment ........................................................... 69
8.0 GENERAL ........................................................................................ 70
8.1 Notices ............................................................................... 70
8.2 Assignment ............................................................................ 71
8.3 Binding Effect ........................................................................ 71
8.4 Waiver and Modification ............................................................... 71
8.5 No Personal Liability ................................................................. 71
8.6 Further Assurances .................................................................... 72
8.7 Expenses .............................................................................. 72
8.8 Consultation .......................................................................... 72
8.9 Governing Laws ........................................................................ 72
8.10 Severability .......................................................................... 72
8.11 Counterparts .......................................................................... 1
Exhibit A - Form of Affiliate's Letter
Exhibit B - Appropriate Regulatory Approvals
Exhibit C - Arrangement Resolution
Exhibit D - Exchange Trust Agreement
iv
Exhibit E - Plan of Arrangement under section 192 of the Canada Business
Corporations Act
Appendix 1 - Provisions attaching to the Exchangeable Shares
of 3084317 Nova Scotia Limited
Appendix 2 - Escrow Agreement
Exhibit F - Principal Shareholder Voting Agreement
Exhibit G - Support Agreement
Exhibit H - Registration Rights Agreement
Exhibit I - Assumption Agreement
Exhibit J - Retention Agreements
v
ARRANGEMENT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 25th day of February,
2004.
AMONG:
CRAY INC., a corporation existing under the laws of the State
of Washington
(hereinafter referred to as "PURCHASER")
AND:
3084317 NOVA SCOTIA LIMITED, a company existing under the laws
of the Province of Nova Scotia
(hereinafter referred to as "EXCHANGECO")
AND:
OCTIGABAY SYSTEMS CORPORATION, a corporation existing under
the federal laws of Canada
(hereinafter referred to as "TARGET")
THIS AGREEMENT WITNESSETH THAT in consideration of the
respective covenants and agreements herein contained and for other good and
valuable consideration (the receipt and sufficiency of which is hereby
acknowledged by each party), the parties hereby covenant and agree as follows:
1.0 INTERPRETATION
1.1 Definitions
In this Agreement, unless there is something in the subject
matter or context inconsistent therewith, the following terms shall have the
following meanings respectively:
"ACQUISITION PROPOSAL" means any bona fide proposal with
respect to a merger, amalgamation, take-over bid, private
purchase, sale of material assets (or any lease, long-term
supply agreement, licence, joint venture or other arrangement
having the same economic effect as a sale), any material sale
of shares or rights or interests therein or thereto or similar
transactions involving Target, or a proposal to do so,
excluding the Arrangement;
"AFFILIATE'S LETTER" means a letter, substantially in the form
and content of Exhibit A hereto;
"ANCILLARY AGREEMENTS" means the Support Agreement, the
Exchange Trust Agreement, the Registration Rights Agreement
and the Escrow Agreement, collectively;
1
"APPROPRIATE REGULATORY APPROVALS" means those sanctions,
rulings, consents, orders, exemptions, permits and other
approvals (including the lapse, without objection, of a
prescribed time under a statute or regulation that states that
a transaction may be implemented if a prescribed time lapses
following the giving of notice without an objection being
made) of Governmental Entities, regulatory agencies or
self-regulatory organizations, as set out in Exhibit B hereto;
"ARRANGEMENT" means an arrangement under Section 192 of the
CBCA on the terms and subject to the conditions set out in the
Plan of Arrangement, subject to any amendments or variations
thereto made in accordance with Section 7.1 hereof or Article
6 of the Plan of Arrangement or made at the direction of the
Court in the Final Order;
"ARRANGEMENT RESOLUTION" means the special resolution of the
Target Securityholders, to be substantially in the form and
content of Exhibit C hereto;
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of
Target in respect of the Arrangement that are required by the
CBCA to be sent to the Director after the Final Order is made;
"ASSUMPTION AGREEMENT" means the Stock Option Assumption,
Amending and Confirmation Agreement to be made between
Purchaser and Target, substantially in the form and content of
Exhibit I hereto, with such changes thereto as the parties
hereto, acting reasonably, may approve;
"BUSINESS" means the business of Target as it is currently
conducted, including the design, development, use, import and
sale of the Products, the licensing of technology underlying
the Products to develop and enhance other markets for the
Product technology, and the performance of services related to
these activities;
"BUSINESS DAY" means any day on which commercial banks are
open for business in ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ other than a Saturday, a Sunday or a day
observed as a holiday in Seattle, Washington under the laws of
the State of Washington or the federal laws of the United
States of America or in Vancouver, British Columbia under the
laws of the Province of British Columbia or the federal laws
of Canada;
"CBCA" means the Canada Business Corporations Act, R.S.C.
1985, c. C-44, as it may be amended from time to time prior to
the Effective Date;
"CIRCULAR" means the notice of the Target Meetings and
accompanying management proxy circular, including all
schedules, appendices and exhibits thereto, to be sent to the
Target Securityholders in connection with the Target Meetings;
"COMMON EXCHANGE RATIO" has the meaning ascribed thereto in
the Plan of Arrangement;
"CONFIDENTIALITY AGREEMENT" means the non-disclosure agreement
dated as of January 12, 2004 between Purchaser and Target;
"COURT" means the Supreme Court of British Columbia;
2
"DEBT INSTRUMENT" means any bond, debenture, mortgage,
promissory note or other instrument evidencing indebtedness
for borrowed money;
"DIRECTOR" means the Director appointed pursuant to Section
260 of the CBCA;
"DISSENT RIGHTS" means the rights of dissent in respect of the
Arrangement described in Section 3.1 of the Plan of
Arrangement;
"DROP DEAD DATE" means May 31, 2004 or such later date as may
he agreed upon by the parties hereto;
"EFFECTIVE DATE" means the date shown on the certificate of
arrangement to be issued by the Director giving effect to the
Arrangement;
"EFFECTIVE TIME" has the meaning ascribed thereto in the Plan
of Arrangement;
"EMBEDDED SPACES AGREEMENT" means the amending agreement dated
as of the date hereof between Target and Embedded Spaces Inc.,
a copy of which has been provided to the Purchaser;
"EMPLOYEE BENEFITS" means:
(a) salaries, wages, bonuses, vacation entitlements,
commissions, fees, stock option plans, stock purchase
plans, incentive plans, deferred compensation plans,
profit-sharing plans and other similar benefits,
plans or arrangements;
(b) insurance, health, welfare, drug, disability,
pension, retirement, travel, hospitalization,
medical, dental, legal counseling, eye care and other
similar benefits, plans or arrangements; and
(c) agreements or arrangements with any labour union or
employee association, written or oral employment
agreements or arrangements and agreements or
arrangements for the retention of the services of
independent contractors, consultants or advisors;
"ENCUMBRANCE" means any mortgage, charge, easement,
encroachment, lien, adverse claim, assignment by way of
security, security interest, servitude, pledge, hypothecation,
conditional sale agreement, security agreement, title
retention agreement, financing statement, option, right of
pre-emption, privilege, obligation to assign, licence,
sublicence (other than non-exclusive licences and sublicences
of Intellectual Property made in the ordinary course of
business) or other encumbrance;
"ESCROW AGENT" means Computershare Trust Company of Canada, or
such other Person as the parties hereto may approve, in its
capacity as escrow agent under the Escrow Agreement, and
includes any successor escrow agent appointed thereunder;
"ESCROW AGREEMENT" means an agreement to be made among
Purchaser, Exchangeco, the Escrow Shareholders' Agent and the
Escrow Agent, which shall be substantially in the form and
content of Appendix 2 to the Plan of Arrangement, with such
changes thereto as the parties hereto, acting reasonably, may
approve;
3
"ESCROW FUND" has the meaning ascribed thereto in Section 4.1;
"ESCROW SECURITIES" has the meaning ascribed thereto in the
Plan of Arrangement;
"ESCROW SHAREHOLDERS' AGENT" means ▇▇▇ ▇▇▇▇▇▇▇, or such other
Person as the parties hereto may approve, in his capacity as
shareholders' agent under the Escrow Agreement and includes
any successor shareholders' agent appointed under the Escrow
Agreement;
"EXCHANGE ACT" means the United States Securities Exchange Act
of 1934, as amended;
"EXCHANGE TRUST AGREEMENT" means an agreement to be made among
Purchaser, Exchangeco and the Trustee, which shall be
substantially in the form and content of Exhibit D hereto,
with such changes thereto as the parties hereto, acting
reasonably, may approve.
"EXCHANGEABLE SHARES" means non-voting exchangeable shares in
the capital of Exchangeco, having the rights, privileges,
restrictions and conditions set out in the Share Provisions;
"EXPIRATION DATE" means February 28, 2005;
"FIE RULES" has the meaning ascribed thereto in Section
3.2.12;
"FINAL ORDER" means the final order of the Court granted
pursuant to Section 192 of the CBCA approving the Arrangement
as such order may be amended at any time prior to the
Effective Date or, if appealed, then, unless such appeal is
abandoned or denied, as affirmed;
"FINANCIAL STATEMENTS" means the audited annual financial
statements of Target as at June 30, 2003, consisting of the
balance sheet of Target as at June 30, 2003 and the
accompanying statement of operations and deficit and statement
of cash flows for the 12-month period ended June 30, 2003,
including the notes thereto and the auditor's report thereon,
all of which are expressed in Canadian currency;
"FINANCIAL YEAR END" means June 30, 2003;
"FORM S-3" has the meaning ascribed thereto in the
Registration Rights Agreement;
"GOVERNMENTAL ENTITY" means any:
(a) multinational, federal, provincial, state, regional,
municipal, local or other government, governmental or
public department, central bank or Tribunal;
(b) subdivision, agent, commission, board, or authority
of any of the foregoing; or
(c) quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under
or for the account of any of the foregoing;
"GUARANTEE" means any agreement, contract or commitment
providing for the guarantee, indemnification, assumption or
endorsement or any like commitment with respect to the
obligations, liabilities (contingent or otherwise) or
indebtedness of any Person;
4
"INFORMATION" has the meaning ascribed thereto in Section
5.9(b);
"INTELLECTUAL PROPERTY" means any or all of the following and
all rights in, arising out of, or associated with:
(a) all Registered Intellectual Property;
(b) all trade secrets including, without limitation,
trade secrets that are inventions (whether patentable
or not) and invention disclosures and all proprietary
and confidential information including, without
limitation, know-how, technical data, techniques,
manuals, documentation, reports, records, formulae,
processes, descriptions, schematics, specifications,
designs, industrial models, design criteria,
architectures, schematics for hardware products,
system architecture drawings, product test scripts,
methodologies, algorithms, sketches, photographs,
plans, drawings, samples, reports, studies, findings,
inventions, prototypes and ideas, whether patentable
or not, whether trade secrets or not and whether in
written, graphic or oral form;
(c) all business data and information including, without
limitation, customer lists, business models, logos,
product documentation and web-site materials and
marketing collaterals;
(d) all rights in the nature of copyright howsoever
arising, worldwide (whether domestic or foreign) that
subsist in and to any original works (including,
without limitation, Software) and which have not been
registered under the applicable copyright
legislation;
(e) all trade names, brand names, logos, unregistered
trade-marks;
(f) all data, databases and data collections in whatever
form or media; and
(g) all physical manifestations of any of the foregoing
together with all documentation applicable thereto;
"INTELLECTUAL PROPERTY RIGHTS" means any and all proprietary,
possessory, use and ownership rights, titles and interest
(whether domestic or foreign) in and to all intellectual
property including issued and unissued patents, patent
applications, registered and unregistered copyrights,
registered and unregistered industrial designs, registered and
unregistered trade-marks or service marks, confidential
information, trade-secrets, mask works, semi-conductor chip
designs and integrated circuit topography and all other
intellectual and industrial property rights whatsoever and
worldwide (whether registered or unregistered);
"INTERESTED PERSON" means any present or former officer,
director, shareholder, employee, consultant or advisor,
excluding attorneys, accountants and other third party
professional advisors of Target in connection with this
Agreement and the transactions contemplated herein, of or to
Target or any Person with which Target or any of the foregoing
does not deal at arm's length within the meaning of the Income
Tax Act (Canada) (including a spouse, parent, child or sibling
of any such Person);
5
"INTERIM FINANCIAL STATEMENTS" means the unaudited financial
statements of Target and TargetSub, on a consolidated basis,
as at December 31, 2003, consisting of the consolidated
balance sheet of Target and TargetSub as at December 31, 2003
and the accompanying statement of operations and deficit and
statement of cash flows for the period from the Financial Year
End to and including December 31,2003, all of which are
expressed in Canadian currency;
"INTERIM ORDER" means the interim order of the Court, as the
same may be amended, granted pursuant to Section 192 of the
CBCA in respect of the Arrangement, as contemplated by Section
2.3;
"KEY EMPLOYEES" means those Persons designated as "Key
Employees" in Section 3.1.20 of the Target Disclosure
Schedule;
"LAWS" means all statutes, regulations, statutory rules,
principles of law, orders, published policies and guidelines,
and terms and conditions of any grant of approval, permission,
authority or licence of any court, Governmental Entity,
statutory body or self-regulatory authority, and the term
"applicable" with respect to such Laws and in the context that
refers to one or more Persons means that such Laws apply to
such Person or Persons or its or their business, undertaking,
property or securities and emanate from a Person having
jurisdiction over the Person or Persons or its or their
business, undertaking, property or securities;
"LEASED PROPERTY" means all the right, title and interest of
Target in and to the subject matter (whether realty or
personalty) of the Leases;
"LEASES" means the real or personal property leases or
subleases, or other rights of occupancy relating to real
property, which Target is a party to or bound by or subject
to, including those set forth and described in Section 3.1.23
of the Target Disclosure Schedule;
"LETTER OF TRANSMITTAL AND ELECTION FORM" means the letter of
transmittal and election form for use by holders of Target
Shares, in the form which will accompany the Circular;
"LICENCES" has the meaning ascribed thereto in Section 3.1.33;
"MATERIAL ADVERSE CHANGE", when used in connection with
Purchaser or Target, means any change, effect, event or
occurrence with respect to its condition (financial or
otherwise), properties, assets, ownership, capital,
liabilities, obligations (whether absolute, accrued,
conditional or otherwise), businesses, operations or results
of operations or those of its subsidiaries, if any, that is,
or would reasonably be expected to be, material and adverse to
the business, properties, assets, operations, condition
(financial or otherwise) or prospects of such party and its
subsidiaries taken as a whole, other than any change, effect,
event or occurrence:
(a) relating to the Canadian or United States' economy or
securities markets in general; or
(b) generally affecting the industry in which such party
operates;
6
"MATERIAL ADVERSE EFFECT", when used in connection with
Purchaser or Target, means any matter or action that has an
effect that is, or would reasonably be expected to be,
material and adverse to the business, properties, assets,
operations, condition (financial or otherwise) or prospects of
such party and its subsidiaries taken as a whole, and
"MATERIALLY ADVERSELY AFFECTED" shall have a corresponding
meaning;
"MATERIAL AGREEMENTS" means the agreements, indentures,
contracts, leases, licences, options, instruments and other
commitments set forth in Section 3.1.25 of the Target
Disclosure Schedule;
"MEETING OF CLASS A SHAREHOLDERS" means the special meeting of
the holders of Target Class A Preferred Shares (including any
adjournment thereof) that is to be convened as provided by the
Interim Order to consider and, if deemed advisable, approve
the Arrangement;
"MEETING OF COMMON SHAREHOLDERS AND OPTIONHOLDERS" means the
special meeting of the holders of Target Common Shares and the
holders of Target Options (including any adjournment thereof)
that is to be convened as provided by the Interim Order to
consider and, if deemed advisable, approve the Arrangement;
"NEWCO" means 3084316 Nova Scotia Limited, a company existing
under the laws of the Province of Nova Scotia, and being a
wholly-owned indirect subsidiary of Purchaser;
"NON-COMPETITION AGREEMENTS" means the non-competition
agreements dated as of the date hereof between Target and each
of ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and Magellan Angel
Partners, copies of which have been provided to the Purchaser;
"NNM" means the distinct tier of The Nasdaq Stock Market
referred to as the Nasdaq National Market;
"PERSON" includes any individual, firm, partnership, joint
venture, venture capital fund, association, trust, trustee,
executor, administrator, legal personal representative,
estate, group, body corporate, corporation, company,
unincorporated association or organization, Governmental
Entity, syndicate or other entity, whether or not having legal
status;
"PERSONAL INFORMATION" means any information in the possession
of Target about an individual other than the name, title,
business address or telephone number of any employee;
"PLAN OF ARRANGEMENT" means the plan of arrangement
substantially in the form and content of Exhibit E hereto and
any amendments or variations thereto made in accordance with
Section 7.1 hereof or Article 6 of the Plan of Arrangement or
made at the direction of the Court in the Final Order;
"PRE-EFFECTIVE DATE PERIOD" means the period from and
including the date hereof to and including the earlier of the
Effective Time and the date of termination of this Agreement
pursuant to Section 7.0;
"PREFERRED EXCHANGE RATIO" has the meaning ascribed thereto in
the Plan of Arrangement;
7
"PRINCIPAL SHAREHOLDERS" means, collectively, Celtic House
Venture Partners Fund IIA LP, Ventures West 7 Limited
Partnership, Ventures West 7 U.S. Limited Partnership, Working
Opportunity Fund (EVCC) Ltd., Business Development Bank of
Canada and Magellan Angel Partners;
"PRINCIPAL SHAREHOLDER VOTING AGREEMENTS" means the agreements
between Purchaser and each of the Principal Shareholders, each
dated as of the date hereof, substantially in the form and
content of Appendix F hereto, with such changes thereto as the
parties hereto have approved;
"PRODUCTS" means all products that are owned, created,
designed, developed, manufactured, marketed, licensed or sold
(whether in existence or in development) by or on behalf of
Target, including hardware, software, firmware, interfaces and
every type of device all of which are set forth in Section
3.1.38 of the Target Disclosure Schedule;
"PURCHASER COMMON SHARES" means the shares of common stock,
having a par value of $0.01 each, in the capital of Purchaser;
"PURCHASER DISCLOSURE SCHEDULE" means that certain Disclosure
Schedule dated as of the date hereof and delivered by
Purchaser to Target concurrently herewith;
"PURCHASER PARTIES" means Purchaser and Exchangeco,
collectively;
"REGISTERED INTELLECTUAL PROPERTY" means all Canadian, United
States and other foreign: (i) patents, patent applications
(including provisional applications) all reissues, divisions,
renewals, extensions, continuations and continuations in part
thereof; (ii) registered trade-marks and servicemarks,
applications to register trade-marks and servicemarks,
intent-to-use applications, other registrations or
applications to trade-marks or servicemarks; (iii) registered
copyrights and applications for copyright registration; (iv)
mask work registrations and applications to register mask
works; (v) registered industrial designs and all applications
therefor; and (vi) domain names;
"REGISTRATION RIGHTS AGREEMENT" has the meaning ascribed
thereto in Section 2.6(d);
"REGISTRATION RIGHTS SHAREHOLDERS' AGENT" means ▇▇▇▇
▇▇▇▇▇▇▇▇▇, or such other Person as the parties hereto may
approve, in his capacity as shareholders' agent under the
Registration Rights Agreement and includes any successor
shareholders' agent appointed under the Registration Rights
Agreement;
"REPLACEMENT OPTION" has the meaning ascribed thereto in
Section 2.4(c);
"REPRESENTATIVES" has the meaning ascribed thereto in Section
5.9(a);
"SEC" means the United States Securities and Exchange
Commission;
"SEC DOCUMENTS" means, with respect to any Person, each
report, schedule, form, statement or other document filed with
the SEC by such Person pursuant to Section 13(a) or 15(d) of
the Exchange Act and all final and effective registration
statements and prospectuses filed by such Person with the SEC
pursuant to the Securities Act;
"SECURITIES ACT" means the United States Securities Act
of 1933, as amended;
8
"SHAREHOLDERS' AGREEMENT" means the shareholders' agreement
among Target and its shareholders made as of the 16th day of
December, 2002, as amended effective May 22, 2003;
"SHARE PROVISIONS" means the rights, privileges, restrictions
and conditions to be attached to the Exchangeable Shares,
which shall be substantially in the form and content of
Appendix 1 to the Plan of Arrangement, with such changes
thereto as the parties hereto, acting reasonably, may approve;
"SOFTWARE" means all computer software including, without
limitation, application software, systems software, software
design tools, interfaces, object libraries, and microcode in
object code or source code forms and firmware, embedded in or
used to develop products, and any related documentation
including, without limitation, technical documentation, system
designs and specifications, flow charts, record and file
layouts, memoranda, correspondence and other such
documentation containing or relating to the design, structure
or coding or testing of, or algorithms or routines used in, or
errors discovered in or corrected in such software, user
guides and manuals related thereto and any other
documentations or material (in whatever form, whether human or
machine readable, and in whatever media) relating to such
software;
"SOURCE MATERIALS" has the meaning ascribed thereto in Section
3.1.25(l);
"SUBSIDIARY" means, with respect to a specified body
corporate, any body corporate of which more than 50% of the
outstanding shares ordinarily entitled to elect a majority of
the board of directors thereof (whether or not shares of any
other class or classes shall or might be entitled to vote upon
the happening of any event or contingency) are at the time
owned directly or indirectly by such specified body corporate
and shall include any body corporate, partnership, joint
venture or other entity over which it exercises direction or
control or which is in a like relation to a subsidiary;
"SUPERIOR PROPOSAL" means any bona fide proposal by a third
party directly or indirectly, to acquire all or substantially
all of Target's total assets or Target Shares carrying with
them more than 50% of the votes attached to all outstanding
Target Shares, whether by way of merger, amalgamation,
arrangement, take-over bid, sale of assets or otherwise, and
that in the good faith determination of the board of directors
of Target, after consultation with financial advisors and
outside legal counsel:
(a) is reasonably capable of being completed, taking into
account all legal, financial, regulatory and other
aspects of such proposal and the Person making such
proposal; and
(b) would, if consummated in accordance with its terms,
result in a transaction (i) more favourable to the
Target Securityholders than the transaction
contemplated by this Agreement and (ii) having a
value per Target Share greater than the per share
value attributable thereto under the transaction
contemplated by this Agreement;
"SUPPORT AGREEMENT" means an agreement to be made among
Purchaser, Newco and Exchangeco, which shall be substantially
in the form and content of Exhibit G hereto, with such changes
thereto as the parties hereto, acting reasonably, may approve;
9
"TARGET CLASS A PREFERRED SHARES" means the Class A Preferred
shares in the capital of Target;
"TARGET CLASS B PREFERRED SHARES" means the Class B Preferred
shares in the capital of Target;
"TARGET COMMON SHARES" means the Common shares in the capital
of Target;
"TARGET DISCLOSURE SCHEDULE" means that certain Disclosure
Schedule dated as of the date hereof and delivered by Target
to the Purchaser Parties concurrently herewith;
"TARGET INTELLECTUAL PROPERTY" has the meaning ascribed
thereto in Section 3.1.38(a);
"TARGET MEETINGS" means the Meeting of Class A Shareholders
and the Meeting of Common Shareholders and Optionholders;
"TARGET OPTIONHOLDERS" means the holders of Target Options;
"TARGET OPTIONS" means the options to purchase Target Common
Shares granted under the Target Stock Option Plan which are
outstanding and unexercised on the Effective Date;
"TARGET REGISTERED INTELLECTUAL PROPERTY" means all Registered
Intellectual Property owned by, or filed in the name of,
Target;
"TARGET SECURITYHOLDERS" means, collectively, the Target
Optionholders and Target Shareholders;
"TARGET SHAREHOLDERS" means the holders of Target Shares;
"TARGET SHARES" means the Target Common Shares, Target Class A
Preferred Shares and Target Class B Preferred Shares,
collectively;
"TARGET STOCK OPTION PLAN" means the key employee stock option
plan of Target, as amended and in effect on the date hereof;
"TARGET WARRANTS" means warrants to purchase Target Common
Shares;
"TARGETSUB" means OctigaBay Systems Corporation U.S. Inc., a
corporation existing under the laws of the State of Nevada and
being a wholly owned subsidiary of Target;
"TAX" and "TAXES" means, with respect to any entity, all
income taxes (including any tax on or based upon net income,
gross income, income as specially defined, earnings, profits
or selected items of income, earnings or profits) and all
capital taxes, gross receipts taxes, environmental taxes,
sales taxes, use taxes, ad valorem taxes, value added taxes,
transfer taxes, franchise taxes, licence taxes, withholding
taxes, payroll taxes, employment taxes, Canada or Quebec
Pension Plan premiums, excise, severance, social security
premiums, workers' compensation premiums, employment insurance
or compensation premiums, stamp taxes, occupation taxes,
premium taxes, property taxes, windfall profits taxes,
alternative or add-on minimum taxes, goods and services tax,
customs duties or other
10
taxes, fees, imports, assessments or charges of any kind
whatsoever, together with any interest and any penalties or
additional amounts imposed by any taxing authority (domestic
or foreign) on such entity, and any interest, penalties,
additional taxes and additions to tax imposed with respect to
the foregoing;
"TAX RETURNS" means all returns, declarations, reports,
information returns and statements required to be filed with
any taxing authority relating to Taxes;
"THIRD PARTY EXPENSES" means all legal, accounting, financial
advisory, investment banking, consulting and all other fees
and expenses of third parties incurred by a party in
connection with the negotiation and effectuation of the terms
and conditions of this Agreement and the transactions
contemplated hereby;
"THIRD PARTY SOFTWARE" means any software (including
"SOFTWARE") that is not owned by Target but is licenced to
Target by another Person;
"TRIBUNAL" means:
(a) any court (including a court of equity);
(b) any federal, provincial, state, county, municipal or
other government or governmental department,
ministry, commission, board, bureau, agency or
instrumentality;
(c) any securities commission, stock exchange or other
regulatory or self-regulatory body;
(d) any board of trade, chamber of commerce or other
business or professional organization or association;
(e) any arbitrator or arbitration tribunal; and
(f) any other tribunal;
"TRUSTEE" means Computershare Trust Company of Canada, or such
other Person as the parties hereto may approve, in its
capacity as trustee under the Exchange Trust Agreement, and
includes any successor trustee appointed thereunder; and
"UNITED STATES DOLLAR EQUIVALENT" means, in respect of an
amount expressed in a currency other than United States
dollars (the "FOREIGN CURRENCY AMOUNT") at any date, the
product obtained by multiplying (a) the Foreign Currency
Amount by (b) the 10:00a.m. spot rate on that date for that
foreign currency expressed in United States dollars as
reported by the Federal Reserve Bank of New York or, in the
event that spot exchange rate is not available, any publicly
disclosed and widely quoted exchange rate as quoted by an
arm's length third party on that date for the foreign currency
expressed in United States dollars as may be deemed by the
board of directors of Purchaser, acting reasonably, to be
appropriate for that purpose.
1.2 Interpretation Not Affected by Headings, etc.
The division of this Agreement into sections and other
portions and the insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation
11
hereof. Unless otherwise indicated, all references in this Agreement to a
"Section" followed by a number and/or a letter refer to the specified section of
this Agreement, and all references in this Agreement to an Exhibit followed by a
letter refer to the specified Exhibit to this Agreement. Unless otherwise
indicated, the terms "this Agreement", "hereof", "herein", "hereunder" and
"hereby" and similar expressions refer to this Agreement (including the Exhibits
hereto), as amended or supplemented from time to time pursuant to the applicable
provisions hereof, and not to any particular section or other portion hereof.
1.3 Currency
Unless otherwise indicated, all sums of money referred to in
this Agreement are expressed in lawful money of the United States of America.
1.4 Number, etc.
Unless the context otherwise requires, words importing the
singular shall include the plural and vice versa and words importing any gender
shall include all genders.
1.5 Date For Any Action
In the event that any date on which any action is required to
be taken hereunder by any of the parties hereto is not a Business Day, such
action shall be required to he taken on the next succeeding day which is a
Business Day.
1.6 Entire Agreement
This Agreement and the agreements and other documents referred
to herein constitute the entire agreement between the parties with respect to
the Arrangement and other transactions contemplated hereby and supersede all
other prior agreements, understandings, negotiations and discussions, whether
oral or written, between the parties with respect thereto, other than the
Confidentiality Agreement.
1.7 Accounting Matters
Unless otherwise indicated, all accounting terms used in this
Agreement in respect of Target or TargetSub shall have the meanings attributable
thereto under Canadian generally accepted accounting principles and all
determinations of an accounting nature in respect of Target required to be made
shall be made in a manner consistent with Canadian generally accepted accounting
principles and past practice. Unless otherwise indicated, all accounting terms
used in this Agreement in respect of Purchaser shall have the meanings
attributable thereto under United States generally accepted accounting
principles and all determinations of an accounting nature in respect of
Purchaser required to be made shall be made in a manner consistent with United
States generally accepted accounting principles and past practice.
1.8 Construction
In this Agreement, unless otherwise indicated:
(a) the words "include", "including" or "in particular", when
following any general term or statement, shall not be
construed as limiting the general term or statement to the
specific items or matters set forth or to similar items or
matters, but rather as permitting the general term or
statement to refer to all other items or matters that could
reasonably fall within the broadest possible scope of the
general term or statement;
(b) a reference to a statute means that statute, as amended and in
effect as of the date of this Agreement, and includes each and
every regulation and rule made thereunder and in effect as of
the date hereof;
12
(c) a reference to an "approval", "authorization", "consent",
"designation", "notice" or "agreement" means an approval,
authorization, consent, designation, notice or agreement, as
the case may be, in writing, signed by an authorized
representative of the party or parties thereto;
(d) the phrase "ordinary course of business", or any variation
thereof, of any Person refers to the business of such Person,
carried on in the regular and ordinary course including
commercially reasonable and businesslike actions that are in
the regular and ordinary course of business for a company
operating in the industry in which such business is conducted
notwithstanding that similar actions may not have been
undertaken before by such Person and may be on a scale or in a
quantum significantly greater or different than the scale or
quantum of similar actions undertaken by such Person
previously;
(e) where a word, term or phrase is defined, its derivatives or
other grammatical forms have a corresponding meaning;
(f) time is of the essence; and
(g) references to a "party" or "parties" are references to a party
or parties to this Agreement.
1.9 Knowledge
In this Agreement, the phrase "to the knowledge of' any
Person, "to the best knowledge of" any Person, "known to" any Person, "of which
it is aware" or any similar phrase means, unless otherwise indicated, (i) with
respect to any Person who is an individual, the actual knowledge of such Person
without enquiry, (ii) with respect to Target, the actual knowledge of ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ without enquiry, and (iii)
with respect to Purchaser and Exchangeco, the actual knowledge of the Chief
Executive Officer and President, the Vice-president, Finance and Chief Financial
Officer or the Vice President, Legal and General Counsel without enquiry.
1.10 Exhibits
The following Exhibits are annexed to this Agreement and are
hereby incorporated by reference into this Agreement and form an integral part
hereof:
Exhibit A -- Affiliate's Letter
Exhibit B -- Appropriate Regulatory Approvals
Exhibit C -- Arrangement Resolution
Exhibit D -- Exchange Trust Agreement
Exhibit E -- Plan of Arrangement
Exhibit F -- Principal Shareholder Voting Agreement
Exhibit G -- Support Agreement
Exhibit H -- Registration Rights Agreement
Exhibit I -- Assumption Agreement
Exhibit I -- Retention Agreements
1.11 Qualifications to Intellectual Property Representations
None of the representations of Target contained in Sections
3.1.38 and 3.1.39 shall be untrue solely by reason that the Target Intellectual
Property infringes the Intellectual Property Rights of another Person unless
such infringement also constitutes a breach or violation of the representation
contained in Section 3.1.38(p).
13
2.0 THE ARRANGEMENT
2.1 Implementation Steps by Target
Target covenants in favour of the Purchaser Parties that
Target shall:
(a) as soon as reasonably practicable, apply in a manner
acceptable to the Purchaser Parties, acting reasonably, under
Section 192 of the CBCA for an order approving the Arrangement
and for the Interim Order, and thereafter proceed with and
diligently pursue the obtaining of the Interim Order;
(b) subject to Section 2.5, convene and hold the Target Meetings
as promptly as practicable, hut in any event not later than
April 30, 2004, for the purpose of considering and, if deemed
advisable, approving the Arrangement and the transactions
contemplated thereby by way of the Arrangement Resolution (and
for any other proper purpose AS may be set out in the notice
for such meetings);
(c) subject to obtaining the approval(s) as are required by the
Interim Order, proceed with and diligently pursue the
application to the Court for the Final Order; and
(d) subject to obtaining the Final Order and the satisfaction or
waiver of the other conditions herein contained in favour of
each party send to the Director, for endorsement and filing by
the Director, the Articles of Arrangement and such other
documents as may be required in connection therewith under the
CBCA to give effect to the Arrangement.
2.2 Implementation Steps by Purchaser Parties
The Purchaser Parties covenant in favour of Target that, on or
prior to the Effective Date and subject to the satisfaction or waiver of the
other conditions herein contained in favour of each such party:
(a) Purchaser, Newco and Exchangeco shall execute and deliver the
Support Agreement;
(b) Purchaser and Exchangeco shall execute and deliver the
Exchange Trust Agreement and Escrow Agreement; and
(c) Purchaser shall execute and deliver the Registration Rights
Agreement.
2.3 Interim Order
The notice of motion for the application referred to in
Section 2.1(a) shall include a request that the Interim Order provide:
(a) for the class of Persons to whom notice is to be provided in
respect of the Arrangement and the Target Meetings and for the
manner in which such notice is to be provided;
(b) that the requisite approval for the Arrangement Resolution
shall be (i)(A) two-thirds of the votes cast on the
Arrangement Resolution by the holders of Target Common Shares
and the holders of Target Options present in person or by
proxy at the Meeting of Common Shareholders and Optionholders,
voting as a single class, such that each holder of Target
Common Shares is entitled to one vote for each Target Common
Share held and each holder of Target Options is entitled to
one vote for each Target Common Share such holder would have
received on a valid exercise of such Target Options; or (B) a
written consent resolution executed by each and every holder
of Target Common Shares and each and every holder of Target
Options; and (ii)(A) two-thirds of the votes cast on the
14
Arrangement Resolution by the holders of Target Class A
Preferred Shares present in person or by proxy at the Meeting
of Preferred Shareholders, voting as a separate class; or (B)
a written consent resolution executed by each and every holder
of Target Class A Preferred Shares;
(c) that, in all other respects, the terms, restrictions and
conditions of the by-laws and articles of Target, including
quorum requirements and all other matters, shall apply in
respect of the Target Meetings; and
(d) for the grant of the Dissent Rights.
2.4 Articles of Arrangement
The Articles of Arrangement shall, with such other matters as
are necessary to effect the Arrangement, and all as subject to the provisions of
the Plan of Arrangement, provide substantially as follows:
(a) each outstanding Target Share that is not held by a holder who
has exercised its Dissent Rights and is ultimately entitled to
be paid the fair value of its Target Shares, will be
transferred by the holder thereof to Exchangeco in exchange
for, at the holder's election, that number of fully paid and
non-assessable Exchangeable Shares, or Purchaser Common Shares
to be issued from Purchaser's authorized capital, as the case
may be, equal to the Common Exchange Ratio, in the case of a
Target Common Share, or the Preferred Exchange Ratio, in the
case of a Target Class A Preferred Share, together with $0.41,
in cash, in the case of a Target Class A Preferred Share and
the name of each such holder of Target Shares will be removed
from the register of holders of Target Shares and added to the
register of holders of Exchangeable Shares or Purchaser Common
Shares, as the case may be, and Exchangeco will be recorded as
the registered holder of such Target Shares so exchanged and
will be deemed to be the legal and beneficial owner thereof;
(b) each outstanding Target Share in respect of which an election
under Section 2.4(a) has not been made by the holder thereof,
or in respect of which an effective election under Section
2.4(a) has not been made, other than Target Shares held by a
holder who has exercised its Dissent Rights and is ultimately
entitled to be paid the fair value of its Target Shares, will
be transferred by the holder thereof, without any act or
formality on its part, to Exchangeco (or an affiliate thereof)
in exchange for that number of fully paid and non-assessable
Exchangeable Shares equal to the Common Exchange Ratio, in the
case of a Target Common Share, or the Preferred Exchange
Ratio, in the case of a Target Class A Preferred Share,
together with $0.41, in cash, in the case of a Target Class A
Preferred Share and the name of each such holder of Target
Shares will be removed from the register of holders of Target
Shares and added to the register of holders of Exchangeable
Shares and Exchangeco (or its affiliate) will be recorded as
the registered holder of such Target Shares so exchanged and
will be deemed to be the legal and beneficial owner of such
Target Shares; and
(c) each Target Option will be exchanged for an option (a
"REPLACEMENT OPTION") to purchase a number (rounded down to
the nearest whole number) of Purchaser Common Shares equal to
the product obtained when the number of Target Common Shares
subject to such Target Option is multiplied by the Common
Exchange Ratio, at an exercise price (rounded up to the
nearest whole cent) per Purchaser Common Share equal to the
quotient obtained when the United States Dollar Equivalent
(immediately prior to the Effective Time) of the exercise
price of such Target Option is divided by the Common
15
Exchange Ratio. Except as otherwise set forth in the
Assumption Agreement, all of the other terms of the
Replacement Options shall be the same as the terms of the
Target Options for which they are exchanged, and any document
or agreement previously evidencing a Target Option shall be
deemed to be an agreement between Purchaser and the holder
thereof evidencing such Replacement Option.
2.5 Target Proxy Circular
As promptly as practicable after the execution and delivery of
this Agreement, Purchaser and Target shall jointly prepare the Circular,
together with any and all other documents required by the CBCA or other
applicable Laws in connection with the Arrangement. As promptly as practicable
after the completion of the Circular, but in any event not later than April 7,
2004, Target shall cause the Circular and all other documentation required in
connection with the Target Meetings to be sent to each Target Securityholder and
to be filed as required by the Interim Order and applicable Laws.
2.6 Securities Compliance
(a) Purchaser shall use all reasonable commercial efforts to
obtain all orders required from the securities authorities of
the Provinces of Ontario and British Columbia, on terms and
conditions acceptable to Target, acting reasonably, to permit
the first resale through the facilities of a stock exchange or
market in the United States or through the NNM (provided that
such first resale is made in accordance with the rules of the
stock exchange or market upon which the trade is made or the
rules of the NNM in accordance with all laws applicable to
that stock exchange or market or applicable to the NNM) of:
(i) the Purchaser Common Shares to be issued pursuant to
the Arrangement;
(ii) the Purchaser Common Shares to be issued upon
exchange of the Exchangeable Shares from time to
time; and
(iii) the Purchaser Common Shares to be issued from time to
time upon the exercise of the Replacement Options,
in each case without qualification with or approval of or the
filing of any document, including any prospectus or similar
document, or the taking of any proceeding with, or the
obtaining of any further order, ruling or consent from, any
Canadian Governmental Entity or regulatory authority under any
Canadian federal, provincial or territorial securities or
other Canadian Laws or pursuant to the rules and regulations
of any regulatory authority administering such Laws, or the
fulfilment of any other legal requirement in any such
jurisdiction (other than, with respect to such first resales,
any restrictions on transfer by reason of, among other things,
a holder being a "control person" for the purposes of Canadian
federal, provincial or territorial securities Laws).
(b) In the event Purchaser is unable to obtain the orders
described in Section 2.6(a), Purchaser shall (i) as
expeditiously as reasonably practicably, prepare and file
under the applicable securities laws of a jurisdiction listed
in Appendix B to Multilateral Instrument 45-102 - Resale of
Securities, a preliminary prospectus and related documents and
obtain a receipt for such preliminary prospectus; (ii) use its
reasonable best efforts to resolve as expeditiously as
reasonably practicable any comments with respect to the
preliminary prospectus made by the applicable securities
regulatory authority and receive confirmation from such
securities regulatory authority, prior to the Effective Date,
that Purchaser is clear to file under the applicable
securities laws of such jurisdiction a (final)
16
prospectus; (iii) prepare a (final) prospectus and related
documents; and (iv) as soon as possible after the Effective
Time file under such applicable securities laws such (final)
prospectus and related documents and use its reasonable best
efforts to obtain, as expeditiously as reasonably practicable
thereafter, a receipt for the (final) prospectus from such
securities regulatory authority.
(c) On the Effective Date, Purchaser, certain Target Shareholders
and the Registration Rights Shareholders' Agent will enter
into a registration rights agreement (the "REGISTRATION RIGHTS
AGREEMENT"), substantially in the form and content of Exhibit
H hereto, with such changes thereto as the parties hereto,
acting reasonably, may approve.
2.7 Preparation of Filings
(a) Purchaser and Target shall cooperate in:
(i) the preparation of such applications for the orders
and the preparation of such required registration
statements and such other documents reasonably deemed
by Purchaser or Target to be necessary to discharge,
in the manner contemplated by Section 2.6, their
respective obligations under United States and
Canadian federal, provincial, territorial or state
securities Laws in connection with the Arrangement
and the other transactions contemplated hereby;
(ii) the taking of all such action as may be required
under any applicable United States and Canadian
federal, provincial, territorial or state securities
Laws (including "blue sky laws"), in connection with
the issuance of the Exchangeable Shares and the
Purchaser Common Shares in connection with the
Arrangement or the issuance or exercise of the
Replacement Options, to the extent the same is
contemplated by Section 2.6; provided, however, that
with respect to the United States "blue sky" and
Canadian provincial qualifications neither Purchaser
nor Target shall be required to register or qualify
as a foreign corporation or to take any action that
would subject it to service of process in any
jurisdiction where such entity is not now so subject,
except (A) as set forth in Section 2.6(b) and (B) as
to matters and transactions arising solely from the
offer and sale of the Exchangeable Shares and the
Purchaser Common Shares; and
(iii) the taking of all such action as may be required
under the CBCA in connection with the transactions
contemplated by this Agreement and the Plan of
Arrangement.
(b) Each of Purchaser and Target shall, on a timely basis, furnish
to the other all such information concerning it and its
shareholders (and, in the case of Purchaser, Exchangeco and
Newco) as may be required (and, in the case of its
shareholders, available to it) to effect the actions described
in Sections 2.5 and 2.6 and the foregoing provisions of this
Section 2.7, and each covenants that no information furnished
by it (to its knowledge in the case of information concerning
its shareholders) in connection with such actions or otherwise
in connection with the consummation of the Arrangement and the
other transactions contemplated by this Agreement will contain
any untrue statement of a material fact or omit to state a
material fact required to be stated in any such document or
necessary in order to make any information so furnished for
use in any such document not misleading in the light of the
circumstances in which it is furnished or to be used.
17
(c) Each of Purchaser and Target shall promptly notify the other
if at any time before or after the Effective Time it becomes
aware that the Circular or an application for an order or a
registration statement described in Section 2.6 contains any
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to
make the statements contained therein not misleading in light
of the circumstances in which they are made, or that otherwise
requires an amendment or supplement to the Circular or such
application or registration statement. In any such event,
Purchaser and Target shall cooperate in the preparation of a
supplement or amendment to the Circular or such other
document, as required and as the case may be, and, if
required, shall cause the same to be distributed to the Target
Securityholders and/or filed with the relevant securities
regulatory authorities.
(d) Each of Target and Purchaser shall ensure that the Circular
complies with all applicable Laws and that the issuance of the
Exchangeable Shares and the Purchaser Common Shares comply
with the requirements of the exemption provided in Section
3(a)(10) of the Securities Act. The Circular shall include all
disclosure or legends as legal counsel to Purchaser advises
are required to ensure that the sale and issuance of Purchaser
Common Shares issuable upon exchange of the Exchangeable
Shares is exempt from the registration requirements of the
Securities Act. Without limiting the generality of the
foregoing, each of Target and Purchaser shall ensure that the
Circular does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements contained therein
not misleading in light of the circumstances in which they are
made (other than, in the case of Target, with respect to any
information relating to and provided by the Purchaser Parties
and, in the case of Purchaser, with respect to information
relating to and provided by Target or any Target
Securityholder) and shall ensure that the Circular provides
Target Securityholders with information in sufficient detail
to permit them to form a reasoned judgment concerning the
matters to be placed before them at the Target Meetings.
(e) Purchaser shall ensure that the Form S-3 filed with the SEC
(and any amendments to the Purchaser's existing Forms S-8 on
file with the SEC and any prospectus relating thereto)
pursuant to this Agreement or the Registration Rights
Agreement complies with all applicable Laws and, without
limiting the generality of the foregoing, that such documents
do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements contained therein not
misleading in light of the circumstances in which they are
made (other than with respect to any information relating to
and provided by Target, Target Shareholders or any third party
that is not an affiliate of Purchaser for inclusion therein),
and Target shall provide to Purchaser, for inclusion in the
Form S-3 (and, as necessary, any amendment to an existing Form
S-8 on file with the SEC), all information regarding Target
and the Target Securityholders which is necessary for the
completion and filing thereof.
3.0 REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Target
Target hereby represents and warrants to and in favour of the
Purchaser Parties as follows and acknowledges that the Purchaser Parties are
relying on such representations and warranties in connection with the
transactions herein contemplated:
18
3.1.1 Incorporation and Organization of Target
Target is a corporation duly continued under the CBCA, is
validly subsisting, has full corporate and legal power and authority to own,
lease and operate the properties currently owned, leased and operated by it and
conduct its business as currently conducted, is duly registered as an
extra-provincial company under the Company Act (British Columbia), is in good
standing with the Office of the Registrar of Companies for the Province of
British Columbia with respect to the filing of annual reports and is in good
standing with the Director with respect to the filing of annual returns. Target
is duly qualified or licenced to do business and is in good standing as a
foreign corporation or organization authorized to do business in all
jurisdictions in which the character of the properties owned, leased or operated
or the nature of the business conducted by it would make such qualification or
licencing necessary. No proceedings have been instituted or are pending for the
dissolution or liquidation of Target. True and complete copies of the Articles
of Continuance, Articles of Amendment and by-laws of Target have been provided
to Purchaser. No Articles of Amendment have been filed or authorized by the
shareholders of Target and no by-laws have been amended or enacted since January
26, 2004.
3.1.2 Capitalization
The authorized capital of Target consists of an unlimited
number of Target Common Shares, an unlimited number of Target Class A Preferred
Shares and an unlimited number of Target Class B Preferred Shares, of which, as
of the date hereof, 18,120,746 Target Common Shares, 36,402,438 Target Class A
Preferred Shares and no Target Class B Preferred Shares are issued and
outstanding. No Target Shares are held in treasury or authorized or reserved for
issuance, other than upon the exercise of the Target Options. All outstanding
Target Shares have been duly authorized and are validly issued, and are fully
paid and non-assessable, were not issued in violation of the terms of any
agreement or other understanding binding upon Target at the time at which they
were issued and were issued in compliance with the articles and by-laws of
Target and all applicable Laws. There are, and have been, no preemptive rights
relating to the allotment or issuance of any of the issued and outstanding
Target Shares, other than rights under the Shareholders' Agreement, such rights
having been either complied with or waived. As of the date hereof, Target
Options for the purchase of 2,551,000 Target Common Shares are outstanding and
no Person other than (a) Purchaser under this Agreement, or (b) the holders of
Target Class A Preferred Shares with respect to their right or obligation to
convert such shares to Target Common Shares in accordance with the share rights
attached to the Target Class A Preferred Shares, has any other agreement,
option, commitment, arrangement, or any other right or privilege (whether by
law, pre-emptive or contractual) capable of becoming an agreement, option or
commitment (including any such right or privilege under convertible securities,
warrants or convertible obligations of any nature) for:
(a) the purchase, subscription, allotment or issuance of, or
conversion into, any of the unissued shares or any other
securities of Target; or
(b) the purchase or other acquisition from Target of any of its
undertakings, business or assets, other than the purchase by
customers of Target of Products in the ordinary course of
Target's business.
There are no outstanding bonds, debentures or other evidences of indebtedness of
Target having the right to vote (or that are convertible for or exercisable into
securities having the right to vote) with the holders of the Target Shares on
any matter.
3.1.3 Authority and No Violation
(a) Target has all requisite corporate power and authority to
enter into this Agreement and the documents required to be
executed by Target in connection with the transactions
19
contemplated herein, to perform its obligations hereunder and,
subject to obtaining the approval of the Target
Securityholders as contemplated by Section 2.0, to consummate
the Arrangement and the other transactions contemplated by
this Agreement. The execution and delivery of this Agreement
and such other documents by Target and the consummation by
Target of the transactions contemplated by this Agreement
(including the transfer of the Target Shares to Exchangeco)
and such other documents have been duly authorized by the
board of directors of Target and no other corporate
proceedings on its part are necessary to authorize this
Agreement and the Escrow Agreement or the transactions
contemplated hereby or thereby, other than:
(i) with respect to the Circular and other matters
relating solely thereto, including the implementation
of the Arrangement, the approval of the board of
directors of Target; and
(ii) with respect to the completion of the Arrangement,
the approval of the Target Securityholders and such
other corporate proceedings of Target as may be
required by the Interim Order.
(b) This Agreement has been duly executed and delivered by Target
and constitutes a legal, valid and binding obligation,
enforceable against it in accordance with its terms, subject
to bankruptcy, insolvency and other similar Laws affecting
creditors' rights generally, and to general principles of
equity. All documents required to be executed by Target in
connection with the transactions contemplated herein will be
duly executed and delivered by Target on or before the
Effective Date and, when so executed and delivered, will
constitute a legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to
bankruptcy, insolvency and other similar Laws affecting
creditors' rights generally, and to general principles of
equity.
(c) The approval of this Agreement and the other documents
required to be executed by Target in connection with the
transactions contemplated herein, the execution and delivery
by Target of this Agreement and such other documents, and the
performance by Target of its obligations hereunder and the
completion of the Arrangement and the transactions
contemplated thereby, will not, except as disclosed in Section
3.1.3(c) of the Target Disclosure Schedule:
(i) conflict with, result in a violation or breach of,
constitute a default or require any consent (other
than such as has already been obtained), to be
obtained under, or give rise to any termination
rights or payment obligation under, any provision of:
(A) its articles, by-laws or other charter
documents, including any unanimous
shareholder agreement or any other agreement
or understanding with any party holding an
ownership interest in it;
(B) the Shareholders' Agreement;
(C) any resolutions of its board of directors
(or any committee thereof) or shareholders;
(D) subject to obtaining the Appropriate
Regulatory Approvals relating to Target or
the transactions contemplated herein, any
Laws; or
20
(E) subject to obtaining any consent, approval,
permit or acknowledgement which may be
required thereunder in connection with the
completion of the transactions herein
contemplated, details of which are set forth
in Section 3.1.3 of the Target Disclosure
Schedule, any license or registration or any
agreement, contract or commitment, written
or oral, which Target is a party to or bound
by or subject to;
(ii) give rise to any right of termination or acceleration
of indebtedness, or cause any third party
indebtedness to come due before its stated maturity
or cause any available credit to cease to be
available;
(iii) result in the imposition of any Encumbrance upon any
of its assets, or restrict, hinder, impair or limit
its ability to carry on its business as and where it
is now being carried on or as and where it may be
carried on in the future; or
(iv) result in any person becoming entitled to (A) any
retirement, severance, unemployment compensation,
"golden parachute", bonus or other such payment, (B)
the acceleration of the vesting or time to exercise
or payment of any outstanding stock options or other
Employee Benefits (including the Target Options), (C)
the forgiveness or postponement of payment of any
indebtedness owing to Target, or (D) receive any
additional payments or compensation under or in
respect of any Employee Benefits (including a
"cash-out" of the Target Options as provided for in
the Target Stock Option Plan).
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Entity or other Person is required to be obtained by Target in
connection with the execution and delivery of this Agreement
or any of the other documents contemplated hereby, or the
consummation by Target of the transactions contemplated hereby
or thereby, other than:
(i) any approvals required by the Interim Order;
(ii) the Final Order;
(iii) filings with the Director under the CBCA;
(iv) the Appropriate Regulatory Approvals relating to
Target;
(v) any other consents, approvals, orders,
authorizations, declarations or filings of or with a
Governmental Entity which, if not obtained, would not
in the aggregate have a Material Adverse Effect on
Target; and
(vi) any other consents or approvals set out in Section
3.1.3 of the Target Disclosure Schedule.
3.1.4 No Defaults
Target is not in default under, and there exists no event,
condition or occurrence which, after notice or lapse of time or both, would
constitute such a default under, any contract, agreement, licence or franchise
to which it is a party which would, if terminated due to such default, cause a
Material Adverse Effect on Target.
21
3.1.5 Issued Shares and Options
Section 3.1.5 of the Target Disclosure Schedule sets forth a
true and complete list, as of the date hereof, of all of the issued and
outstanding Target Shares, including the registered holders of all such shares,
and all of the outstanding and unexercised Target Options, including the
holders, dates of grant, exercise prices, expiry dates and exercise or vesting
dates of such Target Options and the number of Target Shares which are the
subject thereof. Except as disclosed in Section 3.1.5 of the Target Disclosure
Schedule, the certificates evidencing the Target Shares bear no restrictive
legends and none of the articles or by-laws of Target, the Shareholders'
Agreement or any other shareholder agreement or unanimous shareholder agreement
governing the affairs of Target or the relationship, rights and duties of
shareholders contains or provides for any restrictions or restrictive legends
with respect to the Target Shares or any of them, other than restrictions
contained in the Shareholders' Agreement, which will terminate as of the
Effective Time.
3.1.6 Subsidiaries
(a) Except as disclosed in Section 3.1.6 of the Disclosure
Schedule, neither Target nor TargetSub is the beneficial or
registered owner of any shares or other ownership interests in
any Person, and neither holds any securities or obligations of
any kind convertible into or exchangeable for shares or other
ownership interests in any Person. Neither Target nor
TargetSub is a party to any agreement to acquire any shares or
other ownership interests in any Person.
(b) TargetSub is a corporation duly incorporated under the laws of
its jurisdiction of incorporation, is validly subsisting, has
full corporate and legal power and authority to own, lease and
operate the properties currently owned, leased and operated by
it and conduct its business as currently conducted, and is in
good standing under the laws of its jurisdiction of
incorporation. TargetSub is duly qualified or licenced to do
business and is in good standing as a foreign corporation or
organization authorized to do business in all jurisdictions in
which the character of the properties owned, leased or
operated or the nature of the business conducted by it would
make such qualification or licencing necessary. No proceedings
have been instituted or are pending for the dissolution or
liquidation of TargetSub. True and complete copies of the
constating documents of TargetSub have been provided to
Purchaser.
(c) Except as disclosed in Section 3.1.6(c) of the Target
Disclosure Schedule, Target is the beneficial owner of all of
the issued and outstanding shares of TargetSub free of any
Encumbrance. No Person has any other agreement, option,
commitment, arrangement, or any other right or privilege
(whether by law, pre-emptive or contractual) capable of
becoming an agreement, option or commitment (including any
such right or privilege under convertible securities, warrants
or convertible obligations of any nature) for:
(i) the purchase, subscription, allotment or issuance of,
or conversion into, any of the issued or unissued
shares or any other securities of TargetSub; or
(ii) the purchase or other acquisition from TargetSub of
any of its undertakings, business or assets, other
than the purchase by customers of TargetSub of
Products in the ordinary course of TargetSub's
business.
(d) TargetSub is not material in relation to the business,
condition (financial or otherwise), properties, assets,
capital, liabilities, obligations (whether absolute, accrued,
conditional or otherwise), operations or results of operations
of Target on a consolidated basis and
22
the investments in TargetSub by Target, and assets and
liabilities of TargetSub do not exceed four percent of the
total assets or liabilities, as the case may be, of Target as
at December 31, 2003.
3.1.7 Financial Statements
The Financial Statements, copies of which have been provided
to Purchaser, have been prepared in accordance with generally accepted
accounting principles applicable in the United States and Canada applied on a
basis consistent with those of previous years, the requirements of applicable
Laws, are correct and complete and present fairly, in all material respects:
(a) all the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and the financial condition of Target
as at the Financial Year End; and
(b) the results of operations and cash flows of Target for the
12-month period ended on the Financial Year End.
3.1.8 Interim Statements
Except as disclosed in Section 3.1.8 of the Target Disclosure
Schedule, the Interim Financial Statements, copies of which have been provided
to Purchaser, have been prepared in accordance with generally accepted
accounting principles applicable in Canada applied on a basis consistent with
those of previous years, are correct and complete and present fairly, in all
material respects:
(a) all the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and the financial condition of Target
and TargetSub, on a consolidated basis, as at December 31,
2003; and
(b) the revenues, earnings, results of operations and cash flows
of Target and TargetSub, on a consolidated basis, for the
six-month period ended on December 31, 2003,
provided, however, that:
(i) the Interim Financial Statements do not contain all footnotes
required under generally accepted accounting principles; and
(ii) the Interim Financial Statements are subject to adjustments
for taxes (including investment tax credits), accruals for
bonuses, revenue cut-off, payables cut-off and review of
accounts receivable, the net effect of which would not be
materially adverse to Purchaser in contemplating the
acquisition of all of the outstanding shares of Target.
3.1.9 Liabilities
Target has no liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or otherwise (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles), and has no knowledge of any potential liabilities or
obligations, other than:
(a) liabilities (including liabilities for unpaid Taxes) disclosed
on, reflected in or provided for in the Financial Statements
or the Interim Financial Statements;
(b) liabilities disclosed in Section 3.1.9 of the Target
Disclosure Schedule or provided for in the operating budget of
Target for the financial year ending June 30, 2004, a copy of
which has been provided to Purchaser;
23
(c) liabilities incurred in the ordinary course of business and
attributable to the period since the date of the Interim
Financial Statements, none of which, individually or in the
aggregate, has a Material Adverse Effect on Target; and
(d) liabilities incurred in connection with this Agreement or the
transactions contemplated in this Agreement.
3.1.10 Debt Instruments
Except as set forth and described in Section 3.1.10 of the
Target Disclosure Schedule, Target is not bound by or subject to:
(a) any Debt Instrument; or
(b) any agreement, contract or commitment to create, assume or
issue any Debt Instrument;
and no Debt Instrument or Encumbrance which Target is bound by or subject to is
dependent upon the Guarantee of or any security provided by any other Person.
3.1.11 Accounts Receivable
All accounts receivable of and book debts and other debts due
to Target reflected in the Financial Statements or which have come into
existence since the Financial Year End were created in the ordinary course of
Target's business and, except to the extent that the same have been paid in the
ordinary course of its business since the Financial Year End, are valid and
enforceable and payable in full, without any right of set-off or counterclaim or
any reduction for doubtful accounts other than as reflected in the Financial
Statements and, in the case of accounts receivable which have come into
existence since the Financial Year End, other than a reasonable allowance for
doubtful accounts consistent with Target's previous practice.
3.1.12 Accuracy of Books and Records
Except as disclosed in Section 3.1.12 of the Target Disclosure
Schedule, the books and records, accounting, financial and otherwise, of Target
fairly and correctly set out and disclose in all material respects, in
accordance with generally accepted accounting principles, the financial position
of Target as at the date hereof and all material financial transactions of
Target have been accurately recorded in such books and records on a consistent
basis and in conformity with generally accepted accounting principles. Except as
disclosed in Section 3.1.12 of the Target Disclosure Schedule, all records,
controls, data or information owned by Target and required to operate the
Business are in the full possession and control of Target.
3.1.13 Guarantees
Except as set forth and described in Section 3.1.13 of the
Target Disclosure Schedule, Target is not a party to or bound by or subject to
any Guarantee of the indebtedness of any other Person.
3.1.14 Inventories
Except as disclosed in Section 3.1.14 of the Target Disclosure
Schedule, the inventories of Target, if any:
(a) consist solely of items of tangible personal property of the
kind and quality regularly used or produced in its business;
24
(b) are saleable or useable in the ordinary course of Target's
business for the purpose for which they were intended;
(c) are at a level consistent with the requirements of potential
customers of the Business, as reasonably anticipated by
Target;
(d) are not obsolete; and
(e) have been valued in the Financial Statements in accordance
with generally accepted accounting principles, on a basis
consistent with that of past practice.
3.1.15 Business Carried on in Ordinary Course
The Business has been carried on in the ordinary course since
the Financial Year End, and since the Financial Year End:
(a) there has been no Material Adverse Change with respect to
Target other than changes incurred in the ordinary course of
business;
(b) there has been no damage, destruction or loss of any material
tangible assets (including any medium in which the Target
Intellectual Property resides), whether covered by insurance
or not, that could reasonably be expected to have a Material
Adverse Effect on Target;
(c) there has been no split, combination or reclassification of
any of the outstanding Target Shares, and Target has not
declared or paid any dividends on or made any other
distributions (in either case, in stock or property) on or in
respect of the outstanding Target Shares;
(d) Target has not allotted, reserved, set aside or issued,
authorized or proposed the allotment, reservation, setting
aside or issuance of, or purchased or redeemed or proposed the
purchase or redemption of, any shares in its capital stock or
any class of securities convertible or exchangeable into, or
rights, warrants or options to acquire, any such shares or
other convertible or exchangeable securities, nor has Target
agreed to do any of the foregoing, except for:
(i) the issuance of Target Common Shares pursuant to (A)
the exercise of Target Options, which are or have
become fully vested, (B) the exercise of Target
Warrants and (C) the conversion of Target Class A
Preferred Shares;
(ii) the grant of Target Options to certain officers,
directors, employees, consultants and suppliers of
Target since the Financial Year End; and
(iii) the allotment and reservation for issuance of Target
Common Shares pursuant to Target Options granted
since the Financial Year End;
particulars of which are set forth in Section 3.1.15(d) of the
Target Disclosure Schedule;
(e) except as disclosed in Section 3.1.15(e) of the Target
Disclosure Schedule, there has been no increase in the salary
or other cash compensation payable or to become payable by
Target to any of its officers, directors, employees or
advisors, other than in the ordinary course of business, and
there has been no declaration, payment or commitment or
25
obligation of any kind for the payment or granting by Target
of a bonus, stock option or other additional salary or
compensation to any such Person, or any grant to any such
Person of any increase in severance or termination pay, nor
has Target agreed to do any of the foregoing;
(f) except as disclosed in Section 3.1.15(f) of the Target
Disclosure Schedule, there has been no increase in or
modification of any Employee Benefits or agreement to increase
or modify any Employee Benefits (including, in either case,
the granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of its
directors or officers, other than increases in salary or cash
compensation payable or to become payable by Target to any of
its officers or directors, provided any such increase is in
the ordinary course of business of Target;
(g) except as disclosed in Section 3.1.15(g) of the Target
Disclosure Schedule, Target has not (i) acquired or sold,
pledged, leased, encumbered or otherwise disposed of any
material property or assets or agreed to do any of the
foregoing or (ii) incurred or committed to incur capital
expenditures in excess of $1,850,000, in the aggregate, or
agreed to do any of the foregoing;
(h) except as set forth in Section 3.1.15(h) of the Target
Disclosure Schedule, Target has not entered into any material
contract, agreement, licence, franchise, lease transaction,
commitment or other right or obligation and has not amended,
modified, relinquished, terminated or failed to renew any
Material Agreement, other than in the ordinary course of
business of Target;
(i) there has been no transfer (by way of a licence or otherwise)
of or agreement to transfer to any Person rights to any Target
Intellectual Property, other than non-exclusive licences in
the ordinary course of business;
(j) Target has not made any change in accounting policies,
principles, methods, practices or procedures (including for
bad debts, contingent liabilities or otherwise), respecting
capitalization or expense of research and development
expenditures, depreciation or amortization rates or timing of
recognition of income and expense;
(k) Target has taken all commercially reasonable action required
to maintain, renew or enforce any Target Registered
Intellectual Property;
(l) except as set forth in Section 3.1.15(1) of the Target
Disclosure Schedule, there has been no notice delivered to
Target of any claim of ownership by a third party of any of
the Target Intellectual Property owned or developed by Target
or of infringement by Target of any third party's Intellectual
Property;
(m) except as set forth in Section 3.1.15(m) of the Target
Disclosure Schedule, there has been no amendment to the
articles or by-laws of Target;
(n) there has been no disruption in the normal work of Target's
workforce or claim of wrongful discharge or other unlawful
labour practice in respect of Target;
(o) there has been no waiver by Target or agreement to waive, any
right of substantial value and Target has not entered into any
commitment or transaction not in the ordinary course
26
of business where such right, commitment or transaction is or
would be material in relation to Target or the Business; and
(p) except as set forth in Section 3.1.15(p) of the Target
Disclosure Schedule, there has been no creation, or agreement
by Target to create any Encumbrance on any of its property or
assets (except for any lien for unpaid Taxes not yet due).
3.1.16 Partnerships or Joint Ventures
Except as set forth in Section 3.1.16 of the Target Disclosure
Schedule, Target is not a partner or participant in any partnership, joint
venture, profit-sharing arrangement or other business combination of any kind
and is not party to any agreement under which Target agrees to carry on any part
of its business or any other activity in such manner or by which Target agrees
to share any revenue or profit with any other Person other than royalty payments
to its suppliers under licence agreements disclosed in Section 3.1.16 of the
Target Disclosure Schedule.
3.1.17 Minute Books and Corporate Records
The minute and record books of Target contain complete and
accurate minutes of all meetings of, and copies of all by-laws and resolutions
passed by, or consented to in writing by, the directors (and any committees
thereof) and shareholders of Target since its incorporation and which are
required to be maintained in such books under the CBCA, all such meetings were
duly called and held and all such by-laws and resolutions were duly passed or
enacted. The share certificate books, registers of shareholders, registers of
transfers, registers of directors, registers of holders of Debt Instruments and
other corporate registers of Target comply with the provisions of all applicable
Laws and are complete and accurate in all material respects. Except for the
Shareholders' Agreement, Target is not a party to or bound by or subject to any
shareholder agreement or unanimous shareholder agreement governing the affairs
of Target or the relationships, rights and duties of shareholders and is not
subject to a shareholder rights plan or "poison pill" or similar plan.
3.1.18 Interested Persons
(a) Except as set forth and described in Section 3.1.18 of the
Target Disclosure Schedule, since the Financial Year End, no
payment has been made or authorized by Target to or for the
benefit of any Interested Person, except in the ordinary
course of business and at the regular rates, payable as
Employee Benefits, management and other similar fees, the
reimbursement of expenses incurred on behalf of Target or
otherwise.
(b) Except as set forth and described in Section 3.1.18 of the
Target Disclosure Schedule, since the Financial Year End the
aggregate amount of Employee Benefits, management and other
fees, reimbursement of expenses incurred on behalf of Target
or other payments in any such case made to an Interested
Person have been paid at rates no greater than those
prevailing at the Financial Year End.
(c) Except as set forth and described in Section 3.1.18 of the
Target Disclosure Schedule:
(i) Target is not a party to or bound by or subject to
any agreement, contract or commitment with any
Interested Person, except for contracts of employment
or personal services contracts with independent
contractors;
(ii) Target does not have any loan or indebtedness
outstanding (except for obligations incurred in the
ordinary course of business with respect to Employee
27
Benefits, personal services contracts or the
reimbursement of expenses incurred on behalf of
Target or otherwise) to any Interested Person;
(iii) no Interested Person owns, directly or indirectly, in
whole or in part, any property that Target uses in
the operation of its business as heretofore carried
on; and
(iv) no Interested Person has any cause of action or other
claim whatsoever against, or owes any amount to,
Target in connection with Target's business as
heretofore carried on, except for any liability
reflected in the Financial Statements or the Interim
Financial Statements and claims in the ordinary
course of business such as, without limitation, for
accrued vacation pay and accrued benefits under the
Employee Benefits.
3.1.19 Directors and Officers
Section 3.1.19 of the Target Disclosure Schedule sets forth
the names and titles of all directors and officers of Target as at the date of
this Agreement.
3.1.20 Employment and Employee Benefit Matters
(a) As at January 31, 2004, Target had 61 full time and 3
permanent part time employees and one temporary employee, of
which none are located in the United States and TargetSub had
2 full time employees, each of whom is located in the United
States. The names of such individuals, their years of service,
their job titles and the Employee Benefits to which they are
entitled are set forth and described in Section 3.1.20 of the
Target Disclosure Schedule. To the knowledge of Target, no
employee intends to terminate his employment with Target,
whether as a result of the transactions contemplated by this
Agreement or otherwise.
(b) Section 3.1.20 of the Target Disclosure Schedule contains a
complete list of individuals who are not employees of Target,
and who supply their services to Target under personal
services contracts (whether written, oral or otherwise, and
including independent contractors, employees of agencies,
secondees or leased employees and consultants), specifying
location, start and end date of engagement, services supplied,
supplying agency and fees and other amounts payable by Target.
There are no complaints, claims or charges outstanding or, to
the knowledge of Target, anticipated relating to the
engagement of such individuals.
(c) Section 3.1.20 of the Target Disclosure Schedule contains a
complete list of all Employee Benefits maintained, or
otherwise contributed to or required to be contributed to, by
Target for the benefit of employees or former employees of
Target, and sets out a description of all policies, handbooks
and manuals relating to employment matters.
(d) Except as set forth and described in Section 3.1.20 of the
Target Disclosure Schedule:
(i) Target is not a party to or bound by or subject to
any agreement or arrangement with respect to Employee
Benefits and no such agreement or arrangement
contains any specific provision as to notice of
termination of employment or severance pay in lieu
thereof;
28
(ii) Target has no obligations to amend any Employee
Benefit and no amendments will be made or promised
prior to the Effective Date, except with the prior
written consent of Purchaser;
(iii) all obligations of Target with respect to Employee
Benefits are reflected in and have been fully accrued
in the Financial Statements or Interim Financial
Statements;
(iv) Target is not a party to or bound by or subject to
any collective bargaining agreement or other similar
arrangement with any labour union or employee
association nor has it made any commitment to or
conducted any negotiation or discussion with any
labour union or employee association with respect to
any future agreement or arrangement and, to the
knowledge of Target, there is no current application
for certification or other attempt to organize or
establish any labour union or employee association
with respect to employees of Target;
(v) Target has, in all material respects, complied with,
and operated its business in accordance with, all
applicable Laws relating to employment and labour
matters, including employment and labour standards,
occupational health and safety, employment equity,
pay equity, workers' compensation, human rights and
labour relations matters, but not including privacy;
there are no current, pending or, to the knowledge of
Target, threatened claims, complaints or proceedings
of any kind involving Target, or to Target's
knowledge, any of its employees before any Tribunal
with respect to any of the above matters; and there
are no facts known to Target that could reasonably be
expected to give rise to any such claim, complaint or
proceeding;
(vi) there are no existing or, to the knowledge of Target,
threatened labour strikes, slow downs, work stoppages
or other similar labour troubles affecting Target;
(vii) except as contemplated in the amended and restated
employment agreements dated as of the date hereof
governing the Key Employees, Target has made no
material representations or commitments to its
employees with respect to future increases in wages
or other compensation;
(viii) to the knowledge of Target, no employee of Target is
bound by any confidentiality, non-solicitation or
non-competition agreement in favour of any Person
other than Target which is material and relevant to
the employment of such employee by Target and which
imposes obligations on such employee greater than
those owed by such employee under common law;
(ix) Target is not a party to any side letter or other
written or oral material commitment with any employee
or contractor; and
(x) all accruals for unpaid vacation pay, premiums for
employment insurance, health premiums, Canada or
Quebec Pension Plan premiums, accrued wages,
salaries and commissions and other Employee Benefits
have been reflected in the books and records of
Target.
3.1.21 Pension and Retirement Plans
Target does not sponsor or participate in any pension and/or
retirement plan.
29
3.1.22 Real Property
Target does not own, nor is Target a party to or bound by or
subject to any agreement, contract or commitment, or any option to purchase,
any real or immovable property.
3.1.23 Leases and Leased Property
(a) Target is not a party to or bound by or subject to nor has
Target agreed or become bound to enter into, any real or
personal property lease, sublease or other right of occupancy
relating to real property, whether as lessor or lessee, except
for the Leases described in Section 3.1.23 of the Target
Disclosure Schedule, copies of which have been provided to
Purchaser prior to the date hereof. Target occupies and has
the exclusive right to occupy and use all immovable Leased
Property and has the exclusive right to use all movable Leased
Property.
(b) Each of the Leases is valid and subsisting and in good
standing, all rental and other payments required to be paid by
Target as lessee or sublessee and due and payable pursuant to
each of the Leases have been duly paid to date and Target is
not otherwise in default in meeting its obligations under any
of the Leases and is entitled to all rights and benefits
thereunder. No event exists which, but for the passing of time
or the giving of notice, or both, would constitute a default
by Target or, to the knowledge of Target, any other party to
any of the Leases and no party to any of the Leases is
claiming any such default or taking any action purportedly
based upon any such default. The completion of the
transactions contemplated herein will not, subject to
obtaining any required consents set out in Section 3.1.23 of
the Target Disclosure Schedule, afford any of the parties to
any of the Leases or any other Person the right to terminate
any of the Leases nor will the completion of the transactions
contemplated herein result in any additional or more onerous
obligation on Target under any of the Leases.
3.1.24 Insurance
(a) Target maintains insurance covering its property, assets and
personnel and protecting its business against loss or damage
on a basis that is comparable to the insurance maintained by
reasonable Persons operating businesses similar to its
business as heretofore carried on. Section 3.1.24(a) of the
Target Disclosure Schedule sets forth a list of all insurance
policies currently maintained by Target. Each of such
insurance policies is valid and subsisting and in good
standing, there is no default, whether as to the payment of
premiums or otherwise, under any material term or condition of
such insurance policies, and, to the knowledge of Target, each
Person which is an insured party under any of such insurance
policies is entitled to all rights and benefits thereunder.
(b) There are no pending claims under any such insurance policies.
Target has not failed to give any notice or present any claim
under any such insurance policies in due and timely fashion.
To the knowledge of Target, no circumstances have occurred
which might entitle Target to make a claim under any such
insurance policies or which might be required under any such
insurance policies to be notified to the insurers thereunder
and no material claim under any of such insurance policies has
been made by Target since the Financial Year End.
(c) Except as disclosed in Section 3.1.24(c) of the Target
Disclosure Schedule, none of such insurance policies is
subject to any premium in excess of the stipulated or normal
rate.
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No notice of cancellation of, material increase of premiums
under, non-renewal with respect to, or disallowance of any
claim under, any such insurance policies has been received by
Target.
3.1.25 Material Agreements
Except for the Material Agreements disclosed in Section 3.1.25
of the Target Disclosure Schedule, Target is not a party to or bound by or
subject to any of the following:
(a) any distributor, sales, advertising, public relations, agency
or manufacturer's representative contract under which the
obligations of Target exceed $10,000 on an annual basis;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving, in the case of any
such contract, more than $10,000 over the life of the
contract;
(c) any contract that expires, or may be renewed at the option of
any Person other than Target so as to expire, more than one
year after the date of this Agreement (other than royalty free
licences of Intellectual Property granted to Target which are
not incorporated into or form part of the Products);
(d) any contract for capital expenditures in excess of $1,850,000
in the aggregate;
(e) any confidentiality, secrecy or non-disclosure contract;
(f) any contract pursuant to which Target leases any real or
personal property, (including the Leases) under which the
obligations of Target exceed $25,000, on an annual basis;
(g) any contract pursuant to which Target is a lessor of any
machinery, equipment, motor vehicles, office furniture,
fixtures or other personal property under which the
obligations of Target exceed $10,000, on an annual basis;
(h) any contract with any person with whom Target does not deal at
arm's length within the meaning of the Income Tax Act (Canada)
other than the purchase of shares of TargetSub by Target;
(i) any Guarantee;
(j) any licence, sublicence or other agreement to which Target is
a party (or by which it or any Target Intellectual Property is
bound or subject) and pursuant to which any Person (other than
employees or independent contractors of Target for purposes of
their employment or contract with Target) has been or may be
assigned, authorized to use, or given access to any Target
Intellectual Property;
(k) any licence, sublicence or other agreement pursuant to which
Target has been or may be assigned or authorized to use, or
has or may have incurred any obligation in connection with,
(i) any third party Intellectual Property that is incorporated
in or forms a part of any current or proposed Product or
service or (ii) any Target Intellectual Property;
(l) any agreement pursuant to which Target has deposited or is
required to deposit with an escrow holder or any other Person,
all or part of the source code (or any algorithm or
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documentation contained in or relating to any source code) of
any Target Intellectual Property ("SOURCE MATERIALS");
(m) any employment contracts with employees and service contracts
with independent contractors;
(n) any agreement to indemnify, hold harmless or defend any other
Person with respect to any assertion of personal injury,
damage to property or Intellectual Property infringement,
misappropriation or violation or warranting the lack thereof
other than any licence of Third Party Software that is not
part of the Target Intellectual Property and which relates to
software that is generally available to the public; and
(o) any other agreement, indenture, contract, lease, deed of
trust, licence, option, instrument or other commitment which
is or would reasonably be expected to be material to the
business, properties, assets, operations, condition (financial
or otherwise) or prospects of Target;
whether written or oral, and of any nature or kind whatsoever.
3.1.26 No Breach of Material Agreements
Target has performed all of the material obligations required
to be performed by it, and is entitled to all benefits under, and, to the
knowledge of Target, is not alleged to be in default in respect of, any Material
Agreement. Except as disclosed in Section 3.1.26 of the Target Disclosure
Schedule, each of the Material Agreements is in full force and effect,
unamended, and there exists no material breach thereof or material default or
event of material default or event, occurrence, condition or act with respect to
Target or, to Target's knowledge, with respect to the other contracting party or
otherwise that, with or without the giving of notice, the lapse of time or the
happening of any other event or conditions, would (A) become a default or event
of default under any Material Agreement, or (B) result in the loss or expiration
of any material right or option by Target (or the material gain thereof by any
third party) under any Material Agreement, or (C) result in the release,
disclosure or delivery to any third party of any part of the Source Materials.
Target has delivered a true, correct and complete copy of each of the Material
Agreements to Purchaser.
3.1.27 Business Plans
The business plan for beta sales and development schedule
previously delivered to Purchaser, copies of which have been prepared by the
management of Target in good faith and are based on assumptions which Target
believes to be reasonably supported and consistent with its plans. For greater
certainty, nothing in this Section 3.1.27 shall be construed as a representation
or warranty that such business plan will accurately reflect the future financial
performance, including revenue, of Target.
3.1.28 Obligations to Customers and Suppliers
Except as set forth in Section 3.1.28 of the Target Disclosure
Schedule, there are no outstanding consulting contracts or other maintenance
obligations with or to customers or other users of the Products and services of
Target (including all persons who receive Products in "beta" form) and Target is
not required to provide any bonding or other financial security arrangements in
connection with any transactions with any customers, users or suppliers, whether
or not in the ordinary course of its business. Section 3.1.28 of the Target
Disclosure Schedule sets forth full details of any and all side letters or other
written or oral commitments to customers which are not contained in the
applicable customer contract and which are material to such contract.
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3.1.29 Warranties and Indemnities
Section 3.1.29 of the Target Disclosure Schedule sets forth a
complete list of all agreements containing written warranties given to
purchasers of Products and services supplied by Target (including all persons
who receive Products in "beta" form). There are no pending or, to the knowledge
of Target, threatened warranty or indemnity claims against Target.
3.1.30 Legal Proceedings
There are no actions, suits, claims, investigations or
proceedings (whether private, governmental or otherwise, and whether or not
purportedly on behalf of Target) in progress, pending, or to the knowledge of
Target, threatened, against or affecting Target (including actions, suits,
investigations or proceedings against any of Target's directors, officers or
employees which relate to the business, affairs, assets or operations of
Target), at law or in equity, or before or by any Tribunal. There is no
judgment, decree, injunction, ruling, order or award of any Tribunal outstanding
against or affecting Target. Except as set forth in Section 3.1.30 of the Target
Disclosure Schedule, Target is not aware of any grounds on which any such
action, suit, investigation or proceeding might he commenced with any reasonable
likelihood of success, and does not have any present plans or intentions to
initiate any litigation, arbitration or other proceedings against any third
party.
3.1.31 Banking Information
Section 3.1.31 of the Target Disclosure Schedule sets forth
and describes:
(a) the name and location (including municipal address) of each
bank, trust company or other institution in which Target has
an account, money on deposit or a safety deposit box and the
name of each Person authorized to draw thereon or to have
access thereto; and
(b) the name of each Person holding a general or special power of
attorney from Target and a summary of the terms thereof.
3.1.32 Tax Matters
(a) Except in respect of the income tax return for the current
taxation year (which return is not yet due), and any income
tax return which is required to be filed as a result of or in
connection with the transactions contemplated herein, Target
has duly filed in the prescribed manner and within the
prescribed time all Tax Returns required to be filed by it on
or before the date hereof with any taxing or regulatory
authority to which it is subject; such Tax Returns and the
material accompanying such Tax Returns are accurate and
complete in all material respects and Target has provided to
Purchaser true and complete copies of all Tax Returns filed by
Target.
(b) Target has paid all Taxes that are due and payable, and any
interest, penalties and fines in connection therewith,
properly due and payable, and has paid all of same in
connection with all known assessments, reassessments and
adjustments.
(c) Except as set forth in the Financial Statements or the Interim
Financial Statements, and except for Taxes incurred in the
ordinary course of business or incurred or arising as a result
of the transactions contemplated herein which Taxes are not
yet due and payable, there are no Taxes or fines in respect of
Taxes claimed by any Governmental Entity against Target or
which are known to Target to be due and owing by Target and,
to the knowledge of Target, there are no pending or threatened
reassessments by any Governmental Entity in respect of Taxes
owing by Target, and there are no matters in dispute or under
discussion with or any audits being conducted by any
Governmental
33
Entity relating to Taxes or fines in respect of Taxes asserted
by such Governmental Entity against Target.
(d) The Financial Statements fully reflect accrued liabilities as
at the Financial Year End for all Taxes.
(e) Except as set forth and described in Section 3.1.32 of the
Target Disclosure Schedule, there are no actions, suits,
investigations, audits or proceedings and no assessment,
reassessment or request for information in progress, pending
or, to the knowledge of Target, threatened against or
affecting Target in respect of Taxes nor are any issues under
discussion with any taxing authority relating to any matters
which could result in claims for additional Taxes or fines.
(f) There are no agreements, waivers or other arrangements made by
Target providing for an extension of time with respect to any
assessment or reassessment of Tax, the filing of any Tax
Return or the payment of any Tax by Target, or the provision
of any documents or information currently under request by any
Governmental Entity.
(g) Except as set forth in Section 3.1.32 of the Target Disclosure
Schedule, Target has withheld the amount of all Taxes and
other deductions required under any applicable Laws to be
withheld from each payment made by it and has remitted all
amounts withheld which are due and payable before the date
hereof and all installments of Taxes which are due and payable
before the date hereof to the relevant taxing or other
authority within the time prescribed under any applicable
Laws.
(h) Target is not engaged in a trade or business in the United
States for purposes of the United States Internal Revenue Code
of 1986.
3.1.33 Compliance With Applicable Laws
Target has conducted and is conducting its business in
compliance in all material respects with all applicable Laws, other than with
respect to privacy, in each jurisdiction in which its business is carried on, is
not in material breach of any of such Laws and is duly licenced or registered in
each jurisdiction in which it owns or leases its property and assets or carries
on its business, so as to enable its business to be carried on as now conducted
and its property and assets to be so owned or leased. Section 3.1.33 of the
Target Disclosure Schedule sets out a complete and accurate list of all
licences, permits, approvals, consents, certificates, registrations and
authorizations (whether governmental, regulatory or similar type) (the
"LICENCES"), and there are no other licences, permits, approvals, consents,
certificates, registrations, or authorizations necessary to carry on its
business as presently carried on or to own or lease any of the property or the
assets utilized by Target except where the lack of grant of such to Target would
not have a Material Adverse Effect on Target. Each Licence is valid and
subsisting and in good standing and there is no default or breach of any Licence
and, to the best of the knowledge of Target, no proceeding is pending or
threatened to revoke or limit any Licence. No Licence contains any burdensome
term, provision, condition or limitation which has or could have a Material
Adverse Effect on Target or the Business, and except as set forth in Section
3.1.33 of the Target Disclosure Schedule, requires the consent, approval, permit
or acknowledgement of any Person in connection with the completion of the
transactions herein contemplated.
3.1.34 Consents and Approvals
Except for the Appropriate Regulatory Approvals, the Interim
Order and the Final Order, there is no requirement for Target or, to the best of
its knowledge, any other party to make any filing with, give any notice to or to
obtain any licence, permit, certificate, registration, authorization, consent or
34
approval of, any Governmental Entity as a condition to the lawful consummation
of the transactions contemplated by this Agreement or the Plan of Arrangement,
except for the filings, notifications, licences, permits, certificates,
registrations, consents and approvals which relate solely to the identity of
Purchaser or which are of a purely administrative nature and could be completed
or obtained without adverse effect on Target or its business immediately after
the Effective Date.
3.1.35 No Business Restrictions
There is no agreement (non-compete or otherwise), commitment,
judgment, injunction, order or decree to which Target is party or which is
otherwise binding upon Target which has or reasonably could be expected to have
the effect of prohibiting or impairing any business practice of Target, any
acquisition of property (tangible or intangible) by Target or the conduct of
business by Target, as currently conducted or proposed to be conducted by
Target. Without limiting the foregoing, Target has not entered into any
agreement under which Target is restricted from selling, licencing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
3.1.36 Environmental Matters
Target is not in material violation of any applicable Laws
relating to the environment and no material expenditures are or, to the
knowledge of Target, will be required in order to comply with such existing
Laws. Target possesses all necessary environmental licences, permits, approvals,
consents, certificates, registrations and other authorizations in order for it
to conduct its business in material compliance with applicable Laws relating to
the environment. There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or for Target or, to the
knowledge of Target, by or for any other Person with respect to any Leased
Property or any real property previously owned, leased, occupied or used by
Target while Target has occupied such properties.
3.1.37 Condition and Sufficiency of Assets
All facilities, machinery and equipment owned or used by
Target in connection with its business are in good operating condition and in a
state of good repair and maintenance, reasonable wear and tear excepted. Target
owns or leases all of the property and assets (excluding Intellectual Property,
which is dealt with in Section 3.1.38 below) used in or necessary for the
conduct of its business as it is currently being conducted with good and
marketable title to all property and assets which are owned by Target, free and
clear of any and all Encumbrances other than as set forth in Section 3.1.37 of
the Target Disclosure Schedule. Since the incorporation of Target there has not
been any significant interruption of operations, supplies, access or services by
contractors of Target's business as heretofore carried on due to inadequate
maintenance of any of the property or assets owned and used by Target. With the
exception of inventory in transit, and assets which, by their nature, are
portable and intended to be used in different locations (such as notebook
computers), all of the tangible assets of Target are situate at the locations
specified in Section 3.1.37 of the Target Disclosure Schedule.
3.1.38 Intellectual Property
Representations with respect to Target Intellectual Property
(a) Section 3.1.38(a) of the Target Disclosure Schedule includes a
description of:
(i) the Products (including all Software embedded in
Products and all stand-alone Software) and services
that are manufactured, marketed, sold, licenced, used
to provide services to customers or otherwise
exploited by the Business (whether in existence or in
development);
35
(ii) all material Intellectual Property (including,
without limitation, Software) that IS owned by Target
or that is used by Target under a licence from
another Person (together with a description of the
applicable licence) and is necessary for or used in
designing, manufacturing or using the Products or
that forms part of or is embedded in the Products;
(iii) all material Intellectual Property (including
Software but expressly excluding "shrink wrap" and
"click wrap" Third Party Software) that is owned by
Target or that is used by Target under a licence
agreement from another Person which relates to:
(A) the conduct of the Business; or
(B) the marketing, distribution, sale, licensing
or other exploitation of the Products; and
(iv) all Target Registered Intellectual Property;
(collectively, the "TARGET INTELLECTUAL PROPERTY").
(b) The Target Intellectual Property comprises all Intellectual
Property that is: (i) materially necessary to design, develop,
manufacture or to use the Products; or (ii) material to the
conduct of the Business, the failure to own or to have the
right to use would have a Material Adverse Effect.
(c) Except as set forth in Section 3.1.38(c) of the Target
Disclosure Schedule, each item of Target Intellectual Property
is solely and exclusively owned by Target free and clear of
any Encumbrances or co-ownership interests or is licenced to
Target under an existing written or electronic licence
agreement that remains in force and which grants sufficient
rights to permit Target to use such Intellectual Property in
the manner necessary to carry on the Business and to design,
make, use and sell and permit Target's customers and other
users to use the Products without infringing the Intellectual
Property Rights of the third party supplier of that Target
Intellectual Property and which has been disclosed in Section
3.1.38(c) of the Target Disclosure Schedule and copies of
which have been provided to Purchaser. None of the Target
Intellectual Property consists of freeware, shareware or
Software provided pursuant to any arrangement other than a
licence agreement which has been disclosed in Section
3.1.38(c) of the Target Disclosure Schedule.
(d) Target owns, solely and exclusively, any copyright that
subsists in the Target Intellectual Property other than the
copyright that subsists in any Third Party Software or other
works, provided that such Third Party Software and other works
are licenced to Target under a written or electronic licence
agreement that is identified in Section 3.1.38(d) of the
Target Disclosure Schedule and which has been provided to
Purchaser, or are in the public domain.
(e) To the extent that any of the Target Intellectual Property
that is licenced by Target is incorporated in or embedded in
the Products, Target has complied with all of the material
terms and conditions contained in the licence agreements
applicable to such Target Intellectual Property and Target has
not received notice of and is not aware of any material
breaches, claims or disputes under such agreements. Target is
not aware of nor
36
has it received notice of any breach by any customer or
end-user under any agreement applicable to the use of the
Target Intellectual Property.
(f) The Target Intellectual Property that has been developed by or
on behalf of Target has been created or developed:
(i) by employees or former employees of Target, all of
whom signed employment agreements or other agreements
with Target whereby they assigned to Target all
Intellectual Property created by them during the
course of their employment and waived their moral
rights therein. All such employees' work or access to
the Target Intellectual Property occurred within the
scope and in the regular course of their employment
by Target; or
(ii) by independent contractors or former independent
contractors all of whom Target has, directly or
indirectly, paid for such development or creations,
and in respect of which Target has an executed
written agreement with such Person whereby such
Person assigned to Target all rights, title and
interest in such Intellectual Property and waived
their moral rights therein (to the extent
applicable).
All of the agreements referred to subsections (i) and (ii)
above constitute Material Agreements and have been listed in
Section 3.1.25 of the Target Disclosure Schedule and copies
thereof have been provided to Purchaser. Target has not
received any notice of and is not aware of any material claims
or disputes under such agreements. Except as set out in
Section 3.1.25 of the Target Disclosure Schedule there are no
royalty or other obligations owing to any other Person in
respect thereof.
(g) Except as set forth in Section 3.1.38(g) of the Target
Disclosure Schedule, Target has not transferred or assigned
ownership of or granted any licence or right to any Person to
copy, make, use, exploit, or authorize the retention of any
rights to copy, make, use or exploit any Target Intellectual
Property other than to customers acquiring a non-exclusive
licence to use the Products (only as end-users) which licences
are made in the ordinary course of the Business, and to
independent contractors, suppliers and employees, who are
subject to written confidentiality and non-disclosure
agreements, and who are using the Target Intellectual Property
in the course of performing services for Target. Target has
not subjected the Target Intellectual Property to any
Encumbrance.
(h) Each item of Target Registered Intellectual Property is, to
the knowledge of Target, valid and subsisting. All necessary
registration, maintenance, renewal fees, annuity fees and
Taxes in connection with the Target Registered Intellectual
Property have been paid and all necessary documents and
certificates in connection with the Target Registered
Intellectual Property have been filed with the relevant
patent, copyright, trade-▇▇▇▇ or other authorities in the
jurisdictions in which such Registered Intellectual Property
is registered, as the case may be, for the purposes of
maintaining such Registered Intellectual Property. Other than
the Target Registered Intellectual Property, no registrations
or filings with any Governmental Entity have been made by or
on behalf of Target with respect to the Target Intellectual
Property.
(i) Except as set forth in Section 3.1.38(i) of the Target
Disclosure Schedule, no royalty or other fee in respect of the
Target Intellectual Property is required to be paid by Target
to any other Person in relation to the sale or licensing of
any of the Target Intellectual Property. Except as set out in
Section 3.1.38(i) of the Target Disclosure Schedule and the
37
third party supplier licence agreements disclosed in the
Target Disclosure Schedule all of which have been provided to
Purchaser, no royalty or fee in respect of Target's use of the
Target Intellectual Property is required to be paid by Target
to any other Person.
(j) Except as set forth in Section 3.1.38(j) of the Target
Disclosure Schedule, prior to the Effective Time, Target has
not and will not provide, directly or indirectly, the source
code for any of the Software that is included in the Target
Intellectual Property to any other Person or by licence,
transfer, sale, escrow or otherwise permit any other Person to
reverse engineer, disassemble or decompile any such Software
to create such source code except such Software as is commonly
distributed in human readable format including Software in
JAVA and HTML formats.
(k) Except as set forth in Section 3.1.38(k) of the Target
Disclosure Schedule, all Third Party Software that is included
in the Target Intellectual Property could be reasonably
replaced by a suitable alternative if the supplier of such
Software were to cease operations, terminate the applicable
licence or not provide support services. Except as set forth
in Section 3.1.38(k) of the Target Disclosure Schedule,
current copies of source code for all Software that is
included in the Target Intellectual Property that is owned by
Target has been appropriately recorded on machine readable
media, clearly identified and backed up in a manner consistent
with industry practices and such source code together with the
applicable documentation is accurate and contains sufficient
detail and content to allow the full and proper use for which
it is intended and the understanding, modification and
correction of the Software by an experienced programmer having
skills and experience in computer programming and being
reasonably skilled in the relevant programming language(s) and
the associated telecommunications technology but not being
familiar with such Software, without reliance on the special
knowledge or memory of other Persons. A current and accurate
list identifying the location of all copies of source code for
all Software that is included in Section 3.1.38(k) of the
Target Intellectual Property that is owned by Target is set
forth in the Target Disclosure Schedule. Section 3.1.38(k) of
the Target Disclosure Schedule identifies the written source
code escrow agreements that Target has with the licensors or
suppliers of Third Party Software that is included in the
Target Intellectual Property and copies of such source code
escrow agreements have been provided to Purchaser.
(l) Target owns, or has been granted rights to use (without any
material condition, payment or fee except as set out in
Section 3.1.38(l) of the Target Disclosure Schedule or in any
third party supplier licence agreement listed therein), the
Software that is included in the Target Intellectual Property
and, except as set out in Section 3.1.38(l) of the Target
Disclosure Schedule, the consummation of the transaction
contemplated herein shall not cause any such rights to be
amended, modified or terminated.
(m) There is no material impediment known to Target as of the date
of this Agreement in respect of the development of the
Products by September 30, 2004 that would preclude the
Products, including the Software that is included in the
Target Intellectual Property, from performing and functioning
by such date substantially in compliance with the
specifications as set out in Section 3.1.38(a) of the Target
Disclosure Schedule. Target is not aware of and has not
received notice from any Person that the Third Party Software
included in the Target Intellectual Property, contain material
defects in design or workmanship.
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General Representations With respect to Intellectual Property
(n) To the knowledge of Target, Target owns or has the valid right
to use all trade-marks, service marks, and trade names used by
Target (including those described as Target Registered
Intellectual Property) in connection with the Business
including the sale of any of the Products or the provision of
any services or technology related thereto by Target.
(o) Section 3.1.38(o) of the Target Disclosure Schedule sets out
all contracts, licences and agreements between Target and any
other Person wherein or whereby Target has or may have agreed
to, or assumed, any obligation or duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of
rescission with respect to the infringement or
misappropriation by Target or such other Person of any
intellectual property rights owned by any Person other than
Target (and copies of substantially all of same have been
provided to Purchaser) other than any licence of Third Party
Software which is granted for software that is generally
available to the public.
(p) To the knowledge of Target the operation of the Business
including, without limitation, the manufacture, sale, use or
other exploitation (as applicable) of the Target Intellectual
Property and the manufacture, sale, use and other exploitation
of the Products has not and does not infringe or
misappropriate the Intellectual Property Rights of any Person,
violate the rights of any Person (including rights to privacy
or publicity) or violate in any material respect any
applicable Law in any jurisdiction in which the Business is
carried on, or constitute unfair competition or trade
practices under the Laws of any jurisdiction in which Target
carries on business. Except as disclosed in Section 3.1.38(p)
of the Target Disclosure Schedule, Target has not received any
notice, complaint, or claim nor is Target aware of any threat
from any Person claiming that the manufacture, sale, use or
other exploitation of the Target Intellectual Property,
(including the Products) infringes or misappropriates the
Intellectual Property Rights of any other Person or
constitutes unfair competition or trade practices under the
Laws of any jurisdiction nor is Target aware of any basis
therefor.
(q) Except as set forth in Section 3.1.38(q) of the Target
Disclosure Schedule, no Person other than Target has any
ownership rights to any improvements made by Target in
Intellectual Property which has been licenced to Target.
(r) Except as set forth in Section 3.1.38(r) of the Target
Disclosure Schedule, there are no contracts, licences or
agreements between Target and any other Person with respect to
Target Intellectual Property under which there is any material
dispute known to Target regarding the scope of such contract,
licence or agreement, or performance under such contract,
licence or agreement, including with respect to any payments
to be made or received by Target thereunder.
(s) To the knowledge of Target, no Person is infringing or
misappropriating any Target Intellectual Property provided
that in the case of Third Party Software or other third party
Intellectual Property, Target represents only that it has not
received notice of and is not actually aware of any claims or
threatened claims that such Third Party Software or other
third party Intellectual Property, is being infringed or has
been misappropriated. Subject to the foregoing proviso, Target
has no knowledge of any past infringement or misappropriation
of any Target Intellectual Property.
39
(t) Target has taken commercially reasonable steps to protect and
maintain the confidentiality of the trade secrets and other
confidential information in the Target Intellectual Property
and in any Intellectual Property provided by any other Person
to Target. Without limiting the generality of the foregoing,
each employee, consultant and contractor of Target has
executed and delivered to Target a proprietary information,
confidentiality and assignment agreement substantially in the
form(s) provided to Purchaser. To the best of Target's
knowledge, none of the Target Intellectual Property has been
copied, published, released or distributed to any Person or
removed from Target's premises, except by employees and
independent contractors who are subject to a written
confidentiality and non-disclosure agreement and who are
acting in the scope of their employment or engagement, or to
customers acquiring Products (as "beta" testers or as
end-users) in the ordinary course of the Business (and under
written obligations of confidentiality and non-disclosure) and
only to such other Persons as necessary for the development or
exploitation of such Intellectual Property and who have
executed in favour of Target written agreements containing
obligations of confidentiality with respect thereto.
(u) None of the Target Intellectual Property is subject to any
actions or proceedings (whether pending or, to the best of
Target's knowledge, threatened) or any outstanding decree,
order or judgment that restricts in any manner the use,
transfer or licencing thereof by Target or that may affect the
validity, use or enforceability of the same, provided that in
the case of Third Party Software or other third party
Intellectual Property, Target represents only that it has not
received notice of, and is not actually aware of any such
proceeding, outstanding decree, order or judgment.
3.1.39 Information Technology
(a) The computer systems of Target contain, at a minimum, North
American industry standard anti-virus software and Target will
continue to take steps and implement procedures in accordance
with industry standards to, so far as reasonably possible,
ensure that such systems are free from viruses and will remain
so until the Effective Time.
(b) Subject to Subsection (c) below, the Products and the Software
included in the Target Intellectual Property are free of any
disabling codes or instructions (in this Section, a "DISABLING
CODE"), and any virus or other contaminant (in this Section, a
"CONTAMINANT"), that may, or may be used to, access, modify,
delete, damage, disable, interrupt, interfere with or hinder
the operation of such Software, the Products or any system
that operates the same.
(c) Except as set forth in Section 3.1.39 of the Target Disclosure
Schedule, Third Party Software and other components supplied
by third parties to Target and which are included in the
Target Intellectual Property are, to the knowledge of Target,
free of any Disabling Codes or Contaminants that may, or may
be used to, access, modify, delete, damage, disable,
interrupt, interfere with or hinder the operation of such
Software, the Products or any system that operates the same.
(d) Target has taken reasonable steps and implemented reasonable
procedures to ensure that its internal operating business
systems are free from Disabling Codes and Contaminants.
40
(e) Target has in place the disaster recovery plans, procedures
and facilities set out in Section 3.1.39 of the Target
Disclosure Schedule and has taken commercially reasonable
steps to safeguard Target's internal operating systems and to
restrict unauthorized access thereto. Target believes that
such plans, procedures, facilities and steps are adequate
given the size and nature of Target and the Business.
3.1.40 Commitments For Purchases or Sales at Losses
Other than with respect to field trial or prospective field
trial alpha and beta units, Target does not have any agreement, contract or
commitment for purchases or sales of its Products, technology or services at
prices involving material prospective losses.
3.1.41 Significant Customers
Section 3.1.41 of the Target Disclosure Schedule sets forth a
list of all customers for the Products and services of Target, if any.
3.1.42 Significant Suppliers
Except as set out in Section 3.1.42 of the Target Disclosure
Schedule, none of the suppliers of Target is a sole supplier and the products
and services provided by each such supplier are available from other suppliers.
3.1.43 Government Programs
Except as set out in Section 3.1.43 of the Target Disclosure
Schedule, no agreements, loans, funding arrangements or assistance programs are
outstanding in favour of Target from any Governmental Entity, and, to the
knowledge of Target, no basis exists for any Governmental Entity to seek payment
or repayment from Target of any amount or benefit received, or to seek
performance of any obligation of Target, under any such program.
3.1.44 GST Registration
Target is a registrant for the purposes of the Excise Tax Act
(Canada).
3.1.45 Personal Information
(a) Target has a written privacy policy which governs its
collection, use and disclosure of employee Personal
Information applicable to the Business and, since the date of
adoption of such privacy policy, Target is in compliance in
all material respects with such privacy policy.
(b) There has not been any, and as of the date hereof, there is no
complaint, investigation, proceeding or action completed,
resolved, pending, or to the knowledge of Target, threatened
against or involving in any way Target or the Business under
or in relation to the Personal Information Protection and
Electronic Documents Act S.C. 2000, c.5 or the Personal
Information Protection Act S.B.C. 2003 c.63.
3.1.46 Advisory Fees
Except as set forth in Section 3.1.46 of the Target Disclosure
Schedule, and except for the accountants and lawyers of Target retained to
negotiate, advance, carry out and complete the transactions contemplated herein,
there is no investment banker, broker, finder or other intermediary or advisor
that has been retained by or is authorized to act on behalf of Target or any of
its directors, officers or shareholders who might be entitled to any fee,
commission or reimbursement of expenses from Target upon consummation of the
transactions contemplated by this Agreement.
41
3.1.47 Other Negotiations; Brokers; Third Party Expenses
None of Target or, to the knowledge of Target, any of its
directors, officers or shareholders (nor any investment banker, financial
advisor, attorney, accountant or other Person retained by or acting for or on
behalf of Target or at Target's direction) (a) has entered into any agreement
that conflicts with any of the transactions contemplated by this Agreement
(except the Shareholders' Agreement, which the parties thereto have agreed to
terminate as of the Effective Time and in respect of which all consents required
under such agreement in respect of this Agreement and the transactions
contemplated herein have been obtained), or (b) has entered into any agreement
or had any discussions with any Person regarding any transaction involving
Target which could reasonably be expected to result in any of the Purchaser
Parties, Target or any of the officers, directors, employees, agents or
shareholders of any of them being subject to any claim for liability to such
Person as a result of entering into this Agreement or consummating the
transactions contemplated hereby. Section 3.1.47 of the Target Disclosure
Schedule lists any agreement (other than any agreement with any of the Purchaser
Parties or any of their respective affiliates) with respect to, and a reasonable
estimate of, all Third Party Expenses which are reasonably expected to be
incurred by Target in connection with the negotiation and implementation of the
terms and conditions of this Agreement and the transactions contemplated hereby.
3.1.48 Disclosure
The representations and warranties of Target contained in this
Agreement and in any agreement, certificate, affidavit, statutory declaration or
other document delivered or given pursuant to this Agreement, including the
Target Disclosure Schedule, are true and correct in all material respects and do
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained in such representations and
warranties not misleading to the Purchaser Parties.
3.1.49 Approval of Arrangement
(a) The board of directors of Target has determined unanimously:
(i) that the Arrangement is fair to and in the best
interests of the Target Securityholders as a whole
and is in the best interests of Target; and
(ii) to recommend that the Target Securityholders vote in
favour of the Arrangement.
(b) All of Target's directors have advised Target that they intend
to vote the securities of Target held by them (or that the
shareholder on whose behalf they act as nominee intends to
vote the securities of Target held by it) in favour of the
Arrangement and will, accordingly, so represent in the
Circular.
3.2 Representations and Warranties of Purchaser
Purchaser represents and warrants to and in favour of Target
as follows and acknowledges that Target is relying upon such representations and
warranties in connection with the matters contemplated by this Agreement:
3.2.1 Incorporation and Organization
Each of the Purchaser Parties and Newco has been duly
incorporated or formed under the laws of its jurisdiction of incorporation, is
validly subsisting, has full corporate or legal power and authority to own,
lease and operate the properties currently owned, leased and operated by it and
conduct its businesses as currently conducted, and is in good standing with the
appropriate Governmental Entity in its jurisdiction of incorporation with
respect to the filing of annual returns or equivalent documents. Each of the
Purchaser Parties is duly qualified or licenced to do business and is in good
standing as a foreign corporation or organization authorized to do business in
all jurisdictions in which the character of the
42
properties owned, leased or operated or the nature of the business conducted by
it would make such qualification or licencing necessary except where the lack of
such qualification or licencing would not have a Material Adverse Effect on the
Purchaser. No proceedings have been instituted or are pending for the
dissolution or liquidation of any of the Purchaser Parties or Newco.
3.2.2 Capitalization
The authorized capital of Purchaser consists of 120,000,000
Purchaser Common Shares and 5,000,000 shares of preferred stock, having a par
value of $0.01 each, of which, as of February 1, 2004, 73,040,602 Purchaser
Common Shares and no shares of preferred stock were issued and outstanding.
Except for employee stock options and purchase rights granted by Purchaser
pursuant to employment compensation plans or as disclosed in the SEC Documents,
there are no options, warrants, conversion privileges or other rights,
agreements, arrangements or commitments (contingent or otherwise) obligating
Purchaser to issue or sell any shares or securities or obligations of any kind
convertible into or exchangeable for any shares of Purchaser. No Purchaser
Common Shares and no shares of preferred stock of Purchaser are held in treasury
or authorized or reserved for issuance, other than upon the exercise of the
warrants, options and purchase rights referred to above. All outstanding
Purchaser Common Shares have been duly authorized and are validly issued, fully
paid and non-assessable. There are no outstanding bonds, debentures or other
evidences of indebtedness of Purchaser or Exchangeco having the right to vote
(or that are convertible for or exercisable into securities having the right to
vote) with the holders of the Purchaser Common Shares on any matter. As of the
Effective Date, all of the Replacement Options will be outstanding as duly
authorized and validly existing options to acquire Purchaser Common Shares,
which will not be issued in violation of the terms of any agreement or other
understanding binding upon Purchaser at the time at which they are issued and
will be issued in compliance with the constating documents of Purchaser and all
applicable Laws and, upon exercise in accordance with the terms and conditions
of such Replacement Options and payment of the exercise price therefor, will
result in the issuance of Purchaser Common Shares which will be duly authorized
and validly issued, which are fully paid and non-assessable and which will not
be issued in violation of the terms of any agreement or other understanding
binding upon Purchaser at the time at which they are issued and will be issued
in compliance with the constating documents of Purchaser and all applicable
Laws.
3.2.3 Authority and No Violation
(a) Each of the Purchaser Parties and Newco has all requisite
corporate power and authority to enter into this Agreement and
each of the Ancillary Agreements, as applicable, to perform
its obligations hereunder and thereunder, and to consummate
the Arrangement and the other transactions contemplated by
this Agreement. The execution and delivery of this Agreement
and each of the Ancillary Agreements, as applicable, by each
of the Purchaser Parties and Newco and the consummation by
each of the Purchaser Parties and Newco of the transactions
contemplated by this Agreement and each of the Ancillary
Agreements, as applicable, have been duly authorized by its
respective board of directors and no other corporate
proceedings on its part are necessary to authorize this
Agreement and each of the Ancillary Agreements, as applicable,
or the transactions contemplated hereby or thereby other than,
in the case of Exchangeco, the amendment of its memorandum and
articles to create the Exchangeable Shares (which amendment
must also be approved by the shareholders of Exchangeco) and,
in the case of Purchaser, other matters (if any) relating
solely to the implementation of the Arrangement, which will be
completed prior to the Effective Date.
(b) This Agreement has been duly executed and delivered by each of
the Purchaser Parties and constitutes a legal, valid and
binding obligation, enforceable against each of them in
43
accordance with its terms, subject to bankruptcy, insolvency
and other similar Laws affecting creditors' rights generally,
and to general principles of equity. Each of the Ancillary
Agreements, as applicable, will be duly executed and delivered
by each of the Purchaser Parties and Newco, as applicable,
and, when so executed and delivered, will constitute a legal,
valid and binding obligation, enforceable against each of them
in accordance with its terms, subject to bankruptcy,
insolvency and other similar Laws affecting creditors' rights
generally, and to general principles of equity.
(c) The approval of this Agreement and each of the Ancillary
Agreements, as applicable, the execution and delivery by each
of the Purchaser Parties and Newco of this Agreement and each
of the Ancillary Agreements, as applicable, and the
performance by it of its obligations hereunder and thereunder
and the completion of the Arrangement and the transactions
contemplated thereby, will not:
(i) conflict with, result in a violation or breach of,
require any consent to be obtained under or give rise
to any termination rights or payment obligation under
any provision of:
(A) its certificate of incorporation,
memorandum, articles, by-laws or other
charter documents, as applicable, including
any unanimous shareholder agreement or any
other agreement or understanding with any
Person holding an ownership interest in it;
(B) subject to obtaining the Appropriate
Regulatory Approvals relating to the
Purchaser Parties or the transactions
contemplated herein, any Laws, regulation,
order, judgment or decree; or
(C) any material contract, agreement, licence,
franchise or permit to which it is party or
by which it is bound;
(ii) give rise to any right of termination or acceleration
of indebtedness, or cause any third party
indebtedness to come due before its stated maturity
or cause any available credit to cease to be
available; or
(iii) except as would not, individually or in the
aggregate, have a Material Adverse Effect on the
Purchaser Parties and Newco, as a whole, result in
the imposition of any Encumbrance upon any of its
assets, or restrict, hinder, impair or limit its
ability to carry on its business as and where it is
now being carried on or as and where it may be
carried on in the future.
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Entity or other Person is required to be obtained by any of
the Purchaser Parties or Newco in connection with the
execution and delivery of this Agreement or any of the
Ancillary Agreements, as applicable, or the consummation by
any of the Purchaser Parties or Newco of the transactions
contemplated hereby or thereby other than:
(i) the Appropriate Regulatory Approvals relating to the
Purchaser Parties or the transactions contemplated
herein;
44
(ii) any approval required in connection with the
amendment of the memorandum or articles of Exchangeco
to create the Exchangeable Shares; and
(iii) any other consents, approvals, orders,
authorizations, declarations or filings of or with a
Governmental Entity which, if not obtained, would not
in the aggregate have a Material Adverse Effect on
the Purchaser Parties and Newco, as a whole.
3.2.4 No Defaults
Subject to obtaining the Appropriate Regulatory Approvals
relating to Purchaser, Purchaser is not in default under, and there exists no
event, condition or occurrence which, after notice or lapse of time or both,
would constitute such a default under, any contract, agreement, licence or
franchise to which it is a party which would, if terminated due to such default,
cause a Material Adverse Effect on Purchaser.
3.2.5 Ownership of Exchangeco and Newco and Business of Exchangeco
All of the outstanding shares of capital stock of each of
Exchangeco and Newco are validly issued, fully paid and non-assessable and all
such shares and other ownership interests are owned directly or indirectly by
Purchaser, free and clear of all material liens, claims or encumbrances, and
there are no outstanding options, rights, entitlements, understandings or
commitments (pre-emptive, contingent or otherwise) regarding the right to
acquire any such shares of capital stock or other ownership interests in
Exchangeco or Newco. Exchangeco carries on no business and has not been and is
not used for any purpose other than to carry out this Agreement and the
transactions contemplated herein.
3.2.6 Absence of Certain Changes or Events
Except as disclosed in the SEC Documents prior to the date of
this Agreement, since December 31, 2002 (or since the date of its incorporation,
in the case of Exchangeco), each of the Purchaser Parties has conducted its
business only in the ordinary course of business and there has not occurred:
(a) any Material Adverse Change in respect of the Purchaser
Parties; or
(b) any agreement or arrangement to take any action which, if
taken prior to the date hereof, would have made any
representation or warranty set forth in this Agreement
materially untrue or incorrect as of the date when made.
3.2.7 Disclosure
Purchaser has publicly disclosed in the SEC Documents filed
with the SEC any information regarding any event, circumstance or action taken
or failed to be taken which could individually or in the aggregate reasonably be
expected to have a Material Adverse Effect on the Purchaser Parties.
3.2.8 SEC Documents: Purchaser Financial Statements
As of their respective filing dates, all SEC Documents filed
by Purchaser since January 1, 2002 complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as the case may be, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent such SEC Documents have been
corrected, updated or superseded by a document subsequently filed with the SEC
prior to the date hereof. Except as set forth in the Purchaser Disclosure
Schedule the financial statements of Purchaser, including the notes thereto,
included in the SEC Documents comply as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, have been
45
prepared in accordance with United States generally accepted accounting
principles consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q under the
Exchange Act) and present fairly the consolidated financial position of
Purchaser at the dates thereof and the consolidated results of its operations
and cash flows for the periods then ended (subject, in the case of unaudited
financial statements, to normal year-end adjustments).
Purchaser has an adequate number of Purchaser Common Shares
registered under a registration statement on Form S-8 currently on file with the
SEC, in order that those Purchaser Common Shares to be issued from time to time
after the Effective Time upon exercise of the Replacement Options will be
registered securities under the Securities Act.
3.2.9 EXCHANGEABLE SHARES
The Exchangeable Shares to be issued in connection with the
Arrangement will be duly and validly issued by Exchangeco as fully paid and
non-assessable shares on the Effective Date, and will not be issued in violation
of the terms of any agreement or other understanding binding upon Exchangeco at
the time that such shares are issued and will be issued in compliance with the
memorandum and articles of Exchangeco and all applicable Laws. There are, and
will at the Effective Time be, no preemptive or other rights relating to the
allotment or issuance of Exchangeable Shares in connection with the Arrangement
and the transactions contemplated herein.
3.2.10 Purchaser Common Shares
(a) The Purchaser Common Shares to be issued pursuant to the
Arrangement or upon the exchange or exercise from time to time
of the Exchangeable Shares or Replacement Options,
respectively, will, when issued and delivered in accordance
with the terms of this Agreement, the Plan of Arrangement, the
Exchange Trust Agreement or the Support Agreement or the
applicable terms attaching to the Exchangeable Shares or
Replacement Options respectively, be duly and validly issued
by Purchaser on their respective dates of issue as fully paid
and non-assessable shares and will not be issued in violation
of the terms of any agreement or other understanding binding
upon Purchaser at the time that such shares are issued and
will be issued in compliance with the constating documents of
Purchaser and all applicable Laws.
(b) Assuming and subject to the satisfaction of all conditions
precedent set forth in Sections 6.1 and 6.2, the issuance of
the Purchaser Common Shares and Exchangeable Shares to be
issued on the Effective Date pursuant to this Agreement and
the Plan of Arrangement and the assumption and conversion of
each Target Option into Replacement Options shall be exempt
from the registration requirements of the Securities Act by
virtue of the exemption provided in Section 3(a)(10)
thereunder. The resale of the Purchaser Common Shares issued
in exchange for Target Shares under the Arrangement will be
exempt from the registration requirements of the Securities
Act, except that the Purchaser Common Shares held by persons
who are "affiliates" (as such term is defined under the
Securities Act) of Target prior to the Arrangement may be
resold by them only in compliance with the resale provisions
of Rule 145(d)(l), (2) or (3) promulgated under the Securities
Act or as otherwise permitted under the Securities Act. The
Purchaser Common Shares issued upon exchange of the
Exchangeable Shares will be issued pursuant to an exemption
from the registration requirements of the Securities Act by
virtue of exemptions provided by either Regulation D or
Regulation S under the Securities Act. Upon the registration
statement being declared effective (which registration
statement is required to be filed by Purchaser pursuant to the
Registration Rights Agreement), the resale of the Purchaser
Common Shares issued or issuable upon exchange of Exchangeable
Shares will be
46
registered under the Securities Act. Upon the filing with the
SEC of a registration statement on Form S-8 under the
Securities Act with respect to the Purchaser Common Shares
issuable upon exercise of the Replacement Options, the sale of
Purchaser Common Shares upon exercise of the Replacement
Options will be registered under the Securities Act.
(c) The issuance of Exchangeable Shares, Purchaser Common Shares
and Replacement Options on the Effective Date pursuant to this
Agreement and the Plan of Arrangement will be exempt from the
prospectus and dealer registration requirements under the
applicable securities laws of the provinces of British
Columbia and Ontario. The issuance of Purchaser Common Shares
(i) upon exchange of the Exchangeable Shares from time to time
under their term or under the Plan of Arrangement, the
Exchange Trust Agreement or the Support Agreement; or (ii)
upon the exercise of Replacement Options from time to time in
accordance with their terms, will be exempt from the
prospectus and dealer registration requirements under the
applicable securities laws of the provinces of British
Columbia and Ontario provided, in the case of subparagraph
(ii), that no commission or other remuneration is paid or
given to others in respect of such issuance except for
administrative (ministerial, in the case of Ontario) or
professional services or for services performed by a
registered dealer. Subject to the terms of any orders
described in Section 2.6(a), and subject to Purchaser
obtaining such orders prior to the Effective Date, the
"prospectus requirement" (within the meaning of applicable
securities laws of the Provinces of British Columbia and
Ontario) will not apply to the first trade of Purchaser Common
Shares (i) issued pursuant to the Arrangement; (ii) issued
upon exchange of Exchangeable Shares from time to time under
their terms or under the Plan of Arrangement, the Exchange
Trust Agreement or the Support Agreement; or (iii) issued upon
exercise of Replacement Options from time to time in
accordance with their terms (collectively, in this section,
the "TRANSACTION SECURITIES"). In the event that Purchaser is
unable to obtain the order referred to in Section 2.6(a) prior
to the Effective Date and in the event that Purchaser obtains
the receipt (the "PROSPECTUS RECEIPT") for the (final)
prospectus contemplated in Section 2.6(b) after the Effective
Date and after Multilateral Instrument 45-102 - Resale of
Securities ("REVISED MI45-102") comes into effect, the first
trade of Transaction Securities, from time to time, after the
date on which Purchaser obtains the Prospectus Receipt will
not be or deemed to be a "distribution" (within the meaning of
applicable securities laws of the Provinces of British
Columbia and Ontario) provided that:
(i) Purchaser is a reporting issuer in a Jurisdiction of
Canada at the time of the trade;
(ii) the trade is not a "control distribution" as defined
in MI 45-102;
(iii) no unusual effort is made to prepare the market or to
create a demand for the securities that are the
subject of the trade;
(iv) no extraordinary commission or consideration is paid
to a person or company in respect of the trade; and
(v) if the selling security holder is an insider or
officer of Purchaser, the selling security holder has
no reasonable grounds to believe that Purchaser is in
default of securities legislation.
47
The foregoing representation is based on Laws in effect or as
proposed as of the date hereof and assuming that such Laws are
not amended prior to the date of any particular trade referred
to above and is also based on the qualification that no
"cease-trade" or similar order restricting trades in any of
the Transaction Securities is in effect at such time.
3.2.11 Other Transactions
Purchaser is not aware of any transaction or proposed
transaction involving Purchaser which, if it were to be consummated on or prior
to the Effective Date, would constitute a Purchaser Control Transaction,
Exchangeable Share Voting Event or Exempt Exchangeable Share Voting Event (as
each of such terms is defined in the Share Provisions). As at the date hereof,
Purchaser is not in any discussions to acquire any third party other than
Target.
3.2.12 Not a Foreign Investment Entity
The principal undertaking of the Purchaser is the carrying on
of a business which is not an "investment business", as defined in proposed
subsection 94.1(1) of the Income Tax Act (Canada) set out in the draft
legislation regarding the taxation of non-resident trusts and foreign investment
entities released by the Department of Finance of Canada on October 30,2003, as
amended from time to time or as enacted and in effect from time to time (the
"FIE RULES"), and the "carrying value" of all of the "investment property" of
the Purchaser (both as determined for purposes of the FIE Rules) is not greater
than one-half of the carrying value of all of its property.
3.3 Non-waiver
No investigations made by or on behalf of any of the parties
at any time shall have the effect of waiving, diminishing the scope of or
otherwise affecting any representation or warranty made by any other party
herein or pursuant hereto, unless disclosure of the fact at issue is expressly
made in writing in this Agreement, including the Target Disclosure Schedule (in
the case of the Target) and in writing by the Purchaser Parties (in the case of
the Purchaser Parties) prior to the execution hereof and such disclosure
contains no material untrue statement. Notwithstanding anything else in this
Agreement or the Target Disclosure Schedule, any matter disclosed or described
in any appropriate representation or warranty of Target contained in this
Agreement or in any appropriate section of the Target Disclosure Schedule shall
be deemed to have been disclosed and described in all related representations
and warranties of Target and sections of the Target Disclosure Schedule.
3.4 Survival
For greater certainty, the representations and warranties of
Target and each Purchaser Party contained herein shall survive the execution and
delivery of this Agreement and shall terminate on the earlier of the termination
of this Agreement in accordance with its terms and the Expiration Date.
4.0 ESCROW PROVISIONS
4.1 Establishment of the Escrow Fund
At or promptly after the Effective Time, Exchangeco and
Purchaser will deposit, or cause to be deposited, without any act or formality
on the part of the Target Shareholders, the Escrow Securities in escrow with the
Escrow Agent (such shares, together with any other property held by the Escrow
Agent from time to time under the Escrow Agreement, being herein referred to as
the "ESCROW FUND"), which shall be governed by the terms set out in the Escrow
Agreement. The number of Escrow Securities to be contributed by or on behalf of
each Target Shareholder shall be equal to 10% of each of the Purchaser Common
Shares and Exchangeable Shares to be issued to such holder at the Effective Time
pursuant to the Plan of Arrangement.
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4.2 Recourse to the Escrow Fund
The Escrow Fund shall be available to indemnify the Purchaser
Parties, Newco and their respective officers, directors, employees or agents,
for any and all Losses (as defined in the Escrow Agreement) incurred or
sustained, directly or indirectly, by any of them. The Escrow Fund shall be
applied against the Losses in the manner set out in the Escrow Agreement by
applying Purchaser Common Shares and Exchangeable Shares in the same ratio as
the ratio of Purchaser Common Shares to Exchangeable Shares contributed to the
Escrow Fund pursuant to Section 4.1. This Section 4.0 shall be the sole and
exclusive remedy available to the Purchaser Parties, Newco and their officers,
directors, employees and agents to obtain recovery from the Target Shareholders
with respect to any Losses and no such party shall have recourse against the
Target Shareholders under this Agreement for any other Losses. Except for the
liability of a Target Shareholder with respect to the loss of his Deposited
Shares (as defined in the Plan of Arrangement), and his share of any other
property included in the Escrow Fund, in satisfaction of Losses in accordance
with this Section 4.0 and the terms of the Escrow Agreement, no Target
Shareholder shall have any liability to the Purchaser Parties, Newco or any of
their respective officers, directors, stockholders, employees or agents for or
in respect of any Losses or any other liabilities arising out of this Agreement
or the transactions or agreements contemplated herein. Notwithstanding the
foregoing, nothing in this Section 4.0 shall limit any remedy the Purchaser may
have under any Principal Shareholder Voting Agreement or any remedy Purchaser
may have against a particular Target Shareholder for fraud, willful misconduct
or intentional misstatement which may have been committed by such Target
Shareholder or for fraud, willful misconduct or intentional misstatement which
may have been committed by Target and for which such Target Shareholder may be
liable in tort.
4.3 Escrow Period; Distribution of Escrow Fund upon Termination of
Escrow Period
The Escrow Fund shall be established at or promptly following
the Effective Time and shall be held by the Escrow Agent until 5:00 p.m.
(Pacific Time) on the Expiration Date; provided that such portion of the Escrow
Fund (consisting of a ratio of Purchaser Common Shares to Exchangeable Shares
equal to the ratio of Purchaser Common Shares to Exchangeable Shares contributed
to the Escrow Fund pursuant to Section 4.1) which, in the opinion of Purchaser,
acting reasonably, is necessary to satisfy any claims made to the Escrow Agent
in the manner provided in the Escrow Agreement prior to the Expiration Date
shall remain in the Escrow Fund until such claims have been resolved. The
portion of the Escrow Fund which is not required to satisfy such claims shall,
as soon as practicable after the Expiration Date, be delivered by the Escrow
Agent to the Persons who contributed the Escrow Securities to the Escrow Fund
ratably in proportion to their respective contributions thereto and in specie
according to the nature of the Escrow Securities contributed by each such
Person.
4.4 Minimum Threshold
The Purchaser Parties, Newco and their respective officers,
directors, employees or agents shall not be entitled to receive any Escrow
Securities or other property comprising the Escrow Fund, and shall not otherwise
be entitled to any indemnification under the Escrow Agreement, unless and until
one or more of them have made claims for indemnification in the manner provided
in the Escrow Agreement specifying Losses in an aggregate amount of not less
than $50,000, in which case such Persons shall be entitled to be indemnified out
of the Escrow Fund in the manner provided in the Escrow Agreement for the full
amount of any and all Losses, including the initial Losses up to such $50,000
threshold.
5.0 COVENANTS
5.1 Retention of Goodwill
During the Pre-Effective Date Period, Target will, subject to
the fact that the Arrangement and related transactions are contemplated hereby,
continue to carry on the business of Target in the ordinary course of business,
working to preserve the attendant goodwill of Target and to contribute to
retention of that goodwill to and after the Effective Date. The following
provisions of this
49
Section 5.0 are intended to be in furtherance of this general commitment,
subject to the fact that the Arrangement and related transactions are
contemplated hereby.
5.2 Covenants of Target
(a) Target covenants and agrees that, until the Effective Date or
the earlier termination of this Agreement in accordance with
Section 7.0, except with the consent of Purchaser to any
deviation therefrom or with respect to any matter contemplated
by this Agreement or the Plan of Arrangement, Target will:
(i) carry on the Business substantially in accordance
with the business plan referred to in Section 3.1.27
other than changes as a result of the Arrangement
(such as not hiring sales staff) and use all
reasonable efforts to preserve intact its present
business organization and keep available the services
of its present officers and employees and others
having business dealings with it to the end that its
goodwill and business shall be maintained;
(ii) not commence to undertake a substantial or unusual
expansion of its business facilities or an expansion
that is out of the ordinary course of business in
light of current market and economic conditions;
(iii) not split, combine or reclassify any of the
outstanding Target Shares, nor declare or pay any
dividends on or make any other distributions (in
either case, in stock or property) on or in respect
of the outstanding Target Shares;
(iv) not amend its articles or by-laws (other than by
obtaining shareholder approval to the amendment to
Target's by-laws approved by the board of directors
of Target on January 26, 2004) or repealing such
amendment to its by-laws;
(v) not allot, reserve, set aside or issue, authorize or
propose the allotment, reservation, setting aside or
issuance of, or purchase or redeem or propose the
purchase or redemption of, any shares in its capital
stock or any class of securities convertible or
exchangeable into, or rights, warrants or options to
acquire, any such shares or other convertible or
exchangeable securities, except for (A) the issuance
of Target Common Shares pursuant to the exercise of
fully vested Target Options granted prior to the date
hereof; and (B) the issuance of Target Common Shares
to holders of Target Class A Preferred Shares upon
the exercise by the holders thereof of the right of
conversion attached to such shares;
(vi) not, whether through its board of directors or
otherwise, accelerate, or permit to be accelerated,
the vesting of any unvested Target Options or
otherwise amend, vary or modify, or take any other
action under the Target Stock Option Plan other than
as contemplated in this Agreement or Section
3.1.3(c)(iv) of the Target Disclosure Schedule;
(vii) not acquire or agree to acquire any Target Shares or
other of its outstanding securities, whether by
public or private transaction, or otherwise, except
in connection with the conversion of Target Class A
Preferred Shares into Target Common Shares pursuant
to the right of conversion attached to the Target
Class A Preferred Shares;
50
(viii) not reorganize, amalgamate or merge Target with any
other Person, nor acquire or agree to acquire by
amalgamating, merging or consolidating with,
purchasing substantially all of the assets of or
otherwise, any business of any Person;
(ix) not loan any money, guarantee the payment of
indebtedness or incur indebtedness for money borrowed
or issue or sell any debt securities other than in
the ordinary course of business;
(x) other than in the ordinary course of business or as
specifically contemplated in this Agreement, but
subject to restrictions set out elsewhere in this
Agreement, not enter into or modify any employment,
severance, collective bargaining or other Employee
Benefits, policies or arrangements with, or grant any
bonuses, salary increases, stock options, pension or
supplemental pension benefits, profit sharing,
retirement allowances, deferred compensation,
incentive compensation, severance or termination pay
to, or make any loan to, any officers, directors or
employees of Target;
(xi) not, except in the ordinary course of business:
(A) satisfy or settle any claims or liabilities
prior to the same being due, except such as
have been reserved against in the Financial
Statements or the Interim Financial
Statements, which are, individually or in
the aggregate, material; or
(B) grant any waiver, exercise any option or
relinquish any contractual rights which are,
individually or in the aggregate, material;
(xii) other than the key man insurance on the lives of
Messrs. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇▇▇▇ described in
Section 3.1.24 of the Disclosure Schedule, which
insurance policies will he assigned to their
respective spouses and/or allowed to lapse, use its
reasonable commercial efforts to cause its current
insurance (or re-insurance) policies not to be
cancelled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such
termination, cancellation or lapse, replacement
policies underwritten by insurance and re-insurance
companies of nationally recognized standing providing
coverage equal to or greater than the coverage under
the cancelled, terminated or lapsed policies for
substantially similar premiums are in full force and
effect;
(xiii) not settle or compromise any claim brought by any
present, former or purported holder of any of its
securities in connection with the transactions
contemplated by this Agreement or the Arrangement
prior to the Effective Date;
(xiv) not enter into any material contract, agreement,
licence, franchise, lease transaction, commitment or
other right or obligation or amend, modify,
relinquish, terminate or fail to renew in any
material respect any Material Agreement, all other
than in the ordinary course of business, or amend,
modify, relinquish or terminate the Embedded Spaces
Agreement, the amended and restated employment
agreements dated as of the date hereof governing any
of the Key Employees, any of the Non-Competition
Agreements or any of the retention agreements with
any of the Key Employees or the other persons who
signed a retention agreement with Target in the form
attached hereto as Part I of Exhibit J
51
or any of the retention agreements with ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, in the form attached
hereto as Part II of Exhibit J;
(xv) (A) not acquire or sell, pledge, encumber or
otherwise dispose of any material property
or assets (except for the sale of inventory
in the ordinary course of business); or
(B) not incur or commit to incur capital
expenditures prior to the Effective Date,
other than in the ordinary course of
business, and not, in any event, exceeding
$1,850,000;
(xvi) not make any changes to existing accounting practices
relating to Target, except as required by applicable
Law or required by generally accepted accounting
principles or make any material tax election
inconsistent with past practice; and
(xvii) promptly advise Purchaser in writing:
(A) of any event occurring subsequent to the
date of this Agreement, other than in the
ordinary course of business, that would
render any representation or warranty of
Target contained in this Agreement (except
any such representation or warranty which
speaks as of a date prior to the date of
this Agreement), if made on or as of the
date of such event or the Effective Date,
untrue or inaccurate in any material
respect;
(B) of any Material Adverse Change in respect of
Target other than a Material Adverse Change
specifically authorized by this Agreement;
and
(C) of any breach by Target of any covenant or
agreement contained in this Agreement.
(b) Target shall perform all obligations required or desirable to
be performed by Target under this Agreement and shall do all
such other acts and things as may he necessary or desirable in
order to consummate and make effective, as soon as reasonably
practicable, the transactions contemplated in this Agreement
and, without limiting the generality of the foregoing, Target
shall:
(i) use all reasonable efforts to obtain the approvals of
the Target Securityholders to the Arrangement at the
Target Meetings or by consent resolution, as provided
for in Section 2.3(b) and in the Interim Order,
subject, however, to the exercise by the board of
directors of Target of its fiduciary duties as
provided herein;
(ii) apply for and use all reasonable efforts to obtain
all Appropriate Regulatory Approvals set out in
Part II of Exhibit B and, in doing so, to keep
Purchaser reasonably informed as to the status of the
proceedings relating to obtaining the Appropriate
Regulatory Approvals, including providing Purchaser
with copies of all related applications and
notifications, in draft form, in order for Purchaser
to provide its reasonable comments;
(iii) apply for and use all reasonable efforts to obtain
the Interim Order and the Final Order;
52
(iv) carry out the terms of the Interim Order and Final
Order applicable to it and use its reasonable efforts
to comply promptly with all requirements which
applicable Laws may impose on Target with respect to
the transactions contemplated hereby and by the
Arrangement;
(v) until the Effective Date, defend all lawsuits or
other legal, regulatory or other proceedings
challenging or affecting this Agreement or the
consummation of the transactions contemplated hereby;
(vi) use all reasonable efforts to have lifted or
rescinded any injunction or restraining order or
other order relating to Target which may adversely
affect the ability of the parties to consummate the
transactions contemplated hereby;
(vii) on or before the Effective Date, effect all necessary
registrations, filings and submissions of information
required by Governmental Entities from Target
relating to the transactions contemplated herein;
(viii) in connection with the Arrangement and other
transactions contemplated herein, use its reasonable
efforts to obtain, before the Effective Date, all
necessary waivers, consents and approvals required to
be obtained by Target from other parties pursuant to
the Material Agreements;
(ix) use all reasonable efforts to cause the board of
directors of Target to resolve, on or before the
Effective Time, not to permit any early vesting of or
payment of cash for any Target Options in connection
with the Change of Control (as defined in the Target
Stock Option Plan) of Target resulting from the
completion of the transactions contemplated by this
Agreement other than as set forth in Section
3.1.3(c)(iv) of the Target Disclosure Schedule;
(x) not approve or register the transfer of any of the
Target Shares which are subject to the provisions of
the Principal Shareholder Voting Agreements, except
as expressly permitted by the Principal Shareholder
Voting Agreements;
(xi) use all reasonable efforts to cause each of Target's
affiliates (for the purposes of Rule 145 under the
Securities Act) to execute and deliver to Purchaser,
on or prior to the Effective Date, an Affiliate's
Letter;
(xii) use all reasonable efforts to obtain, on or before
the Effective Date, written resignations, effective
as at the Effective Time, from such directors and
officers of Target as Purchaser may request (provided
that, for greater certainty, such resignations shall
not apply to their positions as employees of Target);
(xiii) execute and deliver to Purchaser, on or before the
Effective Date, the Assumption Agreement;
(xiv) use all reasonable efforts to cause the Escrow
Shareholders' Agent to execute, on or before the
Effective Date, the Escrow Agreement and, in the
event that the Escrow Shareholders' Agent has not
executed the Escrow Agreement by the Effective Date,
Target shall identify a person who is acceptable to
Purchaser, acting reasonably, to act as agent for and
on behalf of the Target Shareholders
53
under the Escrow Agreement and to cause such
replacement to execute the Escrow Agreement on or
before the Effective Date;
(xv) use all reasonable efforts to cause the Registration
Rights Shareholders' Agent to execute, on or before
the Effective Date, the Registration Rights Agreement
and, in the event that the Registration Rights
Shareholders' Agent has not executed the Registration
Rights Agreement by the Effective Date, Target shall
identify a person who is acceptable to Purchaser,
acting reasonably, to act as agent for and on behalf
of the Target Shareholders under the Registration
Rights Agreement and to cause such replacement to
execute the Registration Rights Agreement on or
before the Effective Date;
(xvi) deliver to Purchaser on or before the Effective Date
evidence, in a form acceptable to Purchaser acting
reasonably, of the termination of the Shareholders'
Agreement, Target's Registration Rights Agreement
dated as of December 16, 2002 and the Class A
Preferred Share Subscription Agreement between Target
and certain investors made as of December 16, 2002,
such terminations to be effective as of the Effective
Time;
(xvii) deliver to Purchaser, not less than 12 Business Days
prior to the Effective Date, a certificate duly
executed by two directors or senior officers of
Target setting forth the aggregate number of Target
Shares issued and outstanding as at the date of such
certificate (which shall also be the number of such
shares outstanding as at the Effective Date) and the
aggregate number of Target Shares which are or may at
any future time become issuable upon the exercise in
full of all Target Options outstanding as at the
Effective Date, including all Target Options which
are not fully vested or immediately exercisable as at
the Effective Date (which shall also be the number of
such shares issuable thereunder as at the Effective
Date), and certifying that there are no further
rights, agreements or arrangements of any nature or
kind then outstanding for the acquisition of further
Target Shares, or securities convertible into or
exchangeable for Target Shares;
(xviii) not, notwithstanding any other provision of this
Agreement (including the Exhibits hereto and the
Target Disclosure Schedule), allot, issue or grant
any Target Shares, Target Options or other securities
convertible into or exchangeable for Target Shares,
or enter into any agreements or arrangements relating
thereto, to or with any Person or for any reason
between the date of the certificate referred to in
Section 5.2(h)(xvii) and the Effective Date; and
(xix) subject to the Plan of Arrangement, use all
reasonable efforts to assist all Target
Securityholders who are not residents of Canada for
purposes of the Income Tax Act (Canada) to obtain
appropriate clearance certificates pursuant to
Section 116 of such Act.
5.3 Covenants of the Purchaser Parties
Each of the Purchaser Parties hereby jointly and severally
covenants and agrees:
(a) to perform all obligations required or desirable to be
performed by it under this Agreement and to do all such other
acts and things as may be necessary or desirable in order to
consummate and make effective, as soon as reasonably
practicable, the
54
transactions contemplated by this Agreement and, without
limiting the generality of the foregoing, to:
(i) apply for and use all reasonable efforts to obtain
the order described in Section 2.6(a) and all
Appropriate Regulatory Approvals referred to in Part
I of Exhibit B, and, in doing so, to keep Target
reasonably informed as to the status of the
proceedings related to obtaining such order and the
Appropriate Regulatory Approvals, including providing
Target with copies of all related applications and
notifications, in draft form, in order for Target to
provide its reasonable comments;
(ii) in the event Purchaser is unable to obtain the orders
described in Section 2.6(a) on or before March 2,
2004, Purchaser shall forthwith take the actions
specified in Section 2.6(b);
(iii) use reasonable efforts to cause to be voted in favour
of the Arrangement at the Target Meetings all proxies
granted to officers of Purchaser under the Principal
Shareholder Voting Agreements, to the maximum extent
that such officers are authorized or permitted to do
so under such proxies and under applicable Law;
(iv) defend all lawsuits or other legal, regulatory or
other proceedings to which it is a party challenging
or affecting this Agreement or the consummation of
the transactions contemplated hereby;
(v) use all reasonable efforts to have lifted or
rescinded any injunction or restraining order or
other order relating to any of the Purchaser Parties
which may adversely affect the ability of the parties
to consummate the transactions contemplated hereby;
(vi) on or before the Effective Date, effect all necessary
registrations, filings and submissions of information
required by Governmental Entities from Purchaser or
its subsidiaries relating to the transactions
contemplated herein;
(vii) on or before the Effective Date, cause the memorandum
and articles of Exchangeco to be amended to create
the Exchangeable Shares (as defined in the Share
Provisions);
(viii) execute and deliver to Target on or before the
Effective Date, the Assumption Agreement;
(ix) reserve a sufficient number of Purchaser Common
Shares for issuance upon the completion of the
Arrangement and the exchange from time to time of
Exchangeable Shares and the exercise from time to
time of Replacement Options; and
(x) use all reasonable efforts to obtain authorization
for listing on the NNM of the Purchaser Common Shares
issuable: (A) pursuant to the Arrangement, (B) upon
exchange of the Exchangeable Shares from time to
time, and (C) upon exercise of the Replacement
Options from time to time;
55
(b) to carry out the terms of the Interim Order and Final Order
applicable to it and use its reasonable efforts to comply
promptly with all requirements which applicable Laws may
impose on Purchaser or its subsidiaries with respect to the
transactions contemplated hereby and by the Arrangement;
(c) in connection with the consummation of the transactions
contemplated hereby and by the Arrangement, to use its
reasonable efforts to obtain, before the Effective Date, all
necessary waivers, consents and approvals required to be
obtained by Purchaser or its subsidiaries from other parties
to loan agreements, leases or other contracts;
(d) until the Effective Date or the earlier termination of this
Agreement in accordance with Section 7.0, except (i) with the
consent of Target to any deviation therefrom which shall not
be unreasonably withheld; or (ii) with respect to any matter
contemplated by this Agreement or the Plan of Arrangement,
Purchaser will:
(i) not make any changes to existing accounting practices
related to Purchaser, except as permitted or required
by a change in United States generally accepted
accounting practices or by applicable Law;
(ii) not reorganize, amalgamate or merge Purchaser with
any other Person, nor acquire by amalgamating,
merging or consolidating with, purchasing a majority
of the voting securities of or substantially all of
the assets of or otherwise, any business or Person
which acquisition would reasonably be expected to
materially delay the transactions contemplated
hereby; and
(iii) promptly advise Target in writing:
(A) of any event occurring subsequent to the
date of this Agreement that would render any
representation or warranty of Purchaser
contained in this Agreement (except any such
representation or warranty which speaks as
of a date prior to the occurrence of such
event), if made on or as of the date of such
event or the Effective Date, untrue or
inaccurate in any material respect;
(B) of any Material Adverse Change in respect of
Purchaser; and
(C) of any material breach by Purchaser of any
covenant or agreement contained in this
Agreement;
(e) until the Effective Time or the earlier termination of this
Agreement in accordance with Section 7.0, forthwith give
written notice to Target if Purchaser intends to carry on as
its principal undertaking an "investment business" as defined
in proposed subsection 94.1( 1) of the FIE Rules or if it is
reasonably anticipated that Purchaser would be carrying on as
its principal undertaking an investment business as of a
specified future date or if it is reasonably anticipated that
the "carrying value" of all of the "investment property" of
Purchaser (both as determined for purposes of the FIE Rules)
will be greater than one-half of the carrying value of all of
its property, and Purchaser further agrees not to carry on as
its principal business an investment business unless Purchaser
has given prior written notice thereof to Target, provided
that Purchaser shall not be required to give any notice to
Target under this Section 5.3(e) if the giving of such notice
would contravene applicable Laws including applicable
securities Laws; and
56
(f) make all arrangements for the issuance of Exchangeable Shares
and Purchaser Common Shares required to be issued as
contemplated pursuant to the Plan of Arrangement and make all
arrangements for the issuance of Purchaser Common Shares
issuable upon the exchange from time to time of Exchangeable
Shares under their terms and the exercise from time to time of
Replacement Options in accordance with their terms, and
otherwise be bound by the provisions of the Plan of
Arrangement upon the Plan of Arrangement becoming effective.
5.4 Tax Deferred Status
None of the parties shall, except as contemplated by this
Agreement, take any action which may jeopardize the exchange of the Target
Shares for Exchangeable Shares pursuant to the Arrangement by holders of the
Target Shares resident in Canada for the purposes of the Income Tax Act (Canada)
from being treated on a tax deferred basis under the Income TAR Act (Canada) for
holders who are otherwise eligible for such treatment.
5.5 Applications for Regulatory Approvals
Each of Target and the Purchaser Parties covenant and agree to
use all reasonable efforts required to apply for and obtain the Appropriate
Regulatory Approvals, and shall proceed diligently with respect to such
applications, in a coordinated and expeditious manner.
5.6 Section 85 Elections
Exchangeco will execute and jointly file with each Target
Shareholder who elects to receive Exchangeable Shares pursuant to the Plan of
Arrangement and who so requests an election pursuant to Section 85 of the Income
Tax Act (Canada) and any applicable provincial legislation in which election
such Target Shareholder will be entitled to elect the amount which shall be such
Target Shareholder's proceeds of disposition and Exchangeco's cost of the Target
Shares exchanged for Exchangeable Shares, provided that (i) such amount is
within the limits prescribed by Section 85 of the Income Tax Act (Canada) and
any applicable provincial legislation, (ii) such Target Shareholder provides two
completed copies of the appropriate tax election form to Purchaser no later than
90 days after the Effective Date, and (iii) such Target Shareholder provides
Exchangeco with a letter representing to Exchangeco that such Target Shareholder
is a resident of Canada for purposes of the Income Tax Act (Canada) and is not
exempt from Tax. Upon any Target Shareholder complying with the foregoing
conditions, Exchangeco will execute the completed election form received from
such shareholder and return such form by mail to such shareholder within 30 days
of its receipt thereof. The Target Shareholders will be solely responsible for
the preparation of the foregoing election forms, and for the filing of such
forms with the appropriate Tax authority. Exchangeco shall not be responsible or
liable in any manner whatsoever for the proper completion and timely filing of
any such forms with the appropriate Tax authority, but will cooperate reasonably
with the Target Shareholders in completing such forms in a timely manner,
including providing such information within Purchaser's possession as is
reasonably required by the Target Shareholders to complete such forms.
5.1 Covenants Regarding Non-Solicitation
(a) Subject to Section 5.8, Target shall not, directly or
indirectly, through any officer, director, employee,
representative or agent of Target:
(i) solicit, initiate or knowingly encourage (including
by way of furnishing information or entering into any
form of agreement, arrangement or understanding) the
initiation of any inquiries or proposals regarding an
Acquisition Proposal;
57
(ii) participate in any discussions or negotiations
regarding any Acquisition Proposal;
(iii) withdraw or modify in a manner adverse to Purchaser
the approval of the board of directors of Target of
the transactions contemplated hereby;
(iv) approve or recommend any Acquisition Proposal; or
(v) enter into any agreement, arrangement or
understanding related to any Acquisition Proposal.
Notwithstanding the preceding part of this Section 5.7(a) and
any other provision of this Agreement, nothing shall prevent
the board of directors of Target prior to the issuance of the
Final Order from considering, participating in any discussions
or negotiations, or entering into a confidentiality agreement
and providing information pursuant to Section 5.7(c),
regarding an unsolicited bona fide written Acquisition
Proposal that did not otherwise result from a breach of this
Section 5.7 and that the board of directors of Target
determines in good faith, after consultation with financial
advisors and outside legal counsel, is reasonably likely to
result in a Superior Proposal; provided, however, that prior
to taking such action, the board of directors must receive an
opinion of outside legal counsel that it is necessary that the
board of directors of Target take such action in order to
discharge properly its fiduciary duties. Target shall not
consider, negotiate, accept or recommend an Acquisition
Proposal after the date of the issuance of the Final Order.
Target shall, and shall cause its officers, directors and
employees and any financial advisors or other advisors,
representatives or agents retained by it immediately upon
execution of this Agreement to cease all discussions and
negotiations regarding any proposal that constitutes, or may
reasonably be expected to lead to, an Acquisition Proposal.
(b) Target shall promptly notify Purchaser, at first orally and
then in writing, of any Acquisition Proposal and any enquiry
that could lead to an Acquisition Proposal, or any amendments
to the foregoing, or any request for non-public information
relating to Target in connection with an Acquisition Proposal
or for access to the properties, books or records of Target by
any Person that informs Target that it is considering making,
or has made, a proposal that constitutes, or may reasonably be
expected to lead to, an Acquisition Proposal. Such notice
shall include a description of the material terms and
conditions of any proposal, the identity of the Person making
such proposal, enquiry or contact and provide such other
details of the proposal, enquiry or contact as Purchaser may
reasonably request. Target shall:
(i) keep Purchaser fully informed of the status including
any change to the material terms of any such
Acquisition Proposal or enquiry; and
(ii) provide to Purchaser as soon as practicable after
receipt or delivery thereof with copies of all
correspondence and other written material sent or
provided to Target from any Person in connection with
any Acquisition Proposal or sent or provided by
Target to any Person in connection with any
Acquisition Proposal.
(c) If Target receives a request for material non-public
information from a Person who has made an unsolicited bona
fide written Acquisition Proposal and Target is permitted, as
contemplated under the second sentence of Section 5.7(a), to
negotiate the terms of such
58
Acquisition Proposal, then, and only in such case, the board
of directors of Target may, subject to the execution by such
Person of a confidentiality agreement on terms substantially
similar to the Confidentiality Agreement, provide such Person
with access to information regarding Target; provided,
however, that the Person making the Acquisition Proposal shall
not be precluded under such confidentiality agreement from
making the Acquisition Proposal (but not any material
amendment thereto) and provided further that Target sends a
copy of any such confidentiality agreement to Purchaser
promptly upon its execution and concurrently provides
Purchaser with a list of or copies of the information provided
to such Person and access to similar information to which such
Person was provided.
(d) Target shall ensure that its officers, directors and employees
and any financial advisors or other advisors, representatives
or agents retained by it are aware of the provisions of this
Section 5.7, and it shall be responsible for any breach of
this Section 5.7 by any such Person.
5.8 Notice by Target of Superior Proposal Determination
Notwithstanding Sections 5.7(a), (b) and (d), Target may
accept, approve, recommend or enter into any agreement, understanding or
arrangement in respect of a Superior Proposal if, and only if:
(a) it has provided Purchaser with a copy of the Superior Proposal
document;
(b) five Business Days shall have elapsed from the later of the
date Purchaser received written notice advising Purchaser that
Target's board of directors has resolved, subject only to
compliance with this Section 5.8 and termination of this
Agreement, to accept, approve, recommend or enter into an
agreement in respect of such Superior Proposal, specifying the
terms and conditions of such Superior Proposal and identifying
the Person making such Superior Proposal, and the date
Purchaser received a copy of such Superior Proposal; and
(c) it has previously or concurrently will have:
(i) paid to Purchaser the break fee, if any, payable
under Section 7.4; and
(ii) terminated this Agreement pursuant to Section 7.3.
Any information provided by Target to Purchaser pursuant to
this Section 5.8 or pursuant to Section 5.7 shall constitute "Information" under
Section 5.9(b).
During such five Business Day period, Target agrees that
Purchaser shall have the right, but not the obligation, to offer to amend the
terms of this Agreement. The board of directors of Target will review any offer
by Purchaser to amend the terms of this Agreement in good faith in order to
determine, in its discretion in the exercise of its fiduciary duties, whether
Purchaser's offer upon acceptance by Target would result in such Superior
Proposal ceasing to be a Superior Proposal. If the board of directors of Target
so determines, it will enter into an amended agreement with Purchaser reflecting
Purchaser's amended proposal. If the board of directors of Target continues to
believe, in good faith and after consultation with financial advisors and
outside legal counsel, that such Superior Proposal remains a Superior Proposal
and therefor rejects Purchaser's amended proposal, Target may terminate this
Agreement pursuant to Section 7.3(c)(iv); provided, however, that Target must
concurrently therewith pay to Purchaser the break fee, if any, payable to
Purchaser under Section 7.4 and must concurrently with such termination enter
into a definitive agreement with respect to such Acquisition Proposal. Target
59
acknowledges and agrees that payment of the break fee, if any, payable under
Section 7.4 is a condition to valid termination of this Agreement under Section
7.3(c)(iv) and this Section 5.8.
Target also acknowledges and agrees that each successive
modification of any Acquisition Proposal shall constitute a new Acquisition
Proposal for purposes of the requirement under clause (ii) of this Section 5.8
to initiate an additional five Business Day notice period.
5.9 Access to Information
(a) At the request of Purchaser, acting reasonably, Target will
execute or cause to be executed such consents, authorizations
and directions as may be necessary to enable Purchaser or its
officers, employees, counsel, accountants and other authorized
representatives and advisors (the "REPRESENTATIVES")to obtain
full access to all files and records relating to Target or its
assets maintained by any Governmental Entity.
(b) Without limiting the Confidentiality Agreement, each of
Purchaser and Target acknowledges that certain information to
be provided to it under Section 5.9(a) above, or provided to
it prior to the execution of this Agreement, will be
confidential, non-public and/or proprietary in nature (the
"INFORMATION"). Except as permitted below, each of Purchaser
and Target will keep the Information confidential and will
not, without the prior written consent of the other, disclose
it, in any manner whatsoever, in whole or in part, to any
other Person, and will not use it for any purpose other than
to evaluate the transactions contemplated by this Agreement.
Each of Purchaser and Target will make all reasonable,
necessary and appropriate efforts to safeguard the Information
from disclosure to anyone other than as permitted hereby and
to control the copies, extracts or reproductions made of the
Information. The Information may be provided to the
Representatives of each of Purchaser and Target who require
access to the same to assist it in proceeding in good faith
with the transactions contemplated by this Agreement, and
whose assistance is required for such purposes, provided that
it has first informed such Representatives to whom Information
is provided that the Representative has the same obligations,
including as to confidentiality, restricted use and otherwise,
that it has with respect to such Information. This provision
shall not apply to such portions of the Information that:
(i) are or become generally available to the public
otherwise than as a result of disclosure by a party
or its Representatives; or
(ii) become available to a party on a non-confidential
basis from a source other than, directly or
indirectly, the other party or its Representatives,
provided that such source is not, to the knowledge of
the first party, upon reasonable enquiry, prohibited
from transmitting the Information by a contractual,
legal or fiduciary obligation; or
(iii) were known to a party or were in its possession on a
non-confidential basis prior to being disclosed to it
by the other party or by someone on its behalf; or
(iv) are required by applicable Laws or court order to be
disclosed, provided that if a party or any of its
representatives (the "COMPELLED PARTY") is required
to disclose any such information, the Compelled Party
gives the other parties (the "OTHER PARTIES") prior
written notice of such disclosure as soon as
practicable,
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so that the Other Parties will have an opportunity to
seek a protective order or to take other appropriate
action.
Where this Agreement is terminated for any reason then all
Information of the disclosing party (including all paper and
electronic copies thereof) shall be immediately returned to
the disclosing party or destroyed as directed by the
disclosing party.
The provisions of this Section 5.9(b) shall survive the
termination of this Agreement.
(c) The parties acknowledge that certain Information may be
competitively sensitive and that disclosure thereof shall be
limited to that which is reasonably necessary for the purpose
Of:
(i) preparing submissions or applications in order to
obtain the Appropriate Regulatory Approvals; and
(ii) preparing the Cicular
5.10 Covenant Regarding Representations and Warranties
Each of Target and the Purchaser Parties covenants that it
will use all reasonable efforts to ensure that the representations and
warranties given by it and contained in Section 3.0 are true and correct on and
as at the Effective Date (except to the extent such representations and
warranties speak as of a specified date or except as affected by transactions
contemplated or permitted by this Agreement or in the ordinary course of
business or otherwise consented to by the other parties hereto) or, if not true,
do not have a Material Adverse Effect on such party.
5.11 Closing Matters
Each of the Purchaser Parties and Target shall deliver, at the
closing of the Arrangement and other transactions contemplated hereby. such
customary certificates (including "bring-down" certificates), resolutions,
opinions (including appropriate Legal opinions of Purchaser's Canadian and U.S.
Legal counsel opining upon the issuance and resale of Purchaser Common Shares)
and other closing documents as may be required by the other party, acting
reasonably. The closing of the Arrangement and the transactions contemplated
hereby will take place at 11:OO a.m. (Pacific Time) on the Effective Date at the
offices of Fraser ▇▇▇▇▇▇ Casgrain LLP, 15th Floor, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇.
5.12 Indemnification of Directors and Officers
Purchaser agrees that from the Effective Date until the sixth
anniversary thereof it will take all necessary steps to ensure that all present
directors and officers of Target are insured under Purchaser's existing
directors' and officers' insurance, covering claims made within such period of
time.
5.13 Employment and Related Matters
Purchaser covenants and agrees that from and after the
Effective Time it will cause Target, for a period of one year, to deal with any
employees of Target whose employment is terminated after the Effective Date in a
fair and equitable manner no worse than the existing termination policies of
Target set out in Section 3.1.20 of the Target Disclosure Schedule.
Nothing herein shall he construed as (i) requiring Purchaser
or Target to continue the employment of any employee of Target following the
Effective Time, (ii) limiting Purchaser's or Target's ability to amend, modify
or terminate any Employee Benefit or arrangement of Target, Purchaser or any
61
of Purchaser's subsidiaries, or (iii) requiring Purchaser or Target to maintain
any particular level of Employee Benefits for any employee of Target following
the Effective Time.
5.14 Assignment of Key-Man Insurance
Immediately following the Effective Time, Purchaser shall
cause Target to assign existing key man insurance policies on the lives of ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇, respectively, as more particularly
described in Section 3.1.24 of the Target Disclosure Schedule, to such person's
respective spouse unless such policies have lapsed.
5.15 Prohibition on Voluntary Liquidation
The Purchaser Parties shall not, and agree to cause Newco to
not, take any action relating to a voluntary liquidation, dissolution or
winding-up of Exchangeco or Newco, as the case may be, prior to the Redemption
Date (as defined in the Plan of Arrangement).
6.0 CONDITIONS
6.1 Mutual Conditions Precedent
The respective obligations of the parties to complete the
transactions contemplated by this Agreement shall be subject to the
satisfaction, on or before the Effective Date, of the following conditions
precedent, each of which may only be waived by the mutual consent of Purchaser
and Target:
(a) the Arrangement shall have been approved at the Target
Meetings by not less than two-thirds of the votes cast by the
holders of Target Class A Preferred Shares and by not less
than two-thirds of the votes cast by the holders of the Target
Common Shares and Target Options, voting together as a class,
in any case who are represented in person or by proxy thereat
or by consent resolutions, in either case, in the manner
contemplated by Section 2.0;
(b) the Arrangement shall have been approved by the Target
Securityholders in accordance with any conditions in addition
to those set out in Section 6.1(a) which may be imposed by the
CBCA or the Interim Order;
(c) the Interim Order and the Final Order shall each have been
obtained in form and terms satisfactory to each of Target and
Purchaser, acting reasonably, and shall not have been set
aside or modified in a manner unacceptable to such parties,
acting reasonably, on appeal or otherwise;
(d) there shall not be in force any order or decree restraining or
enjoining the consummation of the transactions contemplated by
this Agreement and there shall be no proceeding (other than an
appeal made in connection with the Arrangement), of a judicial
or administrative nature or otherwise, in progress or
threatened that relates to or results from the transactions
contemplated by this Agreement that would, if successful,
result in an order or ruling that would preclude completion of
the transactions contemplated by this Agreement in accordance
with the terms hereof or would otherwise be inconsistent with
the Appropriate Regulatory Approvals which have been obtained;
(e) this Agreement shall not have been terminated pursuant to
Section 7.0; and
(f) all consents, waivers, permits, orders and approvals of any
Governmental Entity (including the Appropriate Regulatory
Approvals other than, in the case of the Purchaser, the orders
or receipts set forth in Section 2.6(a) or (b) or notice
pursuant to Section 12 of the Investment Canada Act), and the
expiry of any waiting periods, in connection with, or
62
required to permit, the consummation of the Arrangement, the
failure of which to be obtained or the non-expiry of which
would constitute a criminal offense, or would have a Material
Adverse Effect on Purchaser or Target, as the case may be,
shall have been obtained or received on terms that will not
have a Material Adverse Effect on Purchaser and/or Target and
there shall not be pending or threatened any suit, action or
proceeding by any Governmental Entity, in each case that has a
reasonable likelihood of success,
(i) seeking to prohibit or restrict the acquisition by
Purchaser or any of its subsidiaries of any Target
Shares, seeking to restrain or prohibit the
consummation of the Plan of Arrangement or seeking to
obtain from Target or Purchaser any damages that are
material in relation to Target;
(ii) seeking to prohibit or materially limit the ownership
or operation by Purchaser or any of its subsidiaries
of any material portion of the business or assets of
Target or to compel Purchaser or any of its
subsidiaries to dispose of or hold separate any
material portion of the business or assets of Target;
(iii) seeking to impose limitations on the ability of
Purchaser or any of its subsidiaries to acquire or
hold, or exercise full rights of ownership of, any
Target Shares, including the right to vote the Target
Shares on all matters properly presented to the
shareholders of Target;
(iv) seeking to prohibit Purchaser or any of its
subsidiaries from effectively controlling in any
material respect the business or operations of
Target; or
(v) which otherwise is reasonably likely to have a
Material Adverse Effect on Target.
6.2 Additional Conditions Precedent to the Obligations of the
Purchaser Parties
The obligations of the Purchaser Parties to complete the
transactions contemplated by this Agreement shall also be. subject to the
fulfilment of each of the following conditions precedent (each of which is for
the Purchaser Parties' exclusive benefit and may be waived by the Purchaser
Parties and any one or more of which, if not satisfied or waived, will relieve
the Purchaser Parties of any obligation under this Agreement):
(a) all covenants and agreements of Target under this Agreement to
be performed or observed on or before the Effective Date shall
have been duly performed and observed by Target in all
material respects;
(b) the representations and warranties of Target contained in this
Agreement shall be true and correct in all material respects
as of the Effective Date as if made on and as of such date
(except to the extent such representations and warranties
speak as of a specified date which is earlier than the date of
this Agreement, in which event such representations and
warranties shall be true and correct in all material respects
as of such earlier specified date, or except as affected by
transactions or changes in the ordinary course of business or
otherwise contemplated or permitted by this Agreement or
otherwise consented to by Purchaser) and Purchaser shall have
received a certificate of Target addressed to Purchaser and
dated the Effective Date, signed on behalf of Target by two
senior executive officers of Target, confirming the same as at
the Effective Date;
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(c) between the date hereof and the Effective Date, there shall
not have occurred, in the judgment of Purchaser, acting
reasonably, a Material Adverse Change to Target;
(d) the board of directors of Target shall have adopted all
necessary resolutions, and all other necessary corporate
action shall have been taken by Target, to permit the
consummation of the Arrangement;
(e) the board of directors of Target shall have made and shall not
have withdrawn or modified or amended, in any material
respect, prior to the Target Meetings, an affirmative
recommendation that the Target Securityholders approve the
Arrangement;
(f) holders of more than 5% of the issued and outstanding Target
Shares shall not have exercised the Dissent Rights in respect
of the Arrangement;
(g) each of the Principal Shareholder Voting Agreements, the
Non-Competition Agreements, the Embedded Spaces Agreement, the
amended and restated employment agreements dated as of the
date hereof relating to each of the Key Employees and the
retention agreements referred to in Section 5.2(a)(xiv) shall
be and remain in full force and effect, unamended, and each of
the parties thereto (other than Purchaser) shall be, in all
material respects, in full compliance with their respective
obligations thereunder;
(h) Purchaser shall have received from Target evidence, in form
and content acceptable to Purchaser, acting reasonably, of the
termination of each of the agreements referred to in Section
5.2(b)(xvi), such terminations to be effective as at the
Effective Time; and
(i) the board of directors of Target shall have passed the
resolution referred to in Section 5.2(b)(ix) and none of the
Target Options shall have been "cashed out" as provided for in
the Target Stock Option Plan, nor, except as set out in
Section 3.1.3(c)(iv) of the Target Disclosure Schedule, shall
the vesting or time to exercise of any of such options have
been accelerated, by reason of the transactions contemplated
by this Agreement or otherwise.
The Purchaser Parties may not rely on the failure to satisfy any of the above
conditions precedent as a basis for a non-compliance by them with their
obligations under this Agreement if the condition precedent would have been
satisfied but for a material default by the Purchaser Parties in complying with
their obligations hereunder.
6.3 Additional Conditions Precedent to the Obligations of Target
The obligations of Target to complete the transactions
contemplated by this Agreement shall also be subject to the following conditions
precedent (each of which is for the exclusive benefit of Target and may be
waived by Target and any one or more of which, if not satisfied or waived, will
relieve Target of any obligation under this Agreement):
(a) all covenants of the Purchaser Parties under this Agreement to
be performed on or before the Effective Date shall have been
duly performed by the Purchaser Parties in all material
respects;
(b) all representations and warranties of the Purchaser Parties
contained in this Agreement shall be true and correct in all
material respects as of the Effective Date as if made on and
as of such date (except to the extent such representations and
warranties speak as of a specified date which is earlier than
the date of this Agreement, in which event such
64
representations and warranties shall be true and correct in
all material respects as of such earlier specified date, or
except as affected by transactions or changes in the ordinary
course of business or otherwise contemplated or permitted by
this Agreement) and Target shall have received a certificate
of each of the Purchaser Parties addressed to Target and dated
the Effective Date, signed on behalf of each of the Purchaser
Parties by two senior executive officers of the relevant
Purchaser Party, confirming the same as at the Effective Date;
(c) between the date hereof and the Effective Date, there shall
not have occurred, in the judgment of Target, acting
reasonably, a Material Adverse Change to Purchaser; provided
that a reduction in the market price or value of the Purchaser
Common Shares on the NNM or any other stock exchange or
quotation system on which the Purchaser Common Shares may be
listed or posted for trading or the results of operations (and
the announcement thereof) of Purchaser in any particular
fiscal quarter shall not, in either case, in and of itself,
constitute such a Material Adverse Change;
(d) the board of directors of each of the Purchaser Parties and
Newco shall have adopted all necessary resolutions, and all
other necessary corporate action shall have been taken by the
Purchaser Parties to permit the consummation of the
Arrangement and the issue of the Exchangeable Shares
contemplated thereby and the issue of Purchaser Common Shares
pursuant to the Arrangement and upon the exchange from time to
time of the Exchangeable Shares and the issuance and exercise
from time to time of the Replacement Options and the issue
from time to time of Purchaser Common Shares on the exercise
of the Replacement Options;
(e) Purchaser shall have either (i) obtained the order described
in Section 2.6(a) or (ii) filed and obtained a receipt for a
preliminary prospectus, resolved any comments with respect to
such preliminary prospectus made by the applicable securities
regulatory authority and received confirmation from such
securities regulatory authority that Purchaser is clear to
file a final prospectus and shall have prepared a final
prospectus, all as contemplated pursuant to Section 2.6(b);
and
(f) the Purchaser Common Shares issuable (i) pursuant to the
Arrangement, (ii) upon exchange of the Exchangeable Shares
from time to time, and (iii) upon exercise of the Replacement
Options from time to time, shall have been authorized for
listing on the NNM, subject to official notice of issuance.
Target may not rely on the failure to satisfy any of the above conditions
precedent as a basis for noncompliance by Target with its obligations under this
Agreement if the condition precedent would have been satisfied but for a
material default by Target in complying with its obligations hereunder.
6.4 Notice and Cure Provisions
The Purchaser Parties and Target will give prompt notice to
the other of the occurrence, or failure to occur, at any time from the date
hereof until the Effective Date, of any event or state of facts which occurrence
or failure would, or would be likely to:
(a) cause any of the representations or warranties of the other
contained herein to be untrue or inaccurate in any material
respect on the date hereof or on the Effective Date (except to
the extent such representations and warranties speak as of a
specified date or except as affected by transactions or
changes in the ordinary course of business or otherwise
contemplated or permitted by this Agreement); or
65
(b) result in the failure to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by the
other hereunder prior to the Effective Date.
Neither the Purchaser Parties nor Target may elect not to complete the
transactions contemplated hereby pursuant to the conditions precedent contained
in Sections 6.1, 6.2 and 6.3, or exercise any termination right arising
therefrom, unless forthwith and in any event prior to the filing of the Articles
of Arrangement with the Director, the Purchaser Parties or Target, as the case
may be, have delivered a written notice to the other specifying in reasonable
detail all breaches of covenants, representations and warranties or other
matters which the Purchaser Parties or Target, as the case may be, are asserting
as the basis for the non-fulfilment of the applicable condition precedent or
the exercise of the termination right, as the case may be. If any such notice is
delivered, provided that the Purchaser Parties or Target, as the case may be,
are proceeding diligently to cure such matter, if such matter is susceptible to
being cured, the other may not terminate this Agreement until the later of April
30, 2004 and the expiration of a period of 30 days from such notice. If such
notice has been delivered prior to the date of the Target Meetings, such meeting
shall be postponed until the expiry of such period. If such notice has been
delivered prior to the making of the application for the Final Order or the
filing of the Articles of Arrangement with the Director, such application and
such filing shall be postponed until the expiry of such period. For greater
certainty, in the event that such matter is cured within the time period
referred to herein, this Agreement may not be terminated as a result of the
occurrence of that matter.
6.5 Satisfaction of Conditions
The conditions precedent set out in Sections 6.1, 6.2 and 6.3
shall be conclusively deemed to have been satisfied, waived or released when,
with the approval of Purchaser and Target, a certificate of arrangement in
respect of the Arrangement is issued by the Director.
7.0 AMENDMENT AND TERMINATION
7.1 Amendment
This Agreement may, at any time and from time to time before
or after the holding of the Target Meetings but not later than the Effective
Date, be amended by mutual written agreement of the parties hereto, and any such
amendment may, without limitation:
(a) change the time for performance of any of the obligations or
acts of the parties;
(b) waive any inaccuracies or modify any representation contained
herein or in any document delivered pursuant hereto;
(c) waive compliance with or modify any of the covenants herein
contained and waive or modify performance of any of the
obligations of the parties; and
(d) waive compliance with or modify any conditions precedent
herein contained,
provided, however, that any such change, waiver or modification does not
invalidate any required approval of the Target Securityholders to the
Arrangement.
7.2 Mutual Understanding Regarding Amendments
The parties agree that if the Purchaser Parties or Target, as
the case may be, propose any amendment or amendments to this Agreement or to the
Plan of Arrangement, the other will act reasonably in considering such amendment
and if the other and its security holders are not prejudiced by reason of any
such amendment the other will co-operate in a reasonable fashion with the
Purchaser Parties or
66
Target, as the case may be, so that such amendment can be effected subject to
applicable Laws and the rights of the security holders.
7.3 Termination
(a) If any condition contained in Sections 6.1 or 6.2 is not
satisfied on or before the Effective Date, to the satisfaction
of the Purchaser Parties, then Purchaser on behalf of the
Purchaser Parties in accordance with Section 6.4 may by notice
to Target terminate this Agreement and the obligations of the
parties hereunder except as otherwise herein provided, but
without detracting from the rights of the Purchaser Parties
arising from any breach by Target but for which the condition
would have been satisfied.
(b) If any condition contained in Sections 6.1 or 6.3 is not
satisfied on or before the Effective Date to the satisfaction
of Target, then Target in accordance with Section 6.4 may by
notice to Purchaser on behalf of the Purchaser Parties
terminate this Agreement and the obligations of the parties
hereunder except as otherwise herein provided, but without
detracting from the rights of Target arising from any breach
by the Purchaser Parties but for which the condition would
have been satisfied.
(c) This Agreement may, at any time before or after the holding of
the Target Meetings but not later than the Effective Date:
(i) be terminated by the mutual agreement of Target and
Purchaser on behalf of the Purchaser Parties (without
further action on the part of the Target
Securityholders if terminated after the holding of
the Target Meetings);
(ii) be terminated by either Target or Purchaser on behalf
of the Purchaser Parties, if there shall be passed
any law or regulation that makes consummation of the
transactions contemplated by this Agreement illegal
or otherwise prohibited or if any injunction, order
or decree enjoining the Purchaser Parties or Target
from consummating the transactions contemplated by
this Agreement is entered and such injunction,order
or decree shall become final and non-appealable;
(iii) be terminated by Purchaser on behalf of the Purchaser
Parties if
(A) the board of directors of Target shall have
failed to recommend or withdrawn or modified
or changed in a manner adverse to Purchaser
its approval or recommendation of this
Agreement or the Arrangement or shall have
recommended or approved an Acquisition
Proposal; or
(B) through no fault of the Purchaser Parties,
the Arrangement shall not have been
submitted for the approval of the Target
Securityholders at the Target Meetings or
approved by consent resolution, on or before
April 30, 2004, in the manner provided for
in Section 2.0 and in the Interim Order;
(iv) be terminated by Target in order to enter into a
definitive written agreement with respect to a
Superior Proposal, subject to compliance with Section
5.8 and the payment of the fee required to be paid
pursuant to Section 7.4(a); or
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(v) be terminated by either Target or Purchaser on behalf
of the Purchaser Parties if the Arrangement, through
no fault of the Purchaser Parties, shall not have
been approved by the Target Securityholders, on or
before April 30, 2004, in the manner provided for in
Section 2.0 and in the Interim Order.
(b) Notwithstanding any other provision hereof, if the Effective
Date does not occur on or prior to the Drop Dead Date, then
this Agreement shall terminate.
(e) If this Agreement is terminated in accordance with the
foregoing provisions of this Section 7.3, no party shall have
any further liability to perform its obligations hereunder,
except as provided for in Section 7.4 or as otherwise
contemplated hereby, and provided that, subject to Section
7.6, neither the termination of this Agreement nor anything
contained in this Section 7.3(e) shall relieve any party from
any liability for any breach by it of this Agreement,
including from any inaccuracy in its representations and
warranties and any non-performance by it of its covenants made
herein.
7.4 Break Fee
(a) If:
(i) Target shall terminate this Agreement pursuant to
Section 7.3(c)(iv);
(ii) the Purchaser Parties shall terminate this Agreement
pursuant to Section 7.3(c)(iii);
(iii) either Target or the Purchaser Parties shall
terminate this Agreement pursuant to Section
7.3(c)(v); or
(iv) the Purchaser Parties shall terminate this Agreement
pursuant to Section 7.3(a) in respect of the
non-satisfaction of either of the conditions
contained in Sections 6.2(a) or (b), other than a
termination pursuant to Section 7.3(a) in respect of
the non-satisfaction of the condition contained in
Section 6.2(b) relating to a representation or
warranty which is true and correct as of the date of
this Agreement but which, through no fault of Target
after the date of this Agreement, is not true and
correct in all material respects as of the Effective
Date (except, for greater certainty, to the extent
such representations and warranties speak as of a
specified date which is earlier than the date of this
Agreement or except as affected by transactions or
changes in the ordinary course of business or
otherwise contemplated or permitted by this Agreement
or otherwise consented to by Purchaser);
then in any such case Target shall pay to Purchaser the sum of
$10,000,000 in immediately available funds to an account
designated by Purchaser. Such payment shall be due and
payable:
(A) in the case of a termination specified in clause (i),
prior to the termination of this Agreement;
(B) in the case of a termination specified in clause
(ii), within five Business Days after written notice
of termination by the Purchaser Parties;
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(C) in the case of a termination specified in clause
(iii), within five Business Days after written notice
of the termination contemplated therein by either
Target or the Purchaser Parties; or
(D) in the case of a termination specified in clause
(iv), within five Business Days after written notice
of termination by Purchaser.
Target shall not be obligated to make more than one payment
pursuant to this Section 7.4(a).
(b) If Target shall terminate this Agreement pursuant to Section
7.3(b) in respect of the non-satisfaction of either of the
conditions contained in Section 6.3(a) or (b), other than a
termination pursuant to Section 7.3(b) in respect of the
non-satisfaction of the condition contained in Section 6.3(b)
relating to a representation or warranty which is true and
correct as of the date of this Agreement but which, through no
fault of the Purchaser Parties, is not true and correct in all
material respects as of the Effective Date after the date of
this Agreement, then in any such case Purchaser shall pay to
Target the sum $10,000,000 in immediately available funds to
an account designated by Target. Such payment shall be due and
payable within five Business Days after written notice of
termination by Target. Purchaser shall not be obligated to
make more than one payment pursuant to this Section 7.4(b).
7.5 Liquidated Damages
Each of the parties acknowledges that the damages set forth in
this Section 7.0 are a genuine pre-estimate of the damages which the other will
suffer or incur as a result of the event giving rise to those damages and are
not penalties. Each of the parties irrevocably waives any right it may have to
raise as a defence in any proceedings that any such damages are abusive.
7.6 Remedies
Subject to Section 7.7, the parties hereto acknowledge and
agree that an award of money damages would be inadequate for any breach of this
Agreement by any party or its representatives and any such breach would cause
the non-breaching party irreparable harm. Accordingly, the parties hereto agree
that, in the event of any breach or threatened breach of this Agreement by one
of the parties, the non-breaching party will also be entitled, without the
requirement of posting a bond or other security, to equitable relief, including
injunctive relief and specific performance. Such remedies will not be the
exclusive remedies for any breach of this Agreement but will be in addition to
all other remedies available at law or equity to the parties.
7.7 Effect of Break Fee Payment
For greater certainty, the parties agree that the payment of
the amount pursuant to Section 7.4 is the sole monetary remedy of the party
entitled to such amount as a result of the occurrence of any of the events
referred to in Section 7.4(a) or (b), as the case may be.
Subject to the immediately preceding paragraph, nothing in
this Agreement shall preclude a party from seeking damages in respect of losses
incurred or suffered by such party as a result of any breach of this Agreement
by the other party, seeking injunctive relief to restrain any breach or
threatened breach of the covenants or agreements set forth in this Agreement or
the Confidentiality Agreement or otherwise, or seeking specific performance of
any of such covenants or agreements, without the necessity of posting bond or
security in connection therewith.
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8.0 GENERAL
8.1 Notices
All notices and other communications which may or are required
to be given pursuant to any provision of this Agreement shall be given or made
in writing and shall be deemed to be validly given if served personally or by
telecopy, in each case addressed to the particular party at:
(a) If to Target:
OctigaBay Systems Corporation
Suite 301 - 4621 Canada Way
Burnaby, British Columbia V5G 4X8
Attention: President and Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
1300 - ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ Tower
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to a Purchaser Party:
Cray Inc.
Suite 600 - ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Vice-President, Legal and General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
Fraser ▇▇▇▇▇▇ Casgrain LLP
1500 - ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇.▇. Horn
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
Stoel Rives LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address of which any party may, from time to time, advise the
other parties by notice in writing given in accordance with the foregoing. The
date of receipt of any such notice shall be deemed to be the date of delivery or
telecopying thereof.
8.2 Assignment
No party hereto may assign its rights or obligations under
this Agreement or the Arrangement.
8.3 Binding Effect
This Agreement and the Arrangement shall he binding upon and
shall enure to the benefit of the parties hereto and their respective
successors. For greater certainty, regardless of whether the Arrangement
Resolution has been passed and regardless of whether the Interim Order or the
Final Order has been granted, the Purchasing Parties will not have any right
pursuant to this Agreement or the Plan of Arrangement, in equity or otherwise,
whether absolutely or contingently, to, or to acquire, Target Shares prior to
the Effective Time, and any such right will only come into existence when the
Plan of Arrangement becomes effective and binding at the Effective Time.
8.4 Waiver and Modification
Target and the Purchaser Parties may waive or consent to the
modification of, in whole or in part any inaccuracy of any representation or
warranty made to them hereunder or in any document to be delivered pursuant
hereto and may waive or consent to the modification of any of the covenants
herein contained for their respective benefit or waiver or consent to the
modification of any of the obligations of the other parties hereto. Any waiver
or consent to the modification of any of the provisions of this Agreement, to be
effective, must be in writing executed by the party granting such waiver or
consent.
8.5 No Personal Liability
(a) No director or officer of any Purchaser Party shall have any
personal liability whatsoever to Target under this Agreement,
or any other document delivered in connection with the
Arrangement by or on behalf of a Purchaser Party.
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(b) No director or officer of Target shall have any personal
liability whatsoever to any Purchaser Party under this
Agreement, or any other document delivered in connection with
the Arrangement by or on behalf of Target.
8.6 Further Assurances
Each party hereto shall, from time to time, and at all times
hereafter, at the request of the other parties hereto, but without further
consideration, do all such further acts and things and execute and deliver all
such further documents and instruments as shall be reasonably required in order
to fully perform and carry out the terms and intent hereof.
8.7 Expenses
Except as provided in Section 7.4, all out-of-pocket expenses
of the parties relating to the Arrangement and the transactions contemplated
hereby, including all Third Party Expenses, shall be paid by the party incurring
such expenses.
8.8 Consultation
Purchaser and Target agree to consult with each other as to
the general nature of any news releases or public statements with respect to
this Agreement or the Arrangement, and to use their respective reasonable
efforts not to issue any news releases or public statements inconsistent with
the results of such consultations. Subject to applicable Laws, each party shall
use its reasonable efforts to enable the other parties to review and comment on
all such news releases prior to the release thereof. The parties agree to issue
jointly a news release with respect to this Arrangement as soon as practicable
following the execution of this Agreement.
8.9 Governing Laws
This Agreement shall be governed by and construed in
accordance with the laws of the Province of British Columbia and the laws of
Canada applicable therein and shall be treated in all respects as a British
Columbia contract.
8.10 Severability
If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties hereto shall in
such event negotiate in good faith to modify the Agreement to preserve each
party's anticipated benefits under this Agreement.
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8.11 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.
IN WITNESS WHEREOF the parties hereto have executed this
Agreement as of the date first written above.
CRAY INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------
President
3084317 NOVA SCOTIA LIMITED
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------
Vice President
OCTIGABAY SYSTEMS CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------
President