Exhibit 2.1
ACQUISITION AGREEMENT FOR PLAN OF ARRANGEMENT
BY AND AMONG
PHOTON DYNAMICS, INC.,
PHOTON DYNAMICS NOVA SCOTIA COMPANY
AND
IMAGE PROCESSING SYSTEMS INC.
Dated as of September 27, 2000
TABLE OF CONTENTS
ARTICLE I
THE PLAN OF ARRANGEMENT
1.1 IMPLEMENTATION STEPS BY COMPANY..........................................................................2
1.2 IMPLEMENTATION STEPS BY PARENT AND CANCO.................................................................2
1.3 INTERIM ORDER............................................................................................3
1.4 EFFECT OF THE ARRANGEMENT................................................................................3
1.5 EFFECT ON CAPITAL STOCK..................................................................................3
1.6 DISSENTING SHARES........................................................................................4
1.7 SURRENDER OF CERTIFICATES................................................................................5
1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON SHARES.....................................................6
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES...................................................................6
1.10 TAX AND ACCOUNTING CONSEQUENCES..........................................................................6
1.11 CLOSING..................................................................................................6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.............................................................7
2.2 ARTICLES OF INCORPORATION AND BYLAWS.....................................................................8
2.3 CAPITALIZATION...........................................................................................8
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT.....................................................................9
2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS..............................................................10
2.6 COMPLIANCE; PERMITS.....................................................................................11
2.7 ONTARIO FILINGS; FINANCIAL STATEMENTS...................................................................12
2.8 NO UNDISCLOSED LIABILITIES..............................................................................13
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS....................................................................13
2.10 LEGAL PROCEEDINGS; ORDERS...............................................................................15
2.11 EMPLOYEE BENEFIT PLANS..................................................................................16
2.12 LABOR MATTERS...........................................................................................18
2.13 CIRCULAR DISCLOSURE.....................................................................................19
2.14 RESTRICTIONS ON BUSINESS ACTIVITIES.....................................................................19
2.15 TITLE TO PROPERTY.......................................................................................19
2.16 TAXES...................................................................................................20
2.17 ENVIRONMENTAL MATTERS...................................................................................21
2.18 BROKERS.................................................................................................22
2.19 INTELLECTUAL PROPERTY...................................................................................22
2.20 CONTRACTS...............................................................................................29
2.21 INSURANCE...............................................................................................31
2.22 OPINION OF FINANCIAL ADVISOR............................................................................31
2.23 BOARD APPROVAL..........................................................................................32
2.24 VOTE REQUIRED...........................................................................................32
2.25 MINUTE BOOKS............................................................................................32
2.26 INDEMNIFICATION OBLIGATIONS.............................................................................32
2.27 CHANGE OF CONTROL PAYMENTS..............................................................................32
2.28 INTERESTED PARTY TRANSACTIONS...........................................................................32
2.29 NO DISCUSSIONS..........................................................................................33
2.30 ACCOUNTING MATTERS......................................................................................33
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND CANCO
3.1 ORGANIZATION, STANDING AND POWER........................................................................33
3.2 SEC FILINGS; FINANCIAL STATEMENTS.......................................................................33
3.3 AUTHORITY; BINDING NATURE OF AGREEMENT..................................................................34
3.4 NO VOTE REQUIRED........................................................................................34
3.5 NON-CONTRAVENTION; CONSENTS.............................................................................34
3.6 VALID ISSUANCE..........................................................................................34
3.7 CIRCULAR DISCLOSURE.....................................................................................34
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 ACCESS AND INVESTIGATION................................................................................35
4.2 OPERATION OF COMPANY'S BUSINESS.........................................................................35
ARTICLE V
COMPANY SHAREHOLDER APPROVAL
5.1 CIRCULAR; BOARD RECOMMENDATIONS; OTHER FILINGS..........................................................38
5.2 MEETING OF COMPANY SHAREHOLDERS.........................................................................39
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 CONFIDENTIALITY; ACCESS TO INFORMATION..................................................................40
6.2 NO SOLICITATION.........................................................................................40
6.3 PUBLIC DISCLOSURE.......................................................................................41
6.4 REASONABLE EFFORTS; NOTIFICATION........................................................................42
6.5 THIRD PARTY CONSENTS....................................................................................43
6.6 STOCK OPTIONS...........................................................................................43
6.7 U.S. SECURITIES FILINGS.................................................................................44
6.8 NASDAQ LISTING..........................................................................................44
6.9 COMPANY AFFILIATE AGREEMENT.............................................................................44
6.10 NO ELECTION.............................................................................................44
6.11 REGULATORY FILINGS; REASONABLE EFFORTS..................................................................44
6.12 TERMINATION OF SEVERANCE PLANS..........................................................................45
6.13 LISTING OF COMPANY COMMON SHARES........................................................................45
6.14 TSE APPROVAL............................................................................................45
6.15 POOLING OF INTERESTS....................................................................................45
6.16 INDEMNIFICATION OF DIRECTORS AND OFFICERS...............................................................45
6.17 TSE LISTING.............................................................................................46
6.18 COMPANY PLANS...........................................................................................46
ARTICLE VII
CONDITIONS TO THE ARRANGEMENT
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ARRANGEMENT.......................................46
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY.........................................................47
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT......................................................48
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION.............................................................................................50
8.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION............................................................52
8.3 FEES AND EXPENSES.......................................................................................52
8.4 AMENDMENT...............................................................................................53
8.5 EXTENSION; WAIVER.......................................................................................53
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........................................................54
9.2 NOTICES.................................................................................................54
9.3 INTERPRETATION..........................................................................................55
9.4 COUNTERPARTS............................................................................................55
9.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES.............................................................55
9.6 SEVERABILITY............................................................................................56
9.7 OTHER REMEDIES; SPECIFIC PERFORMANCE....................................................................56
9.8 GOVERNING LAW...........................................................................................56
9.9 RULES OF CONSTRUCTION...................................................................................56
9.10 ASSIGNMENT..............................................................................................56
9.11 WAIVER OF JURY TRIAL....................................................................................56
9.12 CURRENCY................................................................................................57
9.13 COMPANY DISCLOSURE SCHEDULE.............................................................................57
9.14 ATTORNEYS'FEES..........................................................................................57
9.15 COOPERATION.............................................................................................57
ARTICLE X
ADDITIONAL DEFINITIONS
10.1 ADDITIONAL DEFINITIONS..................................................................................57
INDEX OF EXHIBITS
Exhibit A.........Form of Arrangement Resolution
Exhibit B.........Plan of Arrangement
Exhibit C.........Form of Support Agreement
Exhibit D.........Form of Voting and Exchange Trust Agreement
ACQUISITION AGREEMENT FOR PLAN OF ARRANGEMENT
This ACQUISITION AGREEMENT FOR PLAN OF ARRANGEMENT (this "AGREEMENT")
is made and entered into as of September 27, 2000, among PHOTON DYNAMICS, INC.
("PARENT"), a corporation existing under the laws of California, PHOTON DYNAMICS
NOVA SCOTIA COMPANY, an unlimited liability company existing under the Nova
Scotia COMPANIES ACT and a wholly owned Subsidiary of Parent ("CANCO"), and
IMAGE PROCESSING SYSTEMS INC., a corporation existing under the laws of the
Province of Ontario ("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and
in accordance with the BUSINESS CORPORATIONS ACT (Ontario) (the "OBCA"), Parent,
CanCo and Company intend to enter into a business combination transaction by way
of the Arrangement (as defined in Article X) whereby:
(i) the Articles of Incorporation of Company will be
amended to (a) create a new class of exchangeable
shares (the "EXCHANGEABLE SHARES") and (b) create a
new class of voting, convertible preferred shares
(the "PREFERRED SHARES");
(ii) CanCo will subscribe for one Preferred Share;
(iii) each of the then-outstanding Company Common Shares
will be reorganized whereby the then-outstanding
Company Common Shares shall be converted into
Exchangeable Shares based on the Exchange Ratio; and
(iv) CanCo will convert its Preferred Share into a common
share of Company.
B. The Board of Directors of Company (i) has determined that the
Arrangement is in the best interests of Company and its shareholders, (ii) has
unanimously approved this Agreement, the Arrangement and the other transactions
contemplated by this Agreement and (iii) has determined to recommend that the
shareholders of Company adopt and approve this Agreement and approve the
Arrangement.
3. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain shareholders of Company are entering into Voting Agreements (the
"COMPANY VOTING AGREEMENTS").
4. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
Company is entering into a Stock Option Agreement in favor of Parent (the "STOCK
OPTION AGREEMENT"). The Board of Directors of Company has approved the Stock
Option Agreement.
5. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain affiliates of Company (the "COMPANY AFFILIATES") are entering into
Company Affiliate Agreements (the "COMPANY AFFILIATE AGREEMENTS").
6. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx Internal
Revenue Code of 1986, as amended (the "UNITED STATES CODE") and a reorganization
of capital pursuant to Section 86 of the INCOME TAX ACT (Canada).
7. It is also intended by the parties hereto that the Arrangement shall
qualify for accounting treatment under United States generally accepted
accounting principles ("U.S. GAAP") as a "pooling of interests".
8. Capitalized terms used herein, if not otherwise defined, shall have
the meanings given to them in Article X below.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE PLAN OF ARRANGEMENT
I.1 IMPLEMENTATION STEPS BY COMPANY. Company covenants in favor of
Parent and CanCo that Company shall:
(2) as soon as reasonably practicable, apply in a manner acceptable
to Parent under Section 182 of the OBCA for the Interim Order, and thereafter
proceed with and diligently pursue the obtaining of the Interim Order;
(3) convene and hold the Company Shareholders Meeting for the
purpose of considering the Arrangement Resolution (and for any other proper
purpose as may be set out in the notice for such meeting);
(4) subject to obtaining such shareholder approval as is required
by the OBCA and the Interim Order, diligently pursue the application to the
Court for the Final Order;
(5) subject to obtaining the Final Order and the satisfaction or
waiver of the other conditions herein contained in favor of Company, file with
the Director Articles of Arrangement and such other documents as may be required
in connection therewith under the OBCA to give effect to the Arrangement; and
(6) on or prior to the Effective Date and subject to the
satisfaction or waiver of the other conditions herein contained in favor of
Company and subject to the Arrangement becoming
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effective, execute and deliver the Support Agreement and the Voting and Exchange
Trust Agreement.
I.2 IMPLEMENTATION STEPS BY PARENT AND CANCO. Parent and CanCo covenant
in favor of Company that, on or prior to the Effective Date and subject to the
satisfaction or waiver of the other conditions herein contained in favor of each
such party and subject to the Arrangement becoming effective:
(7) Parent and CanCo shall execute and deliver the Support
Agreement; (1)
(8) Parent and CanCo shall execute and deliver the Voting and
Exchange Trust Agreement; and
(9) Parent shall issue the Special Voting Share to the Trustee.
I.3 INTERIM ORDER. The notice of motion for the application referred to
in Section 1.1(a) shall request that the Interim Order provide:
(10) for the class or classes of Persons to whom notice is to be
provided in respect of the Arrangement and the Company Shareholders Meeting and
for the manner in which such notice is to be provided;
(11) that the requisite shareholder approval for the Arrangement
Resolution shall be 66-2/3% of the votes cast on the Arrangement Resolution by
holders of Company Common Shares present in Person or by proxy at the Company
Shareholders Meeting;
(12) that, in all other respects, the terms, restrictions and
conditions of the by-laws and articles of Company, including quorum requirements
and all other matters, shall apply in respect of the Company Shareholders
Meeting; and
(13) for the grant of the Dissenters' Rights.
I.4 EFFECT OF THE ARRANGEMENT. At the Effective Time, the effect of the
Arrangement shall be as provided in this Agreement and the Plan of Arrangement
and the applicable provisions of the OBCA.
I.5 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Arrangement, the
following shall occur:
(14) EXCHANGE OF COMPANY COMMON SHARES. Each common share of
Company (each a "COMPANY COMMON SHARE" and collectively, the "COMPANY COMMON
SHARES") issued and outstanding immediately prior to the Effective Time, other
than any Dissenting Shares (as defined in and to the extent provided in Section
1.6(a)), will be automatically exchanged (subject
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to Section 1.5(d)) for 0.0447 (the "EXCHANGE RATIO") of an Exchangeable Share
upon surrender of the certificate representing such Company Common Share in the
manner provided in Section 1.7 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.8). In no event will Parent be required to issue more than
1,295,000 shares of Common Stock of Parent, without par value (the "PARENT
COMMON STOCK") in connection with the rights of exchange provided for pursuant
to the Exchangeable Shares and as otherwise contemplated in this Agreement,
inclusive of shares of Parent Common Stock issuable in connection with the
assumption of Options to acquire Company Common Shares as required by this
Agreement. If any Company Common Shares outstanding immediately prior to the
Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted shares purchase
agreement or other agreement with Company, then the shares of Parent Common
Stock issued in exchange for such Company Common Shares will also be unvested
and subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common Stock
may accordingly be marked with appropriate legends. Company shall take all
action that may be necessary to ensure that, from and after the Effective Time,
Parent is entitled to exercise any such repurchase option or other right set
forth in any such restricted shares purchase agreement or other agreement.
(15) STOCK OPTIONS. At the Effective Time, all Options to purchase
Company Common Shares then outstanding under Stock Option Plan and all other
Options referred to in Section 2.3(a) of Company Disclosure Schedule
(collectively, the "COMPANY STOCK OPTION PLANS") shall be assumed by Parent in
accordance with Section 6.6 hereof provided, however, that the Warrants shall be
converted into Warrants to acquire Exchangeable Shares on the basis of the
Exchange Ratio.
(16) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Shares), extraordinary
cash dividends, reorganization, recapitalization, reclassification, combination,
exchange of shares or other like change with respect to Parent Common Stock or
Company Common Shares occurring on or after the date hereof and prior to the
Effective Time.
(17) FRACTIONAL SHARES. No fraction of a share of an Exchangeable
Share will be issued by virtue of the Arrangement, but in lieu thereof each
holder of Company Common Shares who would otherwise be entitled to a fraction of
a share of an Exchangeable Share (after aggregating all fractional shares of
Exchangeable Shares that otherwise would be received by such holder) shall, upon
surrender of such holder's Certificates(s) (as defined in Section 1.6(c))
receive from Company an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction, multiplied by (ii)
the average closing price of one share of Parent Common Stock for the twenty
(20) most recent days that Parent Common Stock has traded ending on the second
trading day immediately prior to the Effective Time, as reported on the Nasdaq
National Market ("NASDAQ").
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I.6 DISSENTING SHARES.
-----------------
(18) Notwithstanding any provision of this Agreement to the
contrary, the shares of any holder of Company Common Shares who has demanded and
perfected appraisal and dissent rights ("DISSENTERS' RIGHTS") in respect of such
Company Common Shares in accordance with the Interim Order or the OBCA and who,
as of the Effective Time, has not effectively withdrawn or lost such appraisal
and dissent rights ("DISSENTING SHARES"), shall not be converted into or
represent a right to receive Exchangeable Shares pursuant to Section 1.6, but
the holder thereof shall only be entitled to such rights as are granted by the
Interim Order or the OBCA, as the case may be.
(19) Notwithstanding the provisions of subsection (a), if any
holder of Company Common Shares who demands appraisal of such shares under the
OBCA shall effectively withdraw (or otherwise by law not be entitled to) the
right to appraisal, then, as of the later of the Effective Time and the
occurrence of such event, such holder's shares shall automatically be converted
into and represent only the right to receive Exchangeable Shares, without
interest thereon, upon surrender of the certificate representing such shares.
(20) Company shall give Parent (i) prompt notice of any written
demands for appraisal of any Company Common Shares, withdrawals of such demands,
and any other instruments served pursuant to OBCA and received by Company which
relate to any such demand for appraisal and (ii) the opportunity to participate
in all negotiations and proceedings which take place prior to the Effective Time
with respect to demands for appraisal and dissent under the OBCA. Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any demands for appraisal of Company Common Shares or
offer to settle or settle any such demands.
I.7 SURRENDER OF CERTIFICATES.
-------------------------
(a) EXCHANGE AGENT. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Arrangement.
(b) COMPANY TO PROVIDE EXCHANGEABLE SHARES. Promptly after the
Effective Time, Parent shall cause Company to make available to the Exchange
Agent, for exchange in accordance with this Article I, the Exchangeable Shares
issuable pursuant to Section 1.5 in exchange for outstanding Company Common
Shares, and cash in an amount sufficient for payment in lieu of fractional
shares pursuant to Section 1.5(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding Company Common
Shares whose shares were exchanged for Exchangeable Shares pursuant to Section
1.5, cash in lieu of any fractional shares pursuant to Section 1.5(d), subject
to receipt of (i) a duly completed and validly executed letter of transmittal in
customary form (which
5
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall contain such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Exchangeable Shares, and cash in lieu of
any fractional shares pursuant to Section 1.5(d). Upon surrender of Certificates
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Exchangeable Shares into which their
Company Common Shares were exchanged at the Effective Time, together with
payment in lieu of fractional shares which such holders have the right to
receive pursuant to Section 1.5(d), and the Certificates so surrendered shall
forthwith be cancelled. Until so surrendered, outstanding Certificates will be
deemed from and after the Effective Time, for all corporate purposes, subject to
Section 1.5(d), to evidence only the ownership of the number of full shares of
Exchangeable Shares into which such Company Common Shares are entitled to be
exchanged and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.5(d).
(d) REQUIRED WITHHOLDING. Each of the Exchange Agent and Company
shall be entitled to deduct and withhold from any consideration payable or
otherwise deliverable pursuant to this Agreement to any holder or former holder
of Company Common Shares such amounts as may be required (as advised by tax
counsel for Parent) to be deducted or withheld therefrom under the United States
Code or under any provision of United States or Canadian federal, state,
provincial, regional, local or foreign tax law or under any other applicable
legal requirement. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the Person to whom such amounts would otherwise have been paid.
(e) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.7, neither the Exchange Agent, Parent, Company nor CanCo nor any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Common Shares for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
I.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON SHARES. All
Exchangeable Shares issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.5(d)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such Company Common
Shares, and, following the Effective Time, there shall be no further
registration of transfers on the records of Company of Company Common Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Company for any reason, they shall
be cancelled and exchanged as provided in this Article I.
I.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or
6
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof, certificates representing the Exchangeable Shares into which
Company Common Shares represented by such Certificates were converted pursuant
to Section 1.5, and cash for fractional shares, if any, as may be required
pursuant to Section 1.5(d); provided, however, that Company and Parent may, in
their discretion and as a condition precedent to the issuance of such
certificates representing Exchangeable Shares and cash, require the owner of
such lost, stolen or destroyed Certificates to deliver a bond in such sum as it
may reasonably direct as indemnity against any claim that may be made against
Parent or Company or the Exchange Agent with respect to the Certificates alleged
to have been lost, stolen or destroyed.
I.10 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Arrangement
shall constitute a reorganization within the meaning of Section 368 of the
United States Code and a shall be a reorganization of capital pursuant to
Section 86 of the INCOME TAX ACT (Canada). The parties hereto adopt this
Agreement as a "PLAN OF REORGANIZATION" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations and a
reorganization of capital for the purposes of section 86 of the INCOME TAX ACT
(Canada).
(b) It is intended by the parties hereto that the Arrangement shall
be treated under U.S. GAAP as a "pooling of interests" for accounting purposes.
I.11 CLOSING. The closing of the Arrangement (the "CLOSING") (other
than obtaining the Final Order and the filing with the Director of the Articles
of Arrangement) shall take place at the offices of Xxxxxxx Xxxxx & Xxxxxxxxx
LLP, at a time and date to be specified by the parties, which shall be no later
than the second business day after the satisfaction or waiver of the conditions
set forth in Article VII, or at such other time, date and location as the
parties hereto agree in writing (the "CLOSING DATE"). The parties shall use
their reasonable commercial efforts to ensure that the Closing Date is on or
before December 27, 2000.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date hereof and as of the Closing Date, Company represents
and warrants to Parent and CanCo, subject to such exceptions as are specifically
disclosed in writing in the disclosure letter supplied by Company to Parent
dated as of the date hereof and certified by a duly authorized officer of
Company, which disclosure shall provide an exception to or otherwise qualify the
representations or warranties of Company specifically referred to in such
disclosure (the "COMPANY DISCLOSURE SCHEDULE"), as follows:
II.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
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(a) Company has no Subsidiaries, except for the Entities identified
in Section 2.1(a)(i) of the Company Disclosure Schedule; and neither Company nor
any of the other Entities identified in Section 2.1(a)(i) of the Company
Disclosure Schedule owns any capital stock of, or any equity interest of any
nature in, any other Entity, other than the Entities identified in Section
2.1(a)(ii) of the Company Disclosure Schedule. (Company and its Subsidiaries are
referred to in this Agreement collectively as the "ACQUIRED CORPORATIONS".) Each
of the Acquired Corporations is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all necessary power and authority: (i) to conduct its business in the manner
in which its business is currently being conducted; (ii) to own and use its
assets in the manner in which its assets are currently owned and used; and (iii)
to perform its obligations under all Contracts by which it is bound.
(b) None of the Acquired Corporations has agreed or is obligated to
make, or is bound by any Contract under which it may become obligated to make,
any future investment in or capital contribution to any other Entity. None of
the Acquired Corporations has, at any time, been a general partner of, or has
otherwise been liable for any of the debts or other obligations of, any general
partnership, limited partnership or other Entity. None of the Acquired
Corporations directly or indirectly owns any equity or similar interest in or
any interest convertible, exchangeable or exercisable for, any equity or similar
interest in, any Entity.
(c) Each of the Acquired Corporations is in possession of all
Approvals necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being conducted,
except where the failure to have such Approvals would not, individually or in
the aggregate, have a Material Adverse Effect on Company.
(d) Each of the Acquired Corporations is qualified to do business
as a foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification.
(e) None of the Acquired Corporations (i) is subject to tax or
filing requirements under the United States Code or any state tax legislation of
the United States of America, (ii) is required to make any filings under the
United States Code or any state tax legislation, (iii) has any employees in the
United States of America, or (iv) otherwise carries on business in a manner
which would make it subject to any requirements of United States laws insofar as
any labor matters, ERISA matters or matters relating to the United States Code
or state tax legislation are concerned.
II.2 ARTICLES OF INCORPORATION AND BYLAWS. Company has previously
furnished to Parent a complete and correct copy of its Articles of Incorporation
and Bylaws as amended to date (together, the "COMPANY CHARTER DOCUMENTS"). Such
Company Charter Documents and equivalent organizational documents of each of the
respective Acquired Corporations are in full force and effect. None of the
Acquired Corporations is in violation of any of the provisions of Company
Charter Documents or its equivalent organizational documents.
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II.3 CAPITALIZATION.
(a) The authorized capital stock of Company consists of an
unlimited number of Company Common Shares. At the close of business on September
19, 2000 (i) 25,068,653 Company Common Shares were issued and outstanding, all
of which are validly issued, fully paid and nonassessable; (ii) no Company
Common Shares were held by Subsidiaries of Company; (iii) 3,043,094 Company
Common Shares were reserved for issuance upon the exercise of outstanding
options to purchase Company Common Shares under the Stock Option Plan; (iv)
476,191 Shares were reserved for future issuance upon exercise of warrants of
Company (the "WARRANTS") referred to in Section 2.3(a)(i) of the Company
Disclosure Schedule; (v) 2,900,000 Company Common Shares were reserved for
future issuance pursuant to the Stock Option Agreement and (vi) 50,000 Company
Common Shares are issuable pursuant to Company's Stock Purchase Plan. Company
has no obligation to issue any Company Common Shares pursuant to Company's Share
Bonus Plan. There are no Company Common Shares held by any of the other Acquired
Corporations. Except as set forth in Section 2.3(a)(ii) of the Company
Disclosure Schedule, there is no Acquired Corporation Contract relating to the
voting or registration of, or restricting any Person from purchasing, selling,
pledging or otherwise disposing of (or granting any Option or similar right with
respect to), or granting any Options or other rights to acquire, any Company
Common Shares. None of the Acquired Corporations is under any obligation, or is
bound by any Contract pursuant to which it may become obligated, to repurchase,
redeem or otherwise acquire any outstanding Company Common Shares. Section
2.3(a)(iv) of the Company Disclosure Schedule sets forth the following
information with respect to each Warrant and Company Stock Option outstanding as
of the date of this Agreement: (i) the name and address of the holder or
optionee; (ii) the particular plan pursuant to which such Company Stock Option
was granted; (iii) the number of Company Common Shares subject to such Warrant
or Company Stock Option; (iv) the exercise price of such Warrant or Company
Stock Option; (v) the date on which such Warrant or Company Stock Option was
granted; (vi) the applicable vesting schedule; (vii) the date on which such
Warrant or Company Stock Option expires; and (viii) whether the exercisability
of such Warrant or Company Stock Option will be accelerated in any way by the
transactions contemplated by this Agreement, and indicates the extent of
acceleration. Company has made available to Parent accurate and complete copies
of all Warrants and stock option plans pursuant to which Company has granted
such Company Stock Options that are currently outstanding and the form of all
stock option agreements evidencing such Company Stock Options. Company has
delivered to Parent accurate and complete copies of all stock option plans
pursuant to which Company has ever granted stock Options, and the forms of all
stock option agreements evidencing such Options. All Company Common Shares
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instrument pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable. Except as set forth in
Section 2.3(a)(v) of the Company Disclosure Schedule, there are no commitments
or agreements of any character to which Company is bound obligating Company to
accelerate the vesting of any Company Stock Option as a result of the
Arrangement. The number of holders of record of the Warrants is set forth in
Section 2.3(a)(vi) of the Company Disclosure Schedule. All outstanding Company
Common Shares, all outstanding
9
Company Stock Options, all outstanding Warrants and all outstanding shares of
capital stock of each Subsidiary of Company have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements; and (ii) all requirements set forth in applicable Contracts.
(b) Company owns free and clear of all Encumbrances directly, or
indirectly through one or more Subsidiaries, and except for shares of capital
stock or other similar ownership interests of Subsidiaries of Company that are
owned by certain nominee equity holders as required by the applicable law of the
jurisdiction of organization of such Subsidiaries (which shares or other
interests do not materially affect Company's control of such Subsidiaries), all
of the outstanding share capital of each Subsidiary of Company, which
Subsidiaries are listed on Section 2.3(b) of the Company Disclosure Schedule.
Except as set forth in Section 2.3(b) of the Company Disclosure Schedule or as
set forth in Section 2.3(a) hereof and except for the Stock Option Agreement,
there are no subscriptions, Options, calls, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character (whether or not
currently exercisable) to which any of the Acquired Corporations is a party or
by which it is bound obligating any of the Acquired Corporations to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests of
any of the Acquired Corporations or obligating any of the Acquired Corporations
to grant, extend, accelerate the vesting of or enter into any such subscription,
Option, warrant, equity security, call, right, commitment or agreement and no
condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of any of the
Acquired Corporations. Except as contemplated by this Agreement or as set forth
in Section 2.3(b) of the Company Disclosure Schedule, there are no registration
rights and there is no voting trust, proxy, rights plan, antitakeover plan or
other agreement or understanding to which any of the Acquired Corporations is a
party or by which they are bound with respect to any equity security of any
class of Company or with respect to any equity security, partnership interest or
similar ownership interest of any class of any of its Subsidiaries.
(c) Company and its Board of Directors has taken all necessary
action to waive the application of the Shareholder Rights Plan dated April 13,
2000 to the Arrangement, which waiver has been made in accordance with the terms
of such Plan.
II.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Company has the right, power
and all authority to execute and deliver this Agreement and the Stock Option
Agreement and to perform its obligations hereunder and thereunder and, subject
to obtaining the approval of the shareholders of Company to the Arrangement and
of the Court to the Arrangement, to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the Stock
Option Agreement by Company and the consummation by Company of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of Company and no other corporate
proceedings on the part of Company are
10
necessary to authorize this Agreement, the Stock Option Agreement or to
consummate the transactions so contemplated (other than the approval and
adoption of this Agreement and the Arrangement by the Required Company
Shareholder Vote). This Agreement and the Stock Option Agreement have been duly
and validly executed and delivered by Company and, assuming the due
authorization, execution and delivery by Parent and CanCo, constitute legal and
binding obligations of Company, enforceable against Company in accordance with
their respective terms.
II.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Neither (1) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, nor (2) the consummation of the
Arrangement or any of the other transactions contemplated by this Agreement,
will (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the certificate of incorporation, bylaws or other charter
or organizational documents of any of the Acquired Corporations, or (ii) any
resolution adopted by the shareholders, the board of directors or any committee
of the board of directors of any of the Acquired Corporations;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge the Arrangement or
any of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which any of the Acquired Corporations, or any
of the assets owned or used by any of the Acquired Corporations, is subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by any of the Acquired Corporations or that otherwise relates to
the business of any of the Acquired Corporations or to any of the assets owned
or used by any of the Acquired Corporations;
(d) except as set forth in Section 2.5(d) of the Company Disclosure
Schedule, contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Acquired Corporation Contract
that is or would constitute a Material Contract, or give any Person the right to
(i) declare a default or exercise any remedy under any such Acquired Corporation
Contract, (ii) a rebate, chargeback, penalty or change in delivery schedule
under any such Acquired Corporation Contract, (iii) accelerate the maturity or
performance of any such Acquired Corporation Contract, or (iv) cancel, terminate
or modify any term of such Acquired Corporation Contract;
(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by any of the Acquired Corporations
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of any of the Acquired Corporations); or
11
(f) result in, or increase the likelihood of, the disclosure or
delivery to any escrowholder or other Person of the Acquired Corporation Source
Code, or the transfer of any material asset of any of the Acquired Corporations
to any Person.
(g) The execution and delivery of this Agreement and the Stock
Option Agreement by Company do not, and the performance of this Agreement by
Company and the issuance of Company Common Shares upon exercise of the Stock
Option Agreement shall not, require any Consent or any filing with or
notification to, any court or Governmental Body except for (A) applicable
Canadian Securities Legislation; the filing required with Industry Canada under
the INVESTMENT CANADA ACT (Canada); approval of the TSE; the Interim Order and
Final Order of the Court in respect of the Arrangement; and the pre-merger
notification requirements (the "HSR APPROVAL"), of the XXXX-XXXXX-XXXXXX
ANTITRUST IMPROVEMENTS ACT OF 1976, as amended (the "HSR ACT"); and (B) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Company or, after
the Effective Time, Parent, or prevent consummation of the transactions or
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
(h) The aggregate value of the assets in Canada, determined as of
such time and in such manner as is prescribed by the COMPETITION ACT (Canada)
and the regulations thereto, that are owned by Company, does not exceed Cdn.$35
million, and the gross revenues from sales in or from Canada, determined for
such annual period and in such manner as is prescribed by the COMPETITION ACT
(Canada) and the regulations thereto, generated from the assets referred to
above, do not exceed Cdn.$35 million.
(i) At the end of the last completed fiscal year or years of
Company ending prior to the date of this Agreement, Company's consolidated
assets, as determined in accordance with Canadian GAAP, was less than
Cdn.$192,000,000.
II.6 COMPLIANCE; PERMITS.
(a) None of the Acquired Corporations is in conflict with, or in
default or violation of, (i) any material law, rule, regulation, order, judgment
or decree applicable to any of the Acquired Corporations or by which its or any
of their respective properties is bound or affected, or (ii) any Contract,
Governmental Authorization or other instrument or obligation to which any of the
Acquired Corporations is a party or by which any of the Acquired Corporations or
its or any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that (individually or in the aggregate) would
not cause any of the Acquired Corporations to lose any material benefit or incur
any material liability. No investigation or review by any governmental or
regulatory body or authority is pending or, to Company's Knowledge, threatened
against any of the Acquired Corporations, nor has any governmental or regulatory
body or authority indicated to any of the Acquired Corporations an intention to
conduct the same, other than, in each such case, those the outcome of which
could not, individually or in the aggregate, reasonably be expected to
12
have the effect of prohibiting or materially impairing any business practice of
any of the Acquired Corporations, any acquisition of material property by any of
the Acquired Corporations or the conduct of business by any of the Acquired
Corporations.
(b) Each of the Acquired Corporations is, and has at all times
since March 31, 2000 been, in compliance with all applicable Legal Requirements,
except where the failure to comply with such Legal Requirements has not had and
would not reasonably be expected to have a Material Adverse Effect on Company.
Since March 31, 2000, none of the Acquired Corporations has received any notice
or other communication from any Governmental Body or other Person regarding any
actual or possible violation of, or failure to comply with, any Legal
Requirement.
(c) None of the Acquired Corporations nor (to the Company's
Knowledge) any director, officer, agent or employee of any of the Acquired
Corporations has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the FOREIGN CORRUPT PRACTICES ACT of 1977, as amended, or (iii)
made any other unlawful payment.
(d) The Acquired Corporations hold all Governmental Authorizations
necessary to enable the Acquired Corporations to conduct their respective
businesses in the manner in which such businesses are currently being conducted,
except where the failure to hold such Governmental Authorizations has not had
and would not reasonably be expected to have a Material Adverse Effect on
Company. All such Governmental Authorizations are valid and in full force and
effect. Each Acquired Corporation is, and at all times since March 31, 1999 has
been, in substantial compliance with the terms and requirements of such
Governmental Authorizations, except where the failure to be in compliance with
the terms and requirements of such Governmental Authorizations has not had and
would not reasonably be expected to have a Material Adverse Effect on Company.
Since March 31, 1999, none of the Acquired Corporations has received any notice
or other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
material Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization.
(e) Section 2.6(e) of the Company Disclosure Schedule describes the
terms of each grant, incentive or subsidy provided or made available to or for
the benefit of any of the Acquired Corporations. Each of the Acquired
Corporations is in full compliance with all of the terms and requirements of
each grant, incentive and subsidy identified or required to be identified in
Section 2.6(f) of the Company Disclosure Schedule. Neither the execution,
delivery or performance of this Agreement, nor the consummation of the
Arrangement or any of the other transactions contemplated by this Agreement,
will (with or without notice or lapse of time) give any Person the right to
revoke, withdraw, suspend, cancel, terminate or modify, any grant, incentive or
subsidy identified or required to be identified in Section 2.6(f) of the Company
Disclosure Schedule.
13
II.7 ONTARIO FILINGS; FINANCIAL STATEMENTS.
(a) Company has made available to Parent (including through the
SEDAR System of the Canadian securities administrators) a correct and complete
copy of each Company Regulatory Report filed by Company since March 31, 1999,
which are all the Company Regulatory Reports required to be filed by Company
since March 31, 1999, and, prior to the Effective Time, Company will have
furnished Parent with true and complete copies of any additional Company
Regulatory Reports filed hereafter by Company prior to the Effective Time.
Company has not filed any confidential material change report under any Canadian
Securities Legislation or with any stock exchange or other self-regulatory
authority which at the date hereof remains confidential. The Company Regulatory
Reports (A) were prepared in accordance with the requirements of the Canadian
Securities Legislation, the TSE and the OBCA, as the case may be, and (B) did
not at the time they were filed (and if amended or superseded by a filing prior
to the date of this Agreement then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of
Company's Subsidiaries is required to file any reports or other documents with
the OSC or the TSE.
(b) Each set of consolidated financial statements (including, in
each case, any related notes thereto) contained in Company Regulatory Reports
and Company's audited consolidated financial statements as at and for the
periods ended through March 31, 2000 and Company's unaudited consolidated
balance sheet as at June 30, 2000 (the "UNAUDITED INTERIM BALANCE SHEET")
(copies of which have been furnished to Parent) comply as to form in all
material respects with the published rules and regulations of the OSC applicable
thereto and were prepared in accordance with Canadian GAAP applied on a
consistent basis throughout the periods involved and each fairly presents the
consolidated financial position of the Acquired Corporations at the respective
dates thereof and the consolidated results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal adjustments which were not or are not expected to
be material in amount.
(c) Company is a "reporting issuer" or its equivalent for the
purposes of the Canadian Securities Legislation in each province of Canada and
is not in violation of any requirement under the Canadian Securities
Legislation.
(d) All existing accounts receivable of the Acquired Corporations
(including those accounts receivable reflected on the Unaudited Interim Balance
Sheet that have not yet been collected and those accounts receivable that have
arisen since the date of the Unaudited Interim Balance Sheet and have not yet
been collected) (a) represent valid obligations of customers of the Acquired
Corporations arising from bona fide transactions entered into in the ordinary
course of business, (b) are current and, to Company's Knowledge, will be
collected in full when due, without any counterclaim or set off (net of an
allowance for doubtful accounts not to exceed $100,000 in the aggregate).
Section 2.7 of the Company Disclosure Schedule accurately identifies, and
provides an accurate and complete breakdown of the revenues received from, each
customer or other Person that
14
accounted for (i) more than $500,000 of the consolidated gross revenues of the
Acquired Corporations in the fiscal years of Company ended March 31, 2000 or
1999, or (ii) more than $500,000 of the Acquired Corporation's gross revenues in
the three months ended June 30, 2000. Company has not received any notice or
other communication (in writing or otherwise), and has not received any other
information, indicating that any customer or other Person identified in Section
2.7 of the Company Disclosure Schedule may cease dealing with Company or may
otherwise reduce the volume of business transacted by such Person with Company
below historical levels.
II.8 NO UNDISCLOSED LIABILITIES. None of the Acquired Corporations has
any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with Canadian GAAP
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of the Acquired Corporations taken as a
whole, except (i) liabilities provided for in the Unaudited Interim Balance
Sheet or (ii) normal and recurring current liabilities incurred since the date
of the Unaudited Interim Balance Sheet in the ordinary course of business and
consistent with past practices, none of which is material to the business,
results of operations or financial condition of the Acquired Corporations, taken
as a whole.
II.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.9 of the Company Disclosure Schedule, since March 31, 2000:
(a) there has not been any material adverse change in the business,
condition, capitalization, assets, liabilities, operations, financial
performance or prospects of the Acquired Corporations taken as a whole, and no
event has occurred that would reasonably be expected to have a Material Adverse
Effect on Company;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the assets of any of the
Acquired Corporations (whether or not covered by insurance) that has had or
would reasonably be expected to have a Material Adverse Effect on Company;
(c) none of the Acquired Corporations has (i) declared, accrued,
set aside or paid any dividend or made any other distribution in respect of any
shares of capital stock, or (ii) repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities;
(d) none of the Acquired Corporations has sold, issued or granted,
or authorized the issuance of, (i) any capital stock or other security (except
for Company Common Shares issued upon the valid exercise of outstanding Company
Stock Options in accordance with the terms of the option agreement pursuant to
which such Company Stock Options are outstanding), (ii) any Option, warrant or
right to acquire any capital stock or any other security (except for Company
Stock Options described in Section 2.3(a)(iv) of the Company Disclosure
Schedule), or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
15
(e) Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of any of
Company's stock option plans, (ii) any provision of any agreement evidencing any
outstanding Company Stock Option, or (iii) any restricted stock purchase
agreement;
(f) there has been no amendment to the certificate of
incorporation, bylaws or other charter or organizational documents of any of the
Acquired Corporations, and none of the Acquired Corporations has effected or
been a party to any merger, consolidation, amalgamation, share exchange,
business combination, recapitalization, reclassification of shares, stock split,
division or subdivision of shares, reverse stock split, consolidation of shares
or similar transaction;
(g) none of the Acquired Corporations has received any Acquisition
Proposal other than the Acquisition Proposal set forth herein;
(h) none of the Acquired Corporations has formed any Subsidiary or
acquired any equity interest or other interest in any other Entity;
(i) none of the Acquired Corporations has made any capital
expenditure which, when added to all other capital expenditures made on behalf
of the Acquired Corporations since March 31, 2000, exceeds $100,000 in the
aggregate;
(j) except in the ordinary course of business and consistent with
past practices, none of the Acquired Corporations has (i) entered into or
permitted any of the assets owned or used by it to become bound by any Material
Contract (as defined in Section 2.20), or (ii) amended or terminated, or waived
any material right or remedy under, any Material Contract;
(k) none of the Acquired Corporations has (i) acquired, leased or
licensed any material right or other material asset from any other Person, (ii)
sold or otherwise disposed of, or leased or licensed, any material right or
other material asset to any other Person, or (iii) waived or relinquished any
right, except for rights or other assets acquired, leased, licensed or disposed
of in the ordinary course of business and consistent with past practices;
(l) none of the Acquired Corporations has written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness;
(m) none of the Acquired Corporations has made any pledge of any of
its assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of immaterial assets made in the ordinary course
of business and consistent with past practices;
(n) none of the Acquired Corporations has (i) lent money to any
Person, or (ii) incurred or guaranteed any indebtedness for borrowed money in
excess of $25,000;
16
(o) none of the Acquired Corporations has (i) established or
adopted any Plan (as defined in Section 2.11), (ii) caused or permitted any Plan
to be amended in any material respect, or (iii) paid any bonus or made any
profit-sharing or similar payment to (other than in the ordinary course of
business and consistent with past practice), or materially increased the amount
of the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(p) no event has occurred, and no circumstance or condition exists,
that has resulted in or that could reasonably be expected to result in the
impairment of the capitalized software asset reflected in Company's books and
records;
(q) none of the Acquired Corporations has made any material Tax
election;
(r) none of the Acquired Corporations has commenced or settled any
Legal Proceeding;
(s) none of the Acquired Corporations has entered into any material
transaction or taken any other material action that has had, or would reasonably
be expected to have, a Material Adverse Effect on Company;
(t) none of the Acquired Corporations has entered into any material
transaction or taken any other material action outside the ordinary course of
business or inconsistent with past practices; and
(u) none of the Acquired Corporations has agreed or committed to
take any of the actions referred to in clauses "(c)" through "(u)" above.
II.10 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set out in Section 2.10 of the Company Disclosure
Schedule, there is no pending Legal Proceeding, and to Company's Knowledge no
Person has threatened to commence any Legal Proceeding: (i) that involves any of
the Acquired Corporations or any of the assets owned or used by any of the
Acquired Corporations; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the
Arrangement or any of the other transactions contemplated by this Agreement. To
Company's Knowledge, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
(b) There is no material order, writ, injunction, judgment or
decree to which any of the Acquired Corporations, or any of the assets owned or
used by any of the Acquired Corporations, is subject. To Company's Knowledge, no
officer or key employee of any of the Acquired Corporations is subject to any
order, writ, injunction, judgment or decree that prohibits
17
such officer or other employee from engaging in or continuing any conduct,
activity or practice relating to the business of any of the Acquired
Corporations.
II.11 EMPLOYEE BENEFIT PLANS.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document and including, without limitation, all International
Employee Plans (as defined in subsection (f) below) and all "employee benefit
plans" within the meaning of Section 3(3) of the UNITED STATES EMPLOYEE
RETIREMENT INCOME SECURITY ACT of 1974, as amended ("ERISA"), regardless of
whether ERISA is applicable thereto), covering any active, former employee,
director or consultant of Company (an "EMPLOYEE", which shall for this purpose
mean an Employee of Company or any Affiliate (as defined below)), any Subsidiary
of Company or any trade or business (whether or not incorporated) which is a
member of a controlled group or which is under common control with Company
within the meaning of Section 414 of the United States Code (an "AFFILIATE"), or
with respect to which Company has liability, are listed in Section 2.11(a)(i) of
the Company Disclosure Schedule (the "PLANS"). Except for documents listed in
Section 2.11(a)(ii) of the Company Disclosure Schedule, Company has provided to
Parent: (i) correct and complete copies of all documents embodying each Plan and
each management, employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit, or other agreement, contract or understanding
between Company or any Affiliate and any Employee ("EMPLOYEE AGREEMENT"),
including (without limitation) all amendments to each such Plan and/or
Employment Agreement, and all material written agreements and contracts relating
to each such Plan; (ii) the most recent summary plan description together with
the summary(ies) of material modifications thereto, if any, with respect to each
Plan; (iii) all Internal Revenue Service (the "IRS") determination, opinion,
notification and/or advisory letters; (iv) all correspondence to or from any
Governmental Entity relating to any Plan; (v) if the Plan is funded, the most
recent annual and periodic accounting of Plan assets; (vi) all material written
agreements and contracts relating to each Plan, including, but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts, and trust agreements; (vii) all material communications to Employees
relating to any Plan and any proposed Plan, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules, or other events which would
result in any material liability to Company or any Affiliate; (viii) all
policies pertaining to fiduciary liability insurance covering the fiduciaries
for each Plan; (ix) all registration statements, annual reports (Form 11-K and
all attachments thereto) and prospectuses prepared in connection with any Plan;
(x) current financial information with respect to each Plan that is a pension
plan (including copies of cost certificates, actuarial valuation reports,
investment reports disclosing Plan assets and annual information returns); and
(xi) with respect to each Plan that is a pension plan, (A) actuarial assumptions
or employee data, since the most recent actuarial reports which could have a
significant financial impact on the Plan's funded status, and (B) surplus
entitlement or contribution holiday opinion letters received with respect to
each such Plan and any correspondence relating thereto with pension regulatory
authorities.
18
(b) Company has performed in all material respects all obligations
required to be performed by it under, is not in default or violation of and, to
Company's Knowledge, there has been no default or violation by any other party
to each Plan, and each Plan has been maintained and administered in all material
respects in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to each
such Plan. No suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought, or to
Company's Knowledge is threatened, against or with respect to any such Plan.
There are no audits, inquiries or proceedings pending or, to Company's
Knowledge, threatened by any Governmental Entity with respect to any Plan. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to any Plan has been timely made or accrued. Except as disclosed
in Section 2.11(b) of the Company Disclosure Schedule, Company does not have any
plan or commitment to establish any new Plan, to modify any Plan (except to the
extent required by law or to conform any such Plan to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any new Plan. Each Plan (other
than any stock option plan) can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without liability to
Parent, Company or any of its Affiliates (other than ordinary administration
expenses and expenses for benefits accrued but not yet paid). No unfunded
liabilities or solvency deficiencies exist for any Plan. With respect to any
Plan that is a pension plan, no material changes have occurred which would
affect the actuarial valuation reports, and with respect to all Plans, no
material changes have occurred which would affect the financial statements
provided to Parent. Each Employee Plan that is required or intended to be
qualified under applicable law or registered or approved by a Governmental
Entity has been timely qualified, registered or approved, and, to Company's
Knowledge, nothing has occurred since the date of the last qualification,
registration or approval to adversely affect, or cause, the appropriate
Governmental Entity to revoke such qualification, registration or approval.
(c) Neither Company nor any of its Affiliates has at any time ever
maintained, established, sponsored, participated in, or contributed to any plan
subject to Title IV of ERISA or Section 412 of the United States Code and at no
time has Company or any of its Affiliates contributed to or been requested to
contribute to any "multiemployer plan," as such term is defined in ERISA or any
similar provision of Canadian law or to any plan described in Section 413(c) of
the United States Code or any similar provision of federal or provincial
Canadian law. Neither Company nor any of its Affiliates, nor any officer or
director of Company or any of its Affiliates is subject to any liability or
penalty under Section 4975 through 4980B of the United States Code or Title I of
ERISA or any similar provision of federal or provincial Canadian law. No
"prohibited transaction," within the meaning of Section 4975 of the United
States Code or Sections 406 and 407 of ERISA or any similar provision of federal
or provincial Canadian law, and not otherwise exempt under Section 4975 of the
United States Code, and Section 408 of ERISA or any similar provision of federal
or provincial Canadian law, has occurred with respect to any Plan which could
subject Company or its Affiliates to material liabilities.
19
(d) Neither Company nor any of its affiliates has, prior to the
Effective Time and in any material respect, violated any of the health
continuation requirements of COBRA, the requirements of the FAMILY MEDICAL LEAVE
ACT OF 1993, as amended, the requirements of the WOMEN'S HEALTH AND CANCER
RIGHTS ACT, as amended, the requirements of the NEWBORNS' AND MOTHERS' HEALTH
PROTECTION ACT OF 1996, as amended, the requirements of the HEALTH INSURANCE
PORTABILITY AND ACCOUNTABILITY ACT OF 1996, as amended, or any similar
provisions of state law or federal or provincial Canadian law applicable to
Employees of Company or any of its Affiliates. None of the Plans promises or
provides retiree medical benefits to any Person except as required by applicable
law, and neither Company nor any of its affiliates has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any Employee or dependent thereof, except to the extent required by statute. To
the extent that Company or any of its affiliates provides retiree benefits, or
has other post-employment obligations, they are disclosed in Section 2.11(d) of
the Company Disclosure Schedule. No unfunded obligations to provide retiree
benefits or other post-employment obligation exists except as disclosed in
Section 2.11(d) of the Company Disclosure Schedule.
(e) Except as disclosed in Section 2.11(e) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby will (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(f) Each International Employee Plan (as defined below) has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities that, as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent Company or Parent from
terminating or amending any International Employee Plan at any time for any
reason without liability to Company, Parent or any of their respective
Affiliates. For purposes of this Section, "INTERNATIONAL EMPLOYEE PLAN" shall
mean each Plan that has been adopted or maintained by Company or any of its
Affiliates, whether informally or formally, or with respect to which Company or
any Affiliate will or may have any liability, for the benefit of Employees
outside the United States.
II.12 LABOR MATTERS.
(a) Except as disclosed in Section 2.12(a) of the Company
Disclosure Schedule, there are no material controversies, complaints, claims,
labor disputes or grievances pending or, to Company's Knowledge, threatened,
between any of the Acquired Corporations and any of their respective current or
former employees directors or consultants (collectively, "EMPLOYEES"); (ii) as
of the date of this Agreement, none of the Acquired Corporations is a party to
any collective bargaining agreement or other labor union contract or employee
association applicable to Persons employed by Company or its Subsidiaries nor
does Company or its Subsidiaries know of any
20
activities or proceedings of any labor union to organize any such employees; and
(iii) as of the date of this Agreement, to Company's Knowledge, there are no
strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or with
respect to any Employees of any of the Acquired Corporations.
(b) Except as disclosed in Section 2.12(b) of the Company
Disclosure Schedule, each of the Acquired Corporations: (i) is in material
compliance with all applicable foreign, federal, provincial, state and local
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each case, with respect to
Employees, (ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees, (iii) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing, and (iv) is not
liable for any payment to any trust or other fund governed by or maintained by
or on behalf of any governmental authority, with respect to employment or
unemployment compensation benefits, pension plans, health tax, workplace safety
and insurance, social security or other benefits or obligations for Employees
(other than routine payments to be made in the normal course of business and
consistent with past practice). There are no pending or, to Company's Knowledge,
threatened, or reasonably anticipated claims or actions against Company under
any worker's compensation policy, workplace safety and insurance or long-term
disability policy, occupational health and safety statutes, human rights codes
or other employment-related legislation.
(c) To Company's Knowledge, no shareholder, officer, employee or
consultant of any of the Acquired Corporations is obligated under any contract
or agreement or subject to any judgment, decree or order of any court or
administrative agency that would interfere with such Person's efforts to promote
the interests of the Acquired Corporations or that would interfere with
Company's and its Subsidiaries' business. Neither the execution nor delivery of
this Agreement, nor the carrying on of Company's business as presently conducted
or proposed to be conducted nor any activity of such officers, directors,
employees or consultants in connection with the carrying on of Company's
business as presently conducted or currently proposed to be conducted, will to
Company's Knowledge conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract or agreement under
which any of such officers, directors, employees or consultants is now bound.
(d) Section 2.12(d) of the Company Disclosure Schedule identifies
each employee of any of the Acquired Corporations who is not fully available to
perform work because of disability or other leave and sets forth the basis of
such disability or leave and the anticipated date of such employee's return to
full service.
II.13 CIRCULAR DISCLOSURE. None of the information supplied or to be
supplied by Company for inclusion or incorporation by reference in the Circular
will, at the date mailed to the shareholders of Company, at the time of the
shareholders meeting of Company (the "COMPANY SHAREHOLDERS MEETING") in
connection with the transactions contemplated hereby and as of the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated
21
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, or contain any
misrepresentations (as such term is defined the SECURITIES ACT (Ontario) as of
each such date or time. The Circular will comply as to form in all material
respects with the requirements of the OBCA, the Interim Order, the Canadian
Securities Legislation and the TSE.
II.14 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or its
Subsidiaries or to which any of the Acquired Corporations is a party which has
or could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of any of the Acquired Corporations, any
acquisition of property by any of the Acquired Corporations or the conduct of
business by any of the Acquired Corporations as currently conducted.
II.15 TITLE TO PROPERTY. The Acquired Corporations own, and have good,
valid and marketable title to, all assets purported to be owned by them,
including: (i) all assets reflected on the Unaudited Interim Balance Sheet
(except for inventory sold or otherwise disposed of in the ordinary course of
business since the date of the Unaudited Interim Balance Sheet); and (ii) all
other assets reflected in the books and records of the Acquired Corporations as
being owned by the Acquired Corporations. All of said assets are owned by the
Acquired Corporations free and clear of any Encumbrances, except for (1) any
lien for current taxes not yet due and payable, (2) minor liens that have arisen
in the ordinary course of business and that do not (in any case or in the
aggregate) materially detract from the value of the assets subject thereto or
materially impair the operations of any of the Acquired Corporations, and (3)
liens described in Section 2.15 of the Company Disclosure Schedule. All leases
pursuant to which any of the Acquired Corporations lease from others material
real or Personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing material default or event of default of any of the Acquired
Corporations or, to Company's Knowledge, any other party (or any event which
with notice or lapse of time, or both, would constitute a material default and
in respect of which Company or Subsidiary has not taken adequate steps to
prevent such default from occurring). All the plants, structures and equipment
of the Acquired Corporations, except such as may be under construction, are in
good operating condition and repair, in all material respects.
II.16 TAXES.
(a) Except as disclosed in Section 2.16(a) of the Company
Disclosure Schedule, each of the Acquired Corporations has timely filed all
Returns relating to Taxes required to be filed by the Acquired Corporations with
any Tax authority, except such Returns which are not material to Company, and
such Returns are true and correct and have been completed in accordance with
applicable law.
(b) Company, and each of its Subsidiaries, as of the Effective
Time: (A) will have paid within the time required by law, or accrued all Taxes
it is required to pay or accrue and (B) will have withheld from each payment
made to its past or present employees, officers, directors
22
and independent contractors, creditors, shareholders or other third parties all
Taxes and other material deductions required to be withheld and have, within the
time required by law, paid such withheld amounts to the proper Governmental
Entities.
(c) None of the Acquired Corporations has been delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against any of the Acquired Corporations, nor has any of the Acquired
Corporations executed any waiver of any statute of limitations on or extensions
of the period for the assessment or collection of any Tax. There are no matters
relating to Taxes under discussion between any Governmental Entity and Company
or any Subsidiary.
(d) No audit or other examination of any Return of any of the
Acquired Corporations is currently in progress, nor has any of the Acquired
Corporations been notified of any request for such an audit or other
examination, nor is any taxing authority asserting, or to Company's Knowledge,
threatening to assert against any of the Acquired Corporations any claim for
Taxes.
(e) There are (and as of immediately following the Closing there
will be) no Encumbrances of any sort on the assets of any of the Acquired
Corporations relating to or attributable to Taxes except for Liens for Taxes not
yet due and payable.
(f) The Acquired Corporations are not a party to a tax sharing or
allocation agreement and are not liable for the Taxes of any other Person,
whether as a transferee or successor or by contract or otherwise, nor does
Company or its Subsidiaries owe any amount under any such agreement.
(g) The Acquired Corporations= tax basis in its assets for purposes
of determining its future amortization, depreciation and amortization, other
federal, provincial or state income tax deductions and its loss carry forwards
are accurately reflected on Company=s and its Subsidiaries tax books and records
and Tax Returns.
(h) No adjustment relating to any Returns filed by Company or
any of the Subsidiaries has been proposed in writing, formally or informally,
by any Tax authority to Company or any of the Subsidiaries or any
Representative thereof.
(i) Neither Company nor any of the Subsidiaries has any liability
for any unpaid Taxes which has not been accrued for or reserved on Company
balance sheet dated March 31, 2000 in accordance with Canadian GAAP, whether
asserted or unasserted, contingent or otherwise, other than any liability for
unpaid Taxes that may have accrued since March 31, 2000 in connection with the
operation of the business of Company and the Subsidiaries in the ordinary
course.
(j) None of the Acquired Corporations is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement or
arrangement.
23
(k) No circumstances exist which would make Company or any
Subsidiary subject to the application of any of Sections 79 to 80.04 of the
INCOME TAX ACT (Canada) in a manner that would result in a material liability to
Company. Neither Company nor any of the Subsidiaries have acquired property or
services from or disposed of property or provided services to, a Person with
whom it does not deal at arm's length (within the meaning of the INCOME TAX ACT
(Canada)) for an amount that is other than the fair market value of such
property or services, or has been deemed to have done so for purposes of the
INCOME TAX ACT (Canada).
(l) Company has not deducted any amounts in computing its income in
a taxation year which may be included in a subsequent taxation year under
Section 78 of the INCOME TAX ACT (Canada).
II.17 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as disclosed in Section 2.17(a) of
the Company Disclosure Schedule No underground storage tanks and no amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, provincial, regional, state, municipal, or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances or
contaminants pursuant to Environmental Laws, or defined as a hazardous waste
pursuant to the UNITED STATES RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, as
amended, and the regulations promulgated pursuant to said laws, but excluding
office and janitorial supplies (a "HAZARDOUS MATERIAL") are present, as a result
of the actions of any of the Acquired Corporations or any affiliate of Company,
or, to Company's Knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that any of the Acquired
Corporations has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. None of the Acquired
Corporations has transported, stored, used, manufactured, disposed of, released
or exposed its employees or others to Hazardous Materials in violation of any
law in effect on or before the Closing Date. None of the Acquired Corporations
has disposed of, transported, sold, used, released, exposed its employees or
others to or manufactured any product containing a Hazardous Material
(collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(c) PERMITS. The Acquired Corporations currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of the Acquired
Corporations' Hazardous Material Activities and other businesses of the Acquired
Corporations as such activities and businesses are currently being conducted.
24
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to
Company's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against any of the Acquired Corporations in a writing delivered to any of the
Acquired Corporations concerning any Company Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of any of the Acquired
Corporations. Company is not aware of any fact or circumstance which could
involve any of the Acquired Corporations in any environmental litigation or
impose upon Company any material environmental liability.
(e) COMPLIANCE WITH ENVIRONMENTAL LAWS. Company, the operation of
its business, the property and assets owned, leased or used by Company and the
use, maintenance and operation thereof have been and are in compliance with all
Environmental Laws. Company has complied in all material respects with all
reporting and monitoring requirements under all Environmental Laws. Company has
not received any notice of any non-compliance with any Environmental Laws, and
Company has never been convicted of an offense for non-compliance with any
Environmental Laws or been fined or otherwise sentenced or settled such
prosecution short of conviction.
(f) DEFINITION OF ENVIRONMENTAL LAWS. As used herein,
"ENVIRONMENTAL LAWS" shall mean all applicable statutes, regulations,
ordinances, by-laws, guidelines, orders, and codes and all international
treaties and agreements, now or hereafter in existence in Canada (whether
federal, provincial or municipal) and, to the extent applicable to the conduct
of Company's business in the United States (whether federal, state or local) or
any other jurisdiction in which Company carries on business relating to the
protection and preservation of the environment, occupational health and safety,
product safety or product liability including, without limitation, the
ENVIRONMENTAL PROTECTION ACT (Ontario), as amended; the COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, as amended; THE
RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, as amended; THE FEDERAL WATER
POLLUTION CONTROL ACT, as amended; the CLEAN AIR ACT, as amended; the
ENVIRONMENTAL PROTECTION ACT (Canada), as amended; and the regulations
promulgated pursuant to such laws.
II.18 BROKERS. Except for Sprott Securities Limited and Xxxxxxx &
Company Inc., no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Arrangement or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of any of the Acquired
Corporations. The total of all fees, commissions and other amounts that have
been paid by Company to Sprott Securities Limited and Xxxxxxx & Company Inc. and
all fees, commissions and other amounts that may become payable to Sprott
Securities Limited and Xxxxxxx & Company Inc. by Company if the Arrangement is
consummated will not exceed $200,000. Company has furnished to Parent accurate
and complete copies of all agreements under which any such fees, commissions or
other amounts have been paid to may become payable and all indemnification and
other agreements related to the engagement of Sprott Securities Limited and
Xxxxxxx & Company Inc.
25
II.19 INTELLECTUAL PROPERTY
(a) For the purposes of this Agreement, the following terms have
the following definitions:
(i) "COMMERCIAL SOFTWARE RIGHTS" shall mean packaged
commercially available software programs available to the public through
retail dealers in computer software which have been licensed to Company
pursuant to an end-user license and which are used in the business of Company
but are in no way a component of Company's products and related Company
Intellectual Property.
(ii) "COMPANY INTELLECTUAL PROPERTY" shall mean any
Technology and Intellectual Property Rights including Company Registered
Intellectual Property Rights that are owned (in whole or in part) by or
exclusively licensed to Company.
(iii) "INTELLECTUAL PROPERTY RIGHTS" shall mean any or all of
the following and all rights in, arising out of, or associated therewith: (A)
all United States and foreign patents and utility models and applications
therefor and all reissues, divisions, re-examinations, renewals, extensions,
provisionals, continuations and continuations-in-part thereof and equivalent
or similar rights anywhere in the world in inventions and discoveries
including without limitation invention disclosures ("PATENTS"); (B) all trade
secrets and other rights in know-how and confidential or proprietary
information; (C) all copyrights, copyrights registrations and applications
therefor and all other rights corresponding thereto throughout the world
("COPYRIGHTS"); (D) all maskworks, maskwork registrations and applications
therefor, and any equivalent or similar rights in semiconductor masks,
layouts, architectures or topology ("MASKWORKS"); (E) all industrial designs
and any registrations and applications therefor throughout the world; (F) all
World Wide Web addresses, domain names and sites and applications and
registrations therefor; (G) all trade names, logos, common law trademarks and
service marks, trademark and service xxxx registrations and applications
therefor and all goodwill associated therewith throughout the world
("TRADEMARKS"); and (H) any similar, corresponding or equivalent rights to
any of the foregoing anywhere in the world.
(iv) "REGISTERED INTELLECTUAL PROPERTY RIGHTS" shall mean all
United States, international and foreign: (A) Patents, including applications
therefor; (B) registered Trademarks, applications to register Trademarks,
including intent-to-use applications, or other registrations or applications
related to Trademarks and World Wide Web domain name registrations; (C)
Copyrights registrations and applications to register Copyrights; (D)
Maskwork registrations and applications to register Maskworks; and (E) any
other Technology that is the subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any
state, provincial, government or other public or private legal authority at
any time.
26
(v) "TECHNOLOGY" shall mean any or all of the following: (A)
works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or
otherwise, documentation, designs, files, net lists, records, data and
maskworks; (B) inventions (whether or not patentable), improvements and
technology; (C) proprietary and confidential information, including technical
data and customer and supplier lists, trade secrets and know how; (D)
databases, data compilations and collections and technical data; (E) logos,
trade names, trade dress, trademarks and service marks; (F) World Wide Web
addresses, domain names and sites; (G) tools, methods and processes; and (H)
all instantiations of the foregoing in any form and embodied in any media.
(vi) "COMPANY" means the Acquired Corporations;
(b) Section 2.19(b) of the Company Disclosure Schedule lists all
Registered Intellectual Property Rights owned by, filed in the name of, or
applied for, by Company (the "COMPANY REGISTERED INTELLECTUAL PROPERTY
RIGHTS") (and identifies which of the Acquired Corporations the Company
Registered Intellectual Property Rights are held by) and lists any
proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the "PTO") or equivalent authority
anywhere in the world) related to any of Company Registered Intellectual
Property Rights or Company Intellectual Property.
(c) Each item of Company Registered Intellectual Property Rights
is valid and subsisting, and all necessary registration, maintenance and
renewal fees in connection with such Company Registered Intellectual Property
Rights have been paid and all necessary documents and certificates in
connection with such Company Registered Intellectual Property Rights have
been filed with the relevant patent, copyright, trademark or other
authorities in the United States, Canada, or foreign jurisdictions, as the
case may be, for the purposes of maintaining such Registered Intellectual
Property Rights. Except as set forth on Section 2.19(c)(i) of the Company
Disclosure Schedule, there are no actions that must be taken by Company
within one hundred twenty (120) days of the Closing Date, including the
payment of any registration, maintenance or renewal fees or the filing of any
responses to PTO office actions, documents, applications or certificates for
the purposes of obtaining, maintaining, perfecting or preserving or renewing
any Registered Intellectual Property Rights. In each case in which Company
has acquired any Technology or Intellectual Property Right from any Person,
Company has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Technology and the associated
Intellectual Property Rights (including the right to seek past and future
damages with respect thereto) to Company. In accordance with, applicable laws
and regulations, Company has recorded each such assignment of a Registered
Intellectual Property Right assigned to Company with the relevant
Governmental Entity, including the PTO, the U.S. Copyright Office, or their
respective equivalents in Canada or in any relevant foreign jurisdiction, as
the case may be. Except as set forth on Section 2.19(c)(ii) of the Company
Disclosure Schedule, Company has not claimed a particular status, including
"Small Business Status," in the application for any Intellectual Property
Rights, which claim of status was not at the time made, or which has since
become, inaccurate or false or that will no longer be true and accurate
27
as a result of the Closing. Company has good, valid and marketable title to all
Company Intellectual Property.
(d) To Company's Knowledge, other than the Lemelson Patents,
there are no facts or circumstances that would render any Company
Intellectual Property invalid or unenforceable. Without limiting the
foregoing, Company knows of no information, materials, facts or
circumstances, including any information or fact that would constitute prior
art, that would render any of Company Registered Intellectual Property Rights
invalid or unenforceable, or would adversely affect any pending application
for any Company Registered Intellectual Property Right and Company has not
misrepresented, or failed to disclose, and, to Company's Knowledge, there has
been no misrepresentation or failure to disclose, any fact or circumstances
in any application for any Company Registered Intellectual Property Right
that would constitute fraud or a misrepresentation with respect to such
application or that would otherwise affect the validity or enforceability of
any Company Registered Intellectual Property Right.
(e) Each item of Company Intellectual Property is free and clear
of any Liens except for non-exclusive licenses granted to end-user customers
in the ordinary course of business. Company is the exclusive owner or
exclusive licensee of all Company Intellectual Property. Without limiting the
foregoing: (i) Company is the exclusive owner of all registered Trademarks
used in connection with the operation or conduct of the business of Company,
including the sale, licensing, distribution or provision of any products or
services by Company and (ii) Company owns exclusively, and has good title to,
all Intellectual Property Rights which are Copyrights that are products of
Company or which Company otherwise purports to own. To the extent that any
registered Patents would be infringed by any of Company's products, Company
is the exclusive owner of such Patents.
(f) All Company Intellectual Property will be fully
transferable, alienable or licensable by Parent Group without restriction and
without payment of any kind to any third party.
(g) To the extent that any Company Technology has been developed
or created by a third party for Company, Company has a written agreement with
such third party with respect thereto and Company thereby either (i) has
obtained ownership of, and is the exclusive owner of, or (ii) has obtained a
license (sufficient for the conduct of its business as currently conducted
and as proposed to be conducted) to all such third party's Intellectual
Property Rights in such Technology by operation of law or by valid
assignment, to the extent necessary to ensure that all such rights have been
granted to the Company thereunder. To the extent that any Intellectual
Property has been developed or created independently or jointly by a third
party for Company or is incorporated into any of Company Intellectual
Property or any of Company Products, Company has a written agreement with
such third party with respect thereto and Company thereby either (i) has
obtained ownership of, and is the exclusive owner of all such third party's
Intellectual Property (including the right to seek past and future damages,
profits or reasonable compensation with respect to such Intellectual
Property) in such work, material or invention by operation of law or by valid
assignment, to the extent necessary to ensure that all such rights have been
granted to the Company thereunder
28
or (ii) has obtained a perpetual, non-terminable license (sufficient for the
conduct of its business as currently conducted and as proposed to be conducted).
Any such third party waived its moral rights in any such Intellectual Property
which has been conveyed by such third party to Company.
(h) Except for "shrink-wrap" or similar Commercial Software
Rights, all Technology used in or necessary to the conduct of Company's
business as presently conducted or currently contemplated to be conducted by
Company was written and created solely by either (i) employees of Company
acting within the scope of their employment or (ii) by third parties who have
validly and irrevocably assigned all of their rights, including Intellectual
Property Rights therein, to Company, and no third party owns or has any
rights to any of Company Intellectual Property (other than licensees of
Company's products in the ordinary and usual course of business).
(i) All employees of Company have entered into a valid and
binding written agreement with Company sufficient to vest title in Company of
all Technology, including all accompanying Intellectual Property Rights,
created by such employee in the scope of his or her employment with Company.
(j) The Acquired Corporations have taken reasonable measures and
precautions to protect and maintain the confidentiality, secrecy and value of
all material Acquired Corporation Proprietary Assets (except Acquired
Corporation Proprietary Assets whose value would be unimpaired by
disclosure). Without limiting the generality of the foregoing, except as set
forth in Section 2.19(j) of the Company Disclosure Schedule, (i) all current
and former employees of the Acquired Corporations who are or were involved
in, or who have contributed to, the creation or development of any material
Acquired Corporation Proprietary Asset have executed and delivered to the
Acquired Corporations an agreement (containing no exceptions to or exclusions
from the scope of its coverage) that is substantially identical to the form
of Confidential Information and Invention Assignment Agreement previously
delivered by Company to Parent, and (ii) all current and former consultants
and independent contractors to the Acquired Corporations who are or were
involved in, or who have contributed to, the creation or development of any
material Acquired Corporation Proprietary Asset have executed and delivered
to Company an agreement (containing no exceptions to or exclusions from the
scope of its coverage) that is substantially identical to the form of
Consultant Confidential Information and Invention Assignment Agreement
previously delivered to Parent. No current or former employee, officer,
director, shareholder, consultant or independent contractor has any right,
claim or interest in or with respect to any Acquired Corporation Proprietary
Asset.
(k) No Person who has licensed Technology or Intellectual
Property Rights to Company has ownership rights or license rights to
improvements made by Company in such Technology or Intellectual Property
Rights.
(l) Company has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any
exclusive rights to use or joint ownership of, any Technology or Intellectual
Property Right that is or was Company Intellectual Property, to any other
29
Person. To Company's Knowledge, none of Company's rights in material Company
Intellectual Property has lapsed or entered the public domain. Except as set
forth in Section 2.19(l) of the Company Disclosure Schedule, none of the
Acquired Corporations has developed jointly with any other Person any Acquired
Corporation Proprietary Asset that is material to the business of the Acquired
Corporations with respect to which such other Person has any rights. Except as
set forth in Section 2.9(a)(v) of the Company Disclosure Schedule, there is no
Acquired Corporation Contract (with the exception of end user license agreements
in the form previously delivered by Company to Parent) pursuant to which any
Person has any right (whether or not currently exercisable) to use, license or
otherwise exploit any Acquired Corporation Proprietary Asset.
(m) Other than Commercial Software Rights and outbound
"shrink-wrap" licenses in the form set forth on Section 2.19(m) of the
Company Disclosure Schedule, the contracts, licenses and agreements listed on
Section 2.19(m) of the Company Disclosure Schedule list all contracts,
licenses and agreements to which Company is a party with respect to any
Technology or Intellectual Property Rights. Company is not in breach of nor
has Company failed to perform under, any of the foregoing contracts, licenses
or agreements and, to Company's Knowledge, no other party to any such
contract, license or agreement is in breach thereof or has failed to perform
thereunder.
(n) Section 2.19(n) of the Company Disclosure Schedule lists all
contracts, licenses and agreements between Company and any other Person
wherein or whereby Company has 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 Company or such other
Person of the Intellectual Property Rights of any Person other than Company.
(o) There are no contracts, licenses or agreements between
Company and any other Person with respect to Company Intellectual Property
regarding which there is, to Company's Knowledge, any dispute regarding the
scope of such agreement, or performance under such agreement, including with
respect to any payments to be made or received by Company thereunder.
(p) The operation of the business of Company as it currently is
conducted, including but not limited to the design, development, use, import,
branding, advertising, promotion, marketing, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of Company does not, to Company's Knowledge,
infringe or misappropriate any Intellectual Property Right of any Person,
other than the Lemelson Patents, violate any right of any Person (including
any right to privacy or publicity) or constitute unfair competition or trade
practices under the laws of Canada, the United States, or any jurisdiction in
which Company conducts business, and Company has not received notice from any
Person claiming that such operation or any act, product, technology or
service (including products, technology or services currently under
development) of Company infringes or misappropriates any Intellectual
Property Right of any Person or constitutes unfair competition or trade
practices under the laws of any jurisdiction (nor, to Company's Knowledge, is
there any basis therefor).
30
(q) To Company's Knowledge, no Person is infringing or
misappropriating any Company Intellectual Property Right. To Company's
Knowledge, no other Person is infringing, misappropriating or making any
unlawful or unauthorized use of, and no Proprietary Asset owned or used by
any other Person infringes or conflicts with, any material Acquired
Corporation Proprietary Asset.
(r) To Company's Knowledge, no Company Intellectual Property or
service of Company is subject to any proceeding or outstanding decree, order,
judgment or settlement agreement or stipulation that restricts in any manner
the use, transfer or licensing thereof by Company or may affect the validity,
use or enforceability of such Company Intellectual Property.
(s) No (i) product, technology, service or publication of
Company, (ii) material published or distributed by Company or (iii) conduct
or statement of Company constitutes obscene material, a defamatory statement
or material, false advertising or otherwise violates in any material respect
any law or regulation.
(t) Company Intellectual Property constitutes all the Technology
and Intellectual Property Rights used in and/or necessary to the conduct of
the business of Company as it currently is conducted, and, as it is currently
planned or contemplated to be conducted by Company, including, without
limitation, the design, development, manufacture, use, import and sale of
products, technology and performance of services (including products,
technology or services currently under development).
(u) Neither this Agreement nor the transactions contemplated by
this Agreement of any contracts or agreements to which Company is a party,
will result in (i) Company's granting to any third party any right to or with
respect to any Technology or Intellectual Property Right owned by, or
licensed to, either of them, (ii) Company's being bound by, or subject to,
any non-compete or other restriction on the operation or scope of their
respective businesses or (iii) Company's being obligated to pay any royalties
or other amounts to any third party in excess of those payable by Company,
respectively, prior to the Closing.
(v) Company has not breached or violated in any material respect
the terms of its license, sublicense, or other agreement relating to any
Commercial Software Rights, and Company has a valid right to use such
Commercial Software Rights under such licenses and agreements. Company is not
and will not be as a result of the execution and delivery of this Agreement
or the performance of its obligations hereunder, in violation of any license,
sublicense, or agreement relating to the Commercial Software Rights. No
claims with respect to Commercial Software Rights have been asserted or, to
Company's Knowledge, are threatened by any Person against Company in
connection with any Commercial Software Right. There is no material
unauthorized use, infringement, or misappropriation of any Commercial
Software Right by Company or, to Company's Knowledge, any employee or former
employee of Company. To Company's Knowledge, no Commercial Software Right is
subject to any outstanding order, judgment, decree, stipulation, or agreement
restricting in any matter the use thereof by Company.
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(w) Section 2.19(w) of the Company Disclosure Schedule lists all
material contracts, licenses and agreements to which Company is a party: (i)
with respect to Company Intellectual Property licensed or transferred to any
third party (other than end-user licenses in the ordinary course which are
substantially identical to Company's standard form of license agreement
attached under Section 2.19(w) of the Company Disclosure Schedule or (ii)
pursuant to which a third party has licensed or transferred any material
Intellectual Property to Company. Any such end-user licenses granted in the
ordinary course noted above have been only in respect of object code versions
of the software comprised in the Intellectual Property, and no third party
has rights in or to any source code comprised in the Intellectual Property.
(x) All contracts, licenses and agreements relating to either
(i) Company Intellectual Property or (ii) Intellectual Property of a third
party licensed to Company are in full force and effect. The consummation of
the transactions contemplated by this Agreement will neither violate nor
result in the breach, modification, cancellation, termination or suspension
of such contracts, licenses and agreements. Company is in material compliance
with, and has not materially breached any term of any such contracts,
licenses and agreements and, to Company's Knowledge, all other parties to
such contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, Company will be permitted to exercise all of its
rights under such contracts, licenses and agreements to the same extent
Company would have been able to have the transactions contemplated by this
Agreement not occurred and without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which Company
would otherwise be required to pay. Neither this Agreement nor the
transactions contemplated by this Agreement will to Company's Knowledge,
result in (i) Parent's granting to any third party any right to or with
respect to any material Intellectual Property right owned by, or licensed to,
it, (ii) Parent's being bound by, or subject to, any non-compete or other
material restriction on the operation or scope of its business, or (iii)
Parent's being obligated to pay any royalties or other material amounts to
any third party in excess of those payable by Parent prior to the Closing.
(y) Company is not obligated to pay any royalties or other
compensation to any Person in respect of its ownership, use or license of any
of Company Intellectual Property.
(z) The Acquired Corporation Proprietary Assets constitute all
the Proprietary Assets necessary to enable the Acquired Corporations to
conduct their business in the manner in which such business has been and is
being conducted. None of the Acquired Corporations has (i) licensed any of
the material Acquired Corporation Proprietary Assets to any Person on an
exclusive basis, or (ii) entered into any covenant not to compete or Contract
limiting its ability to exploit fully any material Acquired Corporation
Proprietary Assets or to transact business in any market or geographical area
or with any Person.
(aa) Except as set forth in Section 2.19(aa) of the Company
Disclosure Schedule, none of the Acquired Corporations has disclosed or
delivered to any Person, or permitted the
32
disclosure or delivery to any escrow agent or other Person, of any Acquired
Corporation Source Code. No event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, result in the disclosure or delivery to any Person of any
Acquired Corporation Source Code. Section 2.19(aa) of the Company Disclosure
Schedule identifies each Contract pursuant to which Company has deposited or is
required to deposit with an escrowholder or any other Person any Acquired
Corporation Source Code, and further describes whether the execution of this
Agreement or the consummation of any of the transactions contemplated hereby
could reasonably be expected to result in the release or disclosure of any
Acquired Corporation Source Code.
(bb) To Company's Knowledge, except as set forth in Section
2.19(bb) of the Company Disclosure Schedule, each computer, computer program
and other item of software (whether installed on a computer or on any other
piece of equipment, including firmware) that is owned, licensed or used by
any of the Acquired Corporations for their internal business operations is
Year 2000 Compliant. Except as set forth in Section 2.19(bb) of the Company
Disclosure Schedule, each computer program and other item of software that
has been designed, developed, sold, licensed or otherwise made available to
any Person by any of the Acquired Corporations is Year 2000 Compliant. Except
as set forth in Section 2.19(bb) of the Company Disclosure Schedule, each of
the Acquired Corporations has conducted sufficient Year 2000 compliance
testing for each computer, computer program and item of software referred to
in the preceding two sentences to be able to determine whether such computer,
computer program and item of software is Year 2000 Compliant, and has
obtained warranties or other written assurances from each of its suppliers to
the effect that the products and services provided by such suppliers to the
Acquired Corporations is Year 2000 Compliant. As used in this Section 2.19,
"Year 2000 Compliant" means, with respect to a computer, computer program or
other item of software (i) the functions, calculations, and other computing
processes of the computer, program or software (collectively, "PROCESSES")
perform in a consistent and correct manner without interruption regardless of
the date on which the Processes are actually performed and regardless of the
date input to the applicable computer system, whether before, on, or after
January 1, 2000; (ii) the computer, program or software accepts, calculates,
compares, sorts, extracts, sequences, and otherwise processes date inputs and
date values, and returns and displays date values, in a consistent and
correct manner regardless of the dates used whether before, on, or after
January 1, 2000; (iii) the computer, program or software accepts and responds
to year input, if any, in a manner that resolves any ambiguities as to
century in a defined, predetermined, and appropriate manner; (iv) the
computer, program or software stores and displays date information in ways
that are unambiguous as to the determination of the century; and (v) leap
years will be in accordance with the then current standard in effect with the
operating system used by a computer, computer program or software.
(cc) Except with respect to demonstration or trial copies, no
product, system, program or software module designed, developed, sold,
licensed or otherwise made available by any of the Acquired Corporations to
any Person contains any "back door," "time bomb," "Trojan horse," "worm,"
"drop dead device," "virus" or other software routines or hardware components
33
designed to permit unauthorized access or to disable or erase software, hardware
or data without the consent of the user.
II.20 CONTRACTS.
(a) Section 2.20(a) of the Company Disclosure Schedule
identifies each Acquired Corporation Contract that constitutes a "MATERIAL
CONTRACT". (For purposes of this Agreement, each of the following shall be
deemed to constitute a "Material Contract":
(i) any Contract relating to the employment of, or the
performance of services by, any employee or consultant; any Contract pursuant
to which any of the Acquired Corporations is or may become obligated to make
any severance, termination or similar payment to any current or former
employee or director; and any Contract pursuant to which any of the Acquired
Corporations is or may become obligated to make any bonus or similar payment
(other than payments in respect of salary) in excess of $25,000 to any
current or former employee or director;
(ii) any Contract (A) with any customer of any of the
Acquired Corporations; (B) with respect to the distribution or marketing of
any product of any of the Acquired Corporations; or (C) of the type referred
to in Section 2.19;
(iii) any Contract which provides for indemnification of any
officer, director, employee or agent;
(iv) any Contract imposing any restriction on the right or
ability of any Acquired Corporation (A) to compete with any other Person, (B)
to acquire any product or other asset or any services from any other Person,
(C) to solicit, hire or retain any Person as an employee, consultant or
independent contractor, (D) to develop, sell, supply, distribute, offer,
support or service any product or any technology or other asset to or for any
other Person, (E) to perform services for any other Person, or (F) to
transact business or deal in any other manner with any other Person;
(v) any Contract (A) relating to the acquisition, issuance,
voting, registration, sale or transfer of any securities, (B) providing any
Person with any preemptive right, right of participation, right of
maintenance or any similar right with respect to any securities, or (C)
providing any of the Acquired Corporations with any right of first refusal
with respect to, or right to purchase or otherwise acquire, any securities;
(vi) any Contract incorporating or relating to any guaranty,
any warranty or any indemnity or similar obligation, except for Contracts
substantially identical to the standard forms of end-user licenses previously
delivered by Company to Parent;
(vii) any Contract relating to any currency hedging;
34
(viii) any Contract imposing any confidentiality obligation
on any of the Acquired Corporations;
(ix) any Contract (A) to which any Governmental Body is a
party or under which any Governmental Body has any rights or obligations, or
(B) directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between any Acquired Corporation and any
contractor or subcontractor to any Governmental Body);
(x) any Contract requiring that any of the Acquired
Corporations give any notice or provide any information to any Person prior
to considering or accepting any Acquisition Proposal or similar proposal, or
prior to entering into any discussions, agreement, arrangement or
understanding relating to any Acquisition Transaction or similar transaction;
(xi) any Contract that has a term of more than 60 days and
that may not be terminated by an Acquired Corporation (without penalty)
within 60 days after the delivery of a termination notice by such Acquired
Corporation;
(xii) any Contract that contemplates or involves the payment
or delivery of cash or other consideration in an amount or having a value in
excess of $25,000 in the aggregate, or contemplates or involves the
performance of services having a value in excess of $25,000 in the aggregate;
(xiii) any Contract (not otherwise identified in clauses
"(i)" through "(xiii)" of this sentence) that could reasonably be expected to
have a material effect on the business, condition, capitalization, assets,
liabilities, operations, financial performance or prospects of any of the
Acquired Corporations or to any of the transactions contemplated by this
Agreement; and
(xiv) any other Contract, if a breach of such Contract could
reasonably be expected to have a Material Adverse Effect on Company.)
Company has delivered to Parent an accurate and complete copy of each
Material Contract.
(b) Each Acquired Corporation Contract that constitutes a
Material Contract is valid and in full force and effect, and is enforceable
in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies.
(c) Except as set forth in Section 2.20 (c) of the Company
Disclosure Schedule: (i) none of the Acquired Corporations has violated or
breached, or committed any default under, any Acquired Corporation Contract,
except for violations, breaches and defaults that have not had and would not
reasonably be expected to have a Material Adverse Effect on Company; and, to
Company's Knowledge, no other Person has violated or breached, or committed
any default under, any Acquired Corporation Contract, except for violations,
breaches or defaults that have not had and
35
would not reasonably be expected to have a Material Adverse Effect on Company;
(ii) to Company's Knowledge, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or would
reasonably be expected to, (A) result in a violation or breach of any of the
provisions of any Acquired Corporation Contract, (B) give any Person the right
to declare a default or exercise any remedy under any Acquired Corporation
Contract, (C) give any Person the right to receive or require a rebate,
chargeback, penalty or change in delivery schedule under any Acquired
Corporation Contract, (D) give any Person the right to accelerate the maturity
or performance of any Acquired Corporation Contract, (E) result in the
disclosure, release or delivery of any Acquired Corporation Source Code, or (F)
give any Person the right to cancel, terminate or modify any Acquired
Corporation Contract, except in each such case for defaults, acceleration
rights, termination rights and other rights that have not had and would not
reasonably be expected to have a Material Adverse Effect on Company; and (iii)
since March 31, 1999, none of the Acquired Corporations has received any notice
or other communication regarding any actual or possible violation or breach of,
or default under, any Acquired Corporation Contract, except in each such case
for defaults, acceleration rights, termination rights and other rights that have
not had and would not reasonably be expected to have a Material Adverse Effect
on Company.
II.21 INSURANCE. Company has delivered to Parent a copy of all material
insurance policies and all material self insurance programs and arrangements
relating to the business, assets and operations of the Acquired Corporations.
Each of such insurance policies is in full force and effect. Since March 31,
1999, none of the Acquired Corporations has received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any
material claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy. Except as
set forth in Section 2.21 of the Company Disclosure Schedule, there is no
pending workers' compensation or other claim under or based upon any insurance
policy of any of the Acquired Corporations.
II.22 OPINION OF FINANCIAL ADVISOR. Company's board of directors has
received the written opinion of Xxxxxxx & Company Inc., financial advisor to
Company, dated the date of this Agreement, to the effect that the Arrangement is
fair to the shareholders of Company from a financial point of view. Company has
furnished an accurate and complete copy of said written opinion to Parent.
II.23 BOARD APPROVAL. The board of directors of Company (at a meeting
duly called and held) has (a) determined (pursuant to a unanimous vote of all
members of the board of directors of Company) that the Arrangement is advisable
and fair and in the best interests of Company and its shareholders, (b)
authorized and approved (pursuant to a unanimous vote of all members of the
board of directors of Company) the execution, delivery and performance of this
Agreement by Company and approved (pursuant to a unanimous vote of all members
of the board of directors of Company) the Arrangement and (subject to
shareholder approval and approval of the Court), (c) recommended (pursuant to a
unanimous vote of all members of the board of directors of Company) the approval
of this Agreement and the Arrangement by the holders of Company Common Shares
and directed
36
that this Agreement and the Arrangement be submitted for consideration by
Company's shareholders at the Company Shareholders Meeting.
II.24 VOTE REQUIRED. Subject to the terms of the Interim Order, the
Required Company Shareholder Vote is the only vote of the holders of any class
or series of Company's shares necessary to approve this Agreement and the
transactions contemplated hereby.
II.25 MINUTE BOOKS. The minute books of the Acquired Corporations made
available to counsel for the Parent are the complete minute books of the
Acquired Corporations and contain the accurate text of all resolutions passed by
Company's board of directors (or committees thereof) and shareholders either at
meetings or by written consent since the incorporation of Company or its
Subsidiaries.
II.26 INDEMNIFICATION OBLIGATIONS. There are no actions, proceedings or
other events pending or, to Company's Knowledge, threatened against any officer,
director, employee or agent of any of the Acquired Corporations which would give
rise to any indemnification obligation of any of the Acquired Corporations to
its officers, directors, employees or agents under Company Charter Documents,
the similar organizational documents of its Subsidiaries or any agreement
between any of the Acquired Corporations and any of its officers, directors,
employees or agents.
II.27 CHANGE OF CONTROL PAYMENTS. Section 2.27 of the Company
Disclosure Schedule sets forth each plan or agreement pursuant to which any
amounts may become payable in cash or otherwise (whether currently or in the
future) to current or former officers, directors or employees of any of the
Acquired Corporations as a result of or in connection with the Acquisition.
II.28 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section
2.28 of the Company Disclosure Schedule, no officer or director of Company or
its Subsidiaries (nor any ancestor, sibling, descendant or spouse of any of such
Persons, or any trust, partnership or corporation in which any of such Persons
has or has had an economic interest), has or has had, directly or indirectly,
(i) an economic interest in any Entity which furnished or sold, or furnishes or
sells, services or products that Company or its Subsidiaries furnishes or sells,
or proposes to furnish or sell; (ii) an economic interest in any Entity that
purchases from or sells or furnishes to Company or its Subsidiaries any goods or
services; or (iii) a beneficial interest in any Company Contract. There are no
receivables of Company or its Subsidiaries owing by any director, officer,
employee of, consultant to Company or its Subsidiaries (or any ancestor,
sibling, descendant or spouse of any such Persons, or any trust, partnership or
corporation in which any of such Persons has an economic interest), other than
advances in the ordinary and usual course of business for reimbursable business
expenses (as determined in accordance with Company's or its Subsidiaries'
established employee reimbursement policies and consistent with past practice).
None of Company's shareholders has agreed to, or assumed, any obligation or duty
to guaranty or otherwise assume or incur any obligation or liability of Company
or its Subsidiaries.
37
II.29 NO DISCUSSIONS. Other than as has been disclosed to Parent (which
disclosure has not included disclosure of the identity of the other parties)
none of the Acquired Corporations, and no Representative of any of the Acquired
Corporations, is, or has at any time since June 30, 1999 been, engaged, directly
or indirectly, in any discussions or negotiations with any other Person relating
to any Acquisition Proposal.
II.30 ACCOUNTING MATTERS. To Company's Knowledge, neither Company nor
any affiliate (as that term is used in Rule 145 under the UNITED STATES 1933
ACT) of any of the Acquired Corporations has taken or agreed to take, or plans
to take, any action that could prevent Parent from accounting for the
Arrangement as a "pooling of interests."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND CANCO
Parent and CanCo jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure letter and referencing a specific representation supplied by
Parent to Company dated as of the date hereof and certified by a duly authorized
officer of Parent (the "PARENT SCHEDULE"), as follows:
III.1 ORGANIZATION, STANDING AND POWER. Each of Parent and CanCo is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all necessary power and authority:
(a) to conduct its business in the manner in which its business is currently
being conducted; (b) to own and use its assets in the manner in which its assets
are currently owned and used; and (c) to perform its obligations under all
Contracts by which it is bound. Each of Parent and CanCo is duly qualified to do
business as a foreign corporation, and is in good standing, under the laws of
all jurisdictions where the nature of its business requires such qualification
and where the failure to be so qualified would have a Material Adverse Effect on
Parent.
III.2 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has filed with the SEC and has delivered or made
available to Company (including through the SEC XXXXX system) accurate and
complete copies (excluding copies of exhibits) of all documents, including
each report, registration statement and definitive proxy statement required
to be filed by Parent with the SEC since September 30, 1999 (the "PARENT SEC
DOCUMENTS"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date
of such filing): (i) each of the Parent SEC Documents complied in all
material respects with the applicable requirements of the UNITED STATES 1933
ACT or the UNITED STATES 1934 ACT (as the case may be); and (ii) none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact
38
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements contained in the Parent
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered (except as may be indicated in
the notes to such financial statements and, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments); and (iii) fairly present the consolidated financial position of
Parent and its Subsidiaries as of the respective dates thereof and the
consolidated results of operations of Parent and its Subsidiaries for the
periods covered thereby.
III.3 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and CanCo have the
absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and CanCo of this Agreement have been duly authorized by all necessary
action on the part of Parent and CanCo and their respective boards of directors.
This Agreement constitutes the legal, valid and binding obligation of Parent and
CanCo, enforceable against them in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
III.4 NO VOTE REQUIRED. No vote of the holders of Parent Common Stock
is required to authorize the Arrangement.
III.5 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery
of this Agreement by Parent and CanCo nor the consummation by Parent and CanCo
of the Arrangement will (a) conflict with or result in any breach of any
provision of the certificate of incorporation or bylaws of Parent or the
certificate of incorporation or bylaws of CanCo, (b) result in a default by
Parent or CanCo under any Contract to which Parent or CanCo is a party, except
for any default which has not had and will not have a Material Adverse Effect on
Parent, or (c) result in a violation by Parent or CanCo of any order, writ,
injunction, judgment or decree to which Parent or CanCo is subject, except for
any violation which has not had and will not have a Material Adverse Effect on
Parent. Except as may be required by the UNITED STATES 1933 ACT, the UNITED
STATES 1934 ACT, state securities or "blue sky" laws, the California General
Corporation Law, the HSR ACT and the NASD Bylaws, Parent is not and will not be
required to make any filing with or give any notice to, or to obtain any Consent
from, any Person in connection with the execution, delivery or performance of
this Agreement or the consummation of the Arrangement.
III.6 VALID ISSUANCE. The Parent Common Stock to be issued in the
Arrangement will, when issued in accordance with the provisions of this
Agreement, be validly issued, fully paid and nonassessable.
39
III.7 CIRCULAR DISCLOSURE. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in the Circular
will, at the dates mailed to the shareholders of Company, at the time of the
Company Shareholders Meeting and as of the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by Company which is contained in the Circular.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
IV.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "PRE-CLOSING PERIOD"), Company shall,
and shall cause the respective Representatives of the Acquired Corporations to:
(a) provide Parent and Parent's Representatives with reasonable access to the
Acquired Corporations' Representatives, Personnel and assets and to all existing
books, records, Tax Returns, work papers and other documents and information
relating to the Acquired Corporations; and (b) provide Parent and Parent's
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to the Acquired
Corporations, and with such additional financial, operating and other data and
information regarding the Acquired Corporations, as Parent may reasonably
request. Without limiting the generality of the foregoing, during the
Pre-Closing Period, Company shall promptly provide Parent with copies of:
(i) all material operating and financial reports prepared by the
Acquired Corporations for Company's senior management, including (A) copies of
the unaudited monthly consolidated balance sheets of the Acquired Corporations
and the related unaudited monthly consolidated statements of operations,
statements of shareholders' equity and statements of cash flows and (B) copies
of any sales forecasts, marketing plans, development plans, discount reports,
write-off reports, hiring reports and capital expenditure reports prepared for
Company's senior management;
(ii) any written materials or communications sent by or on
behalf of Company to its shareholders;
(iii) any material notice, document or other communication sent
by or on behalf of any of the Acquired Corporations to any party to any Acquired
Corporation Contract or sent to any of the Acquired Corporations by any party to
any Acquired Corporation Contract (other than any communication that relates
solely to routine commercial transactions between Company and the other party to
any such Acquired Corporation Contract and that is of the type sent in the
ordinary course of business and consistent with past practices);
40
(iv) any notice, report or other document filed with or sent to
any Governmental Body in connection with the Arrangement or any of the other
transactions contemplated by this Agreement; and
(v) any material notice, report or other document received by
any of the Acquired Corporations from any Governmental Body.
IV.2 OPERATION OF COMPANY'S BUSINESS.
(a) During the Pre-Closing Period: (i) Company shall ensure that
each of the Acquired Corporations conducts its business and operations (A) in
the ordinary course and in accordance with past practices and (B) in compliance
with all applicable Legal Requirements and the requirements of all Acquired
Corporation Contracts that constitute Material Contracts; (ii) Company shall use
all reasonable efforts to ensure that each of the Acquired Corporations
preserves intact its current business organization, keeps available the services
of its current officers and other employees and maintains its relations and
goodwill with all suppliers, customers, landlords, creditors, licensors,
licensees, employees and other Persons having business relationships with the
respective Acquired Corporations; (iii) Company shall keep in full force all
insurance policies referred to in Section 2.19; (iv) Company shall provide all
notices, assurances and support required by any Acquired Corporation Contract
relating to any Acquired Corporation Proprietary Asset in order to ensure that
no condition under such Acquired Corporation Contract occurs which could result
in, or could increase the likelihood of, (A) any transfer or disclosure by any
Acquired Corporation of any Acquired Corporation Source Code, or (B) a release
from any escrow of any Acquired Corporation Source Code which has been deposited
or is required to be deposited in escrow under the terms of such Acquired
Corporation Contract; and (v) Company shall (to the extent requested by Parent)
cause its officers and the officers of its Subsidiaries to report regularly to
Parent concerning the status of Company's business.
(b) During the Pre-Closing Period (or, in respect of subsection
(ii), subsequent to September 19, 2000), Company shall not (without the prior
written consent of Parent), and shall not permit any of the other Acquired
Corporations to:
(i) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other securities;
(ii) sell, issue, grant or authorize the issuance or grant of
(A) any capital stock or other security, (B) any Option, call, warrant or right
to acquire any capital stock or other security, or (C) any instrument
convertible into or exchangeable for any capital stock or other security (except
that (1) Company may issue Company Common Shares upon the valid exercise of
Company Stock Options outstanding as of the date of this Agreement, and (2)
Company may, in the ordinary course of business and consistent with past
practices, grant Options or otherwise issue or
41
grant rights to acquire Company Common Shares under its Stock Option Plan and
Share Purchase Plan to purchase no more than an aggregate of total of 335,000
Company Common Shares to employees of Company);
(iii) amend or waive any of its rights under, or accelerate the
vesting under, any provision of any of Company's stock option plans, any
provision of any agreement evidencing any outstanding stock Option or any
restricted stock purchase agreement, or otherwise modify any of the terms of any
outstanding Option, warrant or other security or any related Contract;
(iv) amend or permit the adoption of any amendment to its
certificate of incorporation or bylaws or other charter or organizational
documents, or effect or become a party to any merger, consolidation,
amalgamation, share exchange, business combination, recapitalization,
reclassification of shares, stock split, division or subdivision of shares,
reverse stock split, consolidation of shares or similar transaction;
(v) form any Subsidiary or acquire any equity interest or other
interest in any other Entity;
(vi) make any capital expenditure (except that the Acquired
Corporations may make capital expenditures that, when added to all other capital
expenditures made on behalf of the Acquired Corporations during the Pre-Closing
Period, do not exceed $100,000 in the aggregate);
(vii) enter into or become bound by, or permit any of the assets
owned or used by it to become bound by, any Material Contract, or amend or
terminate, or waive or exercise any material right or remedy under, any Material
Contract, other than in the ordinary course of business consistent with past
practices;
(viii) acquire, lease or license any right or other asset from
any other Person or sell or otherwise dispose of, or lease or license, any right
or other asset to any other Person (except in each case for immaterial assets
acquired, leased, licensed or disposed of by Company in the ordinary course of
business and consistent with past practices), or waive or relinquish any
material right;
(ix) lend money to any Person, or incur or guarantee any
indebtedness (except that Company may make routine borrowings in the ordinary
course of business and consistent with past practices under its current line
of credit with The Royal Bank of Canada);
(x) establish, adopt or amend any employee
benefit plan, pay any bonus or make any profit-sharing or similar payment to,
or increase the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers
or employees (except that Company may make routine, reasonable salary
increases in connection with Company's customary employee review process and
may pay customary bonuses consistent with past practices payable in
accordance with existing bonus plans referred to in Section 2.11(a) of the
Company Disclosure Schedule);
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(xi) hire any employee at the level of Vice
President or above, or with an annual base salary in excess of $150,000;
(xii) change any of its pricing policies, product
return policies, product maintenance polices, service policies, product
modification or upgrade policies, Personnel policies or other business
policies, or any of its methods of accounting or accounting practices in any
respect;
(xiii) take or permit to be taken any action that
could preclude Parent from accounting for the merger as a "pooling of
interests" for accounting purposes;
(xiv) make any Tax election;
(xv) commence or settle any Legal Proceeding;
(xvi) enter into any material transaction or take
any other material action outside the ordinary course of business or
inconsistent with past practices; or
(xvii) agree or commit to take any of the actions
described in clauses "(i)" through "(xvi)" of this Section 4.2(b).
(c) During the Pre-Closing Period, Company shall promptly
notify Parent in writing of: (i) the discovery by Company of any event,
condition, fact or circumstance that occurred or existed on or prior to the date
of this Agreement and that caused or constitutes a material inaccuracy in any
representation or warranty made by Company in this Agreement; (ii) any event,
condition, fact or circumstance that occurs, arises or exists after the date of
this Agreement and that would cause or constitute a material inaccuracy in any
representation or warranty made by Company in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement; (iii) any material breach of any
covenant or obligation of Company; and (iv) any event, condition, fact or
circumstance that would make the timely satisfaction of any of the conditions
set forth in Section 7 impossible or unlikely or that has had or could
reasonably be expected to have a Material Adverse Effect on Company. Without
limiting the generality of the foregoing, Company shall promptly advise Parent
in writing of any Legal Proceeding or material claim threatened, commenced or
asserted against or with respect to any of the Acquired Corporations. No
notification given to Parent pursuant to this Section 4.2(c) shall limit or
otherwise affect any of the representations, warranties, covenants or
obligations of Company contained in this Agreement.
ARTICLE V
COMPANY SHAREHOLDER APPROVAL
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V.1 CIRCULAR; BOARD RECOMMENDATIONS; OTHER FILINGS
(a) As promptly as practicable after the execution of this
Agreement, Company, CanCo and Parent will prepare the Circular. Each of
Parent and Company shall provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Circular, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with
the other's counsel and auditors in the preparation of the Circular. Each of
Company, Parent and CanCo will afford the other parties an opportunity to
review all materials to be submitted to the Court, and shall make all such
changes as are reasonably requested. Each of Company, CanCo and Parent will
respond to any comments of the Court, and will use its respective
commercially reasonable efforts to have the Interim Order issued as promptly
as practicable after such filing, and Company will cause the Circular to be
mailed to its shareholders at the earliest practicable time after the Interim
Order has been granted by the Court. As promptly as practicable after the
date of this Agreement, each of Company, CanCo and Parent will prepare and
file any other filings required to be filed by it pursuant to the
requirements of the OBCA, the Interim Order, Canadian Securities Legislation,
the TSE and any other Canadian, United States or other laws relating to the
Arrangement and the transactions contemplated by this Agreement (the "OTHER
FILINGS"). Each of Company, CanCo and Parent will notify the other promptly
upon the receipt of any comments from the Court or its staff or any other
government officials and of any request by the Court or its staff or any
other government officials for amendments or supplements to the Circular or
any Other Filing or for additional information and will supply the other with
copies of all correspondence between such party or any of its
Representatives, on the one hand, and the Court or its staff or any other
government officials, on the other hand, with respect to the Circular, the
Arrangement or any Other Filing. Each of Company, CanCo and Parent will cause
all documents that it is responsible for filing with the Court or other
regulatory authorities under this Section 5.1(a) to comply in all material
respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Circular or any
Other Filing, Company, CanCo or Parent, as the case may be, will promptly
inform the other of such occurrence and cooperate in filing with the Court or
its staff or any other government officials, and/or mailing to shareholders
of Company, such amendment or supplement.
(b) Subject to Section 5.2(c), the Circular will include
the recommendation of the Board of Directors of Company in favor of approval
of the Arrangement.
(c) As soon as practicable after the execution of this
Agreement, Parent shall prepare, with the co-operation of Company, applications
and will file such applications with the Commissions and exercise its
commercially reasonable efforts to cause the Commissions to grant the Securities
Exemption Orders. Parent and Company shall each use commercially reasonable
efforts to cause such applications to comply with the requirements of Canadian
Securities Legislation. Each of Parent and Company agrees to provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgement of the
44
providing party or its counsel, may be required to appropriate for inclusion
in such applications, or in any amendments or supplements thereto, and to
cause its counsel and auditors to co-operate with the other's counsel and
auditors in the preparation of such application. Company will promptly advise
Parent, and Parent will promptly advise Company, in writing, if at any time
prior to the Effective Time either Company or Parent shall obtain knowledge
of any facts that might make it necessary or appropriate to amend or
supplement the applications in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law.
V.2 MEETING OF COMPANY SHAREHOLDERS.
(a) Promptly after the date hereof, Company will take all
action pursuant to the requirements of OBCA, the Interim Order, Canadian
Securities Legislation (and all other applicable securities laws), the TSE and
Company Charter Documents to convene the Company Shareholders Meeting to be held
as promptly as practicable, and in any event Company will use its reasonable
commercial efforts to convene such meeting not later than December 27, 2000 for
the purpose of voting upon the Arrangement. Company shall ensure that the
Company Shareholders Meeting is called, noticed, convened, held and conducted,
and that all proxies solicited in connection with the Company Shareholders
Meeting are solicited, in compliance with all applicable Legal Requirements
(including the Interim Order and the Company Charter Documents). Company's
obligation to call, give notice of, convene and hold the Company Shareholders
Meeting in accordance with this Section 5.2(a) shall not be limited or otherwise
affected by the commencement, disclosure, announcement or submission of any
Superior Offer or other Acquisition Proposal, or by any withdrawal, amendment or
modification of the recommendation of the board of directors of Company with
respect to the Arrangement. Subject to Section 5.2(c), Company will use its
commercially reasonable efforts to solicit from its shareholders proxies in
favor of the approval of the Arrangement and will take all other action
necessary or advisable to secure the vote or consent of its shareholders
required by the rules of the TSE and the requirements of the OBCA, the Interim
Order, Canadian Securities Legislation and all other applicable securities laws
to obtain such approvals. Notwithstanding anything to the contrary contained in
this Agreement, Company may adjourn or postpone the Company Shareholders Meeting
to the extent necessary to ensure that any necessary supplement or amendment to
the Circular is provided to Company's shareholders in advance of a vote on the
Arrangement or, if as of the time for which the Company Shareholders Meeting is
originally scheduled (as set forth in the Circular) there are insufficient
Company Common Shares represented (either in Person or by proxy) to constitute a
quorum necessary to conduct the business of the Company Shareholders Meeting.
(b) Subject to Section 5.2(c): (i) the Board of Directors of
Company shall recommend that Company's shareholders vote in favor of and adopt
and approve the Arrangement at the Company Shareholders Meeting; (ii) the
Circular shall include a statement to the effect that the Board of Directors of
Company has recommended (unanimously, if such is the case) that Company's
shareholders vote in favor of and adopt and approve the Arrangement at the
Company Shareholders Meeting; and (iii) neither the Board of Directors of
Company nor any committee thereof shall withdraw, amend or modify, or propose or
resolve to withdraw, amend or modify in
45
a manner adverse to Parent, the recommendation of the Board of Directors of
Company that Company's shareholders vote in favor of and adopt and approve
the Arrangement.
(c) Nothing in this Agreement shall prevent the Board of
Directors of Company from withholding, withdrawing, amending or modifying its
recommendation in favor of the Arrangement if (i) a Superior Offer is made to
Company and is not withdrawn, (ii) neither Company nor any of its
Representatives shall have violated any of the restrictions set forth in Section
6.2, (iii) the Board of Directors of Company concludes in good faith, after
consultation with its outside counsel, that, in light of such Superior Offer,
the withholding, withdrawal, amendment or modification of such recommendation is
required in order for the Board of Directors of Company to comply with its
fiduciary obligations to Company and Company's shareholders under applicable
law, (iv) Company provides Parent with at least 48 hours prior notice of any
meeting of Company's board of directors at which such board of directors is
expected to consider such Superior Offer, and (v) Company's board of directors
does not withdraw, amend or modify its recommendation in favor of the
Arrangement for at least 72 hours after Company provides Parent with the name of
the Person making such Superior Offer and a copy of such Superior Offer. Nothing
contained in this Section 5.2 shall limit Company's obligation to call, give
notice of, convene and hold the Company Shareholders Meeting (regardless of
whether the recommendation of the Board of Directors of Company shall have been
withdrawn, amended or modified).
ARTICLE VI
ADDITIONAL AGREEMENTS
VI.1 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Company and Parent have
previously executed a Mutual Confidentiality Agreement, dated as of October 6,
1998 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will
continue in full force and effect in accordance with its terms.
(b) Company and Parent will afford the other and its
respective accountants, counsel and other Representatives reasonable access
during normal business hours, upon reasonable notice, to the properties, books,
records and Personnel of Company and Parent during the period prior to the
Effective Time to obtain all information concerning the business, including the
status of product development efforts, properties, results of operations and
Personnel of Company or Parent , as may be reasonably requested. No information
or knowledge obtained by Parent or Company in any investigation pursuant to this
Section 6.1 will affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Arrangement.
VI.2 NO SOLICITATION.
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(a) Company shall not directly or indirectly, and shall not
authorize or permit any of the other Acquired Corporations or any Representative
of any of the Acquired Corporations directly or indirectly to, (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Acquisition Proposal or take any action that could reasonably be expected to
lead to an Acquisition Proposal, (ii) furnish any information regarding any of
the Acquired Corporations to any Person in connection with or in response to an
Acquisition Proposal, (iii) engage in discussions or negotiations with any
Person with respect to any Acquisition Proposal, (iv) approve, endorse or
recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any Contract contemplating or otherwise relating to any
Acquisition Transaction; provided, however, that prior to the adoption and
approval of this Agreement by the Required Company Shareholder Vote, Company
shall not be prohibited by this Section 6.2(a) from (A) furnishing nonpublic
information regarding the Acquired Corporations to any Person in response to an
Acquisition Proposal that is submitted by such Person (and not withdrawn), or
(B) entering into discussions with any Person in response to a Superior Offer
that is submitted by such Person (and not withdrawn), if (1) in the case of
clause (A) above, the Board of Directors of Company has first made a good faith,
reasonable determination that the furnishing of such nonpublic information to
such Person will likely lead to the submission of a Superior Offer from such
Person, (2) neither Company nor any Representative of any of the Acquired
Corporations shall have violated any of the restrictions set forth in this
Section 6.2, (3) the board of directors of Company concludes in good faith,
based upon the advice of its outside legal counsel, that such action is required
in order for the board of directors of Company to comply with its fiduciary
obligations to Company's shareholders under applicable law, (4) prior to
furnishing any such nonpublic information to, or entering into discussions with,
such Person, Company gives Parent written notice of the identity of such Person
and of Company's intention to furnish nonpublic information to, or enter into
discussions with, such Person, and Company receives from such Person an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such
Person by or on behalf of Company, and (5) prior to furnishing any such
nonpublic information to such Person, Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by Company to Parent). Without limiting the generality of
the foregoing, Company acknowledges and agrees that any violation of any of the
restrictions set forth in the preceding sentence by any Representative of any of
the Acquired Corporations, whether or not such Representative is purporting to
act on behalf of any of the Acquired Corporations, shall be deemed to constitute
a breach of this Section 6.2 by Company.
(b) Company shall promptly advise Parent orally and in writing
of any Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the terms thereof) that is made or
submitted by any Person during the Pre-Closing Period. Company shall keep Parent
fully informed with respect to the status of any such Acquisition Proposal and
any modification or proposed modification thereto.
47
(c) Company shall immediately cease and cause to be terminated
any existing discussions between (i) the Company and any of its Representatives
and (ii) any other Person that relate to any Acquisition Proposal.
VI.3 PUBLIC DISCLOSURE. Parent and Company will consult with each
other, and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Arrangement, this
Agreement or an Acquisition Proposal and will not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by law or any listing agreement with a national securities exchange.
Without limiting the generality of the foregoing, Company shall not, and shall
not permit any of its Subsidiaries or any Representative of any of the Acquired
Corporations to, make any disclosure regarding the Arrangement or any of the
other transactions contemplated by this Agreement unless (a) Parent shall have
approved such disclosure or (b) Company shall have been advised in writing by
its outside legal counsel that such disclosure is required by applicable law and
Parent has been furnished with at least 24 hours prior written notice of such
required disclosure.
VI.4 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Arrangement and the other transactions contemplated by
this Agreement, including using reasonable efforts to accomplish the following:
(i) the taking of all reasonable acts necessary to cause the conditions
precedent set forth in Article VII to be satisfied, (ii) the obtaining of all
necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the obtaining of all consents,
approvals or waivers from third parties required as a result of the transactions
contemplated in this Agreement, (iv) the defending of any suits, claims,
actions, investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, (v) the
execution or delivery of any additional instruments reasonably necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement and (vi) the preparation of the Circular and the calling and
holding of the Company Shareholders Meeting. In connection with and without
limiting the foregoing, Company and its Board of Directors shall, if any
takeover statute or similar statute or regulation is or becomes applicable to
the Arrangement, this Agreement or any of the transactions contemplated by this
Agreement, use all reasonable efforts to ensure that the Arrangement and the
other transactions contemplated by this Agreement may be consummated as promptly
as practicable on the terms
48
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Arrangement, this Agreement and the transactions
contemplated hereby.
(b) Company shall give prompt notice to Parent upon becoming
aware that any representation or warranty made by it contained in this Agreement
has become untrue or inaccurate, or of any failure of Company to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, in each case, such that
the conditions set forth in Section 7.3(a) or 7.3(b) would not be satisfied;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company upon becoming
aware that any representation or warranty made by it contained in this Agreement
has become untrue or inaccurate, or of any failure of Parent Sub to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, in each case, such that
the conditions set forth in Section 7.2(a) or 7.2(b) would not be satisfied;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(d) Notwithstanding anything to the contrary contained in this
Agreement, Parent shall not have any obligation under this Agreement: (i) to
dispose or transfer or cause any of its Subsidiaries to dispose of or transfer
any assets, or to commit to cause any of the Acquired Corporations to dispose of
any assets; (ii) to discontinue or cause any of its Subsidiaries to discontinue
offering any product or service, or to commit to cause any of the Acquired
Corporations to discontinue offering any product or service; (iii) to license or
otherwise make available, or cause any of its Subsidiaries to license or
otherwise make available, to any Person, any technology, software or other
Proprietary Asset, or to commit to cause any of the Acquired Corporations to
license or otherwise make available to any Person any technology, software or
other Proprietary Asset; (iv) to hold separate or cause any of its Subsidiaries
to hold separate any assets or operations (either before or after the Closing
Date), or to commit to cause any of the Acquired Corporations to hold separate
any assets or operations; or (v) to make or cause any of its Subsidiaries to
make any commitment (to any Governmental Body or otherwise) regarding its future
operations or the future operations of any of the Acquired Corporations.
VI.5 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Parent and Company will each use its commercially reasonable efforts
to obtain any consents, waivers and approvals under any of its or its
Subsidiaries' respective Contracts required to be obtained in connection with
the consummation of the transactions contemplated hereby.
VI.6 STOCK OPTIONS.
(a) Subject to Section 6.6(b), at the Effective Time, all
rights with respect to Company Common Shares under each Company Stock Option
then outstanding shall be converted
49
into and become rights with respect to Parent Common Stock, and Parent shall
assume each such Company Stock Option in accordance with the terms (as in
effect as of the date of this Agreement) of the stock option plan under which
it was issued and the stock option agreement by which it is evidenced. From
and after the Effective Time, (i) each Company Stock Option assumed by Parent
may be exercised solely for shares of Parent Common Stock, (ii) the number of
shares of Parent Common Stock subject to each such Company Stock Option shall
be equal to the number of Company Common Shares subject to such Company Stock
Option immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounding down to the nearest whole share, (iii) the per share exercise
price under each such Company Stock Option shall be adjusted by dividing the
per share exercise price under such Company Stock Option by the Exchange
Ratio and rounding up to the nearest cent and (iv) any restriction on the
exercise of any such Company Stock Option shall continue in full force and
effect and the term, exercisability, vesting schedule and other provisions of
such Company Stock Option shall otherwise remain unchanged; provided,
however, that each Company Stock Option assumed by Parent in accordance with
this Section 6.6(a) shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, division or
subdivision of shares, stock dividend, reverse stock split, consolidation of
shares, reclassification, recapitalization or other similar transaction
subsequent to the Effective Time.
(b) Notwithstanding anything to the contrary contained in this
Section 6.6, in lieu of assuming outstanding Company Stock Options in accordance
with Section 6.6(a), Parent may, at its election, cause such outstanding Company
Stock Options to be replaced by issuing reasonably equivalent replacement stock
Options in substitution therefor.
(c) Company shall take all action that may be necessary (under
the plans pursuant to which Company Stock Options are outstanding and otherwise)
to effectuate the provisions of this Section 6.6 and to ensure that, from and
after the Effective Time, holders of Company Stock Options have no rights with
respect thereto other than those specifically provided in this Section 6.6.
(d) Prior to the Effective Time, Company shall take all
actions (including, if appropriate, amending the terms of the Company Stock
Options) that are necessary to give effect to the transactions contemplated by
this Section 6.6(d).
VI.7 U.S. SECURITIES FILINGS. Parent shall file, if available for use
by Parent, a registration statement on Form S-8 for the shares of Parent Common
Stock issuable with respect to assumed Company Stock Options as soon as is
reasonably practicable after the Effective Time. Parent shall cause a
Registration Statement on Form S-3 covering the resale to the public of Parent
Common Stock to be issued pursuant to the rights associated with the
Exchangeable Shares to remain effective for a period of five years following the
Effective Date. This covenant shall remain in effect following the Effective
Date.
VI.8 NASDAQ LISTING. Parent agrees to use reasonable efforts to cause
the listing on Nasdaq of the shares of Parent Common Stock issuable, and those
required to be reserved for issuance, in
50
connection with the Arrangement with effect as and from the Effective Date,
subject to official notice of issuance.
VI.9 COMPANY AFFILIATE AGREEMENT. Set forth in the Company Disclosure
Schedule is a list of those Persons who may be deemed to be, in Company's
reasonable judgment (which shall be concurred with by Parent), affiliates of
Company within the meaning of Rule 145 promulgated under the UNITED STATES 1933
ACT (each, a "COMPANY AFFILIATE"). Company will provide Parent with such
information and documents as Parent reasonably requests for purposes of
reviewing such list. Each Company Affiliate Agreement will be in full force and
effect as of the Effective Time. Parent will be entitled to place appropriate
legends on the certificates evidencing any Parent Common Stock to be received by
a Company Affiliate pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Parent
Common Stock, consistent with the terms of Company Affiliate Agreement.
VI.10 NO ELECTION. Following the Effective Date and so long as there
are any Exchangeable Shares outstanding (other than those held by Parent and its
Affiliates), Parent shall ensure that Company does not elect to cease to be a
"public company" within the meaning of the INCOME TAX ACT (Canada).
VI.11 REGULATORY FILINGS; REASONABLE EFFORTS. Each party shall use all
reasonable efforts to file, as promptly as practicable after the date of this
Agreement, all notices, reports and other documents required to be filed by such
party with any Governmental Body with respect to the Arrangement and the other
transactions contemplated by this Agreement, and to submit promptly any
additional information requested by any such Governmental Body. Without limiting
the generality of the foregoing, Company and Parent shall, promptly after the
date of this Agreement, prepare and file the notifications required under the
HSR ACT in connection with the Arrangement. Company and Parent shall respond as
promptly as practicable to (i) any inquiries or requests received from the
Federal Trade Commission or the Department of Justice for additional information
or documentation and (ii) any inquiries or requests received from any state
attorney general or other Governmental Body in connection with antitrust or
related matters. Each of Company and Parent shall (1) give the other party
prompt notice of the commencement of any Legal Proceeding by or before any
Governmental Body with respect to the Arrangement or any of the other
transactions contemplated by this Agreement, (2) keep the other party informed
as to the status of any such Legal Proceeding, and (3) promptly inform the other
party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Body regarding the Arrangement.
Company and Parent will consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any Legal Proceeding under or
relating to the HSR ACT or any other federal or state antitrust or fair trade
law. In addition, except as may be prohibited by any Governmental Body or by any
Legal Requirement, in connection with any Legal Proceeding under or relating to
the HSR ACT or any other federal or state antitrust or fair trade law or any
other similar Legal Proceeding, each of Company and Parent will permit
authorized Representatives of the other party to be present at each meeting or
conference
51
relating to any such Legal Proceeding and to have access to and be consulted
in connection with any document, opinion or proposal made or submitted to any
Governmental Body in connection with any such Legal Proceeding.
VI.12 TERMINATION OF SEVERANCE PLANS. Company and its affiliates, as
applicable, each agrees to terminate any and all group severance, separation or
salary continuation plans, programs or arrangements and other Plans (as defined
in Section 2.11 hereof) immediately prior to the Closing Date unless otherwise
agreed to by Parent. Parent shall receive from Company evidence that Company's
and each affiliate's (as applicable) Plan(s) has been terminated pursuant to
resolution of each such Entity's Board of Directors (the form and substance of
which resolutions shall be subject to review and approval of Parent), effective
as of the day immediately preceding the Closing Date (without prejudice to any
rights which may have arisen thereunder prior to the Effective Date). In
addition, Company shall terminate any of its 401(k) plans effective as of the
day immediately preceding the Closing Date effective as of the day immediately
preceding the Closing Date.
VI.13 LISTING OF COMPANY COMMON SHARES. Company shall ensure that
Company Common Shares remain listed on a prescribed stock exchange up until and
including the Effective Time for purposes of the definition of "TAXABLE CANADIAN
PROPERTY" in Section 248(1) of the INCOME TAX ACT (Canada) so long as any such
shares are held by any Person other than Parent, any of its Subsidiaries or
affiliates.
VI.14 TSE APPROVAL. Company shall use commercially reasonable efforts
to obtain TSE approval of the Stock Option Agreement as soon as practicable
after the date of this Agreement.
VI.15 POOLING OF INTERESTS. Each of Company and Parent agrees (and
Company agrees to cause the Acquired Corporations) (a) not to take any action
during the Pre-Closing Period that would adversely affect the ability of Parent
to account for the Arrangement as a "pooling of interests," and (b) to use all
reasonable efforts to attempt to ensure that none of its "affiliates" (as that
term is used in Rule 145 under the UNITED STATES 1933 ACT) takes any action that
could adversely affect the ability of Parent to account for the Arrangement as a
"pooling of interests." Company agrees to provide to Xxxxxx Xxxxxxxx LLP and
Ernst & Young LLP such letters as shall be reasonably requested by Xxxxxx
Xxxxxxxx LLP or Ernst & Young LLP with respect to the letters referred to in
Section 7.3(f)(i).
VI.16 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) From and after the Effective Date, Parent will cause the
Acquired Corporations to fulfill and honor in all respects the obligations of
the Acquired Corporations (or any predecessor corporation) pursuant to (i) each
indemnification agreement currently in effect between the Acquired Corporations
and each person who is or was a director or officer of any of the Acquired
Corporations (or any predecessor corporation) prior to the Effective Date (the
"INDEMNIFIED PARTIES") and (ii) any indemnification provision under the Company
Charter Documents and the equivalent organizational documents of the other
Acquired Corporations as in effect on the date
52
hereof. The Articles of Incorporation and Bylaws of Company will contain
provisions with respect to exculpation and indemnification that are at least
as favorable to the Indemnified Parties as those contained in the Company
Charter Documents and the equivalent organizational documents of the other
Acquired Corporations as in effect on the date hereof, which provisions will
not be amended, repealed or otherwise modified for a period of six (6) years
from the Effective Date in any manner that would adversely affect the rights
thereunder of any Indemnified Party or of individuals who, immediately prior
to the Effective Date, were employees or agents of the Acquired Corporations,
unless such modification is required by law.
(b) For a period of six (6) years after the Effective Date,
Parent will cause the Acquired Corporations to maintain in effect, to the extent
available, directors' and officers' liability insurance covering those persons
who are currently covered by Company's directors' and officers' liability
insurance policy on terms equivalent in all material respects to those
applicable to the current directors and officers of the Acquired Corporations;
provided, however, that in no event will Parent or Company be required to expend
an annual premium for such coverage in excess of 150% of the amount of the last
annual premium paid by Company prior to the date of this Agreement for such
coverage and provided, further, that if the annual premium payable for such
insurance coverage exceeds such amount, Parent shall be obligated to obtain a
policy with the greatest coverage available for an annual premium not exceeding
such amount.
VI.17 TSE LISTING. Company and Parent shall use all reasonable efforts
to ensure that the Exchangeable Shares are listed on the TSE until the closing
of trading on the Effective Date provided, however, that if the TSE so permits
without any additional covenants on the part of Company and Parent other than
those which are acceptable to such parties, acting reasonably, Company and
Parent shall use all reasonable efforts to ensure that the Exchangeable Shares
continue to be listed on the TSE until the closing of trading on the fifth
trading day following the Effective Date.
VI.18 COMPANY PLANS. After the date hereof, Company shall not issue any
Company Common Shares, and no person shall acquire any rights to acquire Company
Common Shares, under the Company's Share Purchase Plan or the Company's Share
Bonus Plan Share, except as permitted under Section 4.2(b)(ii) hereof.
ARTICLE VII
CONDITIONS TO THE ARRANGEMENT
VII.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE
ARRANGEMENT. The respective obligations of each party to this Agreement to
effect the Arrangement shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions:
53
(a) SHAREHOLDER APPROVAL. This Agreement shall have been
approved and adopted, and the Arrangement shall have been duly approved, by the
requisite vote under applicable law, by the shareholders of Company, and in
accordance with any additional conditions which may be imposed by the Interim
Order and which are satisfactory to Company.
(b) COURT ORDERS. The Interim Order and the Final Order shall
each have been obtained in form and on terms satisfactory to Parent and Company,
acting reasonably, and shall not have been set aside or modified in a manner
unacceptable to such parties on appeal or otherwise.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Arrangement illegal or otherwise prohibiting consummation of the
Arrangement. All waiting periods, if any, under the HSR ACT and the COMPETITION
ACT (Canada) relating to the transactions contemplated hereby will have expired
or terminated early and all antitrust approvals under Canadian or other laws
required to be obtained prior to the Arrangement in connection with the
transactions contemplated hereby shall have been obtained.
(d) NASDAQ LISTING. The shares of Parent Common Stock issuable
as contemplated in this Agreement and the documentation contemplated herein and
such other shares required to be reserved for issuance in connection with the
Arrangement shall have been authorized for listing on Nasdaq upon official
notice of issuance.
(e) ORDERS. The Securities Exemption Orders shall have been
obtained and be in form and substance satisfactory to Parent and Company, acting
reasonably.
(f) NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Legal Proceeding in which a Governmental Body is or is threatened
to become a party or is otherwise involved, and neither Parent nor Company shall
have received any communication from any Governmental Body in which such
Governmental Body indicates the possibility of commencing any Legal Proceeding
or taking any other action: (a) challenging or seeking to restrain or prohibit
the consummation of the Arrangement or any of the other transactions
contemplated by this Agreement; (b) relating to the Arrangement and seeking to
obtain from Parent or any of its Subsidiaries, or any of the Acquired
Corporations, any damages or other relief that may be material to Parent; (c)
seeking to prohibit or limit in any material respect Parent's ability to vote,
receive dividends with respect to or otherwise exercise ownership rights with
respect to the stock of any of the Acquired Corporations; or (d) which would
materially and adversely affect the right of Parent or any of the Acquired
Corporations to own the assets or operate the business of the Acquired
Corporations.
VII.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation
of Company to consummate and effect the Arrangement shall be subject to the
satisfaction at or prior to the Closing
54
Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Company:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of Parent contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on the
Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Parent, (B) for changes contemplated by
this Agreement and (C) for those representations and warranties which address
matters only as of a particular date (which representations shall have been true
and correct (subject to the qualifications as set forth in the preceding clause
A) as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"MATERIAL ADVERSE EFFECT" qualifications and other qualifications based on the
word "MATERIAL" or similar phrases contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to the
Parent Schedule made or purported to have been made after the date of this
Agreement shall be disregarded). Company shall have received a certificate with
respect to the foregoing signed on behalf of Parent by an authorized officer of
Parent.
(b) AGREEMENTS AND COVENANTS. Parent shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and Company shall have received a certificate to such effect
signed on behalf of Parent by an authorized officer of Parent.
(c) APPROVALS. Parent shall have obtained all Appropriate
Regulatory Approvals required of it under this Agreement, all of which shall be
in full force and effect, except where the failure to obtain any Appropriate
Regulatory Approval would not prevent consummation of the Arrangement or
otherwise prevent Parent or CanCo from performing their respective obligations
under this Agreement, or could not reasonably be expected to have a Material
Adverse Effect on Parent.
(d) SHAREHOLDER APPROVAL. This Agreement shall have been duly
adopted and approved, and the Arrangement shall have been duly approved, by the
Required Company Shareholder Vote.
(e) REGISTRATION OF SHARES. The Parent shall have filed a
registration statement on Form S-3 with the SEC covering the resale to the
public by the holders of Exchangeable Shares of the Parent Common Stock issued
or to be issued pursuant to the Exchangeable Shares and such Registration
Statement shall have been declared effective by the SEC.
(f) NO MATERIAL ADVERSE EFFECT. Between the date of this
Agreement and the Effective Date, no Material Adverse Effect shall have occurred
with respect to Parent as a direct and proximate consequence of Parent having
entered into a binding agreement during such period to
55
acquire any Entity other than Company for consideration valued at greater
than 20% of the market capitalization of Parent on the Nasdaq as of the date
such acquisition is first publicly announced.
(g) CERTIFICATE. Company shall have received a certificate
executed on behalf of Parent by its Chief Executive Officer confirming that the
conditions set forth in Sections 7.1 and 7.2(a), (b), (c), (e)and (f) have been
duly satisfied;
VII.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT. The
obligations of Parent to consummate and effect the Arrangement shall be subject
to the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of Company contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Company, provided however, such Material
Adverse Effect qualifier shall be inapplicable with respect to representations
and warranties contained in Section 2.3, (B) for changes contemplated by this
Agreement and (C) for those representations and warranties which address matters
only as of a particular date (which representations shall have been true and
correct (subject to the qualifications as set forth in the preceding clause (A)
as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"MATERIAL ADVERSE EFFECT" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to the
Company Disclosure Schedule made or purported to have been made after the date
of this Agreement shall be disregarded). Parent shall have received a
certificate with respect to the foregoing signed on behalf of Company by an
authorized officer of Company.
(b) AGREEMENTS AND COVENANTS. Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial Officer
of Company.
(c) AFFILIATE AGREEMENTS. Company will use its commercially
reasonable efforts to deliver or cause to be delivered to Parent, as promptly as
practicable following the date hereof, an executed Company Affiliate Agreement
(a) from each Company Affiliate as of the date hereof that has not delivered a
Company Affiliate Agreement on or prior to the date hereof, and (b) from each
Person who following the date hereof may become, in Company's reasonable
judgment, an affiliate of Company within the meaning of Rule 145 promulgated
under the Securities Act or Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations.
(d) APPROVALS. Company shall have obtained all Appropriate
Regulatory Approvals required of it under this Agreement (all of which shall be
in full force and effect), except where the failure to obtain any Appropriate
Regulatory Approval would not prevent consummation of the Arrangement or
otherwise prevent Parent or CanCo from performing their respective obligations
under this Agreement, or could not reasonably be expected to have a Material
Adverse Effect on Company. In addition, Company shall have obtained all
consents, waivers and approvals required in connection with the consummation of
the transactions contemplated hereby in connection with the agreements,
contracts, licenses or leases set forth on Section 2.5(a) of the Company
Disclosure Schedule.
56
(e) DISSENTERS. Holders of no more than five percent (5%) in
the aggregate of the issued and outstanding Company Common Shares shall have
exercised Dissenters' Rights in respect of the Arrangement, and have not
withdrawn such exercise.
(f) Parent shall have received:
(i) an opinion from Xxxxxx Xxxxxxxx LLP, dated as
of the Closing Date, reasonably satisfactory in form and substance to Parent,
to the effect that Xxxxxx Xxxxxxxx LLP is not aware of any fact concerning
the Acquired Corporations or any of the shareholders or affiliates of the
Acquired Corporations that could preclude Parent from accounting for the
Arrangement as a "pooling of interests" in accordance with generally accepted
accounting principles, Accounting Principles Board Opinion No. 16 and all
published rules, regulations and policies of the SEC;
(ii) a letter from Ernst & Young LLP, dated as of
the Closing Date, reasonably satisfactory in form and substance to Parent,
confirming that Parent may account for the Arrangement as a "pooling of
interests" in accordance with generally accepted accounting principles,
Accounting Principles Board Opinion No. 16 and all published rules,
regulations and policies of the SEC;
(iii) a certificate executed on behalf of Company
by its Chief Executive Officer confirming that the conditions set forth in
Sections 7.1 and 7.3(a), (b), (d), (e), f(iii), (g), (h), (i), (j) and (k)
have been duly satisfied; and
(iv) the written resignations of all directors of
each of the Acquired Corporations, effective as of the Effective Time, which
directors' resignations shall become effective upon the replacement of such
directors with nominees of Parent (which shall occur at the Closing).
(g) EMPLOYEES. None of the individuals identified on Section
7.3(g)(i) of the Company Disclosure Schedule shall have ceased to be employed by
Company, or shall have expressed an intention to terminate his or her employment
with Company or to decline to accept employment with Parent; not more than eight
of the individuals identified on Section 7.3(g)(ii) of the Company Disclosure
Schedule whose annual salary is at least $37,500 shall have ceased to be
employed by Company, or shall have expressed an intention to terminate his or
her employment with Company or to decline to accept employment with Parent. All
of the employment agreements which have been executed and delivered to Parent
contemporaneously with this Agreement shall remain in full force and effect and
unamended; and (iii) the employment agreements contemplated in Section 8.1(j) of
this Agreement shall be in full force and effect and unamended.
(h) NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in the business, condition, capitalization, assets,
liabilities, operations, financial performance or prospects of the Acquired
Corporations since the date of this Agreement.
(i) AVAILABLE CASH. Company shall have available cash or cash
equivalents as of the Closing Date totalling not less than $500,000 and shall
have provided evidence thereof reasonably acceptable to Parent.
(j) NO OTHER LITIGATION. There shall not be pending any Legal
Proceeding in which, in the reasonable judgment of Parent, there is a reasonable
possibility of an outcome that could have a Material
57
Adverse Effect on Company or a material adverse effect on Parent: (a)
challenging or seeking to restrain or prohibit the consummation of the
Arrangement or any of the other transactions contemplated by this Agreement;
(b) relating to the Arrangement and seeking to obtain from Parent or any of
its Subsidiaries, or any of the Acquired Corporations, any damages or other
relief that may be material to Parent; (c) seeking to prohibit or limit in
any material respect Parent's ability to vote, receive dividends with respect
to or otherwise exercise ownership rights with respect to the stock of any of
the Acquired Corporations; or (d) which would affect adversely the right of
Parent or any of the Acquired Corporations to own the assets or operate the
business of the Acquired Corporations.
(k) TSE LISTING. The Company Common Shares shall continue to
be listed on the TSE at the Effective Time.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
VIII.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after the requisite approval of the
shareholders of Company:
(a) by mutual written consent duly authorized by the Boards
of Directors of Parent and Company;
(b) by either Company or Parent if the Arrangement shall not
have been consummated by February 28, 2001 for any reason; PROVIDED, HOWEVER,
that the right to terminate this Agreement under this Section 8.1(b) shall not
be available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Arrangement to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;
(c) by either Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Arrangement, which order, decree, ruling or other action is final and
nonappealable, or if the Final Order is not granted;
(d) by either Parent or Company if (i) the Company
Shareholders Meeting (including any adjournments or postponements thereof) shall
have been held and completed and Company's shareholders shall have taken a final
vote on a proposal to approve the Arrangement, and (ii) the Arrangement shall
not have been approved at such meeting by the required Company shareholder vote
(and shall not have been approved at any adjournment or postponement thereof);
(e) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 7.2(a) or Section 7.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent through the exercise of its commercially reasonable efforts,
then Company may not terminate this Agreement under this Section 8.1(e) for
thirty (30) days after delivery of written notice from
58
Company to Parent of such breach, provided Parent continues to exercise
commercially reasonable efforts to cure such breach (it being understood that
Company may not terminate this Agreement pursuant to this paragraph (e) if it
shall have materially breached this Agreement or if such breach by Parent is
cured during such thirty (30)-day period);
(f) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or if
any representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 7.2(a) or Section 7.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in Company's representations and warranties or breach by Company is
curable by Company through the exercise of its commercially reasonable efforts,
then Parent may not terminate this Agreement under this Section 8.1(f) for
thirty (30) days after delivery of written notice from Parent to Company of such
breach, provided Company continues to exercise commercially reasonable efforts
to cure such breach (it being understood that Parent may not terminate this
Agreement pursuant to this paragraph (f) if it shall have materially breached
this Agreement or if such breach by Company is cured during such 30-day period);
(g) by Parent, upon a breach of the provisions of Section
6.2 of this Agreement;
(h) by Parent if a Triggering Event shall have occurred;
(i) by Company or Parent if this Agreement or the terms of
the Plan of Arrangement shall be modified by the Court through either the
Interim Order or the Final Order (and all reasonable avenues of appeal with
respect to such modification have been exhausted) in such a manner as would
materially impair the ability of Company or Parent to effect the Arrangement
or would materially and adversely alter the economic benefits of the
Arrangement to Parent, Company or the holders of Company Common Shares as
contemplated by this Agreement; or
(j) by Parent if Xxxxxxx Wawrew, Xxxx Xxxxxxxxxx and Xxxx
Xxxxxxx have not, on or prior to October 13, 2000, executed and delivered
employment agreements with Company on terms and conditions satisfactory to
Company and Parent, which Parent and Company shall, together with such persons,
negotiate in good faith.
VIII.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of
this Agreement under Section 8.1 above will be effective immediately upon (or,
if the termination is pursuant to Section 8.1(e) or Section 8.1(f) and the
proviso therein is applicable, thirty (30) days after) the delivery of written
notice of the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 8.1, this Agreement shall
be of no further force or effect, except (i) as set forth in this Section 8.2,
Section 8.3 and Article 9 (General Provisions), each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any intentional or willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
VIII.3 FEES AND EXPENSES.
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(a) GENERAL. Except as set forth in this Section 8.3, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Arrangement is consummated.
(b) COMPANY PAYMENTS.
(i) Company shall pay to Parent in immediately
available funds, within one (1) business day after demand by Parent, an
amount equal to the amount, if any, by which (x) (U.S.) $2,330,000 exceeds
(y) the amount, if any, by which (a) the net (before tax) proceeds of
disposition of the Option Shares (as defined in the Stock Option Agreement)
exceeds (b) the amount which results when $2.64 is multiplied by the number
of Option Shares which have been disposed of (the "TERMINATION FEE") if this
Agreement is terminated by Parent pursuant to Section 8.1(g) or (h)
(provided, however, that if the Option Shares have not been disposed of, then
the amount provided for in subsection (b)(i)(y) shall be deemed to be zero).
Company may pay the Termination Fee to Parent (without demand having been
made by Parent prior thereto) on not less than 10 business days' notice to
Parent at any time after the Termination Date (as defined in the Stock Option
Agreement) provided that no such payment may be made without the consent of
Parent if (1) prior to such time an Acquisition Proposal has been made by a
party other than Parent which has not been consummated or abandoned (or, if
consummated, the terms of the transaction do not provide that Parent shall
have received payment of the appropriate amount in respect of its Option
Shares or Options prior to such time on the same terms and conditions as are
available to other holders of Company's securities) or (2) Parent has
elected, prior to the date specified for payment of the Termination Fee, to
retain the Option and the Option Shares in lieu of the payment of the
Termination Fee. Upon the payment of the aggregate cash portion of the
Termination Fee, Parent agrees to surrender all unexercised options under the
Stock Option Agreement (and all Option Shares acquired thereunder which
Parent continues to hold).
(ii) Company shall pay to Parent in immediately
available funds, within one (1) business day after demand by Parent, an
amount equal to the Termination Fee (calculated on the basis set out in, and
subject to the provisions of, subsection (b)(i)) if:
(1) this Agreement is terminated
by Parent or Company, as applicable,
pursuant to Section 8.1(b),
8.1(d) or 8.1(j); and
(2) prior to the termination of this
Agreement a third party has proposed
an Acquisition Proposal (and, for
these purposes, an "Acquisition
Proposal" shall not include an
inquiry unless (i) Company shall
have provided any non-public
information to the party making such
inquiry or (ii) the existence of
such inquiry has been made generally
available to the public and/or the
shareholders of Company); and
(3) prior to the date which is nine
months after the termination of this
Agreement Company enters into an
agreement or letter of intent
providing for an Acquisition
Proposal which is subsequently
consummated.
(iii) Company acknowledges that the agreements
contained in this Section 8.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these
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agreements, Parent would not enter into this Agreement; accordingly, if
Company fails to pay in a timely manner the amounts due pursuant to this
Section 8.3(b) and, in order to obtain such payment, Parent makes a claim
that results in a judgment against Company for the amounts set forth in this
Section 8.3(b), Company shall pay to Parent its reasonable costs and expenses
(including reasonable attorneys' fees and expenses) in connection with such
suit, together with interest on the amounts set forth in this Section 8.3(b)
at the prime rate of Silicon Valley Bank in effect on the date such payment
was required to be made. Payment of the fees described in this Section 8.3(b)
shall not be in lieu of damages incurred in the event of breach of this
Agreement.
VIII.4 AMENDMENT. This Agreement may be amended with the approval of
the respective boards of directors of Company and Parent at any time (whether
before or after the adoption and approval of this Agreement and the approval of
the Arrangement by the shareholders of Company); provided, however, that after
any such adoption and approval of this Agreement and approval of the Arrangement
by Company's shareholders, no amendment shall be made which by law requires
further approval of the shareholders of Company without the further approval of
such shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
VIII.5 EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE IX
GENERAL PROVISIONS
IX.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Company, Parent and CanCo contained in this
Agreement shall terminate at the Effective Time, and only the covenants that by
their terms survive the Effective Time shall survive the Effective Time.
IX.2 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered Personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
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(a) if to Parent and CanCo to:
Photon Dynamics, Inc.
0000 Xxx Xxxxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxxx, Xx.
Chief Executive Officer
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
0000 Xx Xxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
and to:
Xxxx & Berlis
BCE Place
Suite 1800, Box 754
000 Xxx Xxxxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
(b) if to Company, to:
Image Processing Systems Inc.
000 Xxxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxx Wawrew
Chief Executive Officer
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
62
with a copy to:
Xxxxxxx Xxxxx & Xxxxxxxxx
Scotia Plaza, Suite 2100
00 Xxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
IX.3 INTERPRETATION.
When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "INCLUDE",
"INCLUDES" and "INCLUDING" when used herein shall be deemed in each case to be
followed by the words "WITHOUT LIMITATION". The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "THE BUSINESS OF" an Entity, such reference shall be deemed to
include the business of all direct and indirect Subsidiaries of such Entity.
Reference to the Subsidiaries of an Entity shall be deemed to include all direct
and indirect Subsidiaries of such Entity.
IX.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
IX.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and
the documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other Person any rights or remedies hereunder,
except as specifically provided in Section 6.8.
IX.6 SEVERABILITY. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
IX.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any
63
other remedy conferred hereby, or by law or equity upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any
other remedy. The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
IX.8 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the state of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. In any action between the parties arising out of or relating to this
Agreement or any of the transactions contemplated by this Agreement: (a) each of
the parties irrevocably and unconditionally consents and submits to the
non-exclusive jurisdiction and venue of the state and federal courts located in
the state of California; (b) if any such action is commenced in a state court,
then, subject to applicable law, no party shall object to the removal of such
action to any federal court located in the Northern District of California; (c)
each of the parties irrevocably waives the right to trial by jury; and (d) each
of the parties irrevocably consents to service of process by first class
certified mail, return receipt requested, postage prepaid, to the address at
which such party is to receive notice in accordance with Section 9.9.
IX.9 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
IX.10 ASSIGNMENT. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors and assigns; provided, however, that neither this
Agreement nor any of Company's rights hereunder may be assigned by Company
without the prior written consent of Parent, and any attempted assignment of
this Agreement or any of such rights by Company without such consent shall be
void and of no effect. Nothing in this Agreement, express or implied, is
intended to or shall confer upon any Person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
IX.11 WAIVER OF JURY TRIAL. EACH OF PARENT, CANCO AND COMPANY HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, CANCO OR COMPANY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
IX.12 CURRENCY. Unless otherwise specified, all sums of money referred
to in this Agreement are expressed in Canadian currency.
IX.13 COMPANY DISCLOSURE SCHEDULE. The Company Disclosure Schedule
shall be arranged in separate parts corresponding to the numbered and lettered
sections contained in Section 2, and the information disclosed in any numbered
or lettered part shall be deemed to relate to and to qualify only the particular
representation or warranty set forth in the corresponding numbered or lettered
section in Section 2, and shall not be deemed to relate to or to qualify any
other representation or warranty.
64
IX.14 ATTORNEYS' FEES. In any action at law or suit in equity to
enforce this Agreement or the rights of any of the parties hereunder, the
prevailing party in such action or suit shall be entitled to receive a
reasonable sum for its attorneys' fees and all other reasonable costs and
expenses incurred in such action or suit.
IX.15 COOPERATION. Company agrees to cooperate fully with Parent and to
execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by
Parent to evidence or reflect the transactions contemplated by this Agreement
and to carry out the intent and purposes of this Agreement.
ARTICLE X
ADDITIONAL DEFINITIONS
X.1 ADDITIONAL 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:
"ACQUIRED CORPORATION CONTRACT" means any Contract: (a) to which any of
the Acquired Corporations is a party; (b) by which any of the Acquired
Corporations or any asset of any of the Acquired Corporations is or may become
bound or under which any of the Acquired Corporations has, or may become subject
to, any obligation; or (c) under which any of the Acquired Corporations has or
may acquire any right or interest.
"ACQUIRED CORPORATION PROPRIETARY ASSET" means any Proprietary Asset
owned by or licensed to any of the Acquired Corporations or otherwise used by
any of the Acquired Corporations.
"ACQUIRED CORPORATION SOURCE CODE" means any source code, or any
portion, aspect or segment of any source code, relating to any Proprietary
Asset owned by or licensed to any of the Acquired Corporations or otherwise
used by any of the Acquired Corporations.
"ACQUISITION PROPOSAL" means any offer, proposal or inquiry (other
than an offer or proposal by Parent) contemplating or otherwise relating to
any Acquisition Transaction.
"ACQUISITION TRANSACTION" means any transaction or series of
transactions involving:
(a) any merger, consolidation, amalgamation, share exchange,
business combination, issuance of securities, acquisition of securities, tender
offer, exchange offer or other similar transaction (i) in which any of the
Acquired Corporations is a constituent company, (ii) in which a Person or
"group" (as defined in the UNITED STATES 1934 ACT) of Persons directly or
indirectly acquires Company or more than 20% of Company's business or directly
or indirectly acquires beneficial or record ownership of securities
representing, or exchangeable for or convertible into, more than 20% of the
outstanding securities of any class of voting securities of any of the Acquired
Corporations, or (iii) in which any of the Acquired
65
Corporations issues securities representing more than 20% of the outstanding
securities of any class of voting securities of Company;
(b) any sale, lease, exchange, transfer, license, acquisition
or disposition of more than 20% of the assets of Company; or
(c) any liquidation or dissolution of Company.
"AGREEMENT" means this Agreement and Plan of Arrangement, as it may be
amended from time to time.
"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
Sections 7.2(c) and 7.3(d) of this Agreement.
"APPROVALS" means and includes franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders.
"ACQUIRED CORPORATIONS" means Company together with its Subsidiaries,
collectively.
"ARRANGEMENT" means an arrangement under Section 182 of the OBCA on the
terms and subject to the conditions set out in this Agreement and the Plan of
Arrangement, subject to any amendments or variations thereto made in accordance
with the provisions of this Agreement or made at the direction of the Court in
the Final Order.
"ARRANGEMENT RESOLUTION" means the special resolution of the holders of
Company Common Shares to be substantially in the form and content of Exhibit A
annexed hereto.
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of Company
in respect of the Arrangement, required by the OBCA to be filed with the
Director after the Final Order is made.
"CANADIAN GAAP" means Canadian generally accepted accounting
principles.
"CANADIAN SECURITIES LEGISLATION" means the applicable statutory
securities laws in each province of Canada, together with the regulations
promulgated thereunder, together with the rules, policies, orders and
requirements of the securities regulatory authorities in each province of
Canada.
"CIRCULAR" means the notice of the Company Shareholders Meeting and
accompanying management information circular to be sent to holders of Company
Common Shares in connection with the Company Shareholders Meeting, including all
appendices thereto.
"COMMISSIONS" means the securities commissions or equivalent in each of
the provinces of Canada.
"COMPANY COMMON SHARES" means the common shares of Company as currently
constituted.
66
"COMPANY DISCLOSURE SCHEDULE" means the Company Disclosure Schedule
that has been prepared by Company in accordance with the requirements of Section
9.13 of the Agreement and that has been delivered by Company to Parent on the
date of the Agreement and signed by the President of Company.
"COMPANY REGULATORY REPORTS" means all the forms, reports, schedules,
circulars, filings and other documents, including any schedules included
therein, required to be filed by Company pursuant to Canadian Securities
Legislation and the requirements of the TSE.
"COMPANY SHAREHOLDERS MEETING" means the meeting of the shareholders of
Company to consider the Arrangement Resolution.
"COMPANY STOCK OPTION" means Options to acquire Company Common Shares
other than the Warrants.
"COMPANY STOCK OPTION PLANS" means, collectively, the Share Option Plan
contemplated in Company's Amended Share Incentive Plan dated as of April 1, 2000
referred to in Section 2.3(a)(iv) of Company Disclosure Schedule.
"COMPANY'S KNOWLEDGE" means the best of the knowledge of the Acquired
Corporations, based upon the knowledge of any of the directors and officers of
such corporations after due and reasonable enquiry of such matter.
"CONSENT" means any approval, consent, ratification, permission,
waiver, permit or authorization (including any Governmental Authorization).
"CONTRACT" means any written, oral or other agreement, contract,
subcontract, lease, understanding, instrument, note, option, warranty, purchase
order, license, sublicense, insurance policy, benefit plan or commitment or
undertaking of any nature.
"COURT" means the Superior Court of Justice (Ontario).
"DIRECTOR" means the director appointed pursuant to OBCA.
"SHARES" has the meaning ascribed thereto in section 1.5.
"DISSENTERS' RIGHTS" has the meaning ascribed thereto in section 1.5.
"EFFECTIVE DATE" means the date shown on the certificate of arrangement
to be issued by the Director under the OBCA giving effect to the Arrangement.
"EFFECTIVE TIME" has the meaning ascribed thereto in the Plan of
Arrangement.
"ENCUMBRANCE" means any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, claim, infringement, interference, option, right
of first refusal, preemptive right, community property interest or restriction
of any nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction on
the receipt of any income derived
67
from any asset, any restriction on the use of any asset and any restriction
on the possession, exercise or transfer of any other attribute of ownership
of any asset).
"ENTITY" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any company limited by shares,
limited liability company or joint stock company), firm, society or other
enterprise, association, organization or Entity.
"EXCHANGEABLE SHARES" means the non-voting exchangeable shares in the
capital of Company, having substantially the rights, privileges, restrictions
and conditions set out in Appendix 1 to the Arrangement.
"FINAL ORDER" means the final order of the Court 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 withdrawn or denied, as affirmed.
"GOVERNMENTAL AUTHORIZATION" means any: (a) permit, license,
certificate, franchise, permission, variance, clearance, registration,
qualification, exemption, order, approval or authorization issued, granted,
given or otherwise made available by or under the authority of any Governmental
Body or pursuant to any Legal Requirement; or (b) right under any Contract with
any Governmental Body.
"GOVERNMENTAL BODY" means any: (a) nation, state, provincial,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, provincial, provincial, local,
municipal, foreign or other government; or (c) governmental, quasi-governmental
or regulatory authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, ministry, fund,
foundation, center, organization, unit, body or Entity and any court or other
tribunal and including the SEC, OSC, TSE and the Nasdaq National Market).
"HSR ACT" means the XXXX-XXXXX-XXXXXX ANTITRUST IMPROVEMENTS ACT OF
1976, as amended.
"INTERIM ORDER" means the interim order of the Court in respect of the
Arrangement, as contemplated by Section 1.2.
"LEGAL PROCEEDING" means any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving, any
court or other Governmental Body or any arbitrator or arbitration panel.
"LEGAL REQUIREMENT" means any federal, state, provincial regional,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body and (ii) all
requirements set forth in applicable Contracts.
"LEMELSON PATENTS" means those patents owned by the Lemelson Medical,
Educational, & Research Foundation, Limited Partnership that include, among
other things, machine vision patents relating
68
to image processing systems and methods, article inspection systems and
methods, and image acquisition systems and methods.
"MATERIAL ADVERSE EFFECT", when used in connection with an Entity,
means any change, event, violation, inaccuracy, circumstance or effect,
individually or when aggregated with other changes, events, violations,
inaccuracies, circumstances or effects (considered together with all other
matters that would constitute exceptions to the representations and warranties
set forth in the Agreement but for the presence of "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, in such
representations and warranties) , that is or would reasonably be expected to be
materially adverse to or have a material adverse effect on (i) the business,
assets (including intangible assets), capitalization, condition, liabilities,
financial performance, results of operations or prospects of such Entity and its
Subsidiaries taken as a whole; PROVIDED, HOWEVER, that no Material Adverse
Effect shall be deemed to have occurred solely as a result of any change in the
trading price of Parent Common Stock or Company Common Shares, respectively,
that is unrelated to any change, event or circumstance materially adverse to the
business, assets (including intangible assets), capitalization, condition,
liabilities, financial performance, results of operations or prospects of Parent
or Company, as the case may be or(ii) the ability of Company to consummate the
Arrangement or any of the other transactions contemplated by the Agreement or to
perform any of its obligations under the Agreement.
"MATERIAL ADVERSE EFFECT ON COMPANY" means a Material Adverse Effect on
Company together with the other Acquired Corporations, taken as a whole.
"MATERIAL CONTRACT" has the meaning ascribed thereto in section 2.20 of
the Agreement.
"OBCA" means the BUSINESS CORPORATIONS ACT (Ontario), as amended.
"OSC" means the Ontario Securities Commission.
"OPTIONS" means and includes, in respect of a particular Entity,
subscriptions, options, calls, warrants and other rights commitments or
agreements of any character (whether or not currently exercisable) to acquire
securities of the Entity in question..
"PARENT COMMON STOCK" means the Common Stock of Parent, without par
value.
"PERSON" means any individual, Entity or Governmental Body.
"PLAN OF ARRANGEMENT" means the plan of arrangement substantially in
the form and content of Exhibit B annexed hereto and any amendments or
variations thereto made in accordance with the provisions of this Agreement or
made at the direction of the Court in the Final Order and which are acceptable
to Parent and Company.
"PROPRIETARY ASSET" means any: (a) patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service xxxx (whether registered or
unregistered), service xxxx application, copyright (whether registered or
unregistered), copyright application, maskwork, maskwork application, trade
secret, know-how, customer list, franchise, system, computer software, computer
program, source code, algorithm, invention, design, blueprint, engineering
69
drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or
exploit any of the foregoing.
"PROSPECTUS/PROXY STATEMENT" means the proxy statement to be sent to
Company's shareholders in connection with the Company Shareholders Meeting.
"REPRESENTATIVES" means officers, directors, employees, agents,
attorneys, accountants, advisors and representatives.
"REQUIRED COMPANY SHAREHOLDER VOTE" is the affirmative vote of at least
66-2/3% of the votes that holders of the outstanding Company Common Shares
voting on the Arrangement Resolution.
"RETURNS" means federal, state, provincial local and foreign returns,
estimates, declarations, information statements and reports.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES EXEMPTION ORDERS" means discretionary orders of the
Commissions exempting the trades contemplated by the Plan of Arrangement from
the registration and prospectus requirements of applicable Canadian Securities
Legislation, including but not limited to the distribution of Exchangeable
Shares, Parent Common Stock and Options to acquire Parent Common Stock, as the
case may be, the distribution of any securities upon the conversion or exchange
of such securities in accordance with their terms, or the resale by holders of
any securities distributed to them pursuant to the Arrangement or upon the
conversion or exercise of any security issued to them pursuant to the Plan of
Arrangement, including but not limited to the resale of Parent Common Stock.
"SHARE BONUS PLAN" means the Share Bonus Plan contemplated in Company's
Amended Share Incentive Plan dated as of April 1, 2000.
"SHARE PURCHASE PLAN" means the Share Purchase Plan contemplated in
Company's Amended Share Incentive Plan dated as of April 1, 2000.
"SPECIAL VOTING SHARE" means the share of Parent Special Voting
Preferred Stock having substantially the rights, privileges, restrictions and
conditions described in the Voting and Exchange Trust Agreement.
"STOCK OPTION AGREEMENT" means the Stock Option Agreement referred to
in Recital D hereto.
"STOCK OPTION PLAN" means the Share Option Plan contemplated in
Company's Amended Share Incentive Plan dated as of April 1, 2000.
"SUBSIDIARY" means an entity which shall be deemed to be a "Subsidiary"
of another Person if such Person directly or indirectly owns, beneficially or of
record, (a) an amount of voting securities of other interests in such Entity
that is sufficient to enable such Person to elect at leased a majority of the
members of such Entity's board of directors or other governing body, or (b) at
least 50% of the outstanding equity or financial interests or such Entity.
70
"SUPERIOR OFFER" means an unsolicited, bona fide written offer made by
a third party to consummate any of the following transactions: (i) an
amalgamation, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Company pursuant to
which the shareholders of Company immediately preceding such transaction hold
less than 51% of the equity interest in the surviving or resulting Entity of
such transaction; (ii) a sale or other disposition by Company of assets
(excluding inventory and used equipment sold in the ordinary course of business)
representing in excess of 51% of the fair market value of Company's business
immediately prior to such sale, or (iii) the acquisition by any Person or group
(including by way of a tender offer or an exchange offer or issuance by
Company), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing in excess of 51% of the voting power
of the then outstanding shares of capital stock of Company, in each case on
terms that the Board of Directors of Company determines, in its reasonable
judgment (based on written advice of a financial advisor of nationally
recognized reputation) to (a) be more favorable to Company's shareholders than
the terms of the Arrangement (b) result in a blended value per Company Common
Share greater than the per share value attributable thereto under the
Arrangement; provided, however, that any such offer shall not be deemed to be a
"SUPERIOR OFFER" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely to be obtained by
such third party on a timely basis.
"SUPPORT AGREEMENT" means the Support Agreement to be dated as of the
Effective Date between Parent, CanCo and Company substantially in the form
attached as Exhibit C hereto, with such changes thereto as the parties hereto,
acting reasonably, may agree.
"TAX" or "TAXES" refers to any and all federal, provincial, regional,
state, municipal, local and foreign taxes, assessments and other governmental
charges, tariffs, duties (including customs duties), levies, assessments,
deficiencies, fees, impositions and liabilities relating to taxes, including
taxes based upon or measured by gross receipts, income, capital gains, profits,
sales, use and occupation, and value added, ad valorem, transfer, surtax, stamp,
transfer, property, franchise, withholding, payroll, recapture, employment,
excise, goods and services, health insurance, use, business, workers'
compensation and property taxes and any related charge or amount (including any
fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body and any obligations under any agreements or
arrangements with any other Person with respect to such amounts and including
any liability for taxes of a predecessor Entity.
"TAX RETURN" means any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any Tax
or in connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"TRIGGERING EVENT" shall be deemed to have occurred if: (i) (including
the inclusion in the Circular of the recommendation of the Board of Directors of
Company) the Board of Directors of Company or any committee thereof shall for
any reason have failed to recommend or shall have for any reason withdrawn or
shall have amended or modified in a manner adverse to Parent its recommendation
in favor of, the adoption and approval of the Agreement and the Arrangement;
(ii) the Board of Directors of Company fails to reaffirm its recommendation in
favor of the adoption and approval of the Agreement and the approval of the
Arrangement prior to the earliest to occur of (a) the date on which the Board of
Directors of Company makes a recommendation with respect to an Acquisition
Proposal following the announcement of an Acquisition
71
Proposal, (b) the date on which the Board of Directors of Company is
required, under Canadian Securities Legislation, to make a recommendation
with respect to an Acquisition Proposal and (c) the date which is 14 days
after Parent requests in writing that such recommendation be reaffirmed at
any time following the announcement of an Acquisition Proposal; (iii) the
Board of Directors of Company or any committee thereof shall have approved,
endorsed or recommended any Acquisition Proposal; (iv) Company shall have
entered into any letter of intent or similar document or any Contract (other
than a confidentiality, stand-still or similar agreement) relating to any
Acquisition Proposal; (v) a tender or exchange offer relating to securities
of Company shall have been commenced by a Person unaffiliated with Parent and
Company shall not have sent to its securityholders, within 10 days after such
tender or exchange offer is made, a statement disclosing that Company
recommends rejection of such tender or exchange offer; or (vi) Company (or
any of its officers or directors in their capacities as such) shall have
provided any recommendation to the Court in connection with the Final Order
inconsistent with the recommendation of Company's Board of Directors in favor
of the Arrangement.
"TRUSTEE" means such arm's length person who is appointed by Parent as
the trustee under the Voting and Exchange Trust Agreement, or such other person
as is appointed as the trustee thereunder in accordance with its terms.
"TSE" means The Toronto Stock Exchange.
"U.S. GAAP" means United States generally accepted accounting
principles.
"UNITED STATES 1933 ACT" means the United States SECURITIES ACT OF
1933, as amended.
"UNITED STATES 1934 ACT" means the United States SECURITIES EXCHANGE
ACT OF 1934, as amended, together with the rules promulgated thereunder.
"UNITED STATES CODE" means the United States Internal Revenue Code of
1986, as amended, together with the rules promulgated thereunder.
"VOTING AND EXCHANGE TRUST AGREEMENT" means the Voting and Exchange
Trust Agreement to be dated as of the Effective Date between Parent, CanCo,
Company and the Trustee substantially in the form attached as Exhibit D hereto,
with such changes thereto as the parties hereto, acting reasonably, may agree
prior to the Effective Date.
"WARRANTS" means the compensation warrants granted to Sprott Securities
Limited to acquire up to 476,191 Company Common Shares.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
PHOTON DYNAMICS, INC.
By:
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Name:
------------------------------
Title:
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IMAGE PROCESSING SYSTEMS INC.
By:
------------------------------
Name:
------------------------------
Title:
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PHOTON DYNAMICS NOVA SCOTIA COMPANY
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
