EXHIBIT A
COMBINATION AGREEMENT
BETWEEN
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
and
TELEPANEL SYSTEMS INC.
October 29, 1997
TABLE OF CONTENTS
Page
ARTICLE 1 THE ARRANGEMENT AND RELATED MATTERS . . . . . . 1
1.1 The Arrangement and Related Matters . . . . . . . . 1
1.2 Adjustments in Exchange Ratio . . . . . . . . . . . 4
1.3 Dissenting Shares . . . . . . . . . . . . . . . . . 5
1.4 Telepanel Options . . . . . . . . . . . . . . . . . 5
1.5 Telepanel Warrants; Telepanel Convertible
Securities. . . . . . . . . . . . . . . . . . . . . 6
1.6 Other Effects of the Arrangement. . . . . . . . . . 7
1.7 Joint Management Information Circular/
Proxy Statement; Registration Statement . . . . . . 7
1.8 Reorganization. . . . . . . . . . . . . . . . . . . 8
1.9 "Pooling of Interests"; Affiliate Agreements. . . . 8
1.10 Material Adverse Effect . . . . . . . . . . . . . . 9
1.11 Currency. . . . . . . . . . . . . . . . . . . . . . 9
1.12 Best Efforts. . . . . . . . . . . . . . . . . . . . 9
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF TELEPANEL . . 9
2.1 Organization; Good Standing; Qualification
and Power . . . . . . . . . . . . . . . . . . . . . 10
2.2 Capital Structure . . . . . . . . . . . . . . . . . 10
2.3 Authority . . . . . . . . . . . . . . . . . . . . . 12
2.4 Securities Regulatory Authority Reports;
Financial Statements. . . . . . . . . . . . . . . . 14
2.5 Information Supplied. . . . . . . . . . . . . . . . 15
2.6 Compliance with Applicable Laws . . . . . . . . . . 16
2.7 Title to Assets . . . . . . . . . . . . . . . . . . 16
2.8 Litigation. . . . . . . . . . . . . . . . . . . . . 17
2.9 Benefit Plans and Other Compliance. . . . . . . . . 18
2.10 Absence of Certain Changes or Events. . . . . . . . 19
2.11 Certain Agreements. . . . . . . . . . . . . . . . . 20
2.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . 21
2.13 Fees and Expenses . . . . . . . . . . . . . . . . . 22
2.14 Environmental Matters . . . . . . . . . . . . . . . 22
2.15 Interested Party Transactions . . . . . . . . . . . 23
2.16 Real Estate and Leases. . . . . . . . . . . . . . . 24
2.17 Material Contracts; No Defaults . . . . . . . . . . 25
2.18 Intellectual Property . . . . . . . . . . . . . . . 26
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . 27
2.20 Restrictions on Business Activities . . . . . . . . 28
2.21 Books and Records . . . . . . . . . . . . . . . . . 28
2.22 Board Approval. . . . . . . . . . . . . . . . . . . 28
2.23 Vote Required.. . . . . . . . . . . . . . . . . . . 28
2.24 Fairness Opinion. . . . . . . . . . . . . . . . . . 29
2.25 Pooling Matters . . . . . . . . . . . . . . . . . . 29
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ERS . . . . . 29
3.1 Organization; Good Standing; Qualification and
Power. . . . . . . . . . . . . . . . . . . . . . . . 29
3.2 Capital Structure. . . . . . . . . . . . . . . . . . 30
3.3 Authority. . . . . . . . . . . . . . . . . . . . . . 31
3.4 SEC Reports and Financial Statements . . . . . . . . 32
3.5 Information Supplied . . . . . . . . . . . . . . . . 33
3.6 Compliance with Applicable Laws. . . . . . . . . . . 34
3.7 Title to Assets. . . . . . . . . . . . . . . . . . . 34
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . 35
3.9 ERISA and Other Compliance.. . . . . . . . . . . . . 35
3.10 Absence of Certain Changes or Events . . . . . . . . 36
3.11 Certain Agreements . . . . . . . . . . . . . . . . . 37
3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 37
3.13 Fees and Expenses. . . . . . . . . . . . . . . . . . 38
3.14 Environmental Matters. . . . . . . . . . . . . . . . 38
3.15 Interested Party Transactions. . . . . . . . . . . . 38
3.16 Certain Material Contracts . . . . . . . . . . . . . 39
3.17 Intellectual Property. . . . . . . . . . . . . . . . 39
3.18 Insurance. . . . . . . . . . . . . . . . . . . . . . 40
3.19 No Defaults. . . . . . . . . . . . . . . . . . . . . 40
3.20 Restrictions on Business Activities. . . . . . . . . 40
3.21 Books and Records. . . . . . . . . . . . . . . . . . 40
3.22 Board Approval . . . . . . . . . . . . . . . . . . . 41
3.23 Vote Required. . . . . . . . . . . . . . . . . . . . 41
3.24 Fairness Opinion . . . . . . . . . . . . . . . . . . 41
3.25 Pooling Matters. . . . . . . . . . . . . . . . . . . 41
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . 42
4.1 Interim Operations . . . . . . . . . . . . . . . . . 42
4.2 Shareholder Approval . . . . . . . . . . . . . . . . 46
4.3 Additional Affiliate Agreements. . . . . . . . . . . 46
4.4 Joint Proxy Statement. . . . . . . . . . . . . . . . 47
4.5 Regulatory Approvals . . . . . . . . . . . . . . . . 48
4.6 Necessary Consents; Certain Notices. . . . . . . . . 48
4.7 Access to Information and Properties . . . . . . . . 49
4.8 Satisfaction of Conditions Precedent . . . . . . . . 50
4.9 No Other Negotiations. . . . . . . . . . . . . . . . 50
4.10 Pooling. . . . . . . . . . . . . . . . . . . . . . . 54
4.11 Notification of Certain Matters;
Interim Financial Statements . . . . . . . . . . . . 54
4.12 Indemnification. . . . . . . . . . . . . . . . . . . 55
4.13 Closing; Listing . . . . . . . . . . . . . . . . . . 56
4.14 Continued Telepanel Operations . . . . . . . . . . . 56
4.15 Governance . . . . . . . . . . . . . . . . . . . . . 56
4.16 Installation Representation. . . . . . . . . . . . . 58
ARTICLE 5 CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH
PARTY . . . . . . . . . . . . . . . . . . . . . 59
5.1 Compliance with Law. . . . . . . . . . . . . . . . . 59
5.2 Government Consents. . . . . . . . . . . . . . . . . 59
5.3 SEC Filings. . . . . . . . . . . . . . . . . . . . . 59
5.4 Shareholder Approval . . . . . . . . . . . . . . . . 60
5.5 No Legal Action. . . . . . . . . . . . . . . . . . . 60
5.6 Tax Opinion. . . . . . . . . . . . . . . . . . . . . 60
5.7 Pooling Opinion. . . . . . . . . . . . . . . . . . . 60
5.8 Court Approval . . . . . . . . . . . . . . . . . . . 60
5.9 OSC, Etc.. . . . . . . . . . . . . . . . . . . . . . 61
5.10 Appointment to ERS Board; ERS Charter Changes;
ERS By-Law Amendments. . . . . . . . . . . . . . . . 61
5.11 High Yield Bonds . . . . . . . . . . . . . . . . . . 61
ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF
TELEPANEL . . . . . . . . . . . . . . . . . . . 61
6.1 Accuracy of Representations and Warranties . . . . . 61
6.2 Covenants. . . . . . . . . . . . . . . . . . . . . . 62
6.3 Absence of Material Adverse Effect . . . . . . . . . 62
6.4 Certified Resolutions. . . . . . . . . . . . . . . . 62
6.5 Third Party Consents . . . . . . . . . . . . . . . . 62
6.6 FIRPTA . . . . . . . . . . . . . . . . . . . . . . . 63
6.7 Letter of ERS' Accountants . . . . . . . . . . . . . 63
6.8 Other Certificates . . . . . . . . . . . . . . . . . 63
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF ERS. . . 63
7.1 Accuracy of Representations and Warranties . . . . . 63
7.2 Covenants. . . . . . . . . . . . . . . . . . . . . . 64
7.3 Absence of Material Adverse Change . . . . . . . . . 64
7.4 Dissenting Shares. . . . . . . . . . . . . . . . . . 64
7.5 Affiliate Agreements . . . . . . . . . . . . . . . . 64
7.6 Certified Resolutions; Capitalization. . . . . . . . 64
7.7 Third Party Consents . . . . . . . . . . . . . . . . 65
7.8 Resignations . . . . . . . . . . . . . . . . . . . . 65
7.9 Letter of Accountants for Telepanel. . . . . . . . . 65
7.10 Relief from Telepanel Reporting Obligations. . . . . 65
7.11 Telepanel Europe . . . . . . . . . . . . . . . . . . 65
7.12 Certain Adjustments. . . . . . . . . . . . . . . . . 66
7.13 Other Certificates . . . . . . . . . . . . . . . . . 66
ARTICLE 8 TERMINATION OF AGREEMENT. . . . . . . . . . . . 66
8.1 Termination. . . . . . . . . . . . . . . . . . . . . 66
8.2 Notice of Termination. . . . . . . . . . . . . . . . 67
8.3 Effect of Termination. . . . . . . . . . . . . . . . 67
8.4 Subsequent Payments. . . . . . . . . . . . . . . . . 67
ARTICLE 9 SURVIVAL OF REPRESENTATIONS . . . . . . . . . . 69
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . 69
10.1 Governing Law . . . . . . . . . . . . . . . . . . . 69
10.2 Assignment; Binding Upon Successors and Assigns . . 69
10.3 Severability. . . . . . . . . . . . . . . . . . . . 69
10.4 Counterparts. . . . . . . . . . . . . . . . . . . . 70
10.5 Other Remedies; Specific Performance. . . . . . . . 70
10.6 Amendment and Waivers . . . . . . . . . . . . . . . 70
10.7 Expenses. . . . . . . . . . . . . . . . . . . . . . 70
10.8 Notices . . . . . . . . . . . . . . . . . . . . . . 70
10.9 Construction of Agreement . . . . . . . . . . . . . 72
10.10 No Joint Venture. . . . . . . . . . . . . . . . . . 72
10.11 Further Assurances. . . . . . . . . . . . . . . . . 72
10.12 Absence of Third Party Beneficiary Rights . . . . . 72
10.13 Public Announcement . . . . . . . . . . . . . . . . 73
10.14 Entire Agreement. . . . . . . . . . . . . . . . . . 73
Exhibit 1.1 - Plan of Arrangement
Exhibit 1.1(b)(i) - Voting, Support and Exchange Trust Agreement
Exhibit 1.1(b)(ii) - ERS Charter Changes
Exhibit 1.9(a) - ERS Affiliate Agreement
Exhibit 1.9(b) - Telepanel Affiliate Agreement
Exhibit 4.4(b) - Letter from Price Waterhouse, Chartered
Accountants
Exhibit 4.4(c) - Letter from Price Waterhouse LLP
Exhibit 5.10 - ERS By-Law Amendments
INDEX OF DEFINED TERMS
Additional Director........................ Section 4.15
Adjusted Telepanel Convertible Securities.. Section 2.2(d)
Adjusted Telepanel Options................. Section 1.4
Adjusted Telepanel Warrants................ Section 2.2(c)
Affiliate.................................. Section 4.3
Agreement.................................. Recitals
AIM........................................ Section 3.3(c)
Arrangement................................ Section 1.1(a)
best efforts............................... Section 1.11
Canadian GAAP.............................. Section 2.4(c)
CBCA....................................... Section 1.1(a)
Closing.................................... Section 4.13
Closing Date............................... Section 4.13
Closing Directors.......................... Section 4.15
Code....................................... Recitals
Confidentiality Agreement.................. Section 8.3
Court...................................... Section 1.1(a)
Currency................................... Section 1.10
DGCL....................................... Section 1.1(b)(iii)
Dissenting Shareholders.................... Section 1.3
Effective Date............................. Section 1.1(a)
Effective Time............................. Section 1.1(a)
Environmental Law.......................... Section 2.14
ERISA...................................... Section 3.9(a)
ERS........................................ Recitals
ERS Acquisition Agreement.................. Section 4.9(d)
ERS Balance Sheet Date..................... Section 3.10
ERS Board.................................. Recitals
ERS Charter Changes........................ Section 1.1(b)(ii)
ERS Common Stock........................... Section 1.1(a)(ii)
ERS Competing Transaction.................. Section 4.9(c)
ERS Disclosure Letter...................... Article 3
ERS Employee Plan.......................... Section 3.9(a)
ERS Group.................................. Section 4.15
ERS Indenture.............................. Section 4.1(a)
ERS Liens.................................. Section 3.7
ERS Notes.................................. Section 5.11
ERS Notice................................. Section 4.9(d)
ERS Options................................ Section 1.4(a)
ERS Pension Plan........................... Section 3.9(b)
ERS SEC Documents.......................... Section 3.4(a)
ERS Special Voting Stock................... Section 1.1(b)(ii)
ERS Stockholders Meeting................... Section 1.6(a)
ERS Subsidiaries........................... Section 3.1
ERS Superior Proposal...................... Section 4.9(d)
Exchange Act............................... Section 1.7(a)
Exchange Ratio............................. Section 1.1(a)(iii)
Exchangeable Shares........................ Section 1.1(a)(i)
Final Order................................ Section 1.1(a)
5% Senior Convertible Note................. Section 4.6
Governmental Entity........................ Section 2.3(c)
Group...................................... Section 4.15
Hazardous Substances....................... Section 2.14
HSR Act.................................... Section 2.3(c)
Initial Coverage........................... Section 4.12
Intellectual Property...................... Section 2.18
Interim Order.............................. Section 1.1(a)
ITA........................................ Recitals
Joint Proxy Statement...................... Section 1.7(a)
material................................... Section 1.9
Material Adverse Effect.................... Section 1.9
Measurement Date........................... Section 2.2
Nasdaq.................................... Section 2.3(c)
No Action Request.......................... Section 1.6(a)
Option/Warrant Share Equivalents........... Section 1.2
OSC........................................ Section 2.3(c)
PFIC....................................... Section 2.12
Plan of Arrangement........................ Section 1.1(a)
Registration Statement..................... Section 1.7(a)
SEC........................................ Section 1.4(b)
Securities Act............................. Section 1.4(b)
Senior Conversion Share Equivalents........ Section 1.2
Tax........................................ Section 2.12
Tax Returns................................ Section 2.12
Telepanel.................................. Recitals
Telepanel Agreements....................... Section 2.17
Telepanel Balance Sheet Date............... Section 2.10
Telepanel Board............................ Recitals
Telepanel Common Shares.................... Section 1.1(a)(i)
Telepanel Competing Transaction............ Section 4.9(a)
Telepanel Convertible Securities........... Section 2.2
Telepanel Disclosure Letter................ Section 2.1
Telepanel Employee Plans................... Section 2.9(a)
Telepanel Europe........................... Section 5.11
Telepanel Europe Incorporation Agreement... Section 4.5
Telepanel Europe Put Option................ Section 4.5
Telepanel Europe Shareholders Agreement.... Section 4.5
Telepanel Form 20-F........................ Section 2.17
Telepanel Group............................ Section 4.15
Telepanel Liens............................ Section 2.7(b)
Telepanel Notices.......................... Section 4.9(b)(i)
Telepanel Options.......................... Section 1.4
Telepanel Option Plan...................... Section 1.1(b)(ii)
Telepanel OSC Reports...................... Section 2.4(a)
Telepanel SEC Documents.................... Section 2.4(b)
Telepanel Share Equivalents................ Section 1.2
Telepanel Shareholders Meeting............. Section 1.7(a)
Telepanel Subsidiaries..................... Section 2.1
Telepanel Superior Proposal................ Section 4.9(b)(i)
Telepanel Warrants......................... Section 2.2
Term....................................... Section 4.15
TSE........................................ Section 2.3(c)
U.S. GAAP.................................. Recitals
Vengrowth Conversion Share Equivalents..... Section 1.2
Voting, Support and Exchange Trust
Agreement................................. Section 1.1(b)(i)
COMBINATION AGREEMENT
THIS COMBINATION AGREEMENT (the "Agreement") is entered into
as of October 29, 1997 by and between Electronic Retailing Systems
International, Inc., a Delaware corporation ("ERS"), and Telepanel
Systems Inc., a corporation incorporated under the Canada Business
Corporations Act ("Telepanel").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Telepanel and
ERS have approved the transactions contemplated by this Agreement
and the Board of Directors of Telepanel (the "Telepanel Board") has
agreed to submit the Plan of Arrangement (as defined in Section
1.1) and the other transactions contemplated hereby to its
shareholders for approval and the Board of Directors of ERS (the
"ERS Board") has agreed to submit the ERS Charter Changes (as
hereinafter defined), the transactions contemplated by this
Agreement and related matters to its stockholders for approval; and
WHEREAS, the Arrangement is intended to be treated as (i) a
reorganization pursuant to the provisions of section 368 of the
United States Internal Revenue Code of 1986, as amended (the
"Code"), (ii) a "pooling of interests" under United States
generally accepted accounting principles ("U.S. GAAP") and (iii) a
reorganization of capital for purposes of section 86 of the Income
Tax Act (Canada) (the "ITA") to the extent that Exchangeable Shares
are received in exchange for Telepanel Common Shares.
NOW THEREFORE, in consideration of the mutual premises and
covenants contained herein, the parties hereto hereby agree as
follows:
ARTICLE 1
THE ARRANGEMENT AND RELATED MATTERS
1.1 The Arrangement and Related Matters.
(a) The Arrangement. As promptly as practicable after the
execution of this Agreement, Telepanel will apply to the Ontario
Court of Justice (General Division) (the "Court") pursuant to
section 192 of the Canada Business Corporations Act (the "CBCA")
for an interim order in form and substance satisfactory to ERS
(such approval not to be unreasonably withheld or delayed) (the
"Interim Order") providing for, among other things, the calling and
holding of the Telepanel Shareholders Meeting (as defined below)
for the purpose of considering and, if deemed advisable, approving
the arrangement (the "Arrangement") under section 192 of the CBCA
and pursuant to the Plan of Arrangement in the form of Exhibit 1.1
hereto (with the date of the Joint Proxy Statement inserted in the
definition thereof contained therein, the number of Exchangeable
Shares [as hereinafter defined] exchangeable for each Telepanel
Common Share [as hereinafter defined] inserted in Section 2.5
thereof, and Section 2.8 thereof completed as set forth under
Section 1.5 hereof, in each case prior to the Closing [as
hereinafter defined]), together with such amendments or
modifications thereto as are approved by both Telepanel and ERS
(the "Plan of Arrangement"). If the shareholders of Telepanel
approve the Arrangement, thereafter Telepanel will take the
necessary steps to submit the Arrangement to the Court and apply
for a final order of the Court approving the Arrangement in such
fashion as the Court may direct (the "Final Order"). At 12:01 a.m.
(the "Effective Time") on the date (the "Effective Date") shown on
the certificate of arrangement issued by the Director under the
CBCA giving effect to the Arrangement, the following reorganization
of capital and other transactions shall occur and shall be deemed
to occur in the following order without any further act or
formality:
(i) (a) the articles of incorporation of Telepanel
shall be amended, among other things, to (A) replace the
rights, privileges, restrictions and conditions attaching to
the common shares, without par value ("Telepanel Common
Shares"), of Telepanel with those set forth in Appendix A to
the Plan of Arrangement, and (B) authorize an unlimited number
of Exchangeable Shares ("Exchangeable Shares") having rights,
privileges, restrictions and conditions as set forth in
Appendix A to the Plan of Arrangement and (b) the By-laws of
Telepanel shall be amended as set forth in Appendix B to the
Plan of Arrangement;
(ii) Telepanel shall issue to ERS 1,000 of Telepanel
Common Shares in consideration of the delivery by ERS to
Telepanel of a number of shares of Common Stock, par value
$.01 per share, of ERS ("ERS Common Stock") equal to the
number of Exchangeable Shares exchangeable for 1,000 Telepanel
Common Shares in the Arrangement;
(iii) the Telepanel Common Shares (other than the
Telepanel Common Shares held by ERS and by holders who have
exercised their rights of dissent in accordance with Article
3 of the Plan of Arrangement and who are ultimately entitled
to be paid fair value for such shares) shall be exchanged for
Exchangeable Shares in a ratio of .5566 Exchangeable Shares
for each Telepanel Common Share (the ratio of .5566:1, as may
be adjusted pursuant to Section 1.2, the "Exchange Ratio"). No
fractional Exchangeable Shares will be delivered. In lieu
thereof, each holder of a Telepanel Common Share who otherwise
would be entitled to receive a fraction of an Exchangeable
Share shall be paid by Telepanel an amount determined in
accordance with the Plan of Arrangement;
(iv) upon the exchange referred to in paragraph (iii)
above, each holder of a Telepanel Common Share whose shares
shall have been so exchanged shall cease to be a holder, shall
have his, her or its name removed from the register of holders
of Telepanel Common Shares, and shall become a holder of a
number of fully paid Exchangeable Shares to which such holder
is entitled as above described and such holder's name shall be
added to the register of holders of Exchangeable Shares;
(v) the stated capital attributable to the Exchangeable
Shares will be as set out in the Plan of Arrangement; and
(vi) all of the shares of ERS Common Stock delivered by
ERS to Telepanel under sub-paragraph (ii) immediately
preceding owned by Telepanel will be distributed to ERS.
(b) Ancillary Agreements. On or before the Effective Date:
(i) ERS, Telepanel and The Montreal Trust Company of
Canada (or if such trustee shall decline to serve, such other
Canadian trust company to be selected by ERS, which shall be
satisfactory to Telepanel, acting reasonably), shall execute
and deliver a Voting, Support and Exchange Trust Agreement in
the form set forth in Exhibit 1.1 (b)(i) hereto (dated as of
the Effective Date, with the Effective Date inserted in the
first reference therein to the articles of arrangement),
together with such amendments or modifications as are approved
by both Telepanel and ERS (the "Voting, Support and Exchange
Trust Agreement"); and
(ii) ERS shall file with the Secretary of State of
Delaware amendments to its Certificate of Incorporation
pursuant to the Delaware General Corporation Law (the "DGCL")
which, effective on the Effective Date, effect changes as set
forth in Exhibit 1.1(b)(ii) hereto (with the date of the
Voting, Support and Exchange Trust Agreement inserted
therein), together with such amendments or modifications as
are approved by both Telepanel and ERS (the "ERS Charter
Changes") and which shall:
(A) create one share of Special Voting Stock, par
value $.01 per share ("ERS Special Voting Stock"), of
ERS; and
(B) authorize the shares of ERS Common Stock to be
issued in the Arrangement and a sufficient number of
shares of ERS Common Stock so that the retraction and
exchange rights attached to the Exchangeable Shares
(including, without limitation, those issuable upon
exercise of the Telepanel Warrants [as defined in Section
2.2] and upon conversion of the Telepanel Convertible
Securities [as defined in Section 2.2]) and the rights of
holders of options issued pursuant to the Telepanel Stock
Option Plan (the "Telepanel Option Plan") (after giving
effect to the exchange described in Section 1.4 of this
Agreement) may be honored.
(c) Options; Warrants; Convertible Securities. Promptly after
the Effective Time: (i) ERS will notify in writing each holder of
a Telepanel Option (as defined in Section 1.4) of (x) the
adjustment of such Telepanel Option so as to constitute an Adjusted
Telepanel Option (as defined in Section 1.4), the number of
Exchangeable Shares that are then subject to such option, and the
exercise price of such option, as determined pursuant to Section
1.4 or (y) the exchange of such Telepanel Option for an ERS Option
(as defined in Section 1.4), the number of shares of ERS Common
Stock that are then subject to such option, and the exercise price
of such option, as determined pursuant to Section 1.4; and (ii) ERS
will notify in writing each holder of a Telepanel Warrant of the
adjustment of such Telepanel Warrant so as to constitute an
Adjusted Telepanel Warrant (as defined in Section 2.2(c)), the
number of Exchangeable Shares that are then subject to such
warrant, and the exercise price of such warrant, as set forth under
Section 2.2(c); and (iii) ERS will notify in writing each holder of
a Telepanel Convertible Security of the adjustment of such
Telepanel Convertible Security so as to constitute an Adjusted
Telepanel Convertible Security (as defined in Section 2.2(d)) and
the conversion price of such convertible security, as set forth
under Section 2.2(d).
1.2 Adjustments in Exchange Ratio.
(a) If, prior to the Effective Time, Telepanel enters into
the financing contemplated by Sections 4.1(a)(iii)(a) or
4.1(a)(vii)(a) of the Telepanel Disclosure Letter hereinafter
identified, or any portion thereof, and in connection with such
financing Telepanel shall at any time potentially be obligated to
issue Telepanel Common Shares, or warrants or options with respect
thereto, the number of Exchangeable Shares exchangeable for each
Telepanel Common Share in the Arrangement shall be adjusted
downwards from .5566 so that the product obtained by multiplying
(i) the sum of all Telepanel Common Shares then outstanding, plus
the Telepanel Share Equivalents (as hereinafter defined), by (ii)
the number of Exchangeable Shares exchangeable for each Telepanel
Common Share in the Arrangement, shall equal 11,274,790 (with the
Exchange Ratio adjusted downwards from .5566:1 to equal the ratio
of such number of Exchangeable Shares to 1).
(b) For purposes hereof:
(i) the "Telepanel Share Equivalents" shall mean the
Option/Warrant Share Equivalents, the Vengrowth Conversion
Share Equivalents and the Senior Conversion Share Equivalents
(in each case, as hereinafter defined) plus 250,000;
(ii) the "Option/Warrant Share Equivalents" shall mean
the quotient obtained by dividing (x) the aggregate of each
product obtained by multiplying a Telepanel Common Share
issuable upon exercise of a Telepanel Option or a Telepanel
Warrant outstanding by the difference (but not less than zero)
obtained by subtracting the exercise price thereof (expressed
in Canadian dollars) from Cdn. $4.05, by (y) Cdn. $4.05;
(iii) the "Vengrowth Conversion Share Equivalents" shall
mean the quotient obtained by dividing the aggregate
outstanding principal amount of the Vengrowth Debenture (as
defined in the Telepanel Disclosure Letter) by Cdn. $3.05; and
(iv) the "Senior Conversion Share Equivalents" shall
mean the quotient obtained by dividing the aggregate
outstanding principal amount of the 5% Senior Convertible
Notes (as defined in the Telepanel Disclosure Letter) by
U.S.$2.55.
1.3 Dissenting Shares.
Holders of Telepanel Common Shares may exercise rights of
dissent with respect to such shares in connection with the
Arrangement pursuant to and in the manner set forth in section 190
of the CBCA and Section 3.1 of the Plan of Arrangement (such
holders referred to as "Dissenting Shareholders"). Telepanel shall
give ERS (i) prompt notice of any written demands of a right of
dissent, withdrawals of such demands, and any other instruments
served pursuant to the CBCA and received by Telepanel and (ii) the
opportunity to participate in all negotiations and proceedings with
respect to such rights.
1.4 Telepanel Options.
(a) Election. At the Effective Time, after the actions
described in Sections 1.1(a) and (b), each of the then outstanding
options granted by Telepanel to purchase Telepanel Common Shares
(collectively, the "Telepanel Options") granted under the Telepanel
Option Plan will at the option of the holder:
(x) by virtue of the terms thereof, be adjusted so as to
constitute an option (an "Adjusted Telepanel Option") to
purchase that number of Exchangeable Shares determined by
multiplying the number of Telepanel Common Shares subject to
such Telepanel Option at the Effective Time by the number of
Exchangeable Shares exchangeable for each Telepanel Common
Share pursuant to the Exchange Ratio, at an exercise price per
Exchangeable Share, expressed in United States dollars, equal
to the exercise price per Telepanel Common Share of such
Telepanel Option immediately prior to the Effective Time,
expressed in United States dollars, divided by the number of
Exchangeable Shares exchangeable for each Telepanel Common
Share pursuant to the Exchange Ratio; or
(y) be exchanged for an option (an "ERS Option") to
purchase that number of shares of ERS Common Stock determined
by multiplying the number of Telepanel Common Shares subject
to such Telepanel Option at the Effective Time by the number
of Exchangeable Shares exchangeable for each Telepanel Common
Share pursuant to the Exchange Ratio, at an exercise price per
share of ERS Common Stock, expressed in United States dollars,
equal to the exercise price per Telepanel Common Shares of
such Telepanel Option immediately prior to the Effective Time,
expressed in United States dollars, divided by the number of
Exchangeable Shares exchangeable for each Telepanel Common
Share pursuant to the Exchange Ratio.
If the foregoing calculation results in an adjusted or exchanged
Telepanel Option being exercisable for a fraction of an
Exchangeable Share or of a share of ERS Common Stock, as the case
may be, then the number of Exchangeable Shares or shares of ERS
Common Stock, as the case may be, subject to such option will be
rounded down to the nearest whole number of shares and the total
exercise price for the option will be reduced by the exercise price
of the fractional share. The Adjusted Telepanel Options and the ERS
Options will provide that the term, exercisability, vesting
schedule and all other terms and conditions of the Telepanel
Options will otherwise continue with respect to the Adjusted
Telepanel Options and the ERS Options, respectively; except that,
pursuant to Section 13 of the Telepanel Option Plan, the Telepanel
Board shall, as advised by counsel for ERS and confirmed by counsel
for Telepanel, in each case acting reasonably, require that each
Adjusted Telepanel Option shall be exercisable subject to such
provisions as will ensure that the issuance of the Exchangeable
Shares thereunder shall be exempt from the registration
requirements of Section 5 of the United States Securities Act of
1933, as amended (the "Securities Act"). Continuous employment with
Telepanel or any of the Telepanel Subsidiaries (as hereinafter
defined) prior to the Effective Time will be credited to the holder
of a Telepanel Option or of an ERS Option for purposes of
determining the number of Exchangeable Shares or shares of ERS
Common Stock, as the case may be, subject to exercise under an
adjusted or exchanged Telepanel Option after the Effective Time.
(b) Registration. ERS will cause the ERS Common Stock
issuable upon exchange of the Exchangeable Shares issuable upon
exercise of the Adjusted Telepanel Options, and the ERS Common
Stock issuable upon exercise of an ERS Option, to be registered
pursuant to the Securities Act on an appropriate form or forms
promulgated by the United States Securities and Exchange Commission
(the "SEC") as soon as reasonably practicable after the Effective
Time and will use its best efforts to maintain the effectiveness of
such registration statement or registration statements for so long
as such Adjusted Telepanel Options or ERS Options, as the case may
be, shall remain outstanding. ERS will reserve a sufficient number
of shares of ERS Common Stock for issuance upon exchange of the
Exchangeable Shares issuable upon exercise of the Adjusted
Telepanel Options, and for issuance upon exercise of the ERS
Options, pursuant to this section.
1.5 Telepanel Warrants; Telepanel Convertible Securities.
(a) ERS will reserve a sufficient number of shares of ERS
Common Stock for issuance upon exchange of the Exchangeable Shares
issuable upon the exercise of the Adjusted Telepanel Warrants in
accordance with Section 2.2(c) hereof.
(b) ERS will reserve a sufficient number of shares of ERS
Common Stock for issuance upon exchange of the Exchangeable Shares
issuable upon the conversion of the Adjusted Telepanel Convertible
Securities in accordance with Section 2.2(d) hereof.
1.6 Other Effects of the Arrangement.
At the Effective Time: (a) the directors of Telepanel will be
as set forth in the Plan of Arrangement prior to the Effective Time
by written consent of a majority of the persons designated to be
Closing Directors (as hereinafter defined); (b) the officers of
Telepanel will be as set forth in the Plan of Arrangement prior to
the Effective Time by written consent of a majority of the persons
designated to be Closing Directors; (c) each Telepanel Common Share
and each Telepanel Option and each Telepanel Warrant and each
Telepanel Convertible Security outstanding immediately prior to the
Effective Time will be exchanged or adjusted, as the case may be,
as provided in Section 1.1 or Section 1.4 or as set forth in
Section 2.2(c) or Section 2.2(d); and (d) the Arrangement will,
from and after the Effective Time, have all of the effects provided
by applicable law, including, without limitation, the CBCA.
1.7 Joint Management Information Circular/
Proxy Statement; Registration Statement.
(a) As promptly as practicable after execution of this
Agreement, ERS and Telepanel shall cooperate in the preparation of
a preliminary joint management information circular and proxy
statement (the "Joint Proxy Statement"), which shall be filed by
ERS with the SEC, and in the preparation and filing with the SEC of
any other documents required by the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
in connection with the Arrangement. The Joint Proxy Statement shall
constitute (i) the management information circular of Telepanel
with respect to the special meeting of the shareholders of
Telepanel to be held with respect to the approval of Telepanel's
shareholders of this Agreement and the Arrangement (the "Telepanel
Shareholders Meeting"); and (ii) the proxy statement of ERS with
respect to the annual or special meeting of stockholders of ERS to
be held with respect to the approval by ERS' stockholders of the
issuance of the ERS Common Stock in connection with this Agreement,
the ERS Charter Changes and related matters (in addition to such
other matters as ERS may elect to submit to its stockholders at
such meeting) (the "ERS Stockholders Meeting"). ERS and Telepanel
shall use their respective best efforts to cause the Joint Proxy
Statement to be cleared by the SEC under the Exchange Act. If ERS
determines upon the advice of its counsel that it is necessary to
file a registration statement (together with any other registration
statement hereinafter referenced in this sentence, the
"Registration Statement") in order to register the shares of ERS
Common Stock to be issued from time to time after the Effective
Time upon exchange of the Exchangeable Shares, then ERS shall file
the Registration Statement with the SEC and, if necessary, shall
use its best efforts to maintain the effectiveness of such
registration, or to file and maintain such other registration
statement, in order to register the shares of ERS Common Stock to
be issued from time to time after the Effective Time upon exchange
of the Exchangeable Shares, for such period as such Exchangeable
Shares remain outstanding; and ERS and Telepanel shall take all
such action as may be required under state or provincial blue sky
or securities laws in connection with the issuance of such shares
of ERS Common Stock and the Arrangement. Notwithstanding anything
herein to the contrary, ERS shall be under no obligation to file or
maintain the Registration Statement if it shall have determined on
the advice of its counsel that the issuance of shares of ERS Common
Stock upon exchange of the Exchangeable Shares after the Effective
Time is exempt from the registration requirements of Section 5 of
the Securities Act. In connection with such determination, ERS,
with the cooperation and assistance of Telepanel, shall prepare and
file with the SEC a request for no action (the "No Action Request")
seeking to confirm the availability of such an exemption by virtue
of Sections 3(a)(9) and/or 3(a)(10) of the Securities Act.
(b) Each party shall promptly furnish to the other party all
information concerning such party and its shareholders as may be
reasonably required in connection with any action contemplated by
this Section 1.7. The Registration Statement, if filed, and the
Joint Proxy Statement shall comply in all material respects with
all applicable requirements of law. Each of ERS and Telepanel will
notify the other promptly of the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff for
amendments or supplements to the Registration Statement, if filed,
and the Joint Proxy Statement or for additional information, and
will supply the other with copies of all correspondence with the
SEC or its staff with respect to the Registration Statement or the
Joint Proxy Statement. Whenever any event occurs which should be
set forth in an amendment or supplement to the Registration
Statement or the Joint Proxy Statement, ERS or Telepanel, as the
case may be, shall promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff, and/or mailing to
stockholders of ERS and Telepanel, such amendment or supplement.
1.8 Reorganization.
The parties intend to adopt this Agreement and the Plan of
Arrangement as a plan of reorganization under section 368 of the
Code, and the parties intend to adopt the Arrangement as a
reorganization of capital of Telepanel under section 86 of the ITA
to the extent that Exchangeable Shares are received in exchange for
Telepanel Common Shares.
1.9 "Pooling of Interests"; Affiliate Agreements.
The parties intend that the Arrangement be treated as a
"pooling of interests" under U.S. GAAP. Contemporaneously with the
execution of this Agreement, ERS has obtained and delivered to
Telepanel from its Affiliates (as hereinafter defined) an agreement
in the form of Exhibit 1.9(a) hereto (collectively, the "ERS
Affiliate Agreements"); and Telepanel has obtained and delivered to
ERS from its Affiliates an agreement in the form of Exhibit 1.9(b)
hereto (collectively, the "Telepanel Affiliate Agreements").
1.10 Material Adverse Effect.
In this Agreement, any reference to any event, change or
effect being "material" with respect to a party means any event,
change or effect material to the condition (financial or
otherwise), properties, assets, liabilities, businesses,
operations, results of operations or prospects of such party and
its subsidiaries, taken as a whole. In this Agreement, the term
"Material Adverse Effect" used with respect to a party means any
event, change or effect that is, or is reasonably likely to be,
materially adverse to the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of
operations or prospects of such party and its subsidiaries, taken
as a whole; provided, however, that a Material Adverse Effect shall
not include or be deemed to result from any change in the market
value of ERS Common Stock or Telepanel Common Shares or any adverse
effect resulting from changes in general economic conditions or
changes affecting the business of both Telepanel and ERS in
developing, manufacturing, marketing, selling, distributing and
maintaining electronic shelf label systems; and, provided, further,
that, for purposes of Sections 2.10(i), 3.10(i), 6.3 and 7.3
hereof, the term "Material Adverse Effect" shall not extend to any
events, changes or effects not materially worse than, or
representing a materially different trend in, prior comparable
events, changes or effects with respect to the same party.
1.11 Currency.
Unless otherwise specified, all references in this Agreement
to "dollars" or "$" shall mean United States dollars.
1.12 Best Efforts.
For purposes of this Agreement, the term "best efforts" shall
be interpreted to mean an obligation of such party to use every
reasonable commercial effort and shall not be interpreted to
require such party to enter into any agreement or undertaking to
pay or otherwise confer anything of value to or for the benefit of
a third party (except for fees of Governmental Entities [as
hereinafter defined] and securities exchanges and except as
otherwise expressly provided herein), to guarantee any obligation,
to make whole or keep well a third party or the like or to take any
other action which would have an unreasonably adverse effect on the
business of such party or which would cause the transactions
contemplated by this Agreement and the Arrangement not to qualify
for pooling-of-interests accounting treatment under U.S. GAAP.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TELEPANEL
Telepanel hereby represents and warrants to ERS that:
2.1 Organization; Good Standing; Qualification and Power.
Each of Telepanel and (i) each corporation, partnership,
company, joint venture, and other entity in which Telepanel
beneficially owns or controls, directly or indirectly, more than
50% of the equity, voting rights, profits interest, capital, or
other similar interest thereof and (ii) Telepanel Europe S.A. (the
"Telepanel Subsidiaries") is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
formation, has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as
now being conducted, and is duly qualified and in good standing to
do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the
failure so to qualify would not have a Material Adverse Effect on
Telepanel. Section 2.1 of the letter dated the date of this
Agreement and delivered by Telepanel to ERS concurrently herewith
(the "Telepanel Disclosure Letter") (such letter, by this
reference, incorporated into this Agreement) sets forth a correct
and complete list of the Telepanel Subsidiaries, the number of each
such subsidiary's outstanding capital stock or other ownership
interest owned by Telepanel or another Telepanel Subsidiary and a
correct and complete list of each jurisdiction in which each of
Telepanel and each Telepanel Subsidiary is duly qualified and in
good standing to do business, together with the name of each
corporation, partnership, joint venture, business trust or other
legal entity in which Telepanel or any Telepanel Subsidiary,
directly or indirectly, beneficially or legally owns or holds any
capital stock or other proprietary interest and Telepanel's direct
or indirect ownership interest therein. Neither Telepanel nor any
Telepanel Subsidiary, directly or indirectly, beneficially or
legally owns or holds any capital stock of ERS. Telepanel has
delivered to ERS complete and correct copies of the articles of
incorporation and bylaws of Telepanel, and of each Telepanel
Subsidiary, as amended to the date of this Agreement and currently
in effect.
2.2 Capital Structure.
(a) Stock and Options. The authorized capital stock of
Telepanel consists of an unlimited number of Common Shares of which
17,952,677 shares were issued and outstanding as of the date hereof
(the "Measurement Date"). No shares of any class or series of the
capital stock of Telepanel are held as treasury stock. All
outstanding Telepanel Common Shares have been, and all Telepanel
Common Shares issuable upon exercise of Telepanel Options and the
warrants (the "Telepanel Warrants") and the convertible securities
(the "Telepanel Convertible Securities") identified pursuant to
Section 2.2(b) hereof will be duly authorized and validly issued,
fully paid and non-assessable and issued without violation of any
pre-emptive rights. Telepanel has delivered to ERS true and
complete copies of each form of stock option agreement evidencing
the Telepanel Options. All issued and outstanding shares of the
capital stock or other proprietary interest of each of the
Telepanel Subsidiaries are owned as set forth in Section 2.2(a) of
the Telepanel Disclosure Letter, have been duly authorized and
validly issued, are fully paid and non-assessable, issued without
violation of any preemptive rights, are not subject to any right of
rescission, and have been offered, issued, sold and delivered by
Telepanel or the applicable Telepanel Subsidiary in compliance with
all registration, qualification and prospectus requirements (or
applicable exemptions therefrom) of applicable federal, provincial,
state and applicable foreign securities laws. All of the shares of
the capital stock or other proprietary interest of the Telepanel
Subsidiaries are owned as set forth in Section 2.2(a) of the
Telepanel Disclosure Letter, free and clear of all security
interests, liens, claims, pledges, agreements, limitations on
voting rights, charges or other encumbrances of any nature
whatsoever.
(b) No Other Commitments. Except as disclosed in Section
2.2(b) of the Telepanel Disclosure Letter, there are no
subscriptions, options, warrants, calls, rights, commitments,
conversion rights or agreements of any character to which Telepanel
or any of the Telepanel Subsidiaries is a party or by which
Telepanel or any of the Telepanel Subsidiaries is bound obligating
Telepanel or any of the Telepanel Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, any shares of
capital stock or other proprietary interest of Telepanel or any of
the Telepanel Subsidiaries or securities convertible into or
exchangeable for shares of capital stock or other proprietary
interest of Telepanel or any of the Telepanel Subsidiaries, or
obligating Telepanel or any of the Telepanel Subsidiaries to grant,
extend or enter into any such option, warrant, call, right,
commitment, conversion right or agreement. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will not require the adjustment of the number,
or price, of any securities subject to any of the Telepanel Options
or the Telepanel Warrants or the Telepanel Convertible Securities,
pursuant to any anti-dilution provisions therein or otherwise,
except as set forth under Sections 1.4 and 2.2(c) and (d) hereof.
Except as disclosed in Section 2.2(b) of the Telepanel Disclosure
Letter, there are no voting trusts or other agreements or
understandings to which Telepanel is a party or of which Telepanel
is aware with respect to the voting of the capital stock or other
proprietary interest, or control, of Telepanel or any of the
Telepanel Subsidiaries.
(c) Telepanel Warrants. At the Effective Time, after the
actions described in Sections 1.1(a) and (b) hereof, each of the
outstanding Telepanel Warrants will, without further action on the
part of any holder thereof and by virtue of the terms thereof, be
adjusted so as to constitute a warrant (an "Adjusted Telepanel
Warrant") to purchase that number of Exchangeable Shares determined
by multiplying the number of Telepanel Common Shares subject to
such Telepanel Warrant at the Effective Time by the number of
Exchangeable Shares exchangeable for each Telepanel Common Share
pursuant to the Exchange Ratio, at an exercise price per
Exchangeable Share, expressed in United States dollars, equal to
the exercise price per Telepanel Common Share of such Telepanel
Warrant immediately prior to the Effective Time, expressed in
United States dollars, divided by the number of Exchangeable Shares
exchangeable for each Telepanel Common Share pursuant to the
Exchange Ratio. The Adjusted Telepanel Warrants will provide that
the term, exercisability and all other terms and conditions of the
Telepanel Warrants will otherwise continue with respect to the
Adjusted Telepanel Warrants, except as contemplated by Section 7.12
hereof.
(d) Telepanel Convertible Securities. At the Effective Time,
after the actions described in sections 1.1(a) and (b), each of the
outstanding Telepanel Convertible Securities will, without further
action on the part of any holder thereof and by virtue of the terms
thereof, be adjusted so as to constitute a convertible security (an
"Adjusted Convertible Security") to purchase Exchangeable Shares,
at a conversion price per Exchangeable Share, expressed in United
States dollars, equal to the conversion price per Telepanel Common
Share of such Telepanel Convertible Security immediately prior to
the Effective Time, expressed in United States dollars, divided by
the number of Exchangeable Shares exchangeable for each Telepanel
Common Share pursuant to the Exchange Ratio. The Adjusted Telepanel
Convertible Securities will provide that the term, convertibility
and all other terms and conditions of the Telepanel Convertible
Securities will otherwise continue with respect to the Adjusted
Telepanel Convertible Securities, except as contemplated by Section
7.12 hereof.
(e) Registration Rights. Except as disclosed in Section
2.2(e) of the Telepanel Disclosure Letter, Telepanel is not under
any obligation to register any of its securities under any
securities laws.
2.3 Authority.
(a) Corporate Action. Telepanel has all requisite corporate
power and authority to enter into this Agreement and, subject to
approval of the Arrangement by the shareholders of Telepanel and by
the Court, to perform its obligations hereunder and to consummate
the Arrangement and the other transactions contemplated by this
Agreement. The execution and delivery of this Agreement by
Telepanel and, subject to approval of the Arrangement by the
shareholders of Telepanel and by the Court, the consummation by
Telepanel of the Arrangement and the other transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of Telepanel. This Agreement has been
duly executed and delivered by Telepanel and this Agreement is the
valid and binding obligation of Telepanel, enforceable in
accordance with its terms, except that such enforceability may be
subject to (i) bankruptcy, insolvency, reorganization or other
similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
(b) No Conflict. Neither the execution, delivery and
performance of this Agreement or the Plan of Arrangement by
Telepanel, nor the consummation of the transactions contemplated
hereby or thereby by Telepanel, nor compliance with the provisions
hereof or thereof by Telepanel will: (i) result in any breach or
violation of the articles of incorporation or bylaws of Telepanel
or the comparable governing instruments of any of the Telepanel
Subsidiaries or, subject to compliance with the regulatory
requirements specified under Section 2.3(c) hereof, any law, rule,
regulation, writ, judgment, injunction, decree, determination,
award or other order of any Governmental Entity (as hereinafter
defined) binding upon Telepanel or any of the Telepanel
Subsidiaries; (ii) except as disclosed in Section 2.3(b) of the
Telepanel Disclosure Letter, result in any breach or violation of
or cause a default (with or without notice or lapse of time, or
both), or require any consent or approval, under, or give rise to
a right of termination, amendment, cancellation or acceleration of
any obligation contained in, or the loss of any benefit under, or
result in the creation of any lien, security interest, charge or
encumbrance upon, or right of first refusal or other option to
purchase or acquire, any of the properties or assets of Telepanel
or any of the Telepanel Subsidiaries under, any term, condition or
provision of any loan or credit agreement, note, bond, mortgage,
indenture, lease or other contract or agreement applicable to
Telepanel or any of the Telepanel Subsidiaries or their respective
properties or assets, other than any such breaches, violations,
rights, defaults, losses, liens, security interests, charges or
encumbrances or rights of first refusal or options which,
individually or in the aggregate, would not have a Material Adverse
Effect on Telepanel; or (iii) except for the requirement under the
CBCA that the Arrangement be approved by the holders of at least
two-thirds (or such other proportion as may be set out in the
Interim Order) of the outstanding Telepanel Common Shares who are
permitted to, and who do, vote in accordance with the CBCA at the
Telepanel Shareholders Meeting, require any vote of the holders of
issued and outstanding Telepanel Common Shares.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
court, administrative agency, regulatory body or commission or
other governmental authority or instrumentality, whether federal,
provincial, state, or local and whether domestic or foreign (each,
a "Governmental Entity"), is required to be obtained by Telepanel
or any of the Telepanel Subsidiaries in connection with the
execution and delivery of this Agreement or the Plan of Arrangement
or the consummation of the transactions contemplated hereby or
thereby, except for: (i) the filing with the Ontario Securities
Commission (the "OSC"), all other Canadian provincial securities
regulatory authorities having jurisdiction and the Court of the
Joint Proxy Statement; (ii) (A) the filing with the SEC of the No
Action Request, (B) the filing with and clearance by the SEC of the
Joint Proxy Statement, and all information and other documents
required by the SEC under the Exchange Act in connection therewith,
and (C) the filing with the SEC of such reports under the Exchange
Act and the rules and regulations promulgated by the SEC thereunder
as may be required in connection with this Agreement and the
transactions contemplated hereby; (iii) approval of the Court of
the Arrangement and the filings of the Articles of Arrangement and
any other required amalgamation, arrangement or other documents as
required by the CBCA; (iv) such filings, authorizations, orders and
approvals as may be required under the Securities Act (Ontario) and
other relevant Canadian securities statutes, any other applicable
provincial or state securities laws and the rules of The Toronto
Stock Exchange (the "TSE") and such filings as may be required
under the rules of The Nasdaq Stock Market, Inc. ("Nasdaq"); (v)
such filings and notifications and other compliance as may be
necessary under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "HSR Act"); and (vi) any required notices and
filings under the Investment Canada Act.
2.4 Securities Regulatory Authority Reports;
Financial Statements.
(a) Canadian Compliance. Since December 31, 1993, Telepanel
has filed all forms, reports and documents with the OSC required to
be filed by it pursuant to the Securities Act (Ontario) and the
regulations promulgated thereunder, the comparable statutes and
regulations of all other Canadian provinces, and the applicable
policies and rules of the OSC and all other Canadian provincial
securities regulatory authorities having jurisdiction (such forms,
reports and documents collectively, the "Telepanel OSC Reports"),
all of which complied when filed in all material respects with all
then applicable requirements of such statutes, regulations,
policies and rules. None of the Telepanel OSC Reports, at the time
filed or as subsequently amended, contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made,
not misleading.
(b) SEC Reports. Telepanel has filed each report, schedule,
registration statement definitive proxy statement and other filing
with the SEC (the "Telepanel SEC Documents"), which Telepanel was
required to file with the SEC on or after December 31, 1993 and,
within the twelve months prior to the date hereof, all Telepanel
SEC Documents have been timely filed. As of their respective dates
or, in the case of registration statements, their effective dates
(or, if amended by a filing prior to the date of this Agreement,
then on the date of such filing), none of the Telepanel SEC
Documents (including all schedules thereto and documents
incorporated by reference therein) contained any untrue statement
of a material fact or omitted 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, and the Telepanel SEC Documents complied when filed
in all material respects with the then applicable requirements of
the Securities Act or the Exchange Act, as the case may be, and the
rules and regulations promulgated by the SEC thereunder.
(c) Financial Statements. The audited consolidated financial
statements (including the related notes and schedules thereto) of
Telepanel contained in or incorporated by reference to the
Telepanel OSC Reports and the Telepanel SEC Documents, without
limitation for its fiscal year ended January 31, 1997, and the
unaudited consolidated financial statements (including the related
notes and schedules thereto) of Telepanel contained in or
incorporated by reference to the Telepanel OSC Reports and the
Telepanel SEC Documents, without limitation for its fiscal six
months ended July 31, 1997, complied as to form in all material
respects with the then applicable accounting requirements and the
published rules and regulations of the OSC and of the SEC with
respect thereto, were prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP") applied
on a consistent basis during the periods involved (except as may
have been indicated in the notes thereto) and present fairly the
consolidated financial position and the consolidated results of
operations and cash flows of Telepanel and its consolidated
subsidiaries as of the dates or for the periods presented therein,
subject in the case of unaudited statements to normal year-end
audit adjustments which are described therein. Except as disclosed
in the Telepanel OSC Reports or in Section 2.4(c) of the Telepanel
Disclosure Letter, and other than those incurred after July 31,
1997 in the ordinary course of business, neither Telepanel nor any
of the Telepanel Subsidiaries has any liabilities, accrued,
contingent or otherwise, that, individually or in the aggregate,
would be reasonably likely to have a Material Adverse Effect on
Telepanel.
2.5 Information Supplied.
None of the information relating to Telepanel or any of the
Telepanel Subsidiaries contained in this Agreement or in the
Telepanel Disclosure Letter, in the Telepanel OSC Reports and in
the Telepanel SEC Documents, taken as a whole, contains any untrue
statement of a material fact or omits to state a material fact
required to be stated herein or therein or necessary in order to
make the statements herein or therein, in light of the
circumstances in which they were made, not misleading. None of the
information with respect to Telepanel, its directors, officers,
stockholders or any Telepanel Subsidiary included or incorporated
by reference in the Joint Proxy Statement (and, if filed, the
Registration Statement) will, at the time the Joint Proxy Statement
is mailed to the shareholders of Telepanel and at the time of the
Telepanel Shareholders Meeting (and, if filed, at the time the
Registration Statement is declared effective and at the time of any
post-effective amendment thereto prior to 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 to
make the statements therein, in light of the circumstances under
which they are made, not misleading. The Joint Proxy Statement will
comply as to form in all material respects with the provisions of
the CBCA and applicable Canadian securities laws and the rules and
regulations promulgated thereunder, and with all applicable United
States securities laws.
2.6 Compliance with Applicable Laws.
Telepanel and the Telepanel Subsidiaries have complied, in the
conduct of their respective businesses, with all applicable
federal, provincial, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees
applicable thereto, except where the failure to comply would not be
reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on Telepanel. Telepanel has not been
notified by any Governmental Entity of any investigation with
respect to Telepanel or any of the Telepanel Subsidiaries that is
pending or threatened, nor has any Governmental Entity notified
Telepanel of such entity's intention to conduct the same, that
would be reasonably likely to have a Material Adverse Effect on
Telepanel. Each of Telepanel and the Telepanel Subsidiaries has all
permits, licenses, certificates of authority, orders, and approvals
of, and has made all filings, applications and registrations with,
federal, state, local, and foreign governmental or regulatory
bodies that are required in order to permit it or such subsidiary
to carry on its business as it is presently conducted, except for
such permits, licenses, certificates, orders, filings, applications
and registrations, the failure to have or make which, individually
or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect on Telepanel. All such permits, licenses,
certificates of authority, orders and approvals are in full force
and effect, there has been no default or breach thereunder, and
there is no pending or, to the best of the knowledge of Telepanel,
threatened proceeding under which any may be revoked, terminated or
suspended, except insofar as would not, individually or in the
aggregate, have a Material Adverse Effect on Telepanel. The
execution and delivery of this Agreement, and the consummation of
the Arrangement, will not adversely affect or otherwise impair the
ability of Telepanel or the Telepanel Subsidiaries, as the case may
be, fully to enjoy the benefits of any such permits, licenses,
certificates of authority, orders or approvals.
2.7 Title to Assets.
(a) Each of Telepanel and the Telepanel Subsidiaries has good
and marketable title to its properties (other than property as to
which it is lessee, in which case it has a valid leasehold
interest), except for such defects in title that, individually or
in the aggregate, would not be reasonably likely to have a Material
Adverse Effect on Telepanel, in each case free and clear of all
Telepanel Liens (as hereinafter defined). All real and tangible
personal property owned or leased by Telepanel and each of the
Telepanel Subsidiaries is in good repair and is operational and
usable in the operation of Telepanel, subject to normal wear and
tear, except for such property whose failure to be in such
condition would not be reasonably likely to have a Material Adverse
Effect on Telepanel. All leases and licenses pursuant to which
Telepanel or the Telepanel Subsidiaries lease or license personal
and intangible property from others are in good standing, valid and
effective in accordance with their respective terms, and there is
not, under any of such leases or licenses, any existing default, or
event of default (or event which with notice or lapse of time, or
both, would constitute a default, or would constitute a basis for
a claim of force majeure or other claim of excusable delay or
non-performance), other than any such default, event or claim that,
individually or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect on Telepanel. Telepanel and the
Telepanel Subsidiaries lease or own all properties and assets
necessary for the operation of their respective businesses as
presently conducted, and the assets and properties of Telepanel and
the Telepanel Subsidiaries include all of the assets, of every kind
and nature, whether tangible or intangible, and wherever located,
which are utilized by Telepanel or the Telepanel Subsidiaries in
the conduct of their respective businesses, in each case other than
any assets or properties the failure to lease or own which would
not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect on Telepanel.
(b) For purposes of this Agreement, the term "Telepanel Lien"
shall be defined to mean any mortgage, deed of trust, security
interest, pledge, lien, or other charge or encumbrance of any
nature whatsoever except: (a) liens disclosed in the financial
statements contained in or incorporated by reference to the
Telepanel SEC Documents; (b) liens for taxes, assessments, or
governmental charges or levies not yet due and delinquent; (c)
liens consisting of zoning or planning restrictions, easements,
permits, any other restrictions or limitations on the use of real
property or irregularities in title thereto which do not materially
detract from the value of, or impair the use of, such property by
Telepanel or any of the Telepanel Subsidiaries and (d) liens
disclosed in Section 2.7 of the Telepanel Disclosure Letter.
2.8 Litigation.
Except as disclosed in Section 2.8 of the Telepanel Disclosure
Letter, there are no suits, actions, arbitrations, demands, claims
or proceedings pending or, to the best of the knowledge of
Telepanel, threatened against Telepanel or any of the Telepanel
Subsidiaries that, individually or in the aggregate, would, if
determined adversely, be reasonably likely to have a Material
Adverse Effect on Telepanel nor are there any judgments, decrees,
injunctions, writs, stipulations, determinations, awards, rules or
orders of any Governmental Entity or arbitrator outstanding against
Telepanel or any of the Telepanel Subsidiaries that individually or
in the aggregate would be reasonably likely to have a Material
Adverse Effect on Telepanel.
2.9 Benefit Plans and Other Compliance.
(a) Section 2.9 of the Telepanel Disclosure Letter identifies
all bonus, deferred compensation, incentive compensation, share
purchase, share option, stock appreciation, phantom stock, savings,
profit sharing, severance or termination pay, health or other
medical, life, disability or other insurance (whether insured or
self-insured, supplementary unemployment benefit, pension,
retirement, supplementary retirement and every other written or
formal benefit plan, program, agreement or arrangement involving
direct or indirect compensation or benefits (including any
employment agreements entered into between Telepanel or any of the
Telepanel Subsidiaries and any employee of Telepanel or any of the
Telepanel Subsidiaries, maintained or contributed to by Telepanel
of any of the Telepanel Subsidiaries (or under which Telepanel or
any Telepanel Subsidiary has any present or future obligation or
ability) for the benefit of any employee of Telepanel or any
Telepanel Subsidiary or their respective dependents or
beneficiaries (collectively, the "Telepanel Employee Plans").
(b) There has been no amendment to, written interpretation
of, or announcement by Telepanel or any of the Telepanel
Subsidiaries relating to, or change in employee participation or
coverage under, any Telepanel Employee Plan that would increase
materially the expense of maintaining such Telepanel Employee Plan
above the level of the expense incurred in respect thereof for the
fiscal year ended January 31, 1997.
(c) All of the Telepanel Employee Plans are, and have been
since their establishment, duly registered where required by
legislation (including registration with the relevant tax
authorities where such registration is required to qualify for tax
exemption or other beneficial tax status) and are in good standing
under, and in material compliance with, all statutes, orders, rules
and regulations, including the ITA and provincial pension standards
legislation, which are applicable to the Telepanel Employee Plans.
(d) All employer and, if applicable, employee contributions
under the Telepanel Employee Plans due from Telepanel or any
Telepanel Subsidiary have been or will be remitted in a timely
manner through the Effective Time as required by applicable
legislation or have been accrued on Telepanel's or any such
Telepanel Subsidiary's financial statements as of January 31, 1997.
(e) To the best of the knowledge of Telepanel, no event has
occurred and there has been no failure to act on the part of
Telepanel or any Telepanel Subsidiary, any funding agent or any
administrator of any of the Telepanel Employee Plans that could
subject Telepanel, any Telepanel Subsidiary, any officer or
director or either of them or the fund of any Telepanel Employee
Plan to the imposition of any tax, penalty or other disability,
including the failure to maintain sufficient funds, with respect to
any such plan, whether by way of indemnity or otherwise.
(f) No Telepanel Employee Plan constitutes a multi-employer
pension plan.
(g) All Telepanel Employee Plans are maintained outside of
the United States for the benefit of persons all of whom are United
States non-resident aliens.
2.10 Absence of Certain Changes or Events.
Except as disclosed, respectively, in the corresponding
clauses of Section 2.10 of the Telepanel Disclosure Letter, the
Telepanel OSC Reports and Telepanel SEC Documents filed prior to
the date of this Agreement, since July 31, 1997 (the "Telepanel
Balance Sheet Date"), there has not been: (i) any change or
development or combination of changes or developments which,
individually or in the aggregate, constitutes a Material Adverse
Effect on Telepanel or would be reasonably likely to result in a
Material Adverse Effect on Telepanel; (ii) any declaration, setting
aside or payment of any dividend or other distribution with respect
to Telepanel's capital stock, or, directly or indirectly, any
redemption, purchase, or other acquisition or disposition of any
shares of Telepanel capital stock by Telepanel or any Telepanel
Subsidiary; (iii) any change by Telepanel in its accounting
methods, principles or practices; (iv) any writing down or writing
off the value of any material assets of Telepanel or any Telepanel
Subsidiary other than in the ordinary course of business; (v) any
incurrence of any liability or obligation under agreements or
otherwise, except current liabilities entered into or incurred in
the ordinary course of business consistent with past practice, any
issuance of any notes or other corporate debt securities or payment
or discharge of any outstanding indebtedness, except in the
ordinary course of business consistent with past practice, or any
waiver of any of its rights, in each case by Telepanel or any
Telepanel Subsidiary; (vi) any mortgage, pledge or subjection to
any Telepanel Lien of any assets or properties, entering into of
any lease of real property or buildings, or, except in the ordinary
course of business, entering into of any lease of machinery or
equipment, or sale or transferring any tangible or intangible asset
or property, in each case by Telepanel or any Telepanel Subsidiary;
(vii) any material increase in or material modification of the
compensation payable or to become payable by any of Telepanel or
the Telepanel Subsidiaries to any of its directors, officers, or
employees, except in the ordinary course of business consistent
with past practice (provided, however, that in no event was any
such increase in compensation made with respect to any director,
officer or employee earning in excess of $30,000 per annum, except
as identified in Section 2.10(vii) of the Telepanel Disclosure
Letter); (viii) any bonus, pension, option, deferred compensation,
or retirement payment, severance, profit sharing, or like payment
to any director, officer or employee, except as required by the
terms of plans or arrangements existing prior to such date
(provided, however, that in no event was any such payment made with
respect to any employee or agent earning in excess of $30,000 per
annum, except as identified in Section 2.10(viii) of the Telepanel
Disclosure Letter); (ix) any execution or other entering into of
any salary, wage, severance, or other compensation agreement with
a term of one year or longer with any director, officer or employee
or any contribution to any trust or plan for the benefit of any
director, officer or employee, except as required by the terms of
plans or arrangements existing prior to such date; (x) any entering
into of any transaction other than in the ordinary course of
business consistent with past practice, in each case by Telepanel
or any Telepanel Subsidiary, except in connection with the
execution and performance of this Agreement and the transactions
contemplated hereby; (xi) any damage, destruction, or loss to any
assets or properties of Telepanel or any Subsidiary (whether or not
covered by insurance) except for damage, destruction or loss
occurring in the ordinary course of business which, individually or
in the aggregate, would not have a Material Adverse Effect on
Telepanel; (xii) any acquisition or sale of a material amount of
property or assets of Telepanel or any Telepanel Subsidiary, other
than in the ordinary course of business consistent with past
practice; or (xiii) to the knowledge of Telepanel, any labor
dispute or charge of unfair labor practice (other than routine
individual grievances), any activity or proceeding by a labor union
or representative thereof to organize any employees of Telepanel or
any Telepanel Subsidiary or any campaign conducted to solicit
authorization from employees to be represented by such labor union
that, in any such case under this clause (xiii), would be
reasonably likely to have a Material Adverse Effect on Telepanel.
2.11 Certain Agreements.
Except as disclosed in Section 2.11 of the Telepanel
Disclosure Letter, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director, officer or
employee of Telepanel or any of the Telepanel Subsidiaries from
Telepanel or any of the Telepanel Subsidiaries, under any Telepanel
Employee Plan, Telepanel Benefit Arrangement or otherwise, (ii)
materially increase any benefits otherwise payable under any
Telepanel Employee Plan or Telepanel Benefit Arrangement or (iii)
result in the acceleration of the time of payment or vesting of any
such benefits, including but not limited to the time of exercise of
stock options. Telepanel and each Telepanel Subsidiary is in
compliance in all material respects with all applicable laws,
agreements and contracts relating to employment, employment
practices, wages, hours, and terms and conditions of employment,
including, but not limited to, employee compensation matters. Set
forth in Section 2.11 of the Telepanel Disclosure Letter is a list
of all employees of Telepanel and each Telepanel Subsidiary
entitled to receive annual compensation in excess of $30,000 and
their respective positions, job descriptions and salaries. Except
for those unions identified in Section 2.11 of the Telepanel
Disclosure Letter, no union or other collective bargaining unit has
been certified or recognized by Telepanel or any Telepanel
Subsidiary as representing any of their respective employees.
Telepanel and each Telepanel Subsidiary believes it has
satisfactory labor relations; nothing has come to Telepanel's
attention as a result of the negotiation or entering into of this
Agreement that would lead Telepanel to believe that the
consummation of the transactions contemplated hereby will have a
Material Adverse Effect on Telepanel with respect to labor
relations; and Telepanel has no knowledge that any of its
"executive officers" (as defined under Rule 3b-7 pursuant to the
Exchange Act) intends to leave its employ. Neither Telepanel nor
any of the Telepanel Subsidiaries has an employment contract or
material consulting agreement currently in effect that is not
terminable at will or upon reasonable notice (other than agreements
with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions), except as
such termination rights are limited under applicable employment
laws.
2.12 Taxes.
(a) Telepanel and each of the Telepanel Subsidiaries have
timely filed, or caused to be filed, all Tax Returns (as defined
below) required to be filed by them (all of which returns were
correct and complete in all material respects) and have paid, or
caused to be paid, all Taxes (as defined below) that are due and
payable, in each case except for any such Tax Returns or Taxes the
non-filing or non-payment of which have not had and would not be
reasonably likely to have a Material Adverse Effect on Telepanel,
and Telepanel has provided adequate accruals in accordance with
Canadian GAAP in its financial statements for any Taxes that have
not been paid, whether or not shown as being due on any returns.
Since the Telepanel Balance Sheet Date, no material Tax liability
has been assessed, proposed to be assessed, incurred or accrued
other than in the ordinary course of business. Neither Telepanel
nor any Telepanel Subsidiary has received any written notification
that any material issues have been raised (and are currently
pending) by Revenue Canada, the United States Internal Revenue
Service or any other taxing authority, including, without
limitation, any sales tax authority, in connection with any of the
Tax Returns referred to above, and no waivers of statutes of
limitations have been given or requested with respect to Telepanel
or any of the Telepanel Subsidiaries, in each case except for any
such written notices or waivers which have not had and would not be
likely to have a Material Adverse Effect on Telepanel. To the best
of the knowledge of Telepanel, there are no material proposed (but
unassessed) additional Taxes and none have been asserted. No Tax
liens have been filed other than for Taxes not yet due and payable.
None of Telepanel or any of the Telepanel Subsidiaries (i) has made
an election to be treated as a "consenting corporation" under
section 341(f) of the Code, (ii) is a "personal holding company"
within the meaning of section 542 of the Code or (iii) is a party
to any Tax sharing or other similar agreement or arrangement of any
nature with any other person pursuant to which Telepanel or any of
the Telepanel Subsidiaries has or could have any liabilities in
respect of Taxes. Telepanel is not, and has not been, at any time
within the last five years prior to the date hereof, a "United
States real property holding corporation" within the meaning of
Section 897 of the Code. Neither Telepanel, any corporation to
which Telepanel is the successor in a reorganization described in
section 368(a) of the Code nor any Telepanel Subsidiary has, for
any prior taxable year, been a "passive foreign investment company"
(a "PFIC") within the meaning of section 1296 of the Code, and, on
the basis of its income and assets for the current taxable year to
date, would not be a PFIC for such year.
(b) As used in this Agreement, "Tax" and "Taxes" means, with
respect to any entity, (A) all income taxes (including any tax on
or based upon net income, gross income, income as specially
defined, earnings, profits or selected items of income, earnings or
profits) and all capital, gross receipts, environmental, sales,
use, ad valorem, value added, transfer, franchise, license,
withholding, payroll, employment, Canada or Quebec Pension Plans,
excise, severance, utility, compensation, social security, workers'
compensation, unemployment insurance or compensation, stamp,
occupation, premium, property, windfall profits taxes, alternative
or add-on minimum taxes, goods and services tax, customs duties or
other taxes, fees, imports, assessments or charges of any kind
whatsoever, together with any interest and any penalties or
additional amounts imposed by any taxing authority (domestic or
foreign) on such entity, and any interest, penalties, additional
taxes and additions to tax imposed with respect to the foregoing,
and (B) any liability for the payment of any amount of the type
described in the immediately preceding clause (A) as a result of
being a "transferee" (within the meaning of section 6901 of the
Code or any other applicable law) of another entity or a member of
an affiliated or combined group. As used in this Agreement, "Tax
Returns" means all returns, declarations, reports, information
returns and statements relating to Taxes.
2.13 Fees and Expenses.
Except for the fees and expenses set forth in Section 2.13 of
the Telepanel Disclosure Letter payable to Deutsche Xxxxxx Xxxxxxxx
Inc., neither Telepanel nor any of the Telepanel Subsidiaries, nor
any director, officer, agent or employee thereof, has paid or
become obligated to pay any fee or commission to any broker, finder
or intermediary in connection with the transactions contemplated by
this Agreement.
2.14 Environmental Matters.
(a) Except as disclosed in the Telepanel OSC Reports, neither
Telepanel nor any Telepanel Subsidiary: (i) has filed any notice
under any Environmental Law (as hereinafter defined) indicating
past or present treatment, storage, or disposal of a hazardous
waste or reporting a spill or release of a Hazardous Substance (as
hereinafter defined) or other substance into the environment, in
each case in violation of law wherein such violation, individually
or in the aggregate, would have a Material Adverse Effect on
Telepanel, or (ii) has any liability, contingent or otherwise,
under any Environmental Law in connection with any release of any
Hazardous Substance, or other substance on property, now or
formerly owned or leased by Telepanel or any of the Telepanel
Subsidiaries, which, individually or in the aggregate, would have
a Material Adverse Effect on Telepanel. No Hazardous Substances
have been generated, treated, stored or disposed of or placed in
violation of any Environmental Law on any property owned or leased
by Telepanel or any Telepanel Subsidiary or on or into any waste
disposal site owned or operated by a third party except for
violations which, individually or in the aggregate, would not have
a Material Adverse Effect on Telepanel.
(b) "Environmental Law" means any applicable federal,
provincial, state, foreign or local law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval,
consent, common law, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any Government Entity,
(x) relating to the protection, preservation or restoration of the
environment (including, without limitation, air, surface water,
groundwater, drinking water supply, surface land, subsurface land,
plant and animal life or any other natural resource), or to human
health or safety, or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing,
handling, labelling, production, release or disposal of Hazardous
Substances, in each case as amended and as now in effect.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive
or dangerous, or otherwise regulated, under any Environmental Law,
whether by type or by quantity, including any substance containing
any such substance as a component.
2.15 Interested Party Transactions.
Except as disclosed in the Telepanel OSC Reports filed prior
to the date of this Agreement, no officer or director of Telepanel
or any "affiliate" or "associate" (as those terms are defined in
Rule 405 promulgated under the Securities Act) of any such person
has had, either directly or indirectly, except for the legal rights
of stockholders in Telepanel, a material interest in (i) any person
or entity which purchases from or sells, licenses or furnishes to
Telepanel or any of the Telepanel Subsidiaries any goods, property,
technology or intellectual or other property rights or services, or
is a competitor of Telepanel, or (ii) (other than contracts or
agreements relating to the remuneration of such officer or director
and related matters) any contract or agreement to which Telepanel
or any of the Telepanel Subsidiaries is a party or by which it may
be bound or affected, or any property, real or personal, tangible
or intangible, used in or pertaining to the business of Telepanel
or any Telepanel Subsidiary.
2.16 Real Estate and Leases.
(a) Set forth in Section 2.16 of the Telepanel Disclosure
Letter is a brief description of every parcel of real estate owned
by Telepanel or any Telepanel Subsidiary (including, in each case,
a description of the improvements and uses, the annual taxes
payable and depreciation reserve of any improvements), and lease
agreements (including, in each case, the annual rental payable and
the expiration date, the cost and depreciation reserve of any
leasehold improvements and a brief description of the property
covered) under which Telepanel or any of the Telepanel Subsidiaries
is lessee of, or holds or operates, any real estate owned by any
third party. Each of such leases and agreements is in full force
and effect and constitutes a legal, valid and binding obligation of
the respective parties thereto. Neither Telepanel nor any Telepanel
Subsidiary is in default under any such lease or agreement, nor, is
any other party to any such lease or agreement in default
thereunder, and no event has occurred, or is alleged to have
occurred, which constitutes, or with lapse of time or giving of
notice or both would constitute, a default by any party to any such
lease or agreement, or a basis for a claim of force majeure or
other claim of excusable delay or non-performance thereunder other
than with respect to any default, event or claim which,
individually or in the aggregate, would not have any Material
Adverse Effect on Telepanel.
(b) Telepanel or a Telepanel Subsidiary has good, clear and
marketable title to the properties set forth in Section 2.16 of the
Telepanel Disclosure Letter and all fixtures thereon in fee simple
absolute, subject to no Telepanel Liens. There is no option or
right held by any third party to purchase any such properties or
any part thereof, or any of the fixtures and equipment thereon. All
buildings, driveways and other improvements on such properties,
respectively, are within its boundary lines, and no improvements on
adjoining properties extend across the boundary lines onto such
properties.
(c) The foundation, floor and roof of the buildings and all
other structural and mechanical components of the properties owned
or leased by Telepanel or the Telepanel Subsidiaries are sound and
free of any structural, mechanical or other defect, and all
heating, ventilating, air conditioning, electrical, plumbing and
other mechanical systems and equipment thereon are in good working
order, in each case except insofar as would not, individually or in
the aggregate, have a Material Adverse Effect on Telepanel. There
are no condemnation or eminent domain proceedings pending or
threatened with respect to the properties owned or leased by
Telepanel or any Telepanel Subsidiary, all required certificates of
occupancy and other government permits necessary to utilize such
properties as they are presently utilized have been obtained, and
such properties, and the operation thereof, conform to all existing
building, zoning, and other laws and ordinances relating to their
use or occupancy, in each case except insofar as would not,
individually or in the aggregate, have a Material Adverse Effect on
Telepanel.
2.17 Material Contracts; No Defaults.
(a) As used in this Agreement, the term the "Telepanel
Agreements" shall mean all mortgages, indentures, notes,
agreements, contracts, leases, licenses, franchises, obligations,
instruments or other commitments, arrangements or understandings of
any kind, whether written or oral, binding or non-binding, to which
Telepanel or any of the Telepanel Subsidiaries is a party or by
which Telepanel or any of the Telepanel Subsidiaries or any of
their respective properties may be bound or affected, other than
those which by their terms have expired prior to the date hereof.
There is no Telepanel Agreement which is material to Telepanel and
which is not otherwise listed as an exhibit to the Annual Report on
Form 20-F of Telepanel for the fiscal year ended January 31,1997
(the "Telepanel Form 20-F"). Set forth, respectively, in the
corresponding clauses of Section 2.17 of the Telepanel Disclosure
Letter is a list, without regard to materiality, of each of the
following Telepanel Agreements which is not otherwise listed as an
exhibit in the Telepanel Form 20-F: (i) any order or commitment or
agreement for the sale or lease or rental by Telepanel or any
Telepanel Subsidiary of an electronic shelf label system or portion
thereof; (ii) any mortgage, indenture, note, installment obligation
or other instrument, agreement or arrangement for or relating to
any borrowing of money by Telepanel or any Telepanel Subsidiary;
(iii) any guaranty, direct or indirect, by Telepanel or any
Telepanel Subsidiary of any obligation for borrowings or otherwise,
excluding endorsements made for collection in the ordinary course
of business; (iv) any Telepanel Agreement made other than in the
ordinary course of its business or providing for the grant of any
preferential rights to purchase or lease any assets of Telepanel or
any Telepanel Subsidiary, except for such agreements which,
individually and in the aggregate, are not material to Telepanel;
(v) any obligation to make payments, contingent or otherwise,
arising out of the prior acquisition of the business, assets or
stock of other companies; (vi) any collective bargaining agreement
with any trade or labor union; (vii) any Telepanel Agreement to
which any officer or director of Telepanel or any "affiliate" or
"associate" (as defined under Section 2.15 hereof) is a party;
(viii) any Telepanel Agreement containing noncompetition or other
limitations restricting the conduct of the business of Telepanel or
any Telepanel Subsidiary; (ix) any partnership, shareholder
agreement, joint venture or similar agreement; and (x) any contract
which imposes material geographic or territorial limitations on the
conduct of business by Telepanel or any of the Telepanel
Subsidiaries (excluding customary area of interest provisions
relating to specific properties and similar restrictions entered
into in the ordinary course of business and which do not have a
significant impact on their ability to conduct business generally
in that geographic area). As of the date hereof, the net hedge and
future positions is not materially different from that existing on
the Telepanel Balance Sheet Date.
(b) No event has occurred, or, is, to the best of the
knowledge of Telepanel, alleged to have occurred, which constitutes
or with lapse of time or giving of notice or both, would constitute
a default or a basis for a claim of force majeure or other claim of
excusable delay or non-performance by Telepanel or any Telepanel
Subsidiary under any Telepanel Agreements, except for any such
default or claim which, individually or in the aggregate, would not
have a Material Adverse Effect on Telepanel. To the best of the
knowledge of Telepanel, no party with whom Telepanel or any
Telepanel Subsidiary has any Telepanel Agreement is in default in
the performance of any covenant or condition thereunder or has
failed in performance thereunder by reason of a claim of force
majeure or other claim of excusable delay or non-performance
thereunder, except for any such default or claim which,
individually or in the aggregate, would not have a Material Adverse
Effect on Telepanel.
2.18 Intellectual Property.
(a) Set forth in Section 2.18 of the Telepanel Disclosure
Letter is a list of all of Telepanel's and each Telepanel
Subsidiary's patents, registered and common law trademarks, service
marks, tradenames, copyrights, licenses and other similar rights
and applications for each of the foregoing. Except as disclosed in
Section 2.18 of the Telepanel Disclosure Letter, (i) Telepanel and
each of its Subsidiaries owns, or is licensed to use (in each case,
clear of any Telepanel Liens), all Intellectual Property (as
defined below) used in or necessary for the conduct of its
businesses as currently conducted and has not transferred,
assigned, alienated, limited or encumbered the Intellectual
Property or its interest therein in any way; (ii) to Telepanel's
knowledge, the use, copying, modification, transmission or
licensing of any Intellectual Property by Telepanel and each
Telepanel Subsidiary and the conduct of its businesses as currently
conducted, does not infringe on or otherwise violate the
Intellectual Property, contractual rights or obligations or other
rights whatsoever of any person and is in accordance with any
applicable permit, license, waiver, assignment, authorization,
approval or agreement pursuant to which Telepanel or any Telepanel
Subsidiary acquired the right to use, copy, modify or license any
Intellectual Property; (iii) to Telepanel's knowledge, no service,
product (or component thereof), or process used, licensed,
performed, manufactured, copied, transmitted or modified, by and/or
for, or supplied by or to Telepanel and each Telepanel Subsidiary
infringes or otherwise violates the Intellectual Property or
contractual rights or obligations or other rights whatsoever of any
other person; and (iv) to the knowledge of Telepanel, no person is
challenging, infringing on or otherwise violating any right of
Telepanel or any Telepanel Subsidiary with respect to any
Intellectual Property owned or use by and/or licensed to or by
Telepanel and any Telepanel Subsidiary and no person has
instituted, given notice of or threatened any claim, demand,
proceeding or action against Telepanel or any Telepanel Subsidiary,
with respect to or alleging any infringement or violation by
Telepanel or any Telepanel Subsidiary of the Intellectual Property,
contractual rights or obligations or other rights whatsoever, of
that person. Neither Telepanel nor any Telepanel Subsidiary has,
except as set forth in Section 2.18 of the Telepanel Disclosure
Letter, granted any outstanding licenses or other rights, and has
no obligations to grant licenses or other rights, under any
Intellectual Property.
(b) For purposes of this Agreement "Intellectual Property"
shall include all copyrights (including all assignable interests as
a user or licensee), integrated circuit topography rights, mask
works, registered and unregistered trademarks, service marks, brand
names, logos, certification marks, trade dress, assumed names,
trade names, industrial designs and other indications of origin,
any improvements therein or derivatives thereof, the goodwill
associated with any of the foregoing and registrations in any
jurisdiction of, and applications in any jurisdiction to register
any of the foregoing, including any extension, modification or
renewal of any such registration or application; inventions,
processes, improvements, discoveries and ideas, whether patentable
or not in any jurisdiction; patents, applications for patents
(including divisions, derivatives, reexaminations, continuations,
continuations in part and renewal applications), and any renewals,
extensions or reissues thereof, in any jurisdiction; non-public
information, trade secrets, know-how, formulae, processes,
inventions, and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person;
writings, computer programs, compilations, derivatives works,
topographies, and other works, whether copyrightable or not in any
jurisdiction; registrations or applications for registration of
copyrights in any jurisdiction, and any renewals, extensions or
reversions thereof; the benefit of all waivers of moral rights; and
any similar intellectual or industrial property, proprietary
rights; and any claims, rights of compensation or causes of action
arising out of or related to any infringement or misappropriation
of any of the foregoing.
2.19 Insurance.
Telepanel and each of the Telepanel Subsidiaries have their
respective assets, and the various occurrences which may arise in
the conduct of their respective businesses, insured against loss or
damages as is appropriate to their businesses and assets in such
amounts and against such risks as are customarily carried and
insured against by owners of comparable businesses and assets, and
such insurance coverage is set forth in Section 2.19 of the
Telepanel Disclosure Letter. Telepanel and each Telepanel
Subsidiary has complied with such insurance policies and has
received no notices of any pending or threatened terminations or
premium increases with respect to such policies, and such policies
will not be modified or terminated or lapse by reason of the
transactions contemplated by this Agreement.
2.20 Restrictions on Business Activities.
There is no material agreement, judgment, injunction, order or
decree binding upon Telepanel or any Telepanel Subsidiary that has
or could reasonably be expected to have the effect of prohibiting
or impairing any business practice of Telepanel or any Telepanel
Subsidiary, any acquisition of property by Telepanel or any
Telepanel Subsidiary or the conduct of business by Telepanel or any
Telepanel Subsidiary as currently conducted in a manner that would
be reasonably likely to have a Material Adverse Effect on
Telepanel.
2.21 Books and Records.
The books, records and accounts of Telepanel and the Telepanel
Subsidiaries (a) have in all material respects been maintained in
accordance with good business practices on a basis consistent with
prior years and (b) are stated in reasonable detail and in all
material respects accurately and fairly reflect the transaction and
disposition of the respective assets of Telepanel and the Telepanel
Subsidiaries. Telepanel has devised and maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that (w) transactions are executed in accordance with
management's general or specific authorization; (x) transactions
are recorded as necessary (i) to permit preparation of financial
statements in conformity with Canadian GAAP, U.S. GAAP or any other
criteria applicable to such statements and (ii) to maintain
accountability for assets; (y) access to assets is permitted only
in accordance with management's general or specific authorization;
and (z) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
2.22 Board Approval.
The Telepanel Board has, as of the date hereof: (i)
unanimously approved this Agreement and the Arrangement; (ii)
determined that the Agreement is in the best interests of the
shareholders of Telepanel and (iii) recommended that the
shareholders of Telepanel approve this Agreement and the
Arrangement.
2.23 Vote Required.
The affirmative vote of two-thirds of the votes cast by the
holders of the outstanding Telepanel Common Shares entitled to be
cast (or such other vote as may be set out in the Interim Order) is
the only vote of the holders of any class or series of Telepanel's
capital stock necessary to approve this Agreement and the
Arrangement.
2.24 Fairness Opinion.
The Telepanel Board has received an opinion from Deutsche
Xxxxxx Xxxxxxxx, Inc. that the terms of the Arrangement are fair to
the holders of Telepanel Common Shares from a financial point of
view.
2.25 Pooling Matters.
Neither Telepanel nor any of the Telepanel Subsidiaries nor
any of their Affiliates have, to Telepanel's knowledge and based
upon consultation with its independent auditors, taken or agreed to
take any action that (without giving effect to this Agreement, the
transactions contemplated hereby or actions related thereto, or any
action taken or agreement to be taken by ERS or any of its
Affiliates) is reasonably likely to prevent ERS from accounting for
the business combination to be effected by the Agreement as a
"pooling of interests" under U.S. GAAP or Rule 1-02 of Regulation
S-X of the SEC.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ERS
ERS hereby represents and warrants to Telepanel (subject to
the matters set forth in Article 3 of the letter dated the date of
this Agreement and delivered by ERS to Telepanel concurrently
therewith [the "ERS Disclosure Letter"] [such letter by this
reference incorporated into this Agreement] with respect to the
United States Investment Company Act of 1940 and the rules and
regulations thereunder) that:
3.1 Organization; Good Standing; Qualification and Power.
Each of ERS and each corporation, partnership, company, joint
venture and other entity in which ERS beneficially owns or
controls, directly or indirectly, more than 50% of the equity,
voting rights, profits interest, capital or other similar interest
thereof (the "ERS Subsidiaries"), is duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its formation, has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the
failure so to qualify would not have a Material Adverse Effect on
ERS. Section 3.1 of the ERS Disclosure Letter sets forth a correct
and complete list of the ERS Subsidiaries, the percentage of each
such subsidiary's outstanding capital stock or other ownership
interest owned by ERS or another subsidiary of ERS and a correct
and complete list of each jurisdiction in which each of ERS and
each ERS Subsidiary is duly qualified and in good standing to do
business. Neither ERS nor any ERS Subsidiary, directly or
indirectly, beneficially or legally owns or holds any capital stock
of Telepanel. ERS has delivered to Telepanel complete and correct
copies of the certificate of incorporation and bylaws of ERS, and
the certificate of incorporation and bylaws, or partnership
agreement, of each ERS Subsidiary, as amended to the date of this
Agreement and currently in effect.
3.2 Capital Structure.
(a) Stock. The authorized capital stock of ERS consists of
35,000,000 shares of ERS Common Stock and 2,000,000 shares of
preferred stock, $1.00 par value, of which 21,114,689 shares of ERS
Common Stock were issued and outstanding as of the Measurement
Date. No shares of any class or series of the capital stock of ERS
are held as treasury stock. All issued and outstanding shares of
ERS Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable and were not issued in violation of
any pre-emptive rights. All issued and outstanding shares of the
capital stock or other proprietary interest of each of the ERS
Subsidiaries are owned as set forth in Section 3.2(a) of the ERS
Disclosure Letter, have been duly authorized and validly issued,
are fully paid and nonassessable, issued without violation of any
preemptive rights, are not subject to any right of rescission, and
have been offered, issued, sold and delivered by ERS or the
applicable ERS Subsidiary in compliance with all registration,
qualification and prospectus requirements (or applicable exemptions
therefrom) of applicable federal, provincial and state securities
laws. All of the shares of capital stock of the ERS Subsidiaries
are owned by ERS free and clear of all security interests, liens,
claims, pledges, agreements, limitations on ERS's voting rights,
charges or other encumbrances of any nature whatsoever, except as
set forth in Section 3.2(a) of the ERS Disclosure Letter.
(b) No Other Commitments. Except as disclosed in Section
3.2(b) of the ERS Disclosure Letter, there are no subscriptions,
options, warrants, calls, rights, commitments, conversion rights or
agreements of any character to which ERS or any of the ERS
Subsidiaries is a party or by which ERS or any of the ERS
Subsidiaries is bound obligating ERS or any of the ERS Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or
sold, any shares of capital stock or other proprietary interest of
ERS or any of the ERS Subsidiaries or securities convertible into
or exchangeable for shares of capital stock or other proprietary
interest of ERS or any of the ERS Subsidiaries, or obligating ERS
or any of the ERS Subsidiaries to grant, extend or enter into any
such option, warrant, call, right, commitment, conversion right or
agreement. Except for the obligations of ERS pursuant to this
Agreement and as disclosed in Section 3.2(a) of the ERS Disclosure
Letter, there are no voting trusts or other agreements or
understandings to which ERS is a party or of which ERS is aware
with respect to the voting of the capital stock or other
proprietary interest, or control, of ERS or any of the ERS
Subsidiaries.
3.3 Authority.
(a) Corporate Action. ERS has all requisite corporate power
and authority to enter into this Agreement and, subject to approval
by the stockholders of ERS of this Agreement, the ERS Charter
Changes and the issuance of ERS Common Stock in connection with the
Arrangement upon exchange of the Exchangeable Shares and to
approval of the Arrangement by the Court, to perform its
obligations hereunder and to consummate the Arrangement and the
other transactions contemplated by this Agreement. The execution
and delivery of this Agreement by ERS and, subject to approval by
the stockholders of ERS of this Agreement, the ERS Charter Changes
and the issuance of ERS Common Stock in connection with the
Arrangement upon exchange of the Exchangeable Shares and to
approval of the Arrangement by the Court, the consummation by ERS
of the Arrangement and the other transactions contemplated hereby
have been duly authorized by all necessary corporate action on the
part of ERS. This Agreement has been duly executed and delivered by
ERS and this Agreement is the valid and binding obligation of ERS,
enforceable in accordance with its terms, except that such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to
enforcement of creditors' rights generally, and (ii) general
equitable principles.
(b) No Conflict. Neither the execution, delivery and
performance of this Agreement or the Plan of Arrangement by ERS,
nor the consummation of the transactions contemplated hereby or
thereby by ERS, nor compliance with the provisions hereof or
thereof by ERS will: (i) result in any breach or violation of the
articles of incorporation or bylaws of ERS or the comparable
governing instruments of any of the ERS Subsidiaries or, subject to
compliance with the regulatory requirements specified under Section
3.3(c) and the matters set forth in Section 3.3(b) of the ERS
Disclosure Letter, any law, rule, regulation, writ, judgment,
injunction, decree, determination, award, or other order of any
Governmental Entity binding upon ERS or any of the ERS
Subsidiaries; (ii) except as disclosed in Section 3.3(b) of the ERS
Disclosure Letter, result in any breach or violation of or cause a
default (with or without notice or lapse of time, or both), or
require any consent or approval, under, or give rise to a right of
termination, amendment, cancellation or acceleration of any
obligation contained in, or the loss of any benefit under, or
result in the creation of any lien, security interest, charge or
encumbrance upon, or right of first refusal or other option to
purchase or acquire, any of the properties or assets of ERS or any
of the ERS Subsidiaries under, any term, condition or provision of
any loan or credit agreement, note, bond, mortgage, indenture,
lease or other contract or agreement applicable to ERS or any of
the ERS Subsidiaries or their respective properties or assets,
other than any such breaches, violations, rights, defaults, losses,
liens, security interest, charges or encumbrances or rights of
first refusal or options which, individually or in the aggregate,
would not have a Material Adverse Effect on ERS; or (iii) require
the affirmative vote of the holders of greater than a majority of
the issued and outstanding shares of ERS Common Stock.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained by ERS or any of the
ERS Subsidiaries in connection with the execution and delivery of
this Agreement or the Plan of Arrangement or the consummation of
the transactions contemplated hereby or thereby, except for (i)(A)
the filing with the SEC of the No Action Request, (B) the filing
with the SEC of the Registration Statement, if required, and all
information and other documents required by the SEC under the
Securities Act in connection therewith, and the SEC's approval
thereof and order with respect thereto, (C) the filing with and
clearance by the SEC of the Joint Proxy Statement, and all
information and other documents required by the SEC under the
Exchange Act in connection therewith, and (D) the filing with the
SEC of such reports under the Exchange Act and the rules and
regulations promulgated by the SEC thereunder as may be required in
connection with this Agreement and the transactions contemplated
hereby; (ii) the filing with the Secretary of State of Delaware of
a certificate of amendment to ERS' certificate of incorporation
setting forth the ERS Charter Changes and appropriate documents
with the relevant authorities of states and other jurisdictions in
which ERS is qualified to do business; (iii) such filings,
authorizations, orders and approvals as may be required under
foreign laws, state securities laws and the rules of Nasdaq or the
Alternative Investment Market of the London Stock Exchange ("AIM");
(iv) such filings and notifications and other compliance as may be
necessary under the HSR Act; (v) any required notices and filings
under the Investment Canada Act; and (vi) such approvals and
consents as may be required of the Connecticut Development
Authority.
3.4 SEC Reports and Financial Statements.
(a) SEC Reports. Since December 31, 1993, ERS has filed each
report, schedule, registration statement and definitive proxy
statement and other filings required to be filed by it with the SEC
(the "ERS SEC Documents"). As of their respective dates or, in the
case of registration statements, their effective dates (or, if
amended by a filing prior to the date of this Agreement, then on
the date of such filing), none of the ERS SEC Documents (including
all schedules thereto and documents incorporated by reference
therein) contained any untrue statement of a material fact or
omitted 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, and the
ERS SEC Documents complied when filed in all material respects with
the then applicable requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations
promulgated by the SEC thereunder.
(b) Financial Statements. The audited consolidated financial
statements (including the related notes and schedules thereto) of
ERS included in or incorporated by reference to the ERS SEC
Documents, without limitation for its fiscal year ended December
31, 1996, and the unaudited consolidated financial statements
(including the related notes and schedules thereto) of ERS
contained in the ERS SEC Documents, without limitation for its
fiscal six months ended June 30, 1997, complied as to form in all
material respects with the then applicable accounting requirements
and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with U.S. GAAP applied on a
consistent basis during the periods involved (except as may have
been indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q promulgated by the
SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, year-end audit adjustments which are
described therein) the consolidated financial position of ERS and
its consolidated subsidiaries as at the respective dates thereof
and the consolidated results of their operations and cash flows for
the respective periods then ended. Except as disclosed in the ERS
SEC Documents or Section 3.4(b) of the ERS Disclosure Letter, and
other than those incurred after June 30, 1997 in the ordinary
course of business, neither ERS nor any of the ERS Subsidiaries has
any liabilities, accrued, contingent or otherwise, that,
individually or in the aggregate, would be reasonably likely to
have a Material Adverse Effect on ERS.
3.5 Information Supplied.
None of the information relating to ERS or any of the ERS
Subsidiaries contained in this Agreement or in the ERS Disclosure
Letter and in the ERS SEC Documents, taken as a whole, contains any
untrue statement of a material fact or omits to state a material
fact required to be stated herein or therein or necessary in order
to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading. None of the
information with respect to ERS, its directors, officers,
stockholders or any ERS Subsidiary, included or incorporated by
reference in the Joint Proxy Statement (and, if filed, the
Registration Statement) will, at the time the Joint Proxy Statement
is mailed to the stockholders of ERS and at the time of the ERS
Stockholders Meeting (and, if filed, at the time the Registration
Statement is declared effective and at the time of any post-
effective amendments thereto prior to 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 to make
the statements therein, in light of the circumstances under which
they are made, not misleading. The Joint Proxy Statement will
comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated by the
SEC thereunder.
3.6 Compliance with Applicable Laws.
ERS and the ERS Subsidiaries have complied, in the conduct of
their respective businesses, with all applicable federal, state,
local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto, except where the
failure to comply would not be reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect on ERS. ERS has
not been notified by any Governmental Entity of any investigation
with respect to ERS or any ERS Subsidiary that is pending or
threatened, nor has any Governmental Entity notified ERS of such
entity's intention to conduct the same, that would be reasonably
likely to have a Material Adverse Effect on ERS. Each of ERS and
the ERS Subsidiaries has all permits, licenses, certificates of
authority, orders, and approvals of, and has made all filings,
applications and registrations with, federal, state, local and
foreign governmental or regulatory bodies that are required in
order to permit it or such subsidiary to carry on its business as
it is presently conducted, except for such permits, licenses,
certificates, orders, filings, applications and registrations, the
failure to have or make which, individually or in the aggregate,
would not be reasonably likely to have a Material Adverse Effect on
ERS. All such permits, licenses, certificates of authority, orders
and approvals are in full force and effect, there has been no
default or breach thereunder, and there is no pending or, to the
best of the knowledge of ERS, threatened proceeding under which any
may be revoked, terminated or suspended, except insofar as would
not, individually or in the aggregate, have a Material Adverse
Effect on ERS. The execution and delivery of this Agreement, and
the consummation of the Arrangement, will not adversely affect or
otherwise impair the ability of ERS or the ERS Subsidiaries, as the
case may be, fully to enjoy the benefits of any such permits,
licenses, certificates of authority, orders or approvals.
3.7 Title to Assets.
(a) Each of ERS and the ERS Subsidiaries has good and
marketable title to its properties (other than property as to which
it is lessee, in which case it has a valid leasehold interest),
except for such defects in title that, individually or in the
aggregate, would not be reasonably likely to have a Material
Adverse Effect on ERS, in each case free and clear of all ERS Liens
(as hereinafter defined). All real and tangible personal property
owned or leased by ERS and each of the ERS Subsidiaries is in good
repair and is operational and usable in the operation of ERS,
subject to normal wear and tear, except for such property whose
failure to be in such condition would not be reasonably likely to
have a Material Adverse Effect on ERS. All leases and licenses
pursuant to which ERS or the ERS Subsidiaries lease or license
personal and intangible property from others are in good standing,
valid and effective in accordance with their respective terms, and
there is not, under any of such leases or licenses, any existing
default, or event of default (or event which with notice or lapse
of time, or both, would constitute a default, or would constitute
a basis for a claim of force majeure or other claim of excusable
delay or non-performance) other than any such default, event or
claim that, individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect on ERS. ERS and
the ERS Subsidiaries lease or own all properties and assets
necessary for the operation of their respective businesses as
presently conducted, and the assets and properties of ERS and the
ERS Subsidiaries include all of the assets, of every kind and
nature, whether tangible or intangible, and wherever located, which
are utilized by ERS or the ERS Subsidiaries in the conduct of their
respective businesses, in each case other than any assets or
properties the failure to lease or own which would not,
individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect on ERS, and in each case subject to the
matters disclosed in Section 3.7(a) of the ERS Disclosure Letter.
(b) For purposes of this Agreement, the term "ERS Lien" shall
be defined to mean any mortgage, deed of trust, security interest,
pledge, lien, or other charge or encumbrance of any nature
whatsoever except: (a) liens disclosed in the financial statements
contained in or incorporated by reference to the ERS SEC Documents;
(b) liens for taxes, assessments, or governmental charges or levies
not yet due and delinquent; (c) liens consisting of zoning or
planning restrictions, easements, permits, any other restrictions
or limitations on the use of real property or irregularities in
title thereto which do not materially detract from the value of, or
impair the use of, such property by ERS or any of the ERS
Subsidiaries and (d) liens disclosed in Section 3.7(b) of the ERS
Disclosure Letter.
3.8 Litigation.
There are no suits, actions, arbitrations, demands, claims or
proceedings pending or, to the best of the knowledge of ERS,
threatened against ERS or any of the ERS Subsidiaries that,
individually or in the aggregate, would, if determined adversely,
be reasonably likely to have a Material Adverse Effect on ERS nor
are there any judgments, decrees, injunctions, writs, stipulations,
determinations, awards, rules or orders of any Governmental Entity
or arbitrator outstanding against ERS or any of the ERS
Subsidiaries that, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect on ERS.
3.9 ERISA and Other Compliance.
(a) All contributions due from ERS or any of the ERS
Subsidiaries through the Effective Time with respect to any
"employee benefit plan" (the "ERS Employee Plans"), as defined in
Section 3(3) of the U.S. Employee Retirement Income Security Act of
1974, as amended ("ERISA"), have been or will be timely made as
required under ERISA or any applicable legislation, other than any
such failure which would not have a Material Adverse Effect on ERS.
Each ERS Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including, without limitation, ERISA
and the Code, which are applicable to such ERS Employee Plans,
other than any non-compliance which would not have a Material
Adverse Effect on ERS.
(b) No ERS Employee Plan which individually or collectively
would constitute an "Employee Pension Benefit Plan", as defined in
Section 3(2) of ERISA (collectively, the "ERS Pension Plan")
constitutes, or since the enactment of ERISA constituted, a "multi-
employer plan", as defined in Section 3(37) of ERISA.
(c) No "prohibited transaction", as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any
ERS Employee Plan which is covered by Title I of ERISA which would
have a Material Adverse Effect on ERS, excluding transactions
effected pursuant to a statutory or administrative exemption. Any
ERS Pension Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been qualified during
the period from its adoption to date, and the trust forming a part
thereof is exempt from tax pursuant to Section 401(a) of the Code.
3.10 Absence of Certain Changes or Events.
Except as disclosed in the ERS SEC Documents filed prior to
the date of this Agreement or as disclosed, respectively, in the
corresponding clauses of Section 3.10 of the ERS Disclosure Letter,
since June 30, 1997 (the "ERS Balance Sheet Date") there has not
been: (i) any change or development or combination of changes or
developments which, individually or in the aggregate, constitutes
a Material Adverse Effect on ERS or would be reasonably likely to
result in a Material Adverse Effect on ERS; (ii) any declaration,
setting aside or payment of any dividend or other distribution with
respect to ERS's capital stock, or, directly or indirectly, any
redemption, purchase or other acquisition or disposition of any
shares of ERS' capital stock by ERS or any ERS Subsidiary; (iii)
any change by ERS in its accounting methods, principles or
practices; (iv) any writing down or writing off of the value of any
material assets other than in the ordinary course of business; (v)
any material increase in or material modification of the
compensation or benefits payable or to become payable by any of ERS
or the ERS Subsidiaries to any directors or "executive officers"
(as defined under Rule 3b-7 pursuant to the Exchange Act) of ERS,
except in the ordinary course of business; (vi) any acquisition or
sale of a material amount of property or assets other than in the
ordinary course of business; or (vii) to the knowledge of ERS, any
labor dispute or charge of unfair labor practice (other than
routine individual grievances), any activity or proceeding by a
labor union or representative thereof to organize any employee of
ERS or any ERS Subsidiary or any campaign conducted to solicit
authorization from employees to be represented by such labor union
that, in any such case under this clause (vii), would be reasonably
likely to have a Material Adverse Effect on ERS.
3.11 Certain Agreements.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or "executive officer" (as defined
under Rule 3b-7 pursuant to the Exchange Act) of ERS from ERS or
any of the ERS Subsidiaries, under any ERS Employee Plan or
otherwise, (ii) materially increase any benefits otherwise payable
under any ERS Employee Plan or (iii) result in the acceleration of
the time of payment or vesting of any such benefits, including but
not limited to the time of exercise of stock options. Nothing has
come to ERS's attention as a result of the negotiation or entering
into of this Agreement that would lead ERS to believe that the
consummation of the transactions contemplated hereby will have a
Material Adverse Effect to ERS on labor relations; and ERS has no
knowledge that any of its "executive officers" (defined as
aforesaid) intends to leave its employ.
3.12 Taxes.
ERS and each of the ERS Subsidiaries have timely filed, or
caused to be filed, all Tax Returns required to be filed by them
(all of which returns were correct and complete in all material
respects) and have paid, or caused to be paid, all Taxes that are
due and payable in each case except for any such Tax Returns or
Taxes the non-filing or non-payment of which have not had and would
not be reasonably likely to have a Material Adverse Effect on ERS,
and ERS has provided adequate accruals in accordance with U.S. GAAP
in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any returns. Since the ERS
Balance Sheet Date, no material Tax liability has been assessed,
proposed to be assessed, incurred or accrued other than in the
ordinary course of business. Neither ERS nor any ERS Subsidiary has
received any written notification that any material issues have
been raised (and are currently pending) by the United States
Internal Revenue Service, Revenue Canada or any other taxing
authority, including, without limitation, any sales tax authority,
in connection with any of the Tax Returns referred to above, and no
waivers of statutes of limitations have been given or requested
with respect to ERS or any of the ERS Subsidiaries, in each case
except for any such written notices or waivers which have not had
and would not be likely to have a Material Adverse Effect on ERS.
To the best of the knowledge of ERS, there are no material proposed
(but unassessed) additional Taxes and none have been asserted. No
Tax liens have been filed other than for Taxes not yet due and
payable. None of ERS or any of the ERS Subsidiaries (i) has made an
election to be treated as a "consenting corporation" under section
341 (f) of the Code, (ii) is a "personal holding company" within
the meaning of section 542 of the Code or (iii) is a party to any
Tax sharing or other similar agreement or arrangement of any nature
with any other person pursuant to which ERS or any of the ERS
Subsidiaries has or could have any liabilities in respect of Taxes.
Neither ERS nor any of the ERS Subsidiaries is a "specified
financial institution" or a "specified person" in relation to any
such institution each as defined in subsection 248(1) of the ITA
except in the event that ERS or any ERS Subsidiary is or will
become at the Effective Time a "specified financial institution" or
a "specified person" in relation to any such institution solely
because Telepanel was a "specified financial institution". ERS is
not, and has not been, at any time within the last five years prior
to the date hereof, a "United States real property holding
corporation" within the meaning of section 897 of the Code. No ERS
Subsidiary or any corporation to which any ERS Subsidiary is the
successor in a reorganization described in section 368(a) of the
Code for any prior taxable year, has been a "PFIC" within the
meaning of section 1296 of the Code, and on the basis of its income
and assets for the current taxable year to date, would not be a
PFIC for such year.
3.13 Fees and Expenses.
Except for the fees and expenses set forth in Section 3.13 of
the ERS Disclosure Letter payable to Patricof & Co. Capital Corp.,
neither ERS nor any of the ERS Subsidiaries, nor any director,
officer, agent or employee thereof, has paid or become obligated to
pay any fee or commission to any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement.
3.14 Environmental Matters.
Except as disclosed in the ERS SEC Documents, neither ERS nor
any ERS Subsidiary: (i) has filed any notice under any
Environmental Law indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a spill or release of a
Hazardous Substance or other substance into the environment, in
each case in violation of law wherein such violation, individually
or in the aggregate, would have a Material Adverse Effect on ERS,
or (ii) has any liability, contingent or otherwise, under any
Environmental Law in connection with any release of any Hazardous
Substance, or other substance on property, now or formerly owned or
leased by ERS or any of the ERS Subsidiaries, which, individually
or in the aggregate, would have a Material Adverse Effect on ERS.
No Hazardous Substances have been generated, treated, stored or
disposed of or placed in violation of any Environmental Law on any
property owned or leased by ERS or any ERS Subsidiary or on or into
any waste disposal site owned or operated by a third party except
for violations which, individually or in the aggregate, would not
have a Material Adverse Effect on ERS.
3.15 Interested Party Transactions.
Except as disclosed in the ERS SEC Documents filed prior to
the date of this Agreement, no officer or director of ERS or any
"affiliate" or "associate" (as those terms are defined in Rule 405
promulgated under the Securities Act) of any such person has had,
either directly or indirectly, except for the legal rights of
stockholders of ERS, a material interest in (i) any person or
entity which purchases from or sells, licenses or furnishes to ERS
or any of the ERS Subsidiaries any goods, property, technology or
intellectual or other property rights or services, or is a
competitor of ERS, or (ii) except as disclosed in Section 3.15 of
the ERS Disclosure Letter, any contract or agreement to which ERS
or any of the ERS Subsidiaries is a party or by which it may be
bound or affected (other than contracts or agreements relating to
the remuneration of such officer or director and related matters)
or any property, real or personal, tangible or intangible, used in
or pertaining to the business of ERS or any ERS Subsidiary.
3.16 Certain Material Contracts.
Except for the contracts, agreements, leases and commitments
listed in Section 3.16 of the ERS Disclosure Letter, neither ERS
nor any of the ERS Subsidiaries is a party to or bound by: (i) any
contract which imposes material geographic or territorial
limitations on the conduct of business by ERS or any of the ERS
Subsidiaries (excluding customary area of interest provisions
relating to specific properties and similar restrictions entered
into in the ordinary course of business and which do not have a
significant impact on their ability to conduct business generally
in that geographic area); or (ii) any joint venture or partnership
agreement. As of the date hereof, the net hedge and future position
is not materially different from that existing on the ERS Balance
Sheet Date.
3.17 Intellectual Property.
Set forth in Section 3.17(a) of the ERS Disclosure Letter is
a list of all of ERS' and each ERS Subsidiary's patents, registered
and common law trademarks, service marks, tradenames, copyrights,
licenses and other similar rights and applications for each of the
foregoing. Except as disclosed in Section 3.17(b) of the ERS
Disclosure Letter, (a) ERS and each of its Subsidiaries owns, or is
licensed to use (in each case, clear of any ERS Liens), all
Intellectual Property used in or necessary for the conduct of its
businesses as presently conducted and has not transferred,
assigned, alienated, limited or encumbered the Intellectual
Property or its interest therein in any way; (b) to ERS's
knowledge, the use, copying, modification, transmission or
licensing of any Intellectual Property by ERS and each Subsidiary
and the conduct of its businesses as currently conducted, does not
infringe on or otherwise violate the Intellectual Property,
contractual rights or obligations or other rights whatsoever of any
person and is in accordance with any applicable permit, license,
waiver, assignment, authorization, approval or agreement pursuant
to which ERS or any Subsidiary acquired the right to use, copy,
modify or license any Intellectual Property; (c) to ERS's
knowledge, no service, product (or component thereof), or process
used, licensed, performed, manufactured, copied, transmitted or
modified, by and/or for, or supplied by or to ERS and each ERS
Subsidiary infringes or otherwise violates the Intellectual
Property or contractual rights or obligations or other rights
whatsoever of any other person; and (d) to the knowledge of ERS, no
person is challenging, infringing on or otherwise violating any
right of ERS or any ERS Subsidiary with respect to any Intellectual
Property owned or used by and/or licensed to or by ERS and any ERS
Subsidiary and no person has instituted, given notice of or
threatened any claim, demand, proceeding or action against ERS or
any ERS Subsidiary, with respect to or alleging any infringement or
violation by ERS or any ERS Subsidiary of the Intellectual
Property, contractual rights or obligations or other rights
whatsoever, of that person.
3.18 Insurance.
ERS and each of the ERS Subsidiaries have their respective
assets insured against loss or damages as is appropriate to their
businesses and assets in such amounts and against such risks as are
customarily carried and insured against by owners of comparable
businesses and assets, and such insurance coverage will be
continued in full force and effect to and including the Effective
Time.
3.19 No Defaults.
To ERS's knowledge, neither it nor any of the ERS Subsidiaries
is in default under, and there exists no event, condition or
occurrence which, after notice or lapse of time, or both, would
constitute such a default by ERS or any of the ERS Subsidiaries
under, any contract or agreement to which ERS or any of the ERS
Subsidiaries is a party and which would, if terminated due to such
default, have, insofar as can reasonably be foreseen, a Material
Adverse Effect on ERS.
3.20 Restrictions on Business Activities.
There is no material agreement, judgment, injunction, order or
decree binding upon ERS or any ERS Subsidiary that has or could
reasonably be expected to have the effect of prohibiting or
impairing any business practice of ERS or any ERS Subsidiary, any
acquisition of property by ERS or any ERS Subsidiary or the conduct
of business by ERS or any ERS Subsidiary as currently conducted in
a manner that would be reasonably likely to have a Material Adverse
Effect on ERS, in each case except as disclosed in Schedule 3.20 of
the ERS Disclosure Letter.
3.21 Books and Records.
The books, records and accounts of ERS and the ERS
Subsidiaries (a) have in all material respects been maintained in
accordance with good business practices on a basis consistent with
prior years and (b) are stated in reasonable detail and in all
material respects accurately and fairly reflect the transactions
and disposition of the assets of ERS. ERS has devised and maintains
a system of internal accounting controls sufficient to provide
reasonable assurances that (w) transactions are executed in
accordance with management's general or specific authorization; and
(x) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with U.S. GAAP or
any other criteria applicable to such statements and (ii) to
maintain accountability for assets, (y) access to assets is
permitted only in accordance with management's general or specific
authorization; and (z) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
3.22 Board Approval.
The ERS Board has, as of the date hereof, unanimously: (i)
approved this Agreement and the ERS Charter Changes; (ii)
determined that the transactions contemplated by this Agreement are
in the best interests of the stockholders of ERS; and (iii)
recommended that the stockholders of ERS approve this Agreement and
the ERS Charter Changes.
3.23 Vote Required.
The affirmative vote or votes of the holders of a majority of
the outstanding shares of ERS Common Stock are the only votes of
the holders of any class or series of ERS' capital stock necessary
to approve this Agreement and the transactions contemplated
hereunder.
3.24 Fairness Opinion.
The ERS Board has received an opinion from Patricof & Co.
Capital Corp. that the terms of the Arrangement are fair to the
holders of ERS Common Stock from a financial point of view.
3.25 Pooling Matters.
Neither ERS nor any of the ERS Subsidiaries or their
Affiliates have, to ERS's knowledge and based upon consultation
with its independent auditors, taken or agreed to take any action
that (without giving effect to this Agreement, the transactions
contemplated hereby or actions related thereto, or any action taken
or agreed to be taken by Telepanel or any of its Affiliates) is
reasonably likely to prevent ERS from accounting for the business
combination to be effected by the Arrangement as a "pooling of
interests" under U.S. GAAP or Rule 1-02 of Regulation S-X of the
SEC.
ARTICLE 4
COVENANTS
4.1 Interim Operations.
(a) Telepanel covenants and agrees as to itself and with
respect to the Telepanel Subsidiaries, that, from and after the
date hereof until the Effective Time, except insofar as ERS shall
otherwise consent and except as required by this Agreement:
(i) The business of it and the Telepanel Subsidiaries
will be conducted only in the ordinary and usual course in all
material respects and, to the extent consistent therewith, it
and the Telepanel Subsidiaries will use all reasonable efforts
to preserve their business organizations intact and maintain
their existing relations with customers, suppliers, employees
and business associates.
(ii) It will not: (A) sell or pledge or agree to sell
or pledge any stock or other proprietary interest owned by it
in any of the Telepanel Subsidiaries; (B) amend its Articles
of Incorporation or Bylaws; (C) split, combine or reclassify
any outstanding capital stock, or make any other change in its
capital structure; (D) declare, set aside or pay any dividend
payable in cash, stock or property with respect to any of its
capital stock; (E) repurchase, redeem or otherwise acquire, or
permit any Telepanel Subsidiary to purchase or otherwise
acquire, directly or indirectly, any shares of capital stock
of Telepanel or ERS or any securities convertible into or
exercisable for any shares of capital stock of Telepanel or
ERS; or (F) enter into any material transaction not in the
ordinary course of its business, consistent with past
practice.
(iii) Except as described in Section 4.1(a)(iii) of the
Telepanel Disclosure Letter, neither it nor any of the
Telepanel Subsidiaries will: (A) issue, sell, pledge, dispose
of or encumber, or authorize or propose the issuance, sale,
pledge, disposition or encumbrance of, any shares of, or
securities convertible into or exchangeable for, or options,
puts, warrants, calls, commitments or rights of any kind to
acquire, any shares of its capital stock of any class other
than Telepanel Common Shares issuable pursuant to Telepanel
Options, Telepanel Warrants and Telepanel Convertible
Securities outstanding on the date hereof; (B) transfer,
lease, license, guarantee, sell, mortgage, pledge or dispose
of, or subject to any Telepanel Lien, any other material
property or assets or encumber any material property or assets
or (subject to sub-paragraph (vii) of this paragraph (a))
incur or modify any indebtedness or other liability, or
guaranty of any liability of any person or entity, in each
case under this clause (B) other than in the ordinary and
usual course of business consistent with past practice; or (C)
make any material acquisition of, or investment in, assets,
stock or other securities of any other person or entity other
than the wholly-owned Telepanel Subsidiaries.
(iv) Except as may be required to satisfy contractual
obligations existing as of the date hereof and the
requirements of applicable law, neither it nor any of the
Telepanel Subsidiaries will establish, adopt, enter into,
make, amend in any material respect or make any material
elections under any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, employee stock ownership, deferred
compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees.
(v) It will not implement any change in its accounting
principles, practices or methods, other than as may be
required by Canadian GAAP and will maintain its books and
records in accordance with good business practices, on a basis
consistent with past practice.
(vi) It and the Telepanel Subsidiaries will comply in
all material respects with all laws, rules, regulations,
writs, statutes, ordinance, judgments, injunctions, decrees,
determinations, awards, and other orders of every court,
government and governmental agency and instrumentality,
domestic or foreign, applicable to it and to the conduct of
its business and perform in all material respects all its
obligations without default.
(vii) Except as set forth in Section 4.1(a)(vii) of the
Telepanel Disclosure Letter, it and the Telepanel Subsidiaries
will not incur, or agree to incur, any indebtedness for money
borrowed, except in the ordinary course of business under
Telepanel's line of credit dated January 8, 1996 with The
Toronto-Dominion Bank, in an aggregate amount not in excess of
the maximum amount thereof permitted on the date hereof plus
$1,000,000.
(viii) Except as set forth in Section 4.1(a)(viii) of the
Telepanel Disclosure Letter (but in no event so as to result
in a breach, upon consummation of Closing or at the Effective
Time, under Section 4.05 of the Indenture dated as of January
24, 1997 [the "ERS Indenture"] between ERS and United States
Trust Company of New York), it and the Telepanel Subsidiaries
will not make any loans, advances or contributions to, or
investments in, any other person other than as permitted by
the ERS Indenture (as if Telepanel and the Telepanel
Subsidiaries were "Restricted Subsidiaries" thereunder).
(ix) It and the Telepanel Subsidiaries will maintain
and pay all premiums with respect to all policies of insurance
relating to its business, and its assets and properties, as
are presently held in its name and timely renew all such
policies.
(x) It and the Telepanel Subsidiaries will not make
any change materially adverse to it in the terms of any
material Telepanel Agreement, nor, except as set forth in
Section 4.1(a)(x) of the Telepanel Disclosure Letter, approve,
amend or modify any Telepanel Agreement to which any director,
officer or "affiliate" (within the meaning of Section 405 of
the Securities Act) is a party (in each case other than
remuneration arrangements in the ordinary course of business).
(xi) Except as set forth in Section 4.1(a)(xi) of the
Telepanel Disclosure Letter, it and the Telepanel Subsidiaries
will not take any action described in Section 2.10(vii)
through (ix), inclusive, hereof, nor amend, modify,
supplement, or in any way change any plan or arrangement
established for the benefit of its employees.
(xii) It and the Telepanel Subsidiaries will not settle
or compromise any litigation involving the payment of, or an
agreement to pay over time an amount in cash, notes, or other
property, or pay, discharge or satisfy claims, liabilities or
obligations (absolute, accrued, contingent or otherwise and
whether due or to be come due) which involves payments or
commitments to make payments exceeding $100,000 in the
aggregate, other than (A) liabilities or obligations incurred
in the ordinary course of business and consistent with past
practice, and (B) scheduled repayments of current portions of
and interest on long-term indebtedness or repayments under
existing credit agreements.
(xiii) Neither it nor any of the Telepanel Subsidiaries
will authorize or enter into an agreement to take any of the
actions referred to in paragraphs (i) through (xii) above.
(b) ERS covenants and agrees as to itself and with respect to
the ERS Subsidiaries that, from and after the date hereof until the
Effective Time, except insofar as Telepanel shall otherwise consent
and except as required by this Agreement:
(i) The business of it and the ERS Subsidiaries will be
conducted only in the ordinary and usual course in all
material respects and, to the extent consistent therewith, it
and the ERS Subsidiaries will use all reasonable efforts to
preserve their business organizations intact and maintain
their existing relations with customers, suppliers, employees
and business associates.
(ii) It will not: (A) sell or pledge or agree to sell or
pledge any stock or other proprietary interest owned by it in
any of the ERS Subsidiaries; (B) amend its Certificate of
Incorporation or Bylaws; (C) split, combine or reclassify any
outstanding capital stock, or make any other change in its
capital structure; (D) declare, set aside or pay any dividend
payable in cash, stock or property with respect to any of its
capital stock; or (E) repurchase, redeem or otherwise acquire,
or permit any ERS Subsidiary to purchase or otherwise acquire,
directly or indirectly, any shares of capital stock of
Telepanel or ERS or any securities convertible into or
exchangeable for any shares of capital stock of Telepanel or
ERS; or (F) enter into any material transaction not in the
ordinary course of business.
(iii) Except as described in Section 4.1(b)(iii) of the
ERS Disclosure Letter, neither it nor any of the ERS
Subsidiaries will: (A) issue, sell, pledge, dispose of or
encumber, or authorize or propose the issuance, sale, pledge,
disposition or encumbrance of, any shares of, or securities
convertible into or exchangeable for, or options, puts,
warrants, calls, commitments or rights of any kind to acquire,
any shares of its capital stock of any class, other than ERS
Common Stock issuable pursuant to options outstanding on the
date hereof or granted within the limits of option plans
heretofore approved by the ERS Board or issuable pursuant to
warrants and conversion rights outstanding on the date hereof;
or (B) transfer, lease, license, guaranty, sell, mortgage,
pledge or dispose of, or subject to any ERS Lien, any other
material property or assets or encumber any material property
or assets or incur or modify any indebtedness or other
liability, or guaranty of any liability of any person or
entity, in each case under this clause (B) other than in the
ordinary and usual course of business.
(iv) It will not implement any change in its accounting
principles, practices or methods, other than as may be
required by US GAAP and will maintain its books and records in
accordance with good business practices, on a basis consistent
with past practice.
(v) It and the ERS Subsidiaries will comply in all
material respects with all laws, rules, regulations, writs,
statutes, ordinance, judgments, injunctions, decrees,
determinations, awards, and other orders of every court,
government and governmental agency and instrumentality,
domestic or foreign, applicable to it and to the conduct of
its business and perform in all material respects all its
obligations without default.
(vi) It and the ERS Subsidiaries will not incur, or agree
to incur, any indebtedness for money borrowed, except in the
ordinary course of business in connection with letters of
credit under existing facilities with The Bank of New York or
renewals or replacements thereof.
(vii) It and the ERS Subsidiaries will not make any
loans, advances or contributions to, or investments in, any
other person other than as permitted by the ERS Indenture.
(viii) It and the ERS Subsidiaries will maintain and pay
all premiums with respect to all policies of insurance
relating to its business, and its assets and properties, as
are presently held in its name and timely renew all such
policies.
(ix) It and the ERS Subsidiaries will not approve, amend
or modify any agreement to which any director, officer or
"affiliate" (within the meaning of Section 405 of the
Securities Act) is a party (in each case other than
remuneration arrangements in the ordinary course of business).
(x) It and the ERS Subsidiaries will not settle or
compromise any litigation involving the payment of, or an
agreement to pay over time an amount in cash, notes, or other
property, or pay, discharge or satisfy claims, liabilities or
obligations (absolute, accrued, contingent or otherwise and
whether due or to be come due) which involves payments or
commitments to make payments exceeding $100,000 in the
aggregate, other than (A) liabilities or obligations incurred
in the ordinary course of business, and (B) scheduled
repayments of current portions of and interest on long-term
indebtedness or repayments under existing credit agreements.
(xi) Neither it nor any of its Subsidiaries will
authorize or enter into an agreement to take any of the
actions referred to in paragraphs (i) through (x) above.
4.2 Shareholder Approval.
Telepanel, acting through its Board of Directors, will call
the Telepanel Shareholders Meeting and ERS, acting through its
Board of Directors, will call the ERS Shareholders Meeting, each to
be held as promptly as practicable after the SEC has indicated that
it has no further comments on the Joint Proxy Statement (or, if the
Registration Statement [other than a shelf Registration Statement]
is filed, the date on which such Registration Statement is declared
effective by the SEC), but in no event earlier than 30 days after
the notice of such meeting, to submit this Agreement, the
Arrangement and related matters for the consideration and approval
of the Telepanel shareholders and this Agreement, the ERS Charter
Changes and related matters for consideration and approval of the
ERS shareholders. Such approval will be recommended by the
Telepanel Board, and by the ERS Board, subject in each case to the
fiduciary obligations of such directors. Such meetings will be
called, held and conducted, and any proxies will be solicited, in
compliance with applicable law.
4.3 Additional Affiliate Agreements.
To ensure the Arrangements will be accounted for as a "pooling
of interests" under U.S. GAAP and to ensure compliance with Rule
145 of the rules and regulations promulgated by the SEC under the
Securities Act, Telepanel will use its best efforts to procure the
signature and delivery of additional Telepanel Affiliate Agreements
from each person or entity becoming an Affiliate promptly after the
execution and delivery of this Agreement. To ensure that the
arrangement will be accounted for as a "pooling of interests" under
U.S. GAAP, ERS will use its best efforts to procure the signature
and delivery of additional ERS Affiliate Agreements from each
person or entity becoming an Affiliate promptly after the execution
and delivery of this Agreement. For purposes of this Agreement,
"Affiliate" shall have the meaning referred to in Rule 145 under
the Securities Act.
4.4 Joint Proxy Statement.
(a) Telepanel and ERS will contemporaneously mail the Joint
Proxy Statement to their respective shareholders promptly after the
Registration Statement, if filed, becomes effective or (if the
shares of ERS Common Stock to be issued from time to time after the
Effective Time upon the exchange of Exchangeable Shares are exempt
from the registration requirements of Section 5 of the Securities
Act or if a shelf Registration Statement is required by the SEC
with respect thereto) as promptly as practicable for the purpose of
considering and voting upon the Arrangement at the Telepanel
Shareholders Meeting and the ERS Charter Changes and related
matters at the ERS Stockholders Meeting, and, if necessary, after
the Joint Proxy Statement shall have been so mailed, promptly
circulate amended supplemental or supplemented proxy materials and,
if required in connection therewith, resolicit proxies. Telepanel
shall include in the Joint Proxy Statement the recommendation of
its Board of Directors described in Section 4.2 hereof, and ERS
shall include in the Joint Proxy Statement the recommendation of
its Board of Directors described in Section 4.2 hereof. Neither
Telepanel nor ERS shall use any proxy material in connection with,
respectively, the Telepanel Shareholder Meeting and the ERS
Stockholders Meeting without the prior approval of the other party,
which shall not be unreasonably withheld or delayed. Each of
Telepanel and ERS will promptly provide all information relating to
its business or operations necessary for inclusion in the Joint
Proxy Statement to satisfy all requirements of all applicable U.S.
and Canadian state, provincial and federal corporate and securities
laws. Telepanel shall be solely responsible for any statement,
information or omission in the Joint Proxy Statement relating to it
or its Affiliates based upon written information furnished by it.
Telepanel will not provide to its shareholders or publish any
material concerning it or its Affiliates that violates applicable
Canadian law, the Securities Act or the Exchange Act with respect
to the transactions contemplated hereby. ERS shall be solely
responsible for any statement, information or omission in the Joint
Proxy Statement relating to it or its Affiliates based upon written
information furnished by it. ERS will not provide to its stock-
holders or publish any material concerning it or its Affiliates
that violates applicable Canadian law, the Securities Act or the
Exchange Act with respect to the transactions contemplated hereby.
Each of Telepanel and ERS shall use its best efforts to solicit
from its stockholders proxies in favor of the proposals set forth
in the Joint Proxy Statement, and shall take such action reasonably
necessary or, in the opinion of the other party, reasonably helpful
to secure a favorable vote for the purpose of approving the
proposals set forth in the Joint Proxy Statement. At the request of
ERS, reasonably made, Telepanel shall adjourn its stockholders'
meeting to a later date, if (x) the requisite vote of holders of
Telepanel Common Shares has not been obtained or (y) ERS shall
otherwise request an adjournment in order to attempt to increase
the percentage of the vote in favor of the foregoing.
(b) Telepanel shall cause to be delivered to ERS a letter of
Price Waterhouse, Chartered Accountants, Telepanel's independent
auditors, dated a date within two business days before the date of
mailing of the Joint Proxy Statement and addressed to ERS, in form
and substance reasonably satisfactory to ERS, to the effect set
forth in Exhibit 4.4(b) hereto.
(c) ERS shall cause to be delivered to Telepanel a letter of
Price Waterhouse LLP, ERS' independent auditors, dated a date
within two business days before the date of mailing of the Joint
Proxy Statement and addressed to Telepanel, in form and substance
reasonably satisfactory to Telepanel, to the effect set forth in
Exhibit 4.4(c) hereto.
4.5 Regulatory Approvals.
Each of Telepanel and ERS will promptly execute and file, or
join in the execution and filing of, any application or other
document that may be necessary in order to obtain the
authorization, approval or consent of any Governmental Entity which
may be reasonably required, or which the other party may reasonably
request in connection with the consummation of the transactions
contemplated by this Agreement. Each of Telepanel and ERS will use
its best efforts to obtain promptly all such authorizations,
approvals and consents. Without limiting the generality of the
foregoing, as promptly as practicable after it becomes required,
each of Telepanel and ERS shall file with the Federal Trade
Commission and the Antitrust Division of the Department of Justice,
a pre-Arrangement notification report under the HSR Act and shall
make such filings as are necessary under the Investment Canada Act.
In addition, Telepanel shall promptly make application to the OSC
and other relevant Canadian securities regulatory authorities
seeking the orders and rulings contemplated by Section 7.11.
4.6 Necessary Consents; Certain Notices.
During the term of this Agreement, each of Telepanel and ERS
will use its best efforts to obtain such written consents,
authorizations, approvals and waivers and take such other actions
as may be necessary or appropriate, in addition to those set forth
in Section 4.5, to allow the consummation of the transactions
contemplated hereby and the preservation of the respective rights
and assets of the parties. Without limiting the generality of the
foregoing, ERS shall submit to Telepanel for prior review and
comment (which shall not be unreasonably withheld or delayed) any
information circular distributed generally to the holders of the
ERS Notes (as hereinafter defined) in order to satisfy the
condition set forth under Section 5.11 hereof. In addition,
promptly after the date hereof Telepanel shall submit to ERS for
prior review and comment (which shall not be unreasonably withheld
or delayed) such notice or notices of the transactions contemplated
hereby as may be required pursuant to the counterparts of the Put
Option (collectively, the "Telepanel Europe Put Option"), the
Incorporation Agreement (the "Telepanel Europe Incorporation
Agreement"), and the Shareholders Agreement (the "Telepanel Europe
Shareholders Agreement"), in each case relating to Telepanel Europe
(as hereinafter defined), insofar as any rights thereunder shall
become exercisable as a result of the Arrangement and the
transactions contemplated hereby, and shall deliver such notice or
notices so that the period of exercise of such rights, if any,
shall expire prior to the Closing Date. Telepanel shall also
consult with ERS with respect to the documentation of the 5% Senior
Convertible Notes (as defined in the Telepanel Disclosure
Schedule), and any agreements related thereto, which prior to
completion shall be submitted to ERS for review and confirmation,
such confirmation not to be unreasonably delayed or withheld (such
confirmation to be deemed unreasonably withheld if on grounds other
than the inclusion of provisions (x) constituting a material
departure from the term sheet therefor, and any drafts thereof,
heretofore provided to ERS, (y) that, if in effect on the date
hereof, would have required additional disclosure in any material
respect in the Telepanel Disclosure Letter in order to have made
the representations, warranties and covenants of Telepanel
contained herein accurate on the date hereof, or (z) that would
require any further modifications, waivers or consents, as
contemplated under Section 5.11 hereof, after they have initially
been obtained).
4.7 Access to Information and Properties.
Each of Telepanel and ERS will allow the other party and its
agents reasonable access, during ordinary business hours, to the
files, books, records, properties, assets, operations, personnel
and offices of Telepanel and each Telepanel Subsidiary, or ERS and
each ERS Subsidiary, as applicable, as such other party shall
reasonably request, including, without limitation, any and all
information relating to Telepanel's or ERS's electronic shelf
labelling systems, customer orders, Taxes, commitments, contracts,
leases, licenses and real, personal and intangible property and
financial condition. Each of Telepanel and ERS will cause its
accountants and other advisers to cooperate with the other party
and its agents in making available to such other party all
information reasonably requested, including, without limitation,
the right to examine all working papers pertaining to all Tax
Returns and financial statements prepared or audited by such
persons subject to the execution of customary access or
indemnification agreements among the parties with respect to such
review. The rights of access and inspection pursuant to this
Section 4.7 shall be subject to the Confidentiality Agreement
referred to in Section 8.3. Each party shall furnish the other
party with copies of all filings with the OSC and the SEC
subsequent to the date hereof, which shall be prepared in
accordance with the rules and regulations promulgated by,
respectively, the OSC and the SEC if any such filings are made
prior to the Effective Time.
4.8 Satisfaction of Conditions Precedent.
During the term of this Agreement, each of Telepanel and ERS
will use its best efforts to satisfy or cause to be satisfied all
the conditions precedent that are set forth in Articles 5, 6 and 7,
and will use its best efforts to cause the Arrangement and other
transactions contemplated by this Agreement to be consummated.
4.9 No Other Negotiations.
(a) From and after the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement
in accordance with its terms, Telepanel and the Telepanel
Subsidiaries shall not, and shall use their best efforts to see
that their respective directors do not, and shall not permit their
respective officers, employees, representatives, investment
bankers, agents and affiliates to, directly or indirectly: (i)
solicit, initiate or engage in discussions or negotiations with any
person, encourage submission of any inquiries, proposals or offers
by, or take any other actions intended or designed to facilitate
the efforts of any person, other than ERS, relating to the possible
acquisition of, or business combinations with, Telepanel or any of
the Telepanel Subsidiaries (whether by way of arrangement,
amalgamation, take-over bid, tender offer, purchase of capital
stock, purchase of assets or otherwise) or any material portion or
its or their capital stock or assets (with any such efforts by any
such person, including a firm proposal to make such acquisitions or
combination, to be referred to as a "Telepanel Competing
Transaction"); (ii) provide non-public information with respect to
Telepanel or any of the Telepanel Subsidiaries, or afford any
access to the properties, books or records of Telepanel or its
Subsidiaries, to any person, other than ERS, relating to a possible
Telepanel Competing Transaction by any person other than ERS; (iii)
make or authorize any statement, recommendation or solicitation in
support of any possible Telepanel Competing Transaction by any
person, other than by ERS; or (iv) enter into an agreement with any
person, other than ERS, providing for a possible Telepanel
Competing Transaction. Telepanel, the Telepanel Subsidiaries, and
their respective directors, officers, employees, representatives,
investment bankers, agents and affiliates, shall immediately cease
any and all existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the
foregoing.
(b) (i) Notwithstanding the foregoing, if at any time after
the date of this Agreement and prior to the date of the Telepanel
Shareholders' Meeting, the Telepanel Board determines in good
faith, acting reasonably, and after consultation with counsel, that
it is necessary to do so in order to comply with its fiduciary
duties to Telepanel shareholders, Telepanel may, in response to a
Telepanel Superior Proposal (as hereinafter defined) which was not
solicited by it or which did not otherwise result from a breach of
Section 4.9(a) and subject to providing prior written notice of its
decision to take such action to ERS (the "Telepanel Notice") and
compliance with subparagraph (ii) immediately succeeding, (x)
furnish information with respect to Telepanel and the Telepanel
Subsidiaries to any person making a Telepanel Superior Proposal
pursuant to a customary confidentiality agreement and (y)
participate in discussions (but not negotiations) to clarify the
terms of such Telepanel Superior Proposal; provided, however, that
neither Telepanel nor the Telepanel Board nor any committee thereof
shall: (x) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to ERS, the approval or recommendation
by the Telepanel Board or such committee of this Agreement or the
Plan of Arrangement; (y) approve or recommend, or propose publicly
to approve or recommend, any Telepanel Competing Transaction, other
than by ERS; or (z) cause Telepanel to enter into any letter of
intent, agreement-in-principle, acquisition agreement or any other
similar agreements (each a "Telepanel Acquisition Agreement")
related to any Telepanel Competing Transaction, other than with
ERS. For the purposes of this Agreement, a "Telepanel Superior
Proposal" means any formal proposal made by a third party to
acquire, directly or indirectly, all of the Telepanel Common Shares
then outstanding or all or substantially all of the assets of
Telepanel or with respect to any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving Telepanel and otherwise on terms which the
Telepanel Board determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation)
to be materially more favorable to Telepanel shareholders than the
combination contemplated by this Agreement and for which financing,
to the extent required, is then committed or which, in the good
faith judgment of the Telepanel Board, is reasonably capable of
being obtained by such third party. Telepanel shall be permitted to
deliver only one Telepanel Notice with respect to each person
making a Telepanel Superior Proposal.
(ii) In addition to the obligations of Telepanel set
forth in paragraphs (a) and (b)(i) of this Section 4.9, Telepanel
shall immediately advise ERS orally and in writing of any requests
for any information or of any Telepanel Competing Transaction,
other than by ERS, the material terms and conditions of such
request or Telepanel Competing Transaction and the identity of the
person making such request or Telepanel Competing Transaction.
Telepanel will keep ERS reasonably informed of the status and
details (including amendments or proposed amendments) of any such
request or Telepanel Competing Transaction, other than with ERS.
(iii) Nothing contained in Paragraph (a) of Section 4.9
shall prohibit Telepanel from making any disclosure to Telepanel's
shareholders if, in the good faith judgment of the Telepanel Board,
after consultation with outside counsel, failure so to disclose
would violate its obligations under applicable law; provided,
however, that neither Telepanel nor the Telepanel Board nor any
committee thereof shall withdraw or modify, or propose publicly to
withdraw or modify, its position with respect to this Agreement or
the Plan of Arrangement or approve or recommend, or propose
publicly to approve or recommend, a Telepanel Competing
Transaction.
(iv) ERS may, in its sole discretion, prior to the
holding of the Telepanel Shareholders Meeting, amend the terms of
the Plan of Arrangement to increase the consideration payable to
Telepanel's shareholders pursuant thereto, by delivering such
amended Plan of Arrangement to Telepanel before the holding of the
Telepanel Shareholders Meeting, provided that such amendment shall
not materially delay the consummation of the Arrangement.
(c) From and after the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement
in accordance with its terms, ERS and the ERS Subsidiaries shall
not, and shall use their best efforts to see that their respective
directors do not, and shall not permit their respective officers,
employees, representatives, investment bankers, agents and
affiliates to, directly or indirectly: (i) solicit, initiate or
engage in discussions or negotiations with any person, encourage
submission of any inquiries, proposals or offers by, or take any
other action intended or designed to facilitate the efforts of any
person, other than Telepanel, relating to the possible acquisition
of, or business combination with, ERS or any of the ERS
Subsidiaries (whether by way of merger, consolidation, takeover
bid, tender offer, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or
assets, wherein such acquisition or combination could reasonably be
expected to materially impede, interfere with, prevent or delay the
Arrangement or the transactions contemplated by this Agreement or
which could reasonably be expected to materially reduce the
benefits to Telepanel of the Arrangement or the transactions
contemplated by this Agreement (with any such efforts by any such
person, including a firm proposal to make such an acquisition or
combination, to be referred to as an "ERS Competing Transaction");
(ii) provide non-public information with respect to ERS or any of
the ERS Subsidiaries, or afford any access to the properties, books
or records of ERS or the ERS Subsidiaries, to any person, other
than Telepanel, relating to a possible ERS Competing Transaction by
any person other than Telepanel; (iii) make or authorize any
statement, recommendation or solicitation in support of any
possible ERS Competing Transaction by any person, other than by
Telepanel; or (iv) enter into an agreement with any person, other
than Telepanel, providing for a possible ERS Competing Transaction.
ERS, the ERS Subsidiaries, and their respective directors,
officers, employees, representatives, investment bankers, agents
and affiliates, shall immediately cease any and all existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(d) (i) Notwithstanding the foregoing, if at any time after
the date of this Agreement and prior to the date of the ERS
Stockholders' Meeting, the ERS Board determines in good faith,
acting reasonably, and after consultation with counsel, that it is
necessary to do so in order to comply with its fiduciary duties to
ERS stockholders, ERS may, in response to an ERS Superior Proposal
(as hereinafter defined) which was not solicited by it or which did
not otherwise result from a breach of Section 4.9(c) and subject to
providing prior written notice of its decision to take such action
to Telepanel (the "ERS Notice") and compliance with subparagraph
(ii) immediately succeeding, (x) furnish information with respect
to ERS and the ERS Subsidiaries to any person making an ERS
Superior Proposal pursuant to a customary confidentiality agreement
and (y) participate in discussions (but not negotiations) to
clarify the terms of such ERS Superior Proposal; provided, however,
that neither ERS nor the ERS Board nor any committee thereof shall:
(x) withdraw or modify, or propose publicly to withdraw or modify,
in a manner adverse to Telepanel, the approval or recommendation by
the ERS Board or such committee of this Agreement or the Plan of
Arrangement; (y) approve or recommend, or propose publicly to
approve or recommend, any ERS Competing Transaction, other than by
Telepanel; or (z) cause ERS to enter into any letter of intent,
agreement-in-principle, acquisition agreement or any other similar
agreements (each an "ERS Acquisition Agreement") related to any ERS
Competing Transaction, other than with Telepanel. For the purposes
of this Agreement, an "ERS Superior Proposal" means any formal
proposal made by a third party to acquire, directly or indirectly,
all of the ERS Common Stock then outstanding or all or sub-
stantially all of the assets of ERS or with respect to any merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving ERS, in each case
wherein such acquisition or other transaction could reasonably be
expected to materially impede, interfere with, prevent or delay the
Arrangement or the transactions contemplated by this Agreement or
which could reasonably be expected to materially reduce the
benefits to Telepanel of the Arrangement or the transactions
contemplated by this Agreement, and otherwise on terms which the
ERS Board determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation)
to be materially more favorable to ERS stockholders than the
combination contemplated by this Agreement and for which financing,
to the extent required, is then committed or which, in the good
faith judgment of the ERS Board, is reasonably capable of being
obtained by such third party. ERS shall be permitted to deliver
only one ERS Notice with respect to each person making an ERS
Superior Proposal.
(ii) In addition to the obligations of ERS set forth in
paragraphs (c) and (d)(i) of this Section 4.9, ERS shall
immediately advise Telepanel orally and in writing of any requests
for any information or of any ERS Competing Transaction, other than
by Telepanel, the material terms and conditions of such request or
ERS Competing Transaction and the identity of the person making
such request or ERS Competing Transaction. ERS will keep Telepanel
reasonably informed of the status and details (including amendments
or proposed amendments) of any such request or ERS Competing
Transaction, other than with Telepanel.
(iii) Nothing contained in Paragraph (c) of Section 4.9 shall
prohibit ERS from making any disclosure to ERS' stockholders if, in
the good faith judgment of the ERS Board, after consultation with
outside counsel, failure so to disclose would violate its
obligations under applicable law; provided, however, that neither
ERS nor the ERS Board nor any committee thereof shall withdraw or
modify, or propose publicly to withdraw or modify, its position
with respect to this Agreement or the Plan of Arrangement or
approve or recommend, or propose publicly to approve or recommend,
an ERS Competing Transaction, other than with Telepanel.
4.10 Pooling.
Neither Telepanel nor ERS will take or agree to take any
action that it has reason to believe would prevent ERS from
accounting for the business combination to be effected by the
Arrangement as a "pooling of interests" under U.S. GAAP or Rule 1-
02 of Regulation S-X of the SEC.
4.11 Notification of Certain Matters;
Interim Financial Statements.
(a) Between the date hereof and the Effective Time, each
party will give prompt notice in writing to the other party, of:
(i) the occurrence, or failure to occur, of any event, which
occurrence or failure would be likely to cause any of its
representations or warranties contained in this Agreement to be
untrue or inaccurate in any material respect from the date hereof
to the Effective Time, (ii) any notice or other communication from
any person alleging that the consent of such person is or may be
required in connection with the transactions contemplated by this
Agreement, (iii) any notice or other communication from any
Governmental Entity in connection with the transactions
contemplated by this Agreement, (iv) any actions, suits, claims,
investigations or proceedings commenced or, to the best of its
knowledge, threatened against the notifying party or any subsidiary
or relating to or involving or otherwise affecting the notifying
party or which relate to the consummation of the transactions
contemplated by this Agreement, and (v) any material failure of the
notifying party or any officer, director, employee or agent thereof
to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder. The giving of any
such notice under this Section 4.11 shall in no way change or
modify the representations and warranties or the conditions to
either party's obligations contained herein or otherwise affect the
remedies available to either party hereunder.
(b) Within 45 days after the end of each calendar quarter
after the date of this Agreement, Telepanel will deliver to ERS
unaudited consolidated statements of income for such calendar
quarter and the corresponding calendar quarter of the preceding
fiscal year. All such financial statements shall be true and
correct in accordance with Canadian GAAP consistently applied and
shall fairly present, in conformity with such principles as so
utilized, the consolidated financial position, results of
operations and cash flows of Telepanel as at the date or for the
periods indicated (and shall be accompanied by a certificate of the
chief financial or accounting officer of Telepanel to such effect),
except as otherwise indicated in such statements and subject to
normal and recurring year-end audit adjustments which would not,
individually or in the aggregate, have a Material Adverse Effect on
Telepanel. All unaudited financial statements delivered pursuant to
this Paragraph (b) shall be prepared on a basis consistent with the
unaudited consolidated financial statements of Telepanel referenced
under Section 2.4(c).
4.12 Indemnification.
(a) ERS agrees that all rights to indemnification or
exculpation now existing in favor of the directors or officers (the
"Indemnified Parties") of Telepanel or any Telepanel Subsidiary as
provided in its articles of incorporation or by-laws, a copy of
which has been provided to ERS prior to the date of the execution
of this Agreement, in effect on the date hereof shall survive the
Arrangement and shall continue in full force and effect for a
period of not less than six years from the Effective Time.
(b) Telepanel shall use its best efforts to obtain a
commitment for coverage with respect to matters occurring prior to
the Effective Time, such coverage to become effective at the
Effective Time and remain in effect for not less than one year from
the Effective Time, and be substantially equivalent to that in
effect under the current policies of the directors' and officers'
liability insurance maintained by Telepanel, and which is not
materially less advantageous, and with no gaps or lapses in
coverages (hereinafter referred to as the "Initial Coverage"). The
cost of such insurance shall be consistent with the amount set
forth in the memorandum dated October 1, 1997 furnished by
Telepanel to ERS; and, subject to the foregoing, ERS shall, prior
to the expiration of such commitment, pay the premium for such
insurance so as to obtain such coverage effective at the Effective
Time, such amount to be refundable to ERS in the event this
Agreement terminates prior to Closing. ERS shall further use its
best efforts to obtain coverage with respect to matters occurring
prior to the Effective Time, such coverage to become effective upon
the expiration of the Initial Coverage and remain in effect for not
less than five years thereafter, and be substantially equivalent to
that in effect under the current policies of the directors' and
officers' liability insurance maintained by Telepanel, and which is
not materially less advantageous, and with no gaps or lapses in
coverage.
4.13 Closing; Listing.
The parties shall regularly communicate and consult with each
other with respect to the fulfillment of the various conditions to
the obligations under this Agreement of the parties hereto. Subject
to the termination of this Agreement as provided in Article 8, the
closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of ERS, 000 Xxxx Xxxxxx,
Xxxxxxx, Xxxxxxxxxxx on a date (the "Closing Date") and at a time
to be mutually agreed upon by the parties, which date shall be no
later than ten business days after all conditions to Closing set
forth herein shall have been satisfied or waived (other than
conditions with respect to actions the parties shall take at
Closing). Concurrently with the Closing, the Plan of Arrangement
will be filed with the Director under the CBCA. ERS will use its
best efforts to cause the shares of ERS Common Stock issuable from
time to time upon exchange of the Exchangeable Shares to be listed
at the Effective Time on Nasdaq. Telepanel will use its best
efforts to cause the Exchangeable Shares to be listed at the
Effective Time on the TSE.
4.14 Continued Telepanel Operations.
ERS does not presently have any plan or intention to liquidate
Telepanel, to merge Telepanel with or into another corporation, or
to sell or otherwise dispose of any of the stock of Telepanel
(whether acquired pursuant to the Arrangement or pursuant to the
exchange of any shares of Telepanel stock for shares of ERS stock).
4.15 Governance.
(a) Board of Directors.
(i) ERS shall take such action as may be necessary so that the
ERS Board of Directors will be expanded at the Effective Time
pursuant to ERS' By-Laws, amended as contemplated by Section 5.10
hereof, to include the following nine members: (x) five members
designated by ERS prior to the filing with the SEC of the
preliminary Joint Proxy Statement from among the incumbent members
of the ERS Board (the "ERS Group"); three members designated by
Telepanel prior to the filing with the SEC of the preliminary Joint
Proxy Statement from among the incumbent members of the Telepanel
Board (the "Telepanel Group"; each of the ERS Group and the
Telepanel Group referred to as a "Group") and an additional
director (the "Additional Director"), who shall be a person with
operating expertise and be mutually acceptable to ERS and Telepanel
and shall have been designated by both ERS and Telepanel prior to
the mailing of the Joint Proxy Statement to the stockholders of
either party (all such directors, referred to as the "Closing
Directors"). During the period from the Effective Time until the
second anniversary thereof (the "Term"), ERS shall nominate and
recommend for re-election to the ERS Board of Directors, upon
expiration of their terms, the Closing Directors. If during the
Term any director included in a Group resigns or is unable to serve
for any reason, such vacancy shall be filled with a designee chosen
by the remaining members of that director's Group and thereafter
ERS shall nominate and recommend such designee for election to the
ERS Board of Directors as provided in the immediately preceding
sentence and such director shall be deemed a member of such Group.
If during the Term the Additional Director resigns or is unable to
serve for any reason, such vacancy shall be filled by action of the
ERS Board and thereafter ERS shall nominate and recommend such
successor for election to the ERS Board as hereinabove provided.
(ii) ERS shall take such action as shall be necessary so
that, at the Effective Time, it will be governed by the provisions
set forth below:
(A) the following new section shall be added after
Section 12 of Article IV of ERS' By-Laws:
"Section 13. Approval of Certain Actions. Notwith-
standing the provisions contained in Section 8 of this Article
IV (and without limiting any provision contained in Section 9
of this Article IV), until the second anniversary of the
Closing Date the affirmative vote of at least two-thirds of
the Directors then serving, at a meeting at which a quorum is
present, shall be required to authorize the following acts of
the Board of Directors:
(a) appointment of a principal executive officer of
the Corporation under Section 1 of Article V; and
(b) any fundamental change in the business of the
Corporation and its subsidiaries, taken as a whole, from
the business conducted thereby on the Closing Date and
any business related, ancillary or complementary thereto
and any business utilizing any technology, know-how,
patents, processes, copyrights or other intellectual
property now or hereafter developed thereby."
; and
(B) Article XIV of ERS' By-Laws shall be amended to read
as follows:
"ARTICLE XIV
AMENDMENTS
Subject to the provisions of the Certificate of
Incorporation, these By-Laws may be altered, amended or
repealed or new By-Laws may be adopted by the stockholders or
by the Board of Directors at any regular meeting of the
stockholders or of the Board of Directors or at any special
meeting of the stockholders or of the Board of Directors;
provided, however, that until the second anniversary of
Closing (as defined in the Combination Agreement dated October
29, 1997 [the "Combination Agreement"] between the Corporation
and Telepanel Systems, Inc.), the size of the Board of
Directors, as set forth in Section 1 of Article IV, and the
provisions of Section 13 of Article IV, may only be amended by
the affirmative vote of at least two-thirds of the Board of
Directors or by a vote of the Corporation's stockholders
holding and voting in favor thereof a majority of the voting
power of the shares of the Corporation entitled to vote
thereon, at any annual stockholders' meeting or at any special
stockholders' meeting."
(b) Senior Management Structure.
(i) ERS shall take such action as shall be necessary so that,
at the Effective Time, the following Article IVA shall be added
after Article IV of ERS' By-Laws:
"ARTICLE IVA
CORPORATE EXECUTIVE COMMITTEE
There shall be a Corporate Executive Committee, which
shall consist of the Chairman of the Board and each Vice
Chairman of the Board, and such other officers of the
Corporation as may from time to time be determined by the
Board of Directors. The Corporate Executive Committee, under
the direction of the Board of Directors, shall have general
and active management of the business of the Corporation,
shall see that all orders and resolutions of the Board of
Directors are carried into effect and, as a body, shall
exercise the principal executive authority of the Corporation.
All decisions of the Corporate Executive Committee shall
require the concurrence of a majority of its members."
(ii) ERS shall take such action as may be necessary so that,
at the Effective Time, Norton Xxxxxxxxx, Xxxxx X. Failing, Jr. and
Xxxxxxxxxxx Xxxxxxx shall be appointed to the three-person
Corporate Executive Committee of the Board of Directors established
in accordance with and subject to the provisions of the By-Laws of
ERS, amended as contemplated under Section 5.10 hereof.
(iii) ERS shall take such action as may be necessary so that,
at the Effective Time, Norton Xxxxxxxxx shall be appointed to the
office of Chairman of the Board of ERS, Xxxxx X. Failing, Jr. shall
be appointed to the office of Vice Chairman of the Board,
Xxxxxxxxxxx Xxxxxxx shall be appointed to the office of Vice
Chairman of the Board and Xxxxxxx Xxxxxx shall be appointed to the
office of Executive Vice President-Chief Operating Officer of ERS,
in accordance with and subject to the provisions of the By-Laws of
ERS, amended as contemplated under Section 5.10 hereof.
4.16 Installation Representation.
Subsequent to the date hereof, ERS and Telepanel shall use
their best efforts to enter into an agreement on or prior to
November 30, 1997, upon terms commercially reasonable to each,
pursuant to which ERS shall represent Telepanel in connection with
installation of Telepanel electronic shelf label systems in the
United States, without limitation containing such reasonable
provisions as shall address the anticipated working capital needs
of Telepanel in connection therewith in an amount up to U.S.
$4,000,000, until the earlier of closing or termination of this
Agreement.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligations of each of Telepanel and ERS to consummate the
Arrangement are subject to the fulfillment or satisfaction on or
before Closing, of each of the following conditions (any one or
more of which may be waived by such party, but only in a writing
signed by such party):
5.1 Compliance with Law.
There shall be no order, decree or ruling by any governmental
agency or threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Arrangement,
which would prohibit or render illegal the transactions
contemplated by this Agreement.
5.2 Government Consents.
There shall have been obtained on or before the Closing such
material permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Arrangement
by any regulatory authority having jurisdiction over the parties
and the actions herein proposed to be taken, including but not
limited to requirements under applicable federal, provincial and
state securities laws and the compliance with, and expiration or
termination of any applicable waiting period under the HSR Act.
5.3 SEC Filings.
The Registration Statement, if filed, shall have been declared
effective under the Securities Act prior to the first date on which
the Joint Proxy Statement is mailed to stockholders (or, if a shelf
Registration Statement is required by the SEC, the shelf
Registration Statement shall have been declared effective under the
Securities Act effective on or before the Effective Date) and, at
or prior to the time required, any approvals of state or provincial
securities administrators shall have been obtained; at the Closing
the Registration Statement shall not be the subject of any
stop-order or proceedings seeking a stop-order or similar
restraining order; and the Joint Proxy Statement shall at the
Closing not be subject to any similar proceedings commenced or
threatened by the SEC or the OSC.
5.4 Shareholder Approval.
This Agreement and the Arrangement shall have been approved
and adopted by the Telepanel shareholders in accordance with the
rules of the TSE and Nasdaq, applicable law and Telepanel's
articles of incorporation and bylaws; and the Agreement and the
Arrangement and the ERS Charter Changes shall have been approved
and adopted by the ERS stockholders in accordance with the rules of
Nasdaq, AIM, applicable law and ERS' certificate of incorporation
and by-laws.
5.5 No Legal Action.
No temporary restraining order, preliminary injunction or
permanent injunction or other order preventing the consummation of
the Arrangement shall have been issued by any Canadian or U.S.
federal, provincial or state court or any foreign court or tribunal
and remain in effect, nor shall any proceeding be pending or
threatened which is reasonably likely to result in any of the
foregoing.
5.6 Tax Opinion.
Telepanel shall have received (i) an opinion reasonably
satisfactory to Telepanel and to ERS of Tory Xxxx XxxXxxxxxxx &
Xxxxxxxxxx, counsel for Telepanel, to the effect that the
Arrangement will be generally treated for Canadian federal income
tax purposes as a reorganization of capital for purposes of section
86 of the ITA for those Telepanel shareholders who hold their
Telepanel Common Shares as capital property for purposes of the ITA
to the extent that Exchangeable Shares are received in exchange for
Telepanel Common Shares, and such other tax opinions as are
customary in these transactions and (ii) an opinion reasonably
satisfactory to Telepanel and to ERS from Cravath, Swaine & Xxxxx,
U.S. special counsel for Telepanel, to the effect that, although
not free from doubt, the Arrangement should generally be treated
for U.S. federal income tax purposes as a tax-free reorganization
under section 368 of the Code.
5.7 Pooling Opinion.
ERS shall have received from Price Waterhouse LLP an opinion,
in form and substance reasonably satisfactory to Telepanel and ERS,
that the Arrangement will be treated as a "pooling of interests"
for purposes of U.S. GAAP.
5.8 Court Approval.
The Court shall have issued its final order approving the
Arrangement and such order shall (a) not impose any material
conditions or costs, (b) be in form and substance reasonably
satisfactory to ERS and Telepanel (such approvals not to be
unreasonably withheld or delayed by ERS or Telepanel) and (c)
reflect the terms hereof.
5.9 OSC, Etc.
All necessary orders shall have been obtained from the OSC and
other relevant Canadian securities regulatory authorities in
connection with the Arrangement.
5.10 Appointment to ERS Board; ERS Charter Changes;
ERS By-Law Amendments.
ERS shall have filed with the Secretary of State of Delaware
a certificate of amendment to its Certificate of Incorporation
pursuant to the DGCL, effective on the Effective Date, setting
forth the ERS Charter Changes. The amendments to ERS' by-laws in
the form thereof attached hereto as Exhibit 5.10 shall have been
adopted by the Board of Directors of ERS, and the restructuring of
the ERS Board and management provided for in Section 4.15 shall be
effected, in each case effective on the Effective Date.
5.11 High Yield Bonds.
All modifications of, or waivers or consents under or in
connection with, ERS' Senior Discount Notes due 2004 (the "ERS
Notes") and the ERS Indenture necessary in order to consummate the
transactions contemplated hereby, and after the Effective Time to
permit Telepanel to perform its obligations under the Adjusted
Telepanel Options, the Adjusted Telepanel Warrants and the Adjusted
Telepanel Convertible Securities and (unless waived by ERS) after
the Effective Time to permit prepayment of any liabilities of
Telepanel or the Telepanel Subsidiaries existing at the Effective
Time, in each case under this Section 5.11 as if Telepanel and each
of the Telepanel Subsidiaries were a "Restricted Subsidiary" under
the ERS Indenture and as if Telepanel Europe S.A. ("Telepanel
Europe") were also a "Joint Venture" thereunder, shall have been
effected or obtained (and in a manner so that neither Telepanel nor
any Telepanel Subsidiary shall be obligated to become a guarantor
under the ERS Indenture).
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF TELEPANEL
The obligations of Telepanel to consummate the Arrangement are
subject to the fulfillment or satisfaction on or before the
Closing, of each of the following conditions (any one or more of
which may be waived by Telepanel, but only in a writing signed by
Telepanel):
6.1 Accuracy of Representations and Warranties.
The representations and warranties of ERS set forth in Article
3 shall be true and accurate in all material respects when made and
on and as of the Closing Date with the same force and effect as if
they had been made at the Closing (except for representations and
warranties which are as of a specific date or which relate to a
specific period other than or not including the Closing Date, as
the case may be, and except for changes therein contemplated or
permitted by this Agreement and provided, however, that if any such
representation or warranty is already qualified by materiality, for
purposes of determining whether this condition has been satisfied,
such representation or warranty must be true and accurate; and
Telepanel shall receive a certificate to such effect executed by
ERS's Chairman or Chief Executive Officer and its Chief Financial
Officer.
6.2 Covenants.
ERS shall have performed and complied in all material respects
with all of its covenants required to be performed by it under this
Agreement and the Plan of Arrangement on or before Closing, and
Telepanel shall receive a certificate to such effect signed by
ERS's Chairman or Chief Executive Officer and its Chief Financial
Officer.
6.3 Absence of Material Adverse Effect.
Since the date of this Agreement, there shall not have been
one or more events or changes that has had or would be reasonably
likely to have a Material Adverse Effect on ERS.
6.4 Certified Resolutions.
Telepanel shall have received a certificate of the Secretary
or an Assistant Secretary of ERS, in form and substance reasonably
satisfactory to Telepanel, with respect to the authorization by its
board of directors and stockholders of the execution and delivery
of this Agreement and the consummation of the transactions
contemplated herein, the number of authorized shares of ERS Common
Stock as of the Closing Date, the number of issued and outstanding,
fully-paid and non-assessable shares of the capital stock of ERS as
of such date, and the number of shares of ERS Common Stock subject
to issuance upon exercise of options and warrants, convertible
securities and similar obligations on such date.
6.5 Third Party Consents.
All notices to, and declarations, filings and registrations
with, and consents, authorizations, approvals and waivers from,
governmental and regulatory bodies required to consummate the
transactions contemplated hereby shall have been made or obtained,
and all other notices, consents or waivers with respect to the
transactions contemplated by this Agreement, identified in Section
2.3(b) of the Telepanel Disclosure Letter or in Section 3.3(b) of
the ERS Disclosure Letter or the failure to obtain which would have
a Material Adverse Effect on Telepanel or on ERS, shall have been
made or obtained.
6.6 FIRPTA.
Telepanel shall have received from ERS a certification
complying with the Code and the regulations thereunder, in form and
substance reasonably satisfactory to Telepanel, duly executed and
acknowledged, certifying that an interest in ERS does not
constitute a "United States real property interest" within the
meaning of Section 897 of the Code.
6.7 Letter of ERS' Accountants.
Telepanel shall have received a letter of Price Waterhouse
LLP, ERS' independent auditors, dated the Closing Date, addressed
to Telepanel, in form and substance reasonably satisfactory to
Telepanel, making the statements required by Section 4.4(c), on the
basis of procedures set forth therein carried out by them not more
than three business days prior to the Closing Date.
6.8 Other Certificates.
Telepanel shall have received such additional certificates,
instruments and other documents, in form and substance reasonably
satisfactory to Telepanel, as Telepanel shall have reasonably
requested in connection with compliance with the conditions set
forth in this Agreement.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF ERS
The obligations of ERS to consummate the Arrangements are
subject to the fulfillment or satisfaction on or before the
Closing, of each of the following conditions (any one or more of
which may be waived by ERS, but only in a writing signed by ERS):
7.1 Accuracy of Representations and Warranties.
The representations and warranties of Telepanel set forth in
Article 2 shall be true and accurate in all material respects when
made and on and as of the Closing Date with the same force and
effect as if they had been made at the Closing (except for
representations and warranties which are as of a specific date or
which relate to a specific period other than or not including the
Closing Date, as the case may be, and except for changes therein
contemplated or permitted by this Agreement and provided, however,
that if any such representation or warranty is already qualified by
materiality, for purposes of determining whether this condition has
been satisfied, such representation or warranty must be true and
accurate, except to the extent the failure of such representations
and warranties to be true and accurate has not had and would not be
reasonably likely to have a Material Adverse Effect on Telepanel;
and ERS shall receive a certificate to such effect executed by
Telepanel's Chief Executive Officer and Chief Financial Officer.
7.2 Covenants.
Telepanel shall have performed and complied in all material
respects with all of its covenants required to be performed by it
under this Agreement and the Plan of Arrangement on or before the
Closing, and ERS shall receive a certificate to such effect signed
by Telepanel's Chief Executive Officer and Chief Financial Officer.
7.3 Absence of Material Adverse Change.
Since the date of this Agreement, there shall not have been
one or more events or changes that has had or would be reasonably
likely to have a Material Adverse Effect on Telepanel.
7.4 Dissenting Shares.
Telepanel shall not have received on or prior to the Effective
Time notice from the holders of more than eight percent of the
Telepanel Common Shares of their intention to exercise their rights
of dissent under section 190 of the CBCA.
7.5 Affiliate Agreements.
ERS shall have received executed originals of Telepanel
Affiliate Agreements from each officer and director of Telepanel
and each other holder of securities of Telepanel who, in the
opinion of counsel for ERS, may be an Affiliate.
7.6 Certified Resolutions; Capitalization.
(a) ERS shall have received a certificate of the Secretary or
an Assistant Secretary of Telepanel in form and substance
reasonably satisfactory to ERS, with respect to the authorization
by the board of directors and the stockholders of Telepanel of the
execution and delivery of this Agreement and the consummation of
the transactions contemplated herein, the number of authorized
Telepanel Common Shares as of the Closing Date, the number of
issued and outstanding, fully paid and non-assessable shares of the
capital stock of Telepanel as of such date, and the number of
Telepanel Common Shares subject to issuance upon exercise of the
Telepanel Options and the Telepanel Warrants and Telepanel
convertible securities or similar obligations on such date.
(b) ERS shall have received assurances, reasonably
satisfactory to it, that at and after the Effective Time, there
shall not exist any security, option, warrant, right, put, call,
subscription, agreement, commitment, understanding or claim of any
kind, fixed or contingent (including the Telepanel Options and the
Telepanel Warrants and the Telepanel Convertible Securities), that
directly or indirectly calls for Telepanel or any of the Telepanel
Subsidiaries to acquire, issue, deliver or sell, or to cause to be
acquired, issued, delivered or sold, any shares of the capital
stock of or equity interest in Telepanel or any Telepanel
Subsidiary or obligating Telepanel or any Telepanel Subsidiary to
grant, extend or enter into any of the foregoing (in each case
other than the rights of the holders of Exchangeable Shares
pursuant to the Arrangement).
7.7 Third Party Consents.
All notices to, and declarations, filings and registrations
with, and consents, authorizations, approvals and waivers from,
governmental and regulatory bodies required to consummate the
transactions contemplated hereby shall have been made or obtained,
and all other notices, consents or waivers with respect to the
transactions contemplated by this Agreement, identified in Section
2.3(b) of the Telepanel Disclosure Letter or in Section 3.3(b) of
the ERS Disclosure Letter or the failure to obtain which would have
a Material Adverse Effect on Telepanel or on ERS, or otherwise to
change the fiscal year end of Telepanel and any of the Telepanel
Subsidiaries in such manner as shall be determined by ERS, shall
have been made or obtained.
7.8 Resignations.
ERS shall have received the resignations of all such officers
and directors of Telepanel and each Telepanel Subsidiary requested
by it or all such officers and directors have ceased to hold
office.
7.9 Letter of Accountants for Telepanel.
ERS shall have received a letter of Price Waterhouse,
Chartered Accountants, Telepanel's independent auditors, dated the
Closing Date, addressed to ERS, in form and substance reasonably
satisfactory to ERS, making the statements required by Section
4.4(b) on the basis of procedures set forth therein carried out by
them, respectively, not more than three business days prior to the
Closing Date.
7.10 Relief from Telepanel Reporting Obligations.
Orders or rulings shall have been obtained, on terms at least
as favorable to the parties as those customarily obtained in
transactions similar to the Arrangement, which relieve Telepanel,
following the Effective Time, of ongoing filing and reporting
obligations under the Securities Act (Ontario) and other relevant
Canadian securities laws on condition that ERS file with the OSC
and other relevant Canadian securities regulatory authorities
copies of its reports and filings made in accordance with
applicable United States securities laws and otherwise on
conditions acceptable to ERS, acting reasonably.
7.11 Telepanel Europe.
Insofar as exercisable as a result of the Arrangement and the
transactions contemplated hereby, all rights under the Telepanel
Europe Put Option shall have been exercised and settled or shall
have expired, and all rights under Section 10.2 of the Telepanel
Europe Incorporation Agreement, if any, shall have been waived, and
all rights under Section 5 of the Telepanel Europe Shareholders
Agreement, if any, shall have been waived; and, subject to the
commitment by ERS to reserve a sufficient number of shares of ERS
Common Stock for issuance upon exchange of such Exchangeable
Shares, each of the Telepanel Europe Put Option and all
counterparts of the Call Option relating to Telepanel Europe shall
have been appropriately amended, upon such terms and subject to
such conditions as shall be reasonably satisfactory to ERS, so
that, for purposes of calculation of the "price/earnings ratio"
thereunder, references to the promisor shall be deemed references
to ERS, and, for purposes of settlement following the exercise of
any option thereunder, references to common stock of the promisor
shall be deemed references to ERS Common Stock.
7.12 Certain Adjustments.
All adjustments in the terms of the Telepanel Options, the
Telepanel Warrants and the Telepanel Convertible Securities, solely
in accordance with the terms thereof in effect on the date hereof
or prior to the Effective Time, reasonably requested by ERS, shall
have been effected.
7.13 Other Certificates.
ERS shall have received such additional certificates,
instruments and other documents, in form and substance reasonably
satisfactory to ERS, as it shall have reasonably requested in
connection with compliance with the conditions set forth in this
Agreement.
ARTICLE 8
TERMINATION OF AGREEMENT
8.1 Termination.
This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Arrangement
by the stockholders of ERS or shareholders of Telepanel:
(a) by mutual agreement of Telepanel and ERS;
(b) by Telepanel, if there has been a breach by ERS in any
material respect of any representation, warranty, covenant or
agreement set forth in this Agreement on the part of ERS and which
ERS fails to cure within 15 business days after written notice
thereof from Telepanel (except that no cure period shall be
provided for a breach by ERS which by its nature cannot be cured),
or if any representation of ERS shall not be true in all material
respects as of the Effective Time (with such exceptions therein as
are permitted by Section 6.1 hereof);
(c) by ERS, if there has been a breach by Telepanel in any
material respect of any representation, warranty, covenant or
agreement set forth in this Agreement on the part of Telepanel and
which Telepanel fails to cure within 15 business days after written
notice thereof from ERS (except that no cure period shall be
provided for a breach by Telepanel which by its nature cannot be
cured), or if any representation of Telepanel shall not be true in
all material respects as of the Effective Time (with such
exceptions therein as are permitted by Section 7.1 hereof);
(d) by either party (provided that such party is not then in
breach of this Agreement) if the shareholders of Telepanel do not
approve the Arrangement at the Telepanel Shareholders Meeting or
the stockholders of ERS do not approve at the ERS Stockholders
Meeting this Agreement and the ERS Charter Changes;
(e) by either Telepanel or ERS, if all the conditions for
Closing the Arrangement shall not have been satisfied or waived and
the Closing shall not have occurred on or before 5:00 p.m. New York
time on May 31, 1998, other than as a result of a breach of this
Agreement by the terminating party or a breach by any of the
Affiliates of the Affiliate Agreements referred to in Section 4.3;
or
(f) by either party, if a permanent injunction or other order
by any U.S. or Canadian federal, provincial or state court shall
have been issued and shall have become final and nonappealable
which would make illegal or otherwise restrain or prohibit the
consummation of the Arrangement.
8.2 Notice of Termination.
Any termination of this Agreement under Section 8.1 above will
be effective by the delivery of written notice by the terminating
party to the other party hereto.
8.3 Effect of Termination.
In the case of any termination of this Agreement as provided
in this Article 8, this Agreement shall be of no further force and
effect (except as provided in Section 8.4 or in Article 10) and
nothing herein shall relieve any party from liability for any
breach of this Agreement. No termination of this Agreement shall
affect the obligations contained in the separate Confidentiality
Agreement dated August 6, 1997 between Telepanel and ERS (the
"Confidentiality Agreement").
8.4 Subsequent Payments.
(a) If this Agreement is terminated pursuant to this Article
8 (other than under Sections 8.1(a) or (b), and except if the ERS
stockholders have disapproved the Agreement and the ERS Charter
Changes), and within six months after termination Telepanel
consummates a Telepanel Competing Transaction which was the subject
of a Telepanel Notice, other than with ERS, or Telepanel enters
into a Telepanel Acquisition Agreement relating to a Telepanel
Competing Transaction which was the subject of a Telepanel Notice,
other than with ERS, and such transaction is within such period or
thereafter consummated, Telepanel shall, upon consummation, cause
any third party with whom it has consummated such Telepanel
Competing Transaction to pay to ERS (by wire transfer in
immediately available funds) the sum of:
(x) an amount equal to 5% of the consideration that
would have been payable to Telepanel and its shareholders
under this Agreement; plus
(y) the aggregate out-of-pocket expenses paid or payable
by ERS in connection with this Agreement and the transactions
contemplated hereby.
(b) If this Agreement is terminated pursuant to this Article
8 (other than under Sections 8.1(a) or (c), and except if the
Telepanel shareholders have disapproved the Arrangement), and
within six months after termination ERS consummates an ERS
Competing Transaction which was the subject of an ERS Notice, other
than with Telepanel, or ERS enters into an ERS Acquisition
Agreement relating to an ERS Competing Transaction which was the
subject of an ERS Notice, other than with Telepanel, and such
transaction is within such period or thereafter consummated, ERS
shall, upon consummation, cause any third party with whom it has
consummated such ERS Competing Transaction to pay to Telepanel (by
wire transfer in immediately available funds) the sum of:
(x) an amount equal to 5% of the consideration that
would have been payable to the Telepanel shareholders under
this Agreement; plus
(y) the aggregate out-of-pocket expenses paid or payable
by Telepanel in connection with this Agreement and the
transactions contemplated hereby.
(c) For purposes of this Section 8.4, the aggregate
consideration that would have been payable to the Telepanel
shareholders under this Agreement shall be calculated as the
product obtained by multiplying: (A) the product obtained by
multiplying (i) number of Telepanel Common Shares outstanding upon
termination of this Agreement by (ii) the number of Exchangeable
Shares exchangeable for each Telepanel Common Share pursuant to the
Exchange Ratio; by (B) the Current Market Price (as defined in the
Voting, Support and Exchange Trust Agreement) in respect of a share
of ERS Common Stock on the date of termination of this Agreement.
(d) Telepanel and ERS agree that, in view of the nature of
the issues likely to arise in the event of termination in the
circumstances described in this Section 8.4, it would be
impracticable or extremely difficult to fix the actual damages
resulting from such termination and proving actual damages,
causation and foreseeability in the case of such termination would
be costly, inconvenient and difficult. In requiring payment of the
amounts as set forth herein, it is the intent of the parties to
provide, as of the date of this Agreement, for a liquidated amount
of damages. Such liquidated amount shall be deemed full and
adequate damages for such termination and is not intended by either
party to be a penalty.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS
All representations, warranties and covenants of the parties
contained in this Agreement will remain operative and in full force
and effect, regardless of any investigation made by or on behalf of
the parties to this Agreement, until the earlier of the termination
of this Agreement or the Effective Time, whereupon such
representations, warranties and covenants will expire (except for
covenants that by their terms survive for a longer period).
ARTICLE 10
MISCELLANEOUS
10.1 Governing Law.
The internal laws of the State of New York (irrespective of
its choice of law principles) will govern the validity of this
Agreement, the construction of its terms and the interpretation and
enforcement of the rights and duties of the parties hereto.
10.2 Assignment; Binding Upon Successors and Assigns.
Neither party may assign any of its rights or obligations
under this Agreement without the prior written consent of the other
party. This Agreement will be binding upon and inure to the benefit
of the parties and their respective successors and permitted
assigns.
10.3 Severability.
If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of
such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties.
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 greatest extent possible, the economic,
business and other purposes of the void or unenforceable provision.
10.4 Counterparts.
This Agreement may be executed in any number of counterparts,
each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute
one and the same instrument. This Agreement will become binding
when one or more counterparts hereof, individually or taken
together, will bear the signatures of all the parties reflected
hereon as signatories.
10.5 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 other remedy conferred hereby or by
law on such party, and the exercise of any one remedy will not
preclude the exercise of any other. The parties each recognize that
any breach of the terms of this Agreement may give rise to
irreparable harm for which money damages would not be an adequate
remedy, and accordingly agree that, in addition to other remedies,
any non-breaching party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement
and to enforce the terms and provisions of this Agreement by a
decree of specific performance in any action instituted in any
court of the United States or Canada or any state or province
thereof having jurisdiction without the necessity of proving the
inadequacy as a remedy of money damages.
10.6 Amendment and Waivers.
Any term or provision of this Agreement may be amended, and
the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound
thereby. The waiver by a party of any breach hereof or default in
the performance hereof will not be deemed to constitute a waiver of
any other default or any succeeding breach or default. This
Agreement may be amended by the parties hereto at any time before
or after approval of the Telepanel shareholders or the ERS
stockholders, but, after such approval, no amendment will be made
which by applicable law requires the further approval of the
Telepanel shareholders or the ERS stockholders without obtaining
such further approval.
10.7 Expenses.
Each party will bear its respective expenses including legal
fees incurred with respect to this Agreement, and the transactions
contemplated hereby.
10.8 Notices.
All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if
contained in a written instrument and shall be deemed given if
delivered personally, telecopied or sent by nationally recognized
overnight courier to the parties at the following address (or at
such other address for a party as shall be specified by like
notice):
If to Telepanel: Telepanel Systems, Inc.
000 Xxxxxxx Xxxxx
Xxxxxxx, Xxxxxxx
Xxxxxx X0X SJ9
Attention: Xxxxxxxxxxx Xxxxxxx, President
Telecopy No: (000) 000-0000
With a copy to: Tory Xxxx XxxXxxxxxxx & Binnington
Suite 3000 Aetna Tower
P.O. Box 000
Xxxxxxx-Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx
Xxxxxx X0X 0X0
Attention: Xxxxx Xxxxxx and Xxxxxxxx Xxxxx
Telecopy No.: (000) 000-0000
and to: Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, X.X. 00000
Attention: Xxxxxxx X. Xxxxxx, Xx.
Telecopy No.: (000) 000-0000
If to ERS: Electronic Retailing Systems
International, Inc.
000 Xxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxx 00000
Attention: Norton Xxxxxxxxx
Chairman of the Board
Telecopy No.: (000) 000-0000
With a copy to: Krugman Xxxxxxxx & Xxxxxxxx LLP
Park 00-Xxxxx Xxxx Xxx
Xxxxxx Xxxxx, Xxx Xxxxxx 00000-0000
Attention: Xxxxxx Xxxxxx
Telecopy No.: (000) 000-0000
and to: Stikeman, Xxxxxxx
Commerce Court West
Suite 5300, P.O. Box 85
Toronto, Ontario
Canada M5L 1B9
Attention: Xxx Xxxxxxx
Telecopy No.: (000) 000-0000
All such notices and other communications shall be deemed to
be effective upon receipt by the party to whom given; provided that
any notice or other communication that is received other than
during regular business hours of the recipient shall be deemed to
have been given at the opening of business on the next business day
of the recipient.
10.9 Construction of Agreement.
This Agreement has been negotiated by each party and its
attorneys and the language will not be construed for or against
either party. A reference to a section or an exhibit will mean a
section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for
reference purposes only and will not in any manner limit the
construction of this Agreement, which will be considered as a
whole.
10.10 No Joint Venture.
Nothing contained in this Agreement will be deemed or
construed as creating a joint venture or partnership between any of
the parties. No party is by virtue of this Agreement authorized as
an agent, employee or legal representative of any other party. No
party will have the power to control the activities and operations
of any other and the status of each is, and at all times, will
continue to be, that of an independent contractor with respect to
the other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any
authority or relationship in contravention of this section.
10.11 Further Assurances.
Each party agrees to cooperate fully with the other party and
to execute such further instruments, documents and agreements and
to give such further written assurances as may be reasonably
requested by the other party to evidence and reflect the
transactions described in and contemplated by this Agreement and to
carry into effect the intents and purposes of this Agreement.
10.12 Absence of Third Party Beneficiary Rights.
No provision of this Agreement is intended, nor will any
provision be interpreted, to provide or create any third party
beneficiary right or any other right of any kind in any client,
customer, affiliate, stockholder or partner of any party or any
other person or entity except as specifically provided otherwise
herein and, except as so provided, all provisions of this Agreement
will be personal solely between the parties to this Agreement.
Anything contained herein to the contrary notwithstanding, the
Indemnified Parties are intended beneficiaries of Section 4.12
hereof.
10.13 Public Announcement.
Upon execution of this Agreement, ERS and Telepanel promptly
will issue a joint press release approved by both parties
announcing the Arrangement. Thereafter, any and all publicity, and
notices by the parties hereto to other parties (other than
Governmental Entities), concerning the Arrangement and the other
transactions contemplated by this Agreement shall be subject to the
prior approval of both parties, except that ERS or Telepanel may
issue such press releases, and make such other disclosures
regarding the Arrangement, as it determines in good faith (after
consultation with legal counsel) are required under applicable
securities laws or by the Nasdaq or the TSE or the AIM rules;
provided that to the extent reasonably practicable each party
making any such disclosure will provide advance notice to the other
of the form and content of any such disclosure and opportunity to
comment promptly thereon, and will in any case promptly deliver a
copy of such disclosure, in the form in which the disclosure was
released, to the other party.
10.14 Entire Agreement.
This Agreement and the exhibits constitute the entire
understanding and agreement of the parties with respect to the
subject matter and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or
implied, written or oral, between the parties with respect to the
subject matter other than the Confidentiality Agreement, which
shall remain in full force and effect. The express terms of this
Agreement control and supersede any course of performance or usage
of the trade inconsistent with any of the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Combination Agreement as of the date first above written in the
City of Xxx Xxxx, Xxxxx xx Xxx Xxxx, Xxxxxx Xxxxxx of America.
ELECTRONIC RETAILING SYSTEMS TELEPANEL SYSTEMS INC.
INTERNATIONAL, INC.
By: s/Norton Xxxxxxxxx By: s/Xxxxxxxxxxx Xxxxxxx
------------------------ ----------------------------
Chairman President and Chief Executive
Officer
