EXHIBIT 2.1
BUSINESS COMBINATION AGREEMENT
THIS BUSINESS COMBINATION AGREEMENT dated as of September 5th, 2003
(this "AGREEMENT") is entered into by and among Rainbow Technologies, Inc., a
corporation organized under the laws of Delaware ("PARENT"), RTI Acquisition
Corp., a corporation incorporated under the Business Corporations Act (Ontario)
("MERGER SUB"), and Chrysalis-ITS Incorporated, a corporation incorporated under
the Business Corporations Act (Ontario) ("COMPANY") and Capital Alliance
Ventures Inc. ("SHAREHOLDERS' REPRESENTATIVE").
RECITALS:
A. The boards of directors of each of Parent, Merger Sub and the
Company (i) have determined that it is fair, advisable and in the best interests
of Parent, Merger Sub and the Company, respectively, and their respective
stockholders, to enter into a business combination whereby Merger Sub and the
Company will amalgamate upon the terms and subject to the conditions set forth
herein (the "TRANSACTION"), and (ii) have approved and adopted this Agreement,
the Transaction and the other transactions contemplated hereby;
B. The shareholders of the Company have approved the Transaction
by Special Resolution at a special meeting of the Company's shareholders duly
called in accordance and in compliance with the provisions of the Business
Corporations Act (Ontario), the Company's constating documents and any agreement
between the Company's shareholders (the "COMPANY MEETING");
C. In connection with the Transaction, a portion of the
redemption consideration of the Amalco Redeemable Shares shall be placed in
escrow, the release of which shall be contingent upon certain events and
conditions, all as set forth in this Agreement and the Escrow Agreement;
D. Shareholders' Representative has agreed to act as the
representative of the shareholders of the Company; and
E. Certain capitalized terms used in this Agreement are defined
in Section 7.2 of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained and for other good and valuable
consideration (the receipt and adequacy of which are acknowledged), the parties
hereto agree as follows:
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ARTICLE 1
THE TRANSACTION
SECTION 1.1 SUBSCRIPTION.
Upon the terms and subject to the conditions set forth herein, Parent
hereby acknowledges that it has subscribed for 100 Merger Sub Shares for an
aggregate consideration of US$20,000,000 (the "SUBSCRIPTION CONSIDERATION").
SECTION 1.2 AMALGAMATION.
Upon the terms and subject to the conditions set forth herein and in
the Amalgamation Agreement attached hereto as Exhibit A, Parent, Merger Sub and
the Company agree that the Company and Merger Sub shall amalgamate on the
Closing Date pursuant to Sections 174, 175 and 176 and related provisions of the
BCA to form Amalco and shall continue as one corporation under the BCA, with the
effect described below unless and until otherwise determined in the manner
required by law or by Amalco, its directors or shareholders, and the following
provisions shall apply:
(1) NAME. The name of Amalco shall be Rainbow-Chrysalis
Inc.;
(2) REGISTERED OFFICE. The registered office of Amalco
shall be located in the City of Ottawa in the Province of Ontario. The address
of the registered office of Amalco shall be Xxx Xxxxxxxxx Xxx, Xxxxxx, Xxxxxxx
X0X 0XX.
(3) BUSINESS AND POWERS. There shall be no restrictions
on the business that Amalco may carry on or on the powers it may exercise;
(4) AUTHORIZED SHARE CAPITAL. Amalco shall be authorized
to issue an unlimited number of common shares (the "AMALCO COMMON Shares"), and
an unlimited number of redeemable preferred shares ("AMALCO REDEEMABLE SHARES"),
all such shares having the rights, privileges, restrictions and conditions set
forth in Schedule A to Exhibit A.
(5) SHARE CANCELLATION. On the Closing:
(a) Each Merger Sub Share issued and outstanding
on the Closing Date will be cancelled and extinguished and will be automatically
converted into an Amalco Common Share on the basis of 1 Amalco Common Share for
each Merger Sub Share;
(b) Each Company Common Share issued and
outstanding on the Closing Date will be cancelled and extinguished and, except
for Company Common Shares which are held by Dissenting Shareholders, will be
automatically converted into an Amalco Redeemable Share on the basis of 0.198488
Amalco Redeemable Shares for each Company Common Share;
(c) Each Company Class A Preferred issued and
outstanding on the Closing Date will be cancelled and extinguished and, except
for Company Class A Preferreds which are held by Dissenting Shareholders, will
be automatically converted into an Amalco Redeemable Share on the basis of
0.57982 Amalco Redeemable Shares for each Company Class A Preferred;
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(d) Each Company Class B Preferred issued and
outstanding on the Closing Date will be cancelled and extinguished and, except
for Company Class B Preferreds which are held by Dissenting Shareholders, will
be automatically converted into an Amalco Redeemable Share on the basis of
3.10145 Amalco Redeemable Shares for each Company Class B Preferred;
(e) No fraction of an Amalco Redeemable Share
will be issued upon conversion of Company Shares pursuant to the Transaction,
but in lieu thereof, each holder of Company Shares who would otherwise be
entitled to a fraction of an Amalco Redeemable Share (after aggregating all
fractional shares of Amalco Redeemable Shares to be received by such holder)
shall be entitled to receive from Amalco an amount of cash (rounded to the
nearest whole cent) equal to the product of such fraction and the Redemption
Consideration applicable to such Amalco Redeemable Share under Section 1.7;
(f) On the Closing Date, the stated capital to
be added to each class of securities of Amalco shall be as follows: (i) the
Canadian dollar equivalent (determined as of the Closing Date) of an amount
equal to the Amalco Redeemable Share Redemption Price multiplied by the number
of Amalco Redeemable Shares issued on the amalgamation, in respect of the Amalco
Redeemable Shares (the "REDEEMABLE SHARE AMOUNT") and (ii) Canadian dollar
equivalent (determined as of the Closing Date) of US$20,000,000 in the
aggregate, in respect of the Amalco Common Shares.
(g) The foregoing conversion ratios are subject
to appropriate adjustment (such that the aggregate amount payable by Amalco
pursuant to Section 1.7(1)(a) shall not be greater than US$18,800,000) if any
holder of Company Options exercises an Option prior to the Closing Date.
(6) SHARE TRANSFER RESTRICTIONS. The transfer of shares
in the capital of Amalco shall be restricted in that no share shall be
transferred without either (i) the consent of the directors of Amalco expressed
by resolution passed by the board of directors or by an instrument or
instruments in writing signed by all of such directors, or (ii) the consent of
the holders of shares to which are attached 100% of the voting rights attaching
to all shares for the time being outstanding and entitled to vote at such time
expressed by a resolution passed by such shareholders at a meeting duly called
and constituted for that purpose or by an instrument or instruments in writing
signed by all of such shareholders;
(7) NUMBER OF DIRECTORS. The number of directors of
Amalco shall not be less than 1 and not more than 10;
(8) INITIAL DIRECTORS. A majority of the directors of
Amalco shall be resident Canadians. Where Amalco has only one or two directors,
that director or one of the two directors, as the case may be, shall be a
resident Canadian. The initial directors of Amalco shall be:
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NAME ADDRESS FOR SERVICE CANADIAN RESIDENT
------------------------------------------------------------------------------
Xxxxx Xxxxxxxxxx 000 Xxxxxx Xxxxxx Xxx
Xxxxxx, XX, X0X 0X0
Xxxxxx
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Xxxxxxx X. Xxxxxxx 0000 Xxxxxxxxxx Xx
Xxxxxxx Xxxxx, Xxxxxxxxxx,
X.X.X. 00000
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Xxxxx X. Xxxxxx 305 Pinnacle Ridge Place Yes
Xxxxxxx, Xxxxxxx
Xxxxxx X0X 0X0
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(9) BYLAWS. The by laws of Amalco shall be those of
Merger Sub, which may be examined at Xxx Xxxxxxxxx Xxx, Xxxxxx, Xxxxxxx X0X 0XX.
SECTION 1.3 CERTIFICATES AND SETTLEMENT PROCEDURES.
(1) Other than as set forth in Section 1.3(3) of this
Agreement, no certificates will be issued in respect of Amalco Redeemable Shares
on or after the Closing Date and, in the interim, certificates representing
Company Shares shall be deemed to entitle the holders thereof to: (i) that
number of Amalco Redeemable Shares as set out in Section 1.2 of this Agreement;
(ii) the Redemption Consideration per share payable to such holder pursuant and
subject to Section 1.7 of this Agreement; (iii) any dividends or other
distributions (including any portion of the Redemption Consideration) declared
or made after the Closing Date with respect to Amalco Redeemable Shares; and
(iv) any entitlements of the holder thereof to cash in lieu of any fractional
Amalco Redeemable Shares, pursuant to Section 1.2(5)(e) of this Agreement.
(2) Subject to applicable law, Amalco shall as of 4:30
p.m. (Ottawa time) (the "TIME OF REDEMPTION") on the effective date of the
amalgamation forming Amalco (the "REDEMPTION DATE") redeem all of the Amalco
Redeemable Shares, by payment to the registered holders thereof of the amounts
set out in, and in accordance with, the provisions of the Amalco Redeemable
Shares. Except as provided in the provisions of the Amalco Redeemable Shares, no
notice or other act or formality on the part of Amalco shall be required to
redeem the Amalco Redeemable Shares. Subject to Section 1.8 of this Agreement,
on or after the Time of Redemption, within two Business Days of the presentation
and surrender of the certificates representing Company Shares which were
converted into Amalco Redeemable Shares on the formation of Amalco by way of
amalgamation, Amalco shall pay or cause to be paid to the registered holders of
Amalco Redeemable Shares, without interest: (i) the Amalco Cash Payment pursuant
to Section 1.7(1)(a)(i) of this Agreement; (ii) any dividends or other
distributions (including any portion of the Redemption Consideration) declared
or made after the Closing Date with respect to Amalco Redeemable Shares; and
(iii) any entitlements of the holder thereof to cash in lieu of any fractional
Amalco Redeemable Shares, pursuant to Section 1.2(5)(e) of this Agreement. From
and after the Time of Redemption, the holders of Amalco Redeemable Shares shall
not be entitled to exercise any of the rights of shareholders in respect
thereof. Amalco shall have the right at any time after the Time of Redemption to
deposit the Amalco Cash Payment payable in respect of the Amalco Redeemable
Shares, or such of the Amalco Redeemable Shares represented by certificates
which have not at the date of such deposit been surrendered by the holders
thereof to Amalco for
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redemption in accordance with the provisions of the Amalco Redeemable Shares, to
a segregated account (the "Segregated Account") in any chartered bank or any
trust company in Canada, in trust for the benefit of the registered shareholders
of the Company as at the Closing Date, to be paid without interest to or to the
order of of such registered shareholders upon presentation and surrender to
Amalco of the certificates representing the same, and subject to Section 1.8 of
this Agreement, upon such deposit being made the Amalco Cash Payment per share
deposited shall be paid in respect of the Amalco Redeemable Shares so deposited
and the rights of the holders thereof after such deposit shall be limited to
receiving without interest their proportionate part of the Amalco Cash Payment
in respect of the Amalco Redeemable Shares so deposited against presentation and
surrender of the said certificates held by them respectively. The Segregated
Account may be an interest bearing account and any interest earned on the
amounts deposited in the Segregated Account shall belong to Amalco.
(3) In the event any certificate which immediately prior
to the Closing Date represented one or more outstanding Company Shares shall
have been lost, stolen or destroyed, upon making an affidavit of that fact by
the Person claiming such certificate to be lost, stolen or destroyed and upon
providing an indemnity in a form satisfactory to Company, Company shall issue in
exchange for such certificate lost, stolen or destroyed certificate, one or more
certificates representing one or more of the applicable Company Shares, which
Company Shares shall have the rights and entitlements set forth in Section
1.3(1) of this Agreement. In the event any certificate which after to the
Closing Date represented one or more outstanding Company Shares shall have been
lost, stolen or destroyed, upon making an affidavit of that fact by the Person
claiming such certificate to be lost, stolen or destroyed and upon providing an
indemnity in a form satisfactory to Amalco, Amalco shall issue in exchange for
such certificate lost, stolen or destroyed certificate, one or more certificates
representing one or more of the applicable Amalco Redeemable Shares. When
authorizing any dividend or distribution in respect of such exchanged lost,
stolen, or destroyed certificate, the Person to whom such certificates
representing Amalco Redeemable Shares are to be issued shall, as condition
precedent to the issuance thereof, indemnify Amalco in a manner satisfactory to
Amalco, against any claim that may be made against Amalco, with respect to the
certificate alleged to have been lost, stolen, or destroyed.
(4) Any certificate which immediately prior to the
Closing Date represented outstanding Company Shares (other than Company Shares
held by Dissenting Shareholders) that is not deposited with all other
instruments required by Section 1.3(2) on or prior to the date that is the first
anniversary of the Closing Date shall cease to represent a claim or interest of
any kind or nature as a shareholder of Amalco. On such date, the Amalco shares
to which the former holder of the certificate referred to in the preceding
sentence was ultimately entitled shall be deemed to have been surrendered for no
consideration to Amalco, together with all entitlements to dividends,
distributions and interest in respect thereof held for such former holder.
Amalco shall not be liable to any Person in respect of any Amalco Redeemable
Shares (or dividends, distributions and interest in respect thereof) delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. At any time after the date that is the first anniversary of the
Closing Date, Amalco may transfer any amounts in the Segregated Account
(including any interest) to any other account of Amalco with a chartered bank or
trust company in Canada, including any general or operational account of Amalco,
and upon any such transfer the trust created pursuant to Section 1.3(2) for the
benefit of the registered shareholders of the Company as at the Closing Date
shall cease and terminate.
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SECTION 1.4 DISSENT RIGHTS.
The holders of Company Shares may exercise rights of dissent with
respect to such shares pursuant to and in the manner set forth in section 185 of
the BCA (the "DISSENT RIGHTS") in connection with the Transaction. Company
Shares which are held by holders who duly exercise such rights of dissent (the
"DISSENTING SHAREHOLDERS") shall not be deemed to have been exchanged for Amalco
Redeemable Shares. However, if a Dissenting Shareholder fails to perfect or
effectively withdraws his, her or its dissent under Section 185 of the BCA or if
his, her or its rights as a shareholder of the Company are otherwise reinstated,
such Dissenting Shareholder's Company Shares shall thereupon be deemed to have
been exchanged for Amalco Redeemable Shares as of the Closing as prescribed
herein. For greater certainty, a Dissenting Shareholder will either:
(a) cease to have any rights as a shareholder
other than the right to be paid the fair value of such holder's Company Shares
pursuant to Section 185 of the BCA except in certain circumstances, including
where:
(i) such Dissenting Shareholder
withdraws the notice of dissent before the Company makes an offer to such
Dissenting Shareholder pursuant to Section 185(15) of the BCA;
(ii) the Company fails to make an offer
in accordance with Section 185(15) of the BCA and such Dissenting Shareholder
withdraws the notice of dissent; or
(b) if they are ultimately determined not to be
entitled, for any reason, to be paid fair value for their Company Shares, or in
circumstances where Section 1.4(a) (i) or (ii) is applicable, be deemed to have
participated in the Transaction on the same basis as a non dissenting holder of
Company Shares and shall receive Amalco Redeemable Shares on the basis
determined in accordance with Section 1.2(5);
but in no case shall the Company, Amalco or any other Person be required to
recognize such Dissenting Shareholders as holders of Amalco Redeemable Shares
after the Closing Date, and the names of such Dissenting Shareholders shall be
deleted from the registers of holders of Company Shares or Amalco Redeemable
Shares at the Closing Date.
SECTION 1.5 CLOSING.
The closing of the amalgamation transaction, including the filing of
the articles of amalgamation of Amalco, forming part of the Transaction (the
"CLOSING") shall take place after completion of the Company Meeting on or about
the 5th day of September, 2003, should all of the holders of Company Class A
Preferred and Company Class B Preferred waive the 45-day notice of the
Transaction contemplated by the articles of incorporation of the Company, and on
or about the 30th day of September, 2003, should any of such shareholders refuse
or fail to waive such notice on or prior to the Company Meeting or on or about
the 5th day of September, 2003 (the "CLOSING DATE") or such other date as the
parties may mutually agree.
SECTION 1.6 ESCROW FUND.
At Closing, the Shareholders' Representative and Amalco shall enter
into an escrow agreement (the "ESCROW AGREEMENT") with an escrow agent selected
by Parent and reasonably
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acceptable to the Shareholders' Representative (the "ESCROW AGENT")
substantially in the form of Exhibit B hereto. Pursuant to the terms of the
Escrow Agreement, Amalco shall deposit US$1,000,000 of the Redemption
Consideration ("ESCROW AMOUNT") into an escrow account, which account is to be
managed by the Escrow Agent (the "ESCROW ACCOUNT"). An Escrow Amount in the
Escrow Account is referred to herein as the "ESCROW FUND". In connection with
such deposit of the Escrow Amount with the Escrow Agent and as of the Closing
Date, each of the holders of Company Shares will be deemed to have received and
deposited with the Escrow Agent each such holder's relative pro rata interest in
the Escrow Amount as determined as of the Closing by reference to the total
amount of Redemption Consideration to which such holder is entitled as compared
to the total amount of Redemption Consideration to which all holders are
entitled. Distributions of any Escrow Amount from the Escrow Account shall be
governed by the terms and conditions of the Escrow Agreement, shall be made in
United States dollars and the Person receiving such distribution shall bear the
risk of any fluctuation in the exchange rate of the United States dollar against
the Canadian dollar during the period from the Closing Date to the date of such
distribution.
SECTION 1.7 REDEMPTION OF AMALCO REDEEMABLE SHARES AND PAYMENT OF
EMPLOYEE BONUS PLAN AMOUNTS.
(1) Subject to Section 1.3, and Section 1.8 as of the
Time of Redemption, Parent shall cause Amalco to redeem and cancel as of the
Redemption Date the Amalco Redeemable Shares for the following aggregate
redemption consideration (the "REDEMPTION CONSIDERATION") and upon the following
terms and conditions:
(a) (i) a cash payment in Canadian dollars in an
amount equal to US$1.00 (converted into Canadian dollars as of the Closing Date)
per Amalco Redeemable Share, less the Escrow Amount per Share (the "AMALCO CASH
PAYMENT") , and (ii) the right to receive a payment from the Escrow Fund, as set
forth in subsection (b) below.
(b) within 30 days from the one year anniversary
date of the Escrow Agreement, Amalco shall, subject to the terms of the Escrow
Agreement, cause the Escrow Agent, to pay to the former holders of Amalco
Redeemable Shares an aggregate consideration equal to the portion of the Escrow
Amount (if any) then held by the Escrow Agent and payable to the former holders
of Amalco Redeemable Shares in accordance with the terms of the Escrow
Agreement, to be shared among such former holders pro rata based on their
respective entitlement to the Escrow Amount as set forth in Section 1.6 above;
(2) Any portion of the Subscription Consideration that
would have been allotted to a former holder of Company Shares who is a
Dissenting Shareholder shall be kept by Amalco, and holders of Amalco Shares who
are not Dissenting Shareholders shall have no right to such portion of the
Subscription Consideration that does not form part of the Redemption
Consideration.
(3) Amalco shall not, and Parent shall take all
reasonable steps to ensure that Amalco shall not, take any step or approve any
action that would cause Amalco to be restricted from redeeming the Amalco
Redeemable Shares as set forth herein pursuant to the provisions of the BCA or
in accordance with the articles of amalgamation of Amalco.
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(4) Amalco shall not, prior to the Redemption Date, issue
any shares in the capital of Amalco, or any other debt or equity securities of
any kind, other than the Amalco Common Shares and the Amalco Redeemable Shares
issued pursuant to Section 1.2(4) of this Agreement.
(5) Immediately prior to the Closing Date, the board of
directors of the Company shall have declared and approved an employee bonus plan
in the aggregate sum of US$1,200,000.00, with such amounts payable to the
employees of the Company as shall be identified in a schedule to be provided to
Merger Sub by the Company prior to the Closing Date (the "EMPLOYEE PLAN"). If
such amounts have not been paid prior to the Closing Date, Amalco shall on the
Closing Date pay to the employees of the Company those amounts to which they are
entitled under the Employee Plan. The Company hereby confirms that the aggregate
sum payable under the Employee Plan (including all employer and employee
deductions, contributions and premiums required to be paid, deducted or withheld
pursuant to the Employment Insurance Act (Canada), Canada Pension Plan Act,
Employer Health Tax Act (Ontario), applicable workers' compensation legislation
and any other applicable Laws, which shall be calculated immediately prior to
Closing and set forth in the schedule setting forth each employee's entitlement
under the Employee Plan) shall be US$1,200,000.00. At least 2 Business Days
prior to Closing, the Company shall have provided Parent and Merger Sub with the
schedule setting forth the allocation among the Company's employees of the
amounts payable under the Employee Plan for the purposes of giving effect to
this Section 1.7(5). On Closing, Amalco will make the required payments to
employees, less applicable statutory deductions and employer contributions and
premiums, in accordance with the Employee Plan and the schedule delivered to
Parent and Merger Sub pursuant hereto.
SECTION 1.8 TAX CLEARANCE CERTIFICATES.
(1) If (i) a signed declaration that the holder of an
Amalco Redeemable Share is not a non-resident of Canada for purposes of the Tax
Act, or (ii) a certificate issued by the Minister of National Revenue pursuant
to subsection 116(2) of the Tax Act in respect of the redemption by Amalco of
the Amalco Redeemable Shares, specifying a certificate limit in an amount which
is not less than the portion of the Redemption Consideration that is otherwise
payable to the holder of an Amalco Redeemable Share on the Redemption Date
hereunder (the "PROPORTIONATE REDEMPTION CONSIDERATION") based on the assumption
such holder will receive the maximum Escrow Amount per share is not delivered to
Amalco at or before the Redemption Date, Amalco shall be entitled to withhold
from any payment of a portion of the Proportionate Redemption Consideration
payable on the Redemption Date, on the date which the Escrow Amount is due and
payable, the amount that Amalco may be required to remit pursuant to subsection
116(5) of the Tax Act in connection with the payment of such Proportionate
Redemption Consideration (the "WITHHELD AMOUNT"), which amount shall be retained
by Amalco.
(2) If, prior to the 25th day after the end of the month
in which the Redemption Date occurs, the holder of Amalco Redeemable Shares
delivers to Amalco:
(a) a signed declaration that such holder is not
a non-resident of Canada for the purposes of that Tax Act, Amalco shall promptly
pay such shareholder the Withheld Amount,
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(b) a certificate issued by the Minister of
National Revenue under Subsection 116(2) of the Tax Act in respect of the
redemption of such shares by Amalco, Amalco shall promptly pay such shareholder
the lesser of (i) the Withheld Amount and (ii) the Withheld Amount less the
amount, if any, by which the Proportionate Redemption Consideration exceeds the
amount specified in such certificate as the certificate limit, multiplied by the
percentage specified in subsection 116(5) of the Tax Act, or
(c) a certificate by the Minister of National
Revenue under Subsection 116(4) of the Tax Act in respect of the redemption of
the Amalco Redeemable Shares by Amalco,
Amalco shall promptly pay the Withheld Amount to the holder of such Amalco
Redeemable Shares immediately preceding the Redemption Date (less any applicable
withholding Tax).
(3) If Amalco has withheld the Withheld Amount and the
relevant Amalco shareholder does not deliver to Amalco, prior to the 25th day
after the end of the month in which the Redemption Date occurs:
(a) a signed declaration that such shareholder
is not a non-resident of Canada for the purposes of the Tax Act,
(b) a certificate issued by the Minister of
National Revenue under Subsection 116(2) of the Tax Act in respect of the
redemption of the relevant Amalco shares by Amalco,
(c) a letter from the Minister of National
Revenue, in a form satisfactory to Amalco, confirming to Amalco that the
remittance of the Withheld Amount to the Receiver General of Canada can be
delayed pending the issuance of a certificate issued under Subsection 116(2) of
the Tax Act; or
(d) a certificate issued by the Minister of
National Revenue under Subsection 116(4) of the Tax Act in respect of the
redemption of the relevant Amalco shares by Amalco,
Amalco shall remit to the Receiver General of Canada the amount required to be
remitted pursuant to subsection 116(5) of the Tax Act (and the amount so
remitted shall be credited to Amalco as payment on account of the Proportionate
Redemption Consideration) and Amalco shall pay to the relevant Amalco
shareholder any remaining portion of the Withheld Amount (less any applicable
withholding Tax).
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject
to such exceptions as are specifically disclosed with respect to specific
numbered and lettered sections and subsections of this Article 2 in the
disclosure schedule and schedule of exceptions (the "COMPANY DISCLOSURE
SCHEDULE") delivered herewith and dated as of the date hereof, and numbered with
corresponding numbered and lettered sections and subsections, as follows and
acknowledges and confirms that Parent and Merger Sub are relying upon such
representations and warranties in entering into this Agreement, the Ancillary
Agreements and the transactions contemplated hereby and thereby:
SECTION 2.1 ORGANIZATION AND QUALIFICATION.
The Company is a company duly incorporated and organized, and validly
existing under the laws of the Province of Ontario, and has full corporate power
and authority to conduct its business as now conducted and as currently proposed
to be conducted and to own, use, license and lease its Assets and Properties.
Each of the Company and its Subsidiary is duly qualified, licensed or admitted
to do business and is in good standing in each jurisdiction in which the
ownership, use, licensing or leasing of its Assets and Properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary. Section 2.1 of the Company Disclosure Schedule sets forth
each jurisdiction where each of the Company and its Subsidiary is so qualified,
licensed or admitted to do business and separately lists each other jurisdiction
in which the Company or its Subsidiary owns, uses, or leases its Assets and
Properties, or conducts business or has employees.
The Company is not an "offering corporation" as that term is defined in
the BCA and the Company is not a "closely-held issuer", "private company" or
"reporting issuer" as those terms are defined in the Securities Act (Ontario).
SECTION 2.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
The Company has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The Company's board of directors and its
shareholders have approved this Agreement. The execution and delivery by the
Company of this Agreement and the Ancillary Agreements to which the Company is a
party and the consummation by the Company of the transactions contemplated
hereby and thereby, and the performance by the Company of its obligations
hereunder and thereunder, have been duly and validly authorized by all necessary
action (including action by the board of directors and the shareholders of the
Company), and no other action is required to authorize the execution, delivery
and performance of this Agreement and the Ancillary Agreements to which the
Company is a party and the consummation by the Company of the transactions
contemplated hereby and thereby. This Agreement and the Ancillary Agreements to
which the Company is a party have been or will be, as applicable, duly and
validly executed and delivered by the Company and each constitutes or will
constitute, as applicable, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its respective terms,
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except as the enforceability thereof may be limited by bankruptcy, insolvency or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
The Company has convened a Company Meeting in accordance with and in
compliance with all applicable laws, the constating documents of the Company and
all agreements between the shareholders of the Company, and the Special
Resolution has been approved in accordance with Section 5.1(c). The notice for
the Company Meeting was prepared and delivered in compliance with the BCA, the
Company's constating documents and all agreements between the shareholders of
the Company and included (i) a summary of this Agreement; and (ii) a statement
that a Dissenting Shareholder is entitled to be paid the fair value of the
Company Shares in accordance with Section 185 of the BCA.
SECTION 2.3 AUTHORIZED CAPITAL; STOCK OPTIONS.
(1) The authorized capital stock of the Company consists
of (i) an unlimited number of Company Common Shares, of which 10,418,804 shares
are issued and outstanding as of the date hereof, (ii) an unlimited number of
Company Class A Preferred Shares, of which 5,512,047 are issued and outstanding
as of the date hereof, and (iii) an unlimited number of Company Class B
Preferred Shares, of which 4,364,406 shares are issued and outstanding as of the
date hereof.
(2) All of the issued and outstanding shares of Company
Shares are validly issued, fully paid and nonassessable, and have been issued in
compliance with applicable Laws including laws relating to the issuance of
securities. No shares of Company Shares are held in treasury or are authorized
or reserved for issuance. Section 2.3 of the Company Disclosure Schedule lists
the name and full address of residence of each registered holder of Company
Shares. Each transfer of Company Shares registered in the share registers of the
Company was effected in accordance with the constating documents of the Company
and the Shareholders' Agreement.
(3) The Company has (i) terminated the existing stock
option plan previously adopted by the Company (the "COMPANY OPTION PLAN"); (ii)
caused the vesting and expiry time of such options (the "COMPANY OPTIONS") to
acquire Company Shares granted under the Company Option Plan to accelerate in
accordance with the terms and conditions of the Company Option Plan and has
provided notice thereof to holders of Company Options, the whole at no cost to
the Parent or Merger Sub; and (iii) all Company Options shall either have been
exercised or terminated.
(4) Except as set forth in Section 2.3 of the Company
Disclosure Schedule, there are no outstanding Company Options, Company Warrants
or agreements, arrangements or understandings to which the Company or its
Subsidiary is a party or to which it is bound (written or oral) to issue any
Options and there are no preemptive rights, rights of first refusal, or other
participation rights or agreements, arrangements or understandings to issue
preemptive rights, rights of first refusal, or other participation rights with
respect to the issuance or sale of Company Shares or securities of the Company's
Subsidiary created by statute, the articles or Bylaws of the Company or its
Subsidiary, or any agreement or other arrangement to which the Company or its
Subsidiary is a party or to which it is bound and there are no agreements,
arrangements or understandings to which the Company or its Subsidiary is a party
(written or oral) pursuant to which the Company or its Subsidiary has the right
to elect to satisfy any Liability by issuing Company Shares, securities of the
Company's Subsidiary, or Equity Equivalents. With respect to each Company Option
and Company Warrant, Section 2.3 of the Company Disclosure Schedule sets forth
the holder thereof, the number
11
and type of securities issuable thereunder, and, if applicable, the exercise
price therefor, the exercise period and vesting schedule thereof (including a
description of the circumstances under which such vesting schedule can or will
be accelerated). All of the Company Options and Company Warrants were issued in
compliance with all Laws including laws relating to the issuance of securities.
True and complete copies of all agreements and instruments relating to or issued
under the Company Option Plan have been provided to Parent and such agreements
and instruments have not been amended, modified or supplemented, and there are
no agreements to amend, modify or supplement such agreements or instruments in
any case from the form provided to Parent. Except as set forth in Section 2.3 of
the Company Disclosure Schedule, the Company or its Subsidiary is not a party or
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement, arrangement or understanding between or among any persons
which affects, restricts or relates to voting, giving of written consents,
dividend rights, redemption rights or transferability of shares with respect to
the Company Shares, including without limitation any voting trust agreement or
proxy.
(5) The Company or its Subsidiary does not have any debt
securities outstanding as of the date hereof.
SECTION 2.4 SUBSIDIARY.
Except for Chysalis ITS Corp., a Delaware corporation and wholly owned
subsidiary of the Company, the Company has no Subsidiaries and does not
otherwise hold any equity, membership, partnership, joint venture or other
ownership interest (including, without limitation, an option or a right to an
ownership interest) in any person.
SECTION 2.5 DIRECTORS AND OFFICERS.
The name of each director and officer of the Company and its Subsidiary
on the date hereof, and his or her position with the Company, are listed in
Section 2.5 of the Company Disclosure Schedule.
SECTION 2.6 NO CONFLICTS.
The execution and delivery by the Company of this Agreement does not,
and the performance by the Company of its obligations under this Agreement and
the consummation of the transactions contemplated hereby do not and will not:
(a) conflict with or result in a violation or
breach of any of the terms, conditions or provisions of its articles or By-laws;
(b) subject to obtaining the consents, approvals
and actions, making the filings and giving the notices disclosed in Section
2.6(b) of the Company Disclosure Schedule, if any, conflict with or result in a
violation or breach of any Law or Order applicable to the Company or its
Subsidiary or any of its Assets and Properties, except for such consents,
approvals, actions, filings or notices the failure to receive, take, make,
obtain or receive, and for such conflicts, violations or breaches which, would
not reasonably be expected to have a material adverse effect on the Business or
Condition of the Company or its Subsidiary (provided that the foregoing
exception shall not apply with respect to any consents, approvals, actions,
filings or notices that are required with respect to Company Intellectual
Property); or
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(c) except as disclosed in Section 2.6(c) of the
Company Disclosure Schedule, (i) conflict with or result in a violation or
breach of, (ii) constitute a default (or an event that, with or without notice
or lapse of time or both, would constitute a default) under, (iii) require the
Company or its Subsidiary to obtain any consent, approval or action of, make any
filing with or give any notice to any person under, (iv) result in or give to
any person any right of termination, cancellation, acceleration or modification
in or with respect to, (v) result in or give to any person any additional rights
or entitlement to increased, additional, accelerated or guaranteed payments or
performance under, (vi) result in the creation or imposition of (or the
obligation to create or impose) any Lien upon the Company or its Subsidiary or
any of its Assets and Properties under, or (vii) result in the loss of a
material benefit under, any of the terms, conditions or provisions of, any
Contract to which the Company or its Subsidiary is a party or by which any of
the Company's or its Subsidiary's Assets and Properties is bound, except any
such conflicts, violations, breaches, defaults (or events that, with or without
the passage of time or both, would constitute a default), consents, approvals,
actions, filings or notices the failure to receive, take, make or give, and any
such right of loss which, would not, either individually or in the aggregate, be
reasonably expected to have a material adverse effect on the Business or
Condition of the Company or its Subsidiary (provided that the foregoing
exception shall not apply with respect to any consents, approvals, actions,
filings or notices that are required with respect to Company Intellectual
Property).
SECTION 2.7 BOOKS AND RECORDS; ORGANIZATIONAL DOCUMENTS.
The Corporate Documents that have been provided or made available to
Parent or its counsel prior to the execution of this Agreement are complete and
accurate and all corporate proceedings and actions reflected in the Corporate
Documents have been conducted or taken in compliance with all applicable Laws
and with the articles and By-laws. Without limiting the generality of the
foregoing (i) the minute books contain complete and accurate minutes of all
meetings of the directors and shareholders held since incorporation and all such
meetings were properly called and held, (ii) the minute books contain all
resolutions passed by the directors and shareholders (and committees, if any)
and all such resolutions were properly passed, (iii) the share certificate
books, register of shareholders and register of transfers are complete and
accurate, all transfers have been properly completed and approved, and (iv) the
registers of directors and officers are complete and accurate and all former and
present directors and officers were properly elected or appointed, as the case
may be. Except as disclosed in Section 2.7 of the Company Disclosure Schedule,
the Company has never been subject to, or affected by, any unanimous
shareholders agreement or other shareholders agreements. The Company has prior
to the execution of this Agreement delivered to Parent true and complete copies
of its and its Subsidiary's articles and By-laws, each as amended through the
date hereof. Such articles and By-laws are in full force and effect, and neither
the Company nor its Subsidiary is in violation of any provisions of its articles
or By-laws.
SECTION 2.8 COMPANY FINANCIAL STATEMENTS.
Section 2.8 of the Company Disclosure Schedule sets forth the Company
Financials. The Company Financials delivered to Parent are correct and complete
in all material respects and have been prepared in accordance with GAAP applied
on a basis consistent throughout the periods indicated and consistent with each
other (except as may be indicated in the notes thereto as delivered to Parent
prior to the date hereof). The Company Financials present fairly and accurately
in all material respects the financial condition and operating results of the
Company as of the dates
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and during the periods indicated therein. Except as set forth in Section 2.8 to
the Company Disclosure Schedule, since the Interim Balance Sheet Date, there has
been no change in any accounting policies, principles, methods or practices,
including any change in policies with respect to reserves (whether for bad
debts, contingent liabilities or otherwise), of the Company and the Company has
not accrued any R&D Credits or Refunds earned as of the Interim Balance Sheet
Date.
SECTION 2.9 ABSENCE OF CHANGES.
Since the Interim Balance Sheet Date, except as set forth in Section
2.9 of the Company Disclosure Schedule, there has not been any material adverse
change in the Business or Condition of the Company or any occurrence or event
which, individually or in the aggregate, would be reasonably expected to have
any material adverse change in the Business or Condition of the Company. In
addition, without limiting the generality of the foregoing, except as expressly
contemplated by this Agreement and except as disclosed in Section 2.9 of the
Company Disclosure Schedule, since the Interim Balance Sheet Date:
(a) neither the Company nor its Subsidiary has
entered into any Contract, commitment or transaction or incurred any Liabilities
outside of the Ordinary Course of Business consistent with past practice;
(b) neither the Company nor its Subsidiary has
entered into any Contract in connection with any transaction involving a
Business Combination;
(c) neither the Company nor its Subsidiary has
altered or entered into any Contract or other commitment to alter, its interest
in any company, association, joint venture, partnership or business entity in
which the Company or its Subsidiary directly or indirectly holds any interest on
the date hereof;
(d) neither the Company nor its Subsidiary has
entered into any strategic alliance or joint development Contract or, except in
the Ordinary Course of Business, joint marketing Contract;
(e) there has not been any amendment or other
modification (or agreement to do so) or material violation of the terms of, any
of the Contracts set forth or described in the Company Disclosure Schedule;
(f) neither the Company nor its Subsidiary has
entered into any transaction with any officer, director, stockholder, Affiliate
or Associate of the Company, other than pursuant to any Contract in effect on
the Interim Balance Sheet Date and disclosed to Parent pursuant to (and so
identified in) Section 2.9(f) of the Company Disclosure Schedule or other than
pursuant to any contract of employment and listed pursuant to Section 2.22 of
the Company Disclosure Schedule;
(g) neither the Company nor its Subsidiary has
entered into or amended any Contract pursuant to which any other person is
granted manufacturing, marketing, distribution, licensing or similar rights of
any type or scope with respect to any products of the Company or its Subsidiary
or Company Intellectual Property other than as contemplated by the Company's
Contracts disclosed in Section 2.19 of the Company Disclosure Schedule;
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(h) no Action or Proceeding has been commenced
or, to the knowledge of the Company, threatened by or against the Company or its
Subsidiary;
(i) the Company has not declared or set aside or
paid any dividends on or made any other distributions (whether in cash, stock or
property) in respect of any Company Shares or Equity Equivalents, or effected or
approved any split, combination or reclassification of any Company Shares or
Equity Equivalents or issued or authorized the issuance of any other securities
in respect of, in lieu of or in substitution for shares of Company Shares or
Equity Equivalents, or repurchased, redeemed or otherwise acquired, directly or
indirectly, any shares of Company Shares or Equity Equivalents, except
repurchases of Company Shares pursuant to agreements with Company employees,
officers, directors and consultants relating to repurchases at cost upon
termination of service with the Company;
(j) except for the issuance of Company Shares
upon exercise or conversion of then-outstanding Company Options, Company
Warrants or other Equity Equivalents listed in Section 2.3 of the Company
Disclosure Schedule, (A) neither the Company nor its Subsidiary has issued,
granted, delivered, sold or authorized or proposed to issue, grant, deliver or
sell, or purchased or proposed to purchase, any shares of Company Shares,
securities of the Subsidiary, or Equity Equivalents, (B) the Company has not
modified or amended the rights of any holder of any outstanding shares of
Company Shares or Equity Equivalents (including to reduce or alter the
consideration to be paid to the Company upon the exercise of any outstanding
Company Options, Company Warrants or other Equity Equivalents), and (C) there
have not been any agreements, arrangements, plans or understandings with respect
to any such modification or amendment;
(k) there has not been any amendment to the
articles or By-laws;
(l) there has not been any transfer (by way of a
License or otherwise) to any person of rights to any Company Intellectual
Property, except in the Ordinary Course of Business;
(m) neither the Company nor its Subsidiary has
made or agreed to make any disposition or sale of, waiver of rights to, license
or lease of, or incurrence of any Lien on, any Assets and Properties of the
Company or its Subsidiary, other than dispositions of inventory, or nonexclusive
licenses of products to persons to whom the Company or its Subsidiary has
granted licenses of its products, in the Ordinary Course of Business;
(n) neither the Company nor its Subsidiary has
made or agreed to make any purchase of any Assets and Properties of any person
other than (i) acquisitions of inventory, or licenses of products, in the
Ordinary Course of Business of the Company or its Subsidiary and (ii) other
acquisitions in an amount not exceeding US$5,000 in the case of any individual
item or US$10,000 in the aggregate;
(o) neither the Company nor its Subsidiary has
made or agreed to make any capital expenditures or commitments for additions to
property, plant or equipment of the Company or its Subsidiary constituting
capital assets individually or in the aggregate in an amount exceeding
US$10,000;
15
(p) neither the Company nor its Subsidiary has
made or agreed to make any write-off or write-down or any determination to write
off or write-down, or revalue, any of the Assets and Properties of the Company
or its Subsidiary, or change any reserves or liabilities associated therewith,
individually or in the aggregate in an amount exceeding US$10,000;
(q) neither the Company nor its Subsidiary has
made or agreed to make payment, discharge or satisfaction, in an amount in
excess of US$5,000, in any one case, or US$10,000 in the aggregate, of any
claim, Liability or obligation (whether absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the Ordinary Course of Business of Liabilities of the types
reflected or reserved against in the Company Financials;
(r) neither the Company nor its Subsidiary has
failed to pay or otherwise satisfy any material, non-contingent Liabilities of
the Company or its Subsidiary presently due and payable, except such Liabilities
of the Company or its Subsidiary, as set out in Section 2.9(r) of the Company
Disclosure Schedule, which are being contested in good faith by appropriate
means or procedures and which, individually or in the aggregate, are immaterial
in amount;
(s) neither the Company nor its Subsidiary has
incurred any Indebtedness or guaranteed any Indebtedness in an aggregate amount
exceeding US$10,000 or issued or sold any debt securities of the Company or its
Subsidiary or guaranteed any debt securities of others;
(t) neither the Company nor its Subsidiary has
not granted any severance or termination pay to any director, officer, employee
or consultant, except payments made pursuant to written Contracts outstanding on
the date hereof, copies of which have been delivered to Parent and the terms of
which are disclosed in Section 2.22 of the Company Disclosure Schedule;
(u) the Company has not granted or approved any
increase of greater than 5% in salary, rate of commissions, rate of consulting
fees or any other compensation of any current or former officer, director,
stockholder, employee, independent contractor or consultant of the Company or
its Subsidiary;
(v) neither the Company nor its Subsidiary has
paid or approved the payment of any consideration of any nature whatsoever
(other than salary, commissions or consulting fees and customary benefits paid
to any current or former officer, director, stockholder, employee or consultant
of the Company) to any current or former officer, director, stockholder,
employee, independent contractor or consultant of the Company or its Subsidiary;
(w) except in the Ordinary Course of Business,
neither the Company nor its Subsidiary has established or modified any (i)
targets, key objectives, goals, pools or similar provisions under any Employee
Plan, employment Contract or other employee compensation arrangement or
independent contractor Contract or other compensation arrangement or (ii) salary
ranges, commission structures, bonus requirements, increased guidelines or
similar provisions in respect of any Employee Plan, employment Contract or other
employee compensation arrangement or independent contractor Contract or other
compensation arrangement;
16
(x) neither the Company nor its Subsidiary has
adopted, entered into, amended, modified or terminated (partially or completely)
any Employee Plan;
(y) neither the Company nor its Subsidiary has
paid any discretionary bonus or retention bonus;
(z) since the date of the Annual Financial
Statements, neither the Company nor its Subsidiary has made any change in
accounting policies, principles, methods, practices or procedures (including
without limitation for bad debts, contingent liabilities or otherwise,
respecting capitalization or expense of research and development expenditures,
depreciation or amortization rates or timing of recognition of income and
expense);
(aa) other than in the Ordinary Course of
Business, neither the Company nor its Subsidiary has made any proposal to, or
engaged in substantive discussions with, any of the holders (or their
representatives) of any Indebtedness, or to or with any party which has issued a
letter of credit which benefits the Company or its Subsidiary with a view to
compromising any such indebtedness;
(bb) neither the Company nor its Subsidiary has
commenced or terminated any line of business;
(cc) neither the Company nor its Subsidiary has
failed to renew any material insurance policy; no material insurance policy of
the Company or its Subsidiary has been cancelled or materially amended; and the
Company and its Subsidiary have given all notices and presented all claims (if
any) under all such policies in a timely fashion;
(dd) there has been no material amendment or
non-renewal of any of its Authorizations, and the Company and its Subsidiary
have used commercially reasonable efforts to maintain such Authorizations and
has observed in all material respects all Laws and Orders applicable to the
conduct of the Company's and its Subsidiary's business or the Company's and its
Subsidiary's Assets and Properties;
(ee) the Company has taken commercially and
reasonably required actions to procure, maintain, renew, extend or enforce any
Company Intellectual Property, including, but not limited to, submission of
required documents or fees during the prosecution of patent, trademark or other
applications to register Intellectual Property rights;
(ff) there has been no physical damage,
destruction or other casualty loss (whether or not covered by insurance)
affecting any of the real or personal property or equipment of the Company or
its Subsidiary individually or in the aggregate in an amount exceeding US$5,000;
(gg) the Company has not repurchased, cancelled
or modified the terms of any Company Shares, Equity Equivalents, Company
Options, Company Warrants or other financial instrument that derives value from
its convertibility into Company Shares or Equity Equivalents, other than
transactions entered into in the Ordinary Course of Business and pursuant to
either (i) contractual provisions or (ii) the Company Option Plan, in each case
as in effect at the time of execution and delivery of this Agreement;
17
(hh) neither the Company nor its Subsidiary has
entered into or approved any contract, arrangement or understanding or
acquiesced in respect of any arrangement or understanding, to do, engage in or
cause or having the effect of any of the foregoing, including with respect to
any Business Combination not otherwise restricted by the foregoing paragraphs;
(ii) neither the Company nor its Subsidiary has
cancelled, released or assigned any indebtedness owed to it or any claims or
rights held by it;
(jj) neither the Company nor its Subsidiary has
made any investment or commitment of a capital nature either by purchase of
stock or securities, contributions to capital, property transfer or otherwise,
or by the purchase of any property or assets of any other Person in excess of
US$5,000;
(kk) neither the Company nor its Subsidiary has
commenced any Action or Proceeding
SECTION 2.10 NO UNDISCLOSED LIABILITIES.
Except as reflected or reserved against in the Company Financials
(including the notes thereto) or as disclosed in Section 2.10 of the Company
Disclosure Schedule, there are no Liabilities reasonably likely to be asserted
greater than US$5,000 of, relating to or affecting the Company or any of its
Assets and Properties, other than Liabilities incurred in the Ordinary Course of
Business since the balance sheet date in the Interim Financial Statements (the
"INTERIM BALANCE SHEET DATE") and in accordance with the provisions of this
Agreement which, individually and in the aggregate, are not material to the
Business or Condition of the Company, and are not for tort or for breach of
contract.
SECTION 2.11 TAXES.
(1) Each of the Company and its Subsidiary has filed or
caused to be filed with the appropriate Governmental Authority, within the times
and in the manner prescribed by applicable Law, all federal, provincial, local
and foreign Tax Returns, which are required to be filed by or with respect to it
prior to the date hereof. The information contained in such Tax Returns is
correct and complete and such Tax Returns reflect accurately all liability for
Taxes and calculations of net income or loss as required, pursuant to the Tax
Act and other applicable Tax Laws, of the Company and its Subsidiary for the
periods covered thereby;
(2) Each of the Company and its Subsidiary has paid all
Taxes due and payable prior to the date hereof as reflected on its Tax Returns
within the time required by applicable Law, and has paid all assessments and
reassessments it has received in respect of Taxes. Each of the Company and its
Subsidiary has paid in full all Taxes accruing due on or before the Closing Date
which are not reflected in its Tax Returns or has made and will make full and
adequate disclosure and provision for such Taxes in the Books and Records and
the Company Financials. Each of the Company and its Subsidiary has paid all
installments of Taxes due and payable prior to the date hereof. Except as will
be disclosed on the Interim Balance Sheet, neither the Company nor its
Subsidiary will, as of the Closing Date, have any liability for Taxes. Neither
the Company nor its Subsidiary has received or accrued on its Books and Records
or Company Financials any refund of Taxes to which it is not entitled;
18
(3) The liability for Taxes of each of the Company and
its Subsidiary has been assessed by all relevant Governmental Authorities for
all periods up to and including September 30, 2002 and the Company's filings and
claim for R&D Credits or Refunds (as defined below) for all periods up to
September 30, 2002 have been assessed by all relevant Governmental Authorities.
There are no outstanding agreements, arrangements, waivers or objections
extending the statutory period or providing for an extension of time with
respect to the assessment or reassessment of Taxes or the filing of any Tax
Return by, or any payment of Taxes by, the Company or its Subsidiary;
(4) There are no claims, actions, suits, audits,
proceedings, investigations or other action pending or threatened against the
Company or its Subsidiary in respect of Taxes and, to the knowledge of the
Company, there is no reason to expect that any such claim, action, suit, audit,
proceeding, investigation or other action may be asserted against the Company or
its Subsidiary by a Governmental Authority for any period ending on or prior to
the Closing Date. Neither the Company nor its Subsidiary is negotiating any
final or draft assessment or reassessment in respect of Taxes with any
Governmental Authority and neither the Company nor its Subsidiary has received
any indication from any Governmental Authority that an assessment or
reassessment is proposed or may be proposed in respect of any Taxes for any
period ending on or prior to the Closing Date;
(5) Each of the Company and its Subsidiary has withheld
and collected all amounts required by applicable Law to be withheld or collected
by it on account of Taxes and has remitted all such amounts to the appropriate
Governmental Authority within the time prescribed under any applicable Law and
has issued all required documentation to the employees of the Company and its
Subsidiary;
(6) There are no circumstances existing which could
result in the application of Section 17, Section 78, Section 79, or Sections 80
to 80.04 of the Tax Act, or any equivalent or similar provision under applicable
provincial law, to the Company. The Company has not claimed nor will it claim
any reserve under any provision of the Tax Act or any equivalent or similar
provincial provision, if any amount could be included in the income of the
Company for any period ending after the Closing Date;
(7) Neither the Company nor its Subsidiary is subject to
any liability for Taxes of any other Person. The Company has not acquired
property or services from, or disposed of property or provided services to, a
person with whom it does not deal at arms' length (within the meaning of the Tax
Act) for an amount that is other than the fair market value of such property or
services nor has the Company been deemed to have done so for the purposes of the
Tax Act;
(8) Neither the Company nor its Subsidiary is subject to
any joint venture, partnership or other arrangement or contract that is treated
as a partnership for income tax purposes in any jurisdiction;
(9) All refund of taxes or credits claimed up to
September 30, 2002 with respect to research and development ("R&D CREDITS OR
REFUNDS") were claimed by the Company in accordance with the provisions of the
Tax Act and the relevant provincial Laws and, the Company satisfied at all
relevant times the relevant criteria and conditions entitling it to such R&D
Credits or Refunds. The Company has accrued R&D Credits and Refunds on the
Interim Balance Sheet and prior to the date hereof in accordance with the
provisions of the Tax Act. The calculation of
19
scientific research and experimental development expenditures that has resulted
in the Company showing a refund of income tax on the Interim Balance Sheet, and
the refund of income tax, have been determined in a manner consistent with the
calculation of the refund of income tax shown on the September 30, 2002 balance
sheet. The determination of the Company's scientific research and experimental
development costs for 2003 has been done in a manner and method consistent with
that used in previous taxation years. The refund received in respect of the
amount claimed as a refund of income pursuant to the Company's 2002 income tax
return is at least 95% of the claim made. For greater certainty, "scientific
research and experimental development costs" are the amounts determined under
the Tax Act to the extent that such expenditure has not been deducted in
computing income pursuant to Section 37(1) of the Tax Act.
(10) To the knowledge of the Company, no claim has ever
been made by a Governmental Authority in respect of Taxes in a jurisdiction
where the Company or its Subsidiary does not file Tax Returns that the Company
or its Subsidiary is or may be subject to Tax by that jurisdiction.
(11) The Paid-up Capital of the Company Shares is, in
aggregate, at least US$18,800,000 and the Stated Capital of the Company Shares
is, in aggregate, at least US$18,800,000. For greater certainty, "Paid-up
Capital" has the meaning attributed to it in Section 89(1) of the Tax Act and
"Stated Capital" has the meaning attributed to it in Section 24 of the BCA.
(12) Up to and including the day prior to the Closing
Date, and throughout the entirety of the Company's taxation year, the Company
has at all times been a Canadian Controlled Private Corporation (a "CCPC") as
that term is defined in Section 125(7) of the Tax Act.
(13) Up to and including the day prior to the Closing Date
the Company has not received any notice issued by the CCRA stating that the
Company's status as a CCPC is being challenged or designating the Company to be
a "public company" as defined in Section 89(1) of the Tax Act.
SECTION 2.12 LEGAL PROCEEDINGS.
(1) Except as set forth in Section 2.12 of the Company
Disclosure Schedule, there are no claims, actions, suits, grievances, complaints
or proceedings, at law or in equity, by any person (including, without
limitation, the Company), nor any arbitration, administrative or other
proceeding by or before (or to the best of the knowledge of the Company any
investigation by) any Governmental Authority pending, or, to the best of the
knowledge of the Company, threatened against or affecting the Company or its
Subsidiary, the Business or Condition of the Company or any of the Company's or
its Subsidiary's Assets and Properties, and the Company knows of no valid basis
for any such action, grievances, complaints, suit, proceeding, arbitration or
investigation by or against the Company or its Subsidiary. Neither the Company
nor its Subsidiary is subject to any judgment, writ, order or decree entered in
any lawsuit or proceeding nor has the Company or its Subsidiary settled any
claim prior to being prosecuted in respect of it. Neither the Company nor its
Subsidiary is the plaintiff or complainant in any Action or Proceeding.
(2) Prior to the execution of this Agreement, the Company
has delivered to Parent all responses of counsel for the Company to auditor's
requests for information for the
20
preceding 5 years (together with any updates provided by such counsel) regarding
Actions or Proceedings pending or threatened against, relating to or affecting
the Company.
SECTION 2.13 COMPLIANCE WITH LAWS AND ORDERS.
Neither the Company nor its Subsidiary has violated, and is not
currently in default under, any Law or Order applicable to the Company or its
Subsidiary or any of their Assets and Properties, except for any such violations
or defaults that would not reasonably be expected to have a material adverse
effect on the Business or Condition of the Company, and the Company is not aware
of any material claim of violation, or of any actual material violation, of any
such Law or Orders.
The Company and its Subsidiary have all licenses, franchises, permits,
authorizations, certifications, easements, variances, exceptions, consents and
orders, including approvals from all Government Authorities ("APPROVALS")
required for the conduct of the business of the Company and its Subsidiary and
the occupancy and operation, for its present uses, of the real and personal
property which the Company or its Subsidiary owns or leases.
SECTION 2.14 EMPLOYEE PLANS.
(1) Section 2.14 of the Company Disclosure Schedule lists
and describes all Employee Plans. The Company has furnished to the Parent true,
correct and complete copies of all the Employee Plans as amended as of the date
hereof, together with all related documentation.
(2) All of the Employee Plans are and have been
established, registered, qualified and administered, in all respects, in
accordance with their terms and all Laws.
(3) All obligations regarding the Employee Plans have
been satisfied, there are no outstanding defaults or violations by any party to
any Employee Plan and no taxes, penalties, or fees are owing or exigible under
or in respect of any of the Employee Plans.
(4) Each Employee Plan which is a funded plan is fully
funded as of the Closing Date on both a going concern and a solvency basis
pursuant to the actuarial assumptions and methodology utilized in the most
recent actuarial valuation therefor.
(5) None of the Employee Plans enjoy any special tax
status under any Laws, nor have any advance tax rulings been sought or received
in respect of any Employee Plan.
(6) All employee data necessary to administer each
Employee Plan has been provided by the Company to the Parent and is true and
correct as of the date of this Agreement and the Company will notify Parent of
any changes thereto.
(7) No insurance policy or any other agreement affecting
any Employee Plan requires or permits a retroactive increase in contributions,
premiums or other payments due thereunder. The level of insurance reserves under
each insured Employee Plan is reasonable and sufficient to provide for all
incurred but unreported claims.
(8) None of the Employee Plans provide benefits to
retired employees or to the beneficiaries or dependants of retired employees.
21
SECTION 2.15 OWNED PROPERTY.
Neither the Company nor its Subsidiary holds, nor has either ever held,
directly or indirectly, any ownership interest in any real or immovable
property.
SECTION 2.16 LEASE.
Neither the Company nor its Subsidiary is a party to, or under any
agreement to become a party to, any lease with respect to real property other
than the Leases, copies of which have been provided to the Parent. The Leases
are in good standing, create good and valid leasehold estate in the Leased
Properties thereby demised, and is in full force and effect without amendment.
With respect to the Leases (i) all rents and additional rents have been paid,
(ii) no waiver, indulgence or postponement of the lessee's obligations has been
granted by the lessors, (iii) there exists no event of default or event,
occurrence, condition or act (including the transactions contemplated by this
Agreement and the Ancillary Agreements) which, with the giving of notice, the
lapse of time or the happening of any other event or condition, would become a
default under any of the Leases, and (iv) to the best knowledge of the Company,
all of the material covenants to be performed by any party (other than the
Company) under the Leases have been fully performed. The Leased Properties are
adequate and suitable for the purposes for which they are presently being used
and each of the Company and its Subsidiary has adequate rights of ingress and
egress into the Leased Properties for the operation of the business of the
Company and its Subsidiary in the ordinary course. Section 2.16 of the Company
Disclosure Schedule contains a list of all of the Leases setting out, in respect
of the Leases, a description of the leased premises (by municipal address and
proper legal description), the terms of the Leases, the rental payments under
the Lease (specifying any breakdown of base rent and additional rents), any
rights of renewal and the terms thereof, and any restrictions on assignment or
change of control of the Company or its Subsidiary.
SECTION 2.17 TITLE TO ASSETS.
(1) Except for title to Company Intellectual Property,
which is covered by Section 2.18 below, each of the Company and its Subsidiary
has good and valid title to all of its Assets and Properties reflected in the
Company Financials or acquired after the Interim Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the Interim Balance Sheet Date in the Ordinary Course of Business), or
with respect to leased properties and assets, valid leasehold interests in, free
and clear of all Liens, except (i) the Lien of current taxes not yet due and
payable, (ii) such imperfections of title, liens and easements as do not and
will not (x) materially detract from or interfere with the use of the properties
subject thereto or affected thereby, or (y) otherwise materially impair business
operations involving such properties and (iii) liens securing debt which is
reflected on the Company Financials. The plants, property and equipment of the
Company and its Subsidiary that are used in the operations of its business are
in good operating condition and repair, subject to normal wear and tear.
(2) TANGIBLE PERSONAL PROPERTY. Each of the Company and
its Subsidiary is in possession of and has good and marketable title to, or has
valid leasehold interests in or valid rights under Contract to use, all tangible
personal property used in the conduct of its business, including all tangible
personal property reflected on the Company Financials and tangible personal
property acquired since the Interim Balance Sheet Date, other than property
disposed of since such date in the Ordinary Course of Business consistent with
past practice. Except as disclosed in Section
22
2.17(2) of the Company Disclosure Schedule, all such tangible personal property
is free and clear of all Liens and is adequate and suitable in all material
respects for the conduct by the Company and its Subsidiary of their respective
businesses as presently conducted, and is in good working order and condition in
all material respects, ordinary wear and tear excepted, and its use complies in
all material respects with all Laws.
SECTION 2.18 INTELLECTUAL PROPERTY.
(1) Section 2.18 of the Company Disclosure Schedule lists
all Company Intellectual Property which has been registered or for which
applications to register have been filed (including all trademarks and service
marks that the Company has used with the intent of creating or benefiting from
any common law rights relating to such marks) and lists any proceedings or
actions pending as of the date hereof before any court or tribunal (including
the CIPO or equivalent authority anywhere in the world) related to any such
Company Intellectual Property.
(2) Each of the Company and its Subsidiary has all
requisite right, title and interest in or valid and enforceable rights under
Contracts to use all Company Intellectual Property necessary to the conduct of
its business as presently conducted and as proposed to be conducted. Except as
set forth in Section 2.18 of the Company Disclosure Schedule, each item of
Company Intellectual Property is owned solely and exclusively by the Company
(excluding Intellectual Property licensed to the Company under any License) and
is free and clear of any Liens. Except as set forth in Section 2.18 of the
Company Disclosure Schedule, the Company (i) owns solely and exclusively all
trademarks, service marks and trade names, and any copyrights therein, used by
the Company or its Subsidiary in connection with the operation or conduct of the
business of the Company or its Subsidiary as presently conducted and as proposed
to be conducted, including the sale of any products or technology or the
provision of any services by the Company or its Subsidiary, and (ii) owns solely
and exclusively, and has good and clear title to, all copyrighted works that are
Company products or other works of authorship that the Company otherwise
purports to own; provided, however, that such works may incorporate copyrighted
works of third parties which are licensed to the Company or are in the public
domain.
(3) The Company Intellectual Property is in full force
and effect and has not been used or enforced or failed to be used or enforced in
a manner that would result in the abandonment, cancellation or unenforceability
of such Company Intellectual Property.
(4) Except pursuant to agreements described in Section
2.18 of the Company Disclosure Schedule, neither the Company nor its Subsidiary
has transferred ownership of or, other than in the Ordinary Course of Business,
granted any License of or other right to use or authorized the retention of any
rights to use any Intellectual Property that is or was Company Intellectual
Property, to any other person.
(5) Sections and 2.18 and 2.19 of the Company Disclosure
Schedule lists all material Contracts (including all inbound Licenses) to which
the Company or its Subsidiary is a party with respect to any Intellectual
Property. Except as set forth in Sections and 2.18 and 2.19 of the Company
Disclosure Schedule, no person other than the Company or its Subsidiary has
ownership rights to improvements or other derivative works made by, on behalf,
or for the Company or its Subsidiary in Company Intellectual Property.
23
(6) The operation of the business of the Company or its
Subsidiary as currently conducted or as presently proposed to be conducted,
including the Company's or its Subsidiary's design, development, use, import,
manufacture, licensing, distribution, and sale of the Company's or its
Subsidiary's products, technology or services incorporating or embodying Company
Intellectual Property (including products, technology or services currently
under development) does not infringe or misappropriate the Intellectual Property
rights of any person, violate the rights of any person (including rights to
privacy or publicity), or constitute unfair competition or an unfair trade
practice under any applicable Law, and the Company has not received notice from
any person claiming that such operation or any Company Intellectual Property,
act, product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates the
Intellectual Property of any person, violates the rights of any person
(including rights to privacy or publicity), or constitutes unfair competition or
trade practices under any Law, nor are there any valid grounds for any such
claims by any person. There is no potential basis for any such claim or
allegation by any person or any reason to believe that any such claim or
allegation may be forthcoming. Except as described in Section 2.18 of the
Company Disclosure Schedule, there are no agreements, understandings,
instruments, Contracts, judgments, orders, or decrees to which the Company or
its Subsidiary is a party or by which either or both are bound which involve
indemnification by the Company or its Subsidiary with respect to infringements
of Intellectual Property of others. There any pending or, to the knowledge of
Company, threatened suit, proceeding, claim, demand, action or investigation of
any nature or kind relating to the Company Intellectual Property.
(7) Except as set forth in Section 2.18 of the Company
Disclosure Schedule, each item of Company Intellectual Property is valid and
subsisting, and all necessary application, prosecution, registration,
maintenance, renewal fees, annuity fees and taxes due through the date of this
Agreement in connection with any Intellectual Property which has been registered
or for which applications to register have been filed, have been performed or
paid, as the case may be, and all necessary documents and certificates in
connection with such Company Intellectual Property have been filed with CIPO in
Canada, or equivalent authority in any foreign jurisdictions, as the case may
be, for the purposes of maintaining such Intellectual Property. Section 2.18 of
the Company Disclosure Schedule lists all actions that must be taken by the
Company or its Subsidiary within 180 days from the date hereof, including the
payment of any registration, maintenance, renewal fees, annuity fees and taxes
or the filing of any documents, applications or certificates for the purposes of
maintaining, perfecting or preserving or renewing any Company Intellectual
Property which has been registered or for which applications to register have
been filed. Except as set forth in Section 2.18 of the Company Disclosure
Schedule, each of the Company and its Subsidiary has registered a copyright with
the CIPO in Canada, or equivalent authority in any foreign jurisdictions, as the
case may be, for the latest version of each product or technology of the Company
or its Subsidiary that constitutes or includes a copyrightable work. In each
case in which the Company or its Subsidiary has acquired ownership of any
Intellectual Property rights from any person, each of the Company and its
Subsidiary, as applicable, has obtained a valid and enforceable assignment
including waivers of non-assignable rights in Intellectual Property (including
without limitation, moral rights) sufficient to irrevocably transfer all rights
in such Intellectual Property (including the right to seek damages with respect
to such Intellectual Property) to the Company and/or its Subsidiary, as
applicable, and, to the maximum extent required to protect the Company's and/or
its Subsidiary's ownership interests in and to such Intellectual Property in
accordance with Laws, the Company and/or its Subsidiary has filed the assignment
of Intellectual Property with the relevant Governmental Authority, including the
CIPO, if applicable, or equivalent authority anywhere in the world.
24
(8) There are no Contracts between the Company or its
Subsidiary and any other person with respect to Company Intellectual Property
under which there is any dispute (or facts that could reasonably lead to a
dispute) known to the Company regarding the scope of such Contract, or
performance under such Contract, including with respect to any payments to be
made or received by the Company or its Subsidiary thereunder. To the best of the
Company's knowledge, there is no potential basis for any such claim or
allegation by any person or any reason to believe that any such claim or
allegation may be forthcoming.
(9) To the best of the Company's knowledge, no person is
infringing or misappropriating any Company Intellectual Property.
(10) Each of the Company and its Subsidiary has taken all
commercially reasonable steps to protect the Company's and its Subsidiary's
rights in confidential information and trade secrets of the Company and its
Subsidiary or provided by any other person to the Company or its Subsidiary
subject to a duty of confidentiality. Without limiting the generality of the
foregoing, each of the Company and its Subsidiary has, and enforces, a policy
requiring each employee, consultant and independent contractor who has access to
Intellectual Property to execute proprietary information, confidentiality and
invention and copyright assignment agreements (which agreements include waivers
of non-assignable rights in Intellectual Property including, without limitation,
moral rights), in a form substantially similar in content to the one provided in
Section 2.18 of the Company Disclosure Schedule, and all current and former
employees, consultants and independent contractors of the Company and its
Subsidiary have executed such agreements, as applicable. Copies of all such
agreements have been provided to Parent or made available to Parent for review.
(11) No (i) product, technology, service or publication of
the Company or its Subsidiary, (ii) material published or distributed by the
Company or its Subsidiary or (iii) conduct or statement of Company's or its
Subsidiary's employees, agents, or representatives constitutes obscene material,
a defamatory statement or material, false advertising in violation of any Law.
(12) Neither this Agreement nor any transactions
contemplated by this Agreement will result in Parent's granting any rights or
licenses with respect to the Intellectual Property of Parent to any person
pursuant to any Contract to which the Company or its Subsidiary is a party or by
which any of its Assets and Properties are bound.
(13) Section 2.18 of the Company Disclosure Schedule sets
forth a list of (x) all software which is material to the business of the
Company or its Subsidiary as presently conducted and as proposed to be conducted
and which the Company or its Subsidiary has licensed from any third party and
which is used by, or is proposed to be used by, the Company or its Subsidiary in
its products or otherwise in its business, (y) all "open source software" which
is material to the business of the Company and its Subsidiary as presently
conducted and as proposed to be conducted and which the Company or its
Subsidiary has licensed from any third party and which is used by the Company or
its Subsidiary in its products or otherwise in its business, and (z) a list of
all "freeware" and "shareware" incorporated into any product now shipped by the
Company or its Subsidiary or to be incorporated into any products proposed to be
shipped by the Company or its Subsidiary. Each of the Company and its Subsidiary
has all rights and licenses necessary to the use of such software, "freeware"
and "shareware."
25
(14) The Company's and its Subsidiary's products comply in
all material respects with all applicable industry standards and, to the best
knowledge of the Company, with the feature specifications and performance
standards set forth in the Company's or its Subsidiary's, as the case may be,
product data sheets under the conditions specified in such data sheets.
(15) In the event that any consultant is concurrently
employed by the Company or its Subsidiary, the Company has taken additional
steps to ensure that any Company Intellectual Property developed by such a
consultant does not belong to the consultant or conflict with the consultant
employment agreement. Such steps include, but are not limited to, ensuring that
all research and development work performed by such consultant are performed
only on the Company's or on its Subsidiary's facilities and only using the
Company's or its Subsidiary's resources.
(16) To the knowledge of the Company, none of the
Company's or its Subsidiary's other employees, is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his or her best efforts to promote
the interests of the Company or its Subsidiary or that would conflict with the
Company's or its Subsidiary's business as currently conducted or as proposed to
be conducted. To the knowledge of the Company, neither the execution nor
delivery of this Agreement or Ancillary Agreements, nor the carrying on of the
Company's or its Subsidiary's business as currently conducted or as proposed to
be conducted by the employees or independent contractors or other
representatives of the Company or its Subsidiary will conflict with or result in
a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees or
independent contractors or representatives is now obligated. The Company does
not use any inventions of any of the Company's or its Subsidiary's employees (or
people it currently intends to hire) made prior to or outside the scope of their
employment by the Company or its Subsidiary.
(17) The Company has in its possession copies of source
code for all computer software forming part of the Company Intellectual
Property. Such source code is fully documented in a manner that a reasonably
skilled programmer in the relevant programming environment could understand,
modify, compile and otherwise utilize all aspects of the related computer
programs without reference to other sources of information. The Company
Intellectual Property and computer software do not contain any viruses, bugs,
time locks, trojan horses, back doors or other means by which they may be
disabled or remotely accessed. Other than as set forth in Section 2.18(17) of
the Company Disclosure Schedule, all copies of any computer software which is
part of the Company Intellectual Property have been distributed solely in object
code form.
(18) Except as set forth in Section 2.18(18) of the
Company Disclosure Schedule, neither Company nor its Subsidiary is required to
pay any royalty, fee or other payment to any third party in connection with its
use of Company Intellectual Property.
(19) There has been no public disclosure, sale, or offer
for sale of any invention forming a part of any patent application (in
preparation or filed) or patent for an invention within the Company Intellectual
Property that was directly or indirectly derived from the inventor(s)(such as a
non-confidential publication or presentation by an inventor, employee, officer,
director or other representative of the Company or its Subsidiary) that could
reasonably be expected to affect the
26
ability of the Company or its Subsidiary to obtain or sustain valid patent
rights to such invention in any jurisdiction where it is desirable or
commercially reasonable for Company or its Subsidiary to obtain patent
protection.
(20) There is no publication, such as a patent, published
or laid-open patent application, journal article, catalogue, promotion or
specification, of another person which may prevent Company or its Subsidiary
from obtaining or sustaining valid patent rights to any patent application (in
preparation or filed) or patent for an invention within the Company Intellectual
Property in any jurisdiction where it is desirable or commercially reasonable
for Company or its Subsidiary to obtain patent protection.
(21) In relation to each patent application (in
preparation or filed) or patent for an invention within the Company Intellectual
Property, Company is not aware of any professional opinion, such as the opinion
of a patent agent or patent attorney, whether preliminary in nature or in any
other manner qualified, to the effect that the chances of obtaining or
sustaining valid patent rights to the invention are considered unlikely, or less
than even, or about even, or any other manner doubtful in any jurisdiction where
it is desirable or commercially reasonable for Company or its Subsidiary to
obtain patent protection.
(22) None of the Company Intellectual Property has been
imported or exported by the Company or its Subsidiary or, to the best of the
Company's knowledge, any other Person in violation of any export or import
restrictions in any jurisdictions where the Company or its Subsidiary conducts
business.
(23) Other than as set forth in Section 2.18(23) of the
Company Disclosure Schedule, none of the Company Intellectual Property has been
developed, or is currently being developed, or is proposed to be developed, by,
on behalf of, or for the Company or its Subsidiary with the assistance or use of
any funding from third parties or third party agencies, including, but not
limited to, funding from any Governmental Authority.
(24) Following the Closing, no Affiliate of the Company or
its Subsidiary will retain or use any Company Intellectual Property.
SECTION 2.19 CONTRACTS.
(1) Section 2.19 of the Company Disclosure Schedule
contains a true and complete list of each of the Contracts or other arrangements
(true and complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been made available to Parent prior to
the execution of this Agreement), to which the Company or its Subsidiary is a
party or by which any of the Company's or its Subsidiary's Assets and Properties
are bound (i) that provide for aggregate payments or services by any party in
excess of US$25,000 per Contract or series of related Contracts between the same
parties (other than employee offer letters, each of which is in substantially
the form previously provided to Parent) and are not terminable by the Company
upon 30 days (or less) notice by the Company or its Subsidiary without penalty
or obligation to make payments based on such termination or (ii) which provides
for continuing services by Amalco after the Closing Date (other than customary
customer support in the Ordinary Course of Business).
27
(2) Each Contract required to be disclosed in Section
2.19 of the Company Disclosure Schedule is in full force and effect and
constitutes a legal, valid and binding agreement of the Company or its
Subsidiary, enforceable in accordance with its terms, and, to the knowledge of
the Company, of each other party thereto; and except as disclosed in Section
2.19 of the Company Disclosure Schedule, to the knowledge of the Company, no
other party to such Contract is, nor has received notice that it is, in
violation or breach of or default under any such Contract (or with notice or
lapse of time or both, would be in violation or breach of or default under any
such Contract).
(3) Except as disclosed in Section 2.19 of the Company
Disclosure Schedule, neither the Company nor its Subsidiary is a party to or
bound by any Contract that has been or could reasonably be expected to be,
individually or in the aggregate with any other similar Contracts, materially
adverse to the Business or Condition of the Company or that has been or would
reasonably be expected to result, individually or in the aggregate with any such
other Contracts in material Losses to the Company or its Subsidiary or be
materially adverse to the Business or Condition of the Company.
(4) Except as disclosed in Section 2.19 of the Company
Disclosure Schedule, neither the Company nor its Subsidiary is a party to or
bound by any Contract that (i) automatically terminates or allows termination by
the other party thereto upon consummation of the transactions contemplated by
this Agreement or (ii) contains any covenant or other provision which limits the
Company's or its Subsidiary's ability to compete with any person in any line of
business or in any area or territory.
SECTION 2.20 INSURANCE.
Section 2.20 of the Company Disclosure Schedule contains a true and
complete list (including the names and addresses of the insurers, the expiration
dates thereof, the annual premiums and payment terms thereof, the period of time
covered thereby and a brief description of the interests insured thereby) of all
liability, property, workers' compensation, directors' and officers' liability
and other insurance policies currently in effect that insure the business,
operations or employees of the Company or its Subsidiary or affect or relate to
the ownership, use or operation of any of the Assets and Properties of the
Company or its Subsidiary and that (a) have been issued to the Company or its
Subsidiary or (b) to the knowledge of the Company, have been issued to any
person (other than the Company) for the benefit of the Company or its
Subsidiary. The insurance coverage provided by the policies described in clause
(a) above will not terminate or lapse by reason of any of the transactions
contemplated by this Agreement. The insurance policies listed in Section 2.20 of
the Company Disclosure Schedule are in amounts and have coverages as required by
any Contract to which the Company or its Subsidiary is a party or by which
either of its Assets and Properties is bound. No claims have been made under any
insurance policies covering the Company or its Subsidiary for greater than
US$25,000 in the aggregate. Neither the Company nor its Subsidiary has received
notice that any insurer under any policy referred to in this Section is denying
liability with respect to a claim thereunder or defending under a reservation of
rights clause by persons conducting businesses or owning assets similar to those
of the Company or its Subsidiary. There is no material claim pending under any
of such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid. Other than as set
forth in Section 2.20 of the Company Disclosure Schedule, the Company has no
knowledge of any threatened
28
termination of, or material premium increase that is inconsistent with the past
practices of any of such policies.
SECTION 2.21 AFFILIATE TRANSACTIONS.
(1) Except as disclosed in Section 2.21 of the Company
Disclosure Schedule, (i) there are no Contracts or Liabilities between the
Company, on the one hand, and (I) any officer, director, stockholder, or to the
Company's knowledge, any Affiliate or Associate of the Company or its Subsidiary
or (II) any person who, to the Company's knowledge, is an Associate of any such
officer, director, stockholder or Affiliate, on the other hand, (ii) neither the
Company nor its Subsidiary provides or causes to be provided any assets,
services or facilities to any such officer, director, stockholder, Affiliate or
Associate, (iii) none of the Company, its Subsidiary nor any such officer,
director, stockholder, Affiliate or Associate provides or causes to be provided
any assets, services or facilities to the Company or its Subsidiary and (iv) the
Company does not beneficially own, directly or indirectly, any Investment Assets
of any such current or former officer, director, stockholder, Affiliate or
Associate.
(2) Each of the Contracts and Liabilities listed in
Section 2.21 of the Company Disclosure Schedule were entered into or incurred,
as the case may be, on terms no less favourable to the Company (in the
reasonable judgment of the Company) than if such Contract or Liability was
entered into or incurred on an arm's length basis on competitive terms. Any
Contract to which the Company or its Subsidiary is a party and in which any
director of the Company or its Subsidiary has a financial interest in such
Contract was approved by a majority of the disinterested members of the Board of
Directors of the Company and/or stockholders of the Company, as the case may be,
in accordance with Law (including without limitation, Section 132 of the BCA).
SECTION 2.22 EMPLOYEE MATTERS.
Except as set forth in Section 2.22 of the Company Disclosure Schedule:
(a) each of the Company and its Subsidiary is in
compliance with all Laws respecting employment and employment practices, terms
and conditions of employment, pay equity and wages and hours of work;
(b) neither the Company nor its Subsidiary has
and is engaged in any unfair labour practice and no unfair labour practice
complaint, grievance or arbitration proceeding is pending or, to the best of the
knowledge of the senior management of the Company, threatened against the
Company or its Subsidiary;
(c) there are no collective bargaining
agreements to which the Company or its Subsidiary is a party. No union
representation question exists respecting the employees of the Company or its
Subsidiary. There is no labour strike, dispute, work slowdown or work stoppage
pending or involving or, to the best of the knowledge of the Company, threatened
against the Company or its Subsidiary. No trade union has applied to have the
Company or its Subsidiary declared a related employer pursuant to the Labour
Relations Act (Ontario) or any similar legislation in any jurisdiction in which
the Company or its Subsidiary carries on business;
29
(d) all amounts due or accrued due for all
salary, wages, bonuses, commissions, vacation with pay, pension benefits or
other employee benefits are reflected in the Books and Records;
(e) Section 2.22 of the Company Disclosure
Schedule contains a correct and complete list of each employee, director,
independent contractor, consultant and agent of the Company or its Subsidiary,
whether actively at work or not, their salaries, wage rates, commissions and
consulting fees, bonus arrangements, benefits, positions, ages, status as
full-time or part-time employees and length of service. Other than as set forth
in Section 2.22 of the Company Disclosure Schedule, no employee of the Company
or its Subsidiary has any agreement as to length of notice or severance payment
required to terminate his or her employment, other than such as results by Law
from the employment of an employee without an agreement as to notice or
severance;
(f) there are no outstanding assessments,
penalties, fines, liens, charges, surcharges, or other amounts due or owing
pursuant to any workplace safety and insurance legislation in respect of the
Company or its Subsidiary and neither the Company nor its Subsidiary has been
reassessed in any material respect under such legislation during the past 3
years and to the knowledge of the Company no audit is currently being performed
pursuant to any applicable workplace safety and insurance legislation. There are
no claims or potential claims which may materially adversely affect the Company,
its Subsidiary, or either of their accident cost experience ratings;
(g) each the Company and its Subsidiary has
complied with the Occupational Health and Safety Act (Ontario) and any similar
Laws. There are no outstanding orders nor any pending or threatened fines or
charges made under the Occupational Health and Safety Act (Ontario) or similar
Laws. There have been no fatal or critical accidents during the one year period
preceding the date hereof which might lead to charges against the Company or its
Subsidiary under the Occupational Health and Safety Act (Ontario) or similar
Laws; and
(h) no notice has been received by the Company
claiming a breach or violation of the Human Rights Code (Ontario), the Pay
Equity Act (Ontario), the Employment Standards Act, 2000 (Ontario) or any
federal or other provincial employment equity legislation.
SECTION 2.23 RETENTION OF EMPLOYEES
The Company has caused all of the employees listed at Schedule
7.2(1)(tt) to execute Key Employee Employment Agreements.
SECTION 2.24 ENVIRONMENTAL MATTERS.
Except as set forth in Section 2.24 to the Company Disclosure Schedule:
(a) none of the real properties (including,
without limitation, the Leased Property) currently or, to the best knowledge of
the Company, formerly owned, leased or used by the Company or its Subsidiary or
over which the Company or its Subsidiary has or had charge, management or
control (such property, the "INDEMNIFICATION PROPERTIES") (i) has ever been used
by any person as a waste disposal site or as a licensed landfill, or (ii) has
ever had asbestos,
30
asbestos-containing materials, PCBs, radioactive substances or aboveground or
underground storage systems, active or abandoned, located on, at or under them;
(b) to the best knowledge of the Company, no
properties adjacent to the Leased Property are contaminated;
(c) neither the Company nor its Subsidiary has
transported, removed or disposed of any waste;
(d) to the best knowledge of the Company, there
are no contaminants located in the ground or in groundwater under the Leased
Property;
(e) neither the Company nor its Subsidiary has
been required by any Governmental Authority to (i) alter the Leased Property in
a material way in order to be in compliance with Environmental Laws, or (ii)
perform any environmental closure, decommissioning, rehabilitation, restoration
or post-remedial investigations, on, about, or in connection with any real
property;
(f) the Assets and Properties of the Company and
its Subsidiary are capable of, and are not restricted by any Authorization or
Contract from, being operated at maximum daily and annual production capacity
while remaining in compliance with Environmental Laws; and
(g) Section 2.24 of the Company Disclosure
Schedule lists all reports and documents relating to the environmental matters
affecting the Company, its Subsidiary or the Leased Property. Copies of all such
reports and documents have been provided to the Parent. To the best knowledge of
the Company, there are no other reports or documents relating to environmental
matters affecting the Company, its Subsidiary, or the Leased Property which have
not been made available to the Parent whether by reason of confidentiality
restrictions or otherwise.
SECTION 2.25 OTHER NEGOTIATIONS; BROKERS; THIRD PARTY EXPENSES.
Neither the Company nor its Subsidiary, nor to the knowledge of the
Company any of its Affiliates (nor any investment banker, financial advisor,
attorney, accountant or other person retained by or acting for or on behalf of
the Company or any such Affiliate) (a) has entered into any Contract that
conflicts with any of the transactions contemplated by this Agreement or (b) has
entered into any Contract or had any discussions with any person regarding any
transaction involving the Company which could result in Parent, the Company, its
Subsidiary, or any general partner, limited partner, manager, officer, director,
employee, agent or Affiliate of any of them being subject to any claim for
liability to said person as a result of entering into this Agreement or
consummating the transactions contemplated hereby. Other than as set forth in
Section 2.25 of the Company Disclosure Schedule, no broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or similar fee or commission in connection with this
Agreement and the transactions contemplated hereby based on arrangements made by
or on behalf of the Company. Any expense incurred in connection with this
section, other than as set out in Section 2.25 of the Company Disclosure
Schedule, shall be the sole responsibility of the Company
31
and the Company hereby indemnifies Parent against any such expense and Parent
will have the right of set-off against the Escrow Amount in relation to any such
expenses.
SECTION 2.26 BANKS AND BROKERAGE ACCOUNTS.
Section 2.26 of the Company Disclosure Schedule sets forth (a) a true
and complete list of the names and locations of all banks, trust companies,
securities brokers and other financial institutions at which the Company or its
Subsidiary has an account or safe deposit box or maintains a banking, custodial,
trading or other similar relationship, (b) a true and complete list and
description of each such account, box and relationship, indicating in each case
the account number and the names of the respective officers, employees, agents
or other similar representatives of the Company or its Subsidiary having
signatory power with respect thereto and (c) a list of each Investment Asset,
the name of the record and beneficial owner thereof, the location of the
certificates, if any, therefor, the maturity date, if any, and any stock or bond
powers or other authority for transfer granted with respect thereto.
SECTION 2.27 CUSTOMERS.
Section 2.27 of the Company Disclosure Schedule is a complete list of
the thirty largest customers of Company and its Subsidiary in each of the last
two fiscal years, including the amounts such customers paid to Company or its
Subsidiary. All Company Contracts with customers were entered into by or on
behalf of Company or its Subsidiary and were entered into in the Ordinary Course
of Business. There are no facts or circumstances that are reasonably likely to
result in the loss of any such customer of Company or its Subsidiary or a
material adverse change in the relationship of Company or its Subsidiary with
any such customer prior to the completion of any applicable current engagement.
None of the Company or its Subsidiary or any executive officer or director of
the Company or its Subsidiary has received any written notice, or, to the
knowledge of the Company, any other communication, from any customer to the
effect that such customer intends to cease or materially reduce the amount of
services requested of, or orders placed with, the Company or its Subsidiary or
otherwise materially reduce the amount of business conducted with the Company or
its Subsidiary.
SECTION 2.28 ACCOUNTS RECEIVABLE.
Section 2.28 of the Company Disclosure Schedule sets forth an accurate
and complete list of all of the Company's and its Subsidiary's receivables
existing as of June 30, 2003 ("RECEIVABLE"). Each Receivable is: (i) a valid and
legally binding obligation of the account debtor enforceable in accordance with
its terms, free and clear of all Liens, and not subject to setoffs, adverse
claims, counterclaims, assessments, defaults, prepayments, defenses, and
conditions precedent; (ii) a true and correct statement of the account for
merchandise actually sold and delivered to, or for services actually performed
for and accepted by, such account debtor; and (iii) is collectible subject to
trade discounts provided in the Ordinary Course of Business and any allowance
for doubtful accounts contained in the Interim Financial Statements.
SECTION 2.29 COMPANY PRODUCTS AND PRODUCT WARRANTY.
All products manufactured, processed, distributed, shipped or sold by
Company or its Subsidiary and any services rendered by the Company or its
Subsidiary have been in conformity with
32
all applicable contractual commitments and all expressed or implied warranties.
No liability exists or, to the knowledge of the Company, will arise for repair,
replacement or damage in connection with such sales or deliveries, in excess of
the reserve therefor on the Interim Financial Statements. Section 2.29 of the
Company Disclosure Schedule sets forth an accurate, correct and complete
statement of all written warranties, guarantees, warranty policies, service and
maintenance agreements of Company and its Subsidiary. Except as disclosed in
Section 2.29 of the Company Disclosure Schedule, no products heretofore
manufactured, processed, distributed, sold, delivered or leased by Company or
its Subsidiary are now subject to any guarantee, written warranty, claim for
product liability, or patent or other indemnity. Except as disclosed in Section
2.29 of the Company Disclosure Schedule, all warranties are in conformity with
the labeling requirements and other requirements of all applicable laws. Section
2.29 of the Company Disclosure Schedule sets forth an accurate, correct and
complete list and summary description of all service or maintenance agreements
under which Company or its Subsidiary is obligated, indicating the terms of such
agreement and any amounts paid or payable thereunder. The product warranty and
return experience for the fiscal year ended September 30, 2002 and the interim
period through June 20, 2003 is set forth in Section 2.29 of the Company
Disclosure Schedule. The product warranty reserves on the Company Financials
were prepared in accordance with GAAP and are adequate in light of the
circumstances of which Company has knowledge.
SECTION 2.30 CORRUPTION.
Neither the Company nor its Subsidiary has engaged in conduct relative
to this Agreement which would constitute an offence under the provisions of the
Corruption of Foreign Public Officials Act (Canada), the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act (Canada), or any similar Laws.
SECTION 2.31 AUTHORIZATIONS.
(1) Section 2.31 of the Company Disclosure Schedule
contains a list of all material Authorizations relating to the business
conducted by the Company or its Subsidiary which are required to be given to or
obtained by the Company or its Subsidiary from any and all Governmental
Authorities and other third parties in connection with the consummation of the
transactions contemplated by this Agreement.
(2) Each of the Company and its Subsidiary has obtained
all material Authorizations from Governmental Authorities and other third
parties necessary to conduct the business conducted by the Company or its
Subsidiary in the manner as it is currently being conducted, and there has been
no written notice received by the Company of any material violation or material
non-compliance with any such Authorizations. All material Authorizations from
Governmental Authorities and other third parties necessary to conduct the
business conducted by the Company or its Subsidiary as it is currently being
conducted are set forth in Section 2.30 of the Company Disclosure Schedule.
(3) The Company has obtained the affirmative vote of (i)
two-thirds (2/3) of the votes cast at the Company Meeting by holders of Company
Common Shares voting as a separate class; (ii) 2/3 of the votes cast at the
Company Meeting by holders of Company Class A Preferred Shares voting as a
separate class; (iii) 2/3 of the votes cast at the Company Meeting by holders of
Company Class B Preferred Shares voting as a separate class; and (iv) not less
than 51% of the votes
33
attached to the Company Shares held by the Investors, are the only votes of the
holders of any of the Company Shares necessary to adopt this Agreement and the
transactions contemplated hereby.
(4) The shareholders of the Company who have exercised
Dissent Rights represent less than 5% of the issued and outstanding Company
Common Shares, calculated on a fully diluted basis (excluding Company Common
Shares represented by Company Options which have not been exercised by the
holders thereof).
SECTION 2.32 INVESTMENT CANADA ACT.
The Company does not provide any "financial services" or
"transportation services" and is not a "cultural business", as each such term
is defined in the Investment Canada Act.
SECTION 2.33 DISCLOSURE.
No representation or warranty contained in this Agreement, and no
statement contained in the Company Disclosure Schedule or in any certificate,
list or other writing furnished to Parent pursuant to any provision of this
Agreement (including the Company Financials and the notes thereto) contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 2.34 CUMULATIVE BREACH.
The breaches, if any, of the representations made by the Company in
this Agreement that would occur, if all references in such representations to
phrases concerning materiality were deleted, in the aggregate do not have or
would not reasonably be expected to have a material adverse effect on the
Company or the Business or Condition of the Company.
34
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent hereby represents and warrants to the Company as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION.
Parent is a company duly organized, validly existing and in good
standing under the Laws of the State of Delaware. Parent has full corporate
power and authority to conduct its business as now conducted and as currently
proposed to be conducted and to own, use and lease its Assets and Properties.
Parent is duly qualified, licensed or admitted to do business and is in good
standing in each jurisdiction in which the ownership, use, licensing or leasing
of its Assets and Properties, or the conduct or nature of its business, makes
such qualification, licensing or admission necessary, except for such failures
to be so duly qualified, licensed or admitted and in good standing that could
not reasonably be expected to have a material adverse effect on the Business or
Condition of Parent. Merger Sub is a company duly incorporated, validly existing
and in good standing under the laws of the Province of Ontario. Merger Sub has
not engaged in any business (other than in connection with this Agreement and
the transactions contemplated thereby) since the date of its incorporation.
SECTION 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
Each of Parent and Merger Sub has full corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it is a
party, to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by each
of Parent and Merger Sub of this Agreement and the Ancillary Agreements to which
it is a party and the consummation by each of Parent and Merger Sub of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action by the Board of Directors of Parent and
Merger Sub and the sole stockholder of Merger Sub, and no other action on the
part of the Board of Directors or stockholders of each of Parent and Merger Sub
is required to authorize the execution, delivery and performance of this
Agreement and the Ancillary Agreements to which it is a party and the
consummation by each of Parent and Merger Sub of the transactions contemplated
hereby and thereby. This Agreement and the Ancillary Agreements to which Parent
is a party have been or will be, as applicable, duly and validly executed and
delivered by Parent and, assuming the due authorization, execution and delivery
hereof by the Company and/or the other parties thereto, constitutes or will
constitute, as applicable, a legal, valid and binding obligation of each of
Parent and Merger Sub enforceable against each of Parent and Merger Sub in
accordance with their respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar Laws relating to the enforcement of creditors'
rights generally and by general principles of equity.
35
SECTION 3.3 NO CONFLICTS.
The execution and delivery by Parent of this Agreement does not, and
the performance by Parent of its obligations under this Agreement and the
consummation of the transactions contemplated hereby do not and will not:
(a) conflict with or result in a violation or
breach of any of the terms, conditions or provisions of the certificate of
incorporation or By-laws of Parent; or
(b) conflict with or result in a violation or
breach of any Law or Order applicable to Parent or its Assets or Properties.
SECTION 3.4 AUTHORIZATIONS.
Other than such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under state,
provincial or federal securities Laws, there are no material Authorizations
relating to the business conducted by Parent required to be given to or obtained
by Parent from any Governmental Authorities in connection with the consummation
of the transactions contemplated by this Agreement.
ARTICLE 4
ADDITIONAL AGREEMENTS
SECTION 4.1 FURTHER ACTION; CONSENTS; FILINGS.
Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use such party's reasonable best efforts to (i) take, or
cause to be taken, all appropriate action and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the Transaction and the other transactions
contemplated by this Agreement, (ii) obtain from any Governmental Authority or
any other person all consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent, the Company
or any of their subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Transaction and the other
transactions contemplated by this Agreement and (iii) make all necessary
filings, and thereafter make any other required submission, with respect to this
Agreement, the Transaction and the other transactions contemplated by this
Agreement required under applicable Law. The parties hereto shall cooperate with
each other in connection with the making of all such filings, including by
providing copies of all such documents to the nonfiling party and its advisors
prior to filing and, if requested, by accepting all reasonable additions,
deletions or changes suggested in connection therewith.
SECTION 4.2 NO PUBLIC ANNOUNCEMENT.
Unless required by applicable Law or a listing agreement with a stock
exchange or national market quotation system, the press release confirming the
execution, delivery, and completion of this Agreement shall be a joint press
release to be issued within a reasonable period of time after the
36
Closing Date, the text of which press release has been agreed to by each of
Parent and the Company.
SECTION 4.3 EXPENSES.
Subject to the terms hereof all costs and expenses incurred in
connection with this Agreement, the Transaction and other transactions
contemplated by this Agreement (including, without limitation, the fees and
expenses of financial advisors, accountants and legal counsel) (i) if incurred
by Parent or Merger Sub, shall be paid by Parent and (ii) if incurred by the
Company or its shareholders shall be paid by the Company or its shareholders,
respectively. For greater certainty, the Company's expenses shall include (i)
the fees payable to and expenses of RBC Capital Markets; (ii) the fees payable
to Ernst & Young for audit and tax services in respect of the transactions
contemplated herein; (iii) the fees payable to XxXxxxx Xxxxxxxxx LLP for legal
services in respect of the transactions contemplated herein; (iv) the fees
payable by Amalco pursuant to the Escrow Agreement; and (v) the insurance
premiums (if any) payable pursuant to Section 4.6 of this Agreement for the
period after December 31, 2003, all as set out in section 2.10 of the Company
Disclosure Schedule. The Company represents, warrants and covenants that the
expenses enumerated in the previous sentence shall not exceed US$750,000. In the
event that such expenses shall exceed US$750,000, Parent shall have the right of
set-off against the Escrow Amount for an amount equal to the difference between
the aggregate amount of such expenses and US$750,000.
SECTION 4.4 CONFIDENTIALITY.
Each of the parties hereby agrees to keep any information or knowledge
obtained pursuant to the negotiation and execution of this Agreement and the
completion of the transactions contemplated hereby confidential, provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession on a
non-confidential basis prior to the disclosure thereof by the other party, (b)
is generally known to the public and did not become so known through any
violation of law, (c) became known to the public through no fault of such party,
(d) is later lawfully acquired by such party from other sources, (e) is required
to be disclosed by order of court or government agency with subpoena powers, (f)
is disclosed in the course of any litigation between any of the parties hereto,
(g) is independently developed by a party through Persons who have not had
accessed to, or knowledge of, such knowledge or information, (h) is required to
be disclosed in order to obtain such consents, waivers and approvals required
pursuant to Section 2.6 and Section 2.30, or (I) is required to be disclosed by
the Parent under applicable securities Laws.
SECTION 4.5 TAX ELECTION.
If Parent so desires, it may elect (or cause the election) to
characterize the Transaction as an asset acquisition for United States tax
purposes under Section 338 of the United States Internal Revenue Code and the
regulations promulgated thereunder (the "IRC").
SECTION 4.6 DIRECTORS AND OFFICERS' LIABILITY INSURANCE.
The Parent hereby agrees to direct Amalco to maintain for a period of 5
years from the date of the completion of the transactions contemplated herein
and in an amount commensurate with the policy amounts maintained by the Company
prior to Closing, "tail" directors' and officers' liability
37
insurance coverage relating to alleged liabilities of the directors and officers
arising prior to the date of the Closing, provided that the cost of such
insurance shall be deemed to be part of the Company's expenses pursuant to
Section 4.3.
ARTICLE 5
CONDITIONS PRECEDENT TO THE TRANSACTION
SECTION 5.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
The respective obligations of the parties to this Agreement to
consummate the Transaction are subject to the satisfaction, on or before the
Closing Date, of the following conditions, each of which may only be waived by
the mutual written consent of Parent and the Company:
(a) ACCURACY OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. Each of the representations, warranties and covenants made by each of
the Parties hereto shall be true and correct, or performed and complied with, in
all material respect. All required consents to the completion of the
transactions contemplated by this Agreement shall have been received and there
shall be no pending or threatened proceeding seeking to prevent the completion
of such transactions.
(b) NO ORDER. No Governmental Authority or court
of competent jurisdiction located or having jurisdiction in the United States or
Canada shall have enacted, issued, promulgated, enforced or entered any statute,
policy, rule, regulation, decree, writ, judgment, injunction or other order,
whether temporary, preliminary or permanent (each, an "ORDER") which is then in
effect and has the effect of making the Transaction illegal or otherwise
prohibiting consummation of the Transaction and no such Order shall be pending
or threatened.
(c) SPECIAL RESOLUTION. The Special Resolution
shall have been approved at the Company Meeting by not less than (i) two-thirds
of the votes cast by the shareholders holding Company Common Shares voting
separately as a class, (ii) two-thirds of the votes cast by shareholders holding
Company Class A Preferred Shares voting separately as a class, (iii) two-thirds
of the votes cast by shareholders holding Company Class B Preferred Shares
voting separately as a class, present in person or represented by proxy at the
Company Meeting. The Special Resolution shall also have been approved by not
less than 51% of the votes attached to the Company Shares held by the Investors
voting together as a single class.
SECTION 5.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUB.
The obligations of Parent and Merger Sub to consummate the Transaction
are subject to the satisfaction, on or before the Closing Date, of the following
additional conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) AGREEMENTS AND COVENANTS. The Company shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement
38
to be performed or complied with by it on or prior to the Closing Date and
Parent shall have received a certificate of the Company to that effect;
(b) AUTHORIZATIONS. Parent shall have received,
each in a form and substance reasonably satisfactory to Parent, all
authorizations, consents, orders and approvals (i) required by any Governmental
Authority or official, if any, (ii) or required by any other third party, with
respect to the Transaction, the failure of which to obtain would have, or could
reasonably be expected to have a Company Material Adverse Effect;
(c) NO COMPANY MATERIAL ADVERSE EFFECT. No event
or events within the control of the Company shall have occurred, or could be
reasonably likely to occur, which, individually or in the aggregate, have, or
could reasonably be expected to have a Company Material Adverse Effect.
(d) NO RESTRAINTS. There shall not be pending or
threatened any suit, action, investigation or proceeding to which a Governmental
Authority is a party (i) seeking to restrain or prohibit the consummation of the
Transaction or any of the other transactions contemplated by this Agreement or
seeking to obtain from Parent, Merger Sub or the Company any damages that are
material or (ii) seeking to prohibit or limit the ownership or operation by
Parent, Merger Sub or the Company of any portion of their respective businesses
or assets;
(e) ESCROW AGREEMENT. The Shareholders'
Representative and Parent shall have entered into the Escrow Agreement and the
Escrow Agreement shall be in full force and effect and shall not have been
anticipatorily breached or repudiated;
(f) COMPANY OPTION PLAN. The Company shall have
provided Parent with evidence, reasonably satisfactory to Parent, as to the
Company's compliance with Section 2.3(3) of this Agreement;
(g) OPINION OF THE COMPANY'S COUNSEL. Parent
shall have received the opinion of XxXxxxx Xxxxxxxxx LLP, legal counsel to the
Company, substantially in the form attached hereto as Exhibit C;
(h) TERMINATION OF THE SHAREHOLDERS' AGREEMENT
AND CO-SALE AGREEMENT. Parent shall have been furnished evidence satisfactory to
it that any shareholders' agreement or co-sale agreement relating to the Company
has been terminated;
(i) EMPLOYEES. All of the Key Employees shall
have executed and delivered to Amalco and/or Parent agreements substantially in
a form satisfactory to Parent (the "KEY EMPLOYEE EMPLOYMENT AGREEMENTS") and
shall be employed by Amalco as of the Closing Date.
SECTION 5.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to consummate the Transaction are
subject to the satisfaction, on or before the Closing Date, of the following
additional conditions, any of which may be waived, in writing, exclusively by
the Company:
39
(a) AGREEMENTS AND COVENANTS. Parent and Merger
Sub shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Closing Date, and the Company shall have received
a certificate of a duly authorized officer of Parent to that effect.
(b) OPINION OF PARENT'S COUNSEL. The Company
shall have received the opinions of legal counsels to Parent and Merger Sub,
substantially in the form attached hereto as Exhibit D.
ARTICLE 6
INDEMNIFICATION
SECTION 6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in this Agreement, the
Ancillary Agreements and any other document or certificate relating hereto or
thereto (collectively, the "ACQUISITION DOCUMENTS") shall survive Closing and
shall continue until 12 months following the Closing Date. The representations
and warranties of Parent contained in the Acquisition Documents shall survive
Closing and shall continue for 12 months following the Closing Date. Neither the
period of survival nor the liability of a party hereto with respect to such
party's representations and warranties shall be affected by any investigation
made at any time (whether before or after the Closing Date) by or on behalf of
the parties or by any actual, implied or constructive knowledge or notice of any
facts or circumstances that the parties may have as a result of any such
investigation or otherwise. The waiver by Parent of any condition based on the
accuracy of any such representation or warranty, or based on the performance of,
or compliance with, any covenant or obligation, shall not affect the right to
indemnification or other remedy based on such representations, warranties,
covenants or obligations, except to the extent specifically set forth in such
waiver. If written notice of a claim has been given prior to the expiration of
the applicable representations and warranties by Parent to the Shareholders'
Representative, then the relevant representations and warranties shall survive
as to such claim until such claim has been finally resolved.
SECTION 6.2 INDEMNIFICATION.
(1) The Escrow Fund shall be available to Parent, Merger
Sub and/or Amalco as the sole and exclusive recourse to compensate, indemnify
and hold harmless Parent, Merger Sub and Amalco and their respective Affiliates,
officers, directors, employees, agents, successors and assigns (collectively,
the "PARENT INDEMNIFIED PARTIES" and, individually, a "PARENT INDEMNIFIED
PARTY"), for any and all liabilities, losses, damages of any kind, diminution in
value, claims, costs, expenses, fines, fees, deficiencies, interest, awards,
judgments, amounts paid in settlement and penalties (including, without
limitation, reasonable attorneys', consultants' and experts' fees and expenses
and other costs of defending, investigating or settling claims) suffered,
incurred, accrued or paid by them (including, without limitation, in connection
with any action brought or otherwise initiated by any of them) (collectively,
"LOSSES"), arising out of or resulting from:
(a) any inaccuracy or breach of any
representation or warranty made by the Company in the Acquisition Documents; or
40
(b) Losses from breach of contract or other
claims made by any party alleging to have had a contractual or other right to
acquire the Company Shares or assets.
(2) As used herein, Losses are not limited to matters
asserted by third parties, but include Losses incurred or sustained by the
Parent and its Affiliates in the absence of claims by third parties.
(3) Except as otherwise provided for herein, no
indemnification payment from the Escrow Fund with respect to any indemnifiable
Losses otherwise payable under Section 6.2(1) and arising out of or resulting
from the causes enumerated in Section 6.2(1) shall be payable until such time as
all such indemnifiable Losses shall aggregate to more than US$100,000, after
which time the Escrow Fund shall be drawn upon for all indemnifiable Losses
(including the first US$100,000), provided, however, that the limitations set
forth in this Section 6.2(3) shall not be operative with respect to Losses
arising from breaches of any of the Company Basic Representations or any breach
by the Company of the representations and warranties set forth in the third
sentence of section 4.3 of this Agreement.
SECTION 6.3 SHAREHOLDERS' REPRESENTATIVE.
Capital Alliance Ventures Inc. (such person and any successor or
successors being the "SHAREHOLDERS' REPRESENTATIVE") shall act as the
representative of the holders of Company Shares and shall be authorized to act
on behalf of such holders, and to take any and all actions required or permitted
to be taken by the Shareholders' Representative under this Agreement or the
Escrow Agreement, including, without limitation, with respect to any claims
(including the settlement thereof) made by a Parent Indemnified Party for
indemnification pursuant to this Article 8 and with respect to any actions to be
taken by the Shareholders' Representative pursuant to the terms of the Escrow
Agreement (including, without limitation, the exercise of the power to (i)
authorize the delivery of certain amounts in the Escrow Fund to a Parent
Indemnified Party in satisfaction of claims by a Parent Indemnified Party, (ii)
agree to, negotiate, enter into settlements and compromises of, and comply with
orders of courts with respect to any claims for indemnification (iii) take all
actions necessary in the judgment of the Shareholders' Representative for the
accomplishment of the foregoing), (iv) incur and be reimbursed for any
reasonable expenses incurred by the Shareholders' Representative in connection
with the performance of its duties thereunder, which amounts shall be payable
from the Escrow Fund after all distributions to Amalco have been made, and (v)
reserve from the Escrow Amount to be distributed to the former shareholders of
the Company a reasonable estimate of the expenses necessary to resolve any
amounts that are the subject of or could become the subject of a dispute. In all
matters relating to this Article 8, the Shareholders' Representative shall be
the only party entitled to assert the rights of the holders of the Company
Shares. The Parent Indemnified Parties shall be entitled to rely on all
statements, representations and decisions of the Shareholders' Representative.
41
ARTICLE 7
GENERAL PROVISIONS
SECTION 7.1 NOTICES.
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telecopy,
facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 9.1):
if to Parent: Rainbow Technologies, Inc.
00 Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
X.X.X.
Facsimile No. (000) 000-0000
Attention: Xxxx Xxxxxx, President and CEO
with a copy to: Xxxxxxx X. Xxxxxxxxx, Esq.
Xxxxxxx Xxxx Seidenwurm & Xxxxx
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
X.X.X.
Facsimile No. (000) 000-0000
with a copy to: Xxxxxxx W X. Xxxxxxxx
Xxxxxx Blaikie LLP
000 Xxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX, X0X 0X0
Xxxxxx
Facsimile No. (000) 000-0000
if to Merger Sub: c/o Rainbow Technologies, Inc.
00 Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
X.X.X.
Facsimile No. (000) 000-0000
Attention: Xxxx Xxxxxx, President and CEO
with a copy to: Xxxxxxx X. Xxxxxxxxx, Esq.
Xxxxxxx Xxxx Seidenwurm & Xxxxx
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
X.X.X.
Facsimile No. (000) 000-0000
with a copy to: Xxxxxxx X. X. Xxxxxxxx
Xxxxxx Blaikie LLP
42
000 Xxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX, X0X 0X0
Xxxxxx
Facsimile No. (000) 000-0000
if to the Company: Chrysalis - ITS Incorporated
Xxx Xxxxxxxxx Xxx
Xxxxxx, XX X0X 0X0
Xxxxxx
Facsimile No. (000) 000-0000
Attention: Xxxxx Xxxxxxxxxx, CEO
with a copy to: Xxxxx Xxxxxx
XxXxxxx Xxxxxxxxx LLP
000 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX, X0X 0X0
Xxxxxx
Facsimile No. (000) 000-0000
if to the Shareholders' Representative: Capital Alliance Ventures Inc.
Attention: Xxxx Xxxxxxxxxx
000 Xxxxx Xxxxxx
Xxxxx 000
Xxxxxx, Xxxxxxx
X0X 0X0
Facsimile No. (000) 000-0000
SECTION 7.2 CERTAIN DEFINITIONS.
(1) As used in this Agreement, the following terms shall
have the following meanings:
(a) "ACTIONS OR PROCEEDINGS" means any action,
suit, grievance, complaint, petition, investigation, proceeding, arbitration,
litigation or Governmental Authority investigation, audit or other proceeding,
whether civil or criminal, in law or in equity, or before any arbitrator or
Governmental Authority.
(b) "AFFILIATE" and "ASSOCIATE" have the
meanings specified in the BCA.
(c) "AMALCO" means the entity to result from the
amalgamation of Merger Sub and the Company.
(d) "AMALCO REDEEMABLE SHARE REDEMPTION PRICE"
means US$1.00.
(e) "AMALGAMATION AGREEMENT" means the
amalgamation agreement between the Company and Merger Sub attached hereto as
Exhibit A.
43
(f) "ANCILLARY AGREEMENTS" means all agreements,
certificates and other instruments delivered or given pursuant to this Agreement
including without limitation the Amalgamation Agreement, Escrow Agreement, and
the Key Employee Employment Agreements.
(g) "ASSETS AND PROPERTIES" means of any Person
means all assets and properties of every kind, nature, character and description
(whether real, personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and wherever situated),
including the goodwill related thereto, operated, owned, licensed or leased by
such Person, including cash, cash equivalents, Investment Assets, accounts and
notes receivable, chattel paper, documents, instruments, general intangibles,
real estate, equipment, inventory, goods and Intellectual Property.
(h) "AUDITED FINANCIAL STATEMENTS" means the
consolidated audited financial statements of the Company and its Subsidiary as
of September 30, 2002 and 2001 consisting in each case of a balance sheet and
accompanying statements of income, retained earnings and changes in financial
position for the period then ended and notes to the financial statements
together with the report of the auditors thereon and prepared in accordance with
GAAP.
(i) "AUTHORIZATIONS" means, with respect to any
Person, any order, permit, approval, waiver, licence or similar authorization of
any Governmental Authority having jurisdiction over the Person.
(j) "BCA" means the Business Corporations Act
(Ontario).
(k) "BOOKS AND RECORDS" means all files,
documents, instruments, papers, books and records of the Company and its
Subsidiary relating to the Business or Condition of the Company, including
financial statements, internal reports, Tax Returns and related work papers and
letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock transfer
ledgers, Contracts, Licenses, customer lists, computer files and programs
(including data processing files and records), retrieval programs, operating
data and plans and environmental studies and plans.
(l) "BUSINESS COMBINATION" means, with respect
to any person, (i) any merger, consolidation or other business combination to
which such person is a party which, for greater certainty, includes an
amalgamation, (ii) any sale, dividend, split or other disposition of any capital
stock or other equity interests of such person (except for issuances of common
stock upon conversion of preferred stock outstanding on the date hereof or the
exercise of options or warrants outstanding on the date hereof or issued in
accordance with the covenants of this Agreement), (iii) any tender offer
(including a self tender), exchange offer, recapitalization, restructuring,
liquidation, dissolution or similar or extraordinary transaction, (iv) any sale,
dividend or other disposition of all or a material portion of the Assets and
Properties of such person (including by way of exclusive license or joint
venture formation) or (v) the entering into of any agreement or understanding,
the granting of any rights or options, or the acquiescence of such person, with
respect to any of the foregoing.
(m) "BUSINESS DAY" means any day on which banks
are not required or authorized to close in Irvine, California or Ottawa,
Ontario.
44
(n) "BUSINESS OR CONDITION OF PARENT" means the
business, financial condition, results of operations or Assets and Properties of
the Parent and its Subsidiaries, in the aggregate.
(o) "BUSINESS OR CONDITION OF THE COMPANY" means
the business (as presently conducted or contemplated to be conducted), financial
condition, results of operations or Assets and Properties of the Company and its
Subsidiary, in the aggregate.
(p) "BYLAWS" means by-law of the Company No. 1,
dated August 29, 1994.
(q) "CCRA" means the Canada Customs and Revenue
Agency.
(r) "CIPO" means the Canadian Intellectual
Property Office.
(s) "COMPANY BASIC REPRESENTATIONS" means the
representations set out in Section 2.1, 2.2, 2.3, 2.6, and 2.25.
(t) "COMPANY CLASS A PREFERRED" means a Class A
Preferred Share in the capital stock of the Company.
(u) "COMPANY CLASS B PREFERRED" means the Class
B Preferred Share in the capital stock of the Company.
(v) "COMPANY COMMON SHARES" means a common share
in the capital stock of the Company.
(w) "COMPANY FINANCIALS" means the Audited
Financial Statements and the Interim Financial Statements.
(x) "COMPANY INTELLECTUAL PROPERTY" shall mean
any Intellectual Property that is owned by the Company or its Subsidiary or
which the Company or its Subsidiary has a right to use under License.
(y) "COMPANY MATERIAL ADVERSE EFFECT" means any
event, circumstance, change, occurrence, fact or effect that, individually or in
the aggregate with all other events, circumstances, changes, occurrences, facts
and/or effects (i) is or is reasonably likely to be materially adverse to the
business, financial condition or results of operations of the Company, taken as
a whole or (ii) is or is reasonably likely to prevent or materially delay the
Company from performing its obligations under this Agreement.
(z) "COMPANY MEETING" has the meaning set forth
in the recitals hereto.
(aa) "COMPANY OPTION(S)" means any unexercised
and unexpired Option to purchase Company Shares or any securities of the
Company's Subsidiary.
(bb) "COMPANY SHARES" means, collectively, the
Company Common Shares, the Company Class A Preferreds and the Company Class B
Preferreds.
45
(cc) "COMPANY WARRANTS" means any warrants to
purchase Company Shares or any other securities of the Company or its
Subsidiary.
(dd) "CONTRACT" means any contract, agreement or
other business arrangement (whether oral or written) including:
(i) any distributor, sales,
advertising, agency or manufacturer's representative contract;
(ii) any continuing contract for the
purchase of materials, supplies, equipment or services;
(iii) any contract that expires or may be
renewed at the option of any person other than the Company or its Subsidiary so
as to expire more than one year after the date of this Agreement;
(iv) any trust indenture, mortgage,
promissory note, loan agreement or other contract for the borrowing of money,
any currency exchange, commodities or other hedging arrangement or any leasing
transaction of the type required to be capitalized in accordance with generally
accepted accounting principles;
(v) any contract for capital
expenditures in excess of US$5,000 in the aggregate;
(vi) any contract limiting the freedom
of the Company or its Subsidiary to engage in any line of business or to compete
with any other Person or any confidentiality, secrecy or non-disclosure
contract;
(vii) any contract pursuant to which the
Company or its Subsidiary is a lessor of any machinery, equipment, motor
vehicles, office furniture, fixtures or other personal property;
(viii) any contract with any person with
whom the Company or its Subsidiary does not deal at arm's length;
(ix) any contract that is not terminable
by the Company or its Subsidiary upon 30 days (or less) notice by the Company
without penalty or obligation to make payments based on such termination;
(x) any agreement of guarantee,
support, indemnification, assumption or endorsement of, or any similar
commitment with respect to, the obligations, liabilities (whether accrued,
absolute, contingent or otherwise) or indebtedness of any other Person; or
(xi) any License.
(ee) "CONTROL" or "CONTROL" (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly or as trustee or executor, of the power to direct or cause the
direction of the management and policies of a person,
46
whether through the ownership of voting securities, as trustee or executor, by
contract or credit arrangement or otherwise.
(ff) "CORPORATE DOCUMENTS" means the corporate
records of the Company and its Subsidiary, including (i) the articles and
By-laws, (ii) all minutes of meetings and resolutions of shareholders and
directors (and any committees), and (iii) the share certificate books,
securities register, register of transfers and register of directors and
officers.
(gg) "EMPLOYEE PLAN(S)" means all the employee
benefit, fringe benefit, supplemental unemployment benefit, bonus, incentive,
commission, profit sharing, termination, change of control, group RRSP, pension,
retirement, stock option, stock purchase, stock loan, stock appreciation,
health, welfare, medical, dental, disability, life insurance and similar plans,
programmes, arrangements or practices relating to the current or former
employees, officers or directors of the Company or its Subsidiary maintained,
sponsored or funded by the Company or its Subsidiary, whether written or oral,
funded or unfunded, insured or self-insured, registered or unregistered.
(hh) "ENVIRONMENTAL LAWS" means all applicable
Laws and agreements with Governmental Authorities and all other statutory
requirements relating to public health or the protection of the environment and
all Authorizations issued pursuant to such Laws, agreements or statutory
requirements.
(ii) "EQUITY EQUIVALENTS" means securities
(including Company Options) which, by their terms, are or may be exercisable,
convertible or exchangeable for or into common stock, preferred stock or other
securities at the election of the holder thereof.
(jj) "ESCROW AMOUNT PER SHARE" means a dollar
amount equal to the relative pro rata interest of a holder of Amalco Redeemable
Shares in the Escrow Agreement by reference to the total amount of Redemption
Consideration to which such holder is entitled compared to the total amount of
Redemption Consideration to which all holders are entitled.
(kk) "GAAP" means, at any time, accounting
principles generally accepted in Canada, including those set out in the Handbook
of the Canadian Institute of Chartered Accountants, at the relevant time applied
on a consistent basis.
(ll) "GOVERNMENTAL AUTHORITY" means any (i)
multinational, federal, provincial, state, municipal, local or other
governmental or public department, central bank, court, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii) any subdivision or
authority of any of the foregoing, or (iii) any quasi-governmental or private
body exercising any regulatory, expropriation or taxing authority under or for
the account of any of the above.
(mm) "INDEBTEDNESS" of any person means all
obligations of such person (a) for borrowed money, (b) evidenced by notes,
bonds, debentures or similar instruments, (c) for the deferred purchase price of
goods or services (other than trade payables or accruals incurred in the
Ordinary Course of Business), (d) under capital leases and (e) in the nature of
guarantees of the obligations described in clauses (a) through (d) above of any
other person.
(nn) "INTELLECTUAL PROPERTY" means all domestic
and foreign trademarks and trademark rights, trade names and trade name rights,
47
service marks and service xxxx rights, service names and service name rights,
patents and patent rights, utility models and utility model rights, copyrights,
mask work rights, brand names, trade dress, product designs, product packaging,
business and product names, logos, slogans, rights of publicity, trade secrets,
inventions (whether patentable or not), invention disclosures, improvements,
processes, formulae, industrial models, processes, designs, industrial designs,
specifications, technology, methodologies, schematics, computer software
(including all source code and object code), firmware, development tools, flow
charts, annotations, all Web addresses, sites and domain names, all data bases
and data collections and all rights therein, any other confidential and
proprietary right or information, whether or not subject to statutory
registration, and all related technical information, manufacturing, engineering
and technical drawings, know-how and all pending applications for and
registrations of any of the foregoing including, without limitation, patents,
utility models, trademarks, service marks and copyrights, and the right to xxx
for past, present or future infringements or misappropriations, if any, in
connection with any of the foregoing, all income, royalties, damages and
payments now hereafter due and/or payable with respect to any of the foregoing
including, without limitation, damages and payments for past or future
infringements or misappropriations thereof, and all documents, disks, records,
files and other media on which any of the foregoing is stored.
(oo) "INTERIM FINANCIAL STATEMENTS" means the
unaudited consolidated financial statements for the 9 month period, up to June
30, 2003 of the Company and its Subsidiary consisting of a balance sheet and
accompanying statements of income, retained earnings and changes in financial
position for such period.
(pp) "INVESTMENT ASSETS" means all debentures,
notes and other evidences of indebtedness, stocks, securities (including rights
to purchase and securities convertible into or exchangeable for other
securities), interests in joint ventures and general and limited partnerships,
mortgage loans and other investment or portfolio assets owned of record or
beneficially by the Company.
(qq) "INVESTORS" means each of Investissments
Novacap Inc., Capital Alliance Ventures Inc., The Business, Engineering, Science
& Technology Discoveries Fund Inc., Centara Investments Inc., Intel Corporation,
X.X. Xxxxxxxx XX Venture Fund, Mosaid Technologies Incorporated, CIBC Capital
Partners, a division of Canadian Imperial Bank of Commerce, Working Ventures
Canadian Fund Inc., Altamira Management Ltd. (as agent for Triax Growth Fund
Inc.), Altamira Management Ltd. (as agent for Altamira Equity Fund), AGF
Management Limited, RT Capital Management Inc., Laketon Investment Management
Limited, The Xxxxxxx Xxxxx Group Inc. and Xxxxx Xxxxxx Xxxx 0000 X.X.X.
(xx) "KEY EMPLOYEES" means the employees of the
Company designated in Schedule 7.2(1)(tt).
(ss) "LAW" or "LAWS" means any law, statute,
order, decree, consent decree, judgment, rule, regulation, ordinance or other
pronouncement having the effect of law whether in Canada, the United States, any
other foreign country, or any domestic or foreign state, county, city or other
political subdivision or of any Governmental Authority.
(tt) "LEASED PROPERTY" means the lands and
premises listed and described in Section 2.16 by the Company Disclosure
Schedule.
48
(uu) "LEASES" means the leases of the Leased
Property, and any and all amendments thereto.
(vv) "LIABILITIES" means all Indebtedness,
obligations and other liabilities of a Person, whether absolute, accrued,
contingent (or based upon any contingency), known or unknown, fixed or
otherwise, or whether due or to become due and "Liability" means any one of the
foregoing.
(ww) "LICENSE" means any Contract that grants a
Person the right to use or otherwise enjoy the benefits of any Intellectual
Property (including without limitation any covenants not to xxx with respect to
any Intellectual Property).
(xx) "LIEN" means any mortgage, pledge,
assessment, security interest, lease, lien, easement, license, covenant,
condition, restriction, adverse claim, levy, charge, option, equity, adverse
claim or restriction or other encumbrance of any kind, or any conditional sale
contract, title retention contract or other Contract to give any of the
foregoing.
(yy) "MERGER SUB SHARES" means the common shares
in the capital stock of Merger Sub.
(zz) "OPTION(S)" means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (1) purchase or otherwise receive or be issued any shares of
capital stock or other equity interests of such person or any security of any
kind convertible into or exchangeable or exercisable for any shares of capital
stock or other equity interests in such person or (2) receive any benefits or
rights similar to any rights enjoyed by or accruing to the holder of shares of
capital stock or other equity interests of such person, including any rights to
participate in the equity, income or election of directors or officers of such
person.
(aaa) "ORDINARY COURSE OF BUSINESS" shall describe
any action taken by a Person if: (a) such action is consistent with such
Person's past practices and is taken in the ordinary course of such Person's
normal day to day operations; (b) such action is taken in accordance with sound
and prudent business practices; (c) such action is not required to be authorized
by such Person's shareholders, board of directors or any committee thereof and
does not require any other separate or special authorization of any nature; and
(d) such action is similar in nature and magnitude to actions customarily taken,
without any separate or special authorization, in the ordinary course of the
normal day to day operations of other entities that are engaged in businesses
similar to such Person's business.
(bbb) "PERSON" or "PERSON" includes an individual,
body corporate, company, partnership, limited partnership, syndicate, person
(including, without limitation, a "person" as defined in the Securities Act
(Ontario)), trust, association or entity or government, political subdivision,
agency or instrumentality of a government.
(ccc) "SPECIAL RESOLUTION" means the special
resolution (within the meaning of the BCA) of the shareholders of Amalco to
approve the Transaction and to appoint the Shareholders' Representative.
(ddd) "SUBSIDIARY" or "SUBSIDIARIES" of any person
means any Company, partnership, joint venture or other legal entity of which
such person (either alone or through or
49
together with any other subsidiary) owns, directly or indirectly, more than 50%
of the stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such Company or other legal entity.
(eee) "TAX" or "TAXES" means (i) any tax, duty,
fee, excise, premium, assessment, impost, levy and other charges or assessments
of any kind whatsoever imposed by any Governmental Authority, whether computed
on a separate, consolidated, unitary, combined or other basis, including those
levied on, or measured by, or described with respect to, income, gross receipts,
profits, gains, windfalls, capital, capital stock, production, recapture,
transfer, land transfer, license, gift, occupation, wealth, environment, net
worth, indebtedness, surplus, sales, goods and services, harmonized sales, use,
value-added, excise, special assessment, stamp, withholding, business,
franchising, real or personal property, health, employee health, payroll,
workers' compensation, employment or unemployment, severance, social services,
social security, education, utility, surtaxes, customs, import or export, and
including all license and registration fees and all employment insurance, health
insurance and government pension plan premiums or contributions; (ii) all
interest, penalties, fines, additions to tax or other additional amounts imposed
by any Governmental Authority on or in respect of amounts of the type described
in (i) or this (ii); (iii) any liability for the payment of any amounts of the
type described in (i) or (ii) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iv) any liability
for the payment of any amounts of the type described in (i) or (ii) as a result
of any express or implied obligation to indemnify any other Person or as a
result of being a transferee or successor in interest to any party.
(fff) "TAX ACT" means the Income Tax Act, R.S.C.
1985 (5th Supp.) c.1, as amended.
(ggg) "TAX RETURNS" means any returns, reports,
declarations, elections, notices, forms, designations, filings, and statements
(including, without limitation, estimated Tax returns and reports, withholding
Tax returns and reports, and information returns and reports) filed or required
to be filed in respect of Taxes.
(2) The following terms shall have the meanings defined
for such terms in the Sections of this Agreement set forth below:
--------------------------------------------------------------------
TERM SECTION
--------------------------------------------------------------------
"ACQUISITION DOCUMENTS" Section 6.1
--------------------------------------------------------------------
"AGREEMENT" Preamble
--------------------------------------------------------------------
"AMALCO CASH PAYMENT" Section 1.7(1)(a)(i)
--------------------------------------------------------------------
"AMALCO COMMON SHARES" Section 1.2(4)
--------------------------------------------------------------------
"AMALCO REDEEMABLE SHARES" Section 1.2(4)
--------------------------------------------------------------------
"CLOSING" Section 1.5
--------------------------------------------------------------------
50
--------------------------------------------------------------------
"CLOSING DATE" Section 1.5
--------------------------------------------------------------------
"COMPANY" Preamble
--------------------------------------------------------------------
"COMPANY DISCLOSURE SCHEDULE" Article 2
--------------------------------------------------------------------
"COMPANY OPTION PLAN" Section 2.3(3)
--------------------------------------------------------------------
"COMPANY OPTIONS" Section 2.3(3)
--------------------------------------------------------------------
"DISSENT RIGHTS" Section 1.4
--------------------------------------------------------------------
"DISSENTING SHAREHOLDERS" Section 1.4
--------------------------------------------------------------------
"EMPLOYEE PLAN" Section 1.7(5)
--------------------------------------------------------------------
"ESCROW ACCOUNT" Section 1.6
--------------------------------------------------------------------
"ESCROW AGENT" Section 1.6
--------------------------------------------------------------------
"ESCROW AGREEMENT" Section 1.6
--------------------------------------------------------------------
"ESCROW AMOUNT" Section 1.6
--------------------------------------------------------------------
"ESCROW FUND" Section 1.6
--------------------------------------------------------------------
"INDEMNIFICATION PROPERTIES" Section 2.24(a)
--------------------------------------------------------------------
"INTERIM BALANCE SHEET DATE" Section 2.10
--------------------------------------------------------------------
"KEY EMPLOYEE EMPLOYMENT AGREEMENTS" Section 5.2(i)
--------------------------------------------------------------------
"LOSSES" Section 6.2(1)
--------------------------------------------------------------------
"MERGER SUB" Preamble
--------------------------------------------------------------------
"ORDER" Section 5.1(a)
--------------------------------------------------------------------
"PARENT" Preamble
--------------------------------------------------------------------
"PARENT INDEMNIFIED PARTY" Section 6.2(1)
--------------------------------------------------------------------
"PROPORTIONATE REDEMPTION CONSIDERATION" Section 1.8(1)
--------------------------------------------------------------------
"R&D CREDITS OR REFUNDS" Section 2.11(9)
--------------------------------------------------------------------
51
--------------------------------------------------------------------
"RECEIVABLE" Section 2.28
--------------------------------------------------------------------
"REDEEMABLE SHARE AMOUNT" Section 1.2(5)(f)
--------------------------------------------------------------------
"REDEMPTION CONSIDERATION" Section 1.7(1)
--------------------------------------------------------------------
"REDEMPTION DATE" Section 1.3(2)
--------------------------------------------------------------------
"SEGREGATED ACCOUNT" Section 1.3(2)
--------------------------------------------------------------------
"SHAREHOLDERS' REPRESENTATIVE" Section 6.3
--------------------------------------------------------------------
"SUBSCRIPTION CONSIDERATION" Section 1.1
--------------------------------------------------------------------
"TIME OF REDEMPTION" Section 1.3(2)
--------------------------------------------------------------------
"TRANSACTION" Preamble
--------------------------------------------------------------------
"WITHHELD AMOUNT" Section 1.8(1)
--------------------------------------------------------------------
SECTION 7.3 SEVERABILITY.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of Law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated by this Agreement is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement be consummated as
originally contemplated to the fullest extent possible.
SECTION 7.4 ASSIGNMENT; BINDING EFFECT; BENEFIT.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of Law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and such parties respective
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
52
SECTION 7.5 INCORPORATION OF EXHIBITS.
The Company Disclosure Schedule and all exhibits and schedules attached
hereto and referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
SECTION 7.6 SPECIFIC PERFORMANCE.
The parties hereto agree that irreparable damage would occur in the
event any provision of this Agreement was not performed in accordance with the
terms hereof and that the parties shall be entitled to specific performance of
the terms hereof in addition to any other remedy at law or in equity.
SECTION 7.7 GOVERNING LAW; FORUM.
This Agreement shall be governed by, and construed in accordance with,
the laws of Ontario and the federal laws of Canada applicable therein without
regard to any applicable conflicts of law. In any such action, each of the
parties irrevocably and unconditionally consents and submits to the jurisdiction
and venue of the courts located in Ontario.
SECTION 7.8 WAIVER OF JURY TRIAL.
Each of the parties hereto hereby irrevocably waives any and all right
to trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
SECTION 7.9 CONSTRUCTION AND INTERPRETATION.
(1) For purposes of this Agreement, whenever the context
requires, the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(2) Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all parties and their
attorneys/lawyers and shall be construed and interpreted according to the
ordinary meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties hereto.
(3) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(4) Except as otherwise indicated, all references in this
Agreement to "Articles," "Sections," "Schedules" and "Exhibits" are intended to
refer to an Article or Section of, or Schedule or Exhibit to, this Agreement.
53
(5) Except as otherwise indicated, all references (i) to
any agreement (including this Agreement), contract or Law are to such agreement,
contract or Law as amended, modified, supplemented or replaced from time to
time, and (ii) to any Governmental Authority include any successor to that
Governmental Authority.
(6) The term "knowledge", when used in connection with
the Company, shall mean the knowledge of the management of the Company after
conducting reasonable inquiries relating to the relevant matter.
(7) The term "provided" or "furnished", when used to
describe the delivery of documents or records relating to the business of the
Company by the company to Parent, shall be deemed to include any delivery of
such documents or records to the financial or legal advisors of Parent.
(8) The phrase "proposed to be conducted", when used in
connection with the business of the Company, means the business contemplated by
the current business, budget and/or strategic plan of the Company approved or
reviewed by the board of directors of the Company in the Ordinary Course of
Business.
(9) References to "the Company" shall include all
predecessor entities thereof.
SECTION 7.10 FURTHER ASSURANCES.
Each party hereto shall execute and cause to be delivered to each other
party hereto such instruments and other documents, and shall take such other
actions, as such other party may reasonably request (prior to, at or after the
Closing) for the purpose of carrying out or evidencing any of the transactions
contemplated by this Agreement.
SECTION 7.11 HEADINGS.
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 7.12 COUNTERPARTS.
This Agreement may be executed and delivered (including by facsimile
transmission) in two or more counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 7.13 TIME LIMITS
Time is of the essence of this Agreement and all documents and
agreements ancillary hereto.
SECTION 7.14 ENTIRE AGREEMENT.
This Agreement (including the Company Disclosure Schedule and all
exhibits and schedules attached hereto) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect
54
thereto. No addition to or modification of any provision of this Agreement shall
be binding upon any party hereto unless made in writing and signed by all
parties hereto.
SECTION 7.15 CURRENCY.
All dollar amounts referenced herein are to lawful currency of the
United States of America.
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IN WITNESS WHEREOF, each of the Company, Parent, Merger Sub and the
Shareholders' Representative has executed or has caused this Agreement to be
executed by a duly authorized entity as of the date first written above.
RAINBOW TECHNOLOGIES, INC.
By: ________________________________________
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer and President
CHRYSALIS-ITS INCORPORATED
By: ________________________________________
Name: Xxxxx Xxxxxxxxxx
Title: Chief Executive Officer
RTI ACQUISITION CORP.
By: ________________________________________
Name: Xxxxx Xxxxxx
Title: President
CAPITAL ALLIANCE VENTURES INC.
By: ________________________________________
Name: Xxxx Xxxxxxxxxx
Title: President
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EXHIBIT A
AMALGAMATION AGREEMENT
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EXHIBIT B
ESCROW AGREEMENT
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EXHIBIT C
COMPANY COUNSEL LEGAL OPINION
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EXHIBIT D
PARENT AND MERGER SUB LEGAL OPINIONS
60
COMPANY DISCLOSURE SCHEDULE
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SCHEDULE 7.2(1)(tt)
KEY EMPLOYEES
Xxxx Xxxxxxxxxx
Xxxxx Xxxx
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