EXHIBIT 4.e
REORGANIZATION AGREEMENT
BETWEEN
CONEXANT SYSTEMS, INC.
AND
PHILSAR SEMICONDUCTOR INC.
AND
THE SHAREHOLDERS NAMED IN SCHEDULE A HERETO
MADE AS OF
April 11, 2000
TABLE OF CONTENTS
ARTICLE I INTERPRETATION
Section 1.1 Definitions.................................................................................3
Section 1.2 Headings...................................................................................12
Section 1.3 Extended Meanings..........................................................................12
Section 1.4 Currency...................................................................................13
Section 1.5 Schedules and Exhibits.....................................................................13
ARTICLE II REORGANIZATION
Section 2.1 Reorganization.............................................................................13
Section 2.2 Approval of the Reorganization.............................................................15
Section 2.3 Closing....................................................................................16
Section 2.4 Termination of Agreement...................................................................16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
Section 3.1 Organization and Good Standing.............................................................17
Section 3.2 Capitalization; Title to Shares and Structure..............................................18
Section 3.3 No Subsidiaries............................................................................20
Section 3.4 Due Authorization; Enforceability..........................................................20
Section 3.5 No Violation...............................................................................20
Section 3.6 Financial Statements.......................................................................21
Section 3.7 Absence of Certain Changes.................................................................21
Section 3.8 Litigation.................................................................................23
Section 3.9 Compliance with Laws.......................................................................23
Section 3.10 Environmental Matters......................................................................23
Section 3.11 Taxes......................................................................................24
Section 3.12 Property...................................................................................25
Section 3.13 Intellectual Property Matters..............................................................26
Section 3.14 Employee Benefit and Labour Matters........................................................29
Section 3.15 Other Compensation Arrangements............................................................32
Section 3.16 Transactions With Affiliates...............................................................32
Section 3.17 Customers and Suppliers....................................................................32
Section 3.18 Material Contracts.........................................................................33
Section 3.19 Insurance..................................................................................35
Section 3.20 Disclosure.................................................................................36
Section 3.21 Brokers or Finders.........................................................................36
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF CONEXANT
Section 4.1 Organization, Standing and Power...........................................................37
Section 4.2 Due Authorization; Enforceability..........................................................37
Section 4.3 No Violation...............................................................................37
Section 4.4 Financial Statements and SEC Documents.....................................................38
Section 4.5 Litigation and Other Proceedings...........................................................38
Section 4.6 Disclosure.................................................................................38
Section 4.7 Brokers and Finders........................................................................39
ARTICLE V COVENANTS
Section 5.1 Taxes Not Assumed by Conexant..............................................................39
Section 5.2 Covenants of the Shareholders and the Corporation..........................................39
Section 5.3 Covenants of Conexant......................................................................42
ARTICLE VI CONDITIONS
-II-
Section 6.1 Conditions for the Benefit of Conexant.....................................................45
Section 6.2 Conditions for the Benefit of the Shareholders.............................................48
ARTICLE VII INDEMNIFICATION AND ESCROW
Section 7.1 Survival of Representations and Warranties.................................................49
Section 7.2 Indemnities................................................................................50
Section 7.3 Escrow Fund and Procedure..................................................................51
Section 7.4 No Third Party Beneficiaries...............................................................53
Section 7.5 Exclusive Remedy...........................................................................53
ARTICLE VIII GENERAL
Section 8.1 Further Assurances.........................................................................54
Section 8.2 Time of the Essence........................................................................54
Section 8.3 Commissions................................................................................54
Section 8.4 Fees.......................................................................................54
Section 8.5 Public Announcements.......................................................................55
Section 8.6 Benefit of the Agreement...................................................................55
Section 8.7 Entire Agreement...........................................................................55
Section 8.8 Amendments and Waiver......................................................................55
Section 8.9 Assignment.................................................................................55
Section 8.10 Notices....................................................................................55
Section 8.11 Governing Law..............................................................................57
Section 8.12 Tax Effect of Transaction..................................................................57
Section 8.13 Severability...............................................................................57
Section 8.16 Facsimile Signatures.......................................................................58
REORGANIZATION AGREEMENT
THIS AGREEMENT is made as of April 11, 2000, between CONEXANT
SYSTEMS, INC., a corporation incorporated under the laws of Delaware
("Conexant"), PHILSAR SEMICONDUCTOR INC., a corporation incorporated under the
laws of Canada (the "Corporation"), and the shareholders of the Corporation
referred to in Schedule A hereto (each a "Shareholder" and, collectively, the
"Shareholders").
WHEREAS the Shareholders are the beneficial and registered
owners of not less than two-thirds of each class of the issued and outstanding
shares of the Corporation;
AND WHEREAS upon the terms and subject to the conditions of
this Agreement, Conexant, the Corporation and the Shareholders have agreed to
effect the following reorganization (the "Reorganization"):
(a) the amendment of the share capital of the Corporation
by Articles of Amendment in the form annexed hereto
as Exhibit I in respect of the creation of 100 Class
C Non-Voting Preferred Shares having the respective
rights, privileges, restrictions and conditions set
forth in Exhibit I hereto;
(b) the issue by the Corporation of 100 Class
C Non-Voting Preferred Shares to Conexant in
consideration for the issue to the Corporation of 10
Conexant Shares;
(c) the amendment of the share capital of the Corporation
by articles of amendment in the form annexed hereto
as Part A of Exhibit II, in respect of the following:
(i) the creation of an unlimited number of
Exchangeable Shares having the respective
rights, privileges, restrictions and
conditions set forth in the articles of
amendment of the Corporation annexed hereto
as Part A of Exhibit II;
(ii) the creation of an unlimited number of Class
A Common Shares (the "Special Shares")
having the rights, privileges, restrictions
and conditions set out in the articles of
amendment of the Corporation annexed hereto
as Part A of Exhibit II; and
(iii) the changing of each issued and outstanding
Common Share into that number of
Exchangeable Shares equal to the Exchange
Ratio;
(d) the amendment of the share capital of the Corporation
by articles of amendment in the form annexed hereto
as Part B of Exhibit II, in respect of the following:
(i) the changing of each issued and outstanding
Class A Preferred Share into that number of
Exchangeable Shares equal to the Exchange
Ratio; and
(ii) the changing of each issued and outstanding
Class B Preferred Share into that number of
Exchangeable Shares equal to the Exchange
Ratio;
(e) the amendment of all outstanding Warrants, such that
the holders of such Warrants shall be entitled to
receive upon due exercise of such Warrants, in the
aggregate, that number of Conexant Shares equal to
the product obtained by multiplying (i) the number of
Common Shares issuable, with or without the passage
of time or satisfaction of other conditions, upon the
exercise of such Warrants, by (ii) the Exchange
Ratio;
(f) the amendment of all of the outstanding Employee
Stock Options, such that the holders of such Employee
Stock Options shall be entitled to receive upon due
exercise of such Employee Stock Options, in the
aggregate, that number of Conexant Shares equal to
the product obtained by multiplying (i) the number of
Common Shares issuable, with or without the passage
of time or satisfaction of other conditions, upon the
exercise of Employee Stock Options by (ii) the
Exchange Ratio;
(g) the amendment of all of the outstanding Convertible
Debenture Options, such that the holders of such
Convertible Debenture Options shall be entitled to
receive upon due exercise of such Convertible
Debenture Options in the aggregate, that number of
Conexant Shares equal to the product obtained by
multiplying (i) the number of Common Shares issuable,
with or without the passage of time or satisfaction
of other conditions, upon the exercise of Convertible
Debenture Options by (ii) the Exchange Ratio;
(h) immediately after step (d) above, the issue to
Conexant by the Corporation of 60,000 Special Shares
of the Corporation in consideration for the transfer
by Conexant to the Corporation of the 100 Class C
Non-Voting Preferred Shares of the capital stock of
the Corporation acquired by Conexant in step (b)
above;
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(i) the cancellation by the Corporation of the 100 Class
C Non-Voting Preferred Shares purchased from
Conexant; and
(j) the issuance to the Trustee, on behalf of the holders
of the Exchangeable Shares, of the Conexant Preferred
Share having the right to cast that number of votes
at meetings of holders of Conexant Shares equal to
the number of Exchangeable Shares outstanding from
time to time (excluding any Exchangeable Shares held
by Conexant or any direct or indirect subsidiary of
Conexant).
AND WHEREAS the Exchangeable Shares may be exchanged by the holders for
Conexant Shares (as defined below) on a one-for-one basis, subject to the
provisions of the Exchangeable Shares, the Exchange Trust Agreement and the
Support Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
premises and the covenants and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
INTERPRETATION
Section 1.1 Definitions. In this Agreement, unless something in the subject
matter or context is inconsistent therewith:
"Action" means any action, suit, proceeding, appeal, claim,
arbitration, mediation, alternative dispute resolution procedure,
inquiry or investigation by or before any arbitrator, mediator, court
or other Governmental Authority.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under
common control with such Person. For purposes of the immediately
preceding sentence, the term "control" (including, with correlative
meanings, the terms "controlling", "controlled by" and "under common
control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether
through ownership of voting securities or partnership interests, by
contract or otherwise.
"Agreement" means this agreement (including the Schedules and
Exhibits hereto) and all amendments made hereto by written agreement
between Conexant, the Corporation and the Shareholders;
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"Amended and Restated Registration Rights Agreement" means the
amended and restated registration rights agreement dated as of March 9,
2000 and made between the Corporation and the investors named in
Exhibit 1 thereto;
"Amended and Restated Unanimous Shareholders Agreement" means
the amended and restated unanimous shareholders agreement dated as of
March 9, 2000 made between the Corporation and the shareholders of the
Corporation;
"Balance Sheet" means the balance sheet of the Corporation as
at the Balance Sheet Date;
"Balance Sheet Date" means July 31, 1999;
"Business Day" means a day other than a Saturday, Sunday or
statutory holiday in the Province of Ontario or in the State of
California;
"Business Intellectual Property" means the Product
Intellectual Property and the Own Use Intellectual Property,
individually and collectively;
"Canadian Dollar Equivalent" means in respect of any amount
expressed in a foreign currency (the "Foreign Currency Amount") at any
date, the product obtained by multiplying the Foreign Currency Amount
by the official noon spot rate of exchange on such date for such
foreign currency, as reported by the Bank of Canada;
"CBCA" means the Canada Business Corporations Act R.S.C. 1995,
c. C-44, as amended to the date of this Agreement;
"Class A Preferred Shares" means the Class A Preferred Shares
in the capital of the Corporation;
"Class B Preferred Shares" means the Class B Preferred Shares
in the capital of the Corporation;
"Closing" has the meaning ascribed thereto in Section 2.3;
"Closing Date" means the earliest of: (a) if the Corporation
obtains the shareholder approval required to effect the Reorganization
pursuant to a signed resolution and all other conditions to Closing are
satisfied by April 27, 2000, May 1, 2000; (b) if the Corporation
obtains the shareholder approval required to effect the Reorganization
pursuant to a special meeting of shareholders, and all other conditions
at Closing are satisfied by May 28, 2000, May 30, 2000; and (c) the
third Business Day after the last of the conditions to Closing is
satisfied, or such later date as may be agreed to in writing by
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Conexant, the Corporation and the Shareholders, but in any event not
later than the End Date;
"Closing Price" means at any date, the amount expressed in
US$, equal to the simple average of the closing price of the Conexant
Shares on the Nasdaq National Market System for each of the Business
Days on which there was a closing price falling not more than 10
Business Days before that date;
"Common Shares" means the common shares in the capital of the
Corporation;
"Conexant Preferred Share" means the share of Series B Voting
Preferred Stock of Conexant, having the rights, privileges, conditions
and limitations as set out in Exhibit VII;
"Conexant Registration Rights Agreement" means the
registration rights agreement dated May 12, 1999 by and among Conexant,
as issuer, and Xxxxxx Xxxxxxx & Co. Incorporated, Credit Suisse First
Boston Corporation and Xxxxxx Brothers, Inc., as initial purchasers and
identified as Exhibit 4.2 to the Registration Statement No. 333-82399
as filed by Conexant with the SEC on July 7, 1999;
"Conexant Shares" means the shares of Common Stock, par value
US$1.00 per share, of Conexant, including such shares as are issuable
in exchange for the Exchangeable Shares pursuant to the terms of the
Exchangeable Shares, the Exchange Trust Agreement and the Support
Agreement;
"Confidentiality Agreement" means the amended and restated
standard non-disclosure agreement dated as of January 14, 2000 and made
between the Corporation and Conexant;
"Consents" means consents, approvals, requirements,
exemptions, orders, waivers, allowances, novations, authorizations,
declarations, filings, registrations and notifications;
"Contracts" means, with respect to any Person, all agreements,
undertakings, contracts, obligations, understandings and commitments
(whether written or oral) (i) to which such Person is a party, (ii)
under which such Person has any rights, (iii) under which such Person
has any Liability or (iv) by which such Person, or any of the assets or
properties owned or used by such Person, is bound, including all
license agreements, manufacturing agreements, supply agreements,
purchase orders, sales orders, distributor agreements, sales
representation agreements, warranty agreements, indemnity agreements,
service agreements, employment and consulting agreements, guarantees,
credit agreements, notes, mortgages, security agreements, financing
leases, leases,
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comfort letters, derivative agreements, confidentiality
agreements, joint venture agreements, partnership agreements, open
bids, powers of attorney, memoranda of understanding and letters of
intent, including, in each case, all amendments, modifications and
supplements thereto and waivers and consents thereunder;
"Convertible Debentures" means the U.S. $618,094 aggregate
principal amount of Royal Bank Prime Rate convertible, secured
debentures of the Corporation due July 8, 2003;
"Convertible Debenture Options" means the options issued on
conversion of the Convertible Debentures, of which there remain
outstanding Convertible Debenture Options entitling the holders thereof
as disclosed in Exhibit VI to acquire an aggregate of 166,193 Common
Shares;
"Corporation" means Philsar Semiconductor Inc., a corporation
incorporated under the CBCA;
"Disclosure Schedule" means the schedule attached hereto as
Schedule B;
"Employee Stock Options" means options issued pursuant to the
Share Option Plan entitling the holders thereof to purchase an
aggregate of 4,327,610 Common Shares and in favour of the individuals
disclosed in Exhibit V;
"End Date" means June 15, 2000.
"Environmental Laws" means any and all applicable Laws and
Permits issued, promulgated or entered into by any Governmental
Authority relating to the environment, the protection or preservation
of the health or safety of humans, plants or animals, including the
health and safety of employees, or the generation, treatment, use,
discharge, storage, or disposal of any material, chemical or substance
that, whether because of its nature, form, condition or quality, is
regulated under applicable Laws;
"Equity Security" means, with respect to any Person, any
stock, bond, note, debenture, warrant, right, option, share, phantom
stock, stock appreciation right, subscription right, profit
participation right, partnership interest, or other security (however
denominated) issued or granted by such Person that entitles the holder
or owner thereof, directly or indirectly (including through exercise,
exchange or conversion for another security), to share in the capital,
earnings or profits of such Person or to vote for the election of
directors, partners or other persons responsible for the management of
such Person;
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"ERISA" means the United States Employee Retirement Income
Security Act of 1974, as amended;
"Escrow Period" has the meaning ascribed thereto in Section
7.1;
"Escrowed Shares" has the meaning ascribed thereto in Section
7.3(a);
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended;
"Exchange Ratio" means the quotient obtained by dividing (x)
the Exchangeable Share Number by (y) the Philsar Share Number;
"Exchange Trust Agreement" means the Voting and Exchange Trust
Agreement between Conexant, the Corporation and the Trustee,
substantially in the form attached as Exhibit III hereto;
"Exchangeable Shares" means the Exchangeable Shares of the
Corporation having the rights, preferences and limitations set forth in
the Corporation's articles of amendment in the form attached hereto as
Exhibit II;
"Exchangeable Share Number" means 2,685,000, unless the
product obtained by multiplying 2,685,000 by the Closing Price is less
than US$225,000,000, in which case the Exchangeable Share Number will
be that number of Exchangeable Shares (up to but not exceeding
3,000,000) that when multiplied by the Closing Price equals
US$225,000,000;
"Financial Statements" means the Balance Sheet, together with
the statements of income, changes in shareholders equity and changes in
financial position, including in each case the notes thereto and the
report of Deloitte & Touche LLP, chartered accountants, thereon;
"GAAP" means United States generally accepted accounting
principles;
"Governmental Authority" means, in any jurisdiction, any (i)
supranational, national, federal, state, provincial, local, municipal,
foreign or international government, (ii) court, arbitral or other
tribunal, (iii) governmental or quasi-governmental authority of any
nature (including any political subdivision, instrumentality, branch,
department, official or entity) or (iv) agency, commission, authority
or body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing
authority or power of any nature;
"Hazardous Materials" means any waste, pollutant, contaminant,
material or substance which is or may be dangerous, hazardous, toxic,
explosive, corrosive,
8
flammable, infectious, radioactive, carcinogenic or mutagenic or which
could otherwise pose a risk to health, safety or the environment or the
value of the material assets of the Corporation or which is the subject
of any applicable Laws governing its release, use, storage or
identification, including without limitation, any substance which
contains polychlorinated biphenyls (PCBs), asbestos, lead, urea
formaldehyde or radon gas;
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents (including utility and design
patents, industrial designs and utility models), patent applications
and patent and invention disclosures, and all other rights of
inventorship, together with all reissuances, continuations,
continuations-in-part, divisions, revisions, supplementary protection
certificates, extensions and re-examinations thereof; (b) all
registered and unregistered trademarks, service marks, trade names,
trade dress, logos, business, corporate and product names and slogans
and registrations and applications for registration thereof; (c) all
copyrights in copyrightable works, and all other rights of authorship,
worldwide, and all applications, registrations and renewals in
connection therewith; (d) all mask works and semiconductor chip rights
and all applications, registrations and renewals in connection
therewith; (e) all trade secrets and confidential business and
technical information (including ideas, research and development,
know-how, formulas, technology, compositions, manufacturing and
production processes and techniques, technical data, engineering,
production and other designs, plans, drawings, engineering notebooks,
industrial models, software, specifications, financial, marketing and
business data, pricing and cost information, business and marketing
plans and customer and supplier lists and information); (f) all
computer and electronic data, data processing programs, documentation
and software, both source code and object code (including flow charts,
diagrams, descriptive texts and programs, computer print-outs,
underlying tapes, computer databases and similar items), computer
applications and operating programs; (g) all rights to xxx for and
remedies against past, present and future infringements of any or all
of the foregoing and rights of priority and protection of interests
therein under the Laws of any jurisdiction; (h) all copies and tangible
embodiments of any or all of the foregoing (in whatever form or medium,
including electronic media); and (i) all other proprietary,
intellectual property and other rights relating to any or all of the
foregoing, including, in each case, any such rights related to any such
items in any and all jurisdictions, worldwide;
"Internal Revenue Code" means the United States Internal
Revenue Code of 1986, as amended;
"Investment" of a Person means (i) any loan, advance (other
than commission, travel and similar advances to officers and employees
made in the ordinary course of business), extension of credit (other
than accounts receivable arising in the ordinary course of business on
terms customary in the trade and loans to employees in the ordinary
9
course of business) or contribution of capital by such Person; (ii)
Equity Securities owned by such Person; (iii) any deposit accounts and
certificates of deposit owned by such Person; and (iv) structured
notes, derivative financial instruments and other similar instruments
or contracts owned by such Person;
"Knowledge" means, (i) with respect to the Corporation, the
actual knowledge, or the knowledge of a reasonable person in a like
position, of those officers, directors and employees of the Corporation
who are directly involved in the Transactions and (ii) with respect to
Conexant, the actual knowledge, or the knowledge of a reasonable person
in the like position, as those officers, directors and employees of
Conexant who are directly involved in the Transactions;
"Laws" means all laws, statutes, constitutions, treaties,
rules, regulations, directives, ordinances, codes, judgments, rulings,
orders, writs, decrees, stipulations, injunctions and determinations of
all Governmental Authorities;
"Liability" means any and all claims, debts, liabilities,
obligations and commitments of whatever nature, whether known or
unknown, asserted or unasserted, fixed, absolute or contingent, matured
or unmatured, accrued or unaccrued, liquidated or unliquidated or due
or to become due, and whenever or however arising (including those
arising out of any Contract or tort, whether based on negligence,
strict liability or otherwise) and whether or not the same would be
required by GAAP to be reflected as a liability in financial statements
or disclosed in the notes thereto;
"Lien" means any charge, claim, adverse claim, community
property interest, condition, equitable interest, easement,
encumbrance, option, lien, pledge, hypothecation, assignment, deposit
arrangement, security interest (preference, priority or other security
agreement or preferential arrangement of any kind), mortgage, deed of
trust, retention of title agreement, right of first refusal, right of
first offer, preemptive right, or other restriction or granting or any
rights of any kind (including any restriction on, or right granted with
respect to, the use, voting, transfer, receipt of income or exercise of
any other attribute of ownership);
"Material Adverse Effect" means, with respect to any Person
(including the Corporation and Conexant), a material adverse effect on
the business, operations, assets or condition (financial or otherwise)
of such Person, taken as a whole, or on the ability of such Person and
its Subsidiaries to perform that Person's obligations under this
Agreement or to consummate the Transactions, provided however, that a
Material Adverse Effect shall not include (a) with respect to any
Person (including the Corporation and Conexant), any adverse effect
following the date of this Agreement on the business, assets, financial
condition or results of operations of that Person resulting from the
announcement or pendency of the Reorganization or from any general
downturn to the market conditions of the business in which that Person
operates and (b) with respect to
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Conexant, any decrease in the trading price of the Conexant Shares
attributable primarily to fluctuations in stock prices or to a downturn
in the state of North American financial markets, either generally or
specifically with respect to publicly-traded technology companies.
"Material Contracts" has the meaning set forth in Section
3.18(a);
"Order" means any award, decision, stipulation, injunction,
judgment, order, ruling, subpoena, writ, decree or verdict entered,
issued, made, or rendered by any Governmental Authority;
"Own Use Intellectual Property" means all Intellectual
Property which the Corporation owns, uses or has the right to use in
the conduct of its businesses, other than the Product Intellectual
Property;
"Permit" means all licenses, permits, certificates, Consents,
or other authorizations, issued, granted, given or otherwise made
available by or under the authority of any Governmental Authority or
pursuant to any Law;
"Permitted Liens" means Liens for (i) Taxes, assessments and
other governmental charges not yet due and payable or, if due, not
delinquent or being diligently contested in good faith through
appropriate proceedings; (ii) inchoate workmen's, repairmen's or other
similar Liens or retentions of title in respect of raw materials and
supplies not yet paid for, in each case arising or incurred in the
ordinary course of business consistent with past practices in respect
of obligations which are not overdue, minor title defects and recorded
easements, which workmen's, repairmen's or other similar Liens,
retentions of title, minor title defects and recorded easements do not,
individually or in the aggregate, impair the continued use, occupancy,
value or marketability of title of the property to which they relate or
the Corporation's business, assuming that the property is used on
substantially the same basis as such property is currently being used
by the Corporation; and (iii) Liens referred to in the Financial
Statements or in Part 3.12 of the Disclosure Schedule;
"Person" means any individual, firm, partnership, joint
venture, trust, corporation, limited liability entity, unincorporated
organization, estate or other entity (including a Governmental
Authority);
"Philsar Share Number" means the sum of: (i) the number of
Class A Preferred Shares issued and outstanding on the Closing Date;
(ii) the number of Class B Preferred Shares issued and outstanding on
the Closing Date; (iii) the number of Common Shares issued and
outstanding on the Closing Date; and (iv) the number of Common Shares
issuable, with or without the passage of time or satisfaction of other
conditions, upon the
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exercise of all Employee Stock Options, Convertible Debenture Options
and Warrants outstanding on the Closing Date;
"Plans" has the meaning ascribed thereto in Section 3.14(b);
"Product Intellectual Property" means all Intellectual
Property which the Corporation owns, uses or has the right to use, and
which is comprised in the Corporation's products;
"Registration Statement" has the meaning ascribed thereto in
Section 5.3(d);
"Reorganization" has the meaning set out in the Recitals to
this Agreement;
"Representatives" means each representative of the
Shareholders appointed from time to time in accordance with Section
7.3(g);
"SEC" means the United States Securities and Exchange
Commission;
"Securities Act" means the United States Securities Act of
1933, as amended;
"Share Option Plan" means the Corporation's Stock Option Plan
dated December 18, 1997, as amended January 5, 1998, August 13, 1998,
November 9, 1998, October 21, 1999 and March 9, 2000, collectively;
"Special Shares" has the meaning ascribed thereto in the
recitals to this Agreement;
"Subsidiary" means any corporation, limited liability company,
partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by that Person or one
or more of the other Subsidiaries of that Person or a combination
thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more
Subsidiaries of the Person or a combination thereof. For purposes
hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership,
association, or other business entity if such Person or Persons shall
be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or
control any managing member or general partner of such limited
liability company, partnership, association or other business entity;
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"Support Agreement" means the Support Agreement between
Conexant and the Corporation substantially in the form attached as
Exhibit IV hereto;
"Tax" means any tax, charge, duty, fee, levy or other
assessment, including income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall
profits, branch profits, environmental, customs duties, capital,
franchise, profits, withholding, social security (or similar),
unemployment, disability, property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, imposed by any
Governmental Authority, and including any interest, penalty, or
addition thereto, whether disputed or not;
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment
thereof, required to be filed with any Governmental Authority;
"Time of Closing" means 3:00 p.m. (Ottawa time) on the Closing
Date;
"Transaction Documents" means this Agreement, the Support
Agreement, the Exchange Trust Agreement, the Articles of Amendment in
the forms attached hereto as Exhibits I and II and all other
instruments, certificates and documents delivered or required to be
delivered by the Corporation, the Shareholders, Conexant or any of
their representatives pursuant to this Agreement, individually and
collectively;
"Transactions" means the transactions contemplated by the
Transaction Documents, individually and collectively;
"Trustee" means CIBC Mellon Trust Company (or such other
Canadian trust company as may be selected by the Corporation and
approved by Conexant prior to the Closing Time), in its capacity as
Trustee under the Exchange Trust Agreement; and
"Warrants" means warrants to purchase in the aggregate
1,218,400 Common Shares, having the terms described in Part 3.2(a) of
the Disclosure Schedule and held by the warrantholders disclosed in
Exhibit VI.
Section 1.2 Headings. The division of this Agreement into Articles and Sections
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement supplemental hereto. Unless
13
something in the subject matter or context is inconsistent therewith, references
herein to Articles and Sections are to Articles and Sections of this Agreement.
Section 1.3 Extended Meanings. In this Agreement words importing the singular
number only shall include the plural and vice versa, words importing the
masculine gender shall include the feminine and neuter genders and vice versa
and words importing persons shall include individuals, partnerships,
associations, trusts, unincorporated organizations and corporations.
Section 1.4 Currency. All references to currency herein are to lawful money of
Canada, unless otherwise specified.
Section 1.5 Schedules and Exhibits. The following are the Schedules and Exhibits
annexed hereto and incorporated by reference and deemed to be part hereof:
Schedules
---------
Schedule A - Shareholders who are parties to this Agreement and their
respective Shareholdings
Schedule B - Disclosure Schedule
Exhibits
--------
Exhibit I - Articles of Amendment
Exhibit II - Articles of Amendment
Exhibit III - Form of Exchange Trust Agreement
Exhibit IV - Form of Support Agreement
Exhibit V - Employee Stock Options
Exhibit VI - Convertible Debenture Options and Warrants
Exhibit VII - Rights of the Conexant Preferred Share
Exhibit VIII - Employees to execute Employment Contracts
Exhibit IX - Form of Employment Contract
Exhibit X - Non-Competition Agreement
Exhibit XI - Opinion of Counsel to the Corporation and the
Shareholders
Exhibit XII - Share Transmittal Materials
Exhibit XIII - Opinion of Conexant's Canadian Counsel
14
ARTICLE II
REORGANIZATION
Section 2.1 Reorganization.
(1) Upon and subject to the terms and conditions of Closing contained herein, on
the Closing Date, the Reorganization shall be completed in the manner set forth
below:
(a) On the second Business Day preceding the Closing Date, the
Corporation shall file articles of amendment in the form of Exhibit I to create
100 Class C Non-Voting Preferred Shares.
(b) Immediately after the Corporation obtains a certificate of
amendment under the CBCA for the articles of amendment referred to in Section
2.1(1)(a), the Corporation shall issue to Conexant 100 Class C Non-Voting Shares
in consideration for the issue by Conexant to the Corporation of 10 Conexant
Shares.
(c) On the Business Day preceding the Closing Date, the Corporation
shall file articles of amendment in the form of Part A of Exhibit II to create
the Special Shares and the Exchangeable Shares and to change the issued and
outstanding Common Shares into Exchangeable Shares, on the basis set out in the
recitals hereto.
(d) On the Closing Date, the Corporation shall file articles of
amendment in the form of Part B of Exhibit II to change the issued and
outstanding Class A Preferred Shares and Class B Preferred Shares into
Exchangeable Shares, on the basis set out in the recitals hereto.
(e) Immediately after the Corporation obtains a certificate of
amendment under the CBCA for the articles of amendment referred to in Section
2.1(1)(d), the Corporation shall issue 60,000 Special Shares to Conexant against
receipt from Conexant of a share certificate representing the 100 Class C
Non-voting Preferred Shares issued previously to Conexant.
(f) Subject to (k), below, at Closing, the Corporation shall deliver to
each of the shareholders of the Corporation, certificates for the Exchangeable
Shares issuable to such shareholder against delivery of certificates for all of
the Common Shares, Class A Preferred Shares and Class B Preferred Shares held by
such shareholder, accompanied by a letter of transmittal signed by such
shareholder in the form attached hereto as Exhibit XII.
(g) On the Closing Date, each Employee Stock Option shall continue to
have, and be subject to, the same terms and conditions set forth in the Share
Option Plan except that: (i) each Employee Stock Option will be exercisable for
that whole number of Conexant Shares equal to the product obtained by
multiplying the number of Common Shares issuable upon exercise of
15
such Employee Stock Option immediately prior to the Closing Date by the Exchange
Ratio, rounded down to the nearest whole number of Conexant Shares; and (ii) the
per share exercise price for the Conexant Shares issuable upon exercise of each
Employee Stock Option will be equal to the quotient obtained by dividing the
exercise price per Common Share for such Employee Stock Option immediately prior
to the Closing Date by the Exchange Ratio, rounded up to the nearest whole cent
(provided that, in no event, shall such quotient be an amount less than the
Canadian Dollar Equivalent of U.S. $1.00) and Conexant will agree in the Support
Agreement to make available to the Corporation Conexant Shares for delivery upon
exercise of Employee Stock Options.
(h) At the Time of Closing, each of the outstanding Warrants shall
continue to have, and be subject to, the same terms and conditions set forth
therein except that: (i) the Warrant will be exercisable for that number of
whole Conexant Shares equal to the product obtained by multiplying the number of
the Common Shares that were issuable upon exercise of such Warrant immediately
prior to the Time of Closing by the Exchange Ratio, rounded down to the nearest
whole number of Conexant Shares; and (ii) the per share exercise price will be
equal to the quotient obtained by dividing the exercise price per Common Share
at which such Warrant was exercisable immediately prior to the Time of Closing
by the Exchange Ratio, rounded up to the nearest whole cent (provided that, in
no event, shall such quotient be an amount less than the Canadian Dollar
Equivalent of U.S. $1.00) and Conexant will agree in the Support Agreement to
make available to the Corporation Conexant Shares for delivery upon exercise of
the Warrants.
(i) At the Time of Closing, each outstanding Convertible Debenture
Option shall continue to have, and be subject to, the same terms and conditions
set forth in the terms of the Convertible Debenture Options and/or as provided
in the respective option agreements immediately prior to the Time of Closing,
except that: (i) each Option will be exercisable for that number of whole
Conexant Shares equal to the product obtained by multiplying the number of
Common Shares that were issuable upon exercise of such Convertible Debenture
Option immediately prior to the Time of Closing multiplied by the Exchange
Ratio, rounded down to the nearest whole number of Conexant Shares; and (ii) the
per share exercise price for the Conexant Shares issuable upon exercise of the
Convertible Debenture Option will be equal to the quotient determined by
dividing the exercise price per Common Share at which such Convertible Debenture
Option was exercisable immediately prior to the Time of Closing by the Exchange
Ratio, rounded up to the nearest whole cent (provided that, in no event, shall
such quotient be an amount less than the Canadian Dollar Equivalent of U.S.
$1.00) and Conexant will agree in the Support Agreement to make available to the
Corporation Conexant Shares for delivery upon exercise of the Convertible
Debenture Options.
(j) On the Closing Date, the Corporation shall cancel the 100 Class C
Non-Voting Preferred Shares purchased from Conexant pursuant to Section
2.1(1)(e).
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(k) On the Closing Date, the Shareholders shall cause to be deposited
into escrow under the Exchange Trust Agreement 10% of the Exchangeable Shares
issued pursuant to the Reorganization and such Exchangeable Shares will be held
by the Trustee pursuant to the Exchange Trust Agreement.
(l) On the Closing Date: (a) Conexant, the Corporation and the
Trustee shall enter into the Exchange Trust Agreement; and (b) Conexant and the
Corporation shall enter into the Support Agreement.
(2) The Reorganization is intended to be a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
Section 2.2 Approval of the Reorganization. Each of the Shareholders agrees to
vote at meetings of the holders of each class of shares of the Corporation all
shares of the Corporation owned by such Shareholder (or to execute a written
resolution in lieu thereof) in favour of the approval of the Reorganization and
the filing of the articles of amendment in furtherance of the completion of the
Reorganization.
Section 2.3 Closing. Subject to the rights of the Shareholders, the Corporation
and Conexant to terminate this Agreement pursuant to Section 2.4 hereof, the
closing for the consummation of the Reorganization contemplated by this
Agreement (the "Closing") shall, unless another date or place is agreed to in
writing by the parties, take place at the offices of XxXxxxxx Xxxxxxxx, located
at Xxx Xxxxxxxx, Xxxxx 0000, 00 Xxxxx Xx., Xxxxxx, Ontario, at 3:00 p.m., Ottawa
time, on or before the Closing Date.
Section 2.4 Termination of Agreement.
(a) This Agreement may, by written notice given at or prior to the
Closing in the manner hereinafter provided, be terminated or abandoned:
(i) In the event that the Closing shall not have occurred
on or before the End Date, unless the parties hereto
shall otherwise agree in writing;
(ii) By Conexant, if a default of a material covenant or
breach of a material representation shall be made by
the Corporation or the Shareholders with respect to
the due and timely performance of any of their
covenants and agreements contained herein, or with
respect to the correctness of or due compliance with
any of the Corporation's representations and
warranties contained in Article 3 hereof, and such
default has not been cured or waived. However, if
such default or breach is curable by the Corporation
through the exercise of its commercially reasonable
efforts, then Conexant may not terminate this
Agreement under this Section 2.4(a)(ii) prior to the
17
End Date, provided the Corporation exercises
commercially reasonable efforts to cure such breach,
the cost of curing such breach is either approved by
Conexant in writing or borne entirely by the
Corporation (provided that the cost of such cure,
together with the Corporation's aggregate fees,
expenses and costs in connection with the
Transactions, shall not exceed the maximum amount
permitted under Section 8.4) or the Shareholders and
the breach is cured to the reasonable satisfaction of
Conexant before the End Date. It is understood that
Conexant may not terminate this Agreement pursuant to
this Section 2.4(a)(ii) if Conexant shall itself have
materially breached this Agreement;
(iii) By the Shareholders, if a default or breach shall be
made by Conexant with respect to the due and timely
performance of any of its covenants and agreements
contained herein, or with respect to the correctness
of or due compliance with any of its representations
and warranties contained in Article IV hereof, and
such default has not been cured or waived. However,
if such default or breach is curable by Conexant
through the exercise of its commercially reasonable
efforts, then the Shareholders may not terminate this
Agreement under this Section 2.4(a)(iii) prior to the
End Date, provided Conexant exercises commercially
reasonable efforts to cure such breach and the breach
is cured before the End Date to the reasonable
satisfaction of the Shareholders holding a majority
of the number of the aggregate number of Common
Shares, Class A Preferred Shares and Class B
Preferred Shares outstanding on the Closing Date. It
is understood that the Shareholders may not terminate
this Agreement pursuant to this Section 2.4(a)(iii)
if the Corporation or any of the Shareholders shall
have materially breached this Agreement; or
(iv) By mutual consent of the Corporation and Conexant.
(b) No termination of this Agreement, whether pursuant to this Section
2.4 or otherwise, shall terminate or impair any claim by any party against the
other based upon any breach hereof, nor shall it terminate any obligations of
any party to the other with respect to confidentiality of information provided
to such party by the other party pursuant to the terms of the Confidentiality
Agreement.
18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation hereby represents and warrants to Conexant as follows:
Section 3.1 Organization and Good Standing.
(a) The Corporation is a corporation duly incorporated, organized and
subsisting under the laws of Canada with the corporate power to own, lease or
operate all properties and assets now owned, leased or operated by it and to
carry on its business as now conducted and has made all necessary filings under
all applicable corporate, securities and taxation laws or any other laws to
which the Corporation is subject.
(b) The Corporation is duly qualified or licensed to do business and in
good standing as a foreign corporation in the State of California which is the
only jurisdiction other than the Province of Ontario Canada in which the
property owned, leased or operated by the Corporation or the nature of the
business conducted by the Corporation makes such qualification or licensing
necessary.
(c) True and complete copies of the articles of incorporation, as
amended, bylaws, minute books, shareholders' register and stock transfer
register of the Corporation have previously been made available to Conexant or
its counsel. The minute books of the Corporation are complete and accurately
reflect all director and shareholder actions taken in respect of the
Corporation, and all actions reflected therein have been conducted or taken in
compliance with all applicable Laws and with the articles of incorporation, as
amended, and bylaws of the Corporation. The share certificate books, register of
shareholders and register of transfers of the Corporation are complete and
accurately reflect the record ownership of all capital stock of the Corporation
and all transfers thereof, and all transfers reflected therein have been duly
completed and approved.
Section 3.2 Capitalization; Title to Shares and Structure.
(a) Part 3.2(a) of the Disclosure Schedule sets forth, prior to
giving effect to the Reorganization:
(i) the authorized capital stock of the Corporation;
(ii) the number of shares of each class or series of
shares of the Corporation issued and outstanding;
19
(iii) for each class or series of shares of the
Corporation, the name and number of shares owned by
each Person that is the record owner of such shares;
(iv) each Equity Security of the Corporation (other than
capital stock referred to in clauses (i) through
(iii) hereof) authorized;
(v) each Equity Security of the Corporation (other than
capital stock referred to in clauses (i) through
(iii) hereof) issued and outstanding;
(vi) for each Equity Security of the Corporation issued
and outstanding, other than Capital stock referred to
in clauses (i) through (iii) hereof:
(1) the type and number of securities into which
or for which each such Equity Security may
be converted, exchanged, or exercised;
(2) the exercise, conversion, exchange or strike
price or other consideration payable by any
holder of such Equity Security on
conversion, exchange or exercise thereof;
(3) the dates or times any such Equity Security
(1) was issued or granted, (2) may be
converted, exchanged or exercised, (3)
expires, terminates or matures and (4) vests
or becomes transferable; and
(4) the name of and number of units owned by
each Person that is the record owner of each
such Equity Security.
(b) No shares of capital stock or Equity Securities are held by
the Corporation in treasury.
(c) All of the outstanding shares of capital stock and all of
outstanding Equity Securities are duly authorized, validly issued, fully paid
(other than as set forth in Part 3.2(c) of the Disclosure Schedule for Equity
Securities) and non-assessable, and were not issued in violation of, and are not
subject to, any preemptive rights which have not been complied with or waived.
(d) Except as set forth in Part 3.2(d) of the Disclosure Schedule, or
as provided in this Agreement or the other Transaction Documents, the capital
stock and Equity Securities are not subject to:
(i) any Lien;
20
(ii) any restriction on transfer (other than any arising
under applicable securities laws); or
(iii) any Contract of any kind with any Person other than
the Corporation, including any shareholder, voting
trust, hypothecation, loan, acquisition or transfer
agreement and any stock swap, hedge, collar, cap,
loan or other derivative contract.
(e) There are no bonds, debentures, notes or other indebtedness of the
Corporation having the right to vote (or convertible into, or exchangeable or
exercisable for, securities having the right to vote) on any matters on which
any Shareholders may vote.
(f) Except as set forth in Part 3.2(f) of the Disclosure Schedule, or
as contemplated by this Agreement or the other Transaction Documents, there are
no Contracts of the Corporation to repurchase, redeem or otherwise acquire any
capital stock or Equity Securities of the Corporation.
(g) Each Shareholder is, and at the Time of Closing will be, the
registered owner of the respective number of Class A Preferred Shares, Class B
Preferred Shares, Common Shares, Employee Stock Options, Convertible Debenture
Options and Warrants set out, respectively, adjacent to such Shareholder's name
in Schedule A hereto (adjusted to reflect any exercises by a Shareholder between
the date hereof and the Time of Closing of any Employee Stock Options,
Convertible Debenture Options or Warrants), free and clear of any Lien (other
than the restrictions set forth in this Agreement and the other Transaction
Documents).
(h) Except as referred to in Part 3.2(a) of the Disclosure Schedule,
there are no securities, options, warrants, calls, rights or other Contracts,
including, without limitation, stock appreciation rights, "phantom" stock or
similar plans or rights, obligating the Corporation to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock or
other securities or assets of the Corporation or obligating the Corporation to
issue, grant, extend or enter into any such security, option, warrant, call,
right or Contract, including any securities pursuant to which rights to acquire
capital stock become exercisable only after a change of control of the
Corporation or upon the acquisition of a specified amount of the Common Stock or
voting power of the Corporation.
Section 3.3 No Subsidiaries. The Corporation does not have any Subsidiaries.
The Corporation does not have any Investments in other Persons except for cash
and cash equivalents of the type reflected in the Financial Statements. Except
as disclosed pursuant to Section 3.18, the Corporation is not a participant in
any joint venture, partnership or similar arrangement.
21
Section 3.4 Due Authorization; Enforceability. The Corporation has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the other Transaction Documents and to
consummate the Transactions. Each Shareholder has the legal capacity and full
power and authority to execute, deliver and perform this Agreement and the other
Transaction Documents to which it is a party and to consummate the Transactions.
Subject only to obtaining approvals at a meeting from the holders of at least
two-thirds of each class of the Corporation's Shares or by a resolution signed
by all such holders with respect to the filing of the articles of amendment in
Exhibit I and II hereto, the execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation of the
Transactions by the Shareholders and the Corporation have been duly authorized
by all necessary or appropriate corporate or other action and no other corporate
or other proceedings are necessary to authorize this Agreement or the other
Transaction Documents or to consummate the Transactions. This Agreement and
those Transaction Documents executed or delivered on or prior to the date of
this Agreement constitute, and prior to the Time of Closing the remaining
Transaction Documents required to be executed after the date of this Agreement
will constitute when executed, the valid and legally binding obligations of the
Shareholders and the Corporation, as the case may be (assuming that this
Agreement and the Transaction Documents constitute the valid and binding
obligations of Conexant), enforceable against the Shareholders and the
Corporation, as the case may be, in accordance with their terms except as
enforceability may be limited by applicable (i) bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and (ii) Laws relating to the availability of
specific performance, injunctive relief or other equitable remedies.
Section 3.5 No Violation. Except for filings and Consents set forth in Part
3.5 of the Disclosure Schedule, neither the execution, delivery or performance
of this Agreement by the Shareholders or the Corporation, nor the consummation
by the Shareholders or the Corporation of the Transactions, will, with or
without the giving of notice or lapse of time or both: (i) violate, conflict
with or result in any breach of any provision of the articles of incorporation,
as amended or by-laws of the Corporation; (ii) require any Permit of any
Governmental Authority or violate, conflict with or constitute a default under
any of the terms or requirements of any Permit that is held by the Corporation;
or (iii) result in a material violation or breach of, or constitute a material
default (or give rise to any rights of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any Contract
to which the Corporation is a party or by which any of its assets or properties
is bound which would have a Material Adverse Effect; or (iv) violate or result
in any breach of any Law applicable to the Corporation.
Section 3.6 Financial Statements.
(a) The Corporation has delivered to Conexant true and correct
copies of the Financial Statements.
22
(b) The Financial Statements were prepared from and in accordance with
the books and records of the Corporation in accordance with GAAP consistently
applied, are true and correct and fairly present the financial condition,
results of operations, changes in shareholder's equity and cash flow of the
Corporation as of and for the periods indicated or as of the respective dates
set forth therein.
(c) As of the date hereof, the Corporation did not have any Liabilities
that were not adequately reflected or reserved for in the Balance Sheet, except
(i) as set forth in Part 3.6(c) of the Disclosure Schedule (none of which would
have a Material Adverse Effect) or (ii) for current liabilities incurred in the
ordinary course of business consistent with past practice since the Balance
Sheet Date. The Corporation has no Liabilities which are unrelated to the
business of the Corporation as currently conducted by it and no Liabilities
which are related in any way to any circumstance, event, transaction or
occurrence, or any Contract entered into or Permit obtained, prior to June 30,
1997.
Section 3.7 Absence of Certain Changes. Since the date of the Financial
Statements, the Corporation has been operated only in the ordinary course of
business and has not suffered any Material Adverse Effect, and no condition or
event, change or development has occurred which, individually or in the
aggregate, may result in such a Material Adverse Effect. Except as set forth in
Part 3.7 of the Disclosure Schedule or as expressly permitted by this Agreement
or the Transaction Documents, since the date of the Financial Statements the
Corporation has not:
(a) except as set forth in Part 3.2(a) of the Disclosure Schedule,
(1) declared, set aside or paid any dividend or made any other
actual, constructive or deemed distribution with respect to
any of its shares of capital stock, or otherwise made any
payments to its stockholders in their capacity as such; (2)
redeemed, purchased or otherwise acquired any of its shares of
capital stock or any other securities or any rights, warrants
or option to acquire any such shares or other securities; (3)
split, combined or reclassified any of its shares of capital
stock; or (4) issued or authorized the issuance of, or granted
any registration rights with respect to, any shares of its
capital stock or any other securities in respect of, in lieu
of or in substitution for any of its shares of capital stock
or (5) issued or authorized the issuance of any Equity
Securities;
(b) amended its articles of incorporation or bylaws;
(c) (1) granted to any officer or director any increase in
compensation, severance or termination pay or voluntarily
accelerated the vesting thereof, (2) entered into, terminated
or modified any employment, severance, termination or
consulting agreement with any employee, officer, director or
consultant, (3) increased or established any bonus, insurance,
deferred compensation, pension, retirement,
23
savings, profit-sharing, stock option (including the granting
of stock options, stock appreciation rights, performance
awards or restricted stock awards or the amendment of any
existing stock options, stock appreciation rights, performance
awards or restricted stock awards), stock purchase or other
employee benefit plan or agreement or arrangement, (4)
suffered or received threats of any labour strike, dispute,
slowdown or work stoppage;
(d) suffered any damage, destruction or other loss, whether or not
covered by insurance in excess of $25,000;
(e) made any payment to any Shareholder or any Affiliate of a
Shareholder exceeding $25,000 in the aggregate;
(f) revalued any of its assets;
(g) licensed, sold, transferred, pledged, modified, disclosed,
disposed of or permitted to lapse any Intellectual Property
rights, except in the ordinary course of business consistent
with past practice;
(h) incurred, assumed, created or guaranteed, directly or
indirectly, any Liability exceeding $25,000 in the aggregate,
except for trade or business obligations in the ordinary
course of business consistent with past practice;
(i) sold, transferred or leased any material assets, except for
the sale of inventory in the ordinary course of business
consistent with past practice;
(j) made any change in accounting methods, policies, practices or
principles;
(k) amended, renegotiated or terminated (other than by completion
thereof) any Contract except in the ordinary course of
business consistent with past practice;
(l) made any capital expenditure or series of capital expenditures
in excess of $25,000 in the aggregate;
(m) entered into any (A) purchase Contracts in excess of its
normal operating inventories or at prices above customary
prices or (B) sales Contracts in excess of $25,000 or at
prices below customary prices; or
(n) agreed, whether in writing or otherwise, to take any action of
a type described in this Section 3.7.
24
Section 3.8 Litigation. Except as set forth in Part 3.8 of the Disclosure
Schedule, (i) there is no Order in effect to which any Shareholder, the
Corporation or any Affiliate thereof is a party and which relates to or affects
the Corporation, the business of the Corporation or the Transactions and (ii)
neither the Corporation, the Shareholders nor any Affiliate thereof is a party
to, or engaged in, or to the Knowledge of the Corporation, threatened, with any
Action which relates to or affects the Corporation, the business of the
Corporation or the Transactions, and, to the Knowledge of the Corporation, no
event has occurred or condition exists which would form the basis of an Action
described in this Section 3.8. None of the Actions disclosed or required to be
disclosed in Part 3.8 of the Disclosure Schedule, if adversely determined will
have a Material Adverse Effect on the Corporation.
Section 3.9 Compliance with Laws. The Corporation is, and has been, in
compliance with all Laws and Orders applicable to it or to the conduct or
operation of its business or the ownership or use of any of its assets, except
for such non-compliance as would not have a Material Adverse Effect on the
Corporation. No investigation or review by any Governmental Authority with
respect to the Corporation is pending or, to the Knowledge of the Corporation,
threatened, nor has any Governmental Authority indicated an intention to conduct
any such investigation or review. Part 3.9 of the Disclosure Schedule contains a
complete and accurate list of all Permits that are held by the Corporation or
that otherwise relate to its business or to any of the assets owned or used by
the Corporation. The Permits listed in Part 3.9 of the Disclosure Schedule
constitute all of the Permits necessary to permit the Corporation lawfully to
conduct and operate its business in the manner in which it currently conducts
and operates its business and to permit the Corporation to own and use its
assets in the manner in which it currently owns and uses such assets. The
Corporation is in full compliance with all of the terms and requirements of each
Permit identified or required to be identified in Part 3.9 of the Disclosure
Schedule.
Section 3.10 Environmental Matters. None of the real property now or
previously owned or leased by the Corporation or any predecessor thereof has
been used at any time: (i) as a site for the storage or disposal of any
Hazardous Material or (ii) so as to cause a violation of or to give rise to a
removal, restoration or reimbursement Liability under any Environmental Law. The
Corporation has no Liability under any applicable Environmental Law or under any
Contract related to or affecting its business with respect to or as a result of
(A) the storage, handling or removal by or at the request of the Corporation or
any predecessor of the Corporation of any Hazardous Material at or from such
property, (B) the disposition of such removed Hazardous Materials at any other
locations, (C) the Release or presence of Hazardous Materials at any location or
(D) the discontinuance, sale or transfer of operations of any business conducted
at such properties.
Section 3.11 Taxes.
25
(a) All material Tax Returns required to be filed by or on behalf of
the Corporation have been timely filed or requests for extensions have been
timely filed and any such extensions have been granted and have not expired.
Each such Tax Return was true, complete and correct in all material respects.
All Taxes with respect to taxable periods covered by such Tax Returns and all
other material Taxes for which the Corporation is otherwise liable that are due
have been paid in full and to the extent the Liabilities for such Taxes are not
due, adequate reserves have been established, in accordance with GAAP
consistently applied.
(b) All Taxes due, assessed or re-assessed against the Corporation, or
as shown on such Tax Returns, or with respect to any completed and settled
audit, examination or deficiency litigation with any taxing authority for which
the Corporation is or might otherwise be liable, have been paid in full. The
Corporation has never been delinquent in the payment of any Tax. Except as set
forth in Part 3.11 of the Disclosure Schedule, there is no audit, examination,
assessment, deficiency or refund Action pending with respect to any Taxes and no
taxing authority has given written notice of the commencement of any audit,
examination, assessment or deficiency litigation with respect to any Taxes. No
issue has arisen in any examination of the Corporation by any taxing authority
that, if raised with respect to the same or substantially similar facts arising
in any other Tax period not so examined, would result in a deficiency for such
other period, if upheld.
(c) No Liens for Taxes exist with respect to any of the assets of
the Corporation, except for Taxes not yet due and payable.
(d) There is no tax sharing, indemnification or allocation agreement or
similar arrangement that will require any payment by the Corporation after the
date of this Agreement.
(e) Canada is the only jurisdiction in which the Corporation regularly
conducts trade or business whose tax authorities seek to charge Tax on the
worldwide profits or gains of the Corporation.
(f) The Corporation has timely withheld proper and accurate amounts
from its employees, customers, independent contractors, shareholders and others
from whom it is or was required to withhold Taxes in compliance with all
applicable laws and has timely paid all such withheld amounts to the appropriate
taxing authorities.
(g) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any claim for, or the period for
the collection or assessment of, Taxes of the Corporation due for any taxable
period under the Income Tax Act (Canada), the regulations made thereunder or any
other legislation or regulations imposing Tax on the Corporation.
(h) The Corporation has not made any payment to or provided any benefit
for any officer or employee or ex-officer or ex-employee of the Corporation
which is not allowable as a deduction in calculating the profits of the
Corporation for taxation purposes.
26
(i) The Corporation is not a partner or a member of any partnership or
joint venture, or any other entity classified as a partnership or other
pass-through entity for taxation purposes.
(j) No claim has been made by any taxing authority in a jurisdiction
where the Corporation does not file Tax Returns that the Corporation is or may
be subject to Tax in that jurisdiction.
(k) The paid-up capital for purposes of the Income Tax Act (Canada) in
respect of each class of shares of the Corporation is not less than the stated
capital in respect of such class.
Section III.12 Property.
(a) The Corporation has good and marketable title to all property,
equipment and other assets owned by it (whether personal, mixed, tangible or
intangible), free and clear of any Lien, except for Permitted Liens and such
Liens that would not, individually or in the aggregate, have a Material Adverse
Effect. The Corporation does not own any real property. The Corporation has
valid and enforceable leases for the premises and the equipment, furniture and
fixtures purported to be leased by it, free and clear of any Lien, except for
Permitted Liens, and such Liens that would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) The Corporation enjoys peaceful and undisturbed possession of all
property leased, subleased or occupied by the Corporation pursuant to a lease.
There are no restrictions imposed by any lease or other Contract or by Law which
preclude or restrict the ability to use the property leased, subleased or
occupied by the Corporation pursuant to a lease for the purposes for which they
are currently being used. The Corporation is not in material default, and no
notice of alleged default has been received by the Corporation, under any such
lease or Contract and no lessor is in default or alleged to be in default
thereunder.
(c) The properties, assets and rights owned or leased by the
Corporation constitute all properties (whether real or personal or tangible or
intangible), assets and rights necessary for the Corporation to conduct its
business after the Time of Closing as it is presently conducted by the
Corporation and as it will be conducted on the Closing Date, no Shareholder or
to the Knowledge of the Corporation, any Affiliate of any Shareholder owns or
leases to the Corporation any of such properties, assets or rights.
(d) The facilities and equipment owned or leased by the Corporation are
in good operating condition and repair and free from any defects, reasonable
wear and tear excepted, and are suitable for the uses for which they are being
used and are performing the functions for which they were intended.
Section 3.13 Intellectual Property Matters.
27
(a) Part 3.13(a) of the Disclosure Schedule describes all domestic and
foreign (i) issued patents, pending patent applications, approved patents and
invention disclosures awaiting filing, (ii) registered trademarks and service
marks, pending trademark and service xxxx applications and unregistered
trademarks and service marks, (iii) registered copyrights, pending copyright
applications and unregistered copyrights that constitute Business Intellectual
Property, together with the name of the owner of each thereof, the country and
the serial number, if applicable.
(b) Part 3.13(b) of the Disclosure Schedule lists all Contracts of the
Corporation or any of its Subsidiaries relating to the Business Intellectual
Property, including the distribution or license of Business Intellectual
Property (whether as licensor or licensee). Also included are Contracts of the
Corporation or any of its Subsidiaries with current or former employees,
consultants or contractors, regarding the assignment, appropriation or
nondisclosure of any Intellectual Property.
(c) Except for those items identified in Part 3.13(c) of the
Disclosure Schedule:
(i) other than the Business Intellectual Property owned
by a Person other than the Corporation that is
subject to a license agreement in favour of the
Corporation or any of its Subsidiaries set forth on
Part 3.13(b) of the Disclosure Schedule, the
Corporation owns all right, title and interest in and
to the Business Intellectual Property listed in Part
3.13(a) of the Disclosure Schedule, and has an
absolute right to use all of the Business
Intellectual Property, free and clear of any Liens
and free from any requirement of any past, present or
future payments (other than maintenance and similar
payments), charges or fees or conditions, rights or
restrictions;
(ii) all license agreements listed in Part 3.13(b) of the
Disclosure Schedule were entered into by authorized
representatives of the Corporation or any of its
Subsidiaries;
(iii) no service rendered by the Corporation, or any
product, process or material developed, manufactured,
produced or used by the Corporation, infringes upon,
or, to the Knowledge of the Corporation, is alleged
to infringe upon, any Intellectual Property or other
rights owned or held by any other Person;
(iv) no Business Intellectual Property (to the Knowledge
of the Corporation with respect to Business
Intellectual Property owned by a Person other than
the Corporation that is subject to a license
agreement in favour of the
28
Corporation or any of its Subsidiaries set forth on
Part 3.13(b) of the Disclosure Schedule) infringes
upon, or, to the Knowledge of the Corporation, is
alleged to infringe upon, any Intellectual Property
or other rights owned or held by any other Person;
(v) the rights of the Corporation in and to all Business
Intellectual Property are valid and enforceable and
no Business Intellectual Property (to the Knowledge
of the Corporation with respect to Business
Intellectual Property owned by a Person other than
the Corporation that is subject to a license
agreement in favour of the Corporation or any of its
Subsidiaries set forth on Part 3.13(b) of the
Disclosure Schedule) is subject to any outstanding
Lien, judgment, ruling, order, writ, decree,
stipulation, injunction or determination by or with
any Governmental Authority, nor is there (or has
there been) any pending or, to the Knowledge of the
Corporation threatened, any Action relating to any
Business Intellectual Property (including any
interference, reissue, reexamination or opposition
proceeding or proceeding contesting the rights of the
Corporation to any Business Intellectual Property or
the ownership, use, enforceability or validity of any
Business Intellectual Property);
(vi) to the Knowledge of the Corporation, there is no
infringement or misappropriation of any Business
Intellectual Property by any party or Person;
(vii) there are no Contracts between the Corporation, and
any other party or Person, that may have been
terminated or expired prior to the date of this
Agreement and under which the Corporation has granted
rights or licenses in any Business Intellectual
Property or granted an option to acquire any rights
or licenses in any Business Intellectual Property,
which rights or licenses or option to acquire
survived such termination or expiration;
(viii) the Corporation has not covenanted or agreed with any
Person not to xxx or otherwise enforce any legal
rights with respect to any Business Intellectual
Property;
(ix) all Business Intellectual Property (other than
Business Intellectual Property owned by a Person
other than the Corporation that is subject to a
license agreement in favor of the Corporation or any
of its Subsidiaries set forth on Part 3.13(b) of the
Disclosure Schedule), was developed entirely by
employees of the Corporation or any of its
Subsidiaries during the time they were employees of
the Corporation or any of its Subsidiaries;
29
(x) all of the Business Intellectual Property (to the
Knowledge of the Corporation with respect to Business
Intellectual Property owned by a Person other than
the Corporation that is subject to a licence
agreement in favour of the Corporation or any of its
Subsidiaries set forth on Part 3.13(b) of the
Disclosure Schedule) is in compliance in all material
respects with all applicable Laws (including payment
of filing, examination, and maintenance fees and
proofs of working or use);
(xi) all agreements between the Corporation and any third
party or Person relating to the Business Intellectual
Property are on a non-exclusive basis and no such
agreements are subject to clauses that materially
change the terms of such agreements as a result of
the Transactions;
(xii) the Corporation has not sold, assigned, licensed or
otherwise transferred any Business Intellectual
Property developed or acquired by the Corporation,
except pursuant to non-exclusive licenses that may be
terminated by the Corporation on not more than 30
days notice and without payment by the Corporation of
any monetary amount;
(xiii) no Business Intellectual Property (to the Knowledge
of the Corporation with respect to Business
Intellectual Property that is owned by a Person other
than the Corporation that is subject to a licence
agreement in favour of the Corporation or any of its
Subsidiary set forth on Part 3.13(b) of the
Disclosure Schedule) has been abandoned or has
expired for non-payment of maintenance fees or
failure to respond to administrative deadlines;
(xiv) the Corporation has taken all reasonable steps
(including measures to protect secrecy and
confidentiality) to protect the Corporation's right,
title and interest in and to all Business
Intellectual Property. All employees, agents,
consultants and other representatives of the
Corporation who have access to confidential or
proprietary information of the Corporation have a
legal obligation of confidentiality to the
Corporation with respect to such information;
(xv) all employees of the Corporation have duly executed
and delivered agreements with the Corporation
pertaining to the assignment, without additional
consideration, to the Corporation of all inventions,
discoveries and ideas, whether or not patented or
patentable, conceived or reduced to practice during
the course of their employment or engagement by the
Corporation;
30
(xvi) the documentation that the Corporation possesses
relating to trade secrets and confidential business
and technical information included in the Business
Intellectual Property is current, accurate, and
sufficient in detail and content to identify and
explain such trade secrets and confidential business
and technical information and to allow its full and
proper use without reliance on the knowledge or
memory of any Person;
(xvii) the Business Intellectual Property constitutes all
Intellectual Property rights necessary to conduct
fully the Business as currently conducted and as it
will be conducted through the Closing Date; and
(xviii) no Business Intellectual Property or any service
rendered by the Corporation or any product, process
or material developed, manufactured, produced or used
by the Corporation infringes upon, contributorily
infringes upon, or induces infringement of, any
Intellectual Property or other rights owned or held
by Nortel Inc. or any Affiliate of Nortel Inc.
Section 3.14 Employee Benefit and Labour Matters.
(a) The Corporation is not a party to any Contract regarding collective
bargaining or other Contract with any labour union or association representing
any employee employed by the Corporation or otherwise engaged in the business of
the Corporation. No trade union, council of trade unions, employee bargaining
agency or affiliated bargaining agent (i) holds bargaining rights with respect
to any of the Corporation's employees by way of certification, interim
certification, voluntary recognition, designation or successor rights, (ii) has
applied to be certified as the bargaining agent of any of the Corporation's
employees, or (iii) has applied to have the Corporation declared a related
employer pursuant to Section 1(4) of the Labour Relations Act (Ontario). No
Contract regarding collective bargaining has been requested by, or is under
discussion between management of the Corporation (or any management group or
association of which the Corporation is a member or otherwise a participant) and
any group of employees employed by the Corporation or otherwise engaged in the
business of the Corporation. There are no representation proceedings or
petitions seeking a representation proceeding presently pending against the
Corporation with any labour relations tribunal. There are no other current
activities known to the Corporation to organize any employees of the Corporation
into a collective bargaining unit. There is no unfair labour practice charge or
complaint pending or, to the Knowledge of the Corporation, threatened. During
the past three years, there has been no labour strike, slow-down, work stoppage,
arbitration, grievances or other work-related dispute involving the Corporation
or otherwise related to the business of the Corporation, and no such dispute is
now pending or threatened against the Corporation.
31
(b) Part 3.14(b) of the Disclosure Schedule sets forth a true, accurate
and complete list of each pension, retirement, savings, cash balance, profit
sharing, deferred compensation, medical, vision, dental and other health plan,
cafeteria, short- and long-term disability, accident and life insurance plan,
bonus, stock option, stock purchase, incentive, severance and special
compensation and other plan and each other employee benefit plan, program and
Contract which is related to the Business and to which the Corporation
contributes or is required to contribute, or which the Corporation sponsors,
maintains or administers or which is otherwise applicable to employees or
categories of employees of the Corporation (hereinafter referred to collectively
as the "Plans"). True, accurate and complete copies of all documents relating to
such Plans have previously been made available to Conexant.
(c) All Plans have been duly registered where required by, and are in
good standing under, all applicable legislation, including the Income Tax Act
(Canada) and the Pension Benefits Act (Ontario). All required employer
contributions under any such Plans, the Income Tax Act (Canada) and the Pension
Benefits Act (Ontario) have been timely made and no past service funding
liabilities exist thereunder.
(d) None of the Plans is subject to ERISA or the Internal Revenue Code.
The Corporation has not maintained, contributed to, participated in or incurred
any liability to or under (i) any plan subject to ERISA or the Internal Revenue
Code or (ii) any "multiemployer plan" (as defined under ERISA).
(e) The Corporation has no obligation to provide post-retirement
welfare benefits to employees of the Corporation.
(f) The Corporation has previously made available to Conexant an
accurate and complete list as of the date set forth therein of each employment,
consulting, termination, confidentiality, non-competition, retention, severance
or other Contract with employees or independent contractors or leased or interim
employees of the Corporation. All such Contracts are valid and enforceable, and
neither the Corporation nor, to the Knowledge of the Corporation, any employee,
independent contractor or leased or interim employee is in default in any
material respect under any thereof. Neither the execution, delivery or
performance of this Agreement or the other Transaction Documents nor the
consummation of the Transactions will result in any obligation to pay any
employees, independent contractors or leased or interim employees of the
Corporation severance pay, or termination, retention or other benefits.
(g) The Corporation has previously made available to Conexant an
accurate and complete list as of the date set forth therein of each employee,
independent contractor or leased employee of the Corporation (including those
who are actually employed or on layoff, leave, or short-term disability or other
permitted absence from employment, but excluding those who are on long-term
disability), together with each such individual's (i) starting date of work,
(ii) present hourly or, if salaried, annual compensation rate, (iii) job title;
(iv) vacation accrued; and (v) service credited for purposes of vesting and
eligibility to participate under any Plans. None of
32
such persons has notified the Corporation, and the Corporation has no reason to
believe, that any of such persons intends to terminate employment or any other
relationship with the Corporation following the consummation of the
Transactions.
(h) No charge against the Corporation or any of its employees is
pending before any Governmental Authority responsible for the prevention of
unlawful employment. No claims relating to employment or loss of employment from
the Corporation are pending in any Governmental Authority and, to the Knowledge
of the Corporation, no such claims are threatened. No notice of intent of any
Governmental Authority responsible for the enforcement of labour or employment
regulations to conduct an investigation has been received, and no such
investigation is in progress.
(i) There are two employees of the Corporation who reside or work in
the United States. All employees presently employed by the Corporation in the
United States are authorized for employment by the Corporation in accordance
with the Immigration and Naturalization Act.
(j) No notice has been received by the Corporation of any complaint
(which has not been resolved) filed by any of its employees claiming that the
Corporation has violated the Employment Standards Act (Ontario) or the Human
Rights Code (Ontario) (or any applicable employee or human rights or similar
legislation in the other jurisdictions in which the Corporation operates), or of
any complaints or proceedings which have not been resolved of any kind involving
the Corporation or, to the Corporation's knowledge, after due inquiry, any of
the employees of the Corporation before any labour relations board. There are no
outstanding orders or charges against the Corporation under the Occupational
Health and Safety Act (Ontario) (or any applicable health and safety legislation
in the other jurisdictions in which the Corporation carries on business). All
levies, assessments and penalties made against the Corporation pursuant to the
Workers' Compensation Act (Ontario) (and any applicable workers' compensation
legislation in the other jurisdictions in which the Corporation carries on
business) have been paid by the Corporation and the Corporation has not been
reassessed under any such legislation except such as have been resolved.
(k) All vacation pay (including all banked vacation pay), bonuses,
commissions and other employee benefit payments are reflected and have been
accrued in the Books and Records of the Corporation.
(l) No payments have been made or authorized since the date of the
Financial Statements by the Corporation to its officers, directors, former
directors, shareholders or employees or to any Person not dealing at arm's
length (as such term is defined in the Income Tax Act (Canada)) with any of the
foregoing, except in the ordinary course of the Business and at the regular
rates payable to them of salary, pension, bonuses, rents or other remuneration
of any nature.
33
Section 3.15 Other Compensation Arrangements. Except as set forth on Part 3.15
of the Disclosure Schedule, the Corporation is not a party to any (i) consulting
Contract (as recipient of services) (x) terminable on more than 30 calendar days
notice or (y) involving the payment of more than $25,000 per annum, (ii)
Contract with any employee of the Corporation (x) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Corporation of the nature contemplated by this
Agreement and the Transaction Documents or (y) providing any term of employment
or compensation guarantee or (iii) Contract or plan, including any stock option
plan, stock appreciation right plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of the Transactions or
the value of any of the benefits of which will be calculated on the basis of the
Transactions.
Section 3.16 Transactions With Affiliates.
(a) Except as set forth on Part 3.16(a) of the Disclosure Schedule
or as set forth in the notes to the Financial Statements, during the past three
years, no Shareholder and no Affiliate of any Shareholder (other than the
Corporation) (x) has had any interest in any property (whether real, personal,
or mixed, and whether tangible or intangible), used in or pertaining to the
business of the Corporation or (y) to the Knowledge of the Corporation has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in a Person that has (i) had business dealings or a material
financial interest in any transaction with the Corporation (other than business
dealings or transactions conducted in the ordinary course of business at
substantially prevailing market prices and on substantially prevailing market
terms), or (ii) engaged in competition with the Corporation with respect to any
line of the products or services of the Corporation in any market presently
served by the Corporation (except for ownership of less than five percent of the
outstanding capital stock of any corporation that is publicly traded on any
recognized exchange or in the over-the-counter market).
(b) Except for those Shareholders that are employees of the Corporation
and except as disclosed in Part 3.16(b) of the Disclosure Schedule, no
Shareholder and to the Knowledge of the Corporation no Affiliate of any
Shareholder provides any services to the Corporation.
34
Section 3.17 Customers and Suppliers.
(a) Part 3.17(a) of the Disclosure Schedule sets forth a list of the 10
most significant customers of the Corporation in terms of revenues to the
Corporation during the twelve-month period ended December 31, 1999, showing the
approximate total revenues of the Corporation from each customer during the
period then ended. Except to the extent set forth in Part 3.17(a) of the
Disclosure Schedule, the Corporation has not received any notice or has any
reason to believe that any customer of the Corporation has ceased, or will
cease, to use the products, equipment, goods or services of the Corporation, or
has reduced or will reduce, the use of such products, equipment, goods or
services at any time after the Closing, as a result of the Transactions or
otherwise.
(b) Part 3.17(b) of the Disclosure Schedule sets forth a list of the 10
most significant suppliers of services (including, without limitation,
subcontractors), raw materials, supplies, merchandise or other goods for the
Corporation in terms of purchases for the twelve-month period ended December 31,
1999 by the Corporation, showing the amount which the Corporation paid to each
such significant supplier during such period. Except as disclosed in Part
3.17(b) of the Disclosure Schedule, the Corporation has no reason to believe
that any such supplier will not sell raw materials, supplies, merchandise and
other goods to the Corporation on the same terms and conditions to those used in
its current sales to the Corporation, subject only to general and customary
price increases, as a result of the Transaction or otherwise.
Section 3.18 Material Contracts.
(a) Part 3.18(a) of the Disclosure Schedule identifies all of the
following types of agreements, understandings, Contracts, obligations or
promises, (whether written or oral and whether express or implied) to which the
Corporation is a party or by which any of its properties or assets is bound or
affected:
(i) pursuant to which the Corporation is the lessee of, or holds
or uses, or is the lessor of, or makes available for use, (A)
any real property or (B) any machinery, equipment or other
tangible personal property, which has an aggregate annual
future liability or receivable, as the case may be, in excess
of $25,000;
(ii) all contracts with customers and suppliers referred to in
Section 3.17;
(iii) relating to indebtedness of the Corporation, including any
note, bond, debenture, instrument or other evidence of
indebtedness under which the Corporation has borrowed any
money from, or loaned any money to, any Person;
35
(iv) providing for or containing any mortgage, pledge, security
agreement, deed of trust, financing lease or similar
instrument granting any Lien on any property owned or used by
the Corporation;
(v) under which (A) any Person has directly or indirectly
guaranteed indebtedness or other Liabilities of the
Corporation, (B) the Corporation has directly or indirectly
guaranteed indebtedness or other Liabilities of any Person or
(C) the Corporation has any obligations relating to the
financial condition of any other Person (including so-called
"keepwell" agreements), in each case, other than endorsements
for the purpose of collection in the ordinary course of
business;
(vi) (A) for the management, operation or control by or of any
Person (or any division, material assets, operating unit or
product line thereof), (B) under which the Corporation has,
directly or indirectly, made any advance, loan, extension of
credit or capital contribution to, or other investment in, any
Person or (C) which involves a sharing of profits, losses,
costs or Liabilities by the Corporation with any other Person,
including, stockholder, joint venture, strategic alliance,
joint marketing, research and development, and any other
similar Contracts;
(vii) providing for indemnification to or from any Person with
respect to Liabilities relating to any current or former
business of the Corporation or any predecessor Person;
(viii) between or among any Shareholder, the Corporation and any of
their respective Affiliates;
(ix) which limits or purports to limit the ability of the
Corporation to compete in any line of business or with any
Person or in any geographic area;
(x) containing confidentiality or non-disclosure obligations to or
from the Corporation;
(xi) for the purchase or sale (through the acquisition of shares,
assets or by merger, reorganization, or otherwise) of any
business, corporation, partnership, joint venture, association
or other business organization or any division, material
assets, operating unit or product line thereof;
(xii) with any Governmental Authority;
(xiii) containing any restrictions with respect to payment of
dividends or any other distributions in respect of the capital
stock of the Corporation; and
36
(xiv) which is otherwise material to the business of the Corporation
and is not described in any of the categories specified in
this Section.
Each item set forth or required to be set forth on Part 3.18 (a) of the
Disclosure Schedule is referred to herein as a "Material Contract."
(b) Each Material Contract was entered into in the ordinary course of
business, is in full force and effect and is a legal, valid and binding
obligation to the Corporation (and to the Knowledge of the Corporation, each
other party or parties thereto), enforceable in accordance with its terms except
as enforceability may be limited by applicable (i) bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and (ii) Laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. The
Corporation has performed the obligations required to be performed by it to date
and, except as disclosed in Part 3.18(b) of the Disclosure Schedules, is not
(with or without the lapse of time or the giving of notice, or both) in material
breach or default or alleged to be in breach or default under any Material
Contract and, to the Knowledge of the Corporation, the other parties thereto
have complied in all material respects thereunder. To the Knowledge of the
Corporation, no event has occurred or circumstance exists that (with or without
lapse of time or the giving of notice) may contravene, conflict with or result
in a violation or material breach of or give the Corporation or other Person the
right to declare a default or exercise any remedy under or to accelerate the
maturity of or to cancel, terminate or modify, any Material Contract. There are
no re-negotiations of, attempts or requests to re-negotiate or outstanding
rights to re-negotiate any Material Contract with any Person. The Corporation
has previously delivered to Conexant, true and complete copies of all Material
Contracts.
(c) Except as set forth on Part 3.18(c) of the Disclosure Schedule, (A)
there are no change of control or similar provisions or any obligations arising
under any Material Contract which are created, accelerated or triggered by the
execution, delivery or performance of this Agreement or the other Transaction
Documents or the consummation of the Transactions and (B) the Transactions will
not (x) constitute a "change of control" under, require the Consent from or the
giving of notice to any Person, permit any Person to terminate or accelerate
vesting, grant any repayment or repurchase rights to any Person, or create any
other detriment under the terms, conditions or provisions of any Material
Contract.
Section 3.19 Insurance. Each of the Insurance policies and surety bonds which
the Corporation maintains with respect to the Corporation or its assets,
Liabilities, employees, officers, directors or representatives (the "Insurance
Policies"): (i) will not lapse or be subject to suspension, modification,
revocation, cancellation, termination or nonrenewal by reason of the execution,
delivery or performance of any Transaction Document or consummation of the
Transactions; (ii) insure the Corporation in reasonably sufficient amounts
against all risks usually insured against by Persons operating similar
businesses or properties in
37
the localities where such businesses or properties are located and (iii) are
sufficient for compliance with all material requirements of Law. The Corporation
is current in all premiums or other payments due under each Insurance Policy
and, to the Knowledge of the Corporation has otherwise performed in all material
respects all of its respective obligations thereunder. The Corporation has not
received any notice that any Insurance Policy is not in full force and effect,
and the Corporation has no knowledge of any event, circumstance or condition
that would cause (or would be reasonably likely to cause) any Insurance Policy
not to be in full force and effect. The Corporation has given timely notice to
the insurer under each Insurance Policy of all claims that may be insured
thereby.
Section 3.20 Disclosure.
(a) No representation or warranty of the Corporation in this Agreement
and no statement contained in any Transaction Document contains any untrue
statement or omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. All financial projections provided to Conexant concerning
the Corporation or its business have been reasonably prepared on bases
reflecting the best currently available estimates and judgment of the
Corporation's management as to the future operating and financial performances
of the Corporation.
(b) None of the information supplied or to be supplied by the
Corporation for inclusion or incorporation by reference in the Registration
Statement will, at the time any amendment or supplement to the Registration
Statement is filed with the SEC, or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. Notwithstanding the foregoing provisions of
this Section, no representation or warranty is made by the Corporation with
respect to statements made or incorporated by reference in the Registration
Statement based on information supplied by Conexant for inclusion or
incorporation by reference therein.
(c) Each Shareholder acknowledges that it has received and had an
opportunity to review and evaluate the Confidential Information Memorandum of
Conexant dated April 11, 2000 relating to the Transactions.
Section 3.21 Brokers or Finders. Except for Credit Suisse First Boston,
neither the Corporation nor any Shareholder, nor any of their respective
representatives has incurred any Liability on the part of the Corporation for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with the negotiation, preparation, delivery or execution of this
Agreement or the consummation of the Transactions, nor is there any basis, to
the Knowledge of the Corporation or any of the Shareholders, for any such fee,
commission or similar payment to be claimed by any Person against the
Corporation.
38
Section 3.22 Representations Complete. The representations and warranties made
by the Corporation in this Article III and in any certificate furnished by the
Corporation or any of its subsidiaries pursuant to this Agreement, when all such
documents are read together in their entirety, do not and will not at the
Closing Time contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF CONEXANT
Conexant represents and warrants to the Shareholders as follows:
Section 4.1 Organization, Standing and Power. Conexant is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which a
failure to so qualify would have a Material Adverse Effect on Conexant.
Section 4.2 Due Authorization; Enforceability. Conexant has all requisite
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents and to consummate the Transactions. The
execution, delivery and performance of this Agreement and the other Transaction
Documents and the consummation of the Transactions by Conexant have been duly
authorized by all necessary or appropriate corporate or other action and no
other corporate or other proceedings are necessary to authorize this Agreement
or the other Transaction Documents or to consummate the Transactions. This
Agreement and those Transaction Documents executed or delivered on or prior to
the date of this Agreement constitute, and prior to the Time of Closing the
remaining Transaction Documents required to be executed after the date of this
Agreement will constitute when executed, the valid and legally binding
obligations of Conexant (assuming that this Agreement and the Transaction
Documents constitute the valid and binding obligations of the Shareholders and
the Corporation), enforceable against Conexant in accordance with their terms
except as enforceability may be limited by applicable (i) bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and (ii) Laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
Section 4.3 No Violation. Except for filings and Consents set forth in Part 4.3
of the Disclosure Schedule, neither the execution, delivery or performance of
this Agreement by Conexant, nor the consummation by Conexant of the
Transactions, will, with
39
or without the giving of notice or lapse of time or both: (i) violate, conflict
with or result in any breach of any provision of the articles of association or
by-laws of Conexant; (ii) require any Permit of any Governmental Authority or
violate, conflict with or constitute a default under any of the terms or
requirements of any Permit that is held by Conexant; or (iii) result in a
violation or breach of, or constitute a default (or give rise to any rights of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any Contract to which Conexant is a party or by
which any of its assets or properties is bound; or (iv) violate, conflict with
or result in any breach of any Law applicable to Conexant.
Section 4.4 Financial Statements and SEC Documents. Since January 1, 1999,
Conexant has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein, with amendments read together with underlying
documents, are referred to herein as the "SEC Documents"). As of the date of
this Agreement, no event has occurred with respect to Conexant that would
require Conexant to have filed any other report or make any other disclosure
pursuant to the Exchange Act. As of the Closing Date, no event shall have
occurred with respect to Conexant that will require Conexant to file any other
report or make any other disclosure pursuant to the Exchange Act except for such
other reports or disclosures as do not and will not disclose an adverse material
change to the business operations, assets or condition (financial or otherwise)
of Conexant and its Subsidiaries, on a consolidated basis. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of Conexant included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
GAAP, consistently applied, during the periods involved and fairly present in
all material respects the consolidated financial position of Conexant and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
Section 4.5 Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there is no action, suit, claim, investigation or proceeding (or any
basis therefor known to Conexant) pending against or, to the knowledge of
Conexant, threatened against Conexant or its properties and assets before any
court or arbitrator or any Governmental Entity that could reasonably be expected
to have a material
40
adverse effect on Conexant's Business Condition. Conexant is not subject to any
order, writ, judgment, decree, or injunction that has a Material Adverse Effect.
Section 4.6 Disclosure. Conexant covenants that none of the information
supplied or to be supplied by Conexant for inclusion or incorporation by
reference in the Registration Statement will, at the time any amendment or
supplement to the Registration Statement is filed with the SEC, or at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading . Notwithstanding the
foregoing provisions of this Section, no representation or warranty is made by
Conexant with respect to statements made or incorporated by reference in the
Registration Statement based on information supplied by the Corporation for
inclusion or incorporation by reference therein.
Section 4.7 Brokers and Finders. Conexant has not retained any broker, finder
or investment banker in connection with this Agreement or any of the
transactions contemplated by this Agreement, nor does or will Conexant owe any
fee or other amount to any broker, finder or investment banker in connection
with this Agreement or the transactions contemplated by this Agreement.
Section 4.8 Special Shares. Conexant confirms that it has no current intention
to dispose of the Special Shares acquired pursuant to the Reorganization.
Section 4.9 Representations Complete. The representations or warranties made by
Conexant in this Article IV and in any certificate furnished by Conexant or any
of its Subsidiaries pursuant to the this Agreement, when all such documents are
read together in its entirety, do not contain and will not at the Time of
Closing contain any untrue statement of a material fact, or omit to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
42
ARTICLE V
COVENANTS
Section 5.1 Taxes Not Assumed by Conexant.
Conexant does not assume and shall not be liable for any taxes under
the Income Tax Act (Canada) or any other Taxes whatsoever which may be or become
payable by the Shareholders including, without limiting the generality of the
foregoing, any Taxes which may be or become payable by the Shareholders
resulting from or arising as a consequence of the transactions herein
contemplated, including the Reorganization and the exchange of Exchangeable
Share for Conexant Shares.
Section 5.2 Covenants of the Shareholders and the Corporation.
(a) The Corporation shall ensure that the representations and
warranties of the Corporation set out in Article III over which the Corporation
has reasonable control are true and correct at the Time of Closing.
(b) The Corporation shall ensure that the conditions of closing for the
benefit of Conexant set out in Section 6.1(1) over which the Corporation has
reasonable control have been performed or complied with at the Time of Closing.
For greater certainty, the Corporation shall not be liable to Conexant for any
failure to obtain the approval of the shareholders of the Corporation for the
Transactions, either at a special meeting or by a signed resolution, described
in Section 5.2(f).
(c) Each Shareholder shall ensure that the conditions of closing for
the benefit of Conexant set out in Section 6.1(1) over which such Shareholder
has reasonable control have been performed or complied with by the Time of
Closing.
(d) The Corporation shall permit Conexant, through its agents and
representatives, to make such reasonable investigation prior to the Time of
Closing of the assets of the Corporation and of its financial and legal
condition as Conexant consider necessary or advisable to familiarize themselves
with such assets and other matters and the Corporation shall supply any and all
documents and records of the Corporation to Conexant and its agents and
representatives as they may reasonably require. The Corporation shall also
permit the inspection of the assets of the Corporation prior to the Time of
Closing by such federal, provincial or municipal authorities as Conexant may
require. Such investigations and inspections shall not, however, affect or
mitigate the Shareholders' or the Corporation's covenants, representations and
warranties hereunder, which shall continue in full force and effect.
43
(e) The Corporation shall use its reasonable best efforts to cause all
the employees of the Corporation set out to Exhibit VIII to enter into
employment agreements substantially in the form of Exhibit IX and
non-competition agreements substantially in the form of Exhibit X prior to the
Time of Closing.
(f) The Corporation shall, as soon as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a special meeting of
its shareholders for the purpose of obtaining the required vote of its
shareholders and the Corporation shall, through its Board of Directors,
unanimously recommend to its shareholders that they approve the Transactions.
The Corporation shall use its commercially reasonable efforts to hold the
Corporation's special shareholders' meeting on or before May 26, 2000.
Alternatively, the Corporation may obtain the required approvals from its
shareholders to effect the Transactions pursuant to resolutions in writing in
accordance with Section 142 of the CBCA on or before April 30, 2000. The
Corporation shall provide to Conexant draft copies of all materials to be
provided by the Corporation to its shareholders in seeking the consent of the
shareholders to the Transactions and Conexant and its counsel shall have a
reasonable opportunity to provide comments on such materials prior to their
mailing to the Corporation's shareholders. Such materials shall include the
Confidential Offering Memorandum dated April 11, 2000, as well as Conexant's
Form 10-K for its fiscal year ended September 30, 1999, Conexant's proxy
statement dated January 3, 2000 and Conexant's Form 10-Q for its fiscal quarter
ended December 31, 1999.
(g) The Corporation shall use reasonable efforts to cause to be
delivered to Conexant a letter of Deloitte & Touche LLP, the Corporation's
chartered accountants, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to
Conexant, in form and substance reasonably satisfactory to Conexant and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
(h) The Corporation shall not issue any shares, convertible securities,
exchangeable securities, stock options or stock appreciation rights prior to the
Closing Date without the prior written approval of Conexant.
(i) From the date hereof until termination of this Agreement in
accordance with Section 2.4, each of the Shareholders covenants and agrees that:
(i) such Shareholder will not directly or indirectly sell or offer
for sale, or solicit, initiate, assist, facilitate, promote or
encourage any proposal or offer from, or entertain or enter
into discussions or negotiations with, any other party related
to the Common Shares, Class A Preferred Shares or Class B
Preferred Shares;
(ii) such Shareholder will, to the extent permitted by relevant
law, use such Shareholder's best efforts to prevent, and to
vote all of the shares of the
43
Corporation owned by such Shareholder against, the occurrence
of any of the following events: (A) any change in the articles
or by-laws of the Corporation except as required to facilitate
the Reorganization; (B) the granting of any options, warrants
or securities convertible into shares of the Corporation; (C)
the distribution, sale, transfer or pledge of a substantial
part (being in excess of 10%) of the business or property of
the Corporation; (D) the merger, consolidation, amalgamation,
arrangement or reorganization of the Corporation or any other
material change in the corporate structure of the Corporation,
other than the Reorganization; (E) the declaration of any
dividend by the Corporation, or the making of any other
payment by the Corporation to its shareholders; or (F) any
other material change in the business of the Corporation;
(iii) such Shareholder will not directly or indirectly provide any
information concerning the Corporation to any entity in
furtherance of any of the transactions described in clauses
(i)(i) or (ii) above;
(j) The Corporation covenants and agrees that it will not enter into,
and will not propose to its shareholders, any transaction described in clause
(i)(ii) above, and will not directly or indirectly provide any information
concerning the Corporation to any entity in furtherance of any of the
transactions described in clauses (i)(i) or (ii) above;
(k) The Corporation will promptly advise Conexant in writing: (i) of
any event to occur after the date of this Agreement that would render any
representation or warranty of the Corporation contained in this Agreement, if
made on or as of the date of such event to be untrue or inaccurate in any
material respect; (ii) of any event to occur after the date of this Agreement
and prior to the Closing Time that would have a Material Adverse Effect on the
Corporation; and (iii) of any breach by the Corporation, or, to the Knowledge of
the Corporation, by any Shareholder, of any covenant or agreement contained in
this Agreement; and
(l) The covenants of the Corporation and the Shareholders set forth in
this Agreement shall survive the completion of the Transactions and,
notwithstanding such completion, shall continue in full force and effect for the
benefit of Conexant in accordance with the terms thereof.
Section V.3 Covenants of Conexant.
(a) Conexant shall ensure that the representations and warranties of
Conexant set out in Article IV over which Conexant has reasonable control are
true and correct at the Time of Closing and that the conditions of closing for
the benefit of the Shareholders set out in Section 6.2(1) over which Conexant
has reasonable control have been performed or complied with by the Time of
Closing.
44
(b) So long as any Exchangeable Shares are outstanding, Conexant shall
provide to the registered holders thereof the same information and at the same
times that Conexant provides from time to time to the holders of Conexant
Shares.
(c) Conexant shall file a notification for listing of the Conexant
Shares on the NASDAQ National Market System and shall cause such filing to be
accepted prior to any exchange of Exchangeable Shares for Conexant Shares.
(d) On or before the date that is the later of 30 days after the date
of this Agreement and 10 days after the Closing Date, Conexant shall prepare and
file or cause to be prepared and filed with the SEC, as soon as practicable, but
in any event within 10 days after the Closing Date, a registration statement
(the "Registration Statement") for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 of the Securities Act registering (A) all
of the Conexant Shares issued or issuable in connection with the redemption by
the Corporation, retraction by a shareholder, upon liquidation, dissolution or
winding up of the Corporation or the acquisition by Conexant (or any Subsidiary
of Conexant) of the Exchangeable Shares and (B) the issuance by Conexant of
Conexant Shares upon exercise of all Warrants, Employee Stock Options and
Convertible Debenture Options outstanding at the Closing Time, in each case to
the extent such securities are capable of being registered at such time under
Rule 415 of the Securities Act (the "Registrable Shares"). The Registration
Statement shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Shares. Conexant shall use its commercially
reasonable efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as is practicable after the filing thereof
with the SEC and to keep such Registration Statement effective until the date
that is the earlier of five years and six months after the date hereof and the
date upon which all Registrable Shares shall have ceased to be Registrable
Shares, subject to the same exceptions and limitations as are set forth in
Sections 3(c), (d), (e) and (i) of the Conexant Registration Rights Agreement;
provided, that Conexant shall have notified a holder of Exchangeable Shares
promptly, and in no event later than five Business Days, after such Exchangeable
Shares have been tendered for retraction, redemption or purchase by the
Corporation or Conexant (or any Subsidiary of Conexant), as the case may be, if
such Registration Statement is not effective at the time of such retraction,
redemption or purchase as a result of any such exceptions and limitations set
forth in the Conexant Registration Rights Agreement.
(e) Conexant shall use reasonable efforts to cause to be delivered to
the Corporation a letter of Deloitte & Touche LLP, Conexant's independent public
accountants, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to the Corporation,
in form and substance reasonably satisfactory to the Corporation and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement.
45
(f) At the request of any shareholder (a "Section 85 Shareholder") of
the Corporation, Conexant shall cause the Corporation to execute jointly with
such shareholder a T-2057 election pursuant to section 85 of the Income Tax Act
(Canada), electing therein that the shares of the Corporation exchanged by such
shareholder for Exchangeable Shares in the course of the Reorganization shall be
deemed to have been disposed of by the Section 85 Shareholder at an amount to be
determined by such shareholder, in his discretion, at no less than the cost
amount to such shareholder of such shares and not greater than the fair market
value of such shares as at the time of the Reorganization. Conexant agrees to
cause the Corporation to execute and deliver the election form to the Section 85
Shareholder at the Time of Closing if duly prepared for filing, signed by the
Section 85 Shareholder and provided to the Corporation prior to Closing and
otherwise will execute and deliver such election form to the Representatives at
the address set forth in Section 8.10 within 30 days of delivery to the
Corporation of the election form duly prepared for filing and signed by the
Section 85 Shareholder. The term "cost amount" as used in this paragraph shall
have the meaning ascribed to it in the Income Tax Act (Canada). Compliance with
the requirements to ensure the validity of a tax election will be the sole
responsibility of the Section 85 Shareholder making the election, and such
Section 85 Shareholder will be solely responsible for the filing of any election
forms and the payment of any late filing penalties. Neither Conexant nor the
Corporation will file any elections on behalf of Section 85 Shareholders. The
Corporation will not execute election forms received more than five months after
the Closing Date.
(g) Conexant shall, within 7 days of the Closing Date, cause its
Canadian counsel to apply to the Ontario Securities Commission for a ruling
pursuant to subsection 74(1) of the Securities Act (Ontario) to permit the
distribution of the Conexant Shares to holders of the Exchangeable Shares
without a prospectus and to permit the resale of such Conexant Shares outside
Ontario through the facilities of the Nasdaq National Market without a
prospectus being filed under the Securities Act (Ontario), and Conexant shall
use its commercially reasonable best efforts to obtain such a ruling within 90
days of the Closing Date.
(h) Conexant shall cause the Corporation to maintain its existing
directors' and officers' insurance policy in force for a period of at least two
years following the Closing Date, provided such insurance policy continues to
remain available on terms and conditions commercially reasonable to the
Corporation.
(i) Conexant shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Conexant Shares for delivery upon the
exercise of each Employee Share Option referred to in Section 2.1 hereof. As
soon as practicable after the Closing Time, and not more than ten Business Days
thereafter, Conexant shall file a registration statement on Form S-8 (or any
successor or other appropriate form), with respect to the shares of Conexant
Shares subject to such options and shall use commercially reasonable efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain
46
outstanding, subject to the same exceptions and limitations as are set forth in
Sections 3(c), (d), (e) and (i) of the Conexant Registration Rights Agreement;
provided that Conexant shall have notified the holder of such Employee Share
Option promptly, and in no event later than five Business Days, after such
holder shall have given notice of exercise of Employee Share Options, if such
Registration Statement is not effective at the time of exercise of such Employee
Share Option because of exceptions or limitations set forth in the Conexant
Registration Rights Agreement.
(j) Conexant shall use reasonable efforts to attempt to ensure that as
soon as practicable after the Closing Time, Conexant's benefit plans and benefit
arrangements will provide benefits to the Continuing Employees that are
substantially comparable to the non-discretionary, non-cash benefits provided to
similarly situated employees of Conexant. Nothing in this clause (j) is intended
or shall be construed as requiring Conexant to provide any particular employee
benefit to any specific employee of the Corporation or to continue any specific
benefit previously provided to any Continuing Employee. For purposes of this
Section, "Continuing Employee" shall mean any employee of the Corporation who
continues as an employee of the Corporation or Conexant after the Closing Time.
(k) Conexant will promptly advise the Corporation in writing (a) of any
event occurring subsequent to the date of this Agreement that would render any
representation or warranty of Conexant contained in this Agreement, if made on
or as of the date of such event, to be untrue or inaccurate in any material
respect, (b) of any Material Adverse Effect in Conexant; and (c) of any breach
by Conexant of any covenant or agreement contained in the Agreement.
(l) The covenants of Conexant set forth in this Agreement shall survive
the completion of the transactions herein provided for and, notwithstanding such
completion, shall continue in full force and effect for the benefit of the
Shareholders in accordance with the terms thereof.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions for the Benefit of Conexant.
(1) Closing shall be subject to the following conditions which are for the
exclusive benefit of Conexant to be performed or complied with at or prior to
the Time of Closing:
(a) the representations and warranties of the Corporation set forth in
Article III shall be true and correct at the Time of Closing with the same force
and effect as if made at and as of such time;
47
(b) the Corporation and each of the Shareholders shall have performed
or complied with all of the terms, covenants and conditions of this Agreement to
be performed or complied with by the Corporation and the Shareholders, as the
case may be, at or prior to the Time of Closing;
(c) Conexant shall be furnished with such certificates, affidavits or
statutory declarations of the Corporation and of the Shareholders or of officers
of the Corporation and of the Shareholders as Conexant and its counsel may
reasonably think necessary in order to establish that the terms, covenants and
conditions contained in this Agreement to have been performed or complied with
by the Shareholders or by the Corporation, as the case may be, at or prior to
the Time of Closing have been performed and complied with and that the
representations and warranties of the Corporation herein given are true and
correct at the Time of Closing;
(d) the Corporation shall have amended the terms of the Employee Stock
Options, the Convertible Debenture Options and the Warrants so that they shall
become exercisable for Conexant Shares in the manner provided in Section 2.1;
(e) all directors of the Corporation shall resign;
(f) the Shareholders and all directors of the Corporation shall release
the Corporation from any and all possible claims against the Corporation arising
from any act, matter or thing arising at or prior to the Time of Closing except
for obligations of the Corporation pursuant to the Transaction Documents and
except for, in the case of directors, claims for contribution and indemnity
against the Corporation as provided in the by-laws of the Corporation.
(g) all necessary steps and proceedings shall have been taken to permit
the Shares purchased by Conexant to be duly and regularly transferred to and
registered in the name of Conexant;
(h) employment agreements with all of the employees set out in Exhibit
VIII, substantially in the form attached hereto as Exhibit IX, shall have been
entered into, in full substitution for any existing employment agreements with
such individuals;
(i) non-competition agreements, substantially in the form attached
hereto as Exhibit X, shall have been entered into with each of the employees of
the Corporation set out in Exhibit VIII;
(j) the Corporation shall have delivered to Conexant favorable opinions
of counsel to the Corporation, substantially in the form attached hereto as
Exhibit XI;
(k) no material change shall have occurred between the execution of
this Agreement and the Closing which would have a Material Adverse Effect on the
Corporation;
48
(l) the form and legality of all matters incidental to the completion
of the Transactions shall be subject to the approval of Conexant's counsel
acting reasonably;
(m) the Corporation shall have provided documentation satisfactory to
Conexant and its counsel, both acting reasonably, as to the due authorization,
issue and conversion of the Convertible Debentures, the due authorization and
issue of the Convertible Debenture Options and the due authorization and issue
of the Common Shares issued upon conversion of such Convertible Debentures;
(n) the Reorganization shall have been completed and the only issued
and outstanding shares of the Corporation shall be the Special Shares owned by
Conexant and the Exchangeable Shares owned by the shareholders of the
Corporation;
(o) the holders of not more than two percent of the shares of any class
of the Corporation shall have exercised dissent and appraisal rights under the
CBCA in respect of the changing of the rights of the holders of such class of
shares;
(p) the Amended and Restated Unanimous Shareholders' Agreement and the
Amended and Restated Registration Rights Agreement shall have been terminated in
accordance with their respective terms and without triggering any requirement to
pay any penalty;
(q) the Corporation shall obtain all third party consents set forth in
Exhibit XIII to complete the Reorganization and Transactions without triggering
any requirement to pay any penalty or imposing any other condition unacceptable
to Conexant;
(r) the Corporation shall deliver a certificate dated the Closing Date
and signed by the Chief Executive Officer and the Chief Financial Officer of the
Corporation confirming that the Corporation has satisfied all conditions of
closing set forth in this Section 6.1, and has fulfilled all covenants required
to be fulfilled by the Corporation prior to the Closing Date and confirming the
accuracy of the Corporation's representations and warranties contained in
Article III of this Agreement as of the Time of Closing; and
(s) each Shareholder shall have tendered to the Corporation all of such
Shareholder's certificates representing Class A Preferred Shares, Class B
Preferred Shares and Common Shares for exchange into Exchangeable Shares and
shall have delivered therewith the share transmittal materials in the form
annexed hereto as Exhibit XII ;
(t) the Employee Stock Options held by Messrs. Xxxxxxx X'Xxxxx, Xxxxx
Xxxxx, Xxxx Xxxxxxx and Xxxx Xxxxx vesting in 2004 shall be amended such that
50% of such Employee Stock Options shall vest on the same date in 2002 and the
remainder of the Employee Stock Options shall vest on the same date in 2003;
49
(u) the Corporation's aggregate fees, expenses and disbursements in
connection with the Transactions (including the fees and disbursements of Credit
Suisse First Boston and of the Corporation's legal counsel and auditors), when
added with any amount expended by the Corporation pursuant to Section
2.4(a)(ii), shall not exceed the lesser of US $6 million and the amount of cash
on hand at the Corporation at the Time of Closing, which fees, expenses and
disbursements shall be paid in full at the Time of Closing;
(v) Conexant shall be furnished with such certificates, affidavits or
statutory declarations of each shareholder of the Corporation as Conexant and
its counsel may reasonable think necessary in order to establish whether such
shareholder is a non-resident of Canada for purposes of section 116 of the
Income Tax Act (Canada); and
(w) Each shareholder that is a non-resident of Canada for purposes of
section 116 of the Income Tax Act (Canada) will have delivered to Conexant on or
before Closing a certificate issued by the Minister of National Revenue pursuant
to subsection 116(2) of the Income Tax Act (Canada) having a `certificate limit'
(as defined therein) of not less than the maximum amount in respect of which
Philsar would have any withholding obligation or be subject to any penalty
related to entitlement of shareholders who are non-resident of Canada to receive
Exchangeable Shares.
(2) In case any term or covenant of the Corporation or the Shareholders or
condition to be performed or complied with for the benefit of Conexant at or
prior to the Time of Closing shall not have been performed or complied with at
or prior to the Time of Closing, Conexant may, without limiting any other right
that it may have (including Conexant's right to commence an action seeking
injunctive relief, including specific performance, or damages), at its sole
option, either:
(a) rescind this Agreement by notice to the Shareholders, and in such
event Conexant shall be released from all obligations hereunder; or
(b) waive compliance with any such term, covenant or condition in whole
or in part on such terms as may be agreed upon without prejudice to any of its
rights of rescission in the event of non-performance of any other term, covenant
or condition in whole or in part.
VI.2 Conditions for the Benefit of the Shareholders
(1) Closing shall be subject to the following conditions which are for the
exclusive benefit of the Shareholders to be performed or complied with at or
prior to the Time of Closing:
50
(a) the representations and warranties of Conexant set forth in Article
IV shall be true and correct at the Time of Closing with the same force and
effect as if made at and as of such time;
(b) Conexant shall have performed or complied with all of the terms,
covenants and conditions of this Agreement to be performed or complied with by
Conexant at or prior to the Time of Closing;
(c) the Shareholders shall be furnished with such certificates,
affidavits or statutory declarations of Conexant or of officers of Conexant as
the Shareholders or the Shareholders' counsel may reasonably think necessary in
order to establish that the terms, covenants and conditions contained in this
Agreement have been performed or complied with by Conexant at or prior to the
Time of Closing and that the representations and warranties of Conexant herein
given are true and correct at the Time of Closing;
(d) Conexant shall have entered into the Exchange Trust Agreement and
the Support Agreement in the forms of Exhibit III and IV hereto, respectively;
(e) the Conexant Preferred Shares shall have been issued and deposited
with the trustee pursuant to the Exchange Trust Agreement;
(f) Conexant shall have delivered to the Corporation a favourable
opinion of Canadian counsel to Conexant as to the enforceability against
Conexant of the Transaction Documents to which Conexant is a party and a
favourable opinion of United States counsel to Conexant as to the due
incorporation and existence of Conexant, the due authorization, execution and
delivery by Conexant of the Transaction Documents to which Conexant is a party,
compliance with laws, as to the valid issuance of the Conexant Preferred Share,
and as to the validity and registration of the Conexant Shares issuable upon
exercise of the Exchangeable Shares, the Warrants, the Employee Stock Options
and the Convertible Debenture Options;
(g) the form and legality of all matters incidental to the Transactions
shall be subject to the approval of the Corporation's counsel, acting
reasonably;
(h) no event shall have occurred after the date of this Agreement and
prior to the Closing Time which would have a Material Adverse Effect on
Conexant;
(i) the Reorganization shall have been completed and the only issued
and outstanding shares of the Corporation shall be the Special Shares owned by
Conexant and the Exchangeable Shares owned by the shareholders of the
Corporation; and
(j) Conexant shall deliver a certificate dated the Closing Date and
signed by two officers of Conexant confirming that Conexant has satisfied all
conditions of closing set forth in
51
this Section 6.2, and has fulfilled all covenants required to be fulfilled by
Conexant prior to the Closing Date and confirming the accuracy of Conexant's
representations and warranties contained in Article IV of this Agreement as of
the Time of Closing.
(2) In case any term or covenant of Conexant or condition to be performed or
complied with for the benefit of the Shareholders at or prior to the Time of
Closing shall not have been performed or complied with at or prior to the Time
of Closing, the Shareholders may, without limiting any other right that the
Shareholders may have (including the Shareholders' right to commence an action
seeking injunctive relief, including specific performance, or damages), at their
sole option, either:
(a) rescind this Agreement by notice to Conexant, and in such event the
Shareholders shall be released from all obligations hereunder; or
(b) waive compliance with any such term, covenant or condition in whole
or in part on such terms as may be agreed upon without prejudice to any of their
rights of rescission in the event of non-performance of any other term, covenant
or condition in whole or in part.
ARTICLE VII
INDEMNIFICATION AND ESCROW
Section 7.1 Survival of Representations and Warranties. All representations
and warranties of the Corporation or any authorized representative thereof
contained in this Agreement, or in any certificate, document or other instrument
delivered in connection herewith or pursuant to any of the Transaction
Documents, shall terminate and cease to be of further force and effect as of the
first anniversary of the Closing Date (the "Escrow Period"). Those covenants
that expressly contemplate or involve actions to be taken or obligations in
effect after the Closing shall survive in accordance with their terms.
Section 7.2 Indemnities.
(a) Each of the Shareholders shall jointly and severally indemnify and
save harmless Conexant and Conexant's officers, directors, shareholders,
affiliates, employees, financial advisors and legal counsel (for whom it is
expressly agreed that Conexant is holding the benefit of this indemnity and
rights of enforcement thereof in trust), the Corporation and each of the
officers, directors, shareholders, affiliates, employees and agents of the
Corporation (for whom it is expressly agreed that the Corporation is holding the
benefit of this indemnity and the rights of enforcement thereof in trust) (each
such Person an "Indemnitee" and all such Persons, collectively, the
"Indemnitees") from and against any and all damages, losses, liabilities,
payments, obligations, penalties, claims, litigation, demands, judgments, suits,
proceedings, costs, Taxes, disbursements or expenses (including without
limitation, reasonable fees,
52
disbursements and expenses of attorneys) of any kind or nature whatsoever
(collectively, the "Damages"), directly or indirectly resulting from, relating
to or arising out of any breach of or inaccuracy in any representation or
warranty of the Corporation contained in Article III or in any Transaction
Document, provided that no claim for Damages (each, a "Claim") may be initiated
by any Person against any Shareholder (excluding any Claim to enforce the
Shareholders' covenant of indemnity provided pursuant to this Article VII) under
this Section 7.2(a) at any time after the date that is 365 days after the
Closing Date.
(b) Each of the Shareholders shall severally indemnify and save
harmless Conexant and Conexant's officers, directors, shareholders, affiliates,
employees, financial advisors and legal counsel (for whom it is expressly agreed
that Conexant is holding the benefit of this indemnity and rights of enforcement
thereof in trust), the Corporation and each of the officers, directors,
shareholders, affiliates, employees and agents of the Corporation (for whom it
is expressly agreed that the Corporation is holding the benefit of this
indemnity and the rights of enforcement thereof in trust) from and against any
and all Damages directly or indirectly resulting from, relating to or arising
out of:
(i) any breach of or inaccuracy in any representation or
warranty of the Shareholder contained in any
Transaction Document; and
(ii) any breach or non-performance by the Shareholder of
any covenant or agreement of such Shareholder
contained in this Agreement or in any Transaction
Document;
provided that no Claim may be initiated by any Person against any Shareholder
(excluding any Claim to enforce the Shareholders' covenant of indemnity provided
pursuant to this Article VII) under this Section 7.2(b) at any time after the
date that is 365 days after the Closing Date and provided further that no Claim
may be made against any Shareholder arising out of any breach or non-performance
by any other Shareholder of any representation, warranty, covenant or agreement
of such other Shareholder contained in this Agreement or any other Transaction
Document.
(c) The Corporation shall indemnify and hold harmless Conexant and each
of the officers, directors, shareholders, affiliates, employees, financial
advisors, legal counsel and agents of Conexant (for whom it is expressly agreed
that Conexant is holding the benefit of this indemnity and the rights of
enforcement thereof in trust) from and against any and all Damages directly or
indirectly resulting from relating to or arising out of:
(i) any breach of or inaccuracy in any representation or
warranty contained in Article III or in any
Transaction Document; and
53
(ii) any breach of or non-performance by the Corporation
of any covenant or agreement of the Corporation
contained in this Agreement or in any Transaction
Document.
(d) Conexant shall indemnify and hold harmless each of the
Shareholders, the Corporation and the officers and directors of the Corporation
(for whom it is expressly agreed that the Corporation is holding the benefit of
this indemnity and rights of enforcement thereof in trust) from and against any
and all Damages directly or indirectly resulting from, relating to or arising
out of:
(i) any breach of or inaccuracy in any representation or
warranty contained in Article IV; and
(ii) any breach of or non-performance by Conexant of any
covenant or agreement of Conexant contained in this
Agreement or in any Transaction Document;
provided, that no claim may be made by any Person against Conexant (excluding
any Claim to enforce Conexant's covenant of indemnity provided pursuant to this
Article VII under this Section 7.2(d)) at any time after the date which is 365
days after the Closing Date.
Section 7.3 Escrow Fund and Procedure.
(a) At the Time of Closing, there shall be deposited with the Trustee
by the Shareholders (or by other shareholders of the Corporation) 10% of the
aggregate number of Exchangeable Shares to be issued upon completion of the
Reorganization pursuant to the Exchange Trust Agreement (such Exchangeable
Shares being hereinafter referred to as the "Escrowed Shares"). The holders of
such Escrowed Shares shall have the right to vote, and to receive dividends
declared on, the Escrowed Shares during the Escrow Period. The Escrowed Shares
are not subject to forfeiture or return in the event of any shareholders' death
or bankruptcy, or the failure of any Shareholder to continue employment with the
Corporation.
(b) If a Claim by a third party is made against any Indemnitee or in
the event that an Indemnitee determines, in good faith, that an event has
occurred which gives rise to a Claim, and if such Indemnitee intends to seek
indemnity with respect thereto under this Article VII, the Indemnitee shall
notify the Representatives of such Claim in writing and shall provide to the
Representatives such information as is necessary to identify the nature and
validity of the Claim. Such notice must be given no later than 30 days after the
assertion or determination of such Claim but in no event after the expiration of
the Escrow Period. The Indemnitee shall include in its notice to the
Representatives the basis for the Claim, the amount of the resulting Damages and
the amount of cash and if applicable, the number of Escrowed Shares, which it
intends to acquire in order to satisfy such Damages. For purposes of determining
the number of Escrowed Shares to be acquired, any Claim should be satisfied from
all of the Escrowed
54
Shares on a pro rata basis, and the number of such Escrowed Shares shall be
equal to the number resulting upon the division of the amount of the Claim by
the Canadian Dollar Equivalent of the Closing Price, regardless of the actual
fair market value of the Conexant Shares at the time of such determination
hereunder. If the Representatives wish to dispute the validity of any Claim or
the amount of Damages for any Claim on behalf of the beneficial owners of the
Escrowed Shares, the Representatives must give the Indemnitee requesting
indemnification written notice of such dispute and the basis therefore, within
30 days of receiving the Indemnitee's notice. If the parties are unable to
resolve any such dispute, the matter shall be submitted to binding arbitration,
the costs of which shall be borne equally by the Indemnitee or Indemnitees and
by the Shareholders. Any such arbitration shall be conducted by an independent
firm mutually agreeable to the parties with expertise in matters of this kind,
and shall be in a mutually agreeable location, or if the parties cannot agree
upon an arbitrator or location, an arbitrator or place of arbitration shall be
determined in accordance with the provisions of the Arbitration Act (Ontario).
(c) Any cash or Escrowed Shares held by the Escrow Agent at the
expiration of the Escrow Period which have not been applied against any Damages
as provided herein, or which do not represent Damages for Claims whose validity
or amount is still in dispute, shall be delivered to the beneficial owners of
the Escrowed Shares promptly following the expiration of the Escrow Period. Any
portion of the Escrow Fund withheld pending resolution of a dispute, shall be
delivered or returned and canceled, as may be determined, upon final resolution
of the dispute, in accordance with the escrow provisions of the Exchange Trust
Agreement.
(d) Conexant shall be entitled to control the defense of any Claim
brought against Conexant or any Indemnitee, in its sole discretion, and to
settle in good faith any such Claim without the consent of the Representatives
or the beneficial owners of the Escrowed Shares, provided however that the
Representatives, on behalf of the beneficial owners of the Escrowed Shares,
shall be entitled to participate in any such defense at the expense of the
Shareholders (pro rata determined by dividing the number of Escrowed Shares
owned by each Shareholder by the total number of Escrowed Shares then remaining
subject to escrow pursuant to the Exchange Trust Agreement).
(e) Notwithstanding anything hereinabove to the contrary, the aggregate
liability of the Shareholders under this Article VII, other than in the event of
fraud or willful misrepresentation by the Corporation or any of the beneficial
owners of the Escrowed Shares, shall not exceed the amount which is 10% of the
number of Exchangeable Shares issued to the Shareholders under Section 2.1
hereof multiplied by the Canadian Dollar Equivalent of the Closing Price
(calculated on the second Business Day preceding the Closing Date), and such
liability shall be satisfied exclusively as provided in Section 7.5. In the
event of any Claim based upon the fraud or willful misrepresentation of the
Corporation, Conexant shall only be entitled to proceed against any Shareholder
for such Shareholders' proportionate share of the resulting
55
Damages (determined pro rata on the basis of the number of Exchangeable Shares
issued to such Shareholder on the Closing Date divided by the total number of
Exchangeable Shares issued on the Closing Date) and each Shareholder's liability
shall not exceed the product obtained by multiplying the number of Conexant
Shares issuable upon exchange of the Exchangeable Shares issued to such
Shareholder on the Closing Date by the Canadian Dollar Equivalent of the Closing
Price calculated on the second Business Day prior to the Closing Date (less the
aggregate number of such Shareholders Escrowed Shares which Conexant has
withdrawn under the Escrow Agreement multiplied by the Canadian Dollar
Equivalent of the Closing Price calculated on the second Business Day prior to
the Closing Date).
(f) No Indemnitee shall be entitled to make a Claim for indemnification
under this Article VII: (i) until the Damages that are the subject of such Claim
(aggregated with the amount of Damages in respect of any previous Claim or
Claims made by an Indemnitee or barred by this clause (f)) exceeds $200,000; and
(ii) after the date that is 365 days after the Closing Date.
(g) The Shareholders hereby appoint Messrs. Xxxxxxx Xxxxxx and Xxxxxx
Xxxxxxxx to be the Representatives of the Shareholders for the purpose of this
Section 7.3 until either is replaced by a successor representative approved in
writing by the holders of not less than 66-2/3% of the Escrowed Shares.
Section 7.4 No Third Party Beneficiaries. The foregoing indemnification is
given solely for the purpose of protecting the parties to this Agreement and the
Indemnitees and shall not be deemed extended to, or interpreted in a manner to
confer any benefit, right or cause of action upon, any other Person.
Section 7.5 Exclusive Remedy. Conexant's right to acquire Escrowed Shares in
order to satisfy a Claim pursuant to Section 7.3 shall be the exclusive remedy
for any Claim arising after the time of Closing under Section 7.2(a), except in
the case of fraud or willful misrepresentation by the Corporation or any
Shareholder. If the Closing shall not occur because of circumstances giving rise
to a Claim under Section 7.2(a) or 7.2(c)(i), or because of a breach of covenant
by the Corporation, Conexant's exclusive remedy shall be against the
Corporation. Any Claim brought by Conexant pursuant to Section 7.2(b) based on
misrepresentation, whether or not fraudulent or willful, or breach of covenant
of a Shareholder shall be brought exclusively against the Shareholders
committing misrepresentation or breach of covenant. However, nothing herein
shall limit any rights or remedies Conexant may have under this Agreement,
applicable Law or otherwise; (i) in respect of any breach of covenant of the
Shareholders prior to the Closing, which shall be pursued exclusively against
any Shareholder in breach of a covenant and not against any other Shareholder
not in breach; (ii) in respect of fraud or willful misrepresentation of the
Corporation (subject to the procedural limitations and the limitations as to
amount contained in Sections 7.3(e) and (f); or (iii) in respect of any Claim
under the covenant of indemnification contained in this Article VII, but subject
to the limitations contained in this Article VII.
56
Section 7.6 Limitations of Liability. For greater certainty, Conexant hereby
expressly agrees that: (a) it shall have no recourse whatsoever against either
the Corporation or any shareholder thereof if, despite the Corporation's
reasonable efforts, the Corporation shall have been unable to amend all of the
outstanding Employee Stock Options, Convertible Debenture Options and Warrants
as described in Section 2.1(1) prior to the Closing Time, other than as a result
of failure of any Shareholder to approve such amendment; and (b) after the Time
of Closing, it shall have no recourse whatsoever against either the Corporation
or any shareholder thereof with respect to any covenant, representation or
warranty of the Corporation that is or becomes untrue due exclusively to the
exercise of statutory dissent rights by any shareholder (other than a
Shareholder) of the Corporation in respect of the votes at meetings of
shareholders to approve the Reorganization and the resulting obligation of the
Corporation to purchase such shareholder's shares for their fair market value in
accordance with the CBCA.
ARTICLE VIII
GENERAL
Section 8.1 Further Assurances. Each of the parties shall from time to time
execute and deliver all such further documents and instruments and do all acts
and things as the other party may, either before or after the Closing Date,
reasonably require to effectively carry out or better evidence or perfect the
full intent and meaning of this Agreement.
Section 8.2 Time of the Essence. Time shall be of the essence of this
Agreement.
Section 8.3 Commissions. The Shareholders shall indemnify and save harmless
Conexant and the Corporation from and against any claims whatsoever for any
commission or other remuneration payable or alleged to be payable to any person
in respect of the transactions contemplated herein, whether such person purports
to act or have acted for the Shareholders, the Corporation or Conexant in
connection with the transactions contemplated herein.
Section 8.4 Fees. Each of the parties hereto shall pay their respective legal
and accounting costs and expenses incurred in connection with the preparation,
execution and delivery of this Agreement and all documents and instruments
executed pursuant hereto and any other costs and expenses whatsoever and
howsoever incurred, except that Philsar shall pay its investment banking, legal
and accounting fees, and the fees of a single counsel to the Shareholders in
each of Canada and the United States, to a maximum of the lesser of the
equivalent of U.S. $6 million or the cash on hand reflected on Philsar's balance
sheet at the Time of Closing, and the remainder of any such fees shall be
payable by the Shareholders, or if not
57
paid by the End Date, may be deducted from the Escrow Fund as "Damages" pursuant
to Section 7.2 hereof.
Section 8.5 Public Announcements. No public announcement or press release
concerning the transactions contemplated herein shall be made by the
Shareholders or the Corporation without the prior consent and approval of
Conexant.
Section 8.6 Benefit of the Agreement. This Agreement shall enure to the
benefit of and be binding upon the respective heirs, executors, administrators,
successors and permitted assigns of the parties hereto.
Section 8.7 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and cancels
and supersedes any prior understandings and agreements between the parties
hereto with respect thereto. There are no representations, warranties, terms,
conditions, undertakings or collateral agreements, express, implied or
statutory, between the parties other than as expressly set forth in this
Agreement.
Section 8.8 Amendments and Waiver. No modification of or amendment to this
Agreement shall be valid or binding unless set forth in writing and duly
executed by all of the parties hereto and no waiver of any breach of any term or
provision of this Agreement shall be effective or binding unless made in writing
and signed by the party purporting to give the same and, unless otherwise
provided, shall be limited to the specific breach waived.
Section 8.9 Assignment. This Agreement may not be assigned by the
Shareholders without the written consent of Conexant but may be assigned by
Conexant without the consent of the Shareholders to an affiliate of Conexant,
provided that such affiliate enters into a written agreement with the
Shareholders to be bound by the provisions of this Agreement in all respects and
to the same extent as Conexant is bound and provided that Conexant shall
continue to be bound by all the obligations hereunder as if such assignment had
not occurred and perform such obligations to the extent that such affiliate
fails to do so.
Section 8.10 Notices. Any demand, notice or other communication to be given
in connection with this Agreement shall be given in writing and shall be given
by personal delivery, by registered mail or by electronic means of communication
addressed to the recipient as follows:
58
To the Shareholders and the Corporation (prior to the Closing Time):
Xx. Xxxxxxx Xxxxxx
000 Xxxxxxxxx Xxxx Xxxxx
Xxxxxx, Xxxxxxx
X0X 0X0
Facsimile: (000) 000-0000
To the Representatives (after the Closing Time):
Xx. Xxxxxxx Xxxxxx
c/o LaBarge Xxxxxxxxx
Xerox Tower
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxx
X0X 0X0
Facsimile: (000) 000-0000
To Conexant and the Corporation (after the Closing Time):
c/o Conexant Systems Inc.
0000 Xxxxxxxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
U.S.A.
Attention: Xxxxxx X. X'Xxxxxx
Senior Vice President, General Counsel and
Secretary
Facsimile: (000) 000-0000
or to such other address, individual or electronic communication number as may
be designated by notice given by either party to the other. Any demand, notice
or other communication given by personal delivery shall be conclusively deemed
to have been given on the day of actual delivery thereof and, if given by
registered mail, on the third Business Day following the deposit thereof in the
mail and, if given by electronic communication, on the day of transmittal
thereof if given during the normal business hours of the recipient and on the
Business Day during which such normal business hours next occur if not given
during such hours on any day. If the party giving any demand,
notice or other communication knows or ought reasonably to know of any
difficulties with the postal system which might affect the delivery of mail, any
such demand, notice or other communication shall not be mailed but shall be
given by personal delivery or by electronic communication.
Section 8.11 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
Section 8.12 Tax Effect of Transaction. Neither the Shareholders nor Conexant
have made nor do any of them make herein any representation or warranty as to
the tax consequences of the Transaction to any party. It is understood and
agreed that each party has looked to its own advisors for advice and counsel as
to such tax effects.
Section 8.13 Severability. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired.
Section 8.14 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
Agreement.
Section 8.15 Shareholders' Signatures. The Shareholders are signing this
Agreement solely to confirm their agreement with, and to be bound by, Sections
2.1(k), 2.2, 2.3, 2.4, 5.2(c), 5.2(i), 5.2(l) and Articles VII and VIII hereof
(collectively, the "Shareholder Provisions") and to obtain the benefit of the
representations, warranties and covenants of Conexant in this Agreement and the
conditions set forth in Section 6.2. Except as specifically set forth in the
Shareholder Provisions, the Shareholders shall not be liable to Conexant or
responsible for the performance of any obligations contained in this Agreement.
The next page is the first signature page.
60
Section 8.16 Facsimile Signatures. The signature of any party to this
Agreement may be evidenced on this Agreement and any other agreement or
instrument contemplated herein by facsimile. Without prejudice to the
effectiveness of such facsimile signature, such party agrees to forward promptly
following the transmission by facsimile of such party's signature, such
agreement or instrument bearing an original signature to the other parties
hereto.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first written above.
CONEXANT SYSTEMS, INC.
By: /s/ Xxxx Xxxxxxxx
--------------------------------
Name: Xxxx Xxxxxxxx
------------------------------
Title: Sr. VP & General Manager WCD
------------------------------
PHILSAR SEMICONDUCTOR INC.
By: /s/ Xxxxxxx Xxxxxx
----------------------------
Name: Xxxxxxx Xxxxxx
--------------------------
Title: President and CEO
-------------------------
Prism Venture Partners II, L.P.
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------
Name: Xxxxxx X. Xxxxxxx
--------------------------
Title: General Partner
-------------------------
Working Ventures Canadian Fund Inc.
By: /s/ Xxx Xxxx
----------------------------
Name: Xxx Xxxx
--------------------------
Title: SVP, Investments
-------------------------
61
JAFCO Usit Fund III, L.P.
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxxx
--------------------------
Title: Executive Managing Director
----------------------------------------
General Partner, JAV Management Associates
JAFCO Co., Ltd.
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxxx
--------------------------
Title: President, JAFCO America Ventures, Inc.
----------------------------------------
Attorney-In-Fact
JAFCO G-7A Investment Enterprise Partnership
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxxx
--------------------------
Title: President, JAFCO America Ventures, Inc.
----------------------------------------
Attorney-In-Fact
JAFCO G-7 (A) Investment Enterprise Partnership
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxxx
--------------------------
Title: President, JAFCO America Ventures, Inc.
----------------------------------------
Attorney-In-Fact
JAFCO G-7 (B) Investment Enterprise Partnership
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxxx
--------------------------
Title: President, JAFCO America Ventures, Inc.
----------------------------------------
Attorney-In-Fact
62
U.S. Information Technology No. 3
Investment Enterprise Partnership
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxxx
--------------------------
Title: Executive Managing Director
----------------------------------------
General Partner, JAV Management Associates
Lucent Venture Partners Inc.
By: /s/ N.S. Vasant
----------------------------
Name: N.S. Vasant
--------------------------
Title: Partner
-------------------------
The VenGrowth Investment Fund Inc.
By: /s/ Xxxxx Luphyrpa
----------------------------
Name: Xxxxx Luphyrpa
--------------------------
Title:
-------------------------
The VenGrowth Investment II Fund Inc.
By: /s/ Xxxxx Luphyrpa
----------------------------
Name: Xxxxx Luphyrpa
--------------------------
Title:
-------------------------
Xxx Xxxxxxx
/s/ Xxx Xxxxxxx
--------------------------------
/s/ Xxxxx-Xxxxx Begin
------------------------
Witness
64
Business Development Bank of Canada
By: /s/ G. R. Cornwall
----------------------------
Name: G. R. Cornwall
--------------------------
Title: Managing Director
-------------------------
Dr. Xxxx Xxxxxx
/s/ Dr. Xxxx Xxxxxx
--------------------------------
[Signature Illegible]
------------------------
Witness
Xxxx X. XxXxxxx
/s/ Xxxx X. XxXxxxx
--------------------------------
[Signature Illegible]
------------------------
Witness
Xxxxxxx X. Xxxxxxxxx
/s/ Xxxxxxx X. Xxxxxxxxx
--------------------------------
[Signature Illegible]
------------------------
Witness
Xxxxxxxx Xxxxxxxxx
/s/ Xxxxxxxx Xxxxxxxxx
--------------------------------
[Signature Illegible]
------------------------
Witness
Furneaux & Company (Canada) LLC
By: /s/ Xxxxx X. Xxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxx
--------------------------
Title: Member
-------------------------
64
Xxxxxxx Xxxxxx
/s/ Xxxxxxx Xxxxxx
--------------------------------
/s/ Xxxxxxx X. Xxxxxx
------------------------
Witness
Xxxx Xxxxx
/s/ Xxxx Xxxxx
--------------------------------
/s/ Xxxxxxx X. Xxxxxx
------------------------
Witness
Xxxx X'Xxxxx
/s/ Xxxx X'Xxxxx
--------------------------------
/s/ Xxxxxxx X. Xxxxxx
------------------------
Witness
Xxxx Xxxxxxxx
/s/ Xxxx Xxxxxxxx
--------------------------------
/s/ Xxxxxxx X. Xxxxxx
------------------------
Witness
STOCKHOLDERS
-------------
JAFCO Usit Fund III, L.P.
JAFCO Co., Ltd.
JAFCO G-7A Investment Enterprise Partnership
JAFCO G-7B Investment Enterprise Partnership
By: /s/ Xxxxx X. Xxxxxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxxxxx
-----------------------------
Title: Executive Managing Director
----------------------------
JAV Management Associates III, L.L.C.
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
65
