EXHIBIT 2.1
COMBINATION AGREEMENT
THIS COMBINATION AGREEMENT (this "Agreement") is dated as of December
3, 2001 by and between Roxio, Inc., a Delaware corporation ("Parent") and MGI
Software Corp., an Ontario corporation (the "Company").
BACKGROUND
A. Parent and the Company desire that Parent acquire all of the
outstanding shares of the Company by way of an Arrangement (as defined herein)
under Ontario law.
B. Parent and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Arrangement and also
to prescribe various conditions to the Arrangement.
C. Concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, certain Significant
Stockholders of the Company (as defined herein) have entered into an agreement
with Parent (the "Significant Stockholder Agreement") pursuant to which the
Significant Stockholders have, among other things, agreed to vote their Company
Common Shares (as defined in Section 3.1(c)(i)) in favor of the Arrangement.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE ARRANGEMENT
SECTION 1.1 Implementation Steps. The Company covenants in favor of
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Parent that it shall do the following, and Parent covenants in favor of the
Company that it shall cooperate with the Company in performing such covenants:
(a) as soon as reasonably practicable after the date hereof, apply to
the Court in a manner acceptable to Parent, acting reasonably, under section
182(5) of the OBCA for the Interim Order, and thereafter proceed with and
diligently pursue the obtaining of the Interim Order and in connection
therewith, the Company shall mail to each shareholder of record of the Company
and file as required by the Interim Order and applicable Laws the Circular
(defined in Section 3.1(d)(i)) which shall provide, among other things, notice
to each such shareholder of the hearing to be held by the Court to approve the
fairness of the Arrangement (the "Hearing"); the Company agrees not to take any
action which would constitute an impediment to the appearance of such
shareholders at the Hearing; the Company shall notify the Court prior to the
Hearing that, if the Court approves the Arrangement, the shares of Parent Common
Stock to be issued in accordance with the terms of this Agreement (the "Parent
Common Shares") will not require
registration under the Securities Act by virtue of the Court's approval pursuant
to Section 3(a)(10) of the Securities Act;
(b) as soon as reasonably practicable after the date hereof, convene
and hold the Company Meeting for the purpose of considering the Special
Resolution (and for any other proper purpose as may be set out in the notice for
such meeting);
(c) except as required for quorum purposes, not adjourn (except as
required by applicable law or by valid shareholder action), postpone or cancel
(or propose for adjournment, postponement or cancellation) the Company Meeting,
without Parent's prior written consent; provided, however, that Parent's consent
shall not be required for any adjournment of the Company Meeting if: (i) the
Company accepts, approves, recommends, or enters into a Superior Proposal in
accordance with the provisions of Section 4.2 of this Agreement, and (ii) the
Company is adjourning the meeting for a period of not greater than 45 days to
facilitate the consideration of the Superior Proposal by the holders of Company
Common Shares at such meeting and, in connection therewith, the Company's
amendment of the notice of meeting and the Company's and/or any other person's
preparation and circulation of required proxy solicitation or other notices or
materials prescribed by applicable laws;
(d) subject to the enactment of the Special Resolution and subject to
complying with any other relevant provisions of the Interim Order, as soon as
reasonably practicable after the Company Meeting, apply to the Court under
section 182(5) of the OBCA for the Final Order approving the Arrangement, and
thereafter proceed with and diligently pursue the obtaining of the Final Order;
(e) subject to obtaining the Final Order, as soon as reasonably
practicable thereafter, and subject to the satisfaction or waiver of the other
conditions contained in this Agreement in favor of each party, send to the
Director, for endorsement and filing by the Director, the Articles of
Arrangement and such other documents as may be required in connection therewith
under section 183 of the OBCA to give effect to the Arrangement;
(f) instruct counsel acting for the Company to bring the applications
referred to in Sections 1.1(a) and 1.1(d) in cooperation with counsel to Parent;
and
(g) permit Parent and its counsel to review and comment upon drafts of
all material (excluding any fairness opinion prepared by National Bank Financial
Inc.) to be filed by the Company with the Court in connection with the
Arrangement prior to the service and filing of that material and give reasonable
consideration to such comments and all information regarding the Arrangement and
Parent; the Company shall also provide counsel to Parent on a timely basis with
copies of any notice of appearance and evidence served on the Company or its
counsel in respect of the application for the Final Order or any appeal
therefrom and of any notice (written or oral) received by the Company indicating
any intention to appeal the Final Order.
SECTION 1.2 Interim Order. The notice of motion for the application
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referred to in Section 1.1 (a) shall request that the Interim Order provide:
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(a) for the class of persons to whom notice is to be provided in
respect of the Arrangement and the Company Meeting and for the manner in which
such notice is to be provided;
(b) that the requisite shareholder approval for the Special Resolution
shall be two-thirds of the votes cast on the Special Resolution by holders of
Company Common Shares present in person or represented by proxy at the Company
Meeting;
(c) that, in all other respects, the terms, restrictions and
conditions of the by-laws and articles of the Company, including quorum
requirements and all other matters, shall apply in respect of the Company
Meeting; and
(d) for the grant of the Dissent Rights.
SECTION 1.3 Articles of Arrangement. The Articles of Arrangement
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shall, with such other matters as are necessary to effect the Arrangement,
implement the Plan of Arrangement and without limiting the generality of the
foregoing, provide substantially that, commencing at the Effective Time, the
following steps shall occur in the following order:
(a) such technology, assets and other rights of the Company as may be
identified by Parent shall be transferred at fair market value by the Company to
Roxio CI Ltd., a wholly-owned subsidiary of Parent organized under the laws of
the Cayman Islands;
(b) the SRP Rights (as defined in Section 3.1(c)(iv)) under the
Shareholder Rights Plan (as defined in Section 3.1(c)(iv)) be terminated for no
consideration;
(c) each Company Common Share held by a shareholder of the Company,
other than (i) a shareholder who has exercised its Dissent Rights and is
ultimately entitled to be paid the fair value of his Company Common Shares or
(ii) Company Common Shares held by Parent or any affiliate thereof which shall
not be exchanged under this Arrangement and shall remain outstanding as Company
Common Shares held by Parent or any affiliate thereof, shall, without any action
on the part of any of the parties hereto or any holder of securities of the
Company or Parent, be transferred by the holder thereof to Parent in exchange
for a fraction of a Parent Common Share calculated in accordance with Article II
hereof;
(d) the names of the holders of the Company Common Shares transferred
to Parent under Section 1.3(c) shall be removed from the applicable registers of
shareholders, and Parent shall be recorded as the registered holder of the
Company Common Shares so exchanged and shall be deemed to be the legal and
beneficial owner thereof; and
(e) such other matters as are necessary to effect the Arrangement.
SECTION 1.4 Alternative Structure. At the option of Parent, the
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Company agrees to modify this Agreement, the Plan of Arrangement and any other
documents contemplated thereby, to reflect an alternative structure whereby one
or more subsidiaries of Parent, or any other structure, may be used for the
purpose of allowing Parent to structure the transaction in such a way as to
qualify as a qualified stock purchase for U.S. federal income tax purposes;
provided, however, that any such modifications: (i) do not create material
adverse tax,
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securities law or other legal or other consequences of any kind for the
shareholders of the Company, (ii) shall not result in the shareholders receiving
consideration per share that is less than the consideration per share provided
for hereunder, (iii) shall not impair the liquidity of any shares issued to the
shareholders in connection with such consideration or impose any additional
trading restrictions of any kind on such shareholders, (iv) do not in any way
relieve Parent of its material obligations under this Agreement, and (v) provide
that such subsidiaries of Parent make and/or be bound by the applicable
representations, warranties and covenants contained in this Agreement. In
connection therewith, the Company agrees to apply for one or more required
exemption orders from the applicable securities regulatory authority. Roxio
shall bear all additional costs whatsoever associated with implementing any
alternative structure as contemplated herein.
ARTICLE II
EFFECT OF THE PLAN OF ARRANGEMENT ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Exchange of Company Common Shares. The fraction of a
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Parent Common Share referred to in Section 1.3(c) above shall be calculated by
dividing (rounded upwards, if necessary, to the nearest five decimal places) (i)
the Number of Issuable Shares of Parent Common Shares (as defined below) by (ii)
the "Fully Diluted Number of Shares of the Company" (as adjusted pursuant to
Section 2.3, the "Exchange Ratio"). Subject to any reduction pursuant to Section
2.3(a) and 2.3(b) below, the "Number of Issuable Shares of Parent Common Shares"
is 2,298,777 shares. The "Fully Diluted Number of Shares of the Company" means
the number of Company Common Shares issued and outstanding immediately prior to
the Effective Time after taking into account the exercise of any outstanding
options and warrants or other rights. For greater certainty, the Fully Diluted
Number of Shares of the Company shall exclude any Company Common Shares issuable
upon the exercise of any Warrants (as defined below) which, pursuant hereto, the
Plan of Arrangement or the terms of such Warrants, are redeemed or terminated by
the Company prior to the Effective Date or are assumed by the Parent at the
Effective Time in accordance with and subject to the terms of section 2.2 of
this Agreement, provided that such Warrants have not been exercised on or prior
to the Effective Date.
SECTION 2.2 Treatment of Stock Options; Warrants. The Company shall
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accelerate and terminate prior to the Effective Time, all outstanding Stock
Options of the Company as described in Section 5.16 below. The Company shall
either (i) redeem and/or terminate all outstanding warrants (the "Warrants")
prior to the Effective Time, with no continuing obligation or liability of the
Company or the Parent in connection therewith after the Effective Time, or (ii)
deliver to the Parent a legal opinion from U.S. and Canadian counsel, such
opinions and counsel to be reasonably acceptable to Parent, stating that the
issuance of replacement warrants to the holders of Warrants, if applicable, and
the issuance of shares of Parent Common Stock upon exercise of the Warrants or
such replacement warrants, as applicable, in each case without registration
under Canadian and United States (federal and state) securities laws, will not
violate any Law or, in the case of the opinion to be provided by Canadian
counsel, constitute a breach of the terms of the Warrants or any related
agreements.
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SECTION 2.3 Adjustments to Exchange Ratio.
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(a) Net Working Capital/Net Stockholders' Equity Adjustment. In the
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event that (i) the Net Working Capital of the Company or (ii) the Net
Stockholders' Equity of the Company (the definition of, and method of
calculation for, both terms as set forth in Exhibit 2.3 hereto), as reflected in
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the Company's Balance Sheet, is less than CAD $2.5 million, the Number of
Issuable Parent Common Shares shall be reduced, in addition to any reduction
under Section 2.3(b) below, by a number of shares equal to (x) the greater of
(A) CAD $2.5 million minus Net Working Capital and (B) CAD $2.5 million minus
Net Stockholders' Equity, divided by (y) US $15.97.
(i) Determination of Net Working Capital/Net Shareholders'
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Equity Adjustments. No later than the eighth (8) Business Day prior to the
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anticipated Effective Date, the Company shall prepare and deliver to Parent (i)
a balance sheet of the Company, prepared in accordance with the Company's
Interim Financial Statements and GAAP (as both terms are defined in Section
3.1(e)(3)), dated not later than ten (10) Business Days prior to the Effective
Date (the "Company Balance Sheet") and (ii) a statement, certified by the chief
financial officer of the Company, setting forth the Net Working Capital and Net
Shareholders Equity of the Company (the "Company Statement"). The Company
Statement shall be prepared in accordance Exhibit 2.3 and in a manner consistent
with the policies and principles used by the Company in connection with the
preparation of the Company Balance Sheet (other than as specifically provided
herein and in Exhibit 2.3). Upon delivery of such statement by the Company, the
Company shall provide Parent and its representatives with full access to the
officers, employees, agreements, and books and records of the Company and each
of its subsidiaries in order to allow Parent and its representatives to verify
the accuracy of the Company Balance Sheet and information contained in the
Company Statement.
In the event that Parent does not object to the determinations
contained in the Closing Balance Sheet or Company Statement by written notice of
objection (the "Notice of Objection") delivered to the Company by 12:01 a.m.
(Toronto time) on the third (3rd) Business Day after the date of receipt by
Parent of the Company Balance Sheet and the Company Statements, such
determinations shall be deemed final and binding for purposes of this Section
2.3. If, in accordance with the immediately preceding sentence, Parent delivers
a Notice of Objection to the Company, (i) the Company and Parent shall promptly
and in good faith endeavor to mutually agree in writing upon any disputed
determination(s); and (ii) the Company and Parent shall promptly submit to an
agreed upon third party auditor from one of the leading audit and accounting
firms (the "Arbitrator") their respective determination of the disputed
determination(s) which shall, in each case, quantify in reasonable detail the
items constituting such determination(s). In the event that mutual agreement
cannot be reached with respect to any such determination(s) within two (2)
Business Days after receipt by the Company of the Notice of Objection, then any
remaining disputed determination(s) shall be resolved by the Arbitrator. The
Company and Parent shall use their commercially reasonable efforts to cause the
Arbitrator to render a decision in accordance with this Section 2.3(a)(i), along
with a statement of reasons therefor, within three (3) Business Days after each
party has submitted its respective determination(s) to the Arbitrator. The
decision of the Arbitrator shall be limited, with respect to each of the
disputed determinations to either the determination(s) submitted by (x) the
Company or (y) Parent, and such decision shall be final and binding upon each
party hereto and shall
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constitute an arbitral award upon which a judgment may be entered by a court of
competent jurisdiction. The costs and expenses of the Arbitrator shall be shared
equally by Parent and the Company.
(b) Line of Credit Adjustment. In addition to any adjustments under
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Section 2.3(a) above, the Number of Issuable Parent Common Shares shall be
further reduced by a number of shares equal to (x) the total amount of principal
and interest outstanding as of the Closing Date under that certain Line of
Credit Agreement (the "Line of Credit") by and between the Company and an
affiliate of Parent, divided by (y) US $15.97.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. Except as
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set forth in the section of the Disclosure Schedule delivered by the Company to
Parent prior to the execution of this Agreement (the "Company Disclosure
Schedule") that specifically relates to the corresponding numbered section of
this Article III, Section 3.1, the Company represents and warrants to Parent as
follows:
(a) Organization, Standing and Corporate Power.
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(i) The Company and each of its subsidiaries (defined below)
is a corporation or legal entity duly incorporated, validly existing and in good
standing under the Laws (defined in Section 3.1(k) below) of the jurisdiction in
which it is organized and has the requisite corporate, partnership or other
similar power and authority to carry on its business as now being conducted. The
Company and each of its subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) has not had, and
would not reasonably be expected to have, a material adverse effect on the
Company (defined below). The Company has delivered to Parent complete and
correct copies of its articles of amalgamation and by-laws and the articles of
incorporation and by-laws or other organizational documents of its subsidiaries,
in each case as amended to the date of this Agreement.
(ii) For purposes of this Agreement, "subsidiaries" means,
when used with reference to any party, any corporation or other entity or
organization, whether incorporated or unincorporated, (i) of which such party or
any other subsidiary of such party is a general or managing partner or (ii) the
outstanding voting securities or interests, which having by their terms ordinary
voting power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other entity or
organization, are directly or indirectly owned or controlled by such party or by
any one or more of its subsidiaries; and "material adverse effect" means with
respect to any entity, any change, circumstance or effect that, individually or
in the aggregate with all other changes, circumstances and effects, is or would
reasonably likely be, material and adverse to (i) the business, assets,
properties, liabilities, condition (financial or otherwise), results of
operations or prospects of such entity and its
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subsidiaries, taken as a whole, or (ii) the ability of such party to consummate
the transactions contemplated by this Agreement.
(b) Subsidiaries. The Company Disclosure Schedule lists each
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subsidiary of the Company and its jurisdiction of incorporation or organization.
All the outstanding shares of capital stock of each such subsidiary have been
validly issued and are fully paid and nonassessable and are owned by the
Company, by another subsidiary of the Company or by the Company and another such
subsidiary, free and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively, "Liens").
Except for the capital stock of its subsidiaries, the Company does not own,
directly or indirectly, beneficially or of record, any capital stock or other
ownership interest or investment in any corporation, partnership, joint venture
or other entity.
(c) Capital Structure.
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(i) The authorized capital stock of the Company consists of
an unlimited number of Common Shares of the Company (the "Company Common
Shares"). At the close of business on December 3, 2001, (i) 42,449,967 Company
Common Shares were issued and outstanding, (ii) 5,093,363 Company Common Shares
were subject to outstanding options, warrants or other rights to acquire Company
Common Shares ("Options"), (iii) 3,520,863 Company Common Shares were subject to
outstanding stock options under the Employee Stock Option Plan ("Stock
Options"), (iv) 1,572,500 Company Common Shares were subject to outstanding
warrants, and (v) 42,535 Company Common Shares have been issued under the
Employee Stock Purchase Plan. The Employee Stock Purchase Plan of the Company
has been terminated.
(ii) The Company Disclosure Schedule sets forth a complete
and correct list of all holders of outstanding Stock Options as of such date,
including each such person's name, the number of Stock Options (vested, unvested
and total) held by such person as of December 3, 2001 and the exercise price for
each such option. Other than the acceleration of stock options described in
Section 5.16 below, the consummation of the Arrangement and the other
transactions contemplated hereby will not trigger, with respect to any Stock
Options, the acceleration of vesting provisions of any outstanding Stock Option.
(iii) Except as set forth above, at the close of business on
December 3, 2001, no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding. There are no
outstanding stock appreciation rights of the Company or any of its subsidiaries
and no outstanding limited stock appreciation rights or other rights to redeem
for the Company or any of its subsidiaries options or warrants of the Company or
any of its subsidiaries. All outstanding shares of capital stock of the Company
are, and all shares which may be issued upon the exercise of Options will be,
when issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness of the Company or any of its subsidiaries having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company or its subsidiaries may
vote. Except as set forth above or in the Company Disclosure Schedule, as of the
date of this Agreement, there are no outstanding securities, options, warrants,
calls, rights, entitlements, understandings,
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commitments, agreements, arrangements or undertakings of any kind (preemptive,
contingent or otherwise) to which the Company or any of its subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of the
Company or of any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, entitlement, understanding, commitment, agreement,
arrangement or undertaking. Other than as contemplated by section 2.2 of this
Agreement, there are no outstanding contractual obligations of the Company or
any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock (or options to acquire any such shares) of the Company or any of
its subsidiaries. There are no agreements, arrangements or commitments of any
character (contingent or otherwise) pursuant to which any person is or may be
entitled to receive any payment based on the revenues, earnings or financial
performance (other than royalty payments under the license agreements described
in Section 3.1(o)) of the Company or any of its subsidiaries or assets or
calculated in accordance therewith or to cause the Company or any of its
subsidiaries to file a registration statement under the Securities Act, or a
prospectus under Canadian securities Laws, or which otherwise relate to the
registration or qualification for public sale of any securities of the Company.
(iv) The entering into of this Agreement by the Company will not
give rise to a Flip in Event (as defined in the Shareholder Rights Plan (defined
below)) or cause the SRP Rights (defined below) to separate under the
Shareholder Rights Plan. For purposes of this Agreement, (A) the "Shareholder
Rights Plan" means the Shareholder Rights Plan Agreement made between Company
and The Trust Company of Bank of Montreal as of April 23, 1999; and (B) "SRP
Rights" means the rights issued pursuant to the Shareholder Rights Plan.
(d) Authority; Noncontravention.
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(i) The Company has the requisite corporate power and authority
to enter into this Agreement and, subject to receipt of the Company Shareholder
Approval and compliance with applicable laws and the terms of any Interim Order
and Final Order, to consummate the Arrangement and the other transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the Arrangement and the other
transactions contemplated by this Agreement have been duly authorized by the
Company's Board of Directors and no other corporate proceedings on its part are
necessary to authorize this Agreement, or the transactions contemplated hereby
other than: (A) the Company Meeting, the Management Proxy Circular relating to
the Company Meeting (the "Circular") and other matters relating solely thereto;
(B) with respect to the completion of the Arrangement, the approval of the
Arrangement by the requisite votes cast by the shareholders of the Company as
required by the Interim Order (the "Company Shareholder Approval"); (C) the
approval of any amendment to the employee stock option plan in accordance with
section 5.16 of this Agreement by the Board of Directors or shareholders of the
Company, as applicable; and (D) the approval by the holders of any Warrants of
any amendments to any warrant certificates or trust indentures relating to such
Warrants required in connection with section 2.2 of this Agreement, as
applicable.
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(ii) This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency and other applicable Laws (defined in Section 3.1(k)
hereof) affecting creditors' rights generally, and to general principles of
equity and to the fact that the Currency Act (Canada) precludes a court in
Canada from giving judgment in any currency other than Canadian currency. The
execution and delivery of this Agreement does not, and the consummation of the
Arrangement and the other transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of the Company or
any of its subsidiaries under, (i) the articles of incorporation or by-laws of
the Company or the comparable charter or organizational documents of any of its
subsidiaries, (ii) (A) any loan or credit agreement, note, bond, mortgage,
indenture, or real estate lease, or (B) any material equipment lease or other
agreement, instrument, permit, concession, franchise or license, in each case
applicable to the Company or any of its subsidiaries or their respective
properties or assets, or (iii) subject to the governmental filings and other
matters referred to in Section 3.1(d)(iv) below, any Laws, judgments or decrees
applicable to the Company or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) or (iii), any such
conflicts, violations, defaults, rights or Liens that individually or in the
aggregate has not had, and would not reasonably be expected to have, a material
adverse effect on the Company or prevent or materially delay the consummation of
any of the transactions contemplated by this Agreement.
(iii) The Board of Directors of the Company has (A) determined
unanimously that the Arrangement is fair to the holders of the Company Common
Shares and is in the best interests of the Company, and (B) determined
unanimously to recommend that the holders of the Company Common Shares vote in
favor of the Arrangement.
(iv) No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state or local government
or any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign (a "Governmental Entity"),
is required by the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company or Parent of the Arrangement or the other transactions contemplated
by this Agreement, except for (A) any approvals required by the Interim Order,
(B) the Final Order, (C) filings with the Director under the OBCA and the
filings required under applicable Canadian securities laws, (D) relief from
securities regulatory authorities in certain Reporting Jurisdictions (defined in
Section 3.1(e)(i) hereof) exempting the issuance of Parent Common Shares
pursuant to the Arrangement and, if applicable, pursuant to the exercise of any
Warrants from the registration and prospectus filing requirement and any
applicable resale provisions under Canadian securities Laws and relief from OSC
Rule 54-501 exempting the Company from the requirement to reconcile to Canadian
generally accepted accounting principles financial statements of Parent included
in the Circular and other requirements relating thereto, and (E) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made, individually or in the
aggregate, has not had, and would
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not reasonably be expected to have, a material adverse effect on the Company or
prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
(e) Publicly Filed Documents; Financial Statements; Absence of Changes.
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(i) The Company is a reporting issuer under the securities
legislation of each of the provinces of Canada in which such concept exists and
has equivalent status in the provinces in which such concept does not exist
(collectively, such provinces being the "Reporting Jurisdictions"). The Company
is not in default of the filing requirements of the securities legislation of
any of the provinces of Canada. The Company Common Shares are listed on The
Toronto Stock Exchange.
(ii) The Company has timely filed true and complete copies of
all required forms, reports and documents with the securities regulatory
authorities in each Reporting Jurisdiction, in the case of British Columbia
since May 2000, in the case of Ontario and Quebec, since January 31, 1998, and
in the case of the other Provinces of Canada with such requirements, since
January 31, 2001 (each such date being the date such filings were first required
by applicable law), each of which has complied in all material respects with all
applicable requirements of the securities legislation in each such jurisdiction,
each as in effect on the dates such forms, reports and documents were filed. The
Company has made available to Parent its Annual Information Forms for each of
the fiscal years ended January 31, 1999, 2000 and 2001, all management
information circulars relating to meetings of the Company's shareholders held
since January 31, 1998 and all other reports or prospectuses filed with a
securities regulatory authority in a Reporting Jurisdiction since January 31,
1998 (such forms, circulars, reports and prospectuses are collectively referred
to as the "Company Public Documents"). None of the Company Public Documents,
including without limitation, any financial statements, exhibits or schedules
included or incorporated by reference therein, contained, when filed, any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and complied in all material respects with the requirements of
applicable securities Laws. The Company has not filed any confidential material
change report with any securities regulatory authority, stock exchange or other
self-regulatory authority which at the date hereof remains confidential.
(iii) The audited financial statements of the Company for the
fiscal years ended January 31, 1999, 2000 and 2001, and the unaudited financial
statements of the Company for the six month period ended July 31, 2001 (the
"Interim Financial Statements"), copies of which have been made available to
Parent, comply as to form in all material respects with the published rules and
regulations of applicable securities regulatory authorities and fairly present
the consolidated financial condition of the Company and its consolidated
subsidiaries as of such dates and the results of the operations of the Company
and its consolidated subsidiaries for the periods ended on such dates, all in
accordance with Canadian generally accepted accounting principles ("GAAP")
consistently applied (subject, in the case of the Interim Financial Statements,
to the absence of notes and to normal year-end adjustments). For purposes of
clarity, the Company hereby represents that its accounting for software revenue
recognition is in accordance with U.S. generally accepted accounting principles.
10
(iv) Neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature, whether accrued, contingent or
otherwise and whether or not required to be recorded or reflected on a balance
sheet under GAAP, and there is no existing condition, situation or set of
circumstances which could be expected to result in such a liability or
obligation, except (A) liabilities or obligations adequately provided for or
fully disclosed in the Interim Financial Statements, and (B) liabilities or
obligations incurred since July 31, 2001 in the ordinary course of business
consistent with past practice which have not had, and would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
the Company.
(f) Information Supplied. None of the information supplied or to be
--------------------
supplied by the Company specifically for inclusion or incorporation by reference
in (i) the filings to be made by Parent in the Canadian provinces in connection
with the Arrangement contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading or (ii) the Circular will, at the date it is first mailed to the
Company's shareholders or at the time of the Company Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Circular will
comply as to form in all material respects with the requirements of applicable
Canadian securities Laws, except that no representation or warranty is made by
the Company with respect to statements made or incorporated by reference therein
based on information supplied by Parent specifically for inclusion or
incorporation by reference in the Circular.
(g) Absence of Certain Changes or Events. Since January 31, 2001 (the
------------------------------------
"Audit Date"), the Company and its subsidiaries have conducted their business in
the ordinary and usual course consistent with past practice and, with the
exception of the transactions contemplated by this Agreement, there has not
been:
(i) any event, occurrence or development which has had, or
could reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the Company;
(ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company or any repurchase, redemption or other acquisition by the Company or
any subsidiary of the Company of any securities of the Company or of any of its
subsidiaries;
(iii) any amendment of (or agreement to amend) any term of any
outstanding security of the Company or of any subsidiary of the Company;
(iv) (A) any incurrence or assumption (or agreement to incur
or assume) by the Company or any subsidiary of the Company of any indebtedness
for borrowed money or (B) any guarantee, endorsement or other incurrence or
assumption of (or agreement to guarantee, endorse, incur or assume) liability
(whether directly, contingently or otherwise) by the Company or any subsidiary
of the Company for the obligations of any other person (other than any wholly
owned subsidiary of the Company);
11
(v) any creation or assumption by the Company or any
subsidiary of the Company of any Lien on any material asset of the Company or
any subsidiary of the Company other than in the ordinary and usual course of
business consistent with past practice;
(vi) any making of any loan, advance or capital contribution
to or investment in any person by the Company or any subsidiary of the Company
other than loans, advances or capital contributions to or investments in wholly
owned subsidiaries of the Company;
(vii) (A) any contract or agreement entered into by the
Company or any subsidiary of the Company relating to any material acquisition or
disposition of any assets or business or (B) any material modification,
amendment, assignment, termination or relinquishment by the Company or any
subsidiary of the Company of any material contract, license or other right
(including any insurance policy naming it as a beneficiary or a loss payable
payee);
(viii) any change in any method of accounting or accounting
principles or practice by the Company or any subsidiary of the Company, except
for any such change required by reason of a change in GAAP;
(ix) any (A) grant of any severance or termination payment
to any current or former director, officer, employee or consultant of the
Company or any of its subsidiaries; (B) entering into of any employment,
deferred compensation, change in control, severance, retention, consulting,
indemnification, release or other agreement (or any amendment to any such
existing agreement or arrangement) with any current or former director, officer,
employee or consultant of the Company or any of its subsidiaries; (C) increase
in any compensation or benefits payable or to become payable under any severance
or termination pay or benefit plans or policies or employment, deferred
compensation, retention, consulting, change in control, severance agreements or
arrangements; or (D) increase in any compensation, bonus or benefits payable or
to become payable to any current or former director, officer, employee or
consultant of or to the Company or any of its subsidiaries other than, in the
case of clause (D) only, increases prior to the date hereof in annual salary or
wage rates payable to employees of the Company or any of its subsidiaries that
have been granted in the ordinary and usual course of business consistent with
past practice; or
(x) any new material tax election or revocation of a
previous material tax election by the Company or any subsidiary of the Company,
any settlement or compromise of any tax liability of the Company or any
subsidiary of the Company, or change (or request to any taxing authority to
change) any aspect of the method of accounting for tax purposes employed by the
Company or any subsidiary of the Company.
(h) Litigation. There is no suit, action, investigation, audit or
----------
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries that, individually or in the aggregate, (A)
has had or could reasonably be expected to have a material adverse effect on the
Company, or (B) could reasonably be expected to prevent the consummation of any
of the transactions contemplated by this Agreement, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding
12
against the Company or any of its subsidiaries having, or which is reasonably
likely to have, any effect referred to in the foregoing clauses (A) or (B).
(i) Employees.
---------
(i) The Company Disclosure Schedule lists all employees
employed by, and all individuals engaged on a formal contractual basis (for
greater certainty, a formal contractual basis does not include hire letters and
similar correspondence between the Company, its subsidiaries and any of their
employees) to provide services to the Company or any of its subsidiaries as of
the date hereof. For each of such employees compensated as at December 3, 2001,
the Company Disclosure Schedule lists such employee's title, start date and rate
of salary, commission or bonus entitlements (if any) and any other material
benefits extended, or circumstances unique, to each such employee, including any
rights to severance payments or similar allowances. The Company Disclosure
Schedule sets out the name of each such employee who is entitled to a sales
incentive or other payment from the Company in connection with or upon the
Arrangement becoming effective or with the other transactions contemplated in
this Agreement, and the amount of such payment. The Company agrees to supply
Parent with a schedule setting forth the respective ages of the employees listed
in Section 3.1(i) of the Company Disclosure Schedule within 10 days of the date
hereof.
(ii) The Company and each of its subsidiaries is in
compliance in all material respects with all applicable Laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours of work. No notice has been received by the Company or its
subsidiaries of any complaint filed by any of the present or former employees
against the Company claiming that the Company or any of its subsidiaries has
violated Employment Standards or Human Rights legislation applicable in any
jurisdiction in which the business is conducted or the Company operates. There
are no outstanding orders or charges against the Company or any of its
subsidiaries under Occupational Health and Safety legislation applicable in any
jurisdiction in which the business is conducted or the Company or its
subsidiaries operate. All levies, assessments and penalties made against the
Company and its subsidiaries pursuant to applicable Workers' Compensation
legislation have been paid by the Company, and the Company and its subsidiaries
have not been reassessed under any such legislation during the past five years.
All salary, wages, vacation pay, bonuses, commissions and other emoluments for
and in respect of the present and former employees have been paid or accrued by
the Company in the Interim Financial Statements in accordance with GAAP.
(j) Tax.
---
(i) The Company and each of its subsidiaries have timely
filed, or caused to be filed, without relying on any extensions of filing
deadlines, all Tax Returns required to be filed by them through the date hereof,
and shall timely file all Tax Returns required to be filed on or before the
Effective Time. All such Tax Returns are and will be true, correct and complete
in all material respects. The Company and each of its subsidiaries have paid, or
caused to be paid, all Taxes that are due and payable prior to the date hereof,
and will continue to pay all Taxes when due from the date hereof to the
Effective Time. The Interim Financial Statements contain an adequate provision
in accordance with GAAP for all Taxes payable by the Company and its
subsidiaries for all taxation years and portions thereof through the date of
such financial
13
statements, whether or not due and whether or not shown as being due on any Tax
Returns. The Company and each of its subsidiaries have made adequate provision
in their respective books and records for any Taxes which have accrued in
respect of any period subsequent to the period covered by such Interim Financial
Statements. Since the date of such Interim Financial Statements, no material Tax
liability not reflected in such statements has been assessed, proposed to be
assessed, incurred or accrued other than in the ordinary course of business. The
Company and each of its subsidiaries have withheld from all payments made by
them, or otherwise collected, all material amounts in respect of Taxes required
to be withheld therefrom or collected by them, and have remitted same to the
applicable Governmental Entity within the required time periods. Neither the
Company nor any of its subsidiaries has any liability for the Taxes of any other
person.
(ii) Neither the Company nor any of its subsidiaries has
received any notice of deficiency or proposed adjustments or any written
notification that any material issues have been raised (and are currently
pending) by the Canada Customs and Revenue Agency or any other Governmental
Entity, including, without limitation, any sales tax authority, and no waivers
of statutes of limitations have been given or requested with respect to the
Company or any subsidiary. No claim or deficiency for any taxes has been
proposed, threatened, asserted or assessed by the Canada Customs and Revenue
Agency or any other Governmental Entity against the Company, or any of its
subsidiaries which, if resolved against the Company or any of its subsidiaries,
would reasonably be expected to have, individually or in the aggregate, a
material adverse effect upon the Company. No claim has ever been made by a
taxing authority in a jurisdiction where neither the Company nor any of its
subsidiaries files Tax Returns that the Company or any of its subsidiaries is or
may be subject to Taxes assessed by such jurisdiction and, to the knowledge of
the Company, neither the Company nor any of its subsidiaries is liable for Taxes
in any jurisdiction where it has not filed a Tax Return. None of the Company and
its subsidiaries has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
All Tax liability of the Company and its subsidiaries has been assessed for all
fiscal years up to and including the fiscal year ended January 31, 2000. To the
knowledge of the Company, there are no material proposed (but unassessed)
additional Taxes of the Company or any of its subsidiaries and none has been
asserted against the Company or any of its subsidiaries. No Tax liens have been
filed against the Company or any of its subsidiaries other than for Taxes not
yet due and payable. Neither the Company nor any of its subsidiaries is a party
to or bound by any tax allocation or tax sharing agreement. Except as set forth
in the Disclosure Letter relating to the Company, neither the Company nor any of
its subsidiaries has been a member of any group filing a combined, consolidated,
unitary or similar Tax Return. The paid-up capital for purpose of the Income Tax
Act (Canada) of the Company Common Shares is no less than CAD $100,000,000.
(iii) Except as set forth in the Disclosure Letter, neither
the Company nor any of its subsidiaries owns any assets that are used in the
conduct of a trade or business in the U.S. None of the Company and its
subsidiaries has made any payments, is obligated to make any payments, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that would not be deductible under Section 280G of the United
States Internal Revenue Code or any other applicable laws. None of the Company
and its subsidiaries has been a United States real property holding corporation
within the meaning of Section
14
897(c)(2) of the United States Internal Revenue Code or any other applicable
Laws during the applicable period specified in Section 897(c)(1)(A)(ii).
(iv) For purposes of this Agreement, (a) "Tax" and "Taxes"
means, with respect to any entity, (i) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings, gains or profits) and all capital
taxes, gross receipts taxes, environmental taxes, sales taxes, use taxes, ad
valorem taxes, value added taxes, transfer taxes, franchise taxes, license
taxes, withholding taxes, payroll taxes, employment taxes, employer health
taxes, Canada or Quebec Pension Plan premiums, excise, severance, social
security premiums, workers' compensation premiums, unemployment insurance or
compensation premiums, stamp taxes, occupation taxes, premium taxes, property
taxes, windfall profits taxes, alternative or add-on minimum taxes, goods and
services taxes, harmonized sales taxes, customs duties or other taxes, fees,
imposts, assessments or charges of any kind whatsoever, together with any
interest and any penalties or additional amounts imposed by any federal,
provincial, state, local, municipal or other taxing authority (domestic or
foreign) on such entity, and any interest, penalties, additional taxes and
additions to tax imposed with respect to the foregoing, and (ii) any liability
for the payment of any amount of the type described in the immediately preceding
clause (i) as a result of being a "transferee" (within the meaning of Section
6901 of the United States Internal Revenue Code or any other applicable Laws) of
another entity or a member of an affiliated or combined group; and (b) "Tax
Returns" means all returns, declarations, reports, information returns and
statements required to be filed with any Governmental Entity relating to Taxes
(including any attached schedules), including, without limitation, any
information return, claim for refund, amended return and declaration of
estimated Tax.
(k) Compliance with Applicable Laws.
-------------------------------
(i) Each of the Company and its subsidiaries has in effect
all federal, state, local, domestic and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Permits") necessary for it to own, lease or operate its properties
and assets and to carry on its business as now conducted, and there has occurred
no default under any such Permit, except for the lack of Permits and for
defaults under Permits, which lack or default individually or in the aggregate
has not had, and would not reasonably be expected to have, a material adverse
effect on the Company. The Company and its subsidiaries are in compliance with
the terms of the Permits, except where the failure to so comply has not had, and
would not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the Company. The Company does not have any reason to
believe any Governmental Entity is considering limiting, suspending or revoking
any of the Company's or its subsidiaries' Permits. The Company and its
subsidiaries are in compliance with all (and have not violated any) foreign and
domestic laws, orders, writs, injunctions, decrees, ordinances, policies,
guidelines, awards, stipulations, statutes, judicial and administrative
doctrines, rules and regulations entered by a Governmental Entity ("Laws"),
except for noncompliance which individually or in the aggregate has not had, and
would not reasonably be expected to have, a material adverse effect on the
Company. To the Company's knowledge, no investigation or review by any
Governmental Entity with respect to the Company or its subsidiaries is pending
or threatened, nor, to the Company's knowledge, has any Governmental Entity
indicated its intention to conduct the same.
15
(ii) To the Company's knowledge, the Company and each of its
subsidiaries is, and has been, and each of the Company's former subsidiaries,
while subsidiaries of the Company, was, in compliance in all material respects
with all applicable Environmental Laws, except for noncompliance which
individually or in the aggregate has not had, and would not reasonably be
expected to have, a material adverse effect on the Company. The term
"Environmental Laws" means any Law, including the requirement to register
underground storage tanks, relating to: (A) emissions, discharges, releases or
threatened releases of Hazardous Material (as defined below) into the
environment, including, without limitation, into ambient air, soil, sediments,
land surface or subsurface, buildings or facilities, surface water, groundwater,
publicly owned treatment works, septic systems or land; or (B) the generation,
treatment, storage, disposal, use, handling, manufacturing, transportation or
shipment of Hazardous Material. During the period of ownership or operation by
the Company and its subsidiaries of any of their respective current or
previously owned or leased properties, there have been no releases of Hazardous
Material in, on, under or affecting such properties or, to the knowledge of the
Company, any surrounding site, except in each case for those which individually
or in the aggregate has not had, and are not reasonably likely to have, a
material adverse effect on the Company. Prior to the period of ownership or
operation by the Company and its subsidiaries of any of their respective current
or previously owned or leased properties, to the knowledge of the Company, no
Hazardous Material was generated, treated, stored, disposed of, used, handled or
manufactured at, or transported, shipped or disposed of from, such current or
previously owned or leased properties, and there were no releases of Hazardous
Material in, on, under or affecting any such property or any surrounding site,
except in each case for those which individually or in the aggregate have not
had, and would not reasonably be likely to have, a material adverse effect on
the Company. The term "Hazardous Material" means hazardous materials,
contaminants, constituents, dangerous goods, deleterious substances, toxic
substances, medical wastes, hazardous or infectious wastes and hazardous
substances as those terms are defined in the following statutes and their
implementing regulations: Canadian Environmental Protection Act, as amended; the
Transportation of Dangerous Goods Act, as amended; the Fisheries Act, as
amended; and any regulations thereunder and any similar provisional Laws,
statutes or regulations.
(l) Contracts; Debt Instruments.
---------------------------
(i) The Company has heretofore made available to Parent true,
correct and complete copies of (or, in the case of oral contracts, summaries of)
all of the following, and all amendments, modifications and supplements thereto:
(A) employment, severance, product design or development, personal services,
consulting, non-competition or indemnification contracts other than employment
agreements terminable at will or on not more than 30 days' notice without
consideration (excluding obligations to pay severance or to provide notice or
make payments-in-lieu of notice, which obligations are not prescribed by such
agreements but rather are prescribed by employment laws of general application
which cannot be waived or abrogated by agreement between the Company and such
employees), including, without limitation, any contract to which the Company or
any of its subsidiaries is a party involving employees of the Company; (B)
material distribution agreements, franchise agreements, original equipment
manufacturer agreements, end user licenses, volume purchase agreements, software
licenses, reseller agreements, joint sales agreements, territory arrangements,
franchise, product development, licensing, commission or agency agreements,
sales representative agreements,
16
conditional sales contracts, and other agreements involving the payment of
commissions or other consideration or providing for discounts with respect to
the provision of services by the Company or its subsidiaries or the manufacture,
licensing, rental, sale or distribution of the Company's products; (C) material
joint development agreements, cooperative development agreements, technical
development agreements, joint marketing agreements, cooperative marketing
agreements, interoperability agreements and agreements with subcontractors
related to the development, maintenance or quality assurance testing of the
Company's products; (D) all material agreements, including employee and
severance agreements, that either have change of control or similar provisions
or otherwise have benefits or payment provisions that would be triggered by the
consummation of the transactions contemplated hereby; (E) contracts granting a
right of first refusal or first negotiation; (F) material partnership or joint
venture agreements; (G) agreements for the acquisition, sale or lease (including
leases in connection with financing transactions) of material properties or
assets of the Company (by merger, purchase or sale of assets or stock or
otherwise) entered into since January 31, 1998 or, if prior to that date, having
representations, warranties or indemnities that remain in effect or as to which
claims are pending; (H) contracts or agreements with any Governmental Entity;
(I) loan or credit agreements, mortgages, indentures or other agreements or
instruments evidencing indebtedness for borrowed money by the Company or any of
its subsidiaries or any such agreement pursuant to which indebtedness for
borrowed money may be incurred; (J) agreements granting a pledge or security
interest in respect of any assets of the Company to any third party, (K)
agreements that purport to limit, curtail or restrict the ability of the Company
or any of its subsidiaries to compete in any geographic area or line of
business; (L) agreements or arrangements, including but not limited to xxxxxx,
options, swaps, caps and collars, designed to protect the Company or any of its
subsidiaries against fluctuations in interest rates, currency exchange rates or
the prices of certain commodities and raw materials; (M) agreements with respect
to the settlement of any suits, claims, actions, proceedings or investigations
against the Company or any of its subsidiaries or any of their respective
properties or assets, other than any such agreements which do not relate to
Intellectual Property or Taxes or are not otherwise, individually or
collectively, material, and (N) commitments and agreements to enter into any of
the foregoing (collectively, the "Company Contracts"). Section 3.1 (l)(i) of the
Company Disclosure Schedule sets forth a list of all the Company Contracts.
(ii) Neither the Company nor any of its subsidiaries is in
violation of or in default under (nor does there exist any condition which upon
the passage of time or the giving of notice, or both, would cause such a
violation of or default under) any Company Contract or any provision of its
articles, by-laws or other organizational documents, except for violations or
defaults that individually or in the aggregate, have not had, and would not
reasonably be expected to have, a material adverse effect on the Company. Each
of the Company Contracts constitutes the valid and legally binding obligation of
the Company or one or more of its subsidiaries, enforceable in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of
general applicability relating to or affecting creditors' rights or by general
equity principles), and is in full force and effect. No party to any such
Company Contract has given notice to the Company of or made a claim against the
Company with respect to any material breach or default thereunder.
(m) Title to Properties.
-------------------
17
(i) The Company and its subsidiaries have good and marketable
title to, or valid leasehold interests in, all their material properties and
assets.
(ii) Each of the Company and its subsidiaries has complied
with the terms of all leases to which it is a party and under which it is in
occupancy, and all such leases are in full force and effect, except for such
failure to comply or to be in full force and effect which, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
material adverse effect on the Company. Each of the Company and its subsidiaries
enjoys peaceful and undisturbed possession under all such leases, except where
failure to do so, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a material adverse effect on the Company.
(n) Noncompetition. The Company and its subsidiaries are not, and
--------------
after the Effective Time, Parent will not be, by reason of any agreement to
which the Company, or its subsidiaries are a party, subject to any
non-competition or similar restriction on their respective businesses.
(o) Intellectual Property.
---------------------
(i) The Company Disclosure Schedule sets forth (1) a complete
and correct list of the following categories of Company Owned Intellectual
Property: (A) registered and unregistered Trademarks; (B) Patents (including
issued and applications therefore); (C) registered Copyrights; (D) Software
(other than commercial "shrink wrap" software); (E) Trade Secrets; and (F)
Network Identifiers; and in each case listing, as applicable, the registration
number, and in the case of a registration, the registered owner, and the
jurisdiction of registration; and (2) a complete and correct list of: (A) all
agreements under which the Company or any of its subsidiaries use, have access
to or exercise any other rights with regard to Company Licensed Intellectual
Property which involve a payment in excess of US $10,000 or are otherwise
material and (B) all agreements under which the Company or any of its
subsidiaries has licensed to others, or has been granted a license or otherwise
afforded, the right to access or use Company Intellectual Property or exercise
any other rights with regard thereto which involve a payment in any amount or
are otherwise material; in each case, specifying the parties to the agreement,
the Intellectual Property that is licensed, and whether the license is exclusive
or non-exclusive.
(ii) The Company and its subsidiaries own, or license or
otherwise possess full, legally enforceable rights to use, all Intellectual
Property that the Company or any of its subsidiaries uses or holds for use, in
connection with its respective business, or that is material or necessary to its
respective business, in each case, as such business currently is conducted, free
and clear of conditions, adverse claims or other restrictions or any requirement
of any past, present or future royalty payments.
(iii) All registrations for Company Owned Intellectual
Property, including for Patents, Trademarks, and Copyrights, are registered in
the name of the Company or its subsidiaries, as the case may be, and, to the
best of the Company's knowledge, are valid and subsisting.
18
(iv) The Company and its subsidiaries have a policy to secure
valid written assignments from all consultants and employees who contribute or
have contributed to the creation or development of Company Owned Intellectual
Property of the rights to such contributions that the Company or its
subsidiaries do not already own by operation of law. All Company Owned
Intellectual Property was developed and created solely and exclusively by
employees of the Company or its subsidiaries in their capacities as employees of
the Company or its subsidiaries without the assistance of any third party or
entity or were created by third parties who assigned ownership of their rights
and, where appropriate, waived moral rights, to the Company or its subsidiaries
in valid and enforceable confidentiality and invention assignment agreements.
(v) The Company and its subsidiaries have taken all reasonable
and appropriate steps to protect and preserve the confidentiality of all of the
Trade Secrets that comprise any part of Company Intellectual Property, and, to
the best of the Company's knowledge, there are no unauthorized uses, disclosures
or infringements of any such Trade Secrets; all use by, and disclosure to, any
person of Trade Secrets that comprise any part of Company Intellectual Property
has been pursuant to the terms of a written agreement with such person; all use
by the Company and its subsidiaries of Trade Secrets owned by another person has
been pursuant to the terms of a written agreement with such person or is
otherwise lawful; and, to the best of the Company's knowledge, no Trade Secrets
have been used, divulged or appropriated for the benefit of any person other
than the Company or its subsidiaries or otherwise to the detriment of the
Company or its subsidiaries.
(vi) There is no pending in any forum (or, to the knowledge of
the Company and its subsidiaries, threatened) assertion or claim: (A)
challenging the validity, enforceability, ownership, scope or effectiveness of,
or contesting the Company's or any of its subsidiaries' rights with respect to,
any Company Owned Intellectual Property, (B) challenging the Company's or any of
its subsidiaries' rights to use any Company Licensed Intellectual Property or
the enforceability of any agreements or arrangements relating thereto, or (C)
asserting that the Company's or any of its subsidiaries' use or exploitation of
any Company Intellectual Property infringes upon, misappropriates, violates or
conflicts in any way with the rights (including, without limitation, rights in
Intellectual Property, rights of privacy, rights of publicity and rights in
personal and other data) of any person; and, in each case, to the knowledge of
the Company and its subsidiaries, there are no grounds for any such assertion or
claim.
(vii) Neither the Company nor any of its subsidiaries: (A) is or
was a party to any suit, action or proceeding which involves a claim of
infringement, breach or misappropriation of any Intellectual Property of any
person; or (B) has brought any action, suit or proceeding against any person for
infringement or misappropriation of, or breach of any license or agreement
involving, any Company Intellectual Property.
(viii) Neither the Company Intellectual Property nor the use or
other exploitation thereof by the Company or any of its subsidiaries (or any
consultant, contractor or employee of the Company or any of its subsidiaries who
contributes to or has contributed to or participated in the creation or
development of the Company Intellectual Property) infringes on,
19
misappropriates, breaches or violates the rights in Intellectual Property or any
other rights of any person.
(ix) Neither the Company nor any of its subsidiaries has given
or received any notice of default or any event which with the lapse of time
would constitute a default under any agreement relating to the Company
Intellectual Property; neither the Company nor any of its subsidiaries, nor, to
the knowledge of the Company and its subsidiaries, any other party is currently
in default with regard to any agreement relating to the Company Intellectual
Property, and there exists no condition or event (including, without limitation,
the execution, delivery and performance of this Agreement) which, with the
giving of notice or the lapse of time or both, would constitute a default by the
Company or any of its subsidiaries under any agreement relating to the Company
Intellectual Property, or would give any person any rights of termination,
cancellation, acceleration of any performance under any such agreement or result
in the creation or imposition of any Lien.
(x) Neither the Company nor any of its subsidiaries has
entered into (A) any agreement to indemnify any other person against any charge
of infringement, breach or misappropriation of any person's rights in
Intellectual Property or (B) any agreement granting any person the right to
bring infringement or misappropriation actions with respect to, or otherwise to
enforce rights with respect to, any the Company Owned Intellectual Property.
(xi) No person other than the Company or its subsidiaries
possesses any current or contingent rights to, or otherwise uses, any computer
software source code that is part of the Company Owned Intellectual Property
(including, without limitation, through any escrow account).
(xii) The Company and its subsidiaries have obtained any and all
necessary consents from consumers with regard to the Company's or its
subsidiaries', as the case may be, collection and dissemination of personal
information in accordance with the privacy policy published on any website owned
and/or operated by or on behalf of the Company or its subsidiaries. The
Company's and its subsidiaries' practices regarding the collection and use of
consumer personal information are and have been in accordance with the
applicable privacy policies adopted from time to time by the Company and its
subsidiaries, as the case may be, and with all applicable Laws.
(xiii) There are no material defects, malfunctions or
nonconformities in any Software contained within the Company Owned Intellectual
Property, and there are no material errors in any documentation of such Software
related to, associated with or used or produced in the development, maintenance
or marketing of such Software. All Software contained within the Company Owned
Intellectual Property performs in all material respects in accordance with the
specifications included therein or applicable thereto. No Software contained
within the Company Owned Intellectual Property contains any timer, virus, copy
protection device, disabling code, clock, counter or other limiting design or
routine which causes such software (or any portion thereof) to become erased,
inoperable, impaired, or otherwise incapable of being used in the full manner
for which it was designed.
(xiv) As used in this Agreement:
20
(A) "Intellectual Property" means any and all intellectual
property or proprietary rights in any jurisdiction, whether owned
or held for use under license, whether registered or
unregistered, including such rights in and to: (i) trademarks and
pending trademark applications, trade dress, service marks,
certification marks, logos, trade names, brand names, corporate
names, assumed names and business names ("Trademarks"); (ii)
issued patents and pending patent applications, and any and all
divisions, continuations, provisional patent applications,
continuations-in-part, reissues, continuing patent applications,
reexaminations, and extensions thereof, any counterparts claiming
priority therefrom, utility models, patents of
importation/confirmation, certificates of invention, certificates
of registration and like statutory rights ("Patents");
inventions, invention disclosures, discoveries and improvements,
whether patentable or not; (iii) works of authorship, whether or
not copyrightable, copyrights, copyright registrations and
pending copyright registration applications and mask works
("Copyrights"); (iv) trade secrets (including, but not limited
to, those trade secrets defined in the Uniform Trade Secrets Act
and under corresponding foreign statutory and common Law),
business, technical and know-how information, non-public
information, and confidential information and rights to limit the
use or disclosure thereof by any person ("Trade Secrets"); (v)
computer software and firmware, data files, source and object
codes, user interfaces, manuals, databases and other
specifications and documentation other than software owned by a
third party that is generally commercially available and is not a
material component or feature of the software supporting the
products of the Company ("Software"); (vi); all internet protocol
addresses and networks, including without limitation, DNS domain
names, e-mail addresses, world wide web (www) and http addresses,
network names, network addresses, (such as IPv4 and Ipv6) and
services (such as mail or website) whether or not used or
currently in service, and any registrations relating thereto
("Network Identifiers"); (vii) moral rights; (viii) claims,
causes of action or defenses relating to the enforcement of any
of the foregoing; and (ix) goodwill associated with the
foregoing.
(B) "Company Intellectual Property" means any and all
Intellectual Property that is being used or held for use, or is
currently under development for use or is intended to be used, in
the business of the Company or its subsidiaries, as such
businesses currently are or are anticipated to be (from the date
hereof through and including the Closing Date) conducted.
(C) "Company Licensed Intellectual Property" means all the
Company Intellectual Property other than the Company Owned
Intellectual Property.
(D) "Company Owned Intellectual Property" means all the
Company Intellectual Property that is owned by the Company or its
subsidiaries.
(p) Collective Bargaining Agreements; Labor Disputes. Neither the
------------------------------------------------
Company nor any of its subsidiaries is a party to any collective bargain
agreements or other agreements or commitments with any trade union or other
employee bargaining representatives (together,
21
"Collective Agreements"). There are no outstanding labor tribunal proceedings of
any kind, including any proceedings which could result in certification of a
trade union as a bargaining agent for any employees of the Company and its
subsidiaries. There are no union organizing activities pending, or to the
knowledge of the Company, threatened involving employees of the Company and its
subsidiaries. No trade union, employee association or other entity holds
bargaining rights with respect to any employees of the Company and its
subsidiaries and no labor representatives have applied to have the Company or
any of its subsidiaries declared a related employer pursuant to the Labour
Relations Act (Ontario). Neither the Company nor any of its subsidiaries has any
serious labor problems that might materially affect the value of the Company or
its subsidiaries, taken as a whole, or lead to an interruption of its operations
at any location. There is no strike, dispute, slowdown, lockout, shutdown, or
work stoppage pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries.
(q) Insurance. Section 3.1(q) of the Company Disclosure Schedule
---------
lists all of the insurance policies and bonds currently maintained by the
Company and its subsidiaries. There are currently no open workers compensation
and general liability claims.
(r) Insider Interests. No shareholder, officer, director,
-----------------
employee or agent of the Company has any material interest in any property, real
or personal, tangible or intangible of the Company, is indebted or otherwise
obligated to the Company, has any contractual relationship with the Company or
is an officer, director, employee or consultant of a competitor of the Company.
The Company is not indebted or otherwise obligated to any such person, except
for amounts due under normal arrangements applicable to all employees generally
as to salary or reimbursement of ordinary business expenses not unusual in
amount or significance.
(s) Accounts Receivables. Except as described on Disclosure
--------------------
Schedule 3.1(s), all accounts receivable of the Company reflected on the balance
sheet including in the Interim Financial Statements (the "Company Balance
Sheet"), or created after the date of the Company Balance Sheet (less the amount
of any bad debt reserve therefore), represent sales actually made in the
ordinary course of business, and are current and fully collectible in full in
the ordinary course of business and in any event within six months after the
Closing Date.
(t) Disclosure. None of this Agreement, the Company Disclosure
----------
Schedule, any exhibit or certificate attached hereto or delivered in accordance
with the terms hereof or any document or statement in writing which has been
supplied by the Company or on behalf of the Company by any of the Company's
directors, officers or representatives in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact,
or omits any statements of a material fact necessary in order to make the
statements contained herein or therein not misleading. There is no fact relating
specifically to the Company, including its business and operations (as opposed
to the software or similar technology markets in a general manner) which
materially and adversely affects the business, prospects or condition of the
Company or its properties or assets, which has not been set forth in this
Agreement, the Company Disclosure Schedule, the Company Public Documents, any
exhibit or certificate attached hereto or delivered in accordance with the terms
hereof or any document or statement in writing which has been supplied by the
Company or on behalf of the Company by any of the Company's directors, officers
or representatives in connection with the Arrangement and the other transactions
contemplated by this Agreement.
22
(u) Customers and Suppliers. The Company Disclosure Schedule
-----------------------
lists the names of and describes all contracts, agreements and arrangements
with, and the appropriate percentage of the Company's business attributable to,
the ten largest customers and ten most significant suppliers of the Company at
the date of this Agreement, and any sole-source suppliers of significant goods
or services (other than electricity, gas, telephone or water) to the Company
with respect to which alternative sources of supply are not readily available on
comparable terms and conditions.
(v) Investment Canada Act. The Company does not carry on any
---------------------
activity which relates to Canada's cultural heritage or national identity within
the meaning of the Investment Canada Act (Canada).
(w) Brokers. No broker, investment banker, financial advisor or
-------
other person (other than National Bank Financial Inc.), the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. A true, correct and complete copy of the Company's
engagement agreement with National Bank Financial Inc. has been made available
to the Parent.
(x) Opinion of Financial Advisor. The Company's Board of
----------------------------
Directors has received the opinion of National Bank Financial Inc., dated the
date of this Agreement, to the effect that, as of such date, the Exchange Ratio
prescribed herein is fair to the Company's shareholders from a financial point
of view, and a signed copy of such opinion has been delivered to Parent.
(y) Xxxx-Xxxxx-Xxxxxx. As of the end of the previous fiscal year,
-----------------
the total value of the Company's United States assets was an amount less than US
$15 million and the total amount of the Company's United States revenue was an
amount less than US $25 million.
(z) Employee Benefits.
-----------------
(i) The Company Disclosure Schedule lists all of the
employee benefit, health, welfare, supplemental employment benefit, bonus,
pension, retirement income, profit sharing, deferred compensation, stock
compensation, stock option or purchase, hospitalization insurance, medical,
dental, legal, disability and similar plans or arrangements or practices
applicable to the employees or former employees employed by the Company or any
of its subsidiaries or applicable to any individual engaged on a formal
contractual basis to provide services to the Company or any of its subsidiaries
which are currently maintained or participated in or were maintained or
participated in, by the Company or any of its subsidiaries at any time in the
last five calendar years or in respect of which the Company or any of its
subsidiaries has any liability or obligation (the "Employee Plans"). The Company
Disclosure Letter also lists each loan (including the date and amount of the
loan and current interest rate (if any)) to a non-officer employee or former
employee of the Company or any subsidiary in excess of CAD $5,000 and each loan
to an officer or director of the Company or any of its subsidiaries. All of the
Employee Plans are registered where required by, and are in good standing under,
all applicable Laws or other legislative, administrative or judicial
promulgations applicable to the Employee Plans and
23
there are no actions, claims, proceedings or governmental audits pending (other
than routine claims for benefits) relating to the Employee Plans or which affect
the registration of any Employee Plan required to be registered. There exists no
state of facts which after notice or lapse of time or both could reasonably be
expected to give rise to any such action, claim, proceeding or governmental
audit or to affect the registration of any Employee Plan and no fact or
circumstance exists that could adversely affect the tax-exempt status of an
Employee Plan. There have been no improper withdrawals, applications or
transfers of assets from any Employee Plan and none of the Company, its
subsidiaries nor any of their agents has been in breach of any fiduciary
obligation with respect to the administration or investment of the Employee
Plans or the trusts or other funding media relating thereto.
(ii) All of the Employee Plans have been established,
administered and invested in material compliance with their terms and all
applicable Laws or other legislative, administrative or judicial promulgations
applicable to the Employee Plans and all obligations regarding the Employee
Plans have been satisfied, there are no outstanding defaults or violations by
any party to any Employee Plan and no Taxes, penalties or fees are owing or
exigible under any of the Employee Plans. All contributions or premiums required
to be made by the Company or any of its subsidiaries under the terms of each
Employee Plan or by applicable Law have been made in a timely fashion in
accordance with applicable Law and the terms of the Employee Plans, and neither
the Company nor any of its subsidiaries has, and as of the Effective Date will
have, any liability (other than liabilities accruing after the Effective Date)
with respect to any of the Employee Plans. Contributions or premiums relating to
the Employee Plans will be paid by the Company and its subsidiaries on an
accrual basis for the period up to the Effective Date even though not otherwise
required to be made until a later date. None of the Employee Plans is required
under its terms or pursuant to applicable Law to be funded or insured on an
actuarial or other pre-funding basis.
(iii) No amendments to any Employee Plan have been promised
and no amendments to any Employee Plan will be made or promised prior to the
Effective Date. None of the Employee Plans enjoys special tax status under
applicable Laws, nor have any advance tax rulings been sought or received in
respect of any Employee Plan.
(iv) There are no agreements or undertakings by the Company
or any of its subsidiaries to provide post-retirement profit sharing, medical,
health, life insurance or other benefits to employees or any former employee of
the Company or any of its subsidiaries.
(v) None of the Employee Plans is subject to the Employee
Retirement Income Security Act of 1974 (United States), as amended ("ERISA").
(vi) The Company has made available to Parent true, correct
and complete copies of all of the Employee Plans as amended as of the date
hereof together with all related documentation in its possession and any plan
summaries, booklets and personnel manuals. No material changes have occurred to
the Employee Plans or are expected to occur which would affect the financial
reports or statements required to be provided to Parent pursuant to this Section
3.1(z)(vi). All employee data necessary to administer each Employee Plan has
been provided by the Company to Parent and is true and correct.
24
(vii) No insurance policy or any contract or agreement
affecting any Employee Plan requires or permits a retroactive increase in
premiums or payments due thereunder. The level of insurance reserves under each
insured Employee Plan is reasonable and sufficient to provide for all incurred
but unreported claims.
(viii) Except as described in the Company Disclosure Letter,
the consummation of the transactions contemplated hereunder will not result in
any acceleration of vesting, increase in cost or liability, or increase in
benefits under any Employee Plan.
SECTION 3.2 Representations and Warranties of Parent. Except as
----------------------------------------
set forth on the section of the Disclosure Schedule delivered by Parent to the
Company prior to the execution of this Agreement (the "Parent Disclosure
Schedule") that specifically relates to the corresponding section of this
Article III, Section 3.2, Parent represents and warrants to the Company as
follows:
(a) Organization, Standing and Corporate Power. Parent and each
------------------------------------------
of its subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the Laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as now
being conducted. Parent and each of its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) has not and would not have a material adverse effect on Parent.
(b) Subsidiaries. The Parent Disclosure Schedule lists each
------------
subsidiary of the Parent and its jurisdiction of incorporation or organization.
All the outstanding shares of capital stock of each such subsidiary have been
validly issued and are fully paid and nonassessable and are owned by the Parent,
by another subsidiary of the Parent or by the Parent and another such
subsidiary, free and clear of all Liens. Except for the capital stock of its
subsidiaries, and as disclosed in the Parent Disclosure Schedule, the Parent
does not own, directly or indirectly, any capital stock or other ownership
interest in any corporation, partnership, joint venture or other entity.
(c) Capital Structure. The authorized capital stock of Parent
-----------------
consists of 100,000,000 shares of Common Stock of Parent, par value US $0.001
per share ("Parent Common Stock"), and 10,000,000 shares of preferred stock, par
value US $0.001 per share ("Parent Preferred Stock"). At the close of business
on December 3, 2001, (i) 16,873,633 shares of Parent Common Stock were issued
and outstanding and no shares of Parent Preferred Stock were issued and
outstanding, (ii) no shares of Parent Common Stock were held by Parent in its
treasury, (iii) 4,256,141 shares of Parent Common Stock were subject to
outstanding employee stock options to purchase shares of Parent Common Stock,
(iv) 4,582,160 shares of Parent Common Stock were reserved for issuance under
Parent's 2000 Stock Option Plan, 2001 Stock Option Plan and 2001 Director Option
Plan (collectively), (v) 479,501 shares of Parent Common Stock were reserved for
issuance under the Parent's Employee Stock Purchase Plan and (vi) 117,647 shares
of Parent Common Stock were reserved for issuance under an outstanding warrant
to purchase shares of Parent Common Stock. Except as set forth above, at
25
the close of business on December 3, 2001, no shares of capital stock or other
voting securities of the Parent were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of Parent are, and all
shares which may be issued pursuant to this Agreement will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. There are no bonds, debentures, notes or other indebtedness
of Parent having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of
Parent may vote. As of the date of this Agreement, except as set forth above,
there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Parent or any of its subsidiaries is a party or by which any of them is bound
obligating Parent or any of its subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or other
voting securities of Parent or of any of its subsidiaries or obligating Parent
or any of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding contractual obligations of Parent or any
of its subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Parent or its subsidiaries.
(d) Authority; Noncontravention. Parent has the requisite
---------------------------
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Parent. This Agreement has been duly executed and delivered by Parent and
constitutes its valid and binding obligation, enforceable against it in
accordance with its terms subject to bankruptcy, insolvency and other applicable
Laws affecting creditors' rights generally, and to general principles of equity
and to the fact that the Currency Act (Canada) precludes a court in Canada from
giving judgment in any currency other than Canadian currency. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of Parent or any of its subsidiaries under, (i) the
articles of incorporation or by-laws of Parent or the comparable charter or
organizational documents of any other subsidiary of Parent, (ii) any material
loan or credit agreement, note, bond, mortgage, indenture, lease, shareholders
agreement or other agreement, instrument, permit, concession, franchise or
license applicable to Parent or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, Law, ordinance, rule or regulation applicable to Parent or any of its
subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) or (iii), any such conflicts violations, defaults, rights or
Liens that individually or in the aggregate would not have a material adverse
effect on Parent or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity is required by Parent or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the consummation by Parent, as the
case may be, of any of the transactions contemplated by this Agreement, except
for the Court fairness hearing as required under Section 3(a)(10) of the
Securities Act, and the filings required under applicable Canadian
26
and U.S. securities laws, and such other consents, approvals, orders,
authorizations, registrations, declarations and filings, including under (x) the
Laws of any foreign country in which the Company or any of its subsidiaries
conducts any business or owns any property or assets, or (y) the "takeover" or
"blue sky" Laws of various states, the failure of which to be obtained or made
would not, individually or in the aggregate, have a material adverse effect on
Parent or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
(e) SEC Documents; Financial Statements. Since May, 2001, Parent
-----------------------------------
has filed with the SEC all required reports and forms and other documents (the
"Parent SEC Documents"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents and none of the
Parent SEC Documents contained, when filed, 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. The financial statements of Parent
included in the Parent SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with U.S.
generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and the Company flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end adjustments). Except as
set forth in the Parent SEC Documents, and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the most recent consolidated balance sheet included
in the Parent SEC Documents, neither Parent nor any of its subsidiaries has any
material liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by U.S. generally accepted accounting
principles to be recognized or disclosed on a consolidated balance sheet of
Parent and its consolidated subsidiaries or in the notes thereto.
(f) Information Supplied. None of the information supplied or to
--------------------
be supplied by Parent for inclusion or incorporation by reference in the
Circular will, at the time it is first mailed to the Company's shareholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading. No
representation or warranty is made by Parent with respect to statements made or
incorporated by reference in the Circular based on information concerning,
relating to or supplied by the Company.
(g) Brokers. No broker, investment banker, financial advisor or
-------
other person, other than U.S. Bancorp Xxxxx Xxxxxxx, the fees and expenses of
which will be paid by Parent, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent.
27
(h) Litigation. There is no suit, action, investigation, audit or
----------
proceeding pending or, to the knowledge of Parent, threatened against Parent or
any of its subsidiaries that, taken as a whole, (A) has had or could reasonably
be expected to have a material adverse effect on the Parent and its
subsidiaries, taken as a whole, or (B) could reasonably be expected to prevent
the consummation of any of the transactions contemplated by this Agreement, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against Parent or any of its subsidiaries
having, or which is reasonably likely to have, any effect referred to in the
foregoing clauses (A) or (B).
(i) Issued Shares. The shares of Common Stock in the capital of
-------------
the Parent to be issued upon consummation of the Arrangement will be validly
issued, fully paid and non-assessable shares of the capital stock of the Parent.
Subject to compliance with the requirements of Section 3(a)(10) under the
Securities Act, the issuance of such shares will be exempt from the registration
requirements of the Securities Act, and the resale of such shares by the
shareholders of the Company will be exempt from the registration requirements of
the Securities Act, subject to compliance with applicable federal securities
laws, including Rule 145 and Rule 144 under the Securities Act. The shares of
Common Stock of the Parent are quoted on NASDAQ.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business of the Company. During the period
----------------------------------
from the date of this Agreement to the Effective Time, the Company shall, and
shall cause its subsidiaries (other than Live Picture Developpement S.A.R.L.)
to, carry on their respective businesses in the ordinary course and use all
commercially reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers, employees
and consultants and preserve their relationships with customers, suppliers and
others having business dealings with them. Without limiting the generality of
the foregoing, between the date of this Agreement and the Effective Time, except
(1) as contemplated by this Agreement, (2) as set forth in Section 4.1 of the
Company Disclosure Schedule, or (3) with the prior written consent of Parent
which shall not be unreasonably withheld or delayed, the Company shall not, and
shall not permit any of its subsidiaries to:
(a) (i) declare, set aside or pay (whether in cash, stock,
property or otherwise) any dividends on, or make any other distributions in
respect of, any of its capital stock, other than dividends and distributions by
any direct or indirect wholly owned subsidiary of the Company to its parent;
(ii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock; or
(iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities;
28
(b) other than the issuance of the Company Common Shares upon the
exercise of Options outstanding on the date of this Agreement in accordance with
their present terms or in accordance with the present terms of any employment
agreements existing on the date of this Agreement and described in Section 4.1
of the Company Disclosure Schedule,
(i) issue, deliver, sell, award, pledge, dispose of or
otherwise encumber or authorize or propose the issuance, delivery, grant, sale,
award, pledge or other encumbrance (including limitations in voting rights) or
authorization of, any shares of its capital stock, any voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities, other than pursuant
to: (i) any draw on the Equity Line covering up to US $4,000,000 proposed to be
created by the Company, (ii) any issuance pursuant to the Line of Credit, and
(iii) any commitments made or entered into by the Company providing for the
financing of the Company's ongoing operations that are in the ordinary course of
business and are not binding upon the Company other than upon the termination of
this Agreement, provided that (i) such draws, issuances and commitments do not
constitute a breach of Section 4.2, (ii) the Company provides Parent with prompt
notice thereof, and (iii) such actions do not cause the withdrawal of the
fairness opinion delivered by National Bank;
(ii) amend or otherwise modify the terms of any such
rights, warrants or options (except as expressly contemplated by this
Agreement);
(iii) except as required by Section 5.16, accelerate the
vesting of any of the Options;
(c) amend its articles of incorporation, by-laws or other
comparable charter or organizational documents;
(d) acquire or agree to acquire (for cash or shares of stock or
otherwise) by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof;
(e) other than security interests granted in connection with the
Line of Credit, mortgage or otherwise encumber or subject to any Lien, or sell,
lease, exchange or otherwise dispose of any of, its properties or assets outside
of the ordinary course of business consistent with past practice or any
properties or assets which in the aggregate are material to the Company;
(f) (i) increase the rate or terms of compensation payable or to
become payable generally to any of the Company's or any of its subsidiaries'
directors, executive officers, or employees other than usual and customary
salary increases to non-management employees;
(ii) pay or agree to pay any pension, retirement
allowance or other employee benefit not provided for by any existing employee
benefit or pension plan or employment agreement described in the Company Public
Documents filed prior to the date of this Agreement;
29
(iii) commit itself to any additional pension, profit
sharing, bonus, incentive, deferred compensation, stock purchase, stock option,
stock appreciation right, group insurance, severance pay, continuation pay,
termination pay, retirement or other employee benefit plan, agreement or
arrangement, or increase the rate or terms of any employee plan or benefit
arrangement;
(iv) enter into any employment agreement with or for the
benefit of any person; or
(v) increase the rate of compensation under or otherwise
change the terms of any existing employment agreement; provided, however, that
nothing in this clause (f) shall preclude payments under the terms of the
existing incentive compensation plans of the Company in accordance with past
practice;
(g) change its fiscal year or any of the accounting principles or
practices used by it;
(h) value in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary and usual course of business
consistent with past practice or as required by GAAP;
(i) (i) other than in connection with drawdowns under the Line of
Credit, incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for the incurrence of indebtedness which, in the
aggregate, does not exceed CAD $100,000; or
(ii) make any loans, advances or capital contributions
to, or investments in, any other person;
(j) make or agree to make any new capital expenditures which in
the aggregate exceed CAD $100,000;
(k) make or rescind any express or deemed election relating to
Taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or change
any of its methods of reporting income or deductions for income tax purposes
from those employed in the preparation of any Tax Return for the taxable year
ending January 31, 2001, except as may be required by applicable Law;
(l) other than repayments of principal and interest under the
Line of Credit, pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of the
Company included in the Interim Financial Statements or incurred in the ordinary
course of business consistent with past practice;
30
(m) enter into, modify, amend, renew, fail to renew or terminate any
material contract or agreement to which the Company or any subsidiary is a party
or waive, release or assign any material rights or claims;
(n) settle or compromise any pending or threatened suit, action or claim
whether or not relating to the transactions contemplated hereby;
(o) enter into any agreement or arrangement that limits or otherwise
restricts the Company or any of its subsidiaries or any successor thereto or
that could, after the Effective Time, limit or restrict Parent or the Company
and their respective affiliates or any successor thereto, from engaging or
competing in any line of business or in any geographic area;
(p) enter into any license or other agreement with respect to Intellectual
Property, other than licenses or other agreements that do not, in any case,
involve rights to computer software source code and that are, in all cases,
granted on commercially reasonable terms in the ordinary course of business
consistent with prior practice;
(q) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in this Section 4.1 or any other action that (i) would
make any of the representations or warranties of the Company contained in this
Agreement (A) which are qualified as to materiality, untrue or incorrect or (B)
which are not so qualified, untrue or incorrect in any material respect or (ii)
would be reasonably likely to result in any of the conditions set forth in
Article VI hereof not being satisfied; provided, however, that this section
shall not apply to the taking of any steps or entering into any agreement by the
Company to accept, approve, recommend, enter into or give effect to a Superior
Proposal (as defined below) in accordance with the provisions of, and not in
violation of, Section 4.2 below; or
(r) sell products directly to its distributors or retailers that would
result in such distributor or retailer holding more than twelve (12) weeks of
inventory on hand based on the previous four (4) weeks of sales of such products
by such distributors and retailers to end-users in the United States. For the
purposes of this paragraph, sales of products to distributors or retailers shall
include only those sales of the top three (3) SKUs of the top six (6) retail
customers and two (2) distributors of the Company, as set forth on Schedule
4.1(r) hereto.
SECTION 4.2 No Inconsistent Activities.
--------------------------
(a) The Company will not, and it will cause its subsidiaries and each
officer, director or employee of or any investment banker, attorney, accountant
or other advisor or representative of, the Company or any of its subsidiaries
not to, directly or indirectly, solicit, initiate or knowingly encourage the
submission of any Acquisition Proposal (defined below), participate in any
discussions or negotiations regarding, or furnish to any person any non-public
information with respect to, the Company or any of its subsidiaries, or take any
other action to facilitate, any Acquisition Proposal or any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal, or enter into any agreement with respect to an
Acquisition Proposal, provided, however, that nothing contained in this Section
4.2(a) shall prohibit the Board of Directors of the Company from furnishing
information to, or entering into discussions or negotiations with, any person
that makes an
31
unsolicited bona fide written Acquisition Proposal if, and only to the extent
that (A) the Board of Directors of the Company, after consultation with
independent legal counsel, determines in good faith that such action is
necessary for such Board to comply with its fiduciary duties to the Company's
shareholders under applicable Law, (B) the Board of Directors of the Company
determines in good faith that such Acquisition Proposal, if accepted, is
reasonably likely to be consummated and would, if consummated, result in a
transaction materially more favorable to the Company's shareholders than the
Arrangement (any such materially more favorable Acquisition Proposal being
referred to herein as a "Superior Proposal"), (C) prior to accepting, approving,
recommending or entering into an agreement relating to a Superior Proposal, the
Company (i) provides five (5) Business Days prior written notice to Parent to
the effect that it is proposing to take such action, and (ii) in the event that
Parent in its sole discretion offers to amend this Agreement to provide for
terms substantially similar to those of the Superior Proposal, negotiates in
good faith with Parent with respect to such offer, and (D) prior to furnishing
information, or entering into discussions or negotiations with such person, the
Company receives from such person an executed confidentiality agreement in
reasonably customary form and in any event containing terms at least as
stringent as those contained in the Confidentiality Agreement (defined in
Section 5.2 below). The Company shall notify Parent of any Acquisition Proposal
or request for nonpublic information by any person who is considering making an
Acquisition Proposal (including all material terms and conditions thereof and
the identity of the person making it) as promptly as practicable (but in no case
later than 24 hours) after its receipt thereof, and shall provide Parent with a
copy of any written Acquisition Proposal or amendments or supplements thereto,
and shall thereafter inform Parent on a current basis of the status of any
inquiries, discussions or negotiations with such a third party, and any material
changes to the terms and conditions of such Acquisition Proposal, and shall
promptly give Parent a copy of any information delivered to such person which
has not previously been reviewed by Parent. Parent acknowledges and agrees that
any such information provided to Parent shall be subject to the terms of the
Confidentiality Agreement. Immediately after the execution and delivery of this
Agreement, the Company will, and will cause its subsidiaries and affiliates, and
their respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, cease and terminate any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any possible Acquisition Proposal.
(b) The Board of Directors of the Company will not withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent, its recommendation
that shareholders of the Company vote in favor of the Arrangement unless (i) the
Company has fully complied with the terms of Section 5.1(d), (ii) a Superior
Proposal is pending at the time the Board of Directors of the Company determines
to take any such action, (iii) the Board of Directors of the Company after
consultation with independent legal counsel, determines in good faith that such
action is necessary for such Board to comply with the fiduciary duties to the
Company's shareholders under applicable Law and (iv) the Company shall have
delivered to Parent a prior written notice advising Parent that it intends to
take such action and describing its reasons for taking such action (such notice
to be delivered not less than five Business Days prior to the time such action
is taken).
(c) Nothing in this Section 4.2 shall (i) permit the Company to terminate
this Agreement (except in accordance with Article VII hereof) or (ii) affect any
other obligations of the Company under this Agreement.
32
(d) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer or proposal (whether or not conditional) regarding any of the
following (other than the transactions contemplated by this Agreement) involving
the Company or any of its subsidiaries: (i) any merger, consolidation, share
exchange, recapitalization, business combination or other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of a material portion of the assets of the Company and its subsidiaries, taken
as a whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 20 percent or more of the outstanding Company
Common Shares or the filing of a registration statement or prospectus in
connection therewith; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Circular; Company Meeting.
--------------------------------------------
(a) As promptly as practicable after the execution of this Agreement, the
Company and Parent shall prepare the Circular, and, as promptly as practicable
after obtaining the Interim Order, the Company shall file the Circular with the
securities commissions in the Reporting Jurisdictions. Each of Parent and the
Company shall furnish all information concerning itself to the other as the
other may reasonably request in connection with such actions and the preparation
of the Circular. The Company shall not distribute the Circular or any written
material that would constitute, as advised by counsel to the Company, a
"prospectus" relating to the Arrangement or the Parent Common Stock within the
meaning of the Securities Act or any applicable securities Law without the prior
written consent of Parent. Parent and the Company shall take any action required
to be taken under any applicable provincial or state securities Laws (including
"blue sky" Laws) in connection with the issuance of the Parent Common Shares and
the Arrangement; provided, however, that with respect to the blue sky and
Canadian provincial qualifications, neither Parent nor the Company shall be
required to register or qualify as a foreign corporation or reporting issuer
where any such entity is not now so registered or qualified except as to matters
and transactions arising solely from the Arrangement.
(b) Parent agrees promptly to advise the Company if at any time prior to
the Company Meeting any information provided by it in the Circular is or becomes
incorrect or incomplete in any material respect and to provide the Company with
the information needed to correct such inaccuracy or omission. Parent will
furnish the Company with such supplemental information as may be necessary in
order to cause the Circular, insofar as it relates to Parent and its
subsidiaries, to comply with applicable Law after the mailing thereof to the
Company's shareholders.
(c) The Company agrees promptly to advise Parent if at any time prior to
the Effective Time any information provided by it in the Circular is or becomes
incorrect or incomplete in any material respect and to provide Parent with the
information needed to correct such inaccuracy or omission. The Company will
furnish Parent with such supplemental information as may be necessary in order
to cause the Circular, as the case may be, insofar as it relates to the Company
and its subsidiaries, to comply with applicable Law.
33
(d) Subject to its acceptance, approval, or recommendation of, or entrance
into, a Superior Proposal in accordance with Section 4.2 of this Agreement, the
Company shall use its commercially reasonably efforts to solicit from its
shareholders proxies, and shall take all other action necessary or advisable to
secure the vote or consent of shareholders required by applicable Law or
otherwise to obtain the Company Shareholder Approval and, through a unanimous
resolution of its Board of Directors, shall recommend to its shareholders the
obtaining of the Company Shareholder Approval.
SECTION 5.2 Access to Information; Confidentiality. Each of the Company and
--------------------------------------
Parent shall, and shall cause each of its respective subsidiaries to, afford to
the other party, and to the officers, employees, accountants, counsel, financial
advisors and other representatives of such other party, reasonable access during
normal business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of the Company and Parent shall, and shall cause each
of its respective subsidiaries to, furnish promptly to the other party, (a) a
copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of securities Laws and (b)
all other information concerning its business, properties and personnel as such
other party may reasonably request. Except as required by Law, each of the
Company and Parent will hold, and will cause its respective officers, employees,
accountants, counsel, financial advisers and other representatives and
affiliates to hold, any confidential information in accordance with the
Confidentiality Agreements dated July 26, 2001 and August 17, 2001, between
Parent and the Company (collectively, the "Confidentiality Agreement").
SECTION 5.3 Reasonable Efforts; Notification.
--------------------------------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Arrangement and the other transactions contemplated by this
Agreement, including (i) the making of all necessary registrations and filings
(including filings with Governmental Entities), (ii) the obtaining of all
necessary consents, approvals or waivers from third parties and (iii) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
(b) The Company shall give prompt written notice to Parent, and Parent
shall give prompt written notice to the Company, of (i) any representation or
warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or any such representation or warranty that is not
so qualified becoming untrue in any material respect or (ii) the failure by it
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
34
SECTION 5.4 Parent Common Shares. Parent shall use reasonable efforts to
--------------------
cause the Parent Company Shares to be authorized for trading on NASDAQ by the
Effective Time.
SECTION 5.5 Conveyance Taxes. Parent and the Company shall cooperate in the
----------------
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar charges (collectively, "Conveyance
Tax Expenses") which become payable in connection with the transactions
contemplated hereby that are required or permitted to be filed on or before the
Effective Time. All of such taxes and Conveyance Tax Expenses (to the extent not
payable by the shareholders of the Company) shall be shared equally by the
Company and Parent.
SECTION 5.6 Indemnification, Exculpation and Insurance.
------------------------------------------
(a) The articles of incorporation and the by-laws of the Company (or any
successor in the interest to the Company after the Effective Time) shall contain
the provisions with respect to indemnification and exculpation from liability
set forth in the Company's articles of incorporation and by-laws on the date of
this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of three years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who on or prior to
the Effective Time were directors, officers, employees or agents of the Company,
unless such modification is required by Law.
(b) If Parent or the Company or any of their successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in each such case, proper provisions shall be made so that the
successors and assigns of Parent or the Company, as the case may be, shall
assume the obligations set forth in this Section 5.6.
SECTION 5.7 Fees and Expenses. Whether or not the Arrangement is
-----------------
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except (i) those expenses incurred in connection with printing
the Circular and any filing related thereto and any filing fees relating to
obtaining the Interim Order or Final Order, and (ii) any filing fees relating to
required filings in the provinces of Canada, which will be shared equally by
Parent and the Company. Parent shall bear all reasonable out-of-pocket costs
associated with giving effect to the transactions contemplated by the transfer
of the Company Technology.
SECTION 5.8 Public Announcements. Parent, on the one hand, and the Company,
--------------------
on the other hand, will not issue any press release or other public statements
with respect to the transactions contemplated by this Agreement, including the
Arrangement, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange other than with the other party's prior verbal or written consent. The
parties agree that the initial press release to be issued with respect to the
transactions contemplated by this Agreement shall be in the form attached hereto
as Exhibit 5.8.
-----------
35
SECTION 5.9 Affiliates. The Company shall (i) within 30 days after
----------
the date of this Agreement, deliver to Parent a letter identifying all persons
who may be deemed affiliates of the Company or Parent, as the case may be, under
Rule 145 of the Securities Act and (ii) no later than 30 days prior to the
Effective Time, obtain (if not previously obtained) from each such affiliate a
written agreement substantially in the form of Exhibit 5.9. The Company obtain
-----------
such a written agreement as soon as practicable from any person who may be
deemed to have become an affiliate of the Company or Parent, as the case may be,
after the Company's delivery of the letters referred to in clause (i) above and
prior to the Effective Time.
SECTION 5.10 Repayment of Affiliate Receivables. At or prior to the
----------------------------------
Closing Date, the Company agrees that it will cause to be paid in full (with
accrued and unpaid interest) all amounts owing to the Company and its
subsidiaries by any shareholder, officer or director or affiliate of the Company
or any of its subsidiaries.
SECTION 5.11 Company Executive Agreements. Agreements with certain
----------------------------
executives of the Company listed on Schedule 5.11 shall be in full force and
effect as of the Closing Date.
SECTION 5.12 Takeover Statutes. If any "takeover" statute shall become
-----------------
applicable to the transactions contemplated hereby, the Company and the members
of the Board of Directors of the Company, subject to fiduciary duties, shall
grant such approvals and take such actions as are necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such takeover statute on the transactions contemplated hereby.
SECTION 5.13 Shareholder Rights Plan. The Company agrees that, unless
-----------------------
required by the terms of the Shareholder Rights Plan with respect to a competing
transaction that is a Superior Proposal or a final and non-appealable order of a
court having jurisdiction or an order of a securities commission having
jurisdiction, the Company shall not redeem the SRP Rights or otherwise waive,
amend, suspend the operation of or terminate the Shareholder Rights Plan without
the prior written consent of Parent. The Company further agrees, within 24 hours
of Parent requesting in writing, to waive the Shareholder Rights as regards a
take-over bid made by Parent or an affiliate of Parent for the Company Common
Shares, provided that the terms of such take-over bid are no less favorable than
the terms of this Agreement.
SECTION 5.14 Encumbered Patents. The Company shall use its best
------------------
efforts to take all action necessary to clear, prior to the Closing Date and to
Parent's reasonable satisfaction, any defects to title with respect to each of
the following patents: (i) U.S. Patent No. 5,497,435; (ii) U.S. Patent No.
5,748,194; (iii) U.S. Patent No. 5,790,708; (iv) U.S. Patent No. 5,907,640; (v)
U.S. Patent No. 5,963,213; (vi) U.S. Patent No. 5,968,120; (vii) U.S. Patent No.
6,128,108; (viii) U.S. Patent No. 6,181,836; and (ix) U.S. Patent No. 5,968,120.
SECTION 5.15 Supplemental Indenture. In the event the Warrants remain
----------------------
outstanding after the Effective Date, the Company shall cause the Warrant
Trustee (as such term is defined under that certain Warrant Indenture dated as
of January 31, 2001, by and between the Company and Montreal Trust Company of
Canada (the "Warrant Indenture")) to execute a supplemental indenture pursuant
to Section 8.1 of the Warrant Indenture to (i) provide that the
36
obligation to file financial statements furnished to shareholders of the Company
with the Warrant Trustee as set forth in paragraph 5(d) of the Warrant
Indenture, (ii) provide that all of the obligations of the Company under
paragraph 5(h) of the Warrant Indenture, including the obligation to maintain
"reporting issuer" status, shall be terminated or will be, upon the consummation
of the Arrangement, obligations of Parent.
SECTION 5.16 Acceleration of Company Options. The Company shall amend
-------------------------------
its stock option plan in accordance with the amendment attached hereto as
Schedule 5.16 and shall exercise its discretion under such amended stock option
plan so as to (a) accelerate the vesting of all previously unvested Stock
Options such that such Stock Options become exercisable as of 11:59 p.m.
(Toronto Time) on the day immediately preceding the Effective Date, (b) provide
a reasonable time period for such optionees to exercise such accelerated Stock
Options, which exercise may be conditional upon the filing of the Articles of
Arrangement, and (c) terminate any and all Stock Options which remain
unexercised by the optionee immediately prior to the Effective Time, such that
at the Effective Time all such unexercised Stock Options are terminated. The
Company shall further, prior to the Effective Time, obtain all consents,
approvals or waivers necessary for the acceleration and termination of the Stock
Options, including, without limitation, approval from the Toronto Stock
Exchange.
SECTION 5.17 Canadian Corporation Income Taxes. The Company shall,
---------------------------------
prior to the Effective Date, file its Canadian federal and provincial income tax
returns for the fiscal year ended January 31, 2001. The Company shall, no later
than three (3) days prior to making such tax filings, deliver to Parent copies
of such tax returns. The Company shall assist Parent in determining the amount
of paid-up capital for purposes of the Income Tax Act (Canada) of the Company
Common Shares.
SECTION 5.18 Additional Filings. If any proposed agreement with
------------------
certain officers of the Company falls, in the opinion of Parent, within the
definition of a "going private transaction" under OSC Rule 61-501 or Policy Q-27
of the CVMQ, the Company shall use its best efforts to obtain regulatory relief,
on terms satisfactory to Parent, from all requirements applicable to going
private transactions under OSC Rule 61-501 or CVMQ Policy Q-27.
SECTION 5.19 D&O Insurance. The Company shall have in effect from the
-------------
date hereof until the Effective Date, continuous D&O insurance coverage having
the same or better terms, including coverage limits and entity coverage, as
maintained by the Company immediately prior to the date hereof. Prior to the
Effective Date, the Company shall arrange for "run off" or "tail" insurance for
a length of time covering the applicable statute of limitations period, but in
no event expiring earlier than March 31, 2007, which insurance shall cover any
claims made after the Effective Date which relate to events arising on or prior
to the Effective Date.
SECTION 5.20 Valuation Firm. The parties agree that the fair market
--------------
value of the technology, assets and other rights referred to in Section 1.3(a)
below shall be as determined by a third party appraisal firm which firm shall be
selected by Roxio.
37
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligations to Effect the
----------------------------------------------------
Arrangement. The respective obligation of each party to effect the Arrangement
-----------
is subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall have
--------------------
been obtained.
(b) Interim and Final Orders. The receipt of the Interim Order and
------------------------
Final Order from the Court relating to the Arrangement in accordance with
section 182 of the OBCA and the compliance by the other party with the terms of
the Interim Order and Final Order issued by the Court relating to the
Arrangement on terms reasonably satisfactory to Parent and the Company.
(c) Articles of Arrangement. The filing of Articles of Arrangement
-----------------------
with the Director under the OBCA.
(d) NASDAQ National Market Listing. The Parent Common Shares issuable
------------------------------
to the Company's shareholders and the holders of Stock Options pursuant to this
Agreement shall have been approved for inclusion on NASDAQ, subject to official
notice of issuance.
(e) No Injunctions or Restraints. No litigation brought by a
----------------------------
Governmental Entity shall be pending, and no litigation shall be threatened by
any Governmental Entity, which seeks to enjoin or prohibit the consummation of
the Arrangement, and no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Arrangement
shall be in effect.
(f) Approvals. All authorizations, consents, waivers, orders or
---------
approvals required to be obtained, and all filings, notices or declarations
required to be made, by Parent and the Company prior to the consummation of the
Arrangement and the transactions contemplated hereunder shall have been obtained
from, and made with, all required Governmental Entities, except for such
authorizations, consents, waivers, orders, approvals, filings, notices or
declarations the failure to obtain or make which would not have a material
adverse effect, at or after the Effective Time, on the Company or Parent.
(g) Parent Common Shares. All necessary orders shall have been
--------------------
obtained from Canadian securities regulatory authorities in the Reporting
Jurisdictions such that the Parent Common Shares to be received by shareholders
of the Company under the Articles of Arrangement as described in Section 1.3 are
freely tradeable in the Reporting Jurisdictions, subject only to such
shareholders not being "control persons" with respect to Parent and to such
other usual and customary conditions.
SECTION 6.2 Additional Conditions to Obligations of Parent. The
----------------------------------------------
obligations of Parent to effect the Arrangement are also subject to the
following conditions (any of which may be waived by Parent in whole or in part):
38
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company contained in this Agreement shall be true and correct
in all material respects (except that where any statement in a representation or
warranty, expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of the
Closing Date as though made on and as of the Closing Date, provided that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects (except that where
any statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects giving
effect to such standard) as of such date. Parent shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of the
Company to such effect.
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date. Parent shall have received a certificate of the Chief Executive Officer
and Chief Financial Officer of the Company to that effect.
(c) Consents Under Agreements. The Company shall have obtained the
-------------------------
consent or approval of each person (i) listed on Schedule 6.2(c), and (ii) whose
consent or approval shall be required in connection with the Arrangement under
all loan or credit agreements, notes, mortgages, indentures, leases, contracts
or other agreements, understandings or instruments to which it or any of its
subsidiaries is a party, except those for which failure to obtain such consents
and approvals would not have a material adverse effect on the Company or Parent
after the Effective Time.
(d) Affiliate Agreements. Parent shall have received from each person
--------------------
who may be deemed to be an affiliate of the Company (under Rule 145 of the
Securities Act) on or prior to the Closing Date a signed agreement substantially
in the form of Exhibit 5.9A hereto.
------------
(e) Certificates and Other Deliveries. The Company shall have
---------------------------------
delivered, or caused to be delivered, to Parent (i) a certificate of good
standing from the authorities in the jurisdictions in which the Company and its
subsidiaries (other than Live Picture Developpement S.A.R.L.) are incorporated
or qualified to do business stating that each is a validly existing corporation
in good standing; (ii) duly adopted resolutions of the Board of Directors and
shareholders of the Company approving the execution, delivery and performance of
this Agreement and the instruments contemplated hereby, certified by the
Secretary of the Company, and (iii) a true and complete copy of the articles of
incorporation or comparable governing instruments, as amended, of the Company
and its subsidiaries (other than Live Picture Developpement S.A.R.L.) certified
by the Secretary of State of the state of incorporation or comparable authority
in other jurisdictions, and a true and complete copy of the by-laws or
comparable governing instruments, as amended, of the Company and its
subsidiaries certified by the Secretary of the Company and its subsidiaries, as
applicable.
(f) Opinion of the Company Counsel. Parent shall have received the
------------------------------
opinion of counsel to the Company, in form and substance reasonably satisfactory
to Parent, covering the matters set forth in Exhibit 6.2(f) attached hereto.
--------------
39
(g) Fairness Opinion. The written opinion of Company's financial
----------------
advisor shall not have been withdrawn at or prior to the Effective Time.
(h) Consent of Auditors. The consent of PricewaterhouseCoopers LLP to
-------------------
the filing of its audit report with respect to the Company's financial
statements for the years ended January 31, 1999, 2000 and 2001, by Parent with
the SEC shall have been received by the Company and shall not have been
withdrawn or modified.
(i) Resignation of Directors. Each member of the Board of Directors of
------------------------
the Company shall have submitted to the Company a written resignation as a
director of the Company, effective upon consummation of the Arrangement.
(j) Significant Stockholders Agreement. Each signatory to the
----------------------------------
Significant Stockholder Agreement shall have complied in all material respects
with all agreements or covenants required by the Significant Stockholder
Agreement to be performed or complied with by such person to the extent such
compliance was called for at or prior to the Closing Date.
(k) Disclosure. Parent shall not have become aware of any untrue
----------
statement of material fact relating to the Company, or an omission to state a
material fact relating to the Company that has occurred after the date hereof
and is required to be stated or that is necessary to make a statement not
misleading in the light of the circumstances in which it was made and at the
date it was made (after giving effect to all subsequent filings in relation to
all matters covered in earlier filings) in any document filed by or on behalf of
the Company with any securities commission or similar securities regulatory
authority in any of the provinces of Canada or in the United States, including
without limitation any annual information form, financial statement, material
change report or management proxy circular or in any document so filed or
released by the Company to the public.
(l) Dissenting Shares. The holders of Company Common Shares
-----------------
representing in excess of five percent (5%) of the outstanding Company Common
Shares shall not have exercised dissent or similar right in connection with the
Arrangement.
(m) Warrants. Either (i) all outstanding Warrants shall have been
--------
redeemed and/or terminated prior to the Effective Time, with no continuing
obligation or liability of the Company or the Parent in connection therewith
after the Effective Time, or (ii) (A) a legal opinion from Canadian and U.S.
counsel, such opinions and counsel to be reasonably acceptable to Parent, shall
have been delivered to Parent stating that the issuance of replacement warrants
to the holders of Warrants, if applicable, and the issuance of shares of Parent
Common Stock upon exercise of the Warrants or such replacement warrants, as
applicable, in each case without registration under Canadian and United States
(federal and state) securities laws, will not violate any Law or, in the case of
the opinion to be provided by Canadian counsel, constitute a breach of the terms
of the Warrants or any related agreements; and (B) the Supplemental Indenture
described in Section 5.15 above shall have been signed by the Warrant Trustee
and all necessary consents related thereto shall have been obtained, including,
without limitation, the approval of the Toronto Stock Exchange.
40
(n) No Material Adverse Change. From and including the date hereof,
--------------------------
there shall not have occurred any event which has had or is reasonably likely to
have a material adverse effect on the Company. For the purposes of this
paragraph, none of the following shall be deemed either alone or in combination
to constitute, and none of the following shall be taken into account in
determining whether there has been or will be, a material adverse effect: (a)
any adverse change, event, or effect that is directly attributable or relating
to conditions affecting the Canadian or US economy generally; (b) any adverse
change, event, or effect that is directly attributable or relating to
seasonality of customer demands or conditions affecting the software industry
generally; (c) any failure by the Company to meet internal projections, budgets
or forecasts; and (d) any adverse change, event or effect attributable or
relating to the announcement or pendency of this Agreement or the transactions
contemplated hereby.
SECTION 6.3 Additional Conditions to Obligations of the Company. The
---------------------------------------------------
obligations of the Company to effect the Arrangement are also subject to the
following conditions (any of which may be waived by the Company in whole or in
part):
(a) Representations and Warranties. Each of the representations of
------------------------------
Parent contained in this Agreement shall be true and correct in all material
respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of the Closing Date
as though made on and as of the Closing Date, provided that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects (except that where
any statement in a representation or warranty, expressly includes a standard of
materiality, such statement shall be true and correct in all respects giving
effect to such standard) as of such date. The Company shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of Parent
to such effect.
(b) Agreements and Covenants. Parent shall have performed or complied
------------------------
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. The Company shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Parent to such effect.
(c) Certificates and Other Deliveries. Parent shall have delivered to
---------------------------------
the Company (i) a good standing certificate from the Secretary of State of
Delaware stating that Parent is a validly existing corporation; (ii) duly
adopted resolutions of the Board of Directors of Parent approving the execution,
delivery and performance of this Agreement and the instruments contemplated
hereby, certified by the Secretary or the Assistant Secretary of Parent; (iii) a
true, complete and certified copy of the certificate of incorporation or
comparable governing instrument of Parent; and (iv) a true and complete copy of
the by-laws of Parent, certified by the Secretary or Assistant Secretary of
Parent.
(d) Fairness Opinion. The written opinion of the Company's financial
----------------
advisor referenced in Section 3.1(x) above shall not have been withdrawn at or
prior to the Company Meeting.
(e) Opinion of Parent Counsel and Special Canadian Parent Counsel. The
-------------------------------------------------------------
Company shall have received the opinion of counsel to Parent in the form and
substance as set
41
forth in Exhibit 6.3(e)-1 and opinion of special Canadian counsel to Parent in
----------------
substance to the effect as set forth in Exhibit 6.3(e)-2, in form and substance
----------------
satisfactory to the Company acting reasonably.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time:
(a) by mutual written consent of Parent and the Company, if the Board
of Directors of each so determines by the affirmative vote of a majority of the
members of its entire Board of Directors;
(b) by Parent (provided that Parent is not then in material breach of
any representation, warranty, covenant or other agreement contained herein),
upon a material breach of any representation, warranty, covenant or agreement on
the part of the Company set forth in this Agreement, or if any representation or
warranty of the Company shall have become untrue, in either case such that the
conditions set forth in Section 6.2(a) or Section 6.2(b), as the case may be,
would be incapable of being satisfied by April 30, 2002; provided that, in any
case, a willful breach shall be deemed to cause such conditions to be incapable
of being satisfied for purposes of this Section 7.1(b);
(c) by the Company (provided that the Company is not then in material
breach of any representation, warranty, covenant or other agreement contained
herein), upon a material breach of any representation, warranty, covenant or
agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b), as the
case may be, would be incapable of being satisfied by April 30, 2002; provided
that, in any case a willful breach shall be deemed to cause such conditions to
be incapable of being satisfied for purposes of this Section 7.1(c);
(d) by either Parent or the Company if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of the
Arrangement and such order, decree or ruling or other action shall have become
final and nonappealable;
(e) by either Parent or the Company, if the Arrangement shall not have
occurred by April 30, 2002 (subject to extension by a number of days equal to
the number of days the Company Meeting is adjourned pursuant to Section 1.1(c)
above), unless the failure to consummate the Arrangement is the result of a
breach of covenant set forth in this Agreement or a willful and material breach
of any representation or warranty set forth in this Agreement by the party
seeking to terminate this Agreement;
(f) by either Parent or the Company if any approval of the shareholders
of the Company required for the consummation of the Arrangement shall not have
been obtained by
42
reason of the failure to obtain the required vote at a duly held meeting of the
Company's shareholders or at any adjournment or postponement thereof;
(g) by Parent, if there is a material breach by the Company of any of
its obligations under Section 1.1(c), Section 4.2 or Section 5.1(d) hereof; or
(h) by either Parent or the Company if the Board of Directors of the
Company approves or recommends a Superior Proposal and the shareholders of the
Company approve such Superior Proposal.
SECTION 7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent or the Company or their respective officers
or directors, except as set forth in this Section 7.2, Section 7.5 and Article
VIII which shall survive termination.
SECTION 7.3 Amendment. This Agreement may be amended by the parties at
---------
any time before or after approval hereof by the shareholders of the Company;
provided, however, that after such shareholder approval there shall not be made
any amendment that by Law requires further approval by the shareholders of the
Company or Parent without the further approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective
-----------------
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 7.3, waive compliance with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing, signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
those rights. No investigations made by or on behalf of any party at any time
and no knowledge acquired by such party at any time shall have the effect of
waiving, diminishing the scope or otherwise affecting any representations or
warranties made by the other party in or pursuant to this Agreement.
SECTION 7.5 Termination Fee. In the event that (i) an Acquisition
---------------
Proposal shall have been made to the Company (whether or not conditional) or any
of its subsidiaries or any of its shareholders and such Acquisition Proposal
shall have been publicly announced or any person shall have publicly announced
an intention (whether or not conditional) to make an Acquisition Proposal with
respect to the Company or any of its subsidiaries (an "Announced Proposal") and
thereafter the Agreement is terminated by either Parent or the Company pursuant
to Section 7.1(f) or Section 7.1(h), or (ii) the Agreement is terminated by
Parent pursuant to Section 7.1(g), then the Company shall pay to Parent the sum
of CAN $1,650,000 in cash (the "Termination Fee") payable as follows:
43
(a) if the Agreement is terminated by the Company or the Parent in
accordance with Section 7.1(f) of the Agreement following the receipt or
announcement of the Announced Proposal and the Board of Directors does not
approve the Announced Proposal prior to the Company Meeting and does not
withdraw or modify adversely its recommendation of the Arrangement, then the
Termination Fee shall be payable at the time and only upon the execution, within
six (6) months from the date of termination of this Agreement, of a definitive
agreement with respect to (i) such Announced Proposal or (ii) any other
Acquisition Proposal; and
(b) in all other circumstances, the Termination Fee shall be payable
on the first Business Day following a termination by the Company or Parent.
SECTION 7.6 Procedure for Termination, Amendment, Extension or Waiver.
---------------------------------------------------------
A termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of Parent or the
Company, action by its Board of Directors, acting by the affirmative vote of a
majority of the members of the entire Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties. None of the
---------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time of the Arrangement.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) and sent simultaneously by facsimile, to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Parent, to
ROXIO, INC.
000 Xxxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000 XXX
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxxx, Esq.
with a copy to:
O'Melveny & Xxxxx LLP
000 Xxxxx Xx.
Xxxxx Xxxx, XX 00000
44
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
(b) if to the Company, to
MGI Software Corp.
00 Xxxx Xxxxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxx
X0X 0X0
Facsimile: 000-000-0000
Attention: President
with a copy to:
XxXxxxx Xxxxxxxxx
000 Xxxxxxx Xxxxxx
Xerox Tower, 11th FL
Xxxxxx, XX X0X 0X0
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxxx, Esq.
SECTION 8.3 Definitions For purposes of this Agreement:
-----------
(a) an "affiliate" of any person means another person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person; and
(b) "Arrangement" means an arrangement under section 182 of the OBCA on
the terms and subject to the conditions set out in the Plan of Arrangement,
subject to any amendments or variations thereto made in accordance with Section
7.3 of this Agreement or Article 5 of the Plan of Arrangement or made at the
direction of the Court in the Final Order; and
(c) "Articles of Arrangement" means the articles of arrangement of the
Company in respect of the Arrangement that are required by the OBCA to be sent
to the Director after the Final Order is made; and
(d) "Business Day" means any day on which commercial banks are
generally open for business in Xxx Xxxxxxxxx, Xxxxxxxxxx xxx Xxxxxxx, Xxxxxxx,
other than a Saturday, a Sunday or a day observed as a holiday in San Francisco,
California under the laws of the State of California or the federal laws of the
United States of America or in Toronto, Ontario under the laws of the Province
of Ontario or the federal laws of Canada; and
(e) "Closing Date" means the Effective Date; and
(f) "Company Meeting" means the special meeting of the Company
shareholders, including any adjournment thereof, to be called and held in
accordance with the Interim Order to consider the Arrangement; and
45
(g) "Company Technology" means, subject to Section 1.3(a), all
intellectual property outside the United States which the Company has the right
to exploit; and
(h) "Court" means the Superior Court of Justice (Ontario); and
(i) "Director" means the Director appointed pursuant to section 278 of
the OBCA; and
(j) "Dissent Rights" means rights of dissent with respect to such
shares pursuant to and in the manner set forth in section 185 of the OBCA, as
modified by section 3.1 of the Plan of Arrangement; and
(k) "Effective Date" means the date shown on the certificate of
arrangement to be issued by the Director under the OBCA giving effect to the
Arrangement; and
(l) "Effective Time" means 12:01 a.m. (Eastern Standard Time) on the
Effective Date; and
(m) "Exchange Act" means the United States Securities and Exchange Act
of 1934, as amended; and
(n) "Final Order" means the final order of the Court approving the
Arrangement as such order may be amended by the Court at any time prior to the
Effective Date or, if appealed, then, unless such appeal is withdrawn or denied,
as affirmed; and
(o) "Interim Order" means the interim order of the Court, as the same
may be amended, in respect of the Arrangement; and
(p) "NASDAQ" means the National Association of Securities Dealers
Automated Quotation System; and
(q) "OBCA" means the Business Corporations Act (Ontario), as amended;
and
(r) "person" means an individual, firm, corporation, partnership, joint
venture, venture capital fund, limited liability company, unlimited liability
company, association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, unincorporated association or
organization, Governmental Entity, syndicate or other entity, whether or not
having legal status; and
(s) "Plan of Arrangement" means the plan of arrangement substantially
in the form and content of Exhibit A attached hereto and any amendments or
---------
variations thereto made in accordance with Section 7.3 hereof or Article 5 of
the Plan of Arrangement or made at the direction of the Court in the Final
Order; and
(t) "Securities Act" means the United States Securities Act of 1933, as
amended; and
46
(u) "Significant Stockholders" means Perseus Capital LLC, Xxxx Xxxxx,
Xxxxxxx XxXxxxxxxxxx, Xxxxx Xxxxx, Xxx XxxXxxxxx, Xxxxx Xxxxx, Uri Xxxxx, Xxxx
Peyelycky, Xxx Xxxxxx, Xxxxxx Xxxxxx, Xxxxxxx Xxxxx, and Xxxxxx Roxioberg; and
(v) "Special Resolution" means the special resolution of the holders of
the Company Common Shares, to be substantially in the form and content of
Exhibit B hereto.
---------
SECTION 8.4 Interpretation. When a reference is made in this Agreement
--------------
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" and "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 8.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties whether by mail, overnight
courier, personal delivery or facsimile.
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement and the Confidentiality Agreement constitute the entire agreement, and
supersede all agreements prior to the date hereof and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement and except for the provisions of Section 5.6, are not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflict of laws thereof.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9 Enforcement. The parties agree that irreparable damage
-----------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the States of California, Delaware or New York, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal or state court located in the State of
California, Delaware or New York in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to
47
deny or defeat such personal jurisdiction by motion or other request for leave
from any such court and (c) agrees that it will not bring any action relating to
this Agreement in any court other than a court sitting in the State of
California, Delaware or New York.
SECTION 8.10 Currency. References in this Agreement to "US $" shall
--------
mean to the lawful currency of the United States and references in this
Agreement to "CAD $" shall mean to the lawful currency of Canada.
SECTION 8.11 Exchange Rate. For purposes of construction of the terms,
-------------
any reference herein to U.S. Dollars or U.S.$ shall be deemed to include the
equivalent in Canadian Dollars calculated based upon the exchange rate for the
sale of U.S. Dollars reported by the Federal Reserve Bank of the United States
of America as of the Effective Date and any reference herein to Canadian Dollars
or CAN $ shall be deemed to include the equivalent in U.S. Dollars calculated
based upon the exchange rate for the sale of Canadian Dollars reported by The
Royal Bank of Canada as of the Effective Date.
[remainder of page intentionally left blank]
48
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above
Attest: "Parent"
Roxio, Inc.,
a Delaware corporation
By:_______________________________
By: _________________________ Name:_____________________________
Name:____________________ Title:
Title:___________________
Attest: "Company"
MGI Software Corp.,
an Ontario corporation
By: _________________________ By:_______________________________
Name:____________________ Name:_____________________________
Title:___________________ Title:____________________________
S-1
COMBINATION AGREEMENT
Dated as of December 3, 2001
By and Between
Roxio, Inc.
and
MGI Software Corp.
TABLE OF CONTENTS
(continued)
Page
ARTICLE I
THE ARRANGEMENT
SECTION 1.1 Implementation Steps .................................................................. 1
SECTION 1.2 Interim Order ......................................................................... 2
SECTION 1.3 Articles of Arrangement ............................................................... 3
SECTION 1.4 Alternative Structure ................................................................. 3
ARTICLE II
EFFECT OF THE PLAN OF ARRANGEMENT ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Exchange of Company Common Shares ..................................................... 4
SECTION 2.2 Treatment of Stock Options; Warrants .................................................. 4
SECTION 2.3 Adjustments to Exchange Ratio ......................................................... 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company ......................................... 6
SECTION 3.2 Representations and Warranties of Parent .............................................. 25
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business of the Company .................................................... 28
SECTION 4.2 No Inconsistent Activities ............................................................ 31
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Circular; Company Meeting .......................................... 33
SECTION 5.2 Access to Information; Confidentiality ................................................ 34
SECTION 5.3 Reasonable Efforts; Notification ...................................................... 34
SECTION 5.4 Parent Common Shares .................................................................. 35
SECTION 5.5 Conveyance Taxes ...................................................................... 35
SECTION 5.6 Indemnification, Exculpation and Insurance ............................................ 35
SECTION 5.7 Fees and Expenses ..................................................................... 35
SECTION 5.8 Public Announcements .................................................................. 35
SECTION 5.9 Affiliates ............................................................................ 36
TABLE OF CONTENTS
(continued)
Page
SECTION 5.10 Repayment of Affiliate Receivables .................................................... 36
SECTION 5.11 Company Executive Agreements .......................................................... 36
SECTION 5.12 Takeover Statutes ..................................................................... 36
SECTION 5.13 Shareholder Rights Plan ............................................................... 36
SECTION 5.14 Encumbered Patents .................................................................... 36
SECTION 5.15 Supplemental Indenture ................................................................ 36
SECTION 5.16 Acceleration of Company Options ....................................................... 37
SECTION 5.17 Canadian Corporation Income Taxes. .................................................... 37
SECTION 5.18 Additional Filings .................................................................... 37
SECTION 5.19 D&O Insurance ......................................................................... 37
SECTION 5.20 Valuation Firm ........................................................................ 37
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligations to Effect the Arrangement ...................... 38
SECTION 6.2 Additional Conditions to Obligations of Parent ........................................ 38
SECTION 6.3 Additional Conditions to Obligations of the Company ................................... 41
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination ........................................................................... 42
SECTION 7.2 Effect of Termination ................................................................. 43
SECTION 7.3 Amendment ............................................................................. 43
SECTION 7.4 Extension; Waiver ..................................................................... 43
SECTION 7.5 Termination Fee ....................................................................... 43
SECTION 7.6 Procedure for Termination, Amendment, Extension or Waiver ............................. 44
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties ......................................... 44
SECTION 8.2 Notices ............................................................................... 44
SECTION 8.3 Definitions ........................................................................... 45
SECTION 8.4 Interpretation ........................................................................ 47
SECTION 8.5 Counterparts .......................................................................... 47
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries ........................................ 47
SECTION 8.7 Governing Law ......................................................................... 47
SECTION 8.8 Assignment ............................................................................ 47
SECTION 8.9 Enforcement ........................................................................... 47
SECTION 8.10 Currency .............................................................................. 48
ii
TABLE OF CONTENTS
(continued)
Page
SECTION 8.11 Exchange Rate ................................................................. 48
EXHIBITS
EXHIBIT A - Plan of Arrangement
EXHIBIT B - Arrangement Resolution
EXHIBIT 2.3 - Net Working Capital Calculation and Net Shareholders'
Equity Calculation Form of the Company Affiliate Letter
EXHIBIT 3.1 - Company Disclosure Schedule
EXHIBIT 3.2 - Parent Disclosure Schedule
EXHIBIT 5.8 - Form of Press Release
EXHIBIT 5.9 - Form of the Company Affiliate Letter
EXHIBIT 6.2(f) - Opinion of the Company Counsel
EXHIBIT 6.3(e)-1 - Opinion of the Parent Counsel
EXHIBIT 6.3(e)-2 - Opinion of the Special Canadian Parent Counsel
Schedule 4.1(r) - List of Top SKUs/Customers/Distributors
Schedule 5.11 - List of Executives
Schedule 5.16 - Stock Option Plan Amendment
Schedule 6.2 - Required Consents
iii
LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Exhibits and Schedules to the Combination Agreement have been
omitted and shall be furnished supplementally to the Commission upon request:
EXHIBIT A - Plan of Arrangement
EXHIBIT B - Arrangement Resolution
EXHIBIT 2.3 - Net Working Capital Calculation and Net Shareholders'
Equity Calculation Form of the Company Affiliate Letter
EXHIBIT 3.1 - Company Disclosure Schedule
EXHIBIT 3.2 - Parent Disclosure Schedule
EXHIBIT 5.8 - Form of Press Release
EXHIBIT 5.9 - Form of the Company Affiliate Letter
EXHIBIT 6.2(f) - Opinion of the Company Counsel
EXHIBIT 6.3(e)-1 - Opinion of the Parent Counsel
EXHIBIT 6.3(e)-2 - Opinion of the Special Canadian Parent Counsel
Schedule 4.1(r) - List of Top SKUs/Customers/Distributors
Schedule 5.11 - List of Executives
Schedule 5.16 - Stock Option Plan Amendment
Schedule 6.2 - Required Consents
