EXHIBIT 2.1
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EXECUTION COPY
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ARRANGEMENT AGREEMENT
AMONG
L-1 IDENTITY SOLUTIONS, INC.,
6653375 CANADA INC.
AND
COMNETIX INC.
DATED AS OF NOVEMBER 15, 2006
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS..........................................................2
SECTION 1.01 DEFINITIONS....................................................2
ARTICLE II ARRANGEMENT........................................................12
SECTION 2.01 IMPLEMENTATION STEPS BY THE COMPANY...........................12
SECTION 2.02 INTERIM ORDER.................................................12
SECTION 2.03 ARTICLES OF ARRANGEMENT.......................................13
SECTION 2.04 CIRCULAR......................................................13
SECTION 2.05 PREPARATION OF FILINGS........................................13
SECTION 2.06 COMPANY ACTION................................................14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................15
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES..................15
SECTION 3.02 CERTIFICATE OF INCORPORATION AND BY-LAWS......................15
SECTION 3.03 AUTHORITY RELATIVE TO THIS AGREEMENT..........................16
SECTION 3.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS....................16
SECTION 3.05 CAPITALIZATION................................................17
SECTION 3.06 SECURITIES LAW MATTERS FINANCIAL STATEMENTS...................18
SECTION 3.07 INFORMATION TO BE SUPPLIED....................................19
SECTION 3.08 PERMITS; COMPLIANCE...........................................20
SECTION 3.09 ABSENCE OF CERTAIN CHANGES OR EVENTS..........................21
SECTION 3.10 ABSENCE OF LITIGATION.........................................21
SECTION 3.11 MATERIAL CONTRACTS............................................21
SECTION 3.12 EMPLOYEE MATTERS..............................................23
SECTION 3.13 CUSTOMERS.....................................................25
SECTION 3.14 PROPERTY AND LEASES...........................................26
SECTION 3.15 INTELLECTUAL PROPERTY.........................................26
SECTION 3.16 TAXES.........................................................29
SECTION 3.17 ENVIRONMENTAL MATTERS.........................................33
SECTION 3.18 INSURANCE.....................................................34
SECTION 3.19 BROKERS.......................................................34
SECTION 3.20 RELATED PARTY TRANSACTIONS....................................35
SECTION 3.21 DISCLOSURE....................................................35
SECTION 3.22 ABSENCE OF VIOLATION..........................................35
SECTION 3.23 TAKEOVER STATUTES.............................................36
SECTION 3.24 NO OTHER PURCHASE AGREEMENTS..................................36
SECTION 3.25 PERSONAL PROPERTY.............................................36
SECTION 3.26 WARRANTY AND PRODUCT LIABILITY MATTERS........................36
SECTION 3.27 PRIVACY LAW...................................................37
SECTION 3.28 NOT ENGAGED IN CULTURAL BUSINESS..............................37
SECTION 3.29SOLVENCY........................................................37
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.............37
SECTION 4.01 CORPORATE ORGANIZATION........................................37
SECTION 4.02 AUTHORITY RELATIVE TO THIS AGREEMENT..........................38
SECTION 4.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS....................38
SECTION 4.04 INFORMATION TO BE SUPPLIED....................................38
SECTION 4.05 LITIGATION....................................................39
SECTION 4.06 NO VOTE REQUIRED..............................................39
SECTION 4.07 OPERATIONS OF PURCHASER.......................................39
SECTION 4.08 BROKERS.......................................................39
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ARTICLE V CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE DATE.....................39
SECTION 5.01 CONDUCT OF BUSINESS BY THE COMPANY............................39
ARTICLE VI ADDITIONAL AGREEMENTS..............................................42
SECTION 6.01 ACCESS TO INFORMATION; CONFIDENTIALITY........................42
SECTION 6.02 NO SOLICITATION OF TRANSACTIONS...............................42
SECTION 6.03 STOCKHOLDER MEETING...........................................44
SECTION 6.04 NOTIFICATION OF CERTAIN MATTERS...............................45
SECTION 6.05 FURTHER ACTION; REASONABLE EFFORTS............................45
SECTION 6.06 PURCHASER.....................................................46
SECTION 6.07 PUBLIC ANNOUNCEMENTS..........................................46
SECTION 6.08 TRANSFER TAX..................................................46
SECTION 6.09 COMPANY STOCK OPTIONS.........................................47
SECTION 6.10 COMPANY WARRANTS..............................................47
SECTION 6.11 COMPANY DEBENTURES............................................47
SECTION 6.12 SUPPORT AGREEMENTS............................................48
SECTION 6.13 RESIGNATION OF DIRECTORS......................................48
SECTION 6.14 NET CASH......................................................48
SECTION 6.15 MAINTAIN INSURANCE............................................49
SECTION 6.16 FULFILLMENT OF CONDITIONS.....................................49
SECTION 6.17 INDEPENDENT COMMITTEE.........................................49
SECTION 6.18 PRIVACY POLICIES..............................................49
ARTICLE VII CONDITIONS........................................................50
SECTION 7.01 CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO EFFECT
THE ARRANGEMENT...............................................50
SECTION 7.02 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND PURCHASER...51
SECTION 7.03 CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS.............53
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................................54
SECTION 8.01 TERMINATION BY MUTUAL CONSENT.................................54
SECTION 8.02 TERMINATION BY EITHER PARENT OR THE COMPANY...................54
SECTION 8.03 TERMINATION BY THE COMPANY....................................54
SECTION 8.04 TERMINATION BY PARENT.........................................55
SECTION 8.05 EFFECT OF TERMINATION AND ABANDONMENT.........................56
ARTICLE IX GENERAL PROVISIONS.................................................57
SECTION 9.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES....................57
SECTION 9.02 AMENDMENTS, MODIFICATION AND WAIVER...........................57
SECTION 9.03 NOTICES.......................................................57
SECTION 9.04 SEVERABILITY..................................................58
SECTION 9.05 ENTIRE AGREEMENT; ASSIGNMENT..................................58
SECTION 9.06 PARTIES IN INTEREST...........................................59
SECTION 9.07 INTERPRETATION................................................59
SECTION 9.08 SPECIFIC PERFORMANCE..........................................59
SECTION 9.09 GOVERNING LAW.................................................59
SECTION 9.10 WAIVER OF JURY TRIAL..........................................60
SECTION 9.11 HEADINGS......................................................60
SECTION 9.12 COUNTERPARTS..................................................60
SECTION 9.13 CURRENCY......................................................60
ANNEX I -FORM OF ARRANGEMENT RESOLUTION
ANNEX II - FORM OF PLAN OF ARRANGEMENT
ANNEX III -FORM OF SUPPORT AGREEMENTS
DISCLOSURE SCHEDULE
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ARRANGEMENT AGREEMENT
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THIS ARRANGEMENT AGREEMENT (this "Agreement") is made as of November
15, 2006, by and among L-1 Identity Solutions, Inc., a Delaware corporation
("Parent"), 6653375 Canada Inc., a corporation incorporated under the Canada
Business Corporations Act and a wholly owned subsidiary of Parent ("Purchaser")
and Comnetix Inc. a corporation incorporated under the Canada Business
Corporations Act (the "Company").
WHEREAS, the Boards of Directors of Parent, Purchaser and the
Company have each approved the terms and conditions of a business combination of
the Company and the Purchaser upon the terms and subject to the conditions set
forth herein;
WHEREAS, the business combination of the Company and the Purchaser
shall be effected by the terms of this Agreement through a plan of arrangement,
pursuant to section 192 of the CBCA (as defined below), of the Company and the
Purchaser;
WHEREAS, the Arrangement (as defined below) is intended to, among
other things, provide holders of the Aggregate Outstanding Company Common Stock
(as defined below) with the opportunity to dispose of their shares of Company
Common Stock in exchange for US$0.82 per share of Company Common Stock, payable
in cash, subject to adjustment in accordance with the terms of this Agreement;
WHEREAS, the Board of Directors of the Company (the "Company Board")
has (i) determined that the Arrangement is fair to, and in the best interests
of, the Company and the Company Securityholders (as defined below) and has
approved this Agreement and declared its advisability and approved the
Arrangement and the other transactions contemplated by this Agreement, and (ii)
resolved to recommend acceptance of the Arrangement and adoption of this
Agreement by the Company Securityholders; and
WHEREAS, as a condition and as an inducement to Parent's willingness
to enter into this Agreement, Parent, Purchaser and (i) each Insider (as defined
below) who holds shares of Company Common Stock (the "Company Insiders"), and
(ii) holders of not less than 67.2% of the Company 2007 Warrants, (the "Support
Warrantholders"), have entered into Support Agreements substantially in the form
annexed hereto as Annex III, dated as of the date hereof (collectively, the
"Support Agreements"), pursuant to which, among other things, the Company
Insiders and the Support Warrantholders have irrevocably agreed to vote all
shares of Company Common Stock and all Company 2007 Warrants beneficially owned
by them in favor of the Arrangement and against any competing proposals.
WHEREAS, as a condition and as an inducement to Parent's willingness
to enter into this Agreement, the Company has agreed to accelerate the vesting
and expiry of all the Company Stock Options (as defined below) and terminate,
prior to the Effective Time, all of the Company Stock Options without the
issuance of any shares of Company Common Stock in respect thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS.
(a) For purposes of this Agreement:
"Affiliate" of a specified Person means any other Person who,
directly or indirectly through one or more intermediaries, Controls, is
controlled by, or is under common Control with, such specified Person.
"Aggregate Outstanding Company Stock" means a number of shares of
Company Common Stock, which subject to Section 6.10, shall not exceed 15,235,903
shares of Company Common Stock, consisting of the 14,124,792 shares of Company
Common Stock outstanding on the date hereof plus up to 1,111,111 shares of
Company Common Stock issuable upon conversion of the Company Debentures, and for
greater certainty shall exclude any shares of Company Common Stock underlying
the Company Stock Options.
"Annual Financial Statements" means the audited consolidated
financial statements of the Company as at and for each of the fiscal years ended
August 31, 2006 and August 31, 2005 together with the notes thereto and the
auditors' report thereon.
"Arrangement" means an arrangement under Section 192 of the CBCA 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
9.02 hereof or Article 5 of the Plan of Arrangement or made at the direction of
the Court in the Interim Order or the Final Order.
"Arrangement Resolution" means the special resolution of the Company
Securityholders, to be substantially in the form and content of Annex I annexed
hereto.
"Articles of Arrangement" means the articles of arrangement of the
Company in respect of the Arrangement that are required to be sent to the
Director after the Final Order is made.
"Business Day" means any day on which banks are not required or
authorized to close in the City of New York or in Toronto.
"Canadian Securities Laws" means all applicable securities laws in
the provinces of Canada, all as now enacted or as the same may from time to time
be amended, re-enacted or replaced, the respective regulations, rules, orders
and forms under such laws and the applicable published policy statements of and
any exempting orders issued by the Canadian Securities Regulators.
"Canadian Securities Regulators" means the securities commission or
other securities regulatory authority in each of the provinces of Canada.
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"Cash Consideration" shall have the meaning ascribed thereto in the
Plan of Arrangement.
"CBCA" means the Canada Business Corporations Act as in effect as of
the date hereof and as may be amended from time to time prior to the Effective
Time.
"Certificate" means a certificate or certificates representing
shares of Company Common Stock.
"Circular" means the notice of the Company Meeting, accompanying
management proxy circular and forms of proxy, including all appendices thereto,
to be sent to Company Shareholders and Company Warrantholders in connection with
the Company Meeting, as may be amended from time to time.
"Code" means the U.S. Internal Revenue Code of 1986, as amended.
"Company Common Stock" means the Company's common stock, without par
value.
"Company Debentures" means the subordinated debentures of the
Company issued on April 22, 2004, in an aggregate principal amount of
$2,000,000, maturing April 22, 2007 and convertible on maturity into shares of
Company Common Stock on the basis of one share of Company Common Stock for every
$1.80 of principal amount.
"Company Material Adverse Effect" means any event, circumstance,
change, occurrence, fact or effect that, individually or in the aggregate with
all other events, circumstances, changes, occurrences, facts and/or effects (i)
is or is reasonably likely to be materially adverse to the business, financial
condition, future prospects or results of operations of the Company and its
Subsidiaries, taken individually or as a whole or (ii) is or is reasonably
likely to prevent or materially delay the Company from performing its
obligations under this Agreement; provided, however, that the definition set
forth in clause (i) above shall not include any event, circumstance, change,
occurrence, fact or effect resulting from or relating to changes in the United
States or Canadian financial markets in general.
"Company Meeting" means the special meeting of the Company
Securityholders, including any adjournment thereof, to be called and held in
accordance with the Interim Order, to consider the Arrangement and for any other
proper purpose as may be set out in the notice for such meeting.
"Company Permit" means all franchises, grants, authorizations,
licenses, certifications, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Authority necessary for
each of the Company or the Company Subsidiaries to own, lease and operate its
properties or to carry on its business as it is now being conducted and proposed
to be conducted after the Effective Time.
"Company Securityholders" means the Company Shareholders
and the Company Warrantholders.
"Company Shareholders" means the holders of Company Common
Stock.
3
"Company Stock Options" means, at any time or times, the options to
purchase shares of Company Common Stock, granted under the Company Stock Option
Plan and the options to purchase an aggregate of 433,950 shares of Company
Common Stock granted to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, in each case, whether
or not exercisable and whether or not vested, being outstanding and unexercised,
at such time or times.
"Company Stock Option Plan" means the Comnetix Inc. 2004 Stock
Option Plan, as amended to date and as it may be further amended from time to
time as expressly permitted by this Agreement.
"Company Warrantholders" means the holders of Company 2007 Warrants.
"Company Warrants" means the Company 2004 Series A Warrants, Company
2004 Series B Warrants and Company 2007 Warrants.
"Company 2004 Series A Warrants" means the warrants issued pursuant
to a warrant indenture between the Company and Computershare Trust Company of
Canada, dated January 24, 2004, and currently exercisable for an aggregate of
583,636 shares of Company Common Stock at any time prior to November 22, 2006,
at an exercise price of $2.00 per share of Company Common Stock.
"Company 2004 Series B Warrants" means the warrants of the Company
issued on January 29, 2004 and currently exercisable for an aggregate of 800,000
shares of Company Common Stock at any time prior to November 22, 2006, at an
exercise price of $2.00 per share of Company Common Stock.
"Company 2007 Warrants" means the warrants of the Company issued on
January 29, 2004 and currently exercisable for an aggregate of 342,251 shares of
Company Common Stock at any time prior to April 22, 2007, at an exercise price
of $2.00 per share of Company Common Stock.
"Contamination" means the presence of, or Release on, under, from or
to the environment of any Hazardous Substance, except the routine storage and
use of Hazardous Substances from time to time in the ordinary course of
business, in compliance with Environmental Laws and with good commercial
practice.
"Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise.
"Court" means the Superior Court of Justice (Ontario).
"Director" means the Director appointed pursuant to section 260 of
the CBCA.
"Dissent Rights" means the rights of holders of Company Common Stock
to dissent in respect of the Arrangement as described in Section 3.1 of the Plan
of Arrangement.
4
"Dissenting Shareholder" means a holder of Company Common Stock who
duly exercises Dissent Rights in respect of the shares of Company Common Stock
held by such holder.
"Drop Dead Date" means February 28, 2007, or such later date as may
be mutually agreed by the parties to this Agreement.
"Effective Date" means the date shown on the certificate of
arrangement to be issued by the Director under the CBCA giving effect to the
Arrangement.
"Effective Time" means 12.01 a.m. (Toronto time) on the Effective
Date.
"Environmental Laws" means any Law, permit, authorization and
opinion relating to: (A) the environment, human health or safety associated with
the environment, or natural resources; (B) the handling, use, presence,
disposal, release or threatened release of any Hazardous Substance; or (C)
noise, odour, wetlands, pollution, Contamination or any injury or threat of
injury to persons or property.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"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.
"Governmental Authority" means: (i) any domestic or foreign,
national, federal, provincial, state, county, local, municipal or regional
government or body; (ii) any multinational, multilateral or international body;
(iii) any subdivision, agency, commission, board, instrumentality or authority
of any of the foregoing governments or bodies; (iv) any quasi-governmental or
private body exercising any regulatory, expropriation or taxing authority under
or for the account of any of the foregoing governments or bodies; (v) any
domestic, foreign, international, multilateral or multinational judicial,
quasi-judicial, arbitration or administrative court, tribunal, commission, board
or panel; or (vi) any person employed by, acting for, or on behalf of, any of
the foregoing bodies.
"Hazardous Substances" means: (A) any hazardous substance, pollutant
or contaminant, as such terms are defined under any Environmental Law; (B) any
petroleum or petroleum product or by-product, asbestos or asbestos-containing
material, urea-formaldehyde, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive materials or radon; and (C) any other substance which is
the subject of regulatory action by any Governmental Authority pursuant to or
could give rise to Liability under any Environmental Law.
"Inactive Subsidiaries" means ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇ Inc., a company
incorporated under the laws of the Province of Quebec, all of the issued and
outstanding shares of which are owned by the Company; ComnetiX Computer Systems
Ltd., a company incorporated under the laws of the Province of Quebec, all of
the issued and outstanding shares of which are indirectly owned by the Company;
and ComnetiX Computer Systems Inc., a corporation incorporated under the laws of
the Province of Ontario, all of the issued and outstanding shares of which are
indirectly owned by the Company.
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"Indebtedness" means, as of a given time, (i) all indebtedness for
borrowed money or for the deferred purchase price of property or services in
respect of which the Company or any of its Subsidiaries is liable, contingently
or otherwise, as obligor or otherwise, and any commitment by which the Company
or any of its Subsidiaries assures a creditor against loss, including contingent
reimbursement obligations with respect to letters of credit; (ii) all
indebtedness guaranteed in any manner by the Company or any of its Subsidiaries,
including a guarantee in the form of an agreement to repurchase or reimburse;
(iii) all obligations under capitalized leases in respect of which the Company
or any of its Subsidiaries is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations the Company or any of
its Subsidiaries assures a creditor against loss; and (iv) all interest,
prepayment penalties, premiums, fees and expenses (if any) thereon.
"Insider" means (a) every director or senior officer of the Company
or a Company Subsidiary, (b) any person or company who beneficially owns,
directly or indirectly, Company Common Stock or who exercises control or
direction over Company Common Stock or a combination of both carrying more than
10 per cent of the voting rights attached to all shares of Company Common Stock
outstanding at the date hereof.
"Intellectual Property" means (i) Canadian, United States and
foreign patents, patent applications and statutory invention registrations, (ii)
trademarks, service marks, trade dress, logos, trade names, corporate names,
industrial designs and other source identifiers, and registrations and
applications for registration thereof, (iii) copyrights and registrations and
applications for registration thereof, and (iv) confidential and proprietary
information, including trade secrets and know-how.
"Interim Order" means the interim order of the Court, as the same
may be amended, in respect of the Arrangement, as contemplated by 2.02.
"In-the-Money Options" means each Company Stock Option outstanding
on the date hereof in respect of which the exercise price is less than the
Canadian dollar equivalent of US$0.82 (as adjusted in accordance with this
Agreement), and for greater certainty the parties agree that, notwithstanding
any other provisions in this Agreement, of the outstanding Company Stock
Options, only Company Stock Options to purchase an aggregate of 438,625 shares
of Company Common Stock shall be deemed to be In-the-Money Options.
"Laws" means all laws, statutes, codes, ordinances, decrees, consent
decrees, rules, regulations, by-laws, statutory rules, policies, judicial or
arbitral or administrative or ministerial or departmental or judgments, Privacy
Laws, orders, decisions, rulings, letters of finding or awards, agency
requirements, including general principles of common and civil law, and terms
and conditions of any grant of approval, permission, authority or license of any
Governmental Authority, statutory body or self-regulatory authority, and the
term "applicable" with respect to such Laws and in the context that refers to
one or more Persons, means that such Laws apply to such Person or Persons or its
or their business, undertaking, property or securities and emanate from a
Governmental Authority having jurisdiction over the Person or Persons or its or
their business, undertaking or securities.
6
"Liabilities" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, guaranty or endorsement of
or by any person of any type, whether accrued, absolute, contingent, matured,
unmatured or other.
"Liens" means all mortgages, pledges, liens, security interests,
conditional and installment sale agreements, encumbrances, charges or other
claims of third parties of any kind, including, without limitation, any option,
right of first refusal, or right of first offer.
"Material Adverse Change" means any change, circumstance,
occurrence, event, fact or effect (i) that has had or would reasonably be
expected to have a material adverse change or effect (taken alone or in the
aggregate with any other adverse change or effect) in or with respect to the
business, financial condition, or results of operations, conditions (whether
financial or otherwise) capital or future prospects of the specified Person and
its Subsidiaries taken individually or as a whole; or (ii) is or is reasonably
likely to prevent or materially impede such Person from performing its
obligations under this Agreement; provided, however, that the definition set
forth in clause (i) above shall not include any event, circumstance, change,
occurrence, fact or effect resulting from or relating to changes in the United
States or Canadian financial markets in general.
"Misrepresentation" shall have the meaning attributed to such term
in the OSA.
"Net Cash" means the difference between (i) the sum of the cash,
short term investments and accounts receivable, and (ii) the sum of bank
indebtedness, accounts payable and accrued liabilities, current portion of notes
payable, and current portion of capital lease obligations, in each case as
determined in accordance with GAAP, applied using the same accounting methods,
practices, principles, policies and procedures, with consistent classifications
that were used in the preparation of the Annual Financial Statements. While
deferred revenue is excluded from Calculated Net Cash (as defined in Section
6.14), there shall not be an increase of more than $200,000 (provided that any
such increase shall only be permitted if it is in the ordinary course and
consistent with past practice of the Company's and its Subsidiaries' business)
in the amount of the Company's deferred revenue from the date first above
written to and until the Effective Date, and if there is any such increase of
more than $200,000 in the Company's deferred revenue, the Calculated Net Cash
shall be reduced by an amount equal to the difference between the amount of such
increase in deferred revenue and $200,000.
"Noon Spot Rate" means, on any day, the Noon Spot Rate on such day
of the Bank of Canada for one US dollar expressed in Canadian dollars.
"NYSE" means the New York Stock Exchange.
"Order" means any legally enforceable judgment, order, decision,
writ, injunction, stipulation, ruling or decree of, or any settlement under
jurisdiction of, any Governmental Authority.
"OSA" means the Securities Act (Ontario), as in effect as of the
date hereof and as may be amended from time to time prior to the Effective Date.
7
"Parent Material Adverse Effect" means any event, circumstance,
change, occurrence, fact or effect that, individually or in the aggregate with
all other events, circumstances, changes, occurrences, facts and/or effects (i)
is or is reasonably likely to be materially adverse to the business, financial
condition or results of operations of Parent and its Subsidiaries, taken as a
whole or (ii) is or is reasonably likely to, prevent or materially delay Parent
from performing its obligations under this Agreement; provided, however, that
the definition set forth in clause (i) above shall not include any event,
circumstance, change, occurrence, fact or effect resulting from or relating to
(v) any change in the market price or trading volume of the common stock of
Parent, (w) changes in general economic conditions in any region in which Parent
and its Subsidiaries operate, (x) changes in the United States or Canadian
financial markets in general, (y) changes in the industry in which Parent and
its subsidiaries operate, or (z) the public announcement of this Agreement or
the transactions contemplated hereby. All references to Parent Material Adverse
Effect contained in this Agreement shall be deemed to refer solely to the
business, financial condition, assets, liabilities or results of operations of
Parent and its Subsidiaries, taken as a whole, without including its ownership
of the Company and its Subsidiaries after giving effect to the Transaction.
"Permitted Liens" means (A) statutory liens for current Taxes and
assessments or other governmental charges with respect to the leased real
property not yet due and payable or the amount or validity of which is being
contested in good faith and for which a reserve has been established by the
Company on its books, and (B) mechanics', materialmen's, workmen's, repairmen's,
warehousemen's, carriers' liens and other similar statutory liens arising in the
ordinary course of business of the Company or such Company Subsidiary consistent
with past practice, (C) zoning, entitlement, building and other land use
regulations imposed by governmental agencies having jurisdiction over real
property which are not violated by the current use and operation of the real
property, and (D) covenants, conditions, restrictions, easements and other
similar matters of record affecting title to the real property which do not
materially impair the occupancy or use of the real property for the purposes for
which it is currently used.
"Person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person, trust, association or
entity or government, political subdivision, agency or instrumentality of a
government.
"Personal Information" means information about an identifiable
individual.
"Plan of Arrangement" means the plan of arrangement substantially in
the form and content of Annex II annexed hereto and any amendments or variations
thereto made in accordance with Section 9.02 hereof or Article 5 of the Plan of
Arrangement or made at the direction of the Court in the Final Order.
"Privacy Laws" means all laws, statutes, codes, ordinances, decrees,
consent decrees, rules, regulations, by-laws, statutory rules, letters of
finding, policies, judicial or arbitral or administrative or ministerial or
departmental or judgments, orders, decisions, rulings or awards, agency
requirements relating to the Processing of Personal Information, including
general principles of common and civil law, policies and guidelines of
applicable Governmental Authorities, and terms and conditions of any grant of
8
approval, permission, authority or license of any Governmental Authority,
statutory body or self-regulatory authority.
"Processing" means the collection, use, modification, retrieval,
disclosure, storage, anonymization, deletion, and/or management of Personal
Information.
"Release" means any presence, emission, spill, seepage, leak,
escape, leaching, discharge, injection, pumping, pouring, emptying, dumping,
disposal, migration or release of a Hazardous Substance from any source into or
upon the environment, including the air, soil, improvements, surface water,
groundwater, the sewer, septic system, storm drain, publicly owned treatment
works, or waste treatment, storage or disposal systems.
"Remediation" means any investigation, clean-up, removal action,
remedial action, restoration, repair, response action, corrective action,
monitoring, sampling, and analysis, installation, reclamation, closure or
post-closure in connection with the suspected, threatened or actual Release of
Hazardous Substances.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Legislation" means the Securities Act, the Exchange Act
and the Canadian Securities Laws, all as now enacted or as the same may from
time to time be amended, re-enacted or replaced, and the applicable rules,
regulations, rulings, orders and forms made or promulgated under such statutes
and the published policies of the regulatory authorities administering such
statutes, as well as the rules, regulations, by-laws and policies of the TSX and
the NYSE.
"Software" means any and all of Company's and Company Subsidiaries'
software and related technology and information, including without limitation
any and all prior versions thereof, and work in progress, customer/client
software adapters, computer programs (in all formats) algorithms, source code,
object code, modules, components, strings and interfaces directly or indirectly
relating thereto, in each case as identified in Section 3.15(b) of the Company
Disclosure Schedule, and any and all documentation directly or indirectly
relating thereto, and all Intellectual Property rights arising there under or
included therein.
"Subsidiary" or "Subsidiaries" of the Parent means any corporation,
partnership, joint venture or other legal entity of which Parent (a) owns,
directly or indirectly, 50% or more of the outstanding common stock, limited
partnership or member interests or other equity interests or (b) is or Controls
a general partner or other managing body of such legal entity and "Subsidiary"
or "Subsidiaries" of the Company means Comnetix Inc. a Delaware corporation and
International Finger Printing Services Canada (IFSC) Ltd., a corporation
incorporated under the CBCA.
"Tax Act" means the Income Tax Act (Canada), as amended from time to
time.
"Taxes" means any and all taxes, fees, levies, duties, tariffs,
imposts and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
9
imposed by any Governmental Authority or taxing authority, including, without
limitation: taxes or other charges on or with respect to income, franchise,
windfall or other profits, net worth, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, Canada Pension Plan or
Quebec Pension Plan, workers' compensation or unemployment insurance or
compensation, taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license, registration and
documentation fees; and customers' duties, tariffs and similar charges; and
including any Liability in respect of any item described above as a transferee
or successor, pursuant to U.S. Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign Law), or as an indemnitor,
guarantor, surety or in a similar capacity under any contract, arrangement,
agreement, understanding or commitment (whether oral or written).
"Tax Returns" means all returns, reports, declarations,
designations, schedules, notices, forms, elections, information statements,
remittances and similar statements (including estimated Tax returns, claims for
refunds, amended returns and reports and information returns and reports and any
attachments thereto) with respect to Taxes filed or required to be filed with
any taxing authority, domestic or foreign.
"Transaction" means the transactions contemplated by this Agreement,
including the Arrangement.
"TSX" means the Toronto Stock Exchange.
(b) The following terms have the meanings set forth in the Sections
set forth below:
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
Action................................................... Section 3.10
Agreement................................................ Preamble
Amended Offer............................................ Section 6.02(f)
Approvals ............................................... Section 3.08(c)
Bonus.................................................... Section 7.02(i)
Books and Records........................................ Section 3.21
Calculated Net Cash...................................... Section 6.14
Closing Net Cash Certificate............................. Section 6.14
Closing Net Cash......................................... Section 6.14
Company.................................................. Preamble
Company Board............................................ Recitals
Company Disclosure Schedule.............................. ARTICLE III
Company Financial Advisor ............................... Section 2.06
Company Insiders......................................... Recitals
Company Licensed Intellectual Property................... Section 3.15(a)
Company Owned Intellectual Property...................... Section 3.15(a)
Company Reports.......................................... Section 3.06(a)
Company Subsidiary....................................... Section 3.01(a)
Competing Transaction.................................... Section 6.02(d)
Competition Act.......................................... Section 3.04(b)
10
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
Confidentiality Agreement................................ Section 6.01(b)
Customers................................................ Section 3.13
Environmental Permits.................................... Section 3.17
Expense Reimbursement.................................... Section 8.05(b)
GAAP..................................................... Section 3.06(b)
Independent Committee.................................... Section 6.17
Independent Committee's Determination.................... Section 6.17
ITCs..................................................... Section 3.16(q)
Leases................................................... Section 3.14(d)
Material Contracts....................................... Section 3.11(a)
Net Cash Deficiency...................................... Section 6.14
Option Termination Agreements............................ Section 6.09(d)
Parent................................................... Preamble
Plans.................................................... Section 3.12(n)
Proposed Agreement ...................................... Section 6.02(f)
Purchaser................................................ Preamble
Recommendation........................................... Section 2.06
Related Party Agreement.................................. Section 3.11(a)
Representatives.......................................... Section 6.02(a)
Restrictive Agreement.................................... Section 3.11(a)
Support Agreements....................................... Recitals
Superior Proposal ....................................... Section 6.02(e)
Support Warrantholders................................... Recitals
Targeted Net Cash........................................ Section 6.14
tax asset................................................ Section 3.16(r)
Tax Pools................................................ Section 3.16(l)
Termination Date ........................................ Section 8.02
Termination Fee.......................................... Section 8.05(b)
Transfer Taxes........................................... Section 6.08
11
ARTICLE II
ARRANGEMENT
SECTION 2.01 IMPLEMENTATION STEPS BY THE COMPANY.
Subject to the terms of this Agreement, the Company covenants in favor of
Parent and the Purchaser that the Company shall:
(a) As soon as reasonably practical after execution and delivery of
this Agreement, apply in a manner acceptable to the Parent and the Purchaser
under Section 192 of the CBCA for an order approving the Interim Order, and
thereafter proceed with and diligently seek to complete the Arrangement;
(b) Convene and hold the Company Meeting for the purpose of
considering the Arrangement Resolution (and for any other proper purpose as may
be set out in the notice for such meeting);
(c) Include in the Circular the unanimous recommendation of the
directors of the Company that the Company Securityholders vote in favor of the
Arrangement Resolution;
(d) Subject to obtaining the approvals as are required by the
Interim Order, proceed with and diligently pursue the application to the Court
for the Final Order; and
(e) Subject to obtaining the Final Order and the satisfaction or
waiver of the other conditions herein contained 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 the CBCA to give effect to the Arrangement.
SECTION 2.02 INTERIM ORDER.
The notice of motion for the application referred to in Section 2.01(a)
shall request that the Interim Order provide:
(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 approval for the Arrangement Resolution shall
be 66-2/3% of the votes cast on the Arrangement Resolution by the Company
Shareholders, voting as a separate class, present in person or by proxy at the
Company Meeting, and 66 2/3% of the votes cast on the Arrangement Resolution by
the Company Warrantholders, voting as a separate class, present in person or by
proxy at the Company Meeting (such that each Company Shareholder is entitled to
one vote for each share of Company Common Stock held and each Company
Warrantholder is entitled to one vote for each share of Company Common Stock
such holder would have received on a valid exercise of such Company Warrant);
12
(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;
(d) For the grant of the Dissent Rights; and
(e) For the notice requirements respecting the presentation of the
application to the Court for a Final Order.
SECTION 2.03 ARTICLES OF ARRANGEMENT.
The Articles of Arrangement shall, with such other matters as are
necessary to effect the Arrangement, and all as subject to the provisions of the
Plan of Arrangement, implement the Plan of Arrangement.
SECTION 2.04 CIRCULAR.
(a) As promptly as practicable after the execution and delivery of
this Agreement, the Company and its legal counsel shall prepare the Circular,
which shall include information provided by the Purchaser regarding the
disclosure required to be provided in respect of Purchaser (which disclosure
shall consist of the date of incorporation of the Purchaser, that the Purchaser
is a wholly owned subsidiary of Parent, a statement that the Purchaser was
incorporated for the purpose of entering into the Arrangement and has not
otherwise carried on any material business or activity, that Parent will provide
to Purchaser the necessary funds to acquire the Aggregate Outstanding Company
Stock in accordance with the terms of this Agreement and the Plan of Arrangement
and such other information as may be required by Securities Legislation as
agreed to by counsel for the parties acting reasonably), together with any other
documents required by Securities Legislation and other applicable Laws or the
Interim Order in connection with the Arrangement, and as promptly as practicable
after the date of execution of this Agreement, the Company shall cause the
Circular and any other documentation required in connection with the Company
Meeting to be sent to each Company Securityholder and filed as required by the
Interim Order, applicable Securities Legislation and the CBCA. The Circular
together with any other documents required by Securities Legislation and the
CBCA shall be in form and substance satisfactory to Parent.
(b) The Company and the Purchaser each shall, upon request by the
other, furnish the other with all information concerning itself, its
Subsidiaries, directors, executive officers and stockholders and such other
matters as may be reasonably necessary or advisable in connection with the
Circular or any other statement, filing, notice or application made by or on
behalf of Parent, Purchaser, the Company or any of their respective Subsidiaries
to any third party and/or any Governmental Authority in connection with the
Arrangement and the transactions contemplated by this Agreement.
SECTION 2.05 PREPARATION OF FILINGS.
(a) Each of Parent, Purchaser and the Company shall cooperate and
use their reasonable commercial efforts in:
13
(i) the preparation and filing of any application and any
other documents reasonably deemed by Parent or the Company to be necessary to
discharge their respective obligations under Securities Legislation in
connection with the Arrangement and the transactions contemplated hereby;
(ii) the taking of all such action as may be required under
any applicable Securities Legislation in connection with the Arrangement; and
(iii) the taking of all such action as may be required under
the CBCA in connection with the transactions contemplated by this Agreement and
the Plan of Arrangement.
(b) Each of Parent and the Company shall furnish to the other all
such information concerning it and its shareholders as may be required (and, in
the case of its shareholders, available to it) for the effectuation of the
actions described in Section 2.04 and the foregoing provisions of this Section
2.05 and the obtaining of all regulatory approvals required by Section 7.01(a),
and each covenants that no information furnished by it (to its knowledge in the
case of information concerning its shareholders) in connection with such actions
will contain any untrue statement of a material fact or omit to state a material
fact required to be stated in any such document or necessary in order to make
any information so furnished for use in any such document not misleading in the
light of the circumstances in which it is furnished.
(c) The Company shall promptly notify Parent if at any time before
or after the Effective Time it becomes aware that the Circular contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which they are made, or that
otherwise requires an amendment or supplement to the Circular. In any such
event, the Company shall prepare a supplement or amendment to the Circular or
such other document, as required and as the case may be, and, if required, shall
cause the same to be distributed to the Company Securityholders and/or filed
with the relevant securities regulatory authorities.
SECTION 2.06 COMPANY ACTION.
The Company hereby approves of and consents to the Arrangement and
represents that the Company Board, at a meeting duly called and held, has (i)
unanimously determined that this Agreement and the transactions contemplated
hereby, including the Arrangement are fair to and in the best interests of the
Company and the Company Securityholders, (ii) approved and declared advisable
this Agreement and the transactions contemplated hereby, including the
Arrangement, and (iii) resolved to recommend acceptance of the Arrangement and,
as applicable, adoption of this Agreement by the Company Securityholders (the
"Recommendation") and will use its best efforts to obtain the necessary vote in
favor of the Arrangement by the Company Securityholders. The Company further
represents that the Company Board has received the opinion of Wellington West
Capital Markets Inc. (the "Company Financial Advisor") to the effect that, as of
the date of this Agreement, the Cash Consideration to be received by the holders
of the Aggregate Outstanding Company Stock in the Arrangement is fair, from a
financial point of view, to such holders, and a copy of the written opinion of
the Company Financial Advisor, promptly upon receipt thereof, will be delivered
to Parent. The Company hereby consents to the inclusion in the Circular of the
14
Recommendation and the Company shall not withdraw, qualify, modify or amend the
Recommendation in any manner adverse to Parent or Purchaser except as and only
to the extent permitted by Section 6.02. The Company has been advised by its
directors and officers that they intend to vote all shares of Company Common
Stock beneficially owned by them in favor of the Arrangement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Parent and Purchaser to enter into this
Agreement, the Company, except as disclosed in the Company's disclosure schedule
delivered concurrently with the delivery of this Agreement (the "Company
Disclosure Schedule"), hereby represents and warrants to Parent and Purchaser as
follows:
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of the Company and each Subsidiary of the Company (each, a
"Company Subsidiary") is a corporation or other Person duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, formation or organization and has the requisite corporate,
limited liability or partnership power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. The Company and each Company
Subsidiary is duly qualified or licensed as a foreign corporation or other
Person to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary.
(b) A true and complete list of all the Company Subsidiaries,
together with the jurisdiction of organization of each Company Subsidiary and
the percentage of the outstanding capital stock or other equity interests of
each Subsidiary owned by the Company and each other Company Subsidiary, is set
forth in Section 3.01(b) of the Company Disclosure Schedule. Except for the
Inactive Subsidiaries, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
(c) A true and complete list of all Inactive Subsidiaries, together
with the jurisdiction of organization of each Inactive Subsidiary and the
percentage of the outstanding capital stock or other equity interests of each
Inactive Subsidiary owned by the Company, each Company Subsidiary and each other
Inactive Subsidiary is set forth in Section 3.01(c) of the Company Disclosure
Schedule. None of the Inactive Subsidiaries (i) carries on any business, or (ii)
has any Liabilities, actual or contingent, that are material to the Company.
SECTION 3.02 CERTIFICATE OF INCORPORATION AND BY-LAWS.
The Company has heretofore made available to Parent a complete and correct
copy of the certificate of incorporation or other constating document and the
by-laws or equivalent organizational documents, each as amended to date, of the
15
Company and each Company Subsidiary. Such certificates of incorporation,
constating documents, by-laws or equivalent organizational documents, as amended
to date, are in full force and effect. Neither the Company nor any Company
Subsidiary is in violation of any of the provisions of its certificate of
incorporation, constating document, by-laws or equivalent organizational
documents.
SECTION 3.03 AUTHORITY RELATIVE TO THIS AGREEMENT.
The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transaction. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the Transaction have been duly
and validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Transaction (other than obtaining the necessary approvals
or consents, including Company Securityholder approval, and the filing of
appropriate documents as required by the CBCA). This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by each of the other parties hereto and
subject to the terms and conditions of this Agreement and the requisite approval
of the Arrangement Resolution by the Company Securityholders, constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar Laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
SECTION 3.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, (i) result
in a breach of or conflict with or violate the certificate of incorporation or
other constating document or by-laws or any equivalent organizational documents,
each as amended to date, of the Company or any Company Subsidiary, (ii) result
in a breach of, constitute a default under, violate or conflict with any
material term or provision of any order of any court, Governmental Authority or
any Law applicable to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is bound or affected,
(iii) result in any breach of or constitute a default (or an event which, with
notice or lapse of time or both, would become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of the Company or any Company Subsidiary pursuant to, or result in any payment
under, any Material Contract (as defined in Section 3.11), Company Permit or
franchise or, except as set forth in Section 3.04(a) of the Company Disclosure
Schedule, require the Company or any Company Subsidiary, under the terms of any
agreement, contract, arrangement or understanding to which it is a party or by
which it or any property or asset of the Company or Company Subsidiary is bound,
to obtain the consent or approval of, or provide notice to, any other party to
such agreement, contract, arrangement or understanding.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, (i) any Governmental Authority, except (A) for applicable requirements, if
any, of the Canadian Securities Laws, the Competition Act (Canada) (the
16
"Competition Act"), the Investment Canada Act and filing of appropriate
documents as required by the CBCA, and (B) as contemplated by Section 2.01,
Section 2.02 and the Plan of Arrangement, or (ii) any individual with respect to
the Processing of such individual's Personal Information.
SECTION 3.05 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of an
unlimited number of shares of Company Common Stock and unlimited number of
preference shares issuable in series. As of the date of this Agreement,
14,124,792 shares of Company Common Stock were issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable. The
Company Stock Option Plan is the only stock option, stock purchase and stock
incentive plan of the Company, except that, in addition to the Company Stock
Options granted under the Company Stock Option Plan, the Company has granted
options to purchase an aggregate of 433,950 shares of Company Common Stock to
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇. Except as set forth above or in Section
3.05(a) of the Company Disclosure Schedule, there are no options, warrants,
debentures or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or any
Company Subsidiary or obligating the Company or any Company Subsidiary to issue
or sell any shares of capital stock of, or other equity interests in, the
Company or any Company Subsidiary. Section 3.05(a) of the Company Disclosure
Schedule sets forth the following information with respect to each Company Stock
Option outstanding as of the date of this Agreement: (i) the name and address of
the optionee; (ii) the number of shares of Company Common Stock subject to such
Company Stock Option; (iii) the exercise price of such Company Stock Option;
(iv) the date on which such Company Stock Option was granted; (v) the applicable
vesting schedule; and (vi) the date on which such Company Stock Option expires.
Section 3.05(a) of the Company Disclosure Schedule also sets forth the following
information with respect to the Company Warrants and Company Debentures: (i) the
name and address of each holder thereof; (ii) the number of shares of Company
Common Stock issuable to each such holder upon exercise thereof; (iii) the
exercise price thereof; (iv) the date of issue thereof; and (v) the date of
expiry thereof. Section 3.05(a) of the Company Disclosure Schedule sets forth
(i) the name of each Company Insider, (ii) the number of shares of Company
Common Stock, number of Company Stock Options and number of Company Warrants
beneficially owned by each Company Insider, and (iii) the aggregate percentage
of the Aggregate Outstanding Company Stock beneficially owned by the Company
Insiders as a group. No shares of Company Common Stock will be issued in respect
of the Company Stock Options, or subject to Section 6.10, the Company Warrants,
prior to the Effective Time. The Company has no outstanding stock appreciation
rights, phantom stock performance based rights or similar rights or obligations
(contingent or otherwise). There are no outstanding contractual obligations of
the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire
any shares of Company Common Stock or any capital stock of any Company
Subsidiary or to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in, any Company Subsidiary or any other
Person. Neither the Company nor any Company subsidiary has entered into any
agreement, contract, arrangement or commitment of any character (including any
employment, stock option or consulting agreement) that entitles a holder of
Company Stock Options to receive a guaranteed minimum amount for their Company
Stock Options upon the exercise of their Company Stock Options, the termination
17
of his her employment or agreement pursuant to which he or she provides
services, a change of control of the Company or a Company Subsidiary or
otherwise.
(b) Each outstanding share of capital stock of or other ownership
interest in each Company Subsidiary is duly authorized, validly issued, fully
paid and nonassessable, and each such share is owned by the Company or another
Company Subsidiary free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on the
Company's or any Company Subsidiary's voting rights, charges and other
encumbrances, except for limitations on transfer imposed by federal or state or
Canadian provincial securities Laws.
SECTION 3.06 SECURITIES LAW MATTERS FINANCIAL STATEMENTS.
(a) The Company is a "reporting issuer" or has equivalent status in
each of the provinces of Canada. The Company Common Stock is listed on the TSX.
The Company has not been notified of any default or alleged default by the
Company of any material requirement of the TSX or applicable Canadian Securities
Laws. No Canadian Securities Regulator has issued any order preventing or
suspending trading of any securities of the Company and the Company is not in
material default of any requirement of applicable Canadian Securities Laws.
Except as set forth in Section 3.06(a) of the Company Disclosure Schedule, the
Company has filed all forms, reports, statements, schedules and other documents
required to be filed by it with the Canadian Securities Regulators since
September 1, 2004 (such forms, reports, statements, schedules and other
documents, including any such forms, reports, statements, schedules and other
documents filed subsequent to the date hereof, being, collectively, the "Company
Reports"). The Company Reports (i) at the time they were filed or, if amended,
as of the date of such amendment, complied in all material respects, and each
report subsequently filed by the Company with the Canadian Securities Regulators
will on the date filed comply in all material respects, with all applicable
requirements of the Canadian Securities Laws as in effect on the date so filed,
and (ii) did not or will not, at the time they were or will be filed, or, if
amended, as of the date of such amendment, contain any Misrepresentation. No
material change has occurred in relation to the Company which is not disclosed
in the Company Reports, the Company has not filed any confidential material
change reports which continue to be confidential and all such confidential
material change reports have been provided to the Parent. Each of the Company
and the Company Subsidiaries has not filed with the SEC any registration
statement under the Securities Act and is not currently registered, and has not
prior to the date hereof been registered, under the Exchange Act. The Company is
not currently required, and has not prior to the date hereof been required, to
file any form, report or other document with the SEC or any state securities
regulatory authority in the United States. No Company Subsidiary is required to
file any form, report or other document with the Canadian Securities Regulators,
the SEC or any state securities regulatory authority in the United States. The
Company has not received any non-routine inquires or interrogatories, whether in
writing or otherwise, from any Canadian Securities Regulator, the TSX or any
other Governmental Authority, or, to the knowledge of the Company, been the
subject of any investigation, audit, review or hearing by or in front of such
persons, in each case with respect to any of the Company Reports or any of the
information contained therein.
18
(b) The Company has provided to Parent a copy of the Annual
Financial Statements. Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the Company Reports was or will be
prepared in accordance with Canadian generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated and each
fairly presents or will fairly present, in all material respects, the
consolidated financial position, results of operations and cash flows of the
Company and its consolidated Company Subsidiaries as at the respective dates
thereof and for the respective periods indicated therein (subject, in the case
of unaudited statements, to normal and recurring year-end adjustments) and
reflects appropriate and adequate reserves for contingent Liabilities in
accordance with GAAP.
(c) Except as and to the extent set forth in the Company Reports,
neither the Company nor any Company Subsidiary has any Liability that is
required by GAAP to be set forth on a consolidated balance sheet of the Company
or in the notes thereto, except for Liabilities incurred in the ordinary course
of business consistent with past practice since August 31, 2006.
(d) The Company and the Company Subsidiaries have devised and
maintain a system of internal accounting controls and information systems
sufficient to provide reasonable assurances that (x) transactions are executed
in accordance with management's general or specific authorization, and (y)
transactions are recorded as necessary (A) to permit preparation of financial
statements in conformity with GAAP, and (B) to maintain accountability for
assets. There has been no change in the Company's or in the Company
Subsidiaries' internal control over financial reporting that occurred since
August 31, 2006 that has materially affected, or is reasonably likely to
materially affect, the Company's or any of the Company Subsidiaries' internal
control over financial reporting. Section 3.06(d) of the Company Disclosure
Schedule contains true and complete copies of all "management letters" and other
similar letters relating to the Company's or any of its Subsidiaries' internal
controls and accounting practices that have been received by the Company from
its auditors since August 31, 2003.
SECTION 3.07 INFORMATION TO BE SUPPLIED.
(a) The Circular and the other documents required to be filed by the
Company with the Canadian Securities Regulators in connection with the
Arrangement and the other transactions contemplated hereby will comply as to
form in all material respects with the requirements of the Canadian Securities
Laws and the CBCA, as the case may be. Each of the Circular and the other
documents required to be filed by the Company with the Canadian Securities
Regulators in connection with the Arrangement and the other transactions
contemplated hereby and any of the information supplied or to be supplied by the
Company or its Subsidiaries or their representatives for inclusion or
incorporation by reference in the Circular will not, on the date of its filing
or mailing, on the date of the Company Meeting or at the Effective Date, 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.
(b) Notwithstanding the foregoing provisions of this Section 3.07,
no representation or warranty is made by the Company with respect to statements
19
made in the Circular based on information supplied by or on behalf of Parent or
Purchaser for inclusion therein.
SECTION 3.08 PERMITS; COMPLIANCE.
(a) The operations of the Company and each of its Subsidiaries have
been conducted in compliance with all Laws in each jurisdiction in which it or
they carry on business or hold a Company Permit. The Company holds all Company
Permits necessary for the conduct of its business as presently conducted and as
proposed to be conducted after the Effective Time, including without limitation
all Company Permits required by the Federal Bureau of Investigation, Royal
Canadian Mounted Police, state and provincial Governmental Authorities and all
other Governmental Authorities relating to the hardware and software used at any
point in the acquisition, storage, transmission and management of electronic
fingerprints.
(b) Neither the Company nor any of its Subsidiaries has received
written notice of any possible violation (or of any investigation, inspection,
audit, or other proceeding by any Governmental Authority involving allegations
of any violation) of any Law, or is in default with respect to any Law, and to
the knowledge of the Company, no investigation, inspection, audit or other
proceeding by any Governmental Authority involving allegations of any violation
of any Law is threatened or contemplated.
(c) Each of the Company and its Subsidiaries has, and to the
knowledge of the Company all professional employees or agents of each of the
Company and its Subsidiaries have, all licenses, franchises, permits,
authorizations, certifications, easements, variances, exceptions, consents, and
orders, including approvals from all Governmental Authorities ("Approvals")
required for the conduct of the business of each of the Company and its
Subsidiaries, the job duties of each professional employee or agent and the
occupancy and operation, for its present uses, of the real and personal property
which each of the Company and its Subsidiaries owns or leases and neither the
Company nor any of its Subsidiaries or, to the knowledge of the Company or its
Subsidiaries, any of their respective professional employees or agents is in
violation of any such Approval or any terms or conditions thereof.
(d) All Approvals for the Company and each of its Subsidiaries are
in full force and effect, and, to the knowledge of the Company, all such
Approvals for its professional employees and agents are in full force and
effect, have been issued to and fully paid for by the holder thereof and, to the
knowledge of the Company, no suspension or cancellation thereof has been
threatened.
(e) No Approvals for the Company and each of its Subsidiaries will
in any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement or any of the other agreements contemplated
hereunder or executed herewith.
(f) Neither the Company nor any of its Subsidiaries, nor the
officers or directors, nor, to the knowledge of the Company, employees or agents
of the Company or any of its Subsidiaries, have engaged in any activities which
are prohibited, or are cause for criminal or civil penalties under applicable
Laws.
20
SECTION 3.09 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since August 31, 2006, except (a) as expressly contemplated by this
Agreement or in Section 3.09 of the Company Disclosure Schedule or (b) as
described in the Company Reports filed prior to the date of this Agreement: (i)
the Company and the Company Subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with past practice, (ii) there
has not been any Company Material Adverse Effect, and (iii) none of the Company
or any Company Subsidiary has taken any action that, if taken after the date of
this Agreement, would constitute a breach of any of the covenants set forth in
Section 5.01.
SECTION 3.10 ABSENCE OF LITIGATION.
Except as set forth in Section 3.10 of the Company Disclosure
Schedule, there is no litigation, suit, claim, action, or other legal,
administrative or arbitration proceeding or, to the knowledge of the Company,
investigation (an "Action") pending or, to the knowledge of the Company,
threatened against the Company or any Company Subsidiary at law or in equity or
before or by any court or other Governmental Authority. To the knowledge of the
Company, there are no grounds upon which an Action may be commenced against the
Company or a Company Subsidiary. Neither the Company nor any Company Subsidiary
nor any property or asset of the Company or any Company Subsidiary is subject to
any continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of the Company, continuing
investigation by, any Governmental Authority, or any order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority. With
respect to the litigation (the "Litigation") between the Company Subsidiary and
Synergistic Software, Inc., ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇ (collectively, the
"Defendants"), since June 6, 2006 when the parties to the Litigation entered
into a memorandum of agreement regarding the motion for preliminary injunction,
neither the Company nor any Company subsidiary has received any further
correspondence or communication from the Defendants, and to the best of its
knowledge, the Company does not expect that the Defendants intend to pursue any
further action in the Litigation.
SECTION 3.11 MATERIAL CONTRACTS.
(a) Subsections (i) through (xiv) of Section 3.11(a) of the Company
Disclosure Schedule contain a complete list of the following contracts and
agreements, whether written or oral, to which the Company or any Company
Subsidiary is a party (such contracts and agreements, together with the Plans,
the Leases and the Company permits, being "Material Contracts"): (i) each
contract, agreement or account involving aggregate annual payments to the
Company or any Company Subsidiary of more than $100,000, or aggregate annual
payments by the Company or any Company Subsidiary of more than $100,000, (ii)
all material contracts and agreements with any Governmental Authority, (iii) all
contracts and agreements that (A) limit or purport to limit the ability of the
Company or any Company Subsidiary or, to the Company's knowledge, any key
executives of the Company or any Company Subsidiary, to compete in any line of
business or with any Person or in any geographic area or during any period of
time or otherwise restricts the development, manufacture, marketing,
distribution or sale of any products or services by the Company or any Company
Subsidiary, (B) require the Company or any Company Subsidiary to use any
supplier or third party for all or substantially all of the Company's or the
21
Company Subsidiaries' requirements or needs and that provides for services of
more than $100,000, or aggregate annual payments by the Company or any Company
Subsidiary of more than $100,000, (C) limit or purport to limit in any material
respect the ability of the Company or any Company Subsidiary to solicit any
customers or clients of the other parties thereto, (D) contain
"non-solicitation" or "no-hire" provisions that restrict the Company or any
Company Subsidiary in any manner, or (E) require the Company or any Company
Subsidiary to market or co-market any services or products of a third party
(each of (A) through (E), a "Restrictive Agreement"); (iv) all contracts,
agreements and arrangements between the Company or any of its Subsidiaries, on
the one hand, and any Affiliate, stockholder or officers, directors or
principals of the Company or any Company Subsidiary on the other hand (each such
contract, a "Related Party Agreement"); (v) all joint venture contracts,
partnership arrangements or other agreements outside the ordinary course of
business involving a sharing of profits, losses, costs or Liabilities by the
Company or any Company Subsidiary with any third party; (vi) all licenses issued
by any other Governmental Authority including, without limitation, the identity
of the respective licensees thereunder; (vii) each material employment, services
or consulting contract with any employee, service provider or consultant of the
Company or any of the Company Subsidiaries; (viii) any standstill or similar
contract currently restricting the Company or the Company Subsidiaries to offer
to purchase or purchase the assets or equity securities of another Person; (ix)
each material contract providing that the Company, any Company Subsidiary or any
of their respective employees maintain the confidentiality of any information,
or providing for any Person to maintain the confidentiality of any information
material to the Company, any Company Subsidiary or their respective businesses;
(x) any contract providing for indemnification of any Person by the Company
and/or any Company Subsidiary which is material to the Company, other than any
agreement of indemnification entered into in connection with the sale or license
of software products in the ordinary course of business; (xi) any contract under
which the Company or any Company Subsidiary has directly or indirectly
guaranteed Indebtedness of any Person; (xii) any contract under which the
Company or any Company Subsidiary has borrowed any money from, or issued any
note, bond, debenture or other evidence of Indebtedness to, any Person; (xiii)
any contract granting a third party any license to any Software or Intellectual
Property involving aggregate annual payments to the Company or any Company
Subsidiary of more than $20,000, or pursuant to which the Company or any Company
Subsidiary has been granted by a third party any license to any software or
Intellectual Property, including without limitation software used directly or
indirectly or incorporated in any respect into the Software, or any other
license, option or other contract relating in whole or in part to Intellectual
Property or the intellectual property of any other Person; and (xiv) all other
material contracts and agreements, including any sole source contracts with
suppliers and licensors, whether or not made in the ordinary course of business,
which are material to the Company or any Company Subsidiary, the conduct of
their respective businesses. Neither the Company nor any Company Subsidiary is a
party to any contract, agreement, understanding, arrangement or commitment ,
whether written or oral, which requires the Company or any Company Subsidiary to
purchase or acquire a minimum amount of products or services from any Person.
(b) Each Material Contract is valid and binding on the Company or a
Company Subsidiary, as the case may be, and, to the knowledge of the Company,
the other parties thereto, and is in full force and effect against the Company
or a Company Subsidiary except to the extent it has expired in accordance with
its terms and represents the entire agreement between or among the parties
22
thereto with respect to the subject matter thereof, upon consummation of the
transactions contemplated by this Agreement, each Material Contract shall
continue in full force and effect without penalty or other adverse consequence.
None of the Company or any Company Subsidiary or, to the knowledge of the
Company, as of the date of this Agreement, any other party thereto, is in breach
of, or default under, any Material Contract.
(c) The Company has made available to Parent a true, complete and
correct copy of each written Material Contract, together with all material
amendments, waivers or other changes thereto, and has been given a written
description of all oral contracts included in the Material Contracts.
SECTION 3.12 EMPLOYEE MATTERS.
(a) Except as set forth in Section 3.12(a) of the Company Disclosure
Schedule, neither the Company nor any of the Company Subsidiaries is a party to
any written agreement pursuant to which either: (i) notice of termination,
indemnity in lieu of notice of termination, severance, termination payments,
change of control payments or other payments relating to the cessation of
employment or services to any director, officer, employee, consultant or service
provider may be required to be paid to terminate their employment or services;
or (ii) any employee, service provider or consultant who is bound by
confidentiality, non-competition or non-solicitation covenants with the Company
or any of the Company Subsidiaries is relieved thereof as a result of the
completion of the Transaction. Section 3.12(a) of the Company Disclosure
Schedule contains a list of all employment, consulting and service agreements of
the Company and any of the Company Subsidiaries with their employees,
independent contractors, consultants and distributors, as the case may be.
Section 3.12(a) of the Company Disclosure Schedule sets out the following
information for each director, officer, employee, consultant or service provider
who is entitled to receive any severance payment, termination payment, change of
control payment or other payment directly or indirectly as a result of the
Transaction: the name of the individual, his or her title and the amount of the
payment he or she is entitled to receive. The Company and the Company
Subsidiaries have made available to Parent true and complete copies of all such
agreements.
(b) Section 3.12(b) of the Company Disclosure Schedule contains for
all directors, officers, managers, employees, independent contractors,
consultants and distributors of the Company and the Company Subsidiaries, the
following correct and complete lists: (i) a list of all salaries, wage rates,
commissions and consulting fees, bonus arrangements, deferred compensation,
share or unit appreciation program, options, retention bonus, incentive and
benefits; (ii) a list of all positions; (iii) a list indicating how many Persons
work full-time and part-time; (iv) a list of their length of service; (v) a list
setting out their respective vacation entitlement in days, vacation days taken
and vacation days remaining; their entitlement to annual sick days, sick days
taken and sick days remaining; and (vi) a list of how many Persons are currently
on lay off or on a leave of absence, together with the reasons for any such
leave of absence and their expected date of return to work, if known.
(c) There is no collective agreement in force with respect to the
employees of the Company or the Company Subsidiaries, no collective agreement is
currently being negotiated by the Company or any of the Company Subsidiaries, no
union or employee bargaining agency or affiliated bargaining agent holds
23
bargaining rights with respect to any of the employees of the Company or of the
Company Subsidiaries by way of certification, interim certification, voluntary
recognition, or successors' rights, and there are no current, or to Company's
knowledge, threatened attempts to organize or establish any trade union or
association with respect to the Company and the Company Subsidiaries, nor has
there been any such attempts within the past five (5) years.
(d) The Company and the Company Subsidiaries are not engaged in any
unfair labour practices. There are no unfair labour practice complaints,
grievances or arbitration proceedings pending nor to the Company's knowledge,
threatened against the Company or the Company Subsidiaries and there is no
labour strike, slow down, work stoppage or lock-out in effect or to the
Company's knowledge, threatened against the Company and the Company
Subsidiaries, nor has there been any such event within the past five (5) years.
(e) All amounts due or owing or accrued but not yet owing for all
salaries, wages bonuses, commissions and consulting fees, vacation pay,
incentive plans, retention bonuses, options, pension, benefits or other employee
benefits have been paid or, if accrued, are reflected in the Books and Records.
(f) Except as set forth in Section 3.12(f) of the Company Disclosure
Schedule, no terminated employee, independent contractor, consultant or
distributor of the Company or the Company Subsidiaries is owed any payments in
respect of such termination. For the purpose of clarity, the Company is solely
responsible for, and will pay in full prior to the Effective Time, all amounts
disclosed in Section 3.12(f) of the Company Disclosure Schedule.
(g) There are no outstanding assessments, penalties, fines, liens,
charges, surcharges, or other amounts due or owing pursuant to any occupational
health and safety legislation and no audit of the Company or of any of the
Company Subsidiaries is currently being performed pursuant to any such
applicable legislation. There are no claims or, to the Company's knowledge,
anticipated claims which may adversely affect the Company or any of the Company
Subsidiaries' accident cost experience in respect of the business.
(h) The Company and the Company Subsidiaries are not subject to any
claims for wrongful dismissal, constructive dismissal, psychological harassment
or any other claim, complaint or litigation relating to employment,
discrimination or termination of employment of any of their employees or former
employees or relating to any failure to hire a candidate for employment.
(i) There is no Order, pursuant to any Law, requiring the taking of
any action or the refraining from taking any action in respect of any employee
or former employee, independent contractor, consultant or distributor of the
Company or any of the Company Subsidiaries.
(j) There is no outstanding Indebtedness owed by the Company or any
of the Company Subsidiaries to any of their employees or former employees,
independent contractors, consultants or distributors.
24
(k) To the Company's knowledge, no managerial employee and no group
of employees of the Company or of any of the Company Subsidiaries have any plans
to terminate his, her or their employment or their service relationship with the
Company or any of the Company Subsidiaries.
(l) The Company and each of the Company Subsidiaries are conducting
their business in compliance, in all respects, with all applicable Laws
governing privacy and the protection of personal information.
(m) Those Persons who have been classified as independent
contractors, consultants or distributors have been properly classified as such
and no audit is currently being performed by any governmental entity in respect
of the characterization of such individuals as independent contractors,
consultants or distributors of the Company or the Company Subsidiaries, and to
the knowledge of the Company, no such audit is threatened.
(n) Except as set forth in Section 3.12(n) of the Company Disclosure
Schedule: (i) there are no pension, retirement, profit sharing, bonus, savings,
deferred compensation, stock option, purchase or appreciation, health, life
insurance, disability, sick pay, severance pay, group insurance or other
employee benefit plans, programs or arrangements maintained or contributed to by
the Company or any of the Company Subsidiaries (collectively, the "Plans"); (ii)
there are no outstanding violations or defaults thereunder nor any actions,
claims or other proceedings pending or, to the knowledge of the Company,
threatened with respect to any Plan; (iii) no Plan is currently under a
governmental investigation or audit and, to the knowledge of the Company, no
such investigation or audit has been threatened; (iv) each Plan covers only
current or former employees of the Company and the Company Subsidiaries and
their dependants and beneficiaries; (v) no promise or commitment to increase
benefits under any Plan or to adopt any additional Plan has been made except as
required by Law; (vi) no event has occurred which could subject the Company or
any of the Company Subsidiaries to any tax, penalty or fiduciary Liability in
connection with any Plan which has not been accrued on the Annual Financial
Statements; (vii) there have been no withdrawals of surplus or contribution
holidays, except as permitted by Law and the terms of the Plans and (viii) no
other Plan provides post-employment and post-retirement benefits, other than as
required by Law.
(o) The Company and each Company Subsidiary has complied and is in
compliance in all material respects with, and has been and is in good standing
under all applicable Laws relating to employment and labour matters, including
any provision thereof relating to wages, hours of work, vacation pay, overtime
pay, conditions of employment, workers' compensation, health, safety, training,
human rights, equal opportunity, pay equity, or similar Laws and has properly
completed and filed all material reports required by such Laws.
(p) Each Plan intended to qualify for a particular status under any
applicable tax laws does so qualify.
SECTION 3.13 CUSTOMERS.
Section 3.13 of the Company Disclosure Schedule lists the 20 largest
customers of the Company and the Company Subsidiaries by revenue during the
25
12-month period ended September 30, 2006 (the "Customers") and the amount of net
revenue (that is, net of setoffs, chargebacks, credits, recoupments, refunds and
other contractual allowances) received by the Company and the Company
Subsidiaries as a result of orders by each of the Customers during such period.
Except as set forth in Section 3.13 of the Company Disclosure Schedule, since
September 1, 2005 through the date hereof, none of the Company, any Company
Subsidiary or any executive officer or director of the Company or a Company
Subsidiary has received any written notice, or any other communication, from any
Customer to the effect that any such Customer intends to cease or materially
reduce the amount of services requested of, or size of orders placed with, the
Company or any Company Subsidiary or otherwise materially reduce the amount of
business conducted with the Company or any Company Subsidiary.
SECTION 3.14 PROPERTY AND LEASES.
(a) The Company and the Company Subsidiaries have good, valid and
marketable title to or, in the case of leased properties and assets, valid
leasehold interest in, all their properties and assets to conduct their
respective businesses as currently conducted or as currently contemplated by the
Company and its Subsidiaries to be conducted, subject only to Permitted Liens.
(b) Neither the Company or any Company Subsidiary owns any real
property.
(c) To the knowledge of the Company, all Leases are in full force
and effect and have not been modified or amended, and there exists no default
under any such lease by the Company or any Company Subsidiary, nor any event
which, with notice or lapse of time or both, would constitute a default
thereunder by the Company or any Company Subsidiary.
(d) Section 3.14(d) of the Company Disclosure Schedule discloses a
full and complete list of all leases of real property by or for the benefit of
the Company and the Company Subsidiaries and all amendments and modifications
thereto (the "Leases") and the lessors thereof. The Company has made available
to Parent prior to the date of this Agreement complete and accurate copies of
each of the Leases, and none of the Leases has been modified in any material
respect.
SECTION 3.15 INTELLECTUAL PROPERTY.
(a) The conduct of the business of the Company and the Company
Subsidiaries as currently conducted and proposed to be conducted or the
Software, does not infringe upon or misappropriate (i) Intellectual Property
rights of any third party registered in Canada or the United States, and (ii) to
the knowledge of the Company, any other Intellectual Property rights of any
third party. Except as set forth in Section 3.15(a) of the Company Disclosure
Schedule, no claim has been asserted to the Company or any Company Subsidiary
that the conduct of the business of the Company or any Company Subsidiary as
currently conducted or the Software infringes upon or may infringe upon or
misappropriates the Intellectual Property rights of any third party. With
respect to each item of Intellectual Property and each component of Software
owned by the Company or a Company Subsidiary ("Company Owned Intellectual
Property"), the Company or a Company Subsidiary is the owner of the entire
right, title and interest in and to such Company Owned Intellectual Property and
is entitled to use such Company Owned Intellectual Property, including to modify
26
or improve same or to create derivative works therefrom, in the continued
operation of its respective business. With respect to each item of software or
Intellectual Property licensed to the Company or a Company Subsidiary ("Company
Licensed Intellectual Property"), the Company or a Company Subsidiary has the
right to use such software or Company Licensed Intellectual Property in the
continued operation of its respective business in accordance with the manner the
business of the Company and the Company Subsidiaries is currently conducted and
as contemplated to be conducted after the Effective Time. The Company Owned
Intellectual Property is valid and enforceable, and has not been adjudged or
alleged to be invalid or unenforceable in whole or in part. To the knowledge of
the Company, no Person is engaging in any activity that infringes upon the
Company Owned Intellectual Property. Each license of software and the Company
Licensed Intellectual Property is valid and enforceable, is binding on all
parties to such license, and is in full force and effect, and will continue to
be in full force and effect after the Effective Time. No party to any license of
the Company Licensed Intellectual Property is in breach thereof or default
thereunder.
(b) Section 3.15(b) of the Company Disclosure Schedule sets forth a
true and complete list of all (i) patents and patent applications, registered
trademarks and trademark applications, registered copyrights and copyright
applications, industrial designs and Software included in the Company Owned
Intellectual Property, (ii) licenses that are material to the Company's
business, except "shrink wrap", "click wrap" or similar licenses for
commercially available software, and (iii) trade secrets and other confidential
intellectual property used in the business of the Company and the Company
Subsidiaries. Section 3.15(b) of the Company Disclosure Schedule also sets forth
a true and complete list of all of the Software and the Software listed therein
constitutes the entirety of the software used in the business of the Company and
the Company Subsidiaries.
(c) The Company and each Company Subsidiary has taken the necessary
steps to maintain the confidentiality of its trade secrets and its other
confidential Intellectual Property, and except as set forth in Section 3.15(c)
of the Company Disclosure Schedule (i) to the knowledge of the Company, there
has been no misappropriation of any Software or other Company Owned Intellectual
Property by any Person, (ii) no employee, independent contractor or agent of the
Company or any Company Subsidiary has misappropriated any Intellectual Property
of any other Person in the course of such performance as an employee,
independent contractor or agent, and (iii) no employee, independent contractor
or agent of the Company or any Company Subsidiary is in default or breach of any
term of any employment agreement, non-disclosure agreement, assignment of
invention agreement or similar agreement or contract relating in any way to the
protection, ownership, development, use or transfer of Intellectual Property.
(d) Except as set for in Section 3.15(d) of the Company Disclosure
Schedule, to the knowledge of the Company, there is no alleged or actual
infringement by third parties of any Company Owned Intellectual Property or
Company Licensed Intellectual Property. There is no action, suit, proceeding or
claim pending or, to the knowledge of the Company, threatened by others,
challenging the validity or scope of any Company Owned Intellectual Property or
27
Company Licensed Intellectual Property, and, to the knowledge of the Company,
there is no fact which could form a reasonable basis for any such claim with
respect to any Company Owned Intellectual Property or Company Licensed
Intellectual Property.
(e) Neither the Company nor any of the Company Subsidiaries has
failed to maintain any application or registration, or comply with any contract
or Order which would prevent it from owning, using or commercializing any
Intellectual Property currently used, commercialized or proposed to be used or
commercialized by any of them in the conduct of the business of the Company and
the Company Subsidiaries.
(f) To the knowledge of the Company, there is no patent or patent
application, trademark or trademark application that contains claims that
interfere with the issued or pending claims of any of the Company Owned
Intellectual Property or Company Licensed Intellectual Property.
(g) Neither the Company nor any of its Company Subsidiaries pays or
receives any royalty to or from any Person with respect to the Intellectual
Property, nor has the Company or any of the Company Subsidiaries licensed any
Person to use any Intellectual Property.
(h) All rights of the Company and each of the Company Subsidiaries
in and to the Company Owned Intellectual Property and Company Licensed
Intellectual Property will be unaffected by the Transaction.
(i) Except as set forth in Section 3.15(i) of the Company Disclosure
Schedule, neither the Company nor any of the Company Subsidiaries is subject to
any judgment with respect to, nor has it entered into or is it a party to any
contract which restricts or impairs the use of, any Intellectual Property.
(j) Except as set forth in Section 3.15(j) of the Company Disclosure
Schedule, neither the Company nor any of the Company Subsidiaries has entered
into any consent, indemnification, forbearance to ▇▇▇ or settlement agreement
with respect to the Company Owned Intellectual Property or Company Licensed
Intellectual Property.
(k) The Company and each of the Company Subsidiaries has obtained
work-for-hire agreements and intellectual property assignments from all
employees and contractors necessary to establish and preserve, for the benefit
of the Company and each of the Company Subsidiaries, all Company Owned
Intellectual Property and Company Licensed Intellectual Property and exercises
reasonable care with respect to the dissemination of all Intellectual Property.
(l) Except as set forth in Section 3.15(l) of the Company Disclosure
Schedule, no open source or public library Software, including, but not limited
to, any version of any Software licensed pursuant to any GNU public license, was
used in the development or modification of any Software owned by the Company or
its Subsidiaries that is incorporated into or utilized by any products of the
Company and its Subsidiaries where, as a result of the use of such open source
or public library Software, the Company or its Subsidiaries is obligated to make
available to third parties other than its customers the source code for the
Software that is incorporated into such products.
28
(m) Neither the Company nor any of its Subsidiaries have in the last
ten years (i) transferred ownership of, (ii) granted any exclusive license of or
right to use, (iii) authorized the retention of any exclusive rights to use or
contingent right to use (including pursuant to a source code escrow), (iv)
except as set forth in Section 3.15(m)(iv) of the Company Disclosure Schedule,
authorized joint ownership of or (v) granted any lien, security interest, claim,
encumbrance or any other restriction or limitation whatsoever in any or all
Company Owned Intellectual Property or Software. Neither the Company nor any of
its Subsidiaries has granted any third party an exclusive license or right to
use any patents owned by the Company or any of its Subsidiaries.
SECTION 3.16 TAXES.
(a) Section 3.16 of the Company Disclosure Schedule contains all
income and franchise Tax Returns filed with respect to the Company and the
Company Subsidiaries since January 1, 2001, including all Tax Returns filed on a
consolidated, combined or unitary basis, along with a list of entities whose
activities are included in such filings.
(b) Except as set forth in Section 3.16(b) of the Company Disclosure
Schedule, the Company and each of its Subsidiaries have timely filed (or have
had filed on their behalf) with all appropriate Governmental Authorities all Tax
Returns and reports required to be filed by each of them in accordance with all
applicable Laws, and each has, within the time and in the manner prescribed by
Law, paid, remitted and discharged all Taxes that have become due and payable,
and will timely pay all Taxes which will become due and payable on or prior to
the Effective Date other than such payments as are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves have been
taken on the Annual Financial Statements in accordance with GAAP, and all such
Tax Returns and reports are true, accurate and complete.
(c) Neither Canada Revenue Agency, the Internal Revenue Service nor
any other taxing authority or agency has asserted in writing or, to the
knowledge of the Company, has threatened to assert against the Company or any
Company Subsidiary any deficiency or claim for any Taxes or interest thereon or
penalties in connection therewith.
(d) Neither the Company nor any Company Subsidiary has granted any
waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax.
(e) To the knowledge of the Company, there are no Tax Liens upon any
property or assets of the Company or any of the Company Subsidiaries except
Liens for current Taxes not yet due.
(f) Neither the Company nor any of its Subsidiaries is party to any
Tax sharing agreement, Tax indemnification agreement or other agreement or
arrangement relating to Taxes with any Person (other than the Company
Subsidiaries); neither the Company nor any of its Subsidiaries has been a member
of an affiliated, combined or unitary group filing a consolidated, combined,
unitary or other Tax Return for Canadian federal, provincial, local or
non-Canadian Tax purposes reflecting the income, assets or activities of
29
affiliated companies, or has any Liability for the Taxes of any other Person
under any provision of Canadian federal, provincial, local or non-Canadian Law,
or as a transferee or successor, or by contract, or otherwise.
(g) Neither the Company nor any of the Company Subsidiaries has any
Liability for any amount of Taxes of any Person other than the Company or any of
its Subsidiaries as a transferee or successor, or by contract.
(h) Neither the Company nor any Company Subsidiary has any income
reportable for a period ending after the Effective Time that is attributable to
any activity or a transaction occurring in, or a change in accounting method
made for, a period ending on or prior to the Effective Time that resulted in a
deferred reporting of income from such transaction or from such change of
accounting method or is inconsistent with the past practice of the Company.
(i) Each of the Company and the Company Subsidiaries has withheld,
collected and timely paid all Taxes required to be withheld and paid in
connection with (i) any amounts paid or owing to any present or former employee,
independent contractor, creditor, stockholder or other third party, (ii) goods
and services received from or provided to any Person, and (iii) amounts paid or
credited to any Person not resident in the jurisdiction of the relevant payor,
and the amount of Taxes withheld but not remitted by the Company and the Company
Subsidiaries will be retained in respect of the appropriate amounts and will be
remitted by the Company and the Company Subsidiaries to the appropriate Tax
authorities when due.
(j) The unpaid Taxes of the Company and each of the Company
Subsidiaries (A) did not, as of the most recent fiscal month end of the Company
and each of the Company Subsidiaries, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the balance sheet
contained in the Annual Financial Statements and (B) do not exceed that reserve
as adjusted for the passage of time through the Effective Date in accordance
with the past custom and practice of the Company and each of the Company
Subsidiaries in filing their Tax Returns. Since the date of the balance sheet
contained in the Annual Financial Statements, none of the Company and the
Company Subsidiaries has incurred any Liability for Taxes arising from
extraordinary gains or losses, as that term is used in GAAP, outside the
ordinary course of business, consistent with past custom and practice.
(k) The charges, accruals and reserves for Taxes with respect to the
Company and its Subsidiaries reflected on the Annual Financial Statements
(whether or not due and whether or not shown on any Tax Return of the Company or
its Subsidiaries) are adequate under GAAP to cover Taxes accruing through the
Effective Date.
(l) The Tax basis of the assets of the Company and its Subsidiaries
by category, including the classification of such assets as being depreciable or
amortizable properties giving rise to capital cost allowance (collectively, the
"Tax Pools"), as reflected in the Company's and its Subsidiaries' Tax Returns is
true and correct.
(m) The Company and the Company Subsidiaries do not have any
material Liability, obligation or commitment for the payment of Taxes not yet
due other than those that have arisen since August 31, 2006 in the usual and
30
ordinary course of business and for which adequate provisions have been made in
the Annual Financial Statements in accordance with GAAP.
(n) All Tax Returns of the Company and the Company Subsidiaries have
been assessed through August 31, 2004, there are no proposed or issued
assessments or reassessments respecting the Company or any of the Company
Subsidiaries pursuant to which there are amounts owing or discussions in respect
thereof with any taxing authority and there are no outstanding objections to any
assessment or reassessment of Taxes.
(o) There are no contingent Tax Liabilities or any grounds that
could prompt an assessment or reassessment of the Company and any of the Company
Subsidiaries including aggressive treatment of income, expenses, deductions,
credits or other amounts in the filing of earlier or current Tax Returns.
(p) The Company and the Company Subsidiaries have collected from
each past and present customer (or other Person paying amounts to the Company
and the Company Subsidiaries) the amount of all Taxes (including goods and
services Tax and provincial sales Taxes) required to be collected and have paid
and remitted such Taxes when due, in the form required under the appropriate
legislation or made adequate provision for the payment of such amounts to the
proper Tax authorities. The amount of Tax collected but not remitted by the
Company and the Company Subsidiaries will be retained in the appropriate
accounts and remitted by the Company and the Company Subsidiaries to the
appropriate authorities when due.
(q) All research and development investment tax credits ("ITCs")
were claimed by the Company and the Company Subsidiaries in accordance with the
Tax Act and the relevant provincial legislation and the Company and the Company
Subsidiaries satisfied at all times the relevant criteria and conditions
entitling it to such ITCs. All refunds of ITCs received or receivable by the
Company and the Company Subsidiaries in any taxation year were claimed in
accordance with the Tax Act and the relevant provincial legislation and the
Company and the Company Subsidiaries satisfied at all times the relevant
criteria and conditions entitling it to claim a refund of such ITCs.
(r) Except as set forth in Section 3.16(r) of the Company Disclosure
Schedule, neither the Company nor any of the Company Subsidiaries is currently
or was at any time since September 1, 2003 the subject of any action or
proceeding relating to Taxes or a "tax asset", or an audit or examination
relating to Taxes or a tax asset and, to the Company's knowledge, no such
action, proceeding, audit or examination is pending or threatened. For the
purpose of this Section 3.16(r), the term "tax asset" shall include but is not
limited to any net operating loss, non-capital loss, net capital loss, Tax pool,
investment tax credit, foreign tax credit, charitable deduction or any other
credit or Tax attribute which could reduce Taxes.
(s) Neither the Company nor any of its Subsidiaries (i) is a party
to any agreement extending the time within which to file any Tax Return, (ii)
has granted to any Person any power of attorney that is currently in force with
respect to any Tax matter, (iii) has executed or entered into any written
agreement with, or obtained or applied for any written consents or written
clearances or any other Tax rulings from, nor has there been any written
agreement executed or entered into on behalf of any of them with, any taxing
authority relating to material Taxes, including any private letter rulings or
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comparable rulings of any taxing authority and closing agreements with any
taxing authority, (iv) has any Liability for the Taxes of another Person under
U.S. Treasury Regulation Section 1.1502-6 (or any comparable provision of state,
local or foreign Law), (v) has, or has ever had, a permanent establishment in
any country other than the country of its organization or been subject to Tax in
a jurisdiction outside the country of its organization, (vi) has, within the
scope of Section 999 of the Code, participated in or cooperated with any
international boycott or has been requested to do so in connection with any
transaction or proposed transaction, (vii) has engaged in any "reportable
transaction" as defined in U.S. Treasury Regulation Section 1.6011-4(b), or
(viii) has constituted either a "distributing corporation" or a "controlled
corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a
distribution of stock qualifying for tax-free treatment under Section 355 of the
Code (A) in the two (2) years prior to the date of this Agreement or (B) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the transactions contemplated by this Agreement.
(t) No issue has been raised by a taxing authority in any prior
examination of the Company or any of its Subsidiaries which, by application of
the same or similar principles, could reasonably be expected to result in a
material proposed deficiency for any subsequent taxable period.
(u) No claim has been made by any taxing authority in a jurisdiction
where the Company or any of its Subsidiaries does not file Tax Returns that it
is or may be subject to taxation by, or required to file any Tax Return in, that
jurisdiction.
(v) The Company and its Subsidiaries have maintained, in all
material respects, with respect to transfer pricing, proper intercompany
agreements and concurrent and supporting documentation as required under OECD
guidelines and all applicable Tax Laws, such that no transfer pricing amounts
will be denied as deductions in any jurisdiction either by reason of a lack of
proper agreements or supporting documentation or by reason of a non-compliance
with the "arm's length" principle as defined under OECD transfer pricing
guidelines. The terms of the transfer pricing agreements involving the Company
or any of its Subsidiaries satisfy the requirements set by the applicable Tax
Law and by the respective taxing authority such that no transfer pricing amount
will be denied as deductions or will be considered to have created income to the
Company or any of its Subsidiaries of a type other than that specified in the
transfer pricing agreement.
(w) Neither the Company nor any of its Subsidiaries has (i) agreed
to or is required to make any adjustments pursuant to a change in Tax accounting
method, (ii) any knowledge that any taxing authority has proposed any such
adjustment, or (iii) any application pending with any taxing authority
requesting permission for any changes in Tax accounting methods.
(x) Each contract of any U.S. Subsidiary of the Company that is a
"nonqualified deferred compensation plan" (as defined in Section 409A(d)(1) of
the Code) has been operated since January 1, 2005 in good faith compliance with
Section 409A of the Code and Internal Revenue Service Notice 2005-1 and the
proposed regulations promulgated under Section 409A of the Code. No contract of
32
any U.S. Subsidiary of the Company that is a "nonqualified deferred compensation
plan" has been materially modified (as determined under Notice 2005-1 and the
proposed regulations) after October 3, 2004.
(y) Each U.S. Subsidiary of the Company has complied with all record
keeping and reporting obligations under Section 6038A of the Code.
(z) There is no contract of any U.S. Subsidiary of the Company
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by such Subsidiary (or
Affiliates of such Subsidiary) by reason of Section 280G of the Code.
(aa) For purposes of this Section 3.16, any reference to the Company
or any of its Subsidiaries shall be deemed to include any Person that merged
with or was liquidated into the Company or such Subsidiary, as applicable.
SECTION 3.17 ENVIRONMENTAL MATTERS.
To the knowledge of the Company, neither the Company nor any Company
Subsidiary is in violation of or has violated, or has any Liability under, any
Environmental Law. Neither the Company nor any Company Subsidiary has received
any written notice, demand, letter, claim, request for information or other
written communication alleging that the Company or such Company Subsidiary may
be in violation of or have any Liability under any Environmental Law. To the
knowledge of the Company, there are no facts, circumstances, or conditions,
existing, initiated or occurring prior to the Effective Date which could result
in Liability under Environmental Laws. To the knowledge of the Company, there
has been no Release of Hazardous Substances at, on, under or from any of the
properties currently owned, leased or operated by the Company or any Company
Subsidiary (including, without limitation, soils and surface and ground waters)
during the period of the Company's or any Company Subsidiary's ownership,
tenancy or operation of such property. To the knowledge of the Company, there
has been no Release of Hazardous Substances at, on, under or from any of the
properties formerly owned, leased or operated by the Company or any Company
Subsidiary (including, without limitation, soils and surface and ground waters)
during the period of the Company's or any Company Subsidiary's ownership,
tenancy or operation of such property. Neither the Company nor any Company
Subsidiary has received any notice, demand, claim or request for information or
any written communications alleging that the Company or any Company Subsidiary
is actually, potentially or allegedly liable under any Environmental Law for
Remediation of Hazardous Substances. The Company and each Company Subsidiary has
promptly applied for and maintains all permits, licenses, consents, approvals
and other authorizations required under any Environmental Law ("Environmental
Permits") and the Company and such Company Subsidiaries are in compliance in all
material respects with the Environmental Permits. To the knowledge of the
Company, none of the real property currently owned, leased, or operated by the
Company or its Subsidiaries contains underground improvements, including but not
limited to treatment or storage tanks, or underground piping associated with
such tanks, used currently or in the past for the management of Hazardous
Substances, and no portion of such real property is or has been used as a dump
or landfill or consists of or contains filled in land or wetlands. To the
knowledge of the Company, neither PCB's, "toxic mold," nor asbestos-containing
33
materials are present on or in the real property currently or previously owned,
operated or leased by the Company or its Subsidiaries or the improvements
thereon. Neither the Company nor any of its Subsidiaries has arranged, by
contract, agreement or otherwise, for the transportation, disposal or treatment
of Hazardous Substances at any location such that it is or could be liable for
Remediation of such location pursuant to Environmental Laws, and no such
location, nor any of the real property currently owned, operated, or leased by
the Company or any of its Subsidiaries is listed on any governmental list or
database of properties that may require Remediation. No authorization,
notification, recording, filing, consent, waiting period, Remediation or
approval is required under any Environmental Law in order to consummate the
Transaction contemplated by this Agreement.
SECTION 3.18 INSURANCE.
Section 3.18 of the Company Disclosure Schedule sets out a list of
all of the insurance policies of the Company and the Company Subsidiaries
relating to fire and casualty, general liability, business interruption,
directors' and officers' liability and workers' compensation and other forms of
insurance of any kind relating to the business and operations of the Company or
any Company Subsidiary, and such list contains the name of the applicable
insurance company, the premiums payable, deductible (if any) and amount of
coverage for each such policy. The insurance maintained by the Company and the
Company Subsidiaries adequately covers all material risks reasonably and
prudently foreseeable in the operation and conduct of the business of the
Company and the Company Subsidiaries which would be customary in the business
carried on by the Company and the Company Subsidiaries and the Company and the
Company Subsidiaries are not in material default under the terms of any such
policy. There is no claim pending under such policies as to which coverage has
been questioned, denied or disputed by the underwriter of such policy. There has
been no notice of cancellation or termination or any other threatened
termination of, or premium increase with respect to, any such policy. True and
complete copies of all policies, or summaries thereof of fire and casualty,
general liability, business interruption, directors' and officers' liability and
workers' compensation and other forms of insurance of any kind relating to the
business and operations of the Company or any Company Subsidiary have been made
available to Parent, and such policies are in full force and effect as of the
date of this Agreement. The Company or the relevant Company Subsidiary has paid
all premiums due under such policies and none of the Company or any Company
Subsidiary is in default in any material respect with respect to its obligations
thereunder.
SECTION 3.19 BROKERS.
No broker, finder or investment banker (other than the Company
Financial Advisor) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transaction based upon arrangements made by or
on behalf of the Company or any of its Subsidiaries. The Company has heretofore
furnished to Parent a complete and correct copy of all agreements between the
Company and the Company Financial Advisor pursuant to which such firm would be
entitled to any payment related to the Transaction.
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SECTION 3.20 RELATED PARTY TRANSACTIONS.
No executive officer, director or Affiliate of the Company or any
Company Subsidiary nor any immediate family member or Affiliate of such
executive officer or director is a party to any agreement, contract, commitment,
arrangement or transaction with the Company or any Company Subsidiary or is
entitled to any payment or transfer of any assets from the Company or any
Company Subsidiary or has any material interest in any material property used by
the Company or any Company Subsidiary or has an interest in any customer or
supplier of the Company or any Company Subsidiary or provider of any services to
the Company or any Company Subsidiary, except in each case (i) employment,
management or consulting arrangements listed in Section 3.11 or Section 3.12 of
the Company Disclosure Schedule and benefit programs and (ii) the ownership of
less than 5% of the outstanding stock of any publicly traded company.
SECTION 3.21 DISCLOSURE.
True and complete copies of all documents listed in the Company
Disclosure Schedule have been made available or provided to Parent. The
documents required to be delivered by the Company pursuant to Section 7.02(n)
shall be true, accurate and complete. The books of account, share registers and
other financial and corporate records of the Company and each Company Subsidiary
(the "Books and Records"), all of which have been made available to Parent, are
complete and correct and have been maintained in accordance with good business
practices, including the maintenance of an adequate system of internal
accounting controls, and the information in the Books and Records is accurately
reflected in the Annual Financial Statements. The minute books of the Company
and each Company Subsidiary contain accurate and complete records of all
meetings held of, and corporate action by, the stockholders and the board of
directors (and committees thereof) of the Company and each Company Subsidiary,
and no meeting of any such stockholders or board of directors (or committees
thereof) has been held for which minutes have not been prepared and are not
contained in such minute books. None of the representations or warranties made
by the Company herein or in the Company Disclosure Schedule, or any certificate
or document furnished by the Company pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will contain any
untrue statement of a material fact, or omits to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which it was made, not misleading.
SECTION 3.22 ABSENCE OF VIOLATION.
None of the Company or any Company Subsidiary, or any of their
respective officers, directors or employees, or to the knowledge of the Company,
and the Company has no reason to suspect that, any of the Company's or Company
Subsidiaries' agents (or stockholders, distributors, representatives or other
persons acting on the express, implied or apparent authority of any of the
Company or any Company Subsidiary) have paid, given or received or have offered
or promised to pay, give or receive, any bribe or other unlawful payment of
money or other thing of value, any unlawful extraordinary discount, or any other
unlawful inducement, to or from any person, business association or governmental
official or entity in Canada, the United States or elsewhere in connection with
or in furtherance of the business of the Company or any Company Subsidiary
35
(including, without limitation, any unlawful offer, payment or promise to pay
money or other thing of value (i) to any foreign official or political party (or
official thereof) for the purposes of influencing any act, decision or omission
in order to assist the Company or any Company Subsidiary in obtaining business
for or with, or directing business to, any person, or (ii) to any person, while
knowing that all or a portion of such money or other thing of value will be
offered, given or promised to any such official or party for such purposes). The
business of the Company and each Company Subsidiary is not in any manner
dependent upon the making or receipt of such unlawful payments, discounts or
other inducements.
SECTION 3.23 TAKEOVER STATUTES.
The Company Board has taken all necessary action so that no
restrictive provision of any applicable anti-takeover provision in the Company's
certificate of incorporation or bylaws or any shareholder rights or similar
plan, is, or at the Effective Time will be, applicable to the Company, the
Purchaser, the Cash Consideration, the Arrangement or any transaction
contemplated by this Agreement or the Support Agreements.
SECTION 3.24 NO OTHER PURCHASE AGREEMENTS
The Company and the Company Subsidiaries are not a party to any
other contract, agreement or understanding of any nature for the purchase or
other acquisition of any of their undertaking, property or assets, other than in
the ordinary course of business.
SECTION 3.25 PERSONAL PROPERTY
Section 3.25 of the Company Disclosure Schedule sets forth a list of
each tangible, corporeal, personal or moveable property asset owned or leased by
the Company and the Company Subsidiaries and that is material to the Company and
the Company Subsidiaries' business, specifying for each asset whether such asset
is owned or leased. Either the Company or one of the Company Subsidiaries is the
true and lawful owner or lessee of and has good and valid title to, or a valid
leasehold interest in, all personal or moveable property (tangible or
intangible) reflected on the balance sheet contained in the Annual Financial
Statements or thereafter acquired, except inventory that has been sold or
otherwise disposed of in the ordinary course of business since the date of such
balance sheet and not in violation of this Agreement, in each case free and
clear of all Liens.
SECTION 3.26 WARRANTY AND PRODUCT LIABILITY MATTERS
(a) Section 3.26(a) of the Company Disclosure Schedule sets forth
(i) a list of all product liability claims made against the Company or any of
the Company Subsidiaries since September 1, 2003; and (ii) a summary of warranty
claims made against the Company or any of the Company Subsidiaries, together
with the annual cost associated with such warranty claims, for each of the three
(3) immediately preceding fiscal years.
(b) None of the Company's or the Company Subsidiaries' products have
design, manufacturing or other defects, and such products comply with, and meet
the current standards of, all Laws dealing with such products. No claims,
including, but not limited to, product or service warranty, Liability, strict
36
liability or negligence claims, in respect of the Company's or any Company
Subsidiary's products or services are pending or threatened.
(c) The Company and each Company Subsidiary has used reasonable
commercial efforts to limit Liability for warranty and product liability claims.
SECTION 3.27 PRIVACY LAW
Company and each Company Subsidiary is conducting and has always
conducted its business and any past business in compliance with all applicable
Privacy Laws. Without limiting the foregoing, Company and the Company
Subsidiaries have (i) obtained all consents required under applicable Privacy
Laws for the Processing of Personal Information necessary for the operation of
their respective businesses, (ii) implemented all physical, technical and
administrative measures necessary to protect the Personal Information in the
custody or control of Company or the Company Subsidiaries against loss, theft
and unauthorized Processing, and (iii) established and implemented policies,
practices and procedures as required under applicable Privacy Laws. The Company
is not aware of any loss, theft or unauthorized Processing of Personal
Information in the custody or control of the Company or the Company
Subsidiaries. Neither Company or any Company Subsidiary has received any notice
or other communication from any Person regarding or in connection with any
actual, alleged, possible or potential violation of, or failure to comply with,
any Privacy Laws or with respect to the loss, theft or unauthorized Processing
of Personal Information in the custody or control of the Company or the Company
subsidiaries.
SECTION 3.28 NOT ENGAGED IN CULTURAL BUSINESS
The Company is not engaged in and does not carry on a "cultural
business", as such term is defined in the Investment Canada Act.
SECTION 3.29 SOLVENCY
The Company is not insolvent within the meaning of section 192(2) of
the CBCA.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
As an inducement to the Company to enter into this Agreement, Parent
and Purchaser hereby, jointly and severally, represent and warrant to the
Company as follows:
SECTION 4.01 CORPORATE ORGANIZATION.
Each of Parent and Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, except where the failure to be so organized, existing or in good
standing would not reasonably be expected to have a Parent Material Adverse
Effect.
37
SECTION 4.02 AUTHORITY RELATIVE TO THIS AGREEMENT.
Each of Parent and Purchaser has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the Transaction. The execution and delivery of this
Agreement by Parent and Purchaser and the consummation by Parent and Purchaser
of the Transaction have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Parent or
Purchaser are necessary to authorize this Agreement or to consummate the
Transaction (other than any necessary approvals or consents and the filing of
appropriate documents as required by the CBCA). This Agreement has been duly and
validly executed and delivered by each of Parent and Purchaser and, assuming due
authorization, execution and delivery by each of the other parties thereto,
constitutes a legal, valid and binding obligation of each of Parent and
Purchaser, enforceable against each of Parent and Purchaser in accordance with
its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws
affecting the enforcement of creditors' rights generally and by general
equitable principles. The Boards of Directors of Parent and Purchaser have duly
approved this Agreement and the Transaction contemplated hereby.
SECTION 4.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by each of Parent
and Purchaser do not, and the performance of this Agreement by each of Parent
and Purchaser will not, (i) conflict with or violate the certificate of
incorporation or by-laws of either Parent or Purchaser in effect on the date of
this Agreement, (ii) assuming that all consents, approvals, authorizations and
other actions described in Section 4.03(b) have been obtained and all filings
and obligations described in Section 4.03(b) have been made, conflict with or
violate any Law applicable to Parent or Purchaser or by which any property or
asset of either of them is bound or affected, or (iii) conflict with or result
in a breach of the terms of any material agreement to which Parent is a party,
except with respect to clauses (ii) and (iii), for any such conflicts or
violations which would not reasonably be expected to have a Parent Material
Adverse Effect.
(b) The execution and delivery of this Agreement by each of Parent
and Purchaser do not, and the performance of this Agreement by each of Parent
and Purchaser will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, except (i)
for applicable requirements, if any, of the Canadian Securities Laws, the
Securities Act, the Exchange Act and state takeover laws, the Competition Act,
the Investment Canada Act and filing of appropriate documents as required by the
CBCA, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.04 INFORMATION TO BE SUPPLIED.
Any information supplied or to be supplied by Purchaser or its
representatives for inclusion or incorporation by reference in the Circular will
not, on the date the Circular is mailed to stockholders of the Company, on the
date of the Company Meeting and on the Effective Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
38
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
SECTION 4.05 LITIGATION.
There is no Action pending or, to the knowledge of Parent,
threatened against Parent or any of its subsidiaries, or any property or asset
of Parent or any such subsidiary, before any Governmental Authority that seeks
to materially delay or prevent the consummation of the Transaction.
SECTION 4.06 NO VOTE REQUIRED.
No vote of the stockholders of Parent is required by Law, Parent's
certificate of incorporation or by-laws or otherwise in order for Parent and
Purchaser to consummate the transactions contemplated hereby.
SECTION 4.07 OPERATIONS OF PURCHASER.
Purchaser is a direct, wholly owned subsidiary of Parent, was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement.
SECTION 4.08 BROKERS.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Transaction that will
not be paid by or on behalf of Parent or Purchaser.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE DATE
SECTION 5.01 CONDUCT OF BUSINESS BY THE COMPANY.
(a) The Company agrees that, between the date of this Agreement and
the Effective Date, except as required by a Governmental Authority of competent
jurisdiction or as may be required in order for the Company and Parent to comply
with applicable Laws, unless Parent shall otherwise consent in writing:
(i) the Company and its Subsidiaries shall only conduct their
business in the ordinary course of business and in a manner consistent with past
practice; and
(ii) the Company shall maintain its existence and good
standing and use its best efforts to preserve substantially intact the business
organization of the Company and its Subsidiaries, to keep available the services
of the current officers, employees and consultants of the Company and its
Subsidiaries and to preserve the current relationships of the Company and its
Subsidiaries with customers, suppliers and other persons with which the Company
or any Company Subsidiary has business relations.
39
(b) By way of amplification and not limitation, except as expressly
contemplated by any other provision of this Agreement or as required by a
Governmental Authority of competent jurisdiction or as may be required in order
for the Company and Parent to comply with applicable Laws, neither the Company
nor any Company Subsidiary shall, between the date of this Agreement and the
Effective Date, directly or indirectly, do any of the following without the
prior written consent of Parent:
(i) amend or otherwise change its certificate of incorporation
or by-laws or equivalent organizational documents;
(ii) issue, sell, pledge, assign, license or sub-license,
dispose of, grant or encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, (A) any shares of any class of capital
stock of the Company or any Company Subsidiary, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of the Company or any Company Subsidiary (except for the
issuance of shares of Company Common Stock issuable pursuant to the conversion
of the Company Debentures pursuant to Section 6.11 and the issuance of shares of
Company Common Stock upon the exercise of Company Warrants, provided the Company
complies with Section 6.10) or (B) any properties or assets of the Company or
any Company Subsidiary;
(iii) except as set out in Section 6.09, accelerate, amend or
change the period of exercisability of Company Stock Options, re-price Company
Stock Options, authorize cash payments in exchange for any Company Stock
Options, permit any holder of Company Stock Options to exercise any Company
Stock Options or issue any shares of Company Common Stock upon the exercise of
Company Stock Options;
(iv) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(v) reclassify, combine, split, subdivide or redeem, or
purchase or otherwise acquire, directly or indirectly, any of its capital stock
or other securities;
(vi) (A) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or any
division thereof or any material amount of assets except in the ordinary course
of business and consistent with past practice as approved in prior writing by
Parent; (B) incur any Indebtedness or issue any debt securities or assume,
guarantee or endorse, or otherwise become responsible for, the obligations of
any person, or make any loans or advances, or grant any security interest in any
of its assets except in the ordinary course of business and consistent with past
practice as approved in prior writing by Parent; (C) authorize, or make any
commitment with respect to capital expenditures which are, in the aggregate, in
excess of $25,000 from the date hereof until the earlier of (x) the Effective
Time or (z) the termination of this Agreement pursuant to Article VIII; or (D)
enter into or amend any contract, agreement, commitment or arrangement with
respect to any matter set forth in this Section 5.01(b)(vi);
40
(vii) hire or terminate any employee or service provider
except as expressly provided in this Agreement;
(viii) increase the compensation payable or to become payable
or the benefits provided to its directors, officers, consultants, service
providers or employees, or grant any severance or termination pay to or enter
into any employment or severance agreement with, any director, officer,
consultant, service provider or other employee of the Company or of any Company
Subsidiary, or establish, adopt, enter into or amend any bonus, profit-sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any director,
officer, consultant, service provider or employee;
(ix) change any of the accounting principles used by it, other
than as required by GAAP;
(x) (A) make, change or rescind any Tax election, settle or
compromise any Liability for Taxes, change or revoke any of its methods of Tax
accounting or annual Tax accounting periods, file any amended Tax Return,
surrender any claim for a refund of Taxes, enter into any closing agreement with
a taxing authority relating to any Tax, or waive or extend the statute of
limitations in respect of any Tax (other than pursuant to extensions of time to
file Tax Returns in the ordinary course of business), or (B) take any action
with respect to the computation of Taxes or the preparation of Tax Returns that
is inconsistent with past practice;
(xi) pay, discharge or satisfy any claim, Liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than in the ordinary course of business and consistent with past practice;
(xii) (A) amend, modify or consent to the termination of any
Material Contract, or amend, waive, modify or consent to the termination of the
Company's or any Company Subsidiary's rights thereunder or (B) enter into any
contract or agreement that would be a Restrictive Agreement or a Related Party
Agreement;
(xiii) (A) grant any exclusive license or sub-license in
respect of any Company Owned Intellectual Property, (B) grant any license or
sub-license in respect of any Company Owned Intellectual Property involving
aggregate annual payments to the Company or any Company Subsidiary of more than
$50,000, (C) transfer any Company Owned Intellectual Property, (D) develop any
Intellectual Property jointly with any third party, or (E) disclose any
confidential Intellectual Property or other confidential information of the
Company or any Company Subsidiary;
(xiv) commence or settle any Action; or
(xv) announce an intention, enter into any formal or informal
agreement or otherwise make a commitment to do any of the foregoing or take any
action that would materially delay the consummation of the Arrangement.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Except as otherwise prohibited by applicable Law, from the date
of this Agreement until the Effective Time, the Company shall, and shall cause
its Subsidiaries to, (i) provide to Parent and Parent's officers, directors,
employees, accountants, consultants, legal counsel, agents and other
representatives access at reasonable times during normal business hours upon
prior notice to the officers, employees, agents, properties, offices and other
facilities of the Company and its Subsidiaries and to the books and records
thereof, and (ii) furnish promptly to Parent such information in the Company's
possession concerning the business, properties, contracts, assets, Liabilities,
personnel and other aspects of the Company and its Subsidiaries as Parent or its
representatives may reasonably request.
(b) All information obtained by the parties pursuant to this Section
6.01 shall be kept confidential in accordance with the mutual non-disclosure
agreement, dated as of September 6, 2006 (the "Confidentiality Agreement"),
between Parent and the Company.
(c) Any investigation pursuant to this Section 6.01 shall not affect
any representation or warranty of any party hereto or any condition to the
obligations of the parties hereto.
SECTION 6.02 NO SOLICITATION OF TRANSACTIONS.
(a) The Company shall, and shall cause its Subsidiaries, and its and
their respective officers, directors, employees, agents or advisors or other
representatives (including, without limitation, any financial advisor or
investment banker, attorney or legal counsel or accountant retained by it)
("Representatives") to, immediately cease and cause to be terminated any
discussions or negotiations with third parties with respect to a Competing
Transaction (as defined below). The Company will not, directly or indirectly,
and will instruct its Representatives not to, directly or indirectly, solicit,
initiate or, except as and only to the extent permitted by Section 6.02(b),
encourage (including by way of furnishing nonpublic information), or take any
other action to facilitate, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) that
constitutes, or may reasonably be expected to lead to, any Competing Transaction
(as defined below), or, except as and only to the extent permitted by Section
6.02(b), enter into or maintain or continue discussions or negotiate with any
Person in furtherance of such inquiries or to obtain a Competing Transaction, or
agree to or recommend or endorse any Competing Transaction, or authorize or
permit any Representative of the Company or any of its Subsidiaries to take any
such action. The Company shall not release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which it is a
party.
(b) Notwithstanding anything to the contrary in this Section 6.02,
at any time prior to the Arrangement having been approved by the Company
Securityholders, the Company Board may furnish information to, and enter into
discussions with, a Person who has made an unsolicited bona fide written
proposal or offer regarding a Competing Transaction (that did not result from a
42
breach of this Section 6.02), and with respect to which (i) the Company Board
has determined, in its good faith judgment (after consultation with its
financial advisor), that such proposal or offer constitutes a Superior Proposal
(as defined below), (ii) the Company Board has determined, in its good faith
judgment after consultation with outside legal counsel, that, in light of such
Superior Proposal, the failure to furnish such information or to enter into such
discussions would result in a breach of its fiduciary obligations under
applicable Law, (iii) the Company has satisfied its obligations under Section
6.02(c), (iv) the Company Board has provided written notice to Parent of its
intent to furnish information or enter into discussions with such Person at
least five Business Days prior to taking any such action and (v) the Company
Board has obtained from such Person an executed confidentiality agreement on
terms no less favorable to the Company than those contained in the
Confidentiality Agreement.
(c) The Company agrees that in addition to the obligations of the
Company set forth in paragraphs (a) and (b) of this Section 6.02, immediately
upon receipt thereof, the Company shall advise Parent in writing of any request
for information or any Competing Transaction, or any inquiry, discussions or
negotiations with respect to any Competing Transaction and the terms and
conditions of such request for information, Competing Transaction, inquiry,
discussions or negotiations and the Company shall immediately provide to Parent
copies of any written materials received by the Company in connection with any
of the foregoing, and the identity of the Person or group making any such
request for information, Competing Transaction or inquiry or with whom any
discussions or negotiations may be taking place. The Company agrees that it
shall keep Parent informed of the status, terms and material details (including
amendments or proposed amendments) of any such request for information,
Competing Transaction or inquiry and keep Parent informed as to the details of
any information requested of or provided by the Company and as to the status and
material terms of all substantive discussions or negotiations with respect to
any such request, Competing Transaction or inquiry. The Company agrees that it
shall simultaneously provide to Parent any non-public information concerning the
Company that may be provided to any other Person or group in connection with any
Competing Transaction which was not previously provided to Parent.
(d) A "Competing Transaction" means any of the following (other than
the Transaction): (i) any merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or other similar
transaction involving the Company or any material Subsidiary, (ii) any sale,
lease, exchange, transfer or other disposition of all or a substantial part of
the assets of the Company or its Subsidiaries, (iii) any sale, exchange,
transfer or other disposition of 5% or more of any class of equity securities of
the Company or its Subsidiaries or of 5% or more of the assets of the Company or
its Subsidiaries, or (iv) any takeover bid, tender offer or exchange offer
(including a two-step transaction involving a take-over bid, tender offer or
exchange offer followed by an amalgamation merger or comparable transaction
involving the Company) that, if consummated, would result in any Person
beneficially owning 5% or more of any class of equity securities of the Company
or its Subsidiaries.
(e) A "Superior Proposal" means an unsolicited bona fide written
offer made by a third party to consummate a Competing Transaction on terms
(including conditions to consummation of the contemplated transaction) that the
Company Board determines, in its good faith judgment (after consultation with
43
its financial advisor), to be more favorable to the Company Shareholders, from a
financial point of view, than the Transaction contemplated in this Agreement
(including any amendments to this Agreement agreed to in writing by Parent in
accordance with Section 6.02(f)) and is reasonably capable of being consummated
and which is fully financed.
(f) Prior to the Company entering into any agreement (a "Proposed
Agreement") with any Person providing for or to facilitate any Superior Proposal
that did not result from violation by the Company of Section 6.02(a), other than
a confidentiality agreement as contemplated by Section 6.02(b), it shall provide
the Parent with a copy of any Proposed Agreement not less than five (5) Business
Days prior to its proposed execution by the Company. During such five (5)
Business Day period, the Company acknowledges and agrees that the Parent shall
have the opportunity, but not the obligation, to offer to amend the terms of
this Agreement in order to provide for terms at least equivalent to those
included in the Proposed Agreement. The Board of Directors shall review any
offer by the Parent to amend the terms of this Agreement (an "Amended Offer") to
determine, acting in good faith and in accordance with its fiduciary duties,
whether the Amended Offer would be at least as favourable to the Company
Shareholders as the Superior Proposal provided for in the Proposed Agreement. If
the Company Board so determines, the Company will enter into an amended
agreement with the Parent reflecting the Amended Offer. If the Company Board
continues to believe, acting in good faith and in the proper discharge of its
fiduciary duties, that the Competing Transaction provided for in the Proposed
Agreement continues to be a Superior Proposal with respect to the Amended Offer,
and therefore rejects the Amended Offer, or if the Parent does not amend the
terms of this Agreement within the specified period, the Company shall be
entitled to enter into the Proposed Agreement, provided that prior to entering
into the Proposed Agreement the Company pays to Parent in immediately available
funds the amounts required to be paid pursuant to Section 8.05(b). Nothing
contained in this Section 6.02(f) shall limit the Company's obligation to hold
and convene the Company Meeting (regardless of whether the Recommendation shall
have been withdrawn, amended or modified).
(g) The Company shall promptly reaffirm the Recommendation of the
Transaction by press release after: (i) any written bona fide Competing
Transaction (which is determined not to be a Superior Proposal) is publicly
announced or made; or (ii) the Parent and the Company enter into an amended
agreement under Section 6.02(f); any such press release shall be prepared in
accordance with Section 6.07.
SECTION 6.03 STOCKHOLDER MEETING.
Whether or not the Board of Directors of the Company shall take any
action permitted by the sixth sentence of this Section 6.03, the Company shall
cause the Company Meeting to be duly called and held as soon as practicable
after the date of this Agreement for the purpose of voting on the Arrangement
Resolution. The Company Meeting shall be held no later than February 5, 2007.
The Company shall provide notice to the Parent of the Company Meeting and allow
Parent's representatives to attend the Company Meeting. The Company shall
conduct the Company Meeting in accordance with the rules of the TSX, the CBCA,
the by-laws of the Company and as otherwise required by applicable Laws. The
Board of Directors of the Company shall (i) include in the Circular the
Recommendation, and (ii) use its best efforts to obtain the necessary vote in
favor of the Arrangement Resolution by the Company Securityholders. The Board of
44
Directors of the Company shall not withdraw, amend, modify or qualify in a
manner adverse to Parent the Recommendation (or announce its intention to do
so), except that, prior to the receipt of the Company Securityholders approval,
the Board of Directors of the Company shall be permitted to withdraw the
Recommendation, following three Business Days' prior notice to Parent, but only
if (A) the Company has complied in all respects with Section 6.02 and Section
6.03 of this Agreement, and (B) after complying with Section 6.02(f) of this
Agreement, the Company has entered into a Proposed Agreement.
SECTION 6.04 NOTIFICATION OF CERTAIN MATTERS.
(a) The Company shall give prompt notice to Parent, and Parent or
Purchaser shall give prompt notice to the Company, of (i) any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate in
any material respect and (ii) the failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, that the delivery of
any such notification pursuant to this Section 6.04 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
(b) The Company shall give prompt notice to Parent, and Parent or
Purchaser shall give prompt notice to the Company, of: (i) any notice or other
communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement, and (ii) any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge, threatened
in writing against, relating to or involving or otherwise affecting it or any of
its subsidiaries which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Article V and Article VI or
which relate to the consummation of the Transaction.
SECTION 6.05 FURTHER ACTION; REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions of this Agreement,
(i) each of the parties hereto shall as promptly as practicable after the date
of this Agreement make its respective filings under the Competition Act, the
Investment Canada Act and any other Law the parties agree requires submission
with respect to the Arrangement; (ii) each of the parties hereto shall use its
reasonable commercial efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper and
advisable under applicable Laws or otherwise to consummate expeditiously and
make effective the Arrangement, including, without limitation, using its
reasonable commercial efforts to obtain all permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with the Company and the Company Subsidiaries as are
necessary for the consummation of the Arrangement and to fulfill the conditions
to the completion of the Arrangement; and (iii) the Company shall and where
appropriate shall cause its Subsidiaries to:
(A) advise Parent as reasonably requested, as to the aggregate tally
of the proxies and votes received in respect of the Company Meeting and all
matters to be considered at such meeting; and
45
(B) provide Parent with a copy of any purported exercise of the
Dissent Rights and written communications with such Company Shareholder
purportedly exercising the Dissent Rights; and not settle or compromise any
claim brought by any present, former or purported holder of any of its
securities in connection with the Arrangement.
Notwithstanding the foregoing, nothing herein shall require Parent,
in connection with the receipt of any regulatory approval, to agree to sell or
divest any material assets or business or agree to restrict in any material way
any business conducted by or proposed to be conducted by Parent, any Parent
Subsidiary, the Company or any Company Subsidiary, or to litigate or formally
contest any proceeding relating to any regulatory approval process in connection
with the Arrangement.
(b) Each of the parties hereto shall use its reasonable commercial
efforts to cause its respective officers, employees, agents, auditors and
representatives to cooperate with each other, prior to the Effective Date, to
ensure the orderly combination of the Company and the Subsidiaries with Parent
and its subsidiaries following the Effective Date and to minimize any disruption
to the respective businesses of Parent, the subsidiaries of Parent, the Company
and the Subsidiaries that might result from the Transaction.
SECTION 6.06 PURCHASER.
Parent shall take all action necessary to cause Purchaser to perform
its obligations under this Agreement and to consummate the Transaction on the
terms and subject to the conditions set forth in this Agreement.
SECTION 6.07 PUBLIC ANNOUNCEMENTS.
The initial press release relating to this Agreement shall be a
joint press release the text of which has been agreed to by each of Parent and
the Company. Thereafter, unless otherwise required by applicable Law or the
requirements of the NYSE or the TSX, each of Parent and the Company shall use
its reasonable commercial efforts to consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or the Arrangement; provided, however, that this Section 6.07 shall
terminate in the event the Company Board withdraws the Recommendation.
SECTION 6.08 TRANSFER TAX.
The Company and Parent shall cooperate in the preparation, execution
and filing of all returns, questionnaires, applications or other documents
regarding any sales, use, transfer, value added, stock transfer and stamp Taxes,
any transfer, recording, registration and other fees and any similar Taxes which
become payable in connection with the transactions contemplated by this
Agreement (together with any related interest, penalties or additions to Tax,
"Transfer Taxes"). All Transfer Taxes shall be paid by the Company and expressly
shall not be a Liability of any holder of the Company Common Stock.
46
SECTION 6.09 COMPANY STOCK OPTIONS
(a) Prior to the Effective Date, the Company shall take all action
necessary to accelerate the vesting and expiry of all the Company Stock Options
and shall cause to be cancelled effective immediately prior to the Effective
Time all Company Stock Options without the issuance of any shares of Company
Common Stock in respect thereof.
(b) Prior to the Effective Date, the Company shall take all action
necessary to cause the Company Stock Option Plan to terminate immediately before
the Effective Time.
(c) On to the Effective Date, the Company shall pay to each holder
of In-the-Money Options, an amount in respect of each In-the-Money Option equal
to the difference between the Canadian dollar equivalent (based on the Noon Spot
Rate on such date) of the Cash Consideration (as adjusted pursuant to this
Agreement) and the exercise price of such In-the-Money Option, multiplied by the
number of shares of Company Common Stock in respect of which such In-the-Money
Option was exercisable prior to being cancelled in accordance with this
Agreement. The aggregate amount payable to holders of In-the-Money Options
pursuant to this Section 6.09(c) shall not exceed US$160,000.
(d) Prior to the Effective Date, the Company shall deliver to Parent
a written agreement, in form and substance satisfactory to Parent, from each of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (each, an "Option Termination Agreement")
confirming and acknowledging the cancellation of all Company Stock Options held
by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, respectively.
SECTION 6.10 COMPANY WARRANTS
Prior to the Effective Date, the Company 2004 Series A Warrants and
Company 2004 Series B Warrants shall have expired without the issuance of any
shares of Company Common Stock, or the payment of any amounts in consideration
for such expiry. Notwithstanding the previous sentence, if at any time prior to
the expiry of the Company Warrants a holder of Company Warrants exercises any
Company Warrants, the Company shall place the proceeds received from such
exercise in a separate segregated bank account of the Company and shall hold
such proceeds in trust for the benefit of Parent and the Purchaser to the extent
that the Transaction is completed, and any proceeds received from such exercise
shall not be included in Calculated Net Cash. Any shares of Company Common Stock
issued pursuant to the exercise of Company Warrants will form part of the
Aggregate Outstanding Company Stock and, subject to completion of the
Transaction, shall be acquired by Purchaser pursuant to the Transaction.
SECTION 6.11 COMPANY DEBENTURES
Prior to the Effective Date, the Company shall use its best efforts
to cause the Company Debentures to be converted into 1,111,111 shares of Company
Common Stock. Prior to the Effective Date, the Company shall use its best
efforts to deliver to Parent an agreement executed by the holders of the Company
Debentures pursuant to which such holders agree to tender to the Company the
Company Debentures in exchange for the issuance of 1,111,111 shares of Company
Common Stock.
47
SECTION 6.12 SUPPORT AGREEMENTS
Contemporaneously with the execution of this Agreement, the Company shall take
all action necessary to cause each of the Company Insiders and Support
Warrantholders to execute and deliver a Support Agreement.
SECTION 6.13 RESIGNATION OF DIRECTORS
At or before the Effective Time, the Company shall take all necessary steps to
cause each Person who is a director of the Company or the Company Subsidiaries,
other than such persons as may be designated in writing by the Parent, to
voluntarily submit his or her written resignation as a director of the Company
or the Company Subsidiaries, as the case may be, which will be effective at the
Effective Time.
SECTION 6.14 NET CASH
At the Effective Time, the Company shall have, and shall deliver to Purchaser,
Net Cash of not less than US $1,327,000 ("Targeted Net Cash"). The parties agree
that the Net Cash is to be calculated net of the following amounts which will be
deducted from the Net Cash, and which the Company is required to pay on or prior
to the Effective Date: (i) all severance costs for the termination of employees
of the Company or Company Subsidiaries, including severance, termination
payments, change of control payments or other payments to employees, consultants
or service providers directly or indirectly as a result of the Transaction; (ii)
the costs and expenses of the Company related to the Transaction; (iii) the
bonus payable to ▇▇▇▇ ▇▇▇▇▇▇▇▇ in the amount of US$150,000; (iv) the bonus
payable to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in the amount of US$48,000; and (v) the amount
payable by the Company to holders of In-the-Money Options, in an amount not to
exceed US$160,000. The Net Cash less the amounts referred to in items (i) to (v)
above is referred to as the "Calculated Net Cash". For greater certainty, the
parties agree that the Calculated Net Cash is net of items (i) to (v) above to
be paid by the Company and that if the amount actually paid by the Company in
respect of any such item is greater than the amount specified above, the full
amount paid by the Company shall be deducted from the Calculated Net Cash. For
greater certainty the parties agree that the Company shall be responsible for
all severance costs (including termination payments, change of control payments
or other payments directly or indirectly as a result of the Transaction) and all
other costs relating to (A) the termination of any employee, consultant or other
service provider of the Company or any Company Subsidiary, or (B) to any
employee or service provider ceasing to be employed by or providing services to
the Company or any Company Subsidiary, and that while an allowance of US
$300,000 has been made for such payments, the Calculated Net Cash shall be
reduced to take into account the payment of any such amount in excess of such US
$300,000. From the date of this Agreement through the Effective Date, the
Company shall provide Parent every 2 weeks with an update of the Calculated Net
Cash. The update to be provided every 2 weeks shall set out each item comprising
Calculated Net Cash as of the end of such two week period and shall be delivered
no later than the opening of business on the first Business Day following the
end of such two week period, provided however, that the final update of
Calculated Net Cash shall be delivered at least 5 Business Days prior to the
Effective Date. From the date of this Agreement through the Effective Date, the
Company shall provide continuous access during normal business hours to the
48
employees, agents and representatives of Parent for the purpose of permitting
such employees, agents and representatives to monitor the business of the
Company and its Subsidiaries and to verify the calculations of Calculated Net
Cash for each such 2 week period. Prior to the Effective Date, Company and
Parent shall consult and shall agree on the Calculate Net Cash as of the
Effective Date (the "Closing Net Cash"). At least 5 Business Days prior to the
Effective Date, the Company shall deliver to Parent and Purchaser a certificate
(the "Closing Net Cash Certificate") of the Chief Executive Officer and Chief
Financial Officer of the Company setting out the Closing Net Cash, as agreed to
by Parent and the Company, as at the Effective Time and certifying the amount of
the Closing Net Cash as at the Effective Time. If the Closing Net Cash as
determined by Parent is less than US$1,250,000, Parent shall reduce the Cash
Consideration by a pro rata amount. The pro rata reduction of the Cash
Consideration shall be calculated by dividing the Net Cash Deficiency (as
defined below) by the Aggregate Outstanding Company Common Stock, which amount
shall be rounded to the nearest whole cent. The resulting quotient shall be
subtracted from the Cash Consideration. For the purpose of this Agreement, "Net
Cash Deficiency" means the difference between the Targeted Net Cash and Parent's
good faith calculation of the Closing Net Cash.
SECTION 6.15 MAINTAIN INSURANCE
From the date of this Agreement to the Effective Date, the Company shall, and
shall cause each Company Subsidiary to, maintain insurance on and in respect of
the business and assets of the Company and the Company Subsidiaries in like kind
to, and in an amount not less than the amount of, insurance in respect thereof
in effect on the date hereof.
SECTION 6.16 FULFILLMENT OF CONDITIONS
The Company shall use its best efforts to fulfill or cause the
fulfillment of the conditions set forth in Section 7.01 and Section 7.02 to the
extent the fulfillment of the same is fully or partially within the control of
the Company.
SECTION 6.17 INDEPENDENT COMMITTEE
The board of directors of the Company shall have appointed a
committee consisting of independent directors of the Company (the "Independent
Committee"). ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have disclosed to the Independent Committee
the aggregate Cash Consideration that he expects he will be beneficially
entitled to receive, under the terms of the Transaction, in exchange for shares
of Company Common Stock beneficially owned by him. The Independent Committee,
acting in good faith, shall have determined that the value of the Bonus is less
than 5% of the value of the aggregate Cash Consideration that ▇▇. ▇▇▇▇▇▇▇▇
expects to receive pursuant to the Transaction (the "Independent Committee's
Determination"). The Company shall disclose in the Circular the Independent
Committee's Determination.
SECTION 6.18 PRIVACY POLICIES.
Within two weeks of the date of this Agreement, the Company shall
have established and implemented all written policies, practices and procedures
required under applicable Privacy Laws, including without limitation, written
49
documentation relating to the physical, technical and administrative safeguards
necessary to protect Personal Information in the custody and control of Company
from loss, theft, and unauthorized Processing. During such two week period, the
Company shall consult with Parent regarding such written policies, practices and
procedures and shall make such changes to the written policies, practices and
procedures as requested by Parent, acting in a commercially reasonable manner.
All such written policies, practices and procedures shall be satisfactory to
Parent acting in a commercially reasonable manner, taking into account privacy
best practices for highly sensitive Personal Information
ARTICLE VII
CONDITIONS
SECTION 7.01 CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO
EFFECT THE ARRANGEMENT.
The respective obligations of each party hereto to effect the
Arrangement shall be subject to the fulfillment or satisfaction, prior to or on
the Effective Date of the following conditions:
(a) Approvals. All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting periods
imposed by (including without limitation, expiration of any waiting period under
the Competition Act (Canada) or the Investment Canada Act), any governmental or
regulatory authority, domestic or foreign, which the failure to obtain, make or
occur would have the effect of making the Arrangement or any of the transactions
contemplated hereby illegal or would have a Parent Material Adverse Effect
assuming the Transaction had taken place, shall have been given or shall be in
effect.
(b) No Injunction. There shall not be in force any restraining
order, preliminary or permanent injunction, decree or other order from any court
of competent jurisdiction or other Governmental Authority restraining,
prohibiting, preventing or enjoining the consummation of the Transaction and
there shall be no proceeding, whether of a judicial or administrative nature or
otherwise brought by a Governmental Authority that relates to or results from
the Transaction that would, if successful, result in an order or ruling that
would preclude completion of the Transaction in accordance with the terms and
conditions hereof, would otherwise be inconsistent with any approvals which have
been obtained or would result in a Material Adverse Effect on the Company or the
Company Subsidiaries.
(c) Securityholder Approval. The Arrangement shall have been duly
approved at the Company Meeting by (i) not less than two-thirds of the votes
cast by the holders of Company Common Stock, voting as a separate class, present
in person or represented by proxy at the Company Meeting, and if applicable by a
majority of the minority shareholders (as such term is defined in the Canadian
Securities Laws), and (ii) not less than two-thirds of the votes cast by the
Company Warrantholders, voting as a separate class, present in person or
represented by proxy at the Company Meeting.
(d) Material Limitations. No Order or Law enacted, promulgated,
enforced or issued by any court or other Governmental Authority of competent
50
jurisdiction shall be in effect which restrains or enjoins the consummation of
the Arrangement or makes the Arrangement or other transactions contemplated by
this Agreement illegal.
SECTION 7.02 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
PURCHASER.
The obligations of Parent and Purchaser to complete the Transaction
shall be subject to the fulfillment or satisfaction, prior to or on the
Effective Date, of each of the following conditions precedent:
(a) Performance of Obligations; Representations and Warranties;
Dissent Rights.
(i) The Company shall have performed in all material respects
and complied in all material respects with all covenants, agreements and
conditions contained in this Agreement that are required to be performed or
complied with by it prior to or at the Effective Date. The Company's
representations and warranties in each Section of Article III of this Agreement
shall be true and correct in all respects as of the Effective Date with the same
effect as though such representations and warranties were made on and as of the
Effective Date (provided that any representation and warranty that addresses
matters only as of a certain date shall be true and correct as of that certain
date), except for changes permitted by this Agreement and except where the
failure of such representation and warranty to be true and correct in all
respects would not have or would not be reasonably likely to result in a Company
Material Adverse Effect. Parent shall have received a certificate dated the
Effective Date and signed by the Chief Executive Officer of the Company,
certifying that, the conditions specified in this Section 7.02 have been
satisfied; and
(ii) holders of shares of Company Common Stock representing in
the aggregate 7.5% or more of the issued and outstanding Company Common Stock
immediately prior to the Effective Date shall not have demanded or exercised
Dissent Rights.
(b) Material Adverse Change. Between the date hereof and the
Effective Date, there shall not have occurred in the judgment of the Parent a
Material Adverse Change with respect to the Company or the Company Subsidiaries,
taken individually or as a whole.
(c) Resolutions. The Company Board shall have adopted all necessary
resolutions, and all other necessary corporate action shall have been taken by
the Company and the Company Subsidiaries, to permit the consummation of the
Transaction.
(d) Resignations. The directors of the Company shall have tendered
to Parent resignations satisfactory to Parent, and such resignations shall be
effective at the Effective Time.
(e) Support Agreements. The Support Agreements executed
contemporaneously with this Agreement by the Company Insiders and Support
Warrantholders shall be in full force and effect on the Effective Date.
(f) Capitalization of the Company and Aggregate Cash Consideration.
Subject to Section 6.10, immediately prior to the Effective Time there shall be
51
issued and outstanding not more than 15,235,903 shares of Company Common Stock
including not more than 1,111,111 shares of Company Common Stock which shall
have been issued upon conversion of the Company Debentures. Subject to Section
6.10, the aggregate Cash Consideration payable pursuant to this Agreement shall
not exceed US$12,500,000.
(g) Assets and Liabilities. At the Effective Date, there shall not
be any material adverse change in the assets and Liabilities of the Company from
the Annual Financial Statements.
(h) Consents. Each of the consents referred to in Section 3.04 shall
have been obtained.
(i) Employees. At the Effective Time, (1) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have
entered into a transition services and non-competition agreement with Parent in
form and substance satisfactory to ▇▇. ▇▇▇▇▇▇ and Parent, and (2) ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ and any other employee identified by Parent in its sole discretion
shall have entered into an employment and non-compete agreement with Parent in
form and substance satisfactory to Parent, provided however that any employee
who is required by Parent to enter into such an employment and non-compete
agreement will not be offered a compensation package that represents a material
reduction from his or her current compensation package. ▇▇. ▇▇▇▇▇▇▇▇'▇ agreement
shall provide for a bonus (the "Bonus") payment not to exceed US$48,000 (subject
to pro rata adjustment if the Cash Consideration is adjusted in accordance with
this Agreement, such that the Bonus shall be less than 5% of the aggregate Cash
Consideration received by ▇▇. ▇▇▇▇▇▇▇▇ pursuant to the Arrangement) and for
other compensation and benefits not to exceed his current compensation and
benefits.
(j) Company Stock Options. The Option Termination Agreements
executed by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall be in full force and effect
on the Effective Date. All of the Company Stock Options outstanding on the date
hereof shall have been terminated prior to the Effective Time in accordance with
Section 6.09.
(k) Dissent Rights. Holders of shares of Company Common Stock
representing in the aggregate 7.5% or more of the issued and outstanding Company
Common Stock immediately prior to the Effective Date shall not have validly
exercised Dissent Rights.
(l) Tax Matters. The Company shall have provided to Parent and its
tax advisors all documents requested by Parent or its tax advisors relating to
the tax matters of the Company and the Company Subsidiaries (including without
limitation the Tax Returns referred to in Section 3.16(a)), and such documents
shall be satisfactory to Parent acting in a commercially reasonable manner. At
the Effective Time, the Company and its Subsidiaries shall not have any
significant Tax Liability.
(m) Restructuring of Company Subsidiaries. The Company shall have
provided to Parent and its advisors all documents relating to the settlement of
the following debts: (i) $1,173,000 settled on the issuance of 721,846 shares of
Company Common Stock and 234,600 Company 2007 Warrants; (ii) $2,056,000 settled
on the issuance of 1,265,231 shares of Company Common Stock and the Company 2004
Series B Warrants; (iii) $330,000 settled on the issuance of 203,077 shares of
52
Company Common Stock and 66,000 Company 2007 Warrants; and (iv) $389,258 settled
on the issuance of 239,543 shares of Company Common Stock and 77,851 Company
2007 Warrants. The Company shall have provided to Parent and its advisors all
documents relating to the incorporation, organization and reorganization of
Comnetix, Inc. (Delaware), International Fingerprinting Services Canada (IFSC)
Ltd., PTS Acquisition Corp., Paragon Total Solutions Inc. and Comnetix (SE),
Inc., including the merger of PTS Acquisition Corp. and Paragon Total Solutions
Inc., the merger of Comnetix, Inc. (Delaware) and Comnetix (SE), Inc., the
winding up and dissolution of International Fingerprinting Services Canada
(IFSC) Inc. All of the documents referred to in this Section shall be
satisfactory to Parent acting in a commercially reasonable manner.
(n) Annual Financial Statements. The Company shall have delivered to
Parent the Annual Financial Statements. On or prior to December 15, 2006, the
Company shall have delivered to Parent a reconciliation of the Annual Financial
Statements to United States generally accepted accounting principles, which
reconciliation shall comply with the requirements of the SEC. For the purpose of
preparing such reconciliation, the Company shall fully cooperate with its
auditors and shall provide all information required by its auditors for the
preparation of such reconciliation. Parent shall be responsible for paying the
fees of the Company's auditors relating to the preparation of such
reconciliation.
(o) Amendment to Escrow Agreement. Prior to the Effective Date, the
Company shall have caused the parties to the escrow agreement (the "Escrow
Agreement") dated as of July 25, 2005 among the Company, the former shareholders
of Paragon Total Solutions Inc., ▇▇▇▇ ▇▇▇▇▇▇ and Computershare Trust Company of
Canada (the "Escrow Agent") to execute an amendment to the Escrow Agreement to
stipulate that the Cash Consideration payable pursuant to the Transaction in
respect of the shares of Company Common Stock held in escrow pursuant to the
Escrow Agreement shall be paid to, and held in escrow, by the Escrow Agent in
accordance with the terms of the Escrow Agreement. Such amendment to the Escrow
Agreement shall be in form and substance satisfactory to Parent acting in a
commercially reasonable manner.
SECTION 7.03 CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS.
The obligations of the Company to effect the Transaction shall be
subject to the fulfillment or satisfaction, prior to or on the Effective Date,
of the following conditions precedent:
Performance of Obligations; Representations and Warranties. Parent
and the Purchaser shall have performed in all material respects and complied in
all material respects with all agreements and conditions contained in this
Agreement that are required to be performed or complied with by it prior to or
at the Effective Date. Each of the representations and warranties of Parent and
Purchaser in each Section of ARTICLE IV of this Agreement shall be true and
correct in all respects as of the Effective Date with the same effect as though
such representations and warranties were made on and as of the Effective Date
(provided that any representation and warranty that addresses matters only as of
a certain date shall be true and correct as of that certain date), except for
changes permitted by this Agreement and except where the failure of such
representation and warranty to be true and correct in all respects would not
53
have or would not be reasonably likely to result in a Parent Material Adverse
Effect, provided that the Company shall have received a certificate dated the
Effective Date and signed by the Executive Vice President and Chief Financial
Officer of Parent, certifying that, the conditions specified in this Section
7.03 have been satisfied.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 TERMINATION BY MUTUAL CONSENT.
This Agreement may be terminated and the Transaction may be
abandoned at any time prior to the Effective Date, whether before or after the
approval by the Company Securityholders referred to in Section 7.01(c), by
mutual written consent of the Company and Parent.
SECTION 8.02 TERMINATION BY EITHER PARENT OR THE COMPANY.
This Agreement may be terminated and the Transaction may be
abandoned at any time prior to the Effective Date by action of the Board of
Directors of either Parent or the Company if (a) the Transaction shall not have
been completed by the Drop Dead Date, whether such date is before or after the
date of approval by the Company Securityholders (the "Termination Date"); (b)
the approval of the Company Securityholders required by Section 7.01(c) shall
not have been obtained at a meeting duly convened therefor or at any adjournment
or postponement thereof; or (c) any Governmental Authority of competent
jurisdiction shall have issued a non-appealable final order, decree, decision or
ruling permanently restraining, enjoining or otherwise prohibiting consummation
of the Transaction; provided, that the right to terminate this Agreement
pursuant to clause (a) or (b) above shall not be available to any party that has
breached or failed to fulfill any of its obligations under this Agreement in any
manner that shall have caused the occurrence of the failure of the Transaction
to occur before the Termination Date or the failure to obtain the approval of
the Company Securityholders.
SECTION 8.03 TERMINATION BY THE COMPANY.
This Agreement may be terminated and the Transaction may be
abandoned at any time prior to the receipt of the approval of the Company
Securityholders required by Section 7.01(c), by action of the Board of Directors
of the Company:
(a) if (i) the Company is not in material breach of any of the terms
of this Agreement, (ii) the Company after fully complying with Section 6.02
enters into a Proposed Agreement in respect of a Superior Proposal, and (iii)
the Company prior to such termination pays to Parent in immediately available
funds the amounts required to be paid pursuant to Section 8.05(b).
(b) at any time prior to the Effective Date, if there is a material
breach by Parent of any representation, warranty, covenant or agreement made by
it contained in this Agreement or if any representation or warranty made by
Parent shall have become materially untrue, in either case such that the
conditions set forth in Section 7.03 would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have become
54
untrue, provided, that if such inaccuracy in Parent's representations and
warranties or breach by Parent is curable by Parent through the exercise of its
reasonable commercial efforts, the Company may not terminate this Agreement
under this Section 8.03(b) for 20 Business Days after delivery of written notice
from the Company to Parent of such breach, provided that Parent continues to
exercise reasonable commercial efforts to cure such breach (it being understood
that the Company may not terminate this Agreement pursuant to this paragraph (b)
if such breach is cured during such 20 Business Day period).
SECTION 8.04 TERMINATION BY PARENT.
This Agreement may be terminated and the Transaction may be
abandoned at any time prior to the Effective Time, whether before or after the
receipt of the approval of the Company Securityholders required by Section
7.01(c), by written notice given to the Company by Parent:
(a) if the Company or its Board of Directors shall have (i)
withdrawn, modified or amended in any respect adverse to Parent the
Recommendation or failed to reconfirm the Recommendation (as required by Section
6.02(g)), (ii) approved, publicly recommended or entered into an agreement with
respect to, or consummated, or adopted a resolution to approve, publicly
recommend, enter into an agreement with respect to, or consummate, any Competing
Transaction from a person other than Parent or any of its Affiliates, (iii)
failed to publicly recommend rejection of any Competing Transaction (as required
by Section 6.02(g)), or (iv) failed to include in the Circular the
Recommendation;
(b) at any time prior to the Effective Date, if there is a material
breach by the Company of any representation, warranty, covenant or agreement
made by it contained in this Agreement or if any representation or warranty made
by the Company shall have become materially untrue, in either case such that the
conditions set forth in Section 7.02(a) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have become
materially untrue, provided, that if such inaccuracy in the Company's
representations and warranties or breach by the Company is curable by the
Company through the exercise of its reasonable commercial efforts, Parent may
not terminate this Agreement under this Section 8.04(b) for 20 Business Days
after delivery of written notice from Parent to the Company of such breach,
provided that the Company continues to exercise reasonable commercial efforts to
cure such breach (it being understood that Parent may not terminate this
Agreement pursuant to this paragraph (b) if such breach is cured during such 20
Business Day period);
(c) at any time prior to the Effective Date, if there is a material
breach by a Company Insider of any representation, warranty, covenant or
agreement made by it contained in a Support Agreement or if any representation
or warranty made by a Company Insider shall have become materially untrue,
provided, that if such inaccuracy in the Company Insider's representations and
warranties or breach by the Company Insider is curable by the Company Insider
through the exercise of its reasonable commercial efforts, Parent may not
terminate this Agreement under this Section 8.04(c) for 20 Business Days after
delivery of written notice from Parent to the Company Insider of such breach,
provided that the Company Insider continues to exercise reasonable commercial
efforts to cure such breach (it being understood that Parent may not terminate
55
this Agreement pursuant to this paragraph (c) if such breach is cured during
such 20 day business period);
(d) if the Company or its Board of Directors shall have approved,
publicly recommended or entered into an agreement with respect to, or
consummated, or adopted a resolution to approve, publicly recommend, enter into
an agreement with respect to, or consummate, a Superior Proposal; or
(e) holders of shares of Company Common Stock representing in the
aggregate 7.5% or more of the issued and outstanding Company Common Stock
immediately prior to the Effective Date have validly exercised Dissent Rights.
SECTION 8.05 EFFECT OF TERMINATION AND ABANDONMENT.
(a) In the event of termination of this Agreement by Parent or
Company, as provided in this Article VIII, this Agreement (other than as set
forth below) shall forthwith become void and there shall be no liability
hereunder on the part of the Company, Parent, or Purchaser or their respective
officers or directors to perform any of their obligations hereunder (except that
Section 6.01(b), Section 8.05, Section 9.03, Section 9.09 and Section 9.10 shall
survive the termination); provided, however, that nothing contained in this
Section 8.05 shall relieve any party from any Liability for any willful or
intentional breach of this Agreement.
(b) In the event that this Agreement is terminated (i) by the
Company or by Parent pursuant to section 8.02(a) or 8.02(b), (ii) by the Company
pursuant to Section 8.03(a) or Section 8.03(b) or (iii) by Parent pursuant to
Section 8.04(a), Section 8.04(b), Section 8.04(c), Section 8.04(d) or Section
8.04(e) then the Company shall (x) promptly, but in no event later than the
earlier of the date of such termination of this Agreement or, if applicable, the
date of entrance into an agreement concerning a Superior Proposal or such
earlier time as required by this Agreement, pay to Parent a termination fee
equal to 5% of the product of US$0.82 multiplied by the Aggregate Outstanding
Company Common Stock (the "Termination Fee") and a further US $500,000 as
reimbursement of Parent's out-of-pocket costs and expenses (the "Expense
Reimbursement") payable by wire transfer of same day funds. The payment of the
Termination Fee and Expense Reimbursement shall not relieve the Company and its
Subsidiaries from any Liability for a breach or failure to comply with the
provisions of this Agreement.
(c) Notwithstanding Section 8.05(b), if the Company or Parent
terminates this Agreement pursuant to Section 8.02(a) or the Company terminates
this Agreement pursuant to Section 8.03(b) or Parent terminates this Agreement
pursuant to Section 8.04(b), then in each such case the Termination Fee and
Expense Reimbursement shall only be payable if prior to termination of this
Agreement the Company shall have received from any Person other than Parent a
Competing Transaction or any Person other than Parent shall have communicated to
the Company its intention (whether or not conditional) to make a Competing
Transaction, and if within 12 months of such termination, the Company enters
into an agreement with such Person concerning a transaction that constitutes a
Competing Transaction.
56
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Subject to Section 8.05(a), the representations and warranties of each of the
Company, Parent and the Purchaser contained herein shall not survive the
completion of the Transaction and shall expire and be terminated on the earlier
of the termination of this Agreement in accordance with its terms and the
Effective Time.
SECTION 9.02 AMENDMENTS, MODIFICATION AND WAIVER.
(a) Except as may otherwise be provided herein, any provision of
this Agreement may be amended, modified or waived by the parties hereto, by
action taken by or authorized by their respective Board of Directors, prior to
the Effective Date if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company and Parent or, in the case
of a waiver, by the party against whom the waiver is to be effective; provided
further, however, that, after the approval of this Agreement by the Company
Securityholders, no such amendment shall be made except as allowed under
applicable Law.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 9.03 NOTICES.
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by telecopy, by overnight
delivery service or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section 9.03):
if to Parent or Purchaser:
L-1 Identity Solutions, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Executive Vice President, Chief Legal Officer and Secretary
57
with copies to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇-▇▇▇▇▇▇▇▇ ▇▇▇▇. ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ (▇▇▇▇▇▇) ▇▇▇ ▇▇▇
F 514 846.3427
Attention: ▇▇▇▇ ▇▇▇▇▇▇
if to the Company:
Comnetix Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chairman and Chief Executive Officer
with copies to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
or to such other person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless if mailed, in which case on the third business day after the
mailing thereof except for a notice of a change of address, which shall be
effective only upon receipt thereof.
SECTION 9.04 SEVERABILITY.
If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of Law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the Transaction
is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the Transaction be
consummated as originally contemplated to the fullest extent possible.
SECTION 9.05 ENTIRE AGREEMENT; ASSIGNMENT.
This Agreement, together with the Annexes, Exhibits and Schedules
hereto and the Confidentiality Agreement, constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and undertakings, both written and oral, among the parties, or any of
58
them, with respect to the subject matter hereof. This Agreement shall not be
assigned (whether pursuant to a merger, by operation of law or otherwise)
without the prior written consent of each party hereto.
SECTION 9.06 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
SECTION 9.07 INTERPRETATION.
References herein to the "knowledge of the Company" shall mean the
actual knowledge of the "officers" (as such term is defined in the Securities
Act (Ontario)), of the Company and each Company Subsidiary, or any knowledge
that would have been acquired by any such individual upon making a reasonable
inquiry of such other employees who would, based on the employment duties of
such other employees (without making any inquiries of third parties), reasonably
be expected to have knowledge of the subject matter to which this definition
relates. References herein to the "knowledge of Parent" shall mean the actual
knowledge of the "officers" of Parent (as such term is defined in Rule 3b-2
promulgated under the Exchange Act). Whenever the words "include", "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation". The phrase "made available" when used in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available.
References to "hereof" shall mean this Agreement and references to the "date
hereof" shall mean the date of this Agreement. References in this Agreement to
satisfaction of any condition set forth in Article VII shall mean, as of such
date of determination, the absence of the event or circumstance described in
such condition. The parties acknowledge that the parties and their counsel have
reviewed and revised this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any other
agreement or document given pursuant to this Agreement.
SECTION 9.08 SPECIFIC PERFORMANCE.
The parties hereto agree that irreparable damage would occur in the
event any provision of this Agreement were not performed in accordance with the
terms hereof and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or in equity.
SECTION 9.09 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof, except to the
extent mandatorily governed by the law of another jurisdiction. Each of the
parties hereto (i) irrevocably consents to the exclusive jurisdiction and venue
of the Courts of the State of Delaware in connection with any matter based upon
or arising out of this Agreement or the matters contemplated herein, except as
59
has otherwise been agreed to with respect to the consideration of the
Arrangement by the Court pursuant to ARTICLE II hereof, and (ii) waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction, venue and such process.
SECTION 9.10 WAIVER OF JURY TRIAL.
Each of the parties hereto hereby waives to the fullest extent
permitted by applicable Law any right it may have to a trial by jury with
respect to any litigation directly or indirectly arising out of, under or in
connection with this Agreement or the Transaction. Each of the parties hereto
(a) certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce that foregoing waiver and (b) acknowledges
that it and the other parties hereto have been induced to enter into this
Agreement and the Transaction, as applicable, by, among other things, the mutual
waivers and certifications in this Section 9.10.
SECTION 9.11 HEADINGS.
The descriptive headings contained in this Agreement are included
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.12 COUNTERPARTS.
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
SECTION 9.13 CURRENCY.
For greater certainty, all dollar amounts expressed in this
Agreement (unless otherwise expressly provided for herein) or in the Company
Disclosure Schedule (unless otherwise expressly provided for therein) are in
Canadian dollars.
SIGNATURE PAGE FOLLOWS
60
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
L-1 IDENTITY SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Title: Chairman, President and CEO
--------------------------------
6653375 CANADA INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Title: Chairman and President
--------------------------------
COMNETIX INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Title: Chairman and CEO
--------------------------------
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
Title: President and COO
--------------------------------