EXHIBIT 2.1
ACQUISITION AGREEMENT
BY AND AMONG
SUN MICROSYSTEMS, INC.,
NIWOT ACQUISITION CORP.,
3055855 NOVA SCOTIA COMPANY,
514713 N.B. INC.
ISOPIA INC.
ELEMENT K (NOVA SCOTIA) COMPANY,
ELEMENT K NEWCO (NOVA SCOTIA) COMPANY,
ELEMENT K LLC,
THE SHAREHOLDERS LISTED ON SCHEDULE A HERETO,
AND WITH RESPECT TO ARTICLES VII AND XI ONLY
ELEMENT K LLC,
AS SHAREHOLDER REPRESENTATIVE,
AND
U.S. BANK TRUST, NATIONAL ASSOCIATION,
AS ESCROW AGENT
Dated as of June 19, 2001
TABLE OF CONTENTS
Page
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Article I THE ARRANGEMENT................................................ 3
1.1 Closing....................................................... 3
1.2 Effective Date................................................ 3
1.3 Implementation Steps by the Company........................... 3
1.4 Interim Order................................................. 4
1.5 Articles of Arrangement....................................... 4
1.6 Consideration Payable to the Shareholders..................... 5
1.7 Consideration Payable to Element K and the Debentureholders... 6
1.8 Contribution to Escrow........................................ 6
1.9 Waivers....................................................... 7
1.10 Withholding Taxes............................................. 7
1.11 Fractional Shares............................................. 11
1.12 Shareholder Loans............................................. 12
1.13 Lost, Stolen or Destroyed Certificates........................ 12
1.14 Legends....................................................... 12
1.15 Assumption of Company Options................................. 12
1.16 Taking of Necessary Action; Further Action.................... 13
Article II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL SHAREHOLDERS................................................... 13
2.1 Organization of the Company................................... 14
2.2 Company Capital Structure..................................... 14
2.3 Subsidiaries.................................................. 15
2.4 Authority..................................................... 16
2.5 No Conflict................................................... 16
2.6 Consents...................................................... 17
2.7 Company Financial Statements.................................. 17
2.8 No Undisclosed Liabilities.................................... 17
2.9 No Changes.................................................... 18
2.10 Tax Matters................................................... 20
2.11 Restrictions on Business Activities........................... 23
2.12 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment........................................ 23
2.13 Intellectual Property......................................... 25
2.14 Agreements, Contracts and Commitments......................... 28
2.15 Interested Party Transactions................................. 29
2.16 Governmental Authorization.................................... 30
2.17 Litigation.................................................... 30
2.18 Accounts Receivable........................................... 30
2.19 Minute Books.................................................. 30
2.20 Environmental Matters......................................... 30
2.21 Brokers' and Finders' Fees; Third Party Expenses.............. 32
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2.22 Employee Benefit Plans and Compensation....................... 32
2.23 Insurance..................................................... 38
2.24 Compliance with Laws.......................................... 38
2.25 Warranties; Indemnities....................................... 38
2.26 Complete Copies of Materials.................................. 38
2.27 Competition Act Compliance; Xxxx-Xxxxx-Xxxxxx Act Compliance.. 38
2.28 Foreign Corrupt Practices Act................................. 39
2.29 Board Approval................................................ 39
2.30 Vote Required................................................. 39
2.31 Representations Complete...................................... 39
Article III REPRESENTATIONS AND WARRANTIES OF THE PARENT PARTIES.......... 39
3.1 Organization, Standing and Power.............................. 39
3.2 Authority..................................................... 40
3.3 No Conflict................................................... 40
3.4 Consents...................................................... 40
3.5 Parent Common Stock........................................... 40
3.6 Broker's and Finders' Fees.................................... 40
3.7 SEC Documents; Parent Financial Statements.................... 40
3.8 Capitalization................................................ 41
3.9 Complete Copies of Materials.................................. 41
3.10 Legal Proceedings............................................. 41
Article IV CONDUCT PRIOR TO THE CLOSING................................... 41
4.1 Conduct of Business of the Company............................ 41
4.2 No Solicitation............................................... 44
Article V ADDITIONAL AGREEMENTS........................................... 45
5.1 Circular...................................................... 45
5.2 Access to Information......................................... 45
5.3 Confidentiality............................................... 46
5.4 Expenses...................................................... 46
5.5 Public Disclosure............................................. 46
5.6 Consents...................................................... 46
5.7 Reasonable Efforts............................................ 46
5.8 Notification of Certain Matters............................... 47
5.9 Additional Documents and Further Assurances................... 47
5.10 S-8 Registration.............................................. 47
5.11 New Options for Employees..................................... 47
5.12 Affiliate Agreements.......................................... 49
5.13 Closing Date Balance Sheet; Interim Balance Sheet;
Satisfaction of Specified Conditions.......................... 49
5.14 Statement of Expenses......................................... 49
5.15 Resignation of Officers and Directors......................... 49
5.16 Termination of Severance Arrangements......................... 49
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5.17 Exemption from Registration; Registration Rights.............. 49
5.18 Issuance of Nonvoting Preferred Stock......................... 52
5.19 Termination of Benefit Plans.................................. 52
5.20 Exchangeable Shares........................................... 52
5.21 Parent Common Stock........................................... 52
5.22 Section 85 Elections.......................................... 52
5.23 Company Shareholders Meeting.................................. 52
5.24 Notice to Element K and Principal Shareholders................ 53
Article VI CONDITIONS TO THE ACQUISITION.................................. 53
6.1 Conditions to Obligations of Each Party to Effect the
Acquisition................................................... 53
6.2 Conditions to the Obligations of the Parent Parties........... 54
6.3 Conditions to Obligations of the Company and the Indemnifying
Securityholders............................................... 57
Article VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW............ 58
7.1 Survival of Representations, Warranties and Covenants......... 58
7.2 Indemnification............................................... 58
7.3 Escrow Arrangements........................................... 59
7.4 Shareholder Representative.................................... 66
7.5 Maximum Payments; Remedy...................................... 67
7.6 Adjustment to Consideration................................... 68
Article VIII TERMINATION, AMENDMENT AND WAIVER............................ 70
8.1 Termination................................................... 70
8.2 Effect of Termination......................................... 71
8.3 Amendment..................................................... 71
8.4 Extension; Waiver............................................. 71
Article IX REPRESENTATIONS AND WARRANTIES OF THE Indemnifying
SECURITYHOLDERS........................................................... 72
9.1 Ownership of Indemnifying Securityholder's Company Securities. 72
9.2 Authority..................................................... 72
9.3 Residency..................................................... 73
9.4 Interested Party Transactions................................. 73
9.5 Element K and EK Holdings Representations..................... 73
Article X PRE-CLOSING REORGANIZATION OF COMPANY SHARE CAPITAL............. 74
10.1 Company Reorganization........................................ 74
10.2 Share Conditions.............................................. 74
Article XI GENERAL PROVISIONS............................................. 75
11.1 Notices....................................................... 75
11.2 Interpretation................................................ 77
11.3 Counterparts.................................................. 77
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11.4 Entire Agreement; Assignment.................................. 77
11.5 Severability.................................................. 78
11.6 Other Remedies................................................ 78
11.7 Governing Law................................................. 78
11.8 Rules of Construction......................................... 78
11.9 WAIVER OF JURY TRIAL.......................................... 78
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INDEX OF ANNEXES
Annexes Description
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Annex A Definitions
INDEX OF EXHIBITS
Exhibit Description
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Exhibit A Form of Non-Competition Agreement
Exhibit B Form of Voting Agreement
Exhibit C Election Form
Exhibit D Form of Repurchase Agreement
Exhibit E Form of Exchange and Support Agreement
Exhibit F Form of Affiliate Agreement
Exhibit G Exchangeable Share Conditions
Exhibit H-1 Form of Legal Opinion of Counsel to the Company
Exhibit H-2 Form of Legal Opinion of Counsel to Element K and EK
Holdings
Exhibit I Form of Amended License Agreement
Exhibit J Arrangement Resolution
Exhibit K Plan of Arrangement
Exhibit L Form of Resignation Letter
INDEX OF SCHEDULES
Schedule Description
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Schedule A Shareholder Information
Schedule 1.6 Example of Allocation of Consideration
Schedule 5.11(c) Scheduled Options
Schedule 6.2(e) Third Party Consents
Schedule 6.2(f) Termination of Agreements
Schedule 6.2(g) Liens
Schedule 6.2(k) Employees
Disclosure Schedule
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THIS ACQUISITION AGREEMENT (the "Agreement") is made and entered into as of
June 19, 2001 by and among Sun Microsystems, Inc., a Delaware corporation
("Parent"), Niwot Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Sub"), 3055855 Nova Scotia Company, a Nova Scotia
unlimited liability company and a wholly-owned subsidiary of Sub ("CallCo"),
514713 N.B. Inc., a New Brunswick corporation and a wholly-owned subsidiary of
CallCo ("ExchangeCo" and collectively with Parent, Sub and CallCo, the "Parent
Parties"), ISOPIA Inc., an Ontario corporation (the "Company"), each of the
individuals or entities set forth on Schedule A to this Agreement (each a
"Principal Shareholder" and collectively, the "Principal Shareholders"), Element
K (Nova Scotia) Company, a Nova Scotia unlimited liability company and Element K
Newco (Nova Scotia) Company, a Nova Scotia unlimited liability company
(collectively, "Element K"), Element K LLC, a Delaware limited liability company
(in such capacity, "EK Holdings"), and with respect to Article VII and Article
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XI hereof, Element K LLC, as Shareholder Representative (in such capacity, the
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"Shareholder Representative"), and U.S. Bank Trust, National Association as
Escrow Agent (the "Escrow Agent"). Capitalized terms used herein shall have the
respective meanings assigned thereto in Annex A attached hereto.
RECITALS
A. The Boards of Directors of each of Parent, Sub, CallCo, ExchangeCo,
and the Company believe it is in the best interests of each company and its
respective shareholders to enter into an acquisition agreement pursuant to which
the Company will become an indirect, wholly-owned subsidiary of Parent, in order
to advance the long-term strategic business interests of the parties.
B. The acquisition of the Company will be effected by the terms of this
Agreement through a plan of arrangement, pursuant to Section 182 of the Ontario
Business Corporations Act (the "OBCA").
C. Pursuant to the Arrangement, and subject to the election by each
holder of Company Shares (each a "Shareholder") to receive in exchange for the
Company Shares owned or held of record by such Shareholder consideration
consisting of either cash or a combination of cash and Exchangeable Shares, (i)
ExchangeCo will acquire a portion of the Company Shares owned or held of record
by the Shareholders in exchange for a certain number of Exchangeable Shares,
(ii) CallCo will acquire the remaining Company Shares owned or held of record by
the Shareholders in exchange for a certain amount of cash, (iii) CallCo will
acquire from Element K the Company Convertible Debenture owned or held of record
by Element K in exchange for a certain amount of cash, and (iv) CallCo will
acquire from the Debentureholders the Shareholder Convertible Debentures owned
or held of record by such Debentureholders in exchange for a certain amount of
cash, all upon the terms and subject to the conditions set forth herein and the
Plan of Arrangement (such transactions, collectively the "Acquisition") such
that upon consummation of the Acquisition, ExchangeCo and CallCo together will
own all of the Company Securities, and the Company will be an indirect wholly-
owned subsidiary of Parent.
D. Parent desires to assume all of the obligations of the Company in
respect of the issued and outstanding Company Options, as set forth in this
Agreement and convert such Company Options into options to purchase Parent
Common Stock.
E. A portion of the consideration otherwise payable by ExchangeCo and
CallCo in connection with the Acquisition to the Principal Shareholders and
Element K (collectively, and together with EK Holdings, the "Indemnifying
Securityholders") will be placed in escrow by ExchangeCo and CallCo as security
for the indemnification obligations of the Indemnifying Securityholders, as set
forth in this Agreement.
F. The Company and the Principal Shareholders, on the one hand, and the
Parent Parties on the other hand, desire to make certain representations,
warranties, covenants and other agreements in connection with the Acquisition.
In addition, the Indemnifying Securityholders desire to make certain
representations, warranties, covenants and other agreements in connection with
the Acquisition.
G. Concurrent with the execution and delivery of this Agreement, as a
material inducement to the Parent Parties to enter into this Agreement, each of
the Key Employees is entering into a Non-Competition Agreement with Parent in
substantially the form attached hereto as Exhibit A (the "Non-Competition
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Agreements").
H. Concurrent with the execution and delivery of this Agreement, as a
material inducement to the Parent Parties to enter into this Agreement, each of
the Indemnifying Securityholders (other than EK Holdings) is entering into a
Voting Agreement with Parent in substantially the form attached hereto as
Exhibit B (the "Voting Agreements").
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I. Concurrent with the execution and delivery of this Agreement, as a
material inducement to the Parent Parties to enter into this Agreement, each of
the Principal Shareholders is delivering to Parent an Election Form in
substantially the form attached hereto as Exhibit C, pursuant to which each
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Founder has irrevocably exercised the Share/Cash Election and pursuant to which
Xxxx Xxxxxxxx has irrevocably exercised the Cash Election.
J. Concurrent with the execution and delivery of this Agreement, as a
material inducement to the Parent Parties to enter into this Agreement, each
Founder is entering into a Repurchase Agreement (the "Repurchase Agreements")
with Parent in substantially the form attached hereto as Exhibit D.
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K. Concurrent with the execution and delivery of this Agreement, as a
material inducement to the Parent Parties to enter into this Agreement, each of
the directors of the Company is delivering to Parent a resignation letter
substantially in the form attached hereto as Exhibit L.
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L. The parties intend, by executing this Agreement, that the
consideration payable in connection with the Acquisition by ExchangeCo to
Shareholders who are "residents" of Canada for the purposes of the Income Tax
Act (Canada) (the "ITA") generally will be received by each such Shareholders
without immediate recognition of gain or loss pursuant to the ITA and that the
consideration payable by CallCo and ExchangeCo in the Acquisition generally will
be received by Shareholders and holders of other Company Securities who are
"residents" of the U.S. as taxable property under the Internal Revenue Code of
1986, as amended (the "U.S. Code").
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
other premises set forth herein, the mutual benefits to be gained by the
performance thereof, and for other
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good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and accepted, the parties hereby agree as follows:
ARTICLE I
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THE ARRANGEMENT
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1.1 Closing. Subject to the conditions set out in Article VI and the
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termination rights set forth in Article VIII, the closing of the Arrangement
(the "Closing") will take place at the offices of Stikeman Elliott, 0000
Xxxxxxxx Xxxxx Xxxx, 000 Xxx Xxxxxx, Xxxxxxx, Xxxxxx X0X 0X0, 10:00 a.m. local
time, one (1) Business Day after all the conditions set forth in Article VI
hereof have been satisfied or waived (subject to applicable law and other than
those conditions which, by their terms, are to be satisfied or waived on the
Closing Date), or on such other date, time and place as the Parent and the
Company may agree to in writing. The date upon which the Closing actually occurs
is herein referred to as the "Closing Date. "
1.2 Effective Date. The Arrangement shall become effective at 12:01
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a.m. (Toronto time) upon the date shown on the certificate of arrangement to be
issued by the Director under the OBCA (such date and time that the Arrangement
becomes effective being the "Effective Date" and the "Effective Time").
1.3 Implementation Steps by the Company. The Company covenants and
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agrees that the Company shall:
(a) subject to the terms of this Agreement, as soon as reasonably
practicable after the date hereof, apply in a manner acceptable to Parent,
acting reasonably, under Section 182 of the OBCA for the Interim Order;
(b) subject to the terms of this Agreement and the Interim Order,
convene and hold the Company Shareholders Meeting for the purpose of considering
the Arrangement Resolution;
(c) not adjourn, postpone or cancel (or propose for adjournment,
postponement or cancellation) the Company Shareholders Meeting without Parent's
prior written consent except (i) as required for quorum purposes, (ii) as
required by Law, or (iii) as required by the requisite vote of the Shareholders,
the holders of the Company Convertible Debenture, the Shareholder Convertible
Debentures and the Company Options (whether vested or unvested), in each case on
an as converted or exercised basis and voting together as a single class with
the Shareholders (collectively, the "Voting Securityholders");
(d) take all other action that is necessary or desirable to secure
the approval of the Arrangement Resolution by the Voting Securityholders by the
Required Company Vote;
(e) subject to obtaining the approvals as are required by the Interim
Order (which shall be diligently pursued), proceed with and diligently pursue
the application to the Court for the Final Order; and
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(f) 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 OBCA to give effect to the Arrangement.
1.4 Interim Order. The notice of motion for the application referred
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to in Section 1.3(a) shall request that the Interim Order provide:
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(a) for the class of Persons to whom notice is to be provided in
respect of the Arrangement and the Company Shareholders 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 Voting
Securityholders present in person or by proxy at the Company Shareholders
Meeting voting on an as converted or exercised basis and voting together as a
single class or as may be decided by the Court (the "Required Company Vote");
(c) for the grant of the Dissent Rights; and
(d) that, in all other respects, the terms, restrictions and
conditions of the bylaws and articles of amalgamation of the Company, including
quorum requirements and all other matters, shall apply in respect of the Company
Shareholders Meeting.
1.5 Articles of Arrangement. The Articles of Arrangement shall
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provide, among other things, that at the Effective Time, and upon the terms and
subject to the conditions of this Agreement and the Plan of Arrangement, the
following events shall take place in the order set out below:
(a) if required by the Parent Parties, that the Company
Reorganization be implemented in accordance with Article X hereof;
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(b) each Company Share in respect of which the consideration payable
to the holder thereof is in cash (in accordance with Section 1.6 below), will be
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transferred by the holder thereof, without any further act or formality on the
part of such holder, to CallCo and the name of each such holder will be removed
from the Company's register of holders of Company Shares and CallCo will be
recorded as the holder of such Company Shares so exchanged and will be deemed to
be the legal and beneficial holder thereof;
(c) each Company Share in respect of which the consideration payable
to the holder thereof is in Exchangeable Shares (in accordance with Section 1.6
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below), will be transferred by the holder thereof, without any further act or
formality on the part of such holder, to ExchangeCo and the name of each such
holder will be removed from the Company's register of holders of Company Shares
and added to the register of holders of Exchangeable Shares, and ExchangeCo will
be recorded as the holder of such Company Shares so exchanged and will be deemed
to be the legal and beneficial holder thereof;
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(d) the Company Convertible Debenture will be transferred by Element
K to CallCo for the consideration set out in Section 1.7 below, without any
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further act or formality on the part of Element K, and the name of Element K
will be removed from the Company's register of holders of Company Convertible
Debentures and CallCo will be recorded as the holder of the Company Convertible
Debenture and will be deemed to be the legal and beneficial holder thereof;
(e) each Shareholder Convertible Debenture will be transferred by the
holder thereof to CallCo for the consideration set out in Section 1.7 below,
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without any further act or formality on the part of such holder, and the name of
each such holder will be removed from the Company's register of holders of the
Shareholder Convertible Debentures and CallCo will be recorded as the holder of
such Shareholder Convertible Debentures and will be deemed to be the legal and
beneficial holder thereof;
(f) subject to applicable securities laws and regulatory
requirements, each Company Option that is outstanding and unexercised at or
immediately prior to the Effective Time will be assumed by Parent in accordance
with Section 1.15 hereof;
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(g) immediately after the transfer of the Company Convertible
Debenture by Element K to CallCo, without any further act or formality on the
part of CallCo, the Company Convertible Debenture will be converted into
7,394,574 Company Shares, or if the Company Reorganization is implemented,
7,394,574 New Common Shares in the capital of the Company; and
(h) coincident with the transactions set out above in this Section
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1.5, Parent, Sub, CallCo, ExchangeCo and the Shareholder Representative will
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execute the Exchange and Support Agreement (the "Exchange and Support
Agreement") in substantially the form attached hereto as Exhibit E, with such
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changes as the parties hereto may agree in writing;
1.6 Consideration Payable to the Shareholders. Subject to Sections
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1.8, 1.10, 1.11 and 1.12, each Shareholder shall have the right to elect one of
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the following options:
(a) a Shareholder may elect to: (A) (i) exchange with CallCo twenty
five percent (25%) of the Company Shares held by such Shareholder at the
Effective Time in consideration for an amount of cash per Company Share so
exchanged equal to the Cash Exchange Ratio; and (ii) exchange with ExchangeCo
the remaining seventy-five percent (75%) of the Company Shares held by such
Shareholder at the Effective Time in consideration for a number of Exchangeable
Shares, in which case ExchangeCo will issue to such Shareholder for each Company
Share so exchanged a number of Exchangeable Shares equal to the Share Exchange
Ratio; or (B) if the Company Reorganization is implemented in accordance with
Article X hereof, (i) exchange with CallCo all of the New Common Shares held by
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such Shareholder at the Effective Time in consideration for an amount of cash
for each New Common Share so exchanged equal to the Cash Exchange Ratio; and
(ii) exchange with ExchangeCo all of the Preferred Shares held by such
Shareholder at the Effective Time in consideration for a number of Exchangeable
Shares, in which case ExchangeCo will issue to such Shareholder for each
Preferred Share so exchanged a number of Exchangeable Shares equal to Share
Exchange Ratio (collectively, the "Share/Cash Election", and each Shareholder
making the Share/Cash Election being referred to as an "Exchanging
Shareholder"); or
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(b) a Shareholder may elect to: (A) sell to CallCo all of the Company
Shares held by such Shareholder at the Effective Time in consideration for an
amount of cash for each Company Share so sold equal to the Cash Exchange Ratio;
or (B) if the Company Reorganization is implemented in accordance with Article X
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hereof, sell to CallCo all of the Preferred Shares and New Common Shares held by
such Shareholder at the Effective Time in consideration for an aggregate amount
of cash equal to the number of Preferred Shares and New Common Shares so sold
multiplied by the Cash Exchange Ratio (collectively, the "Cash Election", and
each Shareholder making, or being deemed to have made, the Cash Election being
referred to as a "Tendering Shareholder").
(c) For illustrative purposes only, an example of the consideration
to be paid or allocated to a Shareholder pursuant to the Share/Cash Election and
the Cash Election is set forth on Schedule 1.6 hereto.
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(d) Each Shareholder may exercise either the Cash Election or the
Share/Cash at any time following the date hereof until the Election Deadline by
executing and delivering to Parent an election in the form set out in Exhibit C.
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Any Shareholder who has not made such an election prior to the Election Deadline
shall be deemed to have exercised the Cash Election.
1.7 Consideration Payable to Element K and the Debentureholders.
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(a) Subject to Sections 1.8 and 1.10, as consideration for the
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Company Convertible Debenture transferred to CallCo pursuant to the Arrangement,
Element K will receive (i) an amount of cash equal to the EK Interest Amount
plus (ii) an amount of cash equal to the Cash Exchange Ratio multiplied by the
total number of Company Shares issuable upon conversion of the Company
Convertible Debenture immediately prior to the Closing.
(b) Subject to Sections 1.8, 1.10 and 1.12, as consideration for the
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Shareholder Convertible Debentures transferred to CallCo pursuant to the
Arrangement, each Debentureholder will be paid such Debentureholder's
Debentureholder Cash Payment.
1.8 Contribution to Escrow. Parent shall cause to be distributed to
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the Escrow Agent an amount of cash representing the Escrow Cash and a
certificate or certificates representing the Escrow Shares which shall be
registered in the name of the Escrow Agent as nominee for each Indemnifying
Securityholder. The Escrow Shares and Escrow Cash shall be held in escrow and
shall be available to compensate Parent for certain damages as provided in
Article VII hereof. The Escrow Shares shall be withheld from the Exchangeable
Shares otherwise issuable to each Founder pursuant to Section 1.6(a) in an
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amount equal to each such Founder's Founder Pro Rata Portion of the Escrow
Shares. The Escrow Shares so withheld from the Exchangeable Shares otherwise
payable to each Founder shall be comprised solely of "Vested Shares" (as defined
in each such Founder's Repurchase Agreement). The Escrow Cash shall be withheld
from the cash otherwise payable to Element K pursuant to Section 1.7 in an
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amount equal to ten percent (10%) of the cash otherwise payable to Element K at
the Closing (other than the EK Interest Amount), and from the cash otherwise
payable to Xxxx Xxxxxxxx pursuant to Section 1.6(b) in an amount equal to ten
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percent (10%) of the cash otherwise payable to Xxxx Xxxxxxxx at the Closing. To
the extent not used for such purposes, such Escrow Shares and Escrow Cash shall
be released as provided in Article VII hereof.
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1.9 Waivers. Each Indemnifying Securityholder, for itself and its
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Affiliates, heirs, personal representatives, successors and assigns
(collectively, the "Releasors"), hereby forever fully and irrevocably releases
and discharges the Parent Parties and the Company and their respective
predecessors, successors, subsidiaries, affiliated entities and past and present
stockholders (direct and indirect), directors, officers, employees, agents, and
representatives (collectively, the "Released Parties") from any and all actions,
suits, claims, demands, debts, sums of money, accounts, reckonings, bonds,
bills, covenants, contracts, agreements, controversies, promises, damages,
judgements, liabilities or obligations of any kind whatsoever in law or equity
and causes of action of every kind and nature, or otherwise (including, without
limitation, claims for damages, costs, expenses, and attorneys', brokers' and
accountants' fees and expenses) that the Releasors can, will or may have against
the Released Parties in each case related to or arising from such Indemnifying
Securityholder's relationship to the Company as securityholder (but not in any
other capacity), whether known or unknown, suspected or unsuspected,
unanticipated as well as anticipated and that now exist or may hereafter accrue
based on matters now unknown as well as known (collectively, the "Released
Claims"), provided that Released Claims shall not include claims arising out of
this Agreement. The Releasors hereby irrevocably agree to refrain from directly
or indirectly asserting any claim or demand or commencing (or causing to be
commenced) any suit, action, or proceeding of any kind, in any court or before
any tribunal, against any Released Party based upon any Released Claim. This
release will be effective at, and not prior to, the Closing.
1.10 Withholding Taxes. Any amounts payable to any Securityholder pursuant
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to this Article I will be subject to, and reduced by, all amounts required to be
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withheld under any applicable state, provincial, federal and foreign taxation
laws in connection with the acquisition of Company Securities and the exchange
of Company Options upon the exercise of Company Options or upon payment of a
bonus in the form of Company Shares, if any, to such Securityholder will be
subject to, and reduced by, all such amounts required to be withheld in
connection with such payment. Without limiting the generality of the foregoing,
the following withholding obligations will apply:
(a) (i) each Debentureholder that is not a resident of Canada for
purposes of the ITA (a "Non-Resident Debentureholder") will provide to CallCo
either a certificate issued pursuant to Section 116 of the ITA in connection
with the transfer by the Non-Resident Debentureholder of the Shareholder
Convertible Debenture pursuant to Section 1.5(e) hereof or written confirmation
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from the CCRA that no such certificate is required at law in connection with the
acquisition by CallCo of the Shareholder Convertible Debentures pursuant to this
Agreement;
(ii) if such a certificate issued by the Minister of National
Revenue pursuant to Subsection 116(2) of the ITA is delivered by the Non-
Resident Debentureholder to CallCo at or prior to Closing and such certificate
fixes a certificate limit (as defined in subsection 116(2) of the ITA) that is
not less than the amount of the Debentureholder Cash Payment, the whole in form
and substance satisfactory to CallCo, CallCo will remit forthwith to the Non-
Resident Debentureholder the Debentureholder Cash Payment;
(iii) if such a certificate issued by the Minister of National
Revenue pursuant to Subsection 116(2) of the ITA is delivered by the Non-
Resident Debentureholder to CallCo at or prior to Closing and such certificate
fixes a certificate limit that is less than the amount of the Debentureholder
Cash Payment, CallCo shall be entitled to withhold twenty-five percent
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(25%) of the amount, if any, by which such Debentureholder Cash Payment exceeds
the certificate limit;
(iv) if a certificate is not so delivered at or prior to
Closing, CallCo shall be entitled to withhold twenty-five percent (25%) of the
Debentureholder Cash Payment;
(v) where CallCo has withheld any amount pursuant to Sections
--------
1.10(a)(iii) or 1.10(a)(iv) hereinabove and the Non-Resident Debentureholder has
------------ -----------
not complied with the conditions of Section 1.10(a)(vii) below by the Business
--------------------
Day which is the day before the date on which CallCo is required to remit the
amount withheld hereunder to the Receiver General of Canada (in this Section
---------------
1.10, referred to as the "Remittance Date"), subject to Section 1.10(a)(vi) the
---- -------------------
amount withheld will be paid by CallCo on the Remittance Date to the Receiver
General of Canada on account of the Non-Resident Debentureholder's liability for
tax pursuant to Section 116 of the ITA and shall also be credited to CallCo as a
payment to the Debentureholder on account of the Debentureholder Cash Payment
attributable to such Non-Resident Debentureholder for the purchase of the
Shareholder Convertible Debenture. Interest, if any, earned on such amount
withheld, as well as the balance of any amount withheld which is not required to
be remitted to the Receiver General of Canada, shall be paid forthwith to the
Non-Resident Debentureholder;
(vi) where CallCo has withheld an amount pursuant to Sections
--------
1.10)(a)(iii) or 1.10(a)(iv) and if the Non-Resident Debentureholder delivers to
------------- -----------
CallCo after the Closing, but prior to the Remittance Date, a certificate issued
by the Minister of National Revenue under Subsection 116(2) of the ITA and such
certificate fixes a certificate limit which is less than the amount of the
Debentureholder Cash Payment, CallCo shall pay forthwith to the Non-Resident
Debentureholder upon delivery to CallCo of such certificate such portion of the
amount withheld hereunder equal to the amount of the excess , if any, of:
(A) the amount of the Debentureholder Cash Payment that
CallCo has withheld pursuant to Sections 1.10(a)(iii) or 1.10(a)(iv)
--------------------- -----------
hereinabove, together with interest, if any, that may have been earned on such
amounts withheld, over
(B) the amount equal to twenty-five percent (25%) of
(A-B), where A is the amount of the Debentureholder Cash Payment and B is the
amount of such certificate limit.
(vii) If the Non-Resident Debentureholder delivers to CallCo
after the Closing, but prior to the Remittance Date, either a certificate issued
by the Minister of National Revenue under Subsection 116(2) of the ITA with a
certificate limit which is no less than the amount of the Debentureholder Cash
Payment or a certificate issued by the Minister of National revenue under
subsection 116(4) of the ITA, CallCo shall pay forthwith to the Non-Resident
Debentureholder upon delivery to CallCo of such certificate any amount that
CallCo has withheld pursuant to Sections 1.10(a)(iii) or 1.10(a)(iv)
--------------------- -----------
hereinabove, as well as interest, if any, earned on such amounts withheld;
(b) (i) Each Shareholder that is not a resident of Canada for
purposes of the ITA (a "Non-Resident Vendor") will provide to CallCo a
certificate issued pursuant to Subsection
-8-
116 of the ITA in connection with the transfer by such Non-Resident Vendor of
Company Shares to CallCo pursuant to Section 1.5(b) hereof;
--------------
(ii) if such a certificate issued by the Minister of National
Revenue pursuant to Subsection 116(2) of the ITA is delivered by the Non-
Resident Vendor to CallCo at or prior to Closing and such certificate fixes a
certificate limit that is not less than the aggregate amount of the cash
consideration payable by CallCo to the Non-Resident Vendor pursuant to Section
-------
1.6(b) hereof (such amount is referred to herein as the "CallCo Proceeds"), the
------
whole in form and substance satisfactory to CallCo, CallCo will remit the CallCo
Proceeds forthwith to the Non-Resident Vendor;
(iii) If such certificate issued by the Minister of National
Revenue pursuant to Section 116(2) of the ITA is delivered by the Non-Resident
Vendor to CallCo at or prior to Closing and such certificate fixes a certificate
limit that is less than the amount of the CallCo Proceeds, CallCo will be
entitled to withhold, twenty-five percent (25%) of the amount, if any, by which
the CallCo Proceeds exceed the certificate limit;
(iv) if a certificate is not so delivered at or prior to
Closing, CallCo will be entitled to withhold twenty-five percent (25%) of the
CallCo Proceeds;
(v) where CallCo has withheld any amount pursuant to Sections
--------
1.10(b)(iii) or 1.10(b)(iv) hereinabove and the Non-Resident has not complied
------------ -----------
with the conditions of Section 1.10(b)(vii) below by the Business Day which is
--------------------
the Remittance Date subject to Section 1.10(b)(vi) below, such portion of the
-------------------
amount withheld equal to the equivalent, in Canadian dollars (as computed on the
Closing Date), of twenty-five percent (25%) of the CallCo Proceeds where such
amounts were withheld hereunder pursuant to Section 1.10(b)(iv) or twenty-five
-------------------
percent (25%) of the difference between the cost to CallCo of those Company
Shares and the certificate limit where such amounts were withheld hereunder
pursuant to Section 1.10(b)(iii) hereof, will be remitted by CallCo on the
--------------------
Remittance Date to the Receiver General of Canada on account of the Non-Resident
Vendor's liability for tax pursuant to Section 116 of the ITA and shall also be
credited to CallCo as a payment to the Vendor on account of the CallCo Proceeds
payable to such Non-Resident Vendor pursuant to Section 1.6 hereof for the
-----------
purchase of the Company Shares. Interest, if any, earned on such amount
withheld, as well as the balance of any amount withheld which is not required to
be remitted to the Receiver General of Canada, shall be paid forthwith to the
Non-Resident Vendor;
(vi) if the Non-Resident Vendor delivers to CallCo after the
Closing, but prior the Remittance Date, a certificate issued by the Minister of
National Revenue under Subsection 116(2) of the ITA and such certificate fixes a
certificate limit which is less than the amount of the CallCo Proceeds, CallCo
shall pay forthwith to the Non-Resident Vendor upon delivery to CallCo of such
certificate such portion of the CallCo Proceeds withheld hereunder equal to the
amount of the excess, if any, of:
(A) the amount of the CallCo Proceeds that CallCo has
withheld pursuant to Sections 1.10(b)(iii) or 1.10(b)(iv) hereinabove, together
--------------------- -----------
with interest, if any, that may have been earned on such amounts withheld, over
-9-
(B) the amount equal to twenty-five percent (25%) of
(A-B), where A is the amount of the CallCo Proceeds and B is the amount of such
certificate limit;
(vii) where an amount has been withheld by CallCo pursuant to
Section 1.10(b)(iii) or 1.10(b)(iv) and the Non-Resident Vendor delivers to
CallCo after the Closing, but prior to the Remittance Date, either a certificate
issued by the Minister of National Revenue under Subsection 116(2) of the ITA
with a certificate limit which is not less than the amount of the CallCo
Proceeds or a certificate issued by the Minister of National Revenue under
subsection 116(4) of the ITA, CallCo shall pay forthwith to the Non-Resident
Vendor upon delivery to CallCo of such certificate any amount that CallCo has
withheld pursuant to Sections 1.10(b)(iii) or 1.10(b)(iv) or 1.10(b)(vi)
--------------------- ----------- -----------
hereinabove, as well as interest, if any, earned on such amounts withheld;
(c) (i) each Non-Resident Vendor who has elected for the
Share/Cash Election will provide to ExchangeCo on or before Closing a
certificate issued pursuant to Subsection 116 of the ITA in connection with the
transfer by the Non-Resident Vendor of Company Shares to ExchangeCo pursuant to
Section 1.5(c) hereof;
--------------
(ii) if such certificate issued by the Minister of National
Revenue pursuant to Subsection 116(2) of the ITA is delivered by the Non-
Resident Vendor to ExchangeCo at or prior to Closing and such certificate fixes
a certificate limit that is not less than the amount determined by multiplying
the number of Exchangeable Shares receivable by the Non-Resident Vendor from
ExchangeCo pursuant to Section 1.6(a)(iii) hereof by the greater of (A) US$28.00
-------------------
and (B) the price at which the Parent Common Stock last traded on the Business
Day immediately before Closing (the "ExchangeCo Proceeds"), the whole in form
and substance satisfactory to ExchangeCo, ExchangeCo will issue forthwith to the
Non-Resident Vendor the Exchangeable Shares to which such Non-Resident Vendor is
entitled to pursuant to Section 1.6(a) hereof;
--------------
(iii) if such a certificate issued by the Minister of National
Revenue pursuant to Subsection 116(2) of the ITA is delivered by the Non-
Resident Vendor to ExchangeCo at or prior to Closing and such certificate fixes
a certificate limit that is less than the amount of the ExchangeCo Proceeds,
ExchangeCo will be entitled to withhold from the consideration payable such
number of Exchangeable Shares, the aggregate fair market value of which is equal
to thirty (30%) of the amount, if any, by which the ExchangeCo Proceeds exceed
the certificate limit;
(iv) if a certificate is not so delivered at or prior to
Closing, ExchangeCo will be entitled to withhold from the consideration payable
such number of Exchangeable Shares, the aggregate fair market value of which is
equal to thirty percent (30%) of the ExchangeCo Proceeds;
(v) where ExchangeCo has withheld any amount pursuant to
Sections 1.10(c)(iii) or 1.10(c)(iv) hereinabove and the Non-Resident has not
--------------------- -----------
complied with the conditions of Section 1.10(c)(vii) below by the Business Day
--------------------
which is the Remittance Date, which ExchangeCo is required to remit an amount
withheld hereunder to the Receiver General, subject to Section 1.10(c)(vi)
-------------------
below, such portion of the amount withheld equal to the equivalent, in Canadian
dollars (as computed on the Closing Date), of twenty-five percent (25%) of the
ExchangeCo Proceeds where amounts were withheld hereunder pursuant to Section
-------
1.10(c)(iv) or twenty-five percent (25%) of the difference between the cost to
-----------
ExchangeCo Proceeds and the certificate limit where such amounts were withheld
hereunder pursuant to Section 1.10(c)(iii), will be remitted by
--------------------
-10-
ExchangeCo on the Remittance Date to the Receiver General of Canada on account
of the Non-Resident Vendor's liability for tax pursuant to Section 116 of the
ITA and shall also be credited to ExchangeCo as a payment to the Non-Resident
Vendor on account of the ExchangeCo Proceeds payable to such Non-Resident Vendor
pursuant to Section 1.6 hereof for the purchase of the Company Shares. Interest,
-----------
if any, earned on such amount withheld, as well as the balance of any amount
withheld which is not required to be remitted to the Receiver General of Canada,
shall be paid forthwith to the Non-Resident Vendor;
(vi) if the Non-Resident Vendor delivers to ExchangeCo
after the Closing, but prior to the Remittance Date, a certificate issued by the
Minister of National Revenue under Subsection 116(2) of the ITA and such
certificate fixes a certificate limit which is less than the amount of the
ExchangeCo Proceeds, ExchangeCo shall pay forthwith to the Non-Resident Vendor
upon delivery to ExchangeCo of such certificate such portion of the ExchangeCo
Proceeds withheld hereunder equal to the amount of the excess , if any, of:
(A) the value of the ExchangeCo Proceeds that
ExchangeCo has withheld pursuant to Sections 1.10(c)(iii) or 1.10(c)(iv)
--------------------- -----------
hereinabove, over
(B) the amount equal to thirty percent (30%) of
(A-B), where A is the amount of the ExchangeCo Proceeds and B is the amount of
such certificate limit;
(vii) if the Non-Resident Vendor delivers to ExchangeCo
after the Closing, but prior to the Remittance Date, either a certificate issued
by the Minister of National Revenue under Subsection 116(2) of the ITA with a
certificate limit which is not less than the amount of the ExchangeCo Proceeds
or a certificate issued by the Minister of National Revenue under Subsection
116(4) of the ITA, ExchangeCo shall pay forthwith to the Non-Resident Vendor
upon delivery to ExchangeCo of such certificate any amount that ExchangeCo has
withheld pursuant to Sections 1.10(c)(iii) or 1.10(c)(iv) or 1.10(c)(vi)
--------------------- ----------- -----------
hereinabove, as well as interest, if any, earned on such amounts withheld;
(viii) ExchangeCo will be entitled to use any such
portion of the ExchangeCo Proceeds withheld hereunder as is necessary in order
for ExchangeCo to generate sufficient funds to fulfill its remittance
obligations towards the Receiver General of Canada and any amounts so remitted
by ExchangeCo to the Receiver General of Canada will be paid on account of the
Non-Resident Vendor's liability for tax pursuant to Section 116 of the ITA. Any
amounts to be paid to the Receiver General of Canada pursuant to Section 1.10(c)
---------------
hereof will be satisfied by cash and ExchangeCo may (except to the extent that
the Non-Resident otherwise funds the amounts required to be paid by ExchangeCo
to the Receiver General of Canada in a manner that is satisfactory to ExchangeCo
acting reasonably) generate the required amount of cash by exchanging such
number of Exchangeable Shares withheld pursuant to Section 1.10(c) hereof into
---------------
Parent Common Stock and then selling such Parent Common Stock on behalf of the
Non-Resident Vendor, as will generate net proceeds in an amount sufficient to
satisfy the full amount to be paid to the Receiver General of Canada.
1.11 Fractional Shares. No fraction of an Exchangeable Share will be
-----------------
issued, but in lieu thereof, any fractional share (after aggregating all
fractional Exchangeable Shares to be received by each Shareholder) will be
rounded to the nearest whole Exchangeable Share (with 0.5 being rounded
-11-
up); provided, however, that this Section 1.11 shall not apply to any Parent
------------
Option granted pursuant to the terms of this Agreement.
1.12 Shareholder Loans. In the event that any Shareholder has outstanding
-----------------
loans from the Company as of the Closing,
(a) the number of Exchangeable Shares payable to an Exchanging
Shareholder will be reduced by such number of Exchangeable Shares equal to the
outstanding principal plus accrued interest of such Shareholder's loans as of
the Closing Date divided by the Trading Price, and if required, by an amount of
cash payable to such Exchanging Shareholder equal to the remaining outstanding
principal plus accrued interest of such Exchanging Shareholder's loans as of the
Closing Date; and
(b) the amount of cash payable to a Tendering Shareholder will be
reduced by an amount equal to the outstanding principal plus accrued interest of
such Tendering Shareholder's loans as of the Closing Date.
(c) The principal amount and accrued and unpaid interest of each such
Shareholder loan, if any, as of the date hereof is set forth in Section 1.12 of
------------
the Disclosure Schedule. Not later than three (3) Business Days prior to the
anticipated Closing Date, the Company shall provide Parent with an update to
Section 1.12 of the Disclosure Schedule setting forth the expected amounts of
------------
principal and accrued and unpaid interest of each such Shareholder loan as of
the anticipated Closing Date.
1.13 Lost, Stolen or Destroyed Certificates. In the event any certificates
--------------------------------------
evidencing any of the Company Shares shall have been lost, stolen or destroyed,
ExchangeCo or CallCo, as the case may be, will pay in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such consideration, if any, as may be required pursuant
to Section 1.6 hereof; provided, however, that ExchangeCo or CallCo, as the case
-----------
may be, may, in its discretion and as a condition precedent to the payment of
the said consideration, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may direct against any claim
that may be made against ExchangeCo or CallCo, as the case may be, with respect
to the certificates alleged to have been lost, stolen or destroyed.
1.14 Legends. The Exchangeable Shares to be issued hereunder will be
-------
subject to the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN
EXCHANGE AND SUPPORT AGREEMENT AMONG, INTER ALIA, THE HOLDER OF THIS
CERTIFICATE AND THE CORPORATION."
In addition, Parent may place on the certificates representing Exchangeable
Shares issued pursuant to this Agreement any other legends required by
applicable law.
1.15 Assumption of Company Options.
-----------------------------
-12-
(a) Effective upon Closing, each Company Option will be exchanged and
converted by Parent into a Parent Option. Each Company Option so exchanged and
converted by Parent pursuant to this Section 1.15(a) will continue to have, and
---------------
be subject to, the same terms and conditions (subject to Section 5.16, including
------------
vesting terms) set forth in the Plan, and the option agreements relating
thereto, as in effect immediately prior to the Closing, except that (i) such
assumed Company Option will be exercisable for that number of whole shares of
Parent Common Stock equal to the product of the number of Company Shares that
were issuable upon exercise of such Company Option immediately prior to the
Closing multiplied by the Option Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock, and (ii) the per share exercise
price for the shares of Parent Common Stock issuable upon exercise of such
assumed Company Option will be equal to the quotient obtained by dividing the
exercise price per share of Company Shares at which such assumed Company Option
was exercisable immediately prior to the Closing Date by the Option Exchange
Ratio, rounded up to the nearest whole cent. No Company Option will be
exercisable until the registration statement on Form S-8 described in Section
-------
5.10 hereof is effective.
----
(b) Prior to the Closing, the Company and Parent will take all action
necessary to effect the transactions anticipated by Section 1.15(a) under all
---------------
Company Option agreements and any other plan or arrangement of the Company
related thereto.
(c) As soon as practicable following the Closing, Parent will deliver
to each holder of a Company Option to be exchanged and converted by Parent
pursuant to Section 1.15(a) hereof a document in a form substantially similar to
---------------
the form previously provided to the Company evidencing the conversion of such
Company Option to a Parent Option, and each former holder of a Company Option so
converted by Parent will acknowledge the receipt of the Parent Option in
exchange for such holder's Company Option.
1.16 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Closing Date, any further action is necessary or desirable to carry out the
purposes of this Agreement and to ensure that the Company retains full right,
title and possession to all of its assets, property, rights, privileges, powers
and franchises, Parent, the Indemnifying Securityholders and the officers and
directors of the Company are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
AND THE PRINCIPAL SHAREHOLDERS
------------------------------
The Company and each of the Principal Shareholders hereby jointly and
severally represents and warrants (except that representations and warranties
that relate only to an individual Principal Shareholder will be deemed to be
made only by such Principal Shareholder) as follows to the Parent Parties, and
acknowledges and confirms that the Parent Parties are relying on the
representations and warranties in connection with the Acquisition, subject to
such exceptions as are specifically disclosed in the disclosure schedule
(referencing the appropriate section and paragraph numbers) supplied by the
Company and the Principal Shareholders to Parent and dated as of the date hereof
-13-
(the "Disclosure Schedule"), as of the date hereof and as of the Closing as
though made at the Closing.
2.1 Organization of the Company. The Company is a corporation duly
incorporated and organized, validly existing and in good standing under the laws
of the province of Ontario, Canada. The Company has the corporate power to own
and operate its properties and to carry on its business as currently conducted
and as currently contemplated to be conducted. The Company is duly qualified or
licensed to do business and in good standing as a foreign corporation in each
jurisdiction in which it conducts business. The Company has delivered a true and
correct copy of its certificate of incorporation and bylaws, each as amended to
date and in full force and effect on the date hereof, to Parent. Section 2.1(c)
--------------
of the Disclosure Schedule lists the officers of the Company and Section 2.1(b)
--------------
of the Disclosure Schedule lists the directors of the Company. Except as set
forth in Section 2.1(c) of the Disclosure Schedule, the operations now being
--------------
conducted by the Company are not now and have never been conducted by the
Company under any other name.
2.2 Company Capital Structure.
-------------------------
(a) Subject to the implementation of the Company Reorganization
pursuant to Article X hereof, the authorized share capital of the Company
---------
consists of an unlimited number of common shares, of which only 32,725,490
common shares are issued and outstanding as of the date hereof. As of the date
hereof, the capitalization of the Company is as set forth in Section 2.2(a) of
--------------
the Disclosure Schedule. The total number of Company Securities outstanding as
of immediately prior to the Closing (assuming the conversion, exercise or
exchange of all securities, including the Company Convertible Debenture and the
Shareholder Convertible Debentures, convertible into, or exercisable or
exchangeable for, Company Shares, the exercise of all Company Options and that
the Company Reorganization provided for in Article X is not implemented) will be
---------
as set forth in Section 2.2(a) of the Disclosure Schedule indicating in each
--------------
case the taxpayer identification number of, and the country in which such
persons are resident for tax purposes. The Company Securities are held by the
persons with the domicile addresses and in the amounts set forth in Section
-------
2.2(a) of the Disclosure Schedule. All outstanding Company Shares are duly
------
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the articles or by-laws of the Company (as
amended from time to time), or any agreement to which the Company is a party or
by which it is bound, and have been issued in compliance with all applicable
securities laws. Schedule A sets forth, as of the date hereof, all of the
----------
holders of the Company Shares and the amount of Company Shares owned by each
such Shareholder. All outstanding Company Securities and Company Options have
been issued or repurchased (in the case of shares that were outstanding and
repurchased by the Company or any shareholder of the Company) in compliance with
all applicable federal, state, provincial, foreign, or local statutes, laws,
rules, or regulations, including all applicable securities laws. The Company has
not, and will not have, suffered or incurred any liability (contingent or
otherwise) or Loss (as defined in Section 7.2 hereof) relating to or arising out
-----------
of the issuance or repurchase of any Company Securities or Company Options, or
out of any agreements or arrangements relating thereto. There are no declared or
accrued but unpaid dividends with respect to any of the Company Shares. The
Company has no shares in its capital authorized, issued or outstanding other
than the Company Shares. No vesting provisions applicable to any shares of
Company Restricted Shares, to Company Options, or to any other rights to
purchase Company Shares will accelerate as a result of the Acquisition.
-14-
(b) Except for the Plan, the Company has never adopted or maintained
any stock option plan or other plan providing for equity compensation of any
person. The Company has reserved an unlimited number of Company common shares
for issuance to employees and directors of, and consultants to, the Company upon
the exercise of options granted under the Plan, of which (i) 1,448,012 shares
are issuable, as of the date hereof, upon the exercise of outstanding,
unexercised options granted under the Plan, and (ii) no shares have been issued,
as of the date hereof, upon the exercise of options granted under the Plan.
Section 2.2(b) of the Disclosure Schedule sets forth for each outstanding
--------------
Company Option, the name of the holder of such option, the domicile address of
such holder, the number of Company common shares issuable upon the exercise of
such option, the exercise price of such option, the vesting schedule for such
option, including the extent vested to date and whether the vesting of such
option will be accelerated by the transactions contemplated by this Agreement.
Except for the Company Options, the Shareholder Convertible Debentures and the
Company Convertible Debenture, there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any Company Shares or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company. Except as
contemplated hereby or as set forth in Schedule 2.2(b), there are no voting
---------------
trusts, proxies, or other agreements or understandings with respect to the
voting securities of the Company. As a result of the Acquisition and the other
transactions contemplated by this Agreement (including the assumption of Company
Options pursuant to Section 1.15), Parent will be the indirect beneficial holder
------------
(through CallCo and ExchangeCo) of all issued and outstanding Company Securities
and all rights to acquire or receive any Company Shares, whether or not such
shares are outstanding.
2.3 Subsidiaries. Other than ISOPIA Corp. and ISOPIA Limited (each, a
------------
"Subsidiary", and together, the "Subsidiaries"), the Company does not have, and
has never had, any subsidiaries or affiliated companies and does not otherwise
own, and has never otherwise owned, any shares of capital stock or any interest
in, or control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity. ISOPIA Corp. is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York. ISOPIA Limited is a company duly organized, validly
existing and in good standing under the laws of England and Wales. Each of the
Subsidiaries has the corporate power to own its properties and to carry on its
business as currently conducted and as currently contemplated to be conducted.
Each of the Subsidiaries is duly qualified or licensed to do business and in
good standing as a foreign corporation in each jurisdiction in which it conducts
business. A true and correct copy of each Subsidiary's charter documents and
bylaws, each as amended to date, has been delivered to Parent. Section 2.3 of
-----------
the Disclosure Schedule lists the directors and officers of each of the
Subsidiaries as of the date of this Agreement. All of the shares of capital
stock of each Subsidiary are owned of record and beneficially by the Company.
There are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which any Subsidiary is a party or by which it is
bound obligating any Subsidiary to issue, deliver, sell, repurchase or redeem,
or cause to be issued, sold, repurchased or redeemed, any shares of the capital
stock of any Subsidiary or obligating any Subsidiary to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter
-15-
into any such option, warrant, call right, commitment or agreement. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to any Subsidiary.
2.4 Authority. The Company and each of the Principal Shareholders
---------
have all requisite power and authority to enter into this Agreement and any
Related Agreements (as hereinafter defined in this Section 2.4) to which it or
-----------
he, as the case may be, is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Related Agreements to which the Company is a party and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company, and no further action
is required on the part of the Company to authorize the Agreement and any
Related Agreements to which it is a party and the transactions contemplated
hereby and thereby, except with respect to the consummation of the Arrangement,
which shall be subject to approval of the Voting Securityholders, the Court and
the Director. This Agreement and the Acquisition have been unanimously approved
by the Board of Directors of the Company. This Agreement and each of the Related
Agreements to which the Company and/or the Principal Shareholders is/are a party
has been duly executed and delivered by the Company and each of the Principal
Shareholders, as the case may be, and assuming the due authorization, execution
and delivery by the other parties hereto and thereto, constitute the valid and
binding obligations of the Company and each of the Principal Shareholders, as
the case may be, enforceable against each such party in accordance with their
respective terms, except as such enforceability may be subject to the laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors and rules of law governing specific performance, injunctive relief, or
other equitable remedies. For all purposes of this Agreement, the term "Related
Agreements" means the Exchange and Support Agreement, Affiliate Agreements, Non-
Competition Agreements and Repurchase Agreements.
2.5 No Conflict. The execution and delivery by the Company and each
-----------
of the Principal Shareholders of this Agreement and any Related Agreement to
which the Company and/or any of the Principal Shareholders is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
result in or require the creation of any Lien upon any of the Company Shares or
any properties of the Company and will not conflict with or result in any
violation of or default under (with or without notice or lapse of time, or both)
or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the articles or by-laws of the Company or any
Subsidiary (as amended), (ii) any mortgage, hypothecation, indenture, lease,
contract, covenant or other agreement, instrument or commitment, permit,
concession, franchise or license (each a "Contract" and collectively the
"Contracts") to which the Company or any Subsidiary or any of their properties
or assets (whether tangible or intangible), or any of the Principal
Shareholders, is subject, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any Subsidiary or any
of their properties (whether tangible or intangible) or assets, or applicable to
any of the Principal Shareholders. The Company and each Subsidiary are in
compliance with and have not breached, violated or defaulted under, or received
notice that either the Company or any Subsidiary has breached, violated or
defaulted under, any of the terms or conditions of any Contract, nor does the
Company or any Principal Shareholder have Knowledge of any event that would
constitute such a breach, violation or default with the lapse of time, giving of
notice or both. Each
-16-
Contract is in full force and effect, and neither the Company nor any Subsidiary
is subject to any default thereunder, nor to the Knowledge of the Company or the
Principal Shareholders is any party obligated to the Company or any Subsidiary
pursuant to any such Contract subject to any default thereunder. Following the
Closing, the Company and each Subsidiary will be permitted to exercise all of
their rights under the Contracts without the payment of any additional amounts
or consideration other than ongoing fees, royalties or payments that the Company
and the Subsidiaries would otherwise be required to pay pursuant to the terms of
such Contracts had the transactions contemplated by this Agreement not occurred.
2.6 Consents. Except for the approval of the Voting Securityholders,
--------
the Court and the Director with respect to the Arrangement and except as set
forth in Section 2.6 of the Disclosure Schedule, no consent, waiver, approval,
-----------
order or authorization of, or registration, declaration or filing with any
Governmental Entity or any third party is required by or with respect to the
Company, any Subsidiary and/or the Principal Shareholders in connection with the
execution and delivery of this Agreement and any Related Agreement to which the
Company, any Subsidiary and/or a Principal Shareholder is a party or the
consummation of the transactions contemplated hereby and thereby, except for
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws.
The Company has obtained, or will obtain prior to the Closing, all necessary
consents, waivers and approvals of parties to any Contract as are required
thereunder in connection with the Acquisition, or for any such Contract to
remain in full force and effect without limitation, modification or alteration
after the Closing.
2.7 Company Financial Statements. Section 2.7 of the Disclosure
-----------------------------------------
Schedule sets forth the Company's unaudited balance sheet as of May 31, 2001
(the "Current Balance Sheet"), and the related unaudited statement of
operations, shareholders' equity (deficit) and cash flows for the four-month
period then ended (the "Current Financials"), as well as the audited balance
sheets, statements of operations, shareholders' equity (deficit) and cash flows
for each of the years ended December 31, 2000 and December 31, 1999 and the
period since the Company's inception through December 31, 1998 with the
accompanying reports of KPMG LLP, independent certified public accountants, (the
"Financials"). The Financials, together with the notes thereto, are true and
correct in all material respects and have been prepared in accordance with GAAP
applied on a basis consistent throughout the periods indicated and consistent
with each other (except that the Current Financials do not contain footnotes and
other presentation items that may be required by GAAP). The Financials present
fairly the Company's financial condition and operating results as of the dates
and during the periods indicated therein, subject, in the case of the Current
Financials, to normal year-end adjustments, that are not material in amount or
significance in any individual case or in the aggregate.
2.8 No Undisclosed Liabilities. Neither the Company nor any
--------------------------
Subsidiary has any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), that individually or in the
aggregate (i) has not been reflected in the Current Balance Sheet, or (ii) has
not arisen in the ordinary course of business consistent with past practices
since May 31, 2001.
-17-
2.9 No Changes. Other than as disclosed in Section 2.9 of the
----------
Disclosure Schedule, since May 31, 2001, there has not been, occurred or arisen
any:
(a) transaction by the Company or any Subsidiary except in the
ordinary course of business as conducted on that date and consistent with past
practices;
(b) amendments or changes to the certificate or articles of
incorporation, bylaws or other charter documents of the Company or any
Subsidiary other than as a result of the implementation of the Arrangement or
the Company Reorganization pursuant to Article X hereof;
---------
(c) capital expenditure or commitment by the Company or any
Subsidiary exceeding US$10,000 individually or US$25,000 in the aggregate;
(d) payment, discharge or satisfaction, in any amount in excess of
US$10,000 in any one case, or US$25,000 in the aggregate, of any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Current
Balance Sheet;
(e) destruction of, damage to, or loss of any material assets
(whether tangible or intangible), material business or material customer of the
Company or any Subsidiary (whether or not covered by insurance);
(f) cessation of the Company's or any Subsidiary's operations,
failure to maintain the Company's or any Subsidiary's business, properties,
assets consistently with past practices, or failure to retain and preserve the
goodwill of the business of the Company or any Subsidiary;
(g) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action with respect to the Company or any Subsidiary;
(h) removal of any director or auditor or termination of any officer;
(i) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company or any
Subsidiary other than as required by GAAP;
(j) change in any material election in respect of Taxes (as defined
below), adoption or change in any accounting method in respect of Taxes,
agreement or settlement of any claim or assessment in respect of Taxes, or
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(k) revaluation by the Company or any Subsidiary of any of its assets
(whether tangible or intangible);
(l) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any Company
Securities, or any split, combination or reclassification in respect of any
Company Securities, or any issuance or authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for Company
Securities, or any direct or indirect repurchase, redemption, or other
acquisition by the Company of any Company
-18-
Securities (or options, warrants or other rights convertible into, exercisable
or exchangeable therefor), except in accordance with the agreements evidencing
Company Options or as a result of the implementation of the Company
Reorganization pursuant to Article X hereof;
---------
(m) increase in the salary or other compensation payable or to become
payable by the Company or any Subsidiary to any of its officers, directors,
employees or advisors, or the declaration, payment or commitment or obligation
of any kind for the payment by the Company or any Subsidiary of a severance
payment, termination payment, indemnity in lieu of notice, change-of-control
award, bonus or other additional salary or compensation to any such person;
(n) agreement, contract, covenant, instrument, lease, license or
commitment, other than as disclosed pursuant to Section 2.9(v), to which the
--------------
Company or any Subsidiary is a party or by which they or any of their assets
(whether tangible or intangible) are bound or any termination, extension,
amendment or modification of the terms of any agreement, contract, covenant,
instrument, lease, license or commitment to which the Company or any Subsidiary
is a party or by which they or any of their assets are bound;
(o) sale, lease, license or other disposition of any of the material
assets (whether tangible or intangible) or material properties of the Company or
any Subsidiary, including, but not limited to, the sale of any accounts
receivable of the Company or any Subsidiary, or any creation of any security
interest in such material assets or material properties;
(p) loan by the Company or any Subsidiary to any person or entity,
incurring by the Company or any Subsidiary of any indebtedness, guaranteeing by
the Company or any Subsidiary of any indebtedness, issuance or sale of any debt
securities of the Company or any Subsidiary or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business consistent with past practices;
(q) waiver or release of any right or claim of the Company or any
Subsidiary, including any write-off or other compromise of any account
receivable of the Company or any Subsidiary;
(r) commencement, settlement, notice or, to the Knowledge of the
Company or the Principal Shareholders, threat of any lawsuit or proceeding or
other investigation against or affecting the Company or any Subsidiary or their
affairs, or affecting the Shares, or any reasonable basis for any of the
foregoing;
(s) notice of any claim or potential claim of ownership by any person
other than the Company of the Company Intellectual Property (as defined in
Section 2.13 hereof) owned by or developed or created by the Company or of
------------
infringement by the Company of any other person's Intellectual Property (as
defined in Section 2.13 hereof);
------------
(t) issuance or sale, or contract to issue or sell, by the Company of
any Company Shares or securities convertible into, or exercisable or
exchangeable for, Company Shares, or any securities, warrants, options or rights
to purchase any of the foregoing, except for issuances of Company Shares upon
the exercise of any such warrants, options or rights of purchase;
-19-
(u) (i) sale or license of any Company Intellectual Property or
execution of any agreement with respect to the Company Intellectual Property
except non-exclusive licenses entered into in accordance with the ordinary
course of business consistent with past practices and standard licensing terms
with any person or entity or with respect to the Intellectual Property of any
person or entity, or (ii) purchase or license of any Intellectual Property or
execution of any agreement with respect to the Intellectual Property of any
person or entity except non-exclusive licenses entered into in accordance with
the ordinary course of business consistent with past practices and standard
licensing terms, (iii) agreement with respect to the development of any
Intellectual Property with a third party, or (iv) change in pricing or royalties
set or charged by the Company to its customers or licensees or in pricing or
royalties set or charged by persons who have licensed Intellectual Property to
the Company;
(v) agreement or modification to any agreement pursuant to which any
other party was granted marketing, distribution, development or similar rights
of any type or scope with respect to any products or technology of the Company
or any Subsidiary;
(w) event or condition of any character that has had or is reasonably
likely to have a Material Adverse Effect on the Company or any Subsidiary;
(x) hiring of employees or the making of any offers to potential
employees; or
(y) agreement by the Company or any Subsidiary, or any officer or
employees on behalf of the Company or any Subsidiary, to do any of the things
described in the preceding Sections 2.9(a) through 2.9(x) (other than
--------------- ------
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement and the Related Agreements).
2.10 Tax Matters.
-----------
(a) Definition of Taxes. For the purposes of this Agreement, the term
-------------------
"Tax" or, collectively, "Taxes" means (i) any and all federal, state,
provincial, municipal, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities including Canada
Pension Plan and any provincial pension plan contributions and unemployment
insurance contributions and employment insurance contributions including taxes
based upon or measured by gross receipts, income, profits, sales, capital use
and occupation, goods and services, value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and (ii) any liability for the payment of any amounts of the
type described in clause (i) of this Section 2.10(a) as a result of any express
or implied obligation to indemnify any other person or as a result of any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Tax Returns and Audits.
----------------------
(i) The Company and each Subsidiary have correctly computed all
Taxes, prepared and duly and timely filed all federal, provincial, local and
foreign returns, estimates, information statements and reports ("Tax Returns"),
required to be filed by them, have timely paid all Taxes that are due and
payable, have made adequate provision in the Current Balance Sheet and
-20-
will make adequate provision in the Interim Balance Sheet, if any, and the
Closing Date Balance Sheet or in any other financial record which is required to
be produced by the Company or any Subsidiary pursuant to this Agreement, for the
payment of all Taxes payable for any taxation year or period ending on or prior
to the Closing Date. The Company and each Subsidiary have also made adequate and
timely installments of Taxes required to be made.
(ii) With respect to any periods for which Tax Returns have not yet
been required to be filed or for which Taxes are not yet due and payable, the
Company and each Subsidiary have only incurred liabilities for Taxes in the
ordinary course of their business and in a manner and at a level consistent with
prior periods. All such Taxes, including Taxes for the period between December
31, 2000 and the Closing Date have been reflected as a current liability on the
Current Balance Sheet and will be reflected as a current liability on the
Interim Balance Sheet, if any, and the Closing Date Balance Sheet or on any
other financial record which is required to be produced by the Company or any
Subsidiary pursuant to this Agreement.
(iii) All Tax Returns in respect of income taxes of the Company and
each Subsidiary have been assessed (where applicable) through and up to the date
hereof, and there are no outstanding waivers of any limitation periods or
agreements providing for an extension of time for the filing of any Tax Return
or the payment of any Tax by the Company or any Subsidiary or any outstanding
objections to any assessment or reassessment of Taxes. Any deficiencies proposed
as a result of such assessments or reassessments of such Tax Returns through and
including the date hereof have been paid and settled.
(iv) There are no contingent Tax liabilities with respect to the
Company or any Subsidiary nor any grounds which could prompt an assessment or
reassessment, including, but without limitation, aggressive treatment of income,
expenses, deductions, credits or other amounts in the filing of earlier or
current Tax Returns, nor has the Company or any Subsidiary received any
indication from any taxation authorities that an assessment or reassessment of
Tax is proposed or imminent.
(v) The Company and each Subsidiary have withheld from each payment
made to any of their past and present shareholders, directors, officers,
employees, agents and creditors (including, without limitation, Element K, EK
Holdings and their Affiliates) the amount of all Taxes, deductions or other
amounts required to be withheld and have paid such amounts when due, in the form
required under the appropriate legislation, or made adequate provision for the
payment of such amounts to the proper receiving authorities.
(vi) The Company and each Subsidiary have collected from each amount
received from any of its past and present customers (or other persons paying
amounts to the Company including any Subsidiary) the amount of all Taxes
(including goods and services tax and provincial sales taxes) required to be
collected and has 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 receiving authorities.
(vii) Neither the Company nor any Subsidiary is subject to any
assessments, levies, penalties or interest with respect to Taxes that will
result in any liability on either the Company's or any Subsidiary's part in
respect of any period ending on or prior to the Closing Date,
-21-
in excess of the amount provided for in the Current Balance Sheet or to be
provided for in the Interim Balance Sheet, if any, and the Closing Date Balance
Sheet or in any other financial record that is required to be produced by the
Company or any Subsidiary pursuant to this Agreement.
(viii) The Company has not been and is not currently required to file
any returns, reports, elections, designations or other filings with any taxation
authority located in any jurisdiction outside Canada or outside the province of
Ontario.
(ix) The Company has not filed nor has been party to any election
pursuant to Sections 83 or 85 of the ITA or the corresponding provisions of any
provincial statute.
(x) The Company has not at any time benefited from a forgiveness of
debt or entered into any transaction or arrangement (including conversion of
debt into shares of its share capital) that could result in the application of
Section 80 and following of the ITA.
(xi) All research and development investment tax credits ("ITCs")
and expenditures that were claimed by the Company were claimed in accordance
with the ITA and the relevant provincial legislation, and the Company has
satisfied at all times the relevant criteria and conditions entitling it to such
ITCs and expenditures. All refunds of ITCs received or receivable by the Company
in any financial year were claimed in accordance with the ITA and the relevant
provincial legislation and the Company has satisfied at all times the relevant
criteria and conditions entitling it to claim a refund of such ITCs.
(xii) From its date of incorporation through December 31, 2000, the
Company has been a "Canadian controlled private corporation" within the meaning
of the ITA.
(xiii) Except for those entities listed in Section 2.3 of this
-----------
Agreement, the Company is not, nor has it been at any time, associated (within
the meaning of the ITA) with any other corporation.
(xiv) There are (and immediately following the Closing Date there
will be) no Liens on the assets of the Company or on those of any of its
Subsidiaries relating to or attributable to Taxes.
(xv) As of the Closing Date, other than with respect to Company
Options, there will not be any contract, agreement, plan or arrangement,
including, but not limited to, the provisions of this Agreement, covering any
employee or former employee of the Company or of any of its Subsidiaries that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible by the Company or by any of its Subsidiaries as an
expense under applicable law other than reimbursements of a reasonable amount of
entertainment expenses and other non deductible expenses that are commonly paid
by similar businesses in reasonable amounts.
(xvi) The tax basis of the assets of the Company and that of the
assets of each Subsidiary (and the undepreciated capital cost of such assets)
for purposes of determining future amortization, depreciation and other federal
and provincial income tax deductions is accurately reflected on the Tax Returns
and records of the Company and each Subsidiary.
-22-
(xvii) The Company has not acquired property or services from, nor
has it disposed of property or provided services to a person with whom it does
not deal at arm's length (within the meaning of the ITA) for an amount that is
other than the fair market value of such property or services, or has been
deemed to have done so for purposes of the ITA.
(xviii) No audit or other examination of any Return of the Company
or of any Subsidiary is presently in progress, nor has the Company or any
Subsidiary been notified of any request for such an audit or other examination.
(xix) Neither the Company nor any of the Subsidiaries has (a) ever
been a member of an affiliated or consolidated group of corporations for tax
filing purposes, (b) ever been a party to any tax sharing, indemnification or
allocation agreement, (c) any liability for the Taxes of any person (other than
Company or any of the Subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract or agreement, or otherwise and (d) ever been a party to any joint
venture, partnership or other arrangement that could be treated as a partnership
for Tax purposes.
2.11 Restrictions on Business Activities. There is no agreement (non-
-----------------------------------
competition oR otherwise), commitment, judgment, injunction, order or decree to
which the Company or any Subsidiary is a party or otherwise binding upon the
Company or any Subsidiary that has or may reasonably be expected to have the
effect of prohibiting or impairing any business practice of the Company or any
Subsidiary, any acquisition of property (tangible or intangible) by the Company
or any Subsidiary, the conduct of business by the Company or any Subsidiary, or
otherwise limiting the freedom of the Company or any Subsidiary to engage in any
line of business or to compete with any person. Except as disclosed in Section
-------
2.11 of the Disclosure Schedule, without limiting the generality of the
----
foregoing, neither the Company nor any Subsidiary has entered into any agreement
under which the Company or any Subsidiary is restricted from selling, licensing
or otherwise distributing any of its technology or products or from providing
services to customers or potential customers or any class of customers, in any
geographic area, during any period of time, or in any segment of the market.
2.12 Title to Properties; Absence of Liens and Encumbrances; Condition of
--------------------------------------------------------------------
Equipment. Neither the Company nor any Subsidiary owns any real property, nor
---------
has the Company nor any Subsidiary ever owned any real property. Neither the
Company nor any Subsidiary is subject to any agreement or option to own any real
property or any interest in any real property. Section 2.12(a) of the Disclosure
---------------
Schedule sets forth a list of all real property currently leased by the Company
or any Subsidiary or otherwise used or occupied by the Company or any Subsidiary
for the operation of the Company's or any Subsidiary's business (the "Leased
Real Property"), the name of the lessor, the date of the lease and each
amendment thereto, a description of the leased premises (by municipal address
and proper legal description), the term of the lease, any rights of renewal and
the term thereof, and any restrictions on assignment or change of control of the
Company and, with respect to any current lease, the aggregate annual rental
payable under any such lease. Neither the Company nor any Subsidiary is a party
to, or under any agreement to become a party to, any lease with respect to real
property other than as listed in Section 2.12(a) of the Disclosure Schedule. All
---------------
such current leases are in good standing, create a good and valid leasehold
estate in the Leased Real Property and are in full force and effect, valid and
enforceable in accordance with their respective terms, and there
-23-
is not, under any of such leases, any existing default or event of default (or
event, including the Acquisition, that with notice or lapse of time, or both,
would constitute a default). All such current leases (or a notice in respect of
such leases) have been properly registered in the appropriate land registry
office. All rents and additional rents in respect of such current leases have
been paid prior to the date thereof. To the Knowledge of the Company, all of the
covenants to be performed by any party under such leases have been fully
performed.
(a) The Company has provided Parent true, correct and complete copies
of all leases, lease guaranties, subleases, agreements for the leasing, use or
occupancy of, or otherwise granting a right in or relating to the Leased Real
Property, including all amendments, terminations and modifications thereof
("Lease Agreements"). The Closing will not affect the enforceability against any
person of any such Lease Agreement or the rights of the Company or any
Subsidiary to the continued use and possession of the real property for the
conduct of business as presently conducted.
(b) Each of the Company and each Subsidiary has good and valid title
to, or, in the case of leased properties and assets, valid leasehold interests
in, all of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens, except (i) as
reflected in the Current Balance Sheet, (ii) Liens for Taxes not yet due and
payable, and (iii) such imperfections of title and encumbrances, if any, which
do not detract from the value or interfere with the present use of the property
subject thereto or affected thereby.
(c) The buildings, plants, structures, equipment and other tangible
personal property of the Company and each Subsidiary (including the Buildings
and Fixtures) are structurally sound, in good operating condition and repair
having regard to their use and age, are maintained in a manner consistent with
standards generally followed with respect to similar properties, and are
adequate and suitable for the uses to which they are being put. None of such
buildings, plants, structures, equipment or other property are in need of
maintenance or repairs except for ordinary routine maintenance and repairs that
are not material in nature or cost. The Company and each Subsidiary have
adequate rights of ingress and egress into and from all of the Leased Real
Property for the operation of the Company's and each Subsidiary's business in
the ordinary course.
(d) Section 2.12(d) of the Disclosure Schedule lists all material
---------------
items of equipment (the "Equipment") owned or leased by the Company and each
Subsidiary, and such Equipment is (i) adequate for the conduct of the business
of the Company and each Subsidiary as currently conducted and as currently
contemplated to be conducted, and (ii) in good operating condition, regularly
and properly maintained, subject to normal wear and tear.
(e) No Person has any written or oral agreement, option,
understanding or commitment or any right or privilege capable of becoming such
for the purchase or other acquisition from the Company of any of the Equipment.
(f) The Company has sole and exclusive ownership, free and clear of
any Liens, of all customer lists and other customer information, including
customer correspondence and customer licensing and purchasing histories,
relating to the Company's and each Subsidiary's current and former customers
other than rights customers typically have to their own information
-24-
(the "Customer Information"). No person other than the Company possesses any
claims or rights with respect to use of the Customer Information.
2.13 Intellectual Property.
---------------------
(a) Section 2.13(a) of the Disclosure Schedule (i) lists all
---------------
Registered Intellectual Property owned by, or filed in the name of, the Company
or any Subsidiary (the "Company Registered Intellectual Property") and (ii)
lists any proceedings or actions before any court, tribunal (including the
United States Patent and Trademark Office (the "PTO"), the Canadian Intellectual
Property Office (the "CIPO") or analogous authority anywhere in the world)
related to any Company Registered Intellectual Property.
(b) Except as set forth in Section 2.13(b) of the Disclosure
---------------
Schedule, each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Section 2.13(a) of the Disclosure
---------------
Schedule, and all Intellectual Property licensed to the Company or any
Subsidiary, is free and clear of any Liens and any obligation to compensate any
party in respect of same. The Company is the exclusive owner or exclusive
licensee of all Company Intellectual Property.
(c) To the extent that any Intellectual Property has been
developed or created independently or jointly by any person other than the
Company for which the Company has, directly or indirectly, paid, except as
described in Section 2.13(c) of the Disclosure Schedule, the Company has a
---------------
written agreement with such person with respect thereto, the Company has
satisfied in full its obligations pursuant to such agreement, and the Company
thereby has obtained ownership of, and is the sole and exclusive owner of, all
such Intellectual Property therein and associated Intellectual Property Rights
by operation of law or by valid assignment.
(d) Except as described in Section 2.13(d) of the Disclosure
---------------
Schedule, neither the Company nor any Subsidiary has transferred ownership of,
or granted any exclusive or sole license of or exclusive or sole right to use,
or authorized the retention of any exclusive or sole rights to use or joint
ownership of, any Intellectual Property or Intellectual Property Rights that is
or was Company Intellectual Property, to any other person.
(e) Other than "commercial-off-the-shelf," "shrink-wrap,"
"click-wrap" and similar widely available binary code and commercial end-user
licenses, but not including public or open-source technology and as described in
Section 2.13(e) of the Disclosure Schedule, the Company Intellectual Property
---------------
constitutes all the Intellectual Property and Intellectual Property Rights used
in and/or necessary to the conduct of the business of the Company and its
Subsidiaries as it currently is conducted or planned to be conducted, including,
without limitation, the design, development, manufacture, use, import,
licensing, and sale of products, technology and services (including products,
technology or services currently under development).
(f) Other than (i) "commercial-off-the-shelf," "shrink-wrap,"
"click-wrap" and similar widely available binary code and commercial end-user
licenses, but not including public or open-source technology, and (ii) other
non-exclusive licenses and related agreements with respect thereto of the
Company's or any Subsidiary's products to end-users pursuant to written
agreements that have been entered into in the ordinary course of business that
do not materially differ in
-25-
substance from the Company's or any Subsidiary's standard form(s) of end-user
license including attachments (which is or are included in Section 2.13(f) of
---------------
the Disclosure Schedule), Section 2.13(f) of the Disclosure Schedule lists all
---------------
contracts, licenses and agreements to which the Company or any Subsidiary is a
party with respect to any Intellectual Property and Intellectual Property
Rights. No third party who has licensed Intellectual Property or Intellectual
Property Rights to the Company or any Subsidiary has ownership rights or license
rights to improvements made by the Company or any Subsidiary in such
Intellectual Property that has been licensed to the Company.
(g) Other than (i) "commercial-off-the-shelf," "shrink-wrap,"
"click-wrap" and similar widely available binary code and commercial end-user
licenses, but not including public or open-source technology and (ii) other non-
exclusive licenses and related agreements with respect thereto of the Company's
or any Subsidiary's products to end-users pursuant to written agreements that
have been entered into in the ordinary course of business that do not materially
differ in substance from the Company's or any Subsidiary's standard form(s) of
end-user license including attachments (which is or are included in Section
-------
2.13(f) of the Disclosure Schedule), Section 2.13(g) of the Disclosure Schedule
------- ---------------
lists all contracts, licenses and agreements between the Company or any
Subsidiary and any other person wherein or whereby the Company or any Subsidiary
has agreed either expressly, impliedly, or assumed, by operation of law, or
otherwise any obligation or duty to warrant, indemnify, reimburse, hold
harmless, guaranty or otherwise assume or incur any obligation or liability or
provide a right of rescission with respect to the infringement or
misappropriation by the Company or any Subsidiary or such other person of the
Intellectual Property Rights of any person other than the Company or any
Subsidiary.
(h) The operation of the business of the Company and each of its
Subsidiaries as it currently is conducted or is currently contemplated by the
Company to be conducted, including but not limited to the design, development,
use, import, manufacture, licensing and sale of the products, technology or
services (including products, technology or services currently under
development) of the Company or any Subsidiary, does not and will not infringe or
misappropriate the Intellectual Property Rights of any person, violate the
rights of any person (including rights to privacy or publicity), or constitute
unfair competition or trade practices under the laws of any jurisdiction. The
Company has not received any notice from any person claiming that such operation
or any act, product, technology or service (including products, technology or
services currently under development) of the Company or any Subsidiary infringes
or misappropriates the Intellectual Property Rights of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction (nor
does Company or the Principal Shareholders have Knowledge of any basis
therefor).
(i) Each item of Company Registered Intellectual Property is
valid and subsisting, and all necessary registration, maintenance and renewal
fees in connection with such Company Registered Intellectual Property have been
paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in Canada, the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property. Except as set forth in Section 2.13(i)(A)
------------------
of the Disclosure Schedule, there are no actions that must be taken by the
Company or any Subsidiary within sixty (60) days of the Closing Date, including
the payment of any registration, maintenance or renewal fees or the filing of
any
-26-
documents, applications or certificates for the purposes of maintaining,
perfecting or preserving or renewing any Registered Intellectual Property. For
each product, technology or service of the Company or any Subsidiary that is
either patentable or copyrightable, the Company has taken appropriate measures
to make all such Intellectual Property Registered Intellectual Property. In each
case in which the Company or any Subsidiary has acquired any Intellectual
Property Rights from any person, the Company has obtained, as set forth in
Section 2.13(i)(B) of the Disclosure Schedule, a valid and enforceable
------------------
assignment sufficient to irrevocably transfer all rights in such Intellectual
Property and the associated Intellectual Property Rights (including the right to
seek past and future damages with respect thereto) to the Company or such
Subsidiary and in accordance with, applicable laws and regulations, the Company
has, except as set forth in Section 2.13(i)(C) of the Disclosure Schedule,
------------------
recorded each such assignment with the relevant governmental authorities,
including CIPO, the PTO, the U.S. Copyright Office, or their respective
equivalents in any relevant foreign jurisdiction, as the case may be.
(j) There are no contracts, licenses or agreements between the
Company or any Subsidiary and any other person with respect to Company
Intellectual Property under which there is any dispute, to the Knowledge of the
Company or the Principal Shareholders, regarding the scope of such agreement, or
performance under such agreement including with respect to any payments to be
made or received by the Company or any Subsidiary thereunder.
(k) Except as set forth in Section 2.13(k) of the Disclosure
---------------
Schedule, neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent by operation of law or otherwise
of any contracts or agreements to which the Company or any Subsidiary is a
party, will result in: (i) Parent, Sub, CallCo, ExchangeCo, the Company or any
Subsidiary granting to any third party any right to or with respect to any
Intellectual Property owned by, or licensed to, any of them, (ii) Parent, Sub,
CallCo, ExchangeCo, the Company or any Subsidiary, being bound by, or subject
to, any non-compete or other material restriction on the operation or scope of
their respective businesses, or (iii) Parent, Sub, CallCo, ExchangeCo, the
Company or any Subsidiary being obligated to pay any royalties or other material
amounts to any third party in excess of those payable by any of them,
respectively, in the absence of this Agreement or the transactions contemplated
hereby.
(l) To the Knowledge of the Company or the Principal
Shareholders, no person is infringing or misappropriating any Company
Intellectual Property.
(m) The Company has taken all reasonable steps that are required
to protect the Company's and each Subsidiary's rights in confidential
information and trade secrets of the Company and each Subsidiary or provided by
any other person to the Company or any Subsidiary. Without limiting the
foregoing, the Company has, and enforces, a policy requiring each employee,
consultant, and contractor to execute proprietary information, confidentiality
and assignment agreements substantially in the Company's standard forms, and all
current and former employees (except such former employees as are listed on
Section 2.13(m) of the Disclosure Schedule), consultants and contractors of the
---------------
Company and each Subsidiary have executed such an agreement in substantially the
Company's standard form.
(n) No Company Intellectual Property, Intellectual Property
Rights or service of the Company or any Subsidiary is subject to any proceeding
or outstanding decree, order, judgment
-27-
or settlement agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or any Subsidiary or may affect the
validity, use or enforceability of such Company Intellectual Property.
(o) No (i) product, technology, service or publication of the
Company or any Subsidiary, (ii) material published or distributed by the Company
or any Subsidiary, or (iii) conduct or statement of Company or any Subsidiary
constitutes obscene material, a defamatory statement or material, false
advertising or otherwise violates any law or regulation in any material respect.
(p) Without limiting the foregoing, except as set forth in
Section 2.13(p) of the Disclosure Schedule, no open source, public source or
---------------
freeware software or any modification of derivative thereof, including any
version of any software licensed pursuant to any GNU general public license or
limited general public license was used in, incorporated into, integrated or
bundled with any software that is or was Company Intellectual Property.
(q) Except as set forth in Section 2.13(q)(i) of the Disclosure
------------------
Schedule, none of the Company Intellectual Property was developed by or on
behalf of, or using grants or any other subsidies of, any Governmental Entity or
any university, and no government funding, facilities, faculty or students of a
university, college, other educational institution or research center or funding
from third parties was used in the development of the Company Intellectual
Property, other than solely as a result of the ownership by a university, or an
affiliate of a university, of less than three percent (3%) of the equity
securities of the Company on a passive basis. Except as set forth in Section
-------
2.13(q)(ii) of the Disclosure Schedule, no current or former employee,
-----------
consultant or independent contractor of the Company or any Subsidiary, who was
involved in, or who contributed to, the creation or development of any Company
Intellectual Property, has performed services for the government, university,
college, or other educational institution or research center during a period of
time during which such employee, consultant or independent contractor was also
performing services for the Company or any Subsidiary.
2.14 Agreements, Contracts and Commitments.
-------------------------------------
(a) Except as set forth in or excepted from (by virtue of the
specific exclusions contained in Sections 2.13(f) or 2.13(g) of the Disclosure
---------------- -------
Schedule) Sections 2.13(f) and 2.13(g) of the Disclosure Schedule, or as set
---------------- -------
forth in Section 2.14(a) of the Disclosure Schedule, neither the Company nor any
---------------
Subsidiary is a party to, nor is it bound by:
(i) any confidentiality, secrecy or non-disclosure contract
or any contract limiting the freedom of the Company or any Subsidiary to engage
in any line of business, compete with any other Person, or otherwise conduct its
business;
(ii) any employment, consulting, termination, severance or
change of control agreement, contract or commitment with an employee or
individual consultant or salesperson, or consulting or sales agreement,
contract, or commitment with a firm or other organization;
(iii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be
-28-
increased, or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement;
(iv) any fidelity or surety bond or completion bond;
(v) any lease of personal property having a value in excess
of US$10,000 individually or US$25,000 in the aggregate;
(vi) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of US$10,000 individually
or US$25,000 in the aggregate;
(vii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's or any Subsidiary's business;
(viii) any mortgages, hypothecations, indentures, guarantees,
promissory notes, loans or credit agreements, security agreements or other
agreements or instruments relating to the borrowing of money, extension of
credit or any leasing transaction of the type required to be capitalized in
accordance with GAAP;
(ix) any purchase order or contract for the purchase of
materials supplies, equipment, or services involving in excess of US$10,000
individually or US$25,000 in the aggregate;
(x) any construction contracts;
(xi) any dealer, distribution, joint marketing or development
agreement;
(xii) any sales representative, agency, original equipment
manufacturer, value added, remarketer, reseller, or independent software vendor,
or other agreement for use or distribution of the Company's products, technology
or services; or
(xiii) any other agreement, contract or commitment that involves
US$10,000 individually or US$25,000 in the aggregate or more and is not
cancelable without penalty within thirty (30) days.
2.15 Interested Party Transactions. Other than as set forth in
-----------------------------
Section 2.15 of the Disclosure Schedule, no officer or director of the Company
------------
(nor any affiliate, ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in that any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity that furnished or sold, or furnishes or sells, services,
products or technology that the Company or any Subsidiary furnishes or sells, or
proposes to furnish or sell, or (ii) any interest in any entity that purchases
from or sells or furnishes to the Company or any Subsidiary, any goods or
services, or (iii) a beneficial interest in any Contract to which the Company or
any Subsidiary is a party; provided, however, that ownership of no more than one
percent (1%) of the outstanding voting stock
-29-
of a publicly traded corporation will not be deemed to be an "interest in any
entity" for purposes of this Section 2.15.
------------
2.16 Governmental Authorization. Each consent, license, permit,
--------------------------
grant or other authorization (i) pursuant to which the Company or any Subsidiary
currently operates or holds any interest in any of its properties, or (ii) which
is required for the operation of the Company's or any Subsidiary's business as
currently conducted or currently contemplated to be conducted or the holding of
any such interest (collectively, "Company Authorizations") has been issued or
granted to the Company or any Subsidiary. The Company Authorizations are in full
force and effect and constitute all Company Authorizations required to permit
the Company and each Subsidiary to operate or conduct its business or hold any
interest in its properties or assets.
2.17 Litigation. Except as set forth in Section 2.17 of the
---------- ------------
Disclosure Schedule, there is no action, suit, grievance, claim or proceeding of
any nature pending, or to the Knowledge of the Company or any of the Principal
Shareholders, threatened, against the Company or any Subsidiary, their
properties (tangible or intangible) or any of their officers or directors, nor
to the Knowledge of the Company or the Principal Shareholders is there any
reasonable basis therefor. There is no investigation or other proceeding pending
or, to the Knowledge of the Company or any of the Principal Shareholders,
threatened, against the Company or any Subsidiary, any of their properties
(tangible or intangible) or any of their officers or directors by or before any
Governmental Entity, nor to the Knowledge of the Company or any of the Principal
Shareholders is there any reasonable basis therefor. No Governmental Entity has
at any time challenged or questioned the legal right of the Company or any
Subsidiary to conduct its operations as presently or previously conducted or as
presently contemplated to be conducted.
2.18 Accounts Receivable.
-------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company and each Subsidiary as of April 30, 2001, together
with a range of days elapsed since invoice.
(b) All of the Company's and each Subsidiary's accounts receivable
arose in the ordinary course of business, are carried at values determined in
accordance with GAAP and are collectible except to the extent of reserves
therefor set forth in the Current Balance Sheet or, for receivables arising
subsequent to April 30, 2001, as reflected on the books and records of the
Company (which are prepared in accordance with GAAP). Other than as set forth in
Section 2.18 of the Disclosure Schedule, no person has any Lien on any of the
------------
Company's or any Subsidiary's accounts receivable and no request or agreement
for deduction or discount has been made with respect to any of the Company's or
any Subsidiary's accounts receivable.
2.19 Minute Books. The minute books of the Company and each Subsidiary
------------
made available to counsel for Parent are the only minute books of the Company
and such Subsidiaries and contain accurate summaries of all meetings or actions
by written consent of the Boards of Directors (or committees thereof) and
shareholders of the Company and each Subsidiary since the time of incorporation
of the Company and each Subsidiary, respectively.
2.20 Environmental Matters.
---------------------
-30-
(a) Hazardous Material. Neither the Company nor any Subsidiary has:
------------------
(i) operated any underground storage tanks at any property that the Company or
any Subsidiary has at any time owned, operated, occupied or leased, or (ii)
illegally released any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, provincial, municipal or local law
to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, and urea-
formaldehyde (a "Hazardous Material"), but excluding office and janitorial
supplies properly and safely maintained. No Hazardous Materials are present in,
on or under any property, including the land and the improvements, ground water
and surface water thereof, that the Company or any Subsidiary has at any time
owned, operated, occupied or leased. None of the Leased Real Property currently
do or, to the best Knowledge of the Company and the Principal Shareholders, have
(i) ever been used by any Person as a waste disposal site or as a licensed
landfill or (ii) ever had asbestos, asbestos-containing materials, PCBs,
radioactive substances or above-ground or underground storage systems, active or
abandoned, located on, at or under them.
(b) Hazardous Materials Activities. Neither the Company nor any
------------------------------
Subsidiary has transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials in violation of any law
or in a manner that would result in liability to the Company or any Subsidiary,
nor has the Company or any Subsidiary disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to herein as "Hazardous Materials
Activities") to any location outside of Canada, or in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Leased Real Property. To the Knowledge of the Company and the
--------------------
Principal Shareholders, no properties adjacent to any of the Leased Real
Property are contaminated where such contamination could, if it migrated to a
Leased Real Property, have a material adverse effect on the Leased Real Property
or any of the Company's or any Subsidiary's business activities proceeding
thereat.
(d) Permits and Policies. The Company currently holds all
--------------------
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of the Company's or any
Subsidiary's Hazardous Material Activities, and other businesses of the Company
and each Subsidiary as such activities and businesses are currently being
conducted and as currently contemplated to be conducted. No Environmental
Permits are currently required for the businesses of the Company or any
Subsidiary.
(e) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Knowledge of the Company or the Principal Shareholders threatened, concerning
any Environmental Permit, Hazardous Material or any Hazardous Materials Activity
of the Company or any Subsidiary. Neither the Company nor any of the Principal
Shareholders has any Knowledge of any fact or circumstance that could involve
the Company or any Subsidiary in any environmental litigation or impose upon the
Company or any Subsidiary any environmental liability. Neither the Company, any
Subsidiary nor, to the Knowledge of the Company and the Principal Shareholders,
the lessor or any the Leased Real Property has been required by any Governmental
Entity to (i) alter any of the Leased Real Property in a material way in
-31-
order to be in compliance with Environmental Laws, or (ii) perform any
environmental closure, decommissioning, rehabilitation, restoration or post-
remedial investigations, on, about, or in connection with any of the Leased Real
Property.
(f) Reports and Records. The Company has delivered to Parent all
-------------------
records in the Company's and any Subsidiary's possession concerning the
Hazardous Materials Activities of the Company or any Subsidiary relating to its
business and all environmental audits and environmental assessments of any
Leased Real Property conducted at the request of, or otherwise in the possession
of the Company or any Subsidiary. The Company and each Subsidiary have complied
with all environmental disclosure obligations imposed by applicable law with
respect to this transaction. To the Knowledge of the Company and the Principal
Shareholders, there are no other reports or documents relating to environmental
matters affecting the Company or any Subsidiary or any Leased Real Property that
have not been made available to Parent whether by reason of confidentiality
restrictions or otherwise.
2.21 Brokers' and Finders' Fees; Third Party Expenses. Neither the Company
------------------------------------------------
nor any Subsidiary has incurred, nor will any of them incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with the Agreement or any transaction
contemplated hereby. Section 2.21(a) of the Disclosure Schedule sets forth the
---------------
principal terms and conditions of any agreement, written or oral, with respect
to such fees. Section 2.21(b) of the Disclosure Schedule sets forth the
---------------
Company's current reasonable estimate of all Third Party Expenses (as defined in
Section 5.4 hereof) expected to be incurred by the Company and each Subsidiary
-----------
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby.
2.22 Employee Benefit Plans and Compensation.
---------------------------------------
(a) Canadian Employee Matters and Benefit Plans.
-------------------------------------------
(i) Schedule. Section 2.22(a)(i) of the Disclosure Schedule
-------- -----------------
contains an accurate and complete list of each Company Employee Plan, each
Employee Agreement under each Company Employee Plan, and each Employee
Agreement. The Company has not made any plan or commitment to establish any new
Company Employee Plan or Employee Agreement, to modify any Company Employee Plan
or Employee Agreement (except to the extent required by law or to conform any
such Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement. Section 2.22(a)(i) of the Disclosure Schedule sets forth a
------------------
table setting forth the name, number of years of service and salary of each
current employee of the Company.
(ii) Documents. The Company has provided to Parent (A) correct
---------
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including, without limitation, all amendments thereto
and all related funding or trust documents, (B) the three (3) most recent annual
reports, if any, required under the PBA or the ITA in connection with each
Company Employee Plan, (C) if the Company Employee Plan is funded, the most
recent annual and periodic accounting and actuarial report of Company Employee
Plan assets and liabilities, (D) the most recent summary plan description
together with the summary(ies) of
-32-
material modifications thereto, with respect to each Company Employee Plan, (E)
all material written agreements and contracts relating to each Company Employee
Plan, including, without limitation, administrative service agreements and group
insurance contracts, (F) all communications material to any employee or
employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to the
Company, (G) all correspondence to or from any governmental agency relating to
any Company Employee Plan, (H) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Company Employee Plan, (I) all
registration statements or certificates and approvals granted or issued in
connection with each Company Employee Plan.
(iii) Employee Plan Compliance. The Company has performed all
------------------------
obligations required to be performed by it under, is not in default or violation
of, and has no Knowledge of any default or violation by any other party to, any
Company Employee Plan, and each Company Employee Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to the
PBA or the ITA. Any Company Employee Plan intended to be registered under the
PBA or the ITA is so registered. There are no actions, suits or claims pending
or, to the Knowledge of the Company or the Principal Shareholders, threatened or
reasonably anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan. Each
Company Employee Plan can be amended, terminated or otherwise discontinued after
the Closing in accordance with its terms, without liability to Parent, the
Company or any Affiliate (other than ordinary administration expenses) and the
Company is entitled to take contribution holidays, to obtain a refund of surplus
assets and to claim surplus assets upon total termination, in accordance with
the terms of such Company Employee Plan. There are no audits, inquiries or
proceedings pending or to the Knowledge of the Company or the Principal
Shareholders or any Affiliates, threatened by the CCRA, the PGBF, or any other
Governmental Entity with respect to any Company Employee Plan. No Company
Employee Plan is subject to any penalty or tax under Part XI of the ITA. The
Company has made all contributions and other payments required by and due under
the terms of each Company Employee Plan, the PBA and the ITA. Each contribution
holiday or refund of surplus assets, if any, complied with the terms of the
relevant Company Employee Plan, the PBA and the ITA.
(iv) No Pension Plans. Neither the Company nor any Affiliate
----------------
has ever maintained, established, sponsored, participated in, or contributed to,
any (A) Pension Plans subject to sections 82 to 87 of the PBA, or (B) "multi-
employer plan" within the meaning of Section 1 of the PBA.
(v) No Post-Retirement Obligations. No Company Employee Plan
------------------------------
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
person for any reason, except as may be required by statute, and the Company has
never represented, promised or contracted (whether in oral or written form) to
any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
-33-
(vi) Effect of Transaction. The execution of this Agreement
---------------------
and the consummation of the transactions contemplated hereby will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits or be deemed a "parachute payment" with
respect to any Employee, except as expressly required by this Agreement.
(vii) Post-Employment Obligations. The value to the Company of
---------------------------
post-employment obligations, calculated in accordance with chapter 3461 of the
CICA Handbook, including, without limitation, severance benefits, salary
continuation, job training and counseling, parental leaves, accumulated sick
leaves, sabbaticals, termination benefits and retirement benefits are reflected
on the Current Balance Sheet and shall be reflected on the Interim Balance
Sheet, if any, and the Closing Date Balance Sheet.
(viii) Employment Matters. Except as set forth in Section
------------------
2.22(a)(viii) of the Disclosure Schedule, the Company: (A) is in compliance with
-------------
all applicable foreign, federal, provincial and local or municipal laws, rules
and regulations respecting employment, employment practices, labor relations,
collective bargaining, terms and conditions of employment and wages, overtime,
vacation and hours, in each case, with respect to Employees, (B) has withheld
and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees, (C) is
not liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing, and (D) is not liable for any payment to any
trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending, or to the Knowledge of the Company or the
Principal Shareholders, threatened, or reasonably anticipated claims or actions
against the Company under any worker's compensation policy or long-term
disability policy.
(ix) Labor. No work stoppage or labor strike against the
-----
Company is pending, or to the Knowledge of the Company or the Principal
Shareholders, threatened, or reasonably anticipated nor has there been any such
work stoppage or labor strike in the last five (5) years. The Company does not
know of any activities or proceedings of any labor union to organize any
Employees nor have there been any such activities or proceedings in the last
five (5) years. There are no actions, suits, claims, labor disputes or
grievances pending, or to the Knowledge of the Company or the Principal
Shareholders threatened, or reasonably anticipated relating to any labor,
employment, vacation, overtime, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints. The Company has not engaged in any unfair labor
practices within the meaning of the Employment Standards Act, Human Rights Code
or any other applicable law. The Company presently is not, nor has it been in
the past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
-34-
(x) No Interference or Conflict. To the Knowledge of the
---------------------------
Company or the Principal Shareholders, no shareholder, director, officer,
Employee or consultant of the Company is obligated under any contract or
agreement, subject to any judgment, decree, or order of any court or
administrative agency that would interfere with such person's efforts to promote
the interests of the Company or that would interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the carrying
on of the Company's business as presently conducted or proposed to be conducted
nor any activity of such officers, directors, Employees or consultants in
connection with the carrying on of the Company's business as presently conducted
or currently proposed to be conducted will, to the Knowledge of the Company or
the Principal Shareholders, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract or
agreement under which any of such officers, directors, Employees, or consultants
is now bound.
(b) United States Employee Matters and Benefit Plans.
------------------------------------------------
(i) Schedule. Section 2.22(b)(i) of the Disclosure Schedule
----------------------------
contains an accurate and complete list of each Company Employee Plan,
International Employee Plan, and each Employment Agreement. The Company does not
have any plan or commitment to establish any new Company Employee Plan,
International Employee Plan, or Employment Agreement, to modify any Company
Employee Plan or Employment Agreement (except to the extent required by law or
to conform any such Company Employee Plan or Employment Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Buyer in writing, or as required by this Agreement), or to adopt or enter into
any Company Employee Plan, International Employee Plan, or Employment Agreement.
(ii) Documents. The Company has provided to Buyer correct and
---------
complete copies of: (A) all documents embodying each Company Employee Plan,
International Employee Plan, and each Employment Agreement including (without
limitation) all amendments thereto and all related trust documents,
administrative service agreements, group annuity contracts, group insurance
contracts, and policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Plan; (B) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (C) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan; (D) if the Company Employee Plan is funded, the most
recent annual and periodic accounting of Company Employee Plan assets; (E) the
most recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan; (F) all IRS determination, opinion, notification and advisory
letters, and all applications and correspondence to or from the IRS or the DOL
with respect to any such application or letter; (G) all communications material
to any Employee or Employees relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company; (H) all correspondence to or from any
governmental agency relating to any Company Employee Plan; (ix) all COBRA forms
and related notices (or such forms and notices as required under comparable
law); (x) the three (3) most recent plan years discrimination tests for each
Company Employee Plan; and (xi) all registration statements, annual
-35-
reports (Form 11-K and all attachments thereto) and prospectuses prepared in
connection with each Company Employee Plan.
(iii) Employee Plan Compliance. The Company or any Affiliate
------------------------
has performed in all respects all obligations required to be performed by it
under, is not in default or violation of, and has no knowledge of any default or
violation by any other party to each Company Employee Plan, and each Company
Employee Plan has been established and maintained in all respects in accordance
with its terms and in compliance with all applicable laws, statutes, orders,
rules and regulations, including but not limited to ERISA or the Code. Each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code has either
received a favorable determination, opinion, notification or advisory letter
from the IRS with respect to each such Company Employee Plan as to its qualified
status under the Code, including all amendments to the Code effected by the Tax
Reform Act of 1986 and subsequent legislation, or has remaining a period of time
under applicable Treasury regulations or IRS pronouncements in which to apply
for such a letter and make any amendments necessary to obtain a favorable
determination as to the qualified status of each such Company Employee Plan. No
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of
the Code or Section 408 of ERISA (or any administrative class exemption issued
thereunder), has occurred with respect to any Company Employee Plan. There are
no actions, suits or claims pending, or, to the knowledge of the Company,
threatened or reasonably anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan. Each Company Employee Plan (other than any stock option plan) can be
amended, terminated or otherwise discontinued after the Effective Time, without
material liability to the Buyer, Company or any of its Affiliates (other than
ordinary administration expenses). There are no audits, inquiries or proceedings
pending or, to the knowledge of the Company or any Affiliates, threatened by the
IRS or DOL with respect to any Company Employee Plan. Neither the Company nor
any Affiliate is subject to any penalty or tax with respect to any Company
Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the
Code. All contributions required to be made by the Company or any Affiliate to
any Company Employee Plan have been paid or accrued.
(iv) Pension Plan. Neither the Company nor any Affiliate has
------------
ever maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(v) Collectively Bargained, Multiemployer and Multiple
--------------------------------------------------
Employer Plans. At no time has the Company or any Affiliate contributed to or
been obligated to contribute to any Multiemployer Plan. Neither the Company, nor
any Affiliate has at any time ever maintained, established, sponsored,
participated in, or contributed to any multiple employer plan, or to any plan
described in Section 413 of the Code.
(vi) No Post-Employment Obligations. No Company Employee Plan
------------------------------
provides, or reflects or represents any liability to provide retiree health,
retiree life insurance or other retiree employee welfare benefit to any person
for any reason, except as may be required by COBRA or other applicable statute,
and the Company has never represented, promised or contracted (whether in oral
or written form) to any Employee (either individually or to Employees as a
group) or any
-36-
other person that such Employee(s) or other person would be provided with
retiree health, retiree life insurance or other retiree employee welfare
benefit, except to the extent required by statute.
(vii) Health Care Compliance. Neither the Company nor any
----------------------
Affiliate has, prior to the Effective Time and in any material respect, violated
any of the health care continuation requirements of COBRA, the requirements of
FMLA, the requirements of the Health Insurance Portability and Accountability
Act of 1996, the requirements of the Women's Health and Cancer Rights Act of
1998, the requirements of the Newborns' and Mothers' Health Protection Act of
1996, or any amendment to each such act, or any similar provisions of state law
applicable to its Employees.
(viii) Effect of Transaction.
---------------------
(A) The execution of this Agreement and the consummation
of the transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Company Employee Plan, Employment Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(B) No payment or benefit that will or may be made by
the Company or its Affiliates with respect to any Employee or any other
"disqualified individual" (as defined in Code Section 280G and the regulations
thereunder) will be characterized as a "parachute payment," within the meaning
of Section 280G(b)(2) of the Code.
(ix) Employment Matters. The Company or its Affiliates: (A)
------------------
are in compliance in all respects with all applicable foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (B) have withheld and reported all amounts required
by law or by agreement to be withheld and reported with respect to wages,
salaries and other payments to Employees; (C) are not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (D) are not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any governmental authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice). There are no
pending, threatened or reasonably anticipated claims or actions against the
Company or its Affiliates under any worker's compensation policy or long-term
disability policy.
(x) Labor. No work stoppage or labor strike against the
-----
Company or its Affiliates is pending, threatened or reasonably anticipated. The
Company does not know of any activities or proceedings of any labor union to
organize any Employees. There are no actions, suits, claims, labor disputes or
grievances pending, or, to the knowledge of the Company, threatened or
reasonably anticipated relating to any labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in
-37-
any unfair labor practices within the meaning of the National Labor Relations
Act. The Company is not presently, nor has it been in the past, a party to, or
bound by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by the
Company.
(c) International Employee Plan. The Company and its Affiliates
---------------------------
do not now, nor have they ever had the obligation to, maintain, establish,
sponsor, participate in, or contribute to any International Employee Plan, other
than a plan described in Section 2.22(a) of this Agreement.
---------------
2.23 Insurance. Section 2.23 of the Disclosure Schedule lists all
--------- ------------
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company or any
Affiliate. There is no claim by the Company or any Affiliate pending under any
of such policies or bonds as to that coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid, and the Company and
its Affiliates are otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). Neither the Company nor the Principal Shareholders has any
Knowledge of threatened termination of, or premium increase with respect to, any
of such policies.
2.24 Compliance with Laws. The Company and each Subsidiary have
--------------------
complied with, are not in violation of, and have not received any notices of
violation with respect to, any foreign, federal, provincial, or local statute,
law or regulation.
2.25 Warranties; Indemnities. Except for the warranties and
-----------------------
indemnities contained in those contracts and agreements set forth in Section
-------
2.13(g) of the Disclosure Schedule and warranties implied by law, neither the
-------
Company nor any Subsidiary has given any warranties or indemnities relating to
products or technology sold or services rendered by the Company or any
Subsidiary.
2.26 Complete Copies of Materials. All documents delivered at the
----------------------------
request of Parent or its counsel are true and complete copies of each such
document (or summaries of same) that has been requested by Parent or its
counsel.
2.27 Competition Act Compliance; Xxxx-Xxxxx-Xxxxxx Act Compliance.
------------------------------------------------------------
(a) Based on the audited financial statements of the Company
for the fiscal year ended December 31, 2000, the Company did not have assets in
Canada worth in excess of Cdn$35million, and the Company did not have gross
revenues from sales in or from Canada in excess of Cdn$35million.
(b) As defined by 16 C.F.R. section 801.1 (a)(3) of the Xxxx-
Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the
Company is its own Ultimate Parent Entity and is not controlled by any other
entity. Further, the Company does not engage in manufacturing as defined by 16
C.F.R. 801.1(j) of the HSR Act. Finally, according to the Company's last
regularly prepared balance sheet before close, the Company and all entities
controlled by the Company do not hold assets of US$10 million or more.
-38-
2.28 Foreign Corrupt Practices Act. The Company (including any of its
-----------------------------
officers or directors) has not taken any action that would cause it to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any rules
or regulations thereunder.
2.29 Board Approval. The Board of Directors, by resolutions duly
--------------
adopted by unanimous vote of those voting at a meeting duly called and held and
not subsequently rescinded or modified in any way (the "Company Board
Approval"), has duly (i) determined that this Agreement and the Arrangement are
fair to and in the best interests of the Company and the Shareholders, (ii)
approved this Agreement and the Arrangement and (iii) recommended that the
Shareholders adopt this Agreement and approve the Arrangement and directed that
this Agreement and the Arrangement be submitted for consideration by the
Shareholders at the Company Shareholders Meeting.
2.30 Vote Required. Subject to the Interim Order, the approval of the
-------------
Arrangement Resolution by the Required Company Vote is the only vote of the
holders of any class or series of shares of the Company share capital necessary
to approve the transactions contemplated by this Agreement and the Arrangement.
2.31 Representations Complete. None of the representations or
------------------------
warranties made by the Company or the Principal Shareholders (as modified by the
Disclosure Schedule) in this Agreement, and none of the statements made in any
exhibit, schedule or certificate furnished by the Company or the Principal
Shareholders pursuant to this Agreement contains, or will contain at the
Closing, any untrue statement of a material fact, or omits or will omit at the
Closing to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading. The information furnished on or in any documents mailed,
delivered or otherwise furnished to Shareholders in connection with the
solicitation of their consent to this Agreement and the Acquisition, will not
contain, at or prior to the Closing, any untrue statement of a material fact and
will not omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which made, not
misleading.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF THE PARENT PARTIES
----------------------------------------------------
Each of the Parent Parties hereby jointly and severally represent and
warrant to the Company that on the date hereof and as of the Closing, as though
made at the Closing, as follows:
3.1 Organization, Standing and Power. Each of the Parent Parties is a
--------------------------------
corporation duly incorporated, organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each of the Parent
Parties has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified or licensed would have a material adverse effect on the business,
assets (including intangible assets), condition (financial or otherwise),
results of operations or capitalization of Parent (a "Parent Material Adverse
Effect"); provided, however, that in no event will any change in Parent's stock
price or trading volume in and of itself be deemed to constitute, nor will it be
taken into account in determining whether there has been or will be, a Parent
Material Adverse Effect.
-39-
3.2 Authority. Each of the Parent Parties has all requisite corporate
---------
power and authority to enter into this Agreement and any Related Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements
to which it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Parent Parties. This Agreement and any Related Agreements to
which any of the Parent Parties are parties have been duly executed and
delivered by such Parent Parties and constitute the valid and binding
obligations of such Parent Parties, enforceable in accordance with their terms,
except as such enforceability may be limited by principles of public policy and
subject to the laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.3 No Conflict. The execution and delivery of this Agreement and any
-----------
Related Agreement do not, and, the consummation of the transactions contemplated
hereby and thereunder will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a Conflict under (i) any provision of the articles or by-laws (as amended) of
any Parent Party, (ii) any mortgage, hypothecation, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise or license to
which Parent or any of its respective properties or assets are subject and which
has been filed as an exhibit to Parent's filings under the Securities Act or the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") or (iii)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to any Parent Party or their respective properties or assets, except
in each case where such Conflict will not have a Parent Material Adverse Effect
or will not have an affect on the legality, validity or enforceability of this
Agreement.
3.4 Consents. No consent, waiver, approval, order or authorization of,
--------
or registration, declaration or filing with, any Governmental Entity, or any
third party is required by or with respect to any Parent Party in connection
with the execution and delivery by any Parent Party of this Agreement and any
Related Agreements to which any Parent Party is a party or the consummation of
the transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws, and (ii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings that, if not obtained or made, would not have a Parent
Material Adverse Effect.
3.5 Parent Common Stock. The Exchangeable Shares issuable in the
-------------------
Acquisition and the shares of Parent Common Stock issuable upon exchange thereof
have been duly authorized, and upon consummation of the transactions
contemplated by this Agreement, will be validly issued, fully paid and non-
assessable.
3.6 Broker's and Finders' Fees. No Parent Party has incurred, nor will
--------------------------
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
3.7 SEC Documents; Parent Financial Statements. A true and complete copy
------------------------------------------
of each annual, quarterly and other report, registration statement, and
definitive proxy statement filed by Parent with the Securities and Exchange
Commission (the "SEC") since June 30, 1999 (the
-40-
"Parent SEC Documents") is available on the web site maintained by the SEC at
xxxx://xxx.xxx.xxx. As of their respective filing dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents contained on their filing dates
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent corrected by a subsequently filed Parent SEC Document. The financial
statements of Parent included in the Parent SEC Documents (the "Parent Financial
Statements") complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto, except in the case of pro forma statements, or, in the case of
unaudited financial statements, except as permitted under Form 10-Q under the
Exchange Act) and fairly presented the consolidated financial position of Parent
and its consolidated subsidiaries as of the respective dates thereof and the
consolidated results of Parent's operations and cash flows for the periods
indicated (subject to, in the case of unaudited statements, to normal and
recurring year-end audit adjustments). There is no event or condition of any
character that has had a Parent Material Adverse Effect that is not reflected in
the Parent SEC Documents.
3.8 Capitalization. As of June 12, 2001, the authorized capital stock
--------------
of Parent consists of (i) 7,200,000,000 shares of Common Stock, US$0.00067 par
value, of which 3,246,418,920 shares were outstanding and (ii) 10,000,000 shares
of Preferred Stock, US$0.001 par value, of which no shares were issued and
outstanding.
3.9 Complete Copies of Materials. Each document that has been
----------------------------
delivered or made available by Parent pursuant to a request by the Company is a
true and complete copy of such document (or summaries of same).
3.10 Legal Proceedings. Each of the Parent Parties jointly and severally
-----------------
represents and warrants there are no legal proceedings pending, or to its
knowledge, threatened against them which would prevent the consummation of the
transactions contemplated in this Agreement.
ARTICLE IV
----------
CONDUCT PRIOR TO THE CLOSING
----------------------------
4.1 Conduct of Business of the Company. During the period from the
----------------------------------
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Closing, the Company agrees, and each Principal
Shareholder agrees to cause the Company, to carry on the business of Company,
except to the extent that Parent may otherwise consent in writing, in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay the debts and Taxes of the Company when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
preserve intact the Company's present business organizations, keep available the
services of the Company's present officers and key employees and preserve the
Company's relationships with customers, suppliers, distributors, licensors,
licensees,
-41-
and others having business dealings with it, all with the goal of preserving
unimpaired the Company's goodwill and ongoing businesses at the Closing. The
Company and the Principal Shareholders will promptly notify Parent of any event
or occurrence or emergency not in the ordinary course of business of the Company
and any material event involving the Company. Except as expressly contemplated
by this Agreement as set forth in Section 4.1 of the Disclosure Schedule, the
-----------
Company will not, without the prior written consent of Parent:
(a) make any expenditures or enter into any commitment or transaction
exceeding US$25,000 individually or US$100,000 in the aggregate or any
commitment or transaction of the type described in Section 2.9 hereof;
-----------
(b) other than pursuant to the Company's standard form(s) of end-user
license including attachments (which license agreements and attachments are
included in Section 2.13(f) of the Disclosure Schedule), sell, license or
---------------
transfer to any person or entity any rights to any Company Intellectual Property
or enter into any agreement with respect to any Company Intellectual Property
with any person or entity or with respect to any Intellectual Property of any
person or entity; provided that in no event will any such sale, license or
transfer involve any payment in the aggregate in excess of US$100,000 (ii) buy
or license any Intellectual Property or enter into any agreement with respect to
the Intellectual Property of any person or entity, (iii) enter into any
agreement with respect to the development of any Intellectual Property with a
third party, (iv) change pricing or royalties charged by the Company to its
customers or licensees, or the pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company or (v) enter into any
agreement pursuant to which the Company is obligated to provide service or
support to any third party;
(c) enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution, development or similar rights of any
type or scope with respect to any products or technology of the Company;
(d) amend or otherwise modify (or agree to do so), or violate the
terms of, any of the Contracts set forth or described in the Disclosure
Schedule;
(e) commence or settle any litigation;
(f) declare, set aside, or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Shares, or split, combine or reclassify any Company Shares or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for Company Shares, or repurchase, redeem or otherwise acquire,
directly or indirectly, any shares of Company Shares (or options, warrants or
other rights exercisable therefor) except in accordance with the agreements
evidencing Company Options or a result of the implementation of the Company
Reorganization pursuant to Article X hereof;
---------
(g) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares in the capital of the Company or any securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities, including but not limited to issuances of
Company Shares pursuant to
-42-
exercises of Company Options (subject to the provisions of the Plan), except as
a result of the implementation of the Company Reorganization pursuant to Article
-------
X hereof;
-
(h) cause or permit any amendments to its certificate of
incorporation, bylaws or other organizational documents of the Company, except
for those amendments which may be required as a result of the implementation of
the Company Reorganization pursuant to Article X hereof;
---------
(i) acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets that are material, individually or in the aggregate, to the Company's
business;
(j) sell, lease, sub-lease, license or otherwise dispose of any of
its properties or assets, including without limitation the sale of any accounts
receivable of the Company, or sub-lease or grant any license in respect of any
of the Leased Real Property, except properties or assets (whether tangible or
intangible) that are not Intellectual Property and only in the ordinary course
of business and consistent with past practices;
(k) incur any indebtedness or guarantee any indebtedness or issue or
sell any debt securities or guarantee any debt securities of others;
(l) grant any loans to others or purchase debt securities of others
or amend the terms of any outstanding loan agreement;
(m) grant any severance or termination pay or indemnity in lieu of
notice (in cash or otherwise) to any Employee, including any officer, except
payments made pursuant to standard written agreements outstanding on the date
hereof and disclosed in Section 4.1(m) of the Disclosure Schedule;
--------------
(n) adopt or amend any Company Employee Plan, enter into any
employment contract, pay or agree to pay any special bonus, change of control
awards or special remuneration to any director or Employee, or increase the
salaries, wage rates, or other compensation of its Employees except payments
made pursuant to standard written agreements outstanding on the date hereof and
disclosed in the Disclosure Schedule;
(o) revalue any of its assets (whether tangible or intangible),
including without limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course of business;
(p) pay, discharge or satisfy, in an amount in excess of US$25,000 in
any one case, or US$100,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Current Balance Sheet;
-43-
(q) make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(r) enter into any strategic alliance or joint marketing arrangement
or agreement;
(s) take any action to accelerate the vesting schedule of any of the
outstanding Company Options or Company Shares;
(t) hire or (other than as mutually agreed by Parent and the Company)
terminate any Employees, or encourage any Employees to resign from the Company;
or
(u) take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through 4.1(t) hereof, or any other action
--------------- ------
that would (x) prevent the Company or any of the Principal Shareholders from
performing, or cause the Company or any of the Principal Shareholders not to
perform, their respective covenants hereunder or (y) cause or result in any of
its respective representations and warranties contained herein being untrue or
incorrect.
4.2 No Solicitation. Until the earlier of (i) the Closing, or (ii)
---------------
the date of termination of this Agreement pursuant to the provisions of Section
-------
8.1 hereof, neither the Company nor the Principal Shareholders will (nor will
---
the Company or the Principal Shareholders permit, as applicable, any of their
respective officers, directors, employees, shareholders, agents, representatives
or affiliates to), directly or indirectly, take any of the following actions
with any party other than Parent and its designees: (a) solicit, encourage,
initiate or participate in any inquiry, negotiations or discussions, or enter
into any agreement, with respect to any offer or proposal to acquire all or any
material part of the Company's business, properties or technologies, or any
amount of the Company Shares (whether or not outstanding), whether by merger,
purchase of assets, tender offer, license or otherwise, or effect any such
transaction, (b) disclose any information not customarily disclosed to any
person concerning the Company's business, technologies or properties, or afford
to any person or entity access to its properties, technologies, books or
records, not customarily afforded such access, (c) assist or cooperate with any
person to make any proposal to purchase all or any part of the Company Shares or
assets of the Company, other than inventory in the ordinary course of business,
or (d) enter into any agreement with any person providing for the acquisition of
the Company, whether by acquisition, purchase of assets, license, tender offer
or otherwise. In the event that the Company, any Principal Shareholder, or any
of the Company's affiliates shall receive, prior to the Closing or the
termination of this Agreement in accordance with Section 8.1 hereof, any offer,
-----------
proposal, or request, directly or indirectly, of the type referenced in clause
(a), (c), or (d) above, or any request for disclosure or access as referenced in
clause (b) above, the Company or such Principal Shareholder, as applicable, will
immediately (x) suspend any discussions with such offeror or party with regard
to such offers, proposals, or requests and (y) notify Parent thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Parent may reasonably request.
The parties hereto agree that irreparable damage would occur in the event that
the provisions of this Section 4.2 were not performed in accordance with their
-----------
specific terms or were otherwise breached. It is accordingly agreed by the
parties hereto that Parent will be entitled to seek an injunction or injunctions
to prevent
-44-
breaches of the provisions of this Section 4.2 and to enforce specifically the
-----------
terms and provisions hereof in any court of the United States or Canada or any
state or province having jurisdiction, this being in addition to any other
remedy to which Parent may be entitled at law or in equity.
ARTICLE V
---------
ADDITIONAL AGREEMENTS
---------------------
5.1 Circular. As promptly as is practicable after the execution and
--------
delivery of this Agreement, Parent and the Company will jointly prepare an
information circular (the "Circular"), together with any other documents
required by the Securities Act or other applicable Laws in connection with the
Arrangement, and the Company will cause the Circular and other documentation
required in connection with the Company Shareholders Meeting to be sent to each
Voting Securityholder and filed as required by the Interim Order and applicable
Laws. The Company will ensure that the Circular complies with all applicable
Laws and, without limiting the generality of the foregoing, that the Circular
does not contain any untrue statement of a material fact or omit 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 (other than with respect to any information relating to and provided by the
Parent Parties). Without limiting the generality of the foregoing, the Company
will ensure that the Circular provides the Voting Securityholders with
information in sufficient detail to permit them to form a reasoned judgement
concerning the matters to be placed before them at the Company Shareholders
Meeting. The information relating to the Company to be contained in the Circular
or any amendment thereto (including any information referred to therein or
incorporated therein by reference) will be accurate and complete in all material
respects as at the date thereof, on the date each such circular is mailed to the
Company's shareholders and at the time of the Company Shareholders Meeting and
will not contain a misrepresentation (as such term is defined in the Securities
Act (Ontario)) as at each such date. Parent will ensure that the information to
be contained in the Circular or any amendment thereto (including any information
referred to therein or incorporated therein by reference) relating to the Parent
Parties will be accurate and complete in all material respects as at the date
thereof and will not contain a misrepresentation (as such term is defined in the
Securities Act (Ontario)) as at such date.
5.2 Access to Information . The Company will afford Parent and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period from the date hereof and prior to the Closing
to (i) all of the Company's properties, books, contracts, commitments and
records, including the Company's source code (but only for examination on the
Company's premises, and not for removal therefrom), (ii) all other information
concerning the business, properties and personnel (subject to restrictions
imposed by applicable law) of the Company as Parent may reasonably request, and
(iii) all Employees of the Company as identified by Parent. The Company agrees
to provide to Parent and its accountants, counsel and other representatives
copies of internal financial statements (including Tax returns and supporting
documentation) promptly upon request. No information or knowledge obtained in
any investigation pursuant to this Section 5.2 will affect or be deemed to
-----------
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Acquisition in accordance with the
terms and provisions hereof.
-45-
5.3 Confidentiality. Each of the parties hereto hereby agrees that
---------------
the information obtained in any investigation pursuant to Section 5.2 hereof, or
-----------
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, will be governed by the terms of the
Confidential Disclosure Agreement effective as of February 14, 2001 (the
"Confidential Disclosure Agreement") between the Company and Parent, and each of
the Parent Parties acknowledges it is bound thereby as fully as Parent.
5.4 Expenses. Whether or not the Acquisition is consummated, all fees
--------
and expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("Third Party Expenses") incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, will be the
obligation of the respective party incurring such fees and expenses; provided,
however, that Parent agrees to pay, or to cause to the Company to pay, up to an
aggregate of US$300,000 in reasonable and documented Third Party Expenses
incurred by the Company if the Acquisition is consummated. Any Third Party
Expenses incurred by the Company which are either in excess of US$300,000 or are
otherwise not reasonable and documented will be paid out of the Escrow Amount
and will not be limited by the Basket Amount (as defined in Section 7.3(b)
--------------
hereof).
5.5 Public Disclosure. No party will issue any statement or
-----------------
communication to any third party (other than their respective agents) regarding
the subject matter of this Agreement or the transactions contemplated hereby,
including, if applicable, the termination of this Agreement and the reasons
therefor, without the consent of the other party, which consent will not be
unreasonably withheld, except that this restriction will be subject to Parent's
obligation to comply with applicable securities laws and the rules of the NASDAQ
Stock Market.
5.6 Consents. The Company will obtain the consents, waivers and
--------
approvals under any of the Contracts to which the Company is a party deemed
appropriate or necessary by any party in connection with the Acquisition,
including all consents, waivers and approvals set forth in the Disclosure
Schedule, so as to preserve all rights of, and benefits to, the Company
thereunder from and after the Closing; provided, however, the Company will use
its reasonable best efforts to obtain consent pursuant to Article 11 of that
certain Office Lease between Royal Trust Corporation of Canada and the Company
dated June 15, 2000.
5.7 Reasonable Efforts. Subject to the terms and conditions provided
------------------
in this Agreement, each of the parties hereto will use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided, however, that Parent will not be required to agree to any divestiture
by Parent or the Company or any of Parent's subsidiaries or affiliates, of
shares of capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates, or of the Company, its affiliates,
-46-
or the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and shares or stock.
5.8 Notification of Certain Matters. The Company or any Indemnifying
-------------------------------
Securityholder, as the case may be, will give prompt notice to Parent of: (i)
the occurrence or non-occurrence of any event, the occurrence or non-occurrence
of which is likely to cause any representation or warranty of the Company or any
Indemnifying Securityholder, respectively and as the case may be, contained in
this Agreement to be untrue or inaccurate at or prior to the Closing, and (ii)
any failure of the Company or any Indemnifying Securityholder, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.8 will not (a) limit or otherwise
-----------
affect any remedies available to the party receiving such notice or (b)
constitute an acknowledgment or admission of a breach of this Agreement. No
disclosure by the Company or the Indemnifying Securityholders pursuant to this
Section 5.8, however, will be deemed to amend or supplement the Disclosure
-----------
Schedule or prevent or cure any misrepresentations, breach of warranty or breach
of covenant.
5.9 Additional Documents and Further Assurances. Each party hereto,
-------------------------------------------
at the request of another party hereto, will execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
reasonably desirable for effecting completely the consummation of the
Acquisition and the transactions contemplated hereby.
5.10 S-8 Registration. Not later than sixty (60) days after the Closing
----------------
Date, Parent agrees to file, if available for use by Parent, with the Securities
and Exchange Commission a registration statement on Form S-8 registering that
number of shares of Parent Common Stock equal to the number of shares of Parent
Common Stock issuable upon the exercise of all Company Options assumed by Parent
with Parent Options pursuant to Section 1.15 hereof.
------------
5.11 New Options for Employees.
-------------------------
(a) Promptly after the Closing, Parent will grant options (the
"New Parent Options") to purchase an aggregate of 175,000 shares of Parent
Common Stock under Parent's Equity Compensation Acquisition Plan (the "Parent
Plan") to selected employees of the Company other than the Founders, as shall be
agreed by Parent and the Company prior to the Closing Date, which options will
be subject to Parent's standard terms and conditions, except that the New Parent
Options will vest as follows: one-fourth (1/4) will vest on each of the first,
second, third and fourth anniversaries of the Closing Date. The New Parent
Options will be issued in-the-money such that the aggregate amount that such New
Parent Options are in-the-money will equal US$2,500,000 as of the date of grant,
provided that the exercise price of such New Parent Options will not be less
than fifty percent (50%) of the closing price for Parent Common Stock as
reported on the NASDAQ National Market on the date of grant. The number of New
Parent Options granted hereunder will be adjusted to reflect fully the effect of
any stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into or exchangeable for Parent Common
Stock), reorganization, recapitalization or other like change with respect to
Parent Common Stock occurring after the date hereof and prior to the Closing.
Notwithstanding the foregoing, Parent will have no obligation to grant any New
Parent Options unless (i) the Total Company Shares is at least equal to
43,000,000 and (ii) the Company has at least one hundred eighty (180) employees
at the Closing.
-47-
(b) Promptly after the Closing, Parent will grant options (the
"Additional Parent Options") to purchase an aggregate of 100,000 shares of
Parent Common Stock under the Parent Plan to select employees of the Company
other than the Founders, as shall be agreed upon by Parent and the Company prior
to the Closing Date, which options will be subject to Parent's standard terms
and conditions, except that such Additional Parent Options will vest as follows;
one-fifth (1/5) will vest on each of the first, second, third, fourth and fifth
anniversaries of the Closing Date. The exercise price of the Additional Parent
Options will be the closing price for the Parent Common Stock as reported on the
NASDAQ National Market on the date of grant. The number of Additional Parent
Options granted hereunder will be adjusted to reflect fully the effect of any
stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into or exchangeable for Parent Common
Stock), reorganization, recapitalization or other like change with respect to
Parent Common Stock occurring after the date hereof and prior to the Closing.
Notwithstanding the foregoing, Parent will have no obligation to grant any
Additional Parent Options unless (i) the Trading Price is greater than US$20.00
and (i) the Company has at least 185 employees at the Closing.
(c) Promptly after the Closing, Parent will grant options (the
"Scheduled Options") to purchase an aggregate number of shares of Parent Common
Stock as shall be equal to 1,599,997 Company Shares (the "Equivalent Scheduled
Option Shares") multiplied by the Option Exchange Ratio, rounded down to the
nearest whole number of shares of Parent Common Stock under the Parent Plan to
the employees of the Company set forth on Schedule 5.11(c), which options will
----------------
be subject to Parent's standard terms and conditions, except that such Scheduled
Options will vest according to the vesting schedule set forth on Schedule
--------
5.11(c). The exercise price of the Scheduled Options will be the closing price
-------
for the Parent Common Stock as reported on the NASDAQ National Market on the
date of grant. The number of Scheduled Options granted hereunder will be
adjusted to reflect fully the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities convertible
into or exchangeable for Parent Common Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock occurring after the
date hereof and prior to the Closing.
(d) Each person who is an employee of the Company immediately prior
to the Closing Date will be offered employment by Parent and/or one its
affiliates, to be effective as of the Closing Date. Such employment arrangements
will (i) be set forth in offer letters based on Parent's standard form (each, an
"Offer Letter"), (ii) be subject to and in compliance with Parent's applicable
human resources policies and procedures, (iii) have terms, including the
position, salary and responsibilities of such employee, that will be determined
by Parent after consultation with the Company's management, and (iv) supersede
any prior employment agreements and other arrangements with such employee in
effect prior to the Closing Date. Such offers of employment will be conditional
upon the completion of the Acquisition and conditional upon each employee's
resignation from the Company. Each Key Employee will execute an Offer Letter at
the same time as the execution of this Agreement, and such Offer Letters will be
effective as of the Closing Date and conditioned upon each Key Employee's
resignation from the Company. Each employee of the Company who remains an
employee of Parent, one of Parent's affiliates or the Company after the Closing
Date will be referred to hereafter as a "Continuing Employee." Continuing
Employees will be eligible to receive benefits consistent with Parent's
applicable human resources policies. Parent will or will cause the Company or
appropriate subsidiary of Parent to give Continuing Employees
-48-
full credit under such policies for purposes of eligibility, vesting, benefit
accrual, and determination of the level of benefits. The Company will terminate
all employment agreements and other arrangements with all of its employees who
are not Continuing Employees effective as of the Closing Date, with the costs
associated with such terminations to be borne by Parent.
5.12 Affiliate Agreements. Section 5.12 of the Disclosure Schedule sets
-------------------- ------------
forth those persons who, in the Company's reasonable judgment, are or may be
"affiliates" of the Company within the meaning of Rule 145 (each such person, a
"Rule 145 Affiliate") promulgated under the Securities Act ("Rule 145"). The
Company will provide Parent such information and documents as Parent may
reasonably request for purposes of reviewing such list. The Company will deliver
or cause to be delivered to Parent, concurrently with the execution of this
Agreement (and in any case prior to the Closing Date) from each of the Rule 145
Affiliates of the Company, an executed Affiliate Agreement in the form attached
hereto as Exhibit F. Parent and Sub will be entitled to place appropriate
------- -
legends on the certificates evidencing any Exchangeable Shares or Parent Common
Stock to be received by such Rule 145 Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for Exchangeable Shares or Parent Common Stock, consistent with the terms
of such Affiliate Agreements.
5.13 Closing Date Balance Sheet; Interim Balance Sheet; Satisfaction of
------------------------------------------------------------------
Specified Conditions. The Company will prepare and deliver the Closing Date
--------------------
Balance Sheet at least three (3) business days prior to the Closing Date, and if
the Closing shall not have occurred by July 25, 2001, the Company will prepare
and deliver the Interim Balance Sheet not later than July 23, 2001. In addition,
if the Closing shall not have occurred by July 25, 2001, in order for the
Company to demonstrate that the Specified Conditions shall have been satisfied
as if the Closing had occurred as of July 25, 2001 for purposes of the Balance
Sheet Adjustment, the Company shall deliver to Parent, on or prior to July 24,
2001, such certificates and other documents as shall be requested by Parent to
demonstrate such compliance with each of the Specified Conditions.
5.14 Statement of Expenses. The Company will provide Parent with a
---------------------
statement of Estimated Third Party Expenses incurred by the Company three (3)
business days prior to the Closing Date (the "Statement of Expenses").
5.15 Resignation of Officers and Directors. The Company will cause all
-------------------------------------
of its officers and directors to resign as officers and directors of the Company
(in their respective capacities as such) effective as of the Closing.
5.16 Termination of Severance Arrangements. The Company will use its
-------------------------------------
reasonable best efforts to cause each of the Company's employees to agree to
waive any provisions in any share purchase or option agreement, plan or other
agreement providing for acceleration of vesting (or acceleration of lapsing of
repurchase rights) or imposing on the Company any other financial obligations in
excess of statutory minimum requirements in the event of any change of control,
termination without cause or constructive termination.
5.17 Exemption from Registration; Registration Rights.
------------------------------------------------
(a) The parties intend that the Exchangeable Shares issued pursuant
to the Articles of Arrangement will be issued in a transaction exempt from
registration under the Securities
-49-
Act by reason of Section 3(a)(10) thereof. As soon as practicable after the date
hereof, Parent shall at its own expense file a registration statement on Form S-
3 (the "Exchange Offer Registration Statement") with the SEC in order to
register under the Securities Act the issuance of the shares of Parent Common
Stock to be issued from time to time upon exchange of the Exchangeable Shares
issued to the Shareholders pursuant to Article I hereof, and will use its
---------
commercially reasonable efforts to cause such Exchange Offer Registration
Statement to become effective prior to the date of issuance of the Final Order
and to maintain the effectiveness of such Exchange Offer Registration Statement,
to the extent permitted by law, until the fifth (5/th/) anniversary of the
Closing Date, or until no Exchangeable Shares shall be outstanding, whichever is
earlier; provided, however, that at any time after fifteen (15) days after the
SEC shall have declared the Exchange Offer Registration Statement effective,
Parent may suspend the use of the Exchange Offer Registration Statement
beginning on the first (1st) day of the last month of each fiscal quarter of
Parent and ending three (3) trading days after Parent publicly discloses
operating results from such fiscal quarter, in keeping with the black-out
periods in Parent's standard stock trading policy.
(b) If the SEC shall advise Parent that it (i) will be reviewing the
Exchange Offer Registration Statement or (ii) will not declare effective a
registration statement covering the issuance of the shares of Parent Common
Stock to be issued upon exchange of the Exchangeable Shares, Parent shall be
entitled to elect to withdraw the Exchange Offer Registration Statement and in
lieu thereof register the resale of such shares of Parent Common Stock as set
forth in this Section 5.17(b); provided, that in the case of clause (i), Parent
---------------
may only withdraw the Exchange Offer Registration Statement after July 11, 2001
if in Parent's judgment, the SEC review process could result in the Effective
Date being delayed until after July 25, 2001, and provided further, that in the
case of clause (ii), if the SEC shall not have reversed its position within two
weeks after so advising Parent that it will not declare such registration
statement effective, Parent shall make the election set forth herein at the end
of such two week period. Parent shall make such election by providing notice
thereof to the Company not less than three (3) Business Days prior to the date
of issuance of the Final Order and by undertaking to comply with the provisions
of this paragraph. In the event that Parent shall make such election, Parent
shall, at Parent's own expense, file with the SEC, as soon as practicable, but
in no event (except as provided below) later than ten (10) days, after the
Closing Date, a registration statement on Form S-3 (the "Resale Registration
Statement") under the Securities Act to provide for the resale by the
Shareholders of the shares of Parent Common Stock issuable upon exchange of the
Exchangeable Shares issued to the Shareholders pursuant to Article I hereof, and
---------
will use its commercially reasonable efforts to cause such Resale Registration
Statement to become effective as reasonably promptly as reasonably practicable
thereafter; provided, however, that Parent will not be required to cause such
Resale Registration Statement to become effective until at least one (1)
Business Day after Parent publicly discloses operating results from its most
recently ended fiscal quarter. Parent will use its reasonable best efforts to
keep such Resale Registration Statement effective until the fifth (5/th/)
anniversary of the Closing Date; provided, however, that at any time after
fifteen (15) days after the SEC shall have declared the Resale Registration
Statement effective, Parent may suspend the use of the Resale Registration
Statement beginning on the first (1/st/) day of the last month of each fiscal
quarter of Parent and ending three (3) trading days after Parent publicly
discloses operating results from such fiscal quarter, in keeping with the black-
out periods in Parent's standard stock trading policy. In order to be included
in any such Resale Registration Statement, each Shareholder shall, on or prior
to the Closing Date, complete a selling shareholder questionnaire in such form
as may be provided by Parent not later
-50-
than the tenth (10/th/) day prior to the Closing Date. In the event that any
Shareholder shall have failed to furnish such completed questionnaire to Parent
on or prior to the Closing Date, Parent will be entitled, in its reasonable
discretion, to (i) file the Resale Registration Statement as set forth above
without including any of the shares of Parent Common Stock held by such
Shareholder, and such Shareholder will have no further right to have his or her
shares registered hereunder, or (ii) defer the filing of the Resale Registration
Statement until the earlier to occur of the tenth (10/th/) day after such
Shareholder will have furnished such information or the thirtieth (30/th/) day
after such Resale Registration Statement is otherwise required to filed pursuant
to this Section 5.17(b). Notwithstanding anything herein, in the event that
---------------
all of the shares of Parent Common Stock issued to a Shareholder can be sold by
such Shareholder in a single three-month period in accordance with Rule 144
under the Securities Act, Parent will have no obligation to cause the shares of
Parent Common Stock held by such Shareholder to continue to be registered
pursuant to the Resale Registration Statement.
(c) In the event that any shares of Parent Common Stock to be issued
upon the exchange of the Exchangeable Shares are not issued pursuant to the
Exchange Offer Registration Statement, such shares of Parent Common Stock shall
constitute "restricted securities" within the meaning of Rule 144 of the
Securities Act and will be issued in a private placement transaction in reliance
upon the exemption from the registration and prospectus delivery requirements of
Section 5 of the Securities Act afforded by Section 4(2) of the Securities Act
and Regulation D promulgated thereunder and will be subject to the following
legend to identify such privately placed shares as being "restricted securities"
under the Securities Act, to comply with foreign, provincial, state and federal
securities laws and to notice the restrictions on transfer of such shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS (A) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT COVERING
SUCH SECURITIES, OR (B) A VALID EXEMPTION THEREFROM AND THE
CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT.
In addition, Parent may place on the certificates representing such share
of Parent Common Stock any other legends required by applicable law.
(d) The parties hereto acknowledge and agree that the Exchangeable Shares
issuable to the Shareholders pursuant to Article I hereof and the shares of
---------
Parent Common Stock issuable upon exchange thereof will be issued in reliance
upon the exemption from the registration and prospectus delivery requirements of
and in reliance upon the prospectus and registration exemptions under the
Securities Act (Ontario) and Securities Fraud Prevention Act (New Brunswick).
-51-
5.18 Issuance of Nonvoting Preferred Stock. In connection with the
-------------------------------------
transactions contemplated herein, Parent, Sub, and CallCo will cause ExchangeCo
to issue all shares of a class of nonvoting preference shares solely in exchange
for services provided, however, such nonvoting preference shares will be junior
to all Exchangeable Shares.
5.19 Termination of Benefit Plans . Effective as of the day immediately
----------------------------
preceding the Closing Date, the Company and its Affiliates (as such term is
defined in Section 2.22(b) of this Agreement), as applicable, shall each
---------------
terminate any and all group severance, separation or salary continuation or
deferral plans, programs or arrangements (unless Parent provides written notice
to the Company that such plans shall not be terminated) (collectively, "Company
Deferral Plans"). Unless Parent provides such written notice to the Company, no
later than five (5) business days prior to the Closing Date, the Company shall
provide Parent with evidence that such Company Deferral Plan(s) have been
terminated (effective as of the day immediately preceding the Closing Date)
pursuant to resolutions of the Company's or its Affiliates (as may be
applicable) Board of Directors. The form and substance of such resolutions shall
be subject to review and approval of Parent. The Company and its Affiliates also
shall take such other actions in furtherance of terminating such Company
Employee Plan(s) as Parent may reasonably require.
5.20 Exchangeable Shares. The Exchangeable Shares issuable in the
-------------------
Acquisition shall have the rights privileges and restrictions set forth in
Exhibit G with such changes thereto as the parties reasonably may agree in
---------
writing.
5.21 Parent Common Stock. Parent shall reserve a sufficient number of
-------------------
shares of Parent Common Stock for issuance upon the exchange from time to time
of Exchangeable Shares and the exercise from time to time of Parent Options, New
Parent Options, Additional Parent Options and Scheduled Options, and such shares
will be validly issued, fully paid and non-assessable upon the consummation of
such transactions.
5.22 Section 85 Elections. If a Principal Shareholder receives
--------------------
Exchangeable Shares from ExchangeCo in consideration for Company Shares and such
Principal Shareholder is (i) subject to Canadian tax on the Company Shares
pursuant to this Agreement and (ii) otherwise eligible to avail himself or
herself of the provisions contained in section 85 of the ITA (and corresponding
provisions of any applicable provincial statute), such Principal Shareholder and
ExchangeCo agree to jointly execute and file an election pursuant to the
applicable provisions of section 85 of the ITA and the corresponding provisions
of any applicable provincial statute in the prescribed form and within the
prescribed time whereby the proceeds of disposition to such Principal
Shareholder of such Company Shares and the cost thereof to ExchangeCo shall be
the amount equal to the greater of (i) the lesser of the fair market value of
the Company Shares and their adjusted cost base to such Principal Shareholder
and (ii) the amount designated by the Principal Shareholder as the elected
amount for the purposes of the ITA; provided that, in no circumstances can the
elected amount exceed the fair market value of the Company Shares. Each
Principal Shareholder will arrange for the preparation of such Principal
Shareholder's election in accordance with Section 85 of the ITA.
5.23 Company Shareholders Meeting. The Company shall duly take all
----------------------------
lawful action to call as promptly as practicable, give notice of, convene and
hold a special meeting of its Voting Securityholders on a date determined by the
Company (including any adjournment thereof, the "Company Shareholders Meeting")
for the purpose of obtaining the Required Company Vote with
-52-
respect to the transactions contemplated by this Agreement and the Arrangement
and shall take all lawful action to solicit the approval of the Arrangement
Resolution by the Required Company Vote; and the Board of Directors shall
recommend adoption of the Arrangement Resolution by the Voting Securityholders
to the effect as set forth in Section 2.29 (the "Company Recommendation"), and
------------
shall not withdraw, modify or qualify (or propose to withdraw, modify or
qualify) in any manner adverse to Parent such recommendation or take any action
or make any statement in connection with the Company Shareholders Meeting
inconsistent with such recommendation (collectively, a "Change in the Company
Recommendation").
5.24 Notice to Element K and Principal Shareholders. Parent shall provide
----------------------------------------------
Element K and the Principal Shareholders notice of the anticipated date of
Closing ten (10) days prior to such anticipated Closing Date.
ARTICLE VI
----------
CONDITIONS TO THE ACQUISITION
-----------------------------
6.1 Conditions to Obligations of Each Party to Effect the
-----------------------------------------------------
Acquisition. The respective obligations of the parties to effect the Acquisition
-----------
shall be subject to the satisfaction, at or prior to the Closing, of the
following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
--------
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
that is in effect and that has the effect of making the Acquisition illegal or
otherwise prohibiting consummation of the Acquisition.
(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be threatened or pending.
(c) Company Shareholder Approval. The Company shall have obtained
----------------------------
the Required Company Vote in favor of the adoption of the Arrangement Resolution
at the Company Shareholders Meeting.
(d) Canadian Securities Laws. Exemption orders from the OSC and
------------------------
other Canadian provincial securities authorities, where required, from the
registration and prospectus requirements, as well as any other required
exemptions or relief, with respect to the Exchangeable Shares structure
contemplated by this Agreement and the Related Agreements shall have been
granted.
(e) Interim Order and Final Order. The Interim Order and the Final
-----------------------------
Order shall each have been obtained in the form and on the terms satisfactory to
each of the Company and the
-53-
Parent Parties, acting reasonably, and shall not have been set aside or modified
in a manner unacceptable to such parties on appeal or otherwise.
(f) Securities Act Compliance. The Exchangeable Shares issued
-------------------------
pursuant to the Plan of Arrangement will be issued in a transaction exempt from
the registration and prospectus delivery requirements of Section 5 of the
Securities Act afforded by Section 3(a)(10) of the Securities Act and the rules
and regulations promulgated by the SEC thereunder and, unless Parent shall have
elected to withdraw the Exchange Offer Registration Statement in accordance with
Section 5.17 hereof, the SEC shall have declared or ordered the Exchange Offer
Registration Statement to be effective under the Securities Act on or prior to
the date of issuance of the Final Order, no stop order suspending the
effectiveness of the Exchange Offer Registration Statement or any part thereof
shall have been issued, and no proceeding for that purpose shall have been
initiated or threatened in writing by the SEC.
6.2 Conditions to the Obligations of the Parent Parties. The
---------------------------------------------------
obligation of the Parent Parties to effect the Acquisition shall be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of the Company and the Indemnifying
Securityholders in this Agreement were true and correct in all respects on the
date they were made and shall be true and correct in all material respects on
and as of the Closing Date as though such representations and warranties were
made on and as of such time (other than the representations and warranties of
the Company and the Indemnifying Securityholders as of a specified date, which
shall be true and correct as of such date), and (ii) the Company and the
Indemnifying Securityholders shall have performed and complied in all material
respects with all covenants and obligations under this Agreement required to be
performed and complied with by such parties as of the Closing.
(b) Governmental Approval. Approvals from any Governmental Entity,
---------------------
commission, or other federal, state, county, provincial, municipal, local or
other foreign governmental authority, instrumentality, agency, or commission (if
any) deemed reasonably appropriate or necessary by Parent shall have been timely
obtained.
(c) Principal Shareholder Election. Each Principal Shareholder shall
------------------------------
have delivered an Election Form to Parent, in the form attached hereto as
Exhibit C, pursuant to which each Founder shall have irrevocably exercised the
---------
Share/Cash Election and pursuant to which Xxxx Xxxxxxxx shall have irrevocably
exercised the Cash Election, and each such Election Form shall be in full force
and effect.
(d) Litigation. There shall be no action, suit, claim, or
----------
proceeding of any nature pending, or overtly threatened, against Parent, Sub,
CallCo or ExchangeCo or the Company, their respective properties or any of their
respective officers or directors arising out of, or in any way connected with,
the Acquisition or the other transactions contemplated by the terms of this
Agreement.
(e) Third Party Consents. Parent shall have received all consents,
--------------------
listed on Schedule 6.2(e) to this Agreement.
---------------
-54-
(f) Termination of Agreements. The Company shall have terminated
-------------------------
each of those agreements listed on Schedule 6.2(f) to this Agreement effective
---------------
as of the Closing and each such agreement shall be of no further force or effect
from and after the Closing.
(g) Release of Liens. Parent shall have received from the Company a
----------------
duly and validly executed copy of all agreements, instruments, certificates and
other documents, in form and substance reasonably satisfactory to Parent, that
are necessary or appropriate to evidence the release of all Liens set forth in
Schedule 6.2(g) to this Agreement effective as of the Closing.
---------------
(h) Legal Opinions. Parent shall have received a legal opinion from
--------------
legal counsel to the Company, substantially in the form attached hereto as
Exhibit H-1, and a legal opinion from legal counsel to Element K and EK
-----------
Holdings, substantially in the form attached hereto as Exhibit H-2.
-----------
(i) No Material Adverse Change. There shall not have occurred any
--------------------------
event or condition of any character that has had or is reasonably likely to have
a Material Adverse Effect on the Company since the date of this Agreement.
(j) Non-Competition Agreements. Each Key Employee shall have
--------------------------
executed and delivered to Parent a Non-Competition Agreement in the form
attached hereto as Exhibit A, and all of such Non-Competition Agreements shall
---------
be in full force and effect.
(k) New Employment Arrangements. (i) Each of the Founders, (ii) at
---------------------------
least two of the three Key Employees who are not Founders and (iii) at least
ninety percent (90%) of the people listed on Schedule 6.2(k) shall have entered
---------------
into employment arrangements with Parent and/or the Company pursuant to their
execution of an Offer Letter, shall have agreed to be employees of Parent after
the Closing, and shall be employees of the Company immediately prior to the
Closing.
(l) Certificate of the Company and the Indemnifying Securityholders.
---------------------------------------------------------------
Parent shall have received certificates, validly executed by each of the
Indemnifying Securityholders, and the Chief Executive Officer and Chief
Financial Officer of the Company for and on the Company's behalf, to the effect
that, as of the Closing:
(i) all representations and warranties made by the Company and
the Indemnifying Securityholders in this Agreement, including the
representations and warranties set forth in Article IX were true and correct in
----------
all respects on the date they were made and are true and correct in all material
respects on and as of the Closing Date as though such representations and
warranties were made on and as of such time (other than the representations and
warranties of the Company and the Indemnifying Securityholders as of a specified
date, which shall be true and correct as of such date);
(ii) all covenants and obligations under this Agreement to be
performed by the Company or the Indemnifying Securityholders on or before the
Closing have been so performed in all material respects; and
(iii) the conditions to the obligations of the Parent Parties
set forth in this Section 6.2 have been satisfied (unless otherwise waived in
-----------
accordance with the terms hereof).
-55-
(m) Certificate of Secretary of Company. Parent shall have received
-----------------------------------
a certificate, validly executed by the Secretary of the Company, certifying as
to (i) the terms and effectiveness of the articles and by-laws of the Company
(as amended), and (ii) the valid adoption of resolutions of the Board of
Directors of the Company approving this Agreement and the consummation of the
transactions contemplated hereby.
(n) Certificate of Status. Parent shall have received a certificate
---------------------
of status from the Province of Ontario with respect to the Company, dated not
more than four (4) days prior to Closing.
(o) Closing Date Balance Sheet; Interim Balance Sheet. Parent shall
-------------------------------------------------
have received from the Company the Closing Date Balance Sheet pursuant to
Section 5.13 hereof, and if the Closing shall not have occurred by July 25,
------------
2001, Parent shall have received from the Company the Interim Balance Sheet.
(p) Statement of Expenses. Parent shall have received from the
---------------------
Company the Statement of Expenses pursuant to Section 5.14 hereof.
------------
(q) Vesting Waivers. All of the Company's employees shall have
---------------
agreed to waive any provisions in any stock purchase, stock option or other
agreement or plan by and between any such employees and the Company providing
for acceleration of vesting (or acceleration of lapsing of repurchase rights) or
imposing on the Company any other financial obligations in excess of statutory
minimum requirements in the event of any change of control, termination without
cause or constructive termination.
(r) Repurchase Agreements. Each Founder shall have executed a
---------------------
Repurchase Agreement, and each such Repurchase Agreement shall be in full force
in effect.
(s) Amended License Agreement. The Company and EK Holdings (or one
-------------------------
of its affiliates) shall have entered into an amended license agreement in
substantially the form attached hereto as Exhibit I (the "Amended License
---------
Agreement"), and such Amended License Agreement shall be in full force and
effect.
(t) Exchange and Support Agreement. CallCo, ExchangeCo, Parent and
------------------------------
the Shareholder Representative shall have executed the Exchange and Support
Agreement effective as of the Closing, and such Exchange and Support Agreement
shall be in full force and effect from and after the Closing.
(u) Termination of Shareholders Agreement. The Company, EK Holdings
-------------------------------------
(and Element K, as applicable) and the Principal Shareholders shall have
terminated that certain Shareholders Agreement dated as of May 5, 2000 effective
as of the Closing.
(v) Dissent Rights. Dissent Rights shall not have been exercised
--------------
with respect to more than five percent (5%) of the Company Common Shares issued
and outstanding immediately prior to the Effective Date in connection with the
Arrangement.
(w) Formulasys Side Letter. The Company and Formulasys Inc.
----------------------
("Formulasys") shall have executed a side letter amending that certain Bi-
Lateral Services Agreement dated as of
-56-
March 8, 2000 between the Company and Formulasys substantially in the form
agreed upon by Parent and Company.
(x) Resignation of Officers and Directors. Parent shall have
-------------------------------------
received a written resignation from each of the officers and directors of the
Company and each of the Subsidiaries effective as of the Closing and no such
letter shall have been withdrawn.
(y) Wysdom Contracts. Either all amounts due and payable to Wysdom
----------------
Inc. ("Wysdom") under the Professional Services Agreement dated March 9, 2001
(as extended on June 1, 2001) shall be paid to Wysdom in full or the Company
shall have received from Wysdom a waiver in a form acceptable to Parent.
(z) Absence of Claims. There shall be no action, suit, claim, or
-----------------
proceeding of any nature pending, or threatened, against the Company, its
properties or any of its officers or directors or any of the Principal
Shareholders arising out of, or in any way connected with, (i) that certain
Joint Software Development and License Agreement, dated as of April 27, 2000,
between the Company and EK Holdings, or (ii) that certain Agreement, dated as of
the date hereof, among EK Holdings and certain of the Principal Shareholders,
and Parent shall have received a certificate, validly executed by the Chief
Executive Officer of EK Holdings, to the effect that, (x) as of the Closing
Date, no such action, suit, claim, or proceeding is pending or has been
threatened by EK Holdings or any of its Affiliates, (y) EK Holdings irrevocably
waives, from and after the Closing Date, on behalf of itself and its Affiliates,
any right that any of them may have to bring any such action, suit, claim, or
proceeding, and (z) to the Knowledge of EK Holdings, there is no reasonable
basis for any such action, suit, claim, or proceeding.
6.3 Conditions to Obligations of the Company and the Indemnifying
-------------------------------------------------------------
Securityholders. The obligations of the Company and each of the Indemnifying
---------------
Securityholders to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of that may be waived, in
writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Parent Parties in this Agreement were true and correct on
the date they were made and shall be true and correct in all material respects
on and as of the Closing as though such representations and warranties were made
on and as of such time (other than the representations and warranties of the
Parent Parties as of a specified date, which shall be true and correct as of
such date), and each of the Parent Parties were true and correct in all material
respects on the date they were made and shall have performed and complied in all
material respects with all covenants and obligations of this Agreement required
to be performed and complied with by it as of the Closing.
(b) Certificate of Parent. Company shall have received a
---------------------
certificate executed on behalf of Parent by a Vice President to the effect that,
as of the Closing:
(i) all representations and warranties made by the Parent
Parties in this Agreement were true and correct when made and are true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such time; and
-57-
(ii) all covenants and obligations under this Agreement to be
performed by the Parent Parties on or before the Closing have been so performed
in all material respects.
(c) No Material Adverse Change. There shall not have occurred any
--------------------------
event or condition of any character that has had or is reasonably likely to have
a Parent Material Adverse Effect.
(d) Exchange and Support Agreement. CallCo, ExchangeCo, Parent and
------------------------------
the Shareholder Representative shall have executed the Exchange and Support
Agreement, and such Exchange and Support Agreement shall not have been
rescinded.
ARTICLE VII
-----------
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
--------------------------------------------------
7.1 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
representations and warranties of the Company and the Principal Shareholders
contained in this Agreement, or in any certificate or other instrument delivered
pursuant to this Agreement, will survive for a period of fifteen (15) months
following the Closing Date (the expiration of such fifteen (15) month period,
the "Survival Date"); provided, however, that the representations and warranties
contained in Section 2.2 (Company Capital Structure) hereof will survive
--------
indefinitely and those contained in Section 2.10 (Tax Matters) will survive
until ninety (90) days after the last date on that the relevant tax authority is
entitled to assess or reassess the Company with respect to such Tax Matters. The
representations and warranties contained in Article IX of this Agreement will
survive indefinitely. The representations and warranties of Parent and Sub
contained in this Agreement, or in any certificate or other instrument delivered
pursuant to this Agreement, will terminate at the Closing.
7.2 Indemnification.
---------------
(a) Effective as of and from the Closing, each Indemnifying
Securityholder jointly and severally agrees to indemnify and hold Parent, the
Company, Sub, CallCo and ExchangeCo and each of their respective officers and
directors and affiliates (the "Indemnified Parties"), harmless against all
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses of investigation and defense
(hereinafter individually a "Loss" and collectively "Losses") incurred or
sustained by the Indemnified Parties, or any of them, directly or indirectly, as
a result of (i) any breach or inaccuracy of a representation or warranty of the
Company or the Principal Shareholders contained in this Agreement (other than in
respect of the representations and warranties described in Section 7.2(b)) or in
--------------
any certificate, instrument, or other document delivered pursuant to this
Agreement, (ii) any failure by the Company or the Principal Shareholders to
perform or comply with any covenant applicable to any of them contained in this
Agreement, (iii) the amount, if any, by which the Company's Net Liabilities at
Closing exceed the Balance Sheet Adjustment Amount, (iv) any amounts paid to
Dissenting Shareholders pursuant to the Plan of Arrangement ("Dissenting
Shareholder Payments") or (v) any payments made to Employees (as defined in
Section 2.22(a)) for overtime worked by such
---------------
-58-
Employees prior to the Effective Time ("Overtime Payments"), whether or not such
Overtime Payments are set forth on Section 2.22(a)(viii) of the Disclosure
---------------------
Schedule.
(b) Effective as of and from the Closing, (i) each Indemnifying
Securityholder, severally and not jointly, agrees to indemnify and hold the
Indemnified Parties harmless against all Losses incurred or sustained by the
Indemnified Parties, or any of them, directly or indirectly, as a result of any
breach or inaccuracy of a representation or warranty of such Indemnifying
Securityholder contained in Article IX of this Agreement and any other
----------
representation or warranty contained in this Agreement that relates only to an
individual Indemnifying Securityholder, and (ii) each Principal Shareholder,
severally and not jointly, agrees to indemnify and hold the Indemnified Parties
harmless against all Losses incurred or sustained by the Indemnified Parties, or
any of them, directly or indirectly, as a result of any breach or inaccuracy of
a representation or warranty deemed to have been made only by such Principal
Shareholder contained in Article II of this Agreement (collectively, the
("Individual Securityholder Losses").
(c) None of the Indemnifying Securityholders will have any right of
contribution from the Company or Parent with respect to any Loss claimed by an
Indemnified Party.
(d) For greater certainty, the indemnification contemplated by this
Section 7.2 with respect to any breach of a representation or warranty shall
-----------
have a term that corresponds to the survival of the applicable representation or
warranty; provided, however, that if Parent shall have notified the Shareholder
-------- -------
Representative or any Indemnifying Securityholder of any alleged breach of any
representation or warranty prior to the expiration of the survival term
applicable to such representation or warranty, the indemnification obligation
with respect thereto shall continue until such alleged breach shall have been
resolved.
7.3 Escrow Arrangements.
-------------------
(a) Escrow Fund. By virtue of this Agreement and as security for
-----------
the indemnity provided for in Section 7.2 hereof, at the Closing, the
-----------
Indemnifying Securityholders will be deemed to have received and deposited with
the Escrow Agent the Escrow Amount (plus, in the case of any Escrow Shares, any
additional shares as may be issued in respect of any such Escrow Shares pursuant
to any stock split, stock dividend or recapitalization effected by Parent after
the Closing and plus, in the case of any Escrow Cash, any interest payable
thereon) without any act of the Indemnifying Securityholders. The Escrow Amount
will be available to compensate the Indemnified Parties for any claims by such
parties for any Losses suffered or incurred by them and for which they are
entitled to recovery under this Article VII. Promptly after the Closing, the
-----------
Escrow Amount, without any act of the Indemnifying Securityholders, will be
deposited with the Escrow Agent, such deposit of the Escrow Amount to constitute
an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein.
The Escrow Agent may execute this Agreement following the date hereof and prior
to the Closing, and such later execution, if so executed after the date hereof,
will not affect the binding nature of this Agreement as of the date hereof
between the other signatories hereto.
(b) Basket. Notwithstanding any provision of this Agreement to the
------
contrary, Parent may not recover any Losses unless and until one or more
Officer's Certificates (as defined below) identifying Losses in excess of
US$250,000 in the aggregate (the "Basket Amount") has or
-59-
have been delivered to the Escrow Agent and the Shareholder Representative as
provided in Section 7.3(f) hereof, in which case Parent will be entitled to
--------------
recover any Losses so identified in excess of the Basket Amount. Notwithstanding
the foregoing, Parent will be entitled to recover for, and the Basket Amount
will not apply as a threshold to, any and all claims or payments made with
respect to (A) any Losses incurred pursuant to clauses (ii) through (v) of
Section 7.2(a) hereof, (B) any inaccuracy or breach or misrepresentation
--------------
contained in the representations and warranties contained in Section 2.2
-----------
(Company Capital Structure) hereof or (C) any Individual Securityholder Losses.
For the purposes hereof, "Officer's Certificate" will mean a certificate signed
by any officer of Parent: (1) stating that Parent has paid, sustained, incurred,
or properly accrued, or reasonably anticipates that it will have to pay,
sustain, incur, or accrue Losses, and (2) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid, sustained, incurred, or properly accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related, or, with respect to Losses
determined in accordance with the terms of Section 7.6(a) hereof, including a
--------------
copy of the Adjusted Balance Sheet (as defined in Section 7.6 hereof).
-----------
(c) Satisfaction of Claims. Subject to Section 7.5, claims by an
---------------------- -----------
Indemnified Party for Losses (other than Individual Securityholder Losses) will
be satisfied: (A) first, from the Escrow Fund and (B) second, against the
Indemnifying Securityholders directly, as applicable. Claims by an Indemnified
Party for Individual Securityholder Losses will be satisfied: (A) first, against
such Indemnifying Securityholder's proportional interest in the Escrow Fund and
(B) second, against such Indemnifying Securityholder.
(d) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
Subject to the following requirements, the Escrow Fund will be in existence
immediately following the Closing and will terminate at 5:00 p.m., local time,
on the date thirty (30) days after the Survival Date (the "Escrow Period");
provided, however, that the Escrow Period will not terminate with respect to any
amount that, in the reasonable judgment of Parent, is necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate delivered to the
Escrow Agent prior to the termination of the Escrow Period with respect to facts
and circumstances existing prior to the termination of such Escrow Period. As
soon as all such claims have been resolved, the Escrow Agent will deliver to the
Indemnifying Securityholders the remaining portion of the Escrow Fund, if any,
not required to satisfy such claims. Deliveries of the Escrow Shares out of the
Escrow Fund to the Founders pursuant to this Section 7.3(d) will be made in
--------------
proportion to their respective Founder Pro Rata Portion of the Escrow Fund, and
deliveries of the Escrow Cash out of the Escrow Fund pursuant to this Section
-------
7.3(d) will be made to Element K and Xxxx Xxxxxxxx pro rata in proportion to
------
each of their respective contributions of Escrow Cash to the Escrow Fund
pursuant to Section 1.8.
-----------
(e) Protection of Escrow Fund; Treatment of Interest on Escrow Fund.
---------------------------------------------------------------
(i) The Escrow Agent will hold and safeguard the Escrow Fund
during the Escrow Period, will treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and will hold
and dispose of the Escrow Fund only in accordance with the terms of this
Article VII.
-----------
(ii) Any Exchangeable Shares or other equity securities issued
or distributed by ExchangeCo (including shares issued upon a stock split) ("New
Shares") in respect of
-60-
the Escrow Shares in the Escrow Fund that have not been released from the Escrow
Fund will be added to the Escrow Fund and become a part thereof. New Shares
issued in respect of the Escrow Shares that have been released from the Escrow
Fund will not be added to the Escrow Fund but will be distributed to the record
holders thereof. Cash dividends on the Escrow Shares will not be added to the
Escrow Fund but will be distributed to the record holders thereof. The Escrow
Cash will be invested in U.S. Treasury bills with maturities of not more than
thirty (30) days and any interest paid on such Escrow Cash will be added to the
Escrow Fund and deemed paid thereof. For any period of time before such U.S.
Treasury bills can be purchased by the Escrow Agent or after such bills can be
purchased by the Escrow Agent or after such bills mature, the Escrow Cash will
be invested in a business money market account of the Escrow Agent and any
interest paid on such Escrow Cash will be added to the Escrow Fund and deemed
paid thereof. Each Founder will be liable for any taxes with respect to income
earned on such Founder's Founder Pro Rata Portion of the Escrow Shares, and
Element K and Xxxx Xxxxxxxx will be liable for any taxes with respect to income
earned on each of their respective contribution of Escrow Cash to the Escrow
Fund pursuant to Section 1.8.
-----------
(f) Claims for Indemnification.
--------------------------
(i) Upon receipt by the Escrow Agent at any time on or before
the last day of the Escrow Period of an Officer's Certificate, the Escrow Agent
will, subject to the provisions of Section 7.3(g) and Section 7.6 hereof,
-------------- -----------
deliver to (i) ExchangeCo, as promptly as practicable, Exchangeable Shares from
the Escrow Shares in the Escrow Fund equal to a proportion of such Losses equal
to the proportion that the Escrow Shares represent of the total Escrow Fund (as
calculated based on a price per Escrow Share of US$28.00) (the "Stock
Proportional Amount") and (ii) CallCo, or as CallCo may direct, as promptly as
practicable, cash from the Escrow Cash in the Escrow Fund equal to a proportion
of such Losses equal to the proportion that the Escrow Cash represents of the
total Escrow Fund (the "Cash Proportional Amount").
(ii) In the event an Indemnified Party pursues indemnity directly
against the Principal Shareholders, subject to the provisions of Section 7.3(g)
--------------
and Section 7.6 hereof, each Founder will promptly, and in no event later than
-----------
thirty (30) days after delivery of an Officer's Certificate to the Shareholder
Representative, wire transfer an amount of cash (or deliver a number of
Exchangeable Shares pursuant to Section 7.5(a)) to the Indemnified Party equal
---------------
to such Founder's Founder Pro Rata Portion of such Loss, and Xxxx Xxxxxxxx will
wire transfer an amount of cash to the Indemnified Party equal to the Stirling
Pro Rata Portion of such Loss. For the purposes hereof, the "Founder Pro Rata
Portion" will mean, with respect to each Founder, an amount equal to the
quotient obtained by dividing (x) the number of Company Shares owned by such
Founder immediately prior to the Closing by (y) the aggregate number of Company
Shares owned by all Principal Shareholders immediately prior to the Closing, and
the "Stirling Pro Rata Portion" will mean an amount equal to the quotient
obtained by dividing (x) the number of Company Shares owned by Xxxx Xxxxxxxx
immediately prior to the Closing by (y) the aggregate number of Company Shares
owned by all Principal Shareholders immediately prior to the Closing. If an
Indemnified Party incurs or sustains an Individual Securityholder Loss, then an
Indemnified Party may make a claim directly against such Indemnifying
Securityholder for an Individual Securityholder Loss, and, subject to the
provisions of Section 7.3(g) and Section 7.6 hereof, such Indemnifying
-------------- -----------
Securityholder will promptly, and in no event later than thirty (30) days after
delivery of an Officer's Certificate to the Shareholder Representative, wire
transfer to the Indemnified Party the amount of such Loss.
-61-
(iii) If the Shareholder Representative (as defined in Section
-------
7.4 hereof) does not object in writing within the 30-day period after delivery
---
by the Parent of the Officer's Certificate, such failure to so object will be an
irrevocable acknowledgment by the Shareholder Representative and the
Indemnifying Securityholders, as applicable that the Indemnified Party is
entitled to the full amount of the claim for Losses set forth in such Officer's
Certificate.
(g) Objections to Claims against the Escrow Fund.
--------------------------------------------
(i) At the time of delivery of any Officer's Certificate to the
Escrow Agent, a duplicate copy of such certificate will be delivered to the
Shareholder Representative (or in the case of an Individual Securityholder Loss,
to the Indemnifying Securityholder in question who will be entitled to exercise
the rights otherwise exercisable by the Shareholder Representative in respect of
their Individual Securityholder Loss), and for a period of thirty (30) days
after such delivery, the Escrow Agent will make no delivery to Parent of any
Escrow Amount pursuant to Section 7.3(f) hereof unless the Escrow Agent will
--------------
have received written authorization from the Shareholder Representative to make
such delivery. After the expiration of such thirty (30) day period, the Escrow
Agent will make delivery of (A) Exchangeable Shares (as calculated based on a
price per Escrow Share of US$28.00) from the Escrow Shares from the Escrow Fund
equal to the amount of Losses claimed in the Officer's Certificate multiplied by
the Stock Proportional Amount and (B) cash from the Escrow Cash in the Escrow
Fund equal to the amount of Losses claimed in the Officer's Certificate
multiplied by the Cash Proportional Amount; provided that no such payment or
delivery may be made if the Shareholder Representative will object in a written
statement to the claim made in the Officer's Certificate, and such statement
will have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period.
(ii) Notwithstanding the foregoing, the calculation of Net
Liabilities at Closing in accordance with the terms of Section 7.6 hereof will
-----------
be conclusive and binding on all parties to this Agreement, and none of the
Parent, the Shareholder Representative, nor the Indemnifying Securityholders
will have any further right to challenge such calculation of Net Liabilities at
Closing, whether pursuant to the terms of this Section 7.3 or otherwise.
-----------
(h) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Shareholder Representative will object in
writing to any claim or claims made in any Officer's Certificate to recover
Losses from the Escrow Fund, or from an Indemnifying Securityholder directly,
within thirty (30) days after delivery of such Officer's Certificate, the
Shareholder Representative and Parent will attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Shareholder Representative and Parent should so agree, a memorandum setting
forth such agreement will be prepared and signed by both parties and, in the
case of a claim against the Escrow Fund, will be furnished to the Escrow Agent.
The Escrow Agent will be entitled to rely on any such memorandum and make
distributions from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation and prior to sixty (60) days after delivery of an Officer's
Certificate, either Parent or the Shareholder Representative may demand
arbitration of the matter unless the amount of the Loss is at issue in pending
litigation with a third party, in which event arbitration will not be commenced
until such
-62-
amount is ascertained or both parties agree to arbitration, and in either such
event the matter will be settled by arbitration conducted by one arbitrator
mutually agreeable to Parent and the Shareholder Representative. In the event
that, within thirty (30) days after submission of any dispute to arbitration,
Parent and the Shareholder Representative cannot mutually agree on one
arbitrator, then, within fifteen (15) days after the end of such thirty (30) day
period, Parent and the Shareholder Representative will each select one
arbitrator. The two arbitrators so selected will select a third arbitrator. If
the Shareholder Representative fails to select an arbitrator during this fifteen
(15) day period, then the parties agree that the arbitration will be conducted
by one arbitrator selected by Parent.
(iii) Any such arbitration will be held in New York, New York,
under the rules then in effect of the American Arbitration Association. The
arbitrator or arbitrators, as the case may be, will set a limited time period
and establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgment of the
arbitrator or majority of the three arbitrators, as the case may be, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrator, or a majority of the three arbitrators, as the case may
be, will rule upon motions to compel or limit discovery and will have the
authority to impose sanctions, including attorneys' fees and costs, to the same
extent as a competent court of law or equity, should the arbitrators or a
majority of the three arbitrators, as the case may be, determine that discovery
was sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the arbitrator or
a majority of the three arbitrators, as the case may be, as to the validity and
amount of any claim in such Officer's Certificate will be final, binding, and
conclusive upon the parties to this Agreement. Such decision will be written and
will be supported by written findings of fact and conclusions that will set
forth the award, judgment, decree or order awarded by the arbitrator(s), and the
Escrow Agent will be entitled to rely on, and make distributions from the Escrow
Fund in accordance with, the terms of such award, judgment, decree or order as
applicable. Within thirty (30) days of a decision of the arbitrator(s) requiring
payment by one party to another, such party will make the payment to such other
party.
(iv) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. The forgoing arbitration provision
will apply to any dispute between any Securityholder and any Indemnified Party
under this Article VII hereof, whether relating to claims upon the Escrow Fund
-----------
or to the other indemnification obligations set forth in this Article VII.
-----------
For purposes of this Section 7.3(h), in any arbitration hereunder in which any
--------------
claim or the amount thereof stated in the Officer's Certificate is at issue,
Parent shall be deemed to be the Non-Prevailing Party unless the arbitrators
award Parent more than one-half (1/2) of the amount in dispute, plus any amounts
not in dispute; otherwise, the Shareholder Representative shall be deemed to be
the Non-Prevailing Party. The "Non-Prevailing Party" to an arbitration shall pay
all fees and expenses relating to such arbitration, including without
limitation, its own fees and expenses, the fees and expenses of each arbitrator
and the administrative fee of the American Arbitration Association, and the
expenses, including without limitation, attorneys' fees and costs, reasonably
incurred by the other party to the arbitration.
(i) Third-Party Claims. In the event Parent becomes aware of a
------------------
third-party claim that Parent reasonably believes may result in a demand against
the Escrow Fund or for other
-63-
indemnification pursuant to this Article VII, Parent will notify the Shareholder
-----------
Representative of such claim, and the Shareholder Representative will be
entitled on behalf of the Indemnifying Securityholders, at its expense, to
participate in, but not to determine or conduct, the defense of such claim.
Parent will have the right in its sole discretion to conduct the defense of, and
to settle, any such claim provided that Parent will in good faith endeavor to
allow the Shareholder Representative to participate in any settlement
negotiations, subject to confidentiality concerns; provided, however, that
except with the consent of the Shareholder Representative, no settlement of any
such claim with third-party claimants, and no judgment in respect of any such
claim which Parent shall fail to defend, will be determinative of the amount of
Losses relating to such matter. In the event that the Shareholder Representative
has consented to any such settlement, the Indemnifying Securityholders
(including the Principal Shareholders) will have no power or authority to object
under any provision of this Article VII to the amount of any claim by Parent
-----------
against the Escrow Fund or against the Indemnifying Securityholders directly, as
the case may be, with respect to such settlement. Notwithstanding the foregoing,
this Section 7.3(i) shall be inapplicable with respect to any Dissenting
--------------
Shareholder Payment or Overtime Payment, and no settlement of any such claim
with respect to any Dissenting Shareholder Payment or Overtime Payment will be
determinative of the amount of Losses relating to such matter.
(j) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent will be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions that the Escrow Agent may
receive after the date of this Agreement that are signed by an officer of Parent
and the Shareholder Representative, and may rely and will be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent will not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of legal counsel will be
conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent will not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent will not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent will not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
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(v) In performing any duties under this Agreement, the Escrow
Agent will not be liable to any party for damages, losses, or expenses, except
for negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent will not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent will in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with legal counsel in connection with
performing the Escrow Agent's duties under this Agreement and will be fully
protected in any act taken, suffered, or permitted by him/her in good faith in
accordance with the advice of counsel. The Escrow Agent is not responsible for
determining and verifying the authority of any person acting or purporting to
act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and the Escrow Amount and may wait for settlement of any
such controversy by final appropriate legal proceedings or other means as, in
the Escrow Agent's discretion, may be required, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be liable
for damages. Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and the Escrow Amounts held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader action and that the parties jointly and severally agree to
pay. Upon initiating such action, the Escrow Agent will be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold the Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on the Escrow
Agent or incurred by the Escrow Agent in connection with the performance of
his/her duties under this Agreement, including but not limited to any litigation
arising from this Agreement or involving its subject matter, other than those
arising out of the negligence or willful misconduct of the Escrow Agent.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the Parent and the Shareholder
Representative; provided, however, that no such resignation will become
effective until the appointment of a successor escrow agent, which will be
accomplished as follows: Parent and the Shareholder Representative will use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent will have the right to
appoint a successor escrow agent authorized to do business in the State of
California. The successor escrow agent will execute and deliver an instrument
accepting such appointment and it will, without further acts, be vested with all
the estates, properties, rights, powers, and duties of the
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predecessor escrow agent as if originally named as escrow agent. Upon
appointment of a successor escrow agent, the Escrow Agent will be discharged
from any further duties and liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its
----
duties hereunder will be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent will be considered compensation for
ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms, or if any controversy arises,
or if the Escrow Agent is made a party to, or intervenes in, any litigation
pertaining to the Escrow Fund or its subject matter, the Escrow Agent will be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney's fees, including allocated costs of in-house counsel, and
expenses occasioned by such default, delay, controversy or litigation.
(l) Successor Escrow Agents. Any corporation into which the Escrow
-----------------------
Agent in its individual capacity may be merged or converted or with that it may
be consolidated, or any corporation resulting from any acquisition, conversion
or consolidation to which the Escrow Agent in its individual capacity will be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred, will
be the Escrow Agent under this Escrow Agreement without further act.
7.4 Shareholder Representative.
--------------------------
(a) Each of the Indemnifying Securityholders hereby appoints EK
Holdings as its agent and attorney-in-fact, as the Shareholder Representative
(the "Shareholder Representative") for and on behalf of the Indemnifying
Securityholders to give and receive notices and communications, to authorize
payment to Parent from the Escrow Fund in satisfaction of claims by Parent, to
object to such payments, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all other actions
that are either (i) necessary or appropriate in the judgment of either of the
Shareholder Representative for the accomplishment of the foregoing or (ii)
specifically mandated by the terms of this Agreement. Xxxxx Xxxxxx, Chief
Executive Officer of EK Holdings, shall be the only person authorized to take
any of the foregoing actions for EK Holdings, in its capacity as Shareholder
Representative hereunder. Such agency may be changed by the Indemnifying
Securityholders, as the case may be, from time to time upon not less than thirty
(30) days prior written notice to Parent; provided, however, that the
Shareholder Representative may not be removed unless holders of a two-thirds
interest of the Escrow Fund (or, in the event there are no amounts remaining in
the Escrow Fund, by any four (4) of the six (6) Principal Shareholders) agree to
such removal and to the identity of the substituted agent. Notwithstanding the
foregoing, upon the occurrence of any Shareholder Representative Substitution
Event, then, without any further action on the part of EK Holdings, any
Indemnifying Shareholder, the Company, Parent or the Escrow Agent, EK Holdings
shall automatically be removed as the Shareholder Representative hereunder and
Xxxx Xxxxxx shall automatically be substituted as the Shareholder Representative
hereunder. EK Holdings shall give Parent and Xxxx Xxxxxx prompt written notice
of the occurrence
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of any of any Shareholder Representative Substitution Event. A vacancy in the
position of Shareholder Representative may be filled by the holders of a
majority in interest of the Escrow Fund (or, in the event there are no amounts
remaining in the Escrow Fund, by a majority of the Principal Shareholders). No
bond will be required of the Shareholder Representative, and the Shareholder
Representative will not receive any compensation for its services. Notices or
communications to or from the Shareholder Representative will constitute notice
to or from the Shareholders. As used in this Agreement, a "Shareholder
Representative Substitution Event" shall mean the occurrence of any of the
following events: (i) Xxxxx Xxxxxx shall no longer be the Chief Executive
Officer of EK Holdings, (ii) a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act), becomes the ultimate
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more
than fifty percent (50%) of the total voting power of the voting equity
securities of EK Holdings on a fully diluted basis (other than the majority
owner of EK Holdings as of the date hereof), or (iii) individuals who on the
date hereof constitute the board of managers of EK Holdings (together with any
new directors whose election or nomination to the board of managers of EK
Holdings was approved by a vote of at least a majority of the members of the
board of managers of EK Holdings then in office who either were members of the
board of managers of EK Holdings on the date hereof or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the board of managers of EK Holdings
then in office.
(b) The Shareholder Representative will not be liable for any act
done or omitted hereunder as Shareholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Indemnifying
Securityholders on whose behalf the Escrow Amount was contributed to the Escrow
Fund (or, in the event there are no amounts remaining in the Escrow Fund, only
the Principal Shareholders) will indemnify the Shareholder Representative and
hold the Shareholder Representative harmless against any loss, liability or
expense incurred without gross negligence or bad faith on the part of the
Shareholder Representative and arising out of or in connection with the
acceptance or administration of the Shareholder Representative's duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Shareholder Representative.
(c) A decision, act, consent or instruction of the Shareholder
Representative, including but not limited to an amendment, extension or waiver
of this Agreement pursuant to Section 8.3 and Section 8.4 hereof, will
----------- -----------
constitute a decision of the Indemnifying Securityholders and will be final,
binding and conclusive upon the Indemnifying Securityholders; and the Escrow
Agent and Parent may rely upon any such decision, act, consent or instruction of
the Shareholder Representative as being the decision, act, consent or
instruction of the Indemnifying Securityholders. The Escrow Agent and Parent are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholder
Representative.
7.5 Maximum Payments; Remedy.
------------------------
(a) Subject to Section 7.5(d) hereof and except as set forth in
--------------
Section 7.5(c) hereof, the maximum amount an Indemnified Party may recover from
--------------
the Indemnifying Securityholders pursuant to the indemnity set forth in Section
-------
7.2(a) hereof for Losses will be limited, in the case of Element K and EK
------
Holdings, to the Escrow Cash, and in the case of the
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Principal Shareholders, to a dollar amount (or, in the case of any Founder, a
number of Exchangeable Shares as set forth below) equal to the aggregate
proceeds (as calculated based on an Exchangeable Share per share price of
US$28.00) received by such Principal Shareholder in the Acquisition (excluding
any Escrow Shares which have not been released from the Escrow Fund and
excluding any Exchangeable Shares issued to any Founder which constitute, as of
the applicable date, "Unvested Shares" (as defined in such Founder's Repurchase
Agreement)). In the event that an Indemnified Party shall seek to recover from
any Founder pursuant to the indemnity set forth in Section Founder may satisfy
such recovery first by delivering to the Indemnified Party a number of
Exchangeable Shares (excluding any Escrow Shares which have not been released
from the Escrow Fund and excluding any Exchangeable Shares issued to any Founder
which constitute, as of the applicable date, "Unvested Shares" (as defined in
such Founder's Repurchase Agreement)) having a value as calculated based on an
Exchangeable Share per share price of US$28.00, and second by the payment of the
applicable amount of cash.
(b) Subject to Section 7.5(d) and except as set forth in Section
-------------- -------
7.5(c) hereof, the maximum amount an Indemnified Party may recover from any
------
Indemnifying Securityholder directly in respect of Individual Securityholder
Losses pursuant to the indemnity set forth in Section 7.2(b) hereof will be
--------------
limited to a dollar amount equal to the aggregate proceeds (as calculated based
on an Exchangeable Share per share price of US$28.00) received by such
Indemnifying Securityholder in the Acquisition (excluding any Escrow Shares
which have not been released from the Escrow Fund and excluding any Exchangeable
Shares issued to any Founder which constitute, as of the applicable date,
"Unvested Shares" (as defined in such Founder's Repurchase Agreement)).
(c) Nothing herein will limit the liability of any Indemnifying
Securityholder in respect of Losses arising out of any knowing, intentional or
fraudulent breaches or inaccuracies of the representations and warranties or
breach of covenants ("Fraud") on the part of such Indemnifying Securityholder.
(d) Nothing herein will limit the liability of the Company or the
Indemnifying Securityholders for any breach or inaccuracy of any representation,
warranty or covenant contained in this Agreement if the Acquisition does not
close.
7.6 Adjustment to Consideration.
---------------------------
(a) Within sixty (60) days following the Closing Date, Parent may, at
its election, cause to be prepared and delivered to the Shareholder
Representative an unaudited balance sheet of the Company as of the Closing Date
and, if the Closing shall not have occurred by July 25, 2001, an unaudited
balance sheet of the Company as of July 25, 2001 (collectively, the "Adjusted
Balance Sheet"). The Adjusted Balance Sheet will be prepared in accordance with
GAAP on a basis consistent with the most recent regularly prepared audited
financial statements of the Company. In the event that, pursuant to the terms of
this Section 7.6, it is determined that (X) the Company's total liabilities at
-----------
the Closing Date minus the Company's total liabilities at the Closing Date minus
an amount equal to the Company's total current assets (including up to
$1,000,000 of unbilled revenues from Element K or its Affiliates, determined
pursuant to the definition of Interim Balance Sheet)at the Closing Date plus
$1,000,000 (the "Net Liabilities at Closing") (or, if the Closing shall not have
occurred on or prior to July 25, 2001, and as of July 25, 2001, the Specified
Conditions shall have
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been satisfied as if the Closing had occurred as of such date, the Net
Liabilities at Closing shall mean (A) if the Post-Interim Balance Sheet
Adjustment Amount is greater than the Interim Balance Sheet Adjustment Amount,
the sum of (i) the Interim Balance Sheet Adjustment Amount, plus (ii) twenty
percent (20%) of the amount by which the Post-Interim Balance Sheet Adjustment
Amount exceeds the Interim Balance Sheet Adjustment Amount, and (B) if the Post-
Interim Balance Sheet Adjustment Amount is less than the Interim Balance Sheet
Adjustment Amount, the Post-Interim Balance Sheet Adjustment Amount (treating
all Third Party Expenses as if they were accrued as liabilities of the Company
as of July 25, 2001)) (in either case, considering neither (i) the principal
amount of the Company Convertible Debenture, (ii) up to US$300,000 in reasonable
and documented Third Party Expenses, nor (iii) the principal amount of the
Shareholder Convertible Debentures plus any accrued and unpaid interest thereon
and any premium with respect thereto for purposes of calculating Net Liabilities
at Closing) exceeds (Y) the Balance Sheet Adjustment Amount, then an amount
equal to such difference ("Excess Liabilities") will be paid to or as may be
directed by ExchangeCo or CallCo, as the case may be, out of the Escrow Fund
upon the delivery to the Escrow Agent of an Officer's Certificate in accordance
with the terms of Section 7.3(f) hereof. If the Excess Liabilities exceed the
--------------
amount in the Escrow Fund, Parent will be entitled to recover directly from the
Principal Shareholders any amount of Excess Liabilities not covered by the
Escrow Fund. Following delivery by Parent to the Shareholder Representative of
the Adjusted Balance Sheet, Parent will give the Shareholder Representative
reasonable access during Parent's business hours to those books and records of
the Company in the possession of Parent and any personnel that relate to the
preparation of the Adjusted Balance Sheet for purposes of resolving any disputes
concerning the Adjusted Balance Sheet and the calculation of Net Liabilities at
Closing.
(b) The Shareholder Representative will have thirty (30) days
following delivery of the Adjusted Balance Sheet during which to notify Parent
in writing (the "Notice of Objection") of any good faith objections to the
calculation of Net Liabilities at Closing or the Adjusted Balance Sheet, as it
affects such calculation, setting forth a reasonably specific and detailed
description of its objections and the dollar amount of each objection. If the
Shareholder Representative objects to the Adjusted Balance Sheet or Parent's
calculation of Net Liabilities at Closing as reflected thereon, Parent and the
Shareholder Representative will attempt to resolve any such objections within
thirty (30) days of the receipt by Parent of the Notice of Objection.
(c) If Parent and the Shareholder Representative are unable to
resolve any such dispute within the thirty (30) day period referred to in
Section 7.6(b) hereof, Parent and the Shareholder Representative will submit
--------------
the dispute to a mutually-agreed upon independent accounting firm of nationally
recognized standing in the United States and Canada (the "Independent Accounting
Firm"). Each of the parties to this Agreement will, and will cause their
respective affiliates and representatives to, provide full cooperation to the
Independent Accounting Firm. The Independent Accounting Firm will (x) act in its
capacity as an expert and not as an arbitrator, (y) consider only those matters
as to which there is a dispute between the parties and (z) be instructed to
reach its conclusions regarding any such dispute within thirty (30) days after
its appointment and provide a written explanation of its decision. In the event
that Parent and the Shareholder Representative submit any dispute to the
Independent Accounting Firm, each such party may submit a "position paper" to
the Independent Accounting Firm setting forth the position of such party with
respect to such dispute, to be considered by the Independent Accounting Firm as
it deems fit. Fifty percent (50%) of any expenses relating to the engagement of
the Independent Accounting
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Firm will be paid by Parent and fifty percent (50%) of such expenses will be
paid by the Indemnifying Securityholder.
(d) If the Shareholder Representative does not deliver a Notice of
Objection in accordance with Section 7.6(b) hereof (i.e., within a thirty (30)
--------------
day period), the Adjusted Balance Sheet (together with Parent's calculation of
Net Liabilities at Closing reflected thereon), will be deemed to have been
accepted by all of the parties to this Agreement. In the event that the
Shareholder Representative delivers a Notice of Objection in accordance with the
provisions above and Parent and the Shareholder Representative are able to
resolve such dispute by mutual agreement, the Adjusted Balance Sheet, together
with Parent's calculation of Net Liabilities at Closing reflected thereon, to
the extent modified by mutual agreement of such parties, will be deemed to have
been accepted by all of the parties to this Agreement. In the event that the
Shareholder Representative delivers a Notice of Objection in accordance with the
provisions set forth above and Parent and the Shareholder Representative are
unable to resolve such dispute by mutual agreement, the determination of the
Independent Accounting Firm will be final and binding on the parties, and the
Adjusted Balance Sheet, together with Parent's calculation of Net Liabilities at
Closing reflected thereon, to the extent modified by the Independent Accounting
Firm, will be deemed to have been accepted by all of the parties to this
Agreement. Subject to the foregoing provisions, the calculation of Net
Liabilities at Closing reflected on any such Adjusted Balance Sheet will be
conclusive and binding on all of the parties to this Agreement, no further
adjustments will be made thereto and neither Parent, the Shareholder
Representative nor the Indemnifying Securityholders will have any further right
to challenge such calculation of Net Liabilities at Closing, whether pursuant to
the terms of Section 7.3 hereof or otherwise.
-----------
ARTICLE VIII
------------
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
8.1 Termination. Except as provided in Section 8.2 hereof, this
----------- -----------
Agreement may be terminated and the Acquisition abandoned at any time prior to
the Closing:
(a) by mutual agreement of the Company and Parent;
(b) by Parent or the Company if the Closing Date will not have
occurred by September 30, 2001; provided, however, that the right to terminate
this Agreement under this Section 8.1(b) will not be available to any party
--------------
whose action or failure to act has been a principal cause of or resulted in the
failure of the Acquisition to occur on or before such date and such action or
failure to act constitutes breach of this Agreement;
(c) by Parent or the Company if: (i) there will be a final non-
appealable order of a federal or provincial court in effect preventing
consummation of the Acquisition, or (ii) there will be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Closing by any Governmental Entity that would make consummation of the Closing
illegal;
(d) by Parent if there will be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Acquisition by any Governmental Entity, that would: (i) prohibit Parent's
ownership or operation of any portion of the business of the
-70-
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or any portion of the business or assets of the Company or Parent as a result of
the Acquisition;
(e) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement of the Company or the Indemnifying
Securityholders contained in this Agreement such that the conditions set forth
in Section 6.2(a) hereof would not be satisfied and such breach has not been
--------------
cured within ten (10) calendar days after written notice thereof to the Company
and the applicable Indemnifying Securityholder; provided, however, that no cure
period will be required for a breach which by its nature cannot be cured;
(f) by the Company if none of the Company or the Principal
Shareholders is in material breach of their respective obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement by Parent contained in this Agreement such that the conditions set
forth in Section 6.3(a) hereof would not be satisfied and such breach has not
--------------
been cured within ten (10) calendar days after written notice thereof to Parent;
provided, however, that no cure period will be required for a breach which by
its nature cannot be cured; or
(g) by Parent, if either the Required Company Vote shall not have
been obtained at the Company Shareholders Meeting or any adjournment thereto or
if the Company shall have failed to make the Company Recommendation or if the
Company shall have effected a Change in the Company Recommendation (or resolved
to take any such action), whether or not permitted by the terms hereof.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1 hereof, this Agreement will forthwith become void and
-----------
there will be no liability or obligation on the part of Parent, Sub, CallCo,
ExchangeCo, the Company or the Indemnifying Securityholders, or their respective
officers, directors or shareholders, if applicable; provided, however, that each
party hereto will remain liable for any breaches of this Agreement prior to its
termination; and provided further, however, that, the provisions of Sections
--------
5.3, 5.4 and 5.5 hereof, Article XI hereof and this Section 8.2 will remain in
--- --- --- ---------- -----------
full force and effect and survive any termination of this Agreement pursuant to
the terms of this Article VIII.
------------
8.3 Amendment. This Agreement may be amended by the parties hereto at
---------
any time by execution of an instrument in writing signed on behalf of the party
against whom enforcement is sought. For purposes of this Section 8.3, the
-----------
Indemnifying Securityholders agree that any amendment of this Agreement signed
by the Shareholder Representative will be binding upon and effective against the
Indemnifying Securityholders whether or not they have signed such amendment.
8.4 Extension; Waiver. At any time prior to the Closing, Parent, on the
----------------
one hand, and the Company and the Shareholder Representative, on the other hand,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver will be
valid only if set forth in an instrument in writing
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signed on behalf of such party. For purposes of this Section 8.4, the
Indemnifying Securityholders agree that any extension or waiver signed by the
Shareholder Representative will be binding upon and effective against all
Indemnifying Securityholders whether or not they have signed such extension or
waiver.
ARTICLE X
------- -
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
THE INDEMNIFYING SECURITYHOLDERS
--------------------------------
Each Indemnifying Securityholder hereby represents and warrants, severally
and not jointly, to the Parent Parties with respect to itself that on the date
hereof and as of the Closing (other than the representations and warranties of
each Indemnifying Securityholder as of a specified date, that will be true and
correct as of such date) as though made at the Closing as follows:
9.1 Ownership of Indemnifying Securityholder's Company Securities. Such
-------------------------------------------------------------
Indemnifying Securityholder (other than EK Holdings, which represents and
warrants that it holds no Company Securities) holds of record and is the sole
beneficial owner of the Company Securities set forth next to his name in
Schedule 2.2(a) free and clear of any restrictions on transfer (other than any
---------------
restrictions under the Securities Act and provincial or state securities laws,
restrictions on transfer in the Company's charter and the Shareholder Agreement
(each of which shall be removed prior to Closing)), Taxes, Liens (other than
Liens resulting from the Voting Agreements), options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. Such Indemnifying
Securityholder is not a party to any option, warrant, purchase right, or other
contract or commitment that could require such Indemnifying Securityholder to
sell, transfer, or otherwise dispose of any share in the capital of the Company
(other than this Agreement). Except with respect to the Voting Agreements and
except as set forth on Schedule 2.2(b), such Indemnifying Securityholder is not
---------------
a party to any voting trusts or agreements, proxy, or other agreement or
understanding with respect to the voting of any share in the capital of the
Company. The name, address and ownership of Company Securities of such
Indemnifying Securityholder as listed on Schedule 2.2(a) are true and correct in
---------------
all material respects, and such address constitutes such Indemnifying
Securityholder's principal address for the purpose of determining the
applicability of any provincial, local or foreign securities laws.
9.2 Authority.
---------
(a) If such Indemnifying Securityholder is not a natural person, it
warrants and represents with regard to itself that it is duly incorporated,
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Such Indemnifying Securityholder warrants and
represents with regard to itself that it has full power and, if such
Indemnifying Securityholder is an individual, capacity, and if such Indemnifying
Securityholder is not a natural person, authority, to execute, deliver and
perform this Agreement and the transactions contemplated hereunder to be
performed by it. If such Indemnifying Securityholder is not a natural person,
the execution, delivery and performance of this Agreement by such Indemnifying
Securityholder has been duly authorized and approved by all necessary corporate
or other action and no corporate or other proceedings on the part of such
Indemnifying Securityholder are necessary to authorize this
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Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by such Indemnifying Securityholder and is the legal,
valid and binding obligation of such Indemnifying Securityholder, enforceable
against such Indemnifying Securityholder in accordance with its terms, except as
such enforceability may be subject to the laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
(b) If such Indemnifying Securityholder is not a natural person, the
execution, delivery and performance of this Agreement by such Indemnifying
Securityholder and the consummation by it of the transactions contemplated
hereunder do not, and will not, violate or conflict with any provision of the
articles, by-laws or other organizational or charter documents of such
Indemnifying Securityholder. There is no liquidation payment or preference that
is, or will be, due and owing to such Indemnifying Securityholder pursuant to
the charter documents of the Company in connection with the transactions
contemplated hereby and the payment to such Indemnifying Securityholder of its
ratable share of the consideration to be paid in the Acquisition, in
consideration for such Indemnifying Securityholder's Company Shares or Company
Convertible Debenture, as applicable, does not, and will not, violate or
conflict with any provision of the charter documents of the Company. The
execution, delivery and performance of this Agreement by such Indemnifying
Securityholder and the consummation by it of the transactions contemplated
hereunder do not, and will not, (i) violate any law, rule, regulation, order,
writ, injunction, judgment or decree of any court, governmental authority or
regulatory agency applicable to such Indemnifying Securityholder or (ii) require
any consent, approval, authorization or permission of, or filing with or
notification to any Governmental Entity.
9.3 Residency. Other that EK Holdings, such Indemnifying Securityholder
---------
is not a non-resident of Canada within the meaning of the ITA.
9.4 Interested Party Transactions. Other than as described in Schedule
----------------------------- --------
2.15, no Indemnifying Securityholder (nor any affiliate, ancestor, sibling,
----
descendant or spouse of any of such Indemnifying Securityholder, or any trust,
partnership or corporation in which any of such Indemnifying Securityholder has
or has had an interest), has or has had, directly or indirectly, (i) an interest
in any entity that furnished or sold, or furnishes or sells, services, products
or technology that the Company or any Subsidiary furnishes or sells, or proposes
to furnish or sell, or (ii) any interest in any entity that purchases from or
sells or furnishes to the Company or any Subsidiary, any goods or services, or
(iii) a beneficial interest in any Contract to which the Company or any
Subsidiary is a party; provided, however, that ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly traded corporation
will not be deemed to be an "interest in any entity" for purposes of this
Section 9.4. There are no agreements, contracts, or commitments with regard to
-----------
contribution or indemnification between or among any of the Indemnifying
Securityholders.
9.5 Element K and EK Holdings Representations. Element K and EK Holdings
-----------------------------------------
hereby represent and warrant to Parent, Sub and CallCo with respect to the sale
of the Company Convertible Debenture, that:
-73-
(a) Except as set forth in Section 9.5(a) of the Disclosure Schedule,
--------------
prior to the date hereof, Element K and/or its Affiliates has funded by payment
of cash in full any outstanding amounts remaining due to the Company under the
Company Convertible Debenture; and
(b) Element K's names, addresses and taxpayer identification numbers,
the country in which Element K is a resident for tax purposes and the aggregate
principal amount and accrued interest of the Company Convertible Debenture as of
the date hereof and the number of Company Shares into which such Company
Convertible Debenture is convertible are set forth on Schedule 9.5(b) of the
---------------
Disclosure Schedule.
ARTICLE X
------- -
PRE-CLOSING REORGANIZATION OF COMPANY SHARE CAPITAL
---------------------------------------------------
10.1 Company Reorganization. Where Parent so requires by sending a written
----------------------
notice to the Company to such effect at any time prior to the Effective Date, as
part of the Arrangement the following reorganization of the share capital of the
Company shall be implemented at the Effective Time (the "Company
Reorganization"):
(i) an unlimited number of fixed value preferred shares in the
share capital of the Company will be created ("Preferred Shares"), each such
Preferred Share having a redemption value equal to the product of the Trading
Price multiplied by the Share Exchange Ratio;
(ii) an unlimited number of a new class of common shares in the
share capital of the Company will be created ("New Common Shares");
(iii) each Company Share will be converted into the aggregate of
(i) three-quarters (3/4) of a Preferred Share and (ii) one-quarter (1/4) of a
New Common Share of the Company;
(iv) the Company Shares, as a class of shares in the share
capital of the Company and any Company Shares that were issued and outstanding
prior to the implementation of steps (ii) and (iii) above will be eliminated and
canceled; and
(v) the Company will amend and modify its securities register
accordingly to reflect the Company Reorganization.
10.2 Share Conditions. The rights, privileges and restrictions attaching
----------------
to the Preferred Shares and the New Common Shares are set forth in the Plan of
Arrangement.
-74-
ARTICLE XI
------- --
GENERAL PROVISIONS
------------------
11.1 Notices. All notices and other communications hereunder will be in
-------
writing and will be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as will be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Parent, to:
Sun Microsystems, Inc.
000 Xxx Xxxxxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: General Counsel
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
Xxx Xxxxxx
Xxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
and to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
Xxxxxxxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
-75-
and to:
Stikeman Elliott
0000 Xxxx-Xxxxxxxx Xxxx., Xxxx
00/xx/ Xxxxx
Xxxxxxxx, Xxxxxx
X0X 0X0
Attention: Xxxxx Xxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
ISOPIA Inc.
000 Xxxxxxxxxx Xxx., 0/xx/ Xxxxx
Xxxxxxx, XX XXX 0X0
Attention: President
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx Xxxxx
Suite 5800
00 Xxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxx X0X0X0
Attention: Xxxxxx X. Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(c) if to the Securityholders, to the addresses set forth on Schedule
A to this Agreement:
with a copy to:
Xxxxx Xxxxx
Suite 5800
00 Xxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxx X0X0X0
Attention: Xxxxxx X. Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
-76-
(d) if to the Shareholder Representative, to:
Element K LLC
000 Xxxxx Xxxx.
Xxxxxxxxx, XX 00000
Attention: Xxxxx X'Xxxxx, General Counsel
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx Xxxxx
Suite 5800
00 Xxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxx MSH327
Attention: Xxxxxx X. Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(e) if to the Escrow Agent, to:
U.S. Bank Trust, National Association
Corporate Trust Services
Xxx Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
11.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein will be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
11.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, including counterparts by facsimile, all of which will be
considered one and the same agreement and will become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
party, it being understood that all parties need not sign the same counterpart.
11.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto,
----------------------------
the Disclosure Schedule, the Confidential Disclosure Agreement, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the
subject matter hereof, (ii) are not intended to confer upon any other person any
rights or remedies hereunder, and (iii) will not be assigned by operation of law
or otherwise, except that Parent may assign its rights and
-77-
delegate its obligations hereunder to its affiliates as long as Parent remains
ultimately liable for all of Parent's obligations hereunder.
11.5 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
11.6 Other Remedies. Any and all remedies herein expressly conferred upon
--------------
a party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
11.7 Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the province of Ontario and the federal laws of
Canada applicable therein, regardless of the laws that might otherwise govern
under applicable principles of conflicts of laws thereof. Each of the parties
hereto irrevocably consents to the non-exclusive jurisdiction and venue of any
court within Ontario, in connection with any matter based upon or arising out of
this Agreement or the matters contemplated herein and agrees that process may be
served upon them in any manner authorized by the laws of the province of
Ontario, Canada for such persons.
11.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
11.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
--------------------
WAIVES ALL RIGHT TO TRIAL BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
[remainder of page intentionally left blank]
-78-
IN WITNESS WHEREOF, Parent, Sub, CallCo, ExchangeCo, the Company, Element
K, EK Holdings, the Shareholders, the Escrow Agent and the Shareholder
Representative have caused this Agreement to be signed, all as of the date first
written above.
SUN MICROSYSTEMS, INC.
By: /s/ Xxxxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxxxx X. Xxxxxx
Title: Executive Vice President, Enterprise
Services
514713 N.B. INC.
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Assistant Secretary
3055855 NOVA SCOTIA COMPANY
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Assistant Secretary
NIWOT ACQUISITION CORP.
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Assistant Secretary
[SIGNATURE PAGE TO ACQUISITION AGREEMENT]
ISOPIA INC.
By: /s/ Xxxx Xxxxxx
---------------------------
Name: Xxxx Xxxxxx
Title: President, Chief Executive Officer
PRINCIPAL SHAREHOLDERS
/s/ Xxxxxx Xxxxxx
-------------------------------
XXXXXX XXXXXX
/s/ Xxxx Xxxxxx
-------------------------------
XXXX XXXXXX
/s/ Xxxx Xxxxxx
-------------------------------
XXXX XXXXXX
/s/ Xxxxxx Xxx
-------------------------------
XXXXXX XXX
/s/ Xxxx Xxxxx
-------------------------------
XXXX XXXXX
/s/ Xxxx Xxxxxxxx
-------------------------------
XXXX XXXXXXXX
[SIGNATURE PAGE TO ACQUISITION AGREEMENT]
ELEMENT K LLC, AS SHAREHOLDER ELEMENT K LLC
REPRESENTATIVE
By: /s/ Xxxxx X. X'Xxxxx By: /s/ Xxxxx X. X'Xxxxx
------------------------------- ---------------------------------
Name: Xxxxx X. X'Xxxxx Name: Xxxxx Xxxxxx
Title: Senior Vice President and Title: Chief Executive Officer
General Counsel
ELEMENT K NEWCO (NOVA SCOTIA)
COMPANY
By: /s/ Xxxxx X. X'Xxxxx
-------------------------------
Name:
Title:
ELEMENT K NEWCO (NOVA SCOTIA) COMPANY
By: /s/ Xxxxx X. X'Xxxxx
-------------------------------
Name:
Title:
[SIGNATURE PAGE TO ACQUISITION AGREEMENT]
U.S. BANK TRUST, NATIONAL ASSOCIATION
By: /s/ Xxx Xxxxxx
------------------------------
Name: Xxx Xxxxxx
Title: Vice President
[SIGNATURE PAGE TO ACQUISITION AGREEMENT]
Annex A
-------
Definitions. For all purposes of this Agreement, the following terms have
the following respective meanings:
"Affiliate" has the meaning ascribed thereto in the OBCA except that
(i) for the purposes of Section 2.22(a) only, "Affiliate" means any other person
or entity under common control with the Company within the meaning of Section
251.1 of the ITA and the regulations issued thereunder and (ii) for the purposes
of Section 2.22(b) only "Affiliate" means any other person or entity under
---------------
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder.
"Aggregate Amount" means US$94,000,000 minus (i) the Balance Sheet
Adjustment Amount, and (ii) all Debentureholder Cash Payments.
"Arrangement" means an arrangement under Section 182 of the OBCA on
the terms and subject to the conditions set out in the Plan of Arrangement,
subject to any amendments or variations thereto made in accordance with 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
Shareholders to be substantially in the form and content of Exhibit J attached
---------
hereto.
"Articles of Arrangement" means the articles of arrangement of the
Company in respect of the Arrangement that are required by the OBCA to be sent
to the Director after the Final Order is made.
"Balance Sheet Adjustment Amount" means the amount, if any, by which
the Company's total liabilities exceed an amount equal to the Company's total
current assets as reflected on the Closing Date Balance Sheet plus US$1,000,000;
provided, however, that (i) the principal amount of the Company Convertible
Debenture, (ii) up to US$300,000 in reasonable and documented Estimated Third
Party Expenses, and (iii) the principal amount of the Shareholder Convertible
Debentures plus any accrued and unpaid interest thereon and any premium with
respect thereto will not be considered liabilities for purposes of calculating
the Balance Sheet Adjustment Amount, if any; and provided, further, that if (x)
the Closing shall not have occurred on or prior to July 25, 2001, and (y) as of
July 25, 2001, the Specified Conditions shall have been satisfied as if the
Closing had occurred as of such date, the Balance Sheet Adjustment Amount shall
mean (A) if the Post-Interim Balance Sheet Adjustment Amount is greater than the
Interim Balance Sheet Adjustment Amount, the sum of (i) the Interim Balance
Sheet Adjustment Amount, plus (B)(i) twenty percent (20%) of the amount by which
the Post-Interim Balance Sheet Adjustment Amount exceeds the Interim Balance
Sheet Adjustment Amount, and (B) if the Post-Interim Balance Sheet Adjustment
Amount is less than the Interim Balance Sheet Adjustment Amount, the Post-
Interim Balance Sheet Adjustment Amount.
"beneficial ownership" or "beneficially own" shall have the meaning
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
A-1
"Board of Directors" means the Board of Directors of the Company and
any committees thereof.
"Building and Fixtures" means all plant, buildings, structures,
erections, improvements, appurtenances and fixtures (including fixed machinery
and fixed equipment) situated on any of the Leased Real Property.
"Business Day" means any day on which banks are not required or
authorized to close in the City of Toronto or the City of San Francisco.
"Canadian Securities Laws" means the OBCA, the Securities Act
(Ontario) and all other applicable securities laws in each of the Canadian
provinces and the respective rules, rulings, regulations under such laws
together with applicable policy statements of the securities authorities in such
provinces, in each case as amended or replaced from time to time.
"Cash Exchange Ratio" means an amount of cash equal to the quotient
obtained by dividing (i) the Aggregate Amount by (ii) the Total Company Shares.
"CCRA" means the Canada Customs and Revenue Agency.
"Closing Date Balance Sheet" means the estimated balance sheet of the
Company, which shall include all Estimated Third Party Expenses as liabilities
of the Company, delivered to Parent at least three (3) Business Days prior to
the Closing Date, which balance sheet has been prepared in accordance with GAAP
(except that the Closing Date Balance Sheet may exclude footnotes and other
presentation items that may be required by GAAP) applied on a basis consistent
with the most recent balance sheet included in the Financials that fairly
presents an estimate by the Company in good faith based on reasonable
assumptions of the balance sheet of the Company as of the Closing Date. The
Closing Date Balance Sheet shall include as a current asset an accrual for
unbilled revenues due from Element K or its Affiliates as determined in
accordance with GAAP applied on a basis consistent with the most recent balance
sheet included in the Financials in an amount not to exceed US$1,000,000.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Convertible Debentures" means that certain Convertible
Debentures issued pursuant to the Debenture Purchase Agreement dated as of May
5, 2000 between the Company and Element K Holdings LLC in the aggregate
principal amount of US$9,000,000, as of the date hereof (whose rights, or the
rights of one of its affiliates, in respect of (i) US$7,500,000 aggregate
principal amount thereunder were assigned to Element K (Nova Scotia) Company on
June 14, 2001, and (ii) US$1,500,000 aggregate principal amount thereunder were
assigned to Element K Newco (Nova Scotia) Company on June 14, 2001 and in an
aggregate principal amount not to exceed US$10,000,000 at any time, including
all property or rights issued by the Company with respect to such Company
Convertible Debenture.
A-2
"Company Employee Plan" means (i) for purposes of Section 2.22(a), any
---------------
plan, program, policy, practice, contract, agreement or other material
arrangement providing for compensation, severance, termination pay, indemnity in
lieu of notice, change-of-control award, bonus, commissions, profit-sharing,
deferred compensation, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits or remuneration of any kind, whether
written, unwritten or otherwise, funded or unfunded, including without
limitation, each Retirement Plan, Pension Plan, group insurance, death benefit,
vacation, health and welfare or employee benefit plan, which is or has been
maintained, contributed to, or required to be contributed to, by the Company or
any Affiliate (within the meaning of Section 2.22(a)) for the benefit of any
---------------
Employee, or with respect to which the Company or any Affiliate (within the
meaning of Section 2.22(a)) has or may have any liability or obligation, other
---------------
than the Canada Pension Plan, the Employment Insurance Act (Canada), the
Employer Health Tax Act (Ontario), and workers' compensation insurance provided
pursuant to statute and, (ii) for purposes of Section 2.22(b), any plan,
---------------
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
------------
contributed to, or required to be contributed to, by the Company or any
Affiliate (within the meaning of Section 2.22(b)) for the benefit of any
----------------
Employee, or with respect to which the Company or any Affiliate (within the
meaning of Section 2.22(b)) has or may have any liability or obligation.
----------------
"Company Intellectual Property" means any Intellectual Property and
Intellectual Property Rights that are owned by or exclusively licensed to the
Company or any Subsidiary, and all such Company Intellectual Property and their
status as owned or exclusively licensed, are described in Section 2.13(a) of the
---------------
Disclosure Schedule.
"Company Options" means all issued and outstanding options to purchase
or otherwise acquire Company Shares (whether or not vested) held by any person
under the Plan and the agreements relating thereto, and any other employee stock
option plan or arrangement.
"Company Restricted Shares" means Company Shares subject to a right of
repurchase by the Company.
"Company Securities" means, collectively, the Company Shares, the
Company Convertible Debenture and the Shareholder Convertible Debentures, and
does not include the Company Options.
"Company Shares" means all of the issued and outstanding common shares
of the Company beneficially owned or held of record and to be beneficially owned
or held of record by the Shareholders as at the Effective Date, including all
property or rights issued by the Company with respect to such shares, and, in
the event the Company Reorganization is implemented "Company Shares" shall
include the Preferred Shares and the New Common Shares.
"Court" means the Superior Court of Justice (Ontario).
A-3
"Debentureholders" means holders of the Shareholder Convertible
Debentures as set forth on Section 2.2(a) of the Disclosure Schedule.
--------------
"Debentureholder Cash Payment" means, for each Debentureholder, the
amount such Debentureholder is due under such Debentureholder's Shareholder
Convertible Debenture, including any accrued interest thereon and any premium
payable with respect thereto.
"Director" means the Director appointed under Section 278 of the OBCA.
"Dissent Rights" means the rights of dissent in respect of the
Arrangement described in the Plan of Arrangement.
"Dissenting Shareholder" has the meaning ascribed thereto in the Plan
of Arrangement.
"DOL" means the United States Department of Labor.
"EK Interest Amount" means the amount of interest payable to Element K
at Closing in accordance with the terms of the Company Convertible Debenture.
"Election Deadline" means 5:00 p.m. (Toronto time) on the date of the
Company Shareholder Meeting.
"Election Form" means the Election Form attached hereto as Exhibit C.
---------
"Employee" means any current or former or retired employee, consultant
or director of the Company or any Affiliate (as defined in the OBCA).
"Employee Agreement" means each management, employment, severance,
termination, change of control, consulting, relocation, repatriation,
expatriation, visas, work permit or other agreement, or contract between the
Company or any Affiliate (within the meaning of Section 2.22(a)) and any
---------------
Employee.
"Employment Agreement" means each management, employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, contract or understanding between the Company or any Affiliate
(within the meaning of Section 2.22(a)) and any Employee;
---------------
"Environmental Laws" means all applicable laws and agreements with
Governmental Entities and all other statutory or regulatory requirements or
guidelines relating to public health or occupational or workplace safety or the
protection of the environment and all licenses, permits, orders, waivers or
similar authorizations of any Governmental Entity having jurisdiction issued
pursuant to such laws, agreements or statutory requirements.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended;
A-4
"Escrow Agent" means U.S. Bank Trust, National Association, or another
financial institution chosen by Parent and reasonably acceptable to the
Shareholder Representative (as defined in Section 7.4 hereof).
-----------
"Escrow Amount" means the Escrow Shares and the Escrow Cash.
"Escrow Cash" means ten percent (10%) of the cash otherwise payable to
Element K and Xxxx Xxxxxxxx at the Closing (other than, in the case of Element
K, the EK Interest Amount), together with any additional cash deposited with the
Escrow Agent in respect thereof pursuant to Section 7.3.
-----------
"Escrow Shares" means a number of Exchangeable Shares equal to the
quotient obtained by dividing (i) US$9,500,000 minus the amount of Escrow Cash
by (ii) US$28.00, otherwise issuable to the Founders at the Closing together
with any additional securities deposited with the Escrow Agent in respect
thereof pursuant to Section 7.3.
-----------
"Estimated Third Party Expenses" means the amount of Third Party
Expenses (as defined in Section 5.4 hereof) estimated by the Company in good
-----------
faith and based on reasonable assumptions as of the Closing Date and, for
purposes of the Interim Balance Sheet, as of July 25, 2001.
"Exchangeable Shares" means the exchangeable shares in the capital of
ExchangeCo having the rights, privileges and restrictions set forth in Exhibit G
---------
attached hereto.
"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 or as amended on appeal.
"FMLA" means the Family Medical Leave Act of 1993, as amended.
"Founders" means Xxxxxx Xxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxx, Aditva Xxx
and Xxxx Xxxxx.
"GAAP" means U.S. generally accepted accounting principles
consistently applied.
"Governmental Entity" means any (i) multinational, federal,
provincial, state, municipal, local or other governmental or public department,
central bank, court, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) any subdivision or authority of any of the foregoing,
or (iii) any quasi-governmental or private body exercising any regulatory,
expropriation or taxing authority under or for the account of any of the above.
"Intellectual Property" means any or all of the following (i) works of
authorship including, without limitation, computer programs, source code, and
executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, records, data and mask works, (ii) inventions
(whether or not patentable), improvements, and technology, (iii) proprietary and
confidential information, trade secrets and know how, (iv) databases, data
compilations and collections and technical data, (v) logos, trade names, trade
dress, trademarks and service marks,
A-5
(vi) domain names, web addresses and sites, (vii) tools, methods and processes,
and (viii) any and all instances of the foregoing in any form and embodied in
any media.
"Intellectual Property Rights" means worldwide common law and
statutory rights associated with (i) patents and patent applications, (ii)
copyrights, copyright registrations and copyright applications, "moral" rights
and mask work rights, (iii) the protection of trade and industrial secrets and
confidential information, (iv) other proprietary rights relating to intangible
intellectual property, (v) trademarks, trade names and service marks,
applications and registrations therefor, (vi) analogous rights to those set
forth above, and (vii) divisions, continuations, renewals, reissuances and
extensions of the foregoing (as applicable), as they may exist in any and all
countries and regions/public and legal authorities throughout the world.
"Interim Balance Sheet" means the estimated balance sheet of the
Company, which shall include all Estimated Third Party Expenses as liabilities,
delivered to Parent not later than July 23, 2001, which balance sheet has been
prepared in accordance with GAAP (except that the Interim Balance Sheet may
exclude footnotes and other presentation items that may be required by GAAP)
applied on a basis consistent with the most recent balance sheet included in the
Financials that fairly presents an estimate by the Company in good faith based
on reasonable assumptions of the balance sheet of the Company as of the July 25,
2001. The Interim Balance Sheet shall include as a current asset an accrual for
unbilled revenues due from Element K or its Affiliates as determined in
accordance with GAAP applied on a basis consistent with the most recent balance
sheet included in the Financials in an amount not to exceed US$1,000,000.
"Interim Balance Sheet Adjustment Amount" means the amount, if any, by
which the Company's total liabilities exceed an amount equal to the Company's
total current assets as reflected on the Interim Balance Sheet plus
US$1,000,000; provided, however, that (i) the principal amount of the Company
Convertible Debenture, (ii) up to US$300,000 in reasonable and documented
Estimated Third Party Expenses (treating all Third Party Expenses as if they
were accrued as liabilities of the Company as of July 25, 2001), and (iii) the
principal amount of the Shareholder Convertible Debentures plus any accrued and
unpaid interest thereon and any premium with respect thereto will not be
considered liabilities for purposes of calculating the Interim Balance Sheet
Adjustment Amount, if any.
"Interim Order" means the interim order of the Court providing advice
and directions to the Company with respect to the calling and holding of the
Company Shareholder's Meeting, as the same may be amended, in respect of the
Arrangement.
"International Employee Plan" means each Company Employee Plan that
has been adopted or maintained by the Company or any Affiliate (within the
meaning of Section 2.22(a)), whether informally or formally, or with respect to
---------------
which the Company or any Affiliate (within the meaning of Section 2.22(a) and
---------------
(b)) will or may have any liability, for the benefit of Employees who perform
---
services outside the United States or Canada.
"IRS" means the United States Internal Revenue Service.
"Key Employees" means the Principal Shareholders, Xxxxx Xxxxxxxx and
Xxxx Xxxxx.
A-6
"Knowledge" means (i) with respect to the Company, the knowledge of
the Company's officers, directors and other manager-level employees, provided
that such persons will have made due and diligent inquiry of those employees of
the Company whom such officers, directors and manager-level employees reasonably
believe would have actual knowledge of the matters represented and (ii) with
respect to the Principal Shareholders or other Indemnifying Securityholders, the
actual knowledge of the applicable Principal Shareholder or Indemnifying
Securityholder.
"Material Adverse Effect" means any change, event or effect that is
materially adverse to the business, assets (whether tangible or intangible),
condition (financial or otherwise), results of operations, prospects or
capitalization of the Company and its subsidiaries, taken as a whole.
"Multiemployer Plan" means any "Pension Plan" which is a
"multiemployer plan," as defined in Section 3(37) of ERISA.
"Option Exchange Ratio" means the sum obtained by adding (A) seventy-
five percent (75%) of the quotient obtained by dividing the Aggregate Amount by
the Total Company Shares and dividing such amount by US$28.00 plus (B) twenty-
five percent (25%) of the quotient obtained by dividing the Aggregate Amount by
the Total Company Shares and dividing such amount by the Trading Price.
"OSC" means the Ontario Securities Commission.
"Parent Common Stock" means shares of the common stock, par value
US$0.00067 per share, of Parent.
"Parent Option" means any option to purchase shares of Parent Common
Stock issued pursuant to the terms of Section 1.15 hereof in connection with the
------------
assumption of a Company Option.
"PBA" means the Pension Benefits Act, R.S.O., 1990, c.P-8.
"PBGF" means the Pension Benefit Guaranty Fund (Ontario).
"Pension Plan" means (i) for purposes of Section 2.22(a), each Company
---------------
Employee Plan which is a pension plan, within the meaning of Section 1 of the
PBA and (ii) for purposes of Section 2.22(b), each Company Employee Plan which
---------------
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
"Person" means a natural person, partnership, limited liability
partnership, corporation, joint stock company, trust, unincorporated
association, joint venture or other entity or Governmental Entity, and pronouns
have a similarly extended meaning.
"Plan" means the Company's Stock Option Plan dated January 1, 2000.
"Plan of Arrangement" means the plan of arrangement substantially in
the form and content of Exhibit K attached hereto and any amendments or
---------
variations thereto made in accordance
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with the Plan of Arrangement or made at the direction of the Court in the
Interim Order or Final Order.
"Post-Interim Balance Sheet Adjustment Amount" means the amount, if
any, by which the Company's total liabilities exceed an amount equal to the
Company's total current assets as reflected on the Closing Date Balance Sheet
plus US$1,000,000; provided, however, that (i) the principal amount of the
Company Convertible Debenture, (ii) up to US$300,000 in reasonable and
documented Estimated Third Party Expenses (treating all Third Party Expenses as
if they were accrued as liabilities of the Company as of July 25, 2001), and
(iii) the principal amount of the Shareholder Convertible Debentures plus any
accrued and unpaid interest thereon and any premium with respect thereto will
not be considered liabilities for purposes of calculating the Post-Interim
Balance Sheet Adjustment Amount, if any.
"Principal Shareholders" means the Founders and Xxxx Xxxxxxxx.
"Registered Intellectual Property" means Intellectual Property and
Intellectual Property Rights that have been applied for, registered, filed,
certified or otherwise perfected or recorded with any state, government or other
public legal authority.
"Retirement Plan" means each Company Employee Plan which is a
Registered Retirement Savings Plan or a Deferred Profit Sharing Plan within the
meaning of the ITA.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Securityholder" means any holder of Company Securities or Company
Options.
"Shareholder Convertible Debentures" means the convertible debentures
issued to the Debentureholders, in the aggregate principal amounts listed on
Section 2.2(a) of the Disclosure Schedule, including all property or rights
--------------
issued by the Company with respect to such Shareholder Convertible Debenture.
"Share Exchange Ratio" means the number of Exchangeable Shares equal
to the quotient obtained by dividing (i) the quotient obtained by dividing the
Aggregate Amount by U.S.$28.00 by (ii) the Total Company Shares.
"Specified Conditions" shall mean all of the conditions to Closing set
forth in Sections 6.1 hereof, excluding Sections 6.1(c), (d), (e) and (f) and
------------ --------------- --- --- ---
all of the conditions to closing set forth in Section 6.2 excluding Sections
----------- --------
6.2(b) (only with respect to approvals specified in Section 6.1) and (v).
------ ----------- ---
"Total Company Shares" means the aggregate number of Company Shares,
including any Company Options (whether vested or unvested), the Company
Convertible Debenture and any other rights convertible into, or exercisable or
exchangeable for, Company Shares on an as-converted, exercised or exchanged
basis, plus the Equivalent Scheduled Option Shares, but excluding the
---- ---------
Shareholder Convertible Debentures, issued and outstanding immediately prior to
the Closing.
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"Trading Price" means the average closing sale price of one share of
Parent Common Stock as reported on The Nasdaq National Market for the ten (10)
consecutive trading days ending three (3) business days prior to the Closing
Date.
In addition to the defined terms in this Exhibit, each of the
following capitalized terms shall have the meaning ascribed thereto in the
corresponding Sections:
Term Reference
---- ---------
Acquisition Recitals
Additional Parent Options................ 5.11
Adjusted Balance Sheet................... 7.6
Agreement................................ Initial Page
Amended License Agreement................ 6.2(s)
Basket Amount............................ 7.3
CallCo................................... Initial Page
CallCo Proceeds.......................... 1.10
Cash Election............................ 1.6
Cash Proportional Amount................. 7.3
Change in the Company Recommendation..... 5.23
CIPO..................................... 2.13
Circular................................. 5.1
Closing.................................. 1.1
Closing Date............................. 1.1
Company.................................. Initial Page
Company Authorizations................... 2.16
Company Board Approval................... 2.29
Company Recommendation................... 5.23
Company Registered Intellectual Property. 2.13
Company Reorganization................... 10.1
Company Shareholders Meeting............. 5.23
Confidential Disclosure Agreement........ 5.3
Conflict................................. 2.5
Continuing Employee...................... 5.11
Contract................................. 2.5
Current Balance Sheet.................... 2.7
Current Financials....................... 2.7
Customer Information..................... 2.12
Disclosure Schedule...................... Article II
Dissenting Shareholder Payments.......... 7.2
Effective Date........................... 1.2
Effective Time........................... 1.2
EK Holdings.............................. Initial Page
Element K................................ Initial Page
Environmental Permits.................... 2.20
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Term Reference
---- ---------
Equipment................................................ 2.12
Equivalent Scheduled Option Shares....................... 5.11
Escrow Agent............................................. Initial Page
Escrow Fund.............................................. 7.3
Escrow Period............................................ 7.3
Excess Liabilities....................................... 7.6
Exchange Act............................................. 3.3
Exchange and Support Agreement........................... 1.5
ExchangeCo............................................... Initial Page
ExchangeCo Proceeds...................................... 1.10
Exchange Offer Registration Statement.................... 5.17
Exchanging Shareholder................................... 1.6
Financials............................................... 2.7
Founder Pro Rata Portion................................. 7.3
Fraud.................................................... 7.5
Hazardous Material....................................... 2.20
Hazardous Materials Activities........................... 2.20
HSR Act.................................................. 2.27
Indemnified Parties...................................... 7.2
Indemnifying Securityholders............................. Recitals
Independent Accounting Firm.............................. 7.6
Individual Securityholder Losses......................... 7.2
ITA...................................................... Recitals
ITCs..................................................... 2.10
Lease Agreements......................................... 2.12
Leased Real Property..................................... 2.12
Loss..................................................... 7.2
Net Liabilities at Closing............................... 7.6
New Common Shares........................................ 10.1
New Parent Options....................................... 5.11
New Shares............................................... 7.3
Non-Competition Agreements............................... Recitals
Non-Resident Debentureholder............................. 1.10
Non-Resident Vendor...................................... 1.10
Notice of Objection...................................... 7.6
OBCA..................................................... Recitals
Offer Letter............................................. 5.11
Officer's Certificate.................................... 7.3
Option................................................... 1.6
Overtime Payments........................................ 7.2
Parent................................................... Initial Page
Parent Financial Statements.............................. 3.7
Parent Material Adverse Effect........................... 3.1
Parent Parties........................................... Initial Page
Parent Plan.............................................. 5.11
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Term Reference
---- ---------
Parent SEC Documents..................................... 3.7
PTO...................................................... 2.13
Preferred Shares......................................... 10.1
Principal Shareholders................................... Initial Page
Related Agreements....................................... 2.4
Released Claims.......................................... 1.9
Released Parties......................................... 1.9
Releasors................................................ 1.9
Remittance Date.......................................... 1.10
Repurchase Agreements.................................... Recitals
Required Company Vote.................................... 1.4
Resale Registration Statement............................ 5.17
Rule 145................................................. 5.12
Rule 145 Affiliate....................................... 5.12
Scheduled Options........................................ 5.11
SEC...................................................... 3.7
Share/Cash Election...................................... 1.6(a)
Shareholder.............................................. Recitals
Shareholders Agreement................................... 6.2(u)
Shareholder Representative............................... 7.4
Shareholder Representative Substitution Event............ 7.4
Statement of Expenses.................................... 5.14
Stirling Pro Rata Portion................................ 7.3
Stock Proportional Amount................................ 7.3
Sub...................................................... Initial Page
Subsidiaries............................................. 2.3
Survival Date............................................ 7.1
Tax...................................................... 2.10
Tax Returns.............................................. 2.10
Tendering Shareholder.................................... 1.12
Third Party Expenses..................................... 5.4
Vested Shares............................................ 1.8
Voting Agreement......................................... Recitals
Voting Securityholders................................... 1.3(c)
U.S. Code................................................ Recitals
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