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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NO. 000-24331
RAINTREE RESORTS INTERNATIONAL, INC.
CR RESORTS CAPITAL S. de R. L. de C.V.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 76-0549149
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10000 MEMORIAL
SUITE 480
HOUSTON, TEXAS 77024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS, INCLUDING ZIP CODE)
(713) 613-2800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATED BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES NO X
----- -----
As of June 30, 1998, there were outstanding 10,772,428 shares of common
stock, par value $0.001 per share, of the Registrant.
*CR Resorts Capital, S. de R. L. de C. V., a subsidiary of Raintree
Resorts International, Inc., is a co-registrant, formed under the laws of the
United Mexican States (Mexican tax identification number CRC 970811E5A).
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RAINTREE RESORTS INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION.............................................................................1
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998 (Unaudited)................1
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 1998 (Unaudited).............................................................2
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (Unaudited)....................................................3
Notes to Consolidated Financial Statements.......................................................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................12
PART II. OTHER INFORMATION................................................................................13
Item 1. Legal Proceedings........................................................................13
Item 2. Changes in Securities and Use of Proceeds................................................13
Item 3. Defaults Upon Senior Securities..........................................................13
Item 4. Submission of Matters to a Vote of Security Holders......................................13
Item 5. Other Information........................................................................13
Item 6. Exhibits and Reports on Form 8-K.........................................................14
SIGNATURES................................................................................................15
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RAINTREE RESORTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,377 $ 8,995
Vacation interval receivables and other trade receivables, net 48,931 39,952
Reimbursements receivable from Starwood Lodging Corporation for shared
Acquisition costs -- 1,877
Inventories 964 964
Mexican taxes receivable 6,177 3,716
Fixed assets, net 2,966 1,518
Land held for vacation ownership development 13,639 12,680
Investment in a 50% held company, at cost less the company's share of losses 2,463 2,475
Cost of unsold vacation ownership intervals and related club memberships 27,154 31,612
Investment in hotel agreement 4,000 4,000
Deferred loan costs, net 7,824 7,900
Prepaid and other assets 2,868 1,175
------------ ------------
TOTAL ASSETS $ 124,363 $ 116,864
============ ============
LIABILITIES
Accounts payable and accrued liabilities $ 9,833 $ 7,654
Notes payable to a bank 3,000 1,000
Senior notes and interest due 2004, net of unamortized original issue discount 91,446 90,780
Mexican taxes payable 5,051 1,319
Unearned service fees 3,688 3,059
------------ ------------
TOTAL LIABILITIES 113,018 103,812
SHAREHOLDERS' INVESTMENT
Common stock, par value $.001, 45,000,000 shares authorized 10,701,000 and
10,772,428 shares issued and outstanding at December 31, 1997 and June 30, 11 11
1998 respectively
Preferred stock, par value $.001, 5,000,000 shares authorized, 37,500 shares
issued and outstanding at December 31, 1997 and June 30, 1998 1 1
Additional paid-in capital 7,545 7,045
Stock subscription receivable (140) --
Common stock warrants to purchase 1,869,962 common shares 9,331 9,331
Accumulated deficit (5,403) (3,336)
------------ ------------
TOTAL SHAREHOLDERS' INVESTMENT 11,345 13,052
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' INVESTMENT $ 124,363 $ 116,864
============ ============
</TABLE>
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RAINTREE RESORTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1998 1997 1998 1997
ACTUAL PRO FORMA ACTUAL PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Vacation interval sales $ 26,512 $ 24,690 $ 12,386 $ 10,540
Rental and service fee income 4,440 6,635 1,947 2,792
Interest income on vacation interval receivables 2,869 2,216 1,707 1,033
Other 1,424 1,018 569 568
------------ ------------ ------------ ------------
TOTAL REVENUES 35,245 34,559 16,609 14,933
COST AND OPERATING EXPENSES:
Cost of vacation interval sales 5,851 5,312 2,704 2,267
Provision for doubtful accounts 2,085 2,253 861 962
Advertising, sales and marketing 10,572 9,810 4,966 4,792
Maintenance and energy 3,953 3,748 1,972 1,997
Mexican taxes - VAT -- 1,822 -- 1,101
General and administrative 4,854 2,970 3,273 1,314
------------ ------------ ------------ ------------
TOTAL COST AND OPERATING EXPENSES 27,315 25,915 13,776 12,433
OPERATING INCOME 7,930 8,644 2,833 2,500
Interest Expense - Cash 5,592 6,786 2,589 3,393
Interest Expense - Non Cash 666 666 333 333
Amortization of deferred loan cost 981 570 696 285
Depreciation 219 39 139 20
Foreign currency exchange losses 1,939 54 1,506 25
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (1,467) 529 (2,430) (1,556)
TAXES:
US income taxes -- -- -- --
Mexican IMPAC taxes 600 600 303 300
------------ ------------ ------------ ------------
TOTAL TAXES 600 600 303 300
------------ ------------ ------------ ------------
NET LOSS BEFORE PREFERRED DIVIDENDS (2,067) (71) (2,733) (1,856)
Preferred Dividends 309 310 155 155
============ ============ ============ ============
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (2,376) $ (381) $ (2,888) $ (2,011)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 10,736,714 10,100,000 10,772,428 10,100,000
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.22) $ (0.04) $ (0.27) $ (0.20)
============ ============ ============ ============
</TABLE>
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RAINTREE RESORTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss before preferred dividends $ (2,067) $ (70)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,866 --
Provision for doubtful accounts 2,085 --
Equity loss in 50% held company 12 --
Changes in operating assets and liabilities:
Vacation interval receivables and other trade receivables (11,064) --
Reimbursements receivable from Starwood Lodging Corporation 1,877 --
Inventories -- --
Mexican taxes receivable (2,461) --
Cost of unsold vacation ownership intervals 4,458 --
Deferred loan costs, net (905) --
Deferred Acquisition Costs -- (533)
Prepaid and other assets (1,693) --
Accounts payable and accrued liabilities 2,179 --
Mexican taxes payable 3,732 --
Unearned service fees 629 --
-------------- --------------
Net cash used in operations (1,352) (603)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land held for vacation ownership development (959) --
Additions to fixed assets (1,667) --
-------------- --------------
Net cash used in investing activities (2,626) --
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 360 --
Additional bank loans 2,000 603
-------------- --------------
Net cash provided by financing activities 2,360 603
DECREASE IN CASH AND CASH EQUIVALENTS (1,618) --
Cash and cash equivalents at the beginning of the period 8,995 --
-------------- --------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 7,377 $ --
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 6,402 --
Income Taxes Paid $ 772 --
</TABLE>
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RAINTREE RESORTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
NOTE 1 - ORGANIZATIONAL AND BASIS OF PRESENTATION:
Organization
On August 18, 1997, Raintree Resorts International, Inc. (formerly Club
Regina Resorts, Inc.) (the "Company"), purchased all of the stock of Desarrollos
Turisticos Regina S. de R.L. de C.V. and its subsidiaries (the "Predecessor
Business"). The Company acquired net vacation ownership assets of approximately
$86.8 million from a Mexican bank using shareholder loans of approximately $3.8
million and seller financing of approximately $83.0 million. The initial
allocation of the purchase price was to the following net assets (in millions):
<TABLE>
<S> <C>
Vacation interval receivables and other trade receivables........................... $ 37.2
Land held for Vacation Ownership development........................................ 12.2
Cost of unsold Vacation Ownership intervals and club memberships, etc............... 33.8
Investment in a 50% held company.................................................... 2.5
Cash and other assets............................................................... 6.0
Retained interests in hotel cash flows.............................................. 4.0
-------
Total assets........................................................................ 95.7
Less working liabilities assumed.................................................... (8.9)
-------
Net purchase price.................................................................. $ 86.8
=======
</TABLE>
Concurrent with the purchase, the real property of the Predecessor
Business was segregated into condominium regimes so that the Regina Resorts and
Westin Hotels (collectively at each site, the "Combined Resorts") would be able
to be owned by separate companies. The Westin Hotels were then sold by the
Company to an affiliate of Starwood Lodging Trust and Starwood Lodging
Corporation (collectively "Starwood") for $132.75 million on August 18, 1997. No
gain or loss was recognized on the sale. These transactions are referred to as
the "Purchase Transactions."
As a result of the Purchase Transactions, the Company owns and operates
three luxury Mexican vacation ownership resorts in Cancun, Puerto Vallarta and
Cabo San Lucas, Mexico. The Company's principal operations consist of (1)
acquiring vacation ownership resorts, (2) marketing and selling vacation
ownership intervals, (3) providing consumer financing for the purchase of
vacation ownership intervals at its resorts and (4) managing the operations of
its resorts. Prior to August 18, 1997 the Company did not have significant
operations or revenues.
The information contained in the following notes to the accompanying
financial statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements and
related notes thereto contained in the Prospectus contained in the Registration
Statement on Form S-4 (File No. 333-49065) filed by the Company with the
Securities and Exchange Commission (the "Registration Statement").
The condensed consolidated financial statements included herein have
been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Pursuant to such regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes the presentation and
disclosures herein are adequate to make the information not misleading. The
financial statements reflect all elimination entries and normal adjustments that
are necessary for a fair presentation of the results for the interim periods
ended June 30, 1998 and 1997.
Basis of Presentation
The summary unaudited financial data is for the three and six-month
periods ended June 30, 1997 and June 30, 1998. The June 30, 1998 data represents
actual results for the period. The June 30, 1997 data represents pro forma
information. The pro forma information for the three and six-month periods ended
June 30, 1997 includes adjustments, consisting of
4
<PAGE> 7
normal recurring adjustments, that the Company considers necessary for a fair
presentation of the results of the operations for these periods. The pro forma
financial data presents only the vacation ownership segment of the Predecessor
Business. Operating results for the three and six-month periods ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
entire year.
Certain items in the December 31, 1997 financial statements have been
reclassified to conform with the June 30, 1998 presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Costs of Unsold Vacation Ownership Intervals and Related Club Memberships
The Company is the beneficiary of trusts, which hold fee simple title to
the vacation ownership facilities at the three Regina Resorts. The Company
reports its allocated acquisition costs related to these trust rights to use
these facilities, to the extent that such vacation ownership interests (the
"Vacation Intervals") were unsold, within the balance sheet as "Cost of unsold
vacation ownership intervals and related club memberships." At December 31, 1997
and June 30, 1998, the Company holds rights for 12,566 and 10,404 annual and
biannual Vacation Intervals, respectively.
In accordance with FAS 121, Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed Of, trust rights are carried at
the lower of carrying amount or fair value less cost to sell. Fair value is
estimated by discounting estimated future net cash flow from the sale of such
rights.
Loss Per Share
Basic loss per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted loss per share also includes the dilutive effect of the assumed
conversion of all securities, such as options, warrants, and convertible debt.
The following is a reconciliation of basic and diluted loss per share:
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS THREE MONTHS PRO FORMA
ENDED ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Basic and Diluted:
Loss attributable to common shareholders $ (2,888,129) $ (2,011,000) $ (2,376,497) $ (381,000)
================ ================ ================ ================
Basic - weighted average number of common shares 10,772,428 10,100,000 10,736,714 10,100,000
Adjustments:
Warrants associated with Senior Notes 1,869,962 -- 1,869,962
Common stock options 97,143 -- 97,143
---------------- ---------------- ---------------- ----------------
Diluted 12,739,533 10,100,000 12,703,819 10,100,000
Loss per share:
Basic - weighted average number of common shares $ (0.27) $ (0.20) $ (0.22) $ (0.04)
================ ================ ================ ================
Diluted $ (0.27) $ (0.20) $ (0.22) $ (0.04)
================ ================ ================ ================
</TABLE>
The assumed conversion of the Company's preferred stock is not included in
the calculation of diluted earnings per share since it is antidilutive and since
it is only convertible upon the consummation of an initial public offering.
Land Held for Vacation Ownership Development
The Company owns a parcel of undeveloped beachfront property located in
Cozumel, Mexico. In addition the Company owns a parcel of land adjacent to its
Regina Resort located in Cabo San Lucas, Mexico. The Company has commenced
constructing additional vacation ownership facilities on these parcels of land.
Interest expense totaling approximately $1.4 million has been capitalized
related to these developmental properties.
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<PAGE> 8
Translation of Foreign Currency
The Company maintains its Mexican accounting records and prepares its
financial statements for its Mexican subsidiaries in Mexican Pesos. The balance
sheet accounts of the Mexican subsidiaries have been remeasured into U.S.
dollars in accordance with Statement of Financial Accounting Standards (SFAS)
No. 52, Foreign Currency Translation since Mexico has been deemed to be a highly
inflationary economy for purposes of applying SFAS No. 52. The Company's stated
sales prices are dollar denominated as are a significant amount of its Vacation
Interval contracts receivable. Additionally, the Company's debt is US Dollar
denominated. Accordingly, the Mexican Pesos are translated to US Dollars for
financial reporting purposes in using the US Dollar as the functional currency
and exchange gains and losses as well as translation gains and losses are
reported in income and expense. The resulting net exchange and translation loss
for the period January 1, 1998 through June 30, 1998 was $1,939,000. This net
loss was primarily related to the change in the exchange rate of the Peso to the
U.S. Dollar during the period January 1, 1998 through June 30, 1998 as follows:
<TABLE>
<CAPTION>
Exchange rates Pesos U.S. Dollar
-------------- ----- ----------
<S> <C> <C>
December 31, 1997....................... 8.083 = $1.00
March 31, 1998.......................... 8.517 = $1.00
June 30, 1998........................... 9.041 = $1.00
</TABLE>
The future valuation of the Peso related to the U.S. Dollar cannot be
determined, estimated or projected.
NOTE 3 - 1997 LONG TERM INCENTIVE PLAN
On August 18, 1997, the Board of Directors and the Company's stockholders
approved the Company's 1997 Long Term Incentive Plan (the "Plan"). The purpose
of the Plan is to provide directors, officers, key employees, consultants and
other service providers with additional incentives by increasing their ownership
interest in the Company. Individual awards under the Plan may take the form of
one or more of (i) either incentive stock options or non-qualified stock
options; (ii) stock appreciation rights; (iii) restricted or deferred stock;
(iv) dividend equivalents and (v) other awards not otherwise provided for, the
value of which is based in whole or in part upon the value of the common stock.
The maximum number of shares of common stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may not
exceed the greater of 808,000 shares or 8% of the aggregate number of shares of
common stock outstanding.
At June 30, 1998, stock options covering 402,500 common shares had been
granted under this plan with an exercise price of $5.00 to $7.70 per common
share representing their fair value or greater than their fair value, as
determined by the Board of Directors, at the date of grant. These options are
generally exercisable over a period of ten years from the date of grant.
NOTE 4 - SHAREHOLDERS' INVESTMENT
On April 1, 1998, the Company issued 71,428 shares of Common Stock for
$7.00 per share, for an aggregate of $499,996, to five individuals in a
transaction exempt from registration under Section 4(2) of the Securities Act.
Of these shares, 46,428 were sold for cash and 25,000 were sold for $35,000 in
cash and a non-recourse promissory note for the remaining $140,000. This note
was secured by a pledge of the shares sold.
NOTE 5 - SUBSEQUENT EVENTS
Acquisitions
On July 27, 1998, the Company, through it's wholly owned subsidiary,
Raintree Canada, purchased Whiski Jack Resorts, Ltd. and it's affiliates
(collectively, "Whiski Jack"), which have been engaged in the vacation ownership
business for over 18 years in Whistler, British Columbia, Canada. Whiski Jack
had revenues of approximately $9.9 million and earnings of approximately
$205,000 for the year ended December 31, 1997. The purchase of Whiski Jack was
effected for approximately $6.0 million. In addition, the Company paid
approximately $700,000 of debt owed by Whiski Jack. As part of this transaction
Raintree Canada has pledged all of the common stock of Whiski Jack Resorts, Ltd.
to the former owners of Whiski Jack. Finally, the purchase agreement
contemplates that the sellers may be paid additional consideration based upon
the increase of 1998 pro forma earnings of Whiski Jack over 1997 pro forma
earnings.
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<PAGE> 9
The Company has executed a letter of intent to acquire the land and
facilities of the Villa Vera Hotel & Racquet Club (the "Villa Vera") for $4.5
million. The Villa Vera is in Acapulco, Mexico and has 74 hotel units, 57 of
which the Company plans to convert into vacation ownership units that should
increase the Company's inventory by approximately 4,000 Vacation Intervals.
These Vacation Intervals are expected to be priced on average slightly lower
than the Company's intervals at the current Regina Resorts. The Company
estimates this conversion will cost $2.0 million. Closing of this acquisition is
expected in August 1998. The Villa Vera has been operating on a limited basis
during the year ended December 31, 1997 and its revenues and net loss for 1997
were approximately $400,000 and $400,000 respectively.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations and beliefs concerning future events that involve
risks and uncertainties, including those associated with the effects of (i)
international, national and regional economic conditions and, more particularly,
conditions in the international tourism and vacation ownership markets, (ii) the
Company's capacity to integrate acquisitions that it has made, and (iii) the
availability of capital resources necessary for the Company to execute its
business strategy. Investors are cautioned that all forward-looking statements
involve risks and uncertainty. Discussions containing such forward-looking
statements may be found in the material set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" as well as
elsewhere herein. Actual results may differ materially from those projected in
the forward-looking statements. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this report will
prove to be accurate. Important factors that could cause actual results to
differ materially from the Company's expectations are disclosed in this report.
Considering the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved. The following discussion
should be read in conjunction with the Financial Statements of Raintree Resorts
International, Inc. and related notes thereto, the management's discussion and
analysis related thereto, all of which are included in the Registration
Statement on Form S-4 filed by the Company with the Securities and Exchange
Commission and the financial statements and notes thereto contained herein.
COMPARISONS OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED
JUNE 30, 1997
Vacation interval sales increased by $1.8 million, or 7.4%, from
approximately $24.7 million for the six months ended June 30, 1997 to
approximately $26.5 million for the six months ended June 30, 1998. The primary
reason for this increase was the implementation of new marketing programs
combined with the opening of two new sales offices during the first half of
1998. The revenue increase occurred despite the fact that the number of
intervals sold were negatively impacted by the change in the VAT tax laws
effective January 1, 1998 whereby the sale of vacation intervals became subject
to either a 10% or 15% VAT. The increase in intervals sold in the first six
months of 1998 also was negatively impacted due to a decrease in the level of
tourism in each of the resort destinations where the Regina resorts are located
due to a milder winter in the U.S. and Canada as compared to the first six
months of 1997.
The number of intervals sold increased by 27, or 1.3%, from 2,135 for the
six months ended June 30, 1997 to 2,162 for the six months ended June 30, 1998.
The average price per interval sold decreased $234 per interval, or 2.0%, from
$11,817 for the six months ended June 30, 1997 to $11,583 for the six months
ended June 30, 1998. This decrease in price per interval sold was mostly
attributable to the decrease in average selling price due to the Company's
absorption of part of the taxes arising from the VAT tax law change, however,
the total gross sales value per interval sold (vacation interval sales price
plus VAT billed) has increased $1,170 or 9.9% from $11,817 per interval sold for
the period ended June 30, 1997 to a gross value of $12,987 per interval sold for
the period ended June 30, 1998.
Rental and service fee income decreased by $2.2 million, or 33.1%, from
approximately $6.6 million for the six months ended June 30, 1997 to
approximately $4.4 million for the six months ended June 30, 1998. The decrease
was due in part to the rental of units to Westin at an average rate lower than
that experienced by the Company during the first six months of 1997. The rate
negotiated with Starwood would have been higher except that a one-time fee of
$1.25 million was also negotiated with Starwood ($625,000 in the first six
months of 1998). This fee was recognized in other income. Rental and service fee
income was also negatively impacted because the negotiated agreement with
Starwood precludes the Company from renting the remaining unsold units to
transient vacationers other than Club Regina members and their guests and guests
secured through marketing and promotional programs. Finally, increased usage by
a larger owner base resulted in fewer unsold units available for rental to
guests of members or for use in marketing promotions.
Interest income on vacation receivables increased by $0.7 million, or
29.5%, from approximately $2.2 million for the six months ended June 30, 1997 to
approximately $2.9 million for the six months ended June 30, 1998. This increase
is due primarily to receivables increasing by $12.2 million from approximately
$36.7 million at June 30, 1997 to approximately $48.9 million on June 30, 1998.
8
<PAGE> 11
Other revenues increased by $0.4 million, or 39.9%, from approximately $1.0
million for the six months ended June 30, 1997 to approximately $1.4 million for
the six months ended June 30, 1998. This increase was due to an increase in
consulting services provided to Bancomer and other tourism related companies and
an increase in interest income on net proceeds from the December 1997 $100.0
million senior note offering which increased $0.3 million from zero for the six
months ended June 30, 1997 to $0.3 million for the six months ended June 30,
1998.
Cost of vacation interval sales increased $0.5 million, or 10.1 %, due
primarily to the 7.4 % increase in vacation interval sales noted earlier. A
portion of the increase in cost of vacation ownership sales, however, was
attributable to a change in the mix of intervals sold and slightly higher
acquisition costs.
Advertising, sales and marketing expenses increased $0.8 million, or 7.8%,
from approximately $9.8 million for the six months ended June 30, 1997 to $10.6
million for the six months ended June 30, 1998. This increase was directly
related to the opening of new sales offices in Mexico and was consistent with
the overall increase in vacation interval sales noted previously of 7.4%.
Maintenance and energy expenses increased $0.3 million, or 5.5%, from
approximately $3.7 million for the six months ended June 30, 1997 to
approximately $4.0 million for the six months ended June 30, 1998. As a
percentage of total revenue, maintenance and energy expenses remained constant
at approximately 11.0% of total revenues. The increase in operations,
maintenance and energy expenses was due to higher overall occupancy in the
Vacation Interval units for the six months ended June 30, 1998 compared to the
six months ended June 30, 1997.
The Company realized VAT tax savings of $1.8 million during the first six
months of 1998 as compared to the first six months of 1997. This savings is a
result of VAT tax law changes that went into effect January 1, 1998 which allow
the Company to recover all VAT taxes paid. This VAT tax law change now subjects
intervals sold to the collection of VAT taxes. These VAT taxes collected are
used to offset all VAT taxes paid by the Company for goods and services
procured.
General and administrative expenses increased $1.9 million, or 63.4%, from
approximately $3.0 million for the six months ended June 30, 1997 to
approximately $4.9 million for the six months ended June 30, 1998. Primary
causes of this increase included: 1) approximately $600,000 for increased
compensation of certain key executives, plus an increase in the number of
executive, administrative and temporary personnel in Mexico to support an active
development program and an administrative operation independent of the prior
owner, 2) increased legal and accounting fees, which totaled approximately
$400,000 during the first six months of 1998, 3) $687,500 related to the payment
of an administrative service fee to Jefferies & Co., and 4) approximately
$100,000 in various external consulting fees.
Interest expense was approximately $1.2 million less in the first six
months of 1998 as compared to the first six months of 1997 due primarily to the
capitalization of interest expenses associated with the land development in
Cozumel during the first six months of 1998.
Loan amortization costs increased approximately $0.4 million, or 72.1%,
between 1997 and 1998 due to higher than anticipated capitilizable offering
expenses associated with the $100.0 million senior note issuance in December
1997.
Depreciation expense totaled approximately $219,000 in 1998 versus $39,000
in 1997. This increase was due primarily to leasehold improvements associated
with the relocation of the Mexico City headquarters during the first quarter of
1998 combined with the implementation of new RCC software, which is the main
operations software used by the company.
Foreign currency exchange losses totaled approximately $1.9 million during
the first six months of 1998 compared to approximately $0.1 million during the
first six months of 1997. The value of the peso decreased from 8.08 per US$ at
December 31, 1997 to 9.04 per US$ at June 30, 1998, or 11.9%, causing the large
exchange loss in 1998. The Company maintains a portfolio of UDI receivables
(receivables denominated in an alternate Mexican currency that is adjusted for
inflation on a daily basis) to help offset the peso devaluation. These inflation
adjustments should offset the long-term effect of the peso devaluation but do
not offset the short-term losses as have occurred during the first six months of
1998. The amount of UDI inflation adjustments, which is included under Interest
income on vacation interval receivables was $1.0 million during both the first
six months of 1998 and the first six months of 1997. The primary reason the
translation loss was only $0.1 million during the first six months of 1997 was
that during the first six months of 1997 the peso decreased minimally in value
from 7.85 per US$ to 7.96 per US$, or 1.4%.
9
<PAGE> 12
COMPARISONS OF THE THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE MONTHS ENDED
JUNE 30, 1997
Vacation interval sales increased by $1.8 million, or 17.5%, from
approximately $10.6 million for the three months ended June 30, 1997 to
approximately $12.4 million for the three months ended June 30, 1998. The
primary reason for this increase was the implementation of new marketing
programs combined with the opening of two new sales offices during the first
half of 1998. The revenue increase occurred despite the fact that the number of
intervals sold were negatively impacted by the change in the VAT tax laws
effective January 1, 1998 whereby the sale of Vacation Intervals became subject
to either a 10% or 15% VAT. The increase in intervals sold in the first six
months of 1998 also was negatively impacted due to a decrease in the level of
tourism in each of the resort destinations where the Regina resorts are located.
Rental and service fee income decreased by $0.8 million, or 30.3%, from
approximately $2.8 million for the three months ended June 30, 1997 to
approximately $2.0 million for the three months ended June 30, 1998. The
decrease was due in part to the rental of units to Westin at an average rate
lower than that experienced by the Company during the second quarter of 1997.
The rate negotiated with Starwood would have been higher except that a one-time
fee of $1.25 million was also negotiated with Starwood ($312,500 in the second
quarter of 1998). This fee was recognized in other income. Rental and service
fee income was also negatively impacted because the negotiated agreement with
Starwood precludes the Company from renting the remaining unsold units to
transient vacationers other than Club Regina members and their guests and guests
secured through marketing and promotional programs. Finally, increased usage by
a larger owner base resulted in fewer unsold units available for rental to
guests of members or for use in marketing promotions.
Interest income on vacation interval receivables increased by $0.7 million,
or 65.2%, from approximately $1.0 million for the three months ended June 30,
1997 to approximately $1.7 million for the three months ended June 30, 1998.
This increase is due to receivables increasing by $12.2 million from
approximately $36.7 million at June 30, 1997 to approximately $48.9 million on
June 30, 1998.
Other revenues remained unchanged at $0.6 million during both the second
quarter of 1998 as compared to the second quarter of 1997.
Cost of vacation ownership sales increased $0.4 million, or 19.3%, due to
the 17.5% increase in vacation interval sales noted earlier, plus a change in
the mix of intervals sold and slightly higher acquisition costs.
Advertising, sales and marketing expenses increased $0.2 million, or 3.6%,
from approximately $4.8 million for the three months ended June 30, 1997 to $5.0
million for the three months ended June 30, 1998. This increase was directly
related to the opening of two new sales offices in Mexico and was consistent
with the overall increase in vacation interval sales experienced during the
second quarter of 1998.
Maintenance and energy costs remained unchanged at approximately $2.0
million during both the second quarter of 1998 and second quarter of 1997. This
despite the fact that overall vacation interval sales increased by 17.5%.
The Company realized VAT tax savings of $1.1 million during the second
quarter of 1998, in which no VAT was recorded, as compared to the second quarter
of 1997. This savings is a result of VAT tax law changes that went into effect
January 1, 1998 which allow the company to recover all VAT taxes paid. This VAT
tax law change now subjects intervals sold to the collection of VAT taxes. These
VAT taxes collected are used to offset all VAT taxes paid by the Company for
goods and services procured.
General and administrative expenses increased $2.0 million, or 149.1%, from
approximately $1.3 million for the three months ended June 30, 1997 to
approximately $3.3 million for the three months ended June 30, 1998. Primary
causes of this increase included: 1) approximately $350,000 for increased
compensation of certain key executives, plus an increase in the number of
executive, administrative and temporary personnel in Mexico to support an active
development program and an administrative operation independent of the prior
owner, 2) increased legal and accounting fees, which totaled approximately
$250,000 during the second quarter of 1998, 3) approximately $312,500 related to
the payment of an administrative service fee to Jefferies & Co., and 4)
approximately $80,000 in various external consulting fees.
Interest expense was $0.8 million favorable in the second quarter of 1998
as compared to the second quarter of 1997 due primarily to the capitalization of
interest expenses associated with the land development in Cozumel during the
second quarter of 1998.
10
<PAGE> 13
Loan amortization costs increased $0.4 million, or 144.2%, between the
second quarter of 1997 and the second quarter of 1998 due to higher than
anticipated capitilizable offering expenses associated with the $100 million
senior note issuance in December 1997.
Depreciation expense totaled $139,000 in the second quarter of 1998 versus
$20,000 in 1997. This increase was due primarily to leasehold improvements
associated with the relocation of the Mexico City headquarters during the first
quarter of 1998 combined with the implementation of new RCC software, which is
the main operations software used by the company.
Foreign currency exchange losses totaled approximately $1.5 million during
the second quarter of 1998 compared to a translation loss totaling less than
$0.1 million during the second quarter of 1997. The value of the peso decreased
from 8.51 per US$ at March 31, 1998 to 9.04 per US$ at June 30, 1998, or 6.2%,
causing the large exchange loss in the second quarter of 1998. The Company
maintains a portfolio of UDI receivables (receivables denominated in an
alternate Mexican currency that is adjusted for inflation on a daily basis) to
help offset the peso devaluation. These inflation adjustments are intended to
offset the long-term effect of the peso devaluation but do not offset the
short-term losses as have occurred during the second quarter of 1998. The amount
of UDI inflation adjustments, which is included under Interest income on
vacation interval receivables was $0.7 million in the second quarter of 1998 as
compared to $0.3 million in the second quarter of 1997. The primary reason the
translation loss was only $0.1 million during the first six months of 1997 was
that the peso decreased minimally in value during the second quarter of 1997
from 7.89 per US$ to 7.96 per US$, or 0.9%.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash for operations from the sale of Vacation
Intervals, financing activities related to the sale of Vacation Intervals,
rental of unsold Vacation Interval units to Starwood (which rental terminates in
August 1998), and from the receipt of service fees charged to Members. With
respect to the sale of Vacation Intervals, the Company generates cash from the
receipt of down payments and payments on account from new Members acquiring
Vacation Intervals. The Company generates profits related to financing of
Vacation Interval sales based on the interest charged on the Vacation Interval
Receivables. At June 30, 1998 approximately (i) 62% of all of the Vacation
Interval Receivables were U.S. dollar denominated and had a weighted average
interest rate of 14.2%, (ii) 29% of all Vacation Interval Receivables were
denominated in UDI's, an obligation denominated in pesos which is adjusted for
Mexican inflation, and had a weighted average interest rate of 8.0%, and (iii)
9% of all Vacation Interval receivables were denominated in pesos and had a
weighted average interest rate of 19.0%.
At July 31, the Company had $105.8 million of debt outstanding as follows:
(i) $100.0 million of 13% Senior Notes due 2004 (the "Senior Notes"), (ii) $3.0
million outstanding under the Company's certain notes outstanding in favor of
Bancomer Sociedad Anonima de Capital Variable, Institucion de Banca Multiple,
Grupo Fianciero ("Bancomer") which bear interest at 11.5% and (iii) $1.0 in 10%
promissory notes due on the earlier of October 31, 1998 and the date the Company
closes an initial public offering of its common stock, and (iv) $1.8 of debt
bearing interest at 10% due September 30, 1998. The amounts under the notes are
due no later than four years from August of 1998. The debt described in clauses
(iii) and (iv) is non-recourse to the registrants and is owed by "Unrestricted
Subsidiaries" (as defined in the indenture governing the senior notes). In
addition to such debt, through an Unrestricted Subsidiary, the Company has
20,775 shares of 10% redeemable convertible preferred stock (the "Raintree
Canada Convertible Preferred"), with a liquidation preference of $100 per share,
outstanding. The Raintree Canada Convertible Preferred accrues dividends at the
rate of 10% per annum, which dividends are required to be paid quarterly
beginning on October 31, 1998. If the Company has not satisfied certain
conditions prior to November 1, 1998 and prior to April 1, 1999, the Raintree
Canada Convertible Preferred will be redeemable by the holders thereof in
installments of $500,000 beginning April 1, 1999, and thereafter quarterly. If
the conditions are met, the Raintree Canada Convertible Preferred will
automatically convert into shares of exchangeable preferred (the "Raintree
Canada Exchangeable Preferred") of Raintree Canada, based on the price of the
Company's Common Stock, if publicly traded. Each share of Raintree Canada
Exchangeable Preferred cannot be transferred and will only be exchangeable for
one share of the Company's Common Stock.
The Company requires funds to finance capital improvements and the
expansion, acquisition and development of vacation ownership resorts and to
finance customer purchases of Vacation Intervals. To finance current capital
improvement programs, including activities at Los Cabos and Cozumel, the Company
intends to rely on cash generated form operations, borrowing capacity to be made
available under a $20.0 million line of credit approved by Bancomer, the
remaining proceeds of the senior notes, and possible additional construction
financing.
11
<PAGE> 14
On April 1, 1998, the Company issued 71,428 shares of Common Stock for
$7.00 per share, for an aggregate of $499,996, to five individuals in a
transaction exempt from registration under Section 4(2) of the Securities Act.
Of these shares, 46,428 were sold for cash and 25,000 were sold for $35,000 in
cash and a non-recourse promissory note for the remaining $140,000. This note
was secured by a pledge of the shares sold.
The Company believes that its current financial position is sufficient to
meet the Company's working capital and capital expenditure needs for the near
future. However, depending upon conditions in the capital markets and other
factors, the Company will, from time to time, consider the issuance of debt,
equity or other securities, the proceeds of which would be used to finance
acquisitions, to refinance debt or for general corporate purposes. The Company
believes that its properties are adequately covered by insurance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From April 1, 1998 through June 30, 1998, the Company issued and sold the
following unregistered securities:
On April 1, 1998, the Company issued 71,428 shares of Common Stock for
$7.00 per share, for an aggregate of $499,996, to five individuals in a
transaction exempt from registration under Section 4(2) of the Securities Act.
Of these shares, 46,428 were sold for cash and 25,000 were sold for $35,000 in
cash and a non-recourse promissory note for the remaining $140,000. This note
was secured by a pledge of the shares sold.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Raintree Resorts International, Inc. held its Annual Meeting of
Shareholders on May 6, 1998. At the Annual Meeting, the Shareholders (i) elected
two directors to hold office until the next annual meeting of Shareholders and
until their respective successors are duly elected and qualified, (ii) ratified
the Board of Directors' approval to amend the Company's certificate of
incorporation to change the name of the Company from Club Regina Resorts, Inc.
to Raintree Resorts International, Inc. and (iii) ratified the selection of
Ernst & Young, LLP as the Company's independent accountants for the fiscal year
ending December 31, 1997. The votes were cast as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
(i) Elect Directors
Christel DeHaan 9,633,107 0
Thomas R. Powers 9,633,107 0
(ii) Name Change
FOR AGAINST ABSTAIN
--- ------- -------
9,633,107 0 0
(iii) Ratify Selection of Independent Accountants
FOR AGAINST ABSTAIN
--- ------- -------
9,633,107 0 0
</TABLE>
ITEM 5. OTHER INFORMATION
None.
13
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits filed as part of this quarterly report.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated as of July 27, 1998, by and among Raintree Resorts
International, Inc., a Nevada corporation, Raintree Resorts Canada, LLC, a Delaware limited
liability company, Raintree Resorts International Canada, Ltd., a British Columbia
corporation, Whiski Jack Resorts Ltd., a British Columbia corporation, Northface Realty Co.
Ltd. a British Columbia corporation, G. B. Properties Ltd., K. B. Ventures Ltd., M. M. & M.
Management Ltd., and Shawndra Enterprises Ltd., N. Kent Bubbs, Patricia J. Bubbs, Geraldine
L. Bubbs and G. Michael McGeough.
4.1 Articles of Raintree Resorts Holdings Ltd. (Canada) dated July 19, 1998.
4.2 Voting Trust, Exchange and Support Agreement, dated as of July 27, 1998, by and among
Raintree Resorts International, Inc., Raintree Resorts International Canada Ltd. and
Raintree Resorts Holdings, ULC.
10.1 Agreement on Opening of Loan Against Current Account with Trust Guarantee, dated July 20,
1998, by and among Bancomer Sociedad Anonima de Capital Variable, Institucion de Banca
Multiple, Grupo Financiero, C.R. Resorts Capital S. de R.L. de C.V., and C.R. Resorts
Puerto Vallarta, Variable Capital Limited Liability Corporation.
10.2 Registration Rights Agreement, dated as of July 27, 1998,
by and among Raintree Resorts International, Inc., a
Nevada corporation, and certain Shareholders thereof.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
The Company filed an initial Current Report on Form 8-K with
respect to a change in its accountants with the Securities and
Exchange Commission on August 3, 1998 and amended it on August 6,
1998.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants, Raintree Resorts International, Inc. and CR Resorts Capital S. de
R.L. de C.V., have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
RAINTREE RESORTS INTERNATIONAL, INC.
Date: August _______, 1998 /s/ George D. Stroesenreuther
--------------------------------------------
George D. Stroesenreuther
Senior Vice President-Finance and Accounting
(Principal Accounting Officer)
CR RESORTS CAPITAL S. DE R. L. DE C.V.
Date: August _______, 1998 /s/ George D. Stroesenreuther
--------------------------------------------
George D. Stroesenreuther
Senior Vice President-Finance and Accounting
(Principal Accounting Officer)
15
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated as of July 27, 1998, by and among Raintree Resorts
International, Inc., a Nevada corporation, Raintree Resorts Canada, LLC, a Delaware limited
liability company, Raintree Resorts International Canada, Ltd., a British Columbia
corporation, Whiski Jack Resorts Ltd., a British Columbia corporation, Northface Realty Co.
Ltd. a British Columbia corporation, G. B. Properties Ltd., K. B. Ventures Ltd., M. M. & M.
Management Ltd., and Shawndra Enterprises Ltd., N. Kent Bubbs, Patricia J. Bubbs, Geraldine
L. Bubbs and G. Michael McGeough.
4.1 Articles of Raintree Resorts Holdings Ltd. (Canada) dated July 19, 1998.
4.2 Voting Trust, Exchange and Support Agreement, dated as of July 27, 1998, by and among
Raintree Resorts International, Inc., Raintree Resorts International Canada Ltd. and
Raintree Resorts Holdings, ULC.
10.1 Agreement on Opening of Loan Against Current Account with Trust Guarantee, dated July 20,
1998, by and among Bancomer Sociedad Anonima de Capital Variable, Institucion de Banca
Multiple, Grupo Financiero, C.R. Resorts Capital S. de R.L. de C.V., and C.R. Resorts
Puerto Vallarta, Variable Capital Limited Liability Corporation.
10.2 Registration Rights Agreement, dated as of July 27, 1998,
by and among Raintree Resorts International, Inc., a
Nevada corporation, and certain Shareholders thereof.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
RAINTREE RESORTS INTERNATIONAL, INC.,
RAINTREE RESORTS CANADA, LLC.,
RAINTREE RESORTS INTERNATIONAL CANADA LTD.,
G. B. PROPERTIES LTD.,
K. B. VENTURES LTD.,
M. M. & M. MANAGEMENT LTD.,
SHAWNDRA ENTERPRISES LTD.,
N. KENT BUBBS,
PATRICIA J. BUBBS,
GERALDINE L. BUBBS,
G. MICHAEL MCGEOUGH,
WHISKI JACK RESORTS LTD.
AND
NORTH FACE REALTY CO. LTD.
JULY 27, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
ARTICLE I DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.3 Construction Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 Purchase and Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Closings, Deliveries and Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 IPO Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Certain Shareholder Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Conditions to Closing the Payment of Bonus and Secondary
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6 Intended Tax and Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF RRC AND SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3 Exchange Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.6 No Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7 Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TARGETS AND SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 No Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Historical Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.8 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Condition and Sufficiency of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.12 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.14 Certain Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.15 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.18 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.19 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.20 Absence of Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.21 Licenses, Permits and Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.22 Absence of Certain Business Practices; Internal Accounting
Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.23 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.24 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.25 No Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.26 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.27 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.28 Labor Relations; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.29 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.30 Board Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.31 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.32 Certain Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.33 Homeownership Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE V PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.2 Taking of Necessary Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Notice of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.5 Confidentiality; Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.6 No Shop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.7 Voting In Favor of the Transactions; No Transfers . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.8 No Assignment of Management Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.9 No Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI TARGET'S CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Dividends and Issuance and Purchase of Securities; Loans . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Governing Documents; Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.5 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.6 Employee Contracts and Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 Prohibited Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.8 Lines of Business and Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.9 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.10 Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.11 No Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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ARTICLE VII POST-INITIAL CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.3 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4 Reformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.5 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Release from Guarantees on Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Updating Parent Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 No Assignment of Management Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.11 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII CONDITIONS TO INITIAL CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Conditions to All Parties' Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.2 RRC and Subsidiary's Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.3 Targets and Sellers' Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX RISK OF LOSS, DESTRUCTION AND CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.2 Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE X TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.1 Indemnification by Targets and the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.2 Indemnification Re: Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3 Indemnification by RRC and Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.4 Notice, Participation and Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.5 Indemnification Threshold and Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.6 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.7 Indemnification of Negligence of Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.8 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII MEDIATION AND ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XIII SECONDARY CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.1 Secondary Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.2 Retirement Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE XIV GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
14.1 Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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14.2 Effect of Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
14.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
14.4 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.6 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.8 Incorporation of Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.10 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
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Exhibits
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Exhibit A Articles of Special Rights and Restrictions
Exhibit B1-3 Employment Agreements
Exhibit C Registration Rights Agreement
Exhibit D Subsidiary Note
Exhibit E Subsidiary Pledge Agreement
Exhibit F Voting Trust, Exchange and Support Agreement
Exhibit G Inventory Letters
Exhibit H Opinion of Ian Reith
Exhibit I Form of Promissory Note
</TABLE>
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THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of
July 27, 1998, is by and among Raintree Resorts International, Inc., a Nevada
corporation ("PARENT"), Raintree Resorts Canada, LLC, a Delaware limited
liability company ("RRC"), Raintree Resorts International Canada, Ltd., a
British Columbia corporation ("SUBSIDIARY"), Whiski Jack Resorts Ltd., a
British Columbia corporation ("WJ TARGET"), Northface Realty Co. Ltd. a British
Columbia corporation ("NR TARGET" and, together with WJ Target, the "TARGETS"),
G. B. Properties Ltd., K. B. Ventures Ltd., M. M. & M. Management Ltd., and
Shawndra Enterprises Ltd. (collectively, "WJ SELLERS"), N. Kent Bubbs, Patricia
J. Bubbs, Geraldine L. Bubbs and G. Michael McGeough (collectively, the
"SHAREHOLDERS" and, together with the WJ Sellers, the "SELLERS").
RECITALS
A. Parent proposes to acquire the Targets indirectly through a
transaction whereby WJ Sellers will sell and Subsidiary will purchase all of
the issued and outstanding common stock, par value C$1.00, of WJ Target ("the
WJ TARGET SHARES"), and whereby the Shareholders will sell and Subsidiary will
purchase all of the issued and outstanding common stock, par value C$1.00, of
NR Target (the "NR TARGET SHARES" and, together with the WJ Target Shares, the
"TARGET SHARES") in exchange for (i) 20,775 shares of the Subsidiary's
Convertible Preferred Stock, no par value (the "CONVERTIBLE PREFERRED"), (ii)
promissory notes in the aggregate amount of US$1,038,755, and (iii) a cash
payment of US$1,038,755.
B. On the date of the initial public offering (the "IPO"), if
any, of shares of the Parent's common stock, par value $.001 ("PARENT COMMON
SHARES"), the Convertible Preferred will be automatically converted into shares
of the Subsidiary's Exchangeable Preferred Stock, no par value (the "SUBSIDIARY
PREFERRED"); provided that if the IPO Date is after March 31, 1999, then
Sellers shall have the option as to whether the Convertible Preferred will be
converted into shares of Subsidiary Preferred.
C. Depending on the earnings multiple used in determining the IPO
Price, the Sellers may receive additional consideration in the form of
additional Subsidiary Preferred and a cash payment.
D. On or before April 30, 1999, Subsidiary will pay to Sellers an
earnout payment, if required, half in cash and half (i) in Subsidiary Preferred
if the IPO has occurred, and (ii) in Convertible Preferred if the IPO has not
occurred.
E. The Subsidiary Preferred will be exchangeable for Parent
Common Shares.
F. The Sellers will receive many benefits from and by the
Ancillary Agreements (as defined) and transactions contemplated hereby and
thereby (the "TRANSACTIONS").
G. The parties wish to set forth their representations,
warranties and agreements and the conditions under which the Transactions will
occur.
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<PAGE> 8
NOW, THEREFORE, in consideration of the premises, the representations,
warranties and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions. The following terms when used in this Agreement
(including all of the Exhibits and Schedules) will have the meanings set forth
below:
"ACCOUNTS RECEIVABLE" means all accounts receivable of Targets, other
than the Timeshare Receivables, that are reflected on the Interim Historical
Balance Sheet or on Targets' accounting records as of the Effective Date.
"ACTUAL EMPLOYEES" means all individuals, including without
limitation, agents or representatives, rendering services to Target(s) as of
the date of this Agreement.
"ADJUSTED MULTIPLE" means the multiple determined (to the fifth
decimal) when solving the following equation for "X"; provided that, if X is
less than zero than X will be equal to zero:
X = (A / B * 0.75) - 11
where A = IPO Price per share
B = 1998 Projected Parent Earnings
Per Share
"AFFILIATE" means with respect to a Person, any other Person that,
directly or indirectly, controls, or is controlled by or under common control
with such Person. For purposes of this definition, control (including the terms
controlled by and under common control with), as used with respect to any
Person, means the power to direct or cause the direction of the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities or by Contract or otherwise.
"AGGREGATE BONUS CONSIDERATION AMOUNT" means the positive amount, if any, in
US$ derived when solving the following equations for "X."
X = (A*B) + ((C-A)*B) + (C-A)*11
where: A = 541,725
B = Adjusted Multiple
C = 1997 Deemed Earnings
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<PAGE> 9
"AGGREGATE PRIMARY CONSIDERATION AMOUNT" equals US$4,155,021.
"AGGREGATE SECONDARY CONSIDERATION AMOUNT" means the amount, if
positive, in U.S. Dollars derived when solving the following equation for "X":
X = 5(1998 Deemed Earnings - 1997 Deemed Earnings)
"ANCILLARY AGREEMENTS" means the Articles of Special Rights and
Restrictions, the Voting Trust, Exchange and Support Agreement, the
Registration Rights Agreement, the Employment Agreements, the Subsidiary Note
and the Subsidiary Pledge Agreement.
"ARTICLES OF SPECIAL RIGHTS AND RESTRICTIONS" means the articles of
special rights and restrictions providing for the attributes of the Subsidiary
Preferred substantially in the form of Exhibit A.
"BALANCE SHEET DATE" is defined in Section 4.6.
"BASE EXCHANGE RATE" means the average closing exchange rate, as
reported in the Wall St. Journal, between the U.S. Dollar and the Canadian
Dollar for the ten Business Days up to and including the fifth Business Day
prior to the Initial Closing.
"BONUS CONSIDERATION SHARES" means the number of shares of Subsidiary
Preferred equal to the quotient of (i) the 1/2 of the Aggregate Bonus
Consideration Amount divided by (ii) the IPO Price.
"BONUS CASH CONSIDERATION" means an amount in US Dollars equal to 1/2
of the Aggregate Bonus Consideration Amount.
"BONUS CLOSING" is defined in Section 2.2(b).
"BONUS CONSIDERATION" is defined in Section 2.2(b).
"BUSINESS" means the business conducted by Target(s).
"BUSINESS DAY" means any day other than a Saturday, Sunday or a legal
holiday under the federal laws of either the United States of America or
Canada.
"CAPITAL EXPENDITURES" means any expenditure for replacement, repair,
improvement or addition to the property which is, in accordance with GAAP, an
expenditure which should be capitalized on Targets' books and records.
"COMMISSIONERS" means all agents, independent contractors and other
third parties that Target(s) hire(s) from time to time to provide a specific
service, including the promotion and sale of timeshare Intervals.
"COMMITMENTS" means subscriptions, options, warrants, calls, rights,
commitments or any other Contracts of any character obligating a Person to
issue any shares of its capital stock
3
<PAGE> 10
or any other securities convertible into, exchangeable or exercisable for, or
evidencing the right to subscribe for, any such shares.
"CONTRACT" means any contract, lease, license, deed of trust,
mortgage, commitment, license, franchise, indenture, note, or other agreement,
instrument or obligation.
"CONTROVERSY" is defined in Section 12.1.
"CONVERTIBLE PREFERRED" is defined in the Recitals.
"CURRENT LIABILITIES" means those liabilities known as "current
liabilities" under GAAP.
"DAMAGES" means all damages, losses (including any diminution in
value), liabilities (joint or several), payments, obligations, penalties,
claims, demands, defenses, judgments, suits, proceedings, costs, disbursements
or expenses (including, without limitation, reasonable and duly documented
fees, disbursements and expenses of attorneys, accountants and other
professional advisors and of expert witnesses and costs of investigation and
preparation) of any kind or nature whatsoever.
"DEFAULT" by any party ("DEFAULTING PARTY") shall include the failure
to consummate the Initial Closing on or before the Termination Date if the
failure to consummate the Initial Closing on or before such date resulted from
the willful and knowing failure by the Defaulting Party to fulfill any
undertaking or commitment provided for herein that is required to be fulfilled
by such Defaulting Party at or prior to Initial Closing; provided that that the
adverse party or parties, ("NON-DEFAULTING PARTY") shall have given written
notice of the undertaking or commitment failed to be properly fulfilled by the
Defaulting Party and permitting the Defaulting Party a 10 Business Day period
in which to fulfill such undertaking or commitment and close the Transactions.
"DELIVERY DATE" is defined in Section 13.1.
"EFFECTIVE TIME" is defined in Section 2.2.
"EMPLOYEES" means the Actual Employees and the Commissioners.
"EMPLOYMENT AGREEMENTS" means the employment agreements substantially
in the form of Exhibits B1 through B3.
"ENFORCEABLE" A Contract is enforceable if it constitutes the legal,
valid and binding obligation of the relevant party to such Contract,
enforceable against such Person in accordance with its terms, subject to
bankruptcy, reorganization, insolvency, and similar laws of general application
relating to or affecting the rights of creditors, and subject to general
principles of equity.
"ENVIRONMENTAL AND SAFETY LAWS" means any and all environmental or
health and safety related Laws, permits, Orders, or determinations of
Governmental Bodies in
4
<PAGE> 11
effect on the Effective Date, in any and all jurisdictions in which the
Property is located or any Target conducts operations and applicable to such
Property or operations.
"EXCHANGE RATE" means the exchange rate of Canadian Dollars for US
Dollars as published by the Wall St. Journal immediately preceding the
measurement date.
"GAAP" means U.S. generally accepted accounting principles
consistently applied.
"GOVERNMENTAL BODY" means any competent court or any federal, state,
provincial, municipal or other governmental department, commission, board,
bureau, agency or other instrumentality, domestic or foreign, in the US,
Canada, or elsewhere.
"HAZARDOUS MATERIAL" means any pollutant, contaminant, toxic
substance, hazardous waste, hazardous substance, special waste or waste of any
kind, deleterious substances, dangerous substances or goods, oil, or petroleum
products as defined in or pursuant to any Environmental or Safety Laws or any
other substance, the storage, manufacture, disposal, treatment, generation, or
use of which is prohibited, controlled, or regulated under Environmental and
Safety Laws.
"HISTORICAL AUDITED STATEMENTS" is defined in Section 4.6.
"HISTORICAL FINANCIAL STATEMENTS" is defined in Section 4.6.
"HISTORICAL UNAUDITED STATEMENTS" is defined in Section 4.6.
"INITIAL BANKER" is defined in Section 13.2.
"INITIAL CLOSING" is defined in Section 2.2(a).
"INITIAL CLOSING DATE" is the date on which the Initial Closing
occurs.
"INTANGIBLES" means all of Targets' rights, if any, to all as built
plans and specifications in the Targets' possession; warranties and guaranties
relating to the Property; original, or where appropriate, copies of all
financial, personnel and other books, records and files relating to the
ownership or operation of the Business wherever located and held by Targets or
their agents, in computer readable form where available without additional cost
or expense; any telephone numbers currently in use by Targets; and all
Intellectual Property used in the operation of the Business.
"INTELLECTUAL PROPERTY" means trademarks, service marks, trade dress,
logos and trade names, together with all goodwill associated therewith and all
registrations, applications, renewals, translations, adaptations, derivations
and combinations thereof, copyrights and copyrightable works and all
registrations, applications and renewals therefor; trade secrets and
confidential information (including, without limitation, ideas, drawings,
specifications, designs, plans, proposals, financial and accounting data,
business and marketing plans, and customer and supplier lists); computer
software; other intellectual property rights; and all copies and tangible
embodiments of the foregoing (in whatever form or medium).
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"INTERIM HISTORICAL BALANCE SHEET" is defined in Section 4.6.
"INTERIM HISTORICAL FINANCIAL STATEMENTS" is defined in Section 4.6.
"IPO" means the initial underwritten public offering of the Parent
Common Shares pursuant to an effective registration statement under the
Securities Act of 1933, as amended.
"IPO DATE" means the date of the closing of the IPO.
"IPO PRICE" means the price to the public for each Parent Common Share
sold in the IPO.
"LAWS" means all laws (common or statutory), statutes, ordinances,
execution orders, rules, regulations and decrees applicable to the referenced
matter.
"LEGAL REQUIREMENTS" means all Laws affecting or in any way relating
to the Targets or their operations, including, without limitation,
Environmental and Safety Laws.
"LIABILITIES" means, as to any Person, any liability, obligation, cost
or expense of any nature whatsoever, whether now known or unknown, asserted or
unasserted, accrued or unaccrued, liquidated, unliquidated or due or to become
due, including, without limitation, any liability in respect of Taxes of any
kind whatsoever that affect such Person or its Subsidiaries or the operation
thereof.
"LIEN" means any lien, mechanic's lien, materialman's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, right of a third
Person to prohibit assignment or transfer of title without such Person's
consent, claim, title imperfection, restrictive covenant, encroachment or other
survey defect, pledge, restriction, security interest or other adverse claim,
whether arising by Contract, under Law or otherwise.
"MANAGEMENT CONTRACTS" is defined in Section 5.8.
"MAJORITY SELLERS" means the holders of a majority of the WJ Target
Shares as of the date hereof or immediately prior to the Initial Closing as
applicable. All actions requiring consent or action of the Majority Sellers
hereunder will be deemed to have been authorized by all Sellers.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a
material adverse effect on or with respect to the business, assets, prospects,
condition (financial or other) or results of operations of such Person and its
subsidiaries, taken as a whole.
"MERGER PROPOSAL" is defined in Section 5.6.
"1997 DEEMED EARNINGS" means the audited pre tax earnings in U.S.
Dollars, including provision for all year-end accounting adjustments consistent
with GAAP, of the Targets on a consolidated and combined basis for the year
ended December 31, 1997 pro forma
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for: (i) a decrease in management fees of C$420,000 (converted to U.S. Dollars
in accordance with GAAP), (ii) income tax expense equal to 34% of such
consolidated pre tax earnings, and (iii) the recognition of goodwill arising
from the Transactions.
"1998 DEEMED EARNINGS" is defined in Section 13.1.
"1998 PROJECTED PARENT EARNINGS PER SHARE" means the projected
earnings per share contained in the Parent Projections.
"NR TARGET" is defined in the Recitals.
"NR TARGET SHARES" is defined in the Recitals.
"ORDER" means any order, injunction, decree of a court or charge of a
Governmental Body.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
generally consistent with past custom and practice (including with respect to
quantity and frequency).
"PARENT" is defined in the introductory paragraph.
"PARENT COMMON SHARES" is defined in the Recitals.
"PARENT PRO FORMA EARNINGS" is defined in Section 5.8.
"PARENT PROJECTIONS" is defined in Section 3.7.
"PAYMENT DATE" is defined in Section 2.2(c).
"PERSON" means an individual, corporation, joint venture, partnership
(limited or general), limited liability company, trust or unincorporated
organization or other entity or Governmental Body.
"PRIMARY CASH CONSIDERATION" is US$1,038,755.
"PRIMARY CONSIDERATION SHARES" is 20,775 shares of Convertible
Preferred.
"PRIMARY NOTE AMOUNT" is US$1,038,755.
"PROCEEDING" means any claim, action, suit, proceeding, formal
complaint, show cause Order or cease and desist Order, arbitration,
adjudication, settlement proceeding, or formal Governmental Body investigation,
in each case, if applicable, whether at equity or at law.
"REFERENCE RATE" is defined in Section 13.1.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement substantially in the form of Exhibit C.
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<PAGE> 14
"RELEASE" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, or on, into, under or from the soil, surface water, ground water or
property.
"REQUISITE REGULATORY APPROVALS" means all permits, approvals,
filings, consents and waivers required to be obtained or made, and all waiting
periods required to expire, before the consummation of the Transactions, as
applicable, under all applicable Laws of any jurisdiction, domestic or foreign,
having jurisdiction over the Transactions.
"SECONDARY CASH CONSIDERATION" means an amount in US Dollars equal to
1/2 of the Aggregate Secondary Consideration Amount.
"SECONDARY CONSIDERATION" is defined in Section 2.2(c).
"SECONDARY CONSIDERATION SHARES" means (i) if the IPO has occurred on
or before the Payment Date, the number of shares of Subsidiary Preferred equal
to the quotient of (A) 1/2 of the Aggregate Secondary Consideration Amount
divided by (B) the average of the average of the high and the low trades of the
Parent Common Shares (as reported in the Wall Street Journal) for each of the
ten trading days up to and including January 31, 1999, and (ii) if the IPO has
not occurred on or before the Payment Date, the number of shares of Convertible
Preferred equal to the quotient of (A) the 1/2 of the Aggregate Secondary
Consideration Amount divided by (B) US$100.
"SECONDARY CONSIDERATION VALUE" is defined in Section 13.2.
"SELLERS" is defined in the introductory paragraph.
"SELLERS' BANKER" is defined in Section 13.2.
"SHAREHOLDER ADVANCE AMOUNT" is US$724,707.
"SHAREHOLDERS" is defined in the introductory paragraph.
"SUBSIDIARY" is defined in the introductory paragraph.
"SUBSIDIARY NOTE" means the Promissory Note substantially in the form
of Exhibit D.
"SUBSIDIARY PLEDGE AGREEMENT" means the Pledge Agreement substantially
in the form of Exhibit E.
"SUBSIDIARY PREFERRED" is defined in the Recitals.
"TARGET PROJECTIONS" means Targets' internal management projections
dated February 14, 1998 relating to each Target's business and operations.
"TARGET SHARES" is defined in the Recitals.
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"TARGET SUBSIDIARY" means any Person of which WJ Target or NR Target
owns a majority of the equity interests, including, without limitation,
including those subsidiaries listed on Schedule 1.1a.
"TARGETS" is defined in the introductory paragraph.
"TAX ACT" is defined in Section 2.6.
"TAX RETURN" shall include any statement, form, return, or other
documents required to be supplied to a taxing authority in connection with
Taxes.
"TAXES" means all taxes, charges, fees, levies, or other assessments,
including without limitation, income, gross receipts, excise, property, sales,
occupation, use, service, license, payroll, franchise, ad valorem, value added,
withholding, social security, national insurance (or other similar
contributions or payments), estimated, severance, transfer, stamp and recording
taxes, fees and charges imposed by any Governmental Body (including any
interest, fines, penalties or additions attributable to, or imposed on or with
respect to, any such taxes or other assessments) whether computed on a
separate, consolidated, unitary, combined or any other basis.
"TERMINATION DATE" means September 30, 1998.
"TIMESHARE INTERVAL" means the right to use, or deeded ownership right
with respect to, a Unit, in each case for one week.
"TIMESHARE RECEIVABLES" means the accounts receivable generated by the
sale of Timeshare Intervals.
"TRANSACTIONS" is defined in the Recitals.
"UNIT" means a single timeshare/vacation ownership unit (whether
studio, one, two or three bedrooms) used by a Timeshare Interval owner as a
residence.
"VOTING TRUST, EXCHANGE AND SUPPORT AGREEMENT" means the voting trust
agreement by and among Parent, Subsidiary and Raintree Resorts Holdings, ULC, a
Nova Scotia unlimited liability company, substantially in the form of Exhibit
F.
"WJ SELLERS" is defined in the introductory paragraph.
"WJ TARGET" is defined in the Recitals.
"WJ TARGET SHARES" is defined in the Recitals.
1.2 Captions. Titles and captions of articles and Sections set
forth in this Agreement are inserted only as a matter of convenience and for
reference, and in no way define, limit, extend or describe the scope of this
Agreement or the meaning of any provision set forth herein.
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<PAGE> 16
1.3 Construction Rules. Unless the context otherwise requires: (a)
an undefined accounting term is defined in accordance with GAAP; (b)
"including" means including without limitation; (c) words in the singular
include the plural and words in the plural include the singular; (d) the words
"herein", "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision; (e) references to agreements and other instruments include
subsequent amendments and waivers unless the subsequent amendment or waiver was
entered into in violation of this Agreement or an Ancillary Agreement; (f) the
singular number shall include the plural; and (g) the gender of any pronoun
shall include the other gender. In addition, this Agreement and the Exhibits
thereto are the result of substantial negotiations among the parties thereto
and each such party has had the opportunity to be represented by qualified
counsel. Accordingly, the fact that counsel for any one party may have drafted
this Agreement is immaterial, and this Agreement will not be strictly construed
against such party.
1.4 Currency. All references in this Agreement to "US$" means
United States dollars and "C$" means Canadian dollars.
ARTICLE II
CONSIDERATION.
2.1 Purchase and Sale of Shares. Upon the terms and subject to the
conditions of this Agreement, Subsidiary agrees to purchase from Sellers at the
Effective Time, and each Seller agrees to sell to Subsidiary at the Effective
Time, the Target Shares in exchange for the consideration set forth in Section
2.2. If the IPO is consummated prior to October 31, 1999, a Bonus Closing will
occur on the IPO Date and each Seller will receive additional consideration.
Lastly, each WJ Seller will receive the Secondary Consideration on or before
the Payment Date. All proceedings to be taken, all payments to have been made
and all documents to be executed and delivered by all parties at each closing
shall be deemed to have been paid, executed and/or delivered simultaneously,
and no proceedings shall be deemed taken, no payments shall be deemed made nor
any documents executed or delivered until all have been taken, paid executed
and delivered.
2.2 Closings, Deliveries and Consideration.
(a) Subject to Article VIII, the initial closing ("INITIAL CLOSING")
of the Transactions shall take place at 9:00 a.m., Vancouver time,
on July 24, 1998, at the offices of Koffman Kalef, 19th Floor, 885
West Georgia Street, Vancouver, B.C., Canada V6C 3H4, or at such
other time or place or such other date as Parent and WJ Target
shall agree (the "INITIAL CLOSING DATE") (12:01 a.m. on this date
is the "EFFECTIVE TIME"). On the Initial Closing Date:
(i) Parent, RRC and/or Subsidiary shall execute (where
necessary) and deliver to Sellers the following:
(A) by checks, the Primary Cash Consideration allocated in
the percentages set forth in Schedule 2.2.
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(B) promissory notes of Subsidiary allocating the Primary
Note Amount in the percentages set forth in
Schedule 2.2.
(C) certificates representing the Primary Consideration
Shares allocated in the percentages as set forth in
Schedule 2.2.
(D) the Articles of Special Rights and Restrictions.
(E) the Voting Trust, Exchange and Support Agreement.
(F) the Registration Rights Agreement.
(G) the Employment Agreements.
(H) the Subsidiary Pledge Agreement.
(ii) The Targets and/or Sellers shall execute (where necessary)
and deliver to Parent, RRC or Subsidiary the following:
(A) the WJ Target Shares.
(B) the NR Target Common Shares.
(C) the Registration Rights Agreement.
(D) the Employment Agreements.
(iii) In lieu of fractional shares, Subsidiary shall pay in cash
to each Seller who otherwise would be entitled to receive a
fraction of a Convertible Share an amount equal to such
fraction times U.S.$100. Upon the exchange referred to in the
preceding paragraphs, each Seller shall cease to be a holder,
shall have his or her name removed from the register of
holders of Target Shares, and shall become a holder of a
number of fully paid Primary Consideration Shares, and shall
receive the Primary Cash Consideration and, if applicable,
the amount of the Subsidiary Note to which he or she is
entitled as above described, and such Person's name shall be
added to the register of holders of Primary Consideration
Shares.
(b) Subject to Section 2.5, the closing (the "BONUS CLOSING"), if any,
of the payment of the Bonus Consideration shall take place at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 711
Louisiana Street, Pennzoil Place South Tower on the IPO Date or at
such other time or place or such other date as Parent and Majority
Sellers shall agree (the "BONUS CLOSING DATE"); provided, that if
the IPO does not close prior to October 31, 1999, then no Bonus
Closing will occur and no Bonus Consideration shall be due. On
the Bonus Closing Date, RRC and/or Subsidiary shall deliver to
Sellers the following (the "BONUS CONSIDERATION"):
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(i) by checks, the Bonus Cash Consideration allocated in the
percentages set forth in Schedule 2.2.
(ii) certificates representing the Bonus Consideration Shares
allocated in the percentages set forth in Schedule 2.2.
(iii) In lieu of fractional shares, Subsidiary shall pay in cash
to each Seller who otherwise would be entitled to receive
a fraction of a Bonus Consideration Share an amount equal
to such fraction times the IPO Price.
(c) Subject to Section 2.5, the closing (the "SECOND CLOSING") of the
payment of the Secondary Consideration shall take place at 9:00
a.m., Vancouver time on the earlier of (i) 30 days after Parent's
auditors have delivered a signed audit report to Parent with
respect to its financial statements for the year ended December
31, 1998, and (ii) April 30, 1999 (the "PAYMENT DATE"), or at such
other time or such date as Parent and Majority Sellers shall
agree. On or before the Payment Date, Parent or Subsidiary shall
deliver to Sellers the following (the "SECONDARY CONSIDERATION"):
(i) by checks, the Secondary Cash Consideration allocated in
the percentages set forth in Schedule 2.2.
(ii) certificates representing the Secondary Consideration
Shares allocated in the percentages set forth in Schedule
2.2.
(iii) In lieu of fractional shares, Subsidiary shall pay in cash
to each Seller who otherwise would be entitled to receive
a fraction of a Secondary Consideration Share an amount
equal to such fraction times as applicable (i) U.S.$100 or
(ii) an amount derived under clause (i) of the definition
of Secondary Consideration Shares.
2.3 IPO Contingencies. If the IPO takes place, Parent shall notify
each Seller of such event 10 business days prior to the initial filing of a
registration statement with respect thereto and within 5 business days of such
notice each Seller will decide whether to exercise the option hereby granted to
receive shares of Subsidiary Preferred based on the "price to public" in the
IPO (with fractions being paid in cash) in lieu of the principal and interest
due and owing to such Seller under the promissory note reflecting such Seller's
allocation of the Primary Note Amount.
2.4 Certain Shareholder Advances. At the Initial Closing,
Subsidiary will cause Whiski Jack to deliver to the respective Shareholders (i)
the Shareholder Advance Amount in cash and (ii) promissory notes in the form of
Exhibit I in the amount of $1,803,954 in repayment of certain loans to WJ to be
repaid out of operating cash or the proceeds of financings, as delineated on
Schedule 2.4.
2.5 Conditions to Closing the Payment of Bonus and Secondary
Consideration. The obligations of RRC and Subsidiary to make the payments
described in Section 2.2(b) shall be
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<PAGE> 19
subject to the fulfillment of the condition that no Order and no other legal
restraint or prohibition that would prevent or have the effect of preventing
the consummation of the Bonus Closing shall be in effect. The obligations of
RRC and Subsidiary to make the payments described in Section 2.2(c) shall be
subject to the fulfillment of the condition that no Order and no other legal
restraint or prohibition that would prevent or have the effect of preventing
the consummation of the Second Closing shall be in effect.
2.6 Intended Tax and Accounting Treatment. At the request of a
Seller the Subsidiary will execute a joint income tax election pursuant to
subsection 85(1) of the Income Tax Act (Canada) (the "TAX ACT") with such
Seller and in respect of the purchase and sale of such Seller's Target Shares
as herein contemplated. Seller shall be solely responsible for the accuracy of
the information provided in such tax election and for the making of a timely
filing of such tax election pursuant to subsection 85(6) of the Tax Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RRC AND SUBSIDIARY
RRC and Subsidiary, jointly and severally, represent and warrant to
each Seller as follows:
3.1 Organization and Good Standing. Parent, RRC and Subsidiary are
entities duly organized, validly existing and in good standing under the laws
of their jurisdiction of incorporation. On or before the Initial Closing,
Parent and Subsidiary will have delivered or made available to WJ Target
complete and correct copies of their Articles of Incorporation and Bylaws, or
similar organizational documents, as amended and in effect on the date of this
Agreement, and of all minutes and consents relating to shareholder and director
approval of the Transactions.
3.2 Capital Structure. The authorized capital stock of Parent
consists of 50,000,000 shares of capital stock (5,000,000 shares of preferred
stock and 45,000,000 Parent Common Shares) of which 10,772,428 Parent Common
Shares, 37,500 shares of Class A Preferred Stock and, as of the Initial
Closing, one share of Class B Preferred Stock are outstanding. In addition,
Parent has options and warrants to purchase 2,919,391 Parent Common Shares at a
weighted average purchase price of U.S.$2.26 outstanding. The authorized
capital stock of Subsidiary consists of 3,000,000 shares of capital stock
(comprised of 1,000,000 shares of Convertible Preferred, 1,000,000 shares of
Subsidiary Preferred and 1,000,000 shares Subsidiary Common Stock) of which 100
shares of Subsidiary Common Stock are outstanding.
3.3 Exchange Shares. Upon issuance and payment therefor as
contemplated hereby, the Primary Consideration Shares and, if any, any
additional Convertible Preferred issued pursuant to Section 2.2(b)(ii) and the
Secondary Consideration Shares will be duly authorized, validly issued, fully
paid, non-assessable and the issuance thereof will not be subject to preemptive
rights or any other Commitments, except as contemplated by Voting Trust,
Exchange and Support Agreement and the Articles of Special Rights and
Restrictions. Each Parent Common Share to be issued upon exchange of the shares
of Subsidiary Preferred will be duly authorized, validly issued, fully paid,
non-assessable and will not be subject to preemptive rights
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<PAGE> 20
or any other Commitments. Parent has reserved a sufficient number of shares of
Parent Common Stock for issuance such that it will be able to issue Parent
Common Stock in exchange for the Exchange Shares as contemplated hereby.
3.4 Authorization and Validity. Parent, RRC and Subsidiary have
the corporate or LLC power and authority to enter into this Agreement and the
Ancillary Agreements and, subject to obtaining all Requisite Regulatory
Approvals referenced in Section 3.6, to carry out their obligations hereunder
and thereunder. Each of the execution, delivery and performance by Parent, RRC
and Subsidiary of this Agreement and the Ancillary Agreements has been duly
authorized by all requisite corporate action. This Agreement and the Ancillary
Agreements are or will be Enforceable against Parent, RRC, Subsidiary and
Raintree Resorts Holdings, ULC, a Nova Scotia unlimited liability company, as
the case may be.
3.5 No Conflicts. Except as set forth in Schedule 3.6, and
assuming the receipt of all Requisite Regulatory Approvals referenced in
Section 3.6, the execution, delivery and performance by Parent, RRC and
Subsidiary of this Agreement and the Ancillary Agreements to which they, as
applicable, are party and the consummation of the Transactions will not
conflict with, or result in any violation of or default or loss of any benefit
under, any provision of the certificate of incorporation or bylaws of Parent or
Subsidiary (or organization documents of RRC), as the case may be, or any
Contract to which Parent, RRC and/or Subsidiary is a party or of any permit,
concession, grant, franchise, license, judgment, Order or Law applicable to
Parent, RRC or Subsidiary as of the date of this Agreement, other than any
conflict, violation, default or loss that would not reasonably be expected to
have Material Adverse Effect on Parent after giving effect to the Transactions.
3.6 No Governmental Approvals. No Requisite Regulatory Approval is
required on the part of either Parent, RRC or Subsidiary in connection with the
execution and delivery by Parent, RRC or Subsidiary, as the case may be, of
this Agreement or the Ancillary Agreements or the consummation by Parent, RRC
or Subsidiary, as applicable, of the Transactions, except for (a) those set
forth on Schedule 3.6 and (b) any Requisite Regulatory Approval that, if not
obtained, would not reasonably be expected to have a Material Adverse Effect on
Parent after giving effect to the Transactions.
3.7 Projections. Parent has delivered its projections for the year
ended December 31, 1998 to the Sellers (as updated pursuant to Section 7.8, the
"PARENT PROJECTIONS"). Parent is not aware of any facts or circumstances which
(i) would render the Parent Projections inaccurate, or (ii) are inconsistent
with the assumptions used in preparing the Parent Projections. Each set of
Parent Projections are substantially identical to the projections most recently
delivered to the lead underwriters for the IPO. Each Target and Seller
acknowledges that actual results may vary materially from the Projections.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF TARGETS AND SELLERS
References to Targets in this Article IV include the Targets and the
Target Subsidiaries where applicable. Each Target, WJ Seller and Shareholder,
jointly and severally, represents and warrants to RRC and Subsidiary as
follows:
4.1 Organization and Good Standing. Each Target, each Target
Subsidiary and each WJ Seller is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has all
requisite power and authority to own, lease and operate all properties and
assets it now owns, leases or operates and to carry on its business as
currently conducted. Each Target and each WJ Seller has delivered or made
available to Parent complete and correct copies of its Articles of
Incorporation and Bylaws, or similar organizational documents, as amended and
in effect to the date of this Agreement, and all minutes and consents relating
to shareholder and director action taken from the inception of each Target and
each Target Subsidiary to the date of this Agreement. Each Target and each
Target Subsidiary is duly qualified to conduct business in the jurisdictions
set forth on Schedule 4.1, which jurisdictions comprise all such jurisdictions
in which the nature of its business requires qualification.
4.2 Capitalization. There are four WJ Target Shares and four NR
Target Shares issued and outstanding. All of such outstanding shares of stock
and all shares of Target Subsidiaries' capital stock are duly authorized,
validly issued, fully paid and nonassessable. Each Target has no capital stock
outstanding other than the Target Shares. WJ Target owns all of the issued and
outstanding capital stock of the Target Subsidiaries. NR Target has no
subsidiaries. Each Seller holding Target Shares owns its respective Target
Shares free and clear of all Liens, and has the unrestricted right to vote such
shares in favor of the Transactions. The Transactions will cause no Lien to be
placed on the Target Shares other than as directly caused by Parent, RRC or
Subsidiary. As of the date of this Agreement, there are no Commitments or
preemptive rights with respect to any Target or any Target Subsidiaries'
capital stock. There are no voting trusts, shareholder agreements or other
Contracts with respect to the voting, transfer or ownership of either Target or
any Target Subsidiaries' capital stock.
4.3 Authorization and Validity.
(a) Each Target and each WJ Seller has all requisite power and
authority to enter into this Agreement and the Ancillary Agreements to which it
is party and, subject to obtaining all Requisite Regulatory Approvals
referenced in Section 4.4, to carry out its obligations hereunder and
thereunder. Each of the execution, delivery and performance by each Target and
each WJ Seller of this Agreement and the Ancillary Agreements to which it is a
party has been duly authorized by all requisite action. This Agreement and any
Ancillary Agreements to which any Target and each WJ Seller is party are
Enforceable against each such Target and WJ Seller.
(b) Each Shareholder (i) has the power, authority and capacity to
enter into and carry out his or her obligations hereunder and under the
Ancillary Agreements to which he or she is a party; and (ii) has duly executed
and delivered this Agreement and the Ancillary Agreements to
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which he or she is a party. This Agreement and each Ancillary Agreement to
which the applicable Shareholder is a party is Enforceable against such
Shareholder.
4.4 No Governmental Approvals. No Requisite Regulatory Approval is
required on the part of any Target or any Seller in connection with the
execution and delivery by Targets and the Sellers of this Agreement or any
Ancillary Agreement or the consummation of the Transactions, except for the
compliance with the Requisite Regulatory Approvals set forth on Schedule 4.4.
4.5 No Conflicts. Except as set forth in Schedule 4.5, and
assuming the receipt of all Requisite Regulatory Approvals referenced in
Section 4.4, the execution, delivery and performance by each Target and each
Seller of this Agreement and the Ancillary Agreements and the consummation of
the Transactions will not conflict with, or result in any violation of or
default or loss of any benefit under, any provision of the certificate of
incorporation or bylaws of any Target, or any Contract listed on Schedule 4.5
or of any permit, concession, grant, franchise, license, judgment, Order or Law
applicable to any Target or any Seller (or, as applicable, any Seller's Target
Shares) as of the date of this Agreement.
4.6 Historical Financial Statements. WJ Target has delivered to
Parent (i) audited combined balance sheets of WJ Target (on a consolidated
basis) and NR Target as at December 31 and for the year ended December 31, 1997
and the related audited consolidated combined statements of income, changes in
stockholders' equity and cash flows for the fiscal year then ended, together
with the report thereon of Ernest & Young, L.L.P., independent certified public
accountants, including the notes thereto (the "HISTORICAL AUDITED STATEMENTS")
(ii) unaudited balance sheets of WJ Target (on a consolidated basis) and NR
Target as of December 31, 1995 and 1996 and the respective related unaudited
consolidated combined statements of income, changes in stockholders' equity and
cash flows for each of the fiscal years then ended including the notes thereto
(the "HISTORICAL UNAUDITED STATEMENTS") and (iii) an unaudited combined balance
sheet (the "INTERIM HISTORICAL BALANCE SHEET") of WJ Target (on a consolidated
basis) and NR Target as at March 31, 1998 (the "BALANCE SHEET DATE") and March
31, 1997 and the related unaudited consolidated combined statements of income,
changes in stockholders' equity and cash flow for each of the three months then
ended (the "INTERIM HISTORICAL FINANCIAL STATEMENTS" and, together with the
Historical Audited Statements and the Historical Unaudited Statements, the
"HISTORICAL FINANCIAL STATEMENTS"). The Historical Financial Statements and
notes have been prepared in accordance with GAAP and present fairly and
accurately the financial position and results of operations of Targets as of
the dates of such statements and for the periods covered thereby, subject in
the case of the Interim Historical Financial Statements to normal recurring
year-end adjustments. Except as set forth on Schedule 4.6:
(a) there have been no write-ups of inventories or other assets;
and
(b) Targets' books and records of accounts have been kept
accurately in the Ordinary Course of Business, the transactions entered therein
represent bona fide transactions, and the
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revenues, expenses, assets and Liabilities of Targets have been properly and
timely recorded in such books.
4.7 Projections. WJ Target has previously delivered the Target
Projections to Parent. Except as set forth on Schedule 4.7, WJ Target is not
aware of any facts or circumstances which (i) would render the Target
Projections inaccurate, or (ii) are inconsistent with the assumptions used in
preparing the Target Projections. Parent, RRC and Subsidiary acknowledge that
actual results may vary materially from the Target Projections.
4.8 Absence of Undisclosed Liabilities. Except as contemplated by
this Agreement or as set forth on Schedule 4.8, no Target is subject to any
Liabilities other than those set forth or adequately reserved against in the
Interim Historical Financial Statements or those incurred since the Balance
Sheet Date in the Ordinary Course of Business.
4.9 Title to Properties; Liens. Schedule 4.9 contains a complete
and accurate list of all real property, leaseholds, or other interests therein
that Targets own. Each Target has delivered or made available to Parent copies
of the deeds and other instruments (as recorded) by which each Target acquired
such real property and interests, and copies of all title insurance policies,
if any, opinions, abstracts, and surveys relating to such property or
interests. Each Target owns with good, indefeasible and marketable title all
the properties and assets (whether real, personal, or mixed and whether
tangible or intangible) that it purports to own, or reflected as owned in the
books and records of Targets, including all of the properties and assets
reflected in the Interim Historical Balance Sheet and all of the properties and
assets purchased or otherwise acquired by each Target since the Balance Sheet
Date, which subsequently purchased or acquired properties and assets are listed
on Schedule 4.9. Except as set forth on Schedule 4.9, all properties and assets
reflected in the Interim Historical Balance Sheet are free and clear of all
Liens and are not, in the case of real property, subject to any rights of way,
building use restrictions, exceptions, variances, reservations, or limitations
of any nature except, with respect to all such properties and assets, (a)
mortgages or security interests shown on the Interim Historical Balance Sheet
as securing specified liabilities or obligations, with respect to which no
default (and/or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) mortgages or security interests incurred in
connection with the purchase of property or assets after the Balance Sheet Date
(such mortgages and security interests being limited to the property or assets
so acquired), with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (c) Liens for
current taxes not yet due, and (d) with respect to real property, (i) minor
imperfections in title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of the any Target, and (ii) zoning laws and
other land use restrictions that do not impair the present or anticipated use
of the property subject thereto. All buildings, facilities, and structures
owned by each Target lie wholly within the boundaries of real property owned by
each Target and do not encroach upon the property of, or otherwise conflict
with the property rights of, any other Person.
4.10 Condition and Sufficiency of Assets. Targets' Units and/or
other assets are structurally sound, are in good operating condition and
repair, and are adequate for the uses to
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which they are being put, and none of such Units, or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs,
and have available to them sufficient utilities to conduct the Business as
currently conducted. Targets' Units and/or assets are sufficient for the
continued conduct of the Business after the Initial Closing in substantially
the same manner as conducted prior to the Initial Closing.
4.11 Accounts Receivable. All Accounts Receivable and the Timeshare
Receivables represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of
Business. Unless paid prior to the Effective Date, the Accounts Receivable and
Timeshare Receivables are or will be as of the Effective Date current and
collectable net of the respective reserves shown on the Interim Historical
Balance Sheet or on the accounting records of the Targets as of the Effective
Date (which reserves are adequate and calculated consistent with past practice
and, in the case of the reserve as of the Effective Date, will not represent a
greater percentage of the Accounts Receivable and Timeshare Receivables as of
the Effective Date than the reserves reflected in the Interim Historical
Balance Sheet represented of the Accounts Receivable and Timeshare Receivables
reflected therein and will not represent an adverse change in the composition
of such Account Receivable and Timeshare Receivables in terms of quality or
aging). Subject to such reserves, each Account Receivable and Timeshare
Receivable, either has been or will be collected in full, without any set-off,
(i) in the case of the Accounts Receivable, within 120 days after the day on
which it first became due and payable and (ii) in the case of each Timeshare
Receivable, in accordance with the payment schedules contemplated thereby.
There is no contest, claim, or right of set-off, other than returns in the
Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable or Timeshare Receivable relating to the amount or validity of such
Accounts Receivable or Timeshare Receivable. Schedule 4.11 contains a complete
and accurate list of all Accounts Receivable and Timeshare Receivables as of
the date of the Interim Historical Balance Sheet, which list sets forth the
aging of such Accounts Receivable and Timeshare Receivables.
4.12 Inventory. Except as set forth on Schedule 4.12, all inventory
of the Targets, whether or not reflected in the Interim Historical Balance
Sheet, including WJ Target's Units, consists of a quality usable and salable in
the Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Interim Historical Balance Sheet or on the
accounting records of Targets as of the Effective Date, as the case may be. All
inventories not written off have been priced at the lower of cost or market
value.
4.13 Insurance. Schedule 4.13 sets forth a list of all insurance
policies to which any Target is a party or under which any Target, any director
or officer of any Target, or any Seller is or has been covered at any time from
inception of operations. Such insurance is in an amount and with a scope of
coverage that is consistent with industry standards. Complete copies of all
such policies have been delivered to Parent. All such policies are in full
force and effect. No Target nor any Seller has received notice from any
insurance carrier of such carrier's intention to discontinue any insurance
coverage.
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4.14 Certain Proceedings. Except as set forth in Schedule 4.14,
there is no pending Proceeding (a) that has been commenced by or against any
Target or that otherwise relates to or may affect the business of, or any of
the assets Targets use or own, or (b) that challenges, or that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
the Transactions. To the Sellers and Targets' knowledge, (1) no such Proceeding
has been threatened, and (2) no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such
Proceeding. Each Target has delivered to Parent copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed on
Schedule 4.14. The Proceedings listed on Schedule 4.14 are not, either
individually or in the aggregate, reasonably expected to have a Material
Adverse Effect on any Target.
4.15 Compliance with Laws.
(a) Except as set forth in Schedule 4.15, and except with respect
to the matters addressed by Section 4.16, each Target's businesses have been
conducted in compliance with all Laws (including those relating to (i) licenses
and permits for the ownership, occupancy and operation of its properties and
(ii) trust and other obligations imposed by the British Columbia Financial
Institutions Commission). Except as disclosed in Schedule 4.15, as of the date
of this Agreement, no investigation or review by any Governmental Body
(including any audit or similar review by any federal, state or local taxing
authority) with respect to any Target or any of its respective properties is
pending or, to the Sellers or Targets' knowledge, threatened.
(b) Without limiting Section 4.15(a), (i) each Target or Affiliate
thereof has conducted the marketing, offering and sales of Timeshare Intervals
in compliance with all applicable securities laws, rules and regulations of
each jurisdiction in which its business is carried on and (ii) no securities
regulatory authority in any jurisdiction where each Target or Affiliate thereof
carries on its business has commenced an action or issued any order against
either the Target or Affiliate thereof.
4.16 Environmental Matters. Specifically, without limiting the
representations contained in Section 4.15, and except as set forth in Schedule
4.16, as of the date of this Agreement:
(a) Each Target has complied, and is in compliance, with all
Environmental and Safety Laws. There is no Proceeding now pending or, to the
Sellers or Targets' knowledge, threatened, against or affecting any Target (i)
for any Target's noncompliance with any Environmental and Safety Law or (ii)
relating to any Target's (or any predecessor to any of Targets') businesses or
assets of any Hazardous Material whether or not occurring at or on or being
released from a site owned, leased or operated by any Target or such
predecessor.
(b) No Target has Liability arising out of or resulting from the
Release, whether on or off its own premises or the Units it has sold itself or
through other Persons, of any Hazardous Material.
(c) There are no unpaid citations, fines or penalties previously
assessed against any Target under any Environmental and Safety Law, nor has any
Target or any Seller received any
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notices or any other communications from any Governmental Body with respect to
any violations or alleged violations of, or potential Liability under, any
Environmental and Safety Law.
(d) Each Target has obtained all permits required by any
Environmental and Safety Law and all such permits are in good standing and in
full force and effect and each Target is in compliance with all terms and
conditions of such permits.
4.17 Taxes. Except as set forth on Schedule 4.17,
(a) All Tax Returns required to be filed on or before the
Effective Date by the Targets have been or will be filed within the time
prescribed by Law (including extensions of time approved by the appropriate
taxing authority).
(b) The Tax Returns so filed are complete and accurate
representations of each Target's Tax Liabilities and such Tax Returns
accurately set forth or will accurately set forth all items to the extent
required to be reflected or included in such returns.
(c) Each Target has paid or has made adequate provision in the
Interim Historical Balance Sheet for the payment of all Taxes shown due on such
Tax Returns that have been filed or will be filed for periods ending on or
before December 31, 1997.
(d) There is no investigation, audit, or claim pending with
respect to any Target regarding any Tax.
(e) Each Target has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
Employee, creditor, or other Person.
(f) No Target has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(g) Each Target has made available to Parent correct and complete
copies of all Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by each Target for all taxable periods beginning
from inception and ending before January 1, 1998.
(h) The Targets and each Target Subsidiary are registered pursuant
to Subdivision d of Division V of Part IX of the Excise Tax Act (Canada).
(i) There are no outstanding and unpaid amounts for which the
Targets or any Target Subsidiary have previously claimed a deduction under the
Tax Act.
(j) None of the Shareholders are aware of any contingent tax
liability of the Targets or any Target Subsidiary or of any grounds which would
prompt a reassessment of the Targets or any Target Subsidiary, including
aggressive treatment of income and expenses in filing earlier Tax Returns.
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4.18 Intellectual Property. Schedule 4.18 contains a list of all
Intellectual Property owned by, issued to, licensed by or used by each Target.
The Intellectual Property listed on Schedule 4.18 comprises all Intellectual
Property necessary to conduct the business currently conducted by each Target.
Each Target owns or has Enforceable rights to use of all of such Intellectual
Property, without any known conflict with the rights of others. No Target has
granted any outstanding licenses or other rights, and has no obligations to
grant licenses or other rights, under any of such Intellectual Property. No
Target has received any notice of infringement of or conflict with (and the
Sellers and the Targets know of no such infringement of or conflict with)
asserted rights of others with respect to any such Intellectual Property which,
individually or in the aggregate, is reasonably likely to result in any
Material Adverse Effect upon any Target; and, to the knowledge of the Sellers
and the Targets, each Target, in the conduct of its business as currently
conducted, does not infringe or conflict with any right of any third Person,
where such infringement or conflict is reasonably likely to result in any
Material Adverse Effect upon any Target.
4.19 Contracts. Schedule 4.19 sets forth all Contracts to which any
Target is a party or to which any of its business or Properties is subject and
which provide for monthly payments exceeding C$3,000 and which are not
terminable by such Target by written notice of 30 days or less without penalty
or additional cost. All of such Contracts have not been amended or supplemented
in any manner except as disclosed on Schedule 4.19 and are Enforceable by the
respective Target. Except as disclosed on Schedule 4.19, there are no defaults
by any Target under any Contracts to which any Target is a party or to which
any of its business or properties is subject and, to the Sellers and Targets'
knowledge, there are no defaults by any other party, and no event has occurred
that with the lapse of time or action or inaction by any party thereto would
result in a violation or a default. The consummation of the Transactions will
impair none of the rights thereunder, and all such rights will inure to and be
Enforceable by the respective Target after the Initial Closing without the
consent, permit of, or filing with, any other Person.
4.20 Absence of Changes or Events. Except as set forth on Schedule
4.20, since the Balance Sheet Date, the Targets have operated their businesses
in the Ordinary Course of Business and have not, collectively or singularly:
(a) incurred any Liability, except for Liabilities incurred in the
Ordinary Course of Business, which do not exceed C$20,000 individually or
C$50,000 in the aggregate;
(b) created or permitted to be created any Lien on any of its
assets;
(c) sold, transferred, leased to or otherwise disposed of any of
its assets, except for inventory sold in the Ordinary Course of Business which
does not exceed C$10,000 individually or C$50,000 in the aggregate, or canceled
or compromised any debt or claim, or waived or released any right except in the
Ordinary Course of Business which do not exceed C$10,000 individually or
C$25,000 in the aggregate;
(d) suffered any damage, destruction or casualty loss (whether or
not covered by insurance);
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(e) encountered any labor union organizing activity, had any
actual or threatened Employee strikes, work stoppages, slowdowns or lockouts,
or had any adverse change in their relations with any of the Employees, agents,
customers or suppliers;
(f) instituted, settled or agreed to settle any Proceeding;
(g) entered into any transaction or Contract other than in the
Ordinary Course of Business and except for this Agreement and the Ancillary
Agreements;
(h) amended, modified or terminated any Contract except in the
Ordinary Course of Business;
(i) made any increase in the compensation payable or to become
payable, or any increase in benefits or benefit plan costs, or any increase in
bonus, insurance, pension, compensation or other benefit plans, in each case,
with respect to its Employees;
(j) any declaration, setting aside or payment of any dividend or
other distribution with respect to any Target's capital stock;
(k) any change by any Target in its accounting methods practices
or principles;
(l) any writing down or writing off of the value of any assets
other than in the Ordinary Course of Business;
(m) entered into any agreement or made any commitment to take any
of the types of action described in subparagraphs (a) through (l) above; or
(n) suffered any event or experience which has had, or with the
passage of time could reasonably be expected to have, a Material Adverse Effect
on any Target.
4.21 Licenses, Permits and Tariffs. Each Target possesses all the
licenses and permits listed in Schedule 4.21, copies of all of which have been
made available to Parent. Such licenses and permits constitute all the licenses
and permits necessary under Law for the Targets to conduct their businesses as
now conducted and the Transactions shall not effect such permits, validity or
effectiveness. Each of such licenses and permits and the rights with respect
thereto are valid and subsisting and in full force and effect. Each Target is
in substantial compliance with the terms of such licenses and permits. No such
license or permit has been, or, to the Sellers and the Targets' knowledge, is
threatened to be, revoked, canceled, suspended or modified. Upon consummation
of the Transactions, each Target will continue to have all licenses and permits
necessary to operate its Business. Without limiting the generality of the
foregoing, NR Target: is in good standing with the Real Estate Council of
British Columbia and there are no Proceedings now pending or, to the Sellers or
Targets' knowledge, threatened, against or which may affect NR Target carrying
on as a real estate agency in British Columbia. The agent nominee of NR Target
has not given notice of the intention to terminate acting as agent nominee for
NR Target.
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4.22 Absence of Certain Business Practices; Internal Accounting
Controls.
(a) Each Target, as well as the directors, officers, employees and
agents of each Target, the Sellers, and all other Persons acting on their
behalf, have complied with lawful and ethical business practices, and have not
undertaken any action which (i) would have a Material Adverse Effect on any
Target, or (ii) would have a Material Adverse Effect on the representations,
warrants, covenants and obligations contained herein.
(b) Each Target maintains a system of internal accounting controls
sufficient to provide that: (i) transactions are executed in accordance with
management's general or specific authorization; and (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets.
4.23 Customers and Suppliers. Schedule 4.23 sets forth a summary of
each Target's relationship with its five largest suppliers (based on the volume
of purchases) for each of the years ended December 31, 1995, 1996 and 1997 and
for the interim period ending on the Balance Sheet Date. Since the Balance
Sheet Date, there has not been any change in the business relationship with any
customer or supplier identified in Schedule 4.23 that would have a Material
Adverse Effect on any Target. Except as set forth in Schedule 4.23, no Target
has received notice of any intention by any Target's customers or suppliers
involving payments and obligations in the aggregate of C$3,000 per month to
cease doing business with any Target.
4.24 Bank Accounts. Schedule 4.24 contains a true and correct list
of the names of each bank, savings and loan or other financial institution in
which each Target has an account, including cash contribution accounts, money
market accounts, safe deposit boxes, certificates of deposits and lock box
arrangements, and the names of all Persons authorized to draw thereon or to
have access thereto.
4.25 No Broker. No Target has incurred any Liability for brokerage
or finders' fees or agents' commissions or other similar payment in connection
with this Agreement or the Transactions.
4.26 Interested Party Transactions. Except as set forth in Schedule
4.26, no Seller, nor officer or director of any Target or any WJ Seller, nor
any Affiliate of any such Person has had, either directly or indirectly, an
interest in (a) any Person which purchases from or sells, licenses or furnishes
to any Target any goods, property, technology or intellectual or other property
rights or services or (b) any Contract to which any Target is a party or by
which it or its assets may be bound or affected.
4.27 Employees.
(a) Schedule 4.27 contains, for each of the specified categories,
a current, complete and accurate itemized list of information for each category
of each Target's Employees and directors, including Employees on leave of
absence or layoff status; compensation paid or payable, vacation days per year,
eligibility to participate under any benefit plans, pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus, stock
option, cash
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bonus, employee stock ownerships (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
employee pension benefit plan or employee welfare benefit plan, or any other
employee benefit plan or any director plan each Target maintains.
(b) No Seller, nor any Employee or director of any Target is a
party to, or is otherwise bound by, any Contract, including any
confidentiality, noncompetition, or proprietary rights Contract, between such
Seller, Employee or director and any other Person that in any way adversely
affects or will affect (i) the performance of his duties as an employee or
director, or (ii) any Target's ability to conduct its business. To the Sellers
and Targets' knowledge, no director, officer or other key employee of any
Target intends to terminate his employment with such Target.
(c) Schedule 4.27 also contains a complete and accurate list of
the following information for each retired Employee or director (or their
dependents) of each Target, receiving benefits or scheduled to receive benefits
in the future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
4.28 Labor Relations; Compliance. To the Sellers and Targets'
knowledge, all applicable labor relations and/or obligations within the scope
of this Agreement, and in particular, labor relations dealing with any Target,
shall be construed and subject to applicable Canadian Labor Law. Except as set
forth on Schedule 4.28, since their respective inceptions no Target has been
nor currently is a party to any collective bargaining or other labor contract.
Since their respective inceptions, there has not been, there is not currently
pending or existing, and to the Sellers and Targets' knowledge there is not
threatened, (a) any strike, slowdown, picketing, work stoppage, or Employee
grievance process; (b) any Proceeding against or affecting any Target relating
to the alleged violation of any Law pertaining to labor relations or employment
matters, organizational activity, or other labor or employment dispute against
or affecting any of Targets or their premises; or (c) any application for
certification of a collective bargaining agent, which may have a Material
Adverse Effect on any Target or the Transactions. No event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any Employees by any Target, and no such
action is contemplated by any Target. Each Target is in compliance with all
Canadian Labor Laws.
4.29 Employee Benefit Plans.
(a) Schedule 4.29 includes a correct and complete list of all
pension and welfare plans and all other employee benefit agreements or
arrangements for each category of each Target's Employees and directors, and
the Shareholders, including deferred compensation plans, incentive plans, bonus
plans or arrangements, savings plans, stock option plans, stock purchase plans,
golden parachute agreements, severance pay plans, dependent care plans,
cafeteria plans, employee assistance programs, scholarship programs, employment
contracts and other similar plans, agreements and arrangements that are
currently in effect or were maintained within three years of the date of this
Agreement, or were approved before the date of this Agreement, but are not yet
effective, for the benefit of each Target's or each WJ Seller's directors,
officers,
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Employees, former Employees, or the Shareholders (or their beneficiaries). The
Targets have delivered to Parent, as to each plan, agreement or arrangement, as
applicable, a true and correct copy of (i) the plan, agreement or arrangement,
(ii) the trust, group annuity Contract or other document that provides the
funding for the plan, agreement or arrangement, if any, (iii) the most recent
actuarial report or valuation statement, if any, or (iv) the most current
summary plan description, booklet, or other descriptive written materials, if
any, and each summary of material modifications prepared after the last summary
plan description.
(b) Every Employee welfare benefit plan and every Employee pension
benefit plan on Schedule 4.29 (i) is in compliance with all requirements of
applicable labor Laws; (ii) has no issue pending (other than the payment of
benefits in the normal course) nor any issue resolved adversely to any Target
that may subject such Target in the future to the payment of a penalty,
interest or Tax (by indemnity or otherwise) and (iii) can be unilaterally
terminated or amended on no more than 90 days notice, except as set forth in
Schedule 4.29. Except as set forth in Schedule 4.29, no Target provides
Employee post-retirement medical or health coverage and does not contribute to
or maintain any Employee welfare benefit plan that provides for health benefit
coverage following termination of employment. All premiums (and any interest,
charges and penalties for late payment of premiums) due with respect to each
employee pension benefit plan listed on Schedule 4.29 for which premiums are
required have been paid when due. No Employee pension benefit plan, whether or
not listed on Schedule 4.29, has been, or is reasonably expected to be,
terminated under circumstances that could result in Liability to any Target.
Either the applicable plan document or Schedule 4.29 contains a complete and
accurate statement of all actuarial assumptions applied to determine the
present value of accrued benefits under all Employee benefit plans subject to
actuarial assumptions. All amounts owed under the deferred compensation
arrangements described in Schedule 4.29 are included as Liabilities in the
Interim Historical Financial Statements.
4.30 Board Approval. Each WJ Seller's Board of Directors has, as of
the date hereof, unanimously approved this Agreement and the Transactions.
4.31 Vote Required. The affirmative vote of 75% of each WJ Seller's
outstanding capital stock is the only vote of the holders of any class or
series of any WJ Seller's capital stock necessary to approve this Agreement and
the Ancillary Agreements.
4.32 Certain Inventory. The letters attached as Exhibit G are
Enforceable against WJ Target and the other parties thereto. No default, or
event which upon the passage of time would cause a default, has occurred under
such letters.
4.33 Homeownership Companies. Each Person which any Target,
Affiliate thereof, or predecessor thereto, has organized to assist in the sales
of Timeshare Intervals is listed on Schedule 4.33. Each such Person is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and authority to
own, lease and operate all properties and assets it now owns, leases or
operates and to carry on its business as currently conducted. Each such Person
is duly qualified to conduct business in all
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jurisdictions in which the nature of its business requires qualification. All
of the outstanding shares of stock of such Persons are duly authorized, validly
issued, fully paid and nonassessable.
ARTICLE V
PRE-CLOSING COVENANTS
From the date hereof through the earlier of the Effective Date and the
Termination Date, each of RRC, Subsidiary, each Target and each Seller agree
that:
5.1 Access to Information. From the date of this Agreement through
the Effective Date, (i) Targets shall afford to Parent and its accountants,
counsel and other representatives, reasonable access to their properties,
books, contracts, commitments, Tax returns, records and operating data, (ii)
Targets shall provide from time to time such office space within their
executive offices as Parent may reasonably request for use by its
representatives or agents in reviewing the materials referred to in this
Section 5.1, (iii) Targets shall furnish to Parent as promptly as practicable
(w) copies of any notice terminating, canceling or threatening to terminate or
cancel any of their insurance policies, (x) all financial and operating data
and other information concerning their business, properties and personnel
generated or developed in the Ordinary Course of Business as Parent may
reasonably request, (y) copies of any notice of default, or occurrence of any
event, which with the passage of time, giving of notice, or both, could result
in a default under an Contract described on Schedule 4.19 and (z) copies of
proposed settlements of any Proceedings disclosed on Schedule 4.14, and (iv)
Targets shall afford to Parent and its accountants, counsel and other
representatives reasonable access during normal business hours to their
officers and other appropriate employees to discuss the condition, operation,
business and prospects of Targets as a whole.
5.2 Taking of Necessary Action. Subject to the terms of this
Agreement and to applicable Law, each of RRC, Subsidiary, the Sellers and
Targets shall use all reasonable efforts promptly to take or cause to be taken
all action and promptly to do or cause to be done all things necessary, proper
or advisable under applicable Laws and regulations to consummate and make
effective the Transactions. Without limiting the foregoing, each of RRC,
Subsidiary, the Sellers and Targets shall use all reasonable efforts to obtain
and make all consents, approvals, assurances or filings of or with third
parties and Governmental Bodies necessary for the consummation of the
Transactions. Each party shall cooperate with the others in good faith to help
the other satisfy its obligations under this Section 5.2. If at any time after
the Effective Date any further action is necessary or desirable to carry out
the purposes of this Agreement, including without limitation, to vest each
Target with full title to all properties, assets, rights, approvals, immunities
and franchises of such Target, and Subsidiary with title to the Target Shares,
the Sellers and the proper officers or directors of each party to this
Agreement shall take that necessary action.
5.3 Expenses. Whether or not Transactions are consummated, RRC
will pay all legal, accounting and auditing costs, printing expenses and filing
fees necessary to consummate the Agreement, Ancillary Agreements and the IPO;
provided that, (i) Targets will pay the usual and customary costs incurred by
Targets with respect to auditing and accounting services incurred in the
Ordinary Course of Business and unrelated to this Agreement or Ancillary
Agreements and
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(ii) the Sellers will pay their respective legal fees and tax consulting costs
incurred in pursuing and consummating the Agreement and Ancillary Agreements.
5.4 Notice of Certain Changes. Each party hereto shall give prompt
written notice to the other party hereto of the occurrence, or non-occurrence,
of any event which would be likely to cause any representation or warranty
herein to be untrue or inaccurate, or any covenant, condition or agreement
herein not to be complied with or satisfied.
5.5 Confidentiality; Press Releases. Except as may be required by
Law or as otherwise permitted or expressly contemplated herein, no party hereto
or their respective Affiliates, employees, agents and representatives shall
disclose to any third party this Agreement, the subject matter or terms hereof
or any confidential information or other proprietary knowledge concerning the
business or affairs of the other party which it may have acquired from such
party in the course of pursuing the Transactions without the prior consent of
the other party hereto; provided, that any information that is otherwise
publicly available, without breach of this provision, or has been obtained from
a third party, shall not be deemed confidential information. Sellers and Parent
shall consult with each other as to the timing, form and substance of any press
release or public disclosure of matters related to this Agreement or any of the
Transactions; provided, however, that nothing in this Section 5.5 shall be
deemed to prohibit any party to this Agreement from making any disclosure that
is required to fulfill that party's disclosure obligations imposed by Law or
stock exchange requirements.
5.6 No Shop. From the date hereof until the earlier of: (i) the
Initial Closing and (ii) the Termination Date, no Target nor any Seller shall,
nor shall they permit any of their Affiliates to, nor shall they authorize or
permit any officer, director, employee, investment banker, attorney or other
advisor or representative of any Target or WJ Seller to, (a) solicit, initiate
or encourage the submission of any Merger Proposal with respect to any Target
or any WJ Seller, (b) enter into any Contract with respect to any such
proposal, or (c) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Merger Proposal with respect to any
Target or any WJ Seller. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding sentence by any
Seller, or any executive officer or Affiliate of any Target or WJ Seller, or
any investment banker or other advisor to any representative of any Target or
Seller, whether or not such Person is purporting to act on behalf of any
Target, the Sellers or otherwise, shall be deemed to be a breach of this
Section 5.6 by the Targets and the Sellers. "MERGER PROPOSAL" means any
proposal, other than a proposal by Parent or any of its Affiliates, for a
merger or other business combination involving any Target or WJ Seller or any
proposal or offer, other than a proposal or offer by Parent or any of its
Affiliates, to acquire in any manner, directly or indirectly, an equity
interest in any Target or any WJ Seller, any voting securities of any Target or
any WJ Seller or a substantial portion of any WJ Seller or Target's assets.
5.7 Voting In Favor of the Transactions; No Transfers. Each
Seller, as applicable, agrees (a) to vote his or her shares of the applicable
Target Shares or WJ Seller's capital stock in
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favor of the Transactions, (b) not to give the power to vote any Target Shares
or shares of any WJ Seller's capital stock to any other Person, and (c) not to
vote their Target Shares or shares of any WJ Seller's capital stock in favor of
any transactions contemplated by a Merger Proposal. No Seller shall transfer
its shares in either Target and no Target shall permit any transfer of its
capital stock. No Shareholder shall transfer his or her shares of the
applicable WJ Seller and no WJ Seller shall permit any transfer of its capital
stock.
5.8 No Assignment of Management Contracts. No WJ Seller shall
sell, transfer or otherwise assign its respective management agreement (the
"MANAGEMENT CONTRACTS") with WJ Target.
5.9 No Transfers. No Shareholder shall transfer his or her shares
of the applicable WJ Seller and no WJ Seller shall permit any transfers of its
capital stock.
ARTICLE VI
TARGET'S CONDUCT OF BUSINESS
From the date of this Agreement through the earlier to occur of the
Effective Time or the Termination Date, each Target and each Shareholder and WJ
Seller agrees (except to the extent Parent shall otherwise consent in writing,
which consent shall not be unreasonably withheld) that:
6.1 Ordinary Course. Each Target shall (a) carry on its businesses
in the Ordinary Course of Business, (b) use its reasonable best efforts to
preserve its business organization, maintain its rights and franchises, and
preserve its relationships with customers, suppliers and others having business
dealings with it, and (c) use its reasonable best efforts, consistent with the
terms of this Agreement, to keep available the services of sufficient officers
and employees to carry on such Target's business as set forth in this Article
VI.
6.2 Dividends and Issuance and Purchase of Securities; Loans. No
Target shall declare nor pay any dividend on nor make any other distribution in
respect of any of its capital stock. Nor shall any Target (a) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of,
its capital stock, (b) repurchase, redeem or otherwise acquire any shares of
its capital stock, (c) issue, deliver, sell or authorize the issuance, delivery
or sale of any stock appreciation rights or of any shares of its capital stock
of any class or any Commitments therefor, nor (d) enter into any Contract with
respect to the matters referred to in this Section 6.2. No Target will make any
loan to nor accept any loan from any of its directors or employees, or Sellers.
6.3 Governing Documents; Inconsistent Agreements. No Target shall
(a) amend its certificate of incorporation or bylaws or (b) enter into any
Contract or incur any obligation, the terms of which would be violated by the
consummation of the Transactions.
6.4 Acquisitions. Except as contemplated in the letters referenced
in Section 4.32, no Target shall acquire nor agree to acquire any assets in any
individual transaction where the
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purchase price exceeds C$10,000 or in transactions where the aggregate purchase
price exceeds C$50,000.
6.5 Indebtedness. No Target shall, (a) except pursuant to its
existing credit facilities or otherwise in the Ordinary Course of Business, and
except as specifically permitted under this Agreement, incur any indebtedness
for borrowed money or guarantee any indebtedness, execute any indemnity, or
issue or sell any debt securities of such Target or guarantee any debt
securities, or enter into or modify any Contract with respect to the foregoing,
or (b) except with respect to the debt described on Schedule 6.5, make any
optional payment of principal of any term debt or otherwise permanently reduce
its revolving credit facility.
6.6 Employee Contracts and Benefit Plans. No Target shall (i)
adopt or amend (other than amendments that reduce the amounts payable by such
Target or amendments required by Law to preserve the qualified status of a plan
or a contract) any collective bargaining Contract or employee benefit plan,
(ii) enter into any employment, management or severance arrangement with any
Person (including Contracts with any Target's management or any Seller that
might require that payments be made upon the consummation of the Transactions),
nor (iii) amend any existing Contracts to increase any amounts payable
thereunder or benefits provided thereunder. No Target shall grant any increase
in compensation to its employees or independent contractors.
6.7 Prohibited Dispositions. During the term of this Agreement,
except for sales of inventory in the Ordinary Course of Business, no Target
shall sell, lease or otherwise dispose of any of its assets having a book or
market value in excess of C$10,000 in any one transaction or in excess of
C$50,000 in the aggregate.
6.8 Lines of Business and Capital Expenditures. During the term of
this Agreement, no Target will (a) enter into any new line of business or (b)
except as contemplated by the letters delivered under Section 4.32, incur or
commit to any Capital Expenditures other than up to C$75,000 in the aggregate
for any other capital expenditures.
6.9 Accounting Methods. No Target will change its methods of
accounting (a) used in producing the Historical Audited Statements, except as
required by Law or changes in GAAP as concurred in by its independent auditors,
or (b) for income and deductions for income tax purposes from those employed in
the preparation of the consolidated federal income tax return of each Target
for the taxable year ending December 31, 1997, except as required by Law. No
Target will change its fiscal year.
6.10 Settlements. During the term of this Agreement, no Target
shall effect any settlements of any Proceedings.
6.11 No Amendments to Inventory Purchase Agreements. No Target will
terminate or amend the letters discussed in Section 4.32.
6.12 Further Assurances. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the
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transactions described herein and contemplated hereby and to carry into effect
the intents and purposes of this Agreement.
ARTICLE VII
POST-INITIAL CLOSING COVENANTS
After the Initial Closing, each of RRC, Subsidiary, each Target and
each Seller agrees that:
7.1 Confidentiality.
(a) Each Seller recognizes and acknowledges that as part of the
consideration hereunder, Subsidiary, through the Transactions, has purchased
the Trade Secrets. Such Seller will not, either (i) disclose such Trade Secrets
to any Person for any reason or purpose whatsoever, except on behalf of Parent
for its business purposes, or (ii) make use of any Trade Secrets for his, her
or its own purposes or for the benefit of any Person, except to the extent
authorized by an agreement between Parent and any such Person.
7.2 No Solicitation. Until five years after the Payment Date, each
Seller will not, and will cause his, her or its Affiliates to not, directly or
indirectly, (i) solicit for employment by any Person, its Affiliates or anyone
else, any employee or then currently active independent contractor of Parent or
its Affiliates, or any person who was an employee or then currently active
independent contractor of Parent or its Affiliates, within the six-month period
immediately preceding such solicitation of employment, other than such person
whose employment or independent contractor relationship was terminated by
Parent or its Affiliate; or (ii) induce or attempt to induce, any employee or
independent contractor of Parent or its Affiliates, to terminate such
employee's employment or independent contractor's active contractual
relationship.
7.3 Non-Competition.
(a) In return for the consideration described in Section 2.2, each
Seller agrees that he, she or it shall not for five years (provided that five
years shall be deemed to be one year after the date of termination with respect
to the applicable Seller if such Seller is a Shareholder terminated without
"Cause" as defined in his or her Employment Agreement) from the Payment Date in
any manner whatsoever, either directly or indirectly, with any Person in each
case, within the Geographic Area:
(i) provide or offer to provide to any Person any
services, information or other assistance relating to the business of
Parent or of any of its Affiliates (as of the date of determination)
or with respect to any customer, client or prospective customer or
client, of Parent or of any of its Affiliates in each case, within the
Geographic Area;
(ii) own, operate, engage in, participate in, or
contribute to, alone or as a partner, joint venturer, officer,
director, member, employee, consultant, agent, independent contractor
or stockholder of, or lender to, or in any other capacity, in each
case, any real estate, timeshare product, or other service or product,
which is the same as,
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similar to, or competes with Parent or its Affiliate's services or
products or which compete with Parent or its Affiliate's business;
(iii) (A) call on any Acquisition Candidate for the purpose
of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any Person other than Parent or its Affiliates, (B)
induce any Person which is a customer of Parent or its Affiliates to
patronize any business directly or indirectly in competition with the
business conducted by Parent or its Affiliates; (C) canvass, solicit
or accept from any Person which is a customer of Parent or its
Affiliates, any such competitive business; or (D) request or advise
any Person which is a customer of Parent or its Affiliates, or its or
their successors; or
(iv) directly or indirectly employ, or knowingly permit
any Person, directly or indirectly, controlled by him, to employ, any
Person who was employed by Parent or its Affiliates at or within the
prior six months.
(b) Each Seller agrees and understands that Parent's business is
highly competitive and that Parent has invested considerable sums of money in
purchasing Targets and developing real estate and timeshare properties and
services, training programs, sales programs, pricing and marketing formulas and
programs, and account records for the proper servicing of its clients and
potential clients.
(c) Each Seller further agrees and understands that this covenant
is necessary for the protection of Parent due to its legitimate interest in
protecting its business goodwill and Trade Secrets. Each Seller further agrees
and understands that, because of the legitimate interest of Parent in
protecting its business goodwill and Trade Secrets as well as the extensive
confidential information and amounts paid such Seller under Section 2.2, the
restrictions enumerated in this Section are not oppressive and are, in fact,
reasonable.
7.4 Reformation. If a court of competent jurisdiction determines
that the scope of any provision of this Article VII is too broad to be enforced
as written, the parties intended that the court reform the provision to such
narrower scope as it determines to be reasonable and enforceable.
7.5 Enforcement. Each Seller agrees that if he, she or it
breaches any covenant under Article VII such Seller will submit to the
rendition of a temporary restraining order, without prior notice, and
thereafter to a temporary and permanent injunction. Further, each Seller agrees
to the jurisdiction of an appropriate court in British Columbia, for the
enforcement of this covenant. If there is a breach or threatened breach of the
provisions of this Article VII, Parent and/or an Affiliate thereof shall be
entitled to an injunction restraining the applicable Seller from such breach,
without bond or other security. Nothing herein shall be construed as
prohibiting Parent and/or an Affiliate thereof from pursuing any other remedies
for such breach or threatened breach.
7.6 Release from Guarantees on Debt. Subsidiary will use its
commercially reasonable efforts to have the Shareholders released from any and
all of their written guarantees
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of indebtedness reflected on the Interim Balance Sheet for the benefit of
Targets including the leases, dated January 1, 1989 and December 1, 1988, by
and between WJ Target and BPYA 138 Holdings Ltd., within 120 days following the
Initial Closing; provided that, if Subsidiary is unable to obtain the
Shareholders' release from their personal guarantees of Targets, then
Subsidiary will reimburse and indemnify the Shareholders for any such guarantee
payments the Shareholders are required to make.
7.7 Updating Parent Projections. From time-to-time after the date
hereof until the expected pricing date for the IPO, Parent may update the
Parent Projections with new Parent Projections which will be accompanied by a
certificate of Parent's Chairman and Chief Accounting Officer to the effect
that such Parent Projections are the same as have been provided to the lead
underwriter in the IPO.
7.8 Further Assurances. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and
purposes of this Agreement. In addition, Targets and Sellers shall cooperate
with and assist Parent in preparing the pro forma financial statements and the
other information to be used in the Registration Statement for the IPO.
7.9 Management Fee. At the earlier of the IPO Date or October 31,
1998, the management fee under the Management Contracts will be reduced to
zero.
7.10 No Assignment of Management Contracts. No WJ Seller shall
sell, transfer or otherwise assign its respective Management Contract with WJ
Target.
7.11 Definitions. The following terms have the indicated meanings
in this Article VII:
(a) "ACQUISITION CANDIDATE" means (1) any Person engaged in the
business of purchasing, developing, marketing, selling and financing timeshare
vacation intervals, or the purchase or development of real estate with the
purpose of engaging in such business or (2) any project with respect to such
business, and in either case (i) which was called on by Parent or its
Affiliates, in connection with the possible acquisition by Parent or its
Affiliates of that Person or project, or (ii) with respect which Parent or its
Affiliates has made an acquisition analysis.
(b) "GEOGRAPHIC AREA" means British Columbia, Alberta, and
Washington State.
(c) "TRADE SECRETS" means Parent and its Affiliates' (including
the Targets) proprietary or confidential information, including but not limited
to the following: trade secret information, ideas, concepts, software, designs,
drawings, techniques, models, data, documentation, research, development,
processes, procedures, business acquisition or disposition plans, "know how,"
marketing techniques and materials, marketing and development plans, customer
names and other information related to customers, price lists, pricing
policies, details of
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customer, distributor, agency or consultant contracts, financial information
and any other information relating to the business, customers, trade, trade
secrets or industrial practices of Parent and its Affiliates; provided that,
"Trade Secrets" shall not include information that: (A) at the time of
disclosure is in the public domain; or (B) after disclosure is published or
otherwise becomes a part of the public domain through no act or omission of
such Seller or his or her Affiliates (but only after, and only to the extent
that, such information is published or otherwise becomes part of the public
domain). For this Agreement, specific disclosures made, e.g. "640 F to 650 F"
or "$15,000" shall not be deemed to be within the exceptions listed above
merely because such specific disclosure is embraced by a general disclosure,
e.g. "600 F to 800 F" or "$10,000 to $20,000", which general disclosure is in
the public domain or in a Person's possession. In addition, any combination of
features shall not be deemed to be within the exceptions listed above merely
because individual features are separately in the public domain or in a
Person's possession, but shall be within the exceptions only if the combination
itself and its principle of operation are in the public domain or in a Person's
possession as provided in the exceptions listed above.
ARTICLE VIII
CONDITIONS TO INITIAL CLOSING
8.1 Conditions to All Parties' Obligations. The obligations of all
of the parties to this Agreement to effect the Transactions to be effected at
the Initial Closing shall be subject to the fulfillment of the following
conditions:
(a) No Order and no other legal restraint or prohibition that
would prevent or have the effect of preventing the consummation of the
transactions this Agreement shall be in effect; provided, however, that no
party hereto may invoke this condition unless such party shall have complied
fully with its obligations under Section 5.2 and, in addition shall have used
all reasonable efforts to have any such Order vacated.
(b) The Requisite Regulatory Approvals shall have been obtained
and shall be in full force and effect, other than any Requisite Regulatory
Approval that, if not obtained, would not have a Material Adverse Effect on the
business or operations of Parent or Subsidiary, after giving effect to the
Transactions.
(c) There shall not have been any outbreak of war or civil unrest
or a suspension of financial markets or any other event generally adversely
affecting the normal conduct of business affecting either the United States of
America, Canada or the vacation ownership industry in particular.
(d) The Ancillary Agreements shall have been executed by the
parties thereto.
8.2 RRC and Subsidiary's Conditions. RRC and Subsidiary's
obligation to consummate the Transactions is subject to satisfaction on or
before the Initial Closing of the following conditions any of which Parent may
waive in whole or in part, but only in writing at or prior to the Initial
Closing. A failure to discover, or a waiver of, any circumstances made a
condition under this Section 8.2 shall not constitute a waiver of any
warranties and
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representations provided for elsewhere in this Agreement, unless any such waiver
specifically so states.
(a) Since the date of this Agreement, nothing shall have occurred
which has had or could reasonably be expected to have a Material Adverse Effect
with respect to any Target.
(b) The representations and warranties of Targets and the Sellers
contained in this Agreement shall be true and correct in all material respects
at and as of the Effective Date (except to the extent that they expressly
relate only to an earlier time, in which case they shall have been true and
correct in all material respects as of such earlier time), other than such
breaches of such representations and warranties which in the aggregate would
not reasonably be expected to have a Material Adverse Effect on any Target. No
Default or failure to perform which, with notice and/or lapse of time, would
constitute a Default by any Target or any Seller under any of the agreements or
covenants required by this Agreement to be theretofore performed or complied
with shall have occurred and be continuing. Each Target shall have delivered to
Parent a certificate dated as of the Effective Date, signed either by its
chairman, chief executive officer, president, any vice president or the
secretary of the Board and its chief financial officer, in their capacities as
officers of such Target, to the effect set forth in this Section 8.2(b). In
addition, each Shareholder shall deliver such a certificate with respect to
himself or herself and, if applicable, the WJ Seller he or she controls.
(c) The historical financial statements of each Target for the
year ended December 31, 1997, and of its interim financial statements for the
three months ending March 31, 1998 (and, if necessary, the six months ending
June 30, 1998), must, in the opinion of a "Big Six" accounting firm be suitable
or readily adaptable for incorporation in the registration statements,
prospectuses and annual reports to be filed by Parent in connection with the
IPO.
(d) RRC shall have received an opinion of Ian Reith dated the
Effective Date in form and substance satisfactory to RRC, substantially in the
form of Exhibit H, and such other matters as RRC may reasonably request.
(e) Targets and the Sellers shall have received all requisite
consents of third Persons necessary for the consummation of the Transactions.
(f) Parent and Subsidiary shall be satisfied in their sole
discretion, with the results of their due diligence investigation of Targets'
Business, financial statement and provision, legal compliant environmental
compliance, tax compliance and such other matters as they may determine in
their sole discretion.
8.3 Targets and Sellers' Conditions. The obligation of Targets and
the Sellers to consummate the Transactions related to the Initial Closing is
subject to satisfaction on or before Initial Closing of the following
conditions any of which may be waived for all Sellers in whole or in part by WJ
Target alone, but only in writing at or prior to the Initial Closing. A failure
to discover, or a waiver of, any circumstances made a condition under this
Section 8.3 shall not constitute a waiver of any warranties and representations
provided for elsewhere in this Agreement unless any such waiver specifically so
states.
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(a) Since the date of this Agreement, nothing shall have occurred
which has had or could reasonably be expected to have a Material Adverse Effect
with respect to Parent.
(b) The representations and warranties of RRC and Subsidiary
contained in this Agreement shall be true and correct in all material respects
at and as of the Effective Date (except to the extent that they expressly
relate only to an earlier time, in which case they shall have been true and
correct in all materials respects as of such earlier time), other than such
breaches of such representations and warranties which in the aggregate would
not reasonably be expected to have a Material Adverse Effect on Parent. No
Default or failure to perform which, with notice and/or lapse of time, would
constitute a Default by Parent or Subsidiary, as applicable, under any of the
agreements or covenants required by this Agreement to be theretofore performed
or complied with by it shall have occurred and be continuing. Each of Parent
and Subsidiary shall have delivered to WJ Target a certificate dated as of the
Effective Date, signed by its chairman, chief executive officer, president or
any vice president and its chief financial officer, in their capacities as
officers of Parent or Subsidiary, as applicable, to the effect set forth in
this Section 8.3(b).
(c) Parent, RRC and Subsidiary shall have received all requisite
consents of third Persons necessary for them to fulfill their obligations under
this Agreement.
ARTICLE IX
RISK OF LOSS, DESTRUCTION AND CONDEMNATION
9.1 Risk of Loss. Risk of loss for damage to WJ's Units, or any
part thereof, by fire or other casualty at any time prior to and including the
Effective Time will be on each Target. At the Effective Time, full risk of loss
with respect to WJ's Units will pass to Subsidiary by its purchase of Targets.
9.2 Casualty.
(a) Major Damage. If, prior to the Initial Closing, the Units held
by WJ Target, or any portion thereof, is damaged by fire, or any other cause of
whatsoever nature, WJ Target will promptly give Parent written notice of such
damage. If the cost for repairing such damage, in the reasonable judgment of
Parent, in consultation with WJ Target, exceeds C$200,000, Parent will have the
option, exercisable by written notice delivered to WJ Target within ten
Business Days of WJ Target's notice of damage to Parent either to (i) require
WJ Target to convey through WJ Target the Units held by WJ Target to RRC on the
Effective Date, in its damaged condition and to maintain all of WJ Target's
right, title and interest in and to any claims WJ Target may have under the
property insurance policies covering the Property, in which event WJ Target
will have the right to retain the amount of any deductible under applicable
insurance policies but WJ Target will have no further liability or obligation
to repair or replace the Property, or (ii) terminate this Agreement.
(b) Minor Damage. If the cost for repairing such damage will not,
in the reasonable judgment of Parent, in consultation with WJ Target, exceed
C$200,000, Parent will have the option, exercisable by written notice delivered
to WJ Target within ten Business Days of WJ
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Target's notice of damage to Parent, to require WJ Target to retain the Units
held by WJ Target on the Effective Date in their damaged condition and to
retain for WJ Target's benefit all of WJ Target's right, title and interest in
and to any claims WJ Target may have under the insurance policies covering the
Units held by WJ Target, in which event WJ Target will have the right to the
amount of any deductible under applicable insurance policies but WJ Target will
have no further liability or obligation to repair or replace the Units held by
WJ Target.
9.3 Condemnation. If during the pendency of this Agreement and
prior to Initial Closing, condemnation/expropriation proceedings are commenced
with respect to the Unit held by WJ Target or any portion thereof, Parent may,
at Parent's election, terminate this Agreement by written notice to WJ Target
within ten Business Days after Parent has been notified of the commencement of
condemnation/expropriation proceedings. If Parent does not exercise such right
to terminate within the period prescribed, the WJ Target and Parent, by their
respective attorneys, will have the right to appear and to defend their
respective interests in the Units held by WJ Target in such
condemnation/expropriation proceedings, and any award in
condemnation/expropriation will become the property of WJ Target.
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated, with the effect
set forth in Section 10.1, at any time before the Initial Closing:
(a) by written consent of Parent and WJ Target, which termination
shall be approved by the boards of directors of Parent and WJ Target;
(b) by either Parent or WJ Target if the Initial Closing shall not
have occurred by the close of business on the Termination Date, other than as a
result of a Default by the terminating party;
(c) by WJ Target after the occurrence and during the continuation
of a Default by Parent, provided that no Default, or event which, with notice
and/or the lapse of time, would constitute a Default, by any Target shall have
occurred and be continuing; or
(d) by Parent after the occurrence and during the continuation of
a Default by any Target or Seller, provided that no Default, or event which,
with notice and/or lapse of time, would constitute a Default, by Parent, RRC or
Subsidiary shall have occurred and be continuing.
Termination of this Agreement pursuant to this Section 10.1 shall be
effected by written notice by the party terminating this Agreement to the other
party of the termination and the basis for such termination.
10.2 Effect of Termination.
(a) If this Agreement is terminated by either Parent or WJ Target
as provided in Section 10.1 then, except as provided in this Section 10.2, this
Agreement shall become void and
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there shall be no Liability with respect to the terminated provisions of this
Agreement on the part of Parent or any Target, or their respective officers or
directors.
(b) If this Agreement is terminated by WJ Target pursuant to
Section 10.1(c), then RRC shall pay to WJ Target and NR Target, on the first
Business Day following such termination, the amounts of C$400,000 and
C$100,000, respectively, by wire transfer of immediately available funds to an
account designated by WJ Target to compensate Targets for, among other things,
their expenses and management time in pursuing the Transactions and for lost
opportunity costs. Each Target and each Seller agrees that such payment shall
be its sole and total damages and relief hereunder upon such a termination.
Notwithstanding the foregoing, if at the time of such termination, any Target
is in Default hereunder, or an event which, with notice and/or lapse of time,
would constitute a Default by any Target shall have occurred and be continuing,
then no such fee shall be due or payable hereunder by Parent.
(c) If this Agreement is terminated by Parent pursuant to Section
10.1(d), then the Targets shall be jointly and severally obligated to pay to
Parent, on the first Business Day following such termination, the amount of
C$500,000 by wire transfer of immediately available funds to an account
designated by Parent, to compensate Parent for, among other things, its
expenses and management time in pursuing the Transactions and for lost
opportunity costs. Parent agrees that such payment shall be its sole and total
damages and relief hereunder upon such termination. Notwithstanding the
foregoing, if at the time of such termination, Parent is in Default hereunder,
or an event which, with notice and/or lapse of time, would constitute a Default
by Parent shall have occurred and be continuing, then no such fee shall be due
or payable hereunder by WJ Target.
(d) The termination of this Agreement shall not relieve any party
of its obligation to pay its costs and expenses as provided under Section 5.3
or its obligations under this Section 10.2. In addition, such a termination
shall not affect Articles XI, XII and XIV.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by Targets and the Sellers. Each Target and
each Seller agrees, jointly and severally, to indemnify and hold harmless
Parent, RRC and Subsidiary and their officers, directors, shareholders,
Affiliates, employees and agents (the "PARENT INDEMNITEES") from any and all
Damages, directly or indirectly resulting from, relating to, arising out of or
attributable to: (a) any breach of or inaccuracy in any representation or
warranty of any Target and any Seller contained in this Agreement or in any
Ancillary Agreement; (b) any breach or non-performance, partial or total, by
any Target or any Seller of any covenant or agreement of any Target contained
in this Agreement or in any Ancillary Agreement; and (c) the operation of
Targets prior to 11:59 p.m. on the Initial Closing Date.
11.2 Indemnification Re: Taxes. Without limiting the generality of
Section 11.1, each Seller agrees, jointly and severally, to indemnify and hold
harmless Parent Indemnitees from any and all Damages directly or indirectly
resulting from, relating to, arising out of or attributable to any assessment
or reassessment of a Target or a Target Subsidiary for income, capital or
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transaction taxes, and interest and penalties thereon, and each Seller agrees
to take such steps as may be required to mitigate all such Damages and, without
limitation, if such assessment or reassessment is based on an assumption or
determination that a Target or Target Subsidiary is "associated" or "related"
with any corporation within the meaning of the Tax Act, such steps shall
include the making or filing of such agreements or designations allocating
amounts among such corporations as is most beneficial to such Target or Target
Subsidiary.
11.3 Indemnification by RRC and Subsidiary. RRC and Subsidiary,
jointly and severally, agrees to indemnify and hold harmless the Sellers,
Targets, and their officers, directors, shareholders, Affiliates, employees and
agents (the "TARGET INDEMNITEES") from any and all Damages resulting from,
arising out of or attributable to: (a) any breach of or inaccuracy in any
representation or warranty of RRC or Subsidiary contained in this Agreement or
in any Ancillary Agreement; (b) any breach or non-performance, partial or
total, by Parent or Subsidiary of any covenant or agreement of RRC or
Subsidiary contained in this Agreement or in any Ancillary Agreement, and (c)
the operation of Targets after the Initial Closing Date.
11.4 Notice, Participation and Duration. If a claim by a third
party is made against a party indemnified pursuant to this Article XI
("INDEMNITEE"), and if such Indemnitee intends to seek indemnity with respect
thereto under this Article XI, the Indemnitee shall promptly, and in any event
within 60 days of the assertion of any claim or the discovery of any fact upon
which Indemnitee intends to base a claim for indemnification under this
Agreement (a "CLAIM"), notify the party or parties from whom indemnification is
sought (the "INDEMNITOR") of such Claim. Upon any Claim, Indemnitor, at its
option, may assume (with legal counsel reasonably acceptable to the Indemnitee)
the defense of any Proceeding in connection with the Indemnitee's Claim, and
may assert any defense of Indemnitee or Indemnitor; provided that Indemnitee
shall have the right at its own expense to participate jointly with Indemnitor
in the defense of any Proceeding in connection with the Indemnitee's Claim. If
Indemnitor elects to undertake the defense of any Claim hereunder, Indemnitee
shall cooperate with Indemnitor to the extent reasonably requested in regard to
all matters relating to the Claim (including, without limitation, corrective
actions required by applicable Law, assertion of defenses and the
determination, mitigation, negotiation and settlement of all Damages) so as to
permit Indemnitor's management of the same with regard to the amount of Damages
payable by Indemnitor hereunder. Indemnitor shall not settle any indemnifiable
Claim without the prior written consent of Indemnitee unless such settlement
involves only the payment of money and the claimant provides to Indemnitee a
release, in form and substance reasonably satisfactory to Indemnitee, from all
Liability in respect of such Claim.
11.5 Indemnification Threshold and Limitations.
(a) No Target or Seller shall have any obligation to indemnify, in
the aggregate, any Parent Indemnitees, singly or collectively, pursuant to this
Article XI until the aggregate indemnification claims against all Sellers, but
for this sentence, exceed U.S. $50,000 (the "THRESHOLD AMOUNT"); provided,
however, that once such amount exceeds the Threshold Amount, the Parent
Indemnitees shall be entitled to recover all amounts to which they are
entitled, other than the amounts used to satisfy the Threshold Amount.
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(b) The Indemnities provided for in Sections 11.1(a) and 11.1(c)
are expressly limited to Claims which are asserted within one year of the
Initial Closing; provided that (i) the representations and warranties contained
in Sections 4.17 and 4.29 and indemnification with respect thereto shall
survive until the expiration of the statute of limitations with respect to the
subject matter thereof; and (ii) the representations and warranties contained
in Section 4.2, Section 4.15(b) and Section 4.33, and indemnification with
respect thereto shall survive forever.
11.6 No Third Party Beneficiaries. The indemnities provided in this
Article XI are given solely for the purpose of protecting the parties to this
Agreement and the Indemnitees and shall not extend or be deemed extended to, or
interpreted in a manner to confer any benefit, right or cause of action upon,
any other Person.
11.7 INDEMNIFICATION OF NEGLIGENCE OF INDEMNITEE. THE
INDEMNIFICATION PROVIDED IN THIS ARTICLE XI SHALL BE APPLICABLE REGARDLESS OF
WHETHER NEGLIGENCE OR KNOWLEDGE OF THE INDEMNITEE IS ALLEGED OR PROVEN.
11.8 Reimbursement. If Indemnitor shall undertake, conduct or
control the defense or settlement of any Claim and it is later determined that
such Claim was not a Claim for which the Indemnitor is required to indemnify
Indemnitee under this Article XI, Indemnitee shall reimburse Indemnitor for all
its costs and expenses with respect to such settlement or defense, including
reasonable attorneys' fees and disbursements.
ARTICLE XII
MEDIATION AND ARBITRATION
12.1 Arbitration.
(a) If Parent, RRC, Subsidiary, any Target or any Sellers are
unable to resolve any dispute, controversy or claim arising out of or in
connection with this Agreement (a "CONTROVERSY"), any such party may request in
writing that the Controversy be referred to the respective senior level
management of each party for decision. Such managers shall meet immediately and
attempt in good faith to negotiate a resolution of the Controversy. If the
managers are unable to resolve the matter within 30 days of the written request
referring the matter to them, any party may, within 30 days following the end
of such 30 day period, elect to refer the matter to arbitration and the
Controversy shall be settled by binding arbitration in accordance with the
Arbitration Rules of the International Chamber of Commerce (the "ICC") then in
effect (the "RULES").
(b) There shall be a sole arbitrator selected in accordance with
the Rules. If the parties are unable to agree upon the arbitrator within 30
days of the referral to arbitration, the International Court of Arbitration of
the ICC shall make such appointment in accordance with the Rules. The
arbitration shall be conducted, and the award shall be rendered, in the English
language. The arbitration shall be held in Toronto, Canada.
39
<PAGE> 46
(c) Each party shall cooperate with the other party in making full
disclosure of and providing access to all information and documents requested
by the other party in connection with such proceedings. The arbitrator shall
have the power to order such disclosure. Should a party fail to comply with
such order, the arbitrator shall take such refusal into account in determining
the award.
(d) The decision of the arbitrator shall be final and binding on
the parties and shall be the sole and exclusive remedy regarding any claims,
counterclaims, issues or accounting presented to the arbitrator. Judgment upon
the award may be entered by any court having jurisdiction thereof. The parties
agree to waive any rights of recourse or appeal to any court in connection with
any questions of law arising in the course of the arbitration or with respect
to any award made except for actions to enforce an award.
(e) Any monetary award shall be made and payable in United States
Dollars. The arbitrator shall be authorized to grant pre-award and post-award
interest at commercial rates without there being any presumption as to whether
such interest will be granted. Unless otherwise ordered by the arbitrator, each
party shall bear its own costs and fees, including attorneys' fees and
expenses. The parties expressly agree that the arbitrator shall have no power
to consider or award punitive or exemplary damages.
(f) This agreement to arbitrate shall be binding upon the
successors, assigns, trustee, receiver or executor of each party.
ARTICLE XIII
SECONDARY CONSIDERATION
13.1 Secondary Consideration.
(a) As additional consideration for the WJ Target Shares, RRC and
Subsidiary shall pay to the Sellers the amounts, if any, contemplated by
Section 2.2(c), as modified by Section 13.1(b).
(b) For purposes of computing the Secondary Consideration, "1998
DEEMED EARNINGS" means the audited consolidated combined pro forma pre tax
earnings, including a provision for all year end accounting adjustments
consistent with GAAP, of the Targets for the year ended December 31, 1998,
including adjustments for:
(i) a reduction of all charges, expenses, claims and
monies, if any, paid by Parent or its Affiliates during such year, and
not otherwise reimbursed, on account of or arising under or from or in
any way, manner or respect related to the Targets' business and
operations in 1998 or prior years, including any monies paid by Parent
or its Affiliates in settlement or respect of any claims, demands or
disputes based upon or in any way, manner or respect related to Parent
or its Affiliates' performance with respect thereto other than claims,
demands or disputes that are found, in a final judgment by a court of
competent jurisdiction from which no appeal can be or has been taken,
to have
40
<PAGE> 47
resulted principally from the Parent or its Affiliates' bad faith,
gross negligence, or willful misconduct.
(ii) an increase for any expenditures by Targets' out of
the ordinary course of their businesses, including interest payments
on intercompany loans, advances and shareholder repayments,
intercompany charges not contemplated by (i), management fees paid by
Targets to Parent or any of its Affiliates other than subsidiaries of
the Targets, carrying charges on Parent inventory, head office
charges, or audit charges of any Persons other than the Targets,
provided that any such expenditures approved in writing by Majority
Sellers will be included in such calculation.
(iii) an increase of an amount equal to all management fees
under the Management Contracts paid in excess of C$10,000 per month
from January 1, 1998 and the earlier of the IPO Date and October 31,
1998.
(iv) For purposes of this calculation, taxes shall be
determined based on the Targets' net income for such year at a rate of
34%. This adjustment for taxes shall be provided for regardless of
whether a Target is a partnership or other pass-through entity and
shall be based on the Targets' net income and not taxable income so
that taxes include the equivalent of both current and deferred taxes.
(v) an adjustment to reverse the 1997 sales in suspense
adjustment of US$39,900.
(vi) for the recognition of goodwill arising from the
transactions contemplated hereby;
(vii) the income realized when solving the following
equations for "X":
C = A
-----------------
B
X = C(D-E)
Where: A = WJ Target's performing Timeshare Receivables at
December 31, 1998, that are financed under the
proposed Royal Bank of Canada Credit Agreement;
provided that "performing" Timeshare Receivables will
be deemed to be all Timeshare Receivables that are no
more than 59 days overdue as of the Second Closing.
B = The relationship, expressed as a percentage, between
(i) WJ Target's revenue from the date of first
funding under the Royal Bank Credit Agreement to
December 31, 1998, and (ii) WJ Target's revenue for
the year ended December 31, 1998.
41
<PAGE> 48
D = The weighted average interest rate received on the
performing Timeshare Receivables calculated in "A".
E = The weighted average interest rate payable on the
Royal Bank Credit Agreement if it had been in effect
since January 1, 1998.
(c) In connection with the making of each payment by Parent to the
WJ Sellers under this Section 13.1, Parent shall deliver to the WJ Sellers a
schedule setting forth the computation of the Secondary Consideration and a
copy of the financial information used in making such computation. Parent's
computation of any payment under this Section 13.1 shall be conclusive and
binding upon the parties hereto unless, within 30 business days following the
WJ Sellers' receipt of the aforedescribed payment and information, the Majority
Sellers notify Parent in writing (the "SELLER'S NOTICE") that they disagree
with Parent's computation of the Secondary Consideration. Such notice by the
Majority Sellers shall include a schedule setting forth the Majority Sellers'
computation of the Secondary Consideration, together with a copy of any
financial information, other than that previously supplied by Parent to the WJ
Sellers, used in making the Majority Sellers' computation.
Parent's computation of the Secondary Consideration under this Section
13.1 shall be conclusive and binding upon the parties hereto unless, within 30
days following WJ Sellers' receipt of the Parent's notice, Majority Sellers
notify the Parent in writing that they disagree Parent's computation of the
Secondary Consideration. If Majority Sellers disagree with Parent's computation
of the Secondary Consideration, Majority Sellers and the Parent shall request a
national firm of independent certified public accountants mutually agreeable to
Parent and Majority Sellers to compute the amount of the Secondary
Consideration as promptly as possible, which computation shall be conclusive
and binding upon Parent and WJ Sellers. If Parent and Majority Sellers cannot
agree on such a national firm of independent certified public accountants, then
the name of the "Big 5" national accounting firms, exclusive of any such firm
which is rendering or has within the past three years rendered services to
Parent or the WJ Sellers or their Affiliates, shall be selected by lottery
until one such firm is willing to compute the disputed payment for this
Agreement. The expenses of any computation by any such national accounting firm
selected by the Parent and the Majority Sellers to resolve computational
disputes hereunder shall be borne equally by Purchaser and WJ Sellers and shall
be paid in advance of performance of such services.
(d) If the amount of Secondary Consideration to be paid by RRC to
WJ Sellers in accordance with Section 13.1(a) is recomputed in accordance with
Section 13.1(c), the adjustment to amount of Secondary Consideration (which
shall be used as the price in determining the number, if any, of shares
Subsidiary Preferred, contemplated by the definition of "Secondary
Consideration Shares") shall be paid by RRC to WJ Sellers within ten business
days after the date of final recomputation of such payment. If such the final
determination of the Secondary Consideration shall exceed Parent's original
computation of such Secondary Consideration by more than 10%, then the
Secondary Consideration shall also include interest on such difference from the
date upon which the original computation was delivered by Parent to Sellers
(the "DELIVERY DATE") to the date of payment of the Secondary Consideration, at
a per annum rate equal to the "reference" rate of Chase Bank Texas N.A. (the
"REFERENCE RATE") as of the Delivery Date.
42
<PAGE> 49
13.2 Retirement Option.
(a) At any time, but only in connection with the sale of all or a
substantial portion of the assets of Parent or of all or a substantial portion
of the equity interests in Parent, Parent shall have the option of terminating
the payment of future Secondary Consideration by making a lump sum payment
equal in amount to the "SECONDARY CONSIDERATION VALUE" (as hereinafter defined)
to the WJ Sellers. "SECONDARY CONSIDERATION VALUE" means the amount, determined
by an internationally recognized investment banking firm (the "INITIAL
BANKER"), to be mutually agreed upon by Parent and WJ Sellers (or if the
Company and Purchaser are unable to agree, the Houston office of Goldman
Sachs), to be equal to the net present value of the Secondary Consideration
projected to become due, based upon projected 1998 Deemed Earnings as
determined by such investment banking firm in light of such investment banking
firm's evaluation of WJ Target's earnings and future prospects and such other
matters that such investment banking firm shall deem relevant. In determining
the net present value of such Secondary Consideration payments, a discount rate
equal to the "Reference Rate" of Chase Bank Texas, N.A. as of September 30,
1998 shall be used. Parent will bear the Initial Banker's fees and expenses.
(b) Upon Parent's receipt of the Initial Banker's determination of
the Secondary Consideration Value, it shall promptly notify WJ Sellers of such
determination and the assumptions and methodology used in arriving at such
determination and provide the written opinion of the Initial Banker as to its
determination. If within 30 days of receipt of such determination, Majority
Sellers shall not object thereto, Parent shall be entitled to consummate the
exercise of its option pursuant to Section 13.2(a). If within such 30 day
period Majority Sellers shall object in writing to such determination, Majority
Sellers, may appoint, at their sole cost and expense, a nationally recognized
investment banking firm (the "SELLERS' BANKER") to separately undertake the
evaluation prescribed by Section 13.2(a). Not later than 60 days following
their written notice to Parent of their objection to the Initial Banker's
determination, Majority Sellers shall provide Parent with the Sellers' Banker's
determination, including the assumptions and methodology used in arriving at
such determination and provide the written opinion of the Sellers' Banker as to
its determination. If Majority Sellers do not provide Parent with these
materials within the 60-day period prescribed above, Parent shall be entitled
to consummate the exercise of its option pursuant to Section 13.2(a).
(c) If within 30 days of the delivery of the determination of the
Sellers' Banker, the Sellers' Banker and the Initial Banker are unable to
resolve their differing determinations and arrive at an agreed upon value, then
a third recognized investment banking firm, selected by the agreement of the
Initial Banker and the Sellers' Banker, shall undertake to make the
determinations prescribed by Section 13.2(a). Such investment banker's
determination as to the Secondary Consideration Value shall be delivered to WJ
Sellers and Parent along with the assumptions and methodology utilized in
arriving at such determination as well as the written opinion of such
investment banker as to its determination. At such time, the Secondary
43
<PAGE> 50
Consideration Value shall be deemed to be the simple average of the third
investment banker on the one hand and the estimate of the Initial Banker and
the Sellers' Banker closest to such third Banker's estimate on the other, which
determination shall be final and binding upon WJ Sellers and Parent. The fees
and expenses of such third investment banker shall be borne by the Party whose
investment banker's estimate was further away from the third banker's.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Survival of Representations, Warranties and Agreements. The
representations, warranties and covenants of Parent, RRC, Target, and the
Sellers contained in this Agreement and any document, instrument or certificate
delivered in connection with the Transactions shall survive each Closing.
14.2 Effect of Due Diligence. No investigation by any party to this
Agreement into the business, operations and condition of any other party shall
diminish in any way the effect of any representations or warranties made by
such other party in this Agreement or shall relieve such other party of any of
its obligations under this Agreement.
14.3 Notices. Any notice, request, demand, instruction or other
communication to be given to either party hereunder (except those required to
be delivered at Initial Closing) will be in writing, and will be deemed to be
delivered upon the earlier to occur of (i) actual receipt if delivered by hand
or by commercial courier such as "Federal Express" or "DHL", postage prepaid,
to the address indicated or (ii) upon confirmation of receipt if by facsimile
transmission addressed as follows:
IF TO PARENT, RRC OR SUBSIDIARY:
Raintree Resorts International, Inc.
10000 Memorial Drive, Suite 480
Houston, Texas 77024
Fax No.: (713) 613-2828
Attn: Chairman
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place - South Tower
711 Louisiana St.
Houston, Texas 77002
Attn: Julien Smythe
Fax No.: (713) 236-0822
IF TO WJ TARGET OR NR TARGET:
Whiski Jack Resorts, Ltd.
14-4227 Village Stroll
Whistler, B.C. VON 1B4
Canada
Fax. No.: (604) 932-5615
44
<PAGE> 51
IF TO WJ SELLERS OR THE SHAREHOLDERS:
2605 Lawson Avenue
West Vancouver, B.C. V7V 2G3
Canada
WITH IN CASE OF THE TARGETS, THE WJ SELLERS AND THE SHAREHOLDERS, A
COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Whiski Jack Resorts, Ltd.
Attn: Ian Reith
14-4227 Village Stroll
Whistler, B.C. VON 1B4
Canada
Fax. No.: (604) 932-5615
The addresses and facsimile numbers for the purpose of this Section
14.3 may be changed by either party by giving written notice of such change to
the other party in the manner provided herein.
14.4 Attorneys' Fees. If it becomes necessary for any of Parent,
RRC, Subsidiary, any Target or any Seller to enforce this Agreement or any
provisions contained herein, the prevailing party in such Action will be
entitled to recover, in addition to all other remedies or Damages, reasonable
attorneys fees and costs of court incurred in connection with such.
14.5 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same Agreement, and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
14.6 Miscellaneous. This Agreement and the documents and
instruments contemplated hereby (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement, including the
Letter of Intent between Parent and WJ Target, dated March 10, 1998; and (b)
are not intended to confer upon any Person, other than the parties to this
Agreement and such other documents and instruments, any rights or remedies
hereunder. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
14.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York without giving effect to its
principles of conflicts of law.
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<PAGE> 52
14.8 Incorporation of Exhibits and Schedules. All exhibits and
schedules referred to in this Agreement and attached hereto are hereby made a
part of this Agreement by this reference.
14.9 Waiver. Any term or provision of this Agreement may be waived
in writing at any time by the party that is entitled to the benefits thereof.
Any waiver of any term or condition of this Agreement by any party shall not be
construed as a waiver of any subsequent breach or failure of the same term or
condition, or a waiver of any other term or condition of this Agreement.
14.10 Specific Performance. Each party hereto agrees with the other
party that the other party would be irreparably damaged if any of the
provisions of this Agreement are not performed in accordance with their
specific terms and that monetary damages would not provide an adequate remedy
in such event. Accordingly, it is agreed that, in addition to any other remedy
to which the nonbreaching party may be entitled, at law or in equity, the
nonbreaching party shall be entitled to injunctive relief to prevent breaches
of the provisions of this Agreement and specifically to enforce the terms and
provisions hereof in any court having subject matter jurisdiction thereof.
46
<PAGE> 53
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to above signed as of the date first above written by its duly
authorized officer.
<TABLE>
<S> <C>
WHISKI JACK RESORTS LTD. RAINTREE RESORTS
INTERNATIONAL CANADA, LTD.
By: By:
------------------------------------------------ ----------------------------------------------------------
Name: N. Kent Bubbs Name:
-------------------------------------------------------
Title: Title:
--------------------------------------------- -------------------------------------------------------
RAINTREE RESORTS INTERNATIONAL INC. NORTHFACE REALTY CO. LTD.
By: By:
------------------------------------------------ ----------------------------------------------------------
Name: Douglas Y. Bech Name: N. Kent Bubbs
Title: Chairman Title:
-------------------------------------------------------
N. KENT BUBBS PATRICIA J. BUBBS
By: By:
------------------------------------------------ ----------------------------------------------------------
Name: N. Kent Bubbs, individually Name: Patricia J. Bubbs, individually
G. MICHAEL MCGEOUGH GERALDINE L. BUBBS
By: By:
------------------------------------------------ ----------------------------------------------------------
Name: G. Michael McGeough, individually Name: Geraldine L. Bubbs, individually
K. B. VENTURES LTD. G. B. PROPERTIES LTD.
By: By:
------------------------------------------------ ----------------------------------------------------------
Name: Name:
---------------------------------------------- --------------------------------------------------------
Title: Title:
--------------------------------------------- -------------------------------------------------------
M. M. & M. MANAGEMENT LTD. SHAWNDRA ENTERPRISES LTD.
By: By:
------------------------------------------------ ----------------------------------------------------------
Name: Name:
---------------------------------------------- ----------------------------------------------
Title: Title:
--------------------------------------------- ---------------------------------------------
</TABLE>
47
<PAGE> 1
EXHIBIT 4.1
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
ARTICLES
OF
RAINTREE RESORTS HOLDINGS LTD.
PART 1
INTERPRETATION
1.1 In these Articles, unless there is something in the subject or context
inconsistent therewith:
"BOARD" and "THE DIRECTORS" or "THE DIRECTORS" or "THE BOARD OF
DIRECTORS" mean the Directors or sole Director of the Company for the
time being.
"COMPANY ACT" means the Company Act of the Province of British
Columbia as from time to time in force and all amendments thereto and
includes the regulations made pursuant thereto.
"INTERPRETATION ACT" means the Interpretation Act of the Province of
British Columbia as and from time to time in force and all amendments
thereto and includes the regulations made pursuant thereto.
"PROXYHOLDER" means a person duly appointed by a registered holder to
represent him at a meeting.
"REGISTERED ADDRESS" of a member or registered holder means his
address as recorded in the register of members.
"REGISTERED OWNER" or "REGISTERED HOLDER" when used with respect to a
share in the authorized capital of the Company means the person
registered in the register of members in respect of such share.
"SEAL" means the common seal of the Company.
Expressions referring to writing shall be construed as including
references to printing, lithography, typewriting, photography and
other modes of representing or reproducing words in a visible form.
<PAGE> 2
Words importing the singular include the plural and vice versa; and
words importing male persons include female persons and words
importing individuals shall include corporations and vice versa.
1.2 The meaning of any words or phrases defined in the Company Act and the
Interpretation Act shall, if not inconsistent with definitions herein
or with the subject or context, bear the same meaning in these
Articles provided that in the event of any conflict or inconsistency
between the Company Act and the Interpretation Act, the former shall
govern.
1.3 Except as may be otherwise provided expressly or by necessary
implication in the Company Act, the rules of construction contained in
the Interpretation Act shall apply, with the necessary changes and so
far as applicable, to the interpretation of these Articles.
PART 2
SHARES AND SHARE CERTIFICATE
2.1 Every member is entitled without charge, to one certificate
representing the shares of each class or series held by him. If a
member requests the Company to issue to him more than one share
certificate for any shares of the same class or series registered in
his name, the Directors may prescribe the fee to be paid for each
additional certificate. In respect of a share or shares held jointly
by several persons, the Company shall not be bound to issue more than
one certificate, and delivery of a certificate for a share to one of
several joint registered holders or to his duly authorized agent shall
be sufficient delivery to all; and provided further that the Company
shall not be bound to issue certificates representing redeemable
shares, if such shares are to be redeemed within one month of the date
on which they were allotted. Any share certificate may be sent through
the mail by registered prepaid mail to the member entitled thereto at
his registered address, and neither the Company nor any transfer agent
shall be liable for any loss occasioned to the member owing to any
such share certificate so sent being lost in the mail, stolen or
destroyed.
2.2 If a share certificate:
(a) is worn out or defaced, the Company shall, upon production to
it of the said certificate and upon such other terms, if any,
as the Directors prescribe, order the said certificate to be
cancelled and shall issue a new certificate in replacement
thereof; or
(b) is lost, stolen or destroyed, then, upon proof thereof to the
satisfaction of the Directors and upon such indemnity, if
any, as the Directors deem adequate being given, a new share
certificate in lieu thereof shall be issued to the person
entitled to such lost, stolen or destroyed certificate.
Such sum, not exceeding the amount permitted by the Company Act, as
the Directors may from time to time fix, shall be paid to the Company
for each certificate to be issued under this Article.
2.3 Save in the case of the personal representatives of a deceased member,
the Directors may refuse to register more than three persons as the
joint holders of a share.
-2-
<PAGE> 3
2.4 Every share certificate shall be signed manually by at least one
officer or Director of the Company, or by or on behalf of a registrar,
branch registrar, transfer agent or branch transfer agent of the
Company and any additional signatures may be printed or otherwise
mechanically reproduced and, in such event, a certificate so signed is
as valid as if signed manually, notwithstanding that any person whose
signature is so printed or mechanically reproduced shall have ceased to
hold the office that he is stated on such certificate to hold at the
date of the issue of a share certificate.
2.5 Except as required by law or these Articles, no person shall be
recognized by the Company as holding any share upon any trust, and the
Company shall not be bound by or compelled in any way to recognize
(even when having notice thereof) any equitable, contingent, future or
partial interest in any share or in any fractional part of a share or
(except only as by law or these Articles provided or as ordered by a
court of competent jurisdiction) any other rights in respect of any
share except an absolute right to the entirety thereof in its
registered holder.
PART 3
ISSUE OF SHARES
3.1 Subject to the Company Act, the Memorandum and these Articles and to
the rights of holders of issued shares arising under the Company Act
or otherwise, the shares shall be under the control of the Directors
who may issue, allot, sell or otherwise dispose of, and/or grant
options on or otherwise deal in, shares authorized but not
outstanding, and outstanding shares (including shares purchased or
redeemed by the Company but not cancelled) held by the Company, at
such times, to such persons (including Directors), in such manner,
upon such terms and conditions, and at such price or for such
consideration, as they may determine.
3.2 The Directors may authorize the issue of share purchase or
subscription warrants to the purchasers or holders of any debt
obligations or other evidences of indebtedness or other obligations or
shares of the Company, upon such terms and subject to such
restrictions as they may determine.
3.3 Subject to the provisions of the Company Act, the Company, or the
Directors on behalf of the Company, may pay a commission or allow a
discount to any person in consideration of his subscribing or agreeing
to subscribe, whether absolutely or conditionally, for any shares in,
or securities of, the Company, or procuring or agreeing to procure
subscriptions, whether absolutely or conditionally, for any such
shares or securities, provided that, if the Company is not a specially
limited company, the rate of the commission and discount shall not in
the aggregate exceed 25 per centum of the amount of the subscription
price of such shares. The Directors may also on any issue or sale of
shares or other securities cause the Company to pay such brokerage as
may be lawful.
3.4 Subject to the exceptions permitted by the Company Act, no share may
be issued until it is fully paid and the Company shall have received
the full consideration therefor in cash, property or past services
actually performed for the Company. The value of property or services
for the purpose of this Article shall be the amount determined by the
Directors by resolution to be, in all circumstances of the
transaction, no greater than the fair market value thereof.
-3-
<PAGE> 4
3.5 If the Company is, or becomes, a company which is not a reporting
company and the Directors are required by the Company Act before
allotting any shares to offer them pro rata to the members, the
Directors shall, before allotting any shares, comply with the
applicable provisions of the Company Act.
PART 4
SHARE REGISTERS
4.1 The Company shall keep or cause to be kept a register of members, a
register of transfers and a register of allotments within British
Columbia, all as required by the Company Act, and may combine one or
more of such registers. If the Company's capital shall consist of more
than one class or series of shares, a separate register of members,
register of transfers and register of allotments may be kept in
respect of each class or series of shares. The Directors may appoint a
trust company to keep the register of members, register of transfers
and register of allotments or, if there is more than one class or
series of shares, the Directors may appoint a trust company, which
need not be the same trust company, to keep the register of members,
the register of transfers and the register of allotments for each
class or series of shares. The Directors may also appoint one or more
trust companies, including the trust company which keeps the said
registers of its shares or of a class or series thereof, as transfer
agent or branch transfer agent for its shares or a class or series
thereof, as the case may be, and the same or another trust company or
companies as registrar for its shares or a class or series thereof, as
the case may be. The Directors may terminate the appointment of any
trust company referred to in this Article or in Article 4.2 at any
time and may appoint another trust company in its place.
4.2 Subject to the Company Act, the Company may keep or cause to be kept
branch registers of members at such places as the Directors may
determine, provided that any such branch register kept within British
Columbia shall be kept by a trust company.
4.3 The Company shall not at any time close its register of members.
PART 5
TRANSFER AND TRANSMISSION OF SHARES
5.1 Subject to the Memorandum and these Articles, any member may
transfer any of his shares by instrument in writing executed by
or on behalf of such member. The instrument of transfer of any
share of the Company shall be in the form, if any, on the back
of the Company's share certificates or in any usual or common
form or in such other form as the Directors may from time to
time approve. Except to the extent that the Company Act may
otherwise provide, the transferor shall be deemed to remain the
holder of the shares until the name of the transferee is entered
in the register of members or a branch register of members in
respect thereof.
5.2 The signature of the registered owner of any shares, or of his duly
authorized attorney, upon an authorized instrument of transfer
delivered to the Company shall constitute a complete and sufficient
authority to the Company, its Directors, officers and agents to
register, in the name of the transferee as named in the instrument of
transfer, the number of shares specified therein or,
-4-
<PAGE> 5
if no number is specified, all the shares of the registered owner
represented by share certificates deposited with the instrument of
transfer. If no transferee is named in the instrument of transfer, the
instrument of transfer shall constitute a complete and sufficient
authority to the Company, its directors, officers and agents to
register, in the name of the person on whose behalf any certificate
for the shares to be transferred is deposited with the Company for the
purpose of having the transfer registered, the number of shares
specified in the instrument of transfer or, if no number is specified,
all the shares represented by all share certificates deposited with
the instrument of transfer.
5.3 Neither the Company nor any Director, officer or agent thereof shall
be bound to inquire into the title of the person named in the form of
transfer as transferee, or, if no person is named therein as
transferee, of the person on whose behalf the certificate is deposited
with the Company for the purpose of having the transfer registered or
be liable to any claim by such registered owner or by any intermediate
owner or holder of the certificate or of any of the shares represented
thereby or any interest therein for registering the transfer, and the
transfer, when registered, shall confer upon the person in whose name
the shares have been registered a valid title to such shares.
5.4 Every instrument of transfer shall be executed by the transferor and
left at the registered office of the Company or at the office of its
transfer agent or branch transfer agent or registrar or branch
registrar for the shares to be transferred for registration together
with the share certificate for the shares to be transferred and such
other evidence, if any, as the Directors or the transfer agent or
branch transfer agent or registrar or branch registrar may require to
prove the title of the transferor or his right to transfer the shares
and the right of the transferee to have the transfer registered. All
instruments of transfer or a photographic reproduction thereof, if the
transfer is registered, shall be retained by the Company or its
transfer agent or branch transfer agent or registrar or branch
registrar and any instrument of transfer, if the transfer is not
registered, shall be returned to the person depositing the same
together with the share certificate which accompanied the same when
tendered for registration.
5.5 There shall be paid to the Company in respect of the registration of
any transfer such sum, if any, as the Directors may from time to time
determine.
5.6 In the case of the death of a member, the survivors where the deceased
was a joint registered holder, and the personal representatives of the
deceased where he was the sole registered holder, shall be the only
persons recognized by the Company as having any title to the
deceased's interest in the shares registered in his name. Before
recognizing any personal representative the Directors may require him
to deliver to the Company the documents required by the Company Act
and such other evidence as the Directors may require of the personal
representative's appointment, including a grant of probate, letters of
administration or other similar documentation from the jurisdiction in
which the shares are to be transferred, and of the payment or
satisfaction of all taxes, duties, fees and other similar assessments
payable to any governmental authority of any applicable jurisdiction
with respect to the shares arising out of the member's death.
5.7 A guardian, committee, trustee, curator, tutor, personal
representative or trustee in bankruptcy of a member, although not a
member himself, shall have the same rights, privileges and obligations
that attach to the shares held by the member if the documents and
evidence referred in Article 5.6 are delivered to the Company. This
Article does not apply on the death of a member with respect to shares
registered in his name and the name of another person in joint
tenancy.
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5.8 Any person referred to in Article 5.7 who becomes entitled to shares
of a member, upon the documents and evidence referred to in Article
5.6 being delivered to the Company, has the right either to be
registered as a member in his representative capacity in respect of
such shares, or, if he is a personal representative, instead of being
registered himself, to make such transfer of the shares as the member
could have made; but the Directors shall, as regards a transfer by any
such person, have the same right, if any, to decline registration of a
transferee as they would have in the case of a transfer of the shares
by the member.
PART 6
ALTERATION OF CAPITAL
6.1 The Company may by ordinary resolution amend its Memorandum to
increase the authorized capital of the Company by:
(a) creating shares with par value or shares without par value, or
both;
(b) increasing the number of shares with par value or shares
without par value, or both; or
(c) increasing the par value of a class of shares with par value,
if no shares of that class are issued.
6.2 The Company may by special resolution alter its Memorandum to
subdivide, consolidate, change from shares with par value to shares
without par value, or from shares without par value to shares with par
value, or change the designation of, all or any of its shares but only
to such extent, in such manner and with such consents of members
holding a class or series of shares which is the subject of or
affected by such alteration, as the Company Act provides.
6.3 The Company may alter its Memorandum or these Articles by such
resolution as is permitted by the Company Act and by otherwise
complying with any applicable provisions of the Memorandum or these
Articles, to create, define and attach special rights or restrictions
to any shares and to vary or abrogate any special rights and
restrictions attached to any shares.
6.4 No right or special right attached to the issued shares of any class
or series shall be prejudiced or interfered with unless the consents
of the holders of the shares of each such class or series required by
the Company Act are obtained. Notwithstanding such consent, no right
or special right attached to any issued shares shall be prejudiced or
interfered with as to any part of issued shares of any class or series
unless the holders of the rest of the issued shares of such class or
series either all consent thereto in writing or consent thereto by a
resolution passed by the votes of members holding three-fourths of the
rest of such class or series.
6.5 Subject to the Company Act, and unless these Articles or the
Memorandum otherwise provide, the provisions of these Articles
relating to general meetings shall apply, with the necessary changes
and so far as they are applicable, to a class or series meeting of
members holding a particular class or series of shares but the quorum
at a class or series meeting shall be one person holding in person or
by proxy not less than one-third of the issued shares of that class or
series, as the case may be.
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6.6 The Company may, by resolution of the Directors, alter the Memorandum
by cancelling shares which are not allotted or issued, or which are
surrendered to the Company either by way of gift or otherwise in
accordance with the Company Act, and diminish its authorized capital
accordingly.
6.7 The rights, or special rights or restrictions attached to the shares
of any class or series shall, unless otherwise expressly provided by
the terms, if any, of such rights, or special rights or restrictions
be deemed not to be modified, abrogated, varied or dealt with by the
creation or issue of further shares ranking pari passu therewith.
PART 7
PURCHASE AND REDEMPTION OF SHARES
7.1 Subject to the special rights and restrictions attached to any shares,
the Company may, by resolution of the Directors and in compliance with
the Company Act, purchase any of its shares at the price and upon the
terms specified in such resolution, or redeem any of its shares which
have a right of redemption attached to them. No such purchase or
redemption shall be made if the Company is insolvent at the time of
the proposed purchase or redemption or if the proposed purchase or
redemption would render the Company insolvent. Unless the shares are
to be purchased through a stock exchange or the Company is purchasing
the shares from dissenting members pursuant to the requirements of the
Company Act, or from a bona fide employee or former employee of the
Company or an affiliate of the Company or his personal representative
in respect of shares beneficially owned by such employee or former
employee, the Company shall, if required by the Company Act, make its
offer to purchase pro rata to every member who holds shares of the
class or series, as the case may be, to be purchased.
7.2 If the Company proposes at its option to redeem some but not all of
the shares of any class or series, the Directors may, subject to the
special rights and restrictions attached to the shares of such class
or series, decide the manner in which the shares to be redeemed shall
be selected, and, subject as aforesaid, need not redeem pro rata.
7.3 Subject to the Company Act and the Memorandum, any shares purchased or
redeemed by the Company, if not cancelled, may be sold or, if
cancelled (but still in the Company's authorized capital), may be
reissued, but, while such shares which have not been cancelled are
held by the Company, it shall not exercise any vote in respect of such
shares and no dividend or other distribution shall be paid or made
thereon.
PART 8
BORROWING POWERS
8.1 Subject to the Company Act, the Directors may authorize and cause the
Company to:
(a) borrow money in such manner and amounts, on such security, or
without security, from such sources and upon such terms and
conditions as they think fit;
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<PAGE> 8
(b) guarantee the repayment of money by any other person or the
performance of any obligation of any other person;
(c) issue debt obligations, or other evidences of obligations or
indebtedness, either outright or as security for any
liability or obligation of the Company or any other person;
(d) mortgage, charge, whether by way of specific or floating
charge, or both, or give other security on the undertaking,
or on the whole or any part of the property and assets, of
the Company (both present and future); and
(e) for the purposes of the Special Corporate Powers Act of the
Province of Quebec and without in any way limiting the powers
conferred upon the Company and the Directors by the foregoing
or by any other provisions of these Articles, or by the
Memorandum, or by the Company Act, for the purpose of
securing any notes, bonds, debentures or debenture stock
which it is by law entitled to, issue, hypothecate, mortgage
or pledge, and cede and transfer, any property, moveable or
immovable, present or future, which it may own in the
Province of Quebec.
8.2 Any debt obligations of the Company may be issued at a discount,
premium or otherwise, and with any special privileges as to
redemption, surrender, drawings, allotment of or conversion into or
exchange for shares or other securities, attending and voting at
general meetings of the Company, appointment or election of Directors,
or otherwise, and may by their terms be assignable free from any
equities between the Company and the person to whom they are issued or
any other person who subsequently acquires the same, all as the
Directors may determine.
8.3 The Company shall keep or cause to be kept within the Province of
British Columbia in accordance with the Company Act a register of its
debentures and a register of debentureholders, which registers may be
combined, and if there is more than one series of debentures a
separate register of debentures and debentureholders may be kept in
respect of each series. The Directors may appoint a trust company to
keep the register of debentureholders. Subject to the Company Act, the
Company may keep or cause to be kept branch registers of its
debentureholders at such places as the Directors may determine,
provided that any such branch register kept within British Columbia
shall be kept by a trust company. The Directors may also appoint a
trust company as transfer agent or branch transfer agent for its
debentures or a series thereof. The Directors may terminate the
appointment of any such trust company at any time and may appoint
another trust company in its place.
8.4 Every debt obligation of the Company shall be signed manually be at
least one Director or officer of the Company or by or on behalf of a
trustee, registrar, branch registrar, transfer agent or branch
transfer agent for the debt obligation appointed by the Company or
under any instrument under which the debt obligation is issued, or by
or on behalf of a trustee who certifies it in accordance with a trust
indenture, and any additional signatures may be printed or otherwise
mechanically reproduced thereon and, in such event, a debt obligation
so signed is as valid as if signed manually notwithstanding that any
person whose signature is so printed or mechanically reproduced shall
have ceased to hold the office that he is stated on such debt
obligation to hold at the date of the issue thereof.
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<PAGE> 9
8.5 If the Company is or becomes a reporting company, the Company shall
keep or cause to be kept a register of its indebtedness to every
Director or officer of the Company or an associate of any of them in
accordance with the provisions of the Company Act.
PART 9
GENERAL MEETINGS
9.1 Annual general meetings of the Company shall be held as required by
the Company Act at such time and place as is determined by the
Directors.
9.2 If the Company is, or becomes, a company which is not a reporting
company, and all the members entitled to attend and vote at an annual
general meeting consent in writing to all the business which is
required or desired to be transacted at the meeting, the meeting need
not be held, and shall be deemed to have been held on the date
specified in such written consent, or, failing such a date being
specified, on the date all such members consent thereto. A written
consent for the purposes of this Article 9.2 may be given by any
method or means authorized by Article 16.9 for consenting in writing
to a resolution.
9.3 All general meetings other than annual general meetings are herein
referred to as and may be called extraordinary general meetings or
special general meetings.
9.4 The Directors may, whenever they think fit, convene a special general
meeting. A special general meeting, if requisitioned in accordance
with the Company Act, shall be convened by the Directors or, if not
convened by the Directors, may be convened by the requisitionists as
provided in the Company Act.
9.5 If the Company is or becomes a reporting company, advance notice of
any general meeting at which Directors are to be elected shall be
published in the manner required by the Company Act.
9.6 A notice convening a general meeting specifying the place, the day,
and the hour of the meeting, and, in case of special business, the
general nature of that business, shall be given as provided in the
Company Act and in the manner hereinafter in these Articles mentioned,
or in such other manner (if any) as may be prescribed by ordinary
resolution, whether previous notice thereof has been given or not, to
such persons as are entitled by law or under these Articles to receive
such notice from the Company. Accidental omission to give notice of a
meeting to, or the non-receipt of notice of a meeting, by any member
shall not invalidate the proceedings at that meeting.
9.7 All the members of the Company entitled to attend and vote at a
general meeting may, by unanimous consent in writing given before,
during or after the meeting, or if they are present at the meeting by
a unanimous vote, waive or reduce the period of notice of such meeting
and an entry in the minute book of such waiver or reduction shall be
sufficient evidence of the due convening of the meeting. A consent in
writing for the purposes of this Article 9.7 may be given by any
method or means authorized by Article 16.9 for consenting in writing
to a resolution.
9.8 Except as otherwise provided by the Company Act, where any special
business at a general meeting includes considering, approving,
ratifying, adopting or authorizing any document or the execution
thereof or the giving of effect thereto, the notice convening the
meeting shall, with
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<PAGE> 10
respect to such document, be sufficient if it states that a copy of the
document is or will be available for inspection by members at the
registered office or records office of the Company or at some other
place in British Columbia designated in the notice during usual
business hours on specified dates prior to the date of such meeting.
PART 10
PROCEEDINGS AT GENERAL MEETINGS
10.1 All business shall be deemed special business which is transacted at:
(a) a special general meeting other than the conduct of and voting
at, such meeting; and
(b) an annual general meeting, with the exception of the conduct
of, and voting at, such meeting, the consideration of the
financial statement and of the respective reports of the
Directors and Auditor, fixing or changing the number of
Directors, electing Directors, appointing the Auditor, fixing
the remuneration of the Auditor and the Directors if
applicable, and such business as by these Articles or the
Company Act may be transacted at a general meeting without
prior notice thereof being given to the members and any
business which is brought under consideration by the report
of the Directors.
10.2 No business, other than election of the chairman or the adjournment of
the meeting, shall be transacted at any general meeting unless a
quorum of members, entitled to attend and vote, is present at the
commencement of the meeting, but the quorum need not be present
throughout the meeting.
10.3 Save as herein otherwise provided, a quorum for a meeting shall be two
persons present and being, or representing by proxy, members holding
not less than one-twentieth of the issued shares entitled to be voted
at the meeting. If there is only one member the quorum is one person
present and being, or representing by proxy, such member. The
Directors, the Secretary, an Assistant Secretary and a solicitor of
the Company shall be entitled to attend at any general meeting but no
such person shall be counted in the quorum or vote at any meeting
unless he shall be a member or proxyholder entitled to vote thereat.
10.4 If within half an hour from the time appointed for a general meeting a
quorum is not present, the meeting, if convened upon the requisition
of members, shall be dissolved. In any other case it shall stand
adjourned to the same day in the next week, at the same time and
place, and, if at the adjourned meeting a quorum is not present within
half an hour from the time appointed for the meeting, the person or
persons present and being, or representing by proxy, a member or
members entitled to attend and vote at the meeting shall be a quorum.
10.5 The Chairman of the Board, if any, or in his absence the President of
the Company or in his absence a Vice-President of the Company, if any,
shall be entitled to preside as chairman at every general meeting of
the Company.
10.6 If at any general meeting neither the Chairman of the Board nor
President nor a Vice-President is present within fifteen minutes after
the time appointed for holding the meeting or is willing to act as
chairman, the Directors present shall choose some one of their number
to be chairman, or
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if all the persons occupying the said offices shall have advised the
Secretary or an Assistant Secretary that they will not be present at a
meeting, the Directors present shall choose one of their number to be
chairman or if no Director is present, the members and proxyholders
present may choose one of their number to be a chairman. If a person
willing to act is not chosen as chairman in accordance with these
provisions within 45 minutes after the time appointed for holding the
meeting, the meeting shall be dissolved.
10.7 The chairman may and shall, if so directed by the meeting, adjourn a
meeting from time to time and from place to place, but no business
shall be transacted at any adjourned meeting other than the business
left unfinished at the meeting from which the adjournment took place.
When a meeting is adjourned for thirty days or more, notice, but not,
"advance notice" referred to in Article 9.5, of the adjourned meeting
shall be given as in the case of an original meeting. Save as
aforesaid, it shall not be necessary to give any notice of an
adjourned meeting or of the business to be transacted at an adjourned
meeting.
10.8 No motion proposed at a general meeting need be seconded, and the
chairman, a director, a member or a proxyholder may propose or second
a motion.
10.9 Subject to the provisions of the Company Act, at any general meeting a
resolution put to the vote of the meeting shall be decided on a show
of hands, unless (before or on the declaration of the result of the
show of hands) a poll is directed by the chairman or demanded by at
least one member or proxyholder entitled to vote who is present. The
chairman shall declare to the meeting the decision on every question
in accordance with the result of the show of hands or the poll, and
such decision shall be entered in the book of proceedings of the
Company. A declaration by the chairman that a resolution has been
carried, or carried unanimously, or by a particular majority, or lost
or not carried by a particular majority and an entry to that effect in
the book of the proceedings of the Company shall be conclusive
evidence of the fact, without proof of the number or proportion of the
votes recorded in favour of, or against, that resolution.
10.10 In the case of an equality of votes, whether on a show of hands or on
a poll, the chairman of the meeting at which the show of hands takes
place or at which the poll is demanded shall not be entitled to a
second or casting vote.
10.11 No poll may be demanded on the election of a chairman. A poll demanded
on a question of adjournment shall be taken forthwith. A poll demanded
on any other question shall be taken as soon as, in the opinion of the
chairman, is reasonably convenient, but in no event later than seven
days after the meeting and at such time and place and in such manner
as the chairman of the meeting directs. The result of the poll shall
be deemed to be the resolution of and passed at the meeting at which
the poll was demanded. Any business other than that upon which the
poll has been demanded may be proceeded with pending the taking of the
poll. A demand for a poll may be withdrawn. In any dispute as to the
admission or rejection of a vote the decision of the chairman made in
good faith shall be final and conclusive. In the event of a poll by
mail, the seven days limit hereinbefore prescribed shall be deemed to
be satisfied if the ballot is mailed within seven days and specifies a
date by which completed ballots must be received to be counted in the
poll that date being such date as the chairman in the reasonable
exercise of his discretion thinks is appropriate, but being in no
event later than twenty-one days after the mailing of the ballot form.
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10.12 Every ballot cast upon a poll and every proxy appointing a proxyholder
who casts a ballot upon a poll shall be retained by the Secretary for
such period and be subject to such inspection as the Company Act may
provide.
10.13 On a poll a person entitled to cast more than one vote need not, if he
votes, use all his votes or cast all the votes he uses in the same
way.
10.14 Unless the Company Act, the Memorandum or these Articles otherwise
provide, any action to be taken by a resolution of the members may be
taken by an ordinary resolution.
PART 11
VOTES OF MEMBERS
11.1 Subject to any special voting rights or restrictions attached to any
shares and the restrictions on joint registered holders of shares, on
a show of hands every member who is present in person at a meeting and
entitled to vote thereat shall have one vote and on a poll every
member shall have one vote for each share entitled to be voted at the
meeting of which he is the registered holder and may exercise such
vote either in person or by proxyholder. A proxyholder shall not have
the right to vote on a show of hands unless he is a member entitled to
vote at the meeting on a show of hands.
11.2 Any person who is not registered as a member but is entitled to vote
at any meeting in respect of a share, may vote the share in the same
manner as if he were a member; but, unless the Directors have
previously admitted his right to vote at that meeting in respect of
the share, he shall satisfy the Directors or the Secretary of his
right to vote the share before the time for holding the meeting, or
adjourned meeting, as the case may be, at which he proposes to vote,
and unless he shall so satisfy the Directors or the Secretary he shall
not be entitled to vote that share.
11.3 Any corporation not being a subsidiary which is a member of the
Company may authorize such person as it thinks fit to act as its
representative at any meeting. The person so authorized shall be
entitled to exercise in respect of and at such meeting the same powers
on behalf of the corporation which he represents as that corporation
could exercise if it were an individual member of the Company
personally present, including, without limitation, the right to
appoint a proxyholder to represent such corporation, and shall, if
present at the meeting, be counted for the purpose of forming a quorum
and be deemed to be a member present at the meeting. Evidence of the
appointment of any such representative may be sent to the Company by
written instrument, telegram, telex or any method of transmitting
legibly recorded messages. Notwithstanding the foregoing, a
corporation being a member and entitled to vote may appoint a
proxyholder.
11.4 In the case of joint registered holders of a share the vote of the
senior who exercises a vote, whether in person or by proxyholder,
shall be accepted to the exclusion of the votes of the other joint
registered holders; and for this purpose seniority shall be determined
by the order in which the names stand in the register of members, the
person whose name stands first being senior to the person whose name
stands second, and so on. Several legal personal representatives of a
deceased member whose shares are registered in his sole name shall for
the purpose of this Article be deemed joint registered holders.
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11.5 A member of unsound mind entitled to attend and vote, in respect of
whom an order has been made by any court having jurisdiction, may
vote, whether on a show of hands or on a poll, by his committee,
curator bonis, or other person in the nature of a committee or curator
bonis appointed by that court, and any such committee, curator bonis,
or other person may appoint a proxyholder.
11.6 A member holding more than one share in respect of which he is
entitled to vote shall be entitled to appoint one or more, but not
more than three, proxyholders to attend, act and vote for him on the
same occasion. If such a member should appoint more than one
proxyholder for the same occasion he shall specify the number of
shares each proxyholder shall be entitled to vote. A member may also
appoint one or more alternate proxyholders to act in the place and
stead of an absent proxyholder.
11.7 A proxy shall be in writing under the hand of the appointor or of his
attorney duly authorized in writing, or, if the appointor is a
corporation, either under the seal of the corporation or under the
hand of a duly authorized officer or attorney. A proxyholder need not
be a member of the Company.
11.8 Unless otherwise permitted by the Directors, a proxy and the power of
attorney or other authority, if any, under which it is signed or a
notarially certified copy thereof shall be deposited at the registered
office of the Company or at such other place as is specified for that
purpose in the notice convening the meeting, not less than 48 hours
(excluding Saturdays and holidays) before the time for holding the
meeting in respect of which the person named in the instrument is
appointed. In addition to any other method of depositing proxies
provided for in these Articles, the Directors may, subject to the
Company Act, make regulations relating to the depositing of proxies at
any place or places and fixing the time or times for depositing the
proxies prior to the meeting or adjourned meeting at which they are to
be used and providing for particulars of such proxies to be sent to
the Company or any agent of the Company in writing or by letter,
telegram, telex or any method of transmitting legibly recorded
messages so as to arrive before the commencement of the meeting or
adjourned meeting at the office of the Company or of any agent of the
Company appointed for the purpose of receiving such particulars and
providing that proxies so deposited may be acted upon as though the
proxies themselves were deposited as required by this Part and votes
given in accordance with such regulations shall be valid and shall be
counted.
11.9 Unless the Company Act or any other statute or law which is applicable
to the Company or to any class of its shares requires any other form
of proxy, a proxy, whether for a specified meeting or otherwise, shall
be in the form following, but may also be in any other form that the
Directors or the chairman of the meeting shall approve:
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PROXY
The undersigned, being a member of_____________ , hereby appoints
_____________ , or failing him,________________ , as proxyholder for
the undersigned to attend, act and vote for and on behalf of the
undersigned at the annual or extraordinary (as the case may be)
general meeting of the Company to be held on the _____ day of _____,
19__ and at any adjournment thereof.
Signed this ___________ day of ___________ , 19__.
-------------------
(Signature of member)
11.10 A vote given in accordance with the terms of a proxy is valid
notwithstanding the previous death or incapacity of the member giving
the proxy or the revocation of the proxy or of the authority under
which the form of proxy was executed or the transfer of the share in
respect of which the proxy is given, provided that no notification in
writing of such death, incapacity, revocation or transfer shall have
been received by the chairman of the meeting or adjourned meeting for
which the proxy was given before the vote is taken.
11.11 Every proxy may be revoked by an instrument in writing:
(a) executed by the member giving the same or by his attorney
authorized in writing or, where the member is a corporation,
by a duly authorized officer or attorney of the corporation;
and
(b) delivered either at the registered office of the Company at
any time up to and including the last business day preceding
the day of the meeting, or any adjournment thereof at which
the proxy is to be used, or to the chairman of the meeting on
the day of the meeting or any adjournment thereof before any
vote in respect of which the proxy is to be used shall have
been taken,
or in any other manner provided by law.
PART 12
DIRECTORS
12.1 If the Company is an amalgamated Company, the first Directors shall be
the persons so specified in the amalgamation agreement. If the Company
is a continued Company, the first Directors shall be the persons so
specified in the Instrument of Continuation. If the Company is a new
incorporation, the Directors to succeed the first Directors, after
incorporation of the Company, may be appointed in writing by a
majority of the subscribers to the Memorandum or at a meeting of the
subscribers, or if not so appointed, they shall be elected by the
members entitled to vote on the election of Directors and the number
of Directors shall be the same as the number of Directors so appointed
or elected. The number of Directors, excluding additional Directors,
may
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be fixed or changed from time to time by ordinary resolution, whether
previous notice thereof has been given or not, but notwithstanding
anything contained in these Articles the number of Directors shall
never be less than one or, if the Company is or becomes a reporting
company, less than three.
12.2 The remuneration of the Directors as such may from time to time be
determined by the Directors or, if the Directors shall so decide, by
the members. Such remuneration may be in addition to any salary or
other remuneration paid to any officer or employee of the Company as
such who is also a Director. The Directors shall be repaid such
reasonable travelling, hotel and other expenses as they incur in and
about the business of the Company (including, if authorized by
resolution of the Directors in respect of the Directors generally,
those incurred in attending meetings of the Directors or of any
committees of the Directors) and if any Director shall perform any
professional or other services for the Company that in the opinion of
the Directors are outside the ordinary duties of a Director or shall
otherwise be specially occupied in or about the Company's business, he
may be paid a remuneration to be fixed by the Board, or, at the
option of such Director, by the Company in general meeting, and such
remuneration may be either in addition to, or in substitution for any
other remuneration that he may be entitled to receive. The Directors
on behalf of the Company, unless otherwise determined by ordinary
resolution, may pay a gratuity or pension or allowance on retirement
to any Director who has held any salaried office or place of profit
with the Company or to his spouse or dependents and may make
contributions to any fund and pay premiums for the purchase or
provision of any such gratuity, pension or allowance.
12.3 A Director shall not be required to hold a share in the capital of the
Company as qualification for his office but shall be qualified as
required by the Company Act, to become or act as a Director.
PART 13
ELECTION AND REMOVAL OF DIRECTORS
13.1 At each annual general meeting of the Company all the Directors shall
retire and the members entitled to vote thereat shall elect a Board of
Directors consisting of the number of Directors for the time being
fixed pursuant to these Articles. If the Company is, or becomes, a
company that is not a reporting company and the business to be
transacted at any annual general meeting is consented to in writing by
all the members who are entitled to attend and vote thereat such
annual general meeting shall be deemed for the purpose of this Part to
have been held on such written consent becoming effective.
13.2 A retiring Director shall be eligible for re-election.
13.3 Where the Company fails to hold an annual general meeting in
accordance with the Company Act, the Directors then in office shall be
deemed to have been elected or appointed as Directors on the last day
on which the annual general meeting could have been held pursuant to
these Articles and they may hold office until other Directors are
appointed or elected or until the day on which the next annual general
meeting is held.
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13.4 If at any general meeting at which there should be an election of
Directors, the places of any of the retiring Directors are not filled
by such election, such of the retiring Directors who are not
re-elected as may be requested by the newly-elected Directors shall,
if willing to do so, continue in office to complete the number of
Directors for the time being fixed pursuant to these Articles until
further new Directors are elected. If any such election or continuance
of Directors does not result in the election or continuance of the
number of Directors for the time being fixed pursuant to these
Articles such number shall be fixed at the number of Directors
actually elected or continued in office. If no Directors are elected
at such meeting the retiring Directors shall be deemed to have been
re-elected, but nothing herein shall prohibit or restrict the right of
a Director to resign.
13.5 Subject to Article 16.7, any casual vacancy occurring in the Board of
Directors may be filled by the remaining Directors or Director.
13.6 Between successive annual general meetings the Board of Directors
shall itself have power to appoint one or more additional Directors of
the Company but the number of Directors so
appointed shall not at any time exceed one-third of the number of
Directors elected at the last general meeting at which Directors were
elected. Any Director so appointed shall hold office only until the
next following annual general meeting of the Company, but shall be
eligible for election at such meeting and so long as he is an
additional Director the number of Directors shall be increased
accordingly.
13.7 Any Director may by instrument in writing delivered to the Company
appoint any person to be his alternate to act in his place at meetings
of the Directors at which he is not present unless the Directors shall
have reasonably disapproved the appointment of such person as an
alternate Director and shall have given notice to that effect to the
Director appointing the alternate Director within a reasonable time
after delivery of such instrument to the Company. Every such alternate
shall be entitled to notice of meetings of the Directors and to
attend, be counted in the quorum and vote as a Director at a meeting
at which the person appointing him is not personally present, and, if
the alternate is a Director in his own right, to be separately counted
in the determination of a quorum on behalf of the Director or
Directors he is representing and to have a separate vote on behalf of
the Director or Directors he is representing. Every such alternate, to
the extent not restricted by the instrument appointing him, may sign
on behalf of the Director or Directors who appointed him, resolutions
submitted to the Directors to be consented to in writing, as referred
to in Article 16.9, and shall be deemed to be a Director for the
purposes of so signing such resolutions. Save as aforesaid or as
expressly otherwise provided in these Articles, an alternate Director
shall not generally have the power to act as a Director. A Director
may at any time by instrument in writing revoke the appointment of an
alternate appointed by him. The remuneration if any payable to such an
alternate Director shall be payable out of the remuneration of the
Director appointing him. The appointment or revocation of the
appointment of an alternate Director may be by telegram, telex or any
method of transmitting legibly recorded messages delivered to the
Company.
13.8 In addition to the provisions of Article 13.1 and Article 13.9, a
Director shall cease to hold office if he:
(a) resigns his office by notice in writing delivered to the
registered office of the Company; or
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(b) is convicted of an indictable offence and the other Directors
shall have resolved to remove him; or
(c) ceases to be qualified to act as a Director pursuant to the
Company Act.
The appointment of an alternate Director shall terminate if:
(a) the Director who appointed him at any time or by notice to the
Company revokes his appointment; or
(b) he resigns by notice to the Company; or
(c) the Director who appointed him ceases for any reason to be a
Director; or
(d) he is convicted of an indictable offence and the other
Directors shall have resolved to remove him; or
(e) he ceases to hold the qualifications necessary for a Director
pursuant to the Company Act; or
(f) the term of his appointment, if any, expires.
13.9 The Company may by special resolution remove any Director before the
expiration of his period of office, and may by an ordinary resolution
appoint another person in his stead.
PART 14
POWERS AND DUTIES OF DIRECTORS
14.1 The Directors shall manage, or supervise the management of, the
affairs and business of the Company and shall have the authority to
exercise all such powers of the Company as are not, by the Company Act
or by the Memorandum or these Articles, required to be exercised by
the Company in general meeting.
14.2 The Directors may from time to time by power of attorney or other
instrument under the seal, appoint any person to be the attorney of
the Company for such purposes, and with such powers, authorities and
discretions (not exceeding those vested in or exercisable by the
Directors under these Articles and excepting the powers of the
Directors relating to the constitution of the Board and of any of its
committees and the appointment or removal of officers and the power to
declare dividends) and for such period, with such remuneration and
subject to such conditions as the Directors may think fit, and any
such power of attorney or other instrument may contain such provisions
for the protection or convenience of persons dealing with such
attorney as the Directors think fit. Any such attorney may be
authorized by the Directors to subdelegate all or any of the powers,
authorities and discretions for the time being vested in him.
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PART 15
DISCLOSURE OF INTEREST OF DIRECTORS
15.1 A Director who:
(a) is, in any way, directly or indirectly interested in an
existing or proposed contract or transaction with the Company;
or
(b) holds any office or possesses any property whereby, directly
or indirectly, a duty or interest may be created to conflict
with his duty or interest as a Director,
shall declare the nature and extent of his interest in such contract
or transaction or of the conflict or potential conflict with his duty
and interest as a Director, as the case may be, in accordance with the
Company Act. A Director interested in a contract or transaction as
aforesaid shall be counted in the quorum at a meeting of the Directors
at which the proposed contract or transaction is approved, if present
at the meeting, and such Director may vote in respect of the approval
of the contract or transaction. If he votes he may be liable to
account for any profit in accordance with the provisions of the
Company Act.
15.2 A Director may hold any office or place of profit with the Company
(other than the office of auditor of the Company) in addition to his
office of Director for such period and on such terms (as to
remuneration or otherwise) as the Directors may determine and no
Director or intended Director shall be disqualified by his office from
contracting with the Company either with regard to his tenure of any
such other office or place of profit or as vendor, purchaser or
otherwise, and, subject to compliance with the provisions of the
Company Act, no contract or transaction entered into by or on behalf
of the Company in which a Director is in any way interested shall be
liable to be voided by reason thereof.
15.3 Subject to the Company Act, a Director or his firm may act in a
professional capacity for the Company (except as auditor of the
Company) and he or his firm shall be entitled to remuneration for
professional services as if he were not a Director.
15.4 A Director may be or become a director or other officer or employee
of, or otherwise interested in, any corporation or firm in which the
Company may be interested as a shareholder or otherwise, and, subject
to compliance with the provisions of the Company Act, such Director
shall not be accountable to the Company for any remuneration or other
benefits received by him as director, officer or employee of, or from
his interest in, such other corporation or firm.
PART 16
PROCEEDINGS OF DIRECTORS
16.1 The Chairman of the Board, if any, or in his absence, the President
shall preside as chairman at every meeting of the Directors, or if
there is no Chairman of the Board or neither the Chairman of the Board
nor the President is present within fifteen minutes of the time
appointed for holding the meeting or is willing to act as chairman,
or, if the Chairman of the Board, if any, and the
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President have advised the Secretary that they will not be present at
the meeting, the Directors present shall choose one of their number to
be chairman of the meeting.
16.2 Subject to these Articles, the Directors may meet together for the
dispatch of business, adjourn and otherwise regulate their meetings,
as they think fit. Questions arising at any meeting shall be decided
by a majority of votes. In case of an equality of votes the chairman
shall not have a second or casting vote. Meetings of the Board held at
regular intervals may be held at such place, at such time and upon
such notice (if any) as the Board may by resolution from time to time
determine.
16.3 A Director may participate in a meeting of the Board or of any
committee of the Directors by means of conference telephones or other
communications facilities by means of which all Directors
participating in the meeting can hear each other and provided that all
such Directors agree to such participation. A Director participating
in a meeting in accordance with this Article shall be deemed to be
present at the meeting and to have so agreed and shall be counted in
the quorum therefor and be entitled to speak and vote thereat.
16.4 A Director may, and the Secretary or an Assistant Secretary upon
request of a Director shall, call a meeting of the Board at any time.
Reasonable notice of such meeting specifying the place, day and hour
of such meeting shall be given by mail, postage prepaid, addressed to
each of the Directors and alternate Directors at his address as it
appears on the books of the Company or by leaving it at his usual
business or residential address or by telephone, telegram, telex, or
any method of transmitting legibly recorded messages. It shall not be
necessary to give notice of a meeting of Directors to any Director if
such meeting is to be held immediately following a general meeting at
which such Director shall have been elected or is the meeting of
Directors at which such Director is appointed.
16.5 Any Director or alternate Director may file with the Secretary a
document executed by him waiving notice of any past, present or future
meeting or meetings of the Directors being, or required to have been,
sent to him and may at any time withdraw such waiver with respect to
meetings held after such withdrawal. After filing such waiver with
respect to future meetings and until such waiver is withdrawn no
notice need be given to such Director and, unless the Director
otherwise requires in writing to the Secretary, to his alternate
Director of any meeting of Directors and all meetings of the Directors
so held shall be deemed not to be improperly called or constituted by
reason of notice not having been given to such Director or alternate
Director. A waiver as aforesaid may be given by telegram, telex or
other method of transmitting legibly recorded messages.
16.6 The quorum necessary for the transaction of the business of the
Directors may be fixed by the Directors and if not so fixed shall be
that number of Directors that is a majority of the number of Directors
positions then fixed for the Company, whether or not each position is
filled.
16.7 The continuing Directors may act notwithstanding any vacancy in their
body, but, if and so long as their number is reduced below the number
that, pursuant to these Articles, is the necessary quorum for meetings
of the Directors, the continuing Directors may act for the purpose of
increasing the number of Directors to that number, or of summoning a
general meeting of the Company, but for no other purpose.
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16.8 Subject to the Company Act, all acts done by any meeting of the
Directors or of a committee of Directors, or by any person acting as a
Director, shall, notwithstanding that it be afterwards discovered that
there was some defect in the qualification, election or appointment of
any Director or person acting as aforesaid, be as valid as if every
such person had been duly elected or appointed and was qualified to be
a Director.
16.9 A resolution consented to in writing (which resolution may be in
counterparts which together shall be deemed to constitute one
resolution in writing) whether by document, telegram, telex or any
method of transmitting legibly recorded messages or other means, by
all of the Directors shall be as valid and effectual as if it had been
passed at a meeting of the Directors duly called and held on the date,
expressly or by necessary implication stated thereon to be the
effective date of the passage or adoption of the resolution. In the
event of counterparts bearing expressly or by implication different
effective dates, then in the absence of a further resolution of the
Directors in that regard, the date the resolution is passed or adopted
shall be deemed to be the latest effective date stated on any
counterpart.
PART 17
EXECUTIVE AND OTHER COMMITTEES
17.1 The Directors may appoint an Executive Committee to consist of such
member or members of their body as they think fit, which Committee
shall have, and may exercise during the intervals between the meetings
of the Directors, all the powers vested in the Directors except the
power to fill vacancies in the Board of Directors, the power to change
the membership of, or fill vacancies in, said Committee and such other
powers, if any, as may be specified by the Directors.
17.2 The Directors may appoint committees consisting of such members of
their body as they think fit and may delegate to any such committee
any power of the Directors (except the power to fill vacancies in the
Board of Directors, the power to change the membership of, or fill
vacancies in, any committee of the Directors and the power to appoint
or remove officers appointed by the Directors), subject to such
conditions as may be prescribed by the Directors.
17.3 If the Company is or becomes a reporting company, the Directors shall
appoint an audit committee at such time and consisting of such members
of their body as they think fit subject to the Company Act. The audit
committee shall exercise the powers and perform the functions of an
audit committee as described in the Company Act. In addition, the
Directors may delegate to the audit committee any power of the
Directors (except the power to fill vacancies in the Board of
Directors, the power to change the membership of, or fill vacancies
in, any committee of the Directors and the power to appoint or remove
officers appointed by the Directors), subject to such conditions as
may be prescribed by the Directors.
17.4 All committees of Directors shall keep regular minutes of their
proceedings and meetings and shall cause them to be recorded in books
kept for that purpose, and shall report the same to the Directors at
such times as the Directors may from time to time require. Committees
may make rules for the conduct of their business and may appoint such
assistants as they may deem necessary. A majority of the members of a
committee shall constitute a quorum thereof. Save as set out in this
Part 17 or in the rules made by a committee as aforesaid, the meetings
and
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proceedings of a committee consisting of more than one member
shall be governed by the provisions of these Articles regulating the
proceedings and meetings of the Directors, including, without
limitation, the provisions with respect to the appointment of
alternates to the intent that a Director who is a member of a
committee may appoint an alternate to represent him at a meeting of
the committee unless the Board of Directors shall prohibit the
appointment of alternates by the members of such committee, and
including the provisions with respect to resolutions consented to in
writing. The Directors shall have power at any time to revoke or
override any authority given to or acts to be done by any such
committees, except with respect to acts done before such revocation or
overriding, and to terminate the appointment or change the membership
of a committee and to fill vacancies in it.
PART 18
OFFICERS
18.1 The Directors shall appoint a President and a Secretary and such other
officers, if any, as the Directors shall determine from time to time
and the Directors may, at any time, terminate any such appointment. No
officer shall be appointed unless he is qualified in accordance with
the provisions of the Company Act.
18.2 One person may hold more than one of such offices except that the
offices of President and Secretary must be held by different persons
unless the Company has only one member. Any person appointed as the
Chairman of the Board, the President or the Managing Director shall be
a Director. The other officers need not be Directors.
18.3 The remuneration of the officers of the Company as such and the terms
and conditions of their tenure of office or employment shall from time
to time be determined by the Directors; such remuneration may be by
way of salary, fees, wages, commission or participation in profits or
any other means or all of these modes and an officer may in addition
to such remuneration be entitled to receive after he ceases to hold
such office or leaves the employment of the Company a pension or
gratuity.
18.4 The Directors may decide what functions and duties each officer shall
perform and may entrust to and confer upon him any of the powers
exercisable by them upon such terms and conditions and with such
restrictions as they think fit and may from time to time revoke,
withdraw, alter or vary all or any of such functions, duties and
powers. The Secretary shall, inter alia, perform the functions of the
Secretary specified in the Company Act.
18.5 Every officer of the Company who holds any office or possesses any
property whereby, whether directly or indirectly, duties or interests
might be created in conflict with his duties or interests as an
officer of the Company shall, in writing, disclose to the President
the fact and the nature and extent of the conflict.
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PART 19
INDEMNITY AND PROTECTION OF
DIRECTORS, OFFICERS AND EMPLOYEES
19.1 Subject to the Company Act and these Articles, the Directors shall
cause the Company to indemnify a Director or former Director of the
Company and a Director or former Director of a corporation which is or
was a subsidiary of the Company or (if he acted as such at the request
of the Company) of any other corporation of which the Company is or
was a shareholder and the heirs and personal representatives of any
such person against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, actually and
reasonably incurred by him or them including an amount paid to settle
an action or satisfy a judgment in a civil, criminal or administrative
action or proceeding to which he is or they are made a party by reason
of his being or having been a Director of the Company or a director of
such corporation, including any action brought by the Company or any
such corporation. The Company shall apply to the Court for all
approvals of the Court which may be required to make any indemnity
referred to in this Article effective and enforceable. The Company
shall be deemed to have contracted, on the terms of the foregoing
indemnity, with each Director of the Company and each such Director of
such corporation on his being elected or appointed.
19.2 Subject to the Company Act and these Articles, the Directors shall
cause the Company to indemnify:
(a) any officer or former officer (but in the case of an officer
of a corporation other than a subsidiary of the Company only
if he acted as such at the request of the Company); and
(b) any employee, former employee or agent or former agent
designated by the Directors,
of the Company or of a corporation which is or was a subsidiary of the
Company or of any other corporation of which the Company is or was a
shareholder (notwithstanding that he is also a Director) and his heirs
and personal representatives against all costs, charges and expenses
whatsoever (including, without limiting the generality of the
foregoing, those specifically referred to in Article 19.1 above)
incurred by him or them and resulting from his acting as an officer,
employee or agent of the Company or of such corporation. The Company
shall be deemed to have contracted, on the terms of the foregoing
indemnity, with each such officer or former officer on his being
appointed.
19.3 The failure of a person to comply with the Company Act or of the
Memorandum or these Articles shall not, of itself, invalidate any
indemnity to which such person is entitled under this Part.
19.4 The Directors may cause the Company to purchase and maintain insurance
for the benefit of:
(a) any person who is or was serving as a Director or officer of
the Company or as a director or officer of a corporation
which is or was a subsidiary of the Company or (if he acted
as such at the request of the Company) of any other
corporation of which the Company is or was a shareholder; and
(b) any person designated by the Directors who is or was serving
as an employee or agent of the Company or of such
corporation; and
(c) any person in respect of whom the Company is or may be
obligated to indemnify pursuant to this Part 19,
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and his heirs and personal representatives against any liability
incurred by him as such Director, director, officer, employee or
agent.
19.5 If any of the provisions of this Part shall be void, illegal or
invalid, the remaining provisions of this Part shall be construed and
take effect as if the void, illegal or invalid provision had never
been contained herein. The Company shall not be required to indemnify
a person pursuant to Articles 19.1 or 19.2 if such person did not,
with respect to the act or matter giving rise to the proposed
indemnification, act honestly and in good faith and with a view to the
best interests of the Company or the corporation referred to therein,
as the case may be, or in the case of a criminal or administrative act
or proceeding, if he did not have reasonable grounds for believing his
conduct was lawful or duly authorized. The provisions of this Part 19
relating to Directors and former Directors of the Company and to
directors and former directors of a corporation which is or was a
subsidiary of the Company or of a corporation in which the Company is
or was a shareholder also apply, with the necessary changes and so far
as applicable, to alternate Directors of the Company and alternate
directors of such corporations.
PART 20
DIVIDENDS AND RESERVES
20.1 Subject to the Company Act and to the special rights and restrictions
as to dividends attached to any shares, the Directors may from time to
time declare and authorize payment of such dividends, if any, as they
may deem advisable and need not give notice of such declaration to any
member. No dividend shall be paid otherwise than out of funds and/or
assets properly available for the payment of dividends and a
declaration by the Directors as to the amount of such funds and/or
assets available for dividends shall be conclusive. The Company may
pay any such dividend wholly or in part by the distribution of
specific assets and in particular by paid up shares, bonds, debentures
or other securities of the Company or any other corporation or in any
one or more such ways as may be authorized by the Company or the
Directors and where any difficulty arises with regard to such a
distribution the Directors may settle the same as they think
expedient, and in particular may fix the value for distribution of
such specific assets or any part thereof, and may determine that cash
payments in substitution for all or any part of the specific assets to
which any members are entitled shall be made to any members on the
basis of the value so fixed in order to adjust the rights of all
parties and may vest any such specific assets in trustees for the
persons entitled to the dividend as may seem expedient to the
Directors.
20.2 Any dividend declared on shares of any class or series by the
Directors may be made payable on such date as is fixed by the
Directors.
20.3 Subject to the rights of members (if any) holding shares with special
rights as to dividends, all dividends on shares of any class or series
shall be declared and paid according to the number of such shares
held.
20.4 The Directors may, before declaring any dividend, set aside out of the
funds properly available for the payment of dividends such sums as
they think proper as a reserve or reserves, which shall, at the
discretion of the Directors, be applicable for meeting contingencies,
or for equalizing dividends, or for any other purpose to which such
funds of the Company may be properly applied, and pending such
application may, at the like discretion, either be employed in the
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business of the Company or be invested in such investments as the
Directors may from time to time think fit. The Directors may also,
without placing the same in reserve, carry forward such funds, which
they think prudent not to divide.
20.5 If several persons are registered as joint holders of any share, any
one of them may give an effective receipt for any dividend, bonuses or
other moneys payable in respect of the share.
20.6 No dividend shall bear interest against the Company. Where the
dividend to which a member is entitled includes a fraction of a cent,
such fraction shall be disregarded in making payment thereof and such
payment shall be deemed to be payment in full.
20.7 Any dividend, bonus or other moneys payable in cash in respect of
shares may be paid by cheque or warrant sent through the post directed
to the registered address of the holder, or in the case of joint
holders, to the registered address of that one of the joint holders
who is first named on the register, or to such person and to such
address as the holder or joint holders may direct in writing. Every
such cheque or warrant shall be made payable to the order of the
person to whom it is sent. The mailing of such cheque or warrant
shall, to the extent of the sum represented thereby (plus the amount
of any tax required by law to be deducted) discharge all liability for
the dividend, unless such cheque or warrant shall not be paid on
presentation or the amount of tax so deducted shall not be paid to the
appropriate taxing authority.
20.8 Notwithstanding anything contained in these Articles the Directors may
from time to time capitalize any retained earnings or surplus of the
Company and may issue as fully paid and non-assessable any unissued
shares or any debt obligations of the Company as a dividend
representing such retained earnings or surplus or any part thereof.
PART 21
DOCUMENTS, RECORDS AND REPORTS
21.1 The Company shall keep at its records office or at such other place as
the Company Act may permit, the documents, copies, registers, minutes,
and records which the Company is required by the Company Act to keep
at its records office or such other place, as the case may be.
21.2 The Company shall cause to be kept proper books of account and
accounting records in respect of all financial and other transactions
of the Company in order properly to record the financial affairs and
condition of the Company and to comply with the Company Act.
21.3 Unless the Directors determine otherwise, or unless otherwise
determined by an ordinary resolution, no member of the Company shall
be entitled to inspect the accounting records of the Company.
21.4 The Directors shall from time to time at the expense of the Company
cause to be prepared and laid before the Company in general meeting
such financial statements and reports as are required by the Company
Act.
21.5 Every member shall be entitled to be furnished once gratis on demand
with a copy of the latest annual financial statement of the Company
and, if so required by the Company Act, a copy of
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each such annual financial statement and interim financial statement
shall be mailed to each member.
PART 22
NOTICES
22.1 A notice, statement or report may be given or delivered by the Company
to any member either by delivery to him personally or by sending it by
mail to him to his address as recorded in the register of members.
Where a notice, statement or report is sent by mail, service or
delivery of the notice, statement or report shall be deemed (a) to be
effected by properly addressing, prepaying and mailing the notice,
statement or report, and (b) to have been given on the date, Saturdays
and holidays excepted, following the date of mailing. A certificate
signed by the Secretary or other officer of the Company or of any
other person acting in that behalf for the Company that the letter,
envelope or wrapper containing the notice, statement or report was so
addressed, prepaid and mailed shall be conclusive evidence thereof.
22.2 A notice, statement or report may be given or delivered by the Company
to the joint holders of a share by giving the notice to the joint
holder first named in the register of members in respect of the share.
22.3 A notice, statement or report may be given or delivered by the Company
to the persons entitled to a share in consequence of the death,
bankruptcy or incapacity of a member by sending it through the mail
prepaid addressed to them by name or by his title or by any like
description, at the address (if any) supplied to the Company for the
purpose by the persons claiming to be so entitled, or (until such
address has been so supplied) by giving the notice in a manner in
which the same might have been given if the death, bankruptcy or
incapacity had not occurred.
22.4 Notice of every general meeting or meeting of members shall be given
in a manner hereinbefore authorized to every member holding at the
record date for determining the members entitled to such notice shares
which confer the right to notice of and to attend and vote at any such
meeting. No other person except the auditor of the Company and the
Directors of the Company shall be entitled to receive notices of any
such meeting.
PART 23
RECORD DATES
23.1 Subject to the Company Act, the Directors may fix in advance a date as
the record date for the determination of the members entitled to
notice of any meeting of members or any adjournment thereof, and/or a
date as the record date for the determination of the members entitled
to attend and vote at any meeting of members or any adjournment
thereof (which may but need not be the same date as the record date
for determining members entitled to notice) and/or a date as a record
date for the determination of members entitled to receive payment of a
dividend, or for any other proper purpose and in such case,
notwithstanding anything elsewhere contained in these Articles, only
members or persons of record on the date so picked shall be deemed to
be members for the particular purpose or purposes aforesaid.
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23.2 Where no record date is fixed for the determination of members
entitled to notice, or to vote, or of members entitled to receive
payment of a dividend or for any other proper purpose, the date on
which notice of the meeting is mailed or on which the resolution of
the Directors declaring the dividend is adopted respectively is the
record date for such determination.
PART 24
SEAL
24.1 The Directors may provide a seal for the Company and, if they do so,
shall provide for the safe custody of the seal which shall not be
affixed to any instrument except in the presence of the following
persons, namely;
(a) the President or the Secretary;
(b) any two Directors of the Company;
(c) one of the Chairman of the Board, the President, a Director
or the Vice-President together with any one of the Secretary,
an Assistant Secretary, the Treasurer, the
Secretary-Treasurer, an Assistant Treasurer and an Assistant
Secretary-Treasurer; or
(d) such person or persons as the Directors may from time to time
by resolution appoint,
and the said Directors, officers, person or persons in whose presence
the seal is so affixed to an instrument shall sign such instrument.
For the purpose of certifying under the seal copies or extracts from
the Memorandum or Articles of the Company, minutes of meetings or
resolutions of the members or Directors or committees of Directors, or
any instrument executed or issued by the Company, the seal may be
affixed in the presence of any one of the persons hereinbefore
mentioned unless the Directors shall by resolution determine
otherwise.
24.2 The signatures of any one or more of the Chairman of the Board,
President, Vice-Presidents, Directors, Secretary, Treasurer,
Assistant-Secretaries, Assistant-Treasurers and any other officers of
the Company and any persons referred to in Article 24.1(d) may, if
authorized by the Directors, be printed, lithographed, engraved or
otherwise mechanically reproduced upon all instruments executed or
issued by the Company; and any instrument on which the signature of
any such person is so reproduced by authorization of the Directors
shall be deemed to have been manually signed by such person whose
signature is so reproduced and shall be, subject to the Company Act,
as valid to all intents and purposes as if such instrument had been
signed manually, and notwithstanding that the person whose signature
is so reproduced may have ceased to hold office (if applicable) at the
date of the delivery or issue of such instrument. The term
"instrument" as used in Article 24.1 and this Article 24.2 shall
include deeds, mortgage, hypothecs, charges, conveyances, transfers
and assignments of property, real or personal, agreements, releases,
receipts and discharges for the payment of money or other obligation,
certificates of the Company's shares, bonds, debentures and other
securities and debt obligations of the Company, and all
paper-writings.
24.3 To enable the seal of the Company to be affixed to any debt
obligations, share certificates, or other securities of the Company,
whether in definitive or interim form, on which facsimiles of
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any of the signatures of the Directors or officers of the Company are,
in accordance with the Company Act and/or these Articles, printed or
otherwise mechanically reproduced there may be delivered to the firm
or company employed to engrave, lithograph or print such definitive or
interim debt obligations, share certificates or other securities one
or more unmounted dies reproducing the Company's seal and the Chairman
of the Board, the President, the Managing Director or a Vice-President
and the Secretary, Treasurer, Secretary-Treasurer, an Assistant
Secretary, an Assistant Treasurer or an Assistant Secretary-Treasurer
may by a document authorize such firm or company to cause the
Company's seal to be affixed to such definitive or interim debt
obligations, share certificates or other securities by the use of such
dies. Debt obligations, share certificates or other securities to
which the Company's seal has been so affixed shall for all purposes be
deemed to be under and to bear the Company's seal lawfully affixed
thereto.
24.4 The Company may have for use in any other province, state, territory
or country an official seal which shall have on its face the name of
the province, state, territory or country where it is to be used.
PART 25
PROHIBITIONS IF NOT A REPORTING COMPANY
25.1 If the Company is, or becomes, a company which is not a reporting
company under the Company Act:
(a) the number of members for the time being of the Company,
exclusive of persons who are for the time being in the
employment of the Company and continue to be members after
the termination of such employment, shall not exceed 50;
(b) no securities of the Company shall be offered for sale or
subscription to the public;
(c) no shares shall be transferred without the previous consent
of the Directors expressed by a resolution of the Board and
the Directors shall not be required to give any reason for
refusing to consent to any such proposed transfer.
PART 26
SPECIAL SHARE PROVISIONS AND DEFINITIONS
26.1 SHARE PROVISIONS. The special rights, privileges, restrictions and
conditions attached to the Convertible Shares, Exchangeable Shares and
Common Shares are set forth in Parts 26 through 32 (collectively, the
"Share Provisions").
26.2 LEGEND ON SHARE CERTIFICATES. The certificates evidencing the
Convertible Shares or the Exchangeable Shares, as the case may be,
shall contain or have affixed thereto a legend, in form and on terms
approved by the Board of Directors, with respect to the applicable
provisions relating to the Automatic Conversion Right, the Optional
Conversion Right, the Automatic Exchange Right, the Retraction Call
Right, the Liquidation Call Right, the Redemption Call
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Right, the Exchange Right and the provisions of the Trust Agreement
(including the provisions with respect to the voting rights and
exchange right thereunder) and the restrictions on transfer and
Changes of Control set out in Article 26.3.
26.3 RESTRICTIONS ON TRANSFER AND CHANGE OF CONTROL.
(a) Except with the prior written consent of the Parent, no
holder of Convertible Shares and no holder of Exchangeable
Shares (other than the Parent or Holdco) may at any time (i)
transfer to any person any Convertible Share or Exchangeable
Share or any beneficial interest therein; or, (ii) if such
holder is a body corporate, permit any Change of Control of
such holder to occur.
(b) If any holder of Exchangeable Shares permits any transaction
contemplated by Subsection 26.3(a) to occur without first
obtaining the prior written consent of the Parent (i) such
holder shall be deemed to have irrevocably exercised such
holder's retraction right pursuant to Article 28.10 with
respect to all of such holder's Exchangeable Shares as of the
date of such transaction; and (ii) the Parent or at the
Parent's option, Holdco, shall be deemed to have exercised
its Retraction Call Right pursuant to Article 28.11 with
respect to such Exchangeable Shares immediately thereafter.
(c) Notwithstanding any other provision herein, no Exchangeable
Share will be exchanged for Parent Common Shares by the
Parent, the Company or Holdco pursuant to any of the
provisions of Part 28, except (i) the provisions of Articles
28.10 and 28.11 in connection with a deemed exercise of
retraction right and a deemed exercise of Retraction Call
Right thereunder pursuant to Subsection 26.3(b); and (ii) the
provisions of Article 28.9 in connection with a Parent
Liquidation Event, unless the holder of such Exchangeable
Share delivers to the Parent, the Company or Holdco, as the
case may be, a statutory declaration in form and substance
reasonably acceptable to the Parent, the Company or Holdco,
as the case may be, sworn by such holder, or if such holder
is a body corporate, sworn by a director of such holder,
confirming that none of the events prohibited by Subsection
26.3(a) has occurred at any time except with the Parent's
prior written consent (a "No Transfer Declaration").
26.4 DEFINITIONS. In the Share Provisions, unless something in the subject
matter or context is inconsistent:
"AFFILIATE" of any person means any other person directly or
indirectly controlled by, or under common control with, that person.
For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common
control with"), as applied to any person, means the possession by
another person, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that first
mentioned person, whether through the ownership of voting securities,
by contract or otherwise.
"AUTOMATIC REDEMPTION DATE" means the date for the automatic
redemption by the Company of Exchangeable Shares pursuant to Article
28.12, being the earliest of the following:
(i) the time of and simultaneously with the closing of any
amalgamation, merger, reorganization or other transaction
affecting the Parent Common Shares that will be a taxable
event for the holders of Parent Common Shares;
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(ii) February 1 of the year immediately following any calendar
year other than 1998 during which the total number of
Exchangeable Shares outstanding or capable at being
outstanding upon conversion of the Convertible Shares and the
promissory notes issued under Section 2.2(a) of the Stock
Purchase Agreement (other than Exchangeable Shares held by
Parent or Holdco) is less than 25% of the sum of (1) the
number of Exchangeable Shares underlying the Convertible
Shares issued at the Initial Closing (as defined in the Stock
Purchase Agreement); (2) the number of Exchangeable Shares
underlying the Convertible Shares, if any, issued at the
Bonus Closing (as defined in the Stock Purchase Agreement);
(3) the number of Exchangeable Shares underlying the
Convertible Shares or the number of Exchangeable Shares, as
the case may be, if any, issued at the Second Closing (as
defined in the Stock Purchase Agreement); and (4) the number
of Exchangeable Shares into which the promissory notes issued
under Section 2.2(a) of the Stock Purchase Agreement may be
converted, in each case as such number of shares may be
adjusted as deemed appropriate by the Board of Directors to
give effect to any subdivision, combination or consolidation
of or stock dividend on the Exchangeable Shares, any issue or
distribution of rights to acquire Exchangeable Shares or
securities exchangeable for or convertible into Exchangeable
Shares, any issue or distribution of other securities or
rights or evidences of indebtedness or assets, or any other
capital reorganization or other transaction affecting the
Exchangeable Shares; and
(iii) the fifteenth anniversary of the Parent IPO Date.
"AUTOMATIC CONVERSION RIGHT" has the meaning ascribed to it in
Subsection 27.9.
"AUTOMATIC EXCHANGE RIGHT" has the meaning ascribed thereto in
Subsection 28.9(b).
"BOARD OF DIRECTORS" means the board of directors of the Company.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
when banks are not open for business in either or both of Vancouver,
British Columbia and Houston, Texas.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed
in United States Dollars (the "US$ Amount") at any date, the product
obtained by multiplying (i) the US$ Amount by (ii) the exchange rate
of Canadian dollars for United States dollars as published by the Wall
Street Journal on the last Business Day prior to such date or, in the
event such exchange rate is not available, such exchange rate on such
date as may be deemed by the Board of Directors to be appropriate for
such purpose.
"COMMON SHARES" means the Common Shares without par value.
"CONTROL" of any body corporate means the right to exercise a majority
of votes that may be cast at a general meeting of shareholders of such
body corporate; and
"CHANGE OF CONTROL" of any body corporate means the acquisition of a
sufficient number of shares to give the holder Control of such body
corporate other than by a person who is the spouse of the former
holder of such shares or by a "spouse trust" (within the meaning of
the Income Tax Act (Canada)) in relation to such former holder.
"CONVERTIBLE SHARES" means the Class A Preferred Convertible Shares
without par value.
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"CURRENT MARKET PRICE" means, in respect of the Parent Common Shares
(i) on the Parent IPO Date, the price to the public for each Parent
Common Share sold in the Parent IPO; and (ii) on any other date, the
Canadian Dollar Equivalent of the average of the high and the low
trades of the Parent Common Shares (as reported in the Wall Street
Journal) for each of the 10 trading days before such date; provided,
however, that if in the opinion of the Board of Directors the public
distribution or trading activity of Parent Common Shares during such
period does not create a market which reflects the fair market value
of a Parent Common Share, then the Current Market Price of a Parent
Common Share shall be determined by the Board of Directors based upon
the advice of such qualified independent financial advisors as the
Board of Directors may deem to be appropriate, and provided further
that any such selection, opinion or determination by the Board of
Directors shall be conclusive and binding.
"DIVIDEND AMOUNT" means (i) in connection with the Convertible Shares,
an amount equal to the full amount of all dividends and distributions
declared and unpaid on each Convertible Share; and (ii) in connection
with the Exchangeable Shares, an amount equal to the full amount of
all dividends and distributions declared and unpaid on each
Exchangeable Share and all dividends and distributions declared on a
Parent Common Share that have not been declared on each Exchangeable
Share in accordance with Article 28.3, in each case, with a record
date prior to the effective date of the exchange of such Exchangeable
Share for a Parent Common Share.
"EXCHANGE RIGHT" has the meaning ascribed thereto in Section 5.1 of the
Trust Agreement.
"EXCHANGEABLE SHARES" means the Class B Preferred Exchangeable Shares
without par value.
"HOLDCO" means Raintree Resorts Holdings ULC, an unlimited company
incorporated under the laws of the Province of Nova Scotia.
"LIQUIDATION" means for any company, the liquidation, dissolution or
winding-up of such company, whether voluntary or involuntary, or any
other distribution of the assets of such company among its
shareholders for the purpose of winding-up its affairs.
"LIQUIDATION AMOUNT" (i) in connection with the Convertible Shares,
has the meaning ascribed thereto in Subsection 27.4(a); and (ii) in
connection with the Exchangeable Shares, has the meaning ascribed
thereto in Subsection 28.7(a).
"LIQUIDATION CALL EXERCISING PARTY" (i) in connection with the
Convertible Shares, has the meaning ascribed thereto in Subsection
27.5(a); and (ii) in connection with the Exchangeable Shares, has the
meaning ascribed thereto in Subsection 28.8(a).
"LIQUIDATION CALL RIGHT" (i) in connection with the Convertible
Shares, has the meaning ascribed thereto in Subsection 27.5(a); and
(ii) in connection with the Exchangeable Shares, has the meaning
ascribed thereto in Subsection 28.8(a).
"LIQUIDATION CALL PURCHASE PRICE" (i) in connection with the
Convertible Shares, has the meaning ascribed thereto in Subsection
27.5(a); and (ii) in connection with the Exchangeable Shares, has the
meaning ascribed thereto in Subsection 28.8(a).
"LIQUIDATION DATE" has the meaning ascribed thereto in Subsection 27.4
(a).
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"NO TRANSFER DECLARATION" has the meaning ascribed to it in Subsection
26.3(b).
"OPTIONAL CONVERSION RIGHT" has the meaning ascribed to it in
Subsection 27.10(a).
"PARENT" means Raintree Resorts International, Inc., a corporation
organized and existing under the laws of the State of Nevada, and any
successor corporation.
"PARENT COMMON SHARES" mean the shares of common stock of the Parent,
with a par value of US$0.001 per share, having voting rights of one
vote per share, and any other securities into which such shares may be
changed.
"PARENT DIVIDEND DECLARATION DATE" means the date on which the board
of directors of the Parent declares any dividend on the Parent Common
Shares.
"PARENT IPO" means the initial underwritten public offering of the
Parent Common Shares pursuant to an effective registration statement
under the Securities Act of 1933, as amended.
"PARENT IPO DATE" means the date of the closing of the Parent IPO.
"PARENT IPO PRICE" means the price to the public for each Parent
Common Share sold in the Parent IPO.
"PARENT LIQUIDATION EVENT" has the meaning ascribed thereto in
Subsection 28.9(a).
"PARENT LIQUIDATION EVENT EFFECTIVE DATE" has the meaning ascribed
thereto in Subsection 28.9(c).
"PARENT STOCK TENDER OFFER" has the meaning ascribed thereto in
Section 6.8 of the Trust Agreement.
"REDEMPTION CALL EXERCISING PARTY" (i) in connection with the
Convertible Shares, has the meaning ascribed thereto in Subsection
27.7(a); and (ii) in connection with the Exchangeable Shares, has the
meaning ascribed thereto in Subsection 28.13(a).
"REDEMPTION CALL PURCHASE PRICE" (i) in connection with the
Convertible Shares, has the meaning ascribed thereto in Subsection
27.7(a); and (ii) in connection with the Exchangeable Shares, has the
meaning ascribed thereto in Subsection 28.13(a).
"REDEMPTION CALL RIGHT" (i) in connection with the Convertible Shares,
has the meaning ascribed thereto in Subsection 27.7(a); and (ii) in
connection with the Exchangeable Shares, has the meaning ascribed
thereto in Subsection 28.13(a).
"REDEMPTION DATE" has the meanings ascribed thereto in Subsections
27.6(a) and 27.6(b).
"REDEMPTION PRICE" (i) in connection with the Convertible Shares, has
the meaning ascribed thereto in Subsection 27.6(a); and (ii) in
connection with the Exchangeable Shares, has the meaning ascribed
thereto in Subsection 28.12(a).
"RETRACTED SHARES" has the meaning ascribed thereto in Subsection
28.10.
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"RETRACTION CALL EXERCISING PARTY" has the meaning ascribed thereto in
Subsection 28.11(a).
"RETRACTION CALL PURCHASE PRICE" has the meaning ascribed thereto in
Subsection 28.11(a).
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in Subsection
28.11(a).
"RETRACTION DATE" means the fifth (5th) Business Day after the date on
which a Retraction Request is received by the Company except if such
Retraction Request states that it is being made for the purpose of
participating in a Parent Stock Tender Offer, in which case,
"RETRACTION DATE" shall mean the date, if any, on which such Parent
Stock Tender Offer closes.
"RETRACTION PRICE" has the meaning ascribed thereto in Subsection 28.10
(a).
"RETRACTION REQUEST" has the meaning ascribed thereto in Subsection 28.
10(a).
"SHARE PROVISIONS" has the meaning ascribed to it in Article 26.1.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated as
of the 27th day of July, 1998 among the Parent, the Company, Raintree
Resorts Canada, LLC, G.B. Properties Ltd., K.B. Ventures Ltd., M.M. &
M. Management Ltd., Shawndra Enterprises Ltd., N. Kent Bubbs, Patricia
J. Bubbs, Geraldine L. Bubbs, G. Michael McGeough, Whiski Jack Resorts
Ltd. and Northface Realty Co. Ltd., a copy of which will be available
at the records office of the Company.
"TRUST AGREEMENT" means the Voting, Support and Exchange Trust
Agreement between the Company, the Parent and the Trustee, made as of
the 27th day of July, 1998, a copy of which will be available at the
records office of the Company.
"TRUSTEE" means Holdco, as trustee.
PART 27
CONVERTIBLE SHARE PROVISIONS
RANKING OF CONVERTIBLE SHARES
27.1 SENIOR RANKING. The Convertible Shares shall rank senior to the
Exchangeable Shares and the Common Shares, and shall be entitled to a
preference over the Exchangeable Shares, Common Shares and any other
shares ranking junior to the Convertible Shares, with respect to the
payment of dividends and the distribution of assets in the event of
the Liquidation of the Company as and to the extent provided in these
Share Provisions.
VOTING RIGHTS OF CONVERTIBLE SHAREHOLDERS
27.2 VOTING RIGHTS. Except as required by applicable law or the provisions
of Parts 30 hereof, a holder of a Convertible Share shall not, as
such, be entitled to receive notice of or attend in person or by proxy
or vote at any general meeting of the Company.
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DIVIDENDS PAYABLE TO CONVERTIBLE SHAREHOLDERS
27.3 DIVIDENDS.
(a) The holders of Convertible Shares shall be entitled to receive
and the Company shall pay, out of the assets of the Company
properly applicable to the payment of dividends, a fixed
annual cumulative preferential dividend equal to US$10 per
share each year, payable in four equal payments of US$2.50
per share on January 31, April 30, July 31 and October 31
each year, provided that (i) dividends shall begin to accrue
on each Convertible Share upon its issuance; and (ii) the
first dividend payment shall be made on October 31, 1998 and
shall be prorated accordingly. The holders of the Convertible
Shares shall not be entitled in any year to any further
dividend.
(b) If on any payment date for any dividends declared on the
Convertible Shares under Section 27.3(a), the dividends are
not paid in full on all of the Convertible Shares then
outstanding, any such dividends that remain unpaid shall be
paid on a subsequent date or dates determined by the Board of
Directors on which the Company shall have sufficient moneys,
assets or property properly applicable to the payment of such
dividends.
DISTRIBUTIONS PAYABLE TO
CONVERTIBLE SHAREHOLDERS ON LIQUIDATION
27.4 DISTRIBUTION OF LIQUIDATION AMOUNT.
(a) In the event of the Liquidation of the Company, a holder of
Convertible Shares shall be entitled, subject to applicable
law and the due exercise by the Parent or Holdco of the
Liquidation Call Right, to receive from the assets of the
Company in respect of each Convertible Share held by such
holder on the effective date (the "Liquidation Date") of such
Liquidation, an amount per share equal to (i) US$100, plus
(ii) the Dividend Amount (collectively the "Liquidation
Amount").
(b) In the case of a distribution on Convertible Shares under this
Article 27.4, on or promptly after the Liquidation Date, and
subject to the due exercise by the Parent or Holdco of the
Liquidation Call Right, the Company shall cause to be
delivered to the holders of the Convertible Shares the
Liquidation Amount for each such Convertible Share upon
presentation and surrender at the registered office of the
Company of the certificates representing such Convertible
Shares, together with such other documents and instruments as
may be required to effect a transfer of Convertible Shares
under the Company Act and such additional documents and
instruments as the Company may reasonably require. Payment of
the total Liquidation Amount for such Convertible Shares
shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Company
for the Convertible Shares or by holding for pick up by the
holder at the registered office of the Company, a cheque of
the Company payable at par at any branch of the bankers of
the Company, in the amount of the aggregate Liquidation
Amount payable to such holder. On and after the Liquidation
Date, the holders of the Convertible Shares shall cease to be
holders of such Convertible Shares and shall not be entitled
to exercise any of the rights of holders in respect thereof,
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other than the right to receive their proportionate part of
the total Liquidation Amount, unless payment of the total
Liquidation Amount for such Convertible Shares shall not be
made upon presentation and surrender of share certificates in
accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total
Liquidation Amount has been paid in the manner hereinbefore
provided.
(c) The Company shall have the right at any time on or after the
Liquidation Date to deposit or cause to be deposited the
total Liquidation Amount in respect of the Convertible Shares
represented by certificates that have not at the Liquidation
Date been surrendered by the holders thereof in a custodial
account with any chartered bank or trust company in Canada
and any interest paid on such deposit shall belong to the
Company. Upon such deposit being made, the rights of the
holders of Convertible Shares after such deposit shall be
limited to receiving their proportionate part of the total
Liquidation Amount without interest for such Convertible
Shares so deposited, against presentation and surrender of
the said certificates held by them, respectively, in
accordance with the foregoing provisions.
(d) After the Company has satisfied its obligations to pay the
holders of the Convertible Shares the Liquidation Amount per
Convertible Share pursuant to this Article 27.4, such holders
shall not be entitled to share in any further distribution of
the assets of the Company.
27.5 LIQUIDATION CALL RIGHT.
(a) Subject to the limitations set forth in Subsection 27.5(b),
the Parent and Holdco shall each have the overriding right
(the "Liquidation Call Right"), in the event of and
notwithstanding the proposed Liquidation of the Company
pursuant to Article 27.4, to purchase from all but not less
than all of the holders (other than the Parent and Holdco) of
Convertible Shares on the Liquidation Date all but not less
than all of the Convertible Shares held by each such holder
on payment by whichever of the Parent or Holdco is exercising
such right (the "Liquidation Call Exercising Party") of an
amount per share equal to (i) US$100, plus (ii) the Dividend
Amount, if any, (collectively the "Liquidation Call Purchase
Price"). Upon the exercise of the Liquidation Call Right by a
Liquidation Call Exercising Party, each holder of Convertible
Shares (other than the Parent or Holdco) shall be obligated
to sell all the Convertible Shares held by the holder to such
Liquidation Call Exercising Party on the Liquidation Date on
payment by such Liquidation Call Exercising Party to the
holder of the Liquidation Call Purchase Price for each such
share.
(b) Holdco shall be only entitled to exercise its Liquidation Call
Right with respect to those holders of Convertible Shares, if
any, in respect of which the Parent has not exercised its
Liquidation Call Right. To exercise the Liquidation Call
Right, a Liquidation Call Exercising Party must notify the
Company of its intention to exercise such right at least 55
days before the Liquidation Date in the case of a voluntary
Liquidation of the Company and at least five Business Days
before the Liquidation Date in the case of an involuntary
Liquidation of the Company. The Company will notify the
holders of Convertible Shares as to whether or not a
Liquidation Call Right has been exercised (such notice to
specify the Liquidation Call Exercising Party) forthwith
after the expiry of the date by which the same may be
exercised. If a Liquidation Call Exercising Party
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exercises the Liquidation Call Right in accordance herewith,
such Liquidation Call Exercising Party will purchase and the
holders of the Convertible Shares (other than the Parent or
Holdco) will sell all of their Convertible Shares then
outstanding for a price per share equal to the Liquidation
Call Purchase Price.
(c) For the purposes of completing the purchase of the Convertible
Shares pursuant to the exercise of a Liquidation Call Right,
the Liquidation Call Exercising Party shall deposit with the
Company, on or before the Liquidation Date, a cheque or
cheques in the amount of the total Liquidation Call Purchase
Price and any interest paid on such deposit shall belong to
the Liquidation Call Exercising Party. Provided that the
total Liquidation Call Purchase Price has been so deposited
with the Company, on and after the Liquidation Date the
rights of each holder of Convertible Shares (other than the
Parent and Holdco) will be limited to receiving such holder's
proportionate part of the total Liquidation Call Purchase
Price payable by the Liquidation Call Exercising Party upon
presentation and surrender by the holder of certificates
representing the Convertible Shares held by such holder in
accordance with the following provisions. Upon presentation
and surrender at the registered office of the Company of a
certificate or certificates representing Convertible Shares,
together with such other documents and instruments as may be
required to effect a transfer of Convertible Shares under the
Company Act and such additional documents and instruments as
the Company may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to
receive in exchange therefor, and the Company on behalf of
the Liquidation Call Exercising Party shall deliver to such
holder, a cheque in payment of the holder's proportionate
part of the total Liquidation Call Purchase Price.
(d) If neither the Parent nor Holdco exercises its Liquidation
Call Right in the manner described above, on the Liquidation
Date the holders of the Convertible Shares will be entitled
to receive in exchange therefor the liquidation price
otherwise payable by the Company in connection with the
Liquidation of the Company pursuant to Article 27.4.
REDEMPTION OF CONVERTIBLE SHARES BY COMPANY
27.6 REDEMPTION BY COMPANY.
(a) Subject to applicable law and the due exercise by either the
Parent or Holdco of its Redemption Call Right, commencing on
January 31, 1999, the Company shall, on January 31, April 30,
July 31 and October 31 of every year that any Convertible
Shares are issued and outstanding (each a "Redemption Date"),
redeem the number of Convertible Shares which is the lesser
of (i) 5,000 and (ii) the number of Convertible Shares then
issued and outstanding, for an amount per share equal to (A)
US$100, plus (B) the Dividend Amount (collectively, the
"Redemption Price"). If there is more than one holder of
Convertible Shares on any Redemption Date, the Company shall
redeem such shares pro rata according to the number of
Convertible Shares held by each such holder. If only part of
the Convertible Shares represented by any certificate is
called for redemption, a new certificate for the balance of
such Convertible Shares shall be issued to the holder at the
expense of the Company. The Company shall, at least 20
Business Days before each such Redemption Date, send or cause
to be sent to Parent, Holdco and each holder of Convertible
Shares, a notice in writing (the "Redemption Notice") setting
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<PAGE> 36
out the Redemption Date, the number of Convertible Shares to
be redeemed, the Redemption Price and particulars of the
Redemption Call Right.
(b) Subject to applicable law and the due exercise by either
Parent or Holdco of its Redemption Call Right, if the Parent
IPO Date occurs on a date (a "Redemption Date") later than
January 31, 1999, the Company shall on such Redemption Date,
have the option to redeem all the Convertible Shares that
have not been redeemed or converted into Exchangeable Shares
prior thereto for an amount per share equal to the Redemption
Price.
(c) Subject to the exercise by the Parent or Holdco of a
Redemption Call Right, the Company shall, on each Redemption
Date, cause to be paid to the holders of the Convertible
Shares to be redeemed on such date, the Redemption Price for
each such Convertible Share upon presentation and surrender
at the registered office of the Company of the certificates
representing such Convertible Shares, together with such
other documents and instruments as may be required to effect
a transfer of Convertible Shares under the Company Act and
such additional documents and instruments as the Company may
reasonably require. Payment of the aggregate Redemption Price
for such Convertible Shares held by a holder shall be made by
delivery to such holder, at the address of the holder
recorded in the securities register of the Company or by
holding for pick up by such holder at the registered office
of the Company, of a cheque of the Company payable at par at
any branch of the bankers of the Company in the amount of
such aggregate Redemption Price. On and after the Redemption
Date, the holders of the Convertible Shares called for
redemption shall cease to be holders of such Convertible
Shares and shall not be entitled to exercise any of the
rights of holders in respect thereof, other than the right to
receive their proportionate part of the total Redemption
Price, unless payment of the aggregate Redemption Price
deliverable to such holder for such Convertible Shares shall
not be made upon presentation and surrender of certificates
in accordance with the foregoing provisions, in which case
the rights of the holders shall remain unaffected until the
aggregate Redemption Price deliverable to such holder has
been paid in the manner hereinbefore provided.
(d) The Company shall have the right at any time after the sending
of notice of its intention to redeem the Convertible Shares
as aforesaid to deposit or cause to be deposited the total
Redemption Price of the Convertible Shares so called for
redemption, or of such of the said Convertible Shares
represented by certificates that have not at the date of such
deposit been surrendered by the holders thereof in connection
with such redemption, in a custodial account with any
chartered bank or trust company in Canada named in such
notice and any interest paid on such deposit shall belong to
the Company. Upon the later of such deposit being made and
the Redemption Date, the Convertible Shares in respect
whereof such deposit shall have been made shall be redeemed
and the rights of the holders thereof after such deposit or
Redemption Date, as the case may be, shall be limited to
receiving their proportionate part of the total Redemption
Price for such Convertible Shares so deposited, against
presentation and surrender of the said certificates held by
them, respectively, in accordance with the foregoing
provisions.
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27.7 REDEMPTION CALL RIGHT.
(a) Subject to the limitations set forth in Subsection 27.7(b),
the Parent and Holdco shall each have the overriding right (a
"Redemption Call Right"), notwithstanding the proposed
redemption of the Convertible Shares called for redemption by
the Company pursuant to Article 27.6 on any Redemption Date,
to purchase from all but not less than all of the holders of
such Convertible Shares (other than the Parent or Holdco), on
the last Business Day prior to such Redemption Date, all but
not less than all of the Exchangeable Shares to be issued to
such holders upon the automatic conversion of such
Convertible Shares into Exchangeable Shares pursuant to
Subsection 27.7(b), on payment by whichever of the Parent or
Holdco is exercising such right (the "Redemption Call
Exercising Party") to the holder of an amount per share equal
to (i) US$100, plus (ii) the Dividend Amount (collectively,
the "Redemption Call Purchase Price"). In the event of the
exercise of the Redemption Call Right, each holder of
Convertible Shares called for redemption (other than the
Parent or Holdco) shall be obligated to sell all the
Exchangeable Shares to be issued upon the automatic
conversion of such Convertible Shares pursuant to Subsection
27.7(b) to the Redemption Call Exercising Party on the last
Business Day prior to the Redemption Date on payment by the
Redemption Call Exercising Party to such holder of the
Redemption Call Purchase Price for each such share.
(b) Holdco shall only be entitled to exercise its Redemption Call
Right with respect to those holders of Convertible Shares, if
any, in respect of which the Parent has not exercised its
Redemption Call Right. In order to exercise its Redemption
Call Right, a Redemption Call Exercising Party must notify
the Company in writing of its intention to exercise such
right at least 10 Business Days before the Redemption Date.
The Company will notify the holders of the Convertible Shares
as to whether the Redemption Call Right has been exercised
(such notice to specify the Redemption Call Exercising Party)
forthwith after the expiry of the date by which the same may
be exercised. If a Redemption Call Exercising Party exercises
its Redemption Call Right with respect to the Convertible
Shares called for redemption on any Redemption Date, on the
last Business Day before such Redemption Date (i) the right
of the Company to redeem such Convertible Shares called for
redemption pursuant to Article 27.6 shall terminate at such
time; (ii) each such Convertible Share called for redemption
shall be automatically converted into one Exchangeable Share;
(iii) each holder of such Convertible Shares called for
redemption shall cease to be the holder of such Convertible
Shares and shall be considered and deemed for all purposes to
be the holder of one Exchangeable Share for each such
Convertible Share; (iv) the certificates held by such holder
representing such Convertible Shares called for redemption
shall thereafter be deemed to represent the Exchangeable
Shares into which such Convertible Shares were automatically
converted; and (v) the Redemption Call Exercising Party will
purchase and the former holders of such Convertible Shares
called for redemption (other than the Parent or Holdco) will
sell all the Exchangeable Shares into which such Convertible
Shares were automatically converted for a price per share
equal to the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of Exchangeable
Shares pursuant to the exercise of any Redemption Call Right,
the Redemption Call Exercising Party shall deposit with the
Company, on or before the applicable Redemption Date, a
cheque or cheques in the amount of the total Redemption Call
Purchase Price and interest paid on such deposit shall belong
to the Redemption Call Exercising Party. Provided that the
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<PAGE> 38
total Redemption Call Purchase Price has been so deposited
with the Company, on and after the last Business Day prior to
such Redemption Date, the rights of each holder of
Convertible Shares called for redemption on such date (other
than the Parent or Holdco) with respect to such Convertible
Shares will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase
Price payable by the Redemption Call Exercising Party upon
presentation and surrender by the holder of certificates
previously representing such Convertible Shares held by such
holder in accordance with the following provisions. Upon
presentation and surrender at the registered office of the
Company of a certificate or certificates previously
representing the Convertible Shares called for redemption on
such Redemption Date and deemed to represent the Exchangeable
Shares into which they were converted, together with such
other documents and instruments as may be required to effect
the automatic conversion of such Convertible Shares into
Exchangeable Shares and a subsequent transfer of such
Exchangeable Shares under the Company Act and such additional
documents and instruments as the Company may reasonably
require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange
therefor, and the Company on behalf of the Redemption Call
Exercising Party shall deliver to such holder, a cheque in
payment of the holder's proportionate part of the total
Redemption Call Purchase Price. If only part of the
Convertible Shares represented by any certificate is
converted into Exchangeable Shares and subsequently
transferred to the Redemption Call Exercising Party, a new
certificate for the balance of such Convertible Shares shall
be issued to the holder at the expense of the Company.
(d) If a Redemption Call Right is exercised in respect of the
Convertible Shares called for redemption on any Redemption
Date, the automatic conversion of such Convertible Shares
into Exchangeable Shares and the subsequent transfer of such
Exchangeable Shares to the Redemption Call Exercising Party
pursuant to Subsection 27.7(b) shall be deemed to have
occurred on the last Business Day prior to such Redemption
Date, and each former holder of such Convertible Shares shall
be deemed to have (i) transferred to the Company all of such
holder's right, title and interest in and to such Convertible
Shares, and (ii) subsequently transferred to the Redemption
Call Exercising Party all of such holder's right, title and
interest in and to the Exchangeable Shares issued upon such
automatic conversion and shall first cease to be a holder of
such Convertible Shares and then cease to be a holder of the
Exchangeable Shares into which they shall have been
converted, and provided that the Redemption Call Exercising
Party shall have delivered to the Company a cheque or cheques
in the amount of the total Redemption Call Purchase Price,
the Company shall deliver to the Redemption Call Exercising
Party or hold for pick up by the Redemption Call Exercising
Party at the registered office of the Company, a certificate
for the number of Exchangeable Shares deliverable to it
pursuant to the exercise of its Redemption Call Right (which
shares shall be duly issued as fully paid and non-assessable
and shall be free and clear of any lien, claim or
encumbrance, security interest or adverse claim), and the
Redemption Call Exercising Party shall be considered and
deemed for all purposes to be the holder of the Exchangeable
Shares delivered to it, or held by the Company on its behalf.
(e) If neither the Parent or Holdco exercises the Redemption Call
Right in the manner described above, on the Redemption Date
the holders of the Convertible Shares will be entitled to
receive in exchange therefor the redemption price otherwise
payable by the
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<PAGE> 39
Company in connection with the redemption of the Convertible
Shares pursuant to Article 27.6.
CONVERSION OF CONVERTIBLE SHARES INTO EXCHANGEABLE SHARES
27.8 NOTICE OF PARENT IPO.
(a) If the Parent IPO is expected to take place, the Parent shall
give the Company written notice of such event at least 10
Business Days prior to the initial filing of a registration
statement with respect thereto. Immediately following receipt
by the Company from the Parent of such notice, the Company
will give notice thereof to the holders of Convertible
Shares. Such notice shall be provided by the Parent to the
Company.
(b) If the Company reasonably expects the Parent IPO Date to occur
on or before March 31, 1999 and if a registration statement
is filed by October 31, 1998, such notices shall include a
brief description of the automatic conversion of Convertible
Shares into Exchangeable Shares for Parent Common Shares
provided for in Subsection 27.9 below (the "Automatic
Conversion Right"). If the Company reasonably expects the
Parent IPO Date to occur after March 31, 1999, such notices
shall include a brief description of the holder's option to
convert Convertible Shares into Exchangeable Shares provided
for in Subsection 27.10 below and the Company's right to
redeem such Convertible Shares provided for in Subsection
27.6(b).
27.9 AUTOMATIC CONVERSION.
(a) If a registration statement with respect to the Parent IPO is
filed prior to November 1, 1998 and if the Parent IPO Date
occurs on or before March 31, 1999, then on such Parent IPO
Date, all the Convertible Shares shall be automatically
converted into Exchangeable Shares. The number of
Exchangeable Shares into which each Convertible Share shall
be converted shall be equal to the quotient of (i) the sum of
US$100 plus the Dividend Amount divided by (ii) the Parent
IPO Price, provided that the aggregate number of Exchangeable
Shares to be issued to any holder upon the conversion
hereunder of the Convertible Shares held by such holder shall
be rounded down to the closest whole number. Each holder of
Convertible Shares shall be deemed to have transferred to the
Company all of such holder's right, title and interest in and
to such Convertible Shares and shall cease to be a holder of
such Convertible Shares or entitled to receive any Dividend
Amount thereon, all as of such Parent IPO Date, and the
Company shall deliver to each holder of Convertible Shares at
the address of the holder recorded in the securities register
of the Company or hold for pick up by the holder at the
registered office of the Company, a certificate for the
number of Exchangeable Shares deliverable to such holder upon
the automatic conversion of Convertible Shares for
Exchangeable Shares (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of
any lien, claim or encumbrance, security interest or adverse
claim).
(b) Concurrently with each such holder ceasing to be a holder of
Convertible Shares, such holder shall be considered and
deemed for all purposes to be the holder of the Exchangeable
Shares delivered to it, or held by the Company on its behalf,
pursuant to such automatic conversion, and the certificates
held by such holder previously
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<PAGE> 40
representing the Convertible Shares shall thereafter be
deemed to represent the Exchangeable Shares delivered to such
holder pursuant to such automatic conversion. Upon the
request of any such former holder of Convertible Shares and
the presentation and surrender at the registered office of
the Company by such holder of Convertible Share certificates
deemed to represent Exchangeable Shares, duly endorsed in
blank and accompanied by such instruments of transfer as the
Company may reasonably require, the Company shall deliver or
cause to be delivered to such holder certificates
representing the Exchangeable Shares of which such holder is
the holder.
27.10 CONVERSION AT OPTION OF HOLDER.
(a) If the Parent IPO Date has not occurred by March 31, 1999, any
holder of a Convertible Share shall be entitled at his option
to convert any Convertible Share held by him into
Exchangeable Shares simultaneously with the Parent IPO
subject to and in accordance with the following provisions
(the "Optional Conversion Right"). The number of Exchangeable
Shares into which each Common Share shall be converted shall
be equal to the quotient of (i) the sum of US$100 plus the
Dividend Amount divided by (ii) the Parent IPO Price,
provided that the aggregate number of Exchangeable Shares to
be issued to any holder upon the conversion hereunder of the
Convertible Shares held by such holder shall be rounded down
to the closest whole number.
(b) If the Company gives notice to any holder of Convertible
Shares of a Parent IPO with a Parent IPO Date scheduled to
occur on a date later than March 31, 1999, if such holder
wishes to exercise the Optional Conversion Right with respect
to all or a portion of the Convertible Shares held by such
holder, such holder shall do so in accordance with the
provisions of Subsection 27.10(c) within 5 Business Days
after receipt of such notice, failing which, such holder
shall thereafter cease to have any right to exercise the
Optional Conversion Right with respect to any Convertible
Share held by such holder unless the Parent withdraws the
registration statement with respect to the Parent IPO, in
which case, such holder's Optional Conversion Right shall be
restored on and as of the date of such withdrawal. In
addition, if any holder fails to exercise such Optional
Conversion Right in accordance with the foregoing provisions,
all the Convertible Shares of such holder shall be redeemed
by the Company on such Parent IPO Date pursuant to the
provisions of Subsection 27.6(b).
(c) Any holder of Convertible Shares may exercise the holder's
Optional Conversion Right by presenting and surrendering at
the registered office of the Company the certificate
representing the Convertible Shares to be converted into
Exchangeable Shares, together with a written notice stating
that such holder irrevocably exercises its Optional
Conversion Right with respect to such Convertible Shares and
such other documents and instruments as may be required to
effect a transfer of Convertible Shares under the Company Act
and such additional documents and instruments as the Company
may reasonably require. Upon receipt thereof, subject to
applicable law, the Company shall forthwith deliver to each
such holder, at the address of the holder recorded in the
securities register of the Company or hold for pick up by the
holder at the registered office of the Company, a certificate
registered in the name of the holder representing the
aggregate number of Exchangeable Shares deliverable by the
Company to such holder (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of
any lien, claim, encumbrance, security interest or adverse
claim).
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<PAGE> 41
(d) If the holder shall have exercised such Optional Conversion
Right with respect to any Convertible Share held by such
holder after receiving notice of a Parent IPO pursuant to
Subsection 27.10(b), such Convertible Shares shall be
converted into Exchangeable Shares and the Company shall
deliver certificates representing Exchangeable Shares to the
holder in accordance with the foregoing provisions if and
only if such Parent IPO closes on or before the scheduled
Parent IPO Date, failing which, such Convertible Shares will
not be converted into Exchangeable Shares pursuant to such
exercise of the holder's Optional Conversion Right and the
Company shall forthwith return to such holder, in accordance
with the foregoing provisions, the certificates representing
the Convertible Shares held by such holder that were to have
been converted, together with all other documents and
instruments delivered by such holder to the Company in
connection therewith.
(e) If only a part of the Convertible Shares represented by any
certificate is converted into Exchangeable Shares, a new
certificate for the balance of such Convertible Shares shall
be issued to the holder at the expense of the Company.
ALTERATIONS OF CONVERTIBLE SHARES
27.11 NO ALTERATION OF CONVERTIBLE SHARES. The Company shall not subdivide,
consolidate or change the number of authorized Convertible Shares
unless it simultaneously takes such steps, if any, as may be necessary
to ensure that the number of authorized but unissued Exchangeable
Shares immediately after such alteration will be sufficient to effect
the conversion of all authorized Convertible Shares pursuant to any of
Articles 27.7, 27.9 or 27.10 hereof immediately after such alteration.
TRANSFER OF CONVERTIBLE SHARES
27.12 TRANSFER OF CONVERTIBLE SHARES. Notwithstanding any other provision
herein, no Convertible Share may be transferred by any holder to any
person except after complying with the provisions of Article 26.3.
PART 28
EXCHANGEABLE SHARE PROVISIONS
RANKING OF EXCHANGEABLE SHARES
28.1 RANKING. The Exchangeable Shares shall rank junior to the Convertible
Shares, and shall be entitled to a preference over the Common Shares
and any other shares ranking junior to the Exchangeable Shares, with
respect to the payment of dividends and the distribution of assets in
the event of the Liquidation of the Company and to the extent provided
in this Part 28.
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<PAGE> 42
VOTING RIGHTS OF EXCHANGEABLE SHAREHOLDERS
28.2 VOTING RIGHTS. Except as required by applicable law and the provisions
of Parts 30 and 31 hereof, the holders of the Exchangeable Shares
shall not be entitled as such to receive notice of or to attend any
meeting of the shareholders of the Company or to vote at any such
meeting.
DIVIDENDS PAYABLE TO EXCHANGEABLE SHAREHOLDERS
28.3 DIVIDENDS. A holder of an Exchangeable Share shall be entitled to
receive and the Board of Directors shall, subject to applicable law,
on each Parent Dividend Declaration Date, declare a dividend on each
Exchangeable Share:
(a) in the case of a cash dividend declared on the Parent Common
Shares, in an amount in cash for each Exchangeable Share
equal to the Canadian Dollar Equivalent of the cash dividend
declared on each Parent Common Share; or
(b) in the case of a stock dividend declared on the Parent Common
Shares to be paid in Parent Common Shares, in such number of
Exchangeable Shares for each Exchangeable Share as is equal
to the number of Parent Common Shares to be paid on each
Parent Common Share; or
(c) in the case of a dividend declared on the Parent Common Shares
in property other than cash or Parent Common Shares, in such
type and amount of property for each Exchangeable Share as is
the same as or economically equivalent to (to be determined
by the Board of Directors as contemplated by Article 2.8 of
the Trust Agreement) the type and amount of property declared
as a dividend on each Parent Common Share. Such dividends
shall be paid out of money, assets or property of the Company
properly applicable to the payment of dividends, or out of
authorized but unissued shares of the Company.
28.4 PAYMENT OF DIVIDENDS. Cheques of the Company payable at par at any
branch of the bankers of the Company shall be issued in respect of any
cash dividends contemplated by Subsection 28.3(a) and the sending of
such a cheque to each holder of an Exchangeable Share shall satisfy
the cash dividend represented thereby unless the cheque is not paid on
presentation. Certificates registered in the name of the registered
holder of Exchangeable Shares shall be issued or transferred in
respect of any stock dividends contemplated by Subsection 28.3(b) and
the sending of such a certificate to each holder of an Exchangeable
Share shall satisfy the stock dividend represented thereby. Such other
type and amount of property in respect of any dividends contemplated
by Subsection 28.3(c) shall be issued, distributed or transferred by
the Company in such manner as it shall determine and the issuance,
distribution or transfer thereof by the Company to each holder of an
Exchangeable Share shall satisfy the dividend represented thereby. No
holder of an Exchangeable Share shall be entitled to recover by action
or other legal process against the Company any dividend that is
represented by a cheque that has not been duly presented to the
Company's bankers for payment or that otherwise remains unclaimed for
a period of six years from the date on which such dividend was
payable.
28.5 RECORD AND PAYMENT DATE. The record date for the determination of the
holders of Exchangeable Shares entitled to receive payment of, and the
payment date for, any dividend
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<PAGE> 43
declared on the Exchangeable Shares under Article 28.3 shall be the
same dates as the record date and payment date, respectively, for the
corresponding dividend declared on the Parent Common Shares.
28.6 PARTIAL PAYMENT. If on any payment date for any dividends declared on
the Exchangeable Shares under Article 28.3, the dividends are not paid
in full on all of the Exchangeable Shares then outstanding, any such
dividends that remain unpaid shall be paid on a subsequent date or
dates determined by the Board of Directors on which the Company shall
have sufficient moneys, assets or property properly applicable to the
payment of such dividends.
DISTRIBUTION TO EXCHANGEABLE SHAREHOLDERS ON LIQUIDATION
28.7 DISTRIBUTION OF LIQUIDATION AMOUNT.
(a) In the event of the Liquidation of the Company, a holder of
Exchangeable Shares shall be entitled, subject to applicable
law and the due exercise by the Parent or Holdco of the
Liquidation Call Right, to receive from the assets of the
Company in respect of each Exchangeable Share held by such
holder on the effective date (the "Liquidation Date") of such
Liquidation, before any distribution of any part of the
assets of the Company among the holders of the Common Shares
or any other shares ranking junior to the Exchangeable
Shares, an amount per share equal to (i) the Current Market
Price of a Parent Common Share on the last Business Day prior
to the Liquidation Date, which shall be satisfied in full by
the Company causing to be delivered to such holder one Parent
Common Share, plus (ii) the Dividend Amount (collectively the
"Liquidation Amount").
(b) In the case of a distribution on Exchangeable Shares under
this Article 28.7, on or promptly after the Liquidation Date,
and subject to the due exercise by the Parent or Holdco of
the Liquidation Call Right, the Company shall cause to be
delivered to the holders of the Exchangeable Shares the
Liquidation Amount for each such Exchangeable Share upon
presentation and surrender at the registered office of the
Company of the certificates representing such Exchangeable
Shares, together with such other documents and instruments as
may be required to effect a transfer of Exchangeable Shares
under the Company Act, a No Transfer Declaration and such
additional documents and instruments as the Company may
reasonably require. Payment of the total Liquidation Amount
for such Exchangeable Shares shall be made by delivery to
each holder, at the address of the holder recorded in the
securities register of the Company for the Exchangeable
Shares or by holding for pick up by the holder at the
registered office of the Company, of certificates
representing Parent Common Shares (which shares shall be duly
issued as fully paid and non-assessable and shall be free and
clear of any lien, claim, encumbrance, security interest or
adverse claim) and a cheque of the Company payable at par at
any branch of the bankers of the Company in respect of the
remaining portion, if any, of the aggregate Liquidation
Amount payable to such holder. On and after the Liquidation
Date, the holders of the Exchangeable Shares shall cease to
be holders of such Exchangeable Shares and shall not be
entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive their proportionate
part of the total Liquidation Amount, unless payment of the
total Liquidation Amount for such Exchangeable Shares shall
not be made upon presentation and surrender of share
certificates in accordance with the foregoing provisions, in
which case the rights of the
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holders shall remain unaffected until the total Liquidation
Amount has been paid in the manner hereinbefore provided.
(c) The Company shall have the right at any time on or after the
Liquidation Date to deposit or cause to be deposited the
total Liquidation Amount in respect of the Exchangeable
Shares represented by certificates that have not at the
Liquidation Date been surrendered by the holders thereof in a
custodial account with any chartered bank or trust company in
Canada and any interest paid on such deposit shall belong to
the Company. Upon such deposit being made, the rights of the
holders of Exchangeable Shares after such deposit shall be
limited to receiving their proportionate part of the total
Liquidation Amount without interest for such Exchangeable
Shares so deposited, against presentation and surrender of
the said certificates held by them, respectively, in
accordance with the foregoing provisions. Upon such payment
or deposit of the total Liquidation Amount, the holders of
the Exchangeable Shares shall thereafter be considered and
deemed for all purposes to be the holders of the Parent
Common Shares delivered to them.
(d) After the Company has satisfied its obligations to pay the
holders of the Exchangeable Shares the Liquidation Amount per
Exchangeable Share pursuant to this Article 28.7, such
holders shall not be entitled to share in any further
distribution of the assets of the Company.
28.8 LIQUIDATION CALL RIGHT.
(a) Subject to the limitations set forth in Subsection 28.8(b),
the Parent and Holdco shall each have the overriding right
(the "Liquidation Call Right"), in the event of and
notwithstanding the proposed Liquidation of the Company
pursuant to Article 28.7, to purchase from all but not less
than all of the holders (other than the Parent and Holdco) of
Exchangeable Shares on the Liquidation Date all but not less
than all of the Exchangeable Shares held by each such holder
on payment by whichever of the Parent or Holdco is exercising
such right (the "Liquidation Call Exercising Party") of an
amount per share equal to (i) the Current Market Price of a
Parent Common Share on the last Business Day prior to the
Liquidation Date, which shall be satisfied in full by causing
to be delivered to such holder one Parent Common Share, plus
(ii) the Dividend Amount, if any, (collectively the
"Liquidation Call Purchase Price") without interest. Upon the
exercise of the Liquidation Call Right by a Liquidation Call
Exercising Party, each holder of Exchangeable Shares (other
than the Parent or Holdco) shall be obligated to sell all the
Exchangeable Shares held by the holder to such Liquidation
Call Exercising Party on the Liquidation Date on payment by
such Liquidation Call Exercising Party to the holder of the
Liquidation Call Purchase Price for each such share.
(b) Holdco shall be only entitled to exercise its Liquidation Call
Right with respect to those holders of Exchangeable Shares,
if any, in respect of which the Parent has not exercised its
Liquidation Call Right. To exercise the Liquidation Call
Right, a Liquidation Call Exercising Party must notify the
Company of its intention to exercise such right at least 55
days before the Liquidation Date in the case of a voluntary
Liquidation of the Company and at least five Business Days
before the Liquidation Date in the case of an involuntary
Liquidation of the Company. The Company will notify the
holders of Exchangeable Shares as to whether or not a
Liquidation Call Right has been exercised (such notice to
specify the Liquidation Call Exercising Party) forthwith
after the expiry
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of the date by which the same may be exercised. If a
Liquidation Call Exercising Party exercises the Liquidation
Call Right in accordance herewith, all of the obligations of
the Company under Article 28.7 shall terminate and such
Liquidation Call Exercising Party will purchase and the
holders of the Exchangeable Shares (other than the Parent or
Holdco) will sell all of their Exchangeable Shares then
outstanding for a price per share equal to the Liquidation
Call Purchase Price.
(c) For the purposes of completing the purchase of the
Exchangeable Shares pursuant to the exercise of a Liquidation
Call Right, the Liquidation Call Exercising Party shall
deposit with the Company, on or before the Liquidation Date,
certificates representing the aggregate number of Parent
Common Shares deliverable by the Liquidation Call Exercising
Party (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien,
claim, encumbrance, security interest or adverse claim) in
payment of the total Liquidation Call Purchase Price and a
cheque or cheques in the amount of the remaining portion, if
any, of the total Liquidation Call Purchase Price and any
interest paid on such deposit shall belong to the Liquidation
Call Exercising Party. Provided that the total Liquidation
Call Purchase Price has been so deposited with the Company,
on and after the Liquidation Date the rights of each holder
of Exchangeable Shares (other than the Parent and Holdco)
will be limited to receiving such holder's proportionate part
of the total Liquidation Call Purchase Price payable by the
Liquidation Call Exercising Party upon presentation and
surrender by the holder of certificates representing the
Exchangeable Shares held by such holder in accordance with
the following provisions, and such holder shall on and after
the Liquidation Date be considered and deemed for all
purposes to be the holder of the Parent Common Shares
delivered to it. Upon surrender to the Company of a
certificate or certificates representing Exchangeable Shares,
together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under
the Company Act, a No Transfer Declaration and such
additional documents and instruments as the Company may
reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in
exchange therefor, and the Company on behalf of the
Liquidation Call Exercising Party shall deliver to such
holder, a certificate representing the Parent Common Shares
to which the holder is entitled and a cheque in payment of
the remaining portion, if any, of the holder's proportionate
part of the total Liquidation Call Purchase Price.
(d) If neither the Parent nor Holdco exercises its Liquidation
Call Right in the manner described above, on the Liquidation
Date the holders of the Exchangeable Shares will be entitled
to receive in exchange therefor the liquidation price
otherwise payable by the Company in connection with the
liquidation, dissolution or winding-up of the Company
pursuant to Article 28.7.
28.9 AUTOMATIC EXCHANGE ON LIQUIDATION OF PARENT.
(a) The Parent shall give the Company written notice of each of
the following events (each a "Parent Liquidation Event") at
the time set forth below:
(i) in the event of any determination by the board of
directors of the Parent to institute voluntary
Liquidation proceedings with respect to the Parent,
at least 60 days prior to the proposed effective
date of such Liquidation; and
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<PAGE> 46
(ii) immediately, upon receipt by the Parent of written
notice of any threatened or instituted claim, suit,
petition or other proceeding with respect to the
involuntary Liquidation of the Parent.
(b) Immediately following receipt by the Company from the Parent
of notice of any Parent Liquidation Event contemplated by
Subsection 28.9(a)(i) or 28.9(a)(ii), the Company will give
notice thereof to the holders of Exchangeable Shares. Such
notice shall be provided by the Parent to the Company and
shall include a brief description of the automatic exchange
of Exchangeable Shares for Parent Common Shares provided for
in Subsection 28.9(d) below (the "Automatic Exchange Right").
(c) In order that the holders of Exchangeable Shares (other than
the Parent and Holdco) will be able to participate on a pro
rata basis with the holders of Parent Common Shares in the
distribution of assets of the Parent in connection with a
Parent Liquidation Event, on the fifth Business Day prior to
the effective date (the "Parent Liquidation Event Effective
Date") of a Parent Liquidation Event all of the then
outstanding Exchangeable Shares (other than Exchangeable
Shares held by the Parent or Holdco) shall be automatically
exchanged for Parent Common Shares. To effect such automatic
exchange, the Parent shall purchase each Exchangeable Share
outstanding on the fifth Business Day prior to the Parent
Liquidation Event Effective Date and held by a holder of
Exchangeable Shares (other than the Parent or Holdco), and
each such holder shall sell the Exchangeable Shares held by
it at such time, for a purchase price per share equal to (i)
the Current Market Price of a Parent Common Share on the
fifth Business Day prior to the Parent Liquidation Event
Effective Date, which shall be satisfied in full by the
Parent delivering to such holder one Parent Common Share,
plus (ii) the Dividend Amount, if any.
(d) On the fifth Business Day prior to the Parent Liquidation
Event Effective Date, the closing of the transaction of
purchase and sale contemplated by the automatic exchange of
Exchangeable Shares for Parent Common Shares shall be deemed
to have occurred, and each holder of Exchangeable Shares
(other than the Parent and Holdco) shall be deemed to have
transferred to the Parent all of such holder's right, title
and interest in and to such Exchangeable Shares and shall
cease to be a holder of such Exchangeable Shares and the
Parent shall deliver or cause to be delivered to the Company,
for delivery to such holders, the certificates for the number
of Parent Common Shares deliverable upon the automatic
exchange of Exchangeable Shares for Parent Common Shares
(which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim
or encumbrance, security interest or adverse claim) and a
cheque for the balance, if any, of the total purchase price
for such Exchangeable Shares and any interest on such deposit
shall belong to the Parent. Concurrently with each such
holder ceasing to be a holder of Exchangeable Shares, such
holder shall be considered and deemed for all purposes to be
the holder of the Parent Common Shares delivered to it, or to
the Company on its behalf, pursuant to the automatic exchange
of Exchangeable Shares for Parent Common Shares and the
certificates held by such holder previously representing the
Exchangeable Shares exchanged by such holder with the Parent
pursuant to such automatic exchange shall thereafter be
deemed to represent the Parent Common Shares delivered to
such holder by the Parent pursuant to such automatic
exchange. Upon the request of any such former holder of
Exchangeable Shares and the presentation and surrender at the
registered office of the Company by such holder of
Exchangeable Share certificates deemed to represent Parent
Common Shares, duly endorsed in blank
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<PAGE> 47
and accompanied by such instruments of transfer as the Parent
may reasonably require, the Company shall deliver or cause to
be delivered to such holder certificates representing the
Parent Common Shares of which such holder is the holder and a
cheque in payment of the remaining portion, if any, of the
purchase price.
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
28.10 RETRACTION AT OPTION OF HOLDER.
(a) Subject to applicable law and the due exercise by either the
Parent or Holdco of a Retraction Call Right, a holder of
Exchangeable Shares shall be entitled at any time to require
the Company to redeem on the Retraction Date, any or all of
the Exchangeable Shares registered in the name of such holder
for an amount per share equal to (i) the Current Market Price
of a Parent Common Share on the last Business Day prior to
the Retraction Date, which shall be satisfied in full by the
Company causing to be delivered to such holder one Parent
Common Share for each Exchangeable Share presented and
surrendered by the holder, plus (ii) the Dividend Amount, if
any (collectively the "Retraction Price"). To effect such
redemption, the holder shall present and surrender at the
registered office of the Company, the certificate or
certificates representing the Exchangeable Shares which the
holder desires to have the Company redeem, together with such
other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Company Act, a No
Transfer Declaration and such additional documents and
instruments as the Company may reasonably require together
with a duly executed statement (the "Retraction Request") in
the form set out below or in such other form as may be
acceptable to the Company specifying that the holder desires
to have all or any number specified therein of the
Exchangeable Shares represented by such certificate or
certificates (the "Retracted Shares") redeemed by the
Company:
RETRACTION REQUEST
TO: Raintree Resorts International Canada Ltd. (the "Company")
CC: Raintree Resorts Holdings Ltd. ("Holdco")
Raintree Resorts International, Inc. (the "Parent")
This notice is given pursuant to Part 28 of the Articles of the
Company (the "Exchangeable Share Provisions"). All capitalized words
and expressions used in this notice which are defined in Article 26.4
of the Articles of the Company shall have the same meanings ascribed
to such words and expressions therein.
The undersigned hereby notifies the Company that, subject to the
Retraction Call Right referred to below, the undersigned desires to
have the Company redeem in accordance with Article 28.10 of the
Exchangeable Share Provisions:
(a) all share(s) represented by the attached share certificate; or
(b) _____________________ share(s) only.
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<PAGE> 48
[ ] By checking this box, the undersigned hereby notifies the Company
that this Retraction Request is being made for the purpose of
participating in a Parent Stock Tender Offer and is conditional
upon the closing thereof.
The undersigned acknowledges the Retraction Call Right of the Parent
or Holdco to purchase all but not less than all the Retracted Shares
from the undersigned and that this notice shall be deemed to be a
revocable offer by the undersigned to sell the Retracted Shares to
the Parent or Holdco, as the case may be, in accordance with the
Retraction Call Right on the Retraction Date for the Retraction Call
Purchase Price and on the other terms and conditions set out in
Article 28.11 of the Exchangeable Share Provisions. If neither the
Parent nor Holdco determines to exercise its Retraction Call Right,
the Company will notify the undersigned of such fact as soon as
possible. This notice of retraction, and offer to sell the Retracted
Shares to the Parent or Holdco, may be revoked and withdrawn by the
undersigned by notice in writing given to the Company at any time
before the close of business on the Business Day immediately
preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency
provisions of applicable law, the Company is unable to redeem all
Retracted Shares because of an Insolvency Event (as defined in the
Trust Agreement) the undersigned will be deemed to have exercised the
Exchange Right so as to require the Parent or Holdco, at the option
of the Parent, to purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Company, the
Parent and Holdco that the undersigned has good title to, and owns,
the share(s) represented by the attached share certificate(s) to be
acquired by the Company, the Parent or Holdco, as the case may be,
free and clear of all liens, claims and encumbrances.
Date: ___________________________________
------------------------------------------
Signature of Shareholder
------------------------------------------
Signature Guaranteed by
Please check box if the securities and any cheque(s) resulting from
the retraction or purchase of the Retracted Shares are to be held for
pick-up by the shareholder at the registered office of the Company in
Vancouver, failing which the securities and any cheque(s) will be
mailed to the last address of the shareholder as it appears on the
register.
[ ] Please hold securities and cheques at the registered office of
the Company in Vancouver for pick up by shareholder.
NOTE: The attached share certificate, together with such additional
documents as the Company may require, must be deposited with
the Company at its registered office in Vancouver. The
securities and any cheque(s) resulting from the retraction or
purchase of the Retracted Shares will be issued and registered
in, and made payable to, respectively, the name of the
shareholder as it appears on the register of the Company and
the securities and cheque(s) resulting from such retraction or
purchase will be delivered to such shareholder as indicated
above, unless the form appearing immediately below is duly
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<PAGE> 49
completed, all eligible transfer taxes are paid and the
guarantee of the registered holder is guaranteed by a Canadian
chartered bank or trust company or a member of a recognized
stock exchange in Canada.
----------------------------------
Name of Person in Whose Name Securities or Cheque(s) Are To Be
Registered, Issued or Delivered (please print)
----------------------------------
Street Address or P.O. Box
----------------------------------
City -- Province
NOTE: If the notice of retraction is for less than all of the
share(s) represented by this certificate, a certificate
representing the remaining shares of the Company will be issued
and registered in the name of the shareholder as it appears on
the register of the Company.
(b) In the case of a redemption of Exchangeable Shares under this
Article 28.10, and subject to the exercise of the Retraction
Call Right, upon receipt by the Company in the manner
specified in Subsection 28.10(a) of a certificate or
certificates representing the number of Exchangeable Shares
which the holder desires to have the Company redeem, together
with a Retraction Request and a No Transfer Declaration, and
provided that the Retraction Request is not revoked by the
holder in the manner specified in Subsection 28.10(e), the
Company shall redeem the Retracted Shares effective at the
close of business on the Retraction Date. On the Retraction
Date, the Company shall deliver to the relevant holder, at
the address of the holder recorded in the securities register
of the Company for the Exchangeable Shares or at the address
specified in the holder's Retraction Request or by holding
for pick up by the holder at the registered office of the
Company, a certificate representing the Parent Common Shares
to which such holder is entitled (which shares shall be duly
issued as fully paid and non-assessable and shall be free and
clear of any lien, claim, encumbrance, security interest or
adverse claim) registered in the name of the holder or in
such other name as the holder may request and a cheque of the
Company payable at par at any branch of the bankers of the
Company in payment of the remaining portion, if any, of the
total Retraction Price to which such holder is entitled, and
such delivery of such certificate and cheque by the Company
shall be deemed to be payment of and shall satisfy and
discharge all liability for the total Retraction Price to the
extent that the same is represented by such share certificate
and cheque, unless such cheque is not paid on due
presentation. If only a part of the Exchangeable Shares
represented by any certificate is redeemed, a new certificate
for the balance of such Exchangeable Shares shall be issued
to the holder at the expense of the Company.
(c) On and after the close of business on the Retraction Date, the
holder of the Retracted Shares shall cease to be a holder of
such Retracted Shares and shall not be entitled to exercise
any of the rights of a holder in respect thereof, other than
the right to receive his proportionate part of the total
Retraction Price unless upon presentation and surrender of
certificates in accordance with the foregoing provisions,
payment of the total Retraction Price shall not be made, in
which case the rights of such holder shall remain unaffected
until the total Retraction Price has been paid in the manner
hereinbefore provided. On and after the close of business on
the Retraction Date, provided that presentation and surrender
of certificates and payment of the total Retraction Price has
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<PAGE> 50
been made in accordance with the foregoing provisions, the
holder of the Retracted Shares so redeemed by the Company
shall thereafter be considered and deemed for all purposes to
be a holder of the Parent Common Shares delivered to it.
(d) Notwithstanding any other provision of this Article 28.10, the
Company shall not be obligated to redeem Retracted Shares
specified by a holder in a Retraction Request to the extent
that such redemption of Retracted Shares would be contrary to
solvency requirements or other provisions of applicable law.
If the Company believes that on any Retraction Date it would
not be permitted by any of such provisions to redeem the
Retracted Shares tendered for redemption on such date, and
provided that neither the Parent nor Holdco shall have
exercised its Retraction Call Right with respect to the
Retracted Shares, the Company shall only be obligated to
redeem Retracted Shares specified by a holder in a Retraction
Request to the extent of the maximum number that may be so
redeemed (rounded down to a whole number of shares) as would
not be contrary to such provisions and shall notify the
holder at least two Business Days prior to the Retraction
Date as to the number of Retracted Shares which will not be
redeemed by the Company. In any case in which the redemption
by the Company of Retracted Shares would be contrary to
solvency requirements or other provisions of applicable law
and more than one holder has delivered a Retraction Request,
the Company shall redeem Retracted Shares in accordance with
Subsection 28.10(b) on a pro rata basis and shall issue to
each holder of Retracted Shares a new certificate, at the
expense of the Company, representing the Retracted Shares not
redeemed by the Company pursuant to Subsection 28.10(b).
Provided that the Retraction Request is not revoked by the
holder in the manner specified in Subsection 28.10(e), and
neither the Parent nor Holdco shall have exercised its
Retraction Call Right in respect of any such Retracted
Shares, an Insolvency Event (as defined in the Trust
Agreement) shall, to the extent it has not occurred earlier,
be deemed thereupon to have occurred, and the holder of any
such Retracted Shares not redeemed by the Company pursuant to
Subsection 28.10(b) as a result of solvency requirements or
other provisions of applicable law shall be deemed by giving
the Retraction Request to have exercised its Exchange Right
so as to require the Parent, or at the option of the Parent,
Holdco, to purchase such unredeemed Retracted Shares from
such holder on the Retraction Date or as soon as practicable
thereafter on payment by the Parent or, at the option of the
Parent, Holdco, to such holder of the Retraction Price for
each such Retracted Share, all as more specifically provided
in the Trust Agreement.
(e) A holder of Retracted Shares may, by notice in writing given
by the holder to the Company before the close of business on
the Business Day immediately preceding the Retraction Date,
withdraw its Retraction Request, in which event such
Retraction Request shall be null and void.
(f) If a holder of Exchangeable Shares wishes to participate in a
Parent Stock Tender Offer, such holder shall deliver a
Retraction Request to the Company at least 10 Business Days
prior to the closing date of such Parent Stock Tender Offer
stating that such Retraction Request is being made for the
purpose of participating in the Parent Stock Tender Offer, in
which case, notwithstanding any other provision of this
Article 28.10, such retraction shall be conditional upon and
shall take place, subject to the exercise of the Retraction
Call Right, simultaneously with, the closing of such Parent
Stock Tender Offer.
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<PAGE> 51
28.11 RETRACTION CALL RIGHT.
(a) If a holder of Exchangeable Shares delivers a Retraction
Request pursuant to Article 28.10 and subject to the
limitations set forth in Subsection 28.11(b), the Parent and
Holdco shall each have the overriding right (a "Retraction
Call Right"), notwithstanding the proposed redemption of the
Exchangeable Shares by the Company pursuant to Article 28.10,
to purchase from such holder on the Retraction Date all but
not less than all of the Retracted Shares held by such holder
on payment by whichever of the Parent or Holdco is exercising
such right (the "Retraction Call Exercising Party") to the
holder of an amount per share equal to (i) the Current Market
Price of a Parent Common Share on the last Business Day prior
to the Retraction Date which shall be satisfied in full by
the Retraction Call Exercising Party causing to be delivered
to such holder one Parent Common Share plus (ii) the Dividend
Amount, if any (collectively the "Retraction Call Purchase
Price"). In the event of the exercise of the Retraction Call
Right each holder of Exchangeable Shares who has delivered a
Retraction Request shall be obligated to sell all the
Retracted Shares held by the holder to the Retraction Call
Exercising Party on the Retraction Date on payment by the
Retraction Call Exercising Party to the holder of an amount
per share equal to the Retraction Call Purchase Price for
each such share.
(b) Upon receipt by the Company of a Retraction Request, the
Company shall immediately notify the Parent and Holdco
thereof. In order to exercise its Retraction Call Right, the
Retraction Call Exercising Party must notify the Company in
writing of its determination to do so (the "Retraction Call
Notice") within two Business Days of notification to such
Retraction Call Exercising Party by the Company of the
receipt by the Company of the Retraction Request. If either
the Parent or Holdco delivers a Retraction Call Notice within
such two Business Day time period and duly exercises its
Retraction Call Right in accordance with this Article 28.11,
and provided that the Retraction Request is not revoked by
the holder in the manner specified in Subsection 28.10(e),
the Retraction Call Exercising Party shall purchase from such
holder and such holder shall sell to the Retraction Call
Exercising Party on the Retraction Date, the Retracted Shares
for the Retraction Call Purchase Price. Provided that the
total Retraction Call Purchase Price has been delivered to
the holder or deposited with the Company as provided in
Subsection 28.11(c), the closing of the purchase and sale of
the Retracted Shares pursuant to the Retraction Call Right
shall be deemed to have occurred as at the close of business
on the Retraction Date and, for greater certainty, no
redemption by the Company of such Retracted Shares shall take
place on the Retraction Date. In the event that neither the
Parent nor Holdco delivers a Retraction Call Notice within
such two Business Day period, and provided that Retraction
Request is not revoked by the holder in the manner specified
in Subsection 28.10(e), the Company shall redeem the
Retracted Shares on the Retraction Date and in the manner
otherwise contemplated in this Article 28.10.
(c) For the purposes of completing a purchase of Exchangeable
Shares pursuant to the exercise of a Retraction Call Right,
the Retraction Call Exercising Party shall or cause the
Company to deliver to the relevant holder, at the address of
the holder recorded in the securities register of the Company
for the Exchangeable Shares or at the address specified in
the holder's Retraction Request or by holding for pick up by
the holder at the registered office of the Company, a
certificate representing the number of Parent Common Shares
to which such holder is entitled (which shares shall be duly
issued as
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<PAGE> 52
fully paid and non-assessable and shall be free and clear of
any lien, claim, encumbrance, security interest or adverse
claim) registered in the name of the holder or in such other
name as the holder may request in payment of the Retraction
Call Purchase Price and a cheque of the Retraction Call
Exercising Party payable at par and in Canadian dollars at
any branch of the bankers of the Parent, Holdco or the
Company in Canada in payment of the remaining portion, if
any, of the total Retraction Call Purchase Price, and such
delivery of such certificate and cheque by or on behalf of
the Retraction Call Exercising Party shall be deemed to be
payment of and shall satisfy and discharge all liability for
the total Retraction Call Purchase Price to the extent that
the same is represented by such share certificates and
cheque, unless such cheque is not paid on due presentation.
(d) On and after the close of business on the Retraction Date, the
holder of the Retracted Shares shall cease to be a holder of
such Retracted Shares and shall not be entitled to exercise
any of the rights of a holder in respect thereof, other than
the right to receive his proportionate part of the total
Retraction Call Purchase Price unless upon presentation and
surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Call Purchase
Price shall not be made, in which case the rights of such
holder shall remain unaffected until the total Retraction
Call Purchase Price has been paid in the manner hereinbefore
provided. On and after the close of business on the
Retraction Date, provided that presentation and surrender of
certificates and payment of the total Retraction Call
Purchase Price has been made in accordance with the foregoing
provisions, the holder of the Retracted Shares so purchased
by the Retraction Call Exercising Party shall thereafter be
considered and deemed for all purposes to be a holder of the
Parent Common Shares delivered to such holder.
(e) Notwithstanding any other provisions of this Article 28.11,
if the Retraction Request states that is being made for the
purpose of participating in a Parent Stock Tender Offer, the
closing of the purchase and sale of the Retracted Shares
pursuant to the Retraction Call Right shall be conditional
upon and take place simultaneously with, the closing of such
Parent Stock Tender Offer.
REDEMPTION OF EXCHANGEABLE SHARES BY THE COMPANY
28.12 REDEMPTION BY THE COMPANY.
(a) Subject to applicable law and the due exercise by either the
Parent or Holdco of its Redemption Call Right, the Company
shall on the Automatic Redemption Date redeem the then
outstanding Exchangeable Shares for an amount per share equal
to (i) the Current Market Price of a Parent Common Share on
the last Business Day prior to the Automatic Redemption Date,
which shall be satisfied in full by the Company causing to be
delivered to each holder of Exchangeable Shares one Parent
Common Share for each Exchangeable Share held by such holder,
plus (ii) the Dividend Amount, if any (collectively the
"Redemption Price").
(b) In case of a redemption of Exchangeable Shares under this
Article 6, the Company shall, at least 90 days before the
Automatic Redemption Date, send or cause to be sent to each
holder of Exchangeable Shares a notice in writing of the
redemption by the Company or the purchase by the Parent or
Holdco under the Redemption Call Right, as the case may
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<PAGE> 53
be, of the Exchangeable Shares held by such holder (other
than the Parent or Holdco). Such notice shall set out the
formula for determining the Redemption Price or the
Redemption Call Purchase Price, as the case may be, the
Automatic Redemption Date and, if applicable, particulars of
the Redemption Call Right.
(c) On or after the Automatic Redemption Date and subject to the
exercise by the Parent or Holdco of a Redemption Call Right,
the Company shall cause to be delivered to the holders of the
Exchangeable Shares to be redeemed the Redemption Price for
each such Exchangeable Share upon presentation and surrender
at the registered office of the Company of the certificates
representing such Exchangeable Shares, together with such
other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Company Act, a No
Transfer Declaration and such additional documents and
instruments as the Company may reasonably require. Payment of
the aggregate Redemption Price for such Exchangeable Shares
held by a holder shall be made by delivery to such holder, at
the address of the holder recorded in the securities register
of the Company or by holding for pick up by such holder at
the registered office of the Company, of a certificate
representing the aggregate number of Parent Common Shares
deliverable by the Company to such holder (which shares shall
be duly issued as fully paid and non-assessable and shall be
free and clear of any lien, claim, encumbrance, security
interest or adverse claim) and a cheque of the Company
payable at par at any branch of the bankers of the Company in
respect of the remaining portion, if any, of such aggregate
Redemption Price. On and after the Automatic Redemption Date,
the holders of the Exchangeable Shares called for redemption
shall cease to be holders of such Exchangeable Shares and
shall not be entitled to exercise any of the rights of
holders in respect thereof, other than the right to receive
their proportionate part of the total Redemption Price,
unless payment of the aggregate Redemption Price deliverable
to such holder for such Exchangeable Shares shall not be made
upon presentation and surrender of certificates in accordance
with the foregoing provisions, in which case the rights of
the holders shall remain unaffected until the aggregate
Redemption Price deliverable to such holder has been paid in
the manner hereinbefore provided.
(d) The Company shall have the right at any time after the sending
of notice of its intention to redeem the Exchangeable Shares
as aforesaid to deposit or cause to be deposited the total
Redemption Price of the Exchangeable Shares so called for
redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such
deposit been surrendered by the holders thereof in connection
with such redemption, in a custodial account with any
chartered bank or trust company in Canada named in such
notice and any interest paid on such deposit shall belong to
the Company. Upon the later of such deposit being made and
the Automatic Redemption Date, the Exchangeable Shares in
respect whereof such deposit shall have been made shall be
redeemed and the rights of the holders thereof after such
deposit or Automatic Redemption Date, as the case may be,
shall be limited to receiving their proportionate part of the
total Redemption Price for such Exchangeable Shares so
deposited, against presentation and surrender of the said
certificates held by them, respectively, in accordance with
the foregoing provisions. Upon such payment or deposit of the
total Redemption Price, the holders of the Exchangeable
Shares shall thereafter be considered and deemed for all
purposes to be holders of the Parent Common Shares delivered
to them.
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<PAGE> 54
28.13 REDEMPTION CALL RIGHT.
(a) Subject to the limitations set forth in Subsection 28.13(b),
the Parent and Holdco shall each have the overriding right (a
"Redemption Call Right"), notwithstanding the proposed
redemption of the Exchangeable Shares by the Company pursuant
to Article 28.12, to purchase from all but not less than all
of the holders of Exchangeable Shares (other than the Parent
or Holdco) on the last Business Day prior to the Automatic
Redemption Date all but not less than all of the Exchangeable
Shares held by each such holder on payment by whichever of
the Parent or Holdco is exercising such right (the
"Redemption Call Exercising Party") to the holder of an
amount per share equal to (i) the Current Market Price of a
Parent Common Share on the last Business Day prior to the
Automatic Redemption Date which shall be satisfied in full by
the Redemption Call Exercising Party causing to be delivered
to such holder one Parent Common Share plus (ii) the Dividend
Amount, if any (collectively the "Redemption Call Purchase
Price"). In the event of the exercise of the Redemption Call
Right, each holder of Exchangeable Shares (other than the
Parent or Holdco) shall be obligated to sell all the
Exchangeable Shares held by the holder to the Redemption Call
Exercising Party on the last Business Day prior to the
Automatic Redemption Date on payment by the Redemption Call
Exercising Party to such holder of the Redemption Call
Purchase Price for each such share.
(b) Holdco shall only be entitled to exercise its Redemption Call
Right with respect to those holders of Exchangeable Shares,
if any, in respect of which the Parent has not exercised its
Redemption Call Right. In order to exercise its Redemption
Call Right, a Redemption Call Exercising Party must notify
the Company in writing of its intention to exercise such
right at least 125 days before the Automatic Redemption Date.
The Company will notify the holders of the Exchangeable
Shares as to whether or not the Redemption Call Right has
been exercised (such notice to specify the Redemption Call
Exercising Party) forthwith after the expiry of the date by
which the same may be exercised. If a Redemption Call
Exercising Party exercises its Redemption Call Right, the
right of the Company to redeem Exchangeable Shares pursuant
to Article 28.12 shall terminate at such time, and on the
last Business Date prior to the Automatic Redemption Date,
the Redemption Call Exercising Party will purchase and the
holders of Exchangeable Shares (other than the Parent or
Holdco) will sell all of their Exchangeable Shares then
outstanding for a price per share equal to the Redemption
Call Purchase Price.
(c) For the purposes of completing the purchase of the
Exchangeable Shares pursuant to the Redemption Call Right,
the Redemption Call Exercising Party shall deposit with the
Company, on or before the Automatic Redemption Date,
certificates representing the total number of Parent Common
Shares deliverable by the Redemption Call Exercising Party
(which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien,
claim, encumbrance, security interest or adverse claim) in
payment of the total Redemption Call Purchase Price and a
cheque or cheques in the amount of the remaining portion, if
any, of the total Redemption Call Purchase Price and interest
paid on such deposit shall belong to the Redemption Call
Exercising Party. Provided that the total Redemption Call
Purchase Price has been so deposited with the Company, on and
after the last Business Day prior to the Automatic Redemption
Date, the rights of each holder of Exchangeable Shares (other
than the Parent or Holdco) will be limited to receiving such
holder's proportionate part of the total Redemption Call
Purchase Price payable by the Redemption Call Exercising
Party upon presentation and surrender by the
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<PAGE> 55
holder of certificates representing the Exchangeable Shares
held by such holder in accordance with the following
provisions and such holder shall on and after the last
Business Day prior to the Automatic Redemption Date be
considered and deemed for all purposes to be the holder of
the Parent Common Shares delivered to such holder. Upon
surrender to the Company of a certificate or certificates
representing Exchangeable Shares, together with such other
documents and instruments as may be required to effect a
transfer of Exchangeable Shares under the Company Act and
such additional documents and instruments as the Company may
reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in
exchange therefor, and the Company on behalf of the
Redemption Call Exercising Party shall deliver to such
holder, a certificate representing the Parent Common Shares
to which such holder is entitled and a cheque in payment of
the remaining portion, if any, of the holder's proportionate
part of the total Redemption Call Purchase Price.
(d) If neither the Parent or Holdco exercises the Redemption Call
Right in the manner described above, on the Automatic
Redemption Date the holders of the Exchangeable Shares will
be entitled to receive in exchange therefor the redemption
price otherwise payable by the Company in connection with the
redemption of the Exchangeable Shares pursuant to Article
28.12.
TRANSFER OF EXCHANGEABLE SHARES
28.14 TRANSFER OF EXCHANGEABLE SHARES. Notwithstanding any other provision
herein, no Exchangeable Share may be transferred by any holder to any
person except after complying with the provisions of Article 26.3.
PART 29
COMMON SHARE PROVISIONS
29.1 VOTING RIGHTS. Each holder of a Common Share shall be entitled to
receive notice of and attend any general meeting of the Company and
shall have the right to vote at any such meeting on the basis of one
vote for each such share held.
29.2 DIVIDENDS. Subject to Article 30.1 hereof and to the prior rights of
the holders of the Convertible Shares, Exchangeable Shares and any
other shares ranking senior to the Common Shares with respect to
priority in the payment of dividends, the holders of Common Shares
shall be entitled to receive dividends and the Company shall pay
dividends thereon, as and when declared by the Board of Directors out
of the assets of the Company properly applicable to the payment of
dividends, in such amount and in such form as the Board of Directors
may from time to time determine and all dividends that the directors
may declare on the Common Shares shall be declared and paid in equal
amounts per share on all Common Shares at the time outstanding.
29.3 DISSOLUTION. Subject to Article 30.1 hereof and to the prior rights
of the holders of the Convertible Shares and Exchangeable Shares, in
the event of the liquidation, dissolution or winding-up of the
Company or other distribution of assets of the Company among its
members for the purpose of winding-up its affairs, the holders of the
Common Shares shall be entitled to
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<PAGE> 56
participate rateably in any distribution of the assets of the
Company for the purposes of winding-up its affairs.
PART 30
CERTAIN RESTRICTIONS; AMENDMENT AND APPROVAL
30.1 CERTAIN RESTRICTIONS. Except as provided in Article 30.2, so long as
any of the Convertible Shares or Exchangeable Shares are outstanding,
the Company shall not at any time without, but may at any time with,
the prior approval of the holders of the Convertible Shares and the
holders of the Exchangeable Shares given as hereinafter specified in
Article 30:
(a) pay any dividends on the Common Shares, or any other shares
ranking junior to the Convertible Shares or the Exchangeable
Shares, other than stock dividends payable in Common Shares
or any such other shares ranking junior to the Convertible
Shares or the Exchangeable Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in
respect of Common Shares or any other shares ranking junior
to the Convertible Shares or the Exchangeable Shares;
(c) redeem or purchase any other shares of the Company ranking
equally with the Convertible Shares or the Exchangeable
Shares with respect to the payment of dividends or on any
liquidation distribution; or
(d) issue any Convertible Shares or any other shares of the
Company ranking equally with, or superior to, the Convertible
Shares other than: (i) pursuant to the Stock Purchase
Agreement; or (ii) by way of stock dividends to the holders
of such Convertible Shares.
30.2 EXCEPTION. The restrictions set out in Subsections 30.1(a), (b) and
(c) shall not apply if:
(a) all dividends on the outstanding Convertible Shares shall
have been declared and paid in full in accordance with
Article 27.3; and
(b) all dividends and distributions on the outstanding
Exchangeable Shares corresponding to dividends and
distributions declared to date on the Parent Common Shares
shall have been declared on the Exchangeable Shares and paid
in full.
30.3 AMENDMENT OF SHARE PROVISIONS. The rights, privileges, restrictions
and conditions attaching to the Common Shares, the Convertible Shares
or the Exchangeable Shares may be added to, changed or removed but
only with the approval of the holders of the Convertible Shares and
the holders of the Exchangeable Shares given as hereinafter specified
in Article 30.4(a).
30.4 APPROVAL.
(a) Any approval or consent given by the holders of the
Convertible Shares and the holders of the Exchangeable Shares
to add to, change or remove any right, privilege, restriction
or condition attaching to the Common Shares, the Convertible
Shares or the Exchangeable Shares shall be deemed to have
been sufficiently given if it shall have been
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<PAGE> 57
given in accordance with applicable law subject to a minimum
requirement that such approval be evidenced by resolution
passed by not less than 75% of the votes cast on such
resolution at a meeting of the holders of the Convertible
Shares or the holders of Exchangeable Shares, as the case may
be, duly called and held.
(b) Any approval or consent given by the holders of the
Convertible Shares and the holders of the Exchangeable Shares
on any matter requiring the approval or consent of the
holders of the Convertible Shares and the holders of the
Exchangeable Shares, other than those expressly set out in
Subsection 30.4(a), shall be deemed to have been sufficiently
given if it shall have been given in accordance with
applicable law subject to a minimum requirement that such
approval be evidenced by resolution passed by more than 50%
of the votes cast on such resolution at a meeting of the
holders of the Convertible Shares or the holders of
Exchangeable Shares, as the case may be, duly called and held
PART 31
TRUST AGREEMENT AND PARENT COMMON SHARES
31.1 RECIPROCAL CHANGES IN RESPECT OF PARENT COMMON SHARES.
(a) Each holder of an Exchangeable Share acknowledges that the
Trust Agreement provides, in part, that the Parent will not
without the prior approval of the Company and the prior
approval of the holders of the Exchangeable Shares given in
accordance with Article 30.4:
(i) issue or distribute Parent Common Shares (or
securities exchangeable for or convertible into or
carrying rights to acquire Parent Common Shares) to
the holders of all or substantially all of the then
outstanding Parent Common Shares by way of stock
dividend or other distribution, other than an issue
of Parent Common Shares (or securities exchangeable
for or convertible into or carrying rights to
acquire Parent Common Shares) to holders of Parent
Common Shares who exercise an option to receive
dividends in Parent Common Shares (or securities
exchangeable for or convertible into or carrying
rights to acquire Parent Common Shares) in lieu of
receiving cash dividends; or
(ii) issue or distribute rights, options or warrants to
the holders of all or substantially all of the then
outstanding Parent Common Shares entitling them to
subscribe for or to purchase Parent Common Shares
(or securities exchangeable for or convertible into
or carrying rights to acquire Parent Common Shares);
or
(iii) issue or distribute to the holders of all or
substantially all of the then outstanding Parent
Common Shares (A) shares or securities of the Parent
of any class other than Parent Common Shares (other
than shares convertible into or exchangeable for or
carrying rights to acquire Parent Common Shares),
(B) rights, options or warrants other than those
referred to in Subsection 31.1(a)(ii) above, (C)
evidences of indebtedness of the Parent or (D)
assets of the Parent;
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<PAGE> 58
unless the economic equivalent on a per share basis of such
rights, options, securities, shares, evidences of
indebtedness or other assets is issued or distributed
simultaneously to the holders of the Exchangeable Shares.
(b) Each holder of an Exchangeable Share acknowledges that the
Trust Agreement further provides, in part, that the Parent
will not without the prior approval of the Company and the
prior approval of the holders of the Exchangeable Shares
given in accordance with Article 30.4:
(i) subdivide, redivide or change the then outstanding
Parent Common Shares into a greater number of Parent
Common Shares; or
(ii) reduce, combine or consolidate or change the then
outstanding Parent Common Shares into a lesser
number of Parent Common Shares; or
(iii) reclassify or otherwise change the Parent Common
Shares or effect an amalgamation, merger,
reorganization or other transaction affecting the
Parent Common Shares;
unless the same or an economically equivalent change shall
simultaneously be made to, or in the rights of the holders
of, the Exchangeable Shares. The Trust Agreement further
provides, in part, that the aforesaid provisions of the Trust
Agreement shall not be changed without the prior approval of
the holders of the Exchangeable Shares given in accordance
with Article 30.4.
31.2 ACTIONS BY THE COMPANY UNDER TRUST AGREEMENT.
(a) The Company will take all such actions and do all such things
as shall be necessary or advisable to perform and comply with
and to ensure performance and compliance by the Parent and
Holdco with all provisions of the Trust Agreement applicable
to the Company, the Parent and Holdco, respectively, in
accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things
as shall be necessary or advisable to enforce to the fullest
extent possible for the direct benefit of the Company all
rights and benefits in favour of the Company under or
pursuant to such agreement.
(b) The Company shall not propose, agree to or otherwise give
effect to any amendment to, or waiver or forgiveness of its
rights or obligations under, the Trust Agreement without the
prior approval of the holders of the Exchangeable Shares
given in accordance with Article 30.4 other than such
amendments, waivers and/or forgiveness as may be necessary or
advisable for the purposes of:
(i) adding to the covenants of the other party or
parties to such agreement for the protection of the
Company, the holders of Convertible Shares or the
holders of Exchangeable Shares; or
(ii) making such provisions or modifications not
inconsistent with such agreement as may be necessary
or desirable with respect to matters or questions
arising thereunder which, in the opinion of the
Board of Directors, it may be expedient to make,
provided that the Board of Directors shall be of the
opinion, after
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<PAGE> 59
consultation with counsel, that such provisions and
modifications will not be prejudicial to the
interests of the holders of the Convertible Shares
or the holders of the Exchangeable Shares; or
(iii) making such changes in or corrections to such
agreement which, on the advice of counsel to the
Company, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent
provision or clerical omission or mistake or
manifesterror contained therein, provided that the
Board of Directors shall be of the opinion, after
consultation with counsel, that such changes or
corrections will not be prejudicial to the interests
of the holders of the Convertible Shares and the
holders of the Exchangeable Shares.
PART 32
NOTICES
32.1 NOTICES TO THE COMPANY. Subject to applicable law, any notice,
request or other communication to be given to the Company by a holder
of Common Shares, Convertible Shares or Exchangeable Shares shall be
in writing and shall be valid and effective if given by mail (postage
prepaid) or by telecopy or by delivery to the registered office of
the Company and addressed to the attention of the President. Any such
notice, request or other communication, if given by mail, telecopy or
delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Company.
32.2 PRESENTATION OF CERTIFICATES. Subject to applicable law, any
presentation and surrender by a holder of Convertible Shares or
Exchangeable Shares to the Company of certificates representing
Convertible Shares or Exchangeable Shares in connection with the
conversion of Convertible Shares, the liquidation, dissolution or
winding up of the Company or the retraction or redemption of
Exchangeable Shares shall be made by registered mail (postage
prepaid) or by delivery to the registered office of the Company
addressed to the attention of the President of the Company. Any such
presentation and surrender of certificates shall only be deemed to
have been made and to be effective upon actual receipt thereof by the
Company. Any such presentation and surrender of certificates made by
registered mail shall be at the sole risk of the holder mailing the
same.
32.3 NOTICES TO HOLDERS. Subject to applicable law, any notice, request or
other communication to be given to a holder of Common Shares,
Convertible Shares or Exchangeable Shares by or on behalf of the
Company shall be in writing and shall be valid and effective if given
by mail (postage prepaid) or by delivery to the address of the holder
recorded in the securities register of the Company or, in the event
of the address of any such holder not being so recorded, then at the
last known address of such holder. Any such notice, request or other
communication, if given by mail, shall be deemed to have been given
and received on the fifth Business Day following the date of mailing
and, if given by delivery, shall be deemed to have been given and
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<PAGE> 60
received on the date of delivery. Accidental failure or omission to
give any notice, request or other communication to one or more
holders of Common Shares, Convertible Shares or Exchangeable Shares
shall not invalidate or otherwise alter or affect any action or
proceeding to be taken by the Company pursuant thereto.
FULL NAME, RESIDENT ADDRESS AND OCCUPATION OF SUBSCRIBER:
- ---------------------
SHARON L. FUGMAN
3232 Peak Drive
Box 946
Whistler, B.C.
V0N 1B0
Barrister and Solicitor
DATED the 16th day of July, 1998.
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<PAGE> 1
EXHIBIT 4.2
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
THIS AGREEMENT made as of the 27th day of July, 1998
AMONG:
RAINTREE RESORTS INTERNATIONAL, INC., a corporation
existing under the laws of the State of Nevada
(hereinafter referred to as the "Parent")
OF THE FIRST PART
AND:
RAINTREE RESORTS INTERNATIONAL CANADA LTD., a corporation
existing under the laws of the Province of British Columbia
(hereinafter referred to as the "Company")
OF THE SECOND PART
AND:
RAINTREE RESORTS HOLDINGS ULC, an unlimited company
under the laws of the Province of Nova Scotia
(hereinafter referred to as "Holdco")
OF THE THIRD PART
AND:
RAINTREE RESORTS HOLDINGS ULC, an unlimited company under the
laws of the Province of Nova Scotia acting in its capacity as
the trustee hereunder
(hereinafter referred to as the "Trustee")
OF THE FOURTH PART
WHEREAS:
A. Pursuant to a stock purchase agreement dated as of the 27th day of
July, 1998 by and among the Parent; the Company; Raintree Resorts
Canada, LLC; G.B. Properties Ltd., K.B. Ventures Ltd., M.M. & M.
Management Ltd., Shawndra Enterprises Ltd., N. Kent Bubbs, Patricia J.
Bubbs,
<PAGE> 2
Geraldine L. Bubbs, G. Michael McGeough, Whiski Jack Resorts Ltd. and
Northface Realty Co. Ltd. (the "Sellers") and the shareholders of the
Sellers (such agreement as it may be amended or restated is hereinafter
referred to as the "Stock Purchase Agreement"), the Company issued
21,838 Convertible Shares in the capital of the Company at the Initial
Closing, and agreed to issue an additional number of Convertible Shares
at the Bonus Closing, if any, and an additional number of Convertible
Shares or Exchangeable Shares in the capital of the Company (the
"Exchangeable Shares") at the Second Closing (as those Closings are
defined in the Stock Purchase Agreement).
B. The Convertible Shares are convertible into Exchangeable Shares.
C. Holders of Exchangeable Shares will be entitled to redeem such
Exchangeable Shares and upon such redemption each Exchangeable Share
shall be exchanged by the Company for one Parent Common Share (as
hereinafter defined).
D. The Articles of the Company provide that each of the Parent, the
Company and Holdco shall have certain rights and obligations in certain
circumstances to acquire Exchangeable Shares from their Non-Affiliated
Holders (as hereinafter defined) and to deliver Parent Common Shares to
such holders in consideration therefor.
E. The Parent intends to grant to and in favour of Non-Affiliated Holders
from time to time of Exchangeable Shares the right, in the
circumstances set forth herein, to require the Parent or, at the option
of the Parent, Holdco to purchase from each Non-Affiliated Holder all
or any part of the Exchangeable Shares held by such Non-Affiliated
Holder.
F. The parties desire to make appropriate provision and to establish a
procedure whereby voting rights in the Parent shall be exercisable by
the Non-Affiliated Holders from time to time of Exchangeable Shares by
and through the Trustee, which will hold legal title to the Voting
Share (as hereinafter defined) to which voting rights attach for the
benefit of Non-Affiliated Holders, and whereby the rights to require
the Parent or, at the option of the Parent, Holdco to purchase
Exchangeable Shares from the Non-Affiliated Holders shall be
exercisable by Non-Affiliated Holders from time to time of Exchangeable
Shares by and through the Trustee, which will hold legal title to such
rights for the benefit of Non-Affiliated Holders.
G. The parties desire to make appropriate provision and to establish a
procedure whereby the Parent will take certain actions and make certain
payments and deliveries necessary to ensure that the Company and Holdco
will be able to make certain payments and to deliver or cause to be
delivered Parent Common Shares in satisfaction of the obligations of
the Company and/or Holdco under the Share Provisions (as hereinafter
defined) and this Trust Agreement.
H. These recitals and any statements of fact in this trust agreement are
made by the Parent, Holdco and the Company and not by the Trustee.
NOW THEREFORE, in consideration of the respective covenants and agreements
provided in this Trust Agreement and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties
agree as follows:
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<PAGE> 3
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this Trust Agreement, unless something in the subject
matter or context is inconsistent therewith or otherwise defined
herein, each term denoted by initial capital letters shall have the
meaning ascribed thereto in Section 26.4 of the Company's Articles. In
addition:
"BONUS CLOSING" has the meaning set out in Recital A.
"COMPANY'S ARTICLES" means the Articles of Association of the Company.
"COMPANY BOARD OF DIRECTORS" means the board of directors of the
Company.
"CONVERTIBLE SHARES" means the Convertible Shares in the capital of the
Company.
"EXCHANGE RIGHT" has the meaning set out in Section 5.1 hereof.
"EXCHANGEABLE SHARES" means the Exchangeable Shares in the capital of
the Company.
"INITIAL CLOSING" has the meaning set out in Recital A.
"INSOLVENCY EVENT" means the institution by the Company of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved
or wound up, or the consent of the Company to the institution of
bankruptcy, insolvency, dissolution or winding-up proceedings against
it, or the filing by the Company of a petition, answer or consent
seeking dissolution or winding up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies Creditors'
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act
(Canada), and the failure by the Company to contest in good faith any
such proceedings commenced by a third party in respect of the Company
within 15 days of becoming aware thereof, or the consent by the Company
to the filing of any such petition or to the appointment of a receiver,
or the making by the Company of a general assignment for the benefit of
creditors, or the admission in writing by the Company of its inability
to pay its debts generally as they become due, or the Company not being
permitted, pursuant to solvency requirements or other provisions of
applicable law, to redeem any Retracted Shares pursuant to Subsection
28.10(d) of the Share Provisions.
"LIST" has the meaning set out in Section 4.6 hereof.
"NON-AFFILIATED HOLDER VOTES" has the meaning set out in Section 4.2
hereof.
"NON-AFFILIATED HOLDERS" means the registered holders of Exchangeable
Shares other than the Parent and its Subsidiaries.
"OFFICER'S CERTIFICATE" means, with respect to the Parent or the
Company, as the case may be, a certificate signed by any one of the
Chairman of the Board, the President, any Vice-President or any other
senior officer of the Parent or the Company, as the case may be.
"PARENT BOARD OF DIRECTORS" means the board of directors of the Parent.
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<PAGE> 4
"PARENT COMMON SHARES" means shares of the common stock of the Parent,
par value US$0.001.
"PARENT CONSENT" has the meaning set out in Section 4.2 hereof.
"PARENT MEETING" has the meaning set out in Section 4.2 hereof.
"PARENT SUCCESSOR" has the meaning set out in Section 11.1 hereof.
"PROMISSORY NOTES" means the promissory notes issued by the Company to
the Sellers at the Initial Closing pursuant to Section 2.2 of the Stock
Purchase Agreement.
"SECOND CLOSING" has the meaning set out in Recital A.
"SELLERS" has the meaning set out in Recital A.
"SHARE PROVISIONS" means the rights, privileges, restrictions and
conditions attaching to the Convertible Shares and Exchangeable Shares
as set out in Parts 26 through 32 of the Company's Articles.
"STOCK PURCHASE AGREEMENT" has the meaning set out in Recital A.
"SUBSIDIARY" of the Parent means any corporation more than 50% of the
outstanding stock of which, by vote or value, is owned, directly or
indirectly, by the Parent, by one or more other Subsidiaries of the
Parent or by the Parent and one or more other Subsidiaries of the
Parent.
"TRUST" means the trust created by this Trust Agreement.
"TRUST ESTATE" means the Voting Share, any other securities, the
Exchange Right and any money or other rights or assets that may be held
by the Trustee from time to time pursuant to this Trust Agreement.
"TRUSTEE" means Holdco in its capacity as the trustee hereunder and,
subject to the provisions of Article 10 hereof, includes any successor
trustee or permitted assigns.
"VOTING RIGHTS" means the voting rights attached to the Voting Share.
"VOTING SHARE" means the one share of Series B Preferred Stock par
value US$0.001 issued by the Parent to and deposited with the Trustee,
which entitles the holder of record to a number of votes at meetings of
holders of Parent Common Shares equal to the number of Exchangeable
Shares outstanding from time to time that are held by Non-Affiliated
Holders.
1.2 Interpretation Not Affected by Headings, etc. The division of this
Trust Agreement into articles and sections and the insertion of
headings are for reference purposes only and shall not affect the
interpretation of this Trust Agreement. Unless otherwise indicated, any
reference in this Trust Agreement to an article or section refers to
the specified article or section of this Trust Agreement.
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<PAGE> 5
1.3 Number Gender and Persons. In this Trust Agreement, unless the context
otherwise requires, words importing the singular number include the
plural and vice versa, words importing any gender include all genders
and words importing persons include individuals, corporations,
partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business entities
of any kind.
1.4 Date for Any Action. If any date on which any action is required to be
taken under this Trust Agreement is not a Business Day, such action
shall be required to be taken on the next succeeding Business Day.
1.5 Payments. All payments to be made hereunder will be made without
interest and less any tax required by law to be deducted and withheld.
ARTICLE 2
TRUST
2.1 Establishment of Trust. One of the purposes of this Trust Agreement is
to create the Trust for the benefit of the Non-Affiliated Holders, as
herein provided. The Trustee will hold the Voting Share in order to
enable the Trustee to exercise the Voting Rights and will hold the
Exchange Right in order to enable the Trustee to exercise such right
and will hold the other rights granted in or resulting from the Trustee
being a party to this Trust Agreement in order to enable the Trustee to
exercise or enforce such rights, in each case as trustee for and on
behalf of the Non-Affiliated Holders as provided in this Trust
Agreement.
ARTICLE 3
VOTING SHARE
3.1 Issue and Ownership of the Voting Share. Simultaneously with the
execution and delivery of this Trust Agreement, the Parent will issue
to and deposit with the Trustee the Voting Share to be hereafter held
of record by the Trustee as trustee for and on behalf of, and for the
use and benefit of, the Non-Affiliated Holders, in accordance with the
provisions of this Trust Agreement. The Parent hereby acknowledges
receipt from the Trustee as trustee for and on behalf of the
Non-Affiliated Holders of good and valuable consideration (and the
adequacy thereof) for the issuance of the Voting Share by the Parent to
the Trustee. During the term of the Trust and subject to the terms and
conditions of this Trust Agreement, the Trustee shall possess and be
vested with full legal ownership of the Voting Share and shall be
entitled to exercise all of the rights and powers of an owner with
respect to the Voting Share, provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee
solely for the use and benefit of the Non-Affiliated Holders
in accordance with the provisions of this Trust Agreement; and
(b) except as specifically authorized by this Trust Agreement,
have no power or authority to sell, transfer, vote or
otherwise deal in or with the Voting Share and the Voting
Share shall not be used or disposed of by the Trustee for any
purpose other than the purposes for which the Trust is created
pursuant to this Trust Agreement.
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<PAGE> 6
3.2 Legended Share Certificates. The Company will cause each certificate
representing Exchangeable Shares to bear an appropriate legend
notifying the Non-Affiliated Holders of their right to instruct the
Trustee with respect to the exercise of the Voting Rights with respect
to the Exchangeable Shares held by such Non-Affiliated Holder.
3.3 Safekeeping of Certificate. The certificate representing the Voting
Share shall at all times be held in safe keeping by the Trustee or its
agent.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 Voting Rights. The Trustee, as the holder of record of the Voting
Share, shall be entitled to all of the Voting Rights, including the
right to consent to or to vote in person or by proxy the Voting Share,
on any matter, question or proposition whatsoever that may come before
the stockholders of the Parent at a Parent Meeting or in connection
with a Parent Consent. The Voting Rights shall be and remain vested in
and exercised by the Trustee. Subject to Section 7.15 hereof, the
Trustee shall exercise the Voting Rights only on the basis of
instructions received pursuant to this Article 4 from Non-Affiliated
Holders entitled to instruct the Trustee as to the voting thereof at
the time at which the Parent Consent is sought or the Parent Meeting is
held. To the extent that no instructions are received from a
Non-Affiliated Holder with respect to the Voting Rights to which such
Non-Affiliated Holder is entitled, the Trustee shall not exercise or
permit the exercise of the Voting Rights relating to such
Non-Affiliated Holder's Exchangeable Shares.
4.2 Number of Votes. With respect to all meetings of stockholders of the
Parent at which holders of Parent Common Shares are entitled to vote (a
"Parent Meeting") and with respect to all written consents sought from
the holders of Parent Common Shares (a "Parent Consent"), each
Non-Affiliated Holder shall be entitled to instruct the Trustee to cast
and exercise, in the manner instructed, one vote for each Exchangeable
Share owned of record by such Non-Affiliated Holder on the record date
established by the Parent or by applicable law for such Parent Meeting
or Parent Consent, as the case may be (the "Non-Affiliated Holder
Votes") in respect of each matter, question or proposition to be voted
on at such Parent Meeting or to be consented to in connection with such
Parent Consent.
4.3 Mailings to Shareholders. With respect to each Parent Meeting and
Parent Consent, the Trustee will mail or cause to be mailed (or
otherwise communicate in the same manner that the Parent utilizes in
communications to holders of Parent Common Shares, subject to the
Trustee being advised in writing of such method and its ability to
provide this method of communication) to each of the Non-Affiliated
Holders named in the List on the same day as the initial mailing or
notice (or other communication) with respect thereto is given by the
Parent to its stockholders:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to stockholders
of the Parent;
(b) a statement that such Non-Affiliated Holder is entitled,
subject to the provisions of Section 4.7 hereof, to instruct
the Trustee as to the exercise of the Non-Affiliated Holder
Votes with respect to such Parent Meeting or Parent Consent,
as the case may be, or,
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<PAGE> 7
pursuant and subject to Section 4.7 hereof, to attend such
Parent Meeting and to exercise personally the Non-Affiliated
Holder Votes thereat;
(c) a statement as to the manner in which such instructions may be
given to the Trustee, including, in the case of a Parent
Meeting, an express indication that instructions may be given
to the Trustee to give:
(i) a proxy to such Non-Affiliated Holder or its designee
to exercise personally such holder's Non-Affiliated
Holder Votes; or
(ii) a proxy to a designated agent or other representative
of the management of the Parent to exercise such
Non-Affiliated Holder Votes;
(d) a statement that if no such instructions are received from the
Non-Affiliated Holder, the Non-Affiliated Holder Votes to
which such Non-Affiliated Holder is entitled will not be
exercised;
(e) a form of direction whereby the Non-Affiliated Holder may so
direct and instruct the Trustee as contemplated herein; and
(f) a statement of (i) the time and date by which such
instructions must be received by the Trustee in order to be
binding upon it, which in the case of a Parent Meeting shall
not be earlier than the close of business on the second
Business Day prior to such meeting, and (ii) the method for
revoking or amending such instructions.
The materials referred to above are to be provided by the Parent to the
Trustee, but shall be subject to review and comment by the Trustee. For
the purpose of determining Non-Affiliated Holder Votes to which a
Non-Affiliated Holder is entitled in respect of any such Parent Meeting
or Parent Consent, the number of Exchangeable Shares owned of record by
the Non-Affiliated Holder shall be determined at the close of business
on the record date established by the Parent or by applicable law for
purposes of determining stockholders entitled to vote at such Parent
Meeting or to give written consent in connection with such Parent
Consent. The Parent will notify the Trustee in writing of any decision
of the board of directors of the Parent with respect to the calling of
any such Parent Meeting or the seeking of any such Parent Consent and
shall provide all necessary information and materials to the Trustee in
each case promptly and in any event in sufficient time to enable the
Trustee to perform its obligations contemplated by this Section 4.3.
4.4 Copies of Stockholder Information. The Parent will deliver to the
Trustee copies of all proxy materials (including notices of Parent
Meetings but excluding proxies to vote Parent Common Shares),
information statements, reports (including without limitation all
interim and annual financial statements) and other written
communications that are to be distributed from time to time to holders
of Parent Common Shares in sufficient quantities and in sufficient time
so as to enable the Trustee to send those materials to each
Non-Affiliated Holder at the same time as such materials are first sent
to holders of Parent Common Share. The Trustee will mail or otherwise
send to each Non-Affiliated Holder, at the expense of Parent, copies of
all such materials (and all materials specifically directed to the
Non-Affiliated Holders or to the Trustee for the benefit of the
Non-Affiliated Holders by the Parent) received by the Trustee from the
Parent at the same
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<PAGE> 8
time as such materials are first sent to holders of Parent Common
Shares. The Trustee will make copies of all such materials available
for inspection by any Non-Affiliated Holder at the Trustee's principal
office in Vancouver, British Columbia.
4.5 Other Materials. Immediately after receipt by the Parent or any
stockholder of the Parent of any material sent or given generally to
the holders of Parent Common Shares by or on behalf of a third party,
including without limitation dissident proxy and information circulars
(and related information and material) and tender and exchange offer
circulars (and related information and material), the Parent shall use
reasonable efforts to obtain and deliver to the Trustee copies thereof
in sufficient quantities so as to enable the Trustee to forward such
material (unless the same has been provided directly to Non-Affiliated
Holders by such third party) to each Non-Affiliated Holder as soon as
practicable thereafter. As soon as practicable after receipt thereof,
the Trustee will mail or otherwise send to each Non-Affiliated Holder,
at the expense of the Parent, copies of all such materials received by
the Trustee from the Parent. The Trustee will also make copies of all
such materials available for inspection by any Non-Affiliated Holder at
the Trustee's principal office in the Vancouver, British Columbia.
4.6 List of Persons Entitled to Vote. The Company shall:
(a) prior to each annual, general and special Parent Meeting or
the seeking of any Parent Consent; and
(b) forthwith upon each request made at any time by the Trustee in
writing, prepare or cause to be prepared a list (a "List") of
the names and addresses of the Non-Affiliated Holders arranged
in alphabetical order and showing the number of Exchangeable
Shares held of record by each such Non-Affiliated Holder, in
each case at the close of business on the date specified by
the Trustee in such request or, in the case of a List prepared
in connection with a Parent Meeting or a Parent Consent, at
the close of business on the record date established by the
Parent or pursuant to applicable law for determining the
holders of Parent Common Shares entitled to receive notice of
and/or to vote at such Parent Meeting or to give consent in
connection with such Parent Consent. Each such List shall be
delivered to the Trustee promptly after receipt by the Company
of such request or the record date for such meeting or seeking
of consent, as the case may be, and, in any event, within
sufficient time as to enable the Trustee to perform its
obligations under this Trust Agreement. The Parent agrees to
give the Company written notice (with a copy to the Trustee)
of the calling of any Parent Meeting or the seeking of any
Parent Consent, together with the record dates therefor,
sufficiently prior to the date of the calling of such meeting
or seeking of such consent so as to enable the Company to
perform its obligations under this Section 4.6.
4.7 Entitlement to Direct Votes. Any Non-Affiliated Holder named in a List
prepared in connection with any Parent Meeting or any Parent Consent
will be entitled:
(a) to instruct the Trustee in the manner described in Section 4.3
hereof with respect to the exercise of the Non-Affiliated
Holder Votes to which such Non-Affiliated Holder is entitled;
or
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(b) to attend such meeting and personally to exercise thereat (or
to exercise with respect to any written consent), as the proxy
of the Trustee, the Non-Affiliated Holder Votes to which such
Non-Affiliated Holder is entitled; or
(c) to appoint a third party as the proxy of the Trustee to attend
such meeting and exercise thereat the Non-Affiliated Holder's
voting rights to which such Non-Affiliated Holder is entitled
except, in each case, to the extent that such Non-Affiliated
Holder has transferred the ownership of any Exchangeable
Shares in respect of which such Non-Affiliated Holder is
entitled to Non-Affiliated Holder Votes after the close of
business on the record date for such meeting or seeking of
consent.
4.8 Voting by Trustee, and Attendance of Trustee Representative, at
Meeting.
(a) In connection with each Parent Meeting and Parent Consent, the
Trustee shall exercise, either in person or by proxy, in
accordance with the instructions received from a
Non-Affiliated Holder pursuant to Section 4.3 hereof, the
Non-Affiliated Holder Votes as to which such Non-Affiliated
Holder is entitled to direct the vote (or any lesser number
thereof as may be set forth in the instructions); provided,
however, that such written instructions are received by the
Trustee from the Non-Affiliated Holder prior to the time and
date fixed by it for receipt of such instructions in the
notice given by the Trustee to the Non-Affiliated Holder
pursuant to Section 4.3 hereof.
(b) The Trustee shall cause such representatives as are empowered
by it to sign and deliver, on behalf of the Trustee, proxies
for Voting Rights enabling a Non-Affiliated Holder to attend
each Parent Meeting. Upon submission by a Non-Affiliated
Holder (or its designee) of identification satisfactory to the
Trustee's representatives, and at the Non-Affiliated Holder's
request, such representatives shall sign and deliver to such
Non-Affiliated Holder (or its designee) a proxy to exercise
personally the Non-Affiliated Holder Votes as to which such
Non-Affiliated Holder is otherwise entitled hereunder to
direct the vote, if such Non-Affiliated Holder either (i) has
not previously given the Trustee instructions pursuant to
Section 4.3 hereof in respect of such meeting, or (ii) submits
to the Trustee's representatives written revocation of any
such previous instructions. At such meeting, the
Non-Affiliated Holder exercising such Non-Affiliated Holder
Votes shall have the same rights as the Trustee to speak at
the meeting in respect of any matter, question or proposition,
to vote by way of ballot at the meeting in respect of any
matter, question or proposition and to vote at such meeting by
way of a show of hands in respect of any matter, question or
proposition.
4.9 Distribution of Written Materials. Any written materials to be
distributed by the Trustee to the Non-Affiliated Holders pursuant to
this Trust Agreement shall be delivered or sent by mail (or otherwise
communicated in the same manner as the Parent utilizes in
communications to holders of Parent Common Shares, subject to the
Trustee being advised in writing of such method of communication and
its ability to provide same) to each Non-Affiliated Holder at its
address as shown on the books of the Company. The Company shall provide
or cause to be provided to the Trustee for this purpose, on a timely
basis and without charge or other expense:
(a) current lists of the Non-Affiliated Holders; and
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<PAGE> 10
(b) upon the request of the Trustee, mailing labels to enable the
Trustee to carry out its duties under this Trust Agreement.
The materials referred to above are to be provided by the Parent to the
Trustee, but shall be subject to review and comment by the Trustee.
4.10 Termination of Voting Rights. All the rights of a Non-Affiliated Holder
with respect to the Non-Affiliated Holder Votes exercisable in respect
of the Exchangeable Shares held by such Non-Affiliated Holder,
including the right to instruct the Trustee as to the voting of or to
vote personally such Non-Affiliated Holder Votes, shall be deemed to be
surrendered by the Non-Affiliated Holder to the Parent and such
Non-Affiliated Holder Votes and the Voting Rights represented thereby
shall cease immediately upon the delivery by such Non-Affiliated Holder
to the Trustee of the certificates representing such Exchangeable
Shares in connection with the exercise by the Non-Affiliated Holder of
the Exchange Right or the occurrence of the automatic exchange of
Exchangeable Shares for Parent Common Shares, as specified in Article 5
hereof, or upon the redemption of Exchangeable Shares pursuant to
Article 28.10 or Article 28.12 of the Share Provisions, or upon the
effective date of the liquidation, dissolution or winding-up of the
Company or any other distribution of the assets of the Company among
its shareholders for the purpose of winding up its affairs pursuant to
Article 28.7 of the Share Provisions, or upon the purchase of
Exchangeable Shares from the holder thereof by the Parent or Holdco
pursuant to the due exercise by the Parent or Holdco of the Retraction
Call Right, the Redemption Call Right or the Liquidation Call Right.
ARTICLE 5
EXCHANGE RIGHT AND PARENT SUPPORT
5.1 Grant and Ownership of the Exchange Right. The Parent hereby grants to
the Trustee as trustee for and on behalf of, and for the use and
benefit of, the Non-Affiliated Holders the right (the "Exchange
Right"), upon the occurrence and during the continuance of an
Insolvency Event, to require the Parent to purchase or at the Parent's
option cause Holdco to purchase, from each or any Non-Affiliated Holder
all or any part of the Exchangeable Shares held by the Non-Affiliated
Holder, all in accordance with the provisions of this Trust Agreement.
The Parent hereby acknowledges receipt from the Trustee, as trustee for
and on behalf of the Non-Affiliated Holders, of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange
Right by the Parent to the Trustee. During the term of the Trust and
subject to the terms and conditions of this Trust Agreement, the
Trustee shall possess and be vested with full legal ownership of the
Exchange Right and shall be entitled to exercise all of the rights and
powers of an owner with respect to the Exchange Right, provided that
the Trustee shall:
(a) hold the Exchange Right and the legal title thereto as trustee
solely for the use and benefit of the Non-Affiliated Holders
in accordance with the provisions of this Trust Agreement; and
(b) except as specifically authorized by this Trust Agreement,
have no power or authority to exercise or otherwise deal in or
with the Exchange Right, and the Trustee shall not exercise
such right for any purpose other than the purposes for which
this Trust is created pursuant to this Trust Agreement.
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<PAGE> 11
5.2 Legended Share Certificates. The Company will cause each certificate
representing Exchangeable Shares to bear an appropriate legend
notifying the Non-Affiliated Holders of their right to instruct the
Trustee with respect to the exercise of the Exchange Right in respect
of the Exchangeable Shares held by a Non-Affiliated Holder.
5.3 General Exercise of Exchange Right. The Exchange Right shall be and
remain vested in and exercisable by the Trustee. Subject to Section
7.15 hereof, the Trustee shall exercise the Exchange Right only on the
basis of instructions received pursuant to this Article 5 from
Non-Affiliated Holders entitled to instruct the Trustee as to the
exercise thereof. To the extent that no instructions are received from
a Non-Affiliated Holder with respect to the Exchange Right, the Trustee
shall not exercise or permit the exercise of the Exchange Right.
5.4 Purchase Price. The purchase price payable by the Parent or Holdco for
each Exchangeable Share to be purchased by the Parent or Holdco under
the Exchange Right shall be an amount per share equal to (a) the
Current Market Price of a Parent Common Share on the last Business Day
prior to the day of closing of the purchase and sale of such
Exchangeable Share under the Exchange Right, which shall be satisfied
in full by causing to be delivered to such holder one Parent Common
Share, plus (b) the Dividend Amount, if any. The purchase price for
each such Exchangeable Share so purchased may be satisfied only by the
Parent or Holdco delivering or causing to be delivered to the Trustee,
on behalf of the relevant Non-Affiliated Holder, one Parent Common
Share and a cheque for the balance, if any, of the purchase price.
5.5 Exercise Instructions. Subject to the terms and conditions herein set
forth, a Non-Affiliated Holder shall be entitled, upon the occurrence
and during the continuance of an Insolvency Event, to instruct the
Trustee to exercise the Exchange Right with respect to all or any part
of the Exchangeable Shares registered in the name of such
Non-Affiliated Holder on the books of the Company. To cause the
exercise of the Exchange Right by the Trustee, the Non-Affiliated
Holder shall deliver to the Trustee, in person or by certified or
registered mail, at its principal office in Vancouver, British Columbia
or at such other places in Canada as the Trustee may from time to time
designate by written notice to the Non-Affiliated Holders, the
certificates representing the Exchangeable Shares which such
Non-Affiliated Holder desires the Parent to purchase, duly endorsed in
blank, and accompanied by such other documents and instruments as may
be required to effect a transfer of Exchangeable Shares under the
Company Act, a No Transfer Declaration and such additional documents
and instruments as the Trustee or the Company may reasonably require
together with (a) a duly completed form of notice of exercise of the
Exchange Right, contained on the reverse of or attached to the
Exchangeable Share certificates, stating (i) that the Non-Affiliated
Holder thereby instructs the Trustee to exercise the Exchange Right so
as to require the Parent or Holdco to purchase from the Non-Affiliated
Holder the number of Exchangeable Shares specified therein, (ii) that
such Non-Affiliated Holder has good title to and owns all such
Exchangeable Shares to be acquired by the Parent or Holdco free and
clear of all liens, claims and encumbrances, (iii) the names in which
the certificates representing Parent Common Shares issuable in
connection with the exercise of the Exchange Right are to be issued and
(iv) the names and addresses of the persons to whom such new
certificates should be delivered and (b) payment (or evidence
satisfactory to the Trustee, the Company and the Parent of payment) of
the taxes (if any) payable as contemplated by Section 5.8 of this Trust
Agreement. If only a portion of the Exchangeable Shares represented by
any certificate delivered to the Trustee are to be purchased by the
Parent or Holdco under the
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<PAGE> 12
Exchange Right, a new certificate for the balance of such Exchangeable
Shares shall be issued to the holder at the expense of the Company.
5.6 Delivery of Parent Common Shares; Effect of Exercise. Promptly after
receipt of the certificates representing the Exchangeable Shares that a
Non-Affiliated Holder desires the Parent or Holdco to purchase under
the Exchange Right (together with a No Transfer Declaration and such
documents and instruments of transfer and a duly completed form of
notice of exercise of the Exchange Right) duly endorsed for transfer to
the Parent or Holdco, the Trustee shall notify the Parent and the
Company of its receipt of the same, which notice to the Parent and the
Company shall constitute exercise of the Exchange Right by the Trustee
on behalf of the holder of such Exchangeable Shares, and the Parent
shall immediately thereafter deliver or cause Holdco to deliver to the
Trustee, for delivery to the Non-Affiliated Holder of such Exchangeable
Shares (or to such other persons, if any, properly designated by such
Non-Affiliated Holder), a certificate for the number of Parent Common
Shares deliverable in connection with such exercise of the Exchange
Right (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim or
encumbrance, security interest or adverse claim) and a cheque for the
balance, if any, of the purchase price therefor; provided, however,
that no such delivery shall be made unless and until the Non-Affiliated
Holder requesting the same shall have paid (or provided evidence
satisfactory to the Trustee, the Company and the Parent of the payment
of) the taxes (if any) payable as contemplated by Section 5.8 of this
Trust Agreement. Immediately upon the giving of notice by the Trustee
to the Parent and the Company of the exercise of the Exchange Right, as
provided in this Section 5.6, the closing of the transaction of
purchase and sale contemplated by the Exchange Right shall be deemed to
have occurred, and the Non-Affiliated Holder of such Exchangeable
Shares shall be deemed to have transferred to the Parent (or, at the
Parent's option, to Holdco) all of its right, title and interest in and
to such Exchangeable Shares and the related interest in the Trust
Estate and shall not be entitled to exercise any of the rights of a
holder in respect thereof, other than the right to receive its
proportionate part of the total purchase price therefor, unless the
requisite number of Parent Common Shares (together with a cheque for
the balance, if any, of the total purchase price therefor) is not
delivered by the Parent or Holdco to the Trustee, for delivery to such
Non-Affiliated Holder (or to such other persons, if any, properly
designated by such Non-Affiliated Holder), within five Business Days of
the date of the giving of such notice by the Trustee, in which case the
rights of the Non-Affiliated Holder shall remain unaffected until such
Parent Common Shares are so delivered and any such cheque is so
delivered and paid. Concurrently with the closing of the transaction of
purchase and sale contemplated by the Exchange Right, such
Non-Affiliated Holder shall be considered and deemed for all purposes
to be the holder of the Parent Common Shares delivered to it pursuant
to the Exchange Right.
5.7 Exercise of Exchange Right Subsequent to Retraction. In the event that
a Non-Affiliated Holder has exercised its right under Article 28.10 of
the Share Provisions to require the Company to redeem any or all of the
Exchangeable Shares held by the Non-Affiliated Holder (the "Retracted
Shares") and is notified by the Company pursuant to Subsection 28.10(d)
of the Share Provisions that the Company will not be permitted as a
result of solvency requirements of applicable law to redeem all such
Retracted Shares, subject to receipt by the Trustee of written notice
to that effect from the Company and provided that neither the Parent
nor Holdco shall have exercised its Retraction Call Right with respect
to the Retracted Shares and that the Non-Affiliated Holder shall not
have revoked the retraction request delivered by the Non-Affiliated
Holder to the Company pursuant to Subsection 28.10(e) of the Share
Provisions, the retraction request will constitute and
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<PAGE> 13
will be deemed to constitute notice from the Non-Affiliated Holder to
the Trustee instructing the Trustee to exercise the Exchange Right with
respect to those Retracted Shares that the Company is unable to redeem.
In any such event, the Company hereby agrees with the Trustee and in
favour of the Non-Affiliated Holder immediately to notify the Trustee
of such prohibition against the Company redeeming all of the Retracted
Shares and immediately to forward or cause to be forwarded to the
Trustee all relevant materials delivered by the Non-Affiliated Holder
to the Company (including without limitation a copy of the Retraction
Request delivered pursuant to Subsection 28.10(a) of the Share
Provisions) in connection with such proposed redemption of the
Retracted Shares and the Trustee will thereupon exercise the Exchange
Right with respect to the Retracted Shares that the Company is not
permitted to redeem and will require the Parent or, at the Parent's
option, Holdco, to purchase such shares in accordance with the
provisions of this Article 5.
5.8 Stamp or Other Transfer Taxes. Upon any sale of Exchangeable Shares to
the Parent or Holdco pursuant to the Exchange Right, the share
certificate or certificates representing the Parent Common Shares to be
delivered in connection with the payment of the total purchase price
therefor shall be issued in the name of the Non-Affiliated Holder of
the Exchangeable Shares so sold or in such names as such Non-Affiliated
Holder may otherwise direct in writing without charge to the holder of
the Exchangeable Shares so sold, provided, however, that such
Non-Affiliated Holder (a) shall pay (and none of the Parent, Holdco,
the Company or the Trustee shall be required to pay) any documentary,
stamp, transfer or other similar taxes that may be payable in respect
of any transfer involved in the issuance or delivery of such shares to
a person other than such Non-Affiliated Holder or (b) shall have
established to the satisfaction of the Trustee, the Parent, Holdco and
the Company that such taxes, if any, have been paid.
5.9 Notice of Insolvency Event. Immediately upon the occurrence of an
Insolvency Event or any event that with the giving of notice or the
passage of time or both would be an Insolvency Event, the Company and
the Parent shall give written notice thereof to the Trustee. As soon as
practicable after receiving notice from the Company or the Parent or
from any other person of the occurrence of an Insolvency Event, the
Trustee will mail to each Non-Affiliated Holder, at the expense of the
Parent, a notice of such Insolvency Event in the form provided by the
Parent, which notice shall contain a brief statement of the right of
the Non-Affiliated Holders with respect to the Exchange Right.
5.10 Parent Support of Holdco. Notwithstanding any of the other provisions
of this Trust Agreement, so long as any Convertible Shares or
Exchangeable Shares are outstanding, at least 50% of the common shares
of Holdco shall be owned, directly or indirectly, by the Parent and the
Parent will take all actions and do all such things as are necessary or
desirable to enable and permit Holdco, in accordance with applicable
law, to perform its obligations and exercise its rights with respect to
the satisfaction of the Liquidation Call Right, the Redemption Call
Right and the Retraction Call Right, including without limitation, all
such actions and all such things as are necessary or desirable to
enable and permit Holdco to cause to be delivered Parent Common Shares
to the holders of Exchangeable Shares in accordance with the Share
Provisions. In furtherance of the foregoing obligations, upon notice of
any event which requires Holdco to cause to be delivered Parent Common
Shares to any holder of Exchangeable Shares, the Parent shall, in any
manner deemed appropriate by it, provide such shares or cause such
shares to be provided to Holdco, which shall forthwith deliver the
requisite Parent Common Shares to or to the order of the former holder
of the surrendered Exchangeable Shares. All such Parent Common Shares
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<PAGE> 14
shall be duly issued as fully paid, non-assessable, free of pre-emptive
rights and shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim.
5.11 Call Rights. The Liquidation Call Right, the Redemption Call Right, the
Retraction Call Right, the Exchange Right and the Automatic Exchange
Right are hereby agreed, acknowledged and confirmed, and it is agreed
and acknowledged that such rights are granted as part of the
consideration for the obligations of the Parent under this Trust
Agreement.
ARTICLE 6
COVENANTS, REPRESENTATIONS AND WARRANTIES
6.1 Covenants of Parent Regarding Exchangeable Shares. So long as any
Exchangeable Shares are outstanding, the Parent will:
(a) not declare or pay any dividend on the Parent Common Shares
unless (i) the Company will have sufficient money or other
assets or authorized but unissued securities available to
enable the due declaration and the due and punctual payment in
accordance with applicable law, of an equivalent dividend on
the Exchangeable Shares and (ii) the Company shall
simultaneously declare or pay, as the case may be, an
equivalent dividend on the Exchangeable Shares;
(b) advise the Company sufficiently in advance of the declaration
by the Parent of any dividend on the Parent Common Shares and
take all such other actions as are necessary, in cooperation
with the Company, to ensure that the respective declaration
date, record date and payment date for a dividend on the
Exchangeable Shares shall be the same as the declaration date,
record date and payment date for the corresponding dividend on
the Parent Common Shares and that such dividend on the
Exchangeable Shares shall correspond with any requirements of
the stock exchange on which the Exchangeable Shares are
listed;
(c) ensure that the record date for determining shareholders
entitled to receive any dividend declared on the Parent Common
Shares is not less than 10 Business Days after the declaration
date for such dividend or such shorter period within which
applicable law may be complied with;
(d) take all such actions and do all such things as are necessary
or desirable to enable and permit the Company, in accordance
with applicable law, to pay and otherwise perform its
obligations with respect to the satisfaction of the
Liquidation Amount in respect of each issued and outstanding
Exchangeable Share upon the liquidation, dissolution or
winding up of the Company or any other distribution of the
assets of the Company among its shareholders for the purpose
of winding up its affairs, including without limitation all
such actions and all such things as are necessary or desirable
to enable and permit the Company to cause to be delivered
Parent Common Shares to the holders of Exchangeable Shares in
accordance with the provisions of Article 28.7 of the Share
Provisions;
(e) take all such actions and do all such things as are necessary
or desirable to enable and permit the Company, in accordance
with applicable law, to pay and otherwise perform
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<PAGE> 15
its obligations with respect to the satisfaction of the
Retraction Price and the Redemption Price, including without
limitation all such actions and all such things as are
necessary or desirable to enable and permit the Company to
cause to be delivered Parent Common Shares to the holders of
Exchangeable Shares, upon the redemption of the Exchangeable
Shares in accordance with the provisions of Article 28.10 or
Article 28.11 of the Share Provisions, as the case may be;
(f) not exercise its vote as a shareholder to initiate the
voluntary liquidation, dissolution or winding up of the
Company or any other distribution of the assets of the Company
among its shareholders for the purpose of winding up its
affairs nor take any action or omit to take any action that is
designed to result in the liquidation, dissolution or winding
up of the Company or any other distribution of the assets of
the Company among its Shareholders for the purpose of winding
up its affairs.
6.2 Segregation of Funds. The Parent will cause the Company to deposit a
sufficient amount of funds in a separate account and segregate a
sufficient amount of such other assets as is necessary to enable the
Company to pay or otherwise satisfy the applicable dividends,
Liquidation Amount, Retraction Price or Redemption Price, once such
amounts become payable under the terms of this Trust Agreement or the
Share Provisions, in each case for the benefit of Non-Affiliated
Holders from time to time of the Exchangeable Shares, and to use such
funds and other assets so segregated exclusively for the payment of
dividends and the payment or other satisfaction of the Liquidation
Amount, the Retraction Price or the Redemption Price, as applicable.
6.3 Certain Representations. The Parent hereby represents, warrants and
covenants that it has irrevocably reserved for issuance and will at all
times keep available, free from pre-emptive and other rights, out of
its authorized and unissued capital stock such number of Parent Common
Shares (or other shares or securities into which the Parent Common
Shares may be reclassified or changed as contemplated by Section 6.7
hereof) (i) as is equal to the sum of (x) the number of Exchangeable
Shares issued and outstanding from time to time and (y) the number of
Exchangeable Shares issuable upon the exercise of all rights to acquire
Exchangeable Shares outstanding from time to time (including, without
limitation, the number of Exchangeable Shares into which the
Convertible Shares issued or to be issued under the Stock Purchase
Agreement may be converted in accordance with Part 27 of the Company's
Articles and into which the Promissory Notes may be converted in
accordance with their terms) and (ii) as is now and may hereafter be
required to enable and permit each of the Company, the Parent and
Holdco to meet its obligations hereunder, under the Share Provisions
and under any other security or commitment pursuant to which the
Company, the Parent or Holdco may now or hereafter be required to issue
and/or deliver Parent Common Shares.
6.4 Notification of Certain Events. In order to assist the Parent to comply
with its obligations hereunder, the Company will give the Parent notice
of each of the following events at the time set forth below:
(a) in the event of any determination by the Board of Directors to
institute voluntary liquidation, dissolution or winding-up
proceedings with respect to the Company or to effect any other
distribution of the assets of the Company among its
shareholders for the purpose of winding up its affairs, at
least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding up or other distribution;
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<PAGE> 16
(b) immediately, upon the earlier of (i) receipt by the Company of
notice of, and (ii) the Company otherwise becoming aware of,
any threatened or instituted claim, suit, petition or other
proceeding with respect to the involuntary liquidation,
dissolution or winding up of the Company or to effect any
other distribution of the assets of the Company among its
shareholders for the purpose of winding up its affairs;
(c) immediately, upon receipt by the Company of a Retraction
Request (as defined in the Share Provisions);
(d) at least 10 days prior to any Automatic Redemption Date
determined by the Board of Directors in accordance with the
Share Provisions; and
(e) as soon as practicable upon the issuance by the Company of (i)
any Convertible Shares or Exchangeable Shares including,
without limitation, the issuance of Convertible Shares or
Exchangeable Shares at the Bonus Closing or the Second
Closing, and the issuance of Exchangeable Shares pursuant to a
conversion of Convertible Shares in accordance with Part 27 of
the Company's Articles or a conversion of the Promissory Notes
in accordance with their terms), or (ii) rights to acquire
Convertible Shares or Exchangeable Shares.
6.5 Delivery of Parent Common Shares. Upon notice of any event that
requires the Company or Holdco, as the case may be, to cause to be
delivered Parent Common Shares to any holder of Exchangeable Shares,
the Parent shall, in any manner deemed appropriate by it, provide such
shares or cause such shares to be provided to the Company or Holdco, as
the case may be, which shall forthwith deliver the requisite Parent
Common Shares to or to the order of the former holder of the
surrendered Exchangeable Shares, as the Company or Holdco, as the case
may be, shall direct. All such Parent Common Shares shall be duly
issued as fully paid, non-assessable, free of pre-emptive rights and
shall be free and clear of any lien, claim, encumbrance, security
interest or adverse claim.
6.6 Qualification of Parent Common Shares. The Parent covenants that it
will make such filings and seek such regulatory consents and approvals
as are necessary so that the Parent Common Shares to be issued on the
exchange of Exchangeable Shares will be issued in compliance with the
applicable securities laws in Canada and the United States and may be
freely traded on New York Stock Exchange or on such other United States
exchange as such shares may be listed, quoted or posted for trading
from time to time.
6.7 Economic Equivalence.
(a) The Parent will not without the prior approval of the Company
and the prior approval of the holders of the Exchangeable
Shares given in accordance with Article 30.4 of the Share
Provisions:
(i) issue or distribute Parent Common Shares (or
securities exchangeable for or convertible into or
carrying rights to acquire Parent Common Shares) to
the holders of all or substantially all of the then
outstanding Parent Common Shares by way of stock
dividend or other distribution, other than an issue
of Parent Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire
Parent Common Shares) to holders of Parent Common
Shares
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<PAGE> 17
who exercise an option to receive dividends in Parent
Common Shares (or securities exchangeable for or
convertible into or carrying rights to acquire Parent
Common Shares) in lieu of receiving cash dividends;
(ii) issue or distribute rights, options or warrants to
the holders of all or substantially all of the then
outstanding Parent Common Shares entitling them to
subscribe for or to purchase Parent Common Shares (or
securities exchangeable for or convertible into or
carrying rights to acquire Parent Common Shares); or
(iii) issue or distribute to the holders of all or
substantially all of the then outstanding Parent
Common Shares: (1) shares or securities of the Parent
of any class other than Parent Common Shares (other
than shares convertible into or exchangeable for or
carrying rights to acquire Parent Common Shares), (2)
rights, options or warrants other than those referred
to in Section 6.7(a)(ii) above, (3) evidences of
indebtedness of the Parent or (4) assets of the
Parent;
unless (x) the Company is permitted under applicable law to
issue or distribute the economic equivalent on a per share
basis of such rights, options, securities, shares, evidences
of indebtedness or other assets to the holders of the
Exchangeable Shares and (y) the Company shall issue or
distribute such rights, options, securities, shares, evidences
of indebtedness or other assets simultaneously to the holders
of the Exchangeable Shares.
(b) The Parent will not without the prior approval of the Company
and the prior approval of the holders of the Exchangeable
Shares given in accordance with Article 30.4 of the Share
Provisions:
(i) subdivide, redivide or change the then outstanding
Parent Common Shares into a greater number of Parent
Common Shares; or
(ii) reduce, combine or consolidate or change the then
outstanding Parent Common Shares into a lesser number
of Parent Common Shares; or
(iii) reclassify or otherwise change the Parent Common
Shares or effect an amalgamation, merger,
reorganization or other transaction affecting the
Parent Common Shares;
unless (x) the Company is permitted under applicable law to
simultaneously make the same or an economically equivalent
change to, or in the rights of holders of, the Exchangeable
Shares and (y) the same or an economically equivalent change
is made to, or in the rights of the holders of, the
Exchangeable Shares.
(c) The Parent will ensure that the record date for any event
referred to in Section 6.7(a) or 6.7(b) above, or (if no
record date is applicable for such event) the effective date
for any such event, is not less than 10 days after the date on
which such event is declared or announced by the Parent (with
simultaneous notice thereof to be given by the Parent to the
Company).
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<PAGE> 18
(d) The Company Board of Directors shall determine, in good faith
and in its sole discretion (with the assistance of such
reputable and qualified independent financial advisors and/or
other experts as the board may require), economic equivalence
for the purposes of any event referred to in Section 6.7(a) or
6.7(b) and each such determination shall be conclusive and
binding on the Parent. In making each such determination, the
following factors shall, without excluding other factors
determined by the board to be relevant, be considered by the
Company Board of Directors:
(i) in the case of any stock dividend or other
distribution payable in Parent Common Shares, the
number of such shares issued in proportion to the
number of Parent Common Shares previously
outstanding;
(ii) in the case of the issuance or distribution of any
rights, options or warrants to subscribe for or
purchase Parent Common Shares (or securities
exchangeable for or convertible into or carrying
rights to acquire Parent Common Shares), the
relationship between the exercise price of each such
right, option or warrant and the current market value
(as determined by the Board of Directors in the
manner above contemplated) of a Parent Common Share;
(iii) in the case of the issuance or distribution of any
other form of property (including without limitation
any shares or securities of the Parent of any class
other than Parent Common Shares, any rights, options
or warrants other than those referred to in Section
6.7(d)(ii) above, any evidences of indebtedness of
the Parent or any assets of the Parent), the
relationship between the fair market value (as
determined by the Company Board of Directors in the
manner above contemplated) of such property to be
issued or distributed with respect to each
outstanding Parent Common Share and the current
market value (as determined by the Board of Directors
in the manner above contemplated) of a Parent Common
Share; and
(iv) in the case of any subdivision, redivision or change
of the then outstanding Parent Common Shares into a
greater number of Parent Common Shares or the
reduction, combination or consolidation or change of
the then outstanding Parent Common Shares into a
lesser number of Parent Common Shares or any
amalgamation, merger, reorganization or other
transaction affecting the Parent Common Shares, the
effect thereof upon the then outstanding shares of
Parent Common Shares.
For purposes of the foregoing determinations, the current market value
of any security listed and traded or quoted on a securities exchange
shall be the average of the high and the low trade of such security (as
reported in the Wall Street Journal) for each of the 10 trading days
before the date of determination on the principal securities exchange
on which such securities are listed and traded or quoted; provided,
however, that if in the opinion of the Company Board of Directors the
public distribution or trading activity of such securities during such
period does not create a market that reflects the fair market value of
such securities, then the current market value thereof shall be
determined by the Company Board of Directors, in good faith and in its
sole discretion (with the assistance of such reputable and qualified
independent financial advisors and/or other
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<PAGE> 19
experts as the board may require), and provided further that any such
determination by the Company Board of Directors shall be conclusive and
binding on the Parent.
6.8 Tender Offers, etc. In the event that a cash offer, share exchange
offer, issuer bid, take-over bid or similar transaction with respect to
Parent Common Shares (each, a "Tender Offer") is proposed by the Parent
or is proposed to the Parent or its shareholders and is recommended by
the Parent Board of Directors, or is otherwise effected or to be
effected with the consent or approval of the Parent Board of Directors,
the Parent will use reasonable efforts (to the extent, in the case of a
Tender Offer by a third party, within its control) expeditiously and in
good faith to take all such actions and do all such things as are
necessary or desirable to enable and permit holders of Exchangeable
Shares to participate in such Tender Offer to the same extent and on an
economically equivalent basis as the holders of Parent Common Shares,
without discrimination, provided that if the holders of Exchangeable
Shares wish to participate in any such Tender Offer such holder shall
retract Exchangeable Shares as against the Company. Such retraction
shall be conditional upon and occur simultaneously with, the closing of
such Tender Offer.
6.9 Parent Not to Vote. The Parent covenants and agrees that it will
appoint and cause to be appointed proxyholders with respect to all
Convertible Shares or Exchangeable Shares held by the Parent and its
Subsidiaries for the sole purpose of attending each meeting of holders
of Convertible Shares or Exchangeable Shares in order to be counted as
part of the quorum for each such meeting. The Parent further covenants
and agrees that it will not, and will cause its Subsidiaries not to,
exercise any voting rights that may be exercisable by holders of
Convertible Shares or Exchangeable Shares from time to time pursuant to
the Share Provisions or pursuant to the provisions of the Company Act
(or any successor or other corporate statute by which the Company may
in the future be governed) with respect to any Convertible Shares or
Exchangeable Shares held by it or by its direct or indirect
Subsidiaries in respect of any matter considered at any meeting of
holders of Convertible Shares or Exchangeable Shares.
6.10 Due Performance. The Parent shall, and shall cause each of the Company
and Holdco to, duly and timely perform all of its respective
obligations provided for herein and that may arise under the Share
Provisions, and Parent shall be responsible for the due performance of
all of such obligations hereunder and under the Share Provisions.
6.11 Issue of Additional Shares. During the term of this Trust Agreement,
the Parent will not issue any shares of Series B Preferred Stock, par
value US$0.001 in addition to the Voting Share to be issued to the
Trustee hereunder.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 Powers and Duties of the Trustee. The rights, powers and authorities of
the Trustee under this Trust Agreement, in its capacity as trustee of
the Trust, shall include:
(a) receipt and deposit of the Voting Share from the Parent as
trustee for and on behalf of the Non-Affiliated Holders in
accordance with the provisions of this Trust Agreement;
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<PAGE> 20
(b) granting proxies and distributing materials to Non-Affiliated
Holders as provided in this Trust Agreement;
(c) voting the Non-Affiliated Holder Votes in accordance with the
provisions of this Trust Agreement;
(d) receiving the grant of the Exchange Right from the Parent as
trustee for and on behalf of the Non-Affiliated Holders in
accordance with the provisions of this Trust Agreement;
(e) exercising the Exchange Right, in accordance with the
provisions of this Trust Agreement and in connection therewith
receiving from Non-Affiliated Holders Exchangeable Shares and
other requisite documents and distributing to such
Non-Affiliated Holders the Parent Common Shares and cheques,
if any, to which such Non-Affiliated Holders are entitled upon
the exercise of the Exchange Right;
(f) holding title to the Trust Estate;
(g) investing any money forming, from time to time, a part of the
Trust Estate as provided in this Trust Agreement;
(h) taking action at the direction of a Non-Affiliated Holder to
enforce the obligations of the Company, Holdco and/or the
Parent under this Trust Agreement and under the Share
Provisions; and
(i) taking such other actions and doing such other things as are
specifically provided in this Trust Agreement.
In the exercise of such rights, powers and authorities the Trustee
shall have (and is granted) such incidental and additional rights,
powers and authority not in conflict with any of the provisions of this
Trust Agreement as the Trustee, acting in good faith and in the
reasonable exercise of its discretion, may deem necessary, appropriate
or desirable to effect the purpose of the Trust. Any exercise of such
discretionary rights, powers and authorities by the Trustee shall be
final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in
this Trust Agreement. The Trustee in exercising its rights, powers,
duties and authorities hereunder shall act honestly and in good faith
with a view to the best interests of the Non-Affiliated Holders and
shall exercise the care, diligence and skill that a reasonably prudent
trustee would exercise in comparable circumstances. The Trustee shall
not be bound to give any notice or do or take any act, action or
proceeding by virtue of the powers conferred on it hereby unless and
until it shall be specifically required to do so under the terms
hereof; nor shall the Trustee be required to take any notice of, or to
do or to take any act, action or proceeding as a result of any default
or breach of any provision hereunder, unless and until notified in
writing of such default or breach, which notice shall distinctly
specify the default or breach desired to be brought to the attention of
the Trustee and in the absence of such notice the Trustee may for all
purposes of this Trust Agreement conclusively assume that no default or
breach has been made in the observance or performance of any of the
representations, warranties, covenants, agreements or conditions
contained herein.
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<PAGE> 21
7.2 No Conflict of Interest. The Trustee represents to the Company and the
Parent that at the date of execution and delivery of this Trust
Agreement there exists no material conflict of interest in the role of
the Trustee as a fiduciary hereunder and the role of the Trustee in any
other capacity. The Trustee shall, within 90 days after it becomes
aware that such a material conflict of interest exists, either
eliminate such material conflict of interest or resign in the manner
and with the effect specified in Article 10 hereof. If, notwithstanding
the foregoing provisions of this Section 7.2, the Trustee has such a
material conflict of interest, the validity and enforceability of this
Trust Agreement shall not be affected in any manner whatsoever by
reason only of the existence of such material conflict of interest. If
the Trustee contravenes the foregoing provisions of this Section 7.2,
any interested party may apply to any court in British Columbia with
jurisdiction for an order that the Trustee be replaced as trustee
hereunder.
7.3 Dealings with Transfer Agents, Registrars, etc. The Company, Holdco and
the Parent irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent
registrar or transfer agent, of the Convertible Shares,
Exchangeable Shares and Parent Common Shares; and
(b) requisition, from time to time, from any such registrar or
transfer agent any information readily available from the
records maintained by it which the Trustee may reasonably
require for the discharge of its duties and responsibilities
under this Trust Agreement. The Parent covenants that it will
supply, and will cause Holdco to supply, the Trustee, or the
Company, as the case may be, in a timely manner with duly
executed share certificates for the purpose of completing the
exercise from time to time of all rights to acquire Parent
Common Shares hereunder, under the Share Provisions and under
any other security or commitment given to the Non-Affiliated
Holders pursuant thereto, in each case pursuant to the
provisions hereof or of the Share Provisions or otherwise.
7.4 Books and Records. The Trustee shall keep available for inspection by
the Parent and the Company, at the Trustee's principal office in
Vancouver, British Columbia, correct and complete books and records of
account relating to the Trustee's actions under this Trust Agreement,
including without limitation all information relating to mailings and
instructions to and from Non-Affiliated Holders and all transactions
pursuant to the Voting Rights and the Exchange Right for the term of
this Trust Agreement. On or before November 30, 1998, and on or before
November 30 in every year thereafter, so long as the Voting Share is on
deposit with the Trustee, the Trustee shall transmit to the Parent and
the Company a brief report, dated as of the preceding August 31, with
respect to: (a) the property and funds comprising the Trust Estate as
of that date; (b) the number of exercises of the Exchange Right, if
any, and the aggregate number of Exchangeable Shares received by the
Trustee on behalf of Non-Affiliated Holders in consideration of the
issue and delivery by the Parent or Holdco of Parent Common Shares in
connection with the Exchange Right, during the calendar year ended on
such date; and (c) all other actions taken by the Trustee in the
performance of its duties under this Trust Agreement which it had not
previously reported.
7.5 Income Tax Returns and Reports. The Trustee shall, to the extent
necessary, prepare and file on behalf of the Trust appropriate Canadian
and United States income tax returns and any other returns or reports
as may be required by applicable law or pursuant to the rules and
regulations
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<PAGE> 22
of any securities exchange or other trading system through which the
Exchangeable Shares are traded and, in connection therewith, may obtain
the advice and assistance of such experts as the Trustee may consider
necessary or advisable. If requested by the Trustee, the Parent shall
retain such experts as may be required for the purposes of providing
such advice and assistance.
7.6 Indemnification Prior to Certain Actions by Trustee. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested
in it by this Trust Agreement at the request, order or direction of any
Non-Affiliated Holder upon such Non-Affiliated Holder furnishing to the
Trustee reasonable funding, security and indemnity against the costs,
expenses and liabilities that may be incurred by the Trustee therein or
thereby, provided that no Non-Affiliated Holder shall be obligated to
furnish to the Trustee any such funding, security or indemnity in
connection with the exercise by the Trustee of any of its rights,
duties, powers and authorities with respect to the Voting Share
pursuant to Article 4 hereof with respect to the Exchange Right
pursuant to Article 5 hereof, subject to the provisions of Section 7.15
hereof. None of the provisions contained in this Trust Agreement shall
require the Trustee to expend or risk its own funds or otherwise incur
financial liability in the exercise of any of its rights, powers,
duties or authorities unless given funds, security and indemnified as
aforesaid.
7.7 Actions by Non-Affiliated Holders. No Non-Affiliated Holder shall have
the right to institute any action, suit or proceeding or to exercise
any other remedy authorized by this Trust Agreement for the purpose of
enforcing any of its rights or for the execution of any trust or power
hereunder unless the Non-Affiliated Holder has requested the Trustee to
take or institute such action, suit or proceeding and furnished the
Trustee with the funding, security and indemnity referred to in Section
7.6 hereof and the Trustee shall have failed to act within a reasonable
time thereafter. In such case, but not otherwise, the Non-Affiliated
Holder shall be entitled to take proceedings in any court of competent
jurisdiction such as the Trustee might have taken; it being understood
and intended that no one or more Non-Affiliated Holders shall have any
right in any manner whatsoever to affect, disturb or prejudice the
rights hereby created by any such action, or to enforce any right
hereunder, including without limitation, under the Voting Rights or the
Exchange Right, except subject to the conditions and in the manner
herein provided, and that all powers and trusts hereunder shall be
exercised and all proceedings at law shall be instituted, had and
maintained by the Trustee, except only as herein provided, and in any
event for the equal benefit of all Non-Affiliated Holders.
7.8 Reliance upon Declarations. The Trustee shall not be considered to be
in contravention of any of its rights, powers, duties and authorities
hereunder if, when required, it acts and relies in good faith upon
lists, mailing labels, notices, statutory declarations, certificates,
opinions, reports or other papers or documents furnished pursuant to
the provisions hereof or required by the Trustee to be furnished to it
in the exercise of its rights, powers, duties and authorities hereunder
and such lists, mailing labels, notices, statutory declarations,
certificates, opinions, reports or other papers or documents comply
with the provisions of Section 7.9 hereof, if applicable, and with any
other applicable provisions of this Trust Agreement.
7.9 Evidence and Authority to Trustee. The Company, Holdco and/or the
Parent shall furnish to the Trustee evidence of compliance with the
conditions provided for in this Trust Agreement relating to any action
or step required or permitted to be taken by the Company, Holdco and/or
the Parent or the Trustee under this Trust Agreement or as a result of
any obligation imposed under this Trust Agreement, including, without
limitation, in respect of the Voting Rights or the Exchange
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<PAGE> 23
Right and the taking of any other action to be taken by the Trustee at
the request of or on the application of the Company, Holdco and/or the
Parent forthwith if and when:
(a) such evidence is required by any other section of this Trust
Agreement to be furnished to the Trustee in accordance with
the terms of this Section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this Trust Agreement, gives the Company,
Holdco and/or the Parent written notice requiring it to
furnish such evidence in relation to any particular action or
obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of the Company,
Holdco and/or the Parent or a statutory declaration or a certificate
made by persons entitled to sign an Officer's Certificate stating that
any such condition has been complied with in accordance with the terms
of this Trust Agreement. Whenever such evidence relates to a matter
other than the Voting Rights or the Exchange Right and except as
otherwise specifically provided herein, such evidence may consist of a
report or opinion of any solicitor, auditor, accountant, appraiser,
valuer, engineer or other expert or any other person whose
qualifications give authority to a statement made by such person,
provided that if such report or opinion is furnished by a director,
officer or employee of the Company, Holdco and/or the Parent it shall
be in the form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to
the Trustee as evidence of compliance with a condition provided for in
this Trust Agreement shall include a statement by the person giving the
evidence:
(a) declaring that such person has read and understands the
provisions of this Trust Agreement relating to the condition
in question;
(b) describing the nature and scope of the examination or
investigation upon which such person based the statutory
declaration, certificate, statement or opinion; and
(c) declaring that such person has made such examination or
investigation as such person believes is necessary to enable
such person to make the statements or give the opinions
contained or expressed therein.
7.10 Experts, Advisers and Agents. The Trustee may:
(a) in relation to these presents act and rely on the opinion or
advice of or information obtained from or prepared by any
solicitor, auditor, accountant, appraiser, valuer, engineer or
other expert, whether retained by the Trustee or by the
Company, Holdco and/or the Parent or otherwise, and may employ
such assistants as may be necessary to the proper
determination and discharge of its powers and duties and
determination of its rights hereunder and may pay proper and
reasonable compensation for all such legal and other advice or
assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably
require for the proper determination and discharge of its
powers and duties hereunder, and may pay reasonable
remuneration for all services performed for it (and shall be
entitled to receive reasonable remuneration for all services
performed by it) in the discharge of the trusts hereof and
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<PAGE> 24
compensation for all disbursements, costs and expenses made or
incurred by it in the determination and discharge of its
duties hereunder and in the management of the Trust.
7.11 Investment of Money Held by Trustee. Unless otherwise provided in this
Trust Agreement, any money held by or on behalf of the Trustee which
under the terms of this Trust Agreement may or ought to be invested or
which may be on deposit with the Trustee or which may be in the hands
of the Trustee may be invested and reinvested in the name or under the
control of the Trustee in securities in which, under the laws of the
Province of British Columbia, trustees are authorized to invest trust
money, provided that such securities are stated to mature within two
years after their purchase by the Trustee, and the Trustee shall so
invest such money on the written direction of the Company. Pending the
investment of any money as herein before provided, such money may be
deposited in the name of the Trustee in any chartered bank in Canada
or, with the consent of the Company, in the deposit department of the
Trustee or any other loan or trust company authorized to accept
deposits under the laws of Canada or any province thereof at the rate
of interest then current on similar deposits.
7.12 Trustee Not Required to Give Security. The Trustee shall not be
required to give any bond or security in respect of the execution of
the trusts, rights, duties, powers and authorities of this Trust
Agreement or otherwise in respect of the premises.
7.13 Trustee Not Bound to Act on Company's Request. Except as in this Trust
Agreement otherwise specifically provided, the Trustee shall not be
bound to act in accordance with any direction or request of the
Company, Holdco and/or the Parent or of the directors thereof until a
duly authenticated copy of the instrument or resolution containing such
direction or request shall have been delivered to the Trustee, and the
Trustee shall be empowered to act and rely upon any such copy
purporting to be authenticated and believed by the Trustee to be
genuine.
7.14 Authority to Carry on Business. The Trustee represents to the Company,
Holdco and the Parent that at the date of execution and delivery by it
of this Trust Agreement it is authorized to carry on the business of a
trust company in the Province of British Columbia but if,
notwithstanding the provisions of this Section 7.14, it ceases to be so
authorized to carry on business, the validity and enforceability of
this Trust Agreement and the Voting Rights, the Exchange Right and the
other rights granted in or resulting from the Trustee being a party to
this Trust Agreement shall not be affected in any manner whatsoever by
reason only of such event but the Trustee shall, within 90 days after
ceasing to be authorized to carry on the business of a trust company in
the Province of British Columbia, either become so authorized or resign
in the manner and with the effect specified in Article 10 hereof.
7.15 Conflicting Claims. If conflicting claims or demands are made or
asserted with respect to any interest of any Non-Affiliated Holder in
any Exchangeable Shares, including any disagreement between the heirs,
representatives, successors or assigns succeeding to all or any part of
the interest of any Non-Affiliated Holder in any Exchangeable Shares
resulting in conflicting claims or demands being made in connection
with such interest, then the Trustee shall be entitled, at its sole
discretion, to refuse to recognize or to comply with any such claim or
demand. In so refusing, the Trustee may elect not to exercise any
Voting Rights, Exchange Right or other rights subject to such
conflicting claims or demands and, in so doing, the Trustee shall not
be or become liable to any person on account of such election or its
failure or refusal to comply with
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<PAGE> 25
any such conflicting claims or demands. The Trustee shall be entitled
to continue to refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Right or other rights subject to such
conflicting claims or demands have been adjudicated by a final
judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange
Right or other rights subject to such conflicting claims or
demands have been conclusively settled by a valid written
agreement binding on all such adverse claimants, and the
Trustee shall have been furnished with an executed copy of
such agreement.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require
such claimant to furnish such surety bond or other security
satisfactory to the Trustee as it shall deem appropriate fully to
indemnify it as between all conflicting claims or demands.
7.16 Acceptance of Trust. The Trustee hereby accepts the Trust created and
provided for by and in this Trust Agreement and agrees to perform the
same upon the terms and conditions herein set forth and to hold all
rights, privileges and benefits conferred hereby and by law in trust
for the various persons who shall from time to time be Non-Affiliated
Holders, subject to all the terms and conditions herein set forth.
ARTICLE 8
COMPENSATION
8.1 Fees and Expenses of the Trustee. The Parent and the Company jointly
and severally agree to pay to the Trustee reasonable compensation for
all of the services rendered by it under this Trust Agreement and will
reimburse the Trustee for all reasonable expenses (including but not
limited to taxes, compensation paid to experts, agents and advisors and
travel expenses) and disbursements, including the cost and expense of
any suit or litigation of any character and any proceedings before any
governmental agency reasonably incurred by the Trustee in connection
with its rights and duties under this Trust Agreement; provided that
the Parent, Holdco and the Company shall have no obligation to
reimburse the Trustee for any expenses or disbursements paid, incurred
or suffered by the Trustee in any suit or litigation in which the
Trustee is determined to have acted in bad faith or with negligence or
wilful misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 Indemnification of the Trustee. The Parent, Holdco and the Company
jointly and severally agree to indemnify and hold harmless the Trustee
and each of its directors, officers, employees and agents appointed and
acting in accordance with this Trust Agreement (collectively, the
"Indemnified Parties") against all claims, losses, damages, costs,
penalties, fines and reasonable and necessary expenses (including
reasonable and necessary expenses of the Trustee's legal counsel)
which, without fraud, negligence, wilful misconduct or bad faith on the
part of such
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<PAGE> 26
Indemnified Party, may be paid, incurred or suffered by the Indemnified
Party by reason of or as a result of the Trustee's acceptance or
administration of the Trust, its compliance with its duties set forth
in this Trust Agreement, or any written or oral instructions delivered
to the Trustee by the Parent, Holdco or the Company pursuant hereto. In
no case shall the Parent, Holdco or the Company be liable under this
indemnity for any claim against any of the Indemnified Parties if such
claim is incurred or suffered by reason of or as a result of the fraud,
gross negligence, wilful misconduct or bad faith of an Indemnified
Party and unless the Parent, Holdco and the Company shall be notified
by the Trustee of the written assertion of a claim or of any action
commenced against the Indemnified Parties, promptly after any of the
Indemnified Parties shall have received any such written assertion of a
claim or shall have been served with a summons or other first legal
process giving information as to the nature and basis of the claim.
Subject to Section 9.1(b), below, the Parent, Holdco and the Company
shall be entitled to participate at their own expense in the defence
and, if the Parent, Holdco or the Company so elect at any time after
receipt of such notice, any of them may assume the defence of any suit
brought to enforce any such claim. The Trustee shall have the right to
employ separate counsel in any such suit and participate in the defence
thereof but the fees and expenses of such counsel shall be at the
expense of the Trustee unless: (a) the employment of such counsel has
been authorized by the Parent, Holdco or the Company, such
authorization not to be unreasonably withheld; or (b) the named parties
to any such suit include both the Trustee and the Parent, Holdco or the
Company and the Trustee shall have been advised in writing by counsel
acceptable to the Parent, Holdco or the Company that there may be one
or more legal defences available to the Trustee that are different from
or in addition to those available to the Parent, Holdco or the Company
and that an actual or potential conflict of interest exists (in which
case the Parent, Holdco and the Company shall not have the right to
assume the defence of such suit on behalf of the Trustee but shall be
liable to pay the reasonable fees and expenses of counsel for the
Trustee). Such indemnification shall survive the resignation or removal
of the Trustee and the termination of this Trust Agreement.
9.2 Limitation of Liability. The Trustee shall not be held liable for any
loss which may occur by reason of depreciation of the value of any part
of the Trust Estate or any loss incurred on any investment of funds
pursuant to this Trust Agreement, except to the extent that such loss
is attributable to the fraud, gross negligence, wilful misconduct or
bad faith on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 Resignation. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to the
Parent, Holdco and the Company specifying the date on which it desires
to resign, provided that such notice shall never be given less than 60
days before such desired resignation date unless the Parent, Holdco and
the Company otherwise agree and provided further that such resignation
shall not take effect until the date of the appointment of a successor
trustee and the acceptance of such appointment by the successor
trustee. Upon receiving such notice of resignation, the Parent, Holdco
and the Company shall promptly appoint a successor trustee by written
instrument in duplicate, one copy of which shall be delivered to the
resigning trustee and one copy to the successor trustee. Failing
acceptance by a successor
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<PAGE> 27
trustee, a successor trustee may be appointed by an order of any court
of British Columbia with jurisdiction upon application of one or more
of the parties hereto.
10.2 Removal. The Trustee, or any trustee hereafter appointed, may be
removed with or without cause, at any time on 60 days' prior notice by
written instrument executed by the Parent, Holdco and the Company, in
duplicate, one copy of which shall be delivered to the trustee so
removed and one copy to the successor trustee.
10.3 Successor Trustee. Any successor trustee appointed as provided under
this Trust Agreement shall execute, acknowledge and deliver to the
Parent, Holdco and the Company and to its predecessor trustee an
instrument accepting such appointment. Thereupon the resignation or
removal of the predecessor trustee shall become effective and such
successor trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, duties and obligations of
its predecessor under this Trust Agreement, with like effect as if
originally named as trustee in this Trust Agreement. However, on the
written request of the Parent, Holdco and the Company or of the
successor trustee, the trustee ceasing to act shall, upon payment of
any amounts then due it pursuant to the provisions of this Trust
Agreement, execute and deliver an instrument transferring to such
successor trustee all the rights and powers of the trustee so ceasing
to act. Upon the request of any such successor trustee, the Parent,
Holdco and the Company and such predecessor trustee shall execute any
and all instruments in writing for more fully and certainly vesting in
and confirming to such successor trustee all such rights and powers.
10.4 Notice of Successor Trustee. Upon acceptance of appointment by a
successor trustee as provided herein, the Parent, Holdco and the
Company shall cause to be mailed notice of the succession of such
trustee hereunder to each Non-Affiliated Holder specified in a List. If
the Parent, Holdco or the Company shall fail to cause such notice to be
mailed within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Parent, Holdco and the Company.
ARTICLE 11
PARENT SUCCESSORS
11.1 Certain Requirements in Respect of Combination, etc. The Parent shall
not enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking,
property and assets would become the property of any other person or,
in the case of a merger, of the continuing corporation resulting
therefrom unless, but may do so if:
(a) such other person or continuing corporation (the "Parent
Successor"), by operation of law, becomes, without more, bound
by the terms and provisions of this Trust Agreement or, if not
so bound, executes, prior to or contemporaneously with the
consummation of such transaction a trust agreement
supplemental hereto and such other instruments (if any) as are
satisfactory to the Trustee are necessary or advisable to
evidence the assumption by the Parent Successor of liability
for all money payable and property deliverable hereunder and
the covenant of such Parent Successor to pay and deliver or
cause to be delivered the same and its agreement to observe
and perform all the covenants and obligations of the Parent
under this trust agreement; and
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<PAGE> 28
(b) such transaction shall, to the satisfaction of the Trustee, be
upon such terms as substantially to preserve and not to impair
in any material respect any of the rights, duties, powers and
authorities of the Trustee or of the Non-Affiliated Holders
hereunder or under the Company's Articles.
11.2 Vesting of Powers in Successor. Whenever the conditions of Section 11.1
hereof have been duly observed and performed, if required by Section
11.1 hereof, the Trustee, the Parent Successor, Holdco and the Company
shall execute and deliver the supplemental trust agreement provided for
in Article 12 hereof and thereupon the Parent Successor shall possess
and from time to time may exercise each and every right and power of
the Parent under this Trust Agreement in the name of the Parent or
otherwise and any act or proceeding by any provision of this Trust
Agreement required to be done or performed by the Parent Board of
Directors or any officers of the Parent may be done and performed with
like force and effect by the directors or officers of such Parent
Successor.
11.3 Wholly-Owned Subsidiaries. Except as provided in Section 5.10, nothing
herein shall be construed as preventing the amalgamation or merger of
any wholly-owned Subsidiary of the Parent with or into the Parent or
the winding up, liquidation or dissolution of any wholly-owned
Subsidiary of the Parent provided that all of the assets of such
Subsidiary are transferred to the Parent or another wholly-owned
Subsidiary of the Parent, and any such transactions are expressly
permitted by this Article 11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
12.1 Amendments, Modifications, etc. This Trust Agreement may not be amended
or modified except by an agreement in writing executed by the Company,
Holdco, the Parent and the Trustee and approved by the Non-Affiliated
Holders and the holders of the Convertible Shares in accordance with
Article 30.4 of the Share Provisions.
12.2 Ministerial Amendments. Notwithstanding the provisions of Section 12.1
hereof, the parties to this Trust Agreement may in writing, at any time
and from time to time, without the approval of the Non-Affiliated
Holders or the approval of the holders of the Convertible Shares, amend
or modify this Trust Agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto
for the protection of the Non-Affiliated Holders and the
holders of the Convertible Shares hereunder and under the
Company's Articles;
(b) making such amendments or modifications not inconsistent with
this Trust Agreement as may be necessary or desirable with
respect to matters or questions which, in the opinion of the
Company Board of Directors and the Parent Board of Directors
and in the opinion of the Trustee, having in mind the
commercially reasonable interests of the Non-Affiliated
Holders and the holders of the Convertible Shares as a whole,
it may be expedient to make, provided that such boards of
directors and the Trustee shall be of the opinion that such
amendments and modifications will not be materially
prejudicial to the
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<PAGE> 29
interests of the Non-Affiliated Holders and the holders of the
Convertible Shares as a whole; or
(c) making such changes or corrections which are required for the
purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error, provided that the Trustee and the Company
Board of Directors and the Parent Board of Directors shall be
of the opinion that such changes or corrections will not be
materially prejudicial to the interests of the Non-Affiliated
Holders and the holders of the Convertible Shares as a whole.
12.3 Meeting to Consider Amendments. The Company, at the request of the
Parent, shall call a meeting or meetings of the Non-Affiliated Holders
and the holders of the Convertible Shares for the purpose of
considering any proposed amendment or modification requiring approval
pursuant hereto. Any such meeting or meetings shall be called and held
in accordance with the Company's Articles, the Share Provisions and all
applicable laws.
12.4 Changes in Capital of Parent and the Company. At all times after the
occurrence of any event effected pursuant to Section 6.7 or Section 6.8
of this Trust Agreement, as a result of which either the Parent Common
Shares, the Convertible Shares or the Exchangeable Shares or any of
them are in any way changed, this Trust Agreement shall forthwith be
amended and modified as necessary in order that it shall apply with
full force and effect, mutatis mutandis, to all new securities into
which the Parent Common Shares, the Convertible Shares or the
Exchangeable Shares or any of them are so changed and the parties
hereto shall execute and deliver a supplemental trust agreement giving
effect to and evidencing such necessary amendments and modifications.
12.5 Execution of Supplemental Trust Agreements. No amendment to or
modification or waiver of any of the provisions of this Trust Agreement
otherwise permitted hereunder shall be effective unless made in writing
and signed by all of the parties hereto. From time to time the Company,
Holdco, the Parent and the Trustee may, subject to the provisions of
these presents, and they shall, when so directed by these presents,
execute and deliver by their proper officers, trust agreements or other
instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more of the following purposes:
(a) evidencing the succession of Parent Successors to the Parent
and the covenants of and obligations assumed by each such
Parent Successor in accordance with the provisions of Article
11 and the successor of any successor trustee in accordance
with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this Trust Agreement or the Voting Rights or the
Exchange Right which, in the opinion of the Trustee, will not
be prejudicial to the interests of the Non-Affiliated Holders
and the holders of the Convertible Shares as a whole or are in
the opinion of the Trustee necessary or advisable in order to
incorporate, reflect or comply with any legislation the
provisions of which apply to the Parent, Holdco, the Company,
the Trustee or this Trust Agreement; and
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<PAGE> 30
(c) for any other purposes not inconsistent with the provisions of
this Trust Agreement, including without limitation to make or
evidence any amendment or modification to this Trust Agreement
as contemplated hereby, provided that, in the opinion of the
Trustee, the rights of the Trustee, the Non-Affiliated Holders
and the holders of the Convertible Shares as a whole will not
be prejudiced thereby.
ARTICLE 13
TERMINATION
13.1 Term. The Trust created by this Trust Agreement shall continue until
the earliest to occur of the following events:
(a) no Convertible Shares are outstanding and no outstanding
Exchangeable Shares are held by any Non-Affiliated Holder;
(b) each of the Company, Holdco and the Parent elects in writing
to terminate the Trust and such termination is approved by the
Non-Affiliated Holders of the Exchangeable Shares and the
holders of the Convertible Shares in accordance with Article
30.4 of the Share Provisions; and
(c) 21 years after the death of the last survivor of the
descendants of His Majesty King George VI of the United
Kingdom of Great Britain and Northern Ireland living on the
date of the creation of the Trust.
13.2 Survival of Agreement. This Trust Agreement shall survive any
termination of the Trust and shall continue until there are no
Convertible Shares outstanding and no Exchangeable Shares outstanding
held by any Non-Affiliated Holder; provided, however, that the
provisions of Articles 8 and 9 hereof and the representation contained
in Section 6.3(b) hereof shall survive any such termination of this
Trust Agreement.
ARTICLE 14
GENERAL
14.1 Severability. If any provision of this Trust Agreement is held to be
invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of this Trust Agreement shall not in
any way be affected or impaired thereby and this Trust Agreement shall
be carried out as nearly as possible in accordance with its original
terms and conditions.
14.2 Enurement. This Trust Agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and
permitted assigns and to the benefit of the Non-Affiliated Holders.
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<PAGE> 31
14.3 Notices to Parties. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been
given if delivered personally or by confirmed telecopy to the parties
at the following addresses (or at such other address for such party as
shall be specified in like notice):
Raintree Resorts International, Inc.
10000 Memorial Drive
Suite 480
Houston, Texas
U.S.A. 77024
Attention: Chairman
Telecopy: (713) 613-2828
Any notice or other communication given personally shall be deemed to
have been given and received upon delivery thereof and if given by
telecopy shall be deemed to have been given and received on the date of
receipt thereof unless such day is not a Business Day in which case it
shall be deemed to have been given and received upon the immediately
following Business Day.
14.4 Notice of Holders. Any and all notices to be given and any documents to
be sent to any Non-Affiliated Holder or any holder of a Convertible
Share may be given or sent to the address of such holder shown on the
Company's register of security holders in any manner permitted by the
Company Act from time to time in force in respect of notices to
shareholders and shall be deemed to be received (if given or sent in
such manner) at the time specified in such Act, the provisions of which
Act shall apply mutatis mutandis to notices or documents as aforesaid
sent to such holders.
14.5 Risk of Payments by Post. Whenever payments are to be made or documents
are to be sent to any Non-Affiliated Holder or any holder of a
Convertible Share by the Trustee or by the Company, Holdco, the Parent
or by such Non-Affiliated Holder or any holder of a Convertible Share
to the Trustee or to the Parent, Holdco or the Company, the making of
such payment or sending of such document sent through the post shall be
at the risk of the Company, in the case of payments made or documents
sent by the Trustee or the Company or Holdco or the Parent, and shall
be at the risk of the Non-Affiliated Holder or holder of Convertible
Shares, in the case of payments made or documents sent by the
Non-Affiliated Holder or holder of Convertible Shares, as the case may
be.
14.6 Counterparts. This Trust Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
14.7 Jurisdiction. This Trust Agreement shall be construed and enforced in
accordance with the laws of the Province of British Columbia and the
laws of Canada applicable therein.
14.8 Attornment. The Parent agrees that any action or proceeding arising out
of or relating to this Trust Agreement may be instituted in the courts
of British Columbia, waives any objection which it may have now or
hereafter to the venue of any such action or proceeding, irrevocably
submits to the jurisdiction of the said courts in any such action or
proceeding, agrees to be bound by any judgment of the said courts and
agrees not to seek, and hereby waives, any review of the merits
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<PAGE> 32
of any such judgment by the courts of any other jurisdiction and hereby
appoints the Company at its registered office in the Province of
British Columbia as its attorney for service of process.
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be
duly executed as of the date first above written.
RAINTREE RESORTS INTERNATIONAL, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
RAINTREE RESORTS INTERNATIONAL CANADA LTD.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
RAINTREE RESORTS HOLDINGS ULC
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
RAINTREE RESORTS HOLDINGS ULC
(in its capacity as the Trustee)
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
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<PAGE> 1
EXHIBIT 10.1
Translation from Spanish
AGREEMENT ON OPENING OF LOAN AGAINST CURRENT ACCOUNT WITH TRUST GUARANTEE,
ENTERED INTO BY:
(A) BY A FIRST PARTY AS THE LENDER, BANCOMER SOCIEDAD ANONIMA DE CAPITAL
VARIABLE, INSTITUCION DE BANCA MULTIPLE, GRUPO FINANCIERO (Bancomer, Variable
Capital Stock Corporation, Multiple Banking Institution, Financial Group) GRAND
CAIMAN BRANCH, REPRESENTED HEREIN BY MESSRS. JOSE ANTONIO PALACIOS PEREZ AND
JOSE LUIS ITURBIDE GUERRA, HEREINAFTER REFERRED TO AS "BANCOMER";
(B) BY A SECOND PARTY AS THE BORROWER, C.R. RESORTS CAPITAL, SOCIEDAD DE
RESPONSABILIDAD LIMITADA DE CAPITAL VARIABLE (C.R. Resorts Capital, Variable
Capital Limited Liability Corporation) REPRESENTED HEREIN BY MR. JOHN MCCARTHY
SANDLAND, HEREINAFTER REFERRED TO AS "BORROWER"; AND
(C) BY A THIRD PARTY AS THE GUARANTOR, C.R. RESORTS PUERTO VALLARTA, SOCIEDAD
DE RESPONSABILIDAD LIMITADA DE CAPITAL VARIABLE (C.R. Resorts Puerto Vallarta,
Variable Capital Limited Liability CORPORATION) REPRESENTED HEREIN BY MR. JOHN
MCCARTHY SANDLAND, HEREINAFTER REFERRED TO AS "GUARANTOR";
<PAGE> 2
ALL THE ABOVE IN ACCORDANCE WITH THE FOLLOWING ANTECEDENTS, RECITALS AND
CLAUSES:
A N T E C E D E N T S
I.- INCORPORATION OF BORROWER, FACULTIES AND POWERS. BORROWER declares through
its representative:
(A) That BORROWER is a variable capital limited liability company duly
organized and existing as put on record on public deed number fifty thousand
eight hundred fifty-seven dated August eleventh nineteen hundred and
ninety-seven, drawn up before Luis de Angoitia Becerra, Notary Public number
two hundred thirty-one for the Federal District, and entered in the Public
Registry of Commerce of the Federal District under Mercantile Folio number
225,005.
(B) That its corporate purpose includes the execution of operations such as
those contemplated in this Agreement.
(C) That its representative appointed for this act has the sufficient faculties
for its execution and that these not been revoked, limited nor modified in any
manner whatsoever, as put on record in the Public Deed mentioned in antecedent
(A) above.
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<PAGE> 3
(D) That on December first nineteen hundred and ninety-seven, together with
Club Regina Resorts, Inc. (presently Raintree Resorts International, Inc.) it
made an issue of securities formed by warrants and promissory notes for a total
of US$100'000,000.00 (ONE HUNDRED MILLION DOLLARS 00/100) United States of
America Currency, with a 13% (THIRTEEN PERCENT) annual interest payable every
six months on the first day of June and the first day of December of each year,
starting on June first nineteen hundred and ninety-eight and ending on the
first of December of the year two thousand four.
(E) That it has requested BANCOMER for a loan on current account for a
principal sum of US$20'000,000.00 (TWENTY MILLION DOLLARS 00/100) United States
of America Currency, which shall be subject to the terms and conditions agreed
herein, so that it will guarantee payment of interest to the holders of the
securities described in the preceding section.
II.- INCORPORATION OF GUARANTOR, FACULTIES AND POWERS. BORROWER declares
through its representative:
3
<PAGE> 4
(A) That GUARANTOR it is a variable capital limited liability corporation duly
organized and existing, as evidenced in public deed number fifty-five thousand
nine hundred thirty dated August eighteenth nineteen hundred and ninety-seven,
drawn up before the attestation by Armando Galvez Perez Aragon, Notary Public
number one hundred three of the Federal District, and entered in the Public
Registry of Commerce of the Federal District under mercantile folio number
102,373.
(B) That its corporate purpose includes the execution of operations
such as those contemplated in this Agreement.
(C) That its representative appointed for this act has the sufficient faculties
for its execution, same that have not been revoked, limited nor modified in any
manner whatsoever, as put on record in Public Deed number 51,260 dated the
twenty-second of December nineteen hundred and ninety-seven, drawn up before
the attestation by Luis de Angiotia Becerra, Public Notary number two hundred
thirty for the Federal District.
(D) That it sustains commercial and partnership relations with BORROWER where
it obtained a direct benefit by guaranteeing fulfillment of the liabilities
assumed by
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<PAGE> 5
BORROWER and consequently, it is willing to guarantee fulfillment of all and
each of the obligations derived for BORROWER'S account according to this
Instrument and the other documents connected to it.
III.- INCORPORATION OF BANCOMER, FACULTIES AND POWERS. BANCOMER declares
through its representatives:
(A) That it is a multiple banking institution duly authorized to engage in
operations inherent to its corporate purpose.
(B) That its representatives appointed for this act have the sufficient
faculties for its execution, which have not been revoked, limited nor modified
in any manner whatsoever.
R E C I T A L S
I.- BORROWER declares:
a) That the execution, delivery and fulfillment of this Agreement and of the
Promissory Notes through its representative are operations inherent to its
corporate purpose, have been duly authorized and do not infringe its
5
<PAGE> 6
articles or incorporation or corporate by-laws; nor any contractual restriction
or Law, regulation or order by any court or government body that binds or
affects BORROWER or any of its properties.
b) That once subscribed and signed by BORROWER, this Agreement and the
Promissory Notes shall constitute legal and valid liabilities for BORROWER,
demandable against the latter according to their respective terms.
c) That there is no legal action or judicial proceeding whatsoever that is
pending or has been notified to BORROWER that affects BORROWER or might
substantially and adversely affect its financial standing or operations, or the
legality, validity or demandable condition of this Agreement and/or the
Promissory Notes.
d) That per the date of this Agreement it does not face a strike nor a call to
strike, nor to the best of its knowledge has any action whatsoever been
attempted against itself by its employees which might affect its financial
condition or its operations, or the legality, validity or demandable condition
of this Agreement and/or the Promissory Notes.
6
<PAGE> 7
e) That it is not in arrears in debts for its account or the agreements which
it forms a part of or whereby it could obligated per the date of this
Agreement.
f) That it has asked BANCOMER for a loan against currency account with trust
guarantee for a principal of as much as US$20'000,000.00 (TWENTY MILLION
DOLLARS 00/100) United States of America Currency, which are applied to
guarantee payment of interest to the holders of the securities described in
Antecedent I (D) hereof.
II.- GUARANTOR declares that it is willing to guarantee fulfillment of the
liabilities for BORROWER'S account according to this Agreement through a
chattel guarantee over the rights of collection to which it may be entitled
derived from the Foreign Trust further referred to, or by creating a Mexican
Trust under the terms and conditions established in this Agreement.
III.- BANCOMER declares through its agents that it is willing to open the loan
requested for BORROWER, subject to the fulfillment of the terms and conditions
contemplated herein.
7
<PAGE> 8
In virtue of the foregoing the parties jointly consent to the following:
C L A U S E S
ONE.- DEFINITIONS AND ACCOUNTING TERMS.
(A) Definitions
When used in this Agreement, the following terms shall have the meaning
specified herein, which shall be applicable both in singular as in plural form:
"Foreign Portfolio".- Means the rights of collection derived from the notes
collectible and future notes in Dollars from the acquirors of weeks or
time-sharing memberships, who are residents outside of domestic territory,
owned by GUARANTOR, with individuals or corporations, with all as may
correspond to them by fact and by right, including the accessory rights which
are documented in the Foreign Trust described. Said Foreign Portfolio must be
previously checked and selected by Mancera Hermanos, S.C., Ruiz Urquiza, S.C.
or any other public accountant firm acceptable to BANCOMER.
8
<PAGE> 9
The Foreign Portfolio includes the rights that derive in favor of Promotora y
Desarrolladora del Pacifico, S. de R.L. de C.V. (Promotora y Desarrolladora del
Pacifico, Variable Capital Limited Lability Corporation) from the Foreign
Trust, which in virtue of the splitting of said company have been transferred
to GUARANTOR.
"National Portfolio".- Means the rights of collection derived from the notes
collectible and future notes in Dollars, Pesos and UDIS of the acquirors of
weeks or time-sharing memberships, who are residents inside of domestic
territory and owned by GUARANTOR, with individuals or corporations, with all as
may correspond to them by fact and by right, including the accessory rights,
which are documented in the Foreign Trust described. Said Foreign Portfolio
must be previously checked and selected by Mancera Hermanos, S.C., Ruiz
Urquiza, S.C. or any other public accountant firm acceptable to BANCOMER.
"Cases of Advance Expiration".- Means each of the cases of advance expiration
specified in Clause Nineteen of this Agreement.
9
<PAGE> 10
"Loan".- Means the loan opened by BANCOMER for BORROWER according to the terms
of this Agreement, for up to a principal sum of US$20'000,000.00 (TWENTY
MILLION DOLLARS 00/100), United States of America Currency.
"Working Day".- Means days when banks are open to the public for operations or
during which they are not authorized to close in the City of Mexico, D.F.
"Drawdown".- Means each drawdown of funds of the Loan made by BORROWER under
this Agreement.
"Documents of the Loan".- Means this Agreement, the Promissory Notes and other
documents related to this Agreement.
"Dollars and US$.- Means Dollars, United States of America Currency.
"Issue".- Means the issue of securities formed by warrants and promissory notes
made by BORROWER on the first of December 1998 jointly with Club Regina
Resorts, Inc. (presently Raintree Resorts International Inc.) in the City of
New York, New York for a total of US$100'000,000.00 (ONE
10
<PAGE> 11
HUNDRED MILLION DOLLARS 00/100) United States of America Currency, with 13%
(THIRTEEN PERCENT) annual interest payable every six months on the first day of
June and the first day of December of each year, starting on June first
nineteen hundred and ninety-eight and ending on the first of December of the
year 2004.
"Payment Date of Interest".- Means each date when BORROWER must pay interest
according to the provisions of this Agreement and that shall fall on the last
day of the each Interest Period that is running.
"Payment Date of Principal".- Means any date when BORROWER must make a payment
to BANCOMER of the principal of the Loan and the Promissory Notes according to
this Agreement. Should any Payment Date fall on a Non-Working Day, said Payment
Date of Principal shall be understood extended to the immediately next Working
Day and said extension must be contemplated in calculating interest.
"Foreign Trust".- Means the trust agreement (US PRODEPA/TRUST) in respect to
the Foreign Portfolio executed on October 14, 1993 between Promotora y
Desarrolladora del Pacifico, Sociedad Responsabilidad Limitada de Capital
11
<PAGE> 12
Variable with U.S. Trust Company of California, N.A., which in virtue of the
splitting of said company has been transmitted to C.R. Resorts Puerto Vallarta,
Sociedad de Responsabilidad Limitada de Capital Variable.
"Mexican Trust".- Means the guarantee and payment trust that will be created
upon request by BANCOMER in respect to the Domestic Portfolio the moment when
the guarantee from the Foreign Trust is less than 1.75 (ONE POINT SEVENTY-FIVE)
times the balance due of the Loan.
"Foreign Trustee".- Means U.S. Trust Company of California, N.A.
"Mexican Trustee".- Means Fianzas Monterrey Aetna, S.A., Institucion de
Fianzas, Grupo Financiero Bancomer (Fianzas Monterrey Aetna, Stock Corporation,
Trust Institution, Bancomer Financier Group), or any other trust institution
designated through joint agreement by the parties.
"Affiliate".- Means any corporation where BORROWER holds shares of the capital
stock in a proportion below 25% (twenty-five percent).
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<PAGE> 13
"Tax on Interest".- Means tax on income applicable to payment of interest by
residents in Mexico to foreign financier entities with which Mexico sustains an
international treaty to avoid double taxation, which per the date of this
Instrument applies to payments of interest at a rate of 4.9% (four point nine
percent) without deductions.
"Mexico".- Means the United States of Mexico.
"Promissory Notes". Means each one of the Short-Term Promissory Notes or the
Consolidated Promissory Note.
"Short Term Promissory Notes".- Means each one of the promissory notes for a
maximum ninety-day term subscribed by BORROWER in favor of BANCOMER during the
Revolving Period, documenting Drawdowns against the Loan, which must be drawn
up under terms acceptable to BANCOMER.
"Consolidated Promissory Note".- Means the Promissory Note for a two-year
period during which the balance due of the Loan shall be consolidated on the
last day of the Revolving Period with quarterly maturities, subscribed by
BORROWER in favor of BANCOMER at the end of said Revolving Period,
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<PAGE> 14
documenting said balance due, which must be drawn up under terms accepted to
BANCOMER.
"Interest Period".- Means each quarter period for which interest of the Loan
will be calculated. The first Interest Period of each Drawdown shall begin on
the date of said Drawdown and end on the corresponding date, ninety days after.
The second and other Interest Periods shall begin on the day after the
immediately previous Interest Period ends and shall end on the corresponding
date, ninety days after.
"Revolving Period".- Means the two-year period between the date when this
Agreement is signed and the exact date twenty-four months after the date of
said signature, during which BORROWER may make payments to the Loan and subject
to the provisions hereof again draw from it without exceeding the total amount
of the Loan.
"Pesos".- Means the currency of the United States of Mexico.
"Subsidiary".- Means any corporation where BORROWER holds 25% (twenty-five
percent) or more of the capital stock or has the faculty to designate the
majority of the members of the Board of Directors or through a voting trust,
administration
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<PAGE> 15
contracts or other means of control, it is able to decide on the handling of
the corporation.
"Values".- Means jointly the warrants and promissory notes derived from the
Issue, described in Antecedent I (D) of this Agreement.
(B) Accounting Terms.
All accounting documents used in this Instrument and in the Loan Documents
shall be construed according to accounting principles generally accepted in
Mexico established by the Mexican Institute of Public Accountants, unless given
another meaning herein.
TWO.- OPENING OF LOAN.- BANCOMER hereby opens for BORROWER a loan on current
account with pledge and trust guarantee for up to a principal sum of
US$20'000,000.00 (TWENTY MILLION DOLLARS 00/100) which do not include interest
and expenses that result from this Agreement.
In regard to the above the parties recognize that per June first 1998 BORROWER
has already drawn US$2'000,000.00 (TWO MILLION DOLLARS 00/100), amount which is
subject to the terms of this Agreement.
15
<PAGE> 16
Under the terms of Article 294 (two hundred ninety-four) of the General Law on
Credit Instruments and Operations the parties agree that BANCOMER shall be
authorized to restrict both the amount of the Loan as well as its term, or both
at the same time, or to announce the Loan as of a specific date or at any
moment, through a simple written notice sent to BORROWER under the terms of
this Instrument.
THREE.- DRAWDOWN OF THE LOAN.- During the Revolving Period, once BORROWER
informs BANCOMER that its cash flow is insufficient to settle interest derived
from the Issue with its own funds, according to Clause FIFTEEN, Section (II),
subsection (B) hereof, it may make drawdowns against the Loan for as much as a
principal sum of US$6'500,000.00 (SIX MILLION FIVE HUNDRED THOUSAND DOLLARS
00/100) each, to be made precisely 48 (FORTY-EIGHT) hours before June first and
December first of each year, beginning on June first nineteen hundred and
ninety-eight, as long as it fulfills the conditions on disbursements
established in this Agreement and each drawdown does not exceed US$6'500,000.00
(SIX MILLION FIVE HUNDRED THOUSAND DOLLARS 00/100). The foregoing is in the
understanding that at the end of the Revolving Period the amount actually
disposed of by BORROWER shall not exceed the
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<PAGE> 17
total amount of the Loan, that is, US$20'000,000.00 (TWENTY MILLION DOLLARS
00/100).
During the Revolving Period BORROWER may dispose of the Loan if it fulfills all
the conditions established herein in this respect, by means of Short-Term
Promissory Notes. At the end of the twenty-fourth valid month of this Agreement
the balance of all the Short-Term Promissory Notes that are then due shall be
consolidated in a single debt and documented in a Consolidated Promissory Note,
which shall be exchanged for the Short-Term Promissory Notes that are then due
and be payable through redemptions and quarterly interest.
FOUR.- TERM.- The Loan has a total four-year term, which includes a two-year
Revolving Period, beginning on the signing date of this Instrument and a
two-year Payment Period, beginning on the date when the Revolving Period ends.
FIVE.- PURPOSE OF THE LOAN.- The purpose of the Loan is to guarantee and
accordingly cover to the holders of the bonds that result from the Issue, the
punctual payment of semester interest at a 13% annual rate, under the terms of
the Issue.
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SIX.- PAYMENT OF THE LOAN.- BORROWER must return the principal amount of the
Loan as follows:
(A) During the Revolving Period BORROWER shall pay BANCOMER for the capital and
interest of each Drawdown precisely upon maturity of each of these, in the
understanding that the Short-Term Promissory Notes shall be renewable for terms
of up to 90 (NINETY) days, in the understanding that the corresponding Payment
Dates must coincide with the dates of the next Drawdown, that is, 48
(FORTY-EIGHT) hours before June first and December first of each year.
(B) During the Payment Period BORROWER shall pay BANCOMER for capital and
interest of the Loan that is due at the time by means of similar quarterly
payments.
If the applicable law obliges BORROWER to any deductions or withholdings on
account in federal income tax applicable to payment of interest abroad,
BORROWER must make the corresponding withholdings and enter them with the tax
authorities, and within the first 20 (twenty) Working Days after it must
provide BANCOMER with the corresponding proof evidencing that said taxes or
charges have been duly paid.
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SEVEN.- ADVANCE PAYMENTS.
If during the Revolving Period BORROWER should decide to totally or partially
pay for the balance due of the Loan it must send BANCOMER a written notice 5
(FIVE) calendar days before, indicating the date when it shall make the advance
payment and its amount, in the understanding that once the aforementioned
prepayment notice has been made, BORROWER shall be obliged to make said
prepayment and also in the understanding that any advance payment (1) must be
for a minimum of US$100,000 (ONE HUNDRED THOUSAND DOLLARS) or multiples
thereof; (2) must be made on a Payment Date of Principal; (3) shall be made
together with interest accrued and due per the date of said advance payment. If
the advance payment is made on a date other than the Date of Payment of
Principal, BORROWER shall pay a prepayment penalty which BANCOMER shall
determine the moment BORROWER notifies it of the advance payment, according to
the terms mentioned above. Said penalty shall be payable jointly with the
advance payment.
If during the Payment Period BORROWER should decide to totally or partially pay
for the balance due of the Loan it must send BANCOMER a written notice 5 (FIVE)
calendar days before, indicating the date when it shall make the advance
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payment and its amount, in the understanding that once aforementioned
prepayment notice has been made BORROWER shall be obliged to make said
prepayment, and also in the understanding that any advance payment (1) shall be
applied to credits to the Loan in inverse order to their maturities, commencing
with the farthest; (2) shall be made together with interest accrued and due per
the date of said advance payment; and (3) shall be made together with the
applicable commission on prepayment according to the terms of Clause EIGHT
hereof.
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EIGHT.- COMMISSIONS AND INTEREST
II.- COMMISSION ON DRAWDOWNS.
At the moment of each drawdown, BORROWER shall pay BANCOMER a commission equal
to 1.50% (ONE POINT FIFTY PERCENT) of the amount of the Drawdown plus
applicable Value Added Tax.
III.- COMMISSION ON PREPAYMENT.
If during the Payment Period BORROWER partially or totally pays for the balance
due of the Loan, it binds itself to pay BANCOMER a commission on advance
payment of the Loan, payable to the latter on the date of each of said advance
payments, calculated according to the following:
(1) If the prepayment is made during the first semester of the valid term of
this Agreement BORROWER shall pay a commission equal to 0.576% (ZERO POINT FIVE
HUNDRED SEVENTY-SIX) of the amount of the advance payment.
(2) If the prepayment is made during the second semester of the valid term of
this Agreement BORROWER shall pay a commission equal to 0.330% (ZERO POINT
THREE HUNDRED THIRTY percent) of the amount of the advance payment.
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(3) If the prepayment is made during the third semester of the valid term of
this Agreement BORROWER shall pay a commission equal to 0.170% (ZERO POINT ONE
HUNDRED SEVENTY percent) of the amount of the advance payment.
(4) If the prepayment is made during the fourth semester of the valid term of
this Agreement BORROWER shall pay a commission equal to 0.070% (ZERO POINT ZERO
SEVENTY percent) of the amount of the advance payment.
III.- INTEREST
BORROWER shall accordingly pay ordinary or late payment interest over principal
due on the Loan, counted based on a 360 (three hundred sixty) day business year
by the number of calendar days actually passed since the date of the
corresponding drawdown and until it is totally and completely paid, calculated
as follows:
(1) Ordinary Interest. BORROWER shall pay ordinary interest on principal due
of the Loan at an annual rate of 11.50% (ELEVEN POINT FIFTY PERCENT) plus
Federal Income Tax on interest paid to foreign offices of Mexican banks.
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Ordinary interest shall be calculated on balances due and be payable by
BORROWER for quarter periods expired, on each Interest Payment Date.
(2) Interest on Arrears.- In case of default interest shall be applied on
balances due of the Loan at an annual rate obtained by multiplying the ordinary
interest rate by 1.50 (ONE POINT FIFTY).
Interest on arrears shall apply since the date of the nonperformance and until
the total payment, and shall be payable at sight.
(3) Increases in interest Rates through modifications in the applicable Tax
Rate.- The parties agree that the above interest rates shall be in effect as
long as the income tax rate applicable in Mexico to payment of interest to
foreign financial institutions and branches of national financial institutions
is the same or less than 4.9% (FOUR POINT NINE PERCENT) of the interest
payable. If the rate of said applicable tax were increased BORROWER shall pay
the additional amounts required so that BANCOMER receives net yield of 11.50%
(ELEVEN POINT FIFTY PERCENT).
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NINE.- APPLICATION OF PAYMENTS. Any amount received by BANCOMER under this
Agreement shall be applied as far as it reaches to pay for liabilities derived
from this Agreement, according to the following order:
First, to pay for all and each of the expenses and costs disbursed by BANCOMER
to obtain forcible fulfillment of liabilities derived from this Agreement, if
this were the case;
Second, any surplus amount after settling the above, to pay for interest on
arrears drawn per the date of the payment implicated;
Third, any surplus after the above concepts have been settled shall be applied
to pay for ordinary interest drawn per the date of the payment implicated;
Fourth, any surplus after the above concepts have been settled shall be applied
to credits to principal due of the Loan, in inverse order to the maturities,
commencing with the farthest.
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TEN.- EXPENSES.- All reasonable expenses made in legalizing this Agreement as
well as entries and cancellations in Public Registries of Property, notarial
fees and expenses, reasonable expenses of the Foreign Trustee and Mexican
Trustee, as well as of their technical committees, administration expenses of
the Foreign Trust and of the Mexican Trust, fees, expenses and taxes derived
from the evaluation of the Foreign Portfolio and of the National Portfolio
delivered as guarantee to BANCOMER, as well as for the periodical revisions
(quarterly or semestral) made under the terms of this Agreement, expenses by
the intervenor, if designated, insurance expenses and premiums disbursed by
BANCOMER, expenses on travel, fees and expenses of the external legal
consultants of BANCOMER and other expenses related to the above, shall be paid
by BORROWER the moment when required by BANCOMER, without the intervention of
an attestator or judicial officer. BANCOMER agrees to proceed within its
possibilities in order that the amount of the above-mentioned expenses is not
above the average in the market.
ELEVEN.- INCREASE IN COSTS.- If because of (a) the enactment or amendment of
any law or rule, or any modification in its construction, or (b) fulfillment of
any request by any
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central bank or government authority, or (c) advance payment of all or part of
the principal sum of the Loan on a date other than the Payment Date of
Principal results in increased costs faced by BANCOMER to obtain funds to
exhibit or keep valid the Disposal of the Loan, BANCOMER shall report this to
BORROWER indicating the amount of the increase. Once said report has been
received, BORROWER shall be obliged to pay BANCOMER the amounts which it
indicated are necessary for the increased costs and must pay for these within
the first 5 (FIVE) working days after the date when the corresponding report
was received.
TWELVE.- PLACE AND FORM OF PAYMENT.- All payments by BORROWER to BANCOMER
according to this Agreement and the Promissory Notes shall be precisely in
dollars and without need of prior requirement, credited before 11:00 A.M. (New
York Time) to account number 400-210568 kept by BANCOMER with Chase Manhattan
Bank, N.A. located at 277 Park Avenue, New York, N.Y. 10072, or else in any
other location designated by BANCOMER through a simple written notice addressed
to BORROWER.
THIRTEEN.- TAXES.- Amounts due by BORROWER shall be covered without any
deduction and free of any taxes, contributions,
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deductions or withholdings of any kind imposed or encumbered at any moment by
any authority with respect to payment of principal or interest abroad, except
for tax on interest paid to financial institutions abroad that are duly
registered according to Article 154 (one hundred fifty-four) and other related
articles of the Federal Income Tax Law in effect, which for a maximum 4.9%
(FOUR POINT NINE PERCENT) shall be withheld and paid to the corresponding tax
authorities by BORROWER. In case of any other taxes or charges BORROWER must
pay for the additional amounts as required so that BANCOMER receives the
amounts as would correspond to if such taxes, contributions, deductions or
withholdings had not been applied.
Based on the foregoing and except for the above provisions BORROWER binds
itself to hold BANCOMER harmless from any taxes or fiscal charges that result
from or are in regard to this Agreement, the Loan or the Promissory Notes, that
are not duly paid or entered by BORROWER. This obligation shall remain in
effect throughout the entire prescription term of tax liabilities according to
the applicable laws.
Within the first 20 (twenty) calendar days after the date when each payment of
applicable taxes or those related to the
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Loan and the Promissory Notes must be made, BORROWER shall send the original or
certified copies of the statements or official receipts that evidence the
payment of said taxes BANCOMER to the last domicile provided by the latter in
this Agreement.
FOURTEEN.- PROMISSORY NOTES.- Promissory notes subscribed by BORROWER to the
order of BANCOMER under this Agreement shall be understood in recognition of
amounts disposed of by BORROWER, as a form of additionally documenting them.
BANCOMER may discount, transfer, assign, endorse or negotiate before the
maturity date of the Promissory Notes under the terms of the applicable laws
and this Instrument shall serve as the express authorization required by
Article 299 (TWO HUNDRED NINETY-NINE) of the General Law on Credit Instruments
and Operations.
FIFTEEN.- CONDITIONS OF THE LOAN.- BANCOMER'S obligation to make disbursements
according to this Agreement is subject to BORROWER'S prior fulfillment of the
following conditions:
I. At least 5 (FIVE) working days before the signing date of Agreement provide
BANCOMER with the original copies of the
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following documents and powers that prove the legal existence of BORROWER and
of GUARANTOR, as well as the faculties of their agents, which include their
entry data before the corresponding Public Registry.
III. Provide BANCOMER the following on the signing date of this Agreement:
(A) This Agreement, duly signed by BORROWER and GUARANTOR.
(B) Evidence that the Foreign Trustee has modified the Foreign Trust to the
effect that the first trustee is BANCOMER, substituting GUARANTOR or has
established a guarantee in favor of BANCOMER regarding the rights of collection
of said Foreign Portfolio, all to the satisfaction of BANCOMER.
(C) Evidence issued by BORROWER to the effect that it is in fulfillment of the
obligations of performing and not performing over any other loan agreement
hired previously.
III. Before each Drawdown provide BANCOMER:
(A) Evidence issued by BORROWER to the effect that its cash flow is sufficient
to settle with its own funds the interest
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derived from the credits that result of the Issue, under the terms thereof.
(B) Evidence issued by the Foreign Trustee to the effect of having affected a
Foreign Portfolio under guarantee, in a minimum proportion of 1.75:1 (ONE POINT
SEVENTY-FIVE TO ONE) with respect to the balance due of the Loan, including the
Drawndown implicated.
IV. Once the Mexican Trust has been created under the terms and conditions of
this Agreement, BORROWER and/or GUARANTOR must deliver the following to
BANCOMER at least five working days before each Drawdown:
(A) The Mexican Trust, drawn up in terms that are acceptable to the parties
and that comply with the provisions of Clause EIGHTEEN of this Instrument.
(B) Endorsement in favor of the Mexican Trustee of the National Portfolio that
is affected under the Mexican Trust.
(C) Evidence of having issued a written notice to the debtors of GUARANTOR and
of any other operator company of the group of economic interest to which
BORROWER and GUARANTOR
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belong, according to the National Portfolio that is affected under the Mexican
Trust, to the effect that "its promissory note was assigned to a credit
institution".
(D) Evidence of having notified the collections firms of the National Portfolio
endorsed to BANCOMER so that they continue to receive payments on capital,
interest, advance payments, accelerated redemptions and all amounts made by the
clients in favor of their debt, so that the amounts are concentrated in the
Mexican Trust.
(E) Evaluation of the National Portfolio in guarantee in favor of BANCOMER by
Mancera Hermanos, S.C., Ruiz Urquiza, S.C. or any other Public Accountant Firm
acceptable to BANCOMER.
BANCOMER expressly withholds itself the right to not receive under guarantee a
National Portfolio that does not comply with a length of balances less than
thirty calendar days, with fees, expenses and taxes derived from this appraisal
for the account of BORROWER, as well as expenses on quarterly or semestral
revisions made of it.
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(F) Evidence issued by the Mexican Trust to the effect of having affected a
National Portfolio under guarantee in a minimum proportion of 1.75: 1 (ONE
POINT SEVENTY-FIVE TO ONE) in respect to the balance due of the Loan, including
the Drawdown implicated and considering the guarantees established in the
Foreign Trust.
V. No later than the date of each Drawdown provide BANCOMER the promissory
notes that document the Drawdown implicated, subscribed by BORROWER.
SIXTEEN.- OBLIGATIONS TO ACT.- As long as any portion of the Loan is due and
consequently BORROWER has any liability pending fulfillment, BORROWER and
GUARANTOR bind themselves to proceed as specified below, unless prior written
consent is obtained from BANCOMER dispensing them from any of said liabilities,
in which case said consent or approval shall have effects only and exclusively
for the matter and specific occasion for which it was granted:
(A) Information Requirements. Provide BANCOMER with the following information:
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1. As soon as available and in any case within the first 45 (FORTY-FIVE)
calendar days after the close of each quarter period of the business years of
both BORROWER and GUARANTOR, provide an internal quarterly financial statement
for said companies per the close of said quarter period, which must at least
include: a general balance sheet, profit and loss statements and cash flows
with the analytical ratios and signed by the representative of the company
implicated.
2. As soon as available and in any case within the first 180 (ONE HUNDRED
EIGHTY) calendar days after the close of the business year of both BORROWER and
GUARANTOR, their respective Subsidiaries and Affiliate Companies, must provide
a copy of the annual financial statements of each of said companies, individual
and consolidated, over which an audit report has been passed by one of the six
independent public accountant firms with greater international prestige or by
any other that is acceptable to BANCOMER.
3. Immediately after any action, claim or proceeding is filed or notified
before any court, board, government entity or commission, provide BANCOMER with
a notice indicating the details of the claim or the proceeding implicated, in
the event of (a) claims on taxes, products, exploitations or
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contributions for social security of a local or federal order, for an amount
above or equal to P$250,000.00 (TWO HUNDRED FIFTY THOUSAND 00/100 DOLLARS); or
(b) in any other case, for an amount above the equivalent of 3.0% (THREE
PERCENT) of the yearly sales of any one of them.
4. On the date when BANCOMER reasonably requests any other information on the
financial standing or of any other nature with respect to BORROWER or
GUARANTOR, provide BANCOMER said information, as long as it is immediately
available.
5. Within the first 10 (TEN) calendar days before the date when they are to
be agreed, any amendment in the articles or incorporation and by-laws, any
change in representatives before BANCOMER and any modification of the faculties
invested on the representatives, as well as any other change in its structure
and operation that could substantially affect the good performance of its
respective company. These communications must be accompanied by the
corresponding justifying documents, in the understanding that BANCOMER shall
not unreasonably delay or reject its consent.
6. As soon as possible, but under all circumstances within the first 10 (TEN)
calendar days after the date when the
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Cause of Advance Termination occurs, or an event that with the passing of time,
its notification or both constitute a Cause of Advance Termination, provide a
notice by the main officer of BORROWER or of GUARANTOR manifesting the details
of said Cause of Advance Termination and the measures assumed by said company
or which it intends to assume in this respect.
7. Notify BANCOMER in writing at least 30 (THIRTY) working days in advance of
any possible reduction of more than 10% (TEN PERCENT) of the capital stock of
BORROWER, GUARANTOR or any of their respective subsidiaries.
8. As soon as possible, but in any case not less than 10 (TEN) working days
before, provide a written notice on expenses in capital or investments in fixed
assets made by BORROWER or GUARANTOR, considered individually or altogether
during quarter periods of a fiscal year, that are above US$1'000,000.00 (ONE
MILLION 00/100 DOLLARS) or the equivalent in Mexican Currency, indicating the
amount, destination and source of the funds for such purpose.
If there are deviations from the amount proposed, explain to BANCOMER the
nature of these so that BANCOMER can authorize
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the investment implicated, which shall not be unreasonably denied.
9. As soon as available but in all cases within the first 10 (TEN) calendar
days after the close of each quarter period, provide a report of its respective
approvals for expenses in capital or investments in fixed assets made during
the immediately previous quarter period, for amounts above US$2'000,000.00 (TWO
MILLION 00/100 DOLLARS) or the equivalent in Mexican Currency, considering
altogether BORROWER, GUARANTOR, C.R. Resorts Cancun, S. de R.L. de C.V. and
C.R. Resorts Los Cabos, S. de R.L.
10. As soon as available, but in any case within the first 60 (SIXTY) calendar
days after the start of each calendar year, provide an executive summary of its
master operations budget for the year commencing, including the proforma
financial statements (general balance, profit and loss statement, statement of
changes in capital and statement of changes in the financial position and cash
flow), all considering BORROWER and GUARANTOR as a whole.
(B) Sustain itself as a corporation in operation and without modifying its
line of business.
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(C) Sustain its legal status, not modifying its corporate purpose nor its
stock structure without prior written authorization by BANCOMER, whose consent
shall not be unreasonably denied.
(D) Allow BANCOMER and/or whoever the latter designates to make periodical
calls, subject to prior notice and without interfering in the normal operation
of the business, also providing periodical information reasonably requested by
BANCOMER.
(E) Be insured against any insurable risk, including but not limited to fire,
earthquakes, floods, hurricanes, hurricane winds, cyclones, storms and any
other coverage for an adequate protection of all and each of the goods owned or
leased by BORROWER, GUARANTOR or their respective Affiliate or Subsidiary
Companies, according to standards in effect in Mexico. The corresponding policy
or policies for the goods that form the guarantee established under the terms
of this Instrument must be endorsed in favor of BANCOMER.
(F) Invoice at market prices comparable to average prices in the hotel
industry all the goods and services provided
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between BORROWER, GUARANTOR and their respective Subsidiary and Affiliate
Companies.
(G) Sustain in the sales agreements on time sharing the terms, conditions and
periods (including but without limitation, the amounts of any kind of
considerations) similar to those which they have executed at the present time
and in general, handle sales under competitive conditions and equivalent to the
developments market of a similar category unless BANCOMER grants its written
consent to modify them.
(H) Substantially keep effective the preventive and corrective maintenance
programs, as well as the reserve for replacement or exchange, in order that the
time-sharing units will always substantially have the category of services,
furniture, decoration and other related aspects which they display at the
present time.
(I) Keep an investment program that assures the quality of the services to be
provided to clients in each development.
(J) FINANCIAL RATIOS. BORROWER and GUARANTOR must sustain the following
financial ratios, in the understanding that in determining all the indexes and
accounting concepts defined
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in this instrument made for annual inspections, the consolidated and individual
annual financial statements must be considered as grounds, audited at the close
of the corresponding fiscal year, and for quarterly inspections the internal
financial statements prepared on a quarterly basis by BORROWER and GUARANTOR
must be used.
(1) At a consolidated and individual level keep an index of inventories of
units (inventories at cost) to be sold plus the amounts of notes collectible at
short and long terms over the amount of debt, equal or above: 0:42: 1.0 (ZERO
POINT FORTY-TWO TO ONE POINT ZERO) during 1998 (NINETEEN HUNDRED AND
NINETY-EIGHT); 0.57: 1.0 (ZERO POINT FIFTY-SEVEN TO ONE POINT ZERO) during 1999
(NINETEEN HUNDRED AND NINETY-NINE); 0.76: 1.0 (ZERO POINT SEVENTY-SIX TO ONE
POINT ZERO) during the year 2000 (TWO THOUSAND); 0.64: 1.0 (ZERO POINT
SIXTY-FOUR TO ONE POINT ZERO) during the year 2001 (TWO THOUSAND ONE).
(2) Sustain an Interest Coverage Index (defined as EBITDA (entries before
interest, taxes, depreciation and amortization) plus cost of sales during the
holiday period over expenses in interest, in the understanding that expenses in
interest cannot be reduced by income on interest during
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the period) nor be below 3.95: 1.0 (THREE POINT NINETY-FIVE TO ONE POINT ZERO)
during 1998 (NINETEEN HUNDRED AND NINETY-EIGHT); 5.25: 1.0 (FIVE POINT
TWENTY-FIVE TO ONE POINT ZERO) during 1999 (NINETEEN HUNDRED AND NINETY-NINE);
7.44: 1.0 (SEVEN POINT FORTY-FOUR TO ONE POINT ZERO) during the year 2000 (TWO
THOUSAND); 1.71: 1.0 (ONE POINT SEVENTY-ONE TO ONE POINT ZERO) during the year
20001 (TWO THOUSAND ONE); 0.51: 1.0 (ZERO POINT FIFTY-ONE TO ONE POINT ZERO)
during the year 2002 (TWO THOUSAND TWO); AND 1.45: 1.0 (ONE POINT FORTY-FIVE TO
ONE POINT ZERO) during the year 2003 (TWO THOUSAND THREE).
(K) Execute all operations at market prices and fees in order to acquire goods
or services handled with third parties, including GUARANTOR, its Affiliate and
Subsidiary Companies, and on other company where the above hold a part of the
shares, and inform BANCOMER regarding each of these within the first 15
(FIFTEEN) calendar days after each quarter period closing.
(L) Sustain and see that its respective Subsidiaries and/or Affiliate
companies keep adequate accounting books and records where complete entries are
made according to accounting principles generally accepted in Mexico and
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applied consistently, reflecting all financial operations by the company
implicated.
(M) Assume all measures required at any moment in order to obtain and keep
in full effect all registrations, authorizations and government approvals that
are necessary or advisable for BORROWER and GUARANTOR to fulfill their
liabilities according to this Instrument.
SEVENTEEN.- OBLIGATIONS TO NOT ACT.- As long as any part of the Loan is due and
as long as there exists any liability pending fulfillment, BORROWER and
GUARANTOR bind themselves to refrain, and see that their respective
Subsidiaries and Affiliate Companies refrain from any of the activities
mentioned below, unless they obtain the written consent by BANCOMER, in which
case such consent or approval shall be in effect only and exclusively with
respect to the specific matter and occasion for which it was granted:
(A) Introduce any substantial modification in its administration and sales
system that directly or indirectly results in a reduction or deviation of cash
flows derived from exploiting time-sharing.
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(B) Hire any loan or loans whatsoever both at an individual as at a
consolidated level without prior written authorization by BANCOMER, unless the
product obtained is applied to advance payment of this Loan.
(C) Encumber or totally or partially transfer its existing Fixed Assets, both
at an individual as at a consolidated level.
(D) Grant loans or advance payments to its shareholders, direct or indirect
headquarter companies, or any third party except for loans or advance payments
to GUARANTOR, its Subsidiaries, suppliers or employees, according to normal
practice by BORROWER and GUARANTOR and credit on sales to its clients within
normal parameters of the Hotel Industry.
(E) Make sales by volumes (wholesale) of weeks and/or time-sharing units both
to individuals as to corporations, unless at least 50% of the product thus
obtained is applied to advance payment of the Loan.
(F) Make any issue of debt or capital both in the national or international
markets unless the product thereof is assigned to advance payment of the Loan.
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EIGHTEEN.- GUARANTEE.- To guarantee fulfillment of all and each of BORROWER'S
liabilities as well as punctual and due payment both of principal as of
ordinary interest and interest on arrears caused by the latter, charges, costs,
expenses or taxes and any other payment liabilities assumed or that result for
BORROWER'S account under the terms of this Instrument and of other documents
related to the Loan, FOREIGN TRUSTEE AND GUARANTOR establish a chattel
guarantee over the rights of collection to which GUARANTOR may be entitled
according to the Foreign Trust, in order to keep an estimate of 1.75: 1 (ONE
POINT SEVENTY-FIVE TO ONE) between the amount of the Foreign Portfolio placed
as guarantee and the balance due of the Loan.
If due to any circumstance the Foreign Portfolio in the Foreign Trust were
insufficient to sustain the estimate indicated in the preceding paragraph
GUARANTOR binds itself that within a term not above 15 (fifteen) calendar days
it will establish a Mexican Trust with the Mexican Trustee. The National
Portfolio in Dollars and the National Portfolio in Pesos and UDIS, the last two
for their equivalent in Dollars, that are affected under the Mexican trust must
add up to an amount that at all moment represents a minimum proportion of
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1.75: 1 (ONE POINT SEVENTY-FIVE TO ONE). In this respect the National Portfolio
in Dollars will be primarily affected, and accordingly, the National Portfolio
in Pesos and UDIS shall be affected by the part not covered.
The National Portfolio that is affected in the Mexican Trust must in the means
possible have expirations that coincide with the Promissory Notes so that the
product of said National Portfolio is applied as source not solely and
exclusively of the payment of the Loan.
NINETEEN.- CASES OF ADVANCE EXPIRATION.- BANCOMER may proceed with advance
termination of the Loan established herein and demand payment of the principal
due of the Loan and of the Promissory Notes, together with interest accrued and
due and other amounts payable, in the event that BORROWER, GUARANTOR or their
Subsidiaries do not fulfill any of the obligations derived from the documents
of the Loan or from any other document related to these, including but not
limited to the following:
(A) If BORROWER no longer punctually makes a payment
to capital, interest or any amount due as specified in this Agreement and/or
the Promissory Notes subscribed and other amounts payable according to the
documents of the Loan.
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(B) If BORROWER, GUARANTOR or any of their respective Affiliate Companies or
Subsidiaries encumber or transfer any of their assets registered in their
accounting records per the date of this Instrument without prior authorization
by BANCOMER, except for those encumbered on account of this Loan.
(C) If BORROWER or GUARANTOR (i) declare themselves in a state of bankruptcy
or suspension of payments; (ii) are taken over by any authority; (iii) admit in
writing their incapacity to pay their debts upon maturity; (iv) make a general
assignment of goods in benefit of creditors; or (v) initiate any proceeding
that attempts any of the above; or (vi) situations appear that affect the good
performance of BORROWER, GUARANTOR or of any of their respective Subsidiaries,
or endanger the economic or financial stability of any one of them, as long as
in this latter case, they continue for 30 (THIRTY) calendar days or more.
(D) If there were any nonfulfillment in respect to any other loan agreement
executed by BORROWER or GUARANTOR with any third party, if said fulfillment
results in advance expiration of said loan.
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<PAGE> 46
(E) If the Shareholders' Meeting of BORROWER, GUARANTOR or any of their
respective Affiliate Companies or Subsidiaries at any time during the valid
term of the Agreement resolve to declare a payment of dividend, except through
prior written authorization by BANCOMER.
(F) If BORROWER, GUARANTOR or any of their respective Affiliate Companies or
Subsidiaries reduce the fixed or variable portion of their capital stock.
(G) If BORROWER or GUARANTOR do not provide BANCOMER with the financial
statements for the economic entity formed with their Subsidiaries or Affiliate
Companies, including both the annual financial statements, over which a
judgement report must be passed per the closing date of their business year by
an independent public account that is acceptable to BANCOMER, such as the
financial statements prepared for its Administration for calendar quarter
periods, with the accrued results for the corresponding year.
(H) If BORROWER, GUARANTOR or any of their respective Affiliate Companies or
Subsidiaries abandons the administration of its business.
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<PAGE> 47
(I) If BORROWER OR GUARANTOR unjustifiably stops comply with any of its tax
liabilities, local and federal, both as a taxpayer as a withholding entity, as
well as in respect to payments to the Mexican Social Security (IMSS), the
National Housing Fund (INFONAVIT), the Retirement Savings System (SAR) or any
other related to operation of its business, and as a consequence the competent
authority rules an order of execution against it and it is not paid within the
first 60 (SIXTY) calendar days after or within the term that legally applies to
this, whatever results first.
(J) If any of the recitals or statements under oath made in any of the
Documents of the Loan by BORROWER or any of its Subsidiaries proves to be false
or inexact.
(K) If any authority expropriates, attaches, assumes the custody or takes over
control of all or part of the goods of BORROWER, GUARANTOR or their respective
Subsidiaries or Affiliate Companies, dismisses the present administration or
limits its authority to operate the business.
(L) If BORROWER, GUARANTOR or their respective Subsidiaries executes any bond
or guarantee or binds itself severally or
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<PAGE> 48
jointly in favor of third parties without prior written consent by BANCOMER.
(M) If the Shareholders' Meeting of either BORROWER OR GUARANTOR or any of
their respective Subsidiaries decides on the merger, liquidation or splitting
of the company implicated.
(N) If the Mexican Trust is not created as agreed in this Instrument.
(N) If the use or exploitation were presented or restricted, of all or part of
the public areas or of common use in the facilities from where the National
Portfolio and the Foreign Portfolio derive, or if the companies implicated were
transferred, assigned, segregated, encumbered, merged or for any reason their
use or exploitation were prevented or restricted.
(O) If during the valid term of the Loan Mr. John McCarthy Sandland is
substituted in his General Management and Administration functions of the
time-sharing business. In the event that he must be substituted, BORROWER must
provide BANCOMER with data on the person who is intended to
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<PAGE> 49
substitute him, and obtain prior written authorization by BANCOMER for such
change.
(P) If the amount of the Loan is not precisely applied to the purposes
contained in Clause Five of this Instrument.
(Q) If BORROWER, GUARANTOR or their respective Subsidiaries or Affiliate
Companies stop providing BANCOMER with the information or documents which it
requests under the terms of this Agreement and said deficiency is not corrected
within a ten day term, if the information implicated is no longer subject to a
term for its delivery according to this Agreement.
(R) If any of the provisions or specifications of any of the Documents of the
Loan were void or incoercible.
TWENTY.- MODIFICATIONS.- No modification of a term or condition whatsoever of
this Agreement and no consent and dispensation in regard to any of said terms
and conditions shall have effects under any circumstance, unless it is recorded
in writing and subscribed by the parties, and even then said modification,
dispensation or consent shall only have effects for the case and specific
purposes for which it was granted.
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<PAGE> 50
The parties agree that the exhibits of this Agreement, duly signed by their
representatives, form part of it and therefore also bind them. Any
modification, addition or explanation of said exhibit must be consented to in
written form and signed by the parties.
TWENTY-ONE.- NOTICES.- Any notice and communication provided for or required
according to this Agreement shall be made in writing and delivered or sent to
each party of this Agreement to the addresses indicated in this Clause, or to
any other address provided by said party through a written notice issued to the
other party of this Agreement. Said notices and communications shall be
effective when delivered as stated above, and no notice shall have effects
until it has been effectively received by the party to whom it was addressed.
In regard to the foregoing and for all matters concerning this Agreement and
the other documents of the Loan, as well as any other document related to them,
the parties provide the following domiciles:
BORROWER and SURETY-GUARANTOR:
Boulevard Adolfo Ruiz Cortines No. 3642
Piso 7
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Colonia Jardines del Pedregal
Codigo Postal 01900
Mexico, Distrito Federal.
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<PAGE> 52
BANCOMER:
Avenida Universidad 1200
Colonia Xoco
Codigo Postal 03339
Mexico, Distrito Federal.
TWENTY-TWO.- JURISDICTION.- In respect to all matters concerning this
Agreement, the other documents of the Loan and the documents related or derived
from these, the parties expressly submit themselves to the jurisdiction of the
competent courts of the City of Mexico, Federal District, and disclaim any
other jurisdiction that could correspond to them by way of their present or
future domiciles or for any other reason.
TWENTY-THREE.- APPLICABLE LAW.- This Agreement, the Promissory Notes and other
documents of the Loan shall be governed and construed in accordance with the
laws in effect in the United States of Mexico.
In witness whereof the parties of this Agreement sign this Agreement in the
City of Mexico, Federal District on July 20, 1998.
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On behalf of: On behalf of:
BORROWER GUARANTOR
CR RESORTS CAPITAL, CR RESORTS PUERTO
S. DE R.K. DE C.V. VALLARTA,
S. DE R.L. DE C.V.
- -------------------------------------------
John McCarthy Sandland John McCarthy Sandland
Position: Agent Position: Agent
On behalf of:
BANCOMER
BANCOMER, S.A.
Institucion de Banca Multiple
Grupo Financiero
Grand Caiman Branch
- -------------------------------------------
Jose Antonio Palacios Jose Luis Iturbide Guerra
Director General Director, Communication
and Services, Corporate
Corporate Banking Banking
53
<PAGE> 1
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this Agreement), dated as of July
27, 1998, is by and among Raintree Resorts International, Inc., a Nevada
corporation (the Company), and those stockholders of the Company listed on
Schedule A (collectively, the Stockholders).
RECITALS
A. Pursuant to the Stock Purchase Agreement (the Stock Purchase
Agreement), by and among the Company, the Stockholders, Whiski
Jack Resorts, Ltd. and Northface Realty, Ltd., dated July 27,
1998, the Stockholders will be issued Subsidiary Preferred (as
defined in the Stock Purchase Agreement and all such shares are
referred to as the Exchange Shares). Each Exchange Share will give
the applicable Stockholder the right to purchase one share of the
Company's Common Stock, par value $.001 (the Common Stock). Each
Stockholder will hold the number of shares of Convertible
Preferred (as defined in the Stock Purchase Agreement) listed on
Schedule A.
B. The Company desires to grant the Stockholders the registration
rights contained herein and the Stockholders desire to provide for
the controlled distribution of their shares of common stock.
AGREEMENT
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each Stockholder and the Company, the parties hereto agree as
follows:
SECTION 1
DEFINITIONS
1.1 SPECIFIC DEFINITIONS. The following terms are defined as
follows:
Affiliate is defined in Rule 12b-2 under the Exchange Act.
Board means the board of directors of the Company.
Common Stock is defined in the Recitals.
Effective Time means the date that is 180 days after an IPO.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Indemnified Party is defined in Section 6.3.
Indemnifying Party is defined in Section 6.3.
<PAGE> 2
Inspectors is defined in Section 3.1 (k).
IPO means the first firm, underwritten, public offering of the
Company's common stock pursuant to a registration statement filed with the
Securities and Exchange Commission.
Loss or Losses is defined in Section 6. 1.
Person means any business entity (including, without limitation, a
corporation, partnership (limited or general), limited liability company or
business trust) or a natural person.
Prospectus is defined in Section 6. 1.
Register, registered and registration and words of similar import mean
a registration effected by preparing and filing with the SEC a registration
statement in compliance with the Securities Act, and the declaration and
ordering by the SEC of effectiveness of such registration statement or
document.
Registrable Common Stock means (i) any Common Stock issued to the
Stockholders on exchange of the Exchange Shares and any securities issued or
issuable in respect of any Registrable Common Stock by way of any stock split
or stock dividend or in connection with any combination of shares,
recapitalization, merger, consolidation, reorganization or otherwise and (ii)
any other Common Stock issued to the Stockholders pursuant to a resolution of
the Board stating that such Common Stock shall be deemed Registrable Common
Stock under this Agreement.
SEC means the United States Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
SECTION 2
REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION RIGHTS
(a) (i) Upon receipt of a written request from holders of
more than 50% of the aggregate of the Exchange Shares and Registrable Common
Stock after the Effective Time, to register under the Securities Act (whether
for purposes of a public offering, an exchange offer or otherwise) all or part
of Registrable Common Stock held by such Stockholders, the Company shall as
expeditiously as reasonably possible prepare and file, and use its best efforts
to cause to become effective as soon thereafter as practicable, a registration
statement under the Securities Act to effect the offering of such Registrable
Common Stock in the manner specified in such request, including, without
limitation, on a "shelf" or "delayed" basis; and (ii) the Company shall be
entitled to select and retain one or more investment bankers or managers
reasonably acceptable to the Stockholders in connection with any underwritten
offerings made pursuant to this Section 2.1.
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(b) TERMS AND CONDITIONS OF DEMAND REGISTRATION RIGHTS.
Notwithstanding anything to the contrary contained elsewhere herein, the
registration rights granted to the Stockholders in Section 2.1(a) are expressly
subject to the following terms and conditions:
(i) Upon receipt of a request to register Registrable
Common Stock pursuant to Section 2.1(a), the Company shall give the
Stockholders prompt written notice of the proposed registration and will give
such Stockholders the right to include their shares of Registrable Common Stock
in such registration on the same terms and conditions as the requesting
Stockholders. Each Stockholder so notified shall have 20 days to request that
their Registrable Common Stock be included in such registration. Failure to so
request shall be deemed a waiver of such Stockholder's rights with respect to
such registration unless such registration is not completed.
(ii) The Company shall not be required to include a
Stockholder's Registrable Common Stock in an offering unless such Stockholder
accepts the terms of the underwriting agreement between the Company and the
managing underwriter or underwriters and otherwise complies with the provisions
of Section 6. If the Stockholder accepts the terms of the underwriting
agreement and otherwise complies with the provisions of Section 6, then the
securities to be included in such offering shall be allocated first to the
Stockholders requesting registration of their Registrable Common Stock
hereunder, and then, to the extent that any additional securities can, in the
good faith judgment of such managing underwriter or underwriters, be sold
without creating any such jeopardy to the success of such offering, among the
Company and other Persons having the right to register securities in connection
with such registration. To the extent it is impracticable to include all of the
Registrable Common Stock requested to be included in such registration, then
the shares of Registrable Common Stock to be sold shall be allocated pro rata
among each Stockholder participating in the offering based upon the number of
shares of Registrable Common Stock initially requested to be sold by each such
Stockholder. If the underwriters determine that less than 25% of the original
shares of Registrable Common Stock requested to be included in such
registration cannot be registered, then the holders of 51% of the Registrable
Common Stock requested to be included may withdraw the request for registration
and such request shall not count hereunder.
(iii) The Stockholders shall be entitled to one request to
register Registrable Common Stock under the terms of Section 2.1(a). Such
request shall include a request as to whether the requesting Stockholders
desire such registration to be a firm underwritten registration or a continuous
or "shelf" registration; provided that the Company shall not be required to
comply with a request for a "shelf" registration if its Board of Directors
determines that such an action would be harmful to the Company's stock price or
otherwise. A "request" as it is used in this subparagraph (iii) shall be deemed
to have occurred only upon completion of a requested registration and the
subsequent sale of Registrable Common Stock.
(iv) In no event shall the Registrable Common Stock to be
offered under a registration statement prepared and filed pursuant to Section
2.1(a) constitute less than 5% of the then outstanding shares of Common Stock,
unless the shares of Registrable Common Stock to be offered comprise all of the
shares of Registrable Common Stock held (or capable of being held upon exchange
of all of the Exchange Shares) by all of the Stockholders. For purposes of
meeting the 5% threshold of this Section 2.1(b)(iv), the Stockholders may
aggregate their shares of Registrable Common Stock to be included therein.
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(v) The Company shall be entitled to defer for a
reasonable period of time, but not in excess of 90 days, the filing of any
registration statement otherwise required to be prepared and filed by it under
Section 2.1(a) if the Company notifies the Stockholders having made a
registration request within ten business days after the Company has received
the registration request under Section 2.1 that the Company (i) is at such time
conducting or about to conduct an underwritten public offering of its
securities for its own account and the Board determines in good faith that such
offering would be materially adversely affected by such registration requested
by the Stockholders or (ii) would be required to disclose in such registration
statement information not otherwise then required by law to be publicly
disclosed and, in the good faith judgment of the Board, such disclosure might
adversely affect any material business transaction or negotiation in which the
Company is then engaged. If the Company elects to defer the filing of a
registration statement pursuant to this Section 2.1(b)(v), the Stockholders may
withdraw their request, in writing, during the time of such deferral and such
request shall not be counted toward the limit set forth in Section 2.1(b)(iii).
(vi) The Stockholders shall not be entitled to exercise
their rights pursuant to Section 2.1(a) during the 180-day period immediately
following the effective date of any registration statement filed by the Company
under the Securities Act (other than on Form S-8 or another similar form) in
respect of an offering or sale of securities of the Company by or on behalf of
the Company or any other stockholder of the Company.
(vii) If some but less than all of a Stockholder's shares
of Registrable Common Stock are included in an offering contemplated by a
registration statement pursuant to Section 2.1(a) and the offering is an
underwritten offering, such Stockholder shall execute one or more "lockup"
letters, in customary form, setting forth an agreement by such Stockholder not
to offer for sale, sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any shares of Common Stock, or any securities
convertible into or exchangeable into or exercisable for any shares of Common
Stock, for a period of not longer than that which any investment banker or
manager engaged in connection with such offering may reasonably request from
the date such offering commences.
SECTION 3
COVENANTS
3.1 COVENANTS OF THE COMPANY. In connection with any offering of
shares of Registrable Common Stock pursuant to this Agreement, the Company
shall:
(a) Prepare and file with the Commission such amendments
and post-effective amendments to the registration statement as may be
necessary to keep the registration statement effective for a period of
not less than 60 days, or such shorter period which will terminate
when all Registrable Common Stock covered by such registration
statement has been sold or withdrawn at the request of participating
holders of Common Stock and cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act;
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<PAGE> 5
(b) Make available to each Stockholder and to each
managing underwriter, if any, (i) at least two business days prior to
filing with the SEC, any registration statement covering shares of
Registrable Common Stock, any amendment or supplement thereto, and any
prospectus used in connection therewith, which documents will be
subject to the reasonable review of such Stockholders and such
underwriter, and, with respect to a registration statement prepared
pursuant to Section 2, the Company shall not file any such documents
with the SEC to which any such Stockholder shall reasonably object;
and (ii) a copy of any and all transmittal letters or other
correspondence with the SEC or any other governmental agency or
self-regulatory body or other body having jurisdiction (including any
domestic or foreign securities exchange) relating to such offering of
shares of Registrable Common Stock;
(c) Furnish to each Stockholder and each managing
underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference
therein) and the prospectus included in such registration statement
(including each preliminary prospectus and prospectus supplement) as
such Stockholder or such underwriter may reasonably request to
facilitate the sale of the shares of Registrable Common Stock;
(d) After the filing of such registration statement,
promptly notify each Stockholder of any stop order issued or, to the
knowledge of the Company, threatened to be issued by the SEC and
promptly take all reasonable actions to prevent the entry of such stop
order or to obtain its withdrawal if entered;
(e) Use its commercially reasonable efforts to qualify
such shares of Registrable Common Stock for offer and sale under the
securities, "blue sky" or similar laws of such jurisdictions
(including any foreign country or any political subdivision thereof in
which shares of Common Stock are then listed) as any Stockholder or
any underwriter shall reasonably request and use its commercially
reasonable effort, to obtain all appropriate registrations, permits
and consents required in connection therewith, except that the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction where it is not
so qualified, or to subject itself to taxation or to file a general
consent to service of process in any such jurisdiction;
(f) Furnish to each managing underwriter, if any, an
opinion of counsel for the Company addressed to each of them, dated as
of the date of the closing of the offering of shares of Registrable
Common Stock, and a "comfort" letter or letters signed by the
Company's independent public accountants, each in reasonable and
customary form and covering such matters of the type customarily
covered by opinions or comfort letters delivered by such parties in
underwritten public offerings, and use its commercially reasonable
efforts to have copies of such opinions and comfort letters delivered
to each Stockholder participating in the offering;
(g) Promptly inform each Stockholder (i) in the case of
any offering of shares of Registrable Common Stock in respect of which
a registration statement is filed under the Securities Act, of the
date on which such registration statement or any post-effective
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amendment thereto becomes effective and, if applicable, of the date of
filing a Rule 430A prospectus (and, in the case of an offering abroad
of shares of Registrable Common Stock, of the date when any required
filing under the securities and other laws of such foreign
jurisdictions shall have been made and when the offering may be
commenced in accordance with such laws) and (ii) of any request by the
SEC, any securities exchange, government agency, self-regulatory body
or other body having jurisdiction for any amendment of or supplement
to any registration statement or preliminary prospectus or prospectus
included therein or any offering memorandum or other offering document
relating to such offering;
(h) Subject to Section 3.1(j), until the earlier of (i)
such time as all of the shares of Registrable Common Stock being
offered have been disposed of in accordance with the intended method
of disposition by such Stockholder set forth in the registration
statement or other offering document (and the expiration of any
prospectus delivery requirements in connection therewith) or (ii) the
expiration of 120 days after such registration statement or other
offering document becomes effective (unless the offering is a
continuous offering of securities under Rule 415, in which case until
the earliest of the date the offering is completed and the second
anniversary of such effective date; provided, that if the
effectiveness of such registration statement is suspended for any
reason, then the period contemplated by clause (i) above shall extend
for the time such registration statement's effectiveness was
suspended) keep effective and maintain any registration, qualification
or approval obtained in connection with the offering of the shares of
Registrable Common Stock, and amend or supplement the registration
statement or prospectus or other offering document used in connection
therewith to the extent necessary to comply with applicable securities
laws;
(i) Use its commercially reasonable efforts to have the
shares of Registrable Common Stock listed on any domestic and foreign
securities exchanges on which the Common Stock is then listed;
(j) As promptly as practicable, notify each Stockholder
at any time when a prospectus relating to the sale of the shares of
Registrable Common Stock is required by law to be delivered in
connection with sales by an underwriter or dealer, of the occurrence
of an event requiring the preparation of a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of
such shares, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statement therein, in light of the
circumstances under which they were made, not misleading, and as
promptly as practicable make available to each Stockholder and to each
managing underwriter, if any, any such supplement or amendment; if the
Company shall give such notice, the Company shall extend the period
during which such registration statement shall be maintained effective
as provided in Section 3.1(a) or Section 3.1(j) by the number of days
during the period from and including the date of the giving of such
notice to the date when the Company shall make available to each
Stockholder such supplemented or amended prospectus;
(k) Make available for inspection during the normal
business hours of the Company by any Stockholder, any underwriter
participating in such offering, and any attorney, accountant or other
agent retained by any such Stockholder or any such
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<PAGE> 7
underwriter in connection with the sale of shares of Registrable
Common Stock (collectively, the Inspectors), all relevant financial
and other records, pertinent corporate documents and properties of the
Company as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the officers, directors
and employees of the Company to supply all information reasonably
requested by any such Inspector in connection with such registration
statement; provided, however, that (i) in connection with any such
inspection, any such Inspectors shall cooperate to the extent
reasonably practicable to minimize any disruption to the operation by
the Company of its business and (ii) any records, information or
documents shall be kept confidential by such Inspectors, unless (A)
such records, information or documents are in the public domain or
otherwise publicly available or (B) disclosure of such records,
information or documents is required by a court or administrative
order or by applicable law and notice of such requirement is promptly
given to the Company after being received;
(l) Enter into usual and customary agreements (including
an underwriting agreement in usual and customary form) and take such
other actions as are reasonably required to expedite or facilitate the
sale of the Registrable Common Stock.
(m) Make "generally available to its security holders"
(within the meaning of Rule 158 under the Securities Act) an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder no later than 45 days after the end of the
12-month period beginning with the first day of the Company's first
fiscal quarter commencing after the effective date of the registration
statement, which earnings statement shall cover said 12-month period;
(n) If requested by the managing underwriter or
underwriters or the Stockholder, promptly incorporate in a prospectus
supplement or post-effective amendment such information as the
managing underwriter or underwriters or any participating Stockholder,
as the case may be, reasonably requests to be included therein,
including, without limitation, information with respect to the number
of shares of Registrable Common Stock being sold by the Stockholder to
any underwriter or underwriters, the purchase price being paid
therefor by such underwriter or underwriters and with respect to any
other terms of an underwritten offering of the Registrable Common
Stock to be sold in such offering, and promptly make all required
filings of such prospectus by supplement or post-effective amendment;
and
(o) Take all other commercially reasonable steps
necessary to effect the registration of the Registrable Common Stock
contemplated hereby.
3.2 COVENANT OF STOCKHOLDERS. Each Stockholder agrees and
covenants that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3.1(j), such Stockholder will
forthwith discontinue disposition of Registrable Common Stock pursuant to the
registration statement covering such Registrable Common Stock until such
Stockholder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3.1(j), and, if so directed by the Company, such
Stockholder will deliver to the Company all copies, other than permanent file
copies, then in such Stockholder's possession of the most recent prospectus
covering such Registrable Securities at the time of receipt of such notice.
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SECTION 4
RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS
The Company agrees not to effect any public sale or distribution of
any securities during the 30-day period commencing on the effective date of a
registration statement filed pursuant to Section 2.1, except in connection with
any merger, acquisition, exchange offer, or any other business combination,
including any transaction within the scope of Rule 145 promulgated pursuant to
the Securities Act, subscription offer, dividend reimbursement plan or stock
option or other director or employee incentive or benefit plan;
SECTION 5
EXPENSES
All expenses incurred in connection with the registration of
Registrable Common Stock, including, without limitation, all filing fees,
escrow fees, fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements, if any, of the Company's counsel in
connection with blue sky qualifications of the Registrable Common Stock),
rating agency fees, printing expenses, messenger and delivery expenses,
internal expenses (including, without limitation, all salaries and expenses of
the Company's officers and employees performing legal or accounting duties),
the fees and expenses incurred in connection with the listing of the securities
to be registered on each securities exchange on which similar securities issued
by the Company are then listed, and fees and disbursements of counsel for the
Company and the Company's independent certified public accountants (including
the expenses of any special audit or "cold comfort" letters required by or
incident to such performance) directly attributable to the registration of
securities, Securities Act liability insurance (if the Company elects to obtain
such insurance), and the fees and expenses of any special experts or other
persons retained by the Company will be borne by the Stockholders. The Company
shall have no obligation to pay and shall not pay any underwriting fees,
discounts or commissions in connection with any Registrable Common Stock
registered pursuant to this Agreement or any out-of-pocket expenses (including,
without limitation, legal fees) of the holders thereof in connection therewith.
SECTION 6
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Stockholder, its officers, directors and
agents, and will agree to indemnify and hold harmless any underwriter of
Registrable Common stock, and each person, if any, who controls any of the
foregoing persons within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (individually, a Loss; collectively, Losses) arising
from or caused by (a) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Common Stock (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (b) any violation or alleged violation
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by the Company of the Securities Act, any blue sky laws, securities laws or
other applicable laws of any state in which shares of Registrable Common Stock
are offered and relating to action or inaction required of the Company in
connection with such offering; and will reimburse each such person for any
legal or other out-of-pocket expenses reasonably incurred in connection with
investigating, or defending against, any such Loss (or any proceeding in
respect thereof), subject to Section 6.3, except that the indemnification
provided for in this Section 6.1 shall not apply to Losses that are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon and in conformity with information furnished in writing to the
Company by or on behalf of any Stockholder expressly for use therein.
Notwithstanding the foregoing, the Company shall not be liable in any such case
to the extent that any such Loss arises out of, or is based upon, an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus if (i) a Stockholder failed to send or deliver a
copy of the prospectus included in the relevant registration statement at the
time it became effective (the Prospectus) with or prior to the delivery of
written confirmation of the sale of Registrable Common Stock to the person
asserting such Loss or who purchased such Registrable Common Stock which are
the subject thereof if, in either case, such delivery is required by the
Securities Act and (ii) the Prospectus would have corrected such untrue
statement or omission or alleged untrue statement or alleged omission; and the
Company shall not be liable in any such case to the extent that any such Loss
arises out of, or is based upon, an untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact in the Prospectus, if such untrue statement or alleged untrue
statement or omission or alleged omission is corrected in any amendment or
supplement to the Prospectus and if, having previously been furnished by or on
behalf of the Company with copies of the Prospectus as so amended or
supplemented, a Stockholder thereafter fails to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of Registrable
Common Stock if such delivery is required by the Securities Act.
6.2 INDEMNIFICATION BY STOCKHOLDERS. Each Stockholder agrees to
indemnify and hold harmless the Company, its officers and directors, and each
person, if any, who controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent
as the indemnity made pursuant to Section 6.1(a) from the Company to such
Stockholder, but only with reference to (a) information furnished in writing by
or on behalf of such Stockholder expressly for use in any registration
statement or prospectus relating to shares of Registrable Common Stock, or any
amendment or supplement thereto, or any preliminary prospectus or (b) any
Losses of the Company that would not have been incurred but for such
Stockholder failing to deliver an amended Prospectus as contemplated by the
last sentence of Section 6.1.
6.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to Section 6.1 or
6.2, such person (the Indemnified Party) shall promptly notify the person
against whom such indemnity may be sought (the Indemnifying Party) in writing,
provided that the omission to so notify the Indemnifying Party will not relieve
the Indemnifying Party of any liability it may have under this Agreement or
otherwise except to the extent of any Loss arising from such omission. The
Indemnifying Party, upon the request of the Indemnified Party, shall retain
counsel reasonably satisfactory to such Indemnified Party to represent such
Indemnified Party and any others the Indemnifying Party may designate in such
proceeding and
9
<PAGE> 10
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any Indemnified Party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party unless (a) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the retention, (b) the
Indemnifying Party shall have failed to comply with its obligations under the
preceding sentence or (c) the Indemnified Party shall have been advised by the
Indemnifying Party's counsel in writing that actual or potential differing
interests exist between the Indemnifying Party and the Indemnified Party. The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. The Indemnifying Party shall not agree to any settlement as the
result of which any remedy or relief, other than monetary damages for which the
Indemnifying Party shall be fully responsible, shall be applied to or against
an Indemnified Party without the prior written consent of such Indemnified
Party.
6.4 CONTRIBUTION. If the indemnification provided for in this
Section 6.4 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any Losses referred to therein, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses in
such proportion to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the Losses
referred to above shall be deemed to include, subject to the limitations set
forth in Section 6.3, any legal or other fees or expenses reasonably incurred
by such party in connection with any investigation or proceeding. No party
shall be liable for contribution with respect to any action or claim settled
without its written consent, which consent shall not be unreasonably withheld.
Notwithstanding the provisions of this Section 6.4, no Stockholder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Common Stock of such Stockholder was
offered to the public exceeds the amount of any damages which such Stockholder
has otherwise been required to pay due to such untrue or alleged untrue
statement or omission of alleged omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
10
<PAGE> 11
SECTION 7
TERMINATION
This Agreement shall terminate with respect to any Stockholder and
their Common Stock upon the earlier of (a) the first such instance as such
Stockholder ceases to own any shares of Registrable Common Stock or any
Exchange Shares or (b) with respect to Stockholders that hold less than 10%
(including Common Stock purchasable upon exchange of the Exchange Shares) of
the issued and outstanding Common Stock (other than with respect to any such
Stockholder that is an Affiliate of the Company), the second anniversary (or if
the holding period for non affiliates contemplated by Rule 144(d)(1) under the
Securities Act is amended, such amount of time) of the date such Stockholder
purchased the last share of Registrable Common Stock that such Stockholder
purchased from the Company. For this Section 7, a Stockholder shall be deemed
to own any and all Registrable Common Stock owned by (i) such Stockholder and
(ii) its Affiliates. Notwithstanding the foregoing, the Company's and
Stockholders' rights, duties and obligations under Section 5 and Section 6
shall survive the termination of this Agreement.
SECTION 8
AVAILABLE INFORMATION
The Company shall take such reasonable actions and file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 and Rule 144A, or any successor
provisions.
SECTION 9
ASSIGNMENT OF RIGHTS
9.1 ASSIGNMENT OF RIGHTS. The rights of any Stockholder under this
Agreement with respect to any Registrable Common Stock owned by such
Stockholder may not be assigned, except to (i) an Affiliate, or (ii) another
Stockholder having rights to register securities hereunder.
SECTION 10
MISCELLANEOUS
10.1 PROVISION OF INFORMATION. Each Stockholder shall, and shall
cause it officers, directors, employees and agents to complete and execute all
such questionnaires as the Company shall reasonably request in connection with
any registration pursuant to this Agreement.
10.2 INJUNCTIONS. Irreparable damage would occur if any of the
provisions of this Agreement were not performed in accordance with its
specified terms or were otherwise breached. Therefore, the parties hereto shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms of
provisions hereof in any court having jurisdiction, such remedy being in
addition to any other remedy to which they may be entitled at law or in equity.
10.3 SEVERABILITY. If any term or provision of this Agreement is
held by a court of competent jurisdiction to be unenforceable, the remainder of
the terms and provisions set forth
11
<PAGE> 12
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term or provision.
10.4 FURTHER ASSURANCES. Subject to the specific terms of this
Agreement, each Stockholder and the Company shall make, execute, acknowledge
and deliver such other instruments and documents, and take all such other
actions, as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
10.5 ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the
entire understanding of the parties with respect to the transactions
contemplated hereby and supersedes all agreements and understandings entered
into prior to the execution hereof. This Agreement may be modified or
provisions may be waived hereunder only by a written instrument duly executed
by or on behalf of the Company and other Stockholders who collectively own in
excess of 50% of the aggregate of the Exchange Shares and Registrable Common
Stock; provided that no such amendment which materially and adversely effects
less than all holders of the Exchange Shares and Registrable Common Stock shall
be effective except with respect to such materially and adversely affected
holders that consent to such amendment in writing. In addition, shares of
Common Stock and Stockholders may be added to this Agreement upon the
resolution of a majority of the Board of Directors of the Company to such
effect.
10.6 COUNTERPARTS. For the convenience of the parties hereto, any
number of counterparts of this Agreement may be executed by the parties hereto,
but all such counterparts shall be deemed one and the same instrument.
10.7 NOTICES. All notices, consents, requests, demands, and other
communications hereunder shall be in writing and shall be given by hand or by
mail (return receipt requested) or sent by overnight delivery service, cable,
telegram, or facsimile transmission to the parties at the address specified
beside each party's name on the signature pages hereto or at such other address
as shall be specified by the parties by like notice.
Notice so given shall, in the case of notice so given by mail, be
deemed to be given and received on the fourth business day after posting, in
the case of notice so given by overnight delivery service, on the day after
notice is deposited with such service, and in the case of notice so given by
cable, telegram, facsimile transmission or, as the case may be, personal
delivery, on the date of actual delivery.
10.8 GOVERNING LAW. This Agreement is governed by the laws of the
state of Texas without regard to any choice of law principles.
12
<PAGE> 13
10.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by and against the
successors and permitted assigns of the parties hereto, including and without
the need for an express assignment, subsequent holders of Registrable Common
Stock that are permitted assigns pursuant to Section 9.1. Except as provided
herein, the parties may not assign their rights under this Agreement and the
Company may not delegate its obligations under this Agreement. Any attempted
assignment or delegation prohibited hereby shall be void.
10.10 PARTIES IN INTEREST. Except as otherwise specifically provided
herein, nothing in this Agreement expressed or implied is intended or shall be
construed to confer any right or benefit upon any person, firm or corporation
other than Stockholder and the Company and their respective successors and
permitted assigns.
10.11 SHARES SUBJECT TO THIS AGREEMENT; EFFECTIVE TIME. All shares
of Registrable Common Stock owned or acquired by any Stockholder at or after
the Effective Time shall be subject to, and entitled to the benefit of this
Agreement, such rights to be effective from and after the Effective Time.
IN WITNESS WHEREOF, Each Stockholder and the Company have caused this
Agreement to be duly executed as of the date first above written.
[STOCKHOLDER]
Number of Shares of
Common Stock: [________]
Address: By:
----------------------------------
Name:
---------------------------------
Title:
-------------------------------
RAINTREE RESORTS
INTERNATIONAL INC.
Address: By:
----------------------------------
10000 Memorial Drive Name:
Suite 480 --------------------------------
Houston, Texas 77024 Title:
-------------------------------
13
<PAGE> 14
SCHEDULE A
Stockholders
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) RAINTREE
RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1998 INCLUDED IN ITS FORM 10-Q FOR THE PERIOD
ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FORM 10-Q.
</LEGEND>
<CIK> 0001058737
<NAME> RAINTREE RESORTS INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 591
<SECURITIES> 6,786
<RECEIVABLES> 55,111
<ALLOWANCES> (6,180)
<INVENTORY> 964
<CURRENT-ASSETS> 56,308
<PP&E> 3,169
<DEPRECIATION> (203)
<TOTAL-ASSETS> 124,363
<CURRENT-LIABILITIES> 21,572
<BONDS> 91,446
1
0
<COMMON> 11
<OTHER-SE> 11,333
<TOTAL-LIABILITY-AND-EQUITY> 124,363
<SALES> 0
<TOTAL-REVENUES> 35,245
<CGS> 0
<TOTAL-COSTS> 5,851
<OTHER-EXPENSES> 19,379
<LOSS-PROVISION> 2,085
<INTEREST-EXPENSE> 6,258
<INCOME-PRETAX> (1,467)
<INCOME-TAX> 600
<INCOME-CONTINUING> (2,067)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,067)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
