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U.S. Securities and Exchange Commission
Washington, D. C. 20549
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Form 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g)
of the Securities Exchange Act of 1934
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INTERNATIONAL MENU SOLUTIONS CORPORATION
(Name of small business issuer in its charter)
Nevada 91-1849433
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Creditstone Road, Unit 202 L4K 3Z2
Concord, Ont Canada (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, (416) 366-6368
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.001 Per Share
(Title of Class)
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International Menu Solutions Corporation
CROSS REFERENCE SHEET
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Item Number and Caption in Form 10-SB Caption in Form 10-SB
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1. Item 101. Description of Business .......................... Description of Business
2. Item 303. Management's Discussion and Analysis Management's Discussion and
or Plan of Operation ........................................ and Analysis
3. Item 102. Description of Property .......................... Description of Properties
4. Item 403. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management ............................ Beneficial Owners and Management
5. Item 401. Directors, Executives Officers, Directors, Executives Officers,
Promoters and Control Persons ............................... Promoters and Control Persons
6. Item 402. Executive Compensation ........................... Executive Compensation
7. Item 404. Certain Relationships and Related Certain Relationships and Related
Transactions ................................................ Transactions
8. Item 202. Description of Securities ........................ Description of Securities
9. Item 201. Market for Common Equity and Market for Common Equity and
Related Stockholder Matters ................................. Related Stockholder Matters
10. Item 103. Legal Proceedings ................................ Legal Proceedings
11. Item 304. Changes in and Disagreements with Changes in and Disagreements with
Accountants on Accounting and Financial Accountants and Financial
Disclosure .................................................. Disclosure
12. Item 701. Recent Sales of Unregistered Securities .......... Recent Sales of Unregistered
Securities
13. Item 702. Indemnification of Directors and Indemnification of Directors and
Officers .................................................... Officers
14. Item 601. Index to Exhibits ................................ Index to Exhibits
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TABLE OF CONTENTS
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PART ITEM ITEM DESCRIPTION PAGE
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PART I ITEM 1. Description of Business .......................................5
Business Development .....................................5
Business of the Issuer ...................................9
ITEM 2. Management's Discussion and Analysis or Plan of
Operation .....................................................17
Cautionary Statement Involving Forward
Looking Statements .......................................17
Industry Overview ........................................17
Result of Operations .....................................18
Liquidity and Capital Resources ..........................22
Year 2000 ................................................23
Factors That May Effect Future Results of
Operation ................................................24
ITEM 3. Description of Property .......................................24
Headquarters and Facilities ..............................24
Credit Facilities.........................................26
ITEM 4. Security Ownership of Certain Beneficial Owners
and Management ................................................30
ITEM 5. Directors, Executive Officers, Promoters and
Control Persons ...............................................32
Directors and Executive Officers .........................32
Business Experience ......................................32
Directors of Other Reporting Companies ...................34
Significant Employees ....................................34
Involvement in Certain Legal Proceedings .................34
ITEM 6. Executive Compensation ........................................35
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ITEM 7. Certain Relationships and Related Transactions ................37
ITEM 8. Description of Registrant's Securities ........................37
Common Stock .............................................37
Convertible Debentures ...................................38
Warrants .................................................38
Options ..................................................38
"Anti-Takeover" Provisions ...............................39
PART II ITEM 1. Market Price of Common Equity and Related
Shareholder Matters ...........................................39
Market Information .......................................39
Holders ..................................................40
Dividends ................................................40
ITEM 2. Legal Proceedings .............................................40
ITEM 3. Changes in and Disagreements with
Accountants ...................................................40
ITEM 4. Recent Sales of Unregistered Securities .......................40
ITEM 5. Indemnification of Directors and Officers .....................44
PART F/S ITEM 1. Financial Statements ..........................................46
PART III ITEM 1. Index to Exhibits .............................................46
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
a. Business Development
International Menu Solutions Corporation, formerly known as ANM Holding
Corporation, is a Nevada corporation which was incorporated on June 24, 1997
(hereinafter, "the Company;" "we;" "us;" and "our;" will each refer to
International Menu Solutions Corporation). We were originally authorized to
issue an aggregate of 25,000 shares of common stock without nominal or par
value. On June 27th, 1997 the Company filed a Certificate of Amendment to
increase the authorized common stock to 25,000,000 shares with a par value of
$0.001 per share. We further amended the Articles of Incorporation by a
Certificate of Ammendment filed on July 15, 1998 whereby the authorized capital
of the corporation was amended to include 10,000,000 Class N shares with a par
value of $0.001 per share of which all Class N shares were non-equity
participating and are entitled to one vote per class N share voting together as
one class together with the common stock. Originally, the Company's mission was
to offer quality clinical research facilities providing our customers with a
cost effective and efficient method for conducting clinical research. At the
same time, we endeavored to create value and long term benefits for our
shareholders, employees and end users of our services. The Company became
inactive after ANM Holding Corporation was unable to achieve these goals.
The Company now operates completely through it's wholly owned subsidiaries.
On July 16, 1998, the Company, through it's wholly owned subsidiary 1308864
Ontario, Inc., a corporation incorporated under the laws of the Province of
Ontario, amalgamated(1) pursuant to the Business Corporations Act (Ontario) with
International Menu Solutions Inc. At the time of the amalgamation, International
Menu Solutions Inc. had a wholly owned subsidiary called Prime Foods Processing
Inc. The surviving company of the amalgamation is called International Menu
Solutions Inc. ("International Menu").
International Menu's product lines target consumers who desire delectable,
restaurant quality meals that are conveniently prepared for home consumption,
the basis for Home Meal Replacement ("HMR"). The National Restaurant Association
estimates that by the year 2005, the average consumer will allocate greater than
50% of his/her food budget towards prepared meals purchased outside the home,
for home consumption.
HMR has evolved from home cooked meals of the 1950's to frozen TV dinners
of the 1970's and 1980's to frozen microwaveable dishes and freshly prepared
meals "ready to heat" and "ready to eat" in the 1990's. The consumer has also
grown to appreciate the sophisticated quality and presentation of local and
international cuisine prepared by restaurants.
As a result of the amalgamation, the Company owned all of the issued and
outstanding shares of common stock of International Menu. The original holders
of 4,000,000 shares of common stock of International Menu received 4,000,000
Class X Shares of the continuing
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(1) An amalgamation of two companies in the Province of Ontario pursuant
to the Business Corporations Act (Ontario) is similar to a merger of
two companies in the United States.
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Ontario corporation following the amalgamation and, in addition, received
4,000,000 Class N Shares of the Company. (All references to Class X Shares mean
Class X Shares of International Menu. All references to Class N shares mean
Class N Shares of the Company).
Pursuant to the agreements with respect to the amalgamation of 1308864
Ontario Inc. and International Menu, we agreed to maintain $US 925,0001 ($CD
1,348,558) in unencumbered capital in the Company. In order to comply with this
capital requirement, in July 1998, we issued an aggregate of 1,400,000 shares of
common stock, at a purchase price of $US 0.70 ($CD 1.02) per share, pursuant to
Rule 504 of Regulation D of the Securities Act of 1933 (the "Securities Act"),
as amended. We received $US 925,000 ($CD 1.02), net of commission and offering
costs. The proceeds from the offering were used for new product sales in the
United States and Canada, research and development, new equipment purchases and
general working capital.
The Company maintains an office at 350 Creditstone Rd., Unit 202, Concord,
Ontario.
To our knowledge we have not been subject to bankruptcy, receivership or
any similar proceedings.
Since inception, we have purchased the businesses of food processing
companies whose goals are complimentary to those of the Company.
International Menu Solutions Inc.: International Menu is a manufacturer and
sales/marketer of fresh and frozen entree products for both the United States
and Canadian private and control label retail marketplace for the HMR market.
Acquisition of Prime Foods Processing Inc.: In November of 1997,
International Menu acquired all of the issued and outstanding shares of Prime
Foods Processing Inc., an Ontario corporation located in Waterloo, Ontario
("Prime Foods"). The shares were purchased for a cash consideration of $1.00 and
the purchase of certain notes payable to the former shareholders of Prime Foods
in consideration of $374,000 and the purchase of the land and building where it
conducts its business for $726,000.
Establishment of Seafood Selections Division: In October 1998, the Company
established its Seafood Selections division within the operations of Prime
Foods. The mandate of the division is to develop a series of seafood meal
products, primarily seafood based pasta products, for distribution in Canada and
in the United States. The products are sold primarily under the name "Seafood
Selections" and as a private label.
Acquisition of Pasta Kitchen: In October 1998, we acquired through Prime
Foods from 1218951 Ontario Inc., carrying on business under the trade name of
"Pasta Kitchen", all of the assets of the fresh meal producer. We purchased the
assets
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(1) Although we conduct most of our business in Canadian Dollars ("$CD"),
we have used a reference in United States Dollars ("US") when
transactions involved United States Dollars. As of May 12, 1999, the
conversion rate was $US 1.00 equals $CD 1.457. All United States
Dollar denominations have also been converted into the Canadian Dollar
equivalent.
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for cash consideration of $372,212 and additional consideration, currently
estimated at $340,000 payable in shares of common stock of the Company or in
cash at October 1999 based on the achievement of certain revenue targets. Pasta
Kitchen operates as a division of Prime Foods and offers to several of Canada's
leading supermarket chains a full line of fully prepared heat and serve meal
solutions in single and multi-serve portions.
Acquisition of Transcontinental Gourmet Foods Inc.: In November 1998, we
acquired through International Menu all the issued and outstanding shares of
Transcontinental Gourmet Foods Inc., an Ontario corporation, which was
incorporated in January of 1983 ("Transcontinental"). Transcontinental is a
producer of fillo pastry hors d'oevres. Concurrent with this acquisition, we
purchased 59% of Norbakco Ltd., a sister corporation of Transcontinental
("Norbakco"). These acquisitions have allowed us to expand our product line to
include hors d'oeuvres and desserts.
When we purchased all of the issued and outstanding shares of
Transcontinental and the 59% interest in Norbakco, we paid cash consideration of
$1,000,000 at closing. An additional cash payment estimated at $600,000 is
payable in 1999 based on the net book value of Transcontinental in excess of
$1,000,000, as determined at February 28, 1999. Of the $1,000,000 consideration
paid at closing, $860,000 was allocated to Transcontinental and $140,000 was
used to purchase notes payable to the former shareholders of Norbakco. The
balance of the purchase price was satisfied by the issue to the selling
shareholders of 3 classes of shares of stock, being 300,000 Class B shares,
100,000 Class C shares and 59,000 Class D shares of International Menu, which
were issued on December 1, 1998. Such shares issued to the selling shareholders
are exchangeable for shares in the common stock of the Company in accordance
with the following formulas:
The Class B shares are exchangeable into a number of Common shares of the
Company such number of shares to be determined by calculating the earnings
before income tax, depreciation and amortization ("EBITDA") of Transcontinental
for the twelve month period ended February 28, 1999, multiplying such amount by
5, less the adjusted book value; then by dividing that amount by the Canadian
dollar equivalent of $US 1.40 ($CD 2.04) at February 28, 1999 and subtracting
from that amount the product of 53,000 multiplied by the Canadian Dollar
equivalent of $US1.40 ($CD 2.04) at February 28, 1999.
The Class C shares are exchangeable into a number of Common shares of the
Company, such number of shares to be determined by calculating the EBITDA of
Transcontinental for the twelve month period ended February 28, 2000; then by
dividing that amount by the Canadian dollar equivalent at February 28, 2000 of
the lesser of $US 2.00 ($CD 2.92) or the current market price of one share of
our common stock determined at February 28, 2000.
The Class D shares are exchangeable into a number of Common shares of the
Company such number of shares to be determined by calculating the EBITDA of
Transcontinental for the twelve month period ended February 28, 2001 minus the
adjusted EBITDA of Transcontinental for the twelve month period ended February
28, 2000; then by dividing that amount by the
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Canadian dollar equivalent at February 28, 2001 of the lesser of $US 2.00 ($CD
2.92) or the current market price of one share of International Menu common
stock determined at February 28, 2001.
A total of 2,200,000 Common shares in the capital stock of the Company have
been reserved for issuance based on the exchange formulas outlined above.
Management estimates that approximately 1,900,000 Common shares will be issued
to the former shareholders of Transcontinental in exchange for the Class B
Shares.
In May 1999, the Company acquired, through International Menu, the
remaining 41% equity interest in Norbakco, having acquired the other 59% in
November 1998. The 41% interest was acquired from three shareholders of
Norbakco, namely Sania Shechtman, Elililco Ltd. and 1276396 Ontario Ltd. The
consideration paid for the purchased shares was the issue by International Menu
of 53,000 Class X Shares and the issue by the Company of 53,000 Class N Shares.
At the same time, International Menu purchased from Sania Shechtman and 1276396
Ontario Ltd. shareholder loans made to Norbakco in the aggregate amount of
$180,000. As part of the issue of the 53,000 Class X Shares and the 53,000 Class
N Shares, International Menu modified the share attributes of the International
Menu Class B Shares to the effect that the number of common shares in the
capital stock of the Company that the 300,000 Class B Shares may be exchanged
for has been reduced by 53,000 common shares.
Acquisition of Tasty Selections Inc.: On April 15, 1999, we purchased
through International Menu all of the issued and outstanding shares of Tasty
Selections Inc., a manufacturer of muffin and cookie batters, located in
Concord, Ontario ("Tasty Selections"). We acquired Tasty Selections for a cash
consideration of $1,000,000 and by issuing 442,750 Class N shares of the Company
and 442,750 Class X shares of International Menu to the shareholders of Tasty
Selections. The Class X shares are held in escrow with 1/3 of the Class X shares
to be released from escrow on April 15, 2000, 1/3 of the Class X shares to be
released from escrow on April 15, 2001 and the remaining 1/3 of the Class X
shares to be released from escrow on April 15, 2002.
Acquisition of 1005549 Ontario Limited: On May 10, 1999, the Company,
through International Menu, purchased all of the issued and outstanding shares
of 1005549 Ontario Limited ("1005549"), the parent company of D.C. Foods
Processing Inc. ("D.C. Foods"), a manufacturer of value-added breaded and
battered meat and dairy products, for a purchase price calculated by the sum of
the following components:
(a) $6,345,000;
(b) an amount being the Adjusted EBITDA of 1005549 on a consolidated basis
for the period December 7, 1998 to December 31, 1999, but not less
than zero; and
(c) an amount equal to four times the Adjusted EBITDA of 1005549 on a
consolidated basis for the one year period ending March 31, 2002 or
December 31, 2002 (such period to be selected by the vendors), minus
(i) $6,000,000, and minus (ii) the amount paid under the component (b)
above.
The Adjusted EBITDA has the meaning in the share purchase agreement which deals
with the earnings performance of 1005549 on a consolidated basis for the period
referred to above.
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The purchase price paid by International Menu to the selling shareholders
of 1005549 was satisfied as follows: (a) $4,000,000 by certified checks; (b)
$500,000 by the issue to the selling shareholders of 190,476 Class X Shares of
International Menu and an equal number Class N Shares; (c) $1,845,000 by the
issue of 702,857 Class X Shares of International Menu and an equal number of
Class N Shares; (d) by the issue of 250,000 Class E Series 1 Shares and 250,000
Class E Series 2 Shares; and (e) by the issue of 250,000 Class E Series 3
Shares, and 250,000 Class E Series 4 Shares. The Class E Shares were issued by
International Menu and are exchangeable for common shares in the capital stock
of the Company based upon the performance of 1005549 and the Adjusted EBITDA,
for the period December 7, 1998 to December 31, 1999 with respect to the Series
1 Shares and the Series 2 Shares, and for the one year period ending March 31,
2002 or December 31, 2002, with respect to the Series 3 Shares and the Series 4
Shares. In certain circumstances the EBITDA period may be advanced as provided
for in the share purchase agreement.
Letter of Intent to Acquire The Ultimate Cookie Company: On June 25, 1999,
the Company, through Tasty Selections, entered into a Letter of Intent to
purchase 100% of the issued and outstanding shares of common stock of The
Ultimate Cookie Company, Inc. ("Ultimate Cookie"), a Canada corporation.
Ultimate Cookie is primarily a producer of an upscale line of fresh and frozen
cookies and cookie dough. There is no assurance that the Company will acquire
Ultimate Cookie, if at all, under the terms and conditions of the Letter of
Intent.
Right of First Refusal: in each of the acquisitions of Transcontinental,
Tasty Selections and 1005549, we have acquired a first right of refusal with
respect to the sale of shares of International Menu and the Company by the
parties receiving such shares as part of the payment of the purchase price.
b. Business of the Issuer
We develop, market and produce a series of specialty food products for sale
to large food retailer chains and specialty food chains. The Company uses it's
various manufacturing facilities to produce these specialty food products.
1. Principle Products and Services: We offer a line of food products to
consumers who are looking to purchase components of a complete meal or to
purchase a complete meal consisting of a protein, starch and vegetable. These
meals consist of meat (such as chicken, roast beef or salmon("the protein")),
rice, pastas ("the starch"), steamed vegetables and sauces which can be
purchased fresh or frozen. In addition, we offer a line of hors d'oevres and
desserts.
The products we offer are enhanced, restaurant quality meals that are
derived from restaurant menus. The products are sold in supermarkets as fresh
and frozen entrees. The frozen products have a shelf life of 6-8 months and the
fresh products have a shelf life of 21 days. The frozen meals are displayed in
aesthetically appealing freezers strategically located in HMR areas of the
supermarkets. The fresh meals are available in open eight-foot self-serve
refrigeration units in the delicatessen section of the supermarkets.
The business cycle of our products is in the early developmental stage in a
market which management believes is rapidly expanding. However, the products
themselves are not new to a marketplace where consumers have been purchasing and
eating the traditional food items as
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single item purchases. Our marketing strategy is to take those single items and
enhance their presentation, taste and packaging. We then bundle the items as
complete meal solutions that consumers can mix and match to create an
international and ethnic line of restaurant quality complete meals.
2. Product Development and Strategy: Our products are developed in response
to consumer demands and according to our own specifications. Often, retail
clients will request that we manufacture products tailored to certain
specifications demanded by the consumer. For example, we work with retailers'
design teams to create lines of food products to be sold under our label or the
retailers' labels. Otherwise, our meals are manufactured and sold directly to
retailers and organizations selling directly to retailers.
Our products are developed in component parts that when packaged together
form a complete "meal solution." A meal solution program is developed for each
retailer client. We offer three programs to retailers depending on the size,
strategic direction, or needs of the retailer.
o "Retailer branding": The retailer owns the brand and the Company provides
co-packing services;
o "Co-Branding": We use the retailer name/brand in conjunction with our own
brand/label to brand the product;
o "Control Branding": We provide complete meal solution programs under our
brand to small retailers who do not have the expertise or market share to
own their own brand. We may provide some level of exclusivity of usage of
the product brand.
The Company may also sell directly to the retailer under it's label(s) in
accordance with the retailer's needs without reference to a "program".
Our long-term product development objective is to respond to current
popular culinary trends. Our meals are developed under various local and
international theme canopies and are derived from restaurant menus. We currently
focus on the following food service theme canopies:
o Grill/American Grille
o Trattoria
o Mediterranean Taverna
o Bistro/New American Bistro
o Southwestern Cantina
o Asian Cafe
3. Product Marketing and Strategy: We market a variety of brands of meals
and meal components through our wholly owned subsidiaries. These brands include:
(i) "Royal Selection", a line of frozen meal entrees; (ii) "International
Selection", a line of frozen meal entrees; (iii) the "Pasta Kitchen" label; (iv)
"Thornhill Bakery", "Meli's Bakery", and "Margies Sweets", a line of fresh and
frozen desserts; and (v) "Jonathon T's" and "TGF" frozen hors
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d'oeurves. We seek to maintain a broad base of customers in order to minimize
the possibility of one major customer dictating non-competitive terms to the
Company. Our target customers are supermarkets, specialty gourmet stores and
club stores.
In addition to these brands referred to above, we are creating
internationally labelled food categories known as the "Selections" line. Our
strategy is to generate a series of international and ethnic-based meal
solutions that will be sold by smaller retail clients direct or under a control
brand program. As a result, we anticipate that these retailers will be able to
choose various menu components which parallel restaurant menus.
We sell approximatetly one-half of our products under the retailers'
private labels through a sub-branding approach or under alliances with owners of
other known brands. This is known as co-branding. We believe that selling our
products under private labels or known brands, which are more recognizable by
consumers, will create brand awareness of our products since our name appears on
the label of the known brand. It has become generally accepted that
supermarkets, specialty gourmet stores and big boxed meat stores sell complete
meals and meal components. To date, we have manufactured our products under
major private labels belonging to supermarkets, club stores, big boxed meat
stores, convenience store chains and non-traditional food retailers.
We plan to utilize our own direct sales force in our target markets. Our
sales representatives will convey to new and existing customers our belief that
we offer nutritious, restaurant quality meals because we control product
development and production in our wholly owned facilities.
Our long-term marketing objective is to reach retail consumers in several
areas of the supermarkets and stores which carry our products, particularly in
the delicatessen and frozen sections.
4. Product Distribution and Strategy: We utilize various ways to distribute
our products directly and indirectly to our customers. Our products are
distributed directly to major retailers as either private label or co-branded
products. The products are also distributed directly to major club stores under
our own label. We distribute our products indirectly to major club stores and
retailers under co-packing agreements or to various distributors under our own
label. With the addition of Tasty Selections and D.C. Foods, our reliance on any
one of our distribution methods has been significantly reduced.
5. Strategic Relationships and Joint Ventures: The Company does not
presently have any identifiable strategic relationships or joint ventures beyond
the co-packing and co-branding arrangements with retailers which are growing in
complexity as a result of increased requirements of the retailers. Through
programs with retailers, we plan to collaborate in such areas as product
development and profile, package design, merchandising, in-store promotion and
product demonstration.
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6. Status of Publicly Announced New Products or Services: To date, we have
announced several new products and services:
"Seafood Selections": On February 10, 1999 we announced that our Canadian
based seafood division "Seafood Selections" received its first U.S. based orders
to launch four of its seafood HMR products. We announced that "Seafood
Selections" would begin releasing its lobster and salmon products to the Western
United States in February of 1999 and that opening orders, valued at
approximately $1.1 Million, would be distributed to select Club Stores and some
mid-sized food retail stores.
Seafood Selections commenced shipment of its products to the United States
in late February of 1999. After full production of Seafood Selections products
began in March of 1999, two HMR Products including Lobster Ravioli and Seafood
Lasagna were shipped to retailers located in the Western United States. In
addition, the Lobster Ravioli and Seafood Lasagna meals, as well as Smoked
Salmon Tortellini and Seafood Penne meals were shipped under the co-branded
Northern Chef label to several retailers in the east and west coasts of the
United States.
In April of 1999, we commenced shipment of Seafood Selections meals to
Canadian retailers. At the present time, we rely on third party manufacturers to
manufacture and package our Seafood Selections products. However, we purchase
our own seafood raw materials and use our own recipes for the production of
Seafood Selections meals.
Prime Foods Processing Facility: On February 4, 1999, we announced the
expansion of the Prime Foods processing facility, our frozen food facility based
in Kitchener, Ontario. We received confirmation of expansion financing which
would more than triple the production capacity. However, in view of the recent
addition of D.C. Foods, we have temporarily suspended expansion of the Prime
Foods facility in order for management to evaluate how we could make the best
use of all our facilities.
7. Competition: The specialty food industry is highly competitive. Our
products are sold in competition with all food service operators such as
restaurants, fast food outlets and large food processors. The specialty food
industry is highly competitive and there can be no assurance that we will be
able to compete successfully. Many of our competitors have far greater
financial, operational and marketing resources than the Company. Furthermore,
the specialty food industry is characterized by rapid changes, including changes
in consumer tastes
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and preferences, which may result in product obsolescence or short product life
cycles. As a result, competitors may be developing products which may be similar
or superior to our products. Accordingly, there is no assurance that we will be
able to compete successfully or that our competitors or future competitors will
not develop products that render our products less marketable.
Our products are primarily competing in the fresh and frozen specialty food
industry. The principal competitive factors include brand recognition, price and
price promotion, retail space management, service to the retail trade, new
product introductions, packaging changes, distribution methods and advertising.
Few of our competitors in the specialty food industry manufacture entrees or
bundled meal components in the unique restaurant style canopies that are offered
by the Company. We plan to penetrate this market and plan to expand our market
share by producing unique culinary entrees, bundled meals and meal kits at
competitive prices. We believe that our flexibility and innovation in developing
and implementing new methods of marketing and distributing our product will
permit us to compete effectively with our competitors.
Our direct competitors include Stouffers, Kraft Foods and Maple Leaf Foods,
among others. Several of these well-known brands have recently introduced lines
of component meals. However, we believe the Company will remain competitive in
this industry because of the depth and breadth of our product lines, our
ablility to develop customer driven programs and our ability to adapt to rapidly
changing culinary trends.
We also believe that ownership of our manufacturing facilities provides us
with an advantage over many of our competitors. Many private label marketers and
food brokers provide primarily co-packed entrees to their customers and do not
own manufacturing facilities. Management believes that ownership of
manufacturing facilities allows us to maintain high quality control and to
quickly respond to customers' changing needs. Our component approach to meal
assembly allows us to develop and introduce new products in as little as 4 to 6
months.
The Company may have difficulty competing with large brand name
manufacturers for retail shelf space. Retailers, particularly supermarkets,
command high prices to display products on strategically located shelves.
However, management believes that it can obtain or secure strategically located
shelves at a lower cost by sub-branding our products under private labels
belonging to retailers.
Management believes that the Company's unique capability to offer products
that are fresh,
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nutritious, economical and aesthetically appealing to the consumer makes the
Company a viable competitor in the HMR industry. Our products will be
differentiated from those of our competitors on the basis of taste, appearance
and quality at competitive price points.
8. Sources and Availability of Raw Materials and Principal Suppliers: The
raw materials required to manufacture our meals are commodities such as meat,
seafood, vegetables, flour, cheese and sugar which are readily available in the
market place. We have no major principal suppliers. Furthermore, the Company
believes that the markets for these commodities are stable and no supply change
is imminent.
9. Dependence on One or a Few Major Customers: The Company has one major
customer. Based on pro forma sales for the year-ended December 31, 1998 of
$36,100,000, this customer represents 12.5% of our sales. The loss of this
customer could have a material adverse effect on the sales of the Company.
Management believes it has a good relationship with this customer and
anticipates that the Company will expand business with this customer.
10. Patents and Trademarks: The Company owns registered trademarks and
service marks under the names "Poppa Jimis(R)", "Poppa Jimis Deli & Design(R)",
"Royal Selections & Design(R)", "Pasta Kitchen(R)", "Transcontinental Gourmet
Foods Inc.(R)" and "Jonathan T(R)". We intend to apply for numerous United
States and International patents, trademarks and copyrights in connection with
certain products. In addition, we use several other trade names for our products
and services, many of which we believe are common law trademarks. We will review
additional trade names for which we will seek formal trademark registration at a
later date. We also keep confidential various recipes, formulation
specifications and production specifications. Management is not aware that the
Company is infringing any patents or trademarks of third parties.
All trademarks or service marks appearing in this Form 10-SB that do not
relate to our products are the property of their respective holders.
11. Labor Contracts: Norbakco assumed collective bargaining agreement
between Thornhill Bakery Ltd. and the Confectionery and Tobacco Workers'
International Union, Local 264. We believe that our relationship with the union
and our employees is good. Norbacko currently has approximately 20 unionized
employees.
12. Governmental Approval and Effect of Governmental Regulation: The
production, distribution and sale of our products are subject to various
federal, state and local laws promulgated in the United States and Canada.
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(a) United States: The Company is subject to regulation by federal, state
and local governmental laws in the United States. These include: the
Environmental Protection Act, for labeling, sanitary conditions and product
contamination; the Occupational Safety and Health Act for equipment and work
area safety; the Federal Food, Drug and Cosmetic Act, for labeling, sanitary
conditions and product contamination; United States Department of Agriculture;
state and local building codes; and property zoning codes. Our operations are
subject to a variety of other federal, state and local laws such as labor,
insurance, transportation and wage regulations. Compliance with all such
regulations may be time-consuming and expensive. To the best of management's
knowledge, the Company complies with state and federal laws necessary to
distribute food products in the United States.
(b) Canada: The Canadian Federal Government must approve all processed food
and food processing facilities. All plants processing meat, poultry, fish and
seafood are regulated and monitored by government inspectors. Plants producing
meat and poultry items must have an establishment number, which is issued only
if the plant has passed an inspector's audit. If the food processed is sold
frozen, once an establishment number is issued, the inspector retains an office
at the processing facility. However, if the food processed is sold fresh, the
food processing facility is subject to other regulations. The inspection of meat
and poultry is much more stringent than inspection of seafood. Inspectors also
regulate seafood, however, once the inspectors are comfortable that the plants
are operating with satisfactory manufacturing processes and meet all health
requirements, they do not monitor production as often as they monitor the
production of meat and poultry. The Seafood inspectors visit, on average, three
times per year to monitor systems, ingredients, processes and production. Meat
and poultry inspectors visit as often as on a daily basis to monitor systems,
ingredients, processes and production. All inspections are the responsibility of
the Canadian Food Inspection Agency ("CFIA"). All of the inspectors have the
authority to close down a production facility if the plant does not meet
established manufacturing requirements.
Government regulation requires that correct ingredients and nutritional
information be clearly stated on the package when fresh or frozen food is
packaged to be sold for retail. An accredited laboratory using calibrated
analyzing equipment must also do nutritional analysis. CFIA may, at any time,
independently monitor and test ingredients to ensure that all values listed on
the packages are accurate and correct.
We cannot predict the impact of possible changes that may be required in
response to future legislation, rules or inquiries made from time to time by
governmental agencies. Government regulations may, in certain circumstances,
affect the ability of the Company, as well as others in the industry, to develop
and market new products. However, we do not
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presently believe that existing applicable legislative and administrative rules
and regulations will have a significant impact on operations.
13. Amount Spent on Research and Development: The amount spent on product
research and development for the periods ended December 31, 1998 and December
31, 1997 was $425,542 and $5,663 respectively. Although research and development
is not directly borne by the customer, it is a factor in the determination of
the pricing of our products.
14. Cost and Effects of Compliance with Environmental Laws: The production,
distribution and sale of our products are subject to various federal, state,
provincial and local environmental laws of the United States and Canada. The
Company is subject to laws and regulations which impose limitations on the
discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of solid wastes. We cannot predict with any
certainty our future capital expenditure requirements for environmental
compliance because of constantly changing standards and technology. In addition,
we may incur liabilities in the future to regulatory agencies or private
individuals for alleged environmental damage associated with waste disposal or
waste material handling practices in the operation of our business. The Company
does not currently have any insurance coverage for environmental liabilities.
The company is in the process of obtaining expanded insurance coverage which
will include environmental coverage.
15. Employees: As of May 13, 1999, we had a total of 235 employees, all of
which are full-time.
16. Reports to Security Holders: Prior to filing this Form 10-SB, we have
not been required to deliver annual reports. However, once we become a reporting
company, we shall deliver annual reports to securities holders as required by
the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. Also, we
shall deliver annual reports to securities holders as required by the rules or
regulations of any exchange upon which our shares may be traded.
Prior to the filing of this Form 10-SB, we have not filed reports with the
Securities and Exchange Commission (the "Commission"). Once we become a
reporting company, management anticipates that Forms 3, 4, 5, 10K-SB, 10Q-SB,
8-K and Schedules 13D along with appropriate proxy materials will have to be
filed as they come due. If we issue additional shares, then we may file
additional registration statements for those shares.
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The public may read and copy any materials we filed with the Commission at
the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Commission. The Internet address of the Commission's Web site is
http://www.sec.gov.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
a. Cautionary Statement Involving Forward Looking Statements
Some of the information in this Form 10-SB may constitute forward-looking
statements which are subject to various risks and uncertainties. Such statements
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "plan," or other similar
words. These statements discuss future expectations, contain projections of
results of operations or of financial conditions or state other
"forward-looking" information. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors,
including but not limited to: competitive factors and pricing pressures;
relationships with its manufacturers and distributors; legal and regulatory
requirements; general economic conditions; and other risk factors which may be
described in our future filings with the Commission. We do not promise to update
forward-looking information to reflect actual results or changes in assumptions
or other factors that could affect those statements. In addition, when
considering such forward-looking statements, the reader should keep in mind the
factors described in other cautionary statements appearing elsewhere in this
Form 10-SB. Such statements describe circumstances which could cause actual
results to differ materially from those contained in any forward looking
statement.
This Form 10-SB may also include statistical data or disclose trends
regarding the food processing industry. This data may have been obtained from
industry publications and reports which we believe to be reliable sources. We
have not independently verified such data nor sought the consent of any
organizations to refer to their reports herein.
b. Industry Overview
The expanding North American economy combined with an increase in the
number of dual career families has expanded the market for Home Meal Replacement
("HMR") products. In today's dual career family society, people are time
constrained. Lives no longer revolve around
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household chores, such as grocery shopping and cooking. According to the P.C.
Revolution magazine, The North American consumer has a positive attitude toward
premium frozen foods. The National Restaurant Association estimates that by the
year 2000, greater than 50% of the average consumer's food spending will be on
prepared meals purchased outside the home. The Company's strategic acquisitions
of organizations competing in the home meal replacement market will allow the
Company to produce complete meal kits or bundled meals to compete with fast-food
restaurants and supermarket chains in the consumer take-out market.
General: For accounting purposes, the following information reflects the
result of operations of the Company as the surviving corporation pursuant to the
reverse acquisition described in Note 2 of the Company's audited consolidated
financial statements (see page F-6).
The Company has completed several acquisitions since inception.
Accordingly, pro forma balance sheets as of December 31, 1998 and March 31, 1999
and pro forma statements of operations for the year ended December 31, 1998 and
for the three-month periods ended March 31, 1999 and 1998 have been prepared by
management to reflect acquisitions that occurred during fiscal 1998 and 1999.
The pro forma financial statements should be read in conjunction with 'Results
of Operations' and the audited consolidated financial statements of the Company
and notes thereto included elsewhere in this Form 10-SB. The pro forma balance
sheet assumes that all acquisitions and related transactions since January 1,
1999 occurred on the balance sheet date presented. The pro forma statement of
operations assumes that such transactions occurred at the beginning of the
various periods presented. Results of operations of acquired companies are
included in the Company's audited financial statements from the date of
acquisition.
Transactions incurred in currencies other than the Canadian dollar, the
functional currency of the Company, are converted to the functional currency at
the exchange rate in effect at each period end. All foreign currency transaction
gains or losses have been included in earnings.
c. Result of Operations
Pro-forma three-months ended March 31, 1999 (or "pro forma Q199") compared
to pro forma three months ended March 31, 1998 (or "pro forma Q198")
Revenue: Pro forma Q199 revenue increased $3,807,000 or 61.6% to $9,986,000
compared to $6,179,000 in pro-forma Q198. Approximately 37% of the revenue
growth can be attributed to the increase in D.C. Foods revenues compared to the
prior period. The other significant reason for revenue growth in pro forma Q199
is due to the fact that Norbakco and the Seafood Selections divisions did not
exist prior to June 1998, and accordingly no revenues exist for these entities
for pro forma Q198. Combined revenues reported by Norbakco and Seafood
Selections were $1,604,000 in pro forma Q199.
Cost of Goods Sold: Cost of goods sold increased to $8,498,000 for pro
forma Q199 up $3,119,000 (or 58.0%) compared to pro forma Q198 figure of
$5,379,000. As a percentage of revenue, cost of goods sold represented 85.0% of
revenue compared to 87.1% of revenue for pro forma Q198. The primary reason for
the change in absolute dollars is attributed to the inclusion of the cost of
goods sold for Norbakco and Seafood Selections and due to the growth in volumes
at D.C. Foods. The slight decrease in cost of sales as a percentage of revenues
is primarily a result of efficiencies produced by greater utilization of
production capabilities.
Selling Expenses: Selling expenses increased $209,000 (102.0%) to $414,000
(4.1% of revenue) for pro forma Q199 compared to $205,000 (3.3% of revenue) in
pro forma Q198. The pro forma Q199 increase is largely attributable to selling
expenditures totaling $145,000 which were incurred as part of our plan to
increase our marketing efforts and specifically to assist in the launch of the
Seafood Selections brand and other new brands and products currently under
development by the company.
Administrative Expenses: Administrative expenses increased $300,000 (50.9%)
from $589,000 (9.5% of revenue) in pro forma Q198 to $889,000 (8.9% of revenue)
for pro forma Q199. The increase in absolute dollars is primarily attributed to
the inclusion of administrative expenses totaling $195,000 for Norbakco and
Seafood Selections in pro forma Q199 whereas these entities did not exist in
any period during 1998. In addition, the Company has continued to incur
increased costs associated with building management infrastructure and
information systems, corporate governance and reporting obligations, seeking out
strategic acquisitions, investor relations and obtaining new banking facilities
to assist the growth of the Company.
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Amortization of Intangibles: Amortization of intangibles increased to
$225,000 (2.3% of revenues) for pro forma Q199 compared to $192,000 (3.1% of
revenue) in pro forma Q198. The growth of $33,000 in the expense for intangibles
amortization is a result of increases in amortization charges on carrying values
of deferred packaging artwork costs. Since March 31, 1998, the Company has
invested approximately $300,000 in packaging artwork and packaging designs for
marketable products.
Loss from Operations: The Company's loss from operations decreased to
$137,000 (1.4% of revenue) in pro forma Q199 compared to $213,000 (3.4% of
revenue) for pro forma Q198. The decrease in operating losses is primarily a
result of increased operating efficiencies through growth in sales volumes. The
Company expects that the first quarter of each year will be the weakest from a
financial point of view. However, a focal point of the Company's future
acquisition and product development strategies is to reduce the volatility in
revenues and operating earnings from quarter to quarter.
Interest Revenue and Expense: Interest expense increased by $41,000 (24.1%)
to $211,000 (2.1% of revenue) for pro forma Q199 compared to $170,000 (2.7% of
revenue) for pro forma Q198. The Company has maintained greater investments in
accounts receivable, deposits on new equipment and inventories as a result of
increased sales volumes in pro forma Q199. Consequently, the Company has had to
draw more heavily on its credit facilities.
Three months ended March 31, 1999 (or "Q199") compared to three months
ended March 31, 1998 (or "Q198")
Revenue: Revenue increased $3,122,000 or 486.9% to $3,763,000 in Q199 up
from $641,000 in Q198. The growth in revenue can be attributed to the
acquisitions of Transcontinental, Norbakco and Pasta Kitchen that were completed
in fiscal 1998 and to revenues from Seafood Selections which totaled
approximately $567,000 in Q199.
Cost of Goods Sold: Cost of goods sold increased to $3,183,000 in Q199, up
$2,621,000 or 466.1% from the figure of $562,000 for Q198. As a percentage of
revenue, cost of goods sold represented 84.6% of revenue for Q199 compared to
87.7% for Q198. The change in absolute dollars is attributed to previously
mentioned acquisitions completed in 1998 and to costs of sales associated with
Seafood Selections, which totaled $467,000 in Q199. The slight decrease in cost
of sales as a percentage of revenues is primarily a result of efficiencies
produced by greater utilization of production capacities. Generally speaking,
gross margins will be lower in the first quarter of each year due to customer
demand cycles for the Company's products.
Selling Expenses: Selling expenses increased $301,000 to $309,000 (8.2% of
revenue) in Q199 compared to $8,000 (1.2% of revenue) for the three-month period
ended March 31, 1998. The increase is largely attributable to the 1998
acquisitions of Transcontinental, Norbakco and Pasta Kitchen who have higher
promotion and delivery costs than other subsidiaries of the Company.
Research and Development: Research and development expenses increased
$70,000 to $97,000 (2.6% of revenue) in Q199 compared to $27,000 (4.3% of
revenue) for Q198. The increase is primarily due to continued product
development efforts associated with new meal components and meal kits created in
the second half of 1998.
Administrative Expenses: Administrative expenses increased $436,000 to
$594,000 (15.8% of revenue) in Q199 compared to $158,000 (24.7% of revenue) for
Q198. The increase in absolute dollars is due to previously mentioned
acquisitions that were completed during 1998. In addition, the Company has
continued to incur increased costs associated with building management
infrastructure and information systems, corporate governance and reporting
obligations, seeking out strategic acquisitions, investor relations and
obtaining new banking facilities.
Loss from operations: The Company's loss from operations increased $363,000
to $493,000 (13.1% of revenue) in Q199 compared to $130,000 (20.2% of revenue)
in Q198. The increase in the loss is primarily due to significant increases in
product development efforts and new administrative costs incurred to assist the
growth of the Company.
Interest revenue and expense: Interest expense increased $69,000 to $85,000
in Q199 compared to $16,000 for the three-month period ended March 31, 1998. The
increase is due primarily to interest charges with respect to long-term debt and
capital lease obligations associated with companies and new capital equipment
acquired during 1998.
Pro forma year ended December 31, 1998 (or "pro forma 1998") compared to
year ended December 31, 1998 (or "fiscal 1998")
Revenue: Pro forma 1998 revenue increased $30,071,000, or 493.3% to
$36,167,000 compared to $6,096,000 in fiscal 1998. The growth in revenue can be
primarily attributed the effect of the Tasty Selections and D.C. Foods
acquisitions which had combined revenues of $23,154,000 in 1998. In addition,
pro forma 1998 results include a full year's revenue associated with the
Transcontinental, Norbakco and Pasta Kitchen subsidiaries.
Cost of Goods Sold: Cost of goods sold increased to $30,001,000 for pro
forma 1998,
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up $25,271,000 (or 534.3%) compared to the fiscal 1998 figure of $4,730,000. As
a percentage of revenue, cost of goods sold represented 83.0% of revenue
compared to 77.6% of revenue for fiscal 1998. The change in absolute dollars is
attributed to the inclusion of the cost of goods sold for Tasty Selections and
D.C. Foods and a full years cost of goods sold for Transcontinental, Norbakco
and Pasta Kitchen. The increase in cost of sales as a percentage of revenues is
primarily a result of the acquisition of D.C Foods whose margins are somewhat
lower than other subsidiaries in the group because the products produced are
high value and lower margin. In addition, Fiscal 1998 included only one month of
the results of Transcontinental, whose gross margins are higher in December of
each year due to the demand for hors d'oevres and pastries during the holiday
season.
Selling Expenses: Selling expenses increased $1,086,000 (178.0%) to
$1,696,000 (4.7% of revenue) for pro forma 1998 compared to $610,000 (10.0% of
revenue) in fiscal 1998. The pro forma 1998 increase is largely attributable to
the selling expenses totaling $931,000 incurred by Transcontinental and Tasty
Selections in 1998 which were not included in fiscal 1998 results.
Research and Development: Research and development expenses did not change
from pro forma 1998 compared to fiscal 1998 as research and development
activities are conducted by International Menu on behalf of all other
subsidiaries of the Company. Accordingly 100% of the research and development
expenditures incurred during the year ended December 31, 1998 were included in
both fiscal 1998 and pro forma 1998 results of operations.
Administrative Expenses: Administrative expenses increased $2,078,000
(271.5%) from $764,000 (12.5% of revenue) in fiscal 1998 to $2,842,000 (7.9% of
revenue) for pro forma 1998. The increase in absolute dollars is attributed to
the inclusion of the administrative expenses for Tasty Selections and D.C. Foods
and a full year's administrative expenses for Transcontinental, Norbakco and
Pasta Kitchen. The decrease in such costs as a percentage of revenues is due
primarily to the acquisition of D.C. Foods, whose administrative expenses
represent only 3.2% of revenues due to the significant volume of product
turnover in the D.C Foods operation. The Company expects that administrative
expenses will decline as a percentage of revenue as recent acquisitions are
integrated, synergies are realized and revenue growth expectations are
fulfilled.
Amortization of Intangibles: Amortization of intangibles increased to
$673,000 (1.9% of revenue) for pro forma 1998 compared to $67,000 (1.1% of
revenue) in fiscal 1998. The growth of $606,000 in intangibles amortization
charges is a result of a full year's amortization on intangibles associated with
all acquisitions completed to-date. Fiscal 1998 included only one month's
intangibles goodwill amortization on the Transcontinental and Norbakco
acquisitions and three months' goodwill amortization with respect to Pasta
Kitchen. Intangibles that arose on recent acquisitions is amortized over 40
years, except for the intangible assets associated with Prime Foods
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and Pasta Kitchen, which are amortized over a 20-year period.
Loss from Operations: The Company incurred a loss from operations of
$502,000 (8.2% of revenue) in fiscal 1998 compared to income from operations of
$529,000 (1.5% of revenue) for pro forma 1998. The acquisitions of D.C. Foods
and Tasty Selections contributed over $1,446,000 in operating income to pro
forma 1998 results. However, the operating income contributed by D.C. Foods and
Tasty Selections was offset by increases in goodwill amortization and interest
charges associated with the convertible debenture and recent acquisitions (see
'Interest revenue and expense' below). The Company expects that profitability
will improve as recent acquisitions are integrated and economies of scale take
effect.
Interest Revenue and Expense: Interest expense increased by $647,000
(660.2%) to $745,000 (2.1% of revenue) for pro forma 1998 compared to $98,000
(1.6% of revenue) in fiscal 1998. The change is attributable to a full year's
interest expense in connection with D.C. Foods, Tasty Selections and
Transcontinental, which totaled approximately $360,000. In addition, the Company
issued $4,000,000 in convertible debentures which bear interest at 7% and
accordingly, $280,000 in interest expense was charged to pro forma 1998 results.
Year ended December 31, 1998 (or "fiscal 1998") compared to the period from
incorporation, September 26, 1997 to December 31, 1997 (or "three month period
ended December 31, 1997")
Revenue: Revenue increased $5,654,000 or 1,279% to $6,096,000 in fiscal
1998 up from $442,000 for the three-month period ended December 31, 1997. The
growth in revenue can be attributed to both the short reporting period for 1997
and to the above mentioned acquisitions that were completed in fiscal 1998.
Cost of Goods Sold: Cost of goods sold increased to $4,730,000 in fiscal
1998, up $4,365,000 or 1,196% from $365,000 incurred during the three-month
period ended December 31, 1997. As a percentage of revenue, cost of goods sold
represented 77.6% of revenue for fiscal 1998, compared with 82.6% for the
three-month period ended December 1997. The change in absolute dollars is
attributed to short reporting period for 1997 and the previously mentioned
acquisitions. The change in percentage of revenues is primarily a result of the
acquisition of Transcontinental Gourmet Foods, whose gross margins are higher in
December of each year due to the demand for hors d'oevres and pastries during
the holiday season.
Selling Expenses: Selling expenses increased $597,000 to $610,000 (10.0% of
revenue) in fiscal 1998 compared to $13,000 (2.9% of revenue) for the
three-month period ended December 31, 1997. The increase is largely attributable
to the acquisitions of Transcontinental,
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Norbakco and Pasta Kitchen who have higher promotional and delivery costs than
other subsidiaries of the Company.
Research and Development: Research and development expenses increased
$420,000 to $426,000 (7.0% of revenue) in fiscal 1998 compared to $6,000 (1.4%
of revenue) for the three-month period ended December 31, 1997. The increase is
due primarily to product development efforts associated with new meal components
and meal kits created in 1998.
Administrative Expenses: Administrative expenses increased $673,000 to
$765,000 (12.5% of revenue) in fiscal 1998 compared to $92,000 (20.8% of
revenues) for the three month period ended December 31, 1997. The increase in
absolute dollars is due to the short reporting period in 1997 and acquisitions
that were completed during 1998. In addition, during 1998 the Company incurred
increased costs associated with building management infrastructure, corporate
governance and reporting obligations, seeking out strategic acquisitions and
investor relations. The decrease in such costs as a percentage of revenues is
due primarily to the acquisition of Transcontinental, who's administrative
expenses are disproportionately low in December of each year due to high sales
volumes in that month. The Company expects that administrative expenses will
continue to decline as a percentage of revenue as the results of new
acquisitions are included in the Company's financial statements.
Loss from operations: The Company's loss from operations increased $463,000
to $502,000 (8.2% of revenue) compared to $39,000 (8.8% of revenue) for the
three months ended December 31, 1997. The increase in the loss is due primarily
to significant increases in expenditures for product development and
administrative functions during 1998. Acquisitions that occurred during 1998
contributed $603,000 in operating income during 1998. The Company expects that
profitability will improve as new acquisitions are integrated and economies of
scale take effect.
Interest revenue and Expense: Interest revenue increased to $25,000 in
1998, an increase of $24,000 compared to the three months ended December 31,
1997. The change is largely attributable to the short reporting period for 1997
and to interest on short-term investments on excess cash available in the
Company during the third and fourth quarter of 1998. Interest expense increased
$94,000 to $98,000 compared to $4,000 for the three-month period ended December
31, 1997. The increase is due primarily to the short reporting period for 1997
and to interest charges with respect to long-term debt and capital lease
obligations associated with companies acquired during 1998.
d. Liquidity and Capital Resources
The Company's cash and cash equivalents increased from $299,000 at December
31,
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1997 to $1,866,000 at December 31, 1998. The increase was primarily due to
financings in July 1998 and November 1998 which raised approximately $4,212,000,
net of issuance costs. Approximately $1,400,000 of the funds raised was used to
satisfy the cash requirements of acquisitions that occurred during 1998. Bank
credit facilities utilized at December 31, 1998 totaled $1,030,000. Total credit
facilities available at December 31, 1998 were $1,750,000.
From December 31, 1998 to March 31, 1999, the company's cash and cash
equivalents decreased $309,000. In addition, the Company increased its bank
borrowings by 2,529,000. The majority of the use of cash was associated with
investments in working capital totaling $1,775,000 and additions to capital and
intangible assets totaling $511,000.
Historically, the Company's cash flows from product sales have not been
sufficient to fund 100% of its operations primarily because of investments in
net working capital and new equipment required to sustain the growth needs of
the business. In addition, the Company has continued to incur increased product
development costs associated with building management infrastructure and
information systems, corporate governance and reporting obligations, seeking out
strategic acquisitions, investor relations and obtaining new sources of
financing.
Cash flows from operations were approximately ($2,192,000) and ($84,000)
for the three-month periods ended March 31, 1999 and 1998, respectively. Cash
flows from operations were approximately ($505,000) and ($7,000) in fiscal 1998
and for the three-month period ended December 31, 1997, respectively. The
operations of Transcontinental, Tasty Selections and D.C. Foods have positive
cash flows from operations. The Company will begin to experience the operating
cash flow effect of these acquisitions during the second half of fiscal 1999.
During April 1999, the Company raised approximately $7.8 million through
convertible debentures and the sale of common stock. Approximately $5.0 million
was used to fund the cash portion of the acquisitions of D.C. Foods and Tasty
Selections . In addition, approximately $600,000 is payable during 1999 to the
former shareholders of Transcontinental pursuant to the purchase agreement.
The Company is presently settling the various agreements called for by a
commitment letter dated April 16th, 1999 with a Canadian chartered bank which
will provide the following credit facilities:
1. Operating credit facility totaling $10,000,000. The initial $4,000,000 of
borrowings bears interest at prime and is fully secured by cash and cash
equivalent deposits totalling $4,000,000. The balance of the operating credit
facility bears interest at prime plus one-half percent.
2. Revolving credit facility for capital expenditures totalling $3,500,000.
Advances from this credit facility will bear interest at a maximum of prime plus
one and one-quarter percent
3. Forward exchange contract facility of $7,500,000.
The Company expects to have this facility in place by July 31, 1999.
Dividends: The Company has not paid cash dividends on its common stock to
date and does not plan to pay cash dividends to its shareholders in the near
future. The Company presently intends to retain any earnings to finance future
growth of its business.
e. Year 2000
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Computer
programs and microprocessors that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, or not recognize the
date at all. This could result in major system failures or miscalculations
causing disruptions in operations, including among other things, a temporary
inability to process transactions, send invoices, access internal financial
information or engage in normal business activities. Year 2000 problems
experienced by our suppliers, or us could adversely impact our ability to meet
the demands of, or service our customers or otherwise carry on our business. We
have not yet developed a contingency plan to address situations that may
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result if our suppliers or we are unable to achieve Year 2000 compliance. The
cost of developing and implementing this kind of plan, if necessary, could be
material.
To assist in the integration of recent acquisitions, and to mitigate the
uncertainties associated with Year 2000 issues the Company decided to purchase a
new financial accounting and management information system that will be
integrated and implemented across all operating and management functions. The
implementation of the new computer system has begun and the Company estimates
that the cost of the new system, including the software, hardware and
installations costs will total approximately $250,000. The Company expects that
the new computer system will be completely installed and tested by September 30,
1999.
In addition, the Company has communicated with parties with which it does
significant business to assess their Year 2000 compliance and the extent to
which the Company is exposed to any significant third party Year 2000 compliance
issues. These determinations are expected to be made by June 30, 1999. The costs
associated with these activities are not expected to be significant. This
process will not guarantee that systems of other parties upon which the
Company's systems directly or indirectly rely will be Year 2000 compliant on a
timely basis, or that a failure by another party to render their systems
compliant with Year 2000 issues will not have a material adverse effect on the
Company.
f. Factors That May Effect Future Results of Operation
The Company believes that in the future results of operations could be
impacted by factors such as market acceptance of new products, and the success
of the company's employees marketing Home Meal Replacements. Similarly, future
earnings may be adversely effected by changes in the costs of goods sold,
business and labor. Additionally, where the Company continues to expand its
business internationally, and fluctuations in the foreign currency or general
economic conditions in any of the countries in which the Company does business
could adversely effect future results of operations.
The Company's ability to develop and market products that successfully
adapt to current market needs and may also have an impact on the results of
operation. A portion of future revenues will come from new products. The Company
cannot determine the ultimate effect that new products and services will have on
revenue, earnings or stock prices.
The Company's recent acquisitions and growth strategy to continue to
acquire other food processing companies may effect future results of operations.
Our operating results could be adversely effected if we fail to successfully
integrate or manage acquired companies or if we are not able to obtain the cost
savings which we anticipate. Furthermore, the Company's result of operations
could suffer if the acquired companies do not perform as we expect.
Due to the factors noted above and elsewhere in the Management's Discussion
and Analysis of Financial Conditions and Results of Operation, the Company's
future earnings and stock price may be subject to significant volatility. Past
financial performance should not be considered as a reliable indicator of future
performance and investors should not use historical results to anticipate trends
in future periods.
ITEM 3. DESCRIPTION OF PROPERTY
a. Headquarters and Facilities
The Company's headquarters are located at 350 Creditstone Rd., Unit 202,
Concord,
24
<PAGE>
Ontario. The building, aggregating approximately 4,000 square feet, is
pre-existing and in good condition. The Company has entered into a three year
lease commencing April, 1999 at a gross rental rate for the intial year of
$4,100 per month with increases for subsequent years during the term based on
the increased costs of utilities, maintenance and taxes.
Prime Foods: Prime Foods' 15,000 square foot frozen food facility is
situated on a 1 acre lot located at 620 Colby Drive, Waterloo, Ontario. Prime
Foods owns the property. The building is a stand alone structure of brick and
concrete with a large paved parking lot on one side of the building and a
smaller paved parking lot in the front of the building. Management believes that
the building is in good repair. In December of 1997, Prime Foods began to
operate this frozen food facility to produce frozen entrees, bundled meals and
stir fry kits for the HMR Market in the United States and Canada. The production
facility is equipped with mixers, filling and wrapping units, cooking ovens,
cutting units, conveyer system and a new Individually Quick Frozen ("IQF")
cryogenic freezing line. Management believes that the equipment is maintained in
good working order.
We have initiated a Hazard Analysis Critical Control Point Program
("HACCP") and have instituted the required renovations and documentation
processes in order to obtain the HACCP certification. HACCP is a self-regulatory
program generally accepted and implemented in the food processing industry which
emphasizes safety and health precautions in food processing facilities.
Pasta Kitchen: Pasta Kitchen's fresh commissary style kitchen is a 10,000
square foot facility located at 62 Milford Avenue, Toronto, Ontario. The monthly
rental payment is $3,060. Management believes that the building is in good
condition.
Transcontinental: Transcontinental's 22,000 square foot facility is located
at 610 Oster Lane, Concord, Ontario. The monthly rental payment is $12,000.
Management believes that the building is in good condition.
Norbakco: Norbakco's 34,000 square foot facility is located at 350
Creditstone, Unit D in Concord, Ontario. The monthly rental payment is $11,340.
Management believes that the building is in good condition.
D.C. Foods: D.C. Foods' 25,500 square foot facility is located at 35
Northland Road,
25
<PAGE>
Waterloo, Ontario. The facility contains approximately 20,500 square feet of
production space and 5,000 square feet of office space. The building is owned by
1005549 Ontario Limited. The building is equipped with three dock loading doors
and two drive-in doors. Management believes that the building is in good
condition.
Tasty Selections: Tasty Selections' 18,500 square foot facility is located
at 610 Oster Lane, Concord Ontario. The monthly rental payment is $10,480.
Management believes that the building is in good condition.
b. Credit Facilities
As of December 31, 1998, the Company and its subsidiaries have utilized an
aggregate of $1,030,000 of authorized lines of credit totalling $1,750,000. The
lines of credit bear interest ranging from Prime to Prime plus 1.5%. The
outstanding balances are due on demand and are secured by a general assignment
of all assets of the subsidiaries and a $950,000 limited guarantee of the
Company.
Upon completion of the financing with the Canadian Chartered Bank referred
to above certain of the following credit facilities will be retired and security
replaced by security granted to the Canadian Chartered Bank to support the
credit facilities provided by such bank.
Business Development Bank of Canada - Mortgage: In November 1997, we
received a mortgage from the Business Development Bank of Canada ("BDC") in the
amount of $550,000. The mortgage is repayable in monthly installments of $3,200
plus interest. Interest is calculated based on the BDC's floating base rate plus
1%. The note matures on June 23, 2012. The loan is secured by a first charge on
the land and building and a second charge on inventory and accounts receivable,
a $250,000 guarantee by an officer of the Company, a guarantee by the Company
for the full amount of the loan and an assignment of shareholders' loans owed by
Prime Foods to International Menu. This mortgage was outstanding as follows:
Date Amount Outstanding
- - ---- ------------------
December 31, 1997 $550,000
December 31, 1998 $518,400
Business Development Bank of Canada - Equipment Loan: In December 1997, we
received a loan of $660,000 extended by the BDC. In December of 1998 we received
an additional $400,000 from the BDC. The loan is repayable in two principal
installments at December and January of each year for a 5-year term. Interest is
payable monthly at 1.25% above the BDC's daily floating base rate. The loan is
secured by a first charge on all personal property of Transcontinental.
This loan was outstanding as follows:
Date Amount Outstanding
- - ---- ------------------
December 31, 1997 $594,000
December 31, 1998 $832,000
26
<PAGE>
Bank of Nova Scotia - Equipment Financing Loan: In November 1998, we
received a loan of $135,264 extended by the Bank of Nova Scotia. The loan is
repayable in monthly installments of $2,137 for a 5-year term. Interest is
payable monthly at the Bank of Nova Scotia's Prime rate plus 2.5%. The loan is
secured by a first charge over assets financed. This loan was outstanding as
follows
Date Amount Outstanding
- - ---- ------------------
December 31, 1997 $0
December 31, 1998 $133,128
Bank of Nova Scotia - To Repay BDC Loan: In July 1998, we received a loan
of $47,319 extended by the Bank of Nova Scotia. The loan is repayable in monthly
installments of $1,500 for a period of 39 months. Interest is payable monthly at
the Bank of Nova Scotia's Prime rate plus 2.5%. The loan is secured by a general
security agreement over all present and future personal property. The loan was
outstanding as follows:
Date Amount Outstanding
- - ---- ------------------
December 31, 1997 $0
December 31, 1998 $45,819
Royal Bank of Canada - Mortgage: In September 1996, D.C. Foods received a
mortgage from Royal Bank of Canada ("RBC") with a note for $700,000. The note is
repayable in monthly installments of $6,500 and matures at October 2010.
Interest is payable monthly at 7.52%. The note is secured by a general security
agreement covering all assets, except real property, and a collateral mortgage
covering property at 35 Northland Road, Waterloo, Ontario. The mortgage was
outstanding as follows:
Date Amount Outstanding
- - ---- ------------------
December 7, 1997 $666,937
December 6, 1998 $640,642
Royal Bank of Canada - Loan: In September 1996, D.C. Foods received a loan
of $200,000 extended by the RBC. The loan is repayable in monthly installments
of $4,010 and is due in October
27
<PAGE>
2001. Interest is payable monthly at RBC's Prime rate plus 1%. The loan is
secured by a general security agreement covering all assets except real
property, and a collateral mortgage covering property at 35 Northland Road,
Waterloo, Ontario. The loan was outstanding as follows:
Date Amount Outstanding
- - ---- ------------------
December 7, 1997 $155,920
December 6, 1998 $115,717
Royal Bank of Canada - Loan: In July 1995, D.C. Foods received a loan of
$28,000 extended by the RBC. The loan is repayable in monthly installments of
$705 and is due at May 1999. Interest is payable monthly at RBC's prime rate
plus 1%. The loan is secured by a general security agreement. The loan was
outstanding as follows:
Date Amount Outstanding
- - ---- ------------------
December 7, 1997 $11,931
December 6, 1998 $4,035
Krebs Restaurant, Inc. - Mortgage: In Septmember 9, 1996, D.C. Foods
received a loan of $150,000 extended by Krebs Restaurant, Inc. The loan was
repaid during 1998, with interest at 1% per month. The loan was secured by a
mortgage on the Company. The loan was outstanding as follows:
Date Amount Outstanding
- - ---- ------------------
December 7, 1997 $150,000
December 6, 1998 $ 0
28
<PAGE>
Roynat Inc. - Loan: In August 1996, Tasty Selections received a loan of
$280,000 from Roynat Inc. ("Roynat"). The loan is repayable in monthly
installments of $5,000 for a 5- year term. Interest is payable monthly at
Roynat's floating base rate plus 3.5%. The loan is secured by (i) a first charge
on all fixed assets; (ii) a first floating charge on all other assets; (iii)
postponement for the period of financing of the landlord's interest in our
assets; and (iv) a priorities agreement.
Date Amount Outstanding
- - ---- ------------------
December 31, 1997 $225,000
December 31, 1998 $165,000
Roynat - Loan: In August 1996, Tasty Selections received a loan of $400,000
from Roynat. The principal amount of the loan is to repaid annually for a 5-year
term, calculated at 20% of net after tax profit. Interest is payable monthly at
the Roynat's floating base rate plus 3.5%. At our option, we may pay annually
additional interest calculated at 10% of pre-tax profits with a minimum of
$20,000 and a maximum of $50,000 due each year. The loan is secured by (i) a
first charge on all fixed assets; (ii) a first floating charge on all other
assets; (iii) postponement for the period of financing of the landlord's
interest in our assets; and (iv) a priorities agreement.
Date Amount Outstanding
- - ---- ------------------
December 31, 1997 $398,627
December 31, 1998 $356,449
Toronto Dominion Bank - Loan: On August 1996, Tasty Selections received a
loan of $250,000 from the Toronto Dominion Bank ("TDB"). The loan is repayable
in monthly installments of $4,166 for a period of 60 months. Interest is payable
at TDB's Prime rate plus 3%.
Date Amount Outstanding
- - ---- ------------------
December 31, 1997 $158,333
December 31, 1998 $108,333
29
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of voting
stock of the Company, as of July 12, 1999, of (i) each person known by the
Company to beneficially own 5% or more of the shares of outstanding common
stock; (ii) each of the Company's executive officers and directors; and (iii)
all of the Company's executive officers and directors as a group. Except as
otherwise indicated, all shares are beneficially owned, and the persons named as
owners hold investment and voting power.
Amount and Nature
Name and Address of of Shares Beneficially Percentage
Beneficial Owner Owned Owned(1)
---------------- ----- --------
Michael Steele(2)(3)(4) 1,763,712 9.5%
G.E. Creber(2)(5)(6) 260,000 1.4%
Len Shiffman(2)(7) 380,000 2.0%
Larry Hoffman(2)(8) 545,000 2.9%
Victor Fradkin(2)(9) 1,200,000 6.4%
Reginald Peterson(10)(11) 1,523,810 8.2%
All Executive Officers
and Directors as a
Group 5,672,522 30.4%
- - ----------
(1) The percentage calculations are based on 18,607,015 shares which are
outstanding (including shares that are paid for in full but are not issued)
on a fully diluted basis as of July 12, 1999. The calculation of
30
<PAGE>
the 18,607,015 shares is based on the following assumptions: (i) the
conversion of all Class X Shares to shares of common stock of the
Company; (ii) the conversion of the Class B shares of International
Menu into 2,140,000 shares of common stock of the Company (the
2,140,000 shares in the common stock of the Company is based on an
estimate made by management); and (iii) the inclusion of underlying
shares of common stock of the Company issuable upon the exercise of
options and warrants vesting within 60 days of the date of filing of
this Amendment No. 1 to this Form 10-SB.
(2) The address for Michael Steele, G.E. Creber, Len Shiffman, Victor
Fradkin and Larry Hoffman is 350 Creditstone, Suite 202, Concord,
Ontario.
(3) Michael Steele serves as the Company's President and Chief Executive
Officer and as a Director.
(4) The number of shares beneficially owned by Michael Steele includes
250,000 shares of common stock of the Company which he has the option
to purchase at an option price of $0.70 per share. Such option vests
on August 10, 1999.
(5) G.E. Creber serves as Secretary and a Director of the Company.
(6) The number of shares beneficially owned by G.E. Creber includes 20,000
shares of common stock of the Company which he has the option to
purchase at an option price of $0.70 per share. Such option vests on
August 10, 1999.
(7) Len Shiffman serves as a Director of the Company.
(8) Larry Hoffman serves as the Company's Treasurer, Vice President and
Chief Financial Officer.
(9) Victor Fradkin serves as the President and a Director of
Transcontinental.
31
<PAGE>
(10) Reginald Peterson is the controlling shareholder of Southbridge, Inc.
which owns 1,523,810 shares of the Company.
(11) Reginald Peterson serves as a Director of International Menu. His
address is 2 Colombo Court, St. George, Ontario N0E IN0.
To the best of management's knowledge, there are no arrangements which may
result in a change of control of Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
a. Directors and Executive Officers: The Company's directors are elected at the
annual meeting of stockholders and hold office until their successors are
elected and qualified. The Company's officers are appointed annually by the
Board of Directors and serve at the pleasure of the Board.
There are no family relationships between any of the officers or directors
of the Company or its wholly owned subsidiaries.
As of July 12, 1999, the directors and executive officers of the Company
and its wholly owned subsidiaries, their ages, positions, the dates of their
initial election or appointment as directors or executive officers are as
follows:
<TABLE>
<CAPTION>
Name Age Positions and Offices Presently Held with the Company
- - ---- --- -----------------------------------------------------
<S> <C> <C>
Michael Steele 41 President and Chief Executive Officer, Director
G.E. Creber 68 Secretary, Director
Len Shiffman 41 Director
Larry Hoffman 54 Treasurer, Vice President and Chief Financial Officer
</TABLE>
b. Business Experience
32
<PAGE>
Michael Steele has served as the Company's President and Director since
July 16, 1998. He also served as the Company's Secretary from July 16, 1998 to
December 2, 1998. He also holds director and executive officer positions with
International Menu, Prime Foods, Transcontinental, and Norbakco. Prior to
joining the Company, from 1993 to 1995, Mr. Steele served as an officer of
Thermco Canada, an environmental technology company which he founded. In 1993,
Mr. Steele established headquarters for Thermco Canada in Toronto, Canada and in
Phoenix, Arizona. Other branch offices were established in Europe and in the
United Kingdom. In late 1994, Thermco Canada was purchased by Halozone
Technologies, a publicly traded environmental corporation publicly traded on the
Toronto Stock Exchange. From 1995 to 1997, Mr. Steele served as Senior Vice
President of Cott Corporation, a private food label. In late 1997, he left the
Cott Corporation and founded International Menu. Mr. Steele holds a BAS.
G.E. Creber has served as Director and Secretary of the Company since
December 2, 1998. Mr. Creber also serves as a Director of International Menu and
as a director and officer of other reporting companies. He is the President and
Chief Executive Officer of International Pursuit Corporation, Director and
Secretary of World Point Terminals Inc. and Director of CML Industries Ltd. Mr.
Creber is also a partner at Fogler, Rubinoff, Barristers and Solicitors. He has
held these positions since 1994.
Len Shiffman has served as Director of the Company since December 1, 1998.
He also serves as a Director of International Menu. Prior to joining the
Company, from 1985 to 1996, Mr. Shiffman served as Vice President in the Real
Estate Corporate Finance Department of Citibank Canada. Mr. Shiffman holds a BA
and MBA.
Larry Hoffman is the Treasurer, Vice President and Chief Financial Officer
of the Company. He has held these positions since December 1, 1998. He also
holds director and executive officer positions with International Menu,
Transcontinental and Norbakco. Prior to joining the Company, Mr. Hoffman served
as Executive Vice President of Transcontinental from January 1997 to November
1998. From October 1995 to January 1997, he served as President of Prime Bakers,
Inc., a producer of frozen bakery products. From October 1994 to January 1997,
he served as President of Prime Pastries (1994) Inc., a producer of frozen non-
baked products. Mr. Hoffman holds a BA and CA.
Reginald Peterson has served as a Director of International Menu since
April 16, 1999. From 1977 to October 1997, he served as Chief Executive Officer
of Versa-Care Limited.
33
<PAGE>
c. Directors of Other Reporting Companies
G.E. Creber, the Company's Director and Secretary is currently serving as
an officer and director of other reporting companies including International
Pursuit Corporation, World Point Terminals Inc. and CML Industries Ltd. See
"Directors, Executive Officers, Promoters and Control Persons - Business
Experience."
d. Significant Employees
Victor Fradkin has served as Director of Transcontinental since the
company's inception in 1983. After founding Transcontinental, he developed
manufacturing practices to mass- produce Fillo Dough and Fillo Hors D'oeuvres
which has allowed Transcontinental to grow into a major producer of these
specialty products in Canada.
James Guinchard has served as President of Prime Foods since its inception
in May of 1990. Mr. Guinchard has experience in various facets of the food
processing industry including production planning, product costing, inventory
control and master scheduling. He is also proficient in gas package
methodologies and vacuum machinery.
Allan Greenspoon has served as President of Tasty Selections since 1996.
He has also served as President and Director of Norbakco since June 1, 1999.
Prior to joining Tasty Selections, from 1987 to 1995, Mr. Greenspoon served as
President of Circlet Foods, Inc. Mr. Greenspoon has 19 years of experience in
the food processing industry.
Don Kilimnik has served as President of D.C. Foods since its inception in
1991. Prior to co-founding D.C. Foods, from 1987 to 1991, he served as General
Manager for Stillmeadow Farm in Elora, Ontario. Mr. Kilimnik has over 15 years
of experience in the food processing industry. He holds an MBA and BSc.
Rob Curik has served as Vice President of D.C Foods since its inception in
1991. Prior to co-founding D.C. Foods, from 1989 to 1991 he served as Operations
Manager at Stillmeadow Farms in Elora, Ontario. Mr. Curik has nearly 20 years
experience in the food processing industry. He holds a B.A.
e. Involvement in Certain Legal Proceedings
None of the officers and directors of the Company have been involved in the
past five years in any of the following:
(1) Bankruptcy proceedings;
(2) Subject to criminal proceedings or convicted of a criminal act;
34
<PAGE>
(3) Subject to any order, judgment or decree entered by any Court for
violating any laws relating to business, securities or banking
activities; or
(4) Subject to any order for violation of federal or state securities laws
or commodities laws.
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth information about compensation paid or
accrued by the Company during the years ended December 31, 1998 and 1997 and the
three month period ended March 31, 1999 to the Company's officers and directors.
Only one of the executive officers, Michael Steele, President of the Company,
earned over $US 100,000 ($CD 145,000) during the year ended December 31, 1998.
None of the other executive officers of the Company earned more than $US 100,000
($CD 145,000) during the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensaton
Long Term Compensation
Securities
Name and Other Annual Restricted Underlying
Principal Salary Bonus Compensation Stock Options / LTIP Payout
Position Year ($) ($) ($) Awards ($) SARs (#) ($)
- - -------- ---- ------ ----- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Steele,
President and
Director 1999 60,000 75,000 0 0 0 0
1998 150,000 0 0 0 625,000 0
1997 0 0 0 0 0 0
G.E. Creber,
Secretary and Director 1999 0 0 0 0 0 0
1998 0 0 0 0 100,000 0
1997 0 0 0 0 0 0
Len Shiffman,
Director 1999 0 0 0 0 0 0
1998 36,000 0 0 0 100,000 0
1997 0 0 0 0 0 0
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Larry Hoffman,
Treasurer, Vice
President & Chief
Executive Officer 1999 30,000 0 0 0 0 0
1998 100,000 0 0 0 0 0
1997 100,000 0 0 0 0 0
</TABLE>
36
<PAGE>
Option / SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of
Securities % of Total Options Exercise or Base
Underlying Options / SARs Employees Price Expiration
Name and Principal / SARs (#) in Fiscal Year ($US/Share) Date
- - ------------------ ------------------ ------------------ ----------------- ----------
<S> <C> <C> <C> <C>
Michael Steele, President and Director 625,000 75.8% 0.70 ($CD 1.02) August 2008
G.E. Creber, 100,000 12.1% 0.70 ($CD 1.02) August 2008
Secretary and
Director
Len Shiffman, Director 100,000 12.1% 1.50 ($CD 2.19) December 2008
</TABLE>
Aggregated Option / SAR Exercises in Last Fiscal Year and FY-End Option / SAR
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Name and Shares Options/ SAR's at In-the-Money Options/ SAR's
Principal Acquired on Value FY-End (#) Exercisable/ at FY-End ($) Exercisable/
Positions Exercise # Realized ($) Unexercisable Unexercisable
- - --------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Michael Steele, 0 0 0 / 625,000 0 / 762,562
President and
Director
G.E. Creber, Secretary 0 0 0 / 100,000 0 / 122,193
and Director
Len Shiffman 0 0 0 / 100,000 0 / 4,594
Director
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, we have entered into transactions with a value
in excess of $US 60,000 ($CD 87,474) with officers and directors of the Company
as follows:
a. Options to Michael Steele: By an agreement dated August 10, 1998, we granted
to Michael Steele, the President and Director of the Company, options to
purchase 625,000 common shares of the Company at an option price of $0.70 per
share. Such options vest as follows:
(i) Option to purchase 250,000 shares will vest on August 10, 1999;
(ii) Option to purchase 125,000 shares will vest on August 10, 2000;
(iii) Option to purchase 125,000 shares will vest on August 10, 2001; and
(iv) Option to purchase 125,000 shares will vest on August 10, 2002.
b. Options to G.E. Creber: By an agreement dated August 10, 1998, we granted to
G.E. Creber, the Secretary and Director of the Company, options to purchase
100,000 common shares of the Company at an option price of $0.70 per share. Such
options vest as follows:
(i) Option to purchase 20,000 shares will vest on August 10, 1999;
(ii) Option to purchase 20,000 shares will vest on August 10, 2000;
(iii) Option to purchase 20,000 shares will vest on August 10, 2001;
(iv) Option to purchase 20,000 shares will vest on August 10, 2002; and
(v) Option to purchase 20,000 shares will vest on August 10, 2003.
c. Options to Len Shiffman: By an agreement dated December 2, 1998, we granted
to Len Shiffman, the Director of the Company, options to purchase 100,000 common
shares of the Company at an option price of $1.50 per share. Such options vest
as follows:
(i) Option to purchase 20,000 shares will vest on December 1, 1999;
(ii) Option to purchase 20,000 shares will vest on December 1, 2000;
(iii) Option to purchase 20,000 shares will vest on December 1, 2001;
(iv) Option to purchase 20,000 shares will vest on December 1, 2002; and
(v) Option to purchase 20,000 shares will vest on December 1, 2003.
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES
a. Common Stock: On June 27, 1997, the Company filed a Certificate of
Amendment to increase the authorized common stock to 25,000,000 shares with a
par value of $0.001 per share. As of July 12, 1999, 9,331,673 shares of common
stock are outstanding (including common shares which have been paid for in full,
but not issued) and are being held by 62 holders of record. All shares of common
stock issued and outstanding are validly issued, fully paid and non-assessable.
Each share of common stock entitles the holder thereof to one
non-cumulative vote, either in person or by proxy, at meetings of shareholders.
Shareholders of our common stock do not have cumulative voting rights.
Therefore, shareholders of more than 50% of the issued and outstanding shares of
common stock and Class N shares can elect all of the directors of the Company.
Class N Shares: The Class N shares are non-equity participating and are
entitled to identical voting rights as shares of common stock. We issued
4,000,000 Class N Shares in connection with our acquisition of International
Menu and reserved for issuance an additional 2,200,000 Class N shares in our
acquisition of Transcontinental. As of July 12, 1999 there were a total of
3,655,170 Class N shares issued and outstanding.
As of July 12, 1999 International Menu has issued 3,655,170 Class X shares
which areconvertible on the basis of one Class X share and one class N share for
one share of common stock of the Company. We have reserved for issuance
2,200,000 Class N shares. The Company may be required to reserve additional
Class N Shares with respect to the conversion of the Class B Shares, Class C
Shares, and Class D Shares issued by International Menu pursuant to the purchase
agreement with Transcontinental. The shareholders of the Class B shares, the
Class C shares and the
37
<PAGE>
Class D shares are entitled to purchase for nominal consideration a number of
Class N shares based upon formulas contained in the provisions of the Class B
Shares, the Class C Shares and the Class D Shares. The Class B Shares, the Class
C Shares and the Class D Shares together with a Class N share may be converted
for shares of common stock of the Company based upon the formulas contained in
the provisions of the Class B Shares, the Class C Shares and the Class D Shares.
b. Convertible Debenture: On May 10, 1999, International Menu completed a $4
Million financing in the form of a 5-year convertible debenture issued to First
Ontario Fund (Crosbie & Company) and Bank of Montreal Capital Group ("BMO
Capital Group"). The terms of the debenture are as follows: (i) the coupon rate
for year 1 is 7% and the coupon rate from year 2 to year 5 is 13%; (ii) The
debentures are convertible, at the option of the holder, into Class X shares of
International Menu and Class N shares of the Company at a price of $2.62 per
share; (iii) International Menu has the option to force conversion into Class X
and N shares at any time that the Company's stock trades above the United States
Dollar equivalent of $CD 5.50 as long as the Company's stock's daily trading
volume is maintained at a minimum of 20,000 shares per day for 20 business days.
c. Private Placement Units: In November 1998, we offered 3,300,000 private
placement units consisting of 3,300,000 shares of common stock, with a par value
of $0.001 per share, and 1,500,000 redeemable stock purchase warrants, pursuant
to Regulation S of the Securities Act, as amended. Each warrant entitled the
registered holder to purchase one share of the Company's common stock at $US
1.40 ($CD 2.04) per share. The warrants could be exercised in whole or in part
at any time during the exercise period which expired May 30, 1999. To protect
the unit holders against dilution of the common shares underlying the warrants,
the number and kind of the securities purchasable upon the exercise of the
warrants will be adjusted if the Company (i) declares a dividend or makes a
distribution on its outstanding shares of Common stock in shares of Common
stock; (ii) subdivides or re-classifies its outstanding shares of Common stock
into a greater number of shares; or (iii) combines or reclassifies its
outstanding shares of Common stock into a smaller number of shares. The units
have a minimum holding period of one year from the date of the subscription
agreements. We sold 1,997,300 units to seven investors for a total cash
consideration of $US 1,666,124 ($CD 2,429,042) net of commission and offering
costs.
On or before May 31, 1999 all of the 998,650 stock purchase warrants were
exercised resulting in total cash proceeds of approximately $2,064,500 (US$
1,398,110) to the Company in consideration for the issuance of 998,650 shares of
common stock of the Company.
d. Options
Options Granted in Connection with Acquisition of 1005549 and Tasty
Selections: In connection with the acquisitions of 1005549 and Tasty Selections,
the Company has committed to issue options pursuant to employment agreements
with certain selling shareholders of the companies acquired. In each case, the
exercise price of the options granted shall be the market price as determined by
reference to the principal exchange upon which shares of common stock of the
Company are listed on the date that the audited consolidated financial
statements of the Company are approved by the Board of Directors following the
period with respect to which the options relate. Each employee is granted a base
number (the "Base Number") of options for each fiscal period under the term of
the respective employment agreement. The terms of the employment agreements
range from four to five years. While the individual is employed with the
Company, the number of options granted following each fiscal period for each
employee is determined as follows:
(a) if less than 85% of the performance target for the employee is
achieved, then no options are granted to the employee.
(b) If between 85% and 100% of the performance target for the employee is
achieved, then the Base Number of options will be granted to the
employee for the relevant fiscal period.
(c) If greater than 100% of the performance target for the employee is
achieved, then the Base Number of options granted shall be increased
on a proportionate basis and such number granted to the employee for
the relevant fiscal period.
Assuming all of the employees achieve between 85% and 100% of their
respective performance targets for the fiscal period ending December 31, 1999,
the Company will be required to grant a total of 100,000 options at a Board of
Directors meeting in which the audited consolidated financial statements of the
Company for the year ending December 31, 1999 are approved.
The options shall vest in accordance with the terms of the individual
employment agreements. Generally, 20% of the options granted will vest on the
grant date, with the remaining options vesting equally at each anniversary of
the grant date.
Options to Brokton International, Ltd., Dover IX Investment Limited, IPO
International Ltd. and Tinamilu Holdings Inc.: In consideration of the
assistance provided in completing the financing undertaken by the Company in
July 1998, the Company granted 250,000 options to each of Brokton International,
Ltd., Dover IX Investment Limited, IPO International Ltd. and Tinamilu Holdings
Inc. The options were in each case available for exercise during the period from
and including February 1, 1999 to and including July 31, 1999 at an option price
of $US 1.00 ($CD 1.46) per optioned share. In May 1999, the Company granted to
each of the optionees an extension for the exercise of the said options whereby
in each case, 100,000 of the optioned shares shall be available for exercise to
and including December 31, 1999 and the remaining 150,000 optioned shares shall
be available for exercise to and including June 30, 2000.
Options to Robert Caldwell Capital Corporation: In consideration of
financings completed by the Company and International Menu in April and May,
1999, pursuant to an agency agreement dated April 10, 1999 between International
Menu and Robert Caldwell Capital Corporation ("Caldwell"), International Menu
paid to Caldwell a commission of $380,000 and, in addition, granted to Caldwell
options to purchase up to 144,762 common shares of the capital stock of the
Company at an option price of $US 1.75 ($CD $2.55) per optioned share with the
said options being available for exercise to and including April 17, 2000.
38
<PAGE>
Options to Baybak and Company, Inc.: In consideration of services provided
to the Company by Michael Baybak and Company, Inc. ("Baybak"), the Company
granted to Baybak options to purchase 125,000 common shares in the capital stock
of the Company during the period to and including December 31, 2001. The option
price for 50,000 of the optioned shares is $US 0.90 ($CD 1.31) per common share
and the option price for the remaining 75,000 optioned shares is $US 1.50 ($CD
2.19) per optioned share.
Options to James Guinchard: International Menu granted options to James
Guinchard, the President and Director of Prime Foods, to purchase 40,000 Class X
shares of International Menu, 16,000 of which have vested. The options for the
remaining 24,000 common shares will vest at an option price of $US 0.625 ($CD
0.91), of which 8,000 of the optioned shares shall vest on November 3, 1999, a
further 8,000 of the optioned shares shall vest on November 3, 2000, and the
remaining 8,000 optioned shares shall vest on November 3, 2001.
Options to Barbara Druxerman: The Company has granted to Barbara Druxerman,
the Vice President of Development of Transcontinental, options to purchase 3,000
common shares in the capital stock of the Company which shall have an exercise
price of $US 2.00 ($CD 2.91) per common share and such options shall vest as to
20% on the ninety-first day following the date of her commencement of employment
with Transcontinental and 20% on the first, second, third and fourth
anniversaries of the date of Ms. Druxerman's commencement of employment.
Options to Southbridge Inc.: On April 16, 1999 Southbridge Inc. subscribed
for 1,523,810 common shares of the Company at a subscription price of $2.625 per
common share. As part of the subscription the Company granted to Southbridge
400,000 warrants which entitle Southbridge to purchase up to 200,000 common
shares at the price of $2.25 per common share during the period to April 16,
2000 and 200,000 common shares at the price of $2.625 per common share during
the period to April 16, 2001.
For a discussion of options granted to officers and directors of the
Company, reference is made to "Certain Relationships and Related Transactions".
e. "Anti-Takeover" Provisions: The Company's Certificate of Incorporation
contains certain provisions which may be deemed to be "anti-takeover" in nature
in that such provisions may deter, discourage or make more difficult the
assumption of control of the Company by another entity or person.
PART II
ITEM 1. MARKET PRICE OF COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
a. Market Information
Since July 20, 1998, the common stock of the Company has been traded under
the symbol "MENU" on the system of the National Association of Securities
Dealers, Inc. known as the OTC Bulletin Board (the "Bulletin Board"). Prior to
the amalgamation of International Menu with and into the Company, our common
stock was traded under the symbol "ANMH."
To the best of our knowledge, there are presently five market-makers for
our common stock. When stock is traded in the public market, characteristics of
depth, liquidity and orderliness of the market being made in the stock depends
on the existence of market-makers as well as the presence of willing buyers and
sellers. There can be no assurance that these market-makers will continue to
make a market for our common stock.
The principal market for our common stock is the Bulletin Board. The range
of high and low bids to purchase our common stock on the Bulletin Board for the
first quarter of 1999 and each quarter within the last two fiscal years is as
follows:
Quarter Low Bid High Bid
1998 (2nd Quarter) $3/8 $1
1998 (3rd Quarter) $1 $1 1/32
1998 (4th Quarter) $7/8 $1 5/8
1999 (1st Quarter) $1 3/16 $2 21/64
April 1999 $1 51/64 $2 29/64
May 1999 $1 7/8 $2 1/4
June 1999 $1 31/32 $3 5/16
To July 12, 1999 $3 $4
39
<PAGE>
b. Holders
As of March 31, 1999, the total number of issued and outstanding Class X
shares of International Menu and the total number of issued and outstanding
Class N shares of the Company was 5,090,462. One Class X share and one Class N
share, when combined, are convertible into one common share of the Company.
c. Dividends
The Company has never paid cash dividends on its stock and does not intend
to do so in the foreseeable future. We currently intend to retain our earnings
for the operation and expansion of the business. Our continued need to retain
earnings for operations and expansion is likely to limit our ability to pay
dividends in the future.
ITEM 2. LEGAL PROCEEDINGS
The Company and its wholly owned subsidiaries each experiences routine
litigation in the normal conduct of its business. Neither the Company nor its
subsidiaries believes that any such pending litigation, if any, will have,
individually or in the aggregate, a material adverse effect on its respective
business or financial condition.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements with our independent accountants over any
item involving the Company's financial statements. Our independent accountants
are Deloitte & Touche LLP, 55 King Street West, Suite 700, Kitchener, Ontario
N2G 4W1.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In September 1997, we issued an aggregate of 1,000,000 shares of restricted
common stock, with a par value of $0.001 per share, pursuant to Regulation D of
the Securities Act, as amended. All 1,000,000 shares were sold to two investors
for total cash consideration of $1,000 net of commission and offering costs. The
shares were issued as follows:
Purchaser Date of Purchase Number of Common
Shares
Knight Financial, Ltd. 8/25/97 100,000
G.M. Capital Partners, Ltd. 9/25/97 900,000
In July of 1998, as a condition of the amalgamation agreement between the
Company and International Menu, G.M. Capital Partners, Ltd. and Knight
Financial, Ltd. canceled and returned to the treasury of the Company all
restricted shares of common stock subscribed to in the September 1997 offering.
In October 1997, we issued a total of 1,250,000 shares of common stock,
with a par value of $0.001 per share, pursuant to Rule 504 of Regulation D of
the Securities Act, as amended. All
40
<PAGE>
1,250,000 shares were sold to seven investors for a total cash consideration of
$12,500 net of commission and offering costs. The shares were issued as follows:
Purchaser Date of Purchase Number of Common
Shares
International Treasury &
Investments 10/21/97 220,000
International Commerce
Clearing Corporation 10/21/97 220,000
Norton International
Holdings, Ltd. 10/21/97 220,000
Tiger Eye Investments
(Cayman), Ltd. 10/21/97 220,000
Llewellyn Capital Trust
Foundation 10/21/97 220,000
Knight Family Trust 10/21/97 40,000
Michie Family Trust 10/21/97 110,000
In November 1997, we issued a total of 28,000 shares of common stock, with
a par value of $0.001 per share, pursuant to Rule 504 of Regulation D of the
Securities Act, as amended. All 28,000 shares were sold to twenty-eight
investors for a total cash consideration of $1,400 net of commission and
offering costs. The shares were issued as follows:
Purchaser Date of Purchase Number of Common
Shares
Earle Lewis 11/1/97 1,000
Pam Lewis 11/1/97 1,000
Melanie Lewis 11/1/97 1,000
Sherrye Sailes 11/1/97 1,000
Sheyne Almond 11/1/97 1,000
Sheyanne Almond 11/1/97 1,000
Rheece Metcalfe 11/1/97 1,000
Raelyn Metcalfe 11/1/97 1,000
Cathryn Newman 11/1/97 1,000
Gary Newman 11/1/97 1,000
Mitchell Newman 11/1/97 1,000
41
<PAGE>
Nicholas Newman 11/1/97 1,000
Philip Fox 11/1/97 1,000
Carole Fox 11/1/97 1,000
David Shaw 11/1/97 1,000
Mary-Margaret Mackinnon 11/1/97 1,000
Thomas Shaw 11/1/97 1,000
Sandy Michie 11/1/97 1,000
Pat Michie 11/1/97 1,000
Dene Knight 11/1/97 1,000
Lorraine Knight 11/1/97 1,000
Doug Knight 11/1/97 1,000
Kathy Knight 11/1/97 1,000
Darcy Knight 11/1/97 1,000
Tyler Knight 11/1/97 1,000
Bill Roberts 11/1/97 1,000
Doug Harrington 11/1/97 1,000
Ed Smith 11/1/97 1,000
In April 1998, we issued 400,000 shares of common stock, with a par value
of $0.001 per share, pursuant to Rule 504 of Regulation D of the Securities Act,
as amended. All 400,000 shares were sold to three investors for a total cash
consideration of $4,000 net of commission and offering costs. The shares were
issued as follows:
Purchaser Date of Purchase Number of Common
Shares
Tiger-Eye Investments
(Cayman) Ltd. 4/9/98 150,000
Llewellyn Capital Trust
Foundation 4/9/98 150,000
Luserna Stiftung 4/9/98 100,000
In July 1998, we issued a total of 1,400,000 shares of common stock, with a
par value of $0.001 per share, pursuant to Rule 504 of Regulation D of the
Securities Act, as amended. All 1,400,000 shares were sold to six investors for
a total cash consideration of $US 925,000 ($CD 1,348,557.50) net of commission
and offering costs. The shares were issued as follows:
42
<PAGE>
Purchaser Date of Purchase Number of Common
Shares
Tinamilu Holdings, Inc. 7/6/98 233,333
Brockton International 7/6/98 233,333
Wifsta Limited 7/6/98 233,333
Deevale Limited 7/6/98 233,333
Dover IX Investment Limited 7/6/98 233,335
IPO International, Ltd. 7/6/98 233,333
All share issuances described in the preceding paragraphs were issued by
the Company, when it was known as ANM Holding Corporation, prior to the
amalgamation described in "Description of Business".
In November 1998, we offered 3,300,000 private placement units consisting
of 3,300,000 shares of common stock, with a par value of $0.001 per share, and
1,500,000 redeemable stock purchase warrants, pursuant to Regulation S of the
Securities Act, as amended. Each warrant entitles the registered holder to
purchase one share of the Company's common stock at $1.40 per share. We sold
1,997,300 units to ten investors for a total cash consideration of $US 1,666,124
($CD 2,620,677.30) net of commission and offering costs. The units were issued
as follows:
Purchaser Date of Purchase Number of Common
Shares
Christopher Smith 11/23/98 157,000
Larry Hoffman 11/23/98 110,000
Victor Fradkin 11/23/98 220,000
Thinomen Gronberg and
William Gronberg 11/23/98 110,000
Dover IX Investments, Ltd. 11/23/98 575,300
Mario Girorgio in Trust 11/23/98 220,000
Canadian Food Fund Corp. 11/23/98 165,000
Bull International, Ltd. 11/23/98 110,000
Mark Johnson Holdings, Inc. 11/23/98 110,000
Britwirth Investments, Ltd. 11/23/98 220,000
On April 16, 1999 Southbridge Inc. subscribed for 1,523,810 common shares
of the Company at a subscription price of $2.625 per common share. As part of
the subscription the Company granted to Southbridge 400,000 warrants which
entitle Southbridge to purchase up to 200,000 common shares at the price of
$2.25 per common Share during the period to April 16, 2000 and 200,000 common
shares at the price of $2.625 per common share during the period to April 16,
2001. In connection with such subscription the Company entered into additional
agreements with Southbridge which address registration rights and future
financings of the Company.
43
<PAGE>
On May 10, 1999, International Menu completed a $4 Million financing in the
form of a convertible debenture issued to First Ontario Fund (Crosbie & Company)
and BMO Capital Group. The First Ontario Fund and BMO Capital Group advanced
$2.5 Million and $1.5 Million respectively to the Company. The strike price for
the convertible debenture is $2.62 per share.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our By-laws provide for such indemnification of our officers and directors
to the extent permitted by the Nevada General Corporation Law ("NGL"). Section
78.7502 of the NGL permits a corporation to indemnify any officer, director,
employee, or agent, who is, was, or is threatened to be made a party to any
action, whether civil, criminal, administrative, or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was an officer, director, employee, or agent, if he acted in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of a criminal action, he had no
reasonable cause to believe that his conduct was unlawful. In the case in which
a director, officer, employee, or agent of a corporation has been successful on
the merits or otherwise in defense of such action, the corporation must
indemnify him for expenses, including attorneys' fees, actually and reasonably
incurred by him insofar as indemnification for liabilities arising under the
federal securities laws may be permitted to directors and controlling persons of
the issuer, the issuer has been advised that in the opinion of the securities
and exchange commission such indemnification is against public policy as
expressed in the law and is, therefor, unenforceable. In the event a demand for
indemnification is made, the issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the law and will be governed by the final
adjudication of such issues.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase our ability to attract and retain
qualified persons to serve as directors. Because directors liability insurance
is only available at considerable cost and with low dollar limits of coverage
and broad policy exclusions, we do not currently maintain a liability insurance
policy for the benefit of our directors, although we are presently seeking to
secure such insurance. We believe that the substantial increase in the number of
lawsuits being threatened or filed against corporations and their directors and
the general unavailability of directors liability insurance to provide
protection against the increased risk of personal liability resulting from such
lawsuits have combined to result in a growing reluctance on the part of capable
persons to serve as members of boards of directors of companies, particularly of
companies which intend to become public companies. We also believe that the
increased risk of personal liability without adequate insurance or other
indemnity protection for our directors could result in overcautious and less
effective direction and management of the Company.
44
<PAGE>
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its stockholders, but eliminates personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of the Company.
The provisions regarding indemnification provide, in essence, that we will
indemnify our directors against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any action, suit or proceeding arising out of the director's
status as a director of the Company, including actions brought by or on behalf
of the Company (shareholder derivative actions). The provisions do not require a
showing of good faith. Moreover, they do not provide indemnification for
liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance. However, as mentioned above, we do not currently provide such
insurance to its directors, and there is no guarantee that we will provide such
insurance to our directors in the near future, although we may attempt to obtain
such insurance.
These provisions diminish the potential rights of action which might
otherwise be available to shareholders by limiting the liability of officers and
directors to the maximum extent allowable under Nevada law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any shareholder derivative action. However,
the provisions do not have the effect of limiting the right of a shareholder to
enjoin a director from taking actions in breach of his fiduciary duty, or to
cause the Company to rescind actions already taken, although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken. Also, because we do not presently
have directors liability insurance and because there is not assurance that we
will retain such insurance or that if such insurance is procured it will provide
coverage to the extent directors would be indemnified under the provision, we
may be forced to bear a portion or all of the cost of the director's claims for
indemnification under such provisions. If we are forced to bear the cost for
indemnification, the value of our stock may be adversely affected.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended, may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing
45
<PAGE>
provisions, or otherwise, the Company has been advised that such
indemnification, in the opinion of the SEC, is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
We believe that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
PART F/S
ITEM 1. FINANCIAL STATEMENTS
For information regarding this item, reference is made to the "Index of
Financial Statements."
PART III
ITEM 1. INDEX TO EXHIBITS
Part III
Item 1. INDEX TO EXHIBITS
2.0 Share Purchase Agreement between 1218951 Ontario Limited and Prime Foods,
dated October 9, 1998.
2.1 Share Purchase Agreement among Victor Fradkin, Rhys Quin, Lauderdale
Capital Corp., Larry Hoffman, International Menu and the Company, dated
November 30, 1998.
2.2 Share Purchase Agreement among Alrae Investments Inc., Katherine Kan,
Roynat Inc., International Menu and the Company, dated April 15, 1999.
2.3 Exchange Agreement and Shareholder Loan Purchase Agreement between Sania
Shechtman and International Menu, dated April 1999.
2.4 Exchange Agreement and Shareholder Loan Purchase Agreement between
1276396 Ontario Ltd. and International Menu, dated April 1999.
2.5 Share Purchase Agreement among Donald Kilimnik, Deborah Kilimnik, Robert
Curik, Anjela Curik, International Menu and the Company.
2.6 Exchange Agreement among Elililco Ltd., David Arosh, Margaret Arosh,
International Menu and the Company, dated May 1999.
3.0 Articles of Incorporation of ANM Holdings Corporation.
3.1 Certificate of Amendment of Certificate of Incorporation of ANM Holdings
Corporation, dated July 15, 1998.
3.2 Certificate of Amendment of Certificate of Incorporation of International
Menu defining the rights of security holders, dated May 7, 1999.
3.3 Certificate of Amendment of Certificate of Incorporation of International
Menu defining the rights of security holders, dated May 10, 1999.
3.4 By-laws of ANM Holdings Corporation.
10.0 Employment Agreement between International Menu and Michael Steele,
dated August 1, 1998.
10.1 Agency Agreement between International Menu and Robert Caldwell Capital
Corporation, dated April 10, 1999.
21.0 Subsidiaries of the Company:
Province of
Name Incorporation
---- -------------
International Menu Solutions Inc. Ontario
Prime Foods Processing Inc. Ontario
Transcontinental Gourmet Foods Inc. Ontario
Norbakco Ltd. Ontario
Tasty Selections Inc. Ontario
1005549 Ontario Inc. Ontario
D.C. Foods Processing Inc. Ontario
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The following documents are filed as part of this Registration Statement.
INTERNATIONAL MENU SOLUTIONS CORPORATION
Independent auditors' report. F-1
Audited consolidated balance sheets as of December 31,
1998 and 1997 and unaudited consolidated balance sheet
as of March 31, 1999. F-2
Audited consolidated statements of operations for the
year ended December 31, 1998 and for the period from
September 26, 1997 to December 31, 1998 and unaudited
consolidated statements of operations for the three
months ended March 31, 1999 and 1998. F-3
Audited consolidated statement of stockholders' equity
for the period from September 26, 1997 to December 31,
1998 and unaudited consolidated statement of
stockholders' equity for the three months ended March
31, 1999. F-4
Audited consolidated statements of cash flows for the
year ended December 31, 1998 and for the period from
September 26, 1997 to December 31, 1997 and unaudited
consolidated statements of cash flows for the three
months ended March 31, 1999 and 1998. F-5
Notes to consolidated financial statements. F-6 to F-17
TRANSCONTINENTAL GOURMET FOODS INC.
Auditors' report. F-18
Audited balance sheets as at February 28, 1998 and 1997
and unaudited balance sheet as at November 30, 1998.
F-19
Audited statement of retained earnings for the years
ended February 28, 1998 and 1997 and unaudited
statement of retained earnings for the nine months
ended November 30, 1998. F-20
Audited statements of income for the years ended
February 28, 1998 and 1997 and unaudited statement of
income for the nine months ended November 30, 1998.
F-21
Audited statements of cash flow for the years ended
February 28, 1998 and 1997 and unaudited statement of
cash flow for the nine months ended November 30, 1998.
F-22
Notes to financial statements. F-23 to F-31
1188980 ONTARIO LTD. (the predecessor company to Tasty
Selections Inc.)
Auditors' report. F-32
Audited balance sheet as of June 30, 1998 and unaudited
balance sheet as of March 31, 1999. F-33
Audited statement of income and retained earnings for
the year ended June 30, 1998 and unaudited statement of
income and retained earnings for the nine months ended
March 31, 1999. F-34
Audited statement of cash flow for the year ended June
30, 1998 and unaudited statement of cash flow for the
nine months ended March 31, 1999. F-35
Notes to financial statements. F-36 to F-40
1005549 ONTARIO LIMITED (100% owner of D.C. Foods
Processing Inc.)
Report of Independent Auditors. F-40
Audited consolidated balance sheets as of December 6,
1998 and December 7, 1997. F-41
Audited consolidated statements of earnings for the
years ended December 6, 1998 and December 7, 1997. F-42
Audited consolidated statements of stockholders' equity
for the years ended December 6, 1998 and December 7,
1997. F-43
Audited consolidated statements of cash flows for the
years ended December 6, 1998 and December 7, 1997. F-44
Notes to consolidated financial statements. F-45 to F-53
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
INTERNATIONAL MENU SOLUTIONS CORPORATION
Unaudited pro forma consolidated statement of
operations of International Menu Solutions Corporation
and subsidiaries for the year ended December 31, 1998. F-54
Unaudited pro forma consolidated balance sheet as of
December 31, 1998. F-55
Unaudited pro forma consolidated balance sheet as of
March 31, 1999. F-56
Unaudited pro forma statement of operations for the
year ended December 31, 1998. F-57
Unaudited pro forma statement of operations for the
three months ended March 31, 1999. F-58
Unaudited pro forma statement of operations for the
three months ended March 31, 1998. F-59
Footnotes to unaudited pro forma consolidated financial
statements. F-60 to F-61
47
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: July 16, 1999
INTERNATIONAL MENU SOLUTIONS CORPORATION
By: /s/ Michael Steele,
------------------------
President
By: /s/ G.E. Creber,
------------------------
Secretary
48
<PAGE>
Independent Auditors' Report
To the Directors of International Menu Solutions Corporation
We have audited the accompanying consolidated balance sheets of International
Menu Solutions Corporation and subsidiaries as of December 31, 1998 and December
31, 1997 and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1998 and for the period
from incorporation, September 26, 1997 to December 31, 1997. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of International Menu Solutions
Corporation and subsidiaries as of December 31, 1998 and December 31, 1997 and
the results of their operations and their cash flows and the for year ended
December 31, 1998 and for the period from the date of incorporation, September
26, 1997 to December 31, 1997 in conformity with accounting principles generally
accepted in the United States.
/s/ DELOITTE & TOUCHE LLP
- - -------------------------
DELOITTE & TOUCHE LLP
Chartered Accountants
Kitchener, Ontario
March 25, 1999, except as to
Notes 18b) to 18k) which are as of
June 27, 1999
F-1
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Consolidated Balance Sheets
(Canadian dollars)
================================================================================
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,556,743 $ 1,865,612 $ 299,274
Accounts receivable 2,379,875 2,270,251 269,466
Inventories 2,526,410 1,299,890 236,434
Prepaid expenses 566,551 100,633 16,766
- - --------------------------------------------------------------------------------------------------------------------
7,029,579 5,536,386 821,940
CAPITAL ASSETS, NET (Note 4) 3,895,830 3,617,196 905,475
INTANGIBLE ASSETS, NET (Note 5) 4,778,261 4,627,070 339,365
DEFERRED INCOME TAXES (Note 14) 51,400 -- --
- - --------------------------------------------------------------------------------------------------------------------
$ 15,755,070 $ 13,780,652 $ 2,066,780
- - --------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (Note 6) $ 3,629,509 $ 1,100,849 $ 40,000
Accounts payable 1,715,394 2,072,485 512,386
Accrued liabilities 1,320,807 937,940 53,220
Current portion of capital lease obligation (Note 7) 105,090 94,486 --
Current portion of long-term debt (Note 8) 284,041 279,044 31,600
- - --------------------------------------------------------------------------------------------------------------------
7,054,841 4,484,804 637,206
CAPITAL LEASE OBLIGATION (Note 7) 321,807 297,387 --
LONG-TERM DEBT (Note 8) 1,138,396 1,250,303 518,400
DEFERRED INCOME TAXES (Note 14) -- 93,000 --
- - --------------------------------------------------------------------------------------------------------------------
8,515,044 6,125,494 1,155,606
- - --------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST (Note 10) 3,362,000 3,374,000 --
- - --------------------------------------------------------------------------------------------------------------------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY
Class A preferred stock - no par value; unlimited shares
authorized; Nil and 700,000 shares issued -- -- 280,320
Class N voting, non-participating stock - US$0.001 par
value; 10,000,000 shares authorized; 2,266,087,
3,190,462 and 4,000,000 shares issued 3,200 4,586 5,800
Common stock - US$0.001 par value; 25,000,000 shares
authorized; 6,809,213, 5,884,838 and
1,678,000 shares issued 9,550 8,164 1,854
Additional paid-in capital 4,871,951 4,871,951 664,997
Deficit (1,006,675) (603,543) (41,797)
- - --------------------------------------------------------------------------------------------------------------------
3,878,026 4,281,158 911,174
- - --------------------------------------------------------------------------------------------------------------------
$ 15,755,070 $ 13,780,652 $ 2,066,780
====================================================================================================================
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Consolidated Statements of Operations
(Canadian dollars)
================================================================================
<TABLE>
<CAPTION>
Period from
incorporation,
Three months ended Year ended September 26, 1997
March 31, December 31, to December 31,
1999 1998 1998 1997
----------- ----------- ----------- ------------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE $ 3,763,311 $ 641,259 $ 6,096,048 $ 442,493
- - --------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 3,183,356 562,300 4,729,806 365,385
Selling expenses 309,477 7,912 610,033 12,516
Research and development 96,970 27,269 425,542 5,663
Administrative expenses 594,303 158,410 765,089 92,143
Amortization of intangibles 72,381 15,080 67,473 5,728
- - --------------------------------------------------------------------------------------------------------
4,256,487 770,971 6,597,943 481,435
- - --------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (493,176) (129,712) (501,895) (38,942)
- - --------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest revenue 18,273 -- 24,763 1,268
Interest expense (84,629) (15,559) (98,066) (4,123)
- - --------------------------------------------------------------------------------------------------------
(66,356) (15,559) (73,303) (2,855)
- - --------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (559,532) (145,271) (575,198) (41,797)
INCOME TAXES 144,400 -- --
- - --------------------------------------------------------------------------------------------------------
LOSS BEFORE MINORITY INTEREST (415,132) (145,271) (575,198) (41,797)
MINORITY INTEREST 12,000 -- 26,000 --
- - --------------------------------------------------------------------------------------------------------
NET LOSS $ (403,132) $ (145,271) $ (549,198) $ (41,797)
- - --------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE - BASIC
AND DILUTED (Note 15) $ (0.04) $ (0.03) $ (0.09) $ (0.01)
- - --------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES (Note 15) 9,075,300 5,678,000 6,419,141 5,278,000
========================================================================================================
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Notes to Consolidated Financial Statements
(In accordance with United States Generally Accepted Accounting Principles)
(Canadian dollars)
================================================================================
<TABLE>
<CAPTION>
Class A Additional Total
Preferred Class N Common Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 26, 1997 -- $ -- -- $ -- -- $ -- $ - $ -- --
Issuance of common shares 4,000,000 672,651 672,651
Issuance of Class A
preferred shares 700,000 280,320 280,320
Effect of reverse
acquisition (see Note 10) 4,000,000 5,800 (2,322,000) (670,797) 664,997 --
Net loss (41,797) (41,797)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 700,000 280,320 4,000,000 5,800 1,678,000 1,854 664,997 (41,797) 911,174
Issuance of common shares 3,397,300 5,096 4,206,954 4,212,050
Fair value of brokers'
options (Note 11) (1,058,300) (1,058,300)
1,058,300 1,058,300
Fair value of warrants'
issued in private
placement (Note 10) (1,622,900) (1,622,900)
1,622,900 1,622,900
Redemption of Class A (700,000) (280,320) (12,548) (292,868)
preferred shares
Share exchange (Note 10) (809,538) (1,214) 809,538 1,214 --
Net loss (549,198) (549,198)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 -- -- 3,190,462 4,586 5,884,838 8,164 4,871,951 (603,543) 4,281,158
Share exchange (unaudited) (924,375) (1,386) 924,375 1,386 --
Net loss (unaudited) (403,132) (403,132)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1999 (unaudited) -- $ -- 2,266,087 $ 3,200 6,809,213 $ 9,550 $4,871,951 $(1,006,675) $ 3,878,026
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Consolidated Statements of Cash Flows
(Canadian dollars)
================================================================================
<TABLE>
<CAPTION>
Period from
incorporation,
Three months ended Year ended September 26, 1997
March 31, December 31, to December 31,
1999 1998 1998 1997
----------- ------------ ------------ ------------------
(unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (403,132) $ (145,271) $ (549,198) $ (41,797)
Item not requiring cash
Depreciation and amortization 144,313 30,432 163,946 17,144
Minority interest (12,000) -- (26,000) --
Deferred income taxes (144,400) -- -- --
Changes in operating assets and liabilities
Accounts receivable (109,624) 6,024 (489,189) (75,067)
Inventories (1,226,520) (22,338) 408,787 (33,406)
Prepaid expenses (465,918) (7,540) (21,271) (4,216)
Accounts payable (357,091) 33,282 7,568 80,026
Accrued liabilities 382,867 21,763 -- 50,051
- - ------------------------------------------------------------------------------------------------------------------------------------
(2,191,505) (83,648) (505,357) (7,265)
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (287,807) (91,614) (216,397) (16,835)
Additions to intangible assets (223,416) (23,308) (14,332) (4,050)
Acquisitions, net of cash acquired in 1997 -
$2,514; including bank overdraft assumed
in 1998 - $1,126,779 -- -- (2,671,529) (665,547)
- - ------------------------------------------------------------------------------------------------------------------------------------
(511,223) (114,922) (2,902,258) (686,432)
- - ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of shares -- -- 4,212,050 952,971
Proceeds from bank loans 2,528,660 95,000 1,202,348 40,000
Payment of long-term debt and
capital lease principal (134,801) (2,800) (147,577) --
Redemption of Class A preferred stock -- -- (292,868) --
- - ------------------------------------------------------------------------------------------------------------------------------------
2,393,859 92,200 4,973,953 992,971
- - ------------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND
CASH EQUIVALENTS (308,869) (106,370) 1,566,338 299,274
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,865,612 299,274 299,274 --
- - ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,556,743 $ 192,904 $ 1,865,612 $ 299,274
====================================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 84,629 $ 15,559 $ 98,066 $ 4,123
====================================================================================================================================
Cash paid during the period for income taxes $ -- $ -- $ -- $ --
====================================================================================================================================
</TABLE>
F-5
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Notes to Consolidated Financial Statements
(In accordance with United States Generally Accepted Accounting Principles)
(Canadian dollars)
================================================================================
1. DESCRIPTION OF BUSINESS
The Company develops, markets and produces a series of specialty food
products for sale to food distributors, food retailer chains and specialty
food retailers.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, the most significant of
which are as follows:
Basis of presentation
The consolidated financial statements include the accounts of the
International Menu Solutions Corporation (a Nevada corporation) (the
"Company" or "IMSC") and its wholly owned operating subsidiaries,
International Menu Solutions Inc. ("IMSI"), Prime Foods Processing Inc.
("PFPI"), Transcontinental Gourmet Foods Inc. ("TGF"), and Norbakco Ltd.
("Norbakco") which is 59% owned by IMSI, (all are Ontario corporations).
On July 16, 1998, the Company (which at the time was named ANM Holdings
Corporation, a Nevada Corporation ("ANM")) acquired all of the outstanding
common stock of IMSI. This transaction was treated as a reverse acquisition
of ANM as the former shareholders of the IMSI retained the majority voting
interest of the combined entity. Accordingly, IMSI is deemed to be the
accounting acquirer, whereby the financial statements represent those of
the IMSI and not the legal acquirer, ANM. The historical financial
statements are those of IMSI. The entity's outstanding capital stock
represents the historical capital stock of ANM and the stock issued in the
reverse acquisition.
Foreign currency translation
The Company's functional currency is the Canadian dollar. Transactions
incurred in currencies other than the functional currency are converted to
the functional currency at the transaction date. Monetary assets and
liabilities denominated in a currency other than the functional currency
are converted to the functional currency at the exchange rate in effect at
each period end. All foreign currency transaction gains or losses have been
included in earnings.
Revenue recognition
Revenue is recognized upon shipment of goods to customers net of allowances
for expected returns for fresh-food deliveries.
Inventory
Inventory is valued at the lower of cost and net realizable value with cost
being determined on a first-in, first-out basis.
Capital assets
Capital assets are recorded at cost. Depreciation is provided at the
following rates:
Building 20 years straight-line
Plant equipment 5 to 10 years straight-line
Leasehold improvements Straight line over the lease term,
typically five years
Office equipment 20% declining-balance
Computer equipment 30% declining-balance
F-6
<PAGE>
Intangible assets
Intangible assets are recorded at cost and represent packaging artwork and
goodwill. Amortization periods are as follows:
Packaging artwork 3 to 5 years straight-line
Deferred financing costs Over term of debt instrument
Goodwill 20 to 40 years straight-line
Asset impairment
The Company reviews the carrying value of intangible and other long-lived
assets on a periodic basis for evidence of impairment. An impairment loss
is recognized when the estimate of undiscounted future cash flows generated
by such assets is less than the carrying amount. Measurement of the
impairment loss is based on the present value of the expected future cash
flows.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires the determination of deferred tax assets
and liabilities based on the differences between the financial statement
and income tax bases of tax assets and liabilities, using enacted tax rates
in effect for the year in which the differences are expected to reverse.
The measurement of a deferred tax asset is adjusted by a valuation
allowance, if necessary, to recognize tax benefits only to the extent that,
based on available evidence, it is more likely than not that they will be
realized.
Cash and cash equivalents
Investments in highly liquid debt instruments with original maturities of
90 days or less are designated as cash and cash equivalents.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ materially from
those estimates and assumptions.
Recently issued accounting pronouncements
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which has been adopted by the Company. Upon the adoption of SFAS
No. 128, the Company is presenting basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing the
net earnings available to common shareholders by the weighted average
number of common shares outstanding for the year. Diluted earnings per
share is derived by adjusting the basic earnings per share calculation to
reflect the effect of securities with dilutive potential. The computation
of diluted earnings per share does not include securities with dilutive
potential that would have an anti-dilutive effect on earnings per share.
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for the reporting and presentation of comprehensive
income and its components. The Company's adoption of SFAS No. 130 had no
effect on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards
for the reporting and identification of operating segments and
F-7
<PAGE>
requires certain financial and descriptive information regarding those
segments. The Company operates in one business segment and consequently the
adoption of SFAS No. 131 had no material effect on the consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
the reporting and accounting for derivative instruments. Presently, the
Company currently does not use derivative instruments or conduct hedging
activities. Management is in the process of determining the impact of SFAS
No. 133 on the consolidated financial statements.
3. ACQUISITIONS
Year ended December 31, 1998
During the year ended December 31, 1998, IMSI acquired the businesses, set
out in the table below, which have been accounted for using the purchase
method:
<TABLE>
<CAPTION>
Pasta Kitchen(1)
TGF/Norbakco 2)
---------------- ---------------
<S> <C> <C>
Acquisition date October 9, 199 December 1, 1998
Estimated purchase price including acquisition costs $ 395,000 $ 5,110,000
Assigned to fair values of net assets acquired:
Current assets 105,480 2,922,456
Capital assets 200,000 2,222,690
Current liabilities (146,408) (2,817,865)
Long-term liabilities -- (1,199,268)
-------------------------------------------------------------------------------------
159,072 1,128,013
-------------------------------------------------------------------------------------
Goodwill $ 235,928 $ 3,981,987
=====================================================================================
</TABLE>
(1) IMSI acquired the assets of Pasta Kitchen for cash consideration of
approximately $375,000 plus acquisition costs of $20,000. Additional
consideration, currently estimated at $340,000, is payable, at the option
of the Company, in cash or common shares during 1999 based on the
achievement of certain revenue targets. Due to the contingent nature of the
additional consideration, its value will be recorded as goodwill when the
conditions are resolved.
(2) IMSI acquired all of the outstanding shares of TGF and 59% of the
outstanding shares of Norbakco Ltd., a sister corporation of TGF. Cash of
$1,000,000 was paid to the vendors on closing. An estimated additional cash
payment of $600,000 is payable during 1999 based on the net book value of
TGF in excess of $1,000,000. The estimated additional cash payment has been
recorded as a liability as of December 31, 1998. The balance of the
purchase price of $3.4 million was paid in the form of shares of IMSI,
issued December 1, 1998, which are exchangeable for shares of the Company
(see Note 10).
Unaudited supplemental pro forma results of operations
The following table presents unaudited pro forma revenue, net loss and loss
per share as if IMSI had acquired all of TGF, Norbacko and Pasta Kitchen on
January 1, 1998.
Year ended
December 31, 1998
----------------------
Revenue $ 13,013,807
Loss (458,123)
Loss per share $ (0.07)
===========================================================================
Period ended December 31, 1997
F-8
<PAGE>
PFPI
-----------------
Acquisition date November 1, 1997
Total consideration and acquisition costs $ 665,547
Assigned to fair values of net assets acquired
Current assets
412,491
Capital assets 968,793
Current liabilities (438,093)
Long-term debt (550,000)
---------------------------------------------------------------------------
393,191
---------------------------------------------------------------------------
Goodwill $ 272,356
===========================================================================
IMSI acquired all the issued and outstanding shares of PFPI for cash
consideration of $374,000. In addition IMSI made payments for professional
fees and premises and equipment improvements totaling $291,547. Pro forma
supplementary information has not been presented as there were no
activities of the Company prior to September 26, 1997.
4. CAPITAL ASSETS
March 31, December 31,
1999 1998 1997
--------- ------------ ------------
(unaudited)
Cost
Land $ 120,000 $ 120,000 $ 120,000
Building 854,524 854,524 764,803
Leasehold improvements 111,612 104,671 --
Plant equipment 2,694,254 2,383,349 20,686
Office equipment 229,478 225,973 4,677
Computer equipment 60,656 31,285 6,725
---------------------------------------------------------------------------
4,070,524 3,719,802 916,891
---------------------------------------------------------------------------
Accumulated depreciation
Building 53,635 43,687 4,844
Leasehold improvements 9,323 1,230 --
Plant equipment 94,271 49,503 6,180
Office equipment 10,514 5,006 150
Computer equipment 6,951 3,180 242
---------------------------------------------------------------------------
174,694 102,606 11,416
---------------------------------------------------------------------------
$3,895,830 $3,617,196 $ 905,475
===========================================================================
The net book value of assets recorded under capital leases totaled $350,422
(unaudited) (December 31, 1998 - $358,124; December 31, 1997 - $Nil), net
of accumulated depreciation of $17,708 (unaudited) (1998 - $10,006; 1997 -
$Nil).
5. INTANGIBLE ASSETS
March 31, December 31,
1999 1998 1997
--------- ------------ ------------
(unaudited)
Cost
Packaging artwork $ 393,416 $ 210,000 $ 72,737
Deferred financing charges 40,000 -- --
Goodwill 4,490,271 4,490,271 272,356
---------------------------------------------------------------------------
4,923,687 4,700,271 345,093
---------------------------------------------------------------------------
Accumulated amortization
Packaging artwork 45,704 36,936 3,484
Deferred financing charges -- -- --
Goodwill 99,722 36,265 2,244
---------------------------------------------------------------------------
145,426 73,201 5,728
---------------------------------------------------------------------------
$4,778,261 $4,627,070 $ 339,365
---------------------------------------------------------------------------
F-9
<PAGE>
6. BANK INDEBTEDNESS
The Company and its subsidiaries have utilized an aggregate of
approximately $3,630,000 of authorized lines of credit totaling $3,750,000
(unaudited) (December 31, 1998 - utilized an aggregate of $1,030,000 of
authorized lines of credit totaling $1,750,000; 1997 - utilized $40,000 of
a $200,000 line of credit). The lines of credit bear interest at Canadian
prime plus 1/2% or 7 1/4% at March 31, 1999 (unaudited) (prime plus 1 1/2%
or 8 1/4% at December 31, 1998). The outstanding balances are due on demand
and are secured by a general assignment of assets of the Company and its
subsidiaries and a total of $950,000 in limited guarantees of the Company.
7. CAPITAL LEASE OBLIGATIONS
The Company has acquired various processing equipment and vehicles under
capital leases expiring January 2004. Monthly principal payments vary from
$330 to $4,265. Capital leases are recorded by discounting payments based
on the lower of the Company's incremental borrowing rate or the interest
rate inherent in the lease.
Minimum lease payments are due as follows:
March 31, December 31,
1999 1998
--------- ------------
(unaudited)
Within 12 months $145,286 $131,378
12 to 24 months 136,402 127,665
25 to 36 months 117,304 103,275
37 to 48 months 92,683 100,050
49 to 60 months 19,558 11,242
---------------------------------------------------------------------------
Gross value of minumum lease payments 511,233 473,610
Less amount representing interest 84,336 81,737
---------------------------------------------------------------------------
426,897 391,873
Less principal amounts due in one year 105,090 94,486
---------------------------------------------------------------------------
$321,807 $297,387
===========================================================================
F-10
<PAGE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
---------- ------------ --------------
(unaudited)
<S> <C> <C> <C>
Business Development Bank of Canada ("BDC")- Mortgage Repayable in monthly
installments of $3,200 plus interest. Interest is calculated based on BDC's
floating base rate plus 1% (9.75% at December 31, 1998), and matures June
23, 2012. The loan to PFPI is secured by a first charge on PFPI's land and
building, a second charge on PFPI's inventory and accounts receivable, a
$250,000 guarantee by an officer of the Company, a guarantee by the Company
for the full amount of the loan and an assignment shareholder loans owing
by PFPI to IMSI. $518,400 $518,400 $ 550,000
BDC - Equipment loan Repayable in two principal instalments during December
and January of each year for a 5 year term. Interest is payable monthly at
1.25% (10.00% at December 31, 1998) above BDC's daily floating base rate.
The loan is secured by a first
charge on all personal property of TGF. 736,000 832,000 --
Bank of Nova Scotia - Equipment loan Repayable in monthly installments of
$2,137 for a 5 year term. Interest is payable monthly at the Bank of Nova
Scotia prime rate plus 2.5% (9.25% at December 31, 1998). The loan is
secured by a first charge over the assets
financed. 124,396 133,128 --
Bank of Nova Scotia - BDC repayment loan Repayable in monthly installments
of $1,500 for a period of 39 months. Interest is payable monthly at the
Bank of Nova Scotia prime rate plus 2.5% (9.25% at December 31, 1998). The
loan is secured by a general security agreement over all present and future
personal
property. 43,641 45,819 --
--------------------------------------------------------------------------------------------------------------------------
1,422,437 1,529,347 550,000
Less amount due within one year
284,041 279,044 31,600
--------------------------------------------------------------------------------------------------------------------------
$ 1,138,396 $ 1,250,303 $ 518,400
==========================================================================================================================
Principal payments required are due as follows:
For the nine months ending December 31, 1999 $ 157,534
2000 289,041
2001 290,860
2002 225,041
2003 123,961
Thereafter 336,000
--------------------------------------------------------------------------------------------------------------------------
$ 1,422,437
==========================================================================================================================
</TABLE>
9. COMMITMENTS
The Company is committed under operating leases for business premises and
equipment with terms expiring at various dates through 2005. As of March
31, 1999 (unaudited), the minimum annual payments required under the lease
agreements were as follows:
F-11
<PAGE>
For the nine months ending December 31, 1999 $ 220,585
2000 213,658
2001 216,492
2002 216,492
2003 216,492
Thereafter 207,468
---------------------------------------------------------------------------
$1,291,187
---------------------------------------------------------------------------
10. CAPITAL TRANSACTIONS
Reverse acquisition
On July 16, 1998, ANM, then a non-operating corporation, acquired all of
the outstanding common shares of IMSI. As a condition of the transaction,
ANM issued 1,400,000 common shares for proceeds of US$925,000
(CDN$1,373,000), net of issuance costs of US$55,000 (CDN$81,600) on July
15, 1998. For accounting purposes, the transaction was treated as a reverse
acquisition of ANM by IMSI. In conjunction with the reverse acquisition
transaction, the Company created and authorized 10,000,000 Class N shares,
and issued 4,000,000 Class N shares to the former shareholders of IMSI. The
Class N shares are non-equity participating and are entitled to identical
voting rights as the common stockholders. In addition, one Class N share
together with one Class X share of IMSI are convertible into common shares
of the Company on a one for one basis at the option of the holder until
2013, at which time the Company can force conversion of the Class N shares.
During 1998, 809,538 Class N and 809,538 Class X shares of IMSI were
exchanged for common shares of the Company. In the three-month period ended
March 31, 1999, 924,375 Class N and 924,375 Class X shares of IMSI were
exchanged for common shares of the Company (unaudited).
Private placement financing
During the period November 17 to November 28, 1998, the Company sold, by
private placement, 1,997,300 units for US$0.90 each, consisting of one
common share and one-half of a warrant. In exchange for one warrant and
US$1.40, the holder may purchase one common share of the Company. The
warrants expire May 30, 1999. The units have a minimum holding period of
one year from the date of the subscription agreements. Proceeds, net of
broker commissions, were US$1,666,124 ($2,550,000 CDN).
Acquisition - TGF/Norbakco
In conjunction with the acquisition of TGF/Norbakco, the IMSI issued a
total of 459,000 exchangeable shares to satisfy the share consideration
requirements of the share purchase agreement. The shares are exchangeable
into common shares of the Company at the holder's option based on an
exchange ratio. The exchange ratio is determined by a formula which is
primarily based upon the earnings before interest, depreciation and taxes
("EBITDA") of the acquired businesses for the years ending February 28,
1999 and 2000 and the Company's common stock market price on those dates.
The value of the exchangeable shares is recorded as minority interest.
Based on the financial results of the acquired operations to-date and the
current market price of the Company's common stock, management has
estimated that approximately 2,500,000 shares of the Company's common stock
could be issued pursuant to the future conversion rights of the holders of
the exchangeable shares. These shares have been treated for accounting
purposes as being issued. It is impossible to predict with absolute
certainty the exact number of shares that could be issued as the EBITDA of
the acquired businesses for the years ending February 28, 1999 and February
28, 2000 is unknown.
11. BROKERS OPTIONS
In conjunction with the share issuance and reverse acquisition of ANM, the
Company granted 1,000,000 stock options to brokers on July 15, 1998.
Pursuant to the stock option agreements, the option holders have the right
to purchase common shares of the Company at a price of US$1.00, commencing
February 1, 1999 and expiring July 1, 1999.
F-12
<PAGE>
12. STOCK OPTION PLAN
On August 10, 1998, the Board of Directors of the Company approved a stock
option plan (the "Option Plan") applicable to the Company's officers and
directors and authorized 2,500,000 common shares to be granted. Pursuant to
the Option Plan, options are granted at an amount not less than the
then-current fair market value of the common shares of the Company. Options
may generally be exercised in equal proportions during the years following
the first to fifth anniversary of the date of grant and expire on the tenth
anniversary or upon termination of employment.
A summary of the activity in the Option Plan since inception is set forth
below:
<TABLE>
<CAPTION>
Options
Available Number of Weighted Average
For Grant Options Exercise Price (US$)
--------- ------- --------------------
<S> <C> <C> <C>
Balance at December 31, 1997 -- --
Authorized 2,500,000 --
Granted (825,000) 825,000 $ 0.80
-----------------------------------------------------------------------------------------------
Balance at December 31, 1998 1,675,000 825,000 $ 0.80
Authorized (unaudited) --
Granted (unaudited) (3,000) 3,000 $ 2.00
-----------------------------------------------------------------------------------------------
Balance at March 31, 1999 (unaudited) 1,672,000 828,000 $ 0.80
-----------------------------------------------------------------------------------------------
Exercisable at December 31, 1997 -- $ --
Exercisable at December 31, 1998 -- $ --
Exercisable at March 31, 1999 (unaudited) -- $ --
================================================================================================
</TABLE>
The following table summarizes information concerning currently outstanding
options at March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Options Contractual Exercise Options Exercise
Exercise price Outstanding Life Price (US$) Exercisable Price (US$)
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.70 - $2.00 828,000 9.5 years $ 0.80 -- $ --
----------------------------------------------------------------------------------
828,000 --
==================================================================================
</TABLE>
13. STOCK BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. Pro forma information regarding
net income and earnings per share is required by SFAS 123, and has been
determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option
pricing model. Weighted average assumptions for stock price volatility,
dividend yield, expected life of stock options and risk free interest rate
were 31%, 0%, 6.0 years and 5.5%, respectively, for the three month period
ended March 31, 1999 (unaudited). Weighted average assumptions for stock
price volatility, dividend yield, expected life of stock options and risk
free interest rate were 326%, 0%, 5.32 years and 5.5%, respectively, for
the year ended December 31, 1998. There were no options issued during 1997
or during the three-month period ended March 31, 1998 to officers or
employees of the Company.
F-13
<PAGE>
SFAS 123 requires that, for the pro forma disclosure, the compensation cost
based on the fair values of the options at the grant date be amortized over
the vesting period. If compensation cost for stock options had been
determined based on the fair value at the grant dates consistent with the
method prescribed by SFAS 123, the Corporation's net loss and net loss per
share would have been adjusted to the pro forma amounts indicated below:
Three months Year ended
ended March 31, December 31,
1999 1998
--------------- ------------
(unaudited)
Net loss
As reported $ (403,132) $(549,198)
Pro forma $ (462,640) $(608,706)
Net loss per share, basic and diluted
As reported $ (0.04) $ (0.09)
Pro forma $ (0.05) $ (0.09)
The weighted average grant date fair value of stock options granted during
the three month period ended March 31,1999 and the year ended December 31,
1998 was $1.26 (unaudited) and $1.26, respectively.
14. INCOME TAXES
The components of the provision for income taxes are as follows:
Three months Year ended Period ended
ended March 31, December 31, December 31,
1999 1998 1998 1997
------------------- ------------ ------------
(unaudited)
Current $ -- $ -- $ -- $ --
Deferred (144,400) -- -- --
---------------------------------------------------------------------------
$(144,400) $ -- $ -- $ --
===========================================================================
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
---------- ------------- ----------
(unaudited)
<S> <C> <C> <C>
Deferred income tax liabilities
Difference between tax and accounting
basis of capital assets $(193,000) $(167,000) $ --
- - --------------------------------------------------------------------------------
Deferred income tax assets
Net operating losses 812,400 680,000 318,000
Valuation allowance (568,000) (606,000) (318,000)
- - --------------------------------------------------------------------------------
Deferred income tax asset,
net of valuation allowance 244,400 74,000 --
- - --------------------------------------------------------------------------------
Net deferred income tax asset (liability) $ 51,400 $ (93,000) $ --
================================================================================
</TABLE>
The provision for income taxes varies from the expected provision at the
statutory rates for the following reasons:
F-14
<PAGE>
<TABLE>
<CAPTION>
Three months Year ended Period ended
ended March 31, December 31, December 31,
1999 1998 1998 1997
---------------------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Combined Canadian basic federal
and provincial tax rates 44.6% 44.6% 44.6% 44.6%
=============================================================================================
Recovery based on the above rates $(180,000) $ (64,800) $(244,900) $ (18,600)
Increase (decrease) in income
taxes
resulting from the
following:
Permanent differences
including goodwill amortization 28,300 1,300 15,200 1,900
Manufacturing and processing
credits 13,000 6,000 (34,100) 3,200
Change in valuation allowance
(38,000) 56,000 288,000 13,500
Other
32,300 1,500 (24,200) --
---------------------------------------------------------------------------------------------
$(144,400) $ -- $ -- $ --
=============================================================================================
</TABLE>
The Company and its subsidiaries have income tax losses totaling $2,419,000
(unaudited) to apply against future years' taxable income. The losses, if
not utilized, expire as follows:
1999 $ 19,000
2000 34,000
2001 258,000
2002 217,000
2003 331,000
2004 1,230,000
2006 330,000
---------------------------------------------------------------------------
$2,419,000
===========================================================================
15. NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three months ended Year ended Period ended
March 31, December 31, December 31,
1999 1998 1998 1997
---------------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Net loss per share
Numerator
Net loss available to common $ 403,132 $ 145,271 $ 549,198 $ 41,797
shareholders
------------------------------------------------------------------------------------------------
Denominator
Weighted average shares outstanding 9,075,300 5,678,000 6,419,141 5,278,000
------------------------------------------------------------------------------------------------
$ 0.04 $ 0.03 $ 0.09 $ 0.01
================================================================================================
</TABLE>
No diluted net loss per share disclosure is presented as the conversion of
securities with dilutive potential in both periods had an anti-dilutive
effect on loss per share. The Class N shares outstanding are considered
common stock equivalents for the purposes of the basis loss per share and
weighted average outstanding common shares calculations.
F-15
<PAGE>
16. FINANCIAL INSTRUMENTS
Fair value
At March 31, 1999 (unaudited), December 31, 1998, March 31, 1998
(unaudited) and December 31, 1997 the estimated fair values of cash and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities were equal to their carrying values due to the short-term
nature of the items. The estimated fair value of long-term debt
approximates fair value as the debt bears interest at floating rates.
Credit risk
Credit risk arises due to the concentration of accounts receivable in one
geographic area or with certain customers. This risk is minimized by the
fact that the Company sells product to large supermarket chains and
specialty food retailers. Substantially all customers pay within 10 days of
product delivery.
17. SEGMENTED INFORMATION
The Company operates in one business segment; the development, marketing
and production of a series of specialty food products for sale to food
distributors, food retailer chains and specialty food retailers.
Significant customers accounted for the following sales volume percentages:
<TABLE>
<CAPTION>
Three months ended Year ended Period ended
Type of March 31, December 31, December 31,
Customer 1999 1998 1998 1997
-------- ------ ------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Customer 1 Distributor 18% -- -- --
Customer 2 Distributor 5% 18% 14% 15%
Customer 3 Retailer 3% -- 25% --
Customer 4 Distributor 3% 14% 12% 14%
Customer 5 Retailer 3% 25% 7% 14%
-----------------------------------------------------------------------------
</TABLE>
During the three month period ended March 31, 1999 sales to customers
outside Canada totaled approximately $782,000 (unaudited) (year ended
December 31, 1998 - 1,017,500; three months ended March 31, 1998 - $NIL
(unaudited) and period ended December 31, 1997 - $NIL).
18. SUBSEQUENT EVENTS
a) Consultant options
On January 1, 1999, the Company issued 125,000 options to a
consultant. The options were granted at an option price of $.90 per
share for the first 50,000 options. The remaining 75,000 options were
granted at an exercise price of $1.50. All options expire on December
31, 2001.
b) Share subscription
On April 16, 1999, the Company executed a subscription agreement with
an investor to issue 1,523,810 common shares for proceeds of
approximately $3,810,000, net of issuance costs of $190,000.
c) Acquisition of Tasty Selections Inc. ("Tasty")
On April 16, 1999, IMSI acquired all of the outstanding common shares
of Tasty, manufacturer of muffin and cookie batters located in
Concord, Ontario for consideration totaling approximately $2,160,000.
Under the terms of the agreement, IMSI paid $750,000 cash and issued
442,750 Class X shares on closing. An additional $250,000 cash is
payable upon the receipt of the financial statements of Tasty for the
nine month period ended March 31, 1999.
F-16
<PAGE>
d) New banking agreement
On April 16, 1999, the Company entered into a letter of commitment
with a Canadian chartered bank with respect to new and expanded credit
facilities. Under the proposed agreement, the Company would have new
credit facilities as follows: (a) an operating line of credit of
$10,000,000, bearing interest at prime plus 1/2%, except for
borrowings secured by mandatory cash and cash equivalent deposits, in
which case interest is calculated at prime; (b) a revolving facility
of $3,500,000 for equipment loans, bearing interest at prime plus 1
1/4%; and (c) a forward exchange contract facility totaling
$7,500,000. The credit facilities will be secured by a general
assignment of book debts, a general security agreement over all assets
of the Company, life insurance on certain executives totaling
$2,500,000 and a priority agreement with other lenders of the Company.
e) Convertible debenture financing
On May 10, 1999, the Company's subsidiary IMSI issued approximately
$4,000,000 in convertible debentures to two investors. The debentures
will have a term of 48 months, bear interest at 7% per annum for the
first 12 months and 13% thereafter, and will be convertible at the
holder's option at any time into exchangeable shares of IMSI which are
then exchangeable into shares of the Company. IMSI will have the right
to force conversion of the debentures if certain trading statistics
are maintained after July 1, 1999. A total of $140,000 was paid by
IMSI in respect of commitment fees related to the debenture.
f) Acquisition of DC Food Processing Inc.
On May 10, 1999 IMSI acquired all of the outstanding shares of 1005549
Ontario Inc., the sole shareholder of DC Food Processing Inc. a
provider of custom and private label food processing services to
Canadian and International markets located in Waterloo, Ontario for
approximately $20,000,000. Under the terms of the purchase agreement,
IMSI paid $4,000,000 on closing and issued 893,333 Class X convertible
shares. The balance of the purchase price was be satisfied on closing
by issuing a separate class of shares of IMSI which are exchangeable
into shares of the Company at the option of the holder.
g) Acquisition of remaining 41% equity interest in Norbakco
In May 1999, IMSI acquired the remaining 41% equity interest in
Norbakco, having acquired 59% interest on December 1, 1998. The
consideration paid for the additional interest was the issue by IMSI
of 53,000 Class X Shares, the issue by the Company of 53,000 Class N
Shares and the purchase from the selling shareholders shareholder
loans made to Norbakco in the amount of $180,000.
In conjunction with the issuance of the 53,000 Class X Shares and the
53,000 Class N Shares, IMSI modified the share attributes of the Class
B Shares such that the number of Common shares in the capital stock of
the Company that the 300,000 Class B Shares may be exchanged for is
reduced by 53,000 Common shares.
h) Broker option extension (see Note 11)
On May 27, 1999, the Company agreed to extend the expiry date with
respect to the brokers options issued July 15, 1998. Of the 1,000,000
options outstanding, 400,000 options will expire on December 31, 1999
and 600,000 options will expire on June 30, 2000.
i) Exercise of warrants by warrant holders
On or before May 31, 1999 all of the 998,650 stock purchase warrants
(see Note 10 - Private placement financing) were exercised resulting
in total cash proceeds of approximately $2,064,500 (US$1,398,100) to
the Company in consideration for the issuance of 998,650 shares of
common stock of the Company.
j) Conditional real property purchase agreement
On June 9, 1999, IMSI entered into an agreement whereby IMSI has the
option to purchase real property located in Claresholm, Alberta for a
purchase price of $1,075,000. The conditional agreement expires August
16, 1999.
k) Letter of intent regarding Ultimate Cookie Co., Inc.
On June 27, 1999, Tasty Selections entered into a letter of intent to
purchase all of the issued and outstanding shares of Ultimate Cookie
Company, Inc., a manufacturer of cookies located in Montreal, Quebec.
F-17
<PAGE>
AUDITORS' REPORT
To the Board of Directors
TRANSCONTINENTAL GOURMET FOODS INC.
We have audited the balance sheet of TRANSCONTINENTAL GOURMET FOODS INC. as at
February 28, 1998 and 1997 and the statements of retained earnings, income and
cash flow for the periods then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at February 28, 1998 and 1997
and the results of its operations and the cash flow for the periods then ended
in accordance with generally accepted accounting principles.
/s/ KRAFT, ROTHMAN, BERGER, GRILL, SCHWARTZ & COHEN LLP
-------------------------------------------------------
KRAFT, ROTHMAN, BERGER, GRILL, SCHWARTZ & COHEN LLP
Chartered Accountants
Toronto, Ontario
April 27, 1998, except for Note 16
which is as of December 22, 1998
F-18
<PAGE>
TRANSCONTINENTAL GOURMET FOODS INC.
BALANCE SHEET
In accordance with Canadian generally accepted accounting principles
<TABLE>
<CAPTION>
ASSETS
November 30 February 28
1998 1998 1997
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT
Cash $ -- $ 17,204 $ 73,910
Accounts receivable 1,116,265 213,438 196,835
Inventory (Note 2) 1,291,125 676,162 525,811
Sundry assets 20,922 43,437 27,653
Loans receivable from related companies 36,835 -- --
Income taxes recoverable -- -- 943
---------- ---------- ----------
2,465,147 950,241 825,152
FIXED, net (Notes 3, 5, 6 and 7) 1,370,266 1,116,155 877,232
DEFERRED PRODUCT DEVELOPMENT COSTS -- 3,962 9,131
INVESTMENT TAX CREDITS RECOVERABLE -- -- 13,585
---------- ---------- ----------
$3,835,413 $2,070,358 $1,725,100
========== ========== ==========
LIABILITIES
CURRENT
Bank indebtedness (Note 5) $ 876,522 $ -- $ --
Accounts payable and accrued liabilities 864,956 298,061 231,187
Long-term debt (Note 6) 192,000 132,000 193,793
Capital lease obligations (Note 7) 26,927 39,160 41,750
Due to shareholders 83,176 71,731 38,700
Income taxes payable 70,460 41,133 --
---------- ---------- ----------
2,114,041 582,085 505,430
LONG-TERM DEBT (Note 6) 594,500 396,000 202,873
CAPITAL LEASE OBLIGATIONS (Note 7) 52,014 28,508 67,668
DEFERRED GOVERNMENT GRANT -- 21,717 27,117
CONVERTIBLE DEBENTURES -- -- 531,000
DEFERRED INCOME TAXES 93,000 41,030 36,030
---------- ---------- ----------
2,853,555 1,069,340 1,370,118
---------- ---------- ----------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 9) 475,100 540,100 80,400
RETAINED EARNINGS 506,758 460,918 274,582
---------- ---------- ----------
981,858 1,001,018 354,982
---------- ---------- ----------
$3,835,413 $2,070,358 $1,725,100
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
TRANSCONTINENTAL GOURMET FOODS INC.
STATEMENT OF RETAINED EARNINGS
In accordance with Canadian generally accepted accounting principles
November 30 February 28
1998 1998 1997
--------- --------- ---------
(Unaudited)
(Note 13) (Note 13)
RETAINED EARNINGS, beginning of period $ 460,918 $ 274,582 $ 136,624
Net earnings for the period 57,317 197,636 141,579
518,235 472,218 278,203
Dividends paid (11,477) (11,300) (3,621)
--------- --------- ---------
RETAINED EARNINGS, end of period $ 506,758 $ 460,918 $ 274,582
========= ========= =========
See accompanying notes to financial statements.
F-20
<PAGE>
TRANSCONTINENTAL GOURMET FOODS INC.
STATEMENT OF INCOME
In accordance with Canadian generally accepted accounting principles
November 30 February 28
1998 1998 1997
---------- ---------- ----------
(Unaudited)
(Note 13) (Note 13)
SALES $3,842,487 $5,206,031 $3,830,176
---------- ---------- ----------
COST OF SALES
Inventory, beginning of period 676,162 525,811 591,650
Direct labour 809,298 1,047,998 623,335
Purchases 1,509,137 1,734,815 1,357,913
Delivery 274,170 289,234 164,075
---------- ---------- ----------
3,268,767 3,597,858 2,736,973
Less: Inventory, end of period 1,291,125 676,162 525,811
---------- ---------- ----------
1,977,642 2,921,696 2,211,162
---------- ---------- ----------
GROSS PROFIT 1,864,845 2,284,335 1,619,014
PRODUCTION EXPENSES 304,668 328,828 253,387
ADMINISTRATIVE EXPENSES 1,082,767 1,345,531 873,495
---------- ---------- ----------
EARNINGS BEFORE THE FOLLOWING 477,410 609,976 492,132
Interest 100,321 85,241 103,883
Depreciation and amortization 238,475 247,871 204,270
EARNINGS BEFORE INCOME TAXES 138,614 276,864 183,979
---------- ---------- ----------
Income taxes - current 29,327 74,228 39,200
- deferred 51,970 5,000 3,200
---------- ---------- ----------
81,297 79,228 42,400
---------- ---------- ----------
NET EARNINGS FOR THE PERIOD $ 57,317 $ 197,636 $ 141,579
========== ========== ==========
See accompanying notes to financial statements.
F-21
<PAGE>
TRANSCONTINENTAL GOURMET FOODS INC.
STATEMENT OF CASH FLOW
In accordance with Canadian generally accepted accounting principles
<TABLE>
<CAPTION>
November 30 February 28
1998 1998 1997
--------- --------- ---------
(Unaudited)
(Note 13) (Note 13)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings for the period $ 57,317 $ 197,636 $ 141,579
Amortization 238,475 247,871 204,270
Deferred income taxes 51,970 5,000 3,200
Change in non-cash working capital
balances related to operations
Accounts receivable (902,827) (16,603) (49,718)
Inventory (614,963) (150,351) 65,839
Sundry assets 22,515 (15,784) 60,727
Accounts payable and accrued liabilities 566,895 66,874 (36,680)
Income taxes payable 29,327 42,076 33,170
--------- --------- ---------
(551,291) 376,719 422,387
--------- --------- ---------
FINANCING ACTIVITIES
Due to shareholders 11,445 71,731 53,151
Dividends paid (11,477) (11,300) (3,621)
Capital lease obligations 11,273 (41,750) (43,572)
Long-term debt 258,500 131,334 (121,751)
Redemption of share capital (65,000) (10,000) --
Share capital issued -- -- 50,000
Deferred government grant (21,717) (5,400) (6,780)
Investment tax credits recoverable -- 13,585 22,737
Convertible debentures -- (100,000) --
Loans receivable from related companies (36,835) -- --
--------- --------- ---------
146,189 48,200 (49,836)
--------- --------- ---------
INVESTING ACTIVITY
Purchase of fixed assets (488,624) (481,625) (167,250)
--------- --------- ---------
CHANGE IN CASH AND BANK INDEBTEDNESS (893,726) (56,706) 205,301
CASH AND BANK INDEBTEDNESS, beginning of period 17,204 73,910 (131,391)
--------- --------- ---------
CASH AND BANK INDEBTEDNESS, end of period $(876,522) $ 17,204 $ 73,910
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
TRANSCONTINENTAL GOURMET FOODS INC.
NOTES TO FINANCIAL STATEMENTS
In accordance with Canadian generally accepted accounting principles
(Figures as at November 30, 1998 and for the nine month period ended November
30, 1998 are unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventory
Inventory is valued at the lower of cost and net realizable value.
(b) Fixed Assets
Fixed assets are recorded at cost. Amortization is being provided to
charge operations with the cost of assets over their estimated useful
lives as follows:
Machinery and equipment - 20% per annum, declining balance basis
Artworks, moulds and dies - 20% per annum, declining balance basis
Vehicles - 30% per annum, declining balance basis
Computer - 30% per annum, declining balance basis
Office equipment - 20% per annum, declining balance basis
Leasehold improvements - over term of lease, straight-line basis
A half year's amortization is taken in the year of acquisition.
Artwork, moulds and dies represent amounts paid to third parties for
packaging design and print set-up.
(c) Assets Under Capital Leases
Assets under capital leases are initially recorded at the cost to
otherwise purchase the asset. Amortization is provided to charge
operations with the cost of the assets over their estimated useful
lives on the declining balance basis at the following annual rates.
Machinery and equipment - 20%
Vehicles - 30%
(d) Deferred Product Development Costs
Deferred product development costs are recorded at cost and amortized
on a straight-line basis over five years.
(e) Deferred Government Grant
The deferred government grant is being amortized on a declining
balance at 20% per annum.
F-23
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Foreign Currency Translations
Assets, liabilities, revenues and expenses arising from foreign
currency transactions are translated into Canadian dollars at the
exchange rate in effect on the date of the transactions.
Monetary items denominated in a foreign currency (such as accounts
payable) are adjusted to reflect the exchange rate in effect at the
balance sheet date.
Any exchange gain or loss that arises from translation or settlement
of a foreign currency denominated monetary item is included in the
determination of net loss for the year.
(g) Income Taxes
Income taxes are provided for on the allocation basis and include
provision for all income taxes currently payable as well as those
which have been deferred to future years. The deferred tax balance
arises from amortization being claimed for income tax purposes in
amounts differing from those recorded in the accounts.
(h) Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the reported period. These estimates are reviewed
periodically, and, as adjustments become necessary, they are reported
in earnings in the period in which they become known.
2. INVENTORY
November 30 February 28
1998 1998 1997
---------- ---------- ----------
(unaudited)
Raw materials $ 234,895 $ 209,056 $ 249,582
Work-in-process 117,660 151,532 111,843
Finished goods 938,570 315,574 164,386
---------- ---------- ----------
$1,291,125 $ 676,162 $ 525,811
========== ========== ==========
F-24
<PAGE>
3. FIXED ASSETS
November 30, 1998 (unaudited)
--------------------------------------
Accumulated
Cost Amortization Net
---------- ------------ ----------
Machinery and equipment $2,146,069 $1,100,353 $1,045,716
Artwork, moulds and dies 311,478 145,024 166,454
Vehicles 68,017 59,858 8,159
Computer hardware 60,682 39,804 20,878
Office equipment 26,984 13,361 13,623
Leasehold improvements 80,569 62,233 18,336
---------- ---------- ----------
2,693,799 1,420,633 1,273,166
---------- ---------- ----------
Assets under capital lease
Machinery and equipment 127,581 52,148 75,433
Vehicles 113,987 92,320 21,667
---------- ---------- ----------
241,568 144,468 97,100
---------- ---------- ----------
$2,935,367 $1,565,101 $1,370,266
========== ========== ==========
February 28, 1998
--------------------------------------
Accumulated
Cost Amortization Net
---------- ------------ ----------
Machinery and equipment $1,729,969 $ 940,290 $ 789,679
Artwork, moulds and dies 304,307 116,072 188,235
Vehicles 68,017 57,489 10,528
Computer hardware 49,081 34,866 14,215
Office equipment 23,082 11,187 11,895
Leasehold improvements 80,569 42,885 37,684
---------- ---------- ----------
2,255,025 1,202,789 1,052,236
---------- ---------- ----------
Assets under capital lease
Machinery and equipment 77,731 41,769 35,962
Vehicles 113,987 86,030 27,957
---------- ---------- ----------
191,718 127,799 63,919
---------- ---------- ----------
$2,446,743 $1,330,588 $1,116,155
========== ========== ==========
F-25
<PAGE>
3. FIXED ASSETS (Continued)
February 28, 1997
----------------------------------------
Accumulated
Cost Amortization Net
---------- ------------ ----------
Machinery and equipment $1,379,670 $ 786,657 $ 593,013
Artwork, moulds and dies 225,703 78,839 146,864
Vehicles 68,017 52,977 15,040
Computer hardware 39,054 29,370 9,684
Office equipment 18,961 8,728 10,233
Leasehold improvements 41,995 24,488 17,507
---------- ---------- ----------
1,773,400 981,059 792,341
---------- ---------- ----------
Assets under capital lease
Machinery and equipment 77,731 32,779 44,952
Vehicles 113,988 74,049 39,939
---------- ---------- ----------
191,719 106,828 84,891
---------- ---------- ----------
$1,965,119 $1,087,887 $ 877,232
========== ========== ==========
Amortization of assets under capital lease during the period amounted to
$16,670 (February 28, 1998 - $20,971; February 28, 1997 - $34,824).
4. DEFERRED PRODUCT DEVELOPMENT COSTS
Deferred product development costs consist of the following:
November 30 February 28
1998 1998 1997
------- ------- -------
(unaudited)
Product development costs $48,345 $48,345 $48,345
Less: Accumulated amortization 48,345 44,383 39,214
------- ------- -------
$ -- $ 3,962 $ 9,131
======= ======= =======
5. BANK INDEBTEDNESS
The demand bank loan bears interest at 8.25% per annum and is secured by a
general assignment of book debts, inventory and defined values of certain
fixed assets financed separately under long-term debt (Note 6) and capital
lease obligations (Note 7).
F-26
<PAGE>
6. LONG-TERM DEBT
The long-term debt is a five year business loan bearing interest at prime
plus 3/4% per annum, payable monthly. As collateral, the Company has
provided a general assignment of accounts receivable, a general security
agreement over all assets, assigned life insurance, assigned fire insurance
over inventory and equipment and a first charge over certain equipment. The
aggregate payments in each of the four succeeding years are as follows:
November 30 February 28
1998 1998 1997
-------- -------- --------
(unaudited)
February 28, 1998 $ -- $ -- $193,793
February 28, 1999 -- 132,000 165,390
November 30, 1999 192,000 -- --
February 28, 2000 -- 132,000 37,483
November 30, 2000 202,000 -- --
February 28, 2001 -- 132,000 --
November 30, 2001 212,000 -- --
February 28, 2002 -- 132,000 --
November 30, 2002 180,500 -- --
-------- -------- --------
786,500 528,000 396,666
Less: Current portion 192,000 132,000 193,793
-------- -------- --------
$594,500 $396,000 $202,873
======== ======== ========
Interest expense on long-term debt was $87,479 (February 28, 1998 -
$85,241; February 28, 1997 - $34,449).
7. CAPITAL LEASE OBLIGATIONS
The Company has the following obligations under capital leases.
November 30 February 28
1998 1998 1997
-------- -------- --------
(unaudited)
February 28, 1998 $ -- $ -- $ 52,976
February 28, 1999 -- 42,655 45,076
November 30, 1999 34,861 -- --
February 28, 2000 -- 17,851 17,192
November 30, 2000 30,353 -- --
February 28, 2001 -- 16,514 14,752
November 30, 2001 11,961 -- --
November 30, 2002 11,961 -- --
November 30, 2003 6,978 -- --
-------- -------- --------
96,114 77,020 129,996
Less: Interest 17,173 9,352 20,578
Current portion 26,927 39,160 41,750
-------- -------- --------
$ 52,014 $ 28,508 $ 67,668
======== ======== ========
F-27
<PAGE>
8. DEFERRED GOVERNMENT GRANT
During 1994, the Company received approximately $59,000 of government
assistance pursuant to an agreement dated June 24, 1993 with the Ontario
Ministry of Agriculture and Food ("Ministry") to assist in the financing
and purchase of certain production equipment. Under the terms of the
Company's agreement with the Ministry, the Company is required to meet
certain requirements and conditions, including maintaining its plant
location in Ontario. If there is a breach of these conditions, part or all
of the assistance may be repayable.
9. CAPITAL STOCK
Share capital consists of the following.
Authorized
Unlimited Class "A" special shares, non-participating, non-voting
unless dividends in default for 1 year, dividends at the
Bank of Canada's prime rate plus 2% payable quarterly,
redeemable and retractable at amount paid up thereon
Unlimited Common shares
<TABLE>
<CAPTION>
Common Shares Class "A" Special Shares
------------------- ------------------------
Total
Number Book Number Book Book
of Shares Value of Shares Value Value
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1996 9,000 $ 5,400 250 $ 25,000 $ 30,400
Issued -- -- 500 50,000 50,000
--------- --------- --------- --------- ---------
Balance, February 28, 1997 9,000 5,400 750 75,000 80,400
Issued (see (i) below) 3,858 350,000 1,197 119,700 469,700
Redemption -- -- (100) (10,000) (10,000)
--------- --------- --------- --------- ---------
Balance, February 28, 1998 12,858 355,400 1,847 184,700 540,100
Redemption (unaudited) -- -- (650) (65,000) (65,000)
--------- --------- --------- --------- ---------
Balance, November 30, 1998 (unaudited) 12,858 $ 355,400 1,197 $ 119,700 $ 475,100
========= ========= ========= ========= =========
</TABLE>
(i) Pursuant to a refinancing agreement which closed March 31, 1997, the
Company's capital stock increased on the following basis.
Issue of common shares $350,000
Conversion of debentures to Class "A" special shares 81,000
Conversion of shareholder loans to Class "A" special shares 38,700
--------
Increase in share capital March 31, 1998 $469,700
========
Subsequent to November 30, 1998, the Company redeemed the remaining Class
"A" special shares at $100 per share.
F-28
<PAGE>
10. RELATED PARTY TRANSACTIONS
The Company had the following transactions with related parties.
November 30 February 28
1998 1998 1997
-------- -------- --------
(unaudited)
Interest expense on shareholder loans $ 11,000 $ -- $ --
Consulting fees paid to shareholders 122,667 158,581 60,992
Allocated administrative cost 130,000 -- --
11. LEASE COMMITMENTS
The Company is committed to a rental for its premises of approximately
$104,044 under agreements expiring in December 1999 as follows.
November 30 February 28
1998 1998 1997
-------- -------- --------
(unaudited)
February 28, 1998 $ -- $ -- $ 87,435
February 28, 1999 -- 92,426 92,426
November 30, 1999 96,041 -- --
February 28, 2000 -- 80,035 80,035
November 30, 2000 8,003 -- --
-------- -------- --------
$104,044 $172,461 $259,896
======== ======== ========
12. ECONOMIC DEPENDENCE
Approximately 32% (February 28, 1998 - 40%; 1997 - 40%) of sales during the
period are to several regional divisions of one customer. Sales are
negotiated separately with each regional division.
13. COMPARATIVE FIGURES
The comparative figures are for the nine month period ended November 30,
1998 and eleven month period ended February 28, 1997.
14. FINANCIAL INSTRUMENTS
Credit Risk
The company is exposed to credit risk on the accounts receivable from its
customers. In order to reduce credit risk, the company reviews the account
and monitors credit worthiness on a regular basis.
F-29
<PAGE>
14. FINANCIAL INSTRUMENTS (Continued)
Fair Values of Financial Assets and Financial Liabilities
The carrying amounts of accounts receivable, deposit on equipment, loans to
related companies and accounts payable approximate their fair value because
of the short-term maturities of these items.
The carrying amounts of bank indebtedness, long-term debt and capital lease
obligations approximate fair value because they bear interest reasonably
close to the market rate.
15. UNITED STATES ACCOUNTING PRINCIPLES
The following table reconciles the net income as reported on the statement
of earnings prepared in accordance with Canadian GAAP to the net income
that would have been reported had the financial statements been prepared in
accordance with U.S. GAAP.
<TABLE>
<CAPTION>
November 30 February 28
1998 1998 1997
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Net income in accordance with Canadian GAAP $ 88,042 $ 197,636 $ 141,579
Deferred product developments costs 3,057 3,988 (7,045)
----------- ----------- -----------
Net income in accordance with U.S. GAAP $ 91,099 $ 201,624 $ 134,534
=========== =========== ===========
Total assets $ 3,885,413 $ 2,066,396 $ 1,715,969
=========== =========== ===========
Retained earnings $ 537,483 $ 457,861 $ 267,537
=========== =========== ===========
</TABLE>
(a) Statement of Cash Flow
Under Canadian GAAP, bank indebtedness forms a part of cash
equivalents. Under U.S. GAAP, changes in bank indebtedness represent
financing activities. Changes in bank indebtedness amounted to
$932,583 (February 28, 1998 - nil; February 28, 1997 - $(138,053))
<TABLE>
<CAPTION>
November 30 February 28
1998 1998 1997
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Cash provided by (used in) operating activities $ (501,291) $ 376,719 $ 422,387
Cash provided (used in) by financing activities 1,028,772 48,200 (187,889)
Cash used in investing activities (488,624) (481,625) (167,250)
----------- ----------- -----------
Change in cash 38,857 (56,706) 67,248
Cash, beginning of year 17,204 73,910 6,662
----------- ----------- -----------
Cash, end of year - U.S. GAAP $ 56,061 $ 17,204 $ 73,910
=========== =========== ===========
</TABLE>
F-30
<PAGE>
15. UNITED STATES ACCOUNTING PRINCIPLES (Continued)
(b) Additional disclosures as required in accordance with U.S. GAAP
November 30 February 28
1998 1998 1997
---- ---- ----
(unaudited)
Allowance for doubtful accounts $18,500 $-- $--
======= ===== ====
(c) Supplementary Information
November 30 February 28
1998 1998 1997
---- ---- ----
(unaudited)
Income taxes paid $ -- $ 32,564 $ 22,326
========= ======== ========
Interest paid $ 100,321 $ 85,241 $103,883
========= ======== ========
(d) Financial Accounting Standards No. 109, "Accounting for Income Taxes"
requires the use of an asset and liability approach for financial
accounting and reporting for income taxes. There would be no
cumulative effect from the adoption of the statement, nor would the
results of operations be different than those reported under Canadian
GAAP.
The following is a summary of the components of the deferred tax liability
amount calculated in accordance with U.S. GAAP.
November 30 February 28
1998 1998 1997
------- ------- -------
(unaudited)
Tax depreciation in excess of
accounting depreciation $51,970 $ 5,000 $ 3,200
======= ======= =======
16. SUBSEQUENT EVENT
On December 1, 1998, all of the Company's common shares were acquired by a
public corporation.
17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-31
<PAGE>
PAGE I
AUDITORS' REPORT
To the Shareholders of
1188980 ONTARIO LTD.
(Operating as Tasty Batters)
We have audited the balance sheet of 1188980 ONTARIO LTD. (Operating as Tasty
Batters) as at June 30, 1998 and the statements of income and retained earnings
and cash flow for the year then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 1998 and the
results of operations and cash flow for the year then ended in accordance with
generally accepted accounting principles.
/s/ KRAFT, ROTHMAN, BERGER, GRILL, SCHWARTZ & COHEN LLP
-------------------------------------------------------
KRAFT, ROTHMAN, BERGER, GRILL, SCHWARTZ & COHEN LLP
Chartered Accountants
Toronto, Ontario
September 1, 1998, except for Note 11
which is as of May 21, 1999
F-32
<PAGE>
PAGE II
1188980 ONTARIO LTD.
(Operating as Tasty Batters)
BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
March 31 June 30
1999 1998
---------- ----------
(Unaudited)
CURRENT
<S> <C> <C> <C>
Cash (Note 2) $ 241,920 $ 293,575
Accounts receivable 602,018 501,722
Inventory 459,771 334,684
Prepaid expense and deposits 105,834 56,494
---------- ----------
1,409,543 1,186,475
CAPITAL (Note 3) 493,877 528,046
---------- ----------
$1,903,420 $1,714,521
========== ==========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 437,015 $ 492,655
Roynat loan (Note 4) 60,000 60,000
Small business loan (Note 5) 50,000 50,000
Income taxes payable 80,031 33,275
Roynat subordinated debenture (Note 7) 50,150 --
Advances from shareholders 200,000 --
---------- ----------
877,196 635,930
ROYNAT LOAN (Note 4) 90,000 135,000
SMALL BUSINESS LOAN (Note 5) 95,833 133,333
ROYNAT SUBORDINATED DEBENTURE (Note 7) 306,299 358,628
ADVANCES FROM SHAREHOLDERS (Note 6) -- 200,000
DEFERRED INCOME TAXES 65,400 33,747
---------- ----------
1,434,728 1,496,638
---------- ----------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 8) 100 100
RETAINED EARNINGS 468,592 217,783
---------- ----------
468,692 217,883
---------- ----------
$1,903,420 $1,714,521
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
PAGE III
1188980 ONTARIO LTD.
(Operating as Tasty Batters)
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED JUNE 30, 1998
1999 1998
----------- -----------
(Unaudited)
(Note 12)
GROSS SALES $ 4,701,079 $ 5,656,431
Discounts allowed (52,751) (84,890)
Rebates and allowances (180,145) (243,289)
----------- -----------
NET SALES 4,468,183 5,328,252
COST OF GOODS SOLD 3,364,922 4,118,396
----------- -----------
GROSS PROFIT 1,103,261 1,209,856
----------- -----------
EXPENSES
Selling 320,712 373,893
Administrative 292,717 444,742
Financial 101,995 115,366
----------- -----------
715,424 934,001
----------- -----------
INCOME BEFORE INCOME TAXES 387,837 275,855
----------- -----------
Income taxes - current 105,375 43,283
- deferred 36,653 31,689
Utilization of loss carry-forward -- (10,008)
----------- -----------
137,028 64,964
----------- -----------
NET INCOME FOR THE YEAR 250,809 210,891
RETAINED EARNINGS, beginning of year 217,783 6,892
----------- -----------
RETAINED EARNINGS, end of year $ 468,592 $ 217,783
=========== ===========
See accompanying notes to financial statements.
F-34
<PAGE>
PAGE IV
1188980 ONTARIO LTD.
(Operating as Tasty Batters)
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED JUNE 30, 1998
1999 1998
--------- ---------
(Unaudited)
(Note 12)
OPERATING ACTIVITIES
Net income for the year $ 250,809 $ 210,891
Deferred income taxes 31,653 31,689
Amortization 47,717 61,486
--------- ---------
330,179 304,066
Change in non-cash components of working capital
Increase in accounts receivable (100,296) (147,241)
(Increase) decrease in inventory (125,087) 50,483
Increase in prepaid expenses and deposits (49,340) (4,103)
Increase (decrease) in accounts payable
and accrued liabilities (55,640) 169,356
Increase in income taxes payable 46,756 33,275
--------- ---------
46,572 405,836
--------- ---------
FINANCING ACTIVITIES
Payment of Roynat loan (net) (45,000) (60,000)
Payment of small business loan (net) (37,500) (50,000)
Payment of Roynat subordinated debentures (2,179) (41,372)
--------- ---------
(84,679) (151,372)
--------- ---------
INVESTING ACTIVITY
Purchase of capital assets (13,548) (24,680)
--------- ---------
CHANGE IN CASH (51,655) 229,784
CASH, beginning of year 293,575 63,791
--------- ---------
CASH, end of year $ 241,920 $ 293,575
========= =========
See accompanying notes to financial statements.
F-35
<PAGE>
PAGE V
1188980 ONTARIO LTD.
(Operating as Tasty Batters)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Figures as at March 31, 1999 and the
nine month period then ended are unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventories
Raw materials are valued at the lower of cost and replacement cost.
Finished goods are valued at the lower of cost and net realizable
value. Cost is determined on a first in, first out basis.
(b) Capital Assets
Capital assets are stated at cost. Amortization is being provided for
as follows:
Machinery and equipment - over 10 years, straight-line basis
Leasehold improvements - over the life of the lease,
straight-line basis
Computer equipment - over 5 years, straight-line basis
Office furniture and equip - over 10 years, straight-line basis
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. CASH
Cash is comprised of the following.
1999 1998
--------- ---------
Cash and money market fund $ 368,976 $ 304,701
Outstanding cheques (127,056) (11,126)
--------- ---------
$ 241,920 $ 293,575
========= =========
3. CAPITAL ASSETS
1999 1998
------------------------------ ----
Accumulated
Cost Amortization Net Net
---- ------------ --- ---
Machinery and equipment $586,311 $129,004 $457,307 $498,801
Leasehold improvements 23,602 4,253 19,349 10,666
Computer equipment 4,260 1,917 2,343 2,982
Office furniture and equipment 19,033 4,155 14,878 15,597
-------- -------- -------- --------
$633,206 $139,329 $493,877 $528,046
======== ======== ======== ========
F-36
<PAGE>
PAGE VI
4. ROYNAT LOAN
The loan bears interest at Roynat's floating base rate plus 3.5% per annum,
repayable in monthly payments of $5,000 and is secured by a first charge on
all fixed assets, subject to a prior fixed charge of $250,000 in favour of
the bank (Note 5) on all equipment, except that which was purchased
specifically with Roynat financing, a first floating charge on all other
assets including all trademarks, patents and intellectual property.
The loan is to be repaid as follows.
2000 $ 60,000
2001 60,000
2002 30,000
--------
150,000
--------
Less: Current portion 60,000
--------
$ 90,000
========
5. SMALL BUSINESS LOAN
The small business loan bears interest at prime plus 3% per annum,
repayable monthly in equal payments of $4,166.67 plus interest and is
secured by a $250,000 chattel first mortgage on equipment.
The loan is repayable over the next five years as follows.
2000 $ 50,000
2001 50,000
2002 45,833
--------
145,833
Less: Current portion 50,000
--------
$ 95,833
========
6. ADVANCES FROM SHAREHOLDERS
These advances bear interest at Roynat's base rate plus 3.5% per annum with
no specific terms of repayment and are secured by a general security
agreement over all assets of the company. The loans have been postponed in
favour of the company's bankers and Roynat Inc.. Subsequent to March 31,
1999, the loans were repaid.
F-37
<PAGE>
PAGE VII
7. ROYNAT'S SUBORDINATED DEBENTURE
The debenture bears interest at Roynat's base rate plus 3.5% per annum, has
been postponed to the bank and is secured by the same terms as the Roynat
loan (Note 4). The principal amount of the loan is repaid annually,
calculated as 20% of net after tax profit with a balloon payment on August
1, 2001.
8. CAPITAL STOCK
AUTHORIZED
1,000,000 Class "A" special shares, non-voting, fully participating
redeemable
1,000,000 Class "B" special shares, non-voting, 100%, non-cumulative,
redeemable
1,000,000 Common shares
ISSUED
10 Class "A" special shares $ 10
90 Common shares 90
----
$100
====
9. CONTRACT AND COMMITMENTS
The company has a lease for its operating premises which expires December
31, 1999. The remaining minimum lease payment amounts to $68,828.
10. FINANCIAL INSTRUMENTS
The company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments.
(a) Cash, accounts receivable and all current liabilities - the carrying
amounts approximate fair value because of the short maturity of those
instruments.
(b) Long-term portion of Roynat loan, advances from shareholders, small
business loan, subordinated debenture - the carrying amounts
approximate fair value because the interest rate is floating with
prime.
11. UNITED STATES ACCOUNTING PRINCIPLES
The company prepares its financial statements in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP") which generally
conform to generally accepted accounting principles in the United States
("U.S. GAAP"), except for the following.
(a) Additional disclosures as required in accordance with U.S. GAAP
March 31 June 30
1999 1998
------- -------
(unaudited)
Allowance for doubtful accounts $ 4,000 $12,038
======= =======
F-38
<PAGE>
PAGE VIII
11. UNITED STATES ACCOUNTING PRINCIPLES (Continued)
(b) Supplementary Information
March 31 June 30
1999 1998
-------- --------
(unaudited)
Income taxes paid $ 58,619 $ --
======== ========
Interest paid $ 76,283 $117,763
======== ========
(c) Under U.S. GAAP, Financial Accounting Standards No. 109 "Accounting
for Income Taxes" requires the use of an asset and liability approach
for financial accounting and reporting for income taxes. There would
be no cumulative effect from the adoption of the statements, nor would
the results of operations be different than those reported under
Canadian GAAP.
The following is a summary of the components of the deferred tax liability
amount calculated in accordance with U.S. GAAP.
March 31 June 30
1999 1998
------- -------
(unaudited)
Tax depreciation in excess of accounting depreciation $65,400 $33,747
======= =======
12. 1999 FIGURES
The 1999 figures are for the nine months ended March 31, 1999.
13. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-39
<PAGE>
Report of Independent Auditors
Board of Directors
1005549 Ontario Limited
We have audited the consolidated balance sheets of 1005549 Ontario Limited as at
December 6, 1998 and December 7, 1997 and the consolidated statements of
earnings, stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of 1005549 Ontario
Limited as at December 6, 1998 and December 7, 1997 and the results of its
operations and their cash flows for the years then ended in accordance with
generally accepted accounting principles in Canada.
Generally accepted accounting principles in Canada vary in certain significant
respects from generally accepted accounting principles in the United States.
Application of generally accepted accounting principles in the United States
would have affected results of operations for the years ended December 6, 1998
and December 7, 1997 and stockholders' equity as at December 6, 1998 and
December 7, 1997 to the extent summarized in note 15 to the consolidated
financial statements.
KPMG LLP
Chartered Accountants
Waterloo, Canada
May 10, 1999
F-40
<PAGE>
1005549 ONTARIO LIMITED
Consolidated Balance Sheets
(Amounts expressed in Canadian Dollars)
<TABLE>
<CAPTION>
==========================================================================================
December 6, December 7,
1998 1997
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 91,228 $ 116,981
Accounts receivable (note 2) 1,407,918 1,094,734
Inventories (note 3) 405,070 331,047
Income taxes recoverable -- 84,316
Prepaid expenses -- 7,222
Due from shareholders -- 18,968
- - ------------------------------------------------------------------------------------------
1,904,216 1,653,268
Capital assets (note 4) 3,116,255 2,820,047
Goodwill (note 5) 142,735 149,460
- - ------------------------------------------------------------------------------------------
$5,163,206 $4,622,775
==========================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Bank indebtedness (note 6) $ 259,490 $ --
Accounts payable 837,626 938,851
Accrued liabilities 105,708 598,083
Income taxes payable 215,665 --
Due to shareholders 104,742 --
Current portion of long-term debt (note 7) 77,437 225,315
Current portion of obligations under capital
lease (note 8) 222,823 172,792
- - ------------------------------------------------------------------------------------------
1,823,491 1,935,041
Long-term debt (note 7) 682,957 759,473
Capital lease obligations (note 8) 708,634 611,069
Redeemable shares (note 9) 810,000 543,350
Deferred income taxes 87,000 61,560
Stockholders' equity:
Share capital (note 11) 20 20
Contributed surplus 47,267 47,267
Retained earnings 1,003,837 664,995
- - ------------------------------------------------------------------------------------------
1,051,124 712,282
- - ------------------------------------------------------------------------------------------
$5,163,206 $4,622,775
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
1005549 ONTARIO LIMITED
Consolidated Statements of Earnings
(Amounts expressed in Canadian Dollars)
================================================================================
December 6, December 7,
1998 1997
- - -------------------------------------------------------------------------------
Revenue $ 17,579,530 $ 12,154,824
Cost of revenue 15,306,944 10,186,249
- - --------------------------------------------------------------------------------
Gross profit 2,272,586 1,968,575
Operating expenses:
Automotive 36,680 30,534
Bad debts 42,250 (6,198)
Bank charges 6,078 4,315
Business and realty taxes 14,830 41,356
Equipment rental 24,093 --
Insurance 33,898 28,605
Management wages 64,032 518,930
Office and general 31,105 30,726
Office wages 82,172 63,153
Professional fees and dues 47,248 56,687
Profit sharing 63,249 60,631
Repairs and maintenance 320,718 309,202
Telephone 9,987 10,534
Travel and entertainment 20,694 23,951
Gain on disposal of capital assets (34,385) --
Amortization 439,175 362,915
Utilities 56,254 63,426
Interest on long-term debt 116,606 131,753
Other (income) expense 2,970 (5,352)
- - --------------------------------------------------------------------------------
1,377,654 1,725,168
- - --------------------------------------------------------------------------------
Earnings before income taxes 894,932 243,407
Income taxes: (note 10)
Current 264,000 39,300
Deferred 25,440 16,320
- - --------------------------------------------------------------------------------
289,440 55,620
- - --------------------------------------------------------------------------------
Net earnings $ 605,492 $ 187,787
================================================================================
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
1005549 ONTARIO LIMITED
Consolidated Statements of Stockholders' Equity
(Amounts expressed in Canadian Dollars)
================================================================================
Share Contributed Retained
capital surplus earnings Total
- - --------------------------------------------------------------------------------
Balances, at December 31, 1996 $20 $47,267 $ 481,208 $ 528,495
Net earnings -- -- 187,787 187,787
Dividends -- -- (4,000) (4,000)
- - --------------------------------------------------------------------------------
Balances, at December 7, 1997 20 47,267 664,995 712,282
Net earnings -- -- 605,492 605,492
Redemption premium on
redeemable shares (note 9) -- -- (266,650) (266,650)
- - --------------------------------------------------------------------------------
Balances, at December 6, 1998 $20 $47,267 $ 1,003,837 $ 1,051,124
================================================================================
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
1005549 ONTARIO LIMITED
Consolidated Statements of Cash Flows
(Amounts expressed in Canadian Dollars)
<TABLE>
<CAPTION>
====================================================================================
December 6, December 7,
1998 1997
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 605,492 $ 187,787
Items not involving cash:
Amortization 439,175 362,915
Deferred income taxes 25,440 16,320
Gain on disposal of capital assets (34,385) --
Changes in operating assets and liabilities:
Accounts receivable (313,184) 29,770
Inventories (74,023) (7,426)
Income taxes 299,981 (174,550)
Prepaid expenses 7,222 239
Due from shareholders 18,968 (14,981)
Accounts payable (101,225) (162,218)
Accrued liabilities (492,375) 297,972
Due to shareholders 104,742 --
- - ------------------------------------------------------------------------------------
485,828 535,828
Cash flows from investing activities:
Purchase of capital assets (789,273) (929,248)
Proceeds on disposal of capital assets 95,000 --
- - ------------------------------------------------------------------------------------
(694,273) (929,248)
Cash flows from financing activities:
Net advance (repayment) of bank indebtedness 259,490 --
Payments on long-term debt (224,394) (74,175)
Borrowings on capital lease obligations 333,025 681,661
Payments on capital lease obligations (185,429) (261,978)
Dividends -- (4,000)
- - ------------------------------------------------------------------------------------
182,692 341,508
- - ------------------------------------------------------------------------------------
Decrease in cash (25,753) (51,912)
Cash and cash equivalents, beginning of year 116,981 168,893
- - ------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 91,228 $ 116,981
====================================================================================
Cash and cash equivalents comprised of:
Cash $ 68,853 $ 28,322
Cash equivalents with maturities less than ninety days 22,375 88,659
- - ------------------------------------------------------------------------------------
$ 91,228 $ 116,981
====================================================================================
Cash paid during the year for:
Interest $ 129,199 $ 128,910
Income taxes $ 129,741 $ 233,043
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
The company is incorporated under the laws of the Province of Ontario and
its principal business activity is food processing.
1. Significant accounting policies:
(a) Basis of presentation:
The accompanying consolidated financial statements are presented in
accordance with accounting principles generally accepted in Canada
(Canadian GAAP).
The consolidated financial statements include the accounts of 1005549
Ontario Limited and its subsidiary, D.C. Food Processing Inc. All
significant inter-company transactions and balances have been
eliminated on consolidation. These financial statements are prepared
on the basis of their historical costs and do not include any
adjustments that may result on the acquisition of consolidated 1005549
Ontario Limited by International Menu Solutions Corporation as more
fully described in note 16.
(b) Revenue recognition:
Revenue is recognized at the point the goods are shipped.
(c) Inventories:
Inventories have been valued at the lower of cost determined on a
first-in, first-out basis, and net realizable value.
(d) Capital assets:
Capital assets are stated at acquisition cost. Amortization is
provided using the following methods and annual rates:
- - -------------------------------------------------------------------------------
Asset Basis Rate
- - -------------------------------------------------------------------------------
Building Declining balance 5%
Equipment Declining balance 20%
Scales Declining balance 20%
Parking lot Declining balance 20%
Computer equipment Declining balance 30%
Equipment under capital lease Straight-line 5 years
- - -------------------------------------------------------------------------------
(e) Goodwill:
Goodwill represents the excess of purchase price over the fair value
of identifiable assets acquired and is amortized on a declining
balance basis at the annual rate of 5%. 1005549 Ontario Limited
reviews the carrying value of goodwill on an annual basis. Based on
estimated discounted future cash flows, it has been determined that
there is no impairment in the value of goodwill.
F-45
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 2
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
1. Significant accounting policies (continued):
(f) Deferred income taxes:
The company accounts for income taxes on the deferred tax allocation
method. Under this method, timing differences between reported and
taxable income result in provision for taxes not currently payable.
Such timing differences arise principally as a result of claiming
amortization and other amounts for tax purposes at amounts differing
from those charged to income.
(g) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from these estimates.
2. Accounts receivable:
Accounts receivable are net of allowances for doubtful accounts of $15,175
at December 6, 1998 and $901 at December 7, 1997.
3. Inventories:
================================================================================
1998 1997
- - --------------------------------------------------------------------------------
Raw materials $259,524 $220,697
Finished product 145,546 110,350
- - --------------------------------------------------------------------------------
$405,070 $331,047
================================================================================
F-46
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 3
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
4. Capital assets:
================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------
Land $ 235,800 $ 235,800
Building 1,203,178 1,147,880
Computer equipment 3,586 2,226
Equipment 1,008,174 708,329
Scales 22,056 14,361
Parking lot 36,084 34,500
Equipment under capital lease 2,186,402 1,823,525
- - --------------------------------------------------------------------------------
4,695,280 3,966,621
Less accumulated amortization 1,579,025 1,146,574
- - --------------------------------------------------------------------------------
$3,116,255 $2,820,047
================================================================================
The amortization of equipment under capital lease amounted to $237,478 in
1998 (1997 - $173,874).
5. Goodwill:
================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------
Goodwill $192,800 $192,800
Less accumulated amortization 50,065 43,340
- - --------------------------------------------------------------------------------
$142,735 $149,460
================================================================================
6. Bank indebtedness:
Bank indebtedness bears interest at prime plus .75% and is secured by a
general security agreement covering all assets other than real property, a
guarantee and postponement of claim for $50,000 signed by two of the
shareholders, and an assignment of life insurance over two of the
shareholders.
F-47
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 4
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
7. Long-term debt:
<TABLE>
<CAPTION>
====================================================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank mortgage, payable in monthly instalments of $6,500 plus interest at
7.52%, due October 2010 $640,642 $666,937
Bank loan, payable in monthly instalments of $4,010 plus interest at Royal
Bank prime plus 1%, due October 2001 115,717 155,920
Prime plus 1% term loan, payable in blended monthly instalments of $705,
due May 1999 4,035 11,931
Mortgage payable, no monthly instalments, interest payable only at 1% per
month, repaid during the year -- 150,000
- - --------------------------------------------------------------------------------------------------------------------
760,394 984,788
Current portion of long-term debt 77,437 225,315
- - --------------------------------------------------------------------------------------------------------------------
$682,957 $759,473
====================================================================================================================
</TABLE>
================================================================================
Annual principal payments over each of the next five years are as follows:
================================================================================
1999 $ 77,437
2000 78,317
2001 63,867
2002 38,607
2003 41,616
- - --------------------------------------------------------------------------------
$299,844
================================================================================
F-48
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 5
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
8. Obligations under capital lease:
================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------
Year ending December 6:
1998 $ -- $ 217,882
1999 285,494 211,393
2000 244,505 170,403
2001 228,005 153,903
2002 228,005 153,903
2003 109,637 36,021
- - --------------------------------------------------------------------------------
Total minimum lease payments 1,095,646 943,505
Less amount representing interest (at rates
ranging from 6.35% to 14.79%) 164,189 159,644
- - --------------------------------------------------------------------------------
Present value of net minimum capital
lease payments 931,457 783,861
Current portion of obligations under capital lease 222,823 172,792
- - --------------------------------------------------------------------------------
$ 708,634 $ 611,069
================================================================================
Interest of $63,484 (1997 - $48,210) relating to capital lease obligations
has been included in interest on long-term debt.
9. Redeemable shares:
<TABLE>
<CAPTION>
=====================================================================================
Number of December 6, Number of December 7,
shares 1998 shares 1997
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Authorized:
Unlimited number of
Class C non-voting,
redeemable, retractable
special shares -- $ -- 1,000 $543,350
Unlimited number of
Class D non-voting,
redeemable, retractable
special shares 810 810,000 -- --
- - -------------------------------------------------------------------------------------
810 $810,000 1,000 $543,350
=====================================================================================
</TABLE>
F-49
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 6
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
9. Redeemable shares (continued):
The company has issued redeemable, retractable special shares. Under
Canadian generally accepted accounting principles, these shares are
presented as liabilities in the consolidated financial statements at their
redemption amount.
On December 4, 1998, the share capital of 1005549 Ontario Limited was
amended to authorize an unlimited number of non-voting redeemable,
retractable Class D special shares. 810 Class D special shares, with a
redemption amount of $810,000, and 200 Class A common shares were issued
and exchanged for 1,000 Class C special shares, with a redemption amount of
$543,350, and 200 Class B convertible shares. The excess, $266,650, of
their redemption amount over their carrying amount was charged to retained
earnings in 1998.
10. Income taxes:
================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------
Earnings before income taxes $ 894,932 $ 243,407
Combined Canadian basic federal and
provincial income tax rate 44.6% 44.6%
Income taxes based on combined Canadian
basic federal and provincial income tax rate 399,140 108,560
Increase in taxes resulting from:
Manufacturing and processing allowance (56,823) --
Tax reductions to certain private companies (44,595) (43,836)
Other items (8,282) (9,104)
- - --------------------------------------------------------------------------------
$ 289,440 $ 55,620
================================================================================
F-50
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 7
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
11. Share capital:
================================================================================
1998 1997
- - --------------------------------------------------------------------------------
Authorized:
Unlimited number of common shares Unlimited number of Class A common
shares Unlimited number of Class B convertible,
common shares
Issued:
200 Class A common shares $20 $--
200 Class B convertible common shares -- 20
- - --------------------------------------------------------------------------------
$20 $20
================================================================================
12. Financial instruments:
The carrying value of the company's accounts receivable due from
shareholders, due to shareholders, bank indebtedness, accounts payable,
accrued liabilities, short-term investments approximate their fair values
due to their demand nature or relatively short periods to maturity.
The fair value of the company's long-term debt and obligations under
capital lease has been determined to equal their carrying values, as the
current financing arrangements represent the borrowing rate presently
available to the company for loans with similar terms and maturities.
13. Nature of operations and segmented information:
Management has determined that the company operates in one dominant
industry segment which involves the processing of food items. All of the
company's operations, assets and employees are located in Canada and
revenues are generated from sales in Canada.
14. Concentration of credit risk:
At December 6, 1998, six customers accounted for 43% (1997 - 74%) of total
accounts receivable. The company maintains reserves for potential credit
losses but historically has not experienced any significant losses related
to individual customers or groups of customers.
F-51
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 8
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
15. United States generally accepted accounting principles:
The company follows Canadian generally accepted accounting principles which
are different in some respects from those applicable in the United States.
(a) Since redemption of the shares described in note 9 is outside the
control of the company, the shares are classified as liabilities under
Canadian GAAP. For U.S. GAAP purposes, such redeemable shares can be
classified outside stockholders' equity and below liabilities. This
classification difference has no impact on net income or stockholders'
equity for U.S. GAAP purposes.
(b) Under Canadian GAAP the income tax provision is based on the deferral
method and adjustments are generally not made for changes in income
tax rates. Under U.S. GAAP, deferred tax liabilities are based on the
asset and liability method and are measured using the enacted tax rate
expected to apply to taxable income in the periods in which the
deferred tax liability is expected to be settled.
The following presents a reconciliation of net earnings from Canadian GAAP
to U.S. GAAP:
================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------
Net earnings under Canadian GAAP $ 605,492 $ 187,787
Income tax adjustment under the asset
and liability method (4,719) (8,752)
- - -------------------------------------------------------------------------------
Net earnings under U.S. GAAP $ 600,773 $ 179,035
================================================================================
The following table presents stockholders' equity under U.S. GAAP.
================================================================================
December 6, December 7,
1998 1997
- - --------------------------------------------------------------------------------
Stockholders' equity under Canadian GAAP $ 1,051,124 $ 712,282
Income tax adjustment under the asset
and liability method (49,790) (45,071)
- - -------------------------------------------------------------------------------
$ 1,001,334 $ 667,211
================================================================================
F-52
<PAGE>
1005549 ONTARIO LIMITED
Notes to Consolidated Financial Statements, page 9
(Amounts expressed in Canadian Dollars)
- - --------------------------------------------------------------------------------
16. Subsequent events:
On February 15, 1999, the share capital of 1005549 Ontario Limited was
amended to authorize unlimited number of voting, redeemable, retractable
Class E special shares. 2000 Class E special shares and 200 Class B
convertible common shares were issued and exchanged for 200 Class A common
shares.
On May 7, 1999, the stated capital of the Class E special shares was
increased from $10 to $1,962,510.
On May 10, 1999, all of the outstanding capital stock was acquired by
International Menu Solutions Corporation including the shares described in
note 9 and all of the shares described in note 11.
17. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect a company's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-53
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Pro Forma Consolidated Balance Sheet
December 31, 1998
(Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
==================================================================================================================================
Historical
International Menu Historical Historical Pro forma
Solutions Tasty Batters 1005549 Ontario IMSC
Corporation ("IMSC") ("Tasty") Limited ("DC") Pro forma Consolidated
December 31, 1998 December 31, 1998 December 6, 1998 Adjustments December 31, 1998
(Note ) (unaudited) (unaudited) (unaudited) Note (unaudited)
------- ----------- ----------- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,866,000 $ 176,000 $ 91,000 $ 2,880,000 2,3 $ 5,013,000
Accounts receivable 2,270,000 693,000 1,408,000 -- 4,371,000
Inventory 1,300,000 371,000 405,000 -- 2,076,000
Prepaid expenses and
other current assets 101,000 38,000 -- -- 139,000
- - ----------------------------------------------------------------------------------------------------------------------------------
5,537,000 1,278,000 1,904,000 2,880,000 11,599,000
CAPITAL ASSETS, NET 3,617,000 502,000 3,116,000 1,500,000 2 8,735,000
INTANGIBLE ASSETS, NET 4,627,000 -- 143,000 18,756,000 2 23,526,000
- - ----------------------------------------------------------------------------------------------------------------------------------
$13,781,000 $1,780,000 $5,163,000 $ 23,136,000 $43,860,000
==================================================================================================================================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 1,101,000 $ -- $ 259,000 $ -- $ 1,360,000
Accounts payable 2,074,000 121,000 837,000 -- 3,032,000
Accrued liabilities 938,000 290,000 106,000 200,000 2 (iii), (iv) 1,534,000
Income taxes payable -- 37,000 216,000 -- 253,000
Current portion of capital
lease obligation 94,000 -- 223,000 -- 317,000
Current portion of
long-term debt 279,000 110,000 77,000 -- 466,000
- - ---------------------------------------------------------------------------------------------------------------------------------
4,486,000 558,000 1,718,000 200,000 6,962,000
CAPITAL LEASE OBLIGATION 297,000 -- 709,000 -- 1,006,000
LONG-TERM DEBT 1,250,000 569,000 683,000 -- 2,502,000
DUE TO SHAREHOLDERS -- 200,000 105,000 (305,000) 2 --
CONVERTIBLE DEBENTURES ISSUED
BY SUBSIDIARY -- -- -- 4,000,000 3 (i) 4,000,000
REDEEMABLE SHARES 810,000 (810,000) 2 --
DEFERRED INCOME TAXES 93,000 52,000 87,000 -- 232,000
- - ---------------------------------------------------------------------------------------------------------------------------------
6,126,000 1,379,000 4,112,000 3,085,000 14,702,000
- - ---------------------------------------------------------------------------------------------------------------------------------
--
MINORITY INTEREST 3,374,000 -- -- -- 3,374,000
- - ---------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 13,000 -- -- 1,000 14,000
Additional paid-in capital 4,872,000 -- 47,000 21,455,000 2, 3 26,374,000
Retained earnings (deficit) (604,000) 401,000 1,004,000 (1,405,000) 2 (604,000)
- - ---------------------------------------------------------------------------------------------------------------------------------
4,281,000 401,000 1,051,000 20,051,000 25,784,000
- - ---------------------------------------------------------------------------------------------------------------------------------
$13,781,000 $1,780,000 $5,163,000 $ 23,136,000 $43,860,000
=================================================================================================================================
</TABLE>
F-54
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Pro Forma Consolidated Balance Sheet
March 31, 1999
(Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
=================================================================================================================================
Historical
International Menu Historical Tasty Historical
Solutions Selections Inc. 1005549 Ontario Pro forma
Corporation ("IMSC") ("Tasty") Limited ("DC") Pro forma IMSC Consolidated
March 31, 1999 March 31, 1999 March 6, 1999 Adjustments March 31, 1999
(unaudited) (unaudited) (unaudited) (unaudited) Note (unaudited)
------------------ --------------- ------------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,557,000 $ 242,000 $ -- $ 2,880,000 2,3 $ 4,679,000
Accounts receivable 2,380,000 602,000 1,670,000 -- 4,652,000
Inventory 2,526,000 459,000 392,000 -- 3,377,000
Prepaid expenses and
other current assets 567,000 106,000 24,000 -- 697,000
- - ---------------------------------------------------------------------------------------------------------------------------------
7,030,000 1,409,000 2,086,000 2,880,000 13,405,000
CAPITAL ASSETS, NET 3,896,000 494,000 3,184,000 1,500,000 2 9,074,000
INTANGIBLE ASSETS, NET 4,778,000 -- 142,000 18,445,000 2 23,365,000
DEFERRED INCOME TAXES 51,000 -- -- (51,000) --
- - ---------------------------------------------------------------------------------------------------------------------------------
$15,755,000 $ 1,903,000 $ 5,412,000 $22,774,000 $45,844,000
=================================================================================================================================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 3,630,000 $ -- $ 217,000 $ -- $ 3,847,000
Accounts payable 1,715,000 194,000 783,000 -- 2,692,000
Accrued liabilities 1,321,000 244,000 136,000 200,000 2 (iii), (iv) 1,901,000
Income taxes payable -- 80,000 294,000 -- 374,000
Current portion of capital
lease obligation 105,000 -- 223,000 -- 328,000
Current portion of
long-term debt 284,000 160,000 77,000 -- 521,000
- - ---------------------------------------------------------------------------------------------------------------------------------
7,055,000 678,000 1,730,000 200,000 9,663,000
CAPITAL LEASE OBLIGATION 322,000 -- 709,000 -- 1,031,000
LONG-TERM DEBT 1,138,000 492,000 700,000 -- 2,330,000
DUE TO SHAREHOLDERS -- 200,000 130,000 (330,000) 2 --
CONVERTIBLE DEBENTURES ISSUED
BY SUBSIDIARY -- -- - 4,000,000 3 (i) 4,000,000
REDEEMABLE SHARES 810,000 (810,000) 2 --
DEFERRED INCOME TAXES -- 65,000 62,000 (51,000) 76,000
- - ---------------------------------------------------------------------------------------------------------------------------------
8,515,000 1,435,000 4,141,000 3,009,000 17,100,000
- - ---------------------------------------------------------------------------------------------------------------------------------
--
MINORITY INTEREST 3,362,000 -- -- -- 3,362,000
- - ---------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 13,000 -- -- 1,000 14,000
Additional paid-in capital 4,872,000 -- 47,000 21,456,000 2, 3 26,375,000
Retained earnings (deficit) (1,007,000) 468,000 1,224,000 (1,692,000) 2 (1,007,000)
- - ---------------------------------------------------------------------------------------------------------------------------------
3,878,000 468,000 1,271,000 19,765,000 25,382,000
- - ---------------------------------------------------------------------------------------------------------------------------------
$ 15,755,000 $ 1,903,000 $ 5,412,000 $22,774,000 $45,844,000
=================================================================================================================================
</TABLE>
F-55
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
=================================================================================================================================
Historical
Historical Historical Historical Transcontinental
International Menu Pasta Kitchens Norbakco Ltd. Gourmet Foods
Solutions ("Pasta") ("Norbakco") ("TGF")
Corporation ("IMSC") Nine Months Ended Six months ended Eleven months ended
Year ended October 8, 1998 November 30, 1998 November 30, 1998
December 31, 1998 (unaudited) (unaudited) (unaudited)
-------------------- ----------------- ---------------- -------------------
<S> <C> <C> <C> <C>
REVENUE $ 6,096,000 $ 694,000 $1,976,000 $ 4,247,000
- - ---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 4,730,000 418,000 1,762,000 2,825,000
Selling expenses 610,000 84,000 50,000 539,000
Research and development 426,000 -- -- --
Administrative expenses 764,000 198,000 170,000 688,000
Amortization of intangibles 67,000 -- -- --
- - ---------------------------------------------------------------------------------------------------------------------------------
6,597,000 700,000 1,982,000 4,052,000
- - ---------------------------------------------------------------------------------------------------------------------------------
INCOME(LOSS) FROM OPERATIONS (501,000) (6,000) (6,000) 195,000
- - ---------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest revenue 25,000 -- -- --
Interest expense (98,000) 13,000 (20,000) (117,000)
- - ---------------------------------------------------------------------------------------------------------------------------------
(73,000) 13,000 (20,000) (117,000)
- - ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (574,000) 7,000 (26,000) 78,000
INCOME TAXES -- - - (29,000)
- - ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (574,000) 7,000 (26,000) 107,000
MINORITY INTEREST 26,000 -- - --
- - ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (548,000) $ 7,000 $ (26,000) $ 107,000
=================================================================================================================================
<CAPTION>
=================================================================================================================================
Historical Historical
Tasty Batters 1005549 Ontario
("Tasty") Limited ("DC") Pro Forma
Twelve months ended Twelve months ended Pro Forma IMSC Consolidated
December 31, 1998 December 6, 1998 Adjustments Twelve months ended
(unaudited) (unaudited) (unaudited) Note December 31, 1998
----------- ----------- ----------- ---- -----------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 5,574,000 $ 17,580,000 $ -- $36,167,000
- - ---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 4,287,000 15,979,000 -- 30,001,000
Selling expenses 392,000 21,000 -- 1,696,000
Research and development -- -- -- 426,000
Administrative expenses 461,000 561,000 -- 2,842,000
Amortization of intangibles -- 7,000 599,000 4 673,000
- - ---------------------------------------------------------------------------------------------------------------------------------
5,140,000 16,568,000 599,000 35,638,000
- - ---------------------------------------------------------------------------------------------------------------------------------
INCOME(LOSS) FROM OPERATIONS 434,000 1,012,000 (599,000) 529,000
- - ---------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest revenue -- -- -- 25,000
Interest expense (126,000) (117,000) (280,000) 3 (i) (745,000)
- - ---------------------------------------------------------------------------------------------------------------------------------
(126,000) (117,000) (280,000) (720,000)
- - ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 308,000 895,000 (879,000) (191,000)
INCOME TAXES (88,000) (289,000) -- (348,000)
- - ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 220,000 606,000 (879,000) (539,000)
MINORITY INTEREST -- -- -- 26,000
- - ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 220,000 $ 606,000 $ (879,000) $ (513,000)
=================================================================================================================================
</TABLE>
F-56
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Pro Forma Statement of Operations
Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
Historical
International Menu Historical Tasty Historical
Solutions Selections Inc. 1005549 Ontario Pro Forma IMSC
Corporation ("IMSC") ("Tasty") Limited ("DC") Consolidated
Three months ended Three months ended Three months ended Three months ended
March 31, 1999 March 31, 1999 March 6, 1999 Pro Forma March 31, 1999
(unaudited) (unaudited) (unaudited) Adjustments Note (unaudited)
------------------- ------------------ ------------------ ------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 3,763,000 $ 1,344,000 $ 4,879,000 $ -- $ 9,986,000
- - ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 3,183,000 1,015,000 4,300,000 -- 8,498,000
Selling expenses 310,000 97,000 7,000 -- 414,000
Research and development 97,000 -- -- -- 97,000
Administrative expenses 594,000 79,000 216,000 -- 889,000
Amortization of goodwill 72,000 -- -- 153,000 4 225,000
- - ------------------------------------------------------------------------------------------------------------------------------------
4,256,000 1,191,000 4,523,000 153,000 10,123,000
- - ------------------------------------------------------------------------------------------------------------------------------------
INCOME(LOSS) FROM OPERATIONS (493,000) 153,000 356,000 (153,000) (137,000)
- - ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest revenue 18,000 -- 2,000 -- 20,000
Interest expense (84,000) (34,000) (23,000) (70,000) 3 (i) (211,000)
- - ------------------------------------------------------------------------------------------------------------------------------------
(66,000) (34,000) (21,000) (70,000) (191,000)
- - ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (559,000) 119,000 335,000 (223,000) (328,000)
INCOME TAXES 144,000 (33,000) (115,000) -- (4,000)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (415,000) 86,000 220,000 (223,000) (332,000)
MINORITY INTEREST 12,000 -- -- -- 12,000
- - ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (403,000) $ 86,000 $ 220,000 $ (223,000) $ (320,000)
====================================================================================================================================
</TABLE>
F-57
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Pro Forma Statement of Operations
Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
Historical Historical
International Menu Historical Transcontinental Historical
Solutions Pasta Kitchens Gourmet Foods Tasty Batters
Corporation ("IMSC") ("Pasta") ("TGF") ("Tasty")
Three months ended Three months ended Three months ended Three months ended
March 31, 1998 March 31, 1998 March 31, 1998 March 31, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
REVENUE $ 641,000 $ 218,000 $ 674,000 $ 1,160,000
- - ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 562,000 187,000 514,000 913,000
Selling expenses 8,000 -- 107,000 84,000
Research and development 27,000 -- -- --
Administrative expenses 158,000 7,000 158,000 108,000
Amortization of goodwill 15,000 -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
770,000 194,000 779,000 1,105,000
- - ------------------------------------------------------------------------------------------------------------------------------------
INCOME(LOSS) FROM OPERATIONS (129,000) 24,000 (105,000) 55,000
- - ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest revenue -- -- -- --
Interest expense (16,000) (5,000) (16,000) (27,000)
- - ------------------------------------------------------------------------------------------------------------------------------------
(16,000) (5,000) (16,000) (27,000)
- - ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (145,000) 19,000 (121,000) 28,000
INCOME TAXES -- (8,000) -- (10,000)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (145,000) 11,000 (121,000) 18,000
MINORITY INTEREST -- -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (145,000) $ 11,000 $ (121,000) $ 18,000
====================================================================================================================================
<CAPTION>
=============================================================================================================================
Historical
1005549 Ontario Pro Forma
Limited ("DC") IMSC Consolidated
Three months ended Three months ended
March 7, 1998 Pro Forma March 31, 1998
(unaudited) Adjustments Note (unaudited)
-------------------- -------------------- --------- --------------------
<S> <C> <C> <C> <C>
REVENUE $ 3,486,000 $ -- $6,179,000
- - -----------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 3,203,000 -- 5,379,000
Selling expenses 6,000 -- 205,000
Research and development -- -- 27,000
Administrative expenses 158,000 -- 589,000
Amortization of goodwill -- 177,000 4 192,000
- - -----------------------------------------------------------------------------------------------------------------------------
3,367,000 177,000 6,392,000
- - -----------------------------------------------------------------------------------------------------------------------------
INCOME(LOSS) FROM OPERATIONS 119,000 (177,000) (213,000)
- - -----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest revenue -- -- --
Interest expense (36,000) (70,000) 3 (i) (170,000)
- - -----------------------------------------------------------------------------------------------------------------------------
(36,000) (70,000) (170,000)
- - -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 83,000 (247,000) (383,000)
INCOME TAXES (40,000) -- (58,000)
- - -----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 43,000 (247,000) (441,000)
MINORITY INTEREST -- -- --
- - -----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 43,000 $ (247,000) $ (441,000)
=============================================================================================================================
</TABLE>
F-58
<PAGE>
Footnotes to Pro Forma Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying pro forma consolidated balance sheets as of December 31,
1998 and as of March 31, 1999 and pro forma consolidated statement of
operations for the three-month periods ended March 31, 1999 and 1998 and
for the year ended December 31, 1998 of International Menu Solutions
Corporation ("IMSC") have been prepared to give effect to the business
combinations involving Pasta Kitchens ("Pasta"), Transcontinental Gourmet
Foods Inc. ("TGF") and Norbakco Ltd. ("Norbakco"), Tasty Selections Inc.
("Tasty") and 1005549 Ontario Limited ("D.C. Foods") and related
transactions described elsewhere herein on the basis of the assumptions
described in Notes 2 to 4 below. The pro forma consolidated balance sheet
and pro forma consolidated statement of operations of IMSC have been
prepared from the following:
a) The audited consolidated financial statements of IMSC for the year
ended December 31, 1998 and the unaudited consolidated financial
statements of IMSC for the three-month periods ending March 31, 1999
and 1998;
b) The unaudited financial statements of Pasta for the period from
January 1, 1998 to October 8, 1998 and for the three-month period
ended March 31, 1998;
c) The unaudited financial statements of TGF for the eleven month period
ended November 30, 1998; and for the three-month period ended March
31, 1998;
d) The unaudited financial statements of Norbakco for the six month
period ended November 30, 1998;
e) The unaudited financial statements of Tasty for the year ended
December 31, 1998 and for the three-month period ended March 31, 1999
and 1998; and
f) The audited financial statements of D.C. Foods for the year ended
December 6, 1998 and the unaudited financial statements for the three
month periods ending March 6, 1999 and March 7, 1998.
The pro forma consolidated balance sheet and pro forma consolidated
statement of operations are not intended to reflect the financial position
of IMSC which would have actually resulted had the combination, related
transactions and other pro forma adjustments been effected on the dates
indicated. Further, the pro forma financial information is not necessarily
indicative of the financial position that may prevail in the future.
2. PRO FORMA ASSUMPTIONS RELATING TO ACQUISITIONS
During the year ended December 31, 1998, the Company acquired the
businesses, set out in the table below, which have been accounted for using
the purchase method:
<TABLE>
<CAPTION>
Pasta Kitchen (i) TGF/Norbakco (ii) Tasty (iii) D.C. Foods (iv)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Estimated purchase price
including acquisition costs $ 395,000 $ 5,110,000 $ 2,235,000 $ 20,470,000
Assigned fair values
of net assets acquired
Current assets
105,000 2,922,000 1,278,000 1,813,000
Capital assets
200,000 2,223,000 502,000 4,616,000
Current liabilities
(146,000) (2,818,000) (558,000) (1,602,000)
Long-term liabilities
-- (1,199,000) (621,000) (1,479,000)
- - ----------------------------------------------------------------------------------------------------------------
159,000 1,128,000 601,000 3,348,000
- - ----------------------------------------------------------------------------------------------------------------
Goodwill $ 236,000 $ 3,982,000 $ 1,634,000 $ 17,122,000
================================================================================================================
</TABLE>
(i) The Company acquired the assets of Pasta Kitchen for cash
consideration of approximately $375,000. Additional consideration,
currently estimated at $340,000, is payable, at the option of the
Company, in cash or common shares during 1999 based on the achievement
of certain revenue targets. Due to the
F-59
<PAGE>
contingent nature of the additional consideration, its value will be
recorded as goodwill when the conditions are resolved.
(ii) The Company acquired all of the outstanding shares of TGF and 59% of
the outstanding shares of Norbakco Ltd., a sister corporation of TGF.
Cash of $1,000,000 was paid to the vendors on closing. An estimated
additional cash payment of $600,000 is payable during 1999 based on
the net book value of TGF in excess of $1,000,000. The estimated
additional cash payment has been recorded as a liability as of
December 31, 1998. The balance of the purchase price of $3.4 million
was paid in the form of shares of IMSI, issued December 1, 1998, which
are exchangeable for common shares of the Company.
(iii) The Company acquired all of the outstanding shares of Tasty for total
consideration of approximately $2,160,000. Cash of $1,000,000 was paid
and 442,750 Class X exchangeable shares of IMSI and 442,750 Class N
shares of the Company were issued to the selling shareholders of Tasty
on closing. Professional fees and other acquisition costs, estimated
at $75,000 are included in accrued liabilities at each pro forma
balance sheet date.
(iv) The Company acquired all of the outstanding shares of D.C. Foods for
total consideration valued at $20,345,000. Under the terms of the
agreement, the Company paid $4,000,000 in cash, issued 893,333 Class X
exchangeable shares of IMSI, issued 893,000 Class N shares of the
Company, issued 250,000 Class E Series 1 shares, issued 250,000 Class
E Series 2 shares, issued 250,000 Class E Series 3 shares and issued
250,000 Class E Series 4 shares of IMSI to the selling shareholders of
D.C. Foods. Professional fees and other acquisition costs, estimated
at $125,000 are included in accrued liabilities at each pro forma
balance sheet date.
3. PRO FORMA ASSUMPTIONS RELATING TO ACQUISITION FINANCING
(i) The Company's subsidiary, IMSI, entered into a financing arrangement
to issue approximately $4,000,000 in convertible debentures to two
investors. The debentures will have a term of 48 months, bear interest
at 7% per annum for the first 12 months and 13% thereafter, and will
be convertible at the holder's option at any time into exchangeable
shares of IMSI which are then exchangeable into shares of the Company.
IMSI will have the right to force conversion of the debentures if
certain trading statistics are maintained after July 1, 1999. A of 1%
and 3% of the amount financed is payable at signing and at closing,
respectively. These fees are amortized over the term of the debenture.
(ii) The Company executed a subscription agreement with an investor to
issue 1,523,810 common shares for proceeds of approximately
$4,000,000.
4. PRO FORMA ASSUMPTIONS RELATING TO GOODWILL AMORTIZATION
Goodwill that arose on the acquisition of certain assets of Pasta is
amortized over a 20-year period. Goodwill relating to all other
acquisitions presented in the pro forma financial statements is amortized
over a 40-year period.
F-60
THIS AGREEMENT made the 9th day of October, 1998.
BETWEEN:
1218951 ONTARIO LIMITED,
a corporation existing under the laws of Ontario,
(hereinafter referred to as the "Vendor"),
OF THE FIRST PART,
- and -
PRIME FOODS PROCESSING INC.,
a corporation existing under the laws of Ontario,
(hereinafter referred to as the "Purchaser"),
OF THE SECOND PART.
WHEREAS the Vendor carries on the business of the manufacture of pasta food
products for retail sale under the trade name Pasta Kitchen;
AND WHEREAS the Purchaser wishes to purchase from the Vendor and the Vendor
wishes to sell to the Purchaser the business and assets for Pasta Kitchen on the
terms and conditions herein set forth.
THIS AGREEMENT WITNESSES THAT in consideration of the respective covenants,
agreements, representations, warranties and indemnities of the parties herein
contained and for other good and valuable consideration (the receipt and
sufficiency of which are acknowledged by each party), the parties agree as
follows:
ARTICLE I
INTERPRETATION
1.01 Defined Terms. For the purposes of this Agreement, unless the context
otherwise requires, the following terms shall have the respective meanings set
out below and grammatical variations of such terms shall have the corresponding
meanings:
(a) "Act" means the Business Corporations Act (Ontario) as in effect on the
date hereof;
(b) "Accounts Receivable" means the accounts receivable, trade accounts,
notes receivable, book debts and other debts due or accruing due to the Vendor
as provided in Section 2.01(e);
(c) "Assumed Liabilities" has the meaning set out in Section 4.01;
(d) "Business Day" means any day, other than a Saturday or a Sunday, on
which the main branch of the Toronto-Dominion Bank in Toronto, Ontario is open
for business;
<PAGE>
(e) "Cash Portion of the Purchase Price" has the meaning set out in
subsection 3.03(b);
(f) "Claim" has the meaning set out in Section 11.03;
(g) "Closing Date" means October 9, 1998 or such other date as the Vendor
and the Purchaser may mutually determine;
(h) "Closing Date Payment" has the meaning set out in Section 3.02;
(i) "Contract" means any agreement, indenture, contract, lease, deed of
trust, licence, option, instrument or other commitment, whether written or oral;
(j) "Employees" means those salaried and non-unionized employees of the
Vendor who are employed in the Purchased Business immediately prior to the Time
of Closing;
(k) "Encumbrance" means any encumbrance, lien, charge, hypothec, pledge,
mortgage, title retention agreement, security interest of any nature, adverse
claim, exception, reservation, easement, right of occupation, any matter capable
of registration against title, option, right of pre-emption, privilege or any
Contract to create any of the foregoing;
(l) "Environmental Laws" has the meaning set out in subsection 5.27(a);
(m) "Environmental Permits" has the meaning set out in subsection 5.27(b);
(n) "ETA" means Part IX of the Excise Tax Act (Canada), as amended from
time to time;
(o) "Excluded Employees" has the meaning set out in Section 8.09;
(p) "GST" means all taxes payable under the ETA or under any provincial
legislation similar to the ETA, and any reference to a specific provision of the
ETA or any such provincial legislation shall refer to any successor provision
thereto of like or similar effect;
(q) "Hazardous Substances" has the meaning set out in subsection 5.27(a);
(r) "IMSC" means International Menu Solutions Corporation, a Nevada
corporation;
(s) "Indemnified Party" has the meaning set out in Section 11.03;
(t) "Indemnifying Party" has the meaning set out in Section 11.03;
(u) "Intellectual Property" has the meaning set out in subsection 2.01(i);
(v) "Lease" has the meaning set out in Section 5.09;
2
<PAGE>
(w) "Leased Property" has the meaning set out in Section 5.07;
(xy) "Licences" has the meaning set out in Section 5.16;
(y) "Losses" means, in respect of any matter, all claims demands,
proceedings, losses, damages, liabilities, deficiencies, costs and expenses
(including, without limitation, all legal and other professional fees and
disbursements, interest, penalties and amounts paid in settlement) arising
directly or indirectly as a consequence of such matter;
(z) "Purchase Price" has the meaning set out in Section 3.01;
(aa) "Purchased Assets" has the meaning set out in Section 2.01;
(bb) "Purchased Business" means the business carried on by the Vendor
consisting primarily of the production of ready meals for retail sale under the
brand name Pasta Kitchen;
(cc) "Tax Act" means the Income Tax Act (Canada), as amended from time to
time;
(dd) "Time of Closing" means 10 a.m. (local time) on the Closing Date, or
such other time on the Closing Date as the Vendor and the Purchaser may mutually
determine; and
(ee) "Transferred Employees" has the meaning set out in Section 8.10.
1.02 Currency. Unless otherwise indicated, all dollar amounts in this Agreement
are expressed in Canadian funds.
1.03 Sections and Headings. The division of this Agreement into Articles,
sections and subsections and the insertion of headings are for convenience of
reference only and shall not affect the interpretation of this Agreement. Unless
otherwise indicated, any reference in this Agreement to an Article, section,
subsection or Schedule refers to the specified Article, section or subsection of
or Schedule to this Agreement.
1.04 Number, Gender and Persons. In this Agreement, words importing the singular
number only shall include the plural and vice versa, words importing gender
shall include all genders and words importing persons shall include individuals,
corporations, partnerships, associations, trusts, unincorporated organizations,
governmental bodies and other legal or business entities of any kind whatsoever.
1.05 Accounting Principles. Any reference in this Agreement to generally
accepted accounting principles refers to generally accepted accounting
principles that have been established in Canada, including those approved from
time to time by the Canadian Institute of Chartered Accountants or any successor
body thereto.
3
<PAGE>
1.06 Entire Agreement. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether written or
oral. There are no conditions, covenants, agreements, representations,
warranties or other provisions, express or implied, collateral, statutory or
otherwise, relating to the subject matter hereof except as herein provided.
1.07 Time of Essence. Time shall be the essence of this Agreement.
1.08 Applicable Law. This Agreement shall be construed, interpreted and enforced
in accordance with, and the respective rights and obligations of the parties
shall be governed by, the laws of the Province of Ontario and the federal laws
of Canada applicable therein, and each party irrevocably and unconditionally
submits to the non-exclusive jurisdiction of the courts of such province and all
courts competent to hear appeals therefrom.
1.09 Successors and Assigns. This Agreement shall enure to the benefit of and
shall be binding on and enforceable by the parties and, where the context so
permits, their respective successors and permitted assigns. Subject to Section
12.05, neither party may assign any of it rights or obligations hereunder
without the prior written consent of the other party.
1.10 Severability. If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such determination shall not impair or affect the validity, legality or
enforceability of the remaining provisions hereof, and each provision is hereby
declared to be separate, severable and distinct.
1.11 Amendments and Waivers. No amendment or waiver of any provision of this
Agreement shall be binding on either party unless consented to in writing by
such party. No waiver of any provision of this Agreement shall constitute a
waiver of any other provision nor shall any waiver constitute a continuing
waiver unless otherwise provided.
1.12 Schedules. The following Schedules are attached to and form part of this
Agreement:
Schedule 1- Leased Real Property
Schedule 2 - Machinery and Equipment
Schedule 3 - Material Contracts
Schedule 4 - Employee Matters
Schedule 5 - Insurance
Schedule 6 - Intellectual Property
Schedule 7 - Allocation of Purchase Price
Schedule 8 - Location of Assets
Schedule 9 - Third Party Consents
Schedule 10 - Major Customers
Schedule 11 - Non-Competition Agreement
Schedule 12 - Opinion of Vendor's Counsel
4
<PAGE>
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
2.01 Purchased Assets. Subjects to the provisions of this Agreement, the Vendor
agrees to sell, assign and transfer to the Purchaser and the Purchaser agrees to
purchase from the Vendor, effective as of the close of business on the Closing
Date, all of the property and assets used in connection with or otherwise
relating to the Purchased Business (other than the Excluded Assets), whether
real or personal, tangible or intangible, of every kind and description and
wheresoever situate, as a going concern (collectively, the "Purchased Assets"),
including, without limitation:
(a) Lease of Real Property. All rights as a sub-lessee under the lease of
real property, together with the benefit of use of all leasehold improvements
relating thereto, including, without limitation, all rights under the lease
described in Schedule 1;
(b) Machinery and Equipment. All machinery, equipment, fixtures, furniture,
furnishings, parts, refrigerators, mixing machines, ovens and other fixed
assets, including, without limitation, the machinery and equipment described in
Schedule 2;
(c) Vehicles. Not Applicable;
(d) Inventories. All inventories, including, without limitation, raw
materials, work-in-process, finished goods and replacement parts;
(e) Accounts Receivable. All accounts receivable, trade accounts, notes
receivable, book debts and other debts due or accruing due to the Vendor and the
benefit of all security for such accounts, notes and debts;
(f) Prepaid Expenses. All prepaid expenses;
(g) Agreements. All rights under orders or contracts for the provision of
goods or services (whether as buyer or seller), distribution and agency
agreements, employment agreements, and other Contracts not otherwise referred to
in this Section 2.01, including, without limitation, the Contracts described in
Schedule 3;
(h) Licenses and Permits. Not Applicable;
(i) Intellectual Property. All trade or brand names, business names, trade
marked trade mark registrations and applications, service marks, service mark
registrations and applications, copyrights, copyright registrations and
applications, trade secrets, proprietary manufacturing information and know-how,
including without limitation the Pasta Kitchen product recipes, equipment and
parts lists and descriptions, instruction manuals, together with all rights
under licences, agreements and other agreements or instruments relating to any
of the foregoing (collectively, "Intellectual Property"), including, without
limitation, the trademarks, copyrights, and agreements described in Schedule 6;
5
<PAGE>
(j) Computer Hardware and Software. All computer hardware and software,
including all rights under licences and other agreements or instruments relating
thereto;
(k) Books and Records. All books and records (other than those required by
law to be retained by the Vendor, copies of which will be made available to the
Purchaser), including, without limitation, customer lists, sales records, price
lists and catalogues, sales literature, advertising material, manufacturing
data, production records, employee manuals, personnel records, supply records,
inventory records and correspondence files (together with, in the case of any
such information that is stored electronically, the media on which the same is
stored); and
(l) Goodwill. All goodwill, together with the exclusive right for the
Purchaser to represent itself as carrying on the Purchased Business in
succession to the Vendor and the right to use any words indicating that the
Purchased Business is so carried on, including the exclusive right to use the
name "Pasta Kitchen", or any variation thereof, as part of the name or style
under which the Purchased Business or any part thereof is carried on by the
Purchaser.
2.02 Excluded Assets.
The Purchased Assets shall not include any of the following property and
assets (collectively, the "Excluded Assets"):
(a) Cash. All cash on hand or in banks or other depositories;
(b) Income Taxes. All income tax instalments paid by the Vendor and the
right to receive any refund of income taxes paid by the Vendor.
ARTICLE III
PURCHASE PRICE
3.01 Purchase Price. The aggregate purchase price (the "Purchase Price") payable
by the Purchaser to the Vendor for the Purchased Assets shall be the sum of
$640,000.00 payable as provided in Sections 3.02 and 3.03, and subject to
adjustment as set forth in Sections 3.02 and 3.03 respectively.
3.02 Closing Date Payment of Purchase Price. Subject to the next following
paragraph of this Section 3.02, at the Time of Closing, the Purchaser shall pay
the Vendor the amount of $300,000.00 (the "Closing Date Payment") by certified
cheque or bank draft payable to or to the order of the Vendor. The Vendor shall
be responsible for paying the following amounts on the Closing Date from the
Closing Date Payment:
(a) on account of trade payables identified by the Vendor and the
Purchaser the sum of $108,614.57; and
(b) the payroll of the Vendor to be paid on Thursday October 15, 1998 in
the sum of $8,940.00;
6
<PAGE>
being payments which in the aggregate are $117,554.57 (herein called the "Vendor
Credit").
Subject to the following, the Purchaser shall pay to the Vendor amounts on
account of the Vendor Credit as follows:
(a) firstly, during the sixty (60) day period following the Closing Date,
50% of the accounts receivable received after the Closing Date from the
Pasta Kitchen Division of the Purchaser, up to the aggregate amount of
the Vendor Credit with such payments to be made weekly; and
(b) provided that if the amount paid by the Purchaser to the Vendor
pursuant to the preceding subparagraph (a) is less than the Vendor
Credit, then the difference (herein called the "Vendor Credit Balance"
shall be paid by the Purchaser to the Vendor by consecutive monthly
payments on the last day of each month commencing with the first month
following the said sixty (60) day period, the said monthly payments to
be in the amount of $10,000.00 until paid.
In the event that during the two year period following the Closing Date the
aggregate of the following amounts, namely:
(a) the dollar amount of the accounts receivable acquired by the
Purchaser from the Vendor as part of the Purchased Assets
collected during the sixty (60) day period referred to above
is herein called the "Receivable Amount"; and
(b) the dollar amount of amounts required to be paid by the
Purchaser following the closing to the trade creditors
identified in Schedule 13 by "***" together with any other
amounts required to be paid by the Purchaser for any matter or
thing arising from or in connection with the operation of the
Pasta Kitchen business by the Vendor prior to the Closing
Date;
exceed the sum of $34,072.42 then the Vendor shall pay to the Purchaser on
demand any and all such amounts which in the aggregate exceed such sum. The
Purchaser shall have the right to set off any such sums that become due to the
Purchaser from the Vendor against any sums that are due or which may become due
from the Purchaser to the Vendor.
3.03 Determination of Balance of Purchase Price. The balance of the Purchase
Price of $340,000.00 shall be subject to adjustment based upon the revenue of
the Pasta Kitchen Division of the Purchaser during the twelve month period from
and including October 9, 1998 to and including October 8, 1999.
At the end of the said twelve month period the auditors of the Purchaser
shall determine (on an unaudited basis) the aggregate dollar amount of the sales
by the Pasta Kitchen Division of the Purchaser for the said twelve (12) month
period. In the event that the aggregate dollar amount is less than
$1,000,000.00, then the Purchase Price shall be proportionally reduced. For
example, if such
7
<PAGE>
aggregate sales for such period are $900,000.00, the Purchase Price would be
reduced by ten percent (10%) or $64,000.00, so that the adjusted Purchase Price
would be $576,000.00. The balance of the Purchase Price would be $576,000.00
less the $300,000.00, namely $276,000.00. Such amount of the Purchase Price
being $340,000.00 or such lesser amount as determined in accordance with the
foregoing is herein called the "Balance of the Purchase Price".
The Corporation shall have the option, exercisable during the forty-five (45)
day period following the determination of the Balance of the Purchase Price, to
pay the Balance of the Purchase Price by certified cheque or by the issue of
restricted common shares (having a par value of $0.001 per share) in the capital
stock of IMSC. In the event that the Purchaser exercises the option to pay the
Balance of the Purchase Price by the delivery of IMSC common shares, the number
of shares to be delivered by the Purchaser to the Vendor (herein called the
"Shares") shall be determined as follows:
The Balance of the Purchase Price shall be divided by the average closing
trading price for the IMSC common shares for the ten (10) trading days
prior to the date on which the calculation is made, and the number so
determined shall be the number of common shares of IMSC to be delivered by
the Purchaser to the Vendor in satisfaction of the Balance of the Purchase
Price. The appropriate foreign exchange translations where required shall
be made based upon quotes provided by the banker of the Corporation on the
relevant day.
The Shares when issued shall be subject to an escrow agreement wherein the
Shares shall be held and released as follows: forty percent (40%) upon
determination of the number of Shares; forty percent (40%) on September 30, 2000
and twenty percent (20%) on September 30, 2001. The Vendor acknowledges that
during such time as the Shares are held in escrow the Vendor shall not be
entitled to deal with the Shares in any manner whatsoever until such time as
Shares are released from escrow in accordance with the foregoing schedule. The
Shares to be held in escrow shall be held by counsel for IMSC.
The Shares shall be subject to applicable securities laws and regulations
including hold periods or qualification prior to the shares being available for
public trading.
The Securities Act of 1933 as amended (the "Act") requires that the sale of
securities be registered with the United States Securities and Exchange
Commission (the "SEC") or that there be an exemption from the registration
requirements. The Shares that will be issued to the Vendor pursuant to this
Schedule will not be registered under the Act and will be issued by IMSC without
any such registration.
Notwithstanding anything to the contrary contained herein, the IMSC common
shares to be issued and delivered pursuant to this Section will not be issued
pursuant to a registration statement under the United States Securities Act of
1933 (the "Act") or any other applicable federal or state statute and, as a
result, such common shares cannot be transferred, sold or otherwise disposed of,
unless registered under the Act or pursuant to an exemption therefrom.
Additionally, the following legend will be placed on each certificate evidencing
such common shares:
8
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF A CURRENT AND EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT WITH
RESPECT TO SUCH SHARES, OR AN OPINION OF THE REGISTERED HOLDER'S COUNSEL
REASONABLY ACCEPTABLE TO ISSUER'S COUNSEL TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
3.04 Allocation of Purchase Price. The Vendor and the Purchaser agree to
allocate the Purchase Price among the Purchased Assets in accordance with
Schedule 7 and to report the sale and purchase of the Purchased Assets for all
federal, provincial and local tax in a manner consistent with such allocation.
3.05 ETA Election. The Purchaser and the Vendor shall, on the Closing Date,
elect jointly under subsection 167(1) of the ETA, in the form prescribed for the
purposes of that subsection, in respect of the sale and transfer of the
Purchased Assets hereunder. The Purchaser shall file such election with Revenue
Canada, Excise not later than the day on which it is required to file its GST
return for its reporting period which includes the Closing Date.
3.06 Transfer Taxes. The Purchaser shall be liable for and shall pay all federal
and provincial sales taxes (including any retail sales taxes and land transfer
taxes) and all other taxes, duties, fees or other like charges of any
jurisdiction properly payable in connection with the transfer of the Purchased
Assets by the Vendor to the Purchaser.
3.07 Income Tax Election. The Purchaser and the Vendor agree to elect jointly in
the prescribed form under Section 22 of the Tax Act as to the sale of the
accounts receivable and other assets that are referred to in subsection 2.01(e)
and described in Section 22 of the Tax Act and to designate in such election an
amount equal to the portion of the Purchase Price allocated to such assets
pursuant to Section 3.04 as the consideration paid by the Purchaser therefor.
ARTICLE IV
ASSUMPTION OF LIABILITIES
4.01 Assumption of Certain Liabilities by the Purchaser. Subject to the
provision of this Agreement, the Purchaser agrees to assume from and after the
Time of Closing, those liabilities of the Vendor existing as at the Time of
Closing (the "Assumed Liabilities") under:
(a) the Contracts described in Schedules 6;
(b) the agreements entered into by the Vendor in the ordinary course of
the Purchased Business for the sale of pasta products by the Vendor.
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4.02 Product Liability and Warranty Obligations. Without in any way limiting
subsection 11.01(c), the Purchaser shall not assume, and the Vendor shall be
solely responsible for and shall indemnify and hold harmless the Purchaser from
and against, all product liability, and other claims and obligations respecting
products manufactured by the Vendor in connection with the Purchased Business up
to the Time of Closing. The Purchaser may satisfy any such obligations not
assumed by it where it is required to do so by law or by order of any court or
regulatory authority having jurisdiction over it or where it determines in good
faith to do so for valid business reasons and, in any such case, the Vendor
shall reimburse the Purchaser forthwith following demand for all expenses
incurred by the Purchaser in connection therewith, including all labour and
material costs incurred in repairing or replacing products. The Vendor does not
provide any written warranty to its customers with respect to the Vendor's
products purchased by its customers.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
The Vendor represents and warrants to the Purchaser as follows and
acknowledges that the Purchaser is relying on such representations and
warranties in connection with its purchase of the Purchased Assets:
5.01 Organization. The Vendor is a corporation duly incorporated and organized
and validly subsisting under the laws of the Province of Ontario and has the
corporate power to own or lease its property, to carry on the Purchased Business
as now being conducted by it and to enter into this Agreement and to perform its
obligations hereunder. The Vendor is duly qualified as a corporation to do
business in the Province of Ontario, the only jurisdiction in which the
Purchased Business makes such qualification necessary.
5.02 Authorization. This Agreement has been duly authorized, executed and
delivered by the Vendor and is a legal, valid and binding obligation of the
Vendor, enforceable against the Vendor by the Purchaser in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency and other
laws affecting the rights of creditors generally and except that equitable
remedies may be granted only in the discretion of a court of competent
jurisdiction.
5.03 No Other Agreements to Purchase. No person other than the Purchaser has any
written or oral agreement or option or any right or privilege (whether by law,
pre-emptive or contractual) capable of becoming an agreement or option for the
purchase or acquisition from the Vendor of any of the Purchased Assets, other
than pursuant to purchase orders accepted by the Vendor in the ordinary course
of the Purchased Business.
5.04 No Violation. The execution and delivery of this Agreement by the Vendor
and the consummation of the transactions herein provided for will not result in:
(a) the breach or violation of any of the provisions of, or constitute a
default under, or conflict with or cause the acceleration of any
obligation of the Vendor under:
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(i) any Contract to which the Vendor is a party or by which it is or
its properties are bound;
(ii) any provision of the constating documents or by-laws or
resolutions of the board of directors (or any committee thereof)
or shareholders of the Vendor;
(iii) any judgment, decree, order or award of any court, governmental
body or arbitration having jurisdiction over the Vendor;
(iv) any licence, permit, approval, consent or authorization held by
the Vendor or necessary to the operation if the Purchased
Business; or
(v) any applicable law, statute, ordinance, regulation or rule; nor
(b) the creation or imposition of any Encumbrance on any of the Purchased
Assets.
5.05 Sufficiency of Purchased Assets. The Purchased Assets owned or leased by
the Vendor are sufficient to carry on the Purchased Business. All Purchased
Assets owned and used by the Vendor in connection with the Purchased Business
are in good operating condition and are in a state of good repair and
maintenance. During the two years preceding the date of this Agreement, there
has not been any significant interruption of operations (being an interruption
of more than one day) of the Purchased Business due to inadequate maintenance of
any of the Purchased Assets. With the exception of inventory in transit, all the
tangible assets of the Purchased Business are situate at the Leased Premises.
5.06 Title to Personal Property. The Purchased Assets are owned beneficially by
the Vendor with a good and marketable title thereto, free and clear of all
Encumbrances.
5.07 Location of Real Property. Schedule 1 sets forth the municipal address and
complete and accurate legal description of all the real property that is used in
the Purchased Business and leased by the Vendor (the "Leased Property").
5.08 Leased Property. The Vendor is not the beneficial or registered owner of
and has not agreed to acquire any real property or any interest in any real
property. The Vendor has the exclusive right to possess, use and occupy the
Leased Property. All buildings, structures, improvements and appurtenances
situated on the Leased Property are in good operating condition and in a state
of good maintenance and repair and are adequate and suitable for the purposes
for which they are currently being used, and the Vendor has adequate rights of
ingress and egress for the operation of the Purchased Business in the ordinary
course. None of such buildings, structures, improvements or appurtenances (or
any equipment therein) nor the operation or maintenance thereof, violates any
restrictive covenant or any provision of any federal, provincial or municipal
law, ordinance, rule or regulation, or encroaches on any property owned by
others. Without limiting the generality of the foregoing:
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(a) the Leased Property, the current uses thereof and the conduct of the
Purchased Business comply with all regulations, statues, enactments, laws and
by-laws, including, without limitation, those dealing with zoning, parking,
access, loading facilities, landscaped areas, building construction, fire and
public health and safety and Environmental Laws;
(b) no alteration, repair, improvement or other work has been ordered,
directed or requested in writing to be done or performed to or in respect of the
Leased Property or to any of the plumbing, heating, elevating, water, drainage,
or electrical systems, fixtures or works by the landlord of the Leased Property
or any municipal, provincial or other competent authority, which alteration,
repair, improvement or other work has not been completed, and the Vendor knows
of no written notification having been given to it of any such outstanding work
being ordered, directed or requested, other than those that have been complied
with;
(c) all accounts for work and services performed and materials placed or
furnished upon or in respect of the Leased Property at the request of the Vendor
or the landlord of the Leased Property have been fully paid and satisfied, and
no person is entitled to claim a lien under the Construction Lien Act (Ontario)
against the Leased Property or any part thereof, other than current accounts in
respect of which the payment due date has not yet passed;
(d) there is nothing owing in respect of the Leased Property by the Vendor
to any municipal corporation or to any other corporation or commission owning or
operation a public utility for water, gas, electrical power or energy, steam or
hot water, or for the use thereof, other than current accounts in respect of
which the payment due date has not yet passed;
(e) no part of the Leased Property has been taken or expropriated by any
federal, provincial, municipal or other competent authority, nor has any notice
or proceeding in respect thereof been given or commenced;
(f) the Leased Property (including all buildings, improvements and
fixtures) is fit for its present use, and there are no material or structural
repairs or replacements that are necessary or advisable and, without limiting
the foregoing, there are no repairs to, or replacements of, the roof or the
mechanical, electrical, heating, ventilating, air-conditioning, plumbing or
drainage equipment or systems that are necessary or advisable; and the Leased
Property is not currently undergoing any alteration or renovation nor is any
such alteration or renovation contemplated; and
(g) the Leased Property is fully serviced and has suitable access to public
roads, and there are no outstanding levies, charges or fees assessed against the
Leased Property by any public authority (including development or improvement
levies, charges or fees).
5.09 Leased Property. The Vendor is not a party to any lease or agreement to
lease in respect of any real property, whether as lessor or lessee, other than
the lease (the "Lease") described in Schedule 1 relating to the Leased Property.
Schedule 2 sets out the parties to the Lease, its date of execution and expiry
date, any options to renew, the location of the leased lands and premises and
the rent
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payable thereunder. The Vendor occupies the Leased Property and has the
exclusive right to occupy and use the Leased Property. The Lease is in good
standing and in full force and effect, and neither the Vendor nor any other
party thereto is in breach of any covenants, conditions or obligations
contained therein. The Vendor has provided a true and complete copy of the
Lease and all amendments thereto to the Purchaser.
5.10 Inventories. The inventories of the Vendor relating to the Purchased
Business do not include any material items that are slow moving, below standard
quality or of a quality or quantity not useable or saleable in the normal course
of business, the value of which has not been written down on its books of
account to net realizable market value. The inventory levels of the Vendor have
been maintained at such amounts as are required for the operation of the
Purchase Business as previously conducted and as proposed to be conducted, and
such inventory levels are adequate therefor.
5.11 Accounts Receivable. All accounts receivable, book debts and other debts
due or accruing to the Vendor in connection with the Purchased Business are bona
fide and good and, subject to an allowance for doubtful accounts that have been
reflected on the books of the Vendor in accordance with generally accepted
accounting principles, collectible without set-off or counterclaim.
5.12 Intellectual Property. Schedule 6 sets out the Intellectual Property of the
Vendor comprised of the trade name and trade mark "Pasta Kitchen Inc.". The
Vendor has no other intellectual property other than recipes for the food
products produced by the Vendor, and such recipes have not been reduced to
writing by the Vendor, as such recipes are in the memory of the Vendor's
president The Vendor is the beneficial owner of the Intellectual Property, free
and clear of all Encumbrances, and is not a party to or bound by any Contract or
any other obligation whatsoever that limits or impairs its ability to sell,
transfer, assign or convey, or that otherwise affects, the Intellectual
Property. No person has been granted any interest in or right to use to all or
any portion of the Intellectual Property. The conduct of the Purchased Business
does not infringe upon the industrial or intellectual property rights, domestic
or foreign, of any other person. The Vendor is not aware of a claim of any
infringement or breach of any industrial or intellectual property rights of any
other person, nor has the Vendor received any notice that the conduct of the
Purchased Business, including the use of the Intellectual Property, infringes
upon or breaches any industrial or intellectual property rights of any other
person, and the Vendor, after due inquiry, has no knowledge of any infringement
or violation of any of its right in the Intellectual Property. The Vendor is not
aware of any state of facts that casts doubt on the validity of enforceability
of the Intellectual Property.
5.13 Insurance. The Vendor has the Purchased Assets insured against loss or
damage by all insurable hazards or risks on a replacement cost basis and such
insurance coverage will be continued in full force and effect to and including
the Time of Closing. Schedule 5 sets out the insurance policies (specifying the
insurer, the amount of the coverage, the type of insurance, the policy number
and any pending claims thereunder) maintained by the Vendor on the Leased
Property The Vendor is not in default with respect to any of the provisions
contained in such insurance policy and has not failed to give any notice or
present any claim under any such insurance policy, in due and timely fashion.
The Vendor will forthwith provide a true copy of such insurance policy referred
to in Schedule 5 to the Purchaser.
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5.14 No Expropriation. No part of Purchased Assets has been taken or
expropriated by any federal, provincial, municipal or other authority, nor has
any notice or proceeding in respect thereof been given or commenced, nor is the
Vendor aware of any intent or proposal to give any such notice or commence any
such proceedings.
5.15 Agreements and Commitments. Except as described in Schedule 3, the Vendor
is not a party to or bound by any Contract relating to the Purchased Business or
Purchased Assets including, without limiting the generality of the foregoing:
(a) any distributor, sales, advertising, agency or manufacturer's
representative Contract;
(b) any collective bargaining agreement or other Contract with any labour
union;
(c) any continuing Contract for the purchase of materials, supplies,
equipment or services involving more that $5,000.00 in respect of any
one such Contract or more than $10,000.00 in respect of all such
Contracts;
(d) any employment or consulting Contract or any other Contract with any
officer, employee or consultant, other that oral Contracts of
indefinite hire terminable by the Vendor without cause or reasonable
notice;
(e) any profit sharing, bonus, stock option, pension, retirement,
disability, stock purchase, medical, dental, hospitalization,
insurance or similar plan or agreement providing benefits to any
current or former director, officer, employee or consultant;
(f) any trust indenture, mortgage, promissory note, loan agreement,
guarantee or other Contract for the borrowing of money or a leasing
transaction of the type required to be capitalized in accordance with
generally accepted accounting principles, other than the small
business development loan made by the Vendor in the amount of
$72,212.06;
(g) any commitment for charitable contributions;
(h) any Contracts for capital expenditures in excess of $5,000.00 in the
aggregate;
(i) any Contract for the sale of any assets, other than sales of inventory
to customers in the ordinary course of the Purchased Business;
(j) any Contract pursuant to which the Vendor is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or
other personal property;
(k) any confidentiality, secrecy or non-disclosure Contract (whether the
Vendor is a beneficiary obligor thereunder) relating to any
proprietary or confidential information
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or any non-competition or similar Contract;
(l) any licence, franchise or other agreement that relates in whole or in
part to any Intellectual Property;
(m) any agreement of guarantee, support, indemnification, assumption or
endorsement of, or any other similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or
otherwise) or indebtedness of any other person, except for cheques
endorsed for collection in the ordinary course of the Purchased
Business;
(n) any Contract that expires, or may expire if the same is renewed or
extended at the option of any person other than the Vendor, more than
one (1) year after the date of this Agreement; or
(o) any Contract entered into by the Vendor other than in the ordinary
course of the Purchased Business.
The Vendor has performed all of the obligations required to be performed by it
and is entitled to all benefits under, and is not in default or alleged to be in
default in respect of, any Contract relating to the Purchased Business or
Purchased Assets to which it is a party or by which it is bound; all such
Contracts are in good standing and in full force and effect, and no event,
condition or occurrence exists that, after notice or lapse of time or both,
would constitute a default under any of the foregoing. The Vendor has provided
to the Purchaser a true and complete copy of each Contract listed or described
in Schedules 1 and 3 and all amendments thereto.
5.16 Compliance with Laws; Governmental Authorization. The Vendor has complied
with all laws, statutes, ordinance, regulations, rules, judgments, decrees or
orders applicable to the Purchased Business or the Purchased Assets. There are
no licences, permits, approvals, consents, certificates, registrations or
authorizations necessary to carry on the Purchased Business or to own or lease
any of the Purchased Assets, save and except that it is acknowledged that the
Vendor does not have the Hazard Analysis Critical Control Point approval.
5.17 Consents and Approvals. There is no requirement to make any filing with,
give any notice to or to obtain any licence, permit, certificate, registration,
authorization, consent or approval of, any governmental or regulatory as a
condition to the lawful consummation of the transactions contemplated by this
Agreement, except for the filings, notifications, licences, permits,
certificates, registrations, consents and approvals described in Schedule 9.
There is no requirement under any Contract relating to the Purchased Business or
Purchased Assets to which the Vendor is a party or by which it is bound to give
any notice to, or to obtain the consent or approval of, any party to such
agreement, instrument or commitment relating to the consummation of the
transactions contemplated by this Agreement, except for the notifications,
consents and approvals described in Schedule 9.
5.18 Financial Statements. Not applicable.
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5.19 Books and Records. The books and records of the Vendor fairly and correctly
set out and disclose, in accordance with generally accepted accounting
principles, the financial position of the Vendor as at the date hereof, and all
financial transactions of the Vendor relating to the Purchased Business have
been accurately recorded in such books and records.
5.20 Closing Financial Information. Immediately following the close of business
on the day prior to the Closing Date the parties shall complete an inventory of
the assets of the Vendor, and complete a determination of the receivables and
payables and other liabilities of the Vendor.
5.21 Absence of Changes. Since June 30, 1998, the Purchased Business has been
carried on only in the ordinary and normal course consistent with past practice
and there has not been:
(a) any material adverse change in the condition (financial or otherwise),
assets, liabilities, operations, earnings, business or prospects of the
Purchased Business;
(b) any damage, destruction or loss (whether or not covered by insurance)
affecting the Purchased Assets;
(c) any obligation or liability (whether absolute, accrued, contingent or
otherwise, and whether due or to become due) incurred by the Vendor in
connection with the Purchased Business, other than those incurred in the
ordinary and normal course of the Purchased Business and consistent with past
practice, save with respect to the Vendors liabilities to the Workmen's
Compensation Board.;
(d) any payment, discharge or satisfaction of any Encumbrance, liability or
obligation of the Vendor in relation to the Purchased Business or the Purchased
Assets (whether absolute, accrued, contingent or otherwise, and whether due or
to become due) other than payment of accounts payable and tax liabilities
incurred in the ordinary and normal course business consistent with past
practice;
(e) any labour trouble adversely affecting the Purchased Business or the
Purchased Assets;
(f) any licence, sale, assignment, transfer, disposition, pledge, mortgage
or granting of a security interest or other Encumbrance on or over any Purchased
Assets, other than sales of inventory to customers in the ordinary and normal
course of the Purchased Business;
(g) any write-down of the value of any inventory or any write-off as
uncollectible of any accounts or notes receivable or any portion thereof
relating to the Purchased Business;
(h) any cancellation of any debts or claims or any amendment, termination
or waiver of any rights of value to the Purchased Business;
(i) any general increase in the compensation of employees of the Vendor
involved in the Purchased Business (including, without limitation, any increase
pursuant to any Employee Plan or
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commitment), or any increase in any such compensation or bonus payable to any
officer, employee, consultant or agent thereof or the execution of any
employment contract with any officer or employee, or the making of any loan to,
or engagement in any transaction with, any employee, officer or director of the
Vendor in relation to the Purchased Business;
(j) any capital expenditures or commitments relating to the Purchased
Business or Purchased Assets;
(k) any forward purchase commitments in excess of the requirements of the
Purchased Business for normal operating inventories or at prices higher than the
current market prices;
(l) any forward sales commitments other than in the ordinary and normal
course of the Purchased Business or any failure to satisfy any accepted order
for goods or services;
(m) any change in the accounting or tax practices followed by the Vendor;
or
(n) any change adopted in the depreciation or amortization policies or
rates; or any change in the credit terms offered to customers of, or by
suppliers to, the Purchased Business.
5.22 Non-Arm's Length Transactions. With respect to the Purchased Business:
(a) the Vendor has not since June 30, 1998 made any payment or loan to, or
borrowed any moneys from or is otherwise indebted to, any officer, director,
employee, shareholder or any other person not dealing at arm's length with the
Vendor (within the meaning of the Tax Act) or any Affiliate or Associate of any
of the foregoing, except as disclosed on the Audited Financial Statements and
except for usual employee reimbursements and compensation paid in the ordinary
course of the Purchased Business; and
(b) except for Contracts of employment, the Vendor is not party to any
Contract with any officer, director, employee, shareholder or any other person
not dealing at arm's length with the Vendor (within the meaning of the Tax Act)
or any Affiliate or Associate of any of the foregoing.
No officer, director or shareholder of the Vendor and no entity that is an
Affiliate or Associate of one or more of such individuals:
(c) owns, directly or indirectly, any interest in (except for shares
representing less than one per cent of the outstanding shares of any class or
series of any publicly traded company), or is an officer, director, employee or
consultant of, any person that is, or is engaged in business as, a competitor of
the Purchased Business or a lessor, lessee, supplier, distributor, sales agent
or customer of the Purchased Business;
(d) owns, directly or indirectly, in whole or in part, any property that
the Vendor uses in the operations of the Purchased Business; or
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(e) has any cause of action or other claim whatsoever against, or owes any
amount to, the Vendor in connection with the Purchased Business, except for any
liabilities reflected in the Financial Statements and claims in the ordinary
course of business such as for accrued vacation pay and accrued benefits under
Employee Plans.
5.23 Taxes. The Vendor has duly filed on a timely basis all tax returns required
to be filed by it and has paid all taxes that are due and payable, and all
assessments, reassessment, governmental charge, penalties, interest and fines
due and payable by it. The Vendor has made adequate provision for taxes payable
in respect of the Purchased Business for the current period and any previous
period for which tax returns are not yet required to be filed. There are no
actions, suits proceedings, investigations or claims pending or, to the
knowledge of the Vendor, threatened against the Vendor in respect of taxes,
governmental charges or assessments, nor are any material matters under
discussion with any governmental authority to taxes, governmental charges or
assessments asserted by any such authority. The Vendor has withheld from each
payment made to any of its past or present employees, officers or directors, and
to any non-residents of Canada, the amount of all taxes and other deductions
required to be withheld therefrom, and has paid the same to the proper tax or
other receiving officers within the time required under any applicable
legislation. The Vendor has remitted to the appropriate tax authority, when
required by law to do so, all amounts collected by it on account of GST.
5.24 Litigation. There are no actions, suits or proceedings (whether or not
purportedly on behalf of the Vendor) pending or, to the best knowledge of the
Vendor, after due enquiry, threatened against or affecting the Vendor at law or
in equity or before or by any federal, provincial, municipal or other
governmental department, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before or by an arbitrator or
arbitration board. The Vendor is not aware of any ground on which any such
action, suit or proceeding might be commenced with any reasonable likelihood of
success.
5.25 Residency. The Vendor is a resident of Canada for the purposes of the Tax
Act.
5.26 GST Registration. The Vendor is a registrant for purposes of the ETA whose
registration number is 889857660RT0001.
5.27 Environmental.
(a) The Vendor, in respect of the Purchased Business and the Purchased
Assets, has been and is in compliance with all applicable federal, provincial,
municipal and local laws, statutes, ordinances, by-laws and regulations, and
others, directives and decisions rendered by any ministry, department or
administrative or regulatory agency ("Environmental Laws") relating to the
protection of the environment, occupational health and safety or the
manufacture, processing, distribution, use, treatments, storage, disposal,
transport or handling of any pollutants, contaminants, chemicals or industrial
toxic or hazardous wastes or substances ("Hazardous Substances").
(b) The Vendor has obtained all licences, permits, approvals, consents,
certificates,
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registration and other authorizations under Environmental Laws (the
"Environmental Permits") required for the operation of the Purchased Business,
all of which are described in Schedule 8. Each Environmental Permit is valid,
subsisting and in good standing, and the Vendor is not in default or breach of
any Environmental Permit and no proceeding is pending or threatened to revoke or
limit any Environmental Permit.
(c) The Vendor, in connection with the Purchased Business, has not used or
permitted to be used, except in compliance with all Environmental Laws, any of
its property (including any of the Leased Property) or facilities to generate,
manufacture, process, distribute, use, treat, store, dispose of, transport or
handle any Hazardous Substance.
(d) No building, structure or improvement located on the Real Property or
Leased Property is or ever has been insulated with urea formaldehyde insulation,
nor do such buildings or structures contain any aluminum wiring or friable
asbestos or any other substance containing asbestos.
(e) The Vendor has never received any notice of or been prosecuted for
non-compliance with any Environmental Laws, nor has the Vendor settled any
allegation of non-compliance short of prosecution. There are no orders or
directions relating to environmental matters requiring any work, repairs or
construction or capital expenditures to be made with respect to the Purchased
Business or the Purchased Assets, nor has the Vendor received notice of any of
the same.
(f) The Vendor has not caused or permitted, nor does it have any knowledge
of, the release, in any manner whatsoever, of any Hazardous Substance on or from
any of its properties or assets (including any of the Leased Property) utilized
in the Purchased Business, or any such release on or from a facility owned or
operated by third parties but with respect to which the Vendor in connection
with the Purchased Business is or may reasonably be alleged to have liability.
All Hazardous Substances and all other wastes and other materials and substances
used in whole or in part by the Vendor in connection with the Purchased Business
or resulting from the Purchased Business have been disposed of, treated and
stored in compliance with all Environmental Laws.
(g) The Vendor has not received any notice that the Vendor is potentially
responsible for a federal, provincial, municipal or local clean-up site or
corrective action under any Environmental Laws in connection with the Purchased
Business. The Vendor, in connection with the Purchased Business, has not
received any request for information in connection with any federal, provincial,
municipal or local inquiries as to disposal sites.
(h) The Vendor has delivered to the Purchaser a true and complete copy of
all environmental audits, evaluations, assessments, studies or tests relating to
the Purchased Business or Purchased Assets of which it is aware.
5.28 Customers and Suppliers. Schedule 10 sets out the major customers of the
Purchased Business (being those customers of the Purchased Business accounting
for more than eighty percent (80%) of sales for the period January 1, 1998 to
August 31, 1998 and there has been no termination or cancellation of, and no
modification or change in, the Vendor's business relationship with any
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major customer or group of major customers. The Vendor has no reason to believe
that the benefits of any relationship with any of the major customers or
suppliers of the Purchased Business will not continue after the Closing Date in
substantially the same manner as prior to the date of this Agreement.
5.29 Product Warranties. The Vendor has not provided any written warranties to
any of its customers.
5.30 Employee Plans. The Vendor does not have and has never had for employees of
the Vendor either past or present any retirement, pension, bonus, stock
purchase, profit sharing, stock option, deferred compensation, insurance,
medical, hospital, dental, vision care, drug, disability, salary continuation,
legal benefits, unemployment benefits, vacation, incentive or other compensation
plan or arrangement or other employee benefit that is maintained, or otherwise
contributed to or required to be contributed to, by the Vendor relating to the
Purchased Business or the Purchased Assets for the benefit of employees or
former employees of the Vendor.
5.31 No Collective Agreements. The Vendor has not made any Contracts with any
labour union or employee association nor made commitments to or conducted
negotiations with any labour union or employee association with respect to any
future agreements, and the Vendor is not aware of any current attempts to
organize or establish any labour union or employee association with respect to
any Employees of the Vendor nor is there any certification of any such union
with regard to a bargaining unit. Other than grievances brought in the ordinary
and normal course of the Purchased Business, none of which could, individually
or collectively with other such grievances, have a material adverse effect on
the Purchased Business or the right or the ability of the Vendor or the
Purchaser to carry on the Purchased Business substantially in the manner in
which it has heretofore been carried on, there are no grievances against the
Vendor of which the Vendor has received written notice.
5.32 Employees. Schedule 4 contains a complete and accurate list of the names of
all individuals who are full-time, part-time or casual employees or individuals
engaged on contract to provide employment services or sales or other agents or
representatives of the Vendor employed or engaged in the Purchased Business (the
"Employees") as of the date of this Agreement specifying the length of hire,
title or classification and rate of salary or hourly pay and commission or bonus
entitlements (if any) for each such Employee. Schedule 4 lists all Employees
including those on lay-off and those in receipt of benefits under Workers'
Compensation Legislation, who have been absent continually from work for a
period in excess of one month, as well as the reason for their absence. There
are no complaints, claims or charges outstanding, or to the best of the
knowledge of the Vendor, anticipated, nor are there any orders, decisions,
directions or convictions currently registered or outstanding by any tribunal or
agency against or in respect of the Vendor under or in respect of any Employment
Legislation. Schedule 5 lists all Employees in respect of whom the Vendor has
been advised by the Workers' Compensation Board that such Employees are in
receipt of benefits under the Workers' Compensation Act (Ontario). The Vendor is
in compliance with the Employment Standards Act (Ontario), the Workers'
Compensation Act (Ontario) and other Employment Legislation and, without
limiting the generality of the foregoing: (i) there are no appeals pending
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before a Workers' Compensation Tribunal involving the Vendor; (ii) all levies,
assessments and penalties made against the Vendor pursuant to the Workers'
Compensation Act (Ontario) have been paid by the Vendor, save for the judgement
in favour of the Workers' Compensation board dated April 15, 1998 in the amount
of $5,314.00; (iii) the Vendor is currently in Rate Group for workers'
compensation purposes; (iv) there has been no change in the rating assessment
applicable to the Vendor or the Purchased Business under the Workers'
Compensation Act (Ontario)since the incorporation of the Vendor; (v) the Vendor
is not aware of any audit currently being performed by the Workers' Compensation
Board; and (vi) all payments required to be made in trust to the Director of
Employment Standards in respect of termination and/or severance pay under the
Employment Standards Act (Ontario) have been made.
5.33 Employee Accruals. All accruals for unpaid vacation pay, premiums for
unemployment insurance, health premiums, Canada Pension Plan premiums, accrued
wages, salaries and commissions and employee benefit plan payments have been
reflected in the books and records of the Vendor.
5.34 No Liabilities. There are no liabilities of the Vendor or its Associates or
Affiliates, whether or not accrued and whether or not determined or
determinable, in respect of which the Purchaser may become liable on or after
the consummation of the transaction herein provided for, other than the Assumed
Liabilities.
5.35 Full Disclosure. Neither this Agreement nor any document to be delivered by
the Vendor nor any certificate, report, statement or other document furnished by
the Vendor in connection with the negotiation of this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading and there has been event, transaction or information that has come to
the attention of the Vendor that has not been disclosed to the Purchaser in
writing that could reasonably be expected to have a material adverse effect on
the assets, business, earnings, prospects, properties or condition (financial or
otherwise) of the Purchased Business.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Vendor as follows and
acknowledges and confirms that the Vendor is relying on such representations and
warranties in connection with its sale of the Purchased Assets:
6.01 Organization. The Purchaser is a corporation duly incorporated and
organized and validly subsisting under the laws of the Province of Ontario and
has the corporate power to enter into this Agreement and to perform its
obligations hereunder.
6.02 Authorization. This Agreement has been duly authorized, executed and
delivered by the
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Purchaser and is a legal, valid and binding obligation of the Purchaser,
enforceable against the Purchaser by the Vendor in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency and other
laws affecting the rights of creditors generally and except that equitable
remedies may only be granted in the discretion of a court of competent
jurisdiction.
6.03 No Violation. The execution and delivery of this Agreement by the Purchaser
and the consummation of the transactions herein provided for will not result in
the violation of, or constitute a default under, or conflict with or cause the
acceleration of any obligation of the Purchaser under:
(a) any Contract to which the Purchaser is a party or by which it is bound;
(b) any provision of the constating documents or by-laws or resolutions of
the board of directors (or any committee thereof) or shareholders of the
Purchaser;
(c) any judgment, decree, order or award of any court, governmental body or
arbitrator having jurisdiction over the Purchaser; or
(d) any applicable law, statute, ordinance, regulation or rule.
6.04 Consents and Approvals. There is no requirement for the Purchaser to make
any filing with, give any notice to or obtain any licence, permit, certificate,
registration, authorization, consent or approval of, any government or
regulatory authority as a condition to the lawful consummation of the
transactions contemplated by this Agreement.
6.05 Investment Canada. The Purchaser is a Canadian within the meaning of the
Investment Canada Act.
6.06 GST Registration. The Purchaser is a registrant for purposes of the ETA
whose registration number is 124926544RT0001.
6.07 International Menu Solutions Corporation. ANM Holdings Corporation, a
corporation incorporated pursuant to the laws of the State of Nevada, changed
its name by a Certificate of Amendment dated July 15, 1998 to International Menu
Solutions Corporation.
ARTICLE VII
SURVIVAL OF COVENANTS, REPRESENTATIONS
AND WARRANTIES
7.01 Survival of Covenants, Representations and Warranties. To the extent that
they have not been fully performed at or prior to the Time of Closing, the
covenants, representations and warranties contained in this Agreement and in all
certificates and documents delivered pursuant to or contemplated by this
Agreement shall survive the closing of the transactions contemplated hereby and
shall continue for the applicable limitation period notwithstanding such closing
nor any investigation made by or on behalf of the party entitled to the benefit
thereof; provided, however,
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that the representations and warranties set out in Article V and the
corresponding representations and warranties set out or incorporated in the
certificates to be delivered pursuant to subsection 9.01(a) (other than those
contained in Section 5.01, 5.02, 5.03, 5.06, 5.08, 5.23, 5.27 and 8.09 shall
terminate on the second anniversary of the Closing Date.
ARTICLE VIII
COVENANTS
8.01 Access to Purchased Business and Purchased Assets. The Vendor shall
forthwith make available to the Purchaser and its authorized representatives
and, if requested by the Purchaser, provide a copy to the Purchaser of, all
title documents, Contracts, financial statements, policies, plans, reports,
licences, orders, permits, books of account, accounting records and all other
documents, information and data relating to the Purchased Business. The Vendor
shall afford the Purchaser and its authorized representatives every reasonable
opportunity to have free and unrestricted access to the Purchased Assets and all
other property and assets utilized in the Purchased Business. At the request of
the Purchaser, the Vendor shall execute such consents, authorizations and
directions as may be necessary to permit any inspection of the Purchased
Business or any of the Purchased Assets or to enable the Purchaser or its
authorized representative to obtain full access to all files and records
relating to any of the Purchased Assets maintained by governmental or other
public authorities. At the Purchaser's request, the Vendor shall co-operate with
the Purchaser in arranging any such meetings as the Purchaser should reasonably
request with:
(a) employees employed in the Purchased Business;
(b) customers, suppliers, distributors or others who have or have had a
business relationship with the Vendor in respect of the Purchased Business; and
(c) the auditors, solicitors or any other persons engaged or previously
engaged to provide services to the Vendor who have knowledge of matters relating
to the Purchased Business or Purchased Assets.
In particular, without limitation, the Vendor shall permit the Purchaser's
representatives or consultants to conduct all such testing and inspection in
respect of environmental matters at such locations of the Purchased Business as
the Purchaser may determine, in its sole discretion, as may be required to
satisfy the Purchaser in respect of such matters and the Vendor shall conduct,
in co-operation with the representatives or consultants of the Purchaser, such
physical review of the equipment of the Purchased Business as is necessary so as
to enable the confirmation of the values carried on the balance sheets of the
Vendor in respect of such assets, to the reasonable satisfaction of the
Purchaser. The exercise of any rights of inspection by or on behalf of the
Purchaser under this Section 8.01 shall not mitigate or otherwise affect any of
the representations and warranties of the Vendor hereunder, which shall continue
in full force and effect as provided in Section 7.01.
8.02 Delivery of Books and Records. At the Time of Closing, there shall be
delivered to the Purchaser by the Vendor all the books and records described in
subsection 2.01(1). The Purchaser
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agrees that it will preserve the books and records so delivered to it for a
period of three (3) years from the Closing Date, or for such longer period as is
required by any applicable law, and will permit the Vendor or its authorized
representatives reasonable access thereto in connection with the affairs of the
Vendor relating to its matters, but the Purchaser shall not be responsible or
liable to the Vendor for or as result of any accidental loss or destruction of
or damage to any such books or records.
8.03 Use of Name. Following the closing the Vendor acknowledges and agrees not
to use the name Pasta Kitchen under any circumstance and all correspondence or
any other communications of the Vendor shall not include the name Pasta Kitchen.
8.04 Conduct of Purchased Business Prior to Closing. Without in any way limiting
any other obligations of the Vendor hereunder, during the period from the date
hereof to the Time of Closing:
(a) Conduct Business in the Ordinary Course. The Vendor shall conduct the
Purchased Business only in the ordinary and normal course consistent with past
practice and the Vendor shall not, without the prior written consent of the
Purchaser, enter into any transaction or refrain from doing any action that, if
effected before the date of this Agreement, would constitute a breach of any
presentation, warranty, covenant or other obligation of the Vendor contained
herein, and the Vendor shall not enter into any material supply arrangements
relating to the Purchased Business or make any material decisions or enter into
any material Contracts with respect to the Purchased Business without the
consent of the Purchaser, which consent shall not be unreasonably withheld;
(b) Continue Insurance. The Vendor shall continue to maintain in full force
and effect all policies of insurance or renewals thereof now in effect, shall
take out, at the expense of the Purchaser, such additional insurance as may be
reasonably requested by the Purchaser and shall give all notices and present all
claims under all policies of insurance in a due and timely fashion;
(c) Regulatory Consents. Not applicable.
(d) Contractual Consents. The Vendor shall use its best efforts to give or
obtain, at or prior to the Time of Closing, the notices, consents and approvals
described in Schedule 16;
(e) Preserve Goodwill. The Vendor shall use its best efforts to preserve
intact the Purchased Business and Purchased Assets and to carry on the Purchased
Business as currently conducted, and the Vendor shall use its best efforts to
promote and preserve for the Purchaser the goodwill of suppliers, customers and
others having business relations with the Vendor;
(f) Discharge Liabilities. The Vendor shall pay and discharge the
liabilities of the Vendor relating to the Purchased Business in the ordinary
course in accordance and consistent with the previous practice of the Vendor,
except those contested in good faith by the Vendor;
(g) Corporate Action. The Vendor shall use its best efforts to take or
cause to be
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taken all necessary corporate action, steps and proceedings to approve or
authorize validly and effectively the transfer of the Purchased Assets to the
Purchaser and the execution and delivery of this Agreement and the other
agreements and documents contemplated hereby and to cause all necessary meetings
of directors and shareholders of the Vendor to be held for such purpose;
(h) Best Efforts. The Vendor shall use its best efforts to satisfy the
conditions contained in Section 9.01 including, without limitation, the
condition contained in subsection 9.01(e); and
(i) Withdrawal of Funds. The Vendor shall not (a) pay an dividends or
provide for the repatriation of capital of the Vendor to the Vendor's
shareholders; (b) pay any fees or reimburse any expenses or provide any other
monetary compensation to the directors of the Vendor; and (c) pay any bonus or
reimburse any expenses of provide any other monetary compensation to officers
and employees of the Vendor other than base compensation consistent with that
paid by the Vendor during the period prior to June 30, 1998.
8.05 Delivery of Conveyancing Documents. The Vendor shall deliver to the
Purchaser all necessary deeds, conveyances, bills of sale, assurances,
transfers, assignments and any other documentation necessary or reasonably
required to transfer the Purchased Assets to the Purchaser with a good and
marketable title, free and clear of all Encumbrances whatsoever except for
Permitted Encumbrances.
8.06 Retail Sales Tax Certificate. The Vendor shall deliver to the Purchaser a
certificate issued by the Minister of Revenue of Ontario under subsection 6(1)
of the Retail Sales Tax Act (Ontario).
8.07 Delivery of Vendor's Closing Documentation. The Vendor shall deliver to the
Purchaser a certificate of status and three (3) copies, certified by a senior
officer of the Vendor as the Closing Date, of its constating documents and
by-laws and of the resolution authorizing the execution, delivery and
performance by the Vendor of this Agreement and any documents to be provided by
it pursuant to the provisions hereof. The Vendor shall also execute and deliver
or cause to be executed and delivered to the Purchaser three (3) copies of such
other documents relevant to the closing of the transactions contemplated hereby
as the Purchaser, acting reasonably, may request.
8.08 Delivery of Purchaser's Closing Documentation. The Purchaser shall deliver
to the Vendor a certificate of status and three (3) copies, certified by a
senior officer of the Purchaser as of the Closing Date, of its constating
documents and by-laws and of the resolution authorizing the execution, delivery
and performance by the Purchaser of this Agreement and any documents to be
provided by it pursuant to the provisions hereof. The Purchaser shall also
execute and deliver or cause to be executed and delivered two (2) copies of such
other documents relevant to the closing of the transactions contemplated hereby
as the Vendor, acting reasonably, may request.
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8.09 Employees.
(a) The Vendor agrees to provide the Purchaser with an up-to-date list of
the names of the Employees at least two (2) Business Days and not more than four
(4) Business Days prior to the Closing Date. The Purchaser agrees that it shall
offer employment to all Employees on such list, effective as at the Time of
Closing, on substantially the same terms and conditions of employment as are
then applicable to the Employees. The Vendor shall indemnify and hold harmless
the Purchaser from and against all Losses suffered or incurred by the Purchaser
as a result of or arising directly or indirectly out of, in connection with or
pursuant to any claims by any employees of the Purchased Business, other than
claims by Transferred Employees who accept the Purchaser's offers of employment
with respect to their employment with the Purchaser. No employee of the
Purchased Business shall be entitled to any rights under this subsection 8.09(a)
or under any other provisions of this Agreement. The Vendor and the president of
the Vendor, Biagio Fusca, shall on a joint and several basis, indemnify and hold
harmless the Purchaser from and against all claims by Adriano V. Fusca
("Adriano") as a result of the termination of employment of Adriano, it being
acknowledged by the parties that the Purchaser will hire Adriano on the Closing
Date provided that the Purchaser shall not be responsible for any costs with
respect to the termination of the employment of Adriano with respect to the
period of employment of Adriano with the Vendor prior to the Closing Date.
(b) The Vendor shall employ all the employees set out in Schedule 4 until
the Time of Closing, except for any employees who prior to the Time of Closing:
(i) are terminated for cause;
(ii) are terminated with the Purchaser's consent, which consent
shall not be unreasonably withheld;
(iii) voluntarily resign; or
(iv) retire.
The Vendor shall not attempt in any way to discourage any of the Employees
from accepting any offer of employment to be made by the Purchaser and shall not
solicit the services of any of the Employees during the two (2) year period
following the Closing Date without the consent in writing of the Purchaser,
which consent may be unreasonably withheld.
8.10 Employee Plans. The Vendor has not maintained or provided any employee
benefit plans and accordingly the Purchaser shall not assume any liability for
benefits under any employee plans of any kind.
8.11 Purchaser's Special Undertaking. The Purchaser undertakes to continue to
operate the Pasta Kitchen Division during the one year period from and including
October 9, 1998 to and including October 8, 1999 on a basis with sufficient
inventory, staff, capital, marketing and sales not less than
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that applied by the Vendor during the twelve month period preceding October 1,
1998.
8.12 Tax Credits. The Vendor agrees with the Purchaser that the Purchaser shall
receive as part of the Purchased Assets all right, title and interest of the
Vendor to all claims and refunds for scientific research tax credits that may be
available to the Vendor for the period to and including the Closing Date.
ARTICLE IX
CONDITIONS OF CLOSING
9.01 Conditions of Closing in Favour of the Purchaser. The sale and purchase of
the Purchased Assets is subject to the following terms and conditions for the
exclusive benefit of the Purchaser, to be performed or fulfilled at or prior to
the Time of Closing:
(a) Representations and Warranties. The representation and warranties of
the Vendor contained in this Agreement shall be true and correct at the Time of
Closing with the same force and effect as if such representations and warranties
were made at and as of such time, and a certificate of the President of the
Vendor, dated the Closing Date, to that effect shall have been delivered to the
Purchaser, such certificate to be in form and substance satisfactory to the
Purchase, acting reasonably;
(b) Covenants. All of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Vendor at or before the Time of Closing
shall have been complied with or performed, and a certificate of the President
of the Vendor, dated the Closing Date, to that effect shall have been delivered
to the Purchaser, such certificate to be in form and substance satisfactory to
the Purchaser, acting reasonably;
(c) Contractual Consents. The Vendor shall have given or obtained the
notices, consents and approvals described in Schedule 9, in each case in form
and substance satisfactory to the Purchaser, acting reasonably;
(d) Not applicable.
(e) Non-Competition Agreement. The Vendor and Biagio Fusca shall have
executed and delivered to the Purchaser a non-competition agreement in the form
of the non-competition agreement annexed hereto as Schedule 11;
(f) Indemnity. The Vendor and Biagio Fusca shall have delivered to the
Purchaser an indemnity in form and substance acceptable to the Purchaser as
required by Section 8.09(a);
(g) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Assets contemplated hereby;
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(h) No Material Damage. No material damage by fire or other hazard to the
whole or any material part of the Purchased Assets shall have occurred from the
date hereof to the Time of Closing;
(i) No Material Adverse Change. There shall have been no material adverse
changes in the condition (financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of the Purchased Business since the
date of the Financial Statements;
(j) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, and all legal
matters relating to the purchase of the Purchased Assets, including title of the
Vendor to the Purchased Assets, shall have been approved as to form and legality
by McCarter Grespan Robson Beynon, counsel for the Purchaser, acting reasonably;
(k) Legal Opinion. The Vendor shall have delivered to the Purchaser a
favourable opinion of counsel to the Vendor in the form annexed hereto as
Schedule 21;
(l) Employment Agreement. The Purchaser shall have entered into an
employment agreement with Biagio Fusca to manage the Pasta Kitchen Division of
the Purchaser;
(m)Lease and Sub-lease. The lease for the Leased Property shall have been
amended in writing with the terms and conditions of such amendment to be
acceptable to the Purchaser;
(n) Sub-lease. The Purchaser shall have entered into a sub-lease with the
Vendor for the lease of the Leased Property, such sub-lease to be on terms and
conditions acceptable to the Purchaser;
(o) Lease Payments. All payments required to be made under the Vendor's
lease for the Leased Property shall be current and the parties shall adjust for
any amounts that are applicable for the period prior to the Closing Date that
have not been paid by the Vendor;
(p) Insurance on Leased Property. The insurance maintained by the Vendor on
the Leased Property shall have been assigned to the Purchaser;
(q) Small Business Development Loan. The small business development loan of
the Vendor shall be assumed or discharged as at the Closing Time on a basis
acceptable to the Purchaser;
(r) Inventory at Time of Closing. The Vendor and the Purchaser shall cause
to be completed an inventory of the Vendor's inventory assets at the close of
business on the day preceding the Closing Date and such inventory shall be
acceptable to the Purchaser; and
(s) Delivery of Other Closing Documents. The delivery to the Purchaser of
such other closing documents required to complete the sale and purchase of the
Purchased Assets.
If any of the conditions contained in this Section 9.01 shall not be
performed or fulfilled at
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or prior to the Time of Closing to the satisfaction of the Purchaser, acting
reasonably, the Purchaser may, by notice to the Vendor, terminate this Agreement
and the obligations of the Vendor and the Purchaser under this Agreement, other
than the obligations contained in Sections 12.02, 12.03 and 12.04, provided that
the Purchaser may also bring an action pursuant to Article XI against the Vendor
for damages suffered by the Purchaser where the non-performance or
non-fulfilment of the relevant condition is a result of a breach of covenant,
representation or warranty by the Vendor. Any such condition may be waived in
whole or in part by the purchaser without prejudice to any claims it may have or
breach of covenant, representation or warranty.
9.02 Conditions of Closing in Favour of the Vendor. The sale and purchase of the
Purchased Assets is subject to the following terms and conditions for the
exclusive benefit of the Vendor, to be performed or fulfilled at or prior to the
Time of Closing:
(a) Representations and Warranties. The representations and warranties of
the Purchaser contained in this Agreement shall be true and correct at the Time
of Closing with the same force and effect as if such representations and
warranties were made at and as of such time, and a certificate of the President
of the Purchaser, dated the Closing Date, to that effect shall have been
delivered to the Vendor, such certificate to be in form and substance
satisfactory to the Vendor, acting reasonably;
(b) Covenants. All of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Purchaser at or before the Time of
Closing shall have been complied with or performed, and a certificate of the
President of the Purchaser, dated the Closing Date, to that effect shall have
been delivered to the Vendor, such certificate to be in form and substance
satisfactory to the Vendor, acting reasonably;
(c) Regulatory Consents. There shall have been obtained from all
appropriate federal, provincial, municipal or other governmental or
administrative bodies such licences, permits, consents, approvals, certificates,
registrations and authorization as are required to be obtained by the Purchaser
to permit the change of ownership of the Purchased Assets contemplated hereby,
including those described in Schedule 15, in each case in form and substance
satisfactory to the Vendor, acting reasonably;
(d) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Assets contemplated hereby;
(e) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, shall have been
approved as to form, and legality by Ronald Reim, counsel for the Vendor, acting
reasonably; and
(s) Delivery of Other Closing Documents. The delivery to the Vendor of such
other closing documents required to complete the sale and purchase of the
Purchased Assets.
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If any of the conditions contained in this Section 9.02 shall not be
performed or fulfilled at or prior to the Time of Closing to the satisfaction of
the Vendor acting reasonably, the Vendor may, by notice to the Purchaser,
terminate this Agreement and the obligations of the Vendor and the Purchaser
under this Agreement, other than the obligations contained in Sections 12.02,
12.03 and 12.04, provided that the Vendor may also bring an action pursuant to
Article XI against the Purchaser of damages suffered by it where the
non-performance or non-fulfilment of the relevant condition is as a result of a
breach of covenant, representation or warranty by the Purchaser. Any such
condition may be waived in whole or in part by the Vendor without prejudice to
any claims it may be have for breach of covenant, representation or warranty.
ARTICLE X
CLOSING DATE AND TRANSFER OF POSSESSION
10.01 Transfer. Subject to compliance with the terms and conditions hereof, the
transfer of possession of the Purchased Assets shall be deemed to take effect as
at the opening of business on the Closing Date.
10.02 Place of Closing. The closing shall take place at the Time of Closing at
the offices of McCarter Grespan Robson Beynon, counsel for the Purchaser, 675
Riverbend Drive, Kitchener, Ontario N2K 3S3.
10.03 Further Assurances. From the time subsequent to the Closing Date, each
party to this Agreement covenants and agrees that it will at all times after the
Closing Date, at the expense of the requesting party, promptly execute and
deliver all such documents, including, without limitation, all such additional
conveyances, transfers, consents and other assurances and do all such other acts
and things as the other party, acting reasonably, may from time to time request
be executed or done in order to better evidence or perfect or effectuate any
provision of this Agreement or of any agreement or other document executed
pursuant to this Agreement or any of the respective obligations intended to be
created hereby or thereby.
10.04 Risk of Loss. From the date hereof up to the Time of Closing, the
Purchased Assets shall be and remain at the risk of the Vendor. If, prior to the
Time of Closing, all or any part of the Purchased Assets that are necessary to
carry on the Purchased Business as currently conducted are destroyed or damaged
by fire or any other casualty or shall be appropriated, expropriated or seized
by governmental or other lawful authority, unless the Purchaser terminates its
obligations under this Agreement as contemplated by Section 9.01, the Purchaser
shall complete the purchase without reduction of the Purchase Price, in which
event all proceeds of insurance or compensation for expropriation or seizure
shall be paid to be Purchaser at the Time of Closing and all right and claim of
the Vendor to any such amounts not paid by the Closing Date shall be assigned at
the Time of Closing to the Purchaser.
ARTICLE XI
INDEMNIFICATION
11.01 Indemnification by the Vendor. The Vendor agrees to indemnify and save
harmless the
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Purchaser from all Losses suffered or incurred by the Purchaser as a result of
or arising directly or indirectly out of or in connection with:
(a) any breach by the Vendor of or any inaccuracy of any representation or
warranty of the Vendor contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto (provided that the
Vendor shall not be required to indemnify or save harmless the Purchaser in
respect of any breach or inaccuracy of any representation or warranty unless the
Purchaser shall have provided notice to the Vendor in accordance with Section
11.03 on or prior to the expiration of the applicable time period related to
such representation and warranty as set out in Section 7.01);
(b) any breach or non-performance by the Vendor of any covenant to be
performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto; and
(c) the operations of the Purchased Business up to the Time of Closing.
11.02 Indemnification by the Purchaser. The Purchaser agrees to indemnify and
save harmless the Vendor from all Losses suffered or incurred by the Vendor as a
result of or arising directly or indirectly out of or in connection with:
(a) any breach by the Purchaser of or any inaccuracy of any representation
or warranty contained in this Agreement or in any agreement, instrument,
certificate or other document delivered pursuant hereto;
(b) any breach or non-performance by the Purchaser of any covenant to be
performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto; and
(c) the operations of the Purchaser Business after the Time of Closing
including, without limitation, any failure by the Purchaser to pay, satisfy,
discharge, perform or fulfil any of the Assumed Liabilities.
11.03 Notice of Claim. In the event that a party (the "Indemnified Party") shall
become aware of any claim, proceeding or other matter (a "Claim") in respect of
which the other party (the "Indemnifying Party") agreed to indemnify the
Indemnified Party pursuant to this Agreement, the Indemnified Party shall
promptly give written notice thereof to the Indemnifying Party. Such notice
shall specify whether the Claim arises as a result of a claim by a person
against the Indemnified Party (a "Third Party Claim") or whether the Claim does
not so arise (a "Direct Claim"), and shall also specify with reasonable
particularity (to the extent that the information is available):
(a) the factual basis for the Claim; and
31
<PAGE>
(b) the amount of the Claim, if known.
If, through the fault of the Indemnified Party, the Indemnifying Party does not
receive notice of any Claim in time to effectively contest the determination of
any liability susceptible of being contested, the Indemnifying Party shall be
entitled to set off against the amount claimed by the Indemnified Party the
amount of any Losses incurred by the Indemnifying Party resulting from the
Indemnified Party's failure to give such notice on a timely basis.
11.04 Direct Claims. With respect to any Direct Claim, following receipt of
notice from the Indemnified Party of the Claim, the Indemnifying Party shall
have seven (7) days to make such investigation of the Claim as is considered
necessary or desirable. For the purpose of such investigation, the Indemnified
Party shall make available to the Indemnifying Party the information relied upon
by the Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request. If both parties
agree at or prior to the expiration of such seven (7) day period (or any
mutually agreed upon extension thereof) to the validity and amount of such
Claim, the Indemnifying Party shall immediately pay to the Indemnified Party the
full agreed upon amount of the Claim, failing which the matter shall be referred
to binding arbitration is such manner as the parties may agree or shall be
determined by a court of competent jurisdiction.
11.05 Third Party Claims. With respect to any Third Party Claim, the
Indemnifying Party shall have the right, at its expense, to participate in or
assume control of the negotiation, settlement or defence of the Claim and, in
such event, the Indemnifying Party shall reimburse the Indemnified Party for all
the Indemnified Party's out-of-pocket expenses as a result of such participation
or assumption. If the Indemnifying Party elects to assume such control, the
Indemnified Party shall have the right to participate in the negotiation,
settlement or defence of such Third Party Claim and to retain counsel to act on
its behalf, provided that the fees and disbursements of such counsel shall be
paid by the Indemnified Party unless the Indemnifying Party consents to the
retention of such counsel or unless the named parties to any action or
proceeding include both the Indemnifying Party and the Indemnified Party and a
representation of both the Indemnifying Party and the Indemnified Party by the
same counsel would be inappropriate due to the actual or potential differing
interests between them (such as the availability of different defense). If the
Indemnifying Party, having elected to assume such control, thereafter fails to
defend the Third Party Claim within a reasonable time, the Indemnified Party
shall be entitled to assume such control and the Indemnifying Party shall be
bound by the results obtained by the Indemnified Party with respect to such
Third Party Claim. If any Party Claim is of a nature such that the Indemnified
Party is required by applicable law to make a payment to any person (a "Third
Party") with respect to the Third Party Claim before the completion of
settlement negotiations or related legal proceedings, the Indemnified Party may
make such payment and the Indemnifying Party shall, forthwith after demand by
the Indemnified Party, reimburse the Indemnified Party for such payment. If the
amount of any liability of the Indemnified Party under the Third Party Claim in
respect of which such a payment was made, as finally determined, is less than
the amount that was paid by the Indemnifying Party to the Indemnified Party, the
Indemnified Party shall, forthwith after receipt of the difference from the
Third Party, pay the amount of such difference to the Indemnifying Party.
32
<PAGE>
11.06 Settlement of Third Party Claims. If the Indemnifying Party fails to
assume control of the defence of any Third Party Claim, the Indemnified Party
shall have the exclusive right to contest, settle or pay the amount claimed.
Whether or not the Indemnifying Party assumes control of the negotiation,
settlement or defence of any Third Party Claim, the Indemnifying Party shall not
settle any Third Party Claim without the written consent of the Indemnified
Party, which consent shall not be unreasonably withheld or delayed; provided,
however, that the liability of the Indemnifying Party shall be limited to the
proposed settlement amount if any such consent is not obtained for any reason.
11.07 Co-operation. The Indemnified Party and the Indemnifying Party shall
co-operate fully with each other with respect to Third Party Claims, and shall
keep each other fully advised with respect thereto (including supplying copies
of all relevant documentation promptly as it becomes available).
11.08 Exclusivity. The provisions of this Article XI shall apply to any Claim
for breach of any covenant, representation, warranty of other provision of this
Agreement or any agreement, certificate or other document delivered pursuant to
this Agreement (other than a claim for specific performance or injunctive
relief) with the intent that all such Claims shall be subject to the limitations
and other provisions contained in this Article XI.
ARTICLE XII
MISCELLANEOUS
12.01 Notices.
(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered in person, transmitted by
telecopy or similar means of recorded electronic communication or sent by
registered mail, charges prepaid, addressed as follows:
(i) if to the Vendor:
1218951 Ontario Limited
d.b.a. Pasta Kitchen
26 Milford Avenue
North York, Ontario
M6M 2V8
Attention: Mr. Biagio Fusca, President
Telecopier No.:
(ii) if the Purchaser:
Prime Foods Processing Inc.
172 King Street East
Toronto, Ontario
M5A 1J3
Attention: Michael A. Steele, Secretary-Treasurer
Telecopier No.: (416) 947-1023
33
<PAGE>
(b) Any such notice or other communication shall be deemed to have been
given and received on the day on which it was delivered transmitted (or, if such
day is not a Business Day, on the next following Business Day) or, if Mailed, on
the third Business Day following the date of mailing; provided, however, that if
at the time of mailing or within three Business Days there-after there is or
occurs a labour dispute or other event that might reasonably be expected to
disrupt the delivery of documents by mail, any notice or other communication
hereunder shall be delivered or transmitted by means of recorded electronic
communication as aforesaid.
(c) Either party may at any time change its address for service from time
to time by giving notice to the other party in accordance with this Section
12.01.
12.02 Commissions, etc. The Vendor agrees to indemnify and save harmless the
Purchaser from and against all Losses suffered or incurred by the Purchaser in
respect of any commission of other remuneration payable or alleged to be payable
to any broker, agent or other intermediary who purports to act or have acted for
or on behalf of the Vendor.
12.03 Consultation. The parties shall consult with each other before issuing any
press release or making any other public announcement with respect to this
Agreement or the transactions contemplated hereby and, except as required by any
applicable law or regulatory requirement, neither of them shall issue any such
press release or make any such public announcement without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed.
12.04 Disclosure. Prior to any public announcement of the transaction
contemplated hereby pursuant to Section 12.03, neither party shall disclose this
Agreement or any aspects of such transaction except to its board of directors,
its senior management, its legal, accounting, financial or other professional
advisors, any financial institution contacted by it with respect to any
financing required in connection with such transaction and counsel to such
institution, or as may be required by any applicable law or any regulatory
authority or stock exchange having jurisdiction.
12.05 Assignment by Purchaser. The Purchaser may assign its right under this
Agreement in whole or in part to any other person; provided, however, that any
such assignment shall not relieve the Purchaser from any of its obligations
hereunder.
12.06 Best Efforts. The parties acknowledge and agree that, for all purpose of
this Agreement, an obligation on the part of either party to use its best
efforts to obtain any waiver, consent, approval, permit, licence of other
document shall not require such party to make any payment to any person for the
purpose of procuring the same, other than payments for amounts due and payable
to such person, payments for incidental expenses incurred by such person and
payments required by any applicable law or regulation.
12.07 Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties.
34
<PAGE>
1218951 ONTARIO LIMITED
Per: /s/ Biagio Fusca
------------------------
Title: President
------------------------
PRIME FOODS PROCESSING INC.
Per: /s/ Michael Steele
------------------------
Title: Secretary - Treasurer
------------------------
35
<PAGE>
THIS IS SCHEDULE 1 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
.
Leased Real Property
26 Milford Avenue
Toronto, Ontario
M6M 2V8
Lease
Landlord: 1117423 Ontario Ltd.
Tenant: 1218951 Ontario Limited
Date of Lease: February 1, 1997
Date of Amendment: October 9, 1998
36
<PAGE>
THIS IS SCHEDULE 2 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Machinery and Equipment
37
<PAGE>
THIS IS SCHEDULE 3 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Material Contracts
1. Sublease of Leased Premises
2. Karen DeSouza Commissioned Sales Agent Agreement at 5% of Gross Sales
3. Bank of Montreal Lease of Computer
38
<PAGE>
THIS IS SCHEDULE 4 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Employee Matters
<TABLE>
<CAPTION>
Biweekly
Name Start Date Position Salary/Hourly Rate
- - ---- ---------- -------- ------------------
<S> <C> <C> <C>
Adriano Fusca Jan. 20/97 $1,200.00 salary
Roger Falconi Jan. 20/97 Salesman $ 800.00 salary
Ashok Master Jan. 20/97 Accountant $1,000.00 salary
Chiara Rauti Jan. 20/97 Chef $ 14.00 per hour
Nelly Servello Jan. 20/97 Kitchen-help $ 7.00 per hour
Teofilo Trumata Jan. 20/97 Kitchen-help $ 10.00 per hour
Giuseppina Monteleone Jan. 20/97 Kitchen-help $ 9.00 per hour
Josie Cuda Jan. 20/97 Kitchen-help $ 10.00 per hour
Gilda Di Sousa Jan. 20/97 Kitchen-help $ 8.00 per hour
Elizabet Marola Zambrano Jul. 07/97 Kitchen-help $ 7.00 per hour
Julie Vitalone Sep. 28/98 Kitchen-help $ 7.00 per hour
</TABLE>
39
<PAGE>
THIS IS SCHEDULE 5 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Insurance
Policy No.: 4-156692
INDUSTRIAL PACKAGE POLICY
Effective Date: 07-Nov-1997
Expiry Date: 07-Nov-1998
Insurer: The Citadel General Assurance Company
Premium: $3,550.00
40
<PAGE>
THIS IS SCHEDULE 6 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Intellectual Property
1. Trade Mark : Pasta Kitchen Inc.
2. Recipes
41
<PAGE>
THIS IS SCHEDULE 7 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Allocation of Purchase Price
Inventory $_______________
Equipment $_______________
Receivables $_______________
Goodwill $_______________
42
<PAGE>
THIS IS SCHEDULE 8 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Location of Assets
26 Milford Avenue
Toronto, Ontario
43
<PAGE>
THIS IS SCHEDULE 9 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Third Party Consents
1. The approval of the shareholders of the Vendor.
2. The approval and consent of the Landlord under the Lease.
3. Bank of Montreal computer lease.
44
<PAGE>
THIS IS SCHEDULE 10 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Major Customers
1. National Grocers
45
<PAGE>
THIS IS SCHEDULE 11 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Non-Competition Agreement
46
<PAGE>
THIS IS SCHEDULE 12 TO THE ASSET PURCHASE AGREEMENT BETWEEN 1218951 ONTARIO
LIMITED AND PRIME FOODS PROCESSING INC.
- - --------------------------------------------------------------------------------
Opinion of Vendor's Counsel
47
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 30th day of November, 1998, BETWEEN:
VICTOR FRADKIN,
of the City of Richmond Hill, in the Regional Municipality of York
(hereinafter called "Victor"),
RHYS QUIN,
of the City of Toronto, in the Municipality of Metropolitan Toronto
(hereinafter called "Rhys"),
LAUDERDALE CAPITAL CORP.,
a corporation incorporated under the laws of the Province of Ontario
(hereinafter called "Lenco"),
LARRY HOFFMAN,
of the City of Toronto, in the Municipality of Metropolitan Toronto
(hereinafter called "Larry")
(Victor, Rhys, Lenco and Larry being hereinafter collectively called
the "Vendors")
OF THE FIRST PART,
- and -
INTERNATIONAL MENU SOLUTIONS INC.,
a corporation incorporated under the laws of the Province of Ontario,
(hereinafter called the "Purchaser")
OF THE SECOND PART,
- and -
INTERNATIONAL MENU SOLUTIONS CORPORATION,
a corporation incorporated under the laws of the State of Nevada
(hereinafter called "IMSC")
OF THE THIRD PART.
WHEREAS the Purchaser wishes to acquire (a) all of the issued and
outstanding shares of Transcontinental Gourmet Foods Inc. (herein called the
"Corporation" and "TGF"), and (b) 59% of the issued and outstanding shares of
Norbakco Ltd. (herein called "Norbakco");
<PAGE>
2
AND WHEREAS Victor is the sole shareholder of 1069924 Ontario Limited
(herein called "Victorco") and Victor owns 30 common shares in the capital stock
of Victorco (herein called the "Victorco Shares") and 1,068 Class A Special
shares in the capital of the Corporation (the "Victor Preferred Shares");
AND WHEREAS Victorco is the owner of (a) 5,143.2 common shares in the
capital stock of the Corporation (herein called the "Victorco Corp Shares"), and
(b) 80 common shares (herein called the "Victorco VLRL Shares") in the capital
stock of VLRL Holdings Ltd. (herein called "VLRL");
AND WHEREAS VLRL is the legal and beneficial owner of 50% of the issued and
outstanding common shares in the capital stock of Norbakco being 100 common
shares in the capital stock of Norbakco (herein called the "VLRL Norbakco
Shares");
AND WHEREAS Rhys is the sole shareholder of 1069923 Ontario Limited (herein
called "Rhysco") and Rhys owns 30 common shares in the capital stock of Rhysco
(herein called the "Rhysco Shares") and 129 Class A Special shares in the
capital of the Corporation (the "Rhys Preferred Shares");
AND WHEREAS Rhysco is the owner of (a) 2,571.6 common shares in the capital
stock of the Corporation (herein called the "Rhysco Corp Shares"), and (b) 40
common shares in the capital stock of VLRL (herein called the "Rhysco VLRL
Shares");
AND WHEREAS Lenco is the owner of (a) 2,571.6 common shares in the capital
stock of the Corporation (herein called the "Lenco Corp Shares"), and (b) 40
common shares in the capital stock of VLRL (herein called the "Lenco VLRL
Shares");
AND WHEREAS Larry is owner of (a) 2,571.6 common shares in the capital
stock of the Corporation (herein called the "Larry Corp Shares"), and (b) 40
common shares in the capital stock of VLRL (herein called the "Larry VLRL
Shares");
AND WHEREAS Larry is the beneficial owner of 9% of the issued and
outstanding common shares in the capital stock of Norbakco being 18 common
shares in the capital stock of Norbakco (herein called the "Larry Norbakco
Shares"), legal title to such Larry Norbakco Shares being held by VLRL in trust
for Larry;
AND WHEREAS the VLRL Norbakco Shares and the Larry Norbakco Shares are
collectively referred to herein as the "Norbakco Shares");
AND WHEREAS the Victor Preferred Shares and the Rhys Preferred Shares
constitute all of the issued and outstanding Class A Special shares in the
capital stock of TGF, the Victor
<PAGE>
3
Preferred Shares and the Rhys Preferred Shares being collectively referred to
herein as the "Preferred Shares";
AND WHEREAS the Purchaser wishes to purchase the Victorco Shares, the
Rhysco Shares, the Lenco Corp Shares, the Lenco VLRL Shares, the Larry Corp
Shares, the Larry VLRL Shares, the Larry Norbakco Shares and the Preferred
Shares (herein collectively called the "Purchased Shares") from the respective
owners thereof and such respective owners wish to sell the Purchased Shares to
the Purchaser on the terms and conditions herein set forth;
AND WHEREAS the parties hereto wish to complete the said sale and purchase
of the Purchased Shares as herein this Agreement provided;
AND WHEREAS for ease of reference the Corporation, Norbakco, Victorco,
Rhysco and VLRL are herein collectively called the "Corporate Entities".
THIS AGREEMENT WITNESS THAT in consideration of the respective covenants,
agreements, representations, warranties and indemnities herein contained and for
other good and valuable consideration (the receipt and sufficiency of which are
acknowledged by each party,) the parties covenant and agree as follows:
ARTICLE I
INTERPRETATION
1.01 Defined Terms
All capitalized terms used in this Agreement and not defined above shall have
meanings set forth in Schedule A to this Agreement.
1.02 Currency
Unless otherwise indicated, all dollar amounts referred to in this
Agreement are expressed in Canadian funds.
1.03 Sections and Headings
The division of this Agreement into sections and the insertion of headings
are for convenience of reference only and shall not affect the interpretation of
this Agreement. Unless otherwise indicated, any reference in this Agreement to a
section or a Schedule refers to the specified section of or Schedule to this
Agreement.
<PAGE>
4
1.04 Number, Gender and Persons
In this Agreements, words importing the singular number only shall include
the plural and vice versa, words importing gender shall include all genders and
words importing persons shall include individuals, corporations, partnerships,
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities.
1.05 Accounting Principles
Any reference in this Agreement to generally accepted accounting principles
refers to generally accepted accounting principles as approved from time to time
by the Canadian Institute of Chartered Accountants or any successor institute.
1.06 Entire Agreement
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral. There are
no conditions, covenants, agreements, representations, warranties or other
provisions, express or implied, collateral, statutory or otherwise, relating to
the subject matter hereof except as herein provided.
1.07 Time of Essence
Time shall be of the essence of this Agreement.
1.08 Applicable Law
This Agreements shall be constructed, interpreted and enforced in
accordance with, and the respective rights and obligations of the parties shall
be governed by, the laws of the Province of Ontario and the federal laws of
Canada applicable therein, and each party hereby irrevocably and unconditionally
submits to the non-exclusive jurisdiction of the courts of such province and all
courts competent to hear appeals therefrom.
1.09 Severability
If any provision of this Agreement is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
determination shall not impair or affect the validity, legality or
enforceability of the remaining provisions hereof, and each provision in hereby
declared to be separate, severable and distinct.
<PAGE>
5
1.10 Successors and Assigns
This Agreement shall enure to the benefit of and shall be binding on and
enforceable by the parties and, where the context so permits, their respective
successors and permitted assigns. Subject to section 3.03, no party may assign
any of its rights or obligations hereunder without the prior written consent of
the other parties.
1.11 Amendment and Waivers
No amendment or waiver of any provision of this Agreement shall be binding
on any party unless consented to in writing by such party. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision,
nor shall any waiver constitute a continuing waiver unless otherwise expressly
provided.
1.12 Schedules
The following Schedules are attached to and form part of this Agreement:
Schedule A - Defined Terms
Schedule B - Representations and Warranties of the Vendors with respect
to the Corporation
- Representations and Warranties of the Vendors with respect
to Norbakco
- Representations and Warranties of the Vendors with respect
to VLRL
Schedule C - Representations and Warranties of Victor
Schedule D - Representations and Warranties of Rhys
Schedule E - Representations and Warranties of Lenco
Schedule F - Representations and Warranties of Larry
Schedule G - Representations and Warranties of the Purchaser
Schedule H - Representations and Warranties of IMSC
Schedule 2.03 - Allocation of Purchase Price
Schedule 4.01(i) - Non-Competition and Non-Solicitation Agreement
Schedule 4.01(j) - Form of Opinion of Vendors' Counsel
Schedule 4.01(l) - Form of Release
Schedule 4.02(j) - Form of Opinion of Purchaser's Counsel
Schedule A1.01(d) - Audited Corporation Financial Statements
Schedule A1.01(y) - Interim Corporation Financial Statements
Schedule A1.01(z) - Interim Norbakco Financial Statements
Schedule A1.01(gg) - Norbakco Permitted Encumbrances
Schedule A1.01(ll) - Rhysco Financial Statements
<PAGE>
6
Schedule A1.01(yy) - Victorco Financial Statements
Schedule A1.01(tt) - TGF Permitted Encumbrances
Schedule A1.02 - Shareholder Loans and Purchased Loans
Schedule B1.07 - Location of TGF Assets
Schedule B1.11 - TGF Leased Real Property
Schedule B1.14 - TGF Intellectual Property
Schedule B1.15 - TGF Insurance Policies
Schedule B1.17 - TGF Contracts
Schedule B1.18 - TGF Licenses and Permits
Schedule B1.19 - TGF Regulatory Consents
Schedule B1.19 - TGF Third Party Consents
Schedule B1.23 - TGF Tax Matters
Schedule B1.27 - TGF Accounts and Attorneys
Schedule B1.28 - TGF Directors and Officers
Schedule B1.32 - TGF Employee Matters
Schedule B1.36 - TGF Major Customers
Schedule B2.07 - Location of Norbakco Assets
Schedule B2.11 - Norbakco Leased Real Property
Schedule B2.14 - Norbakco Intellectual Property
Schedule B2.15 - Norbakco Insurance Policies
Schedule B2.17 - Norbakco Contracts
Schedule B2.18 - Norbakco Licenses and Permits
Schedule B2.19 - Norbakco Regulatory Consents
Schedule B2.19 - Norbakco Third Party Consents
Schedule B2.23 - Norbakco Tax Matters
Schedule B2.27 - Norbakco Accounts and Attorneys
Schedule B2.28 - Norbakco Directors and Officers
Schedule B2.32 - Norbakco Employee Matters
Schedule B2.36 - Norbakco Major Customers
Schedule B3.13 - VLRL Directors and Officers
Schedule C1.13 - Victorco Directors and Officers
Schedule D1.13 - Rhysco Directors and Officers
1.13 Best of Knowledge
Any reference in this Agreement to "the best of the knowledge of the
Vendors" or "the best of the knowledge and belief of the Vendors" will mean the
actual knowledge of the Vendors (which shall be the knowledge of Len Shiffman in
the case of Lenco) and the knowledge which they would have had if they had
conducted a reasonably prudent inquiry into the subject matter.
<PAGE>
7
1.14 Materiality
In this Agreement, "material" when used to describe a contract, lease or
other agreement, means:
(a) in the case of Norbakco, a contract, lease or other agreement with a
term in excess of six (6) months or pursuant to which one or more
payments in excess of $5,000.00 in the aggregate become due; and
(b) in the case of the Corporation, a contract, lease or other agreement
with a term in excess of six (6) months or pursuant to which one or
more payments in excess of $20,000.00 in the aggregate become due.
ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES
2.01 Purchase and Sale of Purchased Shares
Subject to the terms and conditions hereof, each of Victor, Rhys, Lenco and
Larry covenant and agree to sell, assign and transfer to the Purchaser and the
Purchaser covenants and agrees to purchase from each of the Vendors all but not
less than all of:
(a) the Victorco Shares, the Rhysco Shares, the Lenco Corp Shares, the
Lenco VLRL Shares, the Larry Corp Shares, the Larry VLRL Shares, the
Larry Norbakco Shares and the Preferred Shares; and
(b) all shareholder advances and other indebtedness owing by TGF, Norbakco
or VLRL to Larry or Lenco and all shareholder advances, loans or other
indebtedness owing by Victorco to Victor or by Rhysco to Rhys as at
the Closing Date other than accrued salaries, bonuses or other
compensation incurred in the ordinary course of business (collectively
the "Purchased Loans");
2.02 Purchase Price
The aggregate purchase price payable by the Purchaser to the Vendors for
the Purchased Shares and the Purchased Loans (the "Purchase Price") shall be
equal to the sum of the following:
(a) 5 x Adjusted EBITDA of TGF (unconsolidated, excluding Norbakco's
operations) for the twelve (12) month period ending February 28, 1999
(to be based on audited financial statements or at the Purchaser's
option on internal management prepared
<PAGE>
8
financial statements);
(b) 1 x Adjusted EBITDA of TGF (unconsolidated, excluding Norbakco's
operations) for the twelve (12) month period ending February 28, 2000
(to be based on audited financial statements or at the Purchaser's
option on internal management prepared financial statements);
(c) 4 x 0.59 x Adjusted EBITDA of Norbakco for the twelve (12) month
period ending February 28, 2000 (to be based on audited financial
statements or at the Purchaser's option on internal management
prepared financial statements).
For purposes hereof "Adjusted EBITDA" shall mean earnings before interest,
income taxes, depreciation and amortization, as calculated in accordance with
generally accepted accounting principles consistent with the policies used to
prepare the financial statements of TGF and Norbakco in the past adjusted by
adding back any inter-company management fees or allocations of overhead
expenses that are expensed subsequent to the Closing Date in either of TGF or
Norbakco for the relevant period and otherwise adjusting for any other
reorganizational transactions undertaken subsequent to the Closing Date
affecting TGF or Norbakco, the intent of the parties being that the Purchase
Price should be based on a "normalized" EBITDA of the businesses carried by TGF
and Norbakco. In that regard, to the extent that any of Larry's remuneration is
no longer expensed in TGF or Norbakco by virtue of his becoming chief financial
officer of the Purchaser, such expense shall be included as an expense to TGF
and/or Norbakco in determining Adjusted EBITDA at the same cost as is currently
incurred by TGF and Norbakco less the amount of any corresponding new expenses
incurred by TGF or Norbakco to replace Larry. In addition, in the event that the
Purchaser requires an audit to be done as at February 28 (in addition to the
December 31 audit required for its year end) only the costs applicable to TGF
and Norbakco for the December 31 audit shall be expensed through TGF and
Norbakco. Inter-company management fees charged to TGF and Norbakco which are
true operating expenses shall be included for the purpose of determining
Adjusted EBITDA. Any extraordinary expenses due directly to the sale of the
Corporation as contemplated herein shall be deemed to be excluded as an expense
to TGF and/or Norbakco for the purpose of determining Adjusted EBITDA.
2.03 Payment of Purchase Price
The Purchase Price shall be paid partly in cash (herein called the "Cash
Amount" and partly through the issuance of Class B Shares, Class C Shares and
Class D Shares of the Purchaser and Class N Shares of IMSC, (herein called the
"Share Amount") to the Vendors in accordance with Schedule 2.03 hereof.
(a) The Cash Amount. The Cash Amount shall be paid by cash or certified cheque
by two payments, the first payment to be paid on the Closing Date (herein called
the "Closing Cash
<PAGE>
9
Amount", and the second payment to be paid on or before July 31, 1999 herein
called the "Second Cash Payment").
The "Cash Amount" is an amount equal to the book value of TGF as at February 28,
1999 (calculated in accordance with Canadian generally accepted accounting
principles and verified by the audited financial statements of TGF for the
fiscal year ending February 28, 1999) as determined by the auditors of the
Purchaser, Deloitte & Touche, plus the aggregate of all shareholder advances,
loans or other indebtedness owing by TGF or Norbakco to any of the Vendors,
Victorco, Rhysco, Len Shiffman or VLRL as at the Closing Date (other than
accrued salaries, bonuses or other compensation incurred in the ordinary course
of business ) (collectively the "Shareholder Loans").
The "Closing Cash Amount" is the sum of One Million Dollars ($1,000,000.00)
forthwith.
The Second Cash Payment, being the difference between the Cash Amount and the
Closing Cash Amount shall be made forthwith following completion of the
financial statements of TGF for the period ending February 28, 1999 and in the
event that the Purchaser does not require such statements to be audited, then
such statements shall be completed by no later than April 30, 1999, and in the
event that the Purchaser requires such statements to be audited, then such
statements shall be completed no later than (8) weeks after the necessary
internal information has been made available to the Purchaser's auditors,
provided that such payment shall be made by no later than July 31, 1999. Any
balance of the Cash Payment remaining unpaid after May 31, 1999 shall bear
interest at Prime plus 2% per annum until July 31, 1999 and thereafter if still
unpaid at 20% per annum until paid in full.
(b) The Share Amount. The "Share Amount" means the difference between the
Purchase Price and the Cash Amount.
The Share Amount shall be satisfied by the issuance on Closing of an aggregate
of 300,000 Class B Shares, 100,000 Class C Shares and 59,000 Class D Shares
provided that the number of common stock in the capital of IMSC into which such
Class B Shares, Class C Shares and Class D Shares shall be exchangeable shall be
as follows:
(i) the number of common stock of IMSC into which the Class B Shares are
exchangeable shall be determined by the following calculation:
B = 5 x Adjusted EBITDA of TGF for the 12 month period ending
February 28, 1999 (CDN$) - Cash Amount (CDN$)
----------------------------------------------------------
(US$1.40)
(ii) the number of common stock of IMSC into which the Class C Shares are
exchangeable shall be determined by the following calculation:
<PAGE>
10
C = 1 x Adjusted EBITDA of TGF for the 12 month period ending
February 28, 2000 (US$)
---------------------------------------------------------
Z
(iii) the number of common stock of IMSC into which the Class D Shares are
exchangeable shall be determined by the following calculation:
D = 4 x 59% of Adjusted EBITDA of Norbakco for the 12 month period
ending February 28, 2000 (US$)
--------------------------------------------------------------
Z
The shares issued pursuant to this Section 2.03 are herein called the "Purchase
Price Shares".
For purposes hereof, Z equals the lower of US$2.00 or the average of the closing
price for the IMSC common shares for the ten (10) trading days prior to the
February 28, 2000 (ie. as determined in accordance with the definition of the
Current Market Price contained in the Articles of Amendment).
The exchange rate to be applied for any U.S. Dollar/Cdn. Dollar conversion shall
be set at the average of the five day Bank of Canada published rate prior to the
relevant transaction closing date.
(c) Application of the Purchase Price. The Purchase Price shall be allocated in
accordance with Schedule 2.03.
(d) In addition to the foregoing, the Vendors (pro rata to their common
shareholdings in TGF) have the option to purchase common shares in the capital
stock of IMSC at a cost per share equal to Z (as defined above but with
reference to the trading days prior to December 31, 1999 instead of February 28,
2000) as determined pursuant to Section 2.03 hereof. The maximum number of
common shares the Vendors may purchase shall be determined by dividing the
amount of the Adjusted EBITDA of TGF in excess of One Million Dollars
($1,000,000.00) for the twelve (12) month period ending December 31, 1999 (the
"Excess Amount") by Z. Any of the Vendors having such right to purchase must
elect to purchase such common shares during the one (1) year period following
the date of final determination of the Excess Amount after which, the Vendors
shall have no further rights to purchase pursuant to this Section. The Vendors
shall provide fifteen (15) days notice to IMSC of their intention to purchase
such shares.
(e) Issuance of Class N Shares. Upon determination of the number of common stock
of IMSC into which the Vendors are entitled to exchange their Class B Special
Shares, Class C Special Shares and Class D Special Shares respectively, IMSC
shall issue to each of the Vendors at the time of each such determination an
equivalent number of Class N Shares in the capital of IMSC provided that the
Vendors agree that at the time of conversion of Class B Special Shares, Class D
Special Shares or
<PAGE>
11
Class E Special Shares into common stock of IMSC, an equivalent number of Class
N Shares will be surrendered to IMSC for cancellation by the relevant Vendor or
Vendors, as applicable.
2.04 Escrow of Shares
On the Closing Date the Vendors will enter into an escrow agreement with
the Purchaser which will provide that the Class B Shares, Class C Shares and
Class D Shares, including any shares exchanged therefore, shall be held in
escrow and released as follows:
Class B - 1/3 released December 31, 1999,
1/3 released December 31, 2000, and
1/3 released December 31, 2001
Class C and D - 1/3 released December 31, 2000,
1/3 released December 31, 2001, and
1/3 released December 31, 2002
The Vendors further agree that on the Closing Date the Vendors will enter into
an agreement with the Purchaser granting to the Purchaser or the Purchaser's
designee a right of first refusal to Purchase any of the Vendors' Class B
Shares, Class C Shares and/or Class D Shares, or any shares in IMSC into which
such shares are exchanged upon any disposition by any Vendor other than for
estate and/or tax planning purposes and such shares shall have a legend to such
effect.
2.05 Intentionally Deleted
2.06 Arbitration
Any dispute between the parties with respect to the calculation of the
Purchase Price, the Cash Amount, the Share Amount and/or the Excess Amount shall
be submitted to arbitration in accordance with the following provisions:
(a) the arbitrator shall be a professional accountant who is a partner
with Ernst & Young or its successor who is appointed by mutual
agreement of the parties, or in the event the parties are unable to
agree upon an arbitrator within ten (10) days, any party may apply to
a Judge of the Ontario Court (General Division) to appoint a partner
of Ernst & Young as the arbitrator. The arbitrator shall be at
arm's-length from the parties;
(b) the arbitrator shall be instructed that time is of the essence in
proceeding with the determination of the dispute and, in any event,
the arbitration award must be rendered within thirty (30) days of the
submission of such dispute to arbitration;
(c) the arbitration shall take place in Toronto, Ontario;
<PAGE>
12
(d) the arbitration shall be given in writing and shall be final and
binding on all parties, shall not be subject to any appeal and shall
deal with the question of cost of the arbitration and all matters
related thereto;
(e) judgment upon the arbitration award rendered may be entered in any
Court having jurisdiction, or, application may be made to such Court
for a judicial recognition of the arbitration award or any order of
enforcement thereof, as the case may be; and
(f) the law to be applied in connection with the arbitration will be the
law applicable to this Agreement.
ARTICLE III
COVENANTS
3.01 Access to the Corporate Entities
The Vendors shall forthwith make available to the Purchaser and its
authorized representatives and, if requested by the Purchaser, provide a copy to
the Purchaser of, all title documents, contracts, financial statements, minute
books, share certificate books, share registers, plans, reports, licenses,
orders, permits, books of account, accounting records, constating documents and
all other documents, information or data relating to each of the Corporate
Entities and the TGF Business and the Norbakco Business. The Vendors shall
afford the Purchaser and its authorized representatives every reasonable
opportunity to have free and unrestricted access to the TGF Business and the
property, assets, undertaking, records and documents of the Corporation and the
Norbakco Business and the property, assets, undertaking, records and documents
of Norbakco. At the request of the Purchaser, the Vendors shall executed or
cause to be executed such consents, authorizations and directions as may be
necessary to permit any inspection of the TGF Business, the Norbakco Business,
and any property of the Corporation and Norbakco or to enable the Purchaser or
its authorized representatives to obtain full access to all files and records
relating to any of the assets of the Corporation and Norbakco maintained by
governmental or other public authorities. At the Purchaser's request, the
Vendors shall co-operate with the Purchaser in arranging any such meetings as
the Purchaser should reasonably request with:
(a) employees of the Corporation and Norbakco;
(b) customers, suppliers, distributors or others who have or have had a
business relationship with the Corporation and Norbakco; and
(c) auditors, solicitors or any other persons engaged or previously
engaged to provide services to the Corporation and Norbakco who have
knowledge of matters relating
<PAGE>
13
to the Corporation, Norbakco and the TGF Business and the Norbakco Business.
In particular, without limitation, the Vendors shall permit the Purchaser's
representatives or consultants to conduct such testing and inspection in respect
of environmental matters at such location of the TGF Business and the Norbakco
Business as the Purchaser may determine, in its sole discretion, as may be
required to satisfy the Purchaser in respect of such matters, and the Vendors
shall cause the Corporation and Norbakco to conduct, and the Corporation and
Norbakco shall conduct, in co-operation with the representatives or consultants
of the Purchaser, such physical review of the equipment of the TGF Business and
the Norbakco Business as is necessary so as to enable the confirmation of the
values carried on the respective balance sheets of the Corporation and Norbakco
in respect of such assets, to the reasonable satisfaction of the Purchaser. The
exercise of any rights of inspection by or on behalf of the Purchaser under this
section 3.01 shall not mitigate or otherwise affect the representations and
warranties of the Vendor and the Corporation hereunder, which shall continue in
full force and effect as provided herein.
3.02 Delivery of Books and Records
At the Time of Closing there shall be delivered to the Purchaser, by the
Vendors all of the books and records of and relating to each of the Corporate
Entities and the TGF Business and the Norbakco Business. The Purchaser agrees
that it will preserve the books and records so delivered to it for a period of
two (2) years from the Closing Date, or for such longer period as is required by
any applicable law, and will permit the Vendors or their authorized
representatives reasonable access thereto in connection with the affairs of the
Vendors relating to its matters, but the Purchaser shall not be responsible or
liable to the Vendors for or as a result of any accidental loss or destruction
of or damage to any such books or records.
3.03 Delivery of Documents
The Vendors shall deliver to the Purchaser at the Time of Closing all
necessary transfer, assignments and other documentation reasonably required to
transfer the Purchased Shares to the Purchaser with a good and marketable title,
free and clear of all Encumbrances.
3.04 Delivery of Vendors' Closing Documentation
The Vendors shall deliver to the Purchaser all such documents relevant to
the closing of the transaction as contemplated hereby as the Purchaser acting
reasonably may request.
<PAGE>
14
3.05 Delivery of Purchaser's Closing Documentation
The Purchaser shall deliver to each of the Vendors all such documents
relevant to the closing of the transactions contemplated hereby as the Vendors,
acting reasonably, may request.
3.06 Conduct After Closing
The Purchaser acknowledges that the Purchase Price (including the quantum
of the Cash Amount) is significantly affected by the performance of the
Corporation and Norbakco after Closing and accordingly the Purchaser covenants
and agrees to use its best efforts in good faith to cause the Corporation and
Norbakco to conduct the TGF Business and the Norbakco business after Closing in
accordance with prudent business practice and in a manner so as to permit
Adjusted EBITDA to be earned for the relevant period on the basis of the normal
course of business of the TGF Business and the Norbakco Business. Without
limiting the generality of the foregoing, or the intent expressed in section
2.02, the Purchaser covenants and agrees to preserve intact the book value of
TGF so as to ensure that the determination of the Cash Amount shall be
reflective of the book value of TGF as at the date hereof as subsequently
impacted by the ordinary course operations of TGF from the date hereof to
February 28, 1999.
3.07 IMSC Shares
IMSC covenants and agrees to set aside and reserve for issuance to the
Vendors 2,200,000 Class N and 2,200,000 common stock in the capital of IMSC in
connection with the issuance thereof in accordance with subsection 2.03(e) and
pursuant to the exchange and other rights relating to the conversion of the
Class B, Class C and Class D shares in the capital of the Purchaser to be issued
to the Vendors as contemplated herein and in the Articles of the Purchaser.
Should such reservation be determined to be insufficient at the time of
determination of the exchange as set forth herein, IMSC undertakes to issue or
reserve sufficient Class N and common stock in the capital of IMSC to give
effect to such exchange. This covenant includes a covenant to obtain an
amendment to the Articles of IMSC to increase the authorized capital, if
necessary. IMSC further covenants and agrees to fulfil its obligations under the
Registration Rights Agreement dated December 1, 1998 among the Vendors and IMSC.
3.08 Co-Operation
The parties agree to co-operate in good faith with each other and their
respective legal advisors, accountants and other representatives in connection
with any steps required to be taken in connection with this Agreement,
including, without limitation, in connection with any filing necessary pursuant
to the Income Tax Act (Canada).
<PAGE>
15
ARTICLE IV
CONDITIONS OF CLOSING
4.01 Conditions of Closing in Favour of the Purchaser
The sale and purchase of the Purchased Shares is subject to the following
terms and conditions for the exclusive benefit of the Purchaser, to be fulfilled
or performed at or prior to the Time of Closing:
(a) Representations and Warranties. The representations and warranties of
the Vendors contained in this Agreement shall be true and correct at the Time of
Closing, with the same force and effect as if such representations and
warranties were made at and as of such time, and certificates of the Vendors
dated the Closing Date to that effect shall have been delivered to the
Purchaser, such certificates to be in form and substance satisfactory to the
Purchaser, acting reasonably;
(b) Covenants. All of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Vendors at or before the Time of Closing
shall have been complied with or performed and certificates of the Vendors dated
the Closing Date to that effect shall have been delivered to the Purchaser, such
certificates to be in form and substance satisfactory to the Purchaser, acting
reasonably;
(c) Regulatory Consents. There shall have been obtained, from all
appropriate federal, provincial, municipal or other governmental or
administrative bodies, such licenses, permits, consents, approvals,
certificates, registrations and authorizations as are required to be obtained by
the Vendors to permit the change of ownership of the Purchased Shares
contemplated hereby including, without limitation, those described in the
Schedules hereto;
(d) Contractual Consents. The Vendors shall have given or obtained the
notices, consents and approvals described in the Schedules hereto, in each case
in form and substance satisfactory to the Purchaser, acting reasonably;
(e) Material Adverse Change. There shall have been no material adverse
changes in the condition (financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of any of the Corporate Entities
since the date of the most recent financial statements delivered by the relevant
entity pursuant to the provisions of this Agreement.
(f) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Shares contemplated hereby;
<PAGE>
16
(g) No Material Damage. No material damage by fire or other hazard to the
whole or any material part of the property or assets of the Corporation or
Norbakco shall have occurred from the date hereof to the Time of Closing;
(h) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, and all legal
matters relating to the purchase of the Purchased Shares, including title of the
Vendors to the Purchased Shares, shall have been approved as to form and
legality by McCarter Grespan Robson Beynon, counsel for the Purchaser, acting
reasonably;
(i) Non-Competition Agreement. The Vendors shall each have executed and
delivered to the Purchaser a non-competition and non-solicitation agreement in
the form of the non-competition agreement annexed hereto as Schedule 4.01(i);
(j) Legal Opinion. The Vendors shall have delivered to the Purchaser a
favorable opinion of Minden Gross Grafstein & Greenstein, counsel to the
Vendors, in the form annexed hereto as Schedule 4.01(j);
(k) Resignation of Directors and Officers. Such directors and officers of
the Corporation, Norbakco (to the extent such director or officer is a nominee
of the Vendors), VLRL, Victorco and Rhysco as the Purchaser may specify shall
have resigned in favour of nominees of the Purchaser effective as of the Time of
Closing;
(l) Release by Vendor, Directors and Officers. The Vendors and such
directors and officers of the Corporation, Norbakco (to the extent such director
or officer is a nominee of the Vendors), VLRL, Victorco and Rhysco as the
Purchaser may specify shall have executed and delivered, at the Time of Closing,
releases in favour of the Corporation and the Purchaser in the form annexed
hereto as Schedule 4.01(l);
(m) Employment Agreements. The Purchaser shall have entered into employment
agreements with each of Victor, Rhys and Larry;
(n) Share Escrow Agreement. The Vendors shall have entered into an escrow
agreement as required by Section 2.04;
(o) Purchase of Preference Shares and Purchased Loans. All of the issued
and outstanding Preferred Shares shall have been delivered up to the Purchaser
and all of the Purchased Loans shall have been assigned to the Purchaser;
(p) First Right of Refusal. The Vendors shall have entered into an
agreement granting a first right of refusal as required by Section 2.04; and
<PAGE>
17
(q) Option on Norbakco Shares. The Purchaser shall have entered into an
option agreement with respect to the balance of the shares in the capital of
Norbakco which are not being purchased pursuant to the provisions of this
Agreement.
If any of the conditions contained in this section 4.01 shall not be
performed or fulfilled at or prior to the Time of Closing to the satisfaction of
the Purchaser, acting reasonably, the Purchaser may, by notice to the Vendors,
terminate this Agreement and the obligations of the Vendors and the Purchaser
under this Agreement shall be terminated Any such condition may be waived in
whole or in part by the Purchaser without prejudice to any claims it may have
for breach of covenant, representation or warranty.
4.02 Conditions of Closing in Favour of the Vendors
The purchase and sale of the Purchased Shares is subject to the following
terms and conditions for the exclusive benefit of the Vendors, to be fulfilled
or performed at or prior to the Time of Closing:
(a) Representations and Warranties. The representations and warranties of
the Purchaser and IMSC contained in this Agreement shall be true and correct in
all material respects at the Time of Closing, with the same force and effect as
if such representations and warranties were made at and as of such time, and a
certificate of the President of the Purchaser and IMSC dated the Closing Date to
that effect shall have been delivered to the Vendors, such certificate to be in
form and substance satisfactory to the Vendors, acting reasonably;
(b) Covenants. All of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Purchaser and IMSC at or before the Time
of Closing shall have been complied with or performed in all material respects
and certificates of the President of the Purchaser and IMSC dated the Closing
Date to that effect shall have been delivered to the Vendors, such certificate
to be in form and substance satisfactory to the Vendors, acting reasonably;
(c) Regulatory Consents. There shall have been obtained, from all
appropriate federal, provincial, municipal or other governmental or
administrative bodies, such licenses, permits, consents, approvals,
certificates, registrations and authorizations as are required by law to be
obtained by the Purchaser or IMSC to permit the change of ownership of the
Purchased Shares and payment of the Purchase Price contemplated hereby including
those described in Schedules B1.19 and B2.19 hereto, in each case in form and
substance satisfactory to the Vendors, acting reasonably;
(d) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Shares contemplated hereby;
<PAGE>
18
(e) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, shall have been
approved as to form and legality by Minden Gross Grafstein & Greenstein, counsel
for the Vendors, acting reasonably;
(f) Nominee to the Board of IMSC and the Purchaser. Len shall have been
elected as a director of IMSC and the Purchaser;
(g) Legal Opinion. The Purchaser shall have delivered to the Vendors a
favourable opinion of McCarter Grespan Robson Beynon, Canadian counsel to the
Purchaser, and U.S. Counsel to the Purchaser in the forms annexed hereto as
Schedule 4.02(j); and
(h) Guarantee. The Vendors shall have been released from all guarantees
with respect to the indebtedness of any of the Corporate Entities;
(i) Support Agreement. The Purchaser and IMSC shall have entered into and
delivered a support agreement;
(j) Employment Agreements. The Purchaser shall have entered into employment
agreements with each of Victor, Rhys and Larry; and
(k) Side Agreement. IMSC and Michael Steele shall have entered into an
agreement in favour of the Vendors with respect to the ongoing appointment of a
nominee of the Vendors to the board of the Purchaser and IMSC for a period of
not less than three (3) years following Closing.
If any of the conditions contained in this section 4.02 shall not be
performed or fulfilled at or prior to the Time of Closing to the satisfaction of
the Vendors, acting reasonably, the Vendors may, by notice to the Purchaser,
terminate this Agreement and the obligations of the Vendors and the Purchaser
under this Agreement shall be terminated. Any such condition may be waived in
whole or in part by the Vendors without prejudice to any claims they may have
for breach of covenant, representation or warranty.
ARTICLE V
CLOSING ARRANGEMENTS
5.01 Place of Closing
The closing shall take place at the Time of Closing at the offices of
Minden Gross Grafstein & Greenstein, counsel for the Vendors, 600 - 111 Richmond
Street West, Toronto, Ontario.
<PAGE>
19
5.02 Closing
At the Time of Closing, upon fulfillment of all the conditions set out in
Article IV that have not been waived in writing by the Purchaser or the Vendors,
the Vendors shall deliver to the Purchaser certificates respecting all the
Purchased Shares, duly endorsed in blank for transfer, with all exigible
security transfer taxes paid, and will cause transfers of such shares to be duly
and regularly recorded in the name of the Purchaser, or its nominee(s), and will
cause a meeting of the board of directors of each of the Corporate Entities to
be held, at which the directors and officers of the Corporate Entities specified
by the Purchaser pursuant to section 4.01(k) will resign in favor of nominees of
the Purchaser whereupon, subject to all other terms and conditions hereof being
complied with, payment of the part of the Purchase Price payable at the Time of
Closing shall be paid and satisfied in the manner provided in Article II.
5.03 Further Assurances
Each party to this Agreement covenants and agrees that, from time to time
subsequent to the Closing Date, it will at the request and expense of the
requesting party, execute and deliver all such documents, including, without
limitation, all such additional conveyance, transfers, consents and other
assurances and do all such other acts and things as any other party hereto,
acting reasonably, may from time to request be executed or done in order to
better evidence or perfect or effectuate any provision of this Agreement or of
any agreement or other document executed pursuant to this Agreement or any of
the respective obligations intended to be created hereby or thereby.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
6.01 Survival of Representations and Warranties of the Vendor
To the extent that they have not been fully performed at a prior to the
Time of Closing, the covenants, representations and warranties of the Vendors
contained in this Agreement and any agreement, instrument, certificate or other
document executed or delivered pursuant hereto shall survive the closing of the
transactions contemplated hereby until the third anniversary of the Closing Date
and, notwithstanding such closing, nor any investigation made by or on behalf of
the Purchaser, shall continue in full force and effect for the benefit of the
Purchaser during such period, except that:
(a) the covenant of the Vendors contained in subsection 2.03(e) and the
representations and warranties set out in sections 1.01, 1.03, 1.04, 1.05, 2.01,
2.03, 2.04, 2.05, 3.01, 3.03, 3.04, 3.05 and 3.06 of Section B, sections 1.01,
1.02, 1.03, 1.04, 1.05 and 1.06 of Schedule C, sections 1.01, 1.02, 1.03, 1.04,
1.05 and 1.06 of Schedule D, sections 1.01, 1.02 and 1.03 of Schedule E and
sections 1.01, 1.02, 1.03 and 1.05 of Schedule F (and the corresponding
representations and warranties set
<PAGE>
20
out in the certificates to be delivered pursuant to subsection 4.01(a) (the
"Closing Certificates")) shall survive and continue in full force and effect
without limitation of time;
(b) the representations and warranties contained in sections 1.23, 2.23 and
3.10 of Schedule B, 1.10 of Schedule C and 1.10 of Schedule D shall, in the
absence of fraud or negligent or wilful misrepresentation, survive until the
expiration of any applicable limitation periods imposed by law; and
(c) a claim for any breach of any of the representations and warranties
contained in this Agreement or in any agreement, instrument, certificate or
other document executed or delivered pursuant hereto involving fraud or
fraudulent misrepresentation may be made at any time following the Closing Date,
subject only to applicable limitation periods imposed by law.
6.02 Expiry of the Representations and Warranties of the Purchaser and IMSC
The representations and warranties of the Purchaser and IMSC contained in
this Agreement or in any document, certificate or undertaking given pursuant
hereto shall terminate on the third anniversary of the Closing Date other than
the representations contained in sections1.01 and 1.08 of Schedule G and
sections 1.01 and 1.06 of Schedule H, which sections shall survive and continue
in full force and effect without limitation of time. For greater certainty, all
covenants and agreements of the Purchaser or IMSC contained in this Agreement
and any agreement, instrument, certificate or other document executed or
delivered pursuant hereto shall survive the closing of the transactions
contemplated hereby until the third anniversary of the Closing Date or in the
case of any such covenants and agreements which by their terms are to be
performed subsequent to the Closing Date until the third anniversary of the date
on which such covenant and agreement is to be performed and, notwithstanding
such closing shall continue in full force and effect for the benefit of the
Vendors for such period.
ARTICLE VII
INDEMNIFICATION
7.01 Indemnification by the Vendors
Subject to Section 7.08, each of the Vendors agrees to indemnify and save
harmless the Purchaser from all Losses suffered or incurred by the Purchaser as
a result of or arising directly or indirectly out of or in connection with:
(a) any breach by such Vendor of or any inaccuracy of any representation or
warranty of such Vendor contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto (provided that no Vendor
shall be required to indemnify or save harmless the Purchaser in respect of any
breach or inaccuracy of any representation or warranty unless the Purchaser
shall have provided notice to such Vendor in accordance with section 7.03 on or
prior to
<PAGE>
21
the expiration of the applicable time period related to such representation and
warranty set out in section 6.01);
(b) any breach or non-performance by such Vendor of any covenant to be
performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto;
(c) all debts, liabilities or contracts whatsoever (whether accrued,
absolute contingent or otherwise) of VLRL, TGF and Norbakco existing at the Time
of Closing, including any liabilities for federal, provincial, sales excise,
income, corporate or any other taxes of VLRL, TGF and Norbakco for any period up
to and including the Time of Closing, and not disclosed on, provided for or
included in the balance sheets forming part of the Financial Statements, except
those liabilities accruing or incurred subsequent to the balance sheet date of
such Financial Statements in the ordinary course of the TGF Business and the
Norbakco Business, respectively;
(d) any claims, demands, judgments, orders, duties imposed by law or by
administrative action or other obligations or liabilities of any kind whatsoever
suffered or incurred by VLRL, TGF or Norbakco in respect of pollution,
contamination or other environmental matters, caused or arising or otherwise
existing at or prior to the Time of Closing, whether or not disclosed in this
Agreement or any Schedule hereto or otherwise known to the Purchaser or to its
representatives or within the power of the Purchaser or its representatives to
discover.
Without limiting the obligations of contained above in this Section 7.01,
Rhys further agrees to indemnify and save harmless the Purchaser from all Losses
suffered or incurred by the Purchaser as a result of or arising directly or
indirectly out of or in connection with:
(a) all debts, liabilities or contracts whatsoever (whether accrued,
absolute contingent or otherwise) of Rhysco existing at the Time of Closing,
including any liabilities for federal, provincial, sales excise, income,
corporate or any other taxes of Rhysco for any period up to and including the
Time of Closing, and not disclosed on, provided for or included in the balance
sheets forming part of the Financial Statements, except those liabilities
accruing or incurred subsequent to the Closing Date in the ordinary course of
the business of Rhysco or those liabilities that form part of the Purchased
Loans;
(b) any claims, demands, judgments, orders, duties imposed by law or by
administrative action or other obligations or liabilities of any kind whatsoever
suffered or incurred by Rhysco in respect of pollution, contamination or other
environmental matters, caused or arising or otherwise existing at or prior to
the Time of Closing, whether or not disclosed in this Agreement or any Schedule
hereto or otherwise known to the Purchaser or to its representatives or within
the power of the Purchaser or its representatives to discover.
<PAGE>
22
Without limiting the obligations of Victor contained above in this Section
7.01, Victor further agrees to indemnify and save harmless the Purchaser from
all Losses suffered or incurred by the Purchaser as a result of or arising
directly or indirectly out of or in connection with:
(a) all debts, liabilities or contracts whatsoever (whether accrued,
absolute contingent or otherwise) of Victorco existing at the Time of Closing,
including any liabilities for federal, provincial, sales excise, income,
corporate or any other taxes of Victorco for any period up to and including the
Time of Closing, and not disclosed on, provided for or included in the balance
sheets forming part of the Financial Statements, except those liabilities
accruing or incurred subsequent to the Closing Date in the ordinary course of
the business of Victorco or those liabilities that form part of the Purchased
Loans;
(b) any claims, demands, judgments, orders, duties imposed by law or by
administrative action or other obligations or liabilities of any kind whatsoever
suffered or incurred by Victorco in respect of pollution, contamination or other
environmental matters, caused or arising or otherwise existing at or prior to
the Time of Closing, whether or not disclosed in this Agreement or any Schedule
hereto or otherwise known to the Purchaser or to its representatives or within
the power of the Purchaser or its representatives to discover.
7.02 Indemnification by the Purchaser and IMSC
(a) The Purchaser agrees to indemnify and save harmless the Vendors from all
Losses suffered or incurred by the Vendors as a result of or arising directly or
indirectly out of or in connection with:
(i) any breach by the Purchaser of or any inaccuracy of any representation
or warranty contained in this Agreement or in any agreement, instrument,
certificate or other document delivered pursuant hereto; and
(ii) any breach or non-performance by the Purchaser of any covenant to be
performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto.
(b) IMSC agrees to indemnify and save harmless the Vendors from all Losses
suffered or incurred by the Vendors as a result of or arising directly or
indirectly out of or in connection with:
(i) any breach by IMSC of or any inaccuracy of any representation or
warranty contained in this Agreement or in any agreement, instrument,
certificate or other document delivered pursuant hereto; and
(ii) any breach or non-performance by IMSC of any covenant to be performed
by it that is contained in this Agreement or in any agreement, certificate or
other document delivered pursuant
<PAGE>
23
hereto.
7.03 Notice of Claim
In the event that a party (the "Indemnified Party") shall become aware of
any claim, proceeding or other matter (a "Claim") in respect of which another
party (the "Indemnifying Party") agreed to indemnify the Indemnified Party
pursuant to this Agreement, the Indemnified Party shall promptly give written
notice thereof to the Indemnifying Party. Such notice shall specify whether the
Claim arises as a result of a claim by a person against the Indemnified Party (a
"Third Party Claim") or whether the Claim does not so arise (a "Direct Claim"),
and shall also specify with reasonable particularity (to the extent that the
information is available) the factual basis for the Claim and the amount of the
Claim, if known.
7.04 Direct Claims
With respect to any Direct Claim, following receipt of notice from the
Indemnified Party of the Claim, the Indemnifying Party shall have thirty (30)
days to make such investigation of the Claim as is considered necessary or
desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request. If both parties
agree at or prior to the expiration of such thirty (30) day period (or any
mutually agreed upon extension thereof) to the validity and amount of such
Claim, the Indemnifying Party shall immediately pay to the Indemnified Party the
full agreed upon amount of the Claim, failing which the matter shall be referred
to binding arbitration in such manner as the parties may agree or shall be
determined by a court of competent jurisdiction.
7.05 Third Party Claims
With respect to any Third Party Claim, the Indemnifying Party shall have
the right, at its expense, to participate in or assume control of the
negotiation, settlement or defence of the Claim and, in such event, the
Indemnifying Party shall reimburse the Indemnified Party for all the Indemnified
Party's out-of-pocket expenses as a result of such participation or assumption.
If the Indemnifying Party elects to assume such control, the Indemnified Party
shall have the right to participate in the negotiation, settlement or defence of
such Third Party Claim and to retain counsel to act on its behalf. provided that
the fees and disbursements of such counsel shall be paid by the Indemnified
Party unless the Indemnifying Party consents to the retention of such counsel or
unless the named parties to any action or proceeding include both the
Indemnifying Party and the Indemnified Party and a representation of both the
Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential differing interests between them
(such as the availability of different defences). If the Indemnifying Party,
having elected to assume such control, thereafter fails to defend the Third
Party Claim within a reasonable time, the
<PAGE>
24
Indemnified Party shall be entitled to assume such control, and the Indemnifying
Party shall be bound by the results obtained by the Indemnified Party with
respect to such Third Party Claim. If any Third Party Claim is of a nature such
that the Indemnified Party is required by applicable law to make a payment to
any person (a "Third Party") with respect to the Third Party Claim before the
completion of settlement negotiations or related legal proceedings, the
Indemnified Party may make such payment and the Indemnifying Party shall,
forthwith after demand by the Indemnified Party, reimburse the Indemnified Party
for such payment. If the amount of any liability of the Indemnified Party under
the Third Party Claim in respect of which such payment was made, as finally
determined, is less than the amount that was paid by the Indemnifying Party to
the Indemnified Party, the Indemnified Party shall, forthwith after receipt of
the difference from the Third Party, pay the amount of such difference to the
Indemnifying Party.
7.06 Settlement of Third Party Claims
If the Indemnifying Party fails to assume control of the defence of any
Third Party Claim, the Indemnified Party shall have the exclusive right to
contest, settle or pay the amount claimed. Whether or not the Indemnifying Party
assumes control of the negotiation, settlement or defence of any Third Party
Claim, the Indemnifying Party shall not settle any Third Party Claim without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed; provided, however, that the liability of the
Indemnifying Party shall be limited to the proposed settlement amount if any
such consent is not obtained for any reason.
7.07 Co-operation
The Indemnified Party and the Indemnifying Party shall co-operate fully
with each other with respect to Third Party Claims, and shall keep each other
fully advised with respect thereto (including supplying copies of all relevant
documentation promptly as it becomes available).
7.08 Proportionate Liability of the Vendors
Where the liability of the Vendors to indemnify the Purchaser hereunder is
in relation to the breach or inaccuracy of any representation or warranty which
has been given by all of the Vendors or any breach or non-performance of any
covenant of all of the Vendors or is otherwise in relation to any of the matters
set out in subsection 7.01 (c) or (d) or otherwise stated to be several, each
Vendor shall be liable only for the percentage of such claim for indemnification
by the Purchaser equal to such Vendor's proportionate share of the Purchase
Price (ie. pro rata to their common shareholdings in the Corporation).
7.09 Threshold Amount
The Purchaser shall not be entitled to indemnification hereunder until the
aggregate of all
<PAGE>
25
claims for indemnification made by the Purchaser hereunder, whether individually
or collectively, exceeds $40,000.00 in which event the Purchaser shall be
indemnified for the full amount of such claims for indemnification.
7.10 Set-Off
Any amounts becoming owing by any of the Vendors to the Purchaser hereunder
shall be set-off against amounts among by the Purchaser to such Vendor as
follows:
(a) firstly against that portion of the Cash Amount to which such Vendor is
entitled the extent it is not paid as at the date of such claim or claims
for indemnification;
(b) secondly against that portion of the Share Amount to which such Vendor
is entitled by reducing the number of common shares in the capital of IMSC
into which the Class B Shares, the Class C Shares and the Class D Shares
held by such Vendor may be exchanged to the extent that such Class B
Shares, Class C Shares and Class D Shares have not been exchanged at the
time of such claim or claims for indemnification.
To the extent that the Purchaser has not been fully indemnified after utilizing
its rights of set-off as set forth in this Section 7.01, nothing contained
herein shall preclude the Purchaser from taking any action permitted at law to
recover such deficiency.
7.11 Exclusivity
The provision of this Article VII shall apply to any Claim for breach of
any covenant, representation, warranty or other provision of this Agreement or
any agreement, certificate or other document delivered pursuant hereto (other
than a claim for specific performance or injunctive relief) with the intent that
all such Claims shall be subject to the limitations and other provisions
contained in this Article VII.
ARTICLE VIII
MISCELLANEOUS
8.01 Confidentiality of Information
In the event that the transactions contemplated herein are not consummated
for any reason, the Purchaser covenants and agrees that, except as otherwise
authorized by the Vendors, neither the Purchaser nor its representatives, agents
or employees will disclose to third parties, directly or indirectly, any
confidential information or confidential data relating to the Corporate Entities
discovered by the Purchaser or its representatives as a result of the Vendors
and the Corporation making available to the Purchaser and its representatives
the information requested by them in
<PAGE>
26
connection with the transactions contemplated herein.
8.02 Notices
(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered in person, transmitted by
telecopy or similar means of recorded electronic communication or sent by
registered mail, charges prepaid, addressed as follows:
(i) if to the Vendors:
Victor
623 Canville Road
Richmond Hill, Ontario
L4C 6E5
Telecopier No.: (905) 669-0699
Rhys
275 Kennedy Road
Scarborough, Ontario
M1M 3P6
Telecopier No.: (905) 669-0699
Lenco
24 Lauderdale Drive
Toronto, Ontario
M2L 2A9
Telecopier No.: (416) 962-0037
Larry
51 Abbotsford Road
Gormley, Ontario
L0H 1G0
Telecopier No.: (905) 669-0699
with a copy to Stephen Witten:
Minden, Gross, Grafstein & Greenstein
600 - 111 Richmond Street West
Toronto, Ontario
M5H 2H5
Telecopier No.: (416) 864-9223
<PAGE>
27
(ii) if to the Purchaser:
International Menu Solutions Inc.
172 King Street
Toronto, Ontario
M5A 1J3
Attention: Michael A. Steele
Telecopier No.: (416) 366-6368
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario
N2K 3S3
Attention: Thomas D. Beynon, Q.C.
Telecopier No.: (519) 742-1841
(iii) if to IMSC:
International Menu Solutions Corporation
172 King Street
Toronto, Ontario
M5A 1J3
Attention: Michael A. Steele
Telecopier No.: (416) 366-6368
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario
N2K 3S3
Attention: Thomas D. Beynon, Q.C.
Telecopier No.: (519) 742-1841
(b) Any such notice or other communication shall be deemed to have been
given and
<PAGE>
28
received on the day on which it was delivered or transmitted (or, if such day is
not a Business Day, on the next following Business Day) or, if mailed, on the
third Business Day following the date of mailing; provided, however, that if at
the time of mailing or within three Business Days thereafter there is or occurs
a labor dispute or other event that might reasonably be expected to disrupt the
delivery of documents by mail, any notice or other communication hereunder shall
be delivered or transmitted by means of recorded electronic communication as
aforesaid.
(c) Any party may at any time change its address for service from time to
time by giving notice to the other parties in accordance with this section 8.02.
8.03 Commissions, etc.
The Vendors agree to indemnify and save harmless the Purchaser from and
against all Losses suffered or incurred by the Purchaser in respect of any
commission or other remuneration payable or alleged to be payable to any broker,
agent or other intermediary who purports to act or have acted for or on behalf
of any of the Vendors.
8.04 Consultation
The parties shall consult with each other before issuing any press release
or making any other public announcement with respect to this Agreement or the
transactions contemplated hereby and, except as required by any applicable law
or regulatory requirement, none of the Vendors nor the Purchaser shall issue any
such press release or make any such public announcement without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed.
8.05 Disclosure
Prior to any public announcement of the transaction contemplated hereby
pursuant to section 8.04, neither party shall disclose this Agreement or any
aspect of such transaction except to its board of directors, its senior
management, its legal, accounting, financial or other professional advisors, any
financial institution contacted by it with respect to any financing required in
connection with such transaction and counsel to such institution, or as may be
required by any applicable law or any regulatory authority or stock exchange
having jurisdiction.
8.06 Public Announcements
No public announcement or press release not required by law or by
applicable stock exchange rule concerning the purchase sale of the Purchased
Shares shall be made by the Vendor, the Corporation or the Purchaser without the
consent and joint approval of the Vendor and the Purchaser.
<PAGE>
29
8.07 Assignment by Purchaser
The Purchaser may assign its rights under this Agreement in whole or in
part to any other person; provided, however, that any such assignment shall not
relieve the Purchaser from any of its obligations hereunder.
8.08 Counterparts
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties.
[ILLEGIBLE] /s/ Victor Fradkin
- - ------------------------------------- --------------------------------------
Witness Victor Fradkin
[ILLEGIBLE] /s/ Rhys Quin
- - ------------------------------------- --------------------------------------
Witness Rhys Quin
[ILLEGIBLE] /s/ Larry Hoffman
- - ------------------------------------- --------------------------------------
Witness Larry Hoffman
LAUDERDALE CAPITAL CORP.
Per: /s/ Len Shiffman
-----------------------------
Title: President
-----------------------------
INTERNATIONAL MENU SOLUTIONS
INC.
Per: /s/ Michael Steele
-----------------------------
Title: President
-----------------------------
<PAGE>
30
INTERNATIONAL MENU SOLUTIONS
CORPORATION
Per: [ILLEGIBLE]
-----------------------------
Title: President
-----------------------------
THIS IS SCHEDULE A TO THE SHARE PURCHASE AGREEMENT
- - --------------------------------------------------------------------------------
INTERPRETATION
1.01 Defined Terms
For the purpose of this Schedule A to the Share Purchase Agreement, unless
the context otherwise requires, the following terms shall have the respective
meanings set out below and grammatical variations of such terms shall have
corresponding meanings:
(a) "Act" means the Business Corporations Act (Ontario) as in effect on
the date hereof;
(b) "Affiliate" has the meaning attributed to that term in the Act;
(c) "Associate" has the meaning attributed to that term in the Act;
(d) "Audited Corporation Financial Statements" means the audited financial
statements of the Corporation as at the financial years ended February
28, 1997 and February 28, 1998, including the notes thereto and the
report of the Corporation's auditors thereon, a copy of which is
annexed hereto as Schedule A1.01(d);
(e) "Business Day" means any day (other than a Saturday or a Sunday) on
which the main branch of the Toronto-Dominion Bank in Toronto, is open
for business;
(f) "Cash Amount" has the meaning set out in section 2.03;
(g) "Claim" has the meaning set out in section 7.03;
(h) "Class X Shares" means the class X shares in the capital stock of the
Purchaser;
(i) "Closing Cash Amount" has the meaning set out in section 2.03;
(j) "Closing Certificates" has the meaning set out in subsection 5.01(a);
(k) "Closing Date" means November 30, 1998 or such other date as may be
mutually agreed upon by the Vendors and the Purchaser;
(l) "Closing Time" means 10 o'clock in the forenoon on the Closing Date;
(m) "Contract" means any material agreement, indenture, contract, lease,
deed of trust, license, option, instrument or other commitment,
whether written or oral;
<PAGE>
(n) "Direct Claim" has the meaning set out in section 7.03;
(o) "Encumbrance" means any encumbrance, lien, charge, hypothec, pledge,
mortgage, title retention agreement, security interest of any nature,
adverse claim, any matter capable of registration against title,
option, right of pre-emption, privilege or any Contract to create any
of the foregoing;
(p) "Environmental Laws" has the meaning set out in subsection 1.31(a) of
Schedule B;
(q) "Environmental Permits" has the meaning set out in subsection 1.31(b)
of Schedule B;
(r) "GST" means any and all taxes payable under Part IX of the ETA or
under any provincial legislation similar to Part IX of the ETA;
(s) "Hazardous Substances" has the meaning set out in subsection 1.31(a)
of Schedule B;
(t) "IMSC" means International Menu Solutions Corporation, a Nevada
corporation which owns all of the issued and outstanding common shares
of the Purchaser;
(u) "IMSC Common Shares" means common shares in the capital stock of IMSC;
(v) "Indemnified Party" has the meaning set out in section 7.03;
(w) "Indemnifying Party" has the meaning set out in section 7.03;
(x) "Intellectual Property" has the meaning set out in section 1.14 of
Schedule B;
(y) "Interim Corporation Financial Statements" means the unaudited
financial statements of the Corporation as at and for the six month
period ended August 31, 1998 copies of which financial statements are
annexed hereto as Schedule A1.01(y);
(z) "Interim Norbakco Financial Statements" means the unaudited financial
statements of Norbakco as at and for the six month period ended August
31, 1998 copies of which financial statements are annexed hereto as
Schedule A1.01(z);
(aa) "Leases" has the meaning set out in section 1.11 of Schedule B;
<PAGE>
(bb) "Losses", in respect of any matter, means all claims, demands,
proceedings, losses, damages, liabilities, deficiencies, costs and
expenses (including, without limitation, all legal and other
professional fees and disbursements, interest, penalties and amounts
paid in settlements) arising directly or indirectly as a consequence
of such matter;
(cc) "Norbakco Business" means the business currently and heretofore
carried on by Norbakco Ltd. consisting of manufacturing, marketing and
sale of raw dough, baked frozen and fresh baked sweet goods;
(dd) "Norbakco Employee Plans" has the meaning set out in section 2.32 of
Schedule B;
(ee) "Norbakco Leased Property" has the meaning set out in section 2.09 of
Schedule B;
(ff) "Norbakco Licenses" has the meaning set out in section 2.18 of
Schedule B;
(gg) "Norbakco Permitted Encumbrances" means:
(i) liens for taxes, assessments and governmental charges not
yet due or due and being contested in good faith and
diligently by appropriate proceedings (and for the payment
of which adequate provision has been made);
(ii) assignments of insurance provided to landlords (or their
mortgagees) pursuant to the terms of any lease and liens or
rights reserved in any lease for rent or for compliance with
the terms of such lease;
(iii) security given in the ordinary course of the business to any
public utility, municipality or government or to any
statutory or public authority in connection with the
operations of the Norbakco Business, other than security for
borrowed money;
(iv) the Permitted Encumbrances described in Schedule A1.01(gg);
(hh) "Norbakco Shareholders' Agreement" means the shareholders'
agreement made as of April 13, 1998 among Elililco Ltd.,
Margaret Bennague, David Adash, VLRL, 1276396 Ontario Inc.,
Sania Shechtman and Norbakco;
(ii) "Prime" means the commercial lending rate of interest, expressed as an
annual rate, which The Bank of Nova Scotia quotes in Toronto as the
reference rate of interest (commonly known as "Prime") for determining
<PAGE>
the rate of interest that it charges to its commercial customers for
loans in Canadian funds;
(jj) "Purchase Price" has the meaning set out in section 2.02;
(kk) "Purchased Shares" has the meaning set out in section 2.01;
(ll) "Rhysco Financial Statements" means the unaudited financial statements
of Rhysco as at and for the year ended March 31, 1998 copies of which
financial statements are annexed hereto as Schedule A1.01(ll);
(mm) "Second Cash Amount" has the meaning set out in section 2.03;
(nn) "Shareholder Loans" has the meaning set out in section 2.05;
(oo) "Tax Act" means the Income Tax Act (Canada), as amended from time to
time;
(pp) "TGF Business" means the business currently and heretofore carried on
by the Corporation consisting of the distribution of specialty baked
products and the manufacture and sale of frozen raw dough, frozen
appetizers and hors d'oevres;
(qq) "TGF Employee Plans" has the meaning set out in section 1.32 of
Schedule B;
(rr) "TGF Leased Property" has the meaning set out in section 1.09 of
Schedule B;
(ss) "TGF Licenses" has the meaning set out in section 1.18 of Schedule B;
(tt) "TGF Permitted Encumbrances" means:
(i) liens for taxes, assessments and governmental charges not
yet due or due and being contested in good faith and
diligently by appropriate proceedings (and for the payment
of which adequate provision has been made);
(ii) assignments of insurance provided to landlords (or their
mortgagees) pursuant to the terms of any lease and liens or
rights reserved in any lease for rent or for compliance with
the terms of such lease;
(iii) security given in the ordinary course of the TGF Business to
any public utility, municipality or government or to any
statutory or
<PAGE>
public authority in connection with the operations of the
TGF Business, other than security for borrowed money;
(iv) the Permitted Encumbrances described in Schedule A1.01(tt);
(uu) "TGF Shareholders' Agreement" means the shareholders' agreement made
as of March 31, 1997 among Lenco, Victor, Rhys, Len Shiffman, Larry,
Rhysco, Victorco and TGF;
(vv) "Third Party" has the meaning set out in section 7.05;
(ww) "Third Party Claim" has the meaning set out in section 7.03; and
(xx) "Victorco Financial Statements" means the unaudited financial
statements of Victorco as at and for the year ended March 31, 1998
copies of which financial statements are annexed hereto as Schedule
A1.01(xx).
<PAGE>
THIS IS SCHEDULE B TO THE SHARE PURCHASE AGREEMENT
- - --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
WITH RESPECT TO THE CORPORATION
The Vendors severally represent and warrant to the Purchaser as follows and
acknowledge that the Purchaser is relying on such representations and warranties
in connection with its purchase of the Purchased Shares:
1.01 Organization
The Corporation is duly incorporated and organized and validly subsisting
under the laws of Ontario and has the corporate power to own or lease its
property, to carry on the Business as now being conducted by it, to enter into
this Agreement and perform its obligations hereunder. The Corporation is duly
qualified as a corporation to do business in each jurisdiction in which the
nature of the Business or the property and assets owned or leased by it makes
such qualification necessary.
1.02 Intentionally Deleted
1.03 Authorized and Issued Capital
The authorized capital of the Corporation consists of an unlimited number
of Common Shares, an unlimited number of Class A Special Shares and an unlimited
number of Class B Special Shares of which 12,858 Common Shares (and no more) and
1,197 Class A Special Shares have been duly issued and are outstanding as fully
paid non-assessable.
1.04 Options
No person, firm or corporation has any agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement, including convertible securities, warrants or convertible obligations
of any nature, for the purchase, subscription, allotment or issuance of any
unissued shares or other securities of the Corporation.
1.05 No Subsidiaries
The Corporation does not own and does not have any agreement of any nature
to acquire, directly or indirectly, any shares in the capital of or other equity
or proprietary interests in any person, firm or corporation, and the Corporation
does not have any agreements to acquire or lease any other business operations.
<PAGE>
1.06 No Violation
The execution and delivery of this Agreement by the Vendors and the
consummation of the transactions herein provided for will not result in either:
(a) the breach or violation of any of the provisions of, or constitute a
default under, or conflict with or cause the acceleration of any obligation of
the Vendors or the Corporation under:
(i) any Contract to which the Vendors or the Corporation is a party or
by which any of them is, or either of their properties are, bound other
than its banking arrangements with The Bank of Nova Scotia and Business
Development Bank of Canada in respect of which consents are being obtained
and the Shareholders' Agreement which by their execution hereof each of the
Vendors, Rhysco, Victorco and TGF acknowledge and agree shall be terminated
on Closing without further act or document;
(ii) any provision of the constating documents, by-laws or resolutions
of the board of directors (or any committee thereof) or shareholders of the
Corporation;
(iii) any judgement, decree, order or award of any court, governmental
body or arbitrator having jurisdiction over the Vendors or the Corporation;
(iv) any license, permit, approval, consent or authorization held by
the Vendors or the Corporation or necessary to the ownership of the
Purchased Shares or the operation of the TGF Business; or
(v) any applicable law, statute, ordinance, regulation or rule; or
(b) the creation or imposition of any Encumbrance on any the Purchased
Shares, the Victorco Corp Shares, the Rhysco Corp Shares, the Lenco Corp Shares
or the Larry Corp Shares or any of the property or assets of the Corporation.
1.07 Business of the Corporation
The TGF Business is the only business operation carried on by the
Corporation, and the property and assets owned or leased by the Corporation are
sufficient to carry on the TGF Business. Except for the new phyllo pastry
production line which is not yet operating at full capacity, all of the material
property and assets owned and used by the Corporation are in good operating
condition and are in a state of good repair and maintenance, reasonable wear and
tear excepted. During the two years preceding the date of this Agreement, there
has not been any significant interruption of operations (being a interruption of
more than one day) of the TGF Business due to inadequate maintenance of any of
the property and assets owned and used by the Corporation. With
<PAGE>
the exception of inventory in transit, all the tangible assets of the
Corporation are situate at the locations set out in Schedule B1.07 or B2.07.
1.08 Title to Personal and Other Property
The property and assets of the Corporation (other than the TGF Leased
Property as defined herein) are owned beneficially by the Corporation as the
beneficial owner thereof with a good and marketable title thereto, free and
clear of all Encumbrances other than the TGF Permitted Encumbrances.
1.09 Location of Real Property
Schedule B1.11 sets forth a municipal address of the real property leased
by the Corporation (the "TGF Leased Property"). The Corporation does not own or
lease and has not agreed to acquire or lease any real property or interest in
real property other than the TGF Leased Property.
1.10 Title to Real Property
To the knowledge of the Vendors all buildings, structures, improvements and
appurtenances situated on the TGF Leased Property to the extent occupied by TGF
are in good operating condition and in a state of good maintenance and repair
reasonable wear and tear excepted, are adequate and suitable for the purposes
for which they are currently being used and the Corporation has adequate rights
of ingress and egress for the operation of the TGF Business in the ordinary
course. Without limiting the generality of the foregoing:
(a) the current uses of the TGF Leased Property by TGF and the conduct of
the TGF Business comply in all material respects with all regulations, statues,
enactments, laws and by-laws including, without limitation, those dealing with
zoning, parking, access, loading facilities, landscaped areas, building
construction, fire and public health and safety and Environmental Laws;
(b) to the knowledge of the Vendors, no alteration, repair, improvement or
other work has been ordered, directed or requested in writing to be done or
performed to or in respect of the TGF Leased Property or to any of the plumbing,
heating, elevating, water, drainage or electrical systems, fixtures or works by
any municipal, provincial or other competent authority, which alteration,
repair, improvement or other work has not been completed, and the Vendors know
of no written notification having been given to it of any such outstanding work
being ordered, directed or requested, other than those that have been complied
with;
(c) all account for work and services performed and materials placed or
furnished upon or in respect of the TGF Leased Property at the request of the
Corporation have been fully paid and satisfied, and no person is entitled to
claim a lien under the Construction Lien Act against the TGF Leased Property or
any part thereof in respect of
<PAGE>
any such matters requested by the Corporation other than current accounts in
respect of which the payment due date has not yet passed;
(d) there is nothing owing in respect of the TGF Leased Property by the
Corporation to any municipal corporation or to any other corporation or
commission owning or operating a public utility for water, gas, electrical power
or energy, steam or hot water, or for the use thereof, other than current
accounts in respect of which the payment due date has not yet passed;
(e) to the knowledge of the Vendors no part of the TGF Leased Property has
been taken or expropriated by any federal, provincial, municipal or other
competent authority nor to the knowledge of the Vendors has any notice or
proceeding in respect thereof been given or commenced; and
(f) the TGF Leased Property (including all buildings, improvements and
fixtures) is fit for its present use by TGF, and, to the knowledge of the
Vendors, there are no material or structural repairs or replacements that are
necessary or advisable and, without limiting the foregoing, there are no repairs
to, or replacements of, the roof or the mechanical, electrical, heating,
ventilating, air-conditioning, plumbing or drainage equipment or systems that
are necessary or advisable, and the TGF Leased Property is not currently
undergoing any alteration or renovation nor is any such alteration or renovation
contemplated.
1.11 Real Property Leases
The Corporation is not a party to any lease or agreement in the nature of a
lease in respect of any real property, whether as lessor or lease, other than
the lease (the "TGF Lease") described in Schedule B1.11 relating to the TGF
Leased Property. Schedule B1.11 sets out the parties to the TGF Lease, its date
of execution and expiry date, any options to renew, the location of the leased
lands and premises and the rent payable thereunder. The Corporation occupies and
has the exclusive right to occupy and use the TGF Leased Property. To the
knowledge of the Vendors, the TGF Lease is in good standing and in full force
and effect without amendment thereto. Neither the Corporation nor, to the
knowledge of the Vendors, any other party thereto is in material breach of any
covenants, conditions or obligations contained therein. The Vendors have
provided a true copy of the TGF Lease to the Purchaser.
1.12 Inventories
The inventories of the Corporation do not include any material items that
are slow moving, below standard quality or of a quality or quantity not useable
or saleable in the normal course of business, the value of which has not been
written down on its books of account to net realizable market value in
accordance with prudent business practice in the industry. The inventory levels
of the Corporation have been maintained at such amounts as are required for the
operation of the TGF Business as previously conducted and as proposed to
conducted, and such inventory levels are adequate therefor.
<PAGE>
1.13 Accounts Receivable
All accounts receivable, book debts and other debts due or accruing to the
Corporation are bona fide and good and, subject to an allowance for doubtful
accounts that has been reflected on the books of the Corporation in accordance
with generally accepted accounting principles, are collectible without set-off
or counterclaim.
1.14 Intellectual Property
The Vendors shall cause to be delivered within ninety (90) days subsequent
to the Closing Date a complete and accurate list of all trade marks, trade
names, business names, patents, labels, products, recipes and know-how with
respect to the production of the products of the Corporation owned or used by
the Corporation in carrying on the TGF Business and all applications therefor
and all goodwill connected therewith, including, without limitation, all
licenses, registered user agreements and all like rights used by or granted to
the Corporation in connection therewith and all right to register or otherwise
apply for the protection on any of the foregoing (collectively, the "TGF
Intellectual Property"). Schedule B1.14 annexed hereto also includes complete
and accurate particulars of all registrations or applications for registration
of the TGF Intellectual Property. The TGF Intellectual Property comprises all
trade marks, trade names, business names, patents, inventions, know-how,
copyrights, service marks, brand marks, industrial designs and all other
industrial or intellectual property reasonably necessary to conduct the TGF
Business. The Corporation is the beneficial owner of the TGF Intellectual
Property, free and clear of all Encumbrances other than TGF Permitted
Encumbrances, and is not a party to or bound by any Contract or other obligation
whatsoever that limits or impairs its ability to sell, transfer, assign or
convey, or that otherwise affects, the TGF Intellectual Property. No person has
been granted any interest in or right to use all or any portion of the TGF
Intellectual Property. The Vendors are not aware of any claim of any
infringement or breach of any industrial or intellectual property rights of any
other person by the Corporation, nor have the Vendors or the Corporation
received any notice that the conduct of the TGF Business any industrial or
intellectual property rights of any other person, and the Vendors after due
inquiry have no knowledge of any infringement or violation of any of the rights
of the Corporation in the TGF Intellectual Property. The conduct of the TGF
Business does not infringe upon the patents, trade marks, licenses, trade names,
business names, copyright or other industrial or intellectual property rights,
domestic or foreign, of any other person. The Vendors are not aware of any state
of facts that casts doubt on the validity or enforceability of any of the TGF
Intellectual Property. The Vendors have provided to the Purchaser a true and
complete copy of all Contracts and amendments thereto that comprise or relate to
the TGF Intellectual Property.
1.15 Insurance
The Corporation has all of its property and assets insured against loss or
damage by all insurable hazards or risks on a replacement cost basis and such
insurance coverage will be continued in full force and effect to and including
the Time of Closing. Schedule
<PAGE>
B1.15 sets out all insurance policies (specifying the insurer, the amount of the
coverage, the type of insurance, the policy number and any depending claims
thereunder) maintained by the Corporation on its property and assets or
personnel as of the date hereof and true and complete copies of the most recent
inspection reports, if any, received from insurance underwriters or others as to
the condition of the property and assets of the Corporation. The Corporation is
not in default with respect to any of the provisions contained in any such
insurance policy and has not failed to give any notice or present any claim
under any such insurance policy in a due and timely fashion. The Vendors have
provided to the Purchaser a true copy of each insurance policy referred to in
Schedule B1.15.
1.16 No Expropriation
No property or asset of the Corporation has been taken or expropriated by
any federal, provincial, state, municipal or other authority nor has any notice
or proceeding in respect thereof been given or, to the knowledge of the Vendors,
commenced nor are the Vendors aware of any intent or proposal to give any such
notice or commence any such proceeding.
1.17 Agreements and Commitments
Except as described on Schedule B1.17 or elsewhere in this Agreement or in
any Schedules hereto the Corporation is not a party to or bound by any Contract.
The Corporation has performed all of the material obligations required to
be performed by it and is entitled to all benefits under, and is not in default
in any material respect or alleged to be in default in any material respect in
respect of, any Contract relating to the Business to which it is a party or by
which it is bound; all such Contracts are in good standing and in full force and
effect, and no event, condition or occurrence exists that, after notice or lapse
of time or both, would constitute a material default under any of the foregoing.
The Vendors have provided to the Purchaser a true and complete copy of each
Contract listed or described on Schedule B1.17 and all amendments thereto.
1.18 Compliance with Laws; Governmental Authorization
The Corporation has complied in all material respects with all laws,
statutes, or ordinances regulations, rules, judgments, decrees or orders
applicable to the TGF Business or the Corporation. Schedule B1.18 sets out a
complete and accurate list of all licenses, permits, approvals, consents,
certificates, registrations and authorizations (whether governmental, regulatory
or otherwise) (the "TGF Licenses") held by or granted to the Corporation, and
there are no other licenses, permits, approvals, consents, certificates,
registrations or authorizations necessary to carry on the Business or to own or
lease any of the property or assets utilized by the Corporation. Each TGF
License is valid, subsisting and in good standing and the Corporation is not in
default or breach of any TGF License in any material respect and, to the
knowledge of the Vendor, no proceeding is pending or threatened to revoke or
limit any TGF License. The Vendor has
<PAGE>
provided a true and complete copy of each TGF License and all amendments thereto
to the Purchaser.
1.19 Consents and Approvals
There is no requirement for the Vendors to make any filing with, give any
notice to or obtain any license, permit, certificate, registration,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, except for the filings, notifications, licenses, permits,
certificates, registrations, consents and approvals described in Schedule B1.19.
There is no requirement under any Contract relating to the TGF Business or the
Corporation to which the Vendors or the Corporation is a party or by which it is
bound to give any notice to, or to obtain the consent or approval of, any party
to such agreement, instrument or commitment relating to the consummation of the
transactions contemplated by this Agreement except for the notifications,
consents and approvals described in Schedule B1.19.
1.20 Financial Statements
The Audited Corporation Financial Statements and the Interim Corporation
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods and
present fairly the assets, liabilities (whether accrued, absolute, contingent or
otherwise) and financial condition of the Corporation as at the respective dates
of the Corporation for the respective periods covered by such financial
statements. The financial position and condition of the Corporation is now at
least as good as that shown on or reflected in the Interim Corporation Financial
Statements.
1.21 Books and Records
The books and records of the Corporation fairly and correctly set out and
disclose in all material respects in accordance with generally accepted
accounting principles the financial position of the Corporation as at the date
hereof and all financial transactions of the Corporation have been accurately
recorded in such books and records in all material respects.
1.22 Absence of Changes
Since August 31, 1998, the Corporation has carried on the TGF Business and
conducted its operations and affairs only in the ordinary and normal course
consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or otherwise),
assets, liabilities, operations, earnings, business or prospects of the
Corporation;
<PAGE>
(b) any damage, destruction or loss (whether or not covered by insurance)
affecting any material component of the property or assets of the Corporation;
(c) any material obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by the
Corporation, other than those incurred in the ordinary and normal course and
consistent with past practice;
(d) any payment, discharge or satisfaction of any Encumbrance, liability or
obligation of the Corporation (whether absolute, accrued, contingent or
otherwise, and whether due or to become due) other than payment of accounts
payable and tax liabilities incurred in the ordinary course of business
consistent with past practice and other than capital lease and operating line
payments;
(e) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares in the capital of the Corporation or any
direct or indirect redemption, purchase or other acquisition of any such shares
other than dividends declared in respect of the Class A Special shares in the
capital of the Corporation and redemptions in respect of certain of such Class A
Special shares;
(f) any issuance or sale by the Corporation, or any Contract entered into
by the Corporation, for the issuance or sale by the Corporation, of any shares
in the capital of or securities convertible into or exercisable for shares in
the capital of the Corporation;
(g) any labour trouble materially adversely affecting the Corporation;
(h) any license, sale, assignment, transfer, disposition, pledge, mortgage
or granting of a security interest or other Encumbrance on or over any property
or assets of the Corporation, other than sales of inventory to customers in the
ordinary and normal course of the TGF Business;
(i) any general increase in the compensation of employees of the
Corporation (including, without limitation, any increase pursuant to any
Employee Plan or commitment), or any increase in any such compensation or bonus
payable to any officer, employee, consultant or agent thereof or the execution
of any employment contract with any officer or employee or the making of any
loan to, or engagement in any transaction with, any employee, officer or
director of the Corporation;
(j) other than equipment with respect to the new phyllo pastry line, any
capital expenditures or commitments of the Corporation in excess of $5,000.00 in
the aggregate;
(k) any forward purchase commitments in excess of the requirements of the
Corporation for normal operating inventories or at prices higher than the
current market prices;
(l) any forward sales commitments other than in the ordinary and normal
course of the TGF Business or any failure to satisfy any accepted order for
goods or services;
<PAGE>
(m) any change in the accounting or tax practices followed by the
Corporation other than with respect to certain accruals of salary and bonus
owing to some or all of the Vendors which accruals have been disclosed to the
Purchaser;
(n) any change adopted by the Corporation in its depreciation or
amortization policies or rates; or
(o) any adverse change in the credit terms offered to customers of, or by
suppliers to, the Corporation.
1.23 Taxes
(a) The Corporation has filed on a timely basis all tax returns required to
be filed by it in all applicable jurisdictions and other than approximately
Thirty-Three Thousand Dollars ($33,000.00) owing in respect of corporate income
tax has paid all taxes that are due and payable, and all assessments,
governmental charges, penalties, interest and fines due and payable by it.
Adequate provision has been made in the Audited Corporation Financial Statements
and the Interim Corporation Financial Statements for all taxes, governmental
charges and assessments, whether relating to income, sales, real or personal
property, or other types of taxes, governmental charges or assessments,
including interest and penalties thereon, payable in respect of the business or
assets of the Corporation or otherwise for all periods up to the date of the
balance sheet comprising part of the unaudited financial statements and whether
or not assessed.
(b) Canadian federal and provincial income tax assessments have been issued
to the Corporation covering all past periods up to and including the fiscal year
ended February 28, 1997 and these assessment, if any amounts were owing in
respect thereof, have been paid. Assessments for all other applicable federal
and provincial taxes and levies have been issued and any amounts owing
thereunder have been paid.
(c) There are no actions, suits, proceedings, investigations or claims
pending or, to the knowledge of the Vendors, threatened against, the Corporation
in respect of taxes, governmental charges or assessments, nor are any material
matters under discussion with any governmental authority relating to taxes,
governmental charges, assessments or reassessments asserted by any such
authority.
(d) The Corporation has withheld from each amount paid or credited to any
person the amount of all taxes, governmental charges, assessments or other
deductions required to be withheld therefrom and has remitted the amounts
withheld therefrom and has remitted the amounts withheld to the proper tax or
other receiving authorities within the time required under applicable
legislation. The Corporation has collected and remitted to the appropriate tax
authority when required by law to do so all amounts to be collected by them on
account of the goods and services tax or other taxes or governmental charges.
<PAGE>
(e) There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the filing of any tax return by, or payment of
any tax, governmental charges or deficiency against, or the period for any
assessment or reassessment of any government charges or deficiency of, the
Corporation with respect to any other matters.
(f) The Vendors have provided to the Purchaser a true copy of all tax
returns and all federal goods and services tax returns filed by the Corporation,
and all written communications relating thereto, in respect of the five last
completed fiscal years of the Corporation.
(g) The Corporation is and has always been a Canadian-controlled private
corporation, as defined in the Income Tax Act (Canada), and has been since its
incorporation.
1.24 Litigation
There are no actions, suits or proceedings (whether or not purportedly on
behalf of the Corporation) pending or, to the knowledge of the Vendors, after
due inquiry, threatened against or affecting, the Corporation at law or in
equity, or before or by any federal, provincial, municipal or other governmental
department, court, commission, board, bureau, agency or instrumentality,
domestic or foreign, or by or before an arbitrator or arbitration board. The
Vendors are not aware of any ground on which any such action, suit or proceeding
might be commenced with any reasonable likelihood of success.
1.25 Residency
The Vendors are each residents of Canada for the purposes of the Tax Act.
1.26 GST Registration
The Corporation is a registrant for purpose of the ETA whose registration
number is 125342428RT001.
1.27 Accounts and Attorneys
Schedule B1.27 sets forth a true and complete list showing:
(a) the name of each bank, trust company or similar institution in which
the Corporation has accounts or safe deposit boxes, the number or designation of
each such account and safe deposit box and the names of all persons authorized
to draw thereon or to have access thereto; and
<PAGE>
(b) the name of each person, firm, corporation or business organization
holding a general or special power of attorney from the Corporation and a
summary of the terms thereof.
1.28 Directors and Officers
Schedule B1.28 sets forth the names and titles of all the officers and
directors of the Corporation.
1.29 Dividends
Since August 31, 1998 the Corporation has not, directly or indirectly,
declared or paid any dividends or declared or made any other distribution on any
of its shares of any class and has not, directly or indirectly, redeemed,
purchased or otherwise acquired any of its outstanding shares of any class or
agreed to do so other than dividends paid on and redemption of the Class A
Special shares in the capital of the Corporation which have been paid and
redeemed in accordance with the articles of the Corporation relating thereto.
1.30 Non-Arm's Length Transactions
The Corporation has not since March 1, 1998 made any payment or loan to, or
borrowed any moneys from or is otherwise indebted to, any officer, director,
employee, shareholder or any other person not dealing at arm's length with the
Corporation (within the meaning of the Tax Act), except as disclosed in the
Interim Corporation Financial Statements and except for usual employee
reimbursements and compensation paid in the ordinary and normal course of the
TGF Business including the provision of management services by VLRL Management
Ltd. to the Corporation and except loans made to the Corporation by its
shareholders and/or directors from time to time and which shall have been repaid
in full on or before the Closing Date or shall otherwise form part of the
Shareholder Loans. Except for Contracts of employment and the foregoing
arrangements with VLRL Management Ltd., the Corporation is not a party to any
Contract with any officer, director, employee, shareholder or any other person
not dealing at arm's length with the Corporation (within the meaning of the Tax
Act). No officer, director or shareholder of the Corporation and no entity that
is an Affiliate or Associate of one or more of such individuals:
(a) owns, directly or indirectly, any interest in (except for shares
representing less than one per cent of the outstanding shares of any class or
series of any publicly traded company), or is an officer, director, employee or
consultant of, any person which is, or is engaged in business as, a competitor
of the TGF Business or the Corporation or a lessor, lessee, supplier,
distributor, sales agent or customer of the TGF Business or the Corporation
other than Victor who has an interest in Albert's Bakery, a customer and
supplier of the Corporation;
<PAGE>
(b) owns, directly or indirectly, in whole or in part, any property that
the Corporation uses in the operation of the TGF Business; or
(c) has any cause of action or other claim whatsoever against, or owes any
amount to, the Corporation in connection with the TGF Business, except for any
liabilities reflected in the Interim Corporation Financial Statements and claims
in the ordinary and normal course of business, such as for accrued vacation pay
and accrued benefits under the Employee Plans, the Purchased Loans and
Shareholder Loans and other than the accruals of salary and bonuses referred to
in Subsection 1.22(m) of this Schedule B.
1.31 Environmental
(a) The Corporation has been and is in compliance in all material respects
with all applicable federal, provincial, state, municipal laws, statutes,
ordinances, by-laws and regulations and orders, directives and decisions
rendered by any ministry, department or administrative or regulatory agency
("Environmental Laws") relating to the protection of the environment,
occupational health and safety or the manufacture, processing, distribution,
use, treatment, storage, disposal, discharge, transport or handling of any
pollutants, contaminants, chemicals or industrial, toxic or hazardous wastes or
substances ("Hazardous Substances");
(b) The Corporation has obtained all licenses, permits, approvals,
consents, certificates, registrations and other authorizations under
Environmental Laws (the "Environmental Permits") required for the operation of
the TGF Business. Each Environmental Permit is valid, subsisting and in good
standing and the Corporation is not in default or breach in any material respect
of any Environmental Permit and no proceeding is pending, or threatened, to
revoke or limit any Environmental Permit;
(c) The Corporation has not used or permitted to be used, except in
compliance with all Environmental Laws, the TGF Leased Property or facilities or
any property or facility that it previously owned or leased, to generate,
manufacture, process, distribute, use, treat, store, dispose of, transport or
handle any Hazardous Substance;
(d) The Corporation has never received any notice of, nor been prosecuted
for an offence alleging, non-compliance with any Environmental Laws, and neither
the Vendors nor the Corporation has settled any allegation of non-compliance
short of prosecution. There are no orders or directions relating to
environmental matters requiring any work, repairs, construction or capital
expenditures with respect to the TGF Business or any property of the
Corporation, nor has the Corporation received notice of any of the same;
(e) To the best of the Vendors' knowledge, there are no pending or proposed
changes to Environmental Laws that would render illegal or restrict the
manufacture or sale any product manufactured or sold or service provided by the
Corporation;
(f) The Corporation has not caused or permitted, nor does it have any
knowledge of, the release, in any manner whatsoever, of any Hazardous Substance
on or from any of
<PAGE>
its properties (including the TGF Leased Property) or assets or any property or
facility that it previously owned or leased, or any such release on or from a
facility owned or operated by third parties but with respect to which the
Corporation is or may reasonably be alleged to have liability. All Hazardous
Substances and all other wastes and other materials and substances used in whole
or in part by the Corporation or resulting from the TGF Business have been
disposed of, treated and stored in compliance with all Environmental Laws;
(g) The Corporation has not received any notice that it is potentially
responsible for a federal, provincial, municipal or local clean-up site or
corrective action under any Environmental Laws. The Corporation has not received
any request for information in connection with any federal, provincial,
municipal or local inquiries as to disposal sites.
1.32 Employee Plans
The Corporation does not have any retirement, pension, stock purchase,
profit sharing, stock option or deferred compensation plans. Schedule B1.32
identifies each insurance, medical, hospital, dental, vision care, drug, sick
leave, disability, salary continuation, legal benefits, unemployment benefits,
vacation, incentive or other compensation plan or arrangement or other employee
benefit that is maintained or otherwise contributed to, or required to be
contributed to, by the Corporation for the benefit of employees or former
employees of the Corporation (the "TGF Employee Plans") and a true and complete
copy of each TGF Employee Plan has been furnished to the Purchaser. Each TGF
Employee Plan has been maintained in all material respects in compliance with
its terms and with the requirements prescribed by any and all statutes, orders,
rules and regulation that are applicable to such TGF Employee Plan.
(a) all contributions to, and payments from, each TGF Employee Plan that
may have been required to be made in accordance with the terms of any such TGF
Employee Plan, or with the recommendation of the actuary for such TGF Employee
Plan, and, where applicable, the laws of the jurisdictions that govern such TGF
Employee Plan, have been made in a timely manner;
(b) all material reports, returns and similar documents (including
applications for approval of contributions) with respect to any TGF Employee
Plan required to be filed with any governmental agency or distributed to any TGF
Employee Plan participant have been duly filed on a timely basis or distributed;
(c) to the knowledge of the Vendors, there are no pending investigations by
any governmental or regulatory agency or authority involving or relating to a
TGF Employee Plan, no threatened or pending claims (except for claims for
benefits payable in the normal operation or the TGF Employee Plans), suits or
proceedings against any TGF Employee Plan or asserting any rights or claims to
benefits under the TGF Employee Plan that could give rise to a liability nor, to
the knowledge of the Vendor and the Corporation, are there any facts that could
give rise to any liability in the event of such investigation, claim, suit or
proceeding; and
<PAGE>
(d) no notice has been received by the Corporation of any complaints or
other proceedings of any kind involving the Corporation or, to the Vendor's or
the knowledge, any of the employees of the Corporation before any pension board
or committee relating to any TGF Employee Plan or to the Corporation.
1.33 Collective Agreements
Except as described in Schedule B1.32, the Corporation has not made any
Contracts with any labour union or employee association nor made commitments to
or conducted negotiations with any labour union or employee association with
respect to any future agreements and, except as set out in Schedule B1.33,
neither the Vendor nor the Corporation is aware of any current attempts to
organize or establish any labour union or employee association with respect to
any employees of the Corporation, nor is there any certification of any such
union with regard to a bargaining unit.
1.34 Employees
Schedule B1.32 contains a complete and accurate list of the names of all
individuals who are employees or sales or other agents or representatives of the
Corporation specifying:
(a) with respect to the unionized employees, the rate of hourly pay,
whether or not such employee is absent for any reason such as lay off, leave of
absence or worker's compensation; and
(b) with respect to salaried employees and sales or other agents or
representatives, the length of service, age, title, rate of salary and
commission structure for each such employee, agent or representative,
it being acknowledged that those employees listed under the heading VLRL
Management Ltd. are being employed by VLRL management Ltd. and are providing
services to both TGF and Norbakco and that such arrangement with VLRL Management
Ltd. is to be terminated on closing and such personnel to be fixed by TGF and
Norbakco.
No notice has been received by the Corporation of any complaint filed by
any of the employees against the Corporation claiming that the Corporation has
violated the Employment Standards Act (Ontario) or the Human Rights Code
(Ontario) (or any applicable employee or human rights or similar legislation in
the other jurisdictions in which the TGF Business is conducted or the
Corporation operates) or of any complaints or proceedings of any kind involving
the Corporation or, to the Vendor's and the Corporation's knowledge, after due
inquiry, any of the employees of the Corporation before any labour relations
board, except as disclosed in Schedule B1.33. There are no outstanding orders or
charges against the Corporation under the Occupational Health and Safety Act
(Ontario). All levies, assessments and penalties made against the Corporation
pursuant to the Worker's Compensation Act (Ontario) have been paid by the
Corporation
<PAGE>
and the Corporation has not been reassessed under any such legislation during
the past two (2) years.
1.35 Employee Accruals
All accruals for unpaid vacation pay, premiums for unemployment insurance,
health premiums, Canada Pension Plan premiums, accrued wages, salaries and
commissions and employee benefit play payments have been reflected in the books
and records of the Corporation.
1.36 Customers and Suppliers
Schedule B1.36 sets out the major customers of the Corporation (being those
customers of the Corporation accounting for more than 75% of sales for the
twelve (12) month period ending August 31, 1998 and there has been no
termination or cancellation of, and no modification or change in, the
Corporation's business relationship with any major customer or group of major
customers. The Corporation has no reason to believe that the benefits of any
relationship with any of the major customers or suppliers of the Corporation
will not continue after the Closing Date in substantially the same manner as
prior to the date of the Agreement.
1.37 Full Disclosure
The Vendors have disclosed to the Purchaser all facts known to them
relating to the TGF Business and the Corporation, its assets and operations,
which could reasonably be expected to be material to an intending purchaser of
the Purchased Shares.
<PAGE>
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
WITH RESPECT TO NORBAKCO
The Vendors severally represent and warrant to the Purchaser as follows and
acknowledge that the Purchaser is relying on such representations and warranties
in connection with its purchase of the Purchased Shares:
2.01 Organization
Norbakco is duly incorporated and organized and validly subsisting under
the laws of Ontario and has the corporate power to own or lease its property, to
carry on the Business as now being conducted by it, to enter into this Agreement
and perform its obligations hereunder. The Norbakco is duly qualified as a
Norbakco to do business in each jurisdiction in which the nature of the Business
or the property and assets owned or leased by it makes such qualification
necessary.
2.02 Intentionally Deleted
2.03 Authorized and Issued Capital
The authorized capital of the Norbakco consists of an unlimited number of
Common Shares of which 200 common shares (and no more) have been duly issued and
are outstanding as fully paid non-assessable.
2.04 Options
Other than as set forth in the Norbakco Shareholders' Agreement, no person,
firm or corporation has any agreement or option or any right or privilege
(whether by law, pre-emptive or contractual) capable of becoming an agreement,
including convertible securities, warrants or convertible obligations of any
nature, for the purchase, subscription, allotment or issuance of any unissued
shares or other securities of the Norbakco.
2.05 No Subsidiaries
Norbakco does not own and does not have any agreement of any nature to
acquire, directly or indirectly, any shares in the capital of or other equity or
proprietary interests in any person, firm or corporation, and Norbakco does not
have any agreements to acquire or lease any other business operations.
2.06 No Violation
The execution and delivery of this Agreement by the Vendors and the
consummation of the transactions herein provided for will not result in either:
<PAGE>
(a) the breach or violation of any of the provisions of, or constitute a
default under, or conflict with or cause the acceleration of any obligation of
the Vendors or Norbakco under:
(i) any Contract to which the Vendors or the Norbakco is a party or by
which any of them is, or either of their properties are, bound other than
its banking arrangements with The Bank of Nova Scotia in respect of which a
consent is being obtained and the Norbakco Shareholders' Agreement;
(ii) any provision of the constating documents, by-laws or resolutions
of the board of directors (or any committee thereof) or shareholders of the
Norbakco;
(iii) any judgement, decree, order or award of any court, governmental
body or arbitrator having jurisdiction over the Vendors or the Norbakco;
(iv) any license, permit, approval, consent or authorization held by
the Vendors or Norbakco or necessary to the ownership of the Purchased
Shares or the operation of the Norbakco Business; or
(v) any applicable law, statute, ordinance, regulation or rule; or
(b) the creation or imposition of any Encumbrance on any the Purchased
Shares, any of the issued and outstanding shares in the capital of Norbakco, the
Victorco VLRL Shares, the Rhysco VLRL Shares, the Lenco VLRL Shares or the Larry
VLRL Shares or any of the property or assets of the Norbakco.
2.07 Business of the Norbakco
The Norbakco Business is the only business operation carried on by the
Norbakco, and the property and assets owned or leased by Norbakco are sufficient
to carry on the Norbakco Business. All of the material property and assets owned
and used by Norbakco are in good operating condition and are in a state of good
repair and maintenance. Since June 1, 1998, there has not been any significant
interruption of operations (being a interruption of more than one day) of the
Norbakco Business due to inadequate maintenance of any of the property and
assets owned and used by the Norbakco. With the exception of inventory in
transit, all the tangible assets of Norbakco are situate at the location set out
in Schedule B2.07.
2.08 Title to Personal and Other Property
The property and assets of Norbakco (other than the Norbakco Leased
Property) are owned beneficially by Norbakco as the beneficial owner thereof
with a good and marketable title thereto, free and clear of all Encumbrances
other than the Norbakco Permitted Encumbrances.
<PAGE>
2.09 Location of Real Property
Schedule B2.11 sets forth a municipal address of the Real Property leased
by the Norbakco (the "Norbakco Leased Property"). Norbakco does not own or lease
and has not agreed to acquire or lease any real property or interest in real
property other than the Norbakco Leased Property.
2.10 Title to Real Property
To the knowledge of the Vendors all buildings, structures, improvements and
appurtenances situated on the Norbakco Leased Property to the extent occupied by
TGF are in good operating condition and in a state of good maintenance and
repair, reasonable wear and tear excepted are adequate and suitable for the
purposes for which they are currently being used and Norbakco has adequate
rights of ingress and egress for the operation of the Norbakco Business in the
ordinary course. Without limiting the generality of the foregoing:
(a) the current uses of the Norbakco Leased Property by Norbakco and the
conduct of the Norbakco Business comply, in all material respects with all
regulations, statues, enactments, laws and by-laws including, without
limitation, those dealing with zoning, parking, access, loading facilities,
landscaped areas, building construction, fire and public health and safety and
Environmental Laws;
(b) to the knowledge of the Vendors, no alteration, repair, improvement or
other work has been ordered, directed or requested in writing to be done or
performed to or in respect of the Norbakco Leased Property or to any of the
plumbing, heating, elevating, water, drainage or electrical systems, fixtures or
works by any municipal, provincial or other competent authority, which
alteration, repair, improvement or other work has not been completed, and the
Vendors know of no written notification having been given to it of any such
outstanding work being ordered, directed or requested, other than those that
have been complied with;
(c) all account for work and services performed and materials placed or
furnished upon or in respect of the Norbakco Leased Property at the request of
Norbakco have been fully paid and satisfied, and no person is entitled to claim
a lien under the Construction Lien Act against the Norbakco Leased Property or
any part thereof in respect of any such matters requested by the Corporation,
other than current accounts in respect of which the payment due date has not yet
passed;
(d) there is nothing owing in respect of the Norbakco Leased Property by
Norbakco to any municipal corporation or to any other corporation or commission
owning or operating a public utility for water, gas, electrical power or energy,
steam or hot water, or for the use thereof, other than current accounts in
respect of which the payment due date has not yet passed;
<PAGE>
(e) to the knowledge of the Vendors, no part of the Norbakco Leased
Property has been taken or expropriated by any federal, provincial, municipal or
other competent authority nor to the knowledge of the Vendors has any notice or
proceeding in respect thereof been given or commenced; and
(f) the Norbakco Leased Property (including all buildings, improvements and
fixtures) is fit for its present use by Norbakco, and there are no material or
structural repairs or replacements that are necessary or advisable and, without
limiting the foregoing, there are no repairs to, or replacements of, the roof or
the mechanical, electrical, heating, ventilating, air-conditioning, plumbing or
drainage equipment or systems that are necessary or advisable, and the Norbakco
Leased Property is not currently undergoing any alteration or renovation nor is
any such alteration or renovation contemplated.
2.11 Real Property Leases
Norbakco is not a party to any lease or agreement in the nature of a lease
in respect of any real property, whether as lessor or lease, other than the
lease (the "Norbakco Lease") described in Schedule B1.11 relating to the
Norbakco Leased Property. Schedule B1.11 sets out the parties to the Norbakco
Lease, its date of execution and expiry date, any options to renew, the location
of the leased lands and premises and the rent payable thereunder. Norbakco
occupies and has the exclusive right to occupy and use the Norbakco Leased
Property. To the knowledge of the Vendors, the Norbakco Lease is in good
standing and in full force and effect without amendment thereto. Neither
Norbakco nor, to the knowledge of the Vendors, any other party thereto is in
material breach of any covenants, conditions or obligations contained therein.
The Vendors have provided a true copy of the Norbakco Lease to the Purchaser.
2.12 Inventories
The inventories of Norbakco do not include any material items that are slow
moving, below standard quality or of a quality or quantity not useable or
saleable in the normal course of business, the value of which has not been
written down on its books of account to net realizable market value in
accordance with prudent business practice in the industry. The inventory levels
of Norbakco have been maintained at such amounts as are required for the
operation of the Norbakco Business as previously conducted and as proposed to
conducted, and such inventory levels are adequate therefor.
2.13 Accounts Receivable
All accounts receivable, book debts and other debts due or accruing to
Norbakco are bona fide and good and, subject to an allowance for doubtful
accounts that has been reflected on the books of Norbakco in accordance with
generally accepted accounting principles, are collectible without set-off or
counterclaim.
<PAGE>
2.14 Intellectual Property
The Vendors shall cause to be delivered within ninety (90) days subsequent
to the Closing Date a complete and accurate list of all trade marks, trade
names, business names, patents, labels, products, recipes and know-how with
respect to the production of the products of the Corporation owned or used by
Norbakco in carrying on the Norbakco Business and all applications therefor and
all goodwill connected therewith, including, without limitation, all licenses,
registered user agreements and all like rights used by or granted to Norbakco in
connection with the Norbakco Business and all right to register or otherwise
apply for the protection on any of the foregoing (collectively, the "Norbakco
Intellectual Property"). Schedule B2.14 annexed hereto includes complete and
accurate particulars of all registrations or applications for registration of
the Norbakco Intellectual Property. The Norbakco Intellectual Property comprises
all trade marks, trade names, business names, patents, inventions, know-how,
copyrights, service marks, brand marks, industrial designs and all other
industrial or intellectual property reasonably necessary to conduct the Norbakco
Business. Norbakco is the beneficial owner of the Norbakco Intellectual
Property, free and clear of all Encumbrances other than Norbakco Permitted
Encumbrances, and is not a party to or bound by any Contract or other obligation
whatsoever that limits or impairs its ability to sell, transfer, assign or
convey, or that otherwise affects, the Norbakco Intellectual Property. No person
has been granted any interest in or right to use all or any portion of the
Norbakco Intellectual Property. The Vendors are not aware of any claim of any
infringement or breach of any industrial or intellectual property rights of any
other person by Norbakco, nor have the Vendors or Norbakco received any notice
that the conduct of the Norbakco Business any industrial or intellectual
property rights of any other person, and the Vendors after due inquiry have no
knowledge of any infringement or violation of any of the rights of Norbakco in
the Norbakco Intellectual Property. The conduct of the Norbakco Business does
not infringe upon the patents, trade marks, licenses, trade names, business
names, copyright or other industrial or intellectual property rights, domestic
or foreign, of any other person. The Vendors are not aware of any state of facts
that casts doubt on the validity or enforceability of any of the Norbakco
Intellectual Property. The Vendors have provided to the Purchaser a true and
complete copy of all Contracts and amendments thereto that comprise or relate to
the Norbakco Intellectual Property.
2.15 Insurance
Norbakco has all of its property and assets insured against loss or damage
by all insurable hazards or risks on a replacement cost basis and such insurance
coverage will be continued in full force and effect to and including the Time of
Closing. Schedule B2.15 sets out all insurance policies (specifying the insurer,
the amount of the coverage, the type of insurance, the policy number and any
depending claims thereunder) maintained by Norbakco on its property and assets
or personnel as of the date hereof and true and complete copies of the most
recent inspection reports, if any, received from insurance underwriters or
others as to the condition of the property and assets of Norbakco. Norbakco is
not in default with respect to any of the provisions contained in
<PAGE>
any such insurance policy and has not failed to give any notice or present any
claim under any such insurance policy in a due and timely fashion. The Vendors
have provided to the Purchaser a true copy of each insurance policy referred to
in Schedule B2.15.
2.16 No Expropriation
No property or asset of Norbakco has been taken or expropriated by any
federal, provincial, state, municipal or other authority nor has any notice or
proceeding in respect thereof been given or, to the knowledge of the Vendors,
commenced nor is the Vendor or Norbakco aware of any intent or proposal to give
any such notice or commence any such proceeding.
2.17 Agreements and Commitments
Except as described on Schedule B2.17 or elsewhere in this Agreement or in
any Schedules hereto Norbakco is not a party to or bound by any Contract.
Norbakco has performed all of the material obligations required to be
performed by it and is entitled to all benefits under, and is not in default or
alleged to be in default in any material respect or alleged to be in default in
any material respect in respect of, any Contract relating to the Norbakco
Business to which it is a party or by which it is bound; all such Contracts are
in good standing and in full force and effect, and no event, condition or
occurrence exists that, after notice or lapse of time or both, would constitute
a material default under any of the foregoing. The Vendors have provided to the
Purchaser a true and complete copy of each Contract listed or described on
Schedule B2.17 and all amendments thereto.
2.18 Compliance with Laws; Governmental Authorization
Norbakco has complied in all material respects with all laws, statutes, or
ordinances regulations, rules, judgments, decrees or orders applicable to the
Norbakco Business or Norbakco. Schedule B2.18 sets out a complete and accurate
list of all licenses, permits, approvals, consents, certificates, registrations
and authorizations (whether governmental, regulatory or otherwise) (the
"Licenses") held by or granted to Norbakco, and there are no other licenses,
permits, approvals, consents, certificates, registrations or authorizations
necessary to carry on the Norbakco Business or to own or lease any of the
property or assets utilized by Norbakco. Each Norbakco License is valid,
subsisting and in good standing and Norbakco is not in default or breach of any
Norbakco License in any material respect and, to the knowledge of the Vendor, no
proceeding is pending or threatened to revoke or limit any Norbakco License. The
Vendor has provided a true and complete copy of each Norbakco License and all
amendments thereto to the Purchaser.
2.19 Consents and Approvals
<PAGE>
There is no requirement for the Vendors to make any filing with, give any
notice to or obtain any license, permit, certificate, registration,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, except for the filings, notifications, licenses, permits,
certificates, registrations, consents and approvals described in Schedule B2.19.
There is no requirement under any Contract relating to the Norbakco Business or
Norbakco to which the Vendors or Norbakco is a party or by which it is bound to
give any notice to, or to obtain the consent or approval of, any party to such
agreement, instrument or commitment relating to the consummation of the
transactions contemplated by this Agreement except for the notifications,
consents and approvals described in Schedule B2.19.
2.20 Financial Statements
The Interim Norbakco Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
prior periods and present fairly the assets, liabilities (whether accrued,
absolute, contingent or otherwise) and financial condition of Norbakco as at the
respective dates of Norbakco for the respective periods covered by such
financial statements. The financial position and condition of Norbakco is now at
least as good as that shown on or reflected in the Interim Norbakco Financial
Statements.
2.21 Books and Records
The books and records of Norbakco fairly and correctly set out and disclose
in all material respects in accordance with generally accepted accounting
principles the financial position of Norbakco as at the date hereof and all
financial transactions of Norbakco have been accurately recorded in such books
and records in all material respects.
2.22 Absence of Changes
Since August 31, 1998, Norbakco has carried on the Norbakco Business and
conducted its operations and affairs only in the ordinary and normal course
consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or otherwise),
assets, liabilities, operations, earnings, business or prospects of Norbakco;
(b) any damage, destruction or loss (whether or not covered by insurance)
affecting any material component of the property or assets of Norbakco;
(c) any material obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by Norbakco,
other than those incurred in the ordinary and normal course and consistent with
past practice;
<PAGE>
(d) any payment, discharge or satisfaction of any Encumbrance, liability or
obligation of Norbakco (whether absolute, accrued, contingent or otherwise, and
whether due or to become due) other than payment of accounts payable and tax
liabilities incurred in the ordinary course of business consistent with past
practice and other than capital lease and operating line payments;
(e) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares in the capital of Norbakco or any direct
or indirect redemption, purchase or other acquisition of any such shares;
(f) any issuance or sale by Norbakco, or any Contract entered into by
Norbakco, for the issuance or sale by Norbakco, of any shares in the capital of
or securities convertible into or exercisable for shares in the capital of
Norbakco;
(g) any labour trouble materially adversely affecting Norbakco;
(h) any license, sale, assignment, transfer, disposition, pledge, mortgage
or granting of a security interest or other Encumbrance on or over any property
or assets of Norbakco, other than sales of inventory to customers in the
ordinary and normal course of the Norbakco Business;
(i) any general increase in the compensation of employees of Norbakco
(including, without limitation, any increase pursuant to any Employee Plan or
commitment), or any increase in any such compensation or bonus payable to any
officer, employee, consultant or agent thereof or the execution of any
employment contract with any officer or employee or the making of any loan to,
or engagement in any transaction with, any employee, officer or director of
Norbakco;
(j) any capital expenditures or commitments of Norbakco in excess of
$5,000.00 in the aggregate;
(k) any forward purchase commitments in excess of the requirements of
Norbakco for normal operating inventories or at prices higher than the current
market prices;
(l) any forward sales commitments other than in the ordinary and normal
course of the Norbakco Business or any failure to satisfy any accepted order for
goods or services;
(m) any change in the accounting or tax practices followed by Norbakco
other than with respect to certain accruals of salary and bonus owing to some or
all of the Vendors which accruals have been disclosed to the Purchaser;
(n) any change adopted by Norbakco in its depreciation or amortization
policies or rates; or
<PAGE>
(o) any adverse change in the credit terms offered to customers of, or by
suppliers to Norbakco.
2.23 Taxes
(a) Other than in respect of those periods pre-dating Norbakco commencing
carrying on business, Norbakco has filed on a timely basis all tax returns
required to be filed by it in all applicable jurisdictions and has paid all
taxes that are due and payable, and all assessments, governmental charges,
penalties, interest and fines due and payable by it. Adequate provision has been
made in the Interim Norbakco Financial Statements for all taxes, governmental
charges and assessments, whether relating to income, sales, real or personal
property, or other types of taxes, governmental charges or assessments,
including interest and penalties thereon, payable in respect of the business or
assets of Norbakco or otherwise for all periods up to the date of the balance
sheet comprising part of the unaudited financial statements and whether or not
assessed.
(b) There are no actions, suits, proceedings, investigations or claims
pending or, to the knowledge of the Vendors, threatened against, Norbakco in
respect of taxes, governmental charges or assessments, nor are any material
matters under discussion with any governmental authority relating to taxes,
governmental charges, assessments or reassessments asserted by any such
authority.
(c) Norbakco has withheld from each amount paid or credited to any person
the amount of all taxes, governmental charges, assessments or other deductions
required to be withheld therefrom and has remitted the amounts withheld
therefrom and has remitted the amounts withheld to the proper tax or other
receiving authorities within the time required under applicable legislation.
Norbakco has collected and remitted to the appropriate tax authority when
required by law to do so all amounts to be collected by them on account of the
goods and services tax or other taxes or governmental charges.
(d) There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the filing of any tax return by, or payment of
any tax, governmental charges or deficiency against, or the period for any
assessment or reassessment of any government charges or deficiency of, Norbakco
with respect to any other matters.
(e) The Vendors have provided to the Purchaser a true copy of all tax
returns and all federal goods and services tax returns filed by Norbacko, and
all written communications relating thereto, in respect of the five last
completed fiscal years of Norbakco.
(f) Norbakco is and has always been a Canadian-controlled private
corporation, as defined in the Income Tax Act (Canada), and has been since its
incorporation.
<PAGE>
2.24 Litigation
There are no actions, suits or proceedings (whether or not purportedly on
behalf of Norbakco) pending or, to the knowledge of the Vendors, after due
inquiry, threatened against or affecting, Norbakco at law or in equity, or
before or by any federal, provincial, municipal or other governmental
department, court, commission, board, bureau, agency or instrumentality,
domestic or foreign, or by or before an arbitrator or arbitration board. The
Vendors are not aware of any ground on which any such action, suit or proceeding
might be commenced with any reasonable likelihood of success.
2.25 Residency
The Vendors are each residents of Canada for the purposes of the Tax Act.
2.26 GST Registration
Norbakco is a registrant for purpose of the ETA whose registration number
is 872622998RT001.
2.27 Accounts and Attorneys
Schedule B2.27 sets forth a true and complete list showing:
(a) the name of each bank, trust company or similar institution in which
Norbakco has accounts or safe deposit boxes, the number or designation of each
such account and safe deposit box and the names of all persons authorized to
draw thereon or to have access thereto; and
(b) the name of each person, firm, corporation or business organization
holding a general or special power of attorney from Norbakco and a summary of
the terms thereof.
2.28 Directors and Officers
Schedule B2.28 sets forth the names and titles of all the officers and
directors of Norbakco.
2.29 Dividends
Since May 1, 1998 Norbakco has not, directly or indirectly, declared or
paid any dividends or declared or made any other distribution on any of its
shares of any class and has not, directly or indirectly, redeemed, purchased or
otherwise acquired any of its outstanding shares of any class or agreed to do
so.
<PAGE>
2.30 Non-Arm's Length Transactions
Norbakco has not since May 1, 1998 made any payment or loan to, or borrowed
any moneys from or is otherwise indebted to, any officer, director, employee,
shareholder or any other person not dealing at arm's length with Norbakco
(within the meaning of the Tax Act), except as disclosed in the Interim Norbakco
Financial Statements and except for usual employee reimbursements an
compensation paid in the ordinary and normal course of the Norbakco Business
including the provision of management services by VLRL Management Ltd. to
Norbakco. Except for Contracts of employment and the foregoing arrangements with
VLRL Management Ltd., Norbakco is not a party to any Contract with any officer,
director, employee, shareholder or any other person not dealing at arm's length
with Norbakco (within the meaning of the Tax Act). No officer, director or
shareholder of Norbakco and no entity that is an Affiliate or Associate of one
or more of such individuals:
(a) owns, directly or indirectly, any interest in (except for shares
representing less than one per cent of the outstanding shares of any class or
series of any publicly traded company), or is an officer, director, employee or
consultant of, any person which is, or is engaged in business as, a competitor
of the Norbakco Business or Norbakco or a lessor, lessee, supplier, distributor,
sales agent or customer of the Norbakco Business or Norbakco;
(b) owns, directly or indirectly, in whole or in part, any property that
Norbakco uses in the operation of the Norbakco Business; or
(c) has any cause of action or other claim whatsoever against, or owes any
amount to, Norbakco in connection with the Norbakco Business, except for any
liabilities reflected in the Interim Norbakco Financial Statements and claims in
the ordinary and normal course of business, such as for accrued vacation pay and
accrued benefits under the Norbakco Employee Plans, the Purchased Loans and
Shareholders Loans and other than the accruals of salary and bonuses referred to
in Subsection 2.22(m) of this Schedule B.
2.31 Environmental
(a) Norbakco has been and is in compliance in all materials respects with
all applicable Hazardous Substances;
(b) Norbakco has obtained all Environmental Permits required for the
operation of the Norbakco Business. Each Environmental Permit is valid,
subsisting and in good standing and Norbakco is not in default or breach in any
material respect of any Environmental Permit and no proceeding is pending, or
threatened, to revoke or limit any Environmental Permit;
(c) Norbakco has not used or permitted to be used, except in compliance
with all Environmental Laws, the Norbakco Leased Property or facilities or any
property or
<PAGE>
facility that it previously owned or leased, to generate, manufacture, process,
distribute, use, treat, store, dispose of, transport or handle any Hazardous
Substance;
(d) Norbakco has never received any notice of, nor been prosecuted for an
offence alleging, non-compliance with any Environmental Laws, and neither the
Vendors nor Norbakco has settled any allegation of non-compliance short of
prosecution. There are no orders or directions relating to environmental matters
requiring any work, repairs, construction or capital expenditures with respect
to the Norbakco Business or any property of Norbakco, nor has Norbakco received
notice of any of the same;
(e) To the best of the Vendors' knowledge, there are no pending or proposed
changes to Environmental Laws that would render illegal or restrict the
manufacture or sale any product manufactured or sold or service provided by
Norbakco;
(f) Norbakco has not caused or permitted, nor does it have any knowledge
of, the release, in any manner whatsoever, of any Hazardous Substance on or from
any of its properties (including the Norbakco Leased Property) or assets or any
property or facility that it previously owned or leased, or any such release on
or from a facility owned or operated by third parties but with respect to which
Norbakco is or may reasonably be alleged to have liability. All Hazardous
Substances and all other wastes and other materials and substances used in whole
or in part by Norbakco or resulting from the Norbakco Business have been
disposed of, treated and stored in compliance with all Environmental Laws;
(g) Norbakco has not received any notice that it is potentially responsible
for a federal, provincial, municipal or local clean-up site or corrective action
under any Environmental Laws. Norbakco has not received any request for
information in connection with any federal, provincial, municipal or local
inquiries as to disposal sites.
2.32 Employee Plans
Norbakco does not have any retirement, pension, stock purchase, profit
sharing, stock option or deferred compensation plans. Schedule B2.32 identifies
each insurance, medical, hospital, dental, vision care, drug, sick leave,
disability, salary continuation, legal benefits, unemployment benefits,
vacation, incentive or other compensation plan or arrangement or other employee
benefit that is maintained or otherwise contributed to, or required to be
contributed to, by Norbakco for the benefit of employees or former employees of
Norbakco (the "Norbakco Employee Plans") and a true and complete copy of each
Norbakco Employee Plan has been furnished to the Purchaser. Each Norbakco
Employee Plan has been maintained in all material respects in compliance with
its terms and with the requirements prescribed by any and all statutes, orders,
rules and regulation that are applicable to such Norbakco Employee Plan.
(a) all contributions to, and payments from, each Norbakco Employee Plan
that may have been required to be made in accordance with the terms of any such
Norbakco Employee
<PAGE>
Plan, or with the recommendation of the actuary for such Norbakco Employee Plan,
and, where applicable, the laws of the jurisdictions that govern such Norbakco
Employee Plan, have been made in a timely manner;
(b) all material reports, returns and similar documents (including
applications for approval of contributions) with respect to any Norbakco
Employee Plan required to be filed with any governmental agency or distributed
to any Norbakco Employee Plan participant have been duly filed on a timely basis
or distributed;
(c) to the knowledge of the Vendors, there are no pending investigations by
any governmental or regulatory agency or authority involving or relating to a
Norbakco Employee Plan, no threatened or pending claims (except for claims for
benefits payable in the normal operation or the Employee Plans), suits or
proceedings against any Employee Plan or asserting any rights or claims to
benefits under the Norbakco Employee Plan that could give rise to a liability
nor, to the knowledge of the Vendor and Norbakco, are there any facts that could
give rise to any liability in the event of such investigation, claim, suit or
proceeding; and
(d) no notice has been received by Norbakco of any complaints or other
proceedings of any kind involving Norbakco or, to the Vendor's or the knowledge,
any of the employees of Norbakco before any pension board or committee relating
to any Norbakco Employee Plan or to Norbakco.
2.33 Collective Agreements
Except as described in Schedule B2.32, Norbakco has not made any Contracts
with any labour union or employee association nor made commitments to or
conducted negotiations with any labour union or employee association with
respect to any future agreements and, except as set out in Schedule B2.32,
neither the Vendor nor Norbakco is aware of any current attempts to organize or
establish any labour union or employee association with respect to any employees
of Norbakco, nor is there any certification of any such union with regard to a
bargaining unit.
2.34 Employees
Schedule B2.32 contains a complete and accurate list of the names of all
individuals who are employees or sales or other agents or representatives of
Norbakco specifying:
(a) with respect to the unionized employees, the rate of hourly pay,
whether or not such employee is absent for any reason such as lay off, leave of
absence or worker's compensation; and
(b) with respect to salaried employees and sales or other agents or
representatives, the length of service, age, title, rate of salary and
commission structure for each such employee, agent or representative.
<PAGE>
(being acknowledged that those employees listed under the heading VLRL
Management Ltd. are being employed by VLRL Management Ltd. and are providing
services to both TGF and Norbakco and that such arrangement with VLRL Management
Ltd. is to be terminated on closing and such personnel to be fixed by TGF and
Norbakco).
No notice has been received by Norbakco of any complaint filed by any of
the employees against Norbakco claiming that Norbakco has violated the
Employment Standards Act (Ontario) or the Human Rights Code (Ontario) (or any
applicable employee or human rights or similar legislation in the other
jurisdictions in which the Norbakco Business is conducted or Norbakco operates)
or of any complaints or proceedings of any kind involving Norbakco or, to the
Vendor's and Norbakco's knowledge, after due inquiry, any of the employees of
Norbakco before any labour relations board, except as disclosed in Schedule 17.
There are no outstanding orders or charges against Norbakco under the
Occupational Health and Safety Act (Ontario). All levies, assessments and
penalties made against Norbakco pursuant to the Worker's Compensation Act
(Ontario) have been paid by Norbakco and Norbakco has not been reassessed under
any such legislation during the past two (2) years.
2.35 Employee Accruals
All accruals for unpaid vacation pay, premiums for unemployment insurance,
health premiums, Canada Pension Plan premiums, accrued wages, salaries and
commissions and employee benefit play payments have been reflected in the books
and records of Norbakco.
2.36 Customers and Suppliers
Schedule B2.36 sets out the major customers of Norbakco (being those
customers of Norbakco accounting for more than 75% of sales for the twelve (12)
month period ending August 31, 1998 and there has been no termination or
cancellation of, and no modification or change in, Norbakco's business
relationship with any major customer or group of major customers. Norbakco has
no reason to believe that the benefits of any relationship with any of the major
customers or suppliers of Norbakco will not continue after the Closing Date in
substantially the same manner as prior to the date of the Agreement.
2.37 Full Disclosure
The Vendors have disclosed to the Purchaser all facts known to them
relating to the Norbakco Business and Norbakco and its assets and operations
which could reasonably be expected to be material to an intending purchaser of
the Purchased Shares.
<PAGE>
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
WITH RESPECT TO VLRL
The Vendors severally represent and warrant to the Purchaser as follows and
acknowledge that the Purchaser is relying on such representations and warranties
in connection with its purchase of the Purchased Shares:
3.01 Organization
VLRL is a corporation duly incorporated and organized and validly
subsisting under the laws of Ontario and has the corporate power to own or lease
its property, to own the Norbakco Shares, to enter into this Agreement and to
perform its obligations hereunder. VLRL is duly qualified as a corporation to do
business in each jurisdiction in which the nature of the Business or the
property and assets owned or leased by it makes such qualification necessary.
3.02 Intentionally Deleted
3.03 No Other Agreements to Purchase
No person has any written or oral agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement or option for the purchase or acquisition from VLRL of any of the
Norbakco Shares.
3.04 Authorized and Issued Capital
The authorized capital of VLRL consists of an unlimited number of common
shares, of which 200 common shares of VLRL (and no more) have been duly issued
and are outstanding as fully paid non-assessable.
3.05 Options
Other than as contained in the Norbakco Shareholders' Agreement, no person,
firm or corporation has any agreement or option or any right or privilege
(whether by law, pre-emptive or contractual) capable of becoming an agreement,
including convertible securities, warrants or convertible obligations of any
nature, for the purchase, subscription, allotment or issuance of any unissued
shares or other securities of VLRL.
3.06 Ownership of Norbakco Shares
Other than the Larry Norbacko Shares in respect of which VLRL is not the
beneficial owner, VLRL is the beneficial owner of record of the Norbakco Shares,
with good and marketable title thereto, free and clear of all Encumbrances and,
without limiting the generality of the foregoing, none of the Norbakco Shares
are subject to any voting trust, shareholder agreement or voting agreement other
than the Norbakco Shareholders' Agreement and other than the Larry Norbakco
Shares which shares are
<PAGE>
being held in trust by VLRL for Larry. Upon completion of the transaction
contemplated by this Agreement, all of the Norbakco Shares will be owned by VLRL
as the beneficial owner of record, with a good and marketable title thereto
other than the Larry Norbakco Shares, the beneficial ownership of which will be
held by the Purchaser.
3.07 No Subsidiaries
VLRL does not own and does not have any agreement of any nature to acquire,
directly or indirectly, any shares in the capital of or other equity or
proprietary interests in any person, firm or corporation other than Norbakco,
and VLRL does not have any agreements to acquire or lease any other business
operations.
3.08 No Violation
The execution and delivery of this Agreement by the Vendors and the
consummation of the transactions herein provided for will not result in either:
(a) the breach or violation of any of the provisions of, or constitute a
default under, or conflict with or cause the acceleration of any
obligation of VLRL under:
(i) any provision of the constating documents, by-laws or resolutions
of the board of directors (or any committee thereof) or
shareholders of VLRL;
(ii) any judgement, decree, order or award of any court, governmental
body or arbitrator having jurisdiction over VLRL;
(iii) any license, permit, approval, consent or authorization held by
VLRL or necessary to the ownership of the Norbakco Shares; or
(iv) any applicable law, statute, ordinance, regulation or rule; or
(b) the creation or imposition of any Encumbrance on any of the Norbakco
Shares or any of the property or assets of VLRL.
3.09 Business of VLRL
VLRL does not carry on or conduct any business operations and is strictly a
holding company to hold the Norbakco Shares, and the only property and assets
owned by Norbakco are the Norbakco Shares. Other than the Norbakco Shareholders'
Agreement, VLRL is not a party to any contract or agreement of any kind, no
consents are required in connection with the sale of the shares in the capital
of VLRL other than the sale by Larry of his beneficial interest in the Larry
Norbakco Shares and does not have any employees.
<PAGE>
3.10 Taxes
(a) Other than in respect of those periods pre-dating VLRL commencing
carrying on business, has filed on a timely basis all tax returns required to be
filed by it in all applicable jurisdictions and has paid all taxes that are due
and payable, and all assessments, governmental charges, penalties, interest and
fines due and payable by it. Adequate provision has been made in the Interim
VLRL Financial Statements for all taxes, governmental charges and assessments,
whether relating to income, sales, real or personal property, or other types of
taxes, governmental charges or assessments, including interest and penalties
thereon, payable in respect of the business or assets of VLRL or otherwise for
all periods up to the date of the balance sheet comprising part of the unaudited
financial statements and whether or not assessed.
(b) No Canadian federal and provincial income tax assessments have been
issued to VLRL.
(c) There are no actions, suits, proceedings, investigations or claims
pending or, to the knowledge of the Vendors, threatened against, VLRL in respect
of taxes, governmental charges or assessments, nor are any material matters
under discussion with any governmental authority relating to taxes, governmental
charges, assessments or reassessments asserted by any such authority.
(d) VLRL has withheld from each amount paid or credited to any person the
amount of all taxes, governmental charges, assessments or other deductions
required to be withheld therefrom and has remitted the amounts withheld
therefrom and has remitted the amounts withheld to the proper tax or other
receiving authorities within the time required under applicable legislation.
VLRL has collected and remitted to the appropriate tax authority when required
by law to do so all amounts to be collected by them on account of the goods and
services tax or other taxes or governmental charges.
(e) There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the filing of any tax return by, or payment of
any tax, governmental charges or deficiency against, or the period for any
assessment or reassessment of any government charges or deficiency of, VLRL with
respect to any other matters.
(f) No tax returns or federal goods and services tax returns have been
filed by VLRL.
(g) VLRL is and has always been a Canadian-controlled private corporation,
as defined in the Income Tax Act (Canada), and has been since its incorporation.
3.11 Financial Statements
No financial statements have been prepared for VLRL. VLRL's sole assets
consist of the VLRL Norbakco Shares carried at a value of One Hundred Dollars
<PAGE>
($100.00) and shareholder advances carried at a value of One Hundred and Forty
Thousand Dollars ($140,000.00) and VLRL's sole liability consists of Shareholder
Loans owing to Victorco and Rhysco aggregating One Hundred and Forty Thousand
Dollars ($140,000.00).
3.12 Books and Records
The books and records of VLRL set out and disclose in all material respects
in accordance with generally accepted accounting principles the financial
position of VLRL as at the date hereof and all financial transactions of VLRL
have been accurately recorded in such books and records.
3.13 Directors and Officers
Schedule B3.13 sets forth the names and titles of all the officers and
directors of VLRL.
3.14 Full Disclosure
The Vendors have disclosed to the Purchasers all facts known to them
relating to VLRL and its assets and operations which could reasonably be
expected to be material to an intending purchaser of the Purchased Shares.
<PAGE>
THIS IS SCHEDULE C TO THE SHARE PURCHASE AGREEMENT
- - --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES OF VICTOR
Victor represents and warrants to the Purchaser as follows and acknowledges
that the Purchaser is relying on such representations and warranties in
connection with its purchase of the Victorco Shares:
1.01 Organization
Victorco is duly incorporated and organized and validly subsisting under
the laws of Ontario and has the corporate power to own or lease its property, to
carry on the Business as now being conducted by it, to enter into this Agreement
and perform its obligations hereunder. Victorco is duly qualified as a
corporation to do business in each jurisdiction in which the nature of the
business or the property and assets owned or leased by it makes such
qualification necessary.
1.02 Authorization
This Agreement has been duly executed and delivered by Victor and is a
legal, valid and binding obligation of Victor enforceable against Victor by the
Purchaser in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency and other laws affecting the rights of creditors
generally and except that equitable remedies may be granted only in the
discretion of a court of competent jurisdiction.
1.03 No Other Agreements to Purchase
No person other than the Purchaser has any written or oral agreement or
option or any right or privilege (whether by law, pre-emptive or contractual)
capable of becoming an agreement or option for the purchase or acquisition from
Victor of any of the Victorco Shares.
1.04 Authorized and Issued Capital
The authorized capital of Victorco consists of an unlimited number of
common shares, of which thirty (30) common shares of Victorco (and no more) have
been duly issued and are outstanding as fully paid non-assessable.
1.05 Options
No person, firm or corporation has any agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement, including convertible securities, warrants or convertible obligations
of any nature, for the purchase, subscription, allotment or issuance of any
unissued shares or other securities of Victorco.
<PAGE>
1.06 Ownership of Victorco Shares
Victor is the beneficial owner of record of the Victorco Shares, with good
and marketable title thereto, free and clear of all Encumbrances other than
restrictions contained and, without limiting the generality of the foregoing,
none of the Victorco Shares are subject to any voting trust, shareholder
agreement of voting agreement other than restrictions contained in the TGF
Shareholders' Agreement. At the time of completion of the transaction
contemplated by this Agreement, all of the Victorco Shares will be transferred
to the Purchaser or such other person as the Purchaser may direct as the
beneficial owner of record, with a good and marketable title thereto.
1.07 No Subsidiaries
Victorco does not own and does not have any agreement of any nature to
acquire, directly or indirectly, any shares in the capital of or other equity or
proprietary interests in any person, firm or corporation other than the
Corporation and VLRL other than shares of VLRL Management Ltd. which shall be
disposed of prior to closing, and Victorco does not have any agreements to
acquire or lease any other business operations.
1.08 No Violation
The execution and delivery of this Agreement by Victor and the consummation
of the transactions herein provided for will not result in either:
(a) the breach or violation of any of the provisions of, or constitute a
default under, or conflict with or cause the acceleration of any
obligation of Victor or Victorco under:
(i) any provision of the constating documents, by-laws or resolutions
of the board of directors (or any committee thereof) or
shareholders of Victorco;
(ii) any judgement, decree, order or award of any court, governmental
body or arbitrator having jurisdiction over Victor or Victorco;
(iii) any contract to which Victorco or Victor is a party or by which
either of their properties are bound or any license, permit,
approval, consent or authorization held by Victor or Victorco or
necessary to the ownership of the Victorco Shares other than the
banking arrangements of TGF and Norbakco with Bank of Nova Scotia
and Business Development Bank of Canada and other than the TGF
Shareholders' Agreement; or
(iv) any applicable law, statute, ordinance, regulation or rule; or
<PAGE>
(b) the creation or imposition of any Encumbrance on any of the Victorco
Shares or any of the property or assets of Victorco.
1.09 Business of Victorco
Victorco does not carry on or conduct any business operations and is
strictly a holding company to hold the Victorco Corp Shares and the Victorco
VLRL Shares, and the only property and assets owned by Victorco are the Victorco
Shares. Victorco is not a party to any contract or agreement of any kind, no
consents are required in connection with the sale of the shares in the capital
of Victorco and does not have any employees.
1.10 Taxes
(a) Other than tax returns for the fiscal years subsequent to March 31,
1994 which have now been only filed, Victorco has filed on a timely basis all
tax returns required to be filed by them in all applicable jurisdictions and has
paid all taxes that are due and payable, and all assessments, governmental
charges, penalties, interest and fines due and payable by them. Adequate
provision has been made in the Victorco Financial Statements for all taxes,
governmental charges and assessments, whether relating to income, sales, real or
personal property, or other types of taxes, governmental charges or assessments,
including interest and penalties thereon, payable in respect of the business or
assets of Victorco or otherwise for all periods up to the date of the balance
sheet comprising part of the unaudited financial statements and whether or not
assessed.
(b) Canadian federal and provincial income tax assessments have been issued
to Victorco covering all past periods up to and including the fiscal year ended
March 31, 1994 and these assessment, if any amounts were owing in respect
thereof, have been paid. Assessments for all other applicable federal and
provincial taxes and levies have been issued and any amounts owing thereunder
have been paid.
(c) There are no actions, suits, proceedings, investigations or claims
pending or, to the knowledge of the Vendors, threatened against, Victorco in
respect of taxes, governmental charges or assessments, nor are any material
matters under discussion with any governmental authority relating to taxes,
governmental charges, assessments or reassessments asserted by any such
authority.
(d) Victorco has withheld from each amount paid or credited to any person
the amount of all taxes, governmental charges, assessments or other deductions
required to be withheld therefrom and has remitted the amounts withheld
therefrom and has remitted the amounts withheld to the proper tax or other
receiving authorities within the time required under applicable legislation.
Victorco has collected and remitted to the appropriate tax authority when
required by law to do so all amounts to be collected by them on account of the
goods and services tax or other taxes or governmental charges.
(e) There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the filing of any tax return by, or payment of
any tax,
<PAGE>
governmental charges or deficiency against, or the period for any assessment or
reassessment of any government charges or deficiency of, Victorco with respect
to any other matters.
(f) The Vendors have provided to the Purchaser a true copy of all tax
returns and all federal goods and services tax returns filed by Victorco, and
all written communications relating thereto, in respect of the five last
completed fiscal years of Victorco.
(g) Victorco is and has always been a Canadian-controlled private
corporation, as defined in the Income Tax Act (Canada), and has been since its
incorporation.
1.11 Financial Statements
The Victorco Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior periods, and present fairly the assets, liabilities (whether accrued,
absolute, contingent or otherwise) and financial condition of Victorco as at the
respective dates of Victorco for the respective periods covered by such
financial statements. The financial position and condition of Victorco is now at
least as good as that shown on or reflected in the Interim Victorco Financial
Statements.
1.12 Books and Records
The books and records of Victorco fairly and correctly set out and disclose
in accordance with generally accepted accounting principles the financial
position of Victorco as at the date hereof and all financial transactions of
Victorco have been accurately recorded in such books and records.
1.13 Directors and Officers
Schedule C1.13 sets forth the names and titles of all the officers and
directors of Victorco.
1.14 Full Disclosure
Victor has disclosed to the Purchaser all facts known to him relating to
Victorco and its assets and operations which could reasonably be expected to be
material to an intending purchaser of the Purchased Shares.
1.15 Purchased Loans and Shareholder Loans
Other than as disclosed in Schedule A1.02, there are no Purchased Loans or
Shareholder Loans to Victor.
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 15th day of April, 1999, BETWEEN:
ALRAE INVESTMENTS INC.,
a corporation incorporated under the laws of the Province of Ontario
(hereinafter called "Alrae"),
KATHERINE KAN,
of the City of Vaughan, in the Municipality of York
(hereinafter called "Kan")
ROYNAT INC.,
a corporation incorporated pursuant to the laws of Canada
(hereinafter called "Roynat")
(Alrae, Kan and Roynat being hereinafter collectively called the
"Vendors")
OF THE FIRST PART,
- and -
INTERNATIONAL MENU SOLUTIONS INC.,
a corporation incorporated under the laws of the Province of Ontario,
(hereinafter called the "Purchaser")
OF THE SECOND PART,
- and -
INTERNATIONAL MENU SOLUTIONS CORPORATION,
a corporation incorporated under the laws of the State of Nevada
(hereinafter called "IMSC")
OF THE THIRD PART.
WHEREAS the Purchaser wishes to acquire all of the issued and outstanding
shares of Tasty Selections Inc. (herein called the "Corporation");
AND WHEREAS Alrae is the owner of 52 common shares in the capital of the
Corporation (herein called the "Alrae Shares");
<PAGE>
Page 2
AND WHEREAS Kan is the owner of 28 common shares in the capital of the
Corporation (herein called the "Kan Shares"):
AND WHEREAS Roynat is the owner of 8 common shares in the capital of the
Corporation (herein called the "Roynat Shares");
AND WHEREAS the Purchaser wishes to purchase the Alrae Shares, the Kan
Shares, and the Roynat Shares (herein collectively called the "Purchased
Shares") from the respective owners thereof and such respective owners wish to
sell the Purchased Shares to the Purchaser on the terms and conditions herein
set forth;
AND WHEREAS the parties hereto wish to complete the said sale and purchase
of the Purchased Shares as herein this Agreement provided.
THIS AGREEMENT WITNESS THAT in consideration of the respective covenants,
agreements, representations, warranties and indemnities herein contained and for
other good and valuable consideration (the receipt and sufficiency of which are
acknowledged by each party,) the parties covenant and agree as follows:
ARTICLE I
INTERPRETATION
1.01 Defined Terms
All capitalized terms used in this Agreement and not defined above shall have
meanings set forth in Schedule A to this Agreement.
1.02 Currency
Unless otherwise indicated, all dollar amounts referred to in this
Agreement are expressed in Canadian funds.
1.03 Sections and Headings
The division of this Agreement into sections and the insertion of headings
are for convenience of reference only and shall not affect the interpretation of
this Agreement. Unless otherwise indicated, any reference in this Agreement to a
section or a Schedule refers to the specified section of or Schedule to this
Agreement.
<PAGE>
Page 3
1.04 Number, Gender and Persons
In this Agreement, words importing the singular number only shall include
the plural and vice versa, words importing gender shall include all genders and
words importing persons shall include individuals, corporations, partnerships,
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities.
1.05 Accounting Principles
Any reference in this Agreement to "generally accepted accounting
principles" refers to generally accepted accounting principles as approved from
time to time by the Canadian Institute of Chartered Accountants or any successor
institute.
1.06 Entire Agreement
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, including
the letter of intent dated March 3, 1999 between the parties hereto. There are
no conditions, covenants, agreements, representations, warranties or other
provisions, express or implied, collateral, statutory or otherwise, relating to
the subject matter hereof except as herein provided.
1.07 Time of Essence
Time shall be of the essence of this Agreement.
1.08 Applicable Law
This Agreement shall be constructed, interpreted and enforced in accordance
with, and the respective rights and obligations of the parties shall be governed
by, the laws of the Province of Ontario and the federal laws of Canada
applicable therein, and each party hereby irrevocably and unconditionally
submits to the non-exclusive jurisdiction of the courts of such province and all
courts competent to hear appeals therefrom.
1.09 Severability
If any provision of this Agreement is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
determination shall not impair or affect the validity, legality or
enforceability of the remaining provisions hereof, and each provision in hereby
declared to be separate, severable and distinct.
<PAGE>
Page 4
1.10 Successors and Assigns
This Agreement shall enure to the benefit of and shall be binding on and
enforceable by the parties and, where the context so permits, their respective
successors and permitted assigns. No party may assign any of its rights or
obligations hereunder without the prior written consent of the other parties.
1.11 Amendment and Waivers
No amendment or waiver of any provision of this Agreement shall be binding
on any party unless consented to in writing by such party. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision,
nor shall any waiver constitute a continuing waiver unless otherwise expressly
provided.
1.12 Schedules
The following Schedules are attached to and form part of this Agreement:
Schedule A - Defined Terms
Schedule B - Representations and Warranties of the Vendors with respect
to the Corporation
Schedule C - Representations and Warranties of Alrae
Schedule D - Representations and Warranties of Roynat
Schedule E - Representations and Warranties of Kan
Schedule F - Representations and Warranties of the Purchaser
Schedule G - Representations and Warranties of IMSC
Schedule 2.03 - Allocation of Purchase Price
Schedule 4.01(i) - Kan Employment Agreement
Schedule 4.01(j) - Form of Opinion of Vendors' Counsel
Schedule 4.01(l) - Form of Release
Schedule 4.02(g) - Forms of Opinion of Purchaser's Counsel
Schedule 4.02(k) - Form of Release
Schedule A1.01(d) - Audited Financial Statements
Schedule A1.01(dd) - Interim Financial Statements
Schedule A1.01(hh) - Permitted Encumbrances
Schedule B1.08 - Location of Real Property
Schedule B1.10 - Real Property Leases
Schedule B1.13 - Intellectual Property
Schedule B1.14 - Insurance Policies
Schedule B1.17 - Licenses and Permits
Schedule B1.18 - Regulatory and Third Party Consents
Schedule B1.26 - Accounts and Attorneys
<PAGE>
Page 5
Schedule B1.27 - Directors and Officers
Schedule B1.31 - Employee Plans
Schedule B1.33 - Employee Matters
Schedule B1.35 - Major Customers
1.13 Best of Knowledge
Any reference in this Agreement to "the best of the knowledge" of a party
or to "the knowledge" of a party will mean the actual knowledge of the party
(which shall be the knowledge of Allan Greenspoon in the case of Alrae) and the
knowledge which such party would have had if such party had conducted a
reasonably prudent inquiry into the relevant subject matter.
1.14 Materiality
In this Agreement, "material" when used to describe a contract, lease or
other agreement, means in the case of the Corporation, a contract, lease or
other agreement with a term in excess of six (6) months or pursuant to which one
or more payments in excess of $20,000.00 in the aggregate become due.
ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES
2.01 Purchase and Sale of Purchased Shares
Subject to the terms and conditions hereof, each of Alrae, Kan and Roynat
covenant and agree to sell, assign and transfer to the Purchaser and the
Purchaser covenants and agrees to purchase from each of the Vendors all but not
less than all of the Alrae Shares, the Kan Shares and the Roynat Shares.
2.02 Purchase Price
The aggregate purchase price payable by the Purchaser to the Vendors for
the Purchased Shares (the "Purchase Price") shall be $2,160,000.00.
2.03 Payment of Purchase Price
The Purchase Price shall be paid and satisfied partly in cash (herein
called the "Cash Amount") and partly through the issuance of Class X Shares and
Class N Shares, (herein called the "Share Amount") to the Vendors in accordance
with Schedule 2.03 hereof.
<PAGE>
Page 6
(a) The Cash Amount. The Cash Amount shall be paid by cash or certified cheque
by two payments, the first payment to be paid on the Closing Date (herein called
the "Closing Cash Amount"), and the second payment to be paid upon receipt of
the financial statements of the Corporation (herein called the "Closing
Financial Statements") for the nine (9) month period ending March 31, 1999
(herein called the "Second Cash Payment").
The "Cash Amount" shall be equal to $1,000,000.00 and shall be payable in two
parts as follows:
(i) the first part, being the Closing Cash Amount in the amount of
$750,000.00 on closing by certified cheque; and
(ii) the second part, in the amount of $250,000.00 by certified cheque,
upon receipt by the Purchaser of the Closing Financial Statements
(herein called the "Second Cash Amount").
To the extent that the Adjusted Net Book Value (as determined with reference to
the Closing Financial Statements) is less than $800,000.00, the Second Cash
Amount shall be reduced on a dollar for dollar basis and the "Cash Amount"
reduced accordingly.
For greater certainty, in no event shall the Purchase Price be adjusted upwards
or downwards as a result of the amount of the Adjusted Net Book Value. For the
purposes hereof, "Adjusted Net Book Value" shall mean the net book value as
determined with reference to the Closing Financial Statements of the Corporation
plus the difference between the fair market value of the machinery and plant
equipment and the book value of the machinery and plant equipment as set forth
in the Closing Financial Statements. The fair market value of the machinery and
plant equipment of the Corporation shall be determined by an appraiser selected
by the Vendors and the Purchaser prior to closing, which determination shall be
conclusive.
(b) The Share Amount. The "Share Amount" means the difference between the
Purchase Price and the Cash Amount (as the same may be adjusted as provided in
the preceding subsection (a)).
The Share Amount shall be satisfied by the issuance on Closing of 442,750
Class X Shares (subject to adjustment upwards if the Cash Amount is reduced in
accordance with subsection (a)).
(c) Allocation of the Purchase Price. The Purchase Price shall be allocated in
accordance with Schedule 2.03.
(d) Issuance of Class N Shares. IMSC shall issue to the Vendors at the Closing
Time 442,750 Class N Shares (subject to adjustment upwards if the Cash Amount is
reduced in accordance with subsection (a)) provided that the Vendors agree that
at the time of conversion of
<PAGE>
Page 7
Class X Shares into common stock of IMSC, an equivalent number of Class N Shares
will be surrendered to IMSC for cancellation by the relevant Vendor or Vendors,
as applicable.
2.04 Escrow of Shares
On the Closing Date, the Vendors will enter into an escrow agreement with
the Purchaser which will provide that the Class X Shares, including any shares
exchanged therefor, shall be held in escrow and released as follows:
1/3 released on the first anniversary of the Closing Date
1/3 released on the second anniversary of the Closing Date, and
1/3 released on the third anniversary of the Closing Date
The Vendors further agree that on the Closing Date the Vendors will enter into
an agreement with the Purchaser granting to the Purchaser or the Purchaser's
designee a right of first refusal to purchase any of the Vendors' Class X
Shares, or any shares in IMSC into which such shares are exchanged upon any
disposition by any Vendor other than for estate and/or tax planning purposes and
such shares shall have a legend to such effect.
2.05 Acknowledgement of the Purchase and Payments Prior to Closing
The Purchaser hereby acknowledges that, for certain tax planning purposes,
1188980 Ontario Ltd. and 1346860 Ontario Ltd. have amalgamated to form Tasty
Selections Inc. immediately prior to the Closing Time. It is the intention of
the parties hereto that all representations and warranties made hereunder or
pursuant hereto pertaining to the Corporation are to be deemed to be
representations and warranties pertaining to the Corporation and it's
predecessor corporations prior to such amalgamation.
The parties acknowledge that the Corporation intends to repay any
outstanding shareholder advances out of its general corporate funds up to a
maximum of $200,000.00 and that the Corporation will pay an interest bonus fee
to Roynat in the amount of $30,000.00, in each case prior to the Closing Date
(herein called the "Permitted Distributions").
2.06 Arbitration
Any dispute between the parties with respect to the calculation of the
Purchase Price, the Cash Amount and the Share Amount shall be submitted to
arbitration in accordance with the following provisions:
(a) the arbitrator shall be a single arbitrator in accordance with the
Arbitrations Act (Ontario) and shall be a professional accountant who
is a partner with Ernst & Young or its successor who is appointed by
mutual agreement of the parties, or in the event the parties are
unable to agree upon an arbitrator within ten (10) days of
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notice given by one party to the other of a dispute, any party may
apply to a Judge of the Ontario Court (General Division) to appoint a
partner of Ernst & Young as the arbitrator. The arbitrator shall be at
arm's-length from the parties;
(b) the arbitrator shall be instructed that time is of the essence in
proceeding with the determination of the dispute and, in any event,
the arbitration award must be rendered within thirty (30) days of the
submission of such dispute to arbitration;
(c) the arbitration shall take place in Toronto, Ontario and all
proceedings shall be held in private to the extent that only the
parties hereto, their respective advisors and the arbitrator shall be
present;
(d) the arbitration shall be given in writing and shall be final and
binding on all parties, shall not be subject to any appeal and shall
deal with the question of costs of the arbitration and all matters
related thereto;
(e) judgment upon the arbitration award rendered may be entered in any
Court having jurisdiction, or, application may be made to such Court
for a judicial recognition of the arbitration award or any order of
enforcement thereof, as the case may be; and
(f) the law to be applied in connection with the arbitration will be the
law applicable to this Agreement.
ARTICLE III
COVENANTS
3.01 Access to the Corporation
The Vendors shall forthwith make available to the Purchaser and its
authorized representatives and, if requested by the Purchaser, provide a copy to
the Purchaser of, all title documents, contracts, financial statements, minute
books, share certificate books, share registers, plans, reports, licenses,
orders, permits, books of account, accounting records, constating documents and
all other documents, information or data relating to each of the Corporation and
the Business. The Vendors shall afford the Purchaser and its authorized
representatives every reasonable opportunity to have free and unrestricted
access to the Business and the property, assets, undertaking, records and
documents of the Corporation. At the request of the Purchaser, the Vendors shall
execute or cause to be executed such consents, authorizations and directions as
may be necessary to permit any inspection of the Business, and any property of
the Corporation to enable the Purchaser or its authorized representatives to
obtain full access to all files and records relating to any of the assets of the
Corporation maintained by governmental or other public authorities. At the
Purchaser's request, the Vendors shall co-operate with the Purchaser in
arranging any such meetings as the Purchaser should reasonably request with:
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(a) employees of the Corporation;
(b) customers, suppliers, distributors or others who have or have had a
business relationship with the Corporation; and
(c) auditors, solicitors or any other persons engaged or previously
engaged to provide services to the Corporation who have knowledge of
matters relating to the Corporation and the Business.
In particular, without limitation, the Vendors shall permit the Purchaser's
representatives or consultants to conduct such testing and inspection in respect
of environmental matters at such location of the Business as the Purchaser may
determine, in its sole discretion, acting reasonably, as may be required to
satisfy the Purchaser in respect of such matters, and the Vendors shall cause
the Corporation to conduct, and the Corporation shall conduct, in co-operation
with the representatives or consultants of the Purchaser, such physical review
of the equipment of the Business as is necessary so as to enable the
confirmation of the values carried on the respective balance sheets of the
Corporation in respect of such assets, to the reasonable satisfaction of the
Purchaser. The exercise of any rights of inspection by or on behalf of the
Purchaser under this section 3.01 shall not mitigate or otherwise affect the
representations and warranties of the Vendors and the Corporation hereunder,
which shall continue in full force and effect as provided herein.
3.02 Delivery of Books and Records
At the Closing Time there shall be delivered to the Purchaser by the
Vendors all of the books and records of and relating to the Corporation and the
Business. The Purchaser agrees that it will preserve the books and records so
delivered to it for a period of two (2) years from the Closing Date, or for such
longer period as is required by any applicable law, and will permit the Vendors
or their authorized representatives reasonable access thereto in connection with
the affairs of the Vendors relating to its matters, but the Purchaser shall not
be responsible or liable to the Vendors for or as a result of any accidental
loss or destruction of or damage to any such books or records.
3.03 Delivery of Documents
The Vendors shall deliver to the Purchaser at the Closing Time all
necessary transfer, assignments and other documentation reasonably required to
transfer the Purchased Shares to the Purchaser with a good and marketable title,
free and clear of all Encumbrances.
3.04 Delivery of Vendors' Closing Documentation
The Vendors shall deliver to the Purchaser all such documents relevant to
the closing of
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the transaction as contemplated hereby as the Purchaser, acting reasonably, may
request.
3.05 Delivery of Purchaser's Closing Documentation
The Purchaser shall deliver to each of the Vendors all such documents
relevant to the closing of the transactions contemplated hereby as the Vendors,
acting reasonably, may request.
3.06 Operation
The parties agree to co-operate in good faith with each other and their
respective legal advisors, accountants and other representatives in connection
with any steps required to be taken in connection with this Agreement,
including, without limitation, in connection with any filing necessary pursuant
to the Tax Act (including without limitation, joint elections pursuant to
Section 85(1) thereof in respect of the Share Amount received by Alrae).
ARTICLE IV
CONDITIONS OF CLOSING
4.01 Conditions of Closing in Favour of the Purchaser
The sale and purchase of the Purchased Shares is subject to the following
terms and conditions for the exclusive benefit of the Purchaser, to be fulfilled
or performed at or prior to the Closing Time:
(a) Representations and Warranties. The representations and warranties of
the Vendors contained in this Agreement shall be true and correct at the Closing
Time, with the same force and effect as if such representations and warranties
were made at and as of such time, and certificates of the Vendors dated the
Closing Date to that effect shall have been delivered to the Purchaser, such
certificates to be in form and substance satisfactory to the Purchaser, acting
reasonably;
(b) Covenants. All of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Vendors at or before the Closing Time
shall have been complied with or performed and certificates of the Vendors dated
the Closing Date to that effect shall have been delivered to the Purchaser, such
certificates to be in form and substance satisfactory to the Purchaser, acting
reasonably;
(c) Regulatory Consents. There shall have been obtained, from all
appropriate federal, provincial, municipal or other governmental or
administrative bodies, such licenses, permits, consents, approvals,
certificates, registrations and authorizations as are required to be obtained by
the Vendors to permit the change of ownership of the Purchased Shares
contemplated hereby including, without limitation, those described in the
Schedules hereto;
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(d) Contractual Consents. The Vendors shall have given or obtained the
notices, consents and approvals described in the Schedules hereto, in each case
in form and substance satisfactory to the Purchaser, acting reasonably;
(e) Material Adverse Change. There shall have been no material adverse
changes in the condition (financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of the Corporation since the date of
the Interim Financial Statements;
(f) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Shares contemplated hereby;
(g) No Material Damage. No material damage by fire or other hazard to the
whole or any material part of the property or assets of the Corporation shall
have occurred from the date hereof to the Closing Time;
(h) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, and all legal
matters relating to the purchase of the Purchased Shares, including title of the
Vendors to the Purchased Shares, shall have been approved as to form and
legality by McCarter Grespan Robson Beynon, counsel for the Purchaser, acting
reasonably;
(i) Kan Employment Agreement. Kan shall have executed and delivered to the
Corporation, an employment agreement in the form of the agreement annexed hereto
as Schedule 4.01(i);
(j) Legal Opinion. The Vendors shall have delivered to the Purchaser a
favourable opinion of Fogler, Rubinoff, counsel to the Vendors, in the form
annexed hereto as Schedule 4.01(j);
(k) Resignation of Directors and Officers. Such directors and officers of
the Corporation as the Purchaser may specify shall have resigned in favour of
nominees of the Purchaser effective as of the Closing Time;
(l) Release by Vendor, Directors and Officers. The Vendors and such
directors and officers of the Corporation as the Purchaser may specify shall
have executed and delivered, at the Closing Time, releases in favour of the
Corporation in the form annexed hereto as Schedule 4.01(l);
(m) Greenspoon Agreements. The Corporation shall have entered into an
employment agreement and a confidentiality and non-compete agreement with Allan
Greenspoon;
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(n) Share Escrow Agreement. The Vendors shall have entered into an escrow
agreement as required by Section 2.04; and
(o) Right of First Refusal Agreement. The Vendors shall have entered into
an agreement granting a right of first refusal as required by Section 2.04.
If any of the conditions contained in this section 4.01 shall not be
performed or fulfilled at or prior to the Closing Time to the satisfaction of
the Purchaser, acting reasonably, the Purchaser may, by notice to the Vendors,
terminate this Agreement and the obligations of the Vendors and the Purchaser
under this Agreement shall be terminated. Any such condition may be waived in
whole or in part by the Purchaser without prejudice to any claims it may have
for breach of covenant, representation or warranty.
4.02 Conditions of Closing in Favour of the Vendors
The purchase and sale of the Purchased Shares is subject to the following
terms and conditions for the exclusive benefit of the Vendors, to be fulfilled
or performed at or prior to the Closing Time:
(a) Representations and Warranties. The representations and warranties of
the Purchaser and IMSC contained in this Agreement shall be true and correct in
all material respects at the Closing Time, with the same force and effect as if
such representations and warranties were made at and as of such time, and a
certificate of the President of the Purchaser and IMSC dated the Closing Date to
that effect shall have been delivered to the Vendors, such certificate to be in
form and substance satisfactory to the Vendors, acting reasonably;
(b) Covenants. All of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Purchaser and IMSC at or before the
Closing Time shall have been complied with or performed in all material respects
and certificates of the President of the Purchaser and IMSC dated the Closing
Date to that effect shall have been delivered to the Vendors, such certificate
to be in form and substance satisfactory to the Vendors, acting reasonably;
(c) Regulatory Consents. There shall have been obtained, from all
appropriate federal, provincial, state, municipal or other governmental or
administrative bodies, such licenses, permits, consents, approvals,
certificates, registrations and authorizations as are required by law to be
obtained by the Purchaser or IMSC to permit the change of ownership of the
Purchased Shares and payment of the Purchase Price contemplated hereby,
including those described in Schedules B1.18 hereto, in each case in form and
substance satisfactory to the Vendors, acting reasonably;
(d) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the
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Purchased Shares or the issuance of the Class X Shares or the Class N Shares
contemplated hereby;
(e) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, shall have been
approved as to form and legality by Fogler, Rubinoff, acting reasonably;
(g) Legal Opinion. The Purchaser shall have delivered to the Vendors a
favourable opinion of McCarter Grespan Robson Beynon, Canadian counsel to the
Purchaser, and U.S. Counsel to the Purchaser in the forms annexed hereto as
Schedule 4.02(g);
(h) Guarantee. The Vendors and their principals shall have been released
from all guarantees with respect to the indebtedness of the Corporation;
(i) Support Agreement. The Purchaser and IMSC shall have entered into and
delivered a support agreement;
(j) Greenspoon Agreements. The Corporation shall have entered into an
employment agreement and a confidentiality and non-compete agreement with Allan
Greenspoon; and
(k) Release of Directors and Officers. The Corporation shall have delivered
to the resigning directors and officers a release with respect to matters
addressed within the proper exercise of their duties as directors and officers,
in the form annexed hereto as Schedule 4.02(k).
If any of the conditions contained in this section 4.02 shall not be
performed or fulfilled at or prior to the Closing Time to the satisfaction of
the Vendors, acting reasonably, the Vendors may, by notice to the Purchaser,
terminate this Agreement and the obligations of the Vendors and the Purchaser
under this Agreement shall be terminated. Any such condition may be waived in
whole or in part by the Vendors without prejudice to any claims they may have
for breach of covenant, representation or warranty.
ARTICLE V
CLOSING ARRANGEMENTS
5.01 Place of Closing
The closing shall take place at the Closing Time at the offices of Fogler,
Rubinoff, counsel for the Vendors, Suite #4400, Royal Trust Tower,
Toronto-Dominion Centre, Toronto, Ontario, M5K 1G8.
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5.02 Closing
At the Closing Time, upon fulfillment of all the conditions set out in
Article IV that have not been waived in writing by the Purchaser or the Vendors,
the Vendors shall deliver to the Purchaser certificates respecting all the
Purchased Shares, duly endorsed in blank for transfer, and will cause transfers
of such shares to be duly and regularly recorded in the name of the Purchaser,
or its nominee(s), and will cause a meeting of the board of directors of the
Corporation to be held, at which the directors and officers of the Corporation
specified by the Purchaser pursuant to section 4.01(k) will resign in favour of
nominees of the Purchaser whereupon, subject to all other terms and conditions
hereof being complied with, payment of the Closing Cash Amount shall be paid and
satisfied in the manner provided in Article II.
5.03 Further Assurances
Each party to this Agreement covenants and agrees that, from time to time
subsequent to the Closing Date, it will at the request and expense of the
requesting party, execute and deliver all such documents, including, without
limitation, all such additional conveyance, transfers, consents and other
assurances and do all such other acts and things as any other party hereto,
acting reasonably, may from time to request be executed or done in order to
better evidence or perfect or effectuate any provision of this Agreement or of
any agreement or other document executed pursuant to this Agreement or any of
the respective obligations intended to be created hereby or thereby.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
6.01 Survival of Representations and Warranties of the Vendor
To the extent that they have not been fully performed at a prior to the
Closing Time, the covenants, representations and warranties of the Vendors
contained in this Agreement and any agreement, instrument, certificate or other
document executed or delivered pursuant hereto shall survive the closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date and, notwithstanding such closing, nor any investigation made by or on
behalf of the Purchaser, shall continue in full force and effect for the benefit
of the Purchaser during such period, except that:
(a) the representations and warranties set out in sections 1.02, 1.03 and
1.04 of Schedule B, section 1.04 and 1.06 of Schedule C, section 1.04 and 1.06
of Schedule D, and sections 1.03 and 1.05 of Schedule E (and the corresponding
representations and warranties set out in the certificates to be delivered
pursuant to subsection 4.01(a) (the "Closing Certificates")) shall survive and
continue in full force and effect without limitation of time;
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(b) the representations and warranties contained in section 1.22 of
Schedule B shall, in the absence of fraud or negligent or wilful
misrepresentation, survive until the expiration of any applicable limitation
periods imposed by law; and
(c) a claim for any breach of any of the representations and warranties
contained in this Agreement or in any agreement, instrument, certificate or
other document executed or delivered pursuant hereto involving fraud or
fraudulent misrepresentation may be made at any time following the Closing Date,
subject only to applicable limitation periods imposed by law, provided that no
claim for breach of covenant, representation or warranty shall be valid unless
the Vendor against whom such claim is made has been given notice thereof before
the date on which the applicable covenant, representation or warranty shall have
terminated in accordance with the foregoing and, provided further that any such
claim as aforesaid shall be made in accordance with Article VII. Upon the expiry
of the relevant limitation periods set forth in this section, the Vendors shall
not have any further liability to the Purchaser with respect to the covenants,
representations and warranties contained herein, except in respect of claims
which have theretofore been made in accordance with the provisions set forth
above.
6.02 Expiry of the Representations and Warranties of the Purchaser and IMSC
The representations and warranties of the Purchaser and IMSC contained in this
Agreement or in any document, certificate or undertaking given pursuant hereto
shall terminate on the second anniversary of the Closing Date other than the
representations contained in section 1.07 of Schedule F and section 1.05 of
Schedule G, which sections shall survive and continue in full force and effect
without limitation of time. For greater certainty, all covenants and agreements
of the Purchaser or IMSC contained in this Agreement and any agreement,
instrument, certificate or other document executed or delivered pursuant hereto
shall survive the closing of the transactions contemplated hereby until the
second anniversary of the Closing Date or in the case of any such covenants and
agreements which by their terms are to be performed subsequent to the Closing
Date until the second anniversary of the date on which such covenant and
agreement is to be performed and, notwithstanding such closing shall continue in
full force and effect for the benefit of the Vendors for such period, provided
that no claim for breach of covenant, representation or warranty shall be valid
unless the Purchaser and/or IMSC has been given notice thereof before the date
on which the applicable covenant, representation or warranty shall have
terminated in accordance with the foregoing and, provided further that any such
claim as aforesaid shall be made in accordance with Article VII. Upon the expiry
of the relevant limitation periods set forth in this section, the Purchaser and
IMSC shall not have any further liability to the Vendors with respect to the
covenants, representations and warranties contained herein, except in respect of
claims which have theretofore been made in accordance with the provisions set
forth above.
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ARTICLE VII
INDEMNIFICATION
7.01 Indemnification by the Vendors
Subject to Sections 7.08, 7.09 and 7.10 each of the Vendors agrees to
severally indemnify and save harmless the Purchaser from all Losses suffered or
incurred by the Purchaser as a result of or arising directly or indirectly out
of or in connection with:
(a) any breach by such Vendor of or any inaccuracy of any representation or
warranty of such Vendor contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto (provided that no Vendor
shall be required to indemnify or save harmless the Purchaser in respect of any
breach or inaccuracy of any representation or warranty unless the Purchaser
shall have provided notice to such Vendor in accordance with section 7.03 on or
prior to the expiration of the applicable time period related to such
representation and warranty set out in section 6.01);
(b) any breach or non-performance by such Vendor of any covenant to be
performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto; and
(c) all liabilities (whether accrued, absolute, contingent or otherwise) of
the Corporation existing at the Closing Time, including any liabilities for
federal, provincial, sales excise, income, corporate or any other taxes of the
Corporation for any period up to and including the Closing Time, and not
disclosed on, provided for or included in the balance sheets forming part of the
Closing Financial Statements, except those liabilities accruing or incurred
subsequent to the balance sheet date of the Closing Financial Statements in the
ordinary course of the Business.
7.02 Indemnification by the Purchaser and IMSC
(a) The Purchaser agrees to indemnify and save harmless the Vendors from all
Losses suffered or incurred by the Vendors as a result of or arising directly or
indirectly out of or in connection with:
(i) any breach by the Purchaser of or any inaccuracy of any representation
or warranty of the Purchaser contained in this Agreement or in any agreement,
instrument, certificate or other document delivered pursuant hereto (provided
that the Purchaser and IMSC shall be required to indemnify or save harmless any
Vendor in respect of any breach or inaccuracy of any representation or warranty
unless any Vendor shall have provided notice to the Purchaser and IMSC in
accordance with section 7.03 on or prior to the expiration of the applicable
time period related to such representation and warranty set out in section
6.02); and
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(ii) any breach or non-performance by the Purchaser of any covenant to be
performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto.
(b) IMSC agrees to indemnify and save harmless the Vendors from all Losses
suffered or incurred by the Vendors as a result of or arising directly or
indirectly out of or in connection with:
(i) any breach by IMSC of or any inaccuracy of any representation or
warranty of IMSC contained in this Agreement or in any agreement, instrument,
certificate or other document delivered pursuant hereto; and
(ii) any breach or non-performance by IMSC of any covenant to be performed
by it that is contained in this Agreement or in any agreement, certificate or
other document delivered pursuant hereto.
7.03 Notice of Claim
In the event that a party (the "Indemnified Party") shall become aware of
any claim, proceeding or other matter (a "Claim") in respect of which another
party (the "Indemnifying Party") agreed to indemnify the Indemnified Party
pursuant to this Agreement, the Indemnified Party shall promptly give written
notice thereof to the Indemnifying Party. Such notice shall specify whether the
Claim arises as a result of a claim by a person against the Indemnified Party (a
"Third Party Claim") or whether the Claim does not so arise (a "Direct Claim"),
and shall also specify with reasonable particularity (to the extent that the
information is available) the factual basis for the Claim and the amount of the
Claim, if known, or, if an amount is not then determinable, if reasonably
possible, an approximate and reasonable estimate of the likely amount of the
Claim.
7.04 Direct Claims
With respect to any Direct Claim, following receipt of notice from the
Indemnified Party of the Claim, the Indemnifying Party shall have thirty (30)
days to make such investigation of the Claim as is considered necessary or
desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request.
7.05 Third Party Claims
With respect to any Third Party Claim, the Indemnifying Party shall have
the right, at its expense, to participate in or assume control of the
negotiation, settlement or defence of the Claim and, in such event, the
Indemnifying Party shall reimburse the Indemnified Party for all the
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Indemnified Party's out-of-pocket expenses as a result of such participation or
assumption. If the Indemnifying Party elects to assume such control, the
Indemnified Party shall have the right to participate in the negotiation,
settlement or defence of such Third Party Claim and to retain counsel to act on
its behalf provided that the fees and disbursements of such counsel shall be
paid by the Indemnified Party unless the Indemnifying Party consents to the
retention of such counsel or unless the named parties to any action or
proceeding include both the Indemnifying Party and the Indemnified Party and a
representation of both the Indemnifying Party and the Indemnified Party by the
same counsel would be inappropriate due to the actual or potential differing
interests between them (such as the availability of different defences). If the
Indemnifying Party, having elected to assume such control, thereafter fails to
defend the Third Party Claim within a reasonable time, the Indemnified Party
shall be entitled to assume such control, and the Indemnifying Party shall be
bound by the results obtained by the Indemnified Party with respect to such
Third Party Claim. If any Third Party Claim is of a nature such that the
Indemnified Party is required by applicable law to make a payment to any person
(a "Third Party") with respect to the Third Party Claim before the completion of
settlement negotiations or related legal proceedings, the Indemnified Party may
make such payment and the Indemnifying Party shall, forthwith after demand by
the Indemnified Party, reimburse the Indemnified Party for such payment. If the
amount of any liability of the Indemnified Party under the Third Party Claim in
respect of which such payment was made, as finally determined, is less than the
amount that was paid by the Indemnifying Party to the Indemnified Party, the
Indemnified Party shall, forthwith after receipt of the difference from the
Third Party, pay the amount of such difference to the Indemnifying Party.
7.06 Settlement of Third Party Claims
If the Indemnifying Party fails to assume control of the defence of any
Third Party Claim, the Indemnified Party shall have the exclusive right to
contest, settle or pay the amount claimed. Whether or not the Indemnifying Party
assumes control of the negotiation, settlement or defence of any Third Party
Claim, the Indemnifying Party shall not settle any Third Party Claim without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed; provided, however, that the liability of the
Indemnifying Party shall be limited to the proposed settlement amount if any
such consent is not obtained for any reason.
7.07 Co-operation
The Indemnified Party and the Indemnifying Party shall co-operate fully
with each other with respect to Third Party Claims, and shall keep each other
fully advised with respect thereto (including supplying copies of all relevant
documentation promptly as it becomes available).
The Indemnified Party shall make available to the Indemnifying Party and its
advisors all pertinent information and witnesses under its control (including,
if applicable, employees of the Purchaser).
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The Indemnified Party shall not permit any right of appeal in respect of any
Third Party Claim to terminate without giving the Indemnifying Party reasonable
notice thereof and an opportunity to contest such Third Party Claim.
7.08 Proportionate Liability of the Vendors
Where the liability of the Vendors to indemnify the Purchaser hereunder is
in relation to the breach or inaccuracy of any representation or warranty which
has been given by more than one of the Vendors or any breach or non-performance
of any covenant of more than one of the Vendors or is otherwise stated to be
several, each Vendor shall be liable only for the percentage of such claim for
indemnification by the Purchaser equal to such Vendor's proportionate share of
the Purchase Price (ie. pro rata to their common shareholdings in the
Corporation).
7.09 Threshold Amount
Notwithstanding any other provision of this Agreement, (a) the Purchaser
shall not be entitled to indemnification hereunder until the aggregate of all
claims for indemnification made by the Purchaser hereunder, whether individually
or collectively, exceeds $25,000.00, in which event the Purchaser shall be
indemnified for the full amount of such claims for indemnification, and (b) in
no event shall the aggregate amount of all claims for indemnification to be paid
by the Vendors, or any of them, to the Purchaser exceed the Purchase Price.
7.10 Mitigation
The Indemnified Party shall take all reasonable steps to avoid and mitigate
the amount of each Claim and the amount to be paid by the Indemnifying Party to
the Indemnified Party hereunder shall be reduced by the amount of any (i)
insurance proceeds actually received by the Indemnified Party and the
Corporation, if applicable; and (ii) any tax benefit realized by the Indemnified
Party arising from or in connection with the Claim or the payment thereof.
7.11 Set-Off
Any amounts becoming owing by any of the Vendors to the Purchaser hereunder
shall be set-off against amounts owed by the Purchaser to such Vendor as
follows:
(a) firstly against that portion of the Cash Amount to which such Vendor is
entitled to the extent it is not paid as at the date of such claim or
claims for indemnification; and
(b) secondly against that portion of the Share Amount to which such Vendor
is entitled, by a surrender of a number of common shares in the capital of
IMSC into which the Class X Shares held by such Vendor have been exchanged
or Class X Shares held by the Vendor to the extent that such Class X Shares
have not been exchanged at the time of such claim or claims for
indemnification.
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To the extent that the Purchaser has not been fully indemnified after utilizing
its rights of set-off as set forth in this Section 7.11, nothing contained
herein shall preclude the Purchaser from taking any action permitted at law to
recover such deficiency.
ARTICLE VIII
MISCELLANEOUS
8.01 Confidentiality of Information
In the event that the transactions contemplated herein are not consummated
for any reason, the Purchaser covenants and agrees that, except as otherwise
authorized by the Vendors, neither IMSC, the Purchaser nor its representatives,
agents or employees will disclose to third parties, directly or indirectly, any
confidential information or confidential data relating to the Corporation
discovered by IMSC, the Purchaser or their respective representatives as a
result of the Vendors and the Corporation making available to IMSC, the
Purchaser and their respective representatives the information requested by them
in connection with the transactions contemplated herein.
If the transactions contemplated herein are not consummated, the Vendors
shall return to the Purchaser any confidential schedules, documents or other
written information obtained from the Purchaser, whether received before or
after the date of this Agreement. In the event that the transactions
contemplated herein are not consummated for any reason, the Vendors covenant and
agree that, except as otherwise authorized by the Purchaser, neither the Vendors
nor their representatives, agents or employees will disclose to third parties,
directly or indirectly, any confidential information or confidential data
relating to the Purchaser and IMSC discovered by the Vendor or its
representatives as a result of the Purchaser and IMSC making available to the
Vendors and their representatives the information requested by them in
connection with the transactions contemplated herein.
8.02 Notices
(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered in person, transmitted by
telecopy or similar means of recorded electronic communication or sent by
registered mail, charges prepaid, addressed as follows:
(i) if to the Vendors:
Alrae: 50 Renaissance Court
Thornhill, Ontario
L4J 7W4
<PAGE>
Page 21
Kan: 94 Allenvale Drive
Aurora, Ontario L46 6P8
Roynat:
26th Floor, Scotia Plaza
40 King Street West
Toronto, Ontario M5H 1H1
Attention: James Webster, Director of Equity Investments
Telecopier No. (416) 933-2783
with a copy to:
Fogler, Rubinoff
Suite 4400, PO Box 95
Royal Trust Tower
Toronto-Dominion Centre
Toronto, Ontario M5K 1G8
Attention: Avi S. Greenspoon
Telecopier No. (416) 941-8852
(ii) if to the Purchaser:
International Menu Solutions Inc.
350 Creditstone Road
Concord, Ontario L4K 3Z2
Attention: Michael A. Steele
Telecopier No.: (416) 366-6368
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario N2K 3S3
Attention: Thomas D. Beynon, Q.C.
Telecopier No.: (519) 742-1841
(iii) if to IMSC:
International Menu Solutions Corporation
350 Creditstone Road
Concord, Ontario L4K 3Z2
Attention: Michael A. Steele
Telecopier No.: (416) 366-6368
<PAGE>
Page 22
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario N2K 3S3
Attention: Thomas D. Beynon, Q.C.
Telecopier No.: (519) 742-1841
(b) Any such notice or other communication shall be deemed to have been
given and received on the day on which it was delivered or transmitted (or, if
such day is not a Business Day, on the next following Business Day) or, if
mailed, on the fifth Business Day following the date of mailing; provided,
however, that if at the time of mailing or within three Business Days thereafter
there is or occurs a labor dispute or other event that might reasonably be
expected to disrupt the delivery of documents by mail, any notice or other
communication hereunder shall be delivered or transmitted by means of recorded
electronic communication as aforesaid.
(c) Any party may at any time change its address for service from time to
time by giving notice to the other parties in accordance with this section 8.02.
8.03 Commissions, etc.
The Vendors agree to indemnify and save harmless the Purchaser from and
against all Losses suffered or incurred by the Purchaser in respect of any
commission or other remuneration payable or alleged to be payable to any broker,
agent or other intermediary who purports to act or have acted for or on behalf
of any of the Vendors, in connection with the transactions contemplated hereby.
The Purchaser agrees to indemnify and save harmless the Vendors from and
against all Losses suffered or incurred by the Vendors in respect of any
commission or other remuneration payable or alleged to be payable to any broker,
agent or other intermediary who purports to act or have acted for or on behalf
of the Purchaser, in connection with the transactions contemplated hereby.
8.04 Consultation
The parties shall consult with each other before issuing any press release
or making any other public announcement with respect to this Agreement or the
transactions contemplated hereby and, except as required by any applicable law
or regulatory requirement, none of the Vendors nor the Purchaser shall issue any
such press release or make any such public announcement without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed.
<PAGE>
Page 23
8.05 Disclosure
Prior to any public announcement of the transaction contemplated hereby
pursuant to section 8.04, neither party shall disclose this Agreement or any
aspect of such transaction except to its board of directors, its senior
management, its legal, accounting, financial or other professional advisors, any
financial institution contacted by it with respect to any financing required in
connection with such transaction and counsel to such institution, or as may be
required by any applicable law or any regulatory authority or stock exchange
having jurisdiction.
8.06 Public Announcements
No public announcement or press release not required by law or by
applicable stock exchange rule concerning the purchase sale of the Purchased
Shares shall be made by the Vendors, the Corporation or the Purchaser without
the consent and joint approval of the Vendors and the Purchaser.
8.07 Expenses of Parties
Each of the parties hereto shall bear their own expenses in connection with
the transactions contemplated hereby, including with respect to the Vendors, any
and all costs with respect to any reorganization of the Corporation prior to the
Closing Date.
8.08 Counterparts
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which taken together shall constitute one and
the same instrument.
8.09 IMSC Guarantee
In consideration of the mutual covenants contained in this Agreement,
$10.00 and other good and valuable consideration now paid to IMSC by each
Vendor, the receipt and sufficiency whereof is hereby acknowledged, IMSC hereby
unconditionally and irrevocably guarantees to each of the Vendors the observance
and performance by the Purchaser of all of the Purchaser's covenants and
obligations contained in this Agreement, and agrees to indemnify and save
harmless each of the Vendors from and against all Losses of any nature
whatsoever occasioned by any act or default of the Purchaser or which may be
incurred or sustained by reason of any failure by the Purchaser to observe and
perform any or all of its said obligations and covenants, provided that in no
event shall the obligations of IMSC be greater than the obligations of the
Purchaser set forth in this Agreement. The obligations of IMSC under this
Section 8.09 shall not be released, discharged, impaired or affected by any act
or thing whereby it would otherwise be so released, discharged, impaired or
affected, including, without limitation, by any extensions of time or
indulgences or modifications granted to the Purchaser by the failure of the
Vendors to enforce any of the terms or provisions of this Agreement or by the
bankruptcy, insolvency,
<PAGE>
Page 24
dissolution, amalgamation, winding-up or reorganization of the Purchaser, and
IMSC hereby waives any right to require the Vendors to exhaust any action or
recourse against the Purchaser or any other party before requiring performance
by IMSC pursuant to the provisions of this Section 8.09, provided that where the
obligations of the Purchaser are time limited, the obligations of IMSC shall be
similarly time limited.
----------------------------------------------------
<PAGE>
Page 25
IN WITNESS WHEREOF this Agreement has been executed by the parties.
ALRAE INVESTMENTS INC.
Per: /s/ Allan Greenspoon
--------------------------------
Title: President
------------------------------
/s/ Katherine Kan
- - ------------------------------------- -----------------
Witness Katherine Kan
ROYNAT INC.
Per: /s/ James G. Webster
--------------------------------
Title: Director of Merchant Banking
------------------------------
INTERNATIONAL MENU SOLUTIONS
INC.
Per: /s/ Michael Steele
--------------------------------
Title: President
-------------------------------
INTERNATIONAL MENU SOLUTIONS
CORPORATION
Per: /s/ Michael Steele
---------------------------------
Title: President
-------------------------------
EXCHANGE AGREEMENT and
SHAREHOLDER LOAN PURCHASE AGREEMENT
THIS AGREEMENT is made the 19th day of April, 1999.
B E T W E E N:
SANIA SHECHTMAN,
a resident of the Regional Municipality of York
(herein called the "Vendor")
- and -
INTERNATIONAL MENU SOLUTIONS INC., a corporation incorporated
under the laws of Ontario (herein called the "Purchaser")
RECITALS:
A. The Vendor is the beneficial and registered owner of 36 common shares
(herein called the "Purchased Shares") of Norbakco Ltd. (herein called the
"Corporation");
B. The Vendor wishes to sell and the Purchaser wishes to purchase the
Purchased Shares;
C. The Vendor has made shareholder loans to the Corporation in the amount of
$145,000.00 (herein called the "Shareholder Loan");
D. The Vendor wishes to sell and the Purchaser wishes to purchase the
Shareholder Loan.
E. The Vendor and the Purchaser wish to make an election under subsection
85(1) of the Income Tax Act (Canada) (the "Tax Act") in respect of the
Purchased Shares.
NOW THEREFORE in consideration of the mutual covenants and agreements
contained in this agreement and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto
agree as follows:
1. Purchase and Sale. The Vendor agrees to sell and the Purchaser agrees to
purchase all of the Vendor's right, title and interest in and to the Purchased
Shares and the Shareholder Loan on the terms and conditions contained herein.
2. Purchase Price. The purchase price of the Purchased Shares shall be equal to
the fair market value of the Purchased Shares at the date hereof (the "Fair
Market Value"), which Fair Market Value is set out in the attached Schedule A
(the "Purchase Price"). The Purchase Price shall be satisfied by the allotment
and issuance by the Purchaser to the Vendor of 25,000 Class X shares in the
capital stock of the Purchaser (the "Share Amount").
<PAGE>
Page 2
The purchase price of the Shareholder Loan shall be the principal amount of the
loan namely $145,000.00.
3. Election. The parties agree to co-operate in good faith with each other and
their respective legal advisors, accountants and other representatives in
connection with any steps required to be taken in connection with this
Agreement, including, without limitation, in connection with any filing
necessary pursuant to the Tax Act (including without limitation, joint elections
pursuant to Section 85(1) thereof in respect of the Share Amount received by the
Vendor).
4. Vendor's Representations and Warranties. The Vendor represents and warrants
to the Purchaser that:
(a) the Vendor beneficially owns the Purchased Shares and the Shareholder
Loan free and clear of all charges, security interests, pledges,
demands and other encumbrances and has the exclusive right and full
power to sell, assign and transfer the Purchased Shares and the
Shareholder Loan to the Purchaser;
(b) no person, firm or corporation has any agreement, option or any right
capable of becoming an agreement or option for the acquisition from
the Vendor of any of the Purchased Shares or the Shareholder Loan; and
(c) the Vendor is not a non-resident of Canada within the meaning of the
Tax Act.
5. Purchaser's Representations and Warranties. The Purchaser represents and
warrants to the Vendor as follows:
(a) the Purchaser is duly incorporated and validly subsisting under the
laws of the Province of Ontario;
(b) the Purchaser has been duly authorized to enter into the transaction
herein;
(c) the shares to be issued to the Vendor pursuant to this agreement have
been duly authorized;
(d) the issuance of the shares to the Vendor pursuant to this agreement
will not result in the breach of any instrument, agreement or licence
to which the Purchaser is a party or by which it is bound or of any
shareholder agreement;
(e) the Purchaser is not a non-Canadian within the meaning of the
Investment Canada Act (Canada); and
(f) the Purchaser is not a non-resident within the meaning of the Tax Act.
6. Completion of the Transaction. This agreement shall be completed
contemporaneously
<PAGE>
Page 3
with the execution hereof at which time the following shall occur:
(a) the Vendor shall execute and deliver to the Purchaser all such
documents, certificates and instruments and do all such other acts and
things as the Purchaser may consider necessary or desirable, acting
reasonably, to effectively transfer and assign the Purchased Shares to
the Purchaser and to deliver possession thereof to the Purchaser;
(b) the Purchaser shall issue to the Vendor 25,000 Class X shares in the
capital stock of the Purchaser.;
(c) the Purchaser shall deliver to the Vendor a certified cheque in the
amount of $145,000.00 (Canadian);
(d) the Corporation and the Vendor will sign a letter to confirm in
writing the employment arrangements with respect to the Vendor's
employment with the Corporation; and
(e) the Vendor shall have the option to acquire for the aggregate amount
of $1.00, 25,000 Class N shares in the capital stock of International
Menu Solutions Corporation (herein called "IMSC"), which shares are
voting non-equity shares.
So long as the option for the Class N shares has not been exercised, one Class X
share in the capital stock of the Purchaser may be exchanged for one common
share of IMSC. In the event that the Vendor exercises the option to acquire the
25,000 Class N shares as provided above, then thereafter, one Class X share
together with one Class N share may be exchanged for one common share in the
capital stock of IMSC.
7. Survival of Representations and Warranties. The representations, warranties
and covenants contained in this agreement shall survive the completion of the
transaction contemplated hereby and, notwithstanding such completion, shall
continue in full force and effect from and after the date hereof.
8. First Right of Refusal. In the event that the Vendor wishes to sell the
shares acquired by the Vendor pursuant to this Agreement (or any shares acquired
upon an exchange of such shares), the Vendor shall first advise the President of
the Purchaser and will give consideration to selling such shares to the
Purchaser if the Purchaser wishes to purchase such shares. If the Purchaser does
not accept the offer to purchase the shares that the Vendor is offering for sale
within seven (7) days of receipt of written notice given by the Vendor to the
Purchaser, then the Vendor shall have the right to sell such shares at or above
such price. In the event that the Vendor then wishes to sell such shares at a
lesser price, the first right of refusal shall again apply.
9. Further Assurances. Each of the parties hereto shall promptly do, make,
execute or deliver, or cause to be done, made, executed or delivered, all such
further acts, documents and things as the other party hereby may reasonably
require from time to time for the purpose of giving effect to this agreement and
shall use its best efforts and take all such steps as may be reasonably within
its power
<PAGE>
Page 4
to implement to their full extent the provisions of this agreement.
10. Enurement. This agreement shall be binding upon and shall enure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
11. Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
12. Counterparts. This agreement may be executed by facsimile and in any number
of counterparts, each of which when so executed shall be deemed to be an
original, and all of which taken together shall constitute one and the same
agreement.
13. Legal Advice. The Vendor hereby represents and warrants to the Purchaser and
acknowledges and agrees that he had the opportunity to seek and was not
prevented nor discouraged by the Purchaser from seeking independent legal advice
prior to the executive and delivery of this agreement and that, in the event
that he did not avail himself of that opportunity prior to signing this
agreement, he did so voluntarily without any undue pressure and agrees that his
failure to obtain independent legal advice shall not be used by him as a defence
to the enforcement of his obligations under this agreement.
IN WITNESS WHEREOF the parties hereto have executed this agreement.
/s/ Sania Shechtman
- - -------------------------------- ------------------------------------
Witness Sania Shechtman
INTERNATIONAL MENU SOLUTIONS INC.
Per: /s/ Michael Steele
--------------------------------
Michael A. Steele, President
<PAGE>
Page 5
SCHEDULE A
Fair Market Value
o $43,750.00 CDN
EXCHANGE AGREEMENT and
SHAREHOLDER LOAN PURCHASE AGREEMENT
THIS AGREEMENT is made the 28th day of April, 1999.
B E T W E E N:
1276396 ONTARIO LTD.
a corporation incorporated under the laws of the Province of Ontario
(herein called the "Vendor")
- and -
INTERNATIONAL MENU SOLUTIONS INC.,
a corporation incorporated under the laws of the Province of Ontario
(herein called the "Purchaser")
RECITALS:
A. The Vendor is the beneficial and registered owner of 10 common shares
(herein called the "Purchased Shares") of Norbakco Ltd. (herein called the
"Corporation");
B. The Vendor wishes to sell and the Purchaser wishes to purchase the
Purchased Shares;
C. The Vendor has made shareholder loans to the Corporation in the amount of
$35,000.00 (herein called the "Shareholder Loan");
D. The Vendor wishes to sell and the Purchaser wishes to purchase the
Shareholder Loan.
E. The Vendor and the Purchaser wish to make an election under subsection
85(1) of the Income Tax Act (Canada) (the "Tax Act") in respect of the Purchased
Shares.
NOW THEREFORE in consideration of the mutual covenants and agreements
contained in this agreement and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto
agree as follows:
1. Purchase and Sale. The Vendor agrees to sell and the Purchaser agrees to
purchase all of the Vendor's right, title and interest in and to the Purchased
Shares and the Shareholder Loan on the terms and conditions contained herein.
2. Purchase Price. The purchase price of the Purchased Shares shall be equal to
the fair market value of the Purchased Shares at the date hereof (the "Fair
<PAGE>
Page 2
Market Value"), which Fair Market Value is set out in the attached Schedule A
(the "Purchase Price"). The Purchase Price shall be satisfied by the allotment
and issuance by the Purchaser to the Vendor of 3,000 Class X shares in the
capital stock of the Purchaser (the "Share Amount").
The purchase price of the Shareholder Loan shall be the principal amount of the
loan namely $35,000.00.
3. Election. The parties agree to co-operate in good faith with each other and
their respective legal advisors, accountants and other representatives in
connection with any steps required to be taken in connection with this
Agreement, including, without limitation, in connection with any filing
necessary pursuant to the Tax Act (including without limitation, joint elections
pursuant to Section 85(1) thereof in respect of the Share Amount received by the
Vendor).
4. Vendor's Representations and Warranties. The Vendor represents and warrants
to the Purchaser that:
(a) the Vendor beneficially owns the Purchased Shares and the Shareholder
Loan free and clear of all charges, security interests, pledges,
demands and other encumbrances and has the exclusive right and full
power to sell, assign and transfer the Purchased Shares and the
Shareholder Loan to the Purchaser;
(b) no person, firm or corporation has any agreement, option or any right
capable of becoming an agreement or option for the acquisition from
the Vendor of any of the Purchased Shares or the Shareholder Loan; and
(c) the Vendor is not a non-resident of Canada within the meaning of the
Tax Act.
5. Purchaser's Representations and Warranties. The Purchaser represents and
warrants to the Vendor as follows:
(a) the Purchaser is duly incorporated and validly subsisting under the
laws of the Province of Ontario;
(b) the Purchaser has been duly authorized to enter into the transaction
herein;
(c) the shares to be issued to the Vendor pursuant to this agreement have
been duly authorized;
(d) the issuance of the shares to the Vendor pursuant to this agreement
will not result in the breach of any instrument, agreement or licence
to which the Purchaser is a party or by which it is bound or of any
shareholder agreement;
(e) the Purchaser is not a non-Canadian within the meaning of the
Investment Canada Act (Canada); and
<PAGE>
Page 3
(f) the Purchaser is not a non-resident within the meaning of the Tax Act.
6. Completion of the Transaction. This agreement shall be completed
contemporaneously with the execution hereof at which time the following shall
occur:
(a) the Vendor shall execute and deliver to the Purchaser all such
documents, certificates and instruments and do all such other acts and
things as the Purchaser may consider necessary or desirable, acting
reasonably, to effectively transfer and assign the Purchased Shares to
the Purchaser and to deliver possession thereof to the Purchaser;
(b) the Purchaser shall issue to the Vendor 3,000 Class X shares in the
capital stock of the Purchaser.;
(c) the Purchaser shall deliver to the Vendor a certified cheque in the
amount of $35,000.00 (Canadian);
(d) the Corporation and the Vendor will sign a letter to confirm in
writing the employment arrangements with respect to the Vendor's
employment with the Corporation; and
(e) the Vendor shall have the option to acquire for the aggregate amount
of $1.00, 3,000 Class N shares in the capital stock of International
Menu Solutions Corporation (herein called "IMSC"), which shares are
voting non-equity shares.
So long as the option for the Class N shares has not been exercised, one Class X
share in the capital stock of the Purchaser may be exchanged for one common
share of IMSC. In the event that the Vendor exercises the option to acquire the
3,000 Class N shares as provided above, then thereafter, one Class X share
together with one Class N share may be exchanged for one common share in the
capital stock of IMSC.
7. Survival of Representations and Warranties. The representations, warranties
and covenants contained in this agreement shall survive the completion of the
transaction contemplated hereby and, notwithstanding such completion, shall
continue in full force and effect from and after the date hereof.
8. First Right of Refusal. In the event that the Vendor wishes to sell the
shares acquired by the Vendor pursuant to this Agreement (or any shares acquired
upon an exchange of such shares), the Vendor shall first advise the President of
the Purchaser and will give consideration to selling such shares to the
Purchaser if the Purchaser wishes to purchase such shares. . If the Purchaser
does not accept the offer to purchase the shares that the Vendor is offering for
sale within seven (7) days of receipt of written notice given by the Vendor to
the Purchaser, then the Vendor shall have the right to sell such shares at or
above such price during the 90 day period following the last day of the said
seven (7) day period. In the event that the Vendor then wishes to sell such
shares at a lesser price, the first right of refusal shall again apply.
<PAGE>
Page 4
9. Further Assurances. Each of the parties hereto shall promptly do, make,
execute or deliver, or cause to be done, made, executed or delivered, all such
further acts, documents and things as the other party hereby may reasonably
require from time to time for the purpose of giving effect to this agreement and
shall use its best efforts and take all such steps as may be reasonably within
its power to implement to their full extent the provisions of this agreement.
10. Enurement. This agreement shall be binding upon and shall enure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
11. Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
12. Counterparts. This agreement may be executed by facsimile and in any number
of counterparts, each of which when so executed shall be deemed to be an
original, and all of which taken together shall constitute one and the same
agreement.
13. Legal Advice. The Vendor hereby represents and warrants to the Purchaser and
acknowledges and agrees that it had the opportunity to seek and was not
prevented nor discouraged by the Purchaser from seeking independent legal advice
prior to the executive and delivery of this agreement and that, in the event
that it did not avail itself of that opportunity prior to signing this
agreement, it did so voluntarily without any undue pressure and agrees that its
failure to obtain independent legal advice shall not be used by it as a defence
to the enforcement of its obligations under this agreement.
IN WITNESS WHEREOF the parties hereto have executed this agreement.
1276396 ONTARIO LTD.
Per: /s/ Walter Vas
---------------------------------
Title: President
------------------------------
INTERNATIONAL MENU SOLUTIONS INC.
Per: /s/ Michael Steele
--------------------------------
Michael A. Steele, President
<PAGE>
Page 5
SCHEDULE A
Fair Market Value
o $5,250.00 CDN
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 10th day of May, 1999,
BETWEEN:
DONALD KILIMNIK,
of the Township of Center Wellington, in the County of Wellington
(hereinafter called "Donald"),
DEBORAH KILIMNIK,
of the Township of Center Wellington, in the County of Wellington
(hereinafter called "Deborah")
ROBERT CURIK,
of the City of Waterloo, in the Municipality of Waterloo
(hereinafter called "Robert")
ANJELA CURIK,
of the City of Waterloo, in the Municipality of Waterloo
(hereinafter called "Anjela)
(Donald, Deborah, Robert and Anjela being hereinafter,
individually called a "Vendor" and collectively called the
"Vendors")
OF THE FIRST PART,
- and -
INTERNATIONAL MENU SOLUTIONS INC.,
a corporation incorporated under the laws of the Province of
Ontario, (hereinafter called the "Purchaser" and "IMSI")
OF THE SECOND PART,
- and -
INTERNATIONAL MENU SOLUTIONS CORPORATION,
a corporation incorporated under the laws of the State of Nevada
(hereinafter called "IMSC")
OF THE THIRD PART.
<PAGE>
Page 2
WHEREAS the Purchaser wishes to acquire all of the issued and outstanding
shares of 1005549 Ontario Limited (herein called "Holdco");
AND WHEREAS Holdco owns all of the issued and outstanding Class A Common
Shares of D.C. Food Processing Inc. (herein called the "Corporation");
AND WHEREAS Donald is the owner of (a) 50 Class B Convertible Common Shares
in the capital stock of Holdco (herein called the "Donald B Shares"), (b) 405
Class D Special Shares in the capital stock of Holdco (herein called the "Donald
D Shares"), and (c) 1,000 Class E Special Shares in the capital stock of Holdco
(herein called the "Donald E Shares"; the Donald B Shares, the Donald D Shares
and the Donald E Shares are herein collectively called the "Donald Shares");
AND WHEREAS Deborah is the owner of 50 Class B Convertible Common Shares in
the capital stock of Holdco (herein called the "Deborah Shares");
AND WHEREAS Robert is the owner of (a) 50 Class B Convertible Common Shares
in the capital stock of Holdco (herein called the "Robert B Shares"), (b) 405
Class D Special Shares in the capital stock of Holdco (herein called the "Robert
D Shares"), and (c) 1,000 Class E Special Shares in the capital stock of Holdco
(herein called the "Robert E Shares"; the Robert B Shares, the Robert D Shares
and the Robert E Shares herein collectively called the "Robert Shares");
AND WHEREAS Anjela is the owner of 50 Class B Convertible Common Shares in
the capital stock of Holdco (herein called the "Anjela Shares"); and
AND WHEREAS the Purchaser wishes to purchase the Donald Shares, the Deborah
Shares, the Robert Shares and the Anjela Shares (herein collectively called the
"Purchased Shares") from Donald, Deborah, Robert and Anjela respectively, and
each Vendor wishes to sell his or her Purchased Shares to the Purchaser on the
terms and conditions herein set forth;
THIS AGREEMENT WITNESS THAT in consideration of the mutual covenants,
agreements, representations, warranties and indemnities herein contained and for
other good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged by each party,) the parties hereto hereby covenant and agree
as follows:
ARTICLE I
INTERPRETATION
1.01 Defined Terms
All capitalized terms used in this Agreement and not defined in the recitals to
this Agreement shall
<PAGE>
Page 3
have meanings set forth in Schedule A to this Agreement.
1.02 Currency
Unless otherwise indicated, all dollar amounts referred to in this
Agreement are expressed in Canadian funds.
1.03 Sections and Headings
The division of this Agreement into sections and the insertion of headings
are for convenience of reference only and shall not affect the interpretation of
this Agreement. Unless otherwise indicated, any reference in this Agreement to a
section or a Schedule refers to the specified section of or Schedule to this
Agreement.
1.04 Number, Gender and Persons
In this Agreement, words importing the singular number only shall include
the plural and vice versa, words importing gender shall include all genders and
words importing persons shall include individuals, corporations, partnerships,
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities.
1.05 Accounting Principles
Any reference in this Agreement to generally accepted accounting principles
refers to generally accepted accounting principles as approved from time to time
by the Canadian Institute of Chartered Accountants or any successor institute.
1.06 Entire Agreement
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral. There are
no conditions, covenants, agreements, representations, warranties or other
provisions, express or implied, collateral, statutory or otherwise, relating to
the subject matter hereof except as herein provided.
1.07 Time of Essence
Time shall be of the essence of this Agreement.
1.08 Applicable Law
This Agreement shall be construed, interpreted and enforced in accordance
with, and the
<PAGE>
Page 4
respective rights and obligations of the parties shall be governed by, the laws
of the Province of Ontario and the federal laws of Canada applicable therein,
and each party hereby irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of such province and all courts
competent to hear appeals therefrom.
1.09 Severability
If any provision of this Agreement is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
determination shall not impair or affect the validity, legality or
enforceability of the remaining provisions hereof, and each provision is hereby
declared to be separate, severable and distinct.
1.10 Successors and Assigns
This Agreement shall enure to the benefit of and shall be binding on and
enforceable by the parties and, where the context so permits, their respective
successors and permitted assigns. No party may assign any of its rights or
obligations hereunder without the prior written consent of the other parties.
1.11 Amendments and Waivers
No amendment or waiver of any provision of this Agreement shall be binding
on any party unless consented to in writing by such party. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision,
nor shall any waiver constitute a continuing waiver unless otherwise expressly
provided.
1.12 Schedules
The following Schedules attached to this Agreement are incorporated into
this Agreement by reference and are deemed to be part hereof:
Schedule A - Defined Terms
Schedule B - Representations and Warranties of the Vendors with respect
to Holdco
Schedule C - Representations and Warranties of the Vendors with respect
to the Corporation
Schedule D - Representations and Warranties of Donald and Deborah
Schedule E - Representations and Warranties of Robert and Anjela
Schedule F - Representations and Warranties of the Purchaser
Schedule G - Representations and Warranties of IMSC and the Purchaser
Schedule 2.03 - Allocation of Purchase Price
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Schedule 4.01(i) - Non-Competition and Non-Solicitation Agreement for
Deborah and Anjela
Schedule 4.01(j) - Form of Opinion of Shortt, Hanbidge & Snider
Schedule 4.01(l) - Form of Release
Schedule 4.02(s) - Registration Rights Agreement
Schedule 4.02(i) - Form of Opinion of Purchaser's Counsel and U.S. Counsel
to the Purchaser
Schedule A1.01(e) - Audited Financial Statements
Schedule A1.01(jj) - Interim Financial Statements
Schedule A1.01(oo) - Permitted Encumbrances
Holdco
Schedule B1.10 - Location of Real Property
Schedule B1.10 - Real Property Leases
Schedule B1.13 - Insurance Policies
Schedule B1.15 - Contracts
Schedule B1.16 - Licenses and Permits
Schedule B1.17 - Consents and Approvals
Schedule B1.20 - Absence of Changes
Schedule B1.25 - Accounts and Attorneys
Schedule B1.26 - Directors and Officers
Corporation
Schedule C1.13 - Intellectual Property
Schedule C1.16 - Contracts
Schedule C1.17 - Licences
Schedule C1.18 - Consents and Approvals
Schedule C1.21 - Absence of Changes
Schedule C1.25 - Accounts and Attorneys
Schedule C1.26 - Directors and Officers
Schedule C1.30 - Employee Plans and Employee Matters
Schedule C1.34 - Major Customers
Purchaser
Schedule F1.09 - Litigation
IMSC and Purchaser
Schedule G1.01 - Organization
Schedule G1.05 - Reserved Common Shares
Schedule G1.08 - Litigation
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Schedule G1.09 - No Subsidiaries
Schedule G1.11 - Encumbrances of IMSC and Purchaser
Schedule G1.14 - Consolidated Financial Statement of IMSC
Schedule G.1.15 - Absence of Changes
Schedule G1.16 - Taxes
Schedule G1.17 - Non-Arm's Length Transactions
Schedule G1.19 - Issuance of Shares
1.13 Best of Knowledge
Any reference in this Agreement to "the best of the knowledge" of a party
or parties or to "the best of the knowledge and belief" of a party or parties,
will be deemed to mean the actual knowledge of the party or parties and the
knowledge which they would have had if they had conducted a reasonably prudent
inquiry into the subject matter.
1.14 Materiality
In this Agreement, "material" when used to describe a contract, lease or
other agreement, means:
(a) in the case of Holdco, a contract, lease or other agreement with a
term in excess of six (6) months or pursuant to which one or more
payments in excess of $10,000.00 in the aggregate become due; and
(b) in the case of the Corporation, a contract, lease or other agreement
with a term in excess of six (6) months or pursuant to which one or
more payments in excess of $20,000.00 in the aggregate become due.
ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES
2.01 Purchase and Sale of Purchased Shares
Subject to the terms and conditions hereof, at the Closing Time, each of
the Vendors shall sell, assign and transfer to the Purchaser and the Purchaser
shall purchase the Purchased Shares owned by the Vendor.
2.02 Purchase Price
The aggregate purchase price payable by the Purchaser to the Vendors for
the Purchased Shares (the "Purchase Price") shall be an amount equal to the sum
of:
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(a) $6,345,000.00 and
(b) an amount equal to the greater of (i) the Adjusted EBITDA of the
Corporate Entities for the period from and including December 7, 1998
to and including December 31, 1999 (the "1999 Period"), and (ii) zero;
and
(c) an amount equal to the greater of:
(1) four times the Adjusted EBITDA of the Corporate Entities for the
one year period ending March 31, 2002 or December 31, 2002 (such
period to be selected by the Vendors as hereinafter provided in
this Section 2.02), minus (A) $6,000,000.00, and (B) an amount
equal to the greater of (i) the Adjusted EBITDA of the Corporate
Entities for the 1999 Period, and (ii) zero, and
(2) zero.
With respect to Section 2.02(c)(1), the Vendors shall have the right during the
fifteen (15) day period following delivery to the Vendors of the financial
statements for the period ending March 31, 2002 to elect to have the Purchase
Price determined based upon the Adjusted EBITDA of the Corporate Entities for
the one year period ending March 31, 2002, by delivery of a notice in writing to
the Purchaser to such effect failing which the Vendors shall be deemed to have
the Purchase Price determined based upon the Adjusted EBITDA for the Corporate
Entities for the one year period ending December 31, 2002.
If the Adjusted EBITDA of the Corporate Entities is determined on a period
ending on December 31st, the determination shall be based upon the audited
consolidated financial statements of the Corporate Entities. If the Adjusted
EBITDA of the Corporate Entities is determined on a period ending on other than
December 31st, then the Purchaser shall determine in its absolute discretion
whether such financial statements are audited statements or review statements.
For the purposes of this Agreement "Adjusted EBITDA of the Corporate Entities"
shall mean the consolidated earnings before interest, income taxes, depreciation
and amortization, as calculated in accordance with Canadian generally accepted
accounting principles and past practice, including actual management salaries
and bonuses paid (but notwithstanding the foregoing, only 50 percent of the
salary and bonuses paid during the relevant period to Donald and Robert),
adjusted by adding back any inter-company management fees or allocations of
overhead expenses that are expensed subsequent to the Closing Date for the
relevant period, the intent of the parties being that the Purchase Price should
be based on a "normalized" EBITDA of the business carried on by the Corporate
Entities. For the purpose of the Adjusted EBITDA calculations, if any expenses
are charged to the Corporate Entities by an Affiliate of either of the Corporate
Entities, for services not reasonably required in the normal course of the
Corporate Entities business and past practice, such expenses shall not be
included in the Adjusted EBITDA calculations.
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The Vendors will have the right to have KPMG review and comment on the Adjusted
EBITDA calculations to be made to determine the Purchase Price. The costs for
the KPMG review and comment for the 1999 Period and the one year period ending
March 31, 2002 or December 31, 2002, as the case may be, will be considered
non-recurring expenses for the purpose of calculating the Adjusted EBITDA. Such
costs shall be paid by the Corporation provided that such costs shall not exceed
the aggregate amount of $7,500.00 for all such reviews and comments. Such costs
in the excess of the aggregate amount of $7,500.00 for KPMG services rendered in
connection with the aforesaid reviews and comment shall be for the account of
the Vendors.
2.03 Payment of Purchase Price
The Purchaser shall satisfy the Purchase Price as follows:
(a) The Cash Amount. $4,000,000.00 by delivery at the Closing Time of certified
cheques in immediately available funds to or to the order of the Vendors
according to the entitlements of the Vendors set out in Schedule 2.03;
(b) Non-Escrowed Class X Shares. $500,000.00 by the delivery at the Closing Time
of 190,476 Class X Shares registered according to the entitlements of the
Vendors set out in Schedule 2.03;
(c) Escrowed Class X Shares. $1,845,000.00 by the delivery at the Closing Time
of 702,857 Class X Shares registered according to the entitlements of the
Vendors set out in Schedule 2.03;
(d) 1999 Period Amount. By the delivery at the Closing Time of 250,000 Class E
Series 1 Shares registered according to the entitlements of Donald and Deborah
set out in Schedule 2.03, and 250,000 Class E Series 2 Shares registered
according to the entitlements of Robert and Anjela set out in Schedule 2.03.
(e) The March 31, 2002 or December 31, 2002 EBITDA Amount. By the delivery at
the Closing Time of 250,000 Class E Series 3 Shares registered according to the
entitlements of Donald and Deborah set out in Schedule 2.03, and 250,000 Class E
Series 4 Shares registered according to the entitlements of Robert and Anjela
set out in Schedule 2.03.
(f) Advance of Purchase Price Calculation. Subject to the provisions of this
section, the Vendors shall have the right to have determined the Adjusted EBITDA
of the Corporate Entities, as at a period ending prior to the end of the 1999
Period and March 31, 2002 (or December 31, 2002) and, accordingly the portion of
the Purchase Price calculated pursuant to Section 2.02(b) (if then not
determined), and Section 2.02(c) (if then not determined):
(a) in the event of the death, permanent disability or termination of
employment, without
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cause, of either of Donald or Robert;
(b) in the event Michael A. Steele is not the Chief Executive Officer of
IMSC; or
(c) in the event that a take-over bid for IMSC, results in a single
shareholder acquiring more than fifty percent of the issued and
outstanding voting shares of IMSC (not including the Common Shares or
the Class N Shares that would be acquired by the Vendors upon the
exchange of their Class X Shares and Class E Shares).
Upon the occurrence of any of the events specified above and subject to the next
following paragraph, the Vendors shall have the right to elect to determine the
Adjusted EBITDA of the Corporate Entities as at a period ending prior to the end
of the 1999 Period and March 31, 2002 (or December 31, 2002), as the case may
be, and such right shall continue for a sixty (60) day period following the date
of such event, after which if such election is not exercised, such right shall
be at an end with respect to such event.
In the event of the death, permanent disability or termination of employment
without cause, of either of Donald or Robert, the right to elect set forth above
shall only apply with respect to the Class E Shares held by the Vendor and such
Vendor's spouse that has suffered the death, permanent disability or termination
of employment without cause.
If one or more of the Vendors elect to determine the Adjusted EBITDA of the
Corporate Entities as at a period ending prior to the end of the 1999 Period or
March 31, 2002 (or December 31, 2002) upon the occurrence of the event described
in subparagraph (a) above, the escrow periods in Section 2.05 with respect to
the Class X Shares and Class E Shares held by such Vendors shall be shall not
apply with respect to the Class X Shares and Class E Shares held by such Vendors
that make such election and such shares shall be immediately released from
escrow.
If one or more of the Vendors elect to determine the Adjusted EBITDA of the
Corporate Entities as at a period ending prior to the end of the 1999 Period or
March 31, 2002 (or December 31, 2002) upon the occurrence of the event described
in paragraphs (b) above, the escrow periods in Section 2.05 with respect to the
Class X Shares and Class E Shares held by such Vendors shall not apply with
respect to the Class X Shares and Class E Shares held by such Vendors that make
such election and such shares shall be immediately released from escrow.
If one or more of the Vendors elect to determine the Adjusted EBITDA of the
Corporate Entities as at a period ending prior to the end of the 1999 Period or
March 31, 2002 (or December 31, 2002) upon the occurrence of the event described
in paragraph (c) above, the escrow periods in Section 2.05 with respect to the
Class X Shares and Class E Shares held by such Vendors shall not apply with
respect to the Class X Shares and Class E Shares held by such Vendors that make
such election and such shares shall be immediately released from escrow.
For greater certainty, in the event that such fifty percent is achieved, the
Vendors shall have the right
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to sell the Class X Shares, the Class E Shares or the Common Shares acquired
upon an exchange of Class X Shares or Class E Shares.
Upon the occurrence of an event described in subparagraph (a), (b) or (c) above
and one or more of the Vendors (herein called the "Electing Vendors") elect to
determine the Adjusted EBITDA of the Corporate Entities as at a period ending
prior to the end of the 1999 Period or March 31, 2002 (or December 31, 2002) the
portion of the Purchase Price referred to in Section 2.02 (b) (if at the time of
the event then not determined), and Section 2.02(c) (if at the time of the event
then not determined) shall be determined as follows:
(1) during the ninety (90) day period following the date of the occurrence
of the triggering event, the Purchaser and the Electing Vendors shall
have good faith discussions to seek to negotiate the amount that the
Purchaser and the Electing Vendors are prepared to accept as the
Adjusted EBITDA for the Corporate Entities for the relevant period;
and
(2) failing a negotiated agreement pursuant to the preceding paragraph (1)
during such ninety (90) day period, then the matter shall be
determined by arbitration in accordance with the provisions of Section
2.07 on the basis that the arbitrator shall determine the portion of
the Purchase Price referred to in Section 2.02(b) and Section 2.02(c),
as required, based upon the reasonably expected results and Adjusted
EBITDA for the relevant period that the Corporate Entities would have
achieved had the triggering event not occurred.
(g) Class N Shares. On the Closing Date the Vendors shall be issued for a
nominal subscription price, that number of Class N Shares equal to the number of
Class X Shares issued to the Vendors pursuant to Sections 2.03(b) and (c). The
Vendors agree that at the time of the conversion of the Class X Shares into
Common Shares, an equivalent number of Class N Shares shall be surrendered by
the relevant Vendor or Vendors to IMSC for cancellation.
Upon determination of the number of Common Shares into which the Vendors are
entitled to exchange their Class E Shares, IMSC shall issue to the Vendors an
equivalent number of Class N Shares for a nominal subscription price. Each of
the Vendors agree that at the time of conversion of Class E Shares into Common
Shares, an equivalent number of Class N Shares will be surrendered by the Vendor
to IMSC for cancellation.
2.04 Subsection 85(1) Election Under the Tax Act
In connection with the sale and transfer of the Purchased Shares, the
Vendors and the Purchaser shall do, sign, execute and file at the time
prescribed all things, forms and documents necessary or desirable in order to
make joint statutory elections pursuant to the provisions of Subsection 85(1) of
the Tax Act. The Vendors and the Purchaser agree that the elected amount
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for the Purchased Shares to be used in the joint statutory elections shall be
such amount as the Vendors advise, provided that if so requested by any of the
Vendors, the Purchaser will execute and file amended elections to amend any
elected amount. The costs of any such amended election shall be borne by the
Vendor or Vendors, as the case may be, which costs shall include reasonable
professional fees incurred by the Purchaser.
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2.05 Escrow of Class X Shares and Class E Shares
On the Closing Date, the Vendors shall enter into an escrow agreement with
the Purchaser and IMSC, in form and substance satisfactory to the Vendors and
the Purchaser, which will provide that the Class X Shares received by the
Vendors pursuant to section 2.03(c) and the Class E Shares received pursuant to
sections 2.03(d) and 2.03(e), including any Common Shares received by the
Vendors in accordance with the rights, privileges, restrictions and conditions
attached to such Class X Shares and Class E Shares, shall be held in escrow and
released as follows:
(a) with respect to the Class X Shares received pursuant to Section
2.03(c) as follows:
1/3 released April 1, 2000
1/3 released April 1, 2001 and
1/3 released April 1, 2002
(b) with respect to the Class E Shares received pursuant to Section
2.03(d) as follows:
1/3 released December 31, 2000
1/3 released December 31, 2001 and
1/3 released December 31, 2002
(c) with respect to the Class E Shares received pursuant to Section
2.03(e) as follows:
(i) if the Adjusted EBITDA used for the calculation of the
Purchase Price in Section 2.02(c)(1) for the one year period is
elected by the Vendors to be March 31, 2002 then as follows:
1/3 released April 1, 2003
1/3 released April 1, 2004
1/3 released April 1, 2005
(ii) if the Adjusted EBITDA used for the calculation of the
Purchase Price in Section 2.02(c)(1) for the one year period is
elected by the Vendors to be December 31, 2002 then as follows:
1/3 released January 1, 2004
1/3 released January 1, 2005
1/3 released January 1, 2006
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In the event that securities regulators have additional escrow requirements
relating to the Class X Shares and Class E Shares specified in paragraphs (a),
(b) and (c) above, the Vendor's agree to comply with such requirements.
The Class X Shares, the Class E Series 1 Shares and the Class E Series 3 Shares
(including any Common Shares received upon an exchange of Class X Shares, Class
E Series 1 Shares and Class E Series 3 Shares) of Donald and Deborah, shall be
immediately released from escrow in the event of the death, permanent disability
or termination of the employment of Donald by the Corporation without cause. The
first right of first refusal provided for in section 2.06 shall continue to
apply to such shares. The Class X Shares, the Class E Series 2 Shares and the
Class E Series 4 Shares (including any Common Shares received upon an exchange
of Class X Shares and Class E Series 2 Shares and the Class E Series 4 Shares)
of Robert and Anjela shall be immediately released from escrow in the event of
the death, permanent disability or termination of the employment of Robert by
the Corporation without cause. The right of first refusal provided in section
2.06 shall continue to apply to such shares.
The share held in escrow shall be immediately released from escrow in the event
that:
(a) Michael A. Steele is not the President and Chief Executive Officer of
the Purchaser; or
(b) a take over bid results in a single shareholder acquiring more than
fifty percent of the issued and outstanding voting shares of IMSC
(determined on a basis including the voting shares in IMSC held by the
Vendors at the time).
2.06 Right of First Refusal
The Vendors further agree that the Class X Shares and Class E Shares issued
to the Vendors pursuant to sections 2.03(b), 2.03(c), 2.03(d) and 2.03(e)
(including any Common Shares received upon an exchange of the Class X Shares and
the Class E Shares) shall be subject to a right of first refusal in favour of
the Purchaser and IMSC in the event that any Vendor wishes to sell any of such
shares other than for estate and/or tax planning purposes.
2.07 Arbitration
Any dispute between the parties with respect to the determination of
Adjusted EBITDA of the Corporate Entities shall be submitted to arbitration in
accordance with the following provisions:
(a) such arbitration shall be conducted by a single arbitrator who shall
be a professional accountant who is a partner with Ernst & Young or
its successor who shall be appointed by mutual agreement of the
parties, or in the event the parties are unable to agree upon an
arbitrator within ten (10) days, such arbitrator shall be appointed by
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a Judge of the Ontario Court (General Division) upon the application
of any of the parties. In either case, the arbitrator shall be at
arm's-length from the parties;
(b) the arbitrator shall be instructed that time is of the essence in
proceeding with the determination of the dispute and all reasonable
efforts shall be made to ensure that the arbitration award is rendered
within thirty (30) days of the submission of such dispute to
arbitration;
(c) the arbitration shall take place in Toronto, Ontario;
(d) the arbitration shall be given in writing and shall be final and
binding on all parties, shall not be subject to any appeal and shall
deal with the question of the cost of the arbitration and all matters
related thereto;
(e) judgment upon the arbitration award rendered may be entered in any
Court having jurisdiction, or, application may be made to such Court
for a judicial recognition of the arbitration award or any order of
enforcement thereof, as the case may be; and
(f) the arbitration shall proceed in accordance with the provisions of the
Arbitrations Act (Ontario).
2.08 Covenants and Restrictions
During the period commencing the Closing Date and ending on the date
selected by the Vendors pursuant to Section 2.02(c) being either March 31, 2002
or December 31, 2002 (the "Period") the Purchaser shall provide the Corporate
Entities with additional capital and if necessary, replacement bank financing
for the reasonable expansion of the Waterloo, Ontario plant and facilities and
for marketing the products of the Corporate Entities in the United States and
Canada during the Period. The Purchaser acknowledges that the Corporate Entities
have forecasted capital expenditures for the twelve month period ending December
31, 1999 which aggregate approximately $2 million and that such capital
expenditures are in support of a forecast of increased business and a properly
formulated operating budget.
During the Period, the Purchaser shall refer to the Corporate Entities, all
business acquired by the Purchaser and its Affiliates, during the Period for
individual quick frozen and batter breaded products and all bundled meals for
which the Corporate Entities are producing the major protein component to the
extent of the Corporate Entities plant capacities. In the event that the
Corporate Entities decline to accept any business referred to the Corporate
Entities by the Purchaser, the Corporate Entities shall advise the Purchaser by
notice in writing within three (3) Business Days of the date of referral of the
business to the Corporate Entities. Subject to adverse economic conditions and
adjustments agreed to by Donald and Robert, the Purchaser will preserve in all
material respects the ability of Donald and Robert to operate the Corporate
Entities during the Period to maximize
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the Adjusted EBITDA of the Corporate Entities. During the Period, IMSC covenants
and agrees, save for the amalgamation of Holdco and the Corporation which the
Purchaser shall have the right to do, to preserve Holdco and the Corporation as
separate entities and shall not knowingly permit Holdco or the Corporation to
enter into a transaction that would knowingly adversely effect Adjusted EBITDA
of the Corporate Entities.
During the Period, IMSC shall not issue or otherwise become bound to issue
Common Shares or any securities that are convertible into or exchangeable for
Common Shares, at a price below net book value per Common Share without the
prior written approval of the Vendors.
2.09 Vendors' Nominee for Director.
Provided that the Vendors give to the President of IMSC during the thirty
day period following the date of this Agreement, notice in writing of the name
of the Vendor's nominee for director of IMSC, IMSC shall during the Period,
include as a nominee by management for the board of directors of IMSC in respect
of each shareholders' meeting at which directors are to be elected, a nominee of
the Vendors for election to the board of directors of IMSC. Prior to his
election to the board, the Vendor's nominee shall be entitled to attend and
shall receive notice of all meetings of the board and will be provided the same
information as provided to the directors in respect of any such meeting.
Provided that the Vendors give notice of their nominee for director as set
forth above, IMSC shall elect to the board of directors of the Purchaser during
the Period, the nominee of the Vendors' which it is required to include as a
nominee for the board of directors of IMSC.
The Vendors' shall be responsible for and ensure that it's nominee from
time to time is qualified to hold office as a director of IMSC and the Purchaser
as required by all applicable laws, regulations and administrative authorities
save with respect to the matter of residence.
Donald and Robert shall be entitled to participate as members of the
Purchaser's Advisory Board during the Period.
ARTICLE III
COVENANTS
3.01 Access to Holdco and the Corporation
The Vendors shall forthwith make available to the Purchaser and its
authorized representatives and, if requested by the Purchaser, provide a copy to
the Purchaser of, all title documents, contracts, financial statements, minute
books, share certificate books, share registers, plans, reports, licenses,
orders, permits, books of account, accounting records, constating documents
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and all other material documents, information or data relating to Holdco, the
Corporation and the Business. The Vendors shall afford the Purchaser and its
authorized representatives every reasonable opportunity to have reasonable
access to the Business and the property, assets, undertaking, records and
documents of Holdco and the Corporation. At the request of the Purchaser, the
Vendors shall execute or cause to be executed such consents, authorizations and
directions as may be necessary to permit any inspection of the Business, and any
property of Holdco and the Corporation to enable the Purchaser or its authorized
representatives to obtain full access to all files and records relating to any
of the assets of the Corporation maintained by governmental or other public
authorities. At the Purchaser's request, the Vendors shall co-operate with the
Purchaser in arranging any such meetings as the Purchaser should reasonably
request with:
(a) employees of the Corporation; and
(b) auditors, solicitors or any other persons engaged or previously
engaged to provide services to the Corporation who have knowledge of
matters relating to the Corporation and the Business.
In particular, without limitation, the Vendors shall permit the Purchaser's
representatives or consultants, at the Purchaser's cost, to conduct such testing
and inspection in respect of environmental matters at the location of the
Business as the Purchaser may determine, in its sole discretion, as may be
required to satisfy the Purchaser in respect of such matters, and the Vendors
shall cause the Corporation to conduct, and the Corporation shall conduct, in
co-operation with the representatives or consultants of the Purchaser, such
physical review of the equipment of the Business as is necessary so as to enable
the confirmation of the values carried on the respective balance sheets of the
Corporation in respect of such assets, to the reasonable satisfaction of the
Purchaser. The exercise of any rights of inspection by or on behalf of the
Purchaser under this section 3.01 shall not mitigate or otherwise affect the
representations and warranties of the Vendors and the Corporation hereunder,
which shall continue in full force and effect as provided herein.
3.02 Access to Purchaser and IMSC
The Purchaser and IMSC shall forthwith make available to the Vendors and
their authorized representatives and, if requested by the Vendors, provide a
copy to the Vendors of all title documents, contracts, financial statements,
minute books, share certificate books, share registers, plans, reports,
licences, orders, permits, books of account, accounting records, constating
documents and all other material documents, information or data relating to the
Purchaser and IMSC and the business currently and heretofore carried on by IMSC,
the Purchaser and their Affiliates (hereinafter in this Section the "Business").
The Purchaser and IMSC shall afford the Vendors and their authorized
representatives every reasonable opportunity to have reasonable access to the
Business and the property, assets, undertaking, records and documents of the
Purchaser and IMSC. At the reasonable request of the Vendors, the Purchaser and
IMSC shall execute or cause to be executed such consents, authorizations and
directions as may be necessary to permit any inspection of the
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business and any property of the Purchaser and IMSC or to enable the Vendors or
their authorized representatives to obtain full access to all material files and
records relating to the Purchaser and IMSC and any of the assets of the
Purchaser and IMSC maintained by governmental and other public authorities. At
the Vendors' request, the Purchaser and IMSC shall co-operate with the Vendors
in arranging any such meetings as the Vendors should reasonably request with:
(a) employees of the Purchaser, IMSC and their Affiliates; and
(b) auditors, solicitors or any other persons engaged or previously
engaged to provide services to the Purchaser and IMSC who have
knowledge of matters relating to the Purchaser or IMSC and the
business.
The exercise of any rights of inspection by or on behalf of the Vendors under
this section 3.02 shall not mitigate or otherwise affect the representations and
warranties of the Purchaser or IMSC hereunder, which shall continue in full
force and effect.
3.03 Delivery of Books and Records
At the Closing Time there shall be delivered to the Purchaser, by the
Vendors all of the books and records of and relating to Holdco, the Corporation
and the Business. The Purchaser agrees that it will preserve the books and
records so delivered to it for a period of six (6) years from the Closing Date,
or for such longer period as is required by any applicable law, and will permit
the Vendors or their authorized representatives reasonable access thereto in
connection with the affairs of the Vendors relating to its matters, but the
Purchaser shall not be responsible or liable to the Vendors for or as a result
of any accidental loss or destruction of or damage to any such books or records.
3.04 Delivery of Documents
The Vendors shall deliver to the Purchaser at the Closing Time all
necessary transfers, assignments and other documentation reasonably required to
transfer the Purchased Shares to the Purchaser with a good and marketable title,
free and clear of all Encumbrances.
3.05 Delivery of Vendors' Closing Documentation
The Vendors shall deliver to the Purchaser all such documents relevant to
the closing of the transaction as contemplated hereby as the Purchaser, acting
reasonably, may request.
3.06 Delivery of Purchaser's Closing Documentation
The Purchaser shall deliver to each of the Vendors all such documents
relevant to the closing of the transactions contemplated hereby as the Vendors,
acting reasonably, may request.
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3.07 Conduct After Closing
The Purchaser acknowledges that the Purchase Price will be significantly
affected by the performance of the Corporate Entities after the Closing. During
the Period, the Purchaser and IMSC shall not inhibit Donald and Robert from
conducting the Business after Closing in accordance with prudent business
practice and in a manner so as to permit the Adjusted EBITDA to be earned for
the relevant period on the basis of the normal course of business of the
Business, consistent with past practices.
The Purchaser and the Vendors also acknowledge that in addition to the
Audited Financial Statements, the Purchaser will require audited consolidated
financial statements for the periods ending December 6, 1996 and December 7,
1997. The cost of the preparation of the financial statements for the periods
ending December 6, 1996 and December 7, 1997, shall be for the account of the
Purchaser.
3.08 Co-Operation
The parties agree to co-operate in good faith with each other and their
respective legal advisors, accountants and other representatives in connection
with any steps required to be taken in connection with this Agreement,
including, without limitation, in connection with any filing necessary pursuant
to the Tax Act.
ARTICLE IV
CONDITIONS OF CLOSING
4.01 Conditions of Closing in Favour of the Purchaser
The sale and purchase of the Purchased Shares is subject to the following
terms and conditions for the exclusive benefit of the Purchaser, to be fulfilled
or performed at or prior to the Closing Time:
(a) Representations and Warranties. The representations and warranties of
the Vendors contained in this Agreement shall be true and correct in all
material respects at the Closing Time, with the same force and effect as if such
representations and warranties were made at and as of such time, and
certificates of the Vendors dated the Closing Date to that effect shall have
been delivered to the Purchaser, such certificates to be in form and substance
satisfactory to the Purchaser, acting reasonably;
(b) Covenants. All of the terms, covenants and conditions of this Agreement
to be
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complied with or performed by the Vendors at or before the Closing Time shall
have been complied with or performed, in all material respects, and certificates
of the Vendors dated the Closing Date to that effect shall have been delivered
to the Purchaser, such certificates to be in form and substance satisfactory to
the Purchaser, acting reasonably;
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(c) Regulatory Consents. There shall have been obtained, from all
appropriate federal, provincial, municipal or other governmental or
administrative bodies, such licenses, permits, consents, approvals,
certificates, registrations and authorizations as are required to be obtained by
the Vendors to permit the change of ownership of the Purchased Shares
contemplated hereby including, without limitation, those described in the
Schedules B1.17 hereto;
(d) Contractual Consents. The Vendors shall have been given or obtained the
notices, consents and approvals described in the Schedule B1.17 hereto, in each
case in form and substance satisfactory to the Purchaser, acting reasonably;
(e) Material Adverse Change. There shall have been no material adverse
changes in the condition (financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of any of the Corporate Entities
since the date of the Interim Financial Statements.
(f) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Shares contemplated hereby;
(g) No Material Damage. No material damage by fire or other hazard to the
whole or any material part of the property or assets of Holdco and the
Corporation shall have occurred from the date hereof to the Closing Time;
(h) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, and all legal
matters relating to the purchase of the Purchased Shares, including title of the
Vendors to the Purchased Shares, shall have been approved as to form and
legality by McCarter Grespan Robson Beynon, counsel for the Purchaser, acting
reasonably;
(i) Non-Competition Agreement. Each of Deborah and Anjela shall have
executed and delivered to the Purchaser a non-competition and non-solicitation
agreement substantially in the form of the non-competition agreement annexed
hereto as Schedule 4.01(i);
(j) Legal Opinion. The Vendors shall have delivered to the Purchaser
favourable opinions of Shortt, Hanbidge & Snider and Borden & Elliot, in the
form substantially annexed hereto as Schedule 4.01(j);
(k) Resignation of Directors and Officers. Such directors and officers of
Holdco and the Corporation as the Purchaser may specify shall have resigned in
favour of nominees of the Purchaser effective as of the Closing Time;
(l) Release by Vendors, Directors and Officers. The Vendors and such
directors and
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officers of Holdco and the Corporation as the Purchaser may specify shall have
executed and delivered, at the Closing Time, releases in favour of Holdco, the
Corporation and the Purchaser substantially in the form annexed hereto as
Schedule 4.01(l);
(m) Employment Agreement. The Corporation shall have entered into an
employment agreement with each of Donald and Robert, in form and substance
satisfactory to the Purchaser;
(n) Share Escrow Agreement. The Vendors shall have entered into the escrow
agreement as contemplated by Section 2.05, in form and substance satisfactory to
the Purchaser;
(o) Right of First Refusal Agreement. The Vendors shall have entered into
an agreement granting a right of first refusal as contemplated by Section 2.06,
in form and substance satisfactory to the Purchaser; and
(p) Put Agreement. The Vendors and the Purchaser shall have entered into a
put agreement with respect to the shares of the Purchaser acquired by the
Vendors pursuant to Section 2.03(d), in form and substance satisfactory to the
Purchaser.
If any of the conditions contained in this section 4.01 shall not be
performed or fulfilled at or prior to the Closing Time to the satisfaction of
the Purchaser, acting reasonably, the Purchaser may, by notice to the Vendors,
terminate this Agreement and the obligations of the Vendors and the Purchaser
under this Agreement shall be terminated Any such condition may be waived in
whole or in part by the Purchaser without prejudice to any claims it may have
for breach of covenant, representation or warranty.
4.02 Conditions of Closing in Favour of the Vendors
The purchase and sale of the Purchased Shares is subject to the following
terms and conditions for the exclusive benefit of the Vendors, to be fulfilled
or performed at or prior to the Closing Time:
(a) Representations and Warranties. The representations and warranties of
the Purchaser and IMSC contained in this Agreement shall be true and correct in
all material respects at the Closing Time, with the same force and effect as if
such representations and warranties were made at and as of such time, and a
certificate of the President of the Purchaser and IMSC dated the Closing Date to
that effect shall have been delivered to the Vendors, such certificate to be in
form and substance satisfactory to the Vendors, acting reasonably;
(b) Covenants. All of the terms, covenants and conditions of this Agreement
to be complied with or performed by the Purchaser and IMSC at or before the
Closing Time shall have been complied with or performed in all material respects
and certificates of the President of the Purchaser and IMSC dated the Closing
Date to that effect shall have been delivered to the Vendors,
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such certificate to be in form and substance satisfactory to the Vendors, acting
reasonably;
(c) Regulatory Consents. There shall have been obtained, from all
appropriate federal, provincial, municipal or other governmental or
administrative bodies, such licenses, permits, consents, approvals,
certificates, registrations and authorizations as are required by law to be
obtained by the Purchaser or IMSC to permit the change of ownership of the
Purchased Shares and payment of the Purchase Price contemplated hereby, in each
case in form and substance satisfactory to the Vendors, acting reasonably;
(d) Contractual Consents. The Vendors shall have been given or obtained the
notices, consents and approvals described in Schedule B1.17 hereto, in each case
in form and substance satisfactory to the Vendors.
(e) Material Adverse Changes. There shall have been no material adverse
changes in the condition (financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of any of IMSC or any of the IMSC
Subsidiaries, since December 31, 1998.
(f) No Action or Proceeding. No legal or regulatory action or proceeding
shall be pending or threatened by any person to enjoin, restrict or prohibit the
purchase and sale of the Purchased Shares contemplated hereby;
(g) No Material Damage. No material damage by fire or other hazard to the
whole or any material part of the property or assets of IMSC or any of the IMSC
Subsidiaries shall have occurred from the date hereof to the Closing Time;
(h) Legal Matters. All actions, proceedings, instruments and documents
required to implement this Agreement, or instrumental thereto, shall have been
approved as to form and legality by Borden & Elliott, counsel for the Vendors,
acting reasonably;
(i) Legal Opinion. The Purchaser shall have delivered to the Vendors a
favourable opinion of McCarter Grespan Robson Beynon, Canadian counsel to the
Purchaser, and U.S. Counsel to the Purchaser, substantially in the forms annexed
hereto as Schedule 4.02(i); and
(j) Guarantee. The Vendors shall have been released unconditionally from
all guarantees with respect to the indebtedness of Holdco and the Corporation;
(k) Support Agreement. The Purchaser, IMSC and the Vendors shall have
entered into and delivered a support agreement which shall provide for, among
other things, the exchange of Class X Shares and Class E Shares for Common
Shares, in form and substance satisfactory to the Vendors;
(l) Employment Agreement. The Corporation shall have entered into
employment
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agreements with each of Donald and Robert, in form and substance satisfactory to
Donald and Robert, as the case may be;
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(m) Undertaking of Steele. The undertaking of Michael A. Steele, in favour
of the Vendors, with respect to the sale of IMSC and IMSI shares controlled,
directly or indirectly by him, in form and substance satisfactory to the
Vendors;
(n) IMSI Shares. The rights, privileges, restrictions and conditions
attaching to the share capital of IMSI, including the Class X Shares and the
Class E Shares shall be in form and substance satisfactory to the Vendors;
(o) Repayment of Vendor's Advances. On or before the Closing Date, Holdco
shall have repaid any outstanding advances made by each of the Vendors to
Holdco, in an aggregate principal amount of approximately $130,000;
(p) Share Escrow Agreement. The Vendors and the Purchaser shall have
entered into the escrow agreement contemplated by Section 2.05 of this Agreement
in form and substance satisfactory to the Vendors;
(q) Right of First Refusal Agreement. The Purchaser shall have entered into
an agreement granting the Purchaser a right of first refusal as contemplated by
Section 2.06, in form and substance satisfactory to the Vendors;
(r) Put Agreement. The Vendors and the Purchaser shall have entered into a
put agreement with respect to the shares of the Purchaser acquired by the
Vendors pursuant to Section 2.03(d), in form and substance satisfactory to the
Vendors;
(s) Registration Rights Agreement. The Vendors, the Purchaser and IMSC
shall have entered into a registration rights agreement in substantially the
form attached to this Agreement as Schedule 4.02(s); and
(u) Financing Agreements. The Purchaser or IMSC shall have secured a
financing commitment with a Canadian chartered bank which provides a working
capital facility for IMSC and the Subsidiaries.
If any of the conditions contained in this section 4.02 shall not be
performed or fulfilled at or prior to the Closing Time to the satisfaction of
the Vendors, acting reasonably, the Vendors may, by notice to the Purchaser,
terminate this Agreement and the obligations of the Vendors and the Purchaser
under this Agreement shall be terminated. Any such condition may be waived in
whole or in part by the Vendors without prejudice to any claims they may have
for breach of covenant, representation or warranty.
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ARTICLE V
CLOSING ARRANGEMENTS
5.01 Place of Closing
The closing shall take place at the Closing Time at the offices of McCarter
Grespan Robson Beynon, counsel for the Purchaser, 675 Riverbend Drive,
Kitchener, Ontario or such other place in Kitchener, Ontario as the Purchaser
may designate.
5.02 Closing
At the Closing Time, upon fulfillment of all the conditions set out in
Article IV that have not been waived in writing by the Purchaser or the Vendors,
the Vendors shall deliver to the Purchaser certificates respecting all the
Purchased Shares, duly endorsed in blank for transfer and will cause transfers
of such shares to be duly and regularly recorded in the name of the Purchaser.
Subject to all other terms and conditions hereof being complied with, payment of
the Purchase Price shall be paid and satisfied in the manner provided in Article
II.
5.03 Further Assurances
Each party to this Agreement covenants and agrees that, from time to time
subsequent to the Closing Date, it will at the request and expense of the
requesting party, execute and deliver all such documents, including, without
limitation, all such additional conveyance, transfers, consents and other
assurances and do all such other acts and things as any other party hereto,
acting reasonably, may from time-to-time request be executed or done in order to
better evidence or perfect or effectuate any provision of this Agreement or of
any agreement or other document executed pursuant to this Agreement or any of
the respective obligations intended to be created hereby or thereby.
5.04 Professional Costs
Each of the parties agree that they shall be responsible for their
respective legal and other professional costs incurred in connection with
negotiating and completing the transactions provided for herein. For greater
certainty the Vendors shall pay for all professional fees incurred with respect
to any reorganization of the Corporate Entities completed by the Vendors prior
to the Closing Date and advice and professional services relating thereto
provided to the Vendors.
If financial statements relating to the Corporate Entities are included in
any prospectus, registration statement or other offering document, the costs
associated with making any changes to such financial statements as may be
required by any securities regulatory authority shall be for the account of the
Purchaser. In addition, the fees and expenses of KPMG relating to any such
prospectus, registration statement or other offering document shall also be for
the account of the Purchaser.
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ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
6.01 Survival of Representations and Warranties of the Vendors
To the extent that they have not been fully performed at or prior to the
Closing Time, the covenants, representations and warranties of the Vendors
contained in this Agreement and any agreement, instrument, certificate or other
document executed or delivered pursuant hereto shall survive the closing of the
transactions contemplated and shall continue in full force and effect for the
benefit of the Purchaser for the applicable time limitation period,
notwithstanding such closing, nor any investigation made by or on behalf of the
Purchaser, except that:
(a) the representations and warranties set out in sections 1.01, 1.02, 1.03
and 1.04 of Schedule B, sections 1.01, 1.02, 1.03 and 1.04 of Schedule C,
sections 1.01, 1.02, 1.03 and 1.04 of Schedule D and section 1.01, 1.02, 1.03
and 1.04 of Schedule E (and the corresponding representations and warranties set
out in the certificates to be delivered pursuant to subsection 4.01(a) (the
"Closing Certificates")) shall survive and continue in full force and effect
without limitation of time;
(b) the representations and warranties of the Vendors contained in section
1.21 of Schedule B and section 1.22 of Schedule C (and the corresponding
representations and warranties set out in the Closing Certificates) shall
survive the closing of the transactions contemplated hereby and continue in full
force and effect until, but not beyond, the expiration of the period, if any,
during which an assessment, reassessment or other form of recognized document
assessing liability for tax, interest or penalties under applicable tax
legislation in respect of any taxation year to which such representations and
warranties extend could be issued under such tax legislation to Holdco or the
Corporation, provided Holdco or the Corporation did not file any waiver or other
document extending such period;
(c) the representations and warranties set out in sections 1.05 to 1.20 and
1.22 to 1.29 of Schedule B, sections 1.05 to 1.21 and 1.23 to 1.34 of Schedule
C, sections 1.05 and 1.06 of Schedule D and sections 1.05 and 1.06 of Schedule E
(and the corresponding representations and warranties set out in the Closing
Certificates) shall survive closing and continue in full force and effect until
the third anniversary of the Closing Date; and
(d) a claim for any breach of any of the representations and warranties
contained in this Agreement or in any agreement, instrument, certificate or
other document executed or delivered pursuant hereto involving fraud or
fraudulent misrepresentation may be made at any time following the Closing Date,
subject only to applicable limitation periods imposed by law.
6.02 Survival of Representations and Warranties of the Purchaser and IMSC
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To the extent that they have not been fully performed at or prior to the
Closing Time, the covenants, representations and warranties of the Purchaser and
IMSC contained in this Agreement and any agreement, instrument, certificate or
other document executed or delivered pursuant hereto shall survive the closing
of the transactions contemplated and shall continue in full force and effect for
the benefit of the Vendors for the applicable time limitation period,
notwithstanding such closing, nor any investigation made by or on behalf of the
Vendors, except that:
(a) the representations and warranties set out in section 1.01 of Schedule
F and section 1.01 of Schedule G (and the corresponding representations and
warranties set out in the certificates to be delivered pursuant to subsection
4.02(a) (the "Closing Certificates")) shall survive and continue in full force
and effect without limitation of time;
(b) the representations and warranties of IMSC and the Purchaser contained
in section 1.16 of Schedule G (and the corresponding representations and
warranties set out in the Closing Certificates) shall survive the closing of the
transactions contemplated hereby and continue in full force and effect until,
but not beyond, the expiration of the period, if any, during which an
assessment, reassessment or other form of recognized document assessing
liability for tax, interest or penalties under applicable tax legislation in
respect of any taxation year to which such representations and warranties extend
could be issued under such tax legislation to IMSC or any of the IMSC
Subsidiaries, provided IMSC or any of the IMSC Subsidiaries did not file any
waiver or other document extending such period;
(c) all other representations and warranties of the Purchaser and IMSC in
Schedule F and Schedule G (and the corresponding representations and warranties
set out in the Closing Certificates) shall survive closing and continue in full
force and effect until the third anniversary of the Closing Date; and
(d) a claim for any breach of any of the representations and warranties
contained in this Agreement or in any agreement, instrument, certificate or
other document executed or delivered pursuant hereto involving fraud or
fraudulent misrepresentation may be made at any time following the Closing Date,
subject only to applicable limitation periods imposed by law.
ARTICLE VII
INDEMNIFICATION
7.01 Indemnification by the Vendors
Subject to Section 7.02, each of the Vendors agrees to indemnify and save
harmless the Purchaser from all Losses suffered or incurred by the Purchaser as
a result of or arising directly or indirectly out of or in connection with:
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(a) any breach by such Vendor of or any inaccuracy of any representation or
warranty of such Vendor contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto (provided that no Vendor
shall be required to indemnify or save harmless the Purchaser in respect of any
breach or inaccuracy of any representation or warranty unless the Purchaser
shall have provided notice to such Vendor in accordance with section 7.03 on or
prior to the expiration of the applicable time period related to such
representation and warranty set out in section 6.01);
(b) any breach or non-performance by such Vendor of any covenant to be
performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto;
(c) all debts, liabilities or contracts whatsoever (whether accrued,
absolute contingent or otherwise) of the Corporation existing at the Closing
Time, including any liabilities for federal, provincial, sales excise, income,
corporate or any other taxes of the Corporation for any period up to and
including the Closing Time, and not disclosed on, provided for or included in
the balance sheets forming part of the Audited Financial Statements, except
those liabilities disclosed in this Agreement or any Schedule hereto or accruing
or incurred subsequent to the balance sheet date of such Audited Financial
Statements in the ordinary course of the Business; and
(d) any claims, demands, judgments, orders, duties imposed by law or by
administrative action or other obligations or liabilities of any kind whatsoever
suffered or incurred by the Corporation in respect of pollution, contamination
or other environmental matters, caused or arising or otherwise existing at or
prior to the Closing Time, whether or not disclosed in this Agreement or any
Schedule hereto or otherwise known to the Purchaser or to its representatives or
within the power of the Purchaser or its representatives to discover.
7.02 Maximum Liability of the Vendors
The Vendors will not have any liability with respect to matters described
in Section 7.01 until the total of all Losses with respect to such matters
exceeds $25,000.00, whereupon the Vendors will be liable on a dollar for dollars
basis for the total amount of all Losses. The maximum aggregate liability of the
Vendors, collectively, under this Agreement shall not exceed $4,000,000.00.
7.03 Indemnification by the Purchaser and IMSC
(a) The Purchaser and IMSC jointly and severally agree to indemnify and save
harmless the Vendors from all Losses suffered or incurred by the Vendors as a
result of or arising directly or indirectly out of or in connection with:
(i) any breach by the Purchaser or IMSC of or any inaccuracy of any
representation or
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warranty contained in this Agreement or in any agreement, certificate or other
document delivered pursuant hereto (provided that the Purchaser and IMSC shall
not be required to indemnify or save harmless the Vendors in respect of any
breach or inaccuracy of any representation or warranty unless the Vendors shall
have provided notice to the Purchaser or IMSC in accordance with section 7.03 on
or prior to the expiration of the applicable time period related to such
representation and warranty set out in section 6.02);
(ii) any breach or non-performance by the Purchaser or IMSC of any covenant
to be performed by it that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto.
(iii) all debts, liabilities or contracts whatsoever (whether accrued,
absolute contingent or otherwise) of IMSC or any of the IMSC Subsidiaries,
existing at the Closing Time, including any liabilities for federal, state,
provincial, sales excise, income, corporate or any other taxes of IMSC or any of
the IMSC Subsidiaries for any period up to and including the Closing Time, and
not disclosed on, provided for or included in the balance sheets forming part of
the Audited Consolidated Financial Statements of IMSC for the period ending
December 31, 1998 attached hereto as Schedule G1.14, except those liabilities
disclosed in this Agreement or any Schedule hereto or accruing or incurred
subsequent to the balance sheet date of such Audited Consolidated Financial
Statements in the ordinary course of business; and
(iv) any claims, demands, judgments, orders, duties imposed by law or by
administration action or other obligations or liabilities of any kind whatsoever
suffered or incurred by IMSC or any of the IMSC Subsidiaries in respect of
pollution, contamination or other environmental matters, caused or arising or
otherwise existing at or prior to the Closing Time , whether or not disclosed in
this Agreement or any Schedule hereto or otherwise known to the Vendors or to
their representatives or within the power of the Vendors or their
representatives to discover.
7.04 Maximum Liability of the Purchaser and IMSC
The Purchaser and IMSC will not have liability with respect to matters
described in Section 7.03 until the total of all Losses with respect to such
matters exceed $25,000.00, whereupon the Purchaser and IMSC will be liable on a
dollar for dollar basis for the total amount of all Losses. The maximum
aggregate liability of the Purchaser and IMSC under this Agreement shall not
exceed $4,000,000.00.
7.05 Notice of Claim
In the event that a party (the "Indemnified Party") shall become aware
of any claim, proceeding or other matter (a "Claim") in respect of which another
party or parties (the "Indemnifying Party") agreed to indemnify the Indemnified
Party pursuant to this Agreement, the Indemnified Party shall promptly give
written notice thereof to the Indemnifying Party. Such notice
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shall specify whether the Claim arises as a result of a claim by a person
against the Indemnified Party (a "Third Party Claim") or whether the Claim does
not so arise (a "Direct Claim"), and shall also specify with reasonable
particularity (to the extent that the information is available) the factual
basis for the Claim and the amount of the Claim, if known.
7.06 Direct Claims
With respect to any Direct Claim, following receipt of notice from the
Indemnified Party of the Claim, the Indemnifying Party shall have thirty (30)
days to make such investigation of the Claim as is considered necessary or
desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request. If both parties
agree at or prior to the expiration of such thirty (30) day period (or any
mutually agreed upon extension thereof) to the validity and amount of such
Claim, the Indemnifying Party shall immediately pay to the Indemnified Party the
full agreed upon amount of the Claim, failing which the matter shall be referred
to binding arbitration in such manner as the parties may agree or shall be
determined by a court of competent jurisdiction.
7.07 Third Party Claims
With respect to any Third Party Claim, the Indemnifying Party shall have
the right, at its expense, to participate in or assume control of the
negotiation, settlement or defence of the Claim and, in such event, the
Indemnifying Party shall reimburse the Indemnified Party for all the Indemnified
Party's out-of-pocket expenses as a result of such participation or assumption.
If the Indemnifying Party elects to assume such control, the Indemnified Party
shall have the right to participate in the negotiation, settlement or defence of
such Third Party Claim and to retain counsel to act on its behalf, provided that
the fees and disbursements of such counsel shall be paid by the Indemnified
Party unless the Indemnifying Party consents to the retention of such counsel or
unless the named parties to any action or proceeding include both the
Indemnifying Party and the Indemnified Party and a representation of both the
Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential differing interests between them
(such as the availability of different defences). If the Indemnifying Party,
having elected to assume such control, thereafter fails to defend the Third
Party Claim within a reasonable time, the Indemnified Party shall be entitled to
assume such control, and the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to such Third Party Claim. If any
Third Party Claim is of a nature such that the Indemnified Party is required by
applicable law to make a payment to any person (a "Third Party") with respect to
the Third Party Claim before the completion of settlement negotiations or
related legal proceedings, the Indemnified Party may make such payment and the
Indemnifying Party shall, forthwith after demand by the Indemnified Party,
reimburse the Indemnified Party for such payment. If the amount of any liability
of the Indemnified Party under the Third Party Claim in respect of which such
payment was made, as finally determined, is less than the amount that was paid
by the Indemnifying Party to the Indemnified
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Party, the Indemnified Party shall, forthwith after receipt of the difference
from the Third Party, pay the amount of such difference to the Indemnifying
Party.
7.08 Settlement of Third Party Claims
If the Indemnifying Party fails to assume control of the defence of any
Third Party Claim, the Indemnified Party shall have the exclusive right to
contest, settle or pay the amount claimed. Whether or not the Indemnifying Party
assumes control of the negotiation, settlement or defence of any Third Party
Claim, the Indemnifying Party shall not settle any Third Party Claim without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed; provided, however, that the liability of the
Indemnifying Party shall be limited to the proposed settlement amount if any
such consent is not obtained for any reason.
7.09 Co-operation
The Indemnified Party and the Indemnifying Party shall co-operate fully
with each other with respect to Third Party Claims, and shall keep each other
fully advised with respect thereto (including supplying copies of all relevant
documentation promptly as it becomes available).
7.10 Set-Off
Neither the Purchaser nor IMSC shall have the right to satisfy any amount
from time to time owing by it to any of the Vendors by way of set-off against
any amount from time to time owing by any of the Vendors to the Purchaser or
IMSC pursuant to this Agreement or any agreement, certificate or other document
delivered pursuant hereto. Notwithstanding anything to the contrary contained in
this Agreement, the sole recourse of the Purchaser and IMSC for amounts from
time to time owing by any of the Vendors to the Purchaser or IMSC pursuant to
this Agreement or any agreement, certificate or other document delivered
pursuant hereto, shall be limited to the Class X Shares, Class E Shares and
Common Shares of the Vendors that have not been released from escrow pursuant to
the terms of the escrow agreement contemplated by Section 2.05 hereof. For
greater certainty, recourse may not be had by the Purchaser or IMSC against any
other property, assets or rights of the Vendors.
Any amounts owing by any of the Vendors to the Purchaser pursuant to this
Agreement or any agreement, certificate or other documents delivered pursuant
hereto, shall be set-off against the Common Shares, Class X Shares and Class E
Shares of the Vendors (the "Vendors' Shares") that have not been released from
escrow pursuant to the escrow agreement entered into pursuant to Section 2.05.
The Purchaser shall have the right to demand by notice in writing to the
Vendors that:
(a) the Vendors sell a number of the Vendors' Shares as may be required to
satisfy the
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payment of the amount owing to the Purchaser, or
(b) the Vendors surrender to the Purchaser such number of the Vendors'
Shares as may be required to satisfy the payment of the amount owing
to the Purchaser based on the Current Market Price (as defined in the
articles of amendment of the Purchaser) of the Common Shares.
To satisfy the payment of amounts owing by any of the Vendors to the
Purchaser, with respect to the Vendors' Shares,
(i) the Common Shares shall first be used to satisfy such amounts, and if
there are no Common Shares or insufficient Common Shares in escrow to
satisfy any such amounts, then Class X Shares shall be used to satisfy
such amounts or part thereof; and
(ii) if there are any such amounts owing and there are no Common Shares or
Class X Shares in escrow available to satisfy such amounts then, upon
the Common Share exchange multiple having been determined for one or
more of the series of the Class E Shares, then such Series of Class E
Shares shall be used to satisfy such amounts owing.
IMSC and the Purchaser shall authorize and approve the release from escrow
of the necessary number of Vendors' Shares (herein called the "Released Shares")
required to be released from escrow to satisfy amounts owing by any of the
Vendors to the Purchaser and IMSC pursuant to this Agreement or any agreement,
certificate or other document delivered pursuant hereto.
The Released Shares shall then be dealt with as follows:
(1) in the event that the Purchaser has elected to have the Released
Shares surrendered, then the Vendors shall surrender the Released
Shares to the Purchaser, or
(2) if the Purchaser has elected to receive cash in satisfaction of
amounts owing to it hereunder, the Released Shares shall, if not
Common Shares, be exchanged for Common Shares and the Vendors shall
sell the Released Shares into the market and the proceeds shall be
used to satisfy amounts owing to the Purchaser. If the net proceeds
from the Released Shares are not sufficient to pay to the Purchaser
the amount owing, then additional Vendors Shares shall be released as
required to satisfy the amount due to the Purchaser.
If the Class E Shares are required to satisfy amounts that are owing to the
Purchaser and the number of Common Shares for which the Class E Shares may be
exchanged has not yet been
<PAGE>
Page 33
determined, the amounts owing to the Purchaser shall accrue interest until such
time as the exchange multiple is determined at which time the liquidation of the
Vendors' Shares shall occur to the extent required to pay the amount due to the
Purchaser plus interest calculated quarterly, not in advance, at the prime rate
of interest of the Purchaser's banker.
The Vendors shall deliver to the Purchaser that number of Class N Shares
equal to the aggregate number of Common Shares represented by the Released
Shares.
7.11 Exclusivity
The provisions of this Article VII shall apply to any Claim for breach of
any covenant, representation, warranty or other provision of this Agreement or
any agreement, certificate or other document delivered pursuant hereto (other
than a claim for specific performance or injunctive relief) with the intent that
all such Claims shall be subject to the limitations and other provisions
contained in this Article VII.
ARTICLE VIII
MISCELLANEOUS
8.01 Confidentiality of Information
If the transactions contemplated herein are not consummated, the Purchaser
and IMSC shall return to the Vendors any confidential schedules, documents or
other written information obtained from the Vendors, Holdco or the Corporation,
whether received before or after the date of this Agreement. In the event that
the transactions contemplated herein are not consummated for any reason, the
Purchaser covenants and agrees that, except as otherwise authorized by the
Vendors, neither the Purchaser nor its representatives, agents or employees will
disclose to third parties, directly or indirectly, any confidential information
or confidential data relating to the Corporate Entities discovered by the
Purchaser or its representatives as a result of the Vendors and the Corporation
making available to the Purchaser and its representatives the information
requested by them in connection with the transactions contemplated herein.
If the transactions contemplated herein are not consummated, the Vendors
shall return to the Purchaser any confidential schedules, documents or other
written information obtained from the Purchaser, whether received before or
after the date of this Agreement. In the event that the transactions
contemplated herein are not consummated for any reason, the Vendors covenant and
agree that, except as otherwise authorized by the Purchaser, neither the Vendors
nor their representatives, agents or employees will disclose to third parties,
directly or indirectly, any confidential information or confidential data
relating to the Purchaser and IMSC discovered by the Vendor or its
representatives as a result of the Purchaser and IMSC making available to the
Vendor and their representatives the information requested by them in connection
with the transactions contemplated herein.
<PAGE>
Page 34
8.02 Notices
(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered in person, transmitted by
telecopy or similar means of recorded electronic communication or sent by
registered mail, charges prepaid, addressed as follows:
<PAGE>
Page 35
(i) if to Donald and Deborah:
R.R. #1
Fergus, Ontario N1M 2W3
with a copy to :
Borden & Elliot
Scotia Plaza, 40 King Street West
Toronto, Ontario M5H 3Y4
Attention: Andrew W. Kingsmill
Telecopier No.: (416) 361-7087
(ii) if to Robert and Anjela:
113 Partridge Place
Waterloo, Ontario N2V 1S5
with a copy to :
Borden & Elliot
Scotia Plaza, 40 King Street West
Toronto, Ontario M5H 3Y4
Attention: Andrew W. Kingsmill
Telecopier No.: (416) 361-7087
(iii) if to the Purchaser:
International Menu Solutions Inc.
350 Creditstone Road
Concord, Ontario L4K 3Z2
Attention: Michael A. Steele
Telecopier No.: (416) 366-6368
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario N2K 3S3
Attention: Thomas D. Beynon, Q.C.
Telecopier No.: (519) 742-1841
(iv) if to IMSC:
International Menu Solutions Corporation
350 Creditstone Road
Concord, Ontario L4K 3Z2
Attention: Michael A. Steele
<PAGE>
Page 36
Telecopier No.: (416) 366-6368
with a copy to:
McCarter Grespan Robson Beynon
675 Riverbend Drive
Kitchener, Ontario N2K 3S3
Attention: Thomas D. Beynon, Q.C.
Telecopier No.: (519) 742-1841
(b) Any such notice or other communication shall be deemed to have been
given and received on the day on which it was delivered or transmitted (or, if
such day is not a Business Day, on the next following Business Day) or, if
mailed, on the third Business Day following the date of mailing; provided,
however, that if at the time of mailing or within three Business Days thereafter
there is or occurs a labor dispute or other event that might reasonably be
expected to disrupt the delivery of documents by mail, any notice or other
communication hereunder shall be delivered or transmitted by means of recorded
electronic communication as aforesaid.
(c) Any party may at any time change its address for service from time to
time by giving notice to the other parties in accordance with this section 8.02.
8.03 Commissions, etc.
Except as otherwise expressly provided for herein, the Vendors agree to
indemnify and save harmless the Purchaser from and against all Losses suffered
or incurred by the Purchaser in respect of any commission or other remuneration
payable or alleged to be payable to any broker, agent or other intermediary who
purports to act or have acted for or on behalf of any of the Vendors.
8.04 Consultation
The parties shall consult with each other before issuing any press release
or making any other public announcement with respect to this Agreement or the
transactions contemplated hereby and, except as required by any applicable law
or regulatory requirement, none of the parties hereto shall issue any such press
release or make any such public announcement without the prior consent of the
other parties, which consent shall not be unreasonably withheld or delayed.
8.05 Disclosure
Prior to any public announcement of the transaction contemplated hereby
pursuant to section 8.04, neither party shall disclose this Agreement or any
aspect of such transaction except to its board of directors, its senior
management, its legal, accounting, financial or other professional advisors, any
financial institution contacted by it with respect to any financing required in
connection with such transaction and counsel to such institution, or as may be
required by any applicable law or any
<PAGE>
Page 37
regulatory authority or stock exchange having jurisdiction.
8.06 Public Announcements
No public announcement or press release not required by law or by
applicable stock exchange rule concerning the purchase or sale of the Purchased
Shares shall be made by any party hereto without the prior consent of the other
parties, which consent shall not be unreasonably withheld or delayed.
8.07 Counterparts
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the parties.
/s/ Donald Kilimnik
- - -------------------------------------- ----------------------------------------
Witness Donald Kilimnik
/s/ Deborah Kilimnik
- - -------------------------------------- ----------------------------------------
Witness Deborah Kilimnik
/s/ Robert Curik
- - -------------------------------------- ----------------------------------------
Witness Robert Curik
/s/ Anjela Curik
- - -------------------------------------- ----------------------------------------
Witness Anjela Curik
INTERNATIONAL MENU
SOLUTIONS INC.
Per: /s/ Michael Steele
-------------------------------
Title: President
-------------------------------
INTERNATIONAL MENU SOLUTIONS
CORPORATION
Per: /s/ Michael Steele
-------------------------------
Title: President
-------------------------------
EXCHANGE AGREEMENT
THIS AGREEMENT is made the 17th day of May, 1999.
B E T W E E N:
ELILILCO LTD.,
a corporation incorporated under the laws of the Province of Ontario
(herein called the "Vendor")
- and -
DAVID AROSH,
of the City of Thornhill, of the Province of Ontario
(herein called "David Arosh")
- and -
MARGARET AROSH,
of the City of Thornhill, of the Province of Ontario
(herein called "Margaret Arosh")
- and -
INTERNATIONAL MENU SOLUTIONS INC.,
a corporation incorporated under the laws of the Province of Ontario
(herein called the "Purchaser")
-and-
INTERNATIONAL MENU SOLUTIONS CORPORATION
A corporation incorporated under the laws of the State of
Nevada (herein called "IMSC")
RECITALS:
A. The Vendor is the beneficial and registered owner of 36 common shares
(herein called the "Purchased Shares") of Norbakco Ltd. (herein called the
"Corporation");
B. The Vendor wishes to sell and the Purchaser wishes to purchase the
Purchased Shares;
C. The Vendor and the Purchaser wish to make an election under subsection
85(1) of the Income Tax Act (Canada) (the "Tax Act") in respect of the
Purchased Shares.
<PAGE>
Page 2
NOW THEREFORE in consideration of the mutual covenants and agreements
contained in this agreement and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto
agree as follows:
1. Purchase and Sale. The Vendor agrees to sell and the Purchaser agrees to
purchase all of the Vendor's right, title and interest in and to the Purchased
Shares on the terms and conditions contained herein.
2. Purchase Price. The purchase price of the Purchased Shares shall be equal to
the fair market value of the Purchased Shares at the date hereof (the "Fair
Market Value"), which Fair Market Value is set out in the attached Schedule A
(the "Purchase Price"). The Purchase Price shall be satisfied by the allotment
and issuance by the Purchaser to the Vendor of 25,000 Class X shares in the
capital stock of the Purchaser (the "Share Amount").
3. Election. The parties agree to co-operate in good faith with each other and
their respective legal advisors, accountants and other representatives in
connection with any steps required to be taken in connection with this
Agreement, including, without limitation, in connection with any filing
necessary pursuant to the Tax Act (including without limitation, joint elections
pursuant to Section 85(1) thereof in respect of the Share Amount received by the
Vendor).
4. Vendor's Representations and Warranties. The Vendor represents and warrants
to the Purchaser that:
(a) the Vendor has been duly incorporated and organized and in good
standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and capacity to own or lease its
property, to carry on its business as now being conducted by it, to
enter this Agreement and perform its obligations hereunder. The Vendor
is duly qualified or licensed and in good standing to do business in
each jurisdiction in which the nature of the business or the property
and assets owned or leased by it make such qualification or licensing
necessary;
(b) the execution and delivery of this Agreement by the Vendor and the
consummation of the transactions provided for herein will not result
in the violation of, or constitute a default under, or conflict with
or cause the acceleration of any obligation of the Vendor under:
(i) any contract to which the Vendor is a party or by which it is
bound;
(ii) any provision of the constating documents or by-laws or
resolutions of the board of directors (or any committee thereof)
or shareholders of the Vendor;
(iii) any judgement, decree, order or award of any court, governmental
body or arbitrator having jurisdiction over the Vendor;
<PAGE>
Page 3
(iv) any license, permit, approval, consent or other authorization
held by the Vendor; or
(v) any applicable, law, statute, ordinance, regulation or rule;
(c) this Agreement has been duly authorized, executed and delivered by the
Vendor and is a legal, valid and binding obligation of, and
enforceable against the Vendor by the Purchaser in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency
and other laws affecting the enforcement of rights of creditors
generally and except that equitable remedies may only be granted in
the discretion of a court of competent jurisdiction;
(d) there is no requirement for the Vendor to make any filing with, give
any notice to or obtain any license, permit, certificate,
registration, authorization, consent or approval of, any government or
regulatory authority as a condition to the lawful consummation of the
transactions contemplated by this Agreement. There is no requirement
under any Contract to which the Vendor is a party or by which it is
bound to give any notice to, or to obtain the consent or approval of
any party to such contract relating to the consummation of the
transactions contemplated by this Agreement;
(e) the Vendor beneficially owns the Purchased Shares free and clear of
all charges, security interests, pledges, demands and other
encumbrances and has the exclusive right and full power to sell,
assign and transfer the Purchased Shares to the Purchaser;
(f) no person, firm or corporation has any agreement, option or any right
capable of becoming an agreement or option for the acquisition from
the Vendor of any of the Purchased Shares; and
(g) the Vendor is not a non-resident of Canada within the meaning of the
Tax Act.
5. Purchaser's Representations and Warranties. The Purchaser represents and
warrants to the Vendor as follows:
(a) the Purchaser is duly incorporated and validly subsisting under the
laws of the Province of Ontario;
(b) the Purchaser has been duly authorized to enter into the transaction
herein;
(c) the Class X shares to be issued by the Purchaser to the Vendor
pursuant to this agreement have been duly authorized; and
(d) the issuance of the Class X shares to the Vendor pursuant to this
agreement will not result in the breach of any instrument, agreement
or licence to which the Purchaser
<PAGE>
Page 4
is a party or by which it is bound or of any shareholder agreement.
6. IMSC's Representations and Warranties. IMSC represents and warrants to the
Vendor as follows:
(a) IMSC is duly incorporated and validly subsisting under the laws of the
State of Nevada;
(b) IMSC has been duly authorized to enter into the transaction herein;
(c) the Class N shares to be issued by IMSC to the Vendor pursuant to this
Agreement have been duly authorized;
(d) the issuance of the Class N shares to the Vendor pursuant to this
agreement will not result in the breach of any instrument, agreement
or licence to which the Purchaser is a party or by which it is bound
or of any shareholder agreement;
(e) the execution and delivery of this agreement by IMSC, the issue of the
Class N Shares and the issue of the common shares (the "Common
Shares") upon the exchange of the Class X Shares of IMSI and/or the
Class N Shares of IMSC have been duly authorized by all necessary
corporate action by IMSC, and IMSC has all requisite corporate power
and authority to enter into this agreement and to issue the Class N
Shares; and
(f) IMSC is in good standing under the Securities Act of 1933, as amended
(United States of America) (the "Act") and will use its best efforts
to maintain such status for the purposes of the Act.
7. Completion of the Transaction. This agreement shall be completed
contemporaneously with the execution hereof at which time the following shall
occur:
(a) the Vendor shall execute and deliver to the Purchaser all such
documents, certificates and instruments and do all such other acts and
things as the Purchaser may consider necessary or desirable, acting
reasonably, to effectively transfer and assign the Purchased Shares to
the Purchaser and to deliver possession thereof to the Purchaser;
(b) the Purchaser shall issue to the Vendor 25,000 Class X shares in the
capital stock of the Purchaser;
(c) the Corporation and the Vendor will sign a services agreement to
confirm in writing the arrangements for the services of Margaret Arosh
to be provided to the Corporation by the Vendor;
(d) the Corporation and David Arosh shall enter into an employment
agreement with respect to the David Arosh's employment with the
Corporation;
<PAGE>
Page 5
(e) the Vendor shall have the option to acquire for the aggregate amount
of $1.00, 25,000 Class N shares in the capital stock of International
Menu Solutions Corporation (herein called "IMSC"), which shares are
voting non-equity shares;
(f) the Purchaser shall deliver an undertaking and indemnity to Margaret
Arosh and to David Arosh, undertaking to have their guarantees at the
Bank of Nova Scotia released;
(g) the Corporation and Margaret shall enter into an employment option
agreement;
(h) the Vendor shall enter into an agreement to terminate the shareholders
agreement among the shareholders of Norbakco;
(i) the Vendor shall deliver to the Purchaser a declaration of loss with
respect to the loss of the minute book of the Corporation and the
share certificate issued to the Vendor;
(j) David and IMSC shall enter into a stock option agreement; and
(k) Margaret and IMSC shall enter into a stock option agreement.
So long as the option for the Class N shares has not been exercised, one Class X
share in the capital stock of the Purchaser may be exchanged for one common
share of IMSC. In the event that the Vendor exercises the option to acquire the
25,000 Class N shares as provided above, then thereafter, one Class X share
together with one Class N share may be exchanged for one common share in the
capital stock of IMSC.
8. Survival of Representations and Warranties. The representations, warranties
and covenants contained in this agreement shall survive the completion of the
transaction contemplated hereby and, notwithstanding such completion, shall
continue in full force and effect from and after the date hereof.
9. First Right of Refusal. In the event that the Vendor wishes to sell the Class
X shares acquired by the Vendor pursuant to this Agreement (or any shares
acquired upon an exchange of such shares), the Vendor shall first advise the
President of the Purchaser by notice in writing and will sell such shares to the
Purchaser if the Purchaser wishes to purchase such shares. If the Purchaser does
not accept the Vendor's offer to sell the shares that the Vendor is offering for
sale within three (3) business days of receipt of written notice given by the
Vendor to the Purchaser, then the Vendor shall have the right to sell such
shares, at or above the average closing price for the common shares of IMSC for
the twenty (20) trading days prior to the date on which the Vendor gave notice
to the Purchaser, during the 90 day period following the last day of the said
three (3) business day period. In the event that the Vendor wishes to sell such
shares at a lesser price than originally offered to the Purchaser, the first
right of refusal shall again apply.
<PAGE>
Page 6
10. (a). Put Option. In the event that the services agreement for the supply of
the services of Margaret Arosh is terminated for whatever reason and neither
David Arosh or Margaret Arosh are employees of the Corporation or an affiliate
of the Corporation, then during the fifteen day period following the date on
which David Arosh or Margaret Arosh was an employee or provided services to the
Corporation, the Vendor shall have the right to have the Purchaser purchase the
Class X shares (and the Class N shares) at a price per Class X share equal to
the average trading price for the common shares of IMSC for the twenty trading
days prior to the date on which the Vendor gives notice to the Purchaser
pursuant to this paragraph with the aggregate amount to be paid by the Purchaser
shall be such average price multiplied by the number of Class X shares. The
obligation of the Purchaser is subject to the Purchaser being compliant with all
applicable laws, rules, regulations and administrative authorities in making
such purchase.
(b) Second Put Option. In the event that:
(a) after January 1, 2000 the Vendor wishes to sell any of the Class X
shares and, upon conversion of the Class X shares (including the
surrender of an equal number of Class N shares) for Common shares of
IMSC, the Vendor is not entitled to sell the Common shares received
upon the exchange save as provided in Section 144 of the Securities
Act of 1933 (the "1933 Act"), and
(b) IMSC has not qualified Common shares so that freely tradeable Common
shares could be made immediately available to the Vendor upon an
exchange of Class X shares for such Common shares during the 90 day
period following the Vendor giving to the Purchaser written notice of
a request to sell all or part of the Class X shares,
the Vendor shall have the right to have the Purchaser purchase the Class X
shares (including the Class N shares) at a price per Class X shares equal to the
average closing trading price for the Common shares of IMSC for the twenty
trading days prior to the date on which the Vendor gives notice to the Purchaser
pursuant to this paragraph with the aggregate amount to be paid by the Purchaser
shall be such average price multiplied by the number of Class X shares. The
obligation of the Purchaser is subject to the Purchaser being compliant with all
applicable laws, rules, regulations and administrative authorities in making
such purchase. The Vendor shall not sell any of such shares in numbers less than
5,000 shares unless such lesser number is the remaining balance of the shares
held by the Vendor.
(c) Closing Procedure. In the event that a purchase and sale is to occur
pursuant to any of Sections 9, 10 (a) or 10(b), then such closing shall occur on
the tenth (10th) business day (herein called the "Closing Date") following the
date that the sale and purchase arrangement is confirmed and on the Closing Date
the Vendor shall deliver to the Purchaser the appropriate share certificate for
the shares to be sold by the Vendor to the Purchaser together with such other
draw down certificates with respect to such shares as the Purchaser acting
reasonably may request, and the Purchaser shall delvier to the Vendor a
certified cheque or bank draft for the purchase price for such shares.
<PAGE>
Page 7
11. Thornhill Bakery Ltd. Obligation. The Corporation commenced its operations
by acquiring the assets of Thornhill Bakery Ltd. ("Thornhill") and in connection
therewith assumed certain limited personal obligations of Margaret Arosh and
David Arosh. The Purchaser has been advised of an obligation to Revenue Canada
for approximately Cdn $11,500.00 arising from directors liability payments not
made to Revenue Canada by Thornhill. For the sum of Ten Dollars now paid by each
of David Arosh and Margaret Arosh to the Purchaser and for other good and
valuable consideration the receipt of which is hereby acknowledged by the
Purchaser, the Purchaser agrees to indemnify and hold Margaret Arosh and David
Arosh harmless with respect to payments required to be made to Revenue Canada
and other governmental authorities arising from Margaret Arosh and David Arosh
having been directors of Thornhill and the failure to make the appropriate
remittances for Thornhill.
12. Further Assurances. Each of the parties hereto shall promptly do, make,
execute or deliver, or cause to be done, made, executed or delivered, all such
further acts, documents and things as the other party hereby may reasonably
require from time to time for the purpose of giving effect to this agreement and
shall use its best efforts and take all such steps as may be reasonably within
its power to implement to their full extent the provisions of this agreement.
13. Enurement. This agreement shall be binding upon and shall enure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
14. Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
15. Counterparts. This agreement may be executed by facsimile and in any number
of counterparts, each of which when so executed shall be deemed to be an
original, and all of which taken together shall constitute one and the same
agreement.
16. Survival of Covenants. Those covenants contained herein which are by their
nature intended to survive the completion of the share exchange shall continue
following the closing of such exchange.
17. Legal Advice. The Vendor hereby represents and warrants to the Purchaser and
acknowledges and agrees that it had the opportunity to seek and was not
prevented nor discouraged by the Purchaser from seeking independent legal advice
prior to the execution and delivery of this Agreement and that, in the event
that it did not avail itself of that opportunity prior to signing this
Agreement, it did so voluntarily without any undue pressure and agrees that its
failure to obtain independent legal advice shall not be used by it as a defence
to the enforcement of its obligations under this Agreement.
<PAGE>
Page 8
IN WITNESS WHEREOF the parties hereto have executed this agreement.
ELILILCO LTD.
Per: /s/ Margaret Arosh
------------------------
Title: Sales Manager
---------------------
/s/ David Arosh
- - -------------------------------- -----------------------------
Witness David Arosh
/s/ Margaret Arosh
- - -------------------------------- -----------------------------
Witness Margaret Arosh
INTERNATIONAL MENU SOLUTIONS INC.
Per: /s/ Michael Steele
-----------------------------
Michael A. Steele, President
INTERNATIONAL MENU SOLUTIONS CORPORATION
Per: /s/ Michael Steele
-----------------------------
Michael A. Steele, President
<PAGE>
Page 9
SCHEDULE A
Fair Market Value
o $43,750.00 CDN
ARTICLES OF INCORPORATION
OF
ANM Holdings Corporation
[STAMP]
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUN 24, 1997
C 1345397
DEAN HELLER SECRETARY OF STATE
NO. /s/ DEAN HELLER
---------------------------
Know all men by these presents;
That we the undersigned, have this day voluntarily associated ourselves together
for the purpose of forming a corporation under and pursuant to the provisions of
Nevada Revised Statutes 78.010 To Nevada Revised Statutes 78.090 inclusive, as
amended, and certify that;
ARTICLE I
The name of this corporation is ANM Holdings Corporation
The name and post office address of the incorporator signing the Articles of
Incorporation is: Richard D. Fritzler, 1800 E. Sahara Avenue, Suite 107, Las
Vegas, Nevada 89104. The name and address of the first member of the First Board
of Directors is: Richard D. Fritzler 1800 E. Sahara Avenue, Suite 107, Las
Vegas, Nevada 89104.
ARTICLE II
The Resident Agent of this corporation in Nevada shall be Nevada Corporate
Services located at 1800 E. Sahara Avenue, Suite 107, Las Vegas, Clark County,
Nevada, 89104. Offices for the transaction of any business of the Corporation,
and where meetings of the Board of Directors and of Stockholders may be held,
may be established and maintained in any other part of the State of Nevada, or
in any other state, territory or possession of the United States of America, or
in any foreign country as the Board of Directors may, from time to time
determine.
<PAGE>
ARTICLE III
The nature of the business and the objects and purpose proposed to be
transacted, promoted or carried on by the Corporation is to conduct any lawful
activity in accordance with the Laws of the State of Nevada and the United
States of America, including but not limited to the following;
1) Shall have the rights privileges and powers as may be conferred upon a
corporation by any existing law.
2) May at any time exercise such rights, privileges and powers, when not
inconsistent with the purposes and objects for which this corporation is
organized.
3) This corporation shall have perpetual existence.
4) To sue or be sued in any Court of Law.
5) To make contracts.
6) To hold, purchase and convey real and personal estate and to mortgage or
lease any such real and personal estate with its franchises. The power to hold
real and personal estate shall include the power to take the same by device or
bequest in this state, or in any other state, territory or country.
7) To appoint such officers and agents as the affairs of the Corporation
shall require, and to allow them suitable compensation.
8) To make By-Laws not inconsistent with the Constitution or Laws of the
United States, or of the State of Nevada, for the management, regulation and
government of its affairs and property, the transfer of its stock, the
transaction of its business, and the calling and holding of meetings of its
Stockholders.
<PAGE>
9) To wind up and dissolve itself, or be wound up and dissolved, according
to existing law.
10) To adopt or use a common seal or stamp, and alter the same at pleasure.
The use of a seal or stamp by the Corporation on any corporate document is not
necessary. The Corporation may use a seal or stamp if it desires, but such use
or nonuse shall not in any way affect the legality of the document.
11) To borrow money and contract debts when necessary for the transaction
of its business, or for the exercise of its corporate rights, privileges or
franchises, or for any other lawful purpose of its incorporation; to issue
bonds, promissory notes, bills of exchange, debentures, and other obligations
and evidences of indebtedness, payable at a specific time or times, or payable
upon the happening of a specified event or events, whether secured by mortgage,
pledge or other security, or unsecured, for money borrowed, or in payment for
property purchased, or acquired, or for any other lawful object.
12) To guarantee, purchase, hold, take, obtain, receive, subscribe for,
own, use, dispose of, sell, exchange, lease, lend, assign, mortgage, pledge, or
otherwise acquire, transfer or deal in or with bonds or obligations of, or
shares, securities or interests in or issued by, any person, government,
governmental agency or political subdivision of government, and to exercise all
the rights, powers and privileges of ownership of such an interest, including
the right to vote, if any.
<PAGE>
13) To purchase, hold, sell and transfer shares of its own capital stock,
and use therefor its capital, capital surplus, surplus, or other property or
funds.
14) To conduct business, have one or more offices, and hold, purchase,
mortgage and convey real and personal property in this state, and in any of the
several states, territories, possessions and dependencies of the United States,
the District of Columbia, and any foreign countries.
15) To do everything necessary and proper for the accomplishment of the
objects enumerated in its Articles of Incorporation, or in any amendment thereof
or necessary or incidental to the protection and benefit of the Corporation,
and, in general, to carry on any lawful business necessary or incidental to the
attainment of the objects of the Corporation, whether or not the business is
similar in nature to the objects set forth in the Articles of Incorporation, or
in any amendment thereof.
16) To make donations for public welfare or for charitable, scientific or
educational purposes.
17) To enter into partnerships, general or limited, or joint ventures, in
connection with any lawful activities.
ARTICLE IV
The capital stock of this corporation shall consist of twenty-five thousand
shares of common stock (25,000), without nominal or par value, all of which
stock shall be entitled to voting power. The Corporation may issue the shares of
stock for such consideration as may be fixed by the Board of Directors.
<PAGE>
ARTICLE V
The members of the governing board of this corporation shall be styled
directors. The Board of Directors shall consist of at least one (1) person. The
number of directors of this corporation may, from time to time, be increased or
decreased by an amendment to the By-Laws in that regard and without the
necessity of amending the Articles of Incorporation. A majority of the Directors
in office, present at any meeting of the Board of Directors, duly called,
whether regular or special, shall always constitute a quorum for the transaction
of business, unless the By-Laws otherwise provide.
ARTICLE VI
This corporation shall have a president, a secretary, a treasurer, and a
resident agent, to be chosen by the Board of Directors, any person may hold two
or more offices.
ARTICLE VII
The capital stock of the Corporation, after the fixed consideration thereof has
been paid or performed, shall not be subject to assessment, and the individual
Stockholders of this corporation shall not be individually liable for the debts
and liabilities of the Corporation, and the Articles of Incorporation shall
never be amended as to the aforesaid provisions.
ARTICLE VIII
The Board of Directors is expressly authorized: (subject to the By-Laws, if any,
adopted by the Stockholders)
1) To make, alter or amend the By-Laws of the Corporation.
<PAGE>
2) To fix the amount in cash or otherwise, to be reserved as working
capital.
3) To authorize and cause to be executed mortgages and liens upon the
property and franchises of the Corporation.
4) To by resolution or resolutions passed by a majority of the whole board,
designate one or more committees, each committee to consist of one or more of
the Directors of the Corporation, which, to the extent provided in the
resolution or resolutions or in the By-Laws of the Corporation, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and may have power to authorize the
seal of the Corporation to be affixed to all papers on which the Corporation
desires to place a seal. Such committee or committees shall have such name or
names as may be stated in the ByLaws of the Corporation or as may be determined
from time to time by resolution adopted by the Board of Directors.
5) To sell, lease or exchange all of its property and assets, including its
goodwill and its corporate franchises, upon such tenns and conditions as the
board deems expedient and for the best interests of the Corporation, when and as
authorized by the affirmative vote of the Stockholders holding stock in the
Corporation entitling them to exercise at least a majority of the voting power
given at a Stockholders meeting called for that purpose.
ARTICLE IX
The Directors of this corporation need not be Stockholders.
<PAGE>
ARTICLE X
In the absence of fraud, no contract or other transaction of the Corporation
shall be affected by the fact that any of the Directors are in any way
interested in, or connected with, any other party to such contract or
transaction, or are themselves, parties to such contract or transaction,
provided that this interest in any such contract or transaction of any such
director shall at any time be fully disclosed or otherwise known to the Board of
Directors, and each and every person who may become a director of the
Corporation is hereby relieved of any liability that might otherwise exist from
contracting with the Corporation for the benefit of himself or any firm,
association or corporation in which he may be in any way interested.
ARTICLE XI
No director or officer of the Corporation shall be personally liable to the
Corporation or any of its Stockholders for damages for breach of fiduciary duty
as a director or officer involving any act or orriission of any such director or
officer provided, however, that the foregoing provision shall not eliminate or
limit the liability of a director or officer for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the Stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omissions prior to such repeal or modification.
<PAGE>
ARTICLE XII
Except to the extent hmited or denied by Nevada Revised Statutes 78.265
Shareholders shall have no preemptive right to acquire unissued shares, treasury
shares or securities convertible into such shares, of this corporation.
I, the undersigned, being the incorporator hereinbefore named for the purpose of
forming a corporation pursuant to the general corporation law of the State of
Nevada, do make and file these Articles of Incorporation, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand.
/s/ [ILLEGIBLE]
- - ---------------------------------------
State of Nevada )
)ss
Clark County )
On June 24, 1997 personally appeared before me, the undersigned, a Notary
Public, Richard Pritzler, known to me the person whose name is subscribed to the
foregoing document and acknowledged to me that he executed the same.
[SEAL]
Notary Public-State Of Nevada
COUNTY OF CLARK
ALAN HERBERT RUSSELL
My Commission Expires
October 5, 1998
/s/ Alan Herbert Russell
- - ---------------------------------------
Notary Public
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL. 15 1998
No. C13453-97
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
CERTFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ANM HOLDINGS CORPORATION
The undersigned, Robert Knight, President and Secretary, of ANM holdings
Corporation, a Nevada corporation (the "Corporation"), does hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 14th day of July, 1998, adopted a resolution to amend the original
articles as follows:
RESOLVED, Article I is hereby amended to read as follows:
"The name of this corporation is
INTERNATIONAL MENU SOLUTIONS CORPORATION."
FURTHER RESOLVED, Article III is hereby amended by modification to
sub-paragraph 12 of said Article, as follows:
"12) To guarantee, purchase, hold, take, obtain, receive, subscribe for,
own, use, dispose of, sell, exchange, lease, assign, mortgage, pledge, or
otherwise acquire, transfer or deal in or with bonds or obligations of, or
shares, securities or interests in or issued by, any person, government,
governmental agency or political subdivision of government, and to exercise all
the rights, powers and privileges of ownership of such an interest, including
the right to vote, if any; provided, however, that should the Corporation hold,
take, obtain, or receive any of the Class X Shares of International Menu
Solutions, Inc., such Class X Shares shall solely be acquired in consideration
of one (1) Class X Share together with one (1) Class N Share, in exchange for
one (1) share of Common Stock of the Corporation."
With the exception of the above stated amendment to sub-paragraph 12 of Article
III, Article III shall remain the same.
3
<PAGE>
FURTHER RESOLVED, Article IV is hereby amended to read as follows:
"The capital stock of this Corporation shall consist of twenty-five million
(25,000,000) shares of common stock, par value $.001, all of which stock shall
be entitled one vote per share of common stock, and ten million (10,000,000)
Class N Shares, par value $.001, all of which Class N Shares shall be non-equity
participating and shall be entitled to one vote per Class N Share, voting
together as one class together with the common stock. The Corporation may issue
the shares of common stock and the Class N Shares for such consideration as may
be fixed by the Board of Directors.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 2,678,000; that the said
changes and amendment have been consented to and approved by a majority of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/ Robert Knight
--------------------------------------
Robert Knight, President
/s/ Robert Knight
--------------------------------------
Robert Knight, Secretary
Providence of British Columbia
County of New Westminister
On July 14 1998, personally appeared before me, a Notary Public, Robert
Knight, who acknowledged that they executed the above instrument.
/s/ [ILLEGIBLE]
--------------------------------------
(Signature of Notary)
[SEAL]
WILLIAM G. CADMAN
BARRISTER & SOLICITOR
#560-2755 Lougheed Hwy.
Port Coquitlam, B.C. Y3B 5Y9
Phone: (604) 454-2024
Ontario Corporation Number
Numero de la societ en Ontario
1325664
[STAMP]
[LOGO] Ministry of Ministere de
Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
May 07 MAI, 1999
- - ------------------------------------------------------------------
/s/[ILLEGIBLE] Trans
Director/Directeur [11] Code
Business Corporations Act/Loi sur les societes par actions |C|
18
Form 3 Business Corporations Act Formula 3
Loi sur les societes par actions
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
<TABLE>
<CAPTION>
<S> <C> <C>
1. The present name of the corporation is: Denomination sociale actuelle de la societe:
|I|N|T|E|R|N|A|T|I|O|N|A|L|_|M|E|N|U|_|S|O|L|U|T|I|O|N|S|_|I|N|C|.|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
2. The name of the corporation is changed to (if Nouvelle denomination sociale de la societe (s'il y a
applicable): lieu):
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
3. Date of incorporation/amalgamation: Date de la constitutuoin ou de la fusion:
01, January, 1999
________________________________________________________________________________
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as Les statuts de la societe sont modifies de la facon
follows: suivante:
</TABLE>
The Articles be and they are amended by:
1. Deleting the unlimited number of Class A Special Preferred Shares
authorized.
2. Increasing the authorized capital of the Corporation by creating an
unlimited number of Class E Special Shares issuable in series so that
thereafter the authorized capital is divided into an unlimited number of
common shares, an unlimited number of Class X Shares, an unlimited number
of Class B Special Shares, an unlimited number of Class C Special Shares,
an unlimited number of Class D Special Shares and an unlimited number of
Class E Special Shares.
3. Deleting the share attributes of the Class X Shares and substituting
therefore the share attributes of the Class X Shares as set out in Schedule
A attached hereto.
4. Deleting the share attributes of the Class B Special Shares and
substituting therefore the attributes of the Class B Special Shares as set
out in Schedule B attached hereto.
5. Deleting the share attributes of the Class C Special Shares and
substituting therefore the attributes of the Class C Special Shares as set
out in Schedule B attached hereto.
6. Deleting the share attributes of the Class D Special Shares and
substituting therefore the attributes of the Class D Special Shares as set
out in Schedule B attached hereto.
7. Adding the following rights, privileges, restrictions and conditions to the
Class E Special Shares as a class as set out in Schedule C attached hereto.
<PAGE>
1a
To provide that the Class X Shares in the capital of the Corporation shall have
the following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
For the purposes of these share provisions:
1.1 "Affiliate" of any person means any other person directly or indirectly
controlled by, or under common control of, that person. For the purposes of this
definition, "control" (including, within correlative meanings, the terms
"controlled by" and "under common control of"), 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
Corporation of Class X Shares pursuant to Article 7 of these share provisions,
which date shall be December 31, 2006, unless (a) such date shall be extended at
any time or from time to time to a specified later date by the Board of
Directors or (b) such date shall be accelerated at any time to a specified
earlier date by the Board of Directors if at such time there are less than
100,000 Class X Shares outstanding.
"Board of Directors" means the Board of Directors of the Corporation.
"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 New York, New York and Toronto,
Ontario.
"Canadian Dollar Equivalent" means in respect of any amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the noon spot
exchange rate on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event such spot exchange
rate is not available, such exchange rate on such date for such foreign currency
expressed in Canadian dollars as may be deemed by the Board of Directors to be
appropriate for such purpose.
"Common Shares" means the common shares of the Corporation.
"Corporation" means International Menu Solutions Inc. a corporation amalgamated
under the laws of the Province of Ontario.
"Current Market Price" means, in respect of an IMSC Common Share on any date,
the Canadian Dollar Equivalent of the average of the closing bid and asked
prices of IMSC Common Shares during a period of 20 consecutive trading days
ending not more than 5 trading days before such
<PAGE>
1b
date on the National Market System of the National Association of Securities
Dealers Automated Quotation System or, if the IMSC Common Shares are not then
quoted on the National Market System of the National Association of Securities
Dealers Automated Quotation System, on such other stock exchange or automated
quotation system on which the IMSC Common Shares are listed on quoted, as the
case may be, as may be selected by the Board of Directors for such purpose;
provided, however, that in the event IMSC Common Shares are not then listed or
quoted on any recognized stock exchange or automated quotation system or, if, in
the opinion of the Board of Directors the public distribution or trading
activity of IMSC Common Share during such period does not create a market which
reflects the fair market value of the IMSC Common Shares, then the Current
Market Price of an IMSC 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.
"Class X Shares" means the non-voting Class X Shares of the Corporation having
the rights, privileges, restrictions and conditions set forth herein.
"IMSC" means International Menu Solutions Corporation, a corporation organized
and existing under the laws of Nevada, U.S.A. and any successor corporation.
"IMSC Call Notice" has the meaning ascribed thereto in Section 6.3 of these
share provisions.
"IMSC Common Shares" means the shares of common stock of IMSC, with a par value
of US $0.001 per share, having voting rights of one vote per share, and any
other securities in which such shares may be changed.
"IMSC Dividend Declaration Date" means the date on which the Board of Directors
of IMSC declares any dividend on the IMSC Common Shares.
"IMSC Special Share" means one share of stock of IMSC with no par value and
having voting rights at meetings of holder of IMSC Common Shares equal to the
number of Class X Shares outstanding from time to time to be issued to holders
of Class X Shares.
"Liquidation Amount" has the meaning ascribed thereto in Section 5.1 of these
share provisions.
"Liquidation Call Right" means:
(a) the overriding right of IMSC, subject to (b) and (c) hereof, (the
"Liquidation Call Right"), in the event of and notwithstanding the proposed
liquidation, dissolution or winding-up of the Corporation pursuant to Article 5
of the Class X Share Provisions, to purchase from all but not less than all of
the holders of Class X Shares on the Liquidation Date all but not less than all
of the Class X Shares held by each such holder on payment by IMSC of an amount
per share equal to (i) the Current Market Price of the IMSC Common Share on the
last Business Day prior to the
<PAGE>
1c
Liquidation Date, which shall be satisfied in full by causing to be delivered to
such holder one IMSC Common Share, plus (ii) an additional amount equivalent to
the full amount of all dividends declared and unpaid on such Class X Share
(collectively the "Liquidation Call Purchase Price"). In the event of the
exercise of the Liquidation Call Right by IMSC, each holder shall be obligated
to sell all the Class X Shares held by the holder to IMSC on the Liquidation
Date on payment by IMSC to the holder of the Liquidation Call Purchase Price for
each such share.
(b) To exercise the Liquidation Call Right, IMSC must notify the Corporation's
secretary or other transfer agent (the "Transfer Agent"), as agent for the
holders of Class X Shares, and the Corporation of the intention to exercise such
right at least 55 days before the Liquidation Date in the case of voluntary
liquidation, dissolution or winding up of the Corporation and at least five (5)
Business Days before the Liquidation Date in the case of an involuntary
liquidation, dissolution or winding up of the Corporation. The Transfer Agent
will notify the holders of Class X Shares as to whether or not IMSC has
exercised the Liquidation Call Right forthwith after the expiry of the period
during which the same may be exercised by IMSC. If IMSC exercises the
Liquidation Call Right, on the Liquidation Date, IMSC will purchase and the
holders will sell all of the Class X 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 Class X Shares pursuant
to the Liquidation Call Right, IMSC shall deposit with the Transfer Agent, on or
before the Liquidation Date, a certificate representing the aggregate number of
the IMSC Common Shares deliverable by IMSC 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. Provided that the
total Liquidation Call Purchase Price has been so deposited with the transfer
Agent, on and after the Liquidation Date the rights of each holder of the Class
X Shares will be limited to receiving such holder's proportionate part of the
total Liquidation Call Purchase Price payable by IMSC upon presentation and
surrender by the holder of certificates representing the Class X Shares held by
such holder and the holder shall on and after the Liquidation Date be considered
and deemed for all purposes to be the holder of the IMSC Common Shares delivered
to it. Upon surrender to the Transfer Agent of a certificate or certificates
representing Class X Shares, together with an equal number of Class N Shares and
such other documents and instruments as may be required to effect a transfer of
Class X Shares under the Business Corporations Act (Ontario) and the by-laws of
the Corporation and such additional documents and instruments as the Transfer
Agent may reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the Transfer
Agent on behalf of the IMSC shall deliver to such holder, certificates
representing the IMSC Common Shares to which the holder is entitled and a cheque
or cheques of IMSC payable at par and in Canadian dollars at any branch of the
bankers of IMSC or of the Corporation in Canada in payment of the remaining
portion, if any, of the total Liquidation Call Purchase Price. If IMSC does not
exercise the Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of Class X Shares will be entitled to receive in
exchange therefor the liquidation price
<PAGE>
1d
otherwise payable by the Corporation in connection with the liquidation,
dissolution or winding-up of the Corporation pursuant to Article 5 of the Class
X Share Provisions.
"Liquidation Date" has the meaning ascribed thereto in Section 5.1 of these
share provisions.
"Purchase Price" has the meaning ascribed thereto in Section 6.3 of these share
provisions.
"Redemption Call Right" means:
(a) the overriding right of IMSC, subject to (b) and (c) hereof (the "Redemption
Call Right"), notwithstanding the proposed redemption of the Class X Share by
the Corporation pursuant to Article 7 of the Class X Share Provisions, to
purchase from all but not less than all of the holders of Class X Shares on the
Automatic Redemption Date all but not less than all of the Class X Shares held
by each such holder on payment by IMSC to the holder of an amount per share
equal to (i) the Current Market Price of IMSC Common Share on the last Business
Day prior to the Automatic Redemption Date which shall be satisfied in full by
causing to be delivered to such holder one IMSC Common Share plus (ii) an
additional amount equivalent to the full amount of all dividends declared and
unpaid on such Class X Share (collectively the "Redemption Call Purchase
Price"). In the event of the exercise of the Redemption Call Right by IMSC, each
holder shall be obligated to sell all the Class X Shares held by the holder to
IMSC on the Automatic Redemption Date on payment by IMSC to the holder of the
Redemption Call Purchase Price for each such share.
(b) To exercise the Redemption Call Right, IMSC must notify the Transfer Agent,
as agent for the holders of Class X Shares and the Corporation of IMSC's
intention to exercise such right at least one hundred and twenty-five (125) days
before the Automatic Redemption Date. The Transfer Agent will notify the holders
of the Class X Shares as to whether or not IMSC has exercised the Redemption
Call Right forthwith after the expiry of the period during which the same may be
exercised by IMSC. If IMSC exercises the Redemption Call Right, on the Automatic
Redemption Date IMSC will purchase and the holders will sell all of the Class X
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 Class X Shares pursuant
to the Redemption Call Right, IMSC shall deposit with the Transfer Agent, on or
before the Automatic Redemption Date, certificates representing the aggregate
number of IMSC Common Shares deliverable by IMSC 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. Provided
that the total Redemption Call Purchase Price has been so deposited with the
Transfer Agent, on and after the Automatic Redemption Date the rights of each
holder of Class X Shares will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase Price payable by IMSC
upon presentation and surrender by the holder of certificates representing the
Class X Shares held by such holder and the holder shall on and after the
Automatic Redemption Date be considered and deemed for all purposes to be the
holder of
<PAGE>
1e
IMSC Common Shares delivered to such holder. Upon surrender to the Transfer
Agent of a certificate or certificates representing Class X Shares, together
with such other documents and instruments as may be required to effect a
transfer of Class X Share under the Business Corporations Act (Ontario) and the
by-laws of the Corporation and such additional documents and instruments, as the
Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange therefor,
and the Transfer Agent on behalf of IMSC shall deliver to such holder,
certificates representing IMSC Common Shares to which the holder is entitled and
a cheque or cheques of IMSC payable at par and in Canadian dollars at any branch
of the bankers of IMSC or of the Corporation in Canada in payment of the
remaining portion, if any, of the total Redemption Call Purchase Price. If IMSC
does not exercise the Redemption Call Right in the manner described above, on
the Automatic Redemption Date the holders of the Class X Shares will be entitled
to receive in exchange therefor the redemption price otherwise payable by the
Corporation in connection with the redemption of the Class X Shares pursuant to
Article 7 of the Class X Share Provisions.
"Redemption Price" has the meaning ascribed thereto in Section 7.1 of these
share provisions.
"Retracted Shares" has the meaning ascribed thereto in Section 6.1 of these
share provisions.
"Retraction Call Right" has the meaning ascribed thereto in Section 6.1 of these
share provisions.
"Retraction Date" has the meaning ascribed thereto in Section 6.1(b) of these
share provisions.
"Retraction Price" has the meaning ascribed thereto in Section 6.1 of these
share provisions.
"Retraction Request" has the meaning ascribed thereto in Section 6.1 of these
share provisions.
"Support Agreement" means the Support Agreement between IMSC and the
Corporation, made as of the 15th day of July, 1998.
"Transfer Agent" means the secretary of the Corporation or such other person as
may from time to time be the registrar and transfer agent for the Class X
Shares.
ARTICLE 2
RANKING OF CLASS X SHARES
2.1 The Class X Shares shall be entitled to a preference over the Common Shares
and shall rank on a parity with the Class B Special shares, the Class C Special
shares, the Class D Special shares and the Class E Special shares with respect
to the payment of dividends and the distribution of assets in the event of
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs.
<PAGE>
1f
ARTICLE 3
DIVIDENDS
3.1 A holder of a Class X Share shall be entitled to receive and the Board of
Directors shall, subject to applicable law, on each IMSC Dividend Declaration
Date, declare a dividend on each Class X Share (a) in the case of a cash
dividend declared on IMSC Common Shares, in an amount in cash for each Class X
Share equal to the Canadian Dollar Equivalent on the IMSC Dividend Declaration
Date of the cash dividend declared on each IMSC Common Share or (b) in the case
of a stock dividend declared on IMSC Common Shares to be paid in IMSC Common
Shares, in such number of Class X Shares for each Class X Share as is equal to
the number of IMSC Common Shares to be paid on each IMSC Common Share or (c) in
the case of a dividend declared on IMSC Common Shares in property other than
cash or IMSC Common Shares, in such type and amount of property for each Class X
Share as is the same as or economically equivalent to (to be determined by the
Board of Directors) the type and amount of property declared as a dividend on
each IMSC Common Share. Such dividends shall be paid out of money, assets or
property of the Corporation property applicable to the payment of dividends, or
out of authorized but unissued shares of the Corporation.
3.2 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
Section 3.1(a) hereof and the sending of such a cheque to each holder of a Class
X 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 the Class X Shares shall be issued or transferred in respect of any
stock dividends contemplated by Section 3.1(b) hereof and the sending of such a
certificate to each holder of and Class X Share shall satisfy the stock dividend
represented thereby. Such other type and amount of property in respect of any
dividends contemplated by Section 3.1(c) hereof shall be issued, distributed or
transferred by the Corporation in such manner as it shall determined and the
issuance, distribution or transfer thereof by the Corporation to each holder of
a Class X Share shall satisfy the dividend represented thereby. No holder of a
Class X Share shall be entitled to recover by action or other legal process
against the Corporation any dividend that is represented by a cheque that has
not been duly presented to the Corporation's bankers for payment or that
otherwise remains unclaimed for a period of six (6) years from the date of which
such dividend was payable.
3.3 The record date for the determination of the holders of Class X Shares
entitled to receive payment of, and the payment date for, any dividend declared
on the Class X Shares under Section 3.1 hereof shall be the same dates as the
record date and payment date, respectively, for the corresponding dividend
declared on IMSC Common Shares.
3.4 If on any payment date for any dividends declared on the Class X Shares
under Section 3.1 hereof the dividends are not paid in full on all of the Class
X Shares then outstanding, any such dividends that remain unpaid shall be paid
on a subsequent date or dates determined by the
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Board of Directors on which the Corporation shall have sufficient moneys, assets
or property applicable to the payment of such dividends.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Class X Shares are outstanding, the Corporation shall
not at anytime without, but may at any time with, the approval of the holders of
the Class X Shares given as specified in Section 10.2 of these share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking junior
to the Class X Shares, other than stock dividends payable in Common Shares or
any such other shares ranking junior to the Class X 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 Class X Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally with
the Class X Shares with respect to the payment of dividends or on any
liquidation distribution; or
(d) issue any Class X Shares or any other shares of the Corporation ranking
equally with, or superior to, the Class X Shares other than issued and
outstanding Class AA@ Special Preferred Shares and other than by way of stock
dividends to the holders of such Class X Share or as contemplated by the Support
Agreement.
The restrictions in Sections 4.1(a), 4.1(b) and 4.1(c) above shall not apply if
all dividends on the outstanding Class X Shares corresponding to dividends
declared to date of IMSC Common Shares shall have been declared on the Class X
Shares and paid in full.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, a holder of Class X
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Class X Share held by such holder on the
effective date (the "Liquidation Date") of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of the Corporation
among the holders of the Common Shares or any other shares ranking junior to the
Class X Shares, an amount per share equal to (a) the Current Market Price of an
IMSC Common Share on the last Business Day prior to the Liquidation Date, which
shall be satisfied in full by the Corporation causing to be delivered to such
holder one IMSC Common Share, plus (b) an additional amount equivalent to the
full
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amount of all declared and unpaid dividends on each such Class X Share
(collectively the "Liquidation Amount").
5.2 On or promptly after the Liquidation Date, and subject to the exercise by
IMSC of the Liquidation Call Right, the Corporation shall cause to be delivered
to the holders of the Class X Shares the Liquidation Amount for each such Class
X Share upon presentation and surrender of the certificates representing such
Class X Shares, together with such other documents and instruments as may be
required to effect a transfer of Class X Shares under the Business Corporations
Act (Ontario) and the by-laws of the Corporation and such additional documents
and instruments as the Transfer Agent may reasonably require at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of the Class X Shares.
Payment of the total Liquidation Amount for such Class X Shares shall be made by
delivery to each holder, at the address of the holder recorded in the securities
register of the Corporation for the Class X Shares or by holding for pick up by
the holder at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of Class X Shares, on behalf of the Corporation of certificates representing
IMSC 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)
and a cheque of the Corporation payable at par at any branch of the bankers of
the Corporation in respect of the amount equivalent to the full amount of all
declared and unpaid dividends comprising part of the total Liquidation Amount
(less any tax required to be deducted and withheld therefrom by the
Corporation). On and after the Liquidation Date, the holders of the Class X
Shares shall cease to be holders of such Class X 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 Class X 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. The Corporation shall have the right at any time after
the Liquidation Date to deposit or cause to be deposited the total Liquidation
Amount in respect of the Class X 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. Upon such
deposit being made, the rights of the holders of Class X Shares after such
deposit shall be limited to receiving their proportionate part of the total
Liquidation Amount (less any tax required to be deducted and withheld therefrom)
for such Class X 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 Class X Shares shall thereafter be considered and deemed for all
purposes to be the holders of IMSC Common Shares delivered to them.
5.3 After the Corporation has satisfied its obligations to pay the holders of
the Class X Shares the Liquidation Amount per Class X Share pursuant to Section
5.1 of these share provisions,
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such holders shall not be entitled to share in any further distribution of the
assets of the Corporation.
ARTICLE 6
RETRACTION OF CLASS X SHARES BY HOLDER
6.1 A holder of Class X Shares shall be entitled at any time and otherwise upon
compliance with the provisions of this Article 6, to require the Corporation to
redeem any or all of the Class X Shares registered in the name of such holder
for an amount per share equal to (a) the Current Market Price of an IMSC Common
Share on the last Business Day prior to the Retraction Date, which shall be
satisfied in full by the Corporation causing to be delivered to such holder one
IMSC Common Share for each Class X Share presented and surrendered by the
holder, plus (b) an additional amount equivalent to the full amount of all
dividends declared and unpaid thereon (collectively the "Retraction Price",
provided that if the record date for any such declared and unpaid dividends
occurs on or after the Retraction Date, the Retraction Price shall not include
such additional amount equivalent to the declared and unpaid dividends). To
effect such redemption, the holder shall present and surrender at the registered
office of the Corporation or at any office of the Transfer Agent, as may be
specified by the Corporation by notice to the holders of Class X Shares the
certificate or certificates representing the Class X Shares which the holder
desires to have the Corporation redeem, together with such other documents and
instruments as may be required to effect a transfer of Class X Shares under the
Business Corporations Act (Ontario) and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, and together with a duly executed statement (the "Retraction Request")
in the form of Schedule "A" hereto or in such other form as may be acceptable to
the Corporation:
(a) specifying that the holder desires to have all or any number specified
therein of the Class X Shares represented by such certificate or certificates
(the "Retracted Shares") redeemed by the Corporation;
(b) stating the Business Day on which the holder desires to have the Corporation
redeem the Retracted Shares (the "Retraction Date"), provided that the
Retracting Date shall be not less than five (5) Business Days nor more than ten
(10) Business Days after the date on which the Retracting Request is received by
the Corporation and further provided that, in the event that no such Business
Day is specified by the holder in the Retraction Request, the Retraction Date
shall be deemed to be the tenth (10th) Business Day after the date on which the
Retraction Request is received by the Corporation;
(c) acknowledging the overriding right (the "Retraction Call Right") of IMSC to
purchase all but not less than all the Retracted Shares directly from the holder
and that the Retraction Request shall be deemed to be a revocable offer by the
holder to sell the Retracted Shares to IMSC in accordance with the Retraction
Call Right on the terms and conditions set out in Section 6.3 below.
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6.2 Subject to the exercise by IMSC of the Retraction Call Right, upon receipt
by the Corporation or the Transfer Agent in the manner specified in Section 6.1
hereof of a certificate or certificates representing the number of Class X
Shares which the holder desires to have the Corporation redeem, together with a
Retraction Request, and provided that the Retraction Request is not revoked by
the holder in the manner specified in Section 6.7, the Corporation shall redeem
the Retracted Shares effective at the close of business on the Retracting Date
and shall cause to be delivered to such holder the total Retraction Price with
respect to such shares. If only a part of the Class X Shares represented by any
certificate are redeemed or purchased by IMSC pursuant to the Retraction Call
Right, a new certificate for the balance of such Class X Shares shall be issued
to the holder at the expense of the Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify IMSC thereof. In order to exercise the Retraction Call
Right IMSC must notify the Corporation in writing of its determination to do so
(the "IMSC Call Notice") within two Business Days of notification to IMSC by the
Corporation of the receipt by the Corporation of the Retraction Request. If IMSC
does not so notify the Corporation within such two (2) Business Day period, and
provided that the Retraction Request is not revoked by the holder in the manner
specified in Section 6.7, the Retraction Request shall thereupon be considered
only to be an offer by the holder to sell the Retracted Shares to IMSC in
accordance with the Retraction Call Right. In such event, the Corporation shall
not redeem the Retracted Shares and shall purchase from such holder and such
holder shall sell to IMSC on the Retraction Date the Retracted Shares for a
purchase price (the "Purchase Price") per share equal to the Retraction Price
per share. For the purposes of completing a purchase pursuant to the Retraction
Call Right, IMSC shall deposit with the Transfer Agent, on or before the
Retraction Date, certificates representing IMSC Common Shares and a cheque in
the amount of the remaining portion, if any, of the total Purchase Price.
Provided that the total Purchase Price has been so deposited with the Transfer
Agent, 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
Corporation of such Retracted Shares shall take place on the Retraction Date. In
the event IMSC does not deliver a IMSC Call Notice with such two (2) Business
Day period, and provided that Retraction Request is not revoked by the holder in
the manner specified in Section 6.7, the Corporation shall redeem the Retracted
Shares on the Retraction Date and in the manner otherwise contemplated in this
Article 6.
6.4 The Corporation or IMSC, as the case may be, shall deliver or cause the
Transfer Agent to deliver to the relevant holder, at the address of the holder
recorded in the securities register of the Corporation for the Class X 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 Corporation or at any
office of the Transfer Agent as may be specified by the Corporation by notice to
the holders of Class X Shares, certificates representing IMSC 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
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encumbrance), registered in the name of the holder or in such other name as the
holder may request in payment of the total Retraction Price or the total
Purchase Price, as the case may be, and a cheque of the Corporation payable at
par at any branch of the bankers of the Corporation in payment of the remaining
portion, if any, of the total Retraction Price (less any tax required to be
deducted and withheld therefrom by the Corporation) or a cheque of IMSC payable
at par and in Canadian dollars at any branch of the bankers of IMSC or of the
Corporation in Canada in payment of the remaining portion, if any, of the total
Purchase Price, as the case may be, and such delivery of such certificates and
cheque on behalf of the Corporation or by IMSC, as the case may be, or by the
Transfer Agent shall be deemed to be payment of and shall satisfy and discharge
all liability of the total Retraction Price or total Purchase Price, as the case
may be, to the extent that the same is represented by such share certificates
and cheque (plus any tax required and in fact deducted and withheld therefrom
and remitted to the proper tax authority) unless such cheque is not paid on due
presentation.
6.5 On and after the close of business on the Retraction Date, the holder of the
Retracted Shares shall ceased 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 or total Purchase Price, as the case may be, unless upon presentation and
surrender of certificates in accordance with the foregoing provisions payment of
the total Retraction Price or the total Purchase Price, as the case may be,
shall not be made, in which case the rights of such holder shall remain
unaffected until the total Retraction Price or the total Purchase Price, as the
case may be, 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 or the total
Purchase Price, as the case may be, has been made in accordance with the
foregoing provisions, the holder of the Retracted Shares so redeemed by the
Corporation or purchased by IMSC shall thereafter be considered and deemed for
all purposes to be a holder of IMSC Common Shares delivered to it.
6.6 Notwithstanding any other provision of this Article 6, the Corporation 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 Corporation believes that on any Retraction Date it would not be permitted
by any of such provisions to redeem the Retracted Shares specified by a holder
in a Retraction Request the Corporation shall only be required to redeem
Retracted Shares 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 (2) Business Days prior to
the Retraction Date as to the number of Retracted Shares which will not be
redeemed by the Corporation. In any case in which the redemption by the
Corporation of the Retracted Shares would be contrary to solvency requirements
or other provisions of applicable law, the Corporation shall redeem Retracted
Shares in accordance with Section 6.2 of these share provisions on a pro rata
basis and shall issue to each holder of Retracted Shares a new certificate, at
the expense of the Corporation, representing the Retracted Shares not redeemed
by the Corporation pursuant to Section 6.2 hereof. Provided that the Retraction
Request is not revoked
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by the holder in the manner specified in Section 6.7, the holder of any such
Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 of
these share provisions as a result of solvency requirement of applicable law
shall be deemed by giving the Retraction Request to require IMSC to purchase
such Retracted Shares from such holder on the Retraction Date or as soon a
practicable thereafter on payment by IMSC to such holder of the Purchase Price
for each such Retracted Share.
6.7 A holder of Retracted Shares may, by notice in writing given by the holder
to the Corporation 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 and, for greater certainty, the
revocable offer constituted by the Retraction Request to sell the Retracted
Shares to IMSC shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF CLASS X SHARES BY THE CORPORATION
7.1 Subject to applicable law, and subject to the exercise by IMSC of the
Redemption Call Right, the Corporation shall on the Automatic Redemption Date
redeem the whole of the then outstanding Class X Shares for an amount per share
equal to (a) the Current Market Price of an IMSC Common Share on the last
Business Day prior to the Automatic Redemption Date, which shall be satisfied in
full by the Corporation causing to be delivered to each holder of Class X Shares
one IMSC Common Share for each Class X Share held by such holder, plus (b) an
additional amount equivalent to the full amount of all declared and unpaid
dividends thereon (collectively the "Redemption Price").
7.2 In any case of a redemption of Class X Shares under this Article 7, the
Corporation shall, at least one hundred and twenty (120) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Class X
Shares a notice in writing of the redemption by the Corporation or the purchase
by IMSC under the Redemption Call Right, as the case may be, of the Class X
Shares held by such holder. 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. On or after the Automatic Redemption Date and subject
to the exercise by IMSC of the Redemption Call Right, the Corporation shall
cause to be delivered to the holders of the Class X Shares to be redeemed the
Redemption Price for such Class X Share upon presentation and surrender at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation in such notice of the certificates
representing such Class X Shares under the Business Corporations Act (Ontario)
and the by-laws of the Corporation and such additional documents and instruments
as the Transfer Agent may reasonably require. Payment of the total Redemption
Price for such Class X Shares shall be made by delivery to each holder, at the
address of the holder recorded in the securities register of the Corporation or
by holding for pick up by the holder at the registered office of the Corporation
or at any office of the Transfer Agent as may be specified by the Corporation in
such notice, on behalf of the Corporation of
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certificates representing IMSC 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) and a cheque of the Corporation payable at par at any branch of
the bankers of the Corporation in respect of the additional amount equivalent to
the full amount of all declared and unpaid dividends comprising part of the
total Redemption Price. On and after the Automatic Redemption Date, the holders
of the Class X Shares called for redemption shall cease to be holders of such
Class X 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 total Redemption Price
of such Class X 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 total Redemption Price
has been paid in the manner hereinbefore provided. The Corporation shall have
the right at any time after the sending of notice of its intention to redeem the
Class X Shares as aforesaid to deposit or cause to be deposited the total
Redemption Price of the Class X Shares so called for redemption, or 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 names in such notice. Upon the later of such deposit being made and the
Automatic Redemption Date, the Class X 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 Class X Shares so deposited, against presentation and surrender of the said
certificates held by the, respectively, in accordance with the foregoing
provisions. Upon such payment or deposit of the total Redemption Price, the
holders of the Class X Shares shall thereafter be considered and deemed for all
purposes to be holders of IMSC Common Shares delivered to them.
ARTICLE 8
PURCHASE FOR CANCELLATION
8.1 Subject to applicable law and the articles of the Corporation, the
Corporation may at any time and from time to time purchase for cancellation all
of any part of the outstanding Class X Shares at any price by tender to all the
holders of record of Class X Shares then outstanding or through the facilities
of any stock exchange on which the Class X Shares are listed or quoted at any
price per share together with an amount equal to all declared and unpaid
dividends thereon. If in response to an invitation for tenders under the
provisions of this Section 8.1, more Class X Shares are tendered at a price or
prices acceptable to the Corporation than the Corporation is prepared to
purchase, the Class X Shares to be purchased by the Corporation shall be
purchased as nearly as may be pro rata according to the number of shares
tendered by each holder who submits a tender to the Corporation, provided that
when shares are tendered at different prices, the pro rating shall be effected
(disregarding fractions)only with respect to the shares tendered at the price at
which more shares were tendered than the Corporation is prepared to purchase
after the Corporation has purchased all the shares tendered at lower prices. If
part only of the Class X Shares represented by any certificate shall be
purchased, a new certificate for the balance of such shares shall be issued at
the expense of the Corporation.
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ARTICLE 9
VOTING RIGHTS
9.1 Except as required by applicable law, the holders of the Class X Shares
shall not be entitled as such to receive notice of or to attend any meeting of
the shareholders of the Corporation or to vote at any such meeting.
ARTICLE 10
AMENDMENT AND APPROVAL
10.1 The rights, privileges, restrictions and conditions attached to the Class X
Shares may be added to, changed or removed but only with the approval of the
holders of the Class X Shares given as hereinafter specified.
10.2 Any approval given by the holders of the Class X Shares to add to, change
or remove any right, privilege, restriction or condition attaching to the Class
X Shares or any other matter requiring the approval or consent of the holders of
the Class X Shares 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 not less
than two-thirds of the votes cast on such resolution at a meeting of holders of
Class X Shares duly called and held at which the holders of at least fifty
percent (50%) of the outstanding Class X Shares duly called and held at which
the holders of at least fifty percent (50%) of the outstanding Class X Shares at
that time are present or represented by proxy; provided that if at any such
meeting the holders of a least fifty percent (50%) of the outstanding Class X
Shares at that time are not present or represented by proxy within one-half hour
after the time appointed for such meeting then the meeting shall be adjourned to
such date not less than ten (10) days thereafter and to such time and place as
may be designated by the Chairman of such meeting. At such adjourned meeting the
holders of Class X Shares present or represented by proxy thereat by the
affirmative vote of not less than two-thirds of the votes cast on such
resolution at such meeting shall constitute the approval or consent of the
holders of the Class X Shares.
ARTICLE 11
RECIPROCAL CHANGES, ETC. IN RESPECT OF IMSC COMMON SHARES
11.1 (a) Each holder of Class X Shares acknowledges that the Support Agreement
provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Class X Shares given in
accordance with Section 10.2 of these share provisions:
(i) issue or distribute IMSC Common Shares (or securities exchangeable for or
convertible into or carrying rights to acquire IMSC Common Shares) to the
holders of all or substantially all of the then outstanding IMSC Common Shares
by way of stock dividend or other distribution,
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other than an issue of IMSC Common Shares (or securities exchangeable for or
convertible into or carrying rights to acquire IMSC Common Shares) to holders of
IMSC Common Shares who exercise an option to receive dividends on IMSC Common
Shares (or securities exchangeable for or convertible into or carrying rights to
acquire IMSC 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 IMSC Common Shares entitling them to
subscribe for or to purchase IMSC Common Shares (or securities exchangeable for
or convertible into or carrying rights to acquire IMSC Common Shares); or
(iii) issue or distribute to the holders of all or substantially all of the then
outstanding IMSC Common Shares (A) shares or securities of IMSC of any class
other than IMSC Common Shares (other than shares convertible into or
exchangeable for or carrying rights to acquire IMSC Common Shares), (B) rights,
options or warrants other than those referred to in Section 11.1(a)(ii) above,
(C) evidences of indebtedness of IMSC or (D) assets of IMSC; unless the economic
equivalent on a per share basis of such rights, options, securities, shares,
evidences or indebtedness or other assets is issued or distributed
simultaneously to the holders of the Class X Shares.
(b) Each holder of a Class X Share acknowledges that the Support Agreement
further provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approvals of the holders of the Class X Shares given
in accordance with Section 10.2 of these share provision:
(i) subdivide, redivide or change the then outstanding IMSC Common Shares into a
greater number of IMSC Common Shares: or
(ii) reduce, combine or consolidate or change the then outstanding IMSC Common
Shares into a lesser number of IMSC Common Shares; or
(iii) reclassify or otherwise change IMSC Common Shares or effect an
amalgamation, merger, reorganization or other transaction affecting IMSC Common
Shares;
unless the same or an economically equivalent change shall simultaneously be
made to, or in the rights of the holders of, the Class X Shares.
The Support Agreement further provides, in part, that the aforesaid provisions
of the Support Agreement shall not be changed without the approval of the
holders of the Class X Shares given in accordance with Section 11.2 of these
share provisions.
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ARTICLE 12
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
12.1 The Corporation 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 IMSC with all provisions of the Support Agreement applicable
to the Corporation and IMSC, 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 Corporation all rights and benefits in favour of the
Corporation under or pursuant to such agreement.
12.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement without the approval of the holders of the Class X Shares
given in accordance with Section 10.1 of these share provisions other than such
amendments, waivers and/or forgiveness as may be necessary or advisable for the
purpose of:
(a) adding to the covenants of the other party or parties to such agreement for
the protection of the Corporation or the holders of Class X Shares thereunder;
or
(b) 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
consultation with counsel, that such provisions and modifications will not be
prejudicial to the interest of the holders of the Class X Shares; or
(c) making such changes in or corrections to such agreement which, on the advice
of counsel to the Corporation, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error 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 Class X Shares.
ARTICLE 13
LEGEND
13.1 The certificates evidencing the Class X Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors with respect to the Support Agreement, between IMSC and the
Corporation.
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ARTICLE 14
NOTICES
14.1 Any notice, request or other communication to be given to the Corporation
by a holder of Class X Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or telecopy or by delivery to the
registered office of the Corporation 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 Corporation.
14.2 Any presentations and surrender by a holder of Class X Shares to the
Corporation or the Transfer Agent of certificates representing Class X Shares in
connection with the liquidation, dissolution or winding up of the Corporation or
the retraction or redemption of Class X Shares shall be made by registered mail
(postage prepaid) or by delivery to the registered office of the Corporation or
to the office of the Transfer Agent as may be specified by the Corporation, in
each case addressed to the attention of the President of the Corporation. 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 Corporation or
the Transfer Agent, as the case may be. Any such presentation and surrender of
certificates made by registered mail shall be at the sole risk of the holder
mailing the same.
14.3 Any notice, request or other communication to be given to a holder of Class
X Shares by or on behalf of the Corporation 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 Corporation 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 third Business Day following the date of mailing and, if given by
delivery, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Class X Shares shall not invalidate
otherwise alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
ARTICLE 15
CONVERSION PRIVILEGE
15.1 Upon IMSC having acquired Class X Shares pursuant to a Liquidation,
Redemption or Retraction, IMSC may convert the said Class X Shares so acquired
for Common Shares on a one-for-one basis. The conversion privilege herein
provided may be exercised by notice in writing given to the Corporation
accompanied by a certificate or certificates representing the Class X Shares in
respect of which IMSC thereof desires to exercise such privilege of conversion.
Upon receipt of such notice the Corporation shall issue certificates
representing fully paid Common Shares upon the basis above prescribed and in
accordance with the
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provisions hereof to IMSC of the Class X Shares represented by the certificate
or certificates accompanying such notice. If less than all of the Class X Shares
represented by any certificate are to be converted IMSC shall be entitled to
receive a new certificate for the Class X Shares representing the shares
comprised in the original certificate which are not to be converted.
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SCHEDULE "A"
TO: the "Corporation"
RETRACTION REQUEST
take notice that the undersigned, the holder of Class X Shares in the
capital stock of the Corporation does hereby require the Corporation to redeem
___________ number of such Class X Shares (the "Retracted Shares") on the
_______ day of ___________, 1998 (the "Retraction Date").
TAKE FURTHER NOTICE that the undersigned acknowledges that IMSC has the right to
exercise the Retraction Call Right and in that event this Retraction Request
shall be deemed to be a revocable offer by the undersigned to sell the Retracted
Shares in accordance with the terms and conditions set out in the share
provisions of the Class X Shares.
DATED this ___ day of ___________, __.
----------------------------------
Signature
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RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
OF THE CLASS B SPECIAL SHARES, CLASS C SPECIAL SHARES
AND CLASS D SPECIAL SHARES
The Class B Special Shares, the Class C Special Shares and the Class D
Special Shares shall have attached thereto the following rights, privileges,
restrictions and conditions:
PART A
GENERAL PROVISIONS
Article 1 - Interpretation
For the purposes of these share provisions, unless the context or subject
matter otherwise requires, the following terms shall have the following
meanings:
(a) "Adjusted Book Value" means the book value of TGF as at February 28,
1999 calculated in accordance with GAAP and verified by the financial
statements of TGF for the twelve (12) month period ending February 28,
1999, plus the aggregate amount of all shareholder advances, loans or
other indebtedness outstanding and owing by TGF or Norbakco to any of
Victor Fradkin, Rhys Quin, Lauderdale Capital Corp., Larry Hoffman,
1069924 Ontario Limited, 1069923 Ontario Limited, or Len Shiffman
(other than accrued salaries, bonuses or other compensation incurred
in the ordinary course of business) as at November 30, 1998;
(b) "Adjusted EBITDA" with respect to any corporation for any period means
the earnings of such corporation during such period before interest,
income taxes, depreciation and amortization, as calculated in
accordance with GAAP, adjusted by adding back any inter-company
management fees or allocations of overhead expenses that are expensed
subsequent to December 1, 1998 in such corporation for the relevant
period and otherwise adjusting for any other reorganization
transactions undertaken subsequent to December 1, 1998, affecting such
corporation, the intent being that the calculation should be based on
a "normalized" EBITDA of the businesses carried by such corporation.
In that regard, to the extent that any of Larry Hoffman's remuneration
is no longer expensed in such corporation by virtue of his becoming
chief financial officer of the Corporation, such expense shall be
included as an expense to such corporation in determining Adjusted
EBITDA at the same cost as is currently incurred by such corporation
less the amount of any corresponding new expenses incurred by such
corporation to replace Larry Hoffman. In addition, in the event that
the Corporation requires an audit to be done as at February 28 of any
year (in addition to the December 31 audit required for its year end)
only
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the costs applicable to such corporation for the December 31 audit
shall be expensed through such corporation. Inter-company management
fees charged to such corporation which are true operating expenses
shall be included for the purpose of determining Adjusted EBITDA. Any
extraordinary expenses due directly to the sale of such corporation
shall be deemed to be excluded as an expense to such corporation for
the purpose of determining Adjusted EBITDA;
(c) "Board of Directors" means the board of directors of the Corporation;
(d) "Business Day" means any day other than a Saturday, a Sunday or a day
on which banks are not open for business in Toronto, Ontario;
(e) "Canadian Dollar Equivalent" means in respect of any amount expressed
in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (i) the Foreign Currency Amount by
(ii) the noon spot exchange rate on such date for such foreign
currency expressed in Canadian dollars as reported by the Bank of
Canada or, in the event such spot exchange rate is not available, such
exchange rate on such date for such foreign currency expressed in
Canadian dollars as may be deemed by the Board of Directors to be
appropriate for such purpose;
(f) "Class C Liquidation Amount" means the amount per Class C Share that
each holder of Class C Shares shall be entitled to under Section 3.1
or 3.2 of Part B hereof, as the case may be;
(g) "Class D Liquidation Amount" means the amount per Class D Share that
each holder of Class D Shares shall be entitled to under Section 3.1
or 3.2 of Part C hereof, as the case may be;
(h) "Class C Liquidation Date" means the effective date of the
liquidation, dissolution or winding-up of the Corporation or other
distribution of the assets of the Corporation among its shareholders
for the purpose of liquidation of the Corporation's assets or winding
up its affairs;
(i) "Class D Liquidation Date" means the effective date of the
liquidation, dissolution or winding-up of the Corporation or other
distribution of the assets of the Corporation among its shareholders
for the purpose of liquidation of the Corporation's assets or winding
up of its affairs;
(j) "Class B Share Exchange Multiple" means the amount obtained by
dividing:
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i) the Adjusted EBITDA of TGF for the twelve (12) month period ended
February 28, 1999 multiplied by 5, less the Adjusted Book Value;
by
ii) the Canadian Dollar Equivalent of U.S.$1.40 as at February 28,
1999;
and subtracting 53,000 from such quotient; and "Class B Share Exchange
Multiple Per Share" means the quotient obtained by dividing the Class
B Share Exchange Multiple by the number of Class B Special Shares
issued and outstanding as at the close of business (Toronto time) on
February 28, 1999;
(k) "Class C Share Exchange Multiple" means the quotient obtained by
dividing:
i) the Adjusted EBITDA of TGF for the twelve (12) month period ended
February 28, 2000; by
ii) the Canadian Dollar Equivalent as at February 28, 2000 of the
lesser of U.S.$2.00 and the Current Market Price of one IMSC
Common Share determined as at February 28, 2000;
and "Class C Share Exchange Multiple Per Share" means the quotient
obtained by dividing the Class C Share Exchange Multiple by the number
of Class C Special Shares issued and outstanding as at the close of
business (Toronto time) on February 28, 2000;
l) "Class D Share Exchange Multiple" means the quotient obtained by
dividing:
i) the Adjusted EBITDA of TGF for the twelve (12) month period ended
February 28,2001 minus the Adjusted EBITDA of TGF for the twelve
(12) month period ended February 28, 2000; by
ii) the Canadian Dollar Equivalent as at February 28, 2001 of the
lesser of U.S.$2.00 and the Current Market Price of one IMSC
Common Share determined as at February 28, 2001;
and "Class D Share Exchange Multiple Per Share" means the quotient
obtained by dividing the Class D Share Exchange Multiple by the number
of Class D Special Shares issued and outstanding as at the close of
business (Toronto time) on February 28, 2001;
(m) "Class X Shares" means Class X Shares of the Corporation;
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(n) "Common Shares" means Common Shares of the Corporation;
(o) "Current Market Price" means, in respect of an IMSC Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing
bid and asked prices of IMSC Common Shares during a period of 20
consecutive trading days ending not more than 5 trading days before
such date on the National Market System of the National Association of
Securities Dealers Automated Quotation System or, if the IMSC Common
Shares are not then quoted on the National Market System of the
National Association of Securities Dealers Automated Quotation System,
on such other stock exchange or automated quotation system on which
the IMSC Common Shares are listed on quoted, as the case may be, as
may be selected by the Board of Directors for such purpose; provided,
however, that in the event IMSC Common Shares are not then listed or
quoted on any recognized stock exchange or automated quotation system
or if, in the opinion of the Board of Directors, the public
distribution or trading activity of IMSC Common Share during such
period does not create a market which reflects the fair market value
of the IMSC Common Shares, then the Current Market Price of an IMSC
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
than any such selection, opinion or determination by the board of
Directors shall be conclusive and binding;
(p) "GAAP" means Canadian generally accepted accounting principles applied
on a consistent basis;
(q) "IMSC" means International Menu Solutions Corporation, a Nevada
corporation and any successor thereto;
(r) "IMSC Common Shares" means the shares of common stock of IMSC, with a
par value of U.S. $0.001 per share, having voting rights of one vote
per share, and any other securities into which such shares may be
changed;
(s) "IMSC Dividend Payment Date" means the date upon which payment of
dividends declared by IMSC on the IMSC Dividend Declaration Date is
made; and "IMSC Dividend Declaration Date" means the date upon which
IMSC declares a dividend on the IMSC Common Shares;
(t) "Special Shares" means, collectively, the Class B Special Shares, the
Class C Special Shares and the Class D Special Shares of the
Corporation;
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(u) "TGF" means Transcontinental Gourmet Foods Inc., an Ontario
corporation, and any successor thereto;
(v) "Transfer Agent" means the secretary of the Corporation or such other
person as may from time to time be the registrar and transfer agent
for the Special Shares.
1.2 The Board of Directors shall determine, in good faith and in its discretion,
acting reasonably, (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the Board of Directors
may require), what is the "Economic Equivalent" for the purposes of these
provisions, and each such determination shall be conclusive and binding on the
Corporation and IMSC, and the term "Economic Equivalent" where used in these
share provisions shall refer to such determination. In making such
determination, the following factors shall, without excluding other factors
determined by the Board of Directors to be relevant, be considered by the Board
of Directors:
i) in the case of any stock dividend or other distribution payable in
IMSC Common Shares, the number of such shares issued in proportion to
the number of IMSC Common Shares previously outstanding;
ii) in the case of the issuance or distribution of any options, rights,
warrants to subscribe for or purchase IMSC Common Shares (or
securities exchangeable for or convertible into or carrying rights to
acquire IMSC Common Shares), the relationship between the exercise
price of such options, rights or warrants and the Current Market Price
of IMSC Common Shares;
iii) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of
IMSC of any class other than IMSC Common Shares, any rights, options
or warrants other than those referred to in Section 1.2ii) above, any
evidences of indebtedness of IMSC or any assets of IMSC), the
relationship between the fair market value (as determined by the Board
of Directors) of such property to be issued or distributed with
respect to each outstanding IMSC Common Share and the Current Market
Price of an IMSC Common Share; and
iv) in the case of any subdivision, redivision or change of the then
outstanding IMSC Common Shares into a greater number of IMSC Common
Shares or the reduction, combination or consolidation or change of the
then outstanding IMSC Common Shares into a lesser number of IMSC
Common Shares or any amalgamation, merger reorganization or other
transaction affecting the IMSC Common Shares, the effect thereof upon
the then outstanding IMSC Common Shares.
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Article 2 - Ranking of Special Shares
2.1 Each of the classes of Special Shares shall be entitled to a preference over
the Common Shares, and shall rank on a parity with each of the other classes of
Special Shares, the Class E Special Shares and the Class X Shares, with respect
to the payment of dividends and the distribution of assets in the event of
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other distributions of assets of the Corporation among its
shareholders for the purpose of winding up its affairs.
Article 3 - Voting Rights
3.1 The holders of the Class C Special Shares and the Class D Special Shares
shall collectively be entitled to elect one director to the Board of Directors
to hold office until November 30, 2001, and for the purpose of exercising their
right to elect such director, the holders of the Class C Special Shares and the
Class D Special Shares shall be entitled to one vote for each Class C Special
Share and Class D Special Share held.
Article 4 - Reciprocal Changes, etc. In Respect of IMSC Common Shares
4.1 Each holder of a Special Share acknowledges that the Support Agreement
provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Class B Special Shares,
the Class C Special Shares and the Class D Special Shares, each voting
separately as a class, given in accordance with these share provisions:
(a) issue or distribute IMSC Common Shares (or securities exchangeable for
or convertible into or carrying rights to acquire IMSC Common Shares)
to the holders of all or substantially all of the then outstanding
IMSC Common Shares by way of stock dividend or other distribution,
other than an issue of IMSC Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire IMSC Common
Shares) to holders of IMSC Common Shares who exercise an option to
receive dividends in IMSC Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire IMSC Common
Shares) in lieu of receiving cash dividends; or
(b) issue or distribute rights, options or warrants to the holders of all
or substantially all of the then outstanding IMSC Common Shares
entitling them to subscribe for or to purchase IMSC Common Shares (or
securities exchangeable for or convertible into or carrying rights to
acquire IMSC Common Shares); or
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(c) issue or distribute to the holders of all or substantially all of the
then outstanding IMSC Common Shares (A) shares or securities of IMSC
of any class other than IMSC Common Shares (other than shares
convertible into or exchangeable for or carrying rights to acquire
IMSC Common Shares), (B) rights, options or warrants other than those
referred to in Section 4.1(b) above, (C) evidences of indebtedness of
IMSC or (D) assets of IMSC;
unless the Economic Equivalent on a per share basis of such rights, securities,
shares, evidences of indebtedness or other assets is issued or distributed
simultaneously to the holders of the Special Shares.
4.2 Each holder of a Special Share acknowledges that the Support Agreement
further provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Class B Special Shares,
the Class C Special Shares and the Class D Special Shares, each voting
separately as a class, given in accordance with these share provisions:
(a) subdivide, redivide or change the then outstanding IMSC Common Shares
into a greater number of IMSC Common Shares; or
(b) reduce, combine or consolidate or change the then outstanding IMSC
Common Shares into a lesser number of IMSC Common Shares; or
(c) reclassify or otherwise change IMSC Common Shares or effect an
amalgamation, merger, reorganization or other transaction affecting
IMSC Common Shares;
unless the Economic Equivalent of such change shall simultaneously be made to,
or in the rights of the holders of, the Special Shares.
4.3 The Support Agreement further provides, in part, that the provisions of the
Support Agreement referred to in the preceding Sections 4.1 and 4.2 shall not be
changed without the approval of the holders of the Class B Special Shares, the
Class C Special Shares and the Class D Special Shares, each voting separately as
a class, given in accordance with these share provisions.
Article 5 - Actions by the Corporation under Support Agreement
5.1 The Corporation 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 IMSC with all provisions of an agreement (the "Support
Agreement") between the Corporation and IMSC applicable to the Corporation and
IMSC, respectively, in accordance with the terms
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thereof including, without limitation, taking all such actions and doing all
such things as shall be necessary or advisable to ensure to the fullest extent
possible for the direct benefit of the Corporation all rights and benefits in
favour of the Corporation under or pursuant to such agreement.
5.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under the
Support Agreement without the approval of the holders of the Class B Special
Shares, the Class C Special Shares and the Class D Special Shares, each voting
separately as a class, given in accordance with these share provisions, 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 Corporation or the holders of
Class B Special Shares, the Class C Special Shares or the Class D
Special Shares thereunder; 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 of the Corporation, it may be expedient to make, provided
that the Board of Directors shall be of the opinion, after
consultation with counsel, that such provisions and modifications will
not be prejudicial to the interests of the holders of the Class B
Special Shares, the Class C Special Shares and/or the Class D Special
Shares; or
iii) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error contained therein,
provided that the Board of Directors of the Corporation 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 Class B Special Shares, the Class C Special Shares and/or the
Class D Special Shares.
The Corporation shall provide each holder of Class B Special Shares, Class C
Special Shares and/or Class D Special Shares with written notification of any
such amendment, waiver and/or forgiveness.
Article 6 - Notices
6.1 Any notice, request or other communication to be given to the Corporation by
a holder of Special 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 Corporation and addressed
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to the attention of the Secretary. 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 Corporation.
6.2 Any presentation and surrender by a holder of Special Shares to the
Corporation of certificates representing Special Shares in connection with the
liquidation, dissolution or winding up of the Corporation or the retraction or
redemption of Special Shares shall be made by registered mail (postage prepaid)
or by delivery to the registered office of the Corporation or any other office
of the Corporation designated by it in accordance with these share provisions
addressed to the attention of the Secretary of the Corporation. 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 Corporation. Any
such presentation and surrender of certificates made by registered mail shall be
at the sole risk of the holder mailing the same.
6.3 Any notice, request or other communication to be given to a holder of
Special Shares by or on behalf of the Corporation 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 Corporation or,
in the event of the address of any holder not being so recorded, then at the
last known address of such holder. A copy of such notice will be sent to any
financial institution which has provided notice to the Corporation that it is a
pledgee of any Special Shares. Any such notice, request or other communication,
if given by mail shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Special Shares shall not invalidate or
otherwise alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
Article 7 - Withholding Taxes
7.1 If the payment or delivery of cash or property to the holder of a Special
Share pursuant to the provisions hereof would result in the Corporation or IMSC
becoming liable to withhold or deduct and remit therefrom an amount on account
of the tax liability of such holder under the Income Tax Act (Canada) or the
applicable taxation provisions of any other jurisdiction, then, unless such
holder provides to the Corporation or IMSC, as the case may be, certificates or
such other assurances as are provided for under the Income Tax Act (Canada) or
such other applicable taxation provisions as are required to ensure that neither
the Corporation nor IMSC is so liable, the cash or property required to be so
delivered shall be net of any amounts required to be so withheld or deducted and
remitted.
Article 8 - Specified Amounts for the Purposes of the Income Tax Act
8.1 For the purposes of subsection 191(4) of the Income Tax Act (Canada), the
specified amount for each of the classes of Special Shares shall be as follows:
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(a) for the Class B Special Shares, $6.67 per share;
(b) for the Class C Special Shares, $5.00 per share; and
(c) for the Class D Special Shares, $4.24 per share.
Article 9 - No Fractional IMSC Common Shares
9.1 No certificates or scrip representing a fractional IMSC Common Share shall
be required to be delivered to the holder of any of the Special Shares upon the
redemption of such Special Shares, a distribution to the holder of such Special
Shares upon the liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of liquidation of the Corporation's assets or winding up its affairs, or
a purchase of such Special Shares by IMSC pursuant to and as provided for in
these share provisions (an "Exchange Event"). In lieu of any such fractional
IMSC Common Share, each holder of a Special Share entitled to a fractional
interest in an IMSC Common Share upon an Exchange Event shall receive an amount
of cash (rounded to the nearest whole cent), without interest, equal to the
Canadian Dollar Equivalent of the product of (i) such fraction, multiplied by
(ii) the Current Market Price of one IMSC Common Share determined as at the date
upon which such holder becomes entitled to such fractional interest.
Article 10 - Legend
10.1 The certificates evidencing the Special Shares shall contain or have
affixed thereto a legend, in form and on the terms approved by the Board of
Directors of the Corporation, with respect to the Support Agreement between IMSC
and the Corporation.
PART B
CLASS B SPECIAL SHARES
The Class B Special Shares shall have attached thereto, as a class, the
following rights, privileges, restrictions and conditions:
Article 1 - Dividends
1.1 From the date of the issuance of the Class B Special Shares up to and
including February 28, 1999, the holders of the Class B Special Shares shall be
entitled to receive, and the Corporation shall pay thereon, out of monies
properly applicable to the payment of dividends, such dividends as the Board of
Directors may from time to time declare.
1.2 After February 28, 1999, the holders of the Class B Special Shares shall be
entitled to receive and the Board of Directors shall, subject to applicable law,
on each IMSC Dividend
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Declaration Date, declare a dividend on each Class B Special Share (i) in the
case of a cash dividend declared on IMSC Common Shares, in an amount in cash for
each Class B Special Share equal to the Canadian Dollar Equivalent on the IMSC
Dividend Declaration Date of the cash dividend declared on each IMSC Common
Share multiplied by the Class B Share Exchange Multiple Per Share or (ii) in the
case of a stock dividend declared on IMSC Common Shares to be paid in IMSC
Common Shares, in such number of Class B Special Shares for each Class B Special
Share as is equal to the number of IMSC Common Shares to be paid on each IMSC
Common Share or (iii) in the case of a dividend declared on IMSC Common Shares
in property other than cash or IMSC Common Shares, in such type and amount of
property for each Class B Special Share as is the same as or the Economic
Equivalent of the type and amount of property declared as a dividend on each
IMSC Common Share, multiplied by the Class B Share Exchange Multiple Per Share.
Such dividends shall be paid out of money, assets or property of the Corporation
properly applicable to the payment of dividends, or out of authorized but
unissued shares of the Corporation.
1.3 The record date for the determination of the holders of Class B Special
Shares entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Class B Shares under Section 1.2 hereof shall be
the same as the record date and the payment date, respectively, for the
corresponding dividend or distribution declared on the IMSC Common Shares.
1.4 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation in Canada shall be issued in respect of any cash dividends
contemplated by Section 1.2(i) hereof and the sending of such a cheque to each
holder of a Class B Special Share shall satisfy the cash dividend represented
thereby unless the cheque is not paid on presentation. Certificates registered
in the name of the registered holders of Class B Special Shares shall be issued
or transferred in respect of any stock dividends contemplated by Section 1.2(ii)
hereof and the sending of such a certificate to each holder of a Class B Special
Share shall satisfy the stock dividend represented thereby. Such other type and
amount of property in respect of any dividends contemplated by Section 1.2(iii)
hereof shall be issued, distributed or transferred by the Corporation in such
manner as it shall determine and the issuance, distribution or transfer thereof
by the Corporation to each holder of a Class B Special share shall satisfy the
dividend represented thereby. No holder of a Class B Special Share shall be
entitled to recover by action or other legal process against the Corporation any
dividend that is represented by a cheque that has not been duly presented to the
Corporation's bankers for payment or that otherwise remains unclaimed for a
period of six years from the date on which such dividend became payable.
1.5 If on any payment date for any dividends declared on the Class B Special
Shares under Section 1.2 hereof, such dividends are not paid in full on all of
the Class B Special Shares then outstanding because the Corporation does not
then have sufficient monies, assets or property applicable to the payment of
such dividends, then any such dividends that remain unpaid shall
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be paid on the earliest subsequent date or dates determined by the Board of
Directors on which the Corporation shall have sufficient monies, assets or
property applicable to the payment of such dividends; and if on any date for the
declaration or payment of any dividend declared or to be declared on the Class B
Special Shares under Section 1.2 above such dividends are not declared or are
not paid in full on all of the Class B Special Shares then outstanding because
the Class B Share Exchange Multiple has not then been determined, then any such
dividends that remain undeclared and/or unpaid shall be declared and/or paid on
the earliest subsequent date or dates determined by the Board of Directors on
which the Class B Share Exchange Multiple shall have been determined; provided
that if on any date for the payment of a dividend declared or to be declared on
the Class B Special Shares under Section 1.2 above such dividend is not paid in
full on all of the Class B Special Shares for any reason whatsoever, then the
Corporation shall pay to the holders of the Class B Special Shares interest at
the rate per annum which is equal to the interest rate then charged to the
Corporation by its principal banker for operating credit facilities provided to
the Corporation, on the principal amount of such outstanding dividend, from the
IMSC Dividend Payment Date to the date of actual payment of such dividend.
Article 2 - Certain Restrictions
2.1 So long as any of the Class B Special Shares are outstanding, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Class B Special Shares given as specified in
these share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking
junior to the Class B Special Shares, other than stock dividends
payable in Common Shares or any such other shares ranking junior to
the Class B Special 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 Class B
Special Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Class B Special Shares with respect to the payment of
dividends or on any liquidation distribution; or
(d) issue any Class B Special Shares or any other shares of the
Corporation ranking equally with, or superior to, the Class B Special
Shares other than the issuance of Class X Shares and other than by way
of stock dividends to the holders of such Class B Special Shares or as
contemplated by the Support Agreement.
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The restrictions in Sections 2.1(a), 2.1(b) and 2.1(c) above shall not
apply if all dividends on the outstanding Class B Special Shares corresponding
to dividends declared to date on IMSC Common Shares shall have been declared on
the Class B Special Shares and paid in full.
Article 3 - Participation Upon Liquidation, Dissolution or Winding-Up
3.1 At any time from the date of the issuance of each Class B Special Share up
to and including February 28, 1999, in the event of the liquidation, dissolution
or winding-up of the Corporation or other distribution of assets of the
Corporation among its shareholders for the purpose of liquidation of the
Corporation's assets or winding up its affairs, the holder of such Class B
Special Shares shall be entitled, before any distribution of any part of the
assets of the Corporation among the holders of the Common Shares and any other
shares ranking junior to the Class B Special Share, to payment in respect of
such Class B Special Share of an amount equal to $10.00 together with all
dividends declared thereon and unpaid, but such holder shall not be entitled to
share any further in the distribution of the property or assets of the
Corporation if the assets of the Corporation, including surplus, are not
sufficient in respect of each Class B Special Share to pay such amount in full,
then all the said assets or their proceeds remaining after such payment shall be
distributed rateably among the holders of the Class B Special Shares.
3.2 At any time after February 28, 1999, in the event of the liquidation,
dissolution or winding-up or the Corporation or other distribution of assets of
the Corporation among its shareholders for the purpose of liquidation of the
Corporation's assets or winding up its affairs, each holder of Class B Special
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Class B Special Share held by such holder
on the effective date of such liquidation, dissolution or winding-up (the "Class
B Liquidation Date"), before any distribution of any part of the assets of the
Corporation among the holders of the Common Shares and any other shares ranking
junior to the Class B Special Shares, to an amount per share equal to: (i) the
Current Market Price of an IMSC Common Share determined as at the last Business
Day prior to the Class B Liquidation Date multiplied by the Class B Share
Exchange Multiple Per Share, which shall be satisfied in full by the Corporation
causing to be delivered to such holder that number of IMSC Common Shares which
is equal to the Class B Share Exchange Multiple Per Share, plus (ii) an
additional amount equivalent to the full amount of all dividends declared and
unpaid on such Class B Special Share prior to the Liquidation Date
(collectively, the "Class B Liquidation Amount").
3.3 Prior to or on the Class B Liquidation Date, and subject to the exercise by
IMSC of the Class B Liquidation Call Right (as set forth and defined below), the
Corporation (or its representative or successor) shall cause to be delivered to
the holders of Class B Special Shares the Class B Liquidation Amount for each
such Class B Special Share upon presentation and surrender of the certificates
representing such Class B Special Shares together with such other
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documents and instruments as may be required to effect a transfer of Class B
Special Shares according to the applicable statutory requirements and the
by-laws of the Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of the Class B Special Shares. Payment of
the Class B Liquidation Amount for such Class B Special Shares shall be made by
delivery to each holder at the address of the holder recorded in the securities
register of the Corporation for the Class B Special Shares or by holding for
pick up by the holder at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the Corporation by notice to
the holders of the Class B Special Shares of certificates representing IMSC
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 Corporation payable at
par in Canadian dollars at any branch of the bankers of the Corporation in
Canada in respect of the amount equivalent to the full amount of all declared
and unpaid dividends comprising part of the Class B Liquidation Amount.
3.4 If on the Class B Liquidation Date the Class B Liquidation Amount in respect
of any of the Class B Special Shares payable under Section 3.2 above cannot be
paid because the Class B Share Exchange Multiple has not then been determined,
then such Class B Liquidation Amount or any part thereof that remains unpaid
shall be paid on the earliest subsequent date or dates determined by the Board
of Directions on which the Class B Share Exchange Multiple shall have been
determined; provided that in such event, the Corporation (or its representative
or successor) shall pay to the holders of the Class B Special Shares interest at
the rate per annum which is equal to the interest rate charged to the
Corporation by its principal banker at the Class B Liquidation Date for
operating credit facilities provided to the Corporation, on the principal amount
of such outstanding Class B Liquidation Amount, from the Class B Liquidation
Date to the date of actual payment thereof.
3.5 On and after the Class B Liquidation Date, the holders of the Class B
Special Shares shall cease to be holders of such Class B Special Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the Class B Liquidation Amount in
respect of the Class B Special Shares held by them, unless payment of the Class
B Liquidation Amount for such Class B Special 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 Class B Liquidation Amount has been paid in the manner
hereinbefore provided.
3.6 The Corporation (or its representative or successor) shall have the right at
any time after the Class B Liquidation Date to deposit or cause to be deposited
the Class B Liquidation Amount in respect of the Class B Special Shares
represented by certificates that have not at the Class B Liquidation Date been
surrendered by the holders thereof in a custodial account with any chartered
bank or trust company in Canada designated by the Board of Directors of the
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Corporation (the "Deposit Agent"). Upon such deposit being made, the rights of
the holders of Class B Special Shares after such deposit shall be limited to
receiving the Class B Liquidation Amount in respect of such Class B Special
Shares, 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 Class B Liquidation Amount, the holders of the Class B
Special Shares shall thereafter be considered and deemed for all purposes to be
the holders of the IMSC Common Shares delivered to them. After the Corporation
has satisfied its obligations to pay the holders of the Class B Special Shares
the Class B Liquidation Amount per Class B Special Share pursuant to Section 3.2
above or the amounts payable pursuant to Section 3.1 above, as the case may be,
such holders shall not be entitled to share in any further distribution of the
assets of the Corporation.
3.7 IMSC shall have the overriding right (the "Class B Liquidation Call Right"),
in the event of and notwithstanding the proposed liquidation, dissolution or
winding-up of the Corporation at any time after February 28, 1999 pursuant
Section 3.2 above, to purchase from all, but not less than all, of the holders
of Class B Special Shares on the Class B Liquidation Date all, but not less than
all, of the Class B Special Shares held by each such holder on payment by IMSC
to each holder of an amount per share equal to the Class B Liquidation Amount
(as determined pursuant to the provisions of Section 3.2 (the "Class B
Liquidation Call Purchase Price"). In the event of the exercise of the Class B
Liquidation Call Right by IMSC, each holder shall be obliged to sell all of the
Class B Special Shares held by such holder to IMSC on the Class B Liquidation
Date on payment by IMSC to the holder of the Class B Liquidation Call Purchase
Price for each such share.
3.8 In order to exercise its Class B Liquidation Call Right, IMSC must notify in
writing the holders of the Class B Special Shares and the Corporation, of IMSC's
intention to exercise such right at least 55 days before the Class B Liquidation
Date in the case of voluntary liquidation, dissolution or winding up of the
Corporation and at least 5 Business Days before the Class B Liquidation Date in
the case of an involuntary liquidation, dissolution or winding up of the
Corporation. If IMSC exercises the Class B Liquidation Call Right, then on the
Class B Liquidation Date, IMSC will purchase and the holders will sell all of
the Class B Special Shares then outstanding for a price per share equal to the
Class B Liquidation Call Purchase Price.
3.9 For the purposes of completing the purchase of the Class B Special Shares
pursuant to the exercise of Class B Liquidation Call Right, IMSC shall deliver
to each holder at the address of the holder recorded in the securities register
of the Corporation for the Class B Special Shares or by holding for pick up by
the holder at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of the Class B Special Shares of certificates representing the IMSC Common
Shares required to be delivered by IMSC in payment of the Class B Liquidation
Call Purchase Price (which shares shall be duly issued as fully paid and
non-assessable and shall be
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free and clear of any lien, claim, encumbrance, security interest or adverse
claim) and a cheque or cheques of the Corporation in Canada payable at par in
Canadian dollars at any branch of the bankers of the Corporation in payment of
the amount equivalent to the full amount of all declared and unpaid dividends
comprising part of the Class B Liquidation Amount.
3.10 Provided that the Class B Liquidation Call Purchase Price has been paid as
provided for in Section 3.9, on and after the Class B Liquidation Date, the
rights of each holder of Class B Special Shares will be limited to receiving the
Class B Liquidation Call Purchase Price payable by IMSC in respect of the Class
B Special Shares held by such holder upon presentation and surrender by such
holder of certificates representing such Class B Special Shares and the holder
shall on and after the Class B Liquidation Date be considered and deemed for all
purposes to be the holder of the IMSC Common Shares delivered to it. Upon
surrender to the Deposit Agent (as defined in Section 3.6 above) of a
certificate or certificates representing Class B Special Shares, together with
such other documents and instruments as may be required to effect a transfer of
Class B Special Shares according to the applicable statutory requirements and
the by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange therefor,
and the Transfer Agent on behalf of IMSC shall deliver to such holder,
certificates representing the IMSC Common Shares to which the holder is entitled
and a cheque or cheques of IMSC payable at par and in Canadian dollars at any
branch of the bankers of IMSC or of the Corporation in Canada in payment of the
remaining portion, if any, of the Class B Liquidation Call Purchase Price. If
IMSC does not exercise the Class B Liquidation Call Right in the manner
described above, on the Class B Liquidation Date, the holders of the Class B
Special Shares will be entitled to receive in exchange therefor the Class B
Liquidation Amount otherwise payable by the Corporation in connection with the
liquidation, dissolution or winding-up of the Corporation pursuant to this
Article 3.
3.11 The Corporation shall provide prompt notice to each holder of outstanding
Class B Special Shares of any action, step or proceedings initiated or taken by
the Corporation, or another person, in respect of, or for the purpose of, a
liquidation, winding-up or dissolution of the Corporation.
Article 4 - Retraction of Class B Special Shares by Holder
4.1 A holder of Class B Special Shares shall be entitled, at any time after
February 28, 1999, subject to the exercise by IMSC of the Class B Retraction
Call Right (as set forth and defined below) and otherwise upon compliance with
the provisions of this Article 4, to require the Corporation to redeem, on the
Class B Retraction Date (defined below), any or all of the Class B Special
Shares registered in the name of such holder for an amount per share equal to:
(i) the Current Market Price of one IMSC Common Share determined as at the last
Business
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Day prior to the Class B Retraction Date (as defined below) multiplied by the
Class B Share Exchange Multiple Per Share, which shall be paid and satisfied in
full by the Corporation causing to be delivered to such holder that number of
IMSC Common Shares which is equal to the Class B Share Exchange Multiple Per
Share for each Class B Special Share presented and surrendered by the holder
plus (ii) an additional amount equivalent to the full amount of all dividends
declared and unpaid on each Class B Special Share prior to the Class B
Retraction Date (collectively, the "Class B Retraction Price"), provided that if
the record date for any such declared and unpaid dividend occurs on or after the
Class B Retraction Date, the Class B Retraction Price shall not include such
additional amount equivalent to the declared and unpaid dividend.
4.2 To exercise the right of retraction provided for in Section 4.1, the holder
shall present and surrender at the registered office of the Corporation or at
any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Class B Special Shares, the certificate or certificates
representing the Class B Special Shares which the holder desires to have the
Corporation redeem, together with such other documents and instruments as may be
required to effect a transfer of Class B Special Shares according to the
applicable statutory requirements and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, and together with a duly executed statement in the form attached hereto
as Schedule "A", or such other form as may be acceptable to the Corporation,
acting reasonably (the "Class B Retraction Request"):
i) specifying that the holder desires to have all or any number specified
therein of the Class B Special Shares represented by such certificate
or certificates (the "Retracted Class B Shares") redeemed by the
Corporation;
ii) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Class B Shares (the "Class B
Retraction Date"), provided that the Class B Retraction Date shall not
be less than five (5) Business Days after the date on which the Class
B Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is specified by
the holder in the Class B Retraction Request, the Class B Retraction
Date shall be deemed to be the tenth (10th) Business Day after the
date on which the Class B Retraction Request is received by the
Corporation; and
iii) acknowledging the overriding right (the "Class B Retraction Call
Right") of IMSC to purchase all but not less than all the Class B
Retracted Shares directly from the holder and that the Class B
Retraction Request shall be deemed to be a revocable offer by the
holders to sell the Retracted Class B Shares to IMSC in accordance
with the Class B Retraction Call Right.
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4.3 Subject to the exercise by IMSC of the Class B Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in this
Article 4 of a certificate or certificates representing the number of Class B
Special Shares which the holder desires to have the Corporation redeem, together
with a Class B Retraction Request, and provided that the Class B Retraction
Request is not revoked by the holder in the manner specified in Section 4.10,
the Corporation shall redeem the Class B Retracted Shares effective at the close
of business on the Class B Retraction Date and shall cause to be delivered to
such holder the Class B Retraction Price with respect to such shares. If only a
part of the Class B Special Shares represented by any certificate is redeemed or
purchased by IMSC pursuant to the Class B Retraction Call Right, a new
certificate for the balance of such Class B Special Shares shall be issued to
the holder at the expense of the Corporation.
4.4 Upon receipt by the Corporation of a Class B Retraction Request, the
Corporation shall immediately notify IMSC thereof. In order to exercise the
Class B Retraction Call Right, IMSC must notify the Corporation in writing of
its determination to do so (the "Class B Retraction Call Notice") within two (2)
Business Days of notification to IMSC by the Corporation of the receipt by the
Corporation of the Class B Retraction Request. If IMSC does not so notify the
Corporation within such two (2) Business Day period, the Corporation will notify
the holder as soon as possible thereafter that IMSC will not exercise the Class
B Retraction Call Right. If IMSC delivers the Class B Retraction Call Notice
within such two (2) Business Day period, and provided that the Class B
Retraction Request is not revoked by the holder in the manner specified in
Section 4.10, the Class B Retraction Request shall thereupon be considered only
to be an offer by the holder to sell the Retracted Class B Shares to IMSC in
accordance with the Class B Retraction Call Right. In such event, the
Corporation shall not redeem the Retracted Class B Shares and IMSC shall
purchase from such holder and such holder shall sell to IMSC on the Class B
Retraction Date the Retracted Class B Shares for a purchase price (the "Class B
Retraction Call Purchase Price") per share equal to the Class B Retraction Price
per share.
4.5 For the purpose of completing a purchase pursuant to the Class B Retraction
Call Right, IMSC shall deposit with the Transfer Agent, on or before the Class B
Retraction Date, certificates representing IMSC Common Shares and a cheque in
the amount of the remaining portion, if any, of the Class B Retraction Call
Purchase Price in respect of the Retracted Class B Shares.
4.6 Provided that the Class B Retraction Call Purchase Price in respect of the
Retracted Class B Shares has been so deposited with the Transfer Agent, the
closing of the purchase and sale of the Retracted Class B Shares pursuant to the
Class B Retraction Call Right shall be deemed to have occurred as at the close
of business on the Class B Retraction Date and, for greater certainty, no
purchase by the Corporation of such Retracted Class B Shares shall take place on
the Class B Retraction Date. In the event that IMSC does not deliver a Class B
Retraction Call Notice within the said two (2) Business Day period, and provided
that the Class
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B Retraction Request is not revoked by the holder in the manner specified in
Section 4.10, the Corporation shall purchase the Retracted Class B Shares on the
Class B Retraction Date in the manner otherwise contemplated in this Article 4.
4.7 Promptly and without delay, the Corporation or IMSC, as the case may be,
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the securities register of the Corporation
for the Class B Special Shares or at the address specified in the holder's Class
B Retraction Request or by holding for pick up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation or IMSC, as the case may be, by notice to the
holders of Class B Special Shares, certificates representing IMSC 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) registered in the name of the holder or in such other name as the holder
may request in payment of the Class B Retraction Price or the Class B Retraction
Call Purchase Price (as the case may be) in respect of the Retracted Class B
Shares, and a cheque of the Corporation payable at par in Canadian dollars at
any branch of the bankers of the Corporation in Canada in payment of the
remaining portion, if any, of the Class B Retraction Price (less any tax
required to be deducted and withheld therefrom by the Corporation) or a cheque
of IMSC payable at par in Canadian dollars at any branch of the bankers of IMSC
in Canada in payment of the remaining portion, if any, of the total Class B
Retraction Call Purchase Price (as the case may be) in respect of the Retracted
Class B Shares and such delivery of such certificates and cheque by or on behalf
of the Corporation or by or on behalf of IMSC (as the case may be) by the
Transfer Agent, shall be deemed to be payment of and shall satisfy and discharge
all liability for the Class B Retraction Price or Class B Retraction Call
Purchase Price (as the case may be) in respect of the Retracted Class B Shares
to the extent that the same is represented by such share certificates and cheque
(plus any tax required and in fact deducted and withheld therefrom and remitted
to the proper tax authority, without interest), unless such cheque is not paid
on due presentation.
4.8 On and after the close of business on the Class B Retraction Date, the
holder of the Retracted Class B Shares shall cease to be a holder of such
Retracted Class B Shares and shall not be entitled to exercise any of the rights
of a holder in respect thereof, other than the right to receive the Class B
Retraction Price or Class B Retraction Call Purchase Price (as the case may be)
in respect of such Retracted Class B Shares unless upon presentation and
surrender of certificates in accordance with the foregoing provisions, payment
of the Class B Retraction Price or the Class B Retraction Call Purchase Price
(as the case may be) shall not be made, in which case the rights of such holder
shall remain unaffected until such Class B Retraction Price or Class B
Retraction Call Purchase Price (as the case may be) has been paid in the manner
hereinbefore provided. On and after the close of business on the Class B
Retraction Date, provided that presentation and surrender of certificates and
payment of such Class B Retraction Price or Class B Retraction Call Purchase
Price (as the case may be) has been made in accordance with the foregoing
provisions, the holder of the Retracted Class B Shares so
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redeemed by the Corporation or purchased by IMSC shall thereafter be considered
and deemed for all purposes to be a holder of the IMSC Common Shares delivered
to it.
4.9 Notwithstanding any other provision of this Article 4, the Corporation shall
not be required to redeem Retracted Class B Shares specified by a holder in a
Class B Retraction Request to the extent that such redemption of Retracted Class
B Shares would be contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Class B Retraction Date
it would not be permitted by any of such provisions to purchase the Retracted
Class B Shares tendered for redemption on such date, and provided that IMSC
shall not have exercised the Class B Retraction Call Right with respect to the
Retracted Class B Shares, the Corporation shall only be required to redeem
Retracted Class B Shares specified by a holder in a Class B 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 (2) Business Days prior to the Class B Retraction
Date as to the number of Retracted Class B Shares which will not be redeemed by
the Corporation. In any case in which the redemption by the Corporation of
Retracted Class B Shares would be contrary to solvency requirements or other
provisions of applicable law, the Corporation shall as soon as practicable and
from time to time redeem Retracted Class B Shares in accordance with Section 4.3
above on a pro rata basis and shall issue to each holder of Retracted Class B
Shares a new certificate, at the expense of the Corporation, representing Class
B Special Shares not purchased by the Corporation pursuant to Section 4.3 above.
Provided that the Class B Retraction Request is not revoked by the holder in the
manner specified in Section 4.10 below, the holder of any such Retracted Class B
Shares not redeemed by the Corporation pursuant to Section 4.3 above as a result
of solvency requirements or other provisions of applicable law shall be deemed
by giving the Class B Retraction Request to require IMSC to purchase such
Retracted Class B Shares from such holder on the Class B Retraction Date or as
soon as practicable thereafter on payment by IMSC to such holder of the Class B
Retraction Call Purchase Price for each such Retracted Class B Share.
4.10 A holder of Retracted Class B Shares may, by notice in writing given by the
holder to the Corporation no later than the close of business on the Business
Day immediately preceding the Class B Retraction Date, withdraw its Class B
Retraction Request in which event such Class B Retraction Request shall be null
and void and, for greater certainty, the revocable offer constituted by the
Class B Retraction Request to sell the Retracted Class B Shares to IMSC shall be
deemed to have been revoked.
Article 5 - Redemption of Class B Special Shares by the Corporation
5.1 In this Article 5, the term "Automatic Redemption Date" means the date for
the automatic redemption by the Corporation of the Class B Special Shares
pursuant to this Article 5, which date shall be December 1, 2013, unless (a)
such date shall be extended at any time or
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from time to time to a specified later date by the Board of Directors, or (b)
such date shall be accelerated at any time to a specified earlier date by the
Board of Directors if at such time there are less than 5,000 Class B Special
Shares outstanding (other than Class B Special Shares held by IMSC and its
affiliates and 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 Class B Special Shares, any issue or
distribution rights to acquire Class B Special Shares or securities exchangeable
for or convertible into Class B Special 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 Class B Special
Shares.
5.2 Subject to applicable law and if IMSC does not exercise the Class B
Redemption Call Right, the Corporation shall on the Automatic Redemption Date
redeem all but not less than all of the then outstanding Class B Special Shares
for an amount per share equal to: (i) the Current Market Price of one IMSC
Common Share determined as at the last Business Day prior to the Automatic
Redemption Date multiplied by the Class B Share Exchange Multiple Per Share,
which shall be paid and satisfied in full by the Corporation causing to be
delivered to each holder of a Class B Special Share that number of IMSC Common
Shares which is equal to the Class B Share Exchange Multiple Per Share for each
Class B Special Share held by such holder, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid thereon
(collectively, the "Class B Redemption Price").
5.3 In any case of a redemption of Class B Special Shares under this Article 5,
the Corporation shall, at least one hundred and twenty (120) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Class B
Special Shares a notice in writing of the redemption by the Corporation on the
purchase by IMSC under the Class B Redemption Call Right (as set forth and
defined below), as the case may be, of the Class B Special Shares held by such
holder. Such notice shall set out the formula for determining the Class B
Redemption Price or the Class B Redemption Call Purchase Price (as the case may
be), the Automatic Redemption Date and, if applicable, particulars of the Class
B Redemption Call Right.
5.4 Subject to exercise of the Class B Redemption Call Right, on or after the
Automatic Redemption Date, the Corporation shall cause to be delivered to the
holders of the Class B Special Shares to be redeemed, the Class B Redemption
Price for each such Class B Special Share upon presentation and surrender at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation in such notice of the certificate or
certificates for the Class B Special Shares to be redeemed, together with such
other documents and instruments as may be required to effect a transfer of Class
B Special Shares according to the applicable statutory requirements and the
by-laws of the Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require. Payment of the Class B Redemption Price
for such Class B Special Shares shall be made by
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delivery to each holder, at the address of the holder recorded in the securities
register of the Corporation or by holding for pick up by the holder at the
registered office of the Corporation or at the office of the Transfer Agent as
may be specified by the Corporation in such notice, the certificate or
certificates representing the IMSC 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
Corporation payable at par in Canadian dollars at any branch of the bankers of
the Corporation in Canada in respect of the amount equivalent to the full amount
of all declared and unpaid dividends comprising part of the Class B Redemption
Price. Upon such payment or deposit of the Class B Redemption Price, the holders
of the Class B Special Shares redeemed shall be considered and deemed for all
purposes to be the holders of the IMSC Common Shares delivered to them.
5.5 Subject to the exercise of the Class B Redemption Call Right, on and after
the Automatic Redemption Date, the holders of the Class B Special Shares called
for redemption shall cease to be holders of such Class B Special Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the Class B Redemption Price in respect
of such Class B Special Shares, unless payment of the Class B Redemption Price
for such Class B Special Shares shall not be made upon presentation and
surrender of certificates in accordance with Section 5.4, in which case the
rights of the holders shall remain unaffected until such Class B Redemption
Price has been paid in the manner hereinbefore provided.
5.6 The Corporation shall have the right, at any time after the sending of
notice of its intention to redeem the Class B Special Shares as aforesaid, to
deposit or cause to be deposited the Class B Redemption Price of the Class B
Special Shares so called for redemption, or such of the said Class B Special
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 named in such notice.
Upon the later of such deposit being made and the Automatic Redemption Date, the
Class B Special 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 the
Class B Redemption Price for such Class B Special 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
such Class B Redemption Price, the holders of the Class B Special Shares so
redeemed shall thereafter be considered and deemed for all purposes to be
holders of the IMSC Common Shares so delivered to them.
5.7 Notwithstanding the provisions of Section 5.2, IMSC shall have the
overriding right (the "Redemption Call Right") notwithstanding the proposed
redemption of the Class B Special Shares by the Corporation pursuant to this
Article 5, to purchase all but not less than all of the Class B Special Shares
on the Automatic Redemption Date from the holders for a
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purchase price (the "Class B Redemption Call Purchase Price") per share equal to
the Class B Redemption Price per share. In the event of the exercise of the
Class B Redemption Call Right by IMSC, each holder shall be obligated to sell
all the Class B Special Shares held by such holder to IMSC on the Automatic
Redemption Date on payment by IMSC to such holder of the Class B Redemption Call
Purchase Price for each such share.
5.8 To exercise the Class B Redemption Call Right, IMSC must notify the Transfer
Agent, as agent for the holders of the Class B Special Shares and the
Corporation, of IMSC's intention to exercise such right not less than one
hundred and twenty-five (125) days before the Automatic Redemption Date. The
Transfer Agent shall notify the holders of the Class B Special Shares as to
whether or not IMSC has exercised the Class B Redemption Call Right forthwith
after the expiry of the period during which the same may be exercised by IMSC.
If IMSC exercises the Class B Redemption Call Right on the Automatic Redemption
Date, IMSC will purchase and the holders will sell all of the Class B Special
Shares then outstanding for a price per share equal to the Class B Redemption
Call Purchase Price.
5.9 For the purposes of completing the purchase of the Class B Special Shares
pursuant to the Class B Redemption Call Right, IMSC shall deposit with the
Transfer Agent, on or before the Automatic Redemption Date, certificates
representing IMSC Common Shares and a cheque in the amount of the remaining
portion, if any, of the Class B Redemption Call Purchase Price in respect of the
Class B Special Shares.
5.10 Provided that the Class B Redemption Call Purchase Price has been so
deposited with the Transfer Agent, on and after the Automatic Redemption Date
the rights of each holder of Class B Special Shares will be limited to receiving
the Class B Redemption Call Purchase Price payable by IMSC in respect of the
Class B Special Shares upon presentation and surrender by the holder of
certificates representing such Class B Special Shares and the holder shall, with
respect to the Class B Special Shares so purchased, on and after the Class B
Redemption Date, be considered and deemed for all purposes to be the holder of
IMSC Common Shares delivered to such holder. Upon surrender to the Transfer
Agent of a certificate or certificates representing the Class B Special Shares
so purchased, together with such other documents and instruments as may be
required to effect a transfer of Class B Special Shares according to the
applicable statutory requirements and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent on behalf of
IMSC shall deliver to such holder, certificates representing the IMSC Common
Shares to which the holder is entitled and a cheque or cheques of IMSC payable
in at par in Canadian dollars at any branch of the bankers of IMSC in Canada in
payment of the remaining portion, if any, of the Class B Redemption Call
Purchase Price. If IMSC does not exercise the Class B Redemption Call Right in
the manner described above, on the Automatic Redemption Date the holders of the
Class B Special Shares will be entitled to
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receive in exchange therefor the Class B Redemption Price otherwise payable by
the Corporation pursuant to this Article 5.
Article 6 - Purchase for Cancellation
6.1 Subject to applicable law, the Corporation may at any time and from time to
time offer to purchase for cancellation all or any part of the outstanding Class
B Special Shares at any price by the tender to all holders of record of Class B
Special Shares then outstanding together with an amount equal to all declared
and unpaid dividends thereon. The holders of Class B Special Shares may accept
or refuse such offer at their discretion. If in response to an invitation for
tenders under the provisions of this Article 6, more Class B Special Shares are
tendered than the Corporation is prepared to purchase, the Class B Special
Shares to be purchased by the Corporation shall be purchased as nearly as may be
pro rata according to the number of shares tendered by each holder who submits a
tender to the Corporation. If only part of the Class B Special Shares
represented by any certificate shall be purchased, a new certificate for the
balance of such shares shall be issued at the expense of the Corporation.
Article 7 - Amendment and Approval
7.1 The rights, privileges, restrictions and conditions attaching to the Class B
Special Shares may be added to, changed or removed but only with the approval of
the holders of the Class B Special Shares given as hereinafter specified.
7.2 Any approval given by the holders of the Class B Special Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Class B Special Shares or any other matter requiring the approval or consent of
the holders of the Class B Special Shares 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 a resolution
passed by not less than two-thirds of the votes cast on such resolution at a
meeting of holders of Class B Special Shares duly called and held at which the
holders of at least 50% of the outstanding Class B Special Shares at that time
are present or represented by proxy; provided that such approval must be given
also by the affirmative vote of holders of more than two-thirds of the Class B
Special Shares represented in person or by proxy at the meeting excluding Class
B Special Shares beneficially owned by IMSC or any of its Affiliates (as such
term is defined in the Business Corporations Act (Ontario)). If at any such
meeting the holders of at least 50% of the outstanding Class B Special Shares at
that time are not present or represented by proxy within one-half hour after the
time appointed for such meeting then the meeting shall be adjourned to such date
not less than ten (10) days thereafter and to such time and place as may be
designed by the Chairman of such meeting. At such adjourned meeting the holders
of Class B Special Shares present or represented by proxy thereat may transact
the business for which the meeting was originally called and a resolution passed
thereat by the
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affirmative vote of not less than two-thirds of the votes cast on such
resolution at such meeting shall constitute the approval or consent of the
holders of the Class B Special Shares.
PART C
CLASS C SPECIAL SHARES
The Class C Special Shares shall have attached thereto, as a class, the
following rights, privileges, restrictions and conditions:
Article 1 - Dividends
1.1 From the date of the issuance of the Class C Special Shares up to and
including February 28, 2000, the holders of the Class C Special Shares shall be
entitled to receive, and the Corporation shall pay thereon, out of monies
properly applicable to the payment of dividends, such dividends as the Board of
Directors may from time to time declare.
1.2 After February 28, 2000, the holders of the Class C Special Shares shall be
entitled to receive and the Board of Directors shall, subject to applicable law,
on each IMSC Dividend Declaration Date, declare a dividend on each Class C
Special Share (i) in the case of a cash dividend declared on IMSC Common Shares,
in an amount in cash for each Class C Special Share equal to the Canadian Dollar
Equivalent on the IMSC Dividend Declaration Date of the cash dividend declared
on each IMSC Common Share multiplied by the Class C Share Exchange Multiple Per
Share or (ii) in the case of a stock dividend declared on IMSC Common Shares to
be paid in IMSC Common Shares, in such number of Class C Special Shares for each
Class C Special Share as is equal to the number of IMSC Common Shares to be paid
on each IMSC Common Share or (iii) in the case of a dividend declared on IMSC
Common Shares in property other than cash or IMSC Common Shares, in such type
and amount of property for each Class C Special Share as is the same as or the
Economic Equivalent of the type and amount of property declared as a dividend on
each IMSC Common Share, multiplied by the Class C Share Exchange Multiple Per
Share. Such dividends shall be paid out of money, assets or property of the
Corporation properly applicable to the payment of dividends, or out of
authorized but unissued shares of the Corporation.
1.3 The record date for the determination of the holders of Class C Special
Shares entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Class C Special Shares under Section 1.2 hereof
shall be the same as the record date and the payment date, respectively, for the
corresponding dividend or distribution declared on the IMSC Common Shares.
1.4 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation in Canada shall be issued in respect of any cash dividends
contemplated by Section
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1.2(i) hereof and the sending of such a cheque to each holder of a Class C
Special Share shall satisfy the cash dividend represented thereby unless the
cheque is not paid on presentation. Certificates registered in the name of the
registered holders of Class C Special Shares shall be issued or transferred in
respect of any stock dividends contemplated by Section 1.2(ii) hereof and the
sending of such a certificate to each holder of a Class C Special Share shall
satisfy the stock dividend represented thereby. Such other type and amount of
property in respect of any dividends contemplated by Section 1.2(iii) hereof
shall be issued, distributed or transferred by the Corporation in such manner as
it shall determine and the issuance, distribution or transfer thereof by the
Corporation to each holder of a Class C Special share shall satisfy the dividend
represented thereby. No holder of a Class C Special Share shall be entitled to
recover by action or other legal process against the Corporation any dividend
that is represented by a cheque that has not been duly presented to the
Corporation's bankers for payment or that otherwise remains unclaimed for a
period of six (6) years from the date on which such dividend became payable.
1.5 If on any payment date for any dividends declared on the Class C Special
Shares under Section 1.2 hereof, such dividends are not paid in full on all of
the Class C Special Shares then outstanding because the Corporation does not
then have sufficient monies, assets or property applicable to the payment of
such dividends, then any such dividends that remain unpaid shall be paid on the
earliest subsequent date or dates determined by the Board of Directors on which
the Corporation shall have sufficient monies, assets or property applicable to
the payment of such dividends; and if on any date for the declaration or payment
of any dividend declared or to be declared on the Class C Special Shares under
Section 1.2 above such dividends are not declared or are not paid in full on all
of the Class C Special Shares then outstanding because the Class C Share
Exchange Multiple has not then been determined, then any such dividends that
remain undeclared and/or unpaid shall be declared and/or paid on the earliest
subsequent date or dates determined by the Board of Directors on which the Class
C Share Exchange Multiple shall have been determined; provided that if on any
date for the payment of a dividend declared or to be declared on the Class C
Special Shares under Section 1.2 above such dividend is not paid in full on all
of the Class C Special Shares for any reason whatsoever, then the Corporation
shall pay to the holders of the Class C Special Shares interest at the rate per
annum which is equal to the interest rate then charged to the Corporation by its
principal banker for operating credit facilities provided to the Corporation, on
the principal amount of such outstanding dividend, from the IMSC Dividend
Payment Date to the date of actual payment of such dividend.
Article 2 - Certain Restrictions
2.1 So long as any of the Class C Special Shares are outstanding, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Class C Special Shares given as specified in
these share provisions:
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(a) pay any dividends on the Common Shares, or any other shares ranking
junior to the Class C Special Shares, other than stock dividends
payable in Common Shares or any such other shares ranking junior to
the Class C Special 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 Class C
Special Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Class C Special Shares with respect to the payment of
dividends or on any liquidation distribution; or
(d) issue any Class C Special Shares or any other shares of the
Corporation ranking equally with, or superior to, the Class C Special
Shares other than the issuance of Class X Shares and other than by way
of stock dividends to the holders of such Class C Special Shares or as
contemplated by the Support Agreement.
The restrictions in Sections 2.1(a), 2.1(b) and 2.1(c) above shall not
apply if all dividends on the outstanding Class C Special Shares corresponding
to dividends declared to date on IMSC Common Shares shall have been declared on
the Class C Special Shares and paid in full.
Article 3 - Participation Upon Liquidation, Dissolution or Winding-Up
3.1 At any time from the date of the issuance of each Class C Special Share up
to and including February 28, 2000, upon the liquidation, dissolution or
winding-up of the Corporation or other distribution of assets of the Corporation
among its shareholders for the purpose of liquidation of the Corporation's
assets or winding up its affairs, each holder of Class C Special Shares shall be
entitled, subject to applicable law, to receive from the assets of the
Corporation in respect of each Class C Special Share held by such holder on the
Class C Liquidation Date, before any distribution of any part of the assets of
the Corporation among the holders of the Common Shares and any other shares
ranking junior to the Class C Special Shares, to: (i) the Current Market Value
of 3.31126 IMSC Common Shares for each such Class C Special Share, which shall
be satisfied in full by the Corporation causing to be delivered to such holder
3.31126 IMSC Common Shares for each Class C Special Share held, plus (ii) an
additional amount equivalent to the full amount of all dividends declared and
unpaid on such Class C Special Share prior to the Class C Liquidation Date.
3.2 At any time after February 28, 2000, in the event of the liquidation,
dissolution or winding-up or the Corporation or other distribution of assets of
the Corporation among its shareholders for the purpose of liquidation of the
Corporation's assets or winding up its affairs, each holder of Class C Special
Shares shall be entitled, subject to applicable law, to receive
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from the assets of the Corporation in respect of each Class C Special Share held
by such holder on the Class C Liquidation Date, before any distribution of any
part of the assets of the Corporation among the holders of the Common Shares and
any other shares ranking junior to the Class C Special Shares, to an amount per
share equal to: (i) the Current Market Price of an IMSC Common Share determined
as at the last Business Day prior to the Class C Liquidation Date multiplied by
the Class C Share Exchange Multiple Per Share, which shall be satisfied in full
by the Corporation causing to be delivered to such holder that number of IMSC
Common Shares which is equal to the Class C Share Exchange Multiple Per Share,
plus (ii) an additional amount equivalent to the full amount of all dividends
declared and unpaid on such Class C Special Share prior to the Class C
Liquidation Date.
3.3 In the case of a distribution on Class C Special Shares under this Article
3, on or promptly after the Class C Liquidation Date, and subject to the
exercise by IMSC of the Class C Liquidation Call Right (as set forth and defined
below), the Corporation (or its representative or successor) shall cause to be
delivered to the holders of Class C Special Shares the Class C Liquidation
Amount for each such Class C Special Share upon presentation and surrender of
the certificates representing such Class C Special Shares together with such
other documents and instruments as may be required to effect a transfer of Class
C Special Shares according to the applicable statutory requirements and the
by-laws of the Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of the Class C Special Shares. Payment of
the Class C Liquidation Amount for such Class C Special Shares shall be made by
delivery to each holder at the address of the holder recorded in the securities
register of the Corporation for the Class C Special Shares or by holding for
pick up by the holder at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the Corporation by notice to
the holders of the Class C Special Shares of certificates representing IMSC
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 Corporation payable at
par in Canadian dollars at any branch of the bankers of the Corporation in
Canada in respect of the amount equivalent to the full amount of all declared
and unpaid dividends comprising part of the Class C Liquidation Amount.
3.4 If on the Class C Liquidation Date the Class C Liquidation Amount in respect
of any of the Class C Special Shares payable under Section 3.2 above cannot be
paid because the Class C Share Exchange Multiple has not then been determined,
then such Class C Liquidation Amount or any part thereof that remains unpaid
shall be paid on the earliest subsequent date or dates determined by the Board
of Directions on which the Class C Share Exchange Multiple shall have been
determined; provided that in such event, the Corporation (or its representative
or successor) shall pay to the holders of the Class C Special Shares interest at
the rate per annum which is equal to the interest rate charged to the
Corporation by its principal banker at the Class C Liquidation Date for
operating credit facilities provided to the Corporation, on the
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principal amount of such outstanding Class C Liquidation Amount, from the Class
C Liquidation Date to the date of actual payment thereof.
3.5 On and after the Class C Liquidation Date, the holders of the Class C
Special Shares shall cease to be holders of such Class C Special Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the Class C Liquidation Amount in
respect of the Class C Special Shares held by them, unless payment of the Class
C Liquidation Amount for such Class C Special 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 Class C Liquidation Amount has been paid in the manner
hereinbefore provided.
3.6 The Corporation (or its representative or successor) shall have the right at
any time after the Class C Liquidation Date to deposit or cause to be deposited
the Class C Liquidation Amount in respect of the Class C Special Shares
represented by certificates that have not at the Class C Liquidation Date been
surrendered by the holders thereof in a custodial account with any chartered
bank or trust company in Canada designated by the Board of Directors of the
Corporation (the "Deposit Agent"). Upon such deposit being made, the rights of
the holders of Class C Special Shares after such deposit shall be limited to
receiving the Class C Liquidation Amount in respect of such Class C Special
Shares, 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 Class C Liquidation Amount, the holders of the Class C
Special Shares shall thereafter be considered and deemed for all purposes to be
the holders of the IMSC Common Shares delivered to them. After the Corporation
has satisfied its obligations to pay the holders of the Class C Special Shares
the Class C Liquidation Amount per Class C Special Share pursuant to Section 3.2
above or the amounts payable pursuant to Section 3.1 above, as the case may be,
such holders shall not be entitled to share in any further distribution of the
assets of the Corporation.
3.7 IMSC shall have the overriding right (the "Class C Liquidation Call Right"),
in the event of and notwithstanding the proposed liquidation, dissolution or
winding-up of the Corporation at any time after February 28, 2000 pursuant
Section 3.2 above, to purchase from all, but not less than all, of the holders
of Class C Special Shares on the Class C Liquidation Date all, but not less than
all, of the Class C Special Shares held by each such holder on payment by IMSC
to each holder of an amount per share equal to the Class C Liquidation Amount
(as determined pursuant to the provisions of Section 3.2 (the "Class C
Liquidation Call Purchase Price"). In the event of the exercise of the Class C
Liquidation Call Right by IMSC, each holder shall be obliged to sell all of the
Class C Special Shares held by such holder to IMSC on the Class C Liquidation
Date on payment by IMSC to the holder of the Class C Liquidation Call Purchase
Price for each such share.
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3.8 In order to exercise its Class C Liquidation Call Right, IMSC must notify
the holders of the Class C Special Shares and the Corporation, of IMSC's
intention to exercise such right at least 55 days before the Class C Liquidation
Date in the case of voluntary liquidation, dissolution or winding up of the
Corporation and at least 5 Business Days before the Class C Liquidation Date in
the case of an involuntary liquidation, dissolution or winding up of the
Corporation. If IMSC exercises the Class C Liquidation Call Right, then on the
Class C Liquidation Date, IMSC will purchase and the holders will sell all of
the Class C Special Shares then outstanding for a price per share equal to the
Class C Liquidation Call Purchase Price.
3.9 For the purposes of completing the purchase of the Class C Special Shares
pursuant to the exercise of Class C Liquidation Call Right, IMSC shall deliver
to each holder at the address of the holder recorded in the securities register
of the Corporation for the Class C Special Shares or by holding for pick up by
the holder at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of the Class C Special Shares of certificates representing the IMSC Common
Shares required to be delivered by IMSC in payment of the Class C Liquidation
Call Purchase Price (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 or cheques of the Corporation
in Canada payable at par in Canadian dollars at any branch of the bankers of the
Corporation in payment of the amount equivalent to the full amount of all
declared and unpaid dividends comprising part of the Class C Liquidation Amount.
3.10 Provided that the Class C Liquidation Call Purchase Price has been paid as
provided for in Section 3.9, on and after the Class C Liquidation Date, the
rights of each holder of Class C Special Shares will be limited to receiving the
Class C Liquidation Call Purchase Price payable by IMSC in respect of the Class
C Special Shares held by such holder upon presentation and surrender by such
holder of certificates representing such Class C Special Shares and the holder
shall on and after the Class C Liquidation Date be considered and deemed for all
purposes to be the holder of the IMSC Common Shares delivered to it. Upon
surrender to the Deposit Agent (as defined in Section 3.6 above) of a
certificate or certificates representing Class C Special Shares, together with
such other documents and instruments as may be required to effect a transfer of
Class C Special Shares according to the applicable statutory requirements and
the by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange therefor,
and the Transfer Agent on behalf of IMSC shall deliver to such holder,
certificates representing the IMSC Common Shares to which the holder is entitled
and a cheque or cheques of IMSC payable at par and in Canadian dollars at any
branch of the bankers of IMSC or of the Corporation in Canada in payment of the
remaining portion, if any, of the Class C Liquidation Call Purchase Price. If
IMSC does not exercise the Class C Liquidation Call Right in the manner
described
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above, on the Class C Liquidation Date, the holders of the Class C Special
Shares will be entitled to receive in exchange therefor the Class C Liquidation
Amount otherwise payable by the Corporation in connection with the liquidation,
dissolution or winding-up of the Corporation pursuant to this Article 3.
3.11 The Corporation shall provide prompt notice to each holder of outstanding
Class C Special Shares of any action, step or proceedings initiated or taken by
the Corporation, or another person, in respect of, or for the purpose of, a
liquidation, winding-up or dissolution of the Corporation.
Article 4 - Retraction of Class C Special Shares by Holder
4.1 A holder of Class C Special Shares shall be entitled, at any time after
February 28, 2000, subject to the exercise by IMSC of the Class C Retraction
Call Right (as set forth and defined below) and otherwise upon compliance with
the provisions of this Article 4, to require the Corporation to redeem, on the
Class C Retraction Date (defined below), any or all of the Class C Special
Shares registered in the name of such holder for an amount per share equal to:
(i) the Current Market Price of one IMSC Common Share determined as at the last
Business Day prior to the Class C Retraction Date (as defined below) multiplied
by the Class C Share Exchange Multiple Per Share, which shall be paid and
satisfied in full by the Corporation causing to be delivered to such holder that
number of IMSC Common Shares which is equal to the Class C Share Exchange
Multiple Per Share for each Class C Special Share presented and surrendered by
the holder plus (ii) an additional amount equivalent to the full amount of all
dividends declared and unpaid on each Class C Special Share prior to the Class C
Retraction Date (collectively, the "Class C Retraction Price"), provided that if
the record date for any such declared and unpaid dividend occurs on or after the
Class C Retraction Date, the Class C Retraction Price shall not include such
additional amount equivalent to the declared and unpaid dividend.
4.2 To exercise the right of retraction provided for in Section 4.1, the holder
shall present and surrender at the registered office of the Corporation or at
any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Class C Special Shares, the certificate or certificates
representing the Class C Special Shares which the holder desires to have the
Corporation redeem, together with such other documents and instruments as may be
required to effect a transfer of Class C Special Shares according to the
applicable statutory requirements and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, and together with a duly executed statement in the form attached hereto
as Schedule "A", or such other form as may be acceptable to the Corporation,
acting reasonably (the "Class C Retraction Request"):
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i) specifying that the holder desires to have all or any number specified
therein of the Class C Special Shares represented by such certificate
or certificates (the "Retracted Class C Shares") redeemed by the
Corporation;
ii) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Class C Shares (the "Class C
Retraction Date"), provided that the Class C Retraction Date shall not
be less than five (5) Business Days after the date on which the Class
C Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is specified by
the holder in the Class C Retraction Request, the Class C Retraction
Date shall be deemed to be the tenth (10th) Business Day after the
date on which the Class C Retraction Request is received by the
Corporation; and
iii) acknowledging the overriding right (the "Class C Retraction Call
Right") of IMSC to purchase all but not less than all the Class C
Retracted Shares directly from the holder and that the Class C
Retraction Request shall be deemed to be a revocable offer by the
holders to sell the Retracted Class C Shares to IMSC in accordance
with the Class C Retraction Call Right.
4.3 Subject to the exercise by IMSC of the Class C Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in this
Article 4 of a certificate or certificates representing the number of Class C
Special Shares which the holder desires to have the Corporation redeem, together
with a Class C Retraction Request, and provided that the Class C Retraction
Request is not revoked by the holder in the manner specified in Section 4.10,
the Corporation shall redeem the Class C Retracted Shares effective at the close
of business on the Class C Retraction Date and shall cause to be delivered to
such holder the Class C Retraction Price with respect to such shares. If only a
part of the Class C Special Shares represented by any certificate is redeemed or
purchased by IMSC pursuant to the Class C Retraction Call Right, a new
certificate for the balance of such Class C Special Shares shall be issued to
the holder at the expense of the Corporation.
4.4 Upon receipt by the Corporation of a Class C Retraction Request, the
Corporation shall immediately notify IMSC thereof. In order to exercise the
Class C Retraction Call Right, IMSC must notify the Corporation in writing of
its determination to do so (the "Class C Retraction Call Notice") within two (2)
Business Days of notification to IMSC by the Corporation of the receipt by the
Corporation of the Class C Retraction Request. If IMSC does not so notify the
Corporation within such two (2) Business Day period, the Corporation will notify
the holder as soon as possible thereafter that IMSC will not exercise the Class
C Retraction Call Right. If IMSC delivers the Class C Retraction Call Notice
within such two (2) Business Day period, and provided that the Class C
Retraction Request is not revoked by the holder in the manner specified in
Section 4.10, the Class C Retraction Request shall
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thereupon be considered only to be an offer by the holder to sell the Retracted
Class C Shares to IMSC in accordance with the Class C Retraction Call Right. In
such event, the Corporation shall not redeem the Retracted Class C Shares and
IMSC shall purchase from such holder and such holder shall sell to IMSC on the
Class C Retraction Date the Retracted Class C Shares for a purchase price (the
"Class C Retraction Call Purchase Price") per share equal to the Class C
Retraction Price per share.
4.5 For the purpose of completing a purchase pursuant to the Class C Retraction
Call Right, IMSC shall deposit with the Transfer Agent, on or before the Class C
Retraction Date, certificates representing IMSC Common Shares and a cheque in
the amount of the remaining portion, if any, of the Class C Retraction Call
Purchase Price in respect of the Retracted Class C Shares.
4.6 Provided that the Class C Retraction Call Purchase Price in respect of the
Retracted Class C Shares has been so deposited with the Transfer Agent, the
closing of the purchase and sale of the Retracted Class C Shares pursuant to the
Class C Retraction Call Right shall be deemed to have occurred as at the close
of business on the Class C Retraction Date and, for greater certainty, no
purchase by the Corporation of such Retracted Class C Shares shall take place on
the Class C Retraction Date. In the event that IMSC does not deliver a Class C
Retraction Call Notice within the said two (2) Business Day period, and provided
that the Class C Retraction Request is not revoked by the holder in the manner
specified in Section 4.10, the Corporation shall purchase the Retracted Class C
Shares on the Class C Retraction Date in the manner otherwise contemplated in
this Article 4.
4.7 Promptly and without delay, the Corporation or IMSC, as the case may be,
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the securities register of the Corporation
for the Class C Special Shares or at the address specified in the holder's Class
C Retraction Request or by holding for pick up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation or IMSC, as the case may be, by notice to the
holders of Class C Special Shares, certificates representing IMSC 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) registered in the name of the holder or in such other name as the holder
may request in payment of the Class C Retraction Price or the Class C Retraction
Call Purchase Price (as the case may be) in respect of the Retracted Class C
Shares, and a cheque of the Corporation payable at par in Canadian dollars at
any branch of the bankers of the Corporation in Canada in payment of the
remaining portion, if any, of the Class C Retraction Price (less any tax
required to be deducted and withheld therefrom by the Corporation) or a cheque
of IMSC payable at par in Canadian dollars at any branch of the bankers of IMSC
in Canada in payment of the remaining portion, if any, of the total Class C
Retraction Call Purchase Price (as the case may be) in respect of the Retracted
Class C Shares and such delivery of such certificates and cheque by or on behalf
of the Corporation or by or
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on behalf of IMSC (as the case may be) by the Transfer Agent, shall be deemed to
be payment of and shall satisfy and discharge all liability for the Class C
Retraction Price or Class C Retraction Call Purchase Price (as the case may be)
in respect of the Retracted Class C Shares to the extent that the same is
represented by such share certificates and cheque (plus any tax required and in
fact deducted and withheld therefrom and remitted to the proper tax authority,
without interest), unless such cheque is not paid on due presentation.
4.8 On and after the close of business on the Class C Retraction Date, the
holder of the Retracted Class C Shares shall cease to be a holder of such
Retracted Class C Shares and shall not be entitled to exercise any of the rights
of a holder in respect thereof, other than the right to receive the Class C
Retraction Price or Class C Retraction Call Purchase Price (as the case may be)
in respect of such Retracted Class C Shares unless upon presentation and
surrender of certificates in accordance with the foregoing provisions, payment
of the Class C Retraction Price or the Class C Retraction Call Purchase Price
(as the case may be) shall not be made, in which case the rights of such holder
shall remain unaffected until such Class C Retraction Price or Class C
Retraction Call Purchase Price (as the case may be) has been paid in the manner
hereinbefore provided. On and after the close of business on the Class C
Retraction Date, provided that presentation and surrender of certificates and
payment of such Class C Retraction Price or Class C Retraction Call Purchase
Price (as the case may be) has been made in accordance with the foregoing
provisions, the holder of the Retracted Class C Shares so redeemed by the
Corporation or purchased by IMSC shall thereafter be considered and deemed for
all purposes to be a holder of the IMSC Common Shares delivered to it.
4.9 Notwithstanding any other provision of this Article 4, the Corporation shall
not be required to redeem Retracted Class C Shares specified by a holder in a
Class C Retraction Request to the extent that such redemption of Retracted Class
C Shares would be contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Class C Retraction Date
it would not be permitted by any of such provisions to purchase the Retracted
Class C Shares tendered for redemption on such date, and provided that IMSC
shall not have exercised the Class C Retraction Call Right with respect to the
Retracted Class C Shares, the Corporation shall only be required to redeem
Retracted Class C Shares specified by a holder in a Class C 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 (2) Business Days prior to the Class C Retraction
Date as to the number of Retracted Class C Shares which will not be redeemed by
the Corporation. In any case in which the redemption by the Corporation of
Retracted Class C Shares would be contrary to solvency requirements or other
provisions of applicable law, the Corporation shall as soon as practicable and
from time to time redeem Retracted Class C Shares in accordance with Section 4.3
above on a pro rata basis and shall issue to each holder of Retracted Class C
Shares a new certificate, at the expense of the Corporation, representing Class
C Special Shares not purchased by the Corporation pursuant to Section 4.3 above.
Provided that the Class C Retraction Request is not revoked by the holder
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in the manner specified in Section 4.10 below, the holder of any such Retracted
Class C Shares not redeemed by the Corporation pursuant to Section 4.3 above as
a result of solvency requirements or other provisions of applicable law shall be
deemed by giving the Class C Retraction Request to require IMSC to purchase such
Retracted Class C Shares from such holder on the Class C Retraction Date or as
soon as practicable thereafter on payment by IMSC to such holder of the Class C
Retraction Call Purchase Price for each such Retracted Class C Share.
4.10 A holder of Retracted Class C Shares may, by notice in writing given by the
holder to the Corporation no later than the close of business on the Business
Day immediately preceding the Class C Retraction Date, withdraw its Class C
Retraction Request in which event such Class C Retraction Request shall be null
and void and, for greater certainty, the revocable offer constituted by the
Class C Retraction Request to sell the Retracted Class C Shares to IMSC shall be
deemed to have been revoked.
Article 5 - Redemption of Class C Special Shares by the Corporation
5.1 In this Article 5, the term "Automatic Redemption Date" means the date for
the automatic redemption by the Corporation of the Class C Special Shares
pursuant to this Article 5, which date shall be December 1, 2013, unless (a)
such date shall be extended at any time or from time to time to a specified
later date by the Board of Directors, or (b) such date shall be accelerated at
any time to a specified earlier date by the Board of Directors if at such time
there are less than 1,000 Class C Special Shares outstanding (other than Class C
Special Shares held by IMSC and its affiliates and 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 Class
C Special Shares, any issue or distribution rights to acquire Class C Special
Shares or securities exchangeable for or convertible into Class C Special
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 Class C Special Shares.
5.2 Subject to applicable law and if IMSC does not exercise the Class C
Redemption Call Right, the Corporation shall on the Automatic Redemption Date
redeem all but not less than all of the then outstanding Class C Special Shares
for an amount per share equal to: (i) the Current Market Price of one IMSC
Common Share determined as at the last Business Day prior to the Automatic
Redemption Date multiplied by the Class C Share Exchange Multiple Per Share,
which shall be paid and satisfied in full by the Corporation causing to be
delivered to each holder of a Class C Special Share that number of IMSC Common
Shares which is equal to the Class C Share Exchange Multiple Per Share for each
Class C Special Share held by such holder, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid thereon
(collectively, the "Class C Redemption Price").
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5.3 In any case of a redemption of Class C Special Shares under this Article 5,
the Corporation shall, at least one hundred and twenty (120) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Class C
Special Shares a notice in writing of the redemption by the Corporation on the
purchase by IMSC under the Class C Redemption Call Right (as set forth and
defined below), as the case may be, of the Class C Special Shares held by such
holder. Such notice shall set out the formula for determining the Class C
Redemption Price or the Class C Redemption Call Purchase Price (as the case may
be), the Automatic Redemption Date and, if applicable, particulars of the Class
C Redemption Call Right.
5.4 Subject to exercise of the Class C Redemption Call Right, on or after the
Automatic Redemption Date, the Corporation shall cause to be delivered to the
holders of the Class C Special Shares to be redeemed, the Class B Redemption
Price for each such Class C Special Share upon presentation and surrender at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation in such notice of the certificate or
certificates for the Class C Special Shares to be redeemed, together with such
other documents and instruments as may be required to effect a transfer of Class
C Special Shares according to the applicable statutory requirements and the
by-laws of the Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require. Payment of the Class C Redemption Price
for such Class C Special Shares shall be made by delivery to each holder, at the
address of the holder recorded in the securities register of the Corporation or
by holding for pick up by the holder at the registered office of the Corporation
or at the office of the Transfer Agent as may be specified by the Corporation in
such notice, the certificate or certificates representing the IMSC 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 Corporation payable at par in Canadian dollars at any
branch of the bankers of the Corporation in Canada in respect of the amount
equivalent to the full amount of all declared and unpaid dividends comprising
part of the Class C Redemption Price. Upon such payment or deposit of the Class
C Redemption Price, the holders of the Class C Special Shares redeemed shall be
considered and deemed for all purposes to be the holders of the IMSC Common
Shares delivered to them.
5.5 Subject to the exercise of the Class C Redemption Call Right, on and after
the Automatic Redemption Date, the holders of the Class C Special Shares called
for redemption shall cease to be holders of such Class C Special Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the Class C Redemption Price in respect
of such Class C Special Shares, unless payment of the Class C Redemption Price
for such Class C Special Shares shall not be made upon presentation and
surrender of certificates in accordance with Section 5.4, in which case the
rights of the holders shall remain unaffected until such Class C Redemption
Price has been paid in the manner hereinbefore provided.
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5.6 The Corporation shall have the right, at any time after the sending of
notice of its intention to redeem the Class C Special Shares as aforesaid, to
deposit or cause to be deposited the Class C Redemption Price of the Class C
Special Shares so called for redemption, or such of the said Class C Special
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 named in such notice.
Upon the later of such deposit being made and the Automatic Redemption Date, the
Class C Special 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 the
Class C Redemption Price for such Class C Special 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
such Class C Redemption Price, the holders of the Class C Special Shares so
redeemed shall thereafter be considered and deemed for all purposes to be
holders of the IMSC Common Shares so delivered to them.
5.7 Notwithstanding the provisions of Section 5.2, IMSC shall have the
overriding right (the "Redemption Call Right") notwithstanding the proposed
redemption of the Class C Special Shares by the Corporation pursuant to this
Article 5, to purchase all but not less than all of the Class C Special Shares
on the Automatic Redemption Date from the holders for a purchase price (the
"Class C Redemption Call Purchase Price") per share equal to the Class C
Redemption Price per share. In the event of the exercise of the Class C
Redemption Call Right by IMSC, each holder shall be obligated to sell all the
Class C Special Shares held by such holder to IMSC on the Automatic Redemption
Date on payment by IMSC to such holder of the Class C Redemption Call Purchase
Price for each such share.
5.8 To exercise the Class C Redemption Call Right, IMSC must notify the Transfer
Agent, as agent for the holders of the Class C Special Shares and the
Corporation, of IMSC's intention to exercise such right not less than one
hundred and twenty-five (125) days before the Automatic Redemption Date. The
Transfer Agent shall notify the holders of the Class C Special Shares as to
whether or not IMSC has exercised the Class C Redemption Call Right forthwith
after the expiry of the period during which the same may be exercised by IMSC.
If IMSC exercises the Class C Redemption Call Right on the Automatic Redemption
Date, IMSC will purchase and the holders will sell all of the Class C Special
Shares then outstanding for a price per share equal to the Class C Redemption
Call Purchase Price.
5.9 For the purposes of completing the purchase of the Class C Special Shares
pursuant to the Class C Redemption Call Right, IMSC shall deposit with the
Transfer Agent, on or before the Automatic Redemption Date, certificates
representing IMSC Common Shares and a cheque in the amount of the remaining
portion, if any, of the Class C Redemption Call Purchase Price in respect of the
Class C Special Shares.
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5.10 Provided that the Class C Redemption Call Purchase Price has been so
deposited with the Transfer Agent, on and after the Automatic Redemption Date
the rights of each holder of Class C Special Shares will be limited to receiving
the Class C Redemption Call Purchase Price payable by IMSC in respect of the
Class C Special Shares upon presentation and surrender by the holder of
certificates representing such Class C Special Shares and the holder shall, with
respect to the Class C Special Shares so purchased, on and after the Class C
Redemption Date, be considered and deemed for all purposes to be the holder of
IMSC Common Shares delivered to such holder. Upon surrender to the Transfer
Agent of a certificate or certificates representing the Class C Special Shares
so purchased, together with such other documents and instruments as may be
required to effect a transfer of Class C Special Shares according to the
applicable statutory requirements and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent on behalf of
IMSC shall deliver to such holder, certificates representing the IMSC Common
Shares to which the holder is entitled and a cheque or cheques of IMSC payable
in at par in Canadian dollars at any branch of the bankers of IMSC in Canada in
payment of the remaining portion, if any, of the Class C Redemption Call
Purchase Price. If IMSC does not exercise the Class C Redemption Call Right in
the manner described above, on the Automatic Redemption Date the holders of the
Class C Special Shares will be entitled to receive in exchange therefor the
Class C Redemption Price otherwise payable by the Corporation pursuant to this
Article 5.
Article 6 - Purchase for Cancellation
6.1 Subject to applicable law, the Corporation may at any time and from time to
time offer to purchase for cancellation all or any part of the outstanding Class
C Special Shares at any price by the tender to all holders of record of Class C
Special Shares then outstanding together with an amount equal to all declared
and unpaid dividends thereon. The holders of Class C Special Shares may accept
or refuse such offer at their discretion. If in response to an invitation for
tenders under the provisions of this Article 6, more Class C Special Shares are
tendered than the Corporation is prepared to purchase, the Class C Special
Shares to be purchased by the Corporation shall be purchased as nearly as may be
pro rata according to the number of shares tendered by each holder who submits a
tender to the Corporation. If only part of the Class C Special Shares
represented by any certificate shall be purchased, a new certificate for the
balance of such shares shall be issued at the expense of the Corporation.
Article 7 - Amendment and Approval
7.1 The rights, privileges, restrictions and conditions attaching to the Class C
Special Shares may be added to, changed or removed but only with the approval of
the holders of the Class C Special Shares given as hereinafter specified.
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7.2 Any approval given by the holders of the Class C Special Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Class C Special Shares or any other matter requiring the approval or consent of
the holders of the Class C Special Shares 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 a resolution
passed by not less than two-thirds of the votes cast on such resolution at a
meeting of holders of Class C Special Shares duly called and held at which the
holders of at least 50% of the outstanding Class C Special Shares at that time
are present or represented by proxy; provided that such approval must be given
also by the affirmative vote of holders of more than two-thirds of the Class C
Special Shares represented in person or by proxy at the meeting excluding Class
C Special Shares beneficially owned by IMSC or any of its Affiliates (as such
term is defined in the Business Corporations Act (Ontario)). If at any such
meeting the holders of at least 50% of the outstanding Class C Special Shares at
that time are not present or represented by proxy within one-half hour after the
time appointed for such meeting then the meeting shall be adjourned to such date
not less than ten (10) days thereafter and to such time and place as may be
designed by the Chairman of such meeting. At such adjourned meeting the holders
of Class C Special Shares present or represented by proxy thereat may transact
the business for which the meeting was originally called and a resolution passed
thereat by the affirmative vote of not less than two-thirds of the votes cast on
such resolution at such meeting shall constitute the approval or consent of the
holders of the Class C Special Shares.
PART D
CLASS D SPECIAL SHARES
The Class D Special Shares shall have attached thereto, as a class, the
following rights, privileges, restrictions and conditions:
Article 1 - Dividends
1.1 From the date of the issuance of the Class D Special Shares up to and
including February 28, 2001, the holders of the Class D Special Shares shall be
entitled to receive, and the Corporation shall pay thereon, out of monies
properly applicable to the payment of dividends, such dividends as the Board of
Directors may from time to time declare.
1.2 After February 28, 2001, the holders of the Class D Special Shares shall be
entitled to receive and the Board of Directors shall, subject to applicable law,
on each IMSC Dividend Declaration Date, declare a dividend on each Class D
Special Share (i) in the case of a cash dividend declared on IMSC Common Shares,
in an amount in cash for each Class D Special Share equal to the Canadian Dollar
Equivalent on the IMSC Dividend Declaration Date of the cash dividend declared
on each IMSC Common Share multiplied by the Class D Share Exchange Multiple Per
Share or (ii) in the case of a stock dividend declared on IMSC Common Shares to
be paid in IMSC Common Shares, in such number of Class D Special Shares for each
Class D Special Share as is equal to the number of IMSC
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Common Shares to be paid on each IMSC Common Share or (iii) in the case of a
dividend declared on IMSC Common Shares in property other than cash or IMSC
Common Shares, in such type and amount of property for each Class D Special
Share as is the same as or the Economic Equivalent of the type and amount of
property declared as a dividend on each IMSC Common Shares multiplied by the
Class D Share Exchange Multiple Per Share. Such dividends shall be paid out of
money, assets or property of the Corporation properly applicable to the payment
of dividends, or out of authorized but unissued shares of the Corporation.
1.3 The record date for the determination of the holders of Class D Special
Shares entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Class D Special Shares under Section 1.2 hereof
shall be the same as the record date and the payment date, respectively, for the
corresponding dividend or distribution declared on the IMSC Common Shares.
1.4 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation in Canada shall be issued in respect of any cash dividends
contemplated by Section 1.2(i) hereof and the sending of such a cheque to each
holder of a Class D Special Share shall satisfy the cash dividend represented
thereby unless the cheque is not paid on presentation. Certificates registered
in the name of the registered holders of Class D Special Shares shall be issued
or transferred in respect of any stock dividends contemplated by Section 1.2(ii)
hereof and the sending of such a certificate to each holder of a Class D Special
Share shall satisfy the stock dividend represented thereby. Such other type and
amount of property in respect of any dividends contemplated by Section 1.2(iii)
hereof shall be issued, distributed or transferred by the Corporation in such
manner as it shall determine and the issuance, distribution or transfer thereof
by the Corporation to each holder of a Class D Special share shall satisfy the
dividend represented thereby. No holder of a Class D Special Share shall be
entitled to recover by action or other legal process against the Corporation any
dividend that is represented by a cheque that has not been duly presented to the
Corporation's bankers for payment or that otherwise remains unclaimed for a
period of six years from the date on which such dividend became payable.
1.5 If on any payment date for any dividends declared on the Class D Special
Shares under Section 1.2 hereof, such dividends are not paid in full on all of
the Class D Special Shares then outstanding because the Corporation does not
then have sufficient monies, assets or property applicable to the payment of
such dividends, then any such dividends that remain unpaid shall be paid on the
earliest subsequent date or dates determined by the Board of Directors on which
the Corporation shall have sufficient monies, assets or property applicable to
the payment of such dividends; and if on any date for the declaration or payment
of any dividend declared or to be declared on the Class D Special Shares under
Section 1.2 above such dividends are not declared or are not paid in full on all
of the Class D Special Shares then outstanding because
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the Class D Share Exchange Multiple has not then been determined, then any such
dividends that remain undeclared and/or unpaid shall be declared and/or paid on
the earliest subsequent date or dates determined by the Board of Directors on
which the Class D Share Exchange Multiple shall have been determined; provided
that if on any date for the payment of a dividend declared or to be declared on
the Class D Special Shares under Section 1.2 above such dividend is not paid in
full on all of the Class D Special Shares for any reason whatsoever, then the
Corporation shall pay to the holders of the Class D Special Shares interest at
the rate per annum which is equal to the interest rate then charged to the
Corporation by its principal banker for operating credit facilities provided to
the Corporation, on the principal amount of such outstanding dividend, from the
IMSC Dividend Payment Date to the date of actual payment of such dividend.
Article 2 - Certain Restrictions
2.1 So long as any of the Class D Special Shares are outstanding, the
Corporation shall not at any time without, but may at any time with, the
approval of the holders of the Class D Special Shares given as specified in
these share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking
junior to the Class D Special Shares, other than stock dividends
payable in Common Shares or any such other shares ranking junior to
the Class D Special 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 Class D
Special Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Class D Special Shares with respect to the payment of
dividends or on any liquidation distribution; or
(d) issue any Class D Special Shares or any other shares of the
Corporation ranking equally with, or superior to, the Class D Special
Shares other than the issuance of Class X Shares and other than by way
of stock dividends to the holders of such Class D Special Shares or as
contemplated by the Support Agreement.
The restrictions in Sections 2.1(a), 2.1(b) and 2.1(c) above shall not
apply if all dividends on the outstanding Class D Special Shares corresponding
to dividends declared to date on IMSC Common Shares shall have been declared on
the Class D Special Shares and paid in full.
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Article 3 - Participation Upon Liquidation, Dissolution or Winding-Up
3.1 At any time from the date of the issuance of each Class D Special Share up
to and including February 28, 2001, upon the liquidation, dissolution or
winding-up of the Corporation or other distribution of assets of the Corporation
among its shareholders for the purpose of liquidation of the Corporation's
assets or winding up its affairs, each holder of Class D Special Shares shall be
entitled, subject to applicable law, to receive from the assets of the
Corporation in respect of each Class D Special Share held by such holder on the
Class D Liquidation Date, before any distribution of any part of the assets of
the Corporation among the holders of the Common Shares and any other shares
ranking junior to the Class D Special Shares, to: (i) the Current Market Value
of 3.31126 IMSC Common Shares for each such Class D Special Share, which shall
be satisfied in full by the Corporation causing to be delivered to such holder
3.31126 IMSC Common Shares for each Class D Special Share held, plus (ii) an
additional amount equivalent to the full amount of all dividends declared and
unpaid on such Class D Special Share prior to the Class D Liquidation Date.
3.2 At any time after February 28, 2001, in the event of the liquidation,
dissolution or winding-up or the Corporation or other distribution of assets of
the Corporation among its shareholders for the purpose of liquidation of the
Corporation's assets or winding up its affairs, each holder of Class D Special
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Class D Special Share held by such holder
on the Class D Liquidation Date, before any distribution of any part of the
assets of the Corporation among the holders of the Common Shares and any other
shares ranking junior to the Class D Special Shares, to an amount per share
equal to: (i) the Current Market Price of an IMSC Common Share determined as at
the last Business Day prior to the Class D Liquidation Date multiplied by the
Class D Share Exchange Multiple Per Share, which shall be satisfied in full by
the Corporation causing to be delivered to such holder that number of IMSC
Common Shares which is equal to the Class D Share Exchange Multiple Per Share,
plus (ii) an additional amount equivalent to the full amount of all dividends
declared and unpaid on such Class D Special Share prior to the Class D
Liquidation Date.
3.3 In the case of a distribution on Class D Special Shares under this Article
3, on or promptly after the Class D Liquidation Date, and subject to the
exercise by IMSC of the Class D Liquidation Call Right (as set forth and defined
below), the Corporation (or its representative or successor) shall cause to be
delivered to the holders of Class D Special Shares the Class D Liquidation
Amount for each such Class D Special Share upon presentation and surrender of
the certificates representing such Class D Special Shares together with such
other documents and instruments as may be required to effect a transfer of Class
D Special Shares according to the applicable statutory requirements and the
by-laws of the Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of the Class D Special Shares. Payment of
the
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Class D Liquidation Amount for such Class D Special Shares shall be made by
delivery to each holder at the address of the holder recorded in the securities
register of the Corporation for the Class D Special Shares or by holding for
pick up by the holder at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the Corporation by notice to
the holders of the Class D Special Shares of certificates representing IMSC
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 Corporation payable at
par in Canadian dollars at any branch of the bankers of the Corporation in
Canada in respect of the amount equivalent to the full amount of all declared
and unpaid dividends comprising part of the Class D Liquidation Amount.
3.4 If on the Class D Liquidation Date the Class D Liquidation Amount in respect
of any of the Class D Special Shares payable under Section 3.2 above cannot be
paid because the Class D Share Exchange Multiple has not then been determined,
then such Class D Liquidation Amount or any part thereof that remains unpaid
shall be paid on the earliest subsequent date or dates determined by the Board
of Directions on which the Class D Share Exchange Multiple shall have been
determined; provided that in such event, the Corporation (or its representative
or successor) shall pay to the holders of the Class D Special Shares interest at
the rate per annum which is equal to the interest rate charged to the
Corporation by its principal banker at the Class D Liquidation Date for
operating credit facilities provided to the Corporation, on the principal amount
of such outstanding Class D Liquidation Amount, from the Class D Liquidation
Date to the date of actual payment thereof.
3.5 On and after the Class D Liquidation Date, the holders of the Class D
Special Shares shall cease to be holders of such Class D Special Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the Class D Liquidation Amount in
respect of the Class D Special Shares held by them, unless payment of the Class
D Liquidation Amount for such Class D Special 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 Class D Liquidation Amount has been paid in the manner
hereinbefore provided.
3.6 The Corporation (or its representative or successor) shall have the right at
any time after the Class D Liquidation Date to deposit or cause to be deposited
the Class D Liquidation Amount in respect of the Class D Special Shares
represented by certificates that have not at the Class D Liquidation Date been
surrendered by the holders thereof in a custodial account with any chartered
bank or trust company in Canada designated by the Board of Directors of the
Corporation (the "Deposit Agent"). Upon such deposit being made, the rights of
the holders of Class D Special Shares after such deposit shall be limited to
receiving the Class D Liquidation Amount in respect of such Class D Special
Shares, 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 Class D Liquidation Amount, the holders of
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the Class D Special Shares shall thereafter be considered and deemed for all
purposes to be the holders of the IMSC Common Shares delivered to them. After
the Corporation has satisfied its obligations to pay the holders of the Class D
Special Shares the Class D Liquidation Amount per Class D Special Share pursuant
to Section 3.2 above or the amounts payable pursuant to Section 3.1 above, as
the case may be, such holders shall not be entitled to share in any further
distribution of the assets of the Corporation.
3.7 IMSC shall have the overriding right (the "Class D Liquidation Call Right"),
in the event of and notwithstanding the proposed liquidation, dissolution or
winding-up of the Corporation at any time after February 28, 2001 pursuant
Section 3.2 above, to purchase from all, but not less than all, of the holders
of Class D Special Shares on the Class D Liquidation Date all, but not less than
all, of the Class D Special Shares held by each such holder on payment by IMSC
to each holder of an amount per share equal to the Class D Liquidation Amount
(as determined pursuant to the provisions of Section 3.2 (the "Class D
Liquidation Call Purchase Price"). In the event of the exercise of the Class D
Liquidation Call Right by IMSC, each holder shall be obliged to sell all of the
Class D Special Shares held by such holder to IMSC on the Class D Liquidation
Date on payment by IMSC to the holder of the Class D Liquidation Call Purchase
Price for each such share.
3.8 In order to exercise its Class D Liquidation Call Right, IMSC must notify
the holders of the Class D Special Shares and the Corporation, of IMSC's
intention to exercise such right at least 55 days before the Class D Liquidation
Date in the case of voluntary liquidation, dissolution or winding up of the
Corporation and at least 5 Business Days before the Class D Liquidation Date in
the case of an involuntary liquidation, dissolution or winding up of the
Corporation. If IMSC exercises the Class D Liquidation Call Right, then on the
Class D Liquidation Date, IMSC will purchase and the holders will sell all of
the Class D Special Shares then outstanding for a price per share equal to the
Class D Liquidation Call Purchase Price.
3.9 For the purposes of completing the purchase of the Class D Special Shares
pursuant to the exercise of Class D Liquidation Call Right, IMSC shall deliver
to each holder at the address of the holder recorded in the securities register
of the Corporation for the Class D Special Shares or by holding for pick up by
the holder at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of the Class D Special Shares of certificates representing the IMSC Common
Shares required to be delivered by IMSC in payment of the Class D Liquidation
Call Purchase Price (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 or cheques of the Corporation
in Canada payable at par in Canadian dollars at any branch of the bankers of the
Corporation in payment of the amount equivalent to the full amount of all
declared and unpaid dividends comprising part of the Class D Liquidation Amount.
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3.10 Provided that the Class D Liquidation Call Purchase Price has been paid as
provided for in Section 3.9, on and after the Class D Liquidation Date, the
rights of each holder of Class D Special Shares will be limited to receiving the
Class D Liquidation Call Purchase Price payable by IMSC in respect of the Class
D Special Shares held by such holder upon presentation and surrender by such
holder of certificates representing such Class D Special Shares and the holder
shall on and after the Class D Liquidation Date be considered and deemed for all
purposes to be the holder of the IMSC Common Shares delivered to it. Upon
surrender to the Deposit Agent (as defined in Section 3.6 above) of a
certificate or certificates representing Class D Special Shares, together with
such other documents and instruments as may be required to effect a transfer of
Class D Special Shares according to the applicable statutory requirements and
the by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange therefor,
and the Transfer Agent on behalf of IMSC shall deliver to such holder,
certificates representing the IMSC Common Shares to which the holder is entitled
and a cheque or cheques of IMSC payable at par and in Canadian dollars at any
branch of the bankers of IMSC or of the Corporation in Canada in payment of the
remaining portion, if any, of the Class D Liquidation Call Purchase Price. If
IMSC does not exercise the Class D Liquidation Call Right in the manner
described above, on the Class D Liquidation Date, the holders of the Class D
Special Shares will be entitled to receive in exchange therefor the Class D
Liquidation Amount otherwise payable by the Corporation in connection with the
liquidation, dissolution or winding-up of the Corporation pursuant to this
Article 3.
3.11 The Corporation shall provide prompt notice to each holder of outstanding
Class D Special Shares of any action, step or proceedings initiated or taken by
the Corporation, or another person, in respect of, or for the purpose of, a
liquidation, winding-up or dissolution of the Corporation.
Article 4 - Retraction of Class D Special Shares by Holder
4.1 A holder of Class D Special Shares shall be entitled, at any time after
February 28, 2001, subject to the exercise by IMSC of the Class D Retraction
Call Right (as set forth and defined below) and otherwise upon compliance with
the provisions of this Article 4, to require the Corporation to redeem, on the
Class D Retraction Date (defined below), any or all of the Class D Special
Shares registered in the name of such holder for an amount per share equal to:
(i) the Current Market Price of one IMSC Common Share determined as at the last
Business Day prior to the Class D Retraction Date (as defined below) multiplied
by the Class D Share Exchange Multiple Per Share, which shall be paid and
satisfied in full by the Corporation causing to be delivered to such holder that
number of IMSC Common Shares which is equal to the Class D Share Exchange
Multiple Per Share for each Class D Special Share presented and surrendered by
the holder plus (ii) an additional amount equivalent to the full amount of all
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dividends declared and unpaid on each Class D Special Share prior to the Class D
Retraction Date (collectively, the "Class D Retraction Price"), provided that if
the record date for any such declared and unpaid dividend occurs on or after the
Class D Retraction Date, the Class D Retraction Price shall not include such
additional amount equivalent to the declared and unpaid dividend.
4.2 To exercise the right of retraction provided for in Section 4.1, the holder
shall present and surrender at the registered office of the Corporation or at
any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Class D Special Shares, the certificate or certificates
representing the Class D Special Shares which the holder desires to have the
Corporation redeem, together with such other documents and instruments as may be
required to effect a transfer of Class D Special Shares according to the
applicable statutory requirements and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, and together with a duly executed statement in the form attached hereto
as Schedule "A", or such other form as may be acceptable to the Corporation,
acting reasonably (the "Class D Retraction Request"):
i) specifying that the holder desires to have all or any number specified
therein of the Class D Special Shares represented by such certificate
or certificates (the "Retracted Class D Shares") redeemed by the
Corporation;
ii) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Class D Shares (the "Class D
Retraction Date"), provided that the Class D Retraction Date shall not
be less than five (5) Business Days after the date on which the Class
D Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is specified by
the holder in the Class D Retraction Request, the Class D Retraction
Date shall be deemed to be the tenth (10th) Business Day after the
date on which the Class D Retraction Request is received by the
Corporation; and
iii) acknowledging the overriding right (the "Class D Retraction Call
Right") of IMSC to purchase all but not less than all the Class D
Retracted Shares directly from the holder and that the Class D
Retraction Request shall be deemed to be a revocable offer by the
holders to sell the Retracted Class D Shares to IMSC in accordance
with the Class D Retraction Call Right.
4.3 Subject to the exercise by IMSC of the Class D Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in this
Article 4 of a certificate or certificates representing the number of Class D
Special Shares which the holder desires to have the Corporation redeem, together
with a Class D Retraction Request, and provided that the Class D Retraction
Request is not revoked by the holder in the manner specified in Section
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4.10, the Corporation shall redeem the Class D Retracted Shares effective at the
close of business on the Class D Retraction Date and shall cause to be delivered
to such holder the Class D Retraction Price with respect to such shares. If only
a part of the Class D Special Shares represented by any certificate is redeemed
or purchased by IMSC pursuant to the Class D Retraction Call Right, a new
certificate for the balance of such Class D Special Shares shall be issued to
the holder at the expense of the Corporation.
4.4 Upon receipt by the Corporation of a Class D Retraction Request, the
Corporation shall immediately notify IMSC thereof. In order to exercise the
Class D Retraction Call Right, IMSC must notify the Corporation in writing of
its determination to do so (the "Class D Retraction Call Notice") within two (2)
Business Days of notification to IMSC by the Corporation of the receipt by the
Corporation of the Class D Retraction Request. If IMSC does not so notify the
Corporation within such two (2) Business Day period, the Corporation will notify
the holder as soon as possible thereafter that IMSC will not exercise the Class
D Retraction Call Right. If IMSC delivers the Class D Retraction Call Notice
within such two (2) Business Day period, and provided that the Class D
Retraction Request is not revoked by the holder in the manner specified in
Section 4.10, the Class D Retraction Request shall thereupon be considered only
to be an offer by the holder to sell the Retracted Class D Shares to IMSC in
accordance with the Class D Retraction Call Right. In such event, the
Corporation shall not redeem the Retracted Class D Shares and IMSC shall
purchase from such holder and such holder shall sell to IMSC on the Class D
Retraction Date the Retracted Class D Shares for a purchase price (the "Class D
Retraction Call Purchase Price") per share equal to the Class D Retraction Price
per share.
4.5 For the purpose of completing a purchase pursuant to the Class D Retraction
Call Right, IMSC shall deposit with the Transfer Agent, on or before the Class D
Retraction Date, certificates representing IMSC Common Shares and a cheque in
the amount of the remaining portion, if any, of the Class D Retraction Call
Purchase Price in respect of the Retracted Class D Shares.
4.6 Provided that the Class D Retraction Call Purchase Price in respect of the
Retracted Class D Shares has been so deposited with the Transfer Agent, the
closing of the purchase and sale of the Retracted Class D Shares pursuant to the
Class D Retraction Call Right shall be deemed to have occurred as at the close
of business on the Class D Retraction Date and, for greater certainty, no
purchase by the Corporation of such Retracted Class D Shares shall take place on
the Class D Retraction Date. In the event that IMSC does not deliver a Class D
Retraction Call Notice within the said two (2) Business Day period, and provided
that the Class D Retraction Request is not revoked by the holder in the manner
specified in Section 4.10, the Corporation shall purchase the Retracted Class D
Shares on the Class D Retraction Date in the manner otherwise contemplated in
this Article 4.
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4.7 Promptly and without delay, the Corporation or IMSC, as the case may be,
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the securities register of the Corporation
for the Class D Special Shares or at the address specified in the holder's Class
D Retraction Request or by holding for pick up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation or IMSC, as the case may be, by notice to the
holders of Class D Special Shares, certificates representing IMSC 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) registered in the name of the holder or in such other name as the holder
may request in payment of the Class D Retraction Price or the Class D Retraction
Call Purchase Price (as the case may be) in respect of the Retracted Class D
Shares, and a cheque of the Corporation payable at par in Canadian dollars at
any branch of the bankers of the Corporation in Canada in payment of the
remaining portion, if any, of the Class D Retraction Price (less any tax
required to be deducted and withheld therefrom by the Corporation) or a cheque
of IMSC payable at par in Canadian dollars at any branch of the bankers of IMSC
in Canada in payment of the remaining portion, if any, of the total Class D
Retraction Call Purchase Price (as the case may be) in respect of the Retracted
Class D Shares and such delivery of such certificates and cheque by or on behalf
of the Corporation or by or on behalf of IMSC (as the case may be) by the
Transfer Agent, shall be deemed to be payment of and shall satisfy and discharge
all liability for the Class D Retraction Price or Class D Retraction Call
Purchase Price (as the case may be) in respect of the Retracted Class D Shares
to the extent that the same is represented by such share certificates and cheque
(plus any tax required and in fact deducted and withheld therefrom and remitted
to the proper tax authority, without interest), unless such cheque is not paid
on due presentation.
4.8 On and after the close of business on the Class D Retraction Date, the
holder of the Retracted Class D Shares shall cease to be a holder of such
Retracted Class D Shares and shall not be entitled to exercise any of the rights
of a holder in respect thereof, other than the right to receive the Class D
Retraction Price or Class D Retraction Call Purchase Price (as the case may be)
in respect of such Retracted Class D Shares unless upon presentation and
surrender of certificates in accordance with the foregoing provisions, payment
of the Class D Retraction Price or the Class D Retraction Call Purchase Price
(as the case may be) shall not be made, in which case the rights of such holder
shall remain unaffected until such Class D Retraction Price or Class D
Retraction Call Purchase Price (as the case may be) has been paid in the manner
hereinbefore provided. On and after the close of business on the Class D
Retraction Date, provided that presentation and surrender of certificates and
payment of such Class D Retraction Price or Class D Retraction Call Purchase
Price (as the case may be) has been made in accordance with the foregoing
provisions, the holder of the Retracted Class D Shares so redeemed by the
Corporation or purchased by IMSC shall thereafter be considered and deemed for
all purposes to be a holder of the IMSC Common Shares delivered to it.
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4.9 Notwithstanding any other provision of this Article 4, the Corporation shall
not be required to redeem Retracted Class D Shares specified by a holder in a
Class D Retraction Request to the extent that such redemption of Retracted Class
D Shares would be contrary to solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Class D Retraction Date
it would not be permitted by any of such provisions to purchase the Retracted
Class D Shares tendered for redemption on such date, and provided that IMSC
shall not have exercised the Class D Retraction Call Right with respect to the
Retracted Class D Shares, the Corporation shall only be required to redeem
Retracted Class D Shares specified by a holder in a Class D 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 (2) Business Days prior to the Class D Retraction
Date as to the number of Retracted Class D Shares which will not be redeemed by
the Corporation. In any case in which the redemption by the Corporation of
Retracted Class D Shares would be contrary to solvency requirements or other
provisions of applicable law, the Corporation shall as soon as practicable and
from time to time redeem Retracted Class D Shares in accordance with Section 4.3
above on a pro rata basis and shall issue to each holder of Retracted Class D
Shares a new certificate, at the expense of the Corporation, representing Class
D Special Shares not purchased by the Corporation pursuant to Section 4.3 above.
Provided that the Class D Retraction Request is not revoked by the holder in the
manner specified in Section 4.10 below, the holder of any such Retracted Class D
Shares not redeemed by the Corporation pursuant to Section 4.3 above as a result
of solvency requirements or other provisions of applicable law shall be deemed
by giving the Class D Retraction Request to require IMSC to purchase such
Retracted Class D Shares from such holder on the Class D Retraction Date or as
soon as practicable thereafter on payment by IMSC to such holder of the Class D
Retraction Call Purchase Price for each such Retracted Class D Share.
4.10 A holder of Retracted Class D Shares may, by notice in writing given by the
holder to the Corporation no later than the close of business on the Business
Day immediately preceding the Class D Retraction Date, withdraw its Class D
Retraction Request in which event such Class D Retraction Request shall be null
and void and, for greater certainty, the revocable offer constituted by the
Class D Retraction Request to sell the Retracted Class D Shares to IMSC shall be
deemed to have been revoked.
Article 5 - Redemption of Class D Special Shares by the Corporation
5.1 In this Article 5, the term "Automatic Redemption Date" means the date for
the automatic redemption by the Corporation of the Class D Special Shares
pursuant to this Article 5, which date shall be December 1, 2013, unless (a)
such date shall be extended at any time or from time to time to a specified
later date by the Board of Directors, or (b) such date shall be accelerated at
any time to a specified earlier date by the Board of Directors if at such time
there are less than 1,000 Class D Special Shares outstanding (other than Class D
Special
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Shares held by IMSC and its affiliates and 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 Class D
Special Shares, any issue or distribution rights to acquire Class D Special
Shares or securities exchangeable for or convertible into Class D Special
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 Class D Special Shares.
5.2 Subject to applicable law and if IMSC does not exercise the Class D
Redemption Call Right, the Corporation shall on the Automatic Redemption Date
redeem all but not less than all of the then outstanding Class D Special Shares
for an amount per share equal to: (i) the Current Market Price of one IMSC
Common Share determined as at the last Business Day prior to the Automatic
Redemption Date multiplied by the Class D Share Exchange Multiple Per Share,
which shall be paid and satisfied in full by the Corporation causing to be
delivered to each holder of a Class D Special Share that number of IMSC Common
Shares which is equal to the Class D Share Exchange Multiple Per Share for each
Class D Special Share held by such holder, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid thereon
(collectively, the "Class D Redemption Price").
5.3 In any case of a redemption of Class D Special Shares under this Article 5,
the Corporation shall, at least one hundred and twenty (120) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Class D
Special Shares a notice in writing of the redemption by the Corporation on the
purchase by IMSC under the Class D Redemption Call Right (as set forth and
defined below), as the case may be, of the Class D Special Shares held by such
holder. Such notice shall set out the formula for determining the Class D
Redemption Price or the Class D Redemption Call Purchase Price (as the case may
be), the Automatic Redemption Date and, if applicable, particulars of the Class
D Redemption Call Right.
5.4 Subject to exercise of the Class D Redemption Call Right, on or after the
Automatic Redemption Date, the Corporation shall cause to be delivered to the
holders of the Class D Special Shares to be redeemed, the Class D Redemption
Price for each such Class D Special Share upon presentation and surrender at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation in such notice of the certificate or
certificates for the Class D Special Shares to be redeemed, together with such
other documents and instruments as may be required to effect a transfer of Class
D Special Shares according to the applicable statutory requirements and the
by-laws of the Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require. Payment of the Class D Redemption Price
for such Class D Special Shares shall be made by delivery to each holder, at the
address of the holder recorded in the securities register of the Corporation or
by holding for pick up by the holder at the registered office of the Corporation
or at the office of the Transfer Agent as may be specified by the Corporation in
such notice,
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the certificate or certificates representing the IMSC 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 Corporation payable at par in Canadian dollars at any branch
of the bankers of the Corporation in Canada in respect of the amount equivalent
to the full amount of all declared and unpaid dividends comprising part of the
Class D Redemption Price. Upon such payment or deposit of the Class D Redemption
Price, the holders of the Class D Special Shares redeemed shall be considered
and deemed for all purposes to be the holders of the IMSC Common Shares
delivered to them.
5.5 Subject to the exercise of the Class D Redemption Call Right, on and after
the Automatic Redemption Date, the holders of the Class D Special Shares called
for redemption shall cease to be holders of such Class D Special Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the Class D Redemption Price in respect
of such Class D Special Shares, unless payment of the Class D Redemption Price
for such Class D Special Shares shall not be made upon presentation and
surrender of certificates in accordance with Section 5.4, in which case the
rights of the holders shall remain unaffected until such Class D Redemption
Price has been paid in the manner hereinbefore provided.
5.6 The Corporation shall have the right, at any time after the sending of
notice of its intention to redeem the Class D Special Shares as aforesaid, to
deposit or cause to be deposited the Class D Redemption Price of the Class D
Special Shares so called for redemption, or such of the said Class D Special
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 named in such notice.
Upon the later of such deposit being made and the Automatic Redemption Date, the
Class D Special 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 the
Class D Redemption Price for such Class D Special 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
such Class D Redemption Price, the holders of the Class D Special Shares so
redeemed shall thereafter be considered and deemed for all purposes to be
holders of the IMSC Common Shares so delivered to them.
5.7 Notwithstanding the provisions of Section 5.2, IMSC shall have the
overriding right (the "Redemption Call Right") notwithstanding the proposed
redemption of the Class D Special Shares by the Corporation pursuant to this
Article 5, to purchase all but not less than all of the Class D Special Shares
on the Automatic Redemption Date from the holders for a purchase price (the
"Class D Redemption Call Purchase Price") per share equal to the Class D
Redemption Price per share. In the event of the exercise of the Class D
Redemption Call Right by IMSC, each holder shall be obligated to sell all the
Class D Special Shares held by
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such holder to IMSC on the Automatic Redemption Date on payment by IMSC to such
holder of the Class D Redemption Call Purchase Price for each such share.
5.8 To exercise the Class D Redemption Call Right, IMSC must notify the Transfer
Agent, as agent for the holders of the Class D Special Shares and the
Corporation, of IMSC's intention to exercise such right not less than one
hundred and twenty-five (125) days before the Automatic Redemption Date. The
Transfer Agent shall notify the holders of the Class D Special Shares as to
whether or not IMSC has exercised the Class D Redemption Call Right forthwith
after the expiry of the period during which the same may be exercised by IMSC.
If IMSC exercises the Class D Redemption Call Right on the Automatic Redemption
Date, IMSC will purchase and the holders will sell all of the Class D Special
Shares then outstanding for a price per share equal to the Class D Redemption
Call Purchase Price.
5.9 For the purposes of completing the purchase of the Class D Special Shares
pursuant to the Class D Redemption Call Right, IMSC shall deposit with the
Transfer Agent, on or before the Automatic Redemption Date, certificates
representing IMSC Common Shares and a cheque in the amount of the remaining
portion, if any, of the Class D Redemption Call Purchase Price in respect of the
Class D Special Shares.
5.10 Provided that the Class D Redemption Call Purchase Price has been so
deposited with the Transfer Agent, on and after the Automatic Redemption Date
the rights of each holder of Class D Special Shares will be limited to receiving
the Class D Redemption Call Purchase Price payable by IMSC in respect of the
Class D Special Shares upon presentation and surrender by the holder of
certificates representing such Class BD Special Shares and the holder shall,
with respect to the Class D Special Shares so purchased, on and after the Class
D Redemption Date, be considered and deemed for all purposes to be the holder of
IMSC Common Shares delivered to such holder. Upon surrender to the Transfer
Agent of a certificate or certificates representing the Class D Special Shares
so purchased, together with such other documents and instruments as may be
required to effect a transfer of Class D Special Shares according to the
applicable statutory requirements and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent on behalf of
IMSC shall deliver to such holder, certificates representing the IMSC Common
Shares to which the holder is entitled and a cheque or cheques of IMSC payable
in at par in Canadian dollars at any branch of the bankers of IMSC in Canada in
payment of the remaining portion, if any, of the Class D Redemption Call
Purchase Price. If IMSC does not exercise the Class D Redemption Call Right in
the manner described above, on the Automatic Redemption Date the holders of the
Class D Special Shares will be entitled to receive in exchange therefor the
Class D Redemption Price otherwise payable by the Corporation pursuant to this
Article 5.
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Article 6 - Purchase for Cancellation
6.1 Subject to applicable law, the Corporation may at any time and from time to
time offer to purchase for cancellation all or any part of the outstanding Class
D Special Shares at any price by the tender to all holders of record of Class D
Special Shares then outstanding together with an amount equal to all declared
and unpaid dividends thereon. The holders of Class D Special Shares may accept
or refuse such offer at their discretion. If in response to an invitation for
tenders under the provisions of this Article 6, more Class D Special Shares are
tendered than the Corporation is prepared to purchase, the Class D Special
Shares to be purchased by the Corporation shall be purchased as nearly as may be
pro rata according to the number of shares tendered by each holder who submits a
tender to the Corporation. If only part of the Class D Special Shares
represented by any certificate shall be purchased, a new certificate for the
balance of such shares shall be issued at the expense of the Corporation.
Article 7 - Amendment and Approval
7.1 The rights, privileges, restrictions and conditions attaching to the Class D
Special Shares may be added to, changed or removed but only with the approval of
the holders of the Class D Special Shares given as hereinafter specified.
7.2 Any approval given by the holders of the Class D Special Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Class D Special Shares or any other matter requiring the approval or consent of
the holders of the Class D Special Shares 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 a resolution
passed by not less than two-thirds of the votes cast on such resolution at a
meeting of holders of Class D Special Shares duly called and held at which the
holders of at least 50% of the outstanding Class D Special Shares at that time
are present or represented by proxy; provided that such approval must be given
also by the affirmative vote of holders of more than two-thirds of the Class D
Special Shares represented in person or by proxy at the meeting excluding Class
D Special Shares beneficially owned by IMSC or any of its Affiliates (as such
term is defined in the Business Corporations Act (Ontario)). If at any such
meeting the holders of at least 50% of the outstanding Class D Special Shares at
that time are not present or represented by proxy within one-half hour after the
time appointed for such meeting then the meeting shall be adjourned to such date
not less than ten (10) days thereafter and to such time and place as may be
designed by the Chairman of such meeting. At such adjourned meeting the holders
of Class D Special Shares present or represented by proxy thereat may transact
the business for which the meeting was originally called and a resolution passed
thereat by the affirmative vote of not less than two-thirds of the votes cast on
such resolution at such meeting shall constitute the approval or consent of the
holders of the Class D Special Shares.
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SCHEDULE "A"
TO THE RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS OF THE
CLASS B SPECIAL SHARES, CLASS C SPECIAL SHARES AND CLASS D SPECIAL
SHARES
RETRACTION REQUEST
TO: International Menu Solutions Inc. (the "Corporation")
TAKE NOTICE THAT the undersigned, the holder of Class _______________
Shares of the Corporation, does hereby require the Corporation to redeem [INSERT
NUMBER] of such Class _________________ Shares (the "Retracted Shares") on the
_____ day of ____________, _____ (the "Retraction Date").
AND FURTHER TAKE NOTICE THAT the undersigned acknowledges that
International Menu Solutions Corporation ("IMSC") has the right to exercise the
Class ____________ Retraction Call Right and in that event this Retraction
Request shall be deemed to be a revocable offer by the undersigned to sell the
Retracted Shares to IMSC in accordance with the terms and conditions set out in
the share provisions of the Class _____________ Shares.
DATED this __________ day of _____________, ________.
___________________________
Signature
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RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
OF THE CLASS E SPECIAL SHARES AS A CLASS
The rights, privileges, restrictions and conditions attaching to the Class
E Special Shares, as a class, are as follows:
Article 1 - Directors' Authority to Issue One or More Series
1.1 The board of directors of the Corporation may issue the Class E Special
Shares at any time and from time to time in one or more series. Before the first
shares of a particular series are issued, the board of directors of the
Corporation shall, subject to the limitations set out in the articles, fix the
number of shares in such series and, determine the designation, rights,
privileges, restrictions and conditions to attach to the shares of such series
including, without limiting the generality of the foregoing, the rate or rates,
amount or method or methods of calculation of preferential dividends, whether
cumulative or non-cumulative or partially cumulative, and whether such rate(s),
amount or method(s) of calculation shall be subject to change or adjustment in
the future, the currency or currencies of payment, the date or dates and place
or places of payment thereof and the date or dates from which such preferential
dividends shall accrue, the redemption price and terms and conditions of
redemption (if any), the rights of retraction (if any), and the prices and terms
and conditions of retraction and whether any additional rights of retraction may
be vested in such holders in the future, voting rights and conversion or
exchange rights (if any) and any sinking fund, purchase fund or other provisions
attaching thereto. Before the issue of the first shares of a series, the board
of directors of the Corporation shall send to the Director (as defined in the
Business Corporations Act (Ontario)) articles of amendment in the prescribed
form containing a description of such series including the designation, rights,
privileges, restrictions and conditions determined by the board of directors of
the Corporation.
Article 2 - Ranking of Class E Special Shares
2.1 No rights, privileges, restrictions or conditions attaching to a series of
Class E Special Shares shall confer upon a series a priority in respect of
dividends or return of capital in the event of the liquidation, dissolution or
winding-up of the Corporation over any other series of Class E Special Shares.
The Class E Special Shares of each series shall rank on a parity with the Class
E Special Shares of every other series with respect to priority in the payment
of dividends and the return of capital and the distribution of assets of the
Corporation in the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of the
assets of the Corporation among its shareholders for the purpose of winding up
its affairs.
2.2 The Class E Special Shares shall be entitled to a preference over the Common
Shares, and shall rank on a parity with each of the Class X Shares, the Class B
Special Shares, the Class
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C Special Shares and the Class D Special Shares, with respect to the payment of
dividends and the distribution of assets in the event of liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
or any other distributions of assets of the Corporation among its shareholders
for the purpose of winding up its affairs. The Class E Special Shares of any
series may also be given such other preferences not inconsistent with the
rights, privileges, restrictions and conditions attached to the Class E Special
Shares as a class over the Common Shares of the Corporation and over any other
shares ranking junior to the Class E Special Shares as may be determined in the
case of such series of Class E Special Shares.
2.3 If any amount of cumulative dividends, whether or not declared, or declared
non-cumulative dividends or amount payable on a return of capital in the event
of the liquidation, dissolution or winding-up of the Corporation in respect of a
series of Class E Special Shares is not paid in full, the Class E Special Shares
of all series shall participate rateably in respect of all accumulated
cumulative dividends, whether or not declared, and all declared non-cumulative
dividends in accordance with the sums that would be payable on such shares if
all such dividends were declared and paid in full, and in respect of amounts
payable on return of capital in the event of the liquidation, dissolution or
winding-up of the Corporation in accordance with the sums that would be payable
on such repayment of capital if all sums so payable were paid in full; provided,
however, that in the event of there being insufficient assets to satisfy in full
all such claims as aforesaid, the claims of the holders of the Class E Special
Shares with respect to amounts payable on return of capital shall first be paid
and satisfied and any assets remaining thereafter shall be applied towards the
payment and satisfaction of claims in respect of dividends.
Article 3 - Voting Rights
3.1 Except as hereinafter referred to or as otherwise provided by law or in
accordance with any voting rights which may from time to time be attached to any
series of Class E Special Shares, the holders of the Class E Special Shares as a
class shall not be entitled as such to receive notice of, to attend or to vote
at any meeting of the shareholders of the Corporation.
Article 4 - Amendment With Approval of Holders
4.1 The rights, privileges, restrictions and conditions attached to the Class E
Special Shares as a class may be added to, changed or removed but only with the
approval of the holders of the Class E Special Shares given as hereinafter
specified.
Article 5 - Approval of the Holders
5.1 Any approval given by the holders of the Class E Shares to add to, change or
remove any right, privilege, restriction or condition attaching to the Class E
Shares or any other matter requiring the approval or consent of the holders of
the Class E Shares shall be deemed to have
<PAGE>
1xxx
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 a resolution passed by not less than two-thirds of the votes cast on such
resolution at a meeting of holders of Class E Shares duly called and held at
which holders of at least 50% of the outstanding Class E Shares at that time are
present and represented by a proxy; provided that such approval must be given
also by the affirmative vote of holders of more than two-thirds of the Class E
Shares represented in person or by proxy at the meeting excluding Class E Shares
beneficially owned by IMSC or any of its Affiliates (as such term is defined in
the Business Corporations Act (Ontario)). If at any such meeting of the holders
of at least 50% of the outstanding Class E Shares at that time are not present
or represented by proxy within one-half hour after the time appointed for such
meeting then the meeting shall be adjourned to such date not less than ten days
thereafter and to such time and place as may be designated by the chairman of
such meeting. At such adjourned meeting, the holders of Class E Shares present
or represented by proxy thereat may transact the business for which the meeting
was originally called and a resolution passed thereat by the affirmative vote of
not less than two-thirds of the votes cast on such resolution at such meeting
shall constitute the approval or consent of the holders of the Class E Shares.
<PAGE>
5. The amendment has been duly authorized as required by sections 168 and 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement aux articles 168 et 170
(selon le cas) de la Loi sur les societes par actions.
6. The resolution authorizing the the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires oules administrateurs (selon le cas) de la societe ont
approuve la resolution autorisant la modification le
30, April, 1999
- - --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents statuts sont signes en double exemplaire.
INTERNATIONAL MENU SOLUTIONS
INC.
----------------------------
(Name of Corporation)
(Denomination sociale de la societe)
By/Par: /s/ Michael A. Steele
-------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
Michael A. Steele, President
Ontario Corporation Number
Numero de la societ en Ontario
1325664
[STAMP]
[LOGO] Ministry of Ministere de
Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
May 07 MAI, 1999
- - ------------------------------------------------------------------
/s/[ILLEGIBLE] Trans
Director/Directeur [11] Code
Business Corporations Act/Loi sur les societes par actions |C|
18
Form 3 Business Corporations Act Formula 3
Loi sur les societes par actions
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
<TABLE>
<CAPTION>
<S> <C> <C>
1. The present name of the corporation is: Denomination sociale actuelle de la societe:
|I|N|T|E|R|N|A|T|I|O|N|A|L|_|M|E|N|U|_|S|O|L|U|T|I|O|N|S|_|I|N|C|.|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
2. The name of the corporation is changed to (if Nouvelle denomination sociale de la societe (s'il y a
applicable): lieu):
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
3. Date of incorporation/amalgamation: Date de la constitutuoin ou de la fusion:
01, January, 1999
________________________________________________________________________________
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as Les statuts de la societe sont modifies de la facon
follows: suivante:
</TABLE>
1. The Corporation is authorized to issue:
(a) 250,000 Class E Special Shares, Series 1;
(b) 250,000 Class E Special Shares, Series 2;
(c) 250,000 Class E Special Shares, Series 3; and
(d) 250,000 Class E Special Shares, Series 4.
2. The rights, privileges, restrictions and conditions attaching to the Class
E Special Shares, Series 1, the Class E Special Shares, Series 2, the Class
E Special Shares, Series 4 Shares are set out in Schedule A attached
hereto.
<PAGE>
1a
SCHEDULE A
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
OF THE CLASS E SPECIAL SHARES SERIES 1
The first series of Class E Special Shares are designated as Class E
Special Shares Series 1 ("Series 1 Shares") and shall consist of 250,000 Series
1 Shares. In addition to the rights, privileges, restrictions and conditions
attached to the Class E Special Shares as a class, the Series 1 Shares shall
have attached thereto the following rights, privileges, restrictions and
conditions:
PART A
GENERAL PROVISIONS
Article 1 - Interpretation
1.1 For the purposes of these share provisions, unless the context or subject
matter otherwise requires, the following terms shall have the following
meanings:
(a) "100Co" means 1005549 Ontario Ltd;
(b) "Adjusted EBITDA" means the consolidated earnings of 100Co and DCFood
before interest, income taxes, depreciation and amortization, as
calculated in accordance with GAAP and past practice including actual
management salaries and bonuses paid (but, notwithstanding the
foregoing, only 50% of the salary and bonuses paid during the relevant
period to Donald Kilimnik and Robert Curik), adjusted by adding back
any inter-company management fees or allocations of overhead expenses
that are expensed subsequent to May 10, 1999 for the relevant period,
the intent being that the calculation should be based on a
"normalized" EBITDA of the businesses carried on by 100Co and DCFood.
For the purpose of the Adjusted EBITDA calculations, if any expenses
are charged to 100Co and DCFood by an Affiliate (as such term is
defined in the Business Corporations Act (Ontario)) of 100Co or DCFood
for services not reasonably required in the normal course of the 100Co
and DCFood business and past practice, such expenses shall not be
included in the Adjusted EBITDA calculations;
(c) "Board of Directors" means the board of directors of the Corporation;
(d) "Business Day" means any day other than a Saturday, a Sunday or a day
on which banks are not open for business in Toronto, Ontario;
(e) "Canadian Dollar Equivalent" means in respect of any amount expressed
in a foreign currency (the "Foreign Currency Amount") at any
<PAGE>
1b
date the product obtained by multiplying (i) the Foreign Currency
Amount by (ii) the noon spot exchange rate on such date for such
foreign currency expressed in Canadian dollars as reported by the Bank
of Canada or, in the event such spot exchange rate is not available,
such exchange rate on such date for such foreign currency expressed in
Canadian dollars as may be deemed by the Board of Directors to be
appropriate for such purpose;
(f) "Class B Special Shares" means the Class B Special Shares of the
Corporation;
(g) "Class C Special Shares" means the Class C Special Shares of the
Corporation;
(h) "Class D Special Shares" means the Class D Special Shares of the
Corporation;
(i) "Class X Shares" means the Class X Shares of the Corporation;
(j) "Common Shares" means Common Shares of the Corporation;
(k) "Current Market Price" means, in respect of an IMSC Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing
bid and asked prices of IMSC Common Shares during a period of 20
consecutive trading days ending not more than 5 trading days before
such date on the National Market System of the National Association of
Securities Dealers Automated Quotation System or, if the IMSC Common
Shares are not then quoted on the National Market System of the
National Association of Securities Dealers Automated Quotation System,
on such other stock exchange or automated quotation system on which
the IMSC Common Shares are listed or quoted, as the case may be, as
may be selected by the Board of Directors for such purpose; provided,
however, that in the event IMSC Common Shares are not then listed or
quoted on any recognized stock exchange or automated quotation system
or if, in the opinion of the Board of Directors, the public
distribution or trading activity of IMSC Common Shares during such
period does not create a market which reflects the fair market value
of the IMSC Common Shares, then the Current Market Price of an IMSC
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
than any such selection, opinion or determination by the board of
Directors shall be conclusive and binding;
<PAGE>
1c
(l) "DCFood" means D.C. Food Processing Inc.;
(m) "GAAP" means Canadian generally accepted accounting principles applied
on a consistent basis;
(n) "IMSC" means International Menu Solutions Corporation, a Nevada
corporation and any successor thereto;
(o) "IMSC Common Shares" means the shares of common stock of IMSC, with a
par value of U.S. $0.001 per share, having voting rights of one vote
per share;
(p) "IMSC Dividend Payment Date" means the date upon which payment of
dividends declared by IMSC on the IMSC Dividend Declaration Date is
made; and "IMSC Dividend Declaration Date" means the date upon which
IMSC declares a dividend on the IMSC Common Shares;
(q) "Series 1 Liquidation Amount" means the amount per Series 1 Share that
each holder of Series 1 Shares shall be entitled to under Section 11.1
or 11.2 hereof, as the case may be;
(r) "Series 1 Liquidation Date" means the effective date of the
liquidation, dissolution or winding-up of the Corporation or other
distribution of the assets of the Corporation among its shareholders
for the purpose of liquidation of the Corporation or winding up of its
affairs;
(s) "Series 1 Share Exchange Multiple" means the quotient obtained by
dividing:
i) 50% of the Adjusted EBITDA for the period from and including
December 7, 1998 to and including December 31, 1999 or such
earlier date as may be determined pursuant to Article 17; by
ii) the Current Market Price of one IMSC Common Share determined as
at December 31, 1999 or such earlier date as may be determined
pursuant to Article 17;
and "Series 1 Share Exchange Multiple Per Share" means the quotient
obtained by dividing the Series 1 Share Exchange Multiple by the
number of Series 1 Shares issued and outstanding as at the close of
business (Toronto time) on December 31, 1999 or on such earlier date
as may be determined pursuant to Article 17;
<PAGE>
1d
(t) "Support Agreement" means that certain support agreement relating to
the Series 1 Shares dated the 10th day of May, 1999 between Donald
Kilimnik, Deborah Kilimnick, Robert Curik and Anjela Curik, the
Corporation and IMSC;
(u) "Transfer Agent" means the secretary of the Corporation or such other
person as may from time to time be the registrar and transfer agent
for the Class E Special Shares.
1.2 The Board of Directors shall determine, in good faith and in its discretion,
acting reasonably, (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the Board of Directors
may require), what is the "Economic Equivalent" for the purposes of these share
provisions, and each such determination shall be conclusive and binding on IMSC,
and the term "Economic Equivalent" where used in these share provisions shall
refer to such determination. In making such determination, the following factors
shall, without excluding other factors determined by the Board of Directors to
be relevant, be considered by the Board of Directors:
(i) in the case of any stock dividend or other distribution payable
in IMSC Common Shares, the number of such shares issued in
proportion to the number of IMSC Common Shares previously
outstanding;
(ii) in the case of the issuance or distribution of any options,
rights, warrants to subscribe for or purchase IMSC Common Shares
(or securities exchangeable for or convertible into or carrying
rights to acquire IMSC Common Shares), the relationship between
the exercise price of each such option, right or warrant and the
Current Market Price of IMSC Common Shares;
(iii)in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities
of IMSC of any class other than IMSC Common Shares, any rights,
options or warrants other than those referred to in Section
1.2(ii) above, any evidences of indebtedness of IMSC or any
assets of IMSC), the relationship between the fair market value
(as determined by the Board of Directors) of such property to be
issued or distributed with respect to each outstanding IMSC
Common Share and the Current Market Price of an IMSC Common
Share;
(iv) in the case of any subdivision, redivision or change of the then
outstanding IMSC Common Shares into a greater number of
<PAGE>
1e
IMSC Common Shares or the reduction, combination or consolidation
or change of the then outstanding IMSC Common Shares into a
lesser number of IMSC Common Shares or any amalgamation, merger
reorganization or other transaction affecting the IMSC Common
Shares, the effect thereof upon the then outstanding IMSC Common
Shares; and
(v) in all such cases, the general taxation consequences of the
relevant event to holders of Series 1 Shares to the extent that
such consequences may differ from the taxation consequences to
holders of IMSC Common Shares as a result of differences between
taxation laws of Canada and the United States (except for any
differing consequences arising as a result of differing marginal
taxation rates and without regard to the individual circumstances
of holders of Series 1 Shares.
Article 2 - Reciprocal Changes, etc. In Respect of IMSC Common Shares
2.1 Each holder of a Series 1 Share acknowledges that the Support Agreement
provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Series 1 Shares, given
in accordance with these share provisions:
(a) issue or distribute IMSC Common Shares (or securities exchangeable for
or convertible into or carrying rights to acquire IMSC Common Shares)
to the holders of all or substantially all of the then outstanding
IMSC Common Shares by way of stock dividend or other distribution,
other than an issue of IMSC Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire IMSC Common
Shares) to holders of IMSC Common Shares who exercise an option to
receive dividends in IMSC Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire IMSC Common
Shares) in lieu of receiving cash dividends; or
(b) issue or distribute rights, options or warrants to the holders of all
or substantially all of the then outstanding IMSC Common Shares
entitling them to subscribe for or to purchase IMSC Common Shares (or
securities exchangeable for or convertible into or carrying rights to
acquire IMSC Common Shares); or
(c) issue or distribute to the holders of all or substantially all of the
then outstanding IMSC Common Shares (A) shares or securities of IMSC
of any class other than IMSC Common Shares (other than shares
convertible into or exchangeable for or carrying rights to acquire
IMSC
<PAGE>
1f
Common Shares), (B) rights, options or warrants other than those
referred to in Section 2.1(b) above, (C) evidences of indebtedness of
IMSC or (D) assets of IMSC;
unless the Economic Equivalent on a per share basis of such rights, securities,
shares, evidences of indebtedness or other assets is issued or distributed
simultaneously to the holders of the Series 1 Shares.
2.2 Each holder of a Series 1 Share acknowledges that the Support Agreement
further provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Series 1 Shares, given
in accordance with these share provisions:
(a) subdivide, redivide or change the then outstanding IMSC Common Shares
into a greater number of IMSC Common Shares; or
(b) reduce, combine or consolidate or change the then outstanding IMSC
Common Shares into a lesser number of IMSC Common Shares; or
(c) reclassify or otherwise change IMSC Common Shares or effect an
amalgamation, merger, reorganization or other transaction affecting
IMSC Common Shares;
unless the Economic Equivalent of such change shall simultaneously be made to,
or in the rights of the holders of, the Series 1 Shares.
2.3 The Support Agreement further provides, in part, that the provisions of the
Support Agreement referred to in the preceding Sections 2.1 and 2.2 shall not be
changed without the approval of the holders of the Series 1 Shares, given in
accordance with these share provisions.
Article 3 - Actions by the Corporation under Support Agreement
3.1 The Corporation 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 IMSC with all provisions of the Support Agreement applicable
to the Corporation and IMSC, 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 ensure to the fullest extent possible for
the direct benefit of the Corporation all rights and benefits in favour of the
Corporation under or pursuant to such agreement.
3.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement without the approval of the holders of Series 1 Shares, given
in
<PAGE>
1g
accordance with these share provisions, other than such amendments, waivers
and/or forgiveness as may be necessary or advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Series 1 Shares thereunder; or
(b) 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 of the Corporation, it may be expedient to make, provided
that the Board of Directors shall be of the opinion, after
consultation with counsel, that such provisions and modifications will
not be prejudicial to the interests of the holders of the Series 1
Shares; or
(c) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error contained therein,
provided that the Board of Directors of the Corporation 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 Series 1 Shares.
The Corporation shall provide each holder of Series 1 Shares with written
notification of any such amendment, waiver and/or forgiveness.
Article 4 - Notices
4.1 Any notice, request or other communication to be given to the Corporation by
a holder of Series 1 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 Corporation and addressed to the attention of the
Secretary. 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 Corporation.
4.2 Any presentation and surrender by a holder of Series 1 Shares to the
Corporation of certificates representing Series 1 Shares in connection with the
liquidation, dissolution or winding up of the Corporation or the retraction or
redemption of Series 1 Shares shall be made by registered mail (postage prepaid)
or by delivery to the registered office of the Corporation or any other office
of the Corporation designated by it in accordance with these share provisions
addressed to the
<PAGE>
1h
attention of the Secretary of the Corporation. 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 Corporation. Any such presentation
and surrender of certificates made by registered mail shall be at the sole risk
of the holder mailing the same.
4.3 Any notice, request or other communication to be given to a holder of Series
1 Shares by or on behalf of the Corporation 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 Corporation or,
in the event of the address of any holder not being so recorded, then at the
last known address of such holder. A copy of such notice will be sent to any
financial institution which has provided notice to the Corporation that it is a
pledgee of any Series 1 Shares. Any such notice, request or other communication,
if given by mail, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Series 1 Shares shall not invalidate or
otherwise alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
Article 5 - Withholding Taxes
5.1 If the payment or delivery of cash or property to the holder of a Series 1
Share pursuant to the provisions hereof would result in the Corporation or IMSC
becoming liable to withhold or deduct and remit therefrom an amount on account
of the tax liability of such holder under the Income Tax Act (Canada) or the
applicable taxation legislation of any other jurisdiction, then, unless such
holder provides to the Corporation or IMSC, as the case may be, certificates or
such other assurances as are provided for under the Income Tax Act (Canada) or
such other applicable taxation legislation as are required to ensure that
neither the Corporation nor IMSC is so liable, the cash or property required to
be so delivered shall be net of any amounts required to be so withheld or
deducted and remitted.
Article 6 - Specified Amounts for the Purposes of the Income Tax Act
6.1 For the purposes of subsection 191(4) of the Income Tax Act (Canada), the
specified amount for the Series 1 Shares shall be $5.00 per share.
Article 7 - No Fractional IMSC Common Shares
7.1 No certificates or scrip representing a fractional IMSC Common Share shall
be required to be delivered to the holder of any of the Series 1 Shares upon the
redemption of such Series 1 Shares, or distribution to the holder of such Series
1 Shares upon the liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of liquidation of the Corporation's assets or winding up its affairs, or
a purchase of such Series 1 Shares by IMSC pursuant to and as provided for in
these share provisions (an "Exchange Event").
<PAGE>
li
In lieu of any such fractional IMSC Common Share, each holder of a Series 1
Share entitled to a fractional interest in an IMSC Common Share upon an Exchange
Event shall receive an amount of cash (rounded to the nearest whole cent),
without interest, equal to the Canadian Dollar Equivalent of the product of (i)
such fraction, multiplied by (ii) the Current Market Price of one IMSC Common
Share determined as at the date upon which such holder becomes entitled to such
fractional interest.
Article 8 - Legend
8.1 The certificates evidencing the Series 1 Shares shall contain or have
affixed thereto a legend, in form and on the terms approved by the Board of
Directors with respect to the Support Agreement between IMSC and the
Corporation.
Article 9 - Dividends
9.1 From the date of the issuance of the Series 1 Shares up to and including
December 31, 1999 or such earlier date as may be determined pursuant to Article
17, a holder of the Series 1 Shares shall be entitled to receive, and the
Corporation shall pay thereon, out of monies properly applicable to the payment
of dividends, such dividends as the Board of Directors may from time to time
declare.
9.2 After December 31, 1999 or such earlier date as may be determined pursuant
to Article 17, a holder of Series 1 Shares shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each IMSC Dividend
Declaration Date, declare a dividend on each Series 1 Share (i) in the case of a
cash dividend declared on the IMSC Common Shares, in an amount in cash for each
Series 1 Share equal to the Canadian Dollar Equivalent on the IMSC Dividend
Declaration Date of the cash dividend declared on each IMSC Common Share
multiplied by the Series 1 Share Exchange Multiple Per Share or (ii) in the case
of a stock dividend declared on the IMSC Common Shares to be paid in IMSC Common
Shares, in such number of Series 1 Shares for each Series 1 Share as is equal to
the number of IMSC Common Shares to be paid on each IMSC Common Share or (iii)
in the case of a dividend declared on the IMSC Common Shares in property other
than cash or IMSC Common Shares, in such type and amount of property for each
Series 1 Share as is the same as or the Economic Equivalent of the type and
amount of property declared as a dividend on each IMSC Common Share, multiplied
by the Series 1 Exchange Multiple Per Share. Such dividends shall be paid out of
money, assets or property of the Corporation properly applicable to the payment
of dividends, or out of authorized but unissued shares of the Corporation.
9.3 The record date for the determination of the holders of Series 1 Shares
entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Series 1 Shares under Section 9.2 hereof shall be
the same as the record date and the payment date, respectively, for the
corresponding dividend or distribution declared on the IMSC Common Shares.
<PAGE>
9.4 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation in Canada shall be issued in respect of any cash dividends
contemplated by Section 9.2(i) hereof and the sending of such a cheque to each
holder of a Series 1 Share shall satisfy the cash dividend represented thereby
unless the cheque is not paid on presentation. Certificates registered in the
name of the registered holders of Series 1 Shares shall be issued or transferred
in respect of any stock dividends contemplated by Section 9.2(ii) hereof and the
sending of such a certificate to each holder of a Series 1 Share shall satisfy
the stock dividend represented thereby. Such other type and amount of property
in respect of any dividends contemplated by Section 9.2(iii) hereof shall be
issued, distributed or transferred by the Corporation in such manner as it shall
determine and the issuance, distribution or transfer thereof by the Corporation
to each holder of a Series 1 Share shall satisfy the dividend represented
thereby. No holder of a Series 1 Share shall be entitled to recover by action or
other legal process against the Corporation any dividend that is represented by
a cheque that has not been duly presented to the Corporation's bankers for
payment or that otherwise remains unclaimed for a period of six years from the
date on which such dividend was payable.
9.5 If on any payment date for any dividends declared on the Series 1 Shares
under Section 9.2 hereof, such dividends are not paid in full on all of the
Series 1 Shares then outstanding because the Corporation does not then have
sufficient monies, assets or property applicable to the payment of such
dividends, then any such dividends that remain unpaid shall be paid on the
earliest subsequent date or dates determined by the Board of Directors on which
the Corporation shall have sufficient monies, assets or property applicable to
the payment of such dividends. If on any date for the declaration or payment of
any dividend declared or to be declared on the Series 1 Shares under Section 9.2
above such dividends are not declared or are not paid in full on all of the
Series 1 Shares then outstanding because the Series 1 Exchange Multiple has not
then been determined, then any such dividends that remain undeclared and/or
unpaid shall be declared and/or paid on the earliest subsequent date or dates
determined by the Board of Directors on which the Series 1 Share Exchange
Multiple shall have been determined. If on any date for the payment of a
dividend declared or to be declared on the Series 1 Shares under Section 9.2
above such dividend is not paid in full on all of the Series 1 Shares for any
reason whatsoever, then the Corporation shall pay to the holders of the Series 1
Shares interest at the rate per annum which is equal to the interest rate then
charged to the Corporation by its principal banker for operating credit
facilities provided to the Corporation, on the principal amount of such
outstanding dividend, from the IMSC Dividend Payment Date to the date of actual
payment of such dividend.
Article 10 - Certain Restrictions
10.1 So long as any of the Series 1 Shares are outstanding, the Corporation
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shall not at any time without, but may at any time with, the approval of the
holders of the Series 1 Shares given in accordance with these share provisions:
(a) pay any dividends on the Class A Special Preferred Shares, the Common
Shares, or any other shares ranking junior to the Series 1 Shares,
other than stock dividends payable in Common Shares or any such other
shares ranking junior to the Series 1 Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
Class A Special Preferred Shares, Common Shares or any other shares
ranking junior to the Series 1 Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Series 1 Shares with respect to the payment of dividends or
on any liquidation distribution; or
(d) issue any Series 1 Shares or any other shares of the Corporation
ranking superior to the Series 1 Shares other than the issuance of
Class X Shares and other than by way of stock dividends to the holders
of such Series 1 Shares or as contemplated by the Support Agreement.
The restrictions in Sections 10.1(a), 10.1(b) and 10.1(c)
above shall not apply if all dividends on the outstanding Series 1 Shares
corresponding to dividends declared to date on IMSC Common Shares shall have
been declared on the Series 1 Shares and paid in full.
Article 11 - Participation Upon Liquidation, Dissolution or Winding-Up
11.1 At any time from the date of the issuance of each Series 1 Share up to and
including December 31, 1999 or such earlier date as may be determined pursuant
to Article 17, in the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of assets of the Corporation among its
shareholders for the purpose of liquidation of the Corporation's assets or
winding up its affairs, each holder of Series 1 Shares shall be entitled,
subject to applicable law, to receive in respect of each Series 1 Share held by
such holder on the Series 1 Liquidation Date 1.11111 IMSC Common Shares for each
such Series 1 Share which shall be satisfied in full by the Corporation causing
to be delivered to such holder 1.11111 IMSC Common Shares for each Series 1
share held, plus an additional amount equivalent to the full amount of all
dividends declared and unpaid on such Series 1 Share, but such holder shall not
be entitled to share any further in the distribution of the property or assets
of the Corporation; if the assets of the Corporation including surplus, are not
sufficient in respect of each Series 1 Share to pay such amount in full, then
all the said assets or their proceeds remaining after such payment shall be
distributed rateably among the holders of the Series 1 Shares.
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11.2 At any time after December 31, 1999 or such earlier date as may be
determined pursuant to Article 17, in the event of the liquidation, dissolution
or winding-up of the Corporation or other distribution of assets of the
Corporation among its shareholders for the purpose of liquidation of the
Corporation's assets or winding up its affairs, each holder of Series 1 Shares
shall be entitled, subject to applicable law, to receive in respect of each
Series 1 Share held by such holder on the Series 1 Liquidation Date to an amount
per share equal to: (i) the Current Market Price of an IMSC Common Share
determined as at the last Business Day prior to the Series 1 Liquidation Date
multiplied by the Series 1 Share Exchange Multiple Per Share, which shall be
satisfied in full by the Corporation causing to be delivered to such holder that
number of IMSC Common Shares which is equal to the Series 1 Share Exchange
Multiple Per Share, plus (ii) an additional amount equivalent to the full amount
of all dividends declared and unpaid on such Series 1 Share prior to the
Liquidation Date.
11.3 In the case of a distribution on Series 1 Shares under this Article 11, on
or promptly after the Series 1 Liquidation Date, and subject to the exercise by
IMSC of the Series 1 Liquidation Call Right (as set forth and defined below),
the Corporation shall cause to be delivered to the holders of Series 1 Shares
the Series 1 Liquidation Amount for each such Series 1 Share upon presentation
and surrender of the certificates representing such Series 1 Shares, together
with such other documents and instruments as may be required to effect a
transfer of Series 1 Shares under the Business Corporations Act (Ontario) and
such additional documents and instruments as the Transfer Agent may reasonably
require, at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of the Series 1 Shares. Payment of the aggregate Series 1 Liquidation Amount for
such Series 1 Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Corporation for the Series
1 Shares or by holding for pick-up by the holder at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of the Series 1 Shares of certificates
representing IMSC 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 Corporation payable at
par in Canadian dollars at any branch of the bankers of the Corporation in
Canada in payment of the amount equivalent to the full amount of all declared
and unpaid dividends comprising part of the Series 1 Liquidation Amount.
11.4 If on the Series 1 Liquidation Date, the Series 1 Liquidation Amount in
respect of any of the Series 1 Shares payable under Section 11.2 above cannot be
paid because the Series 1 Share Exchange Multiple has not then been determined,
then such Series 1 Liquidation Amount or any part thereof that remains unpaid
shall be paid on the earliest subsequent date or dates determined by the Board
of Directions on which the Series 1 Share Exchange Multiple shall have been
determined; provided that in such event, the Corporation shall pay to the
holders of the Series 1 Shares interest at the rate
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per annum which is equal to the interest rate charged to the Corporation by its
principal banker at the Series 1 Liquidation Date for operating credit
facilities provided to the Corporation, on the principal amount of such
outstanding Series 1 Liquidation Amount, from the Series 1 Liquidation Date to
the date of actual payment thereof.
11.5 On and after the Series 1 Liquidation Date, the holders of the Series 1
Shares shall cease to be holders of such Series 1 Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive the Series 1 Liquidation Amount in respect of the Series 1
Shares held by them, unless payment of the Series 1 Liquidation Amount for such
Series 1 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 Series 1 Liquidation
Amount has been paid in the manner hereinbefore provided.
11.6 The Corporation shall have the right at any time after the Series 1
Liquidation Date to deposit or cause to be deposited the Series 1 Liquidation
Amount in respect of the Series 1 Shares represented by certificates that have
not at the Series 1 Liquidation Date been surrendered by the holders thereof in
a custodial account with any chartered bank or trust company in Canada
designated by the Board of Directors of the Corporation (the "Deposit Agent").
Upon such deposit being made, the rights of the holders of Series 1 Shares after
such deposit shall be limited to receiving the Series 1 Liquidation Amount in
respect of such Series 1 Shares, 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 Series 1 Liquidation Amount, the
holders of the Series 1 Shares shall thereafter be considered and deemed for all
purposes to be the holders of the IMSC Common Shares delivered to them. After
the Corporation has satisfied its obligations to pay the holders of the Series 1
Shares the Series 1 Liquidation Amount per Series 1 Share pursuant to Section
11.2 above or the amounts payable pursuant to Section 11.1 above, as the case
may be, such holders shall not be entitled to share in any further distribution
of the assets of the Corporation.
11.7 IMSC shall have the overriding right (the "Series 1 Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of the Corporation at any time after the Series 1
Liquidation Date, to purchase from all, but not less than all, of the holders of
Series 1 Shares on the Series 1 Liquidation Date all, but not less than all, of
the Series 1 Shares held by each such holder on payment by IMSC to each holder
of an amount per share equal to the Series 1 Liquidation Amount (as determined
pursuant to the provisions of Section 11.1 or 11.2, as applicable (the "Series 1
Liquidation Call Purchase Price")). In the event of the exercise of the Series 1
Liquidation Call Right by IMSC, each holder shall be obliged to sell all of the
Series 1 Shares held by such holder to IMSC on the Series 1 Liquidation Date on
payment by IMSC to the holder of the Series 1 Liquidation Call Purchase Price
for each such share.
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11.8 In order to exercise its Series 1 Liquidation Call Right, IMSC must notify,
in writing, the holders of the Series 1 Shares and the Corporation, of IMSC's
intention to exercise such right at least 55 days before the Series 1
Liquidation Date in the case of a voluntary liquidation, dissolution or winding
up of the Corporation and at least 5 Business Days before the Series 1
Liquidation Date in the case of an involuntary liquidation, dissolution or
winding up of the Corporation. If IMSC exercises the Series 1 Liquidation Call
Right, then on the Series 1 Liquidation Date, IMSC will purchase and the holders
will sell all of the Series 1 Shares then outstanding for a price per share
equal to the Series 1 Liquidation Call Purchase Price.
11.9 For the purposes of completing the purchase of the Series 1 Shares pursuant
to the exercise of the Series 1 Liquidation Call Right, IMSC shall deliver to
each holder at the address of the holder recorded in the securities register of
the Corporation for the Series 1 Shares or by holding for pick-up by the holder
at the registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of the
Series 1 Shares, of certificates representing the IMSC Common Shares required to
be delivered by IMSC in payment of the Series 1 Liquidation Call Purchase Price
(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 Corporation payable at par in Canadian dollars at any
branch of the bankers of the Corporation in payment of the amount equivalent to
the full amount of all declared and unpaid dividends comprising part of the
Series 1 Liquidation Amount.
11.10 Provided that the Series 1 Liquidation Call Purchase Price has been paid
as provided for in Section 11.9, on and after the Series 1 Liquidation Date, the
rights of each holder of Series 1 Shares will be limited to receiving the Series
1 Liquidation Call Purchase Price payable by IMSC in respect of the Series 1
Shares held by such holder upon presentation and surrender by such holder of
certificates representing such Series 1 Shares and the holder shall on and after
the Series 1 Liquidation Date be considered and deemed for all purposes to be
the holder of the IMSC Common Shares delivered to it. Upon surrender to the
Deposit Agent (as defined in Section 11.6 above) of the certificates
representing Series 1 Shares, together with such other documents and instruments
as may be required to effect a transfer of Series 1 Shares under the Business
Corporations Act (Ontario), and such additional documents and instruments as the
Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange therefor,
and the Transfer Agent on behalf of IMSC shall deliver to such holder,
certificates representing the IMSC Common Shares to which the holder is entitled
and a cheque or cheques of IMSC payable at par and in Canadian dollars at any
branch of the bankers of IMSC or of the Corporation in Canada in payment of the
remaining portion, if any, of the Series 1 Liquidation Call Purchase Price. If
IMSC does not exercise the Series 1 Liquidation Call Right in the manner
described above, on the Series 1 Liquidation Date, the holders
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of the Series 1 Shares will be entitled to receive in exchange therefor the
Series 1 Liquidation Amount otherwise payable by the Corporation in connection
with the liquidation, dissolution or winding-up of the Corporation pursuant to
this Article 11.
11.11 The Corporation shall provide prompt written notice to each holder of
outstanding Series 1 Shares of any action, step or proceedings initiated or
taken by the Corporation, or another person, in respect of, or for the purpose
of, a liquidation, winding-up or dissolution of the Corporation.
Article 12 - Retraction of Series 1 Shares by Holder
12.1 A holder of Series 1 Shares shall be entitled at any time after December
31, 1999 or such earlier date as may be determined pursuant to Article 17
subject to the exercise by IMSC of the Series 1 Retraction Call Right (as set
forth and defined below) and otherwise upon compliance with the provisions of
this Article 12, to require the Corporation to redeem, on the Series 1
Retraction Date (defined below), any or all of the Series 1 Shares registered in
the name of such holder for an amount per share equal to: (i) the Current Market
Price of one IMSC Common Share determined as at the last Business Day prior to
the Series 1 Retraction Date (as defined below) multiplied by the Series 1 Share
Exchange Multiple Per Share, which shall be paid and satisfied in full by the
Corporation causing to be delivered to such holder that number of IMSC Common
Shares which is equal to the Series 1 Share Exchange Multiple Per Share for each
Series 1 Share presented and surrendered by the holder plus (ii) an additional
amount equivalent to the full amount of all dividends declared and unpaid on
each Series 1 Share prior to the Series 1 Retraction Date (collectively, the
"Series 1 Retraction Price" provided that if the record date for any such
declared and unpaid dividend occurs on or after the Series 1 Retraction Date,
the Series 1 Retraction Price shall not include such additional amount
equivalent to the declared and unpaid dividend).
12.2 To exercise the right of retraction provided for in Section 12.1, the
holder shall present and surrender at the registered office of the Corporation
or at any office of the Transfer Agent as may be specified by the Corporation by
written notice to the holders of Series 1 Shares, the certificate or
certificates representing the Series 1 Shares which the holder desires to have
the Corporation redeem, together with such other documents and instruments as
may be required to effect a transfer of Series 1 Shares under the Business
Corporations Act (Ontario), and such additional documents and instruments as the
Transfer Agent may reasonably require, and together with a duly executed
statement in the form attached hereto as Schedule "A", or such other form as may
be acceptable to the Corporation, acting reasonably (the "Series 1 Retraction
Request"):
(a) specifying that the holder desires to have all or any number specified
therein of the Series 1 Shares represented by such certificate or
certificates (the "Retracted Series 1 Shares") redeemed by the
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Corporation;
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Series 1 Shares (the "Series 1
Retraction Date"), provided that the Series 1 Retraction Date shall
not be less than five (5) Business Days after the date on which the
Series 1 Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is specified by
the holder in the Series 1 Retraction Request, the Series 1 Retraction
Date shall be deemed to be the tenth (10th) Business Day after the
date on which the Series 1 Retraction Request is received by the
Corporation; and
(c) acknowledging the overriding right (the "Series 1 Retraction Call
Right") of IMSC to purchase all but not less than all the Series 1
Retracted Shares directly from the holder and that the Series 1
Retraction Request shall be deemed to be a revocable offer by the
holders to sell the Retracted Series 1 Shares to IMSC in accordance
with the Series 1 Retraction Call Right.
12.3 Subject to the exercise by IMSC of the Series 1 Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in this
Article 12 of a certificate or certificates representing the number of Series 1
Shares which the holder desires to have the Corporation redeem, together with a
Series 1 Retraction Request, and provided further that the Series 1 Retraction
Request is not revoked by the holder in the manner specified in Section 12.10,
the Corporation shall redeem the Series 1 Retracted Shares effective at the
close of business on the Series 1 Retraction Date and shall cause to be
delivered to such holder the Series 1 Retraction Price with respect to such
shares. If only a part of the Series 1 Shares represented by any certificate is
redeemed or purchased by IMSC pursuant to the Series 1 Retraction Call Right, a
new certificate for the balance of such Series 1 Shares shall be issued to the
holder at the expense of the Corporation.
12.4 Upon receipt by the Corporation of a Series 1 Retraction Request, the
Corporation shall immediately notify IMSC thereof. In order to exercise the
Series 1 Retraction Call Right, IMSC must notify the Corporation in writing of
its determination to do so (the "Series 1 Retraction Call Notice") within two
(2) Business Days of notification to IMSC by the Corporation of the receipt by
the Corporation of the Series 1 Retraction Request. If IMSC does not so notify
the Corporation within such two (2) Business Day period, the Corporation will
notify the holder as soon as possible thereafter that IMSC will not exercise the
Series 1 Retraction Call Right. If IMSC delivers the Series 1 Retraction Call
Notice within such two (2) Business Day period, and provided that the Series 1
Retraction Request is not revoked by the holder in the manner specified in
Section 12.10, the Series 1 Retraction Request shall thereupon be considered
only to be an offer by the holder to sell the Retracted Series 1 Shares to
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IMSC in accordance with the Series 1 Retraction Call Right. In such event, the
Corporation shall not redeem the Retracted Series 1 Shares and IMSC shall
purchase from such holder and such holder shall sell to IMSC on the Series 1
Retraction Date the Retracted Series 1 Shares for a purchase price (the "Series
1 Retraction Call Purchase Price") per share equal to the Series 1 Retraction
Price per share.
12.5 For the purpose of completing a purchase pursuant to the Series 1
Retraction Call Right, IMSC shall deposit with the Transfer Agent, on or before
the Series 1 Retraction Date, certificates representing IMSC Common Shares and a
cheque in the amount of the remaining portion, if any, of the Series 1
Retraction Call Purchase Price in respect of the Retracted Series 1 Shares.
12.6 Provided that the Series 1 Retraction Call Purchase Price in respect of the
Retracted Series 1 Shares has been so deposited with the Corporation or the
Transfer Agent, the closing of the purchase and sale of the Retracted Series 1
Shares pursuant to the Series 1 Retraction Call Right shall be deemed to have
occurred as at the close of business on the Series 1 Retraction Date and, for
greater certainty, no purchase by the Corporation of such Retracted Series 1
Shares shall take place on the Series 1 Retraction Date. In the event that IMSC
does not deliver a Series 1 Retraction Call Notice within the said two (2)
Business Day period, and provided that the Series 1 Retraction Request is not
revoked by the holder in the manner specified in Section 12.10, the Corporation
shall purchase the Retracted Series 1 Shares on the Series 1 Retraction Date in
the manner otherwise contemplated in this Article 12.
12.7 Promptly and without delay, the Corporation or IMSC, as the case may be,
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the securities register of the Corporation
for the Series 1 Shares or at the address specified in the holder's Series 1
Retraction Request or by holding for pick-up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation or IMSC, as the case may be, by notice to the
holders of Series 1 Shares, certificates representing IMSC 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)
registered in the name of the holder or in such other name as the holder may
request in payment of the Series 1 Retraction Price or the Series 1 Retraction
Call Purchase Price (as the case may be) in respect of the Retracted Series 1
Shares, and a cheque of the Corporation payable at par in Canadian dollars at
any branch of the bankers of the Corporation in Canada in payment of the
remaining portion, if any, of the Series 1 Retraction Price (less any tax
required to be deducted and withheld therefrom by the Corporation) or a cheque
of IMSC payable at par in Canadian dollars at any branch of the bankers of IMSC
in Canada in payment of the remaining portion, if any, of the total Series 1
Retraction Call Purchase Price (as the case may be) in respect of the Retracted
Series 1 Shares and such delivery of such certificates and cheque by or on
behalf of the Corporation or by or on behalf of IMSC (as the case may
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be) by the Transfer Agent, shall be deemed to be payment of and shall satisfy
and discharge all liability for the Series 1 Retraction Price or Series 1
Retraction Call Purchase Price (as the case may be) in respect of the Retracted
Series 1 Shares to the extent that the same is represented by such share
certificates and cheque (plus any tax required and in fact deducted and withheld
therefrom and remitted to the proper tax authority, without interest), unless
such cheque is not paid on due presentation.
12.8 On and after the close of business on the Series 1 Retraction Date, the
holder of the Retracted Series 1 Shares shall cease to be a holder of such
Retracted Series 1 Shares and shall not be entitled to exercise any of the
rights of a holder in respect thereof, other than the right to receive the
Series 1 Retraction Price or Series 1 Retraction Call Purchase Price (as the
case may be) in respect of such Retracted Series 1 Shares unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the Series 1 Retraction Price or the Series 1 Retraction
Call Purchase Price (as the case may be) shall not be made, in which case the
rights of such holder shall remain unaffected until such Series 1 Retraction
Price or Series 1 Retraction Call Purchase Price (as the case may be) has been
paid in the manner hereinbefore provided. On and after the close of business on
the Series 1 Retraction Date, provided that presentation and surrender of
certificates and payment of such Series 1 Retraction Price or Series 1
Retraction Call Purchase Price (as the case may be) has been made in accordance
with the foregoing provisions, the holder of the Retracted Series 1 Shares so
redeemed by the Corporation or purchased by IMSC shall thereafter be considered
and deemed for all purposes to be a holder of the IMSC Common Shares delivered
to it.
12.9 Notwithstanding any other provision of this Article 12, the Corporation
shall not be required to redeem Retracted Series 1 Shares specified by a holder
in a Series 1 Retraction Request to the extent that such redemption of Retracted
Series 1 Shares would be contrary to solvency requirements or other provisions
of applicable law. If the Corporation believes that on any Series 1 Retraction
Date it would not be permitted by any of such provisions to purchase the
Retracted Series 1 Shares tendered for redemption on such date, and provided
that IMSC shall not have exercised the Series 1 Retraction Call Right with
respect to the Retracted Series 1 Shares, the Corporation shall only be required
to redeem Retracted Series 1 Shares specified by a holder in a Series 1
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 (2) Business Days prior to
the Series 1 Retraction Date as to the number of Retracted Series 1 Shares which
will not be redeemed by the Corporation. In any case in which the redemption by
the Corporation of Retracted Series 1 Shares would be contrary to solvency
requirements or other provisions of applicable law, the Corporation shall as
soon as practicable and from time to time redeem Retracted Series 1 Shares in
accordance with Section 12.3 above on a pro rata basis and shall issue to each
holder of Retracted Series 1 Shares a new certificate, at the expense of the
Corporation, representing Series 1 Shares not
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purchased by the Corporation pursuant to Section 12.3. Provided that the Series
1 Retraction Request is not revoked by the holder in the manner specified in
Section 12.10, the holder of any such Retracted Series 1 Shares not redeemed by
the Corporation pursuant to Section 12.3 as a result of solvency requirements or
other provisions of applicable law shall be deemed by giving the Series 1
Retraction Request to require IMSC to purchase such Retracted Series 1 Shares
from such holder on the Series 1 Retraction Date or as soon as practicable
thereafter on payment by IMSC to such holder of the Series 1 Retraction Call
Purchase Price for each such Retracted Series 1 Share, all as more specifically
provided in the Support Agreement.
12.10 A holder of Retracted Series 1 Shares may, by notice in writing given by
the holder to the Corporation no later than the close of business on the
Business Day immediately preceding the Series 1 Retraction Date, withdraw its
Series 1 Retraction Request in which event such Series 1 Retraction Request
shall be null and void and, for greater certainty, the revocable offer
constituted by the Series 1 Retraction Request to sell the Retracted Series 1
Shares to IMSC shall be deemed to have been revoked.
Article 13 - Redemption of Series 1 Shares by the Corporation
13.1 In this Article 13, the term "Automatic Redemption Date" means the date for
the automatic redemption by the Corporation of the Series 1 Shares pursuant to
this Article 13, which date shall be December 31, 2013, unless (a) such date
shall be extended at any time or from time to time to a specified later date by
the Board of Directors, or (b) such date shall be accelerated at any time to a
specified earlier date by the Board of Directors if at such time there are less
than 25,000 Series 1 Shares outstanding (other than Series 1 Shares held by IMSC
and its Affiliates and 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 Series 1 Shares, any
issue or distribution rights to acquire Series 1 Shares or securities
exchangeable for or convertible into Series 1 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 Series 1
Shares).
13.2 Subject to applicable law and if IMSC does not exercise of the Series 1
Redemption Call Right (as set forth and defined below), the Corporation shall on
the Automatic Redemption Date redeem all but not less than all of the then
outstanding Series 1 Shares for an amount per share equal to: (i) the Current
Market Price of one IMSC Common Share determined as at the last Business Day
prior to the Automatic Redemption Date multiplied by the Series 1 Share Exchange
Multiple Per Share, which shall be paid and satisfied in full by the Corporation
causing to be delivered to each holder of a Series 1 Share that number of IMSC
Common Shares which is equal to the Series 1 Share Exchange Multiple Per Share
for each Series 1 Share held by such holder, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid thereon
(collectively, the "Series 1 Redemption Price").
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13.3 In any case of a redemption of Series 1 Shares under this Article 13, the
Corporation shall, at least one hundred and twenty (120) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Series 1
Shares a notice in writing of the redemption by the Corporation or the purchase
by IMSC under the Series 1 Redemption Call Right (as set forth and defined
below), as the case may be, of the Series 1 Shares held by such holder. Such
notice shall set out the formula for determining the Series 1 Redemption Price
or the Series 1 Redemption Call Purchase Price (as the case may be), the
Automatic Redemption Date and, if applicable, particulars of the Series 1
Redemption Call Right.
13.4 On or after the Automatic Redemption Date and subject to exercise of the
Series 1 Redemption Call Right, the Corporation shall cause to be delivered to
the holders of the Series 1 Shares to be redeemed, the Series 1 Redemption Price
for each such Series 1 Share upon presentation and surrender at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation in such notice of the certificate or certificates
representing the Series 1 Shares to be redeemed, together with such other
documents and instruments as may be required to effect a transfer of Series 1
Shares pursuant to the Business Corporations Act (Ontario) and such additional
documents and instruments as the Transfer Agent may reasonably require. Payment
of the Series 1 Redemption Price for such Series 1 Shares shall be made by
delivery to each holder, at the address of the holder recorded in the securities
register of the Corporation or by holding for pick-up by the holder at the
registered office of the Corporation or at the office of the Transfer Agent as
may be specified by the Corporation in such notice, the certificate or
certificates representing the IMSC 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
Corporation payable at par in Canadian dollars at any branch of the bankers of
the Corporation in Canada in respect of the amount equivalent to the full amount
of all declared and unpaid dividends comprising part of the Series 1 Redemption
Price. Upon such payment or deposit of the Series 1 Redemption Price, the
holders of the Series 1 Shares redeemed shall be considered and deemed for all
purposes to be the holders of the IMSC Common Shares delivered to them.
13.5 Subject to the exercise of the Series 1 Redemption Call Right, on and after
the Automatic Redemption Date, the holders of the Series 1 Shares called for
redemption shall cease to be holders of such Series 1 Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive the Series 1 Redemption Price in respect of such Series 1
Shares, unless payment of the Series 1 Redemption Price for such Series 1 Shares
shall not be made upon presentation and surrender of certificates in accordance
with Section 13.4, in which case the rights of the holders shall remain
unaffected until such Series 1 Redemption Price has been paid in the manner
hereinbefore provided.
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13.6 The Corporation shall have the right, at any time after the sending of
notice of its intention to redeem the Series 1 Shares as aforesaid, to deposit
or cause to be deposited the Series 1 Redemption Price of the Series 1 Shares so
called for redemption, or such of the said Series 1 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 named in such notice. Upon the later of such
deposit being made and the Automatic Redemption Date, the Series 1 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 the Series 1 Redemption Price
for such Series 1 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 such Series 1 Redemption Price, the
holders of the Series 1 Shares so redeemed shall thereafter be considered and
deemed for all purposes to be holders of the IMSC Common Shares so delivered to
them.
13.7 Notwithstanding the provisions of Section 13.2, IMSC shall have the
overriding right (the "Series Redemption Call Right") notwithstanding the
proposed redemption of the Series 1 Shares by the Corporation pursuant to this
Article 13, to purchase all but not less than all of the Series 1 Shares on the
Automatic Redemption Date from the holders for a purchase price (the "Series 1
Redemption Call Purchase Price") per share equal to the Series 1 Redemption
Price per share. In the event of the exercise of the Series 1 Redemption Call
Right by IMSC, each holder shall be obligated to sell all the Series 1 Shares
held by such holder to IMSC on the Automatic Redemption Date on payment by IMSC
to such holder of the Series 1 Redemption Call Purchase Price for each such
share.
13.8 To exercise the Series 1 Redemption Call Right, IMSC must notify the
Transfer Agent, as agent for the holders of the Series 1 Shares and the
Corporation, of IMSC's intention to exercise such right not less than one
hundred and twenty-five (125) days before the Automatic Redemption Date. The
Transfer Agent shall notify the holders of the Series 1 Shares as to whether or
not IMSC has exercised the Series 1 Redemption Call Right forthwith after the
expiry of the period during which the same may be exercised by IMSC. If IMSC
exercises the Series 1 Redemption Call Right on the Automatic Redemption Date,
IMSC will purchase and the holders will sell all of the Series 1 Shares then
outstanding for a price per share equal to the Series 1 Redemption Call Purchase
Price.
13.9 For the purposes of completing the purchase of the Series 1 Shares pursuant
to the Series 1 Redemption Call Right, IMSC shall deposit with the Transfer
Agent, on or before the Automatic Redemption Date, certificates representing
IMSC Common Shares and a cheque in the amount of the remaining portion, if any,
of the
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Series 1 Redemption Call Purchase Price in respect of the Series 1 Shares.
13.10 Provided that the Series 1 Redemption Call Purchase Price has been so
deposited with the Transfer Agent, on and after the Automatic Redemption Date
the rights of each holder of Series 1 Shares will be limited to receiving the
Series 1 Redemption Call Purchase Price payable by IMSC in respect of the Series
1 Shares upon presentation and surrender by the holder of certificates
representing such Series 1 Shares and the holder shall, with respect to the
Series 1 Shares so purchased, on and after the Series 1 Redemption Date, be
considered and deemed for all purposes to be the holder of IMSC Common Shares
delivered to such holder. Upon surrender to the Transfer Agent of a certificate
or certificates representing the Series 1 Shares so purchased, together with
such other documents and instruments as may be required to effect a transfer of
Series 1 Shares under the Business Corporations Act (Ontario) and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent on behalf of
IMSC shall deliver to such holder, certificates representing the IMSC Common
Shares to which the holder is entitled and a cheque or cheques of IMSC payable
in at par in Canadian dollars at any branch of the bankers of IMSC in Canada in
payment of the remaining portion, if any, of the Series 1 Redemption Call
Purchase Price. If IMSC does not exercise the Series 1 Redemption Call Right in
the manner described above, the holders of the Series 1 Shares will be entitled
to receive in exchange therefor the Series 1 Redemption Price otherwise payable
by the Corporation pursuant to this Article 13 on the Automatic Redemption Date.
Article 14 - Purchase for Cancellation
14.1 Subject to applicable law, the Corporation may at any time and from time to
time offer to purchase for cancellation all or any part of the outstanding
Series 1 Shares at any price by the tender to all holders of record of Series 1
Shares then outstanding together with an amount equal to all declared and unpaid
dividends thereon. The holders of Series 1 Shares may accept or refuse such
offer at their discretion. If in response to an invitation for tenders under the
provisions of this Article 14, more Series 1 Shares are tendered than the
Corporation is prepared to purchase, the Series 1 Shares to be purchased by the
Corporation shall be purchased as nearly as may be pro rata according to the
number of shares tendered by each holder who submits a tender to the
Corporation. If only part of the Series 1 Shares represented by any certificate
shall be purchased, a new certificate for the balance of such shares shall be
issued at the expense of the Corporation.
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Article 15 - Amendment With Approval of Holders
15.1 The rights, privileges, restrictions and conditions attached to the Series
1 Shares as a class may be added to, changed or removed but only with the
approval of the holders of the Series 1 Shares given in accordance with these
share provisions.
Article 16 - Approval of the Holders
16.1 Any approval given by the holders of the Series 1 Shares to add to, change
or remove any right, privilege, restriction or condition attaching to the Series
1 Shares or any other matter requiring the approval or consent of the holders of
the Series 1 Shares 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 a resolution passed by not less
than two-thirds of the votes cast on such resolution at a meeting of holders of
Series 1 Shares duly called and held at which holders of at least 50% of the
outstanding Series 1 Shares at that time are present and represented by a proxy;
provided that such approval must be given also by the affirmative vote of
holders of more than two-thirds of the Series 1 Shares represented in person or
by proxy at the meeting excluding Series 1 Shares beneficially owned by IMSC or
any of its Affiliates (as such term is defined in the Business Corporations Act
(Ontario)). If at any such meeting of the holders of at least 50% of the
outstanding Series 1 Shares at that time are not present or represented by proxy
within one-half hour after the time appointed for such meeting then the meeting
shall be adjourned to such date not less than ten days thereafter and to such
time and place as may be designated by the chairman of such meeting. At such
adjourned meeting, the holders of Series 1 Shares present or represented by
proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on such resolution at such meeting shall constitute
the approval or consent of the holders of the Series 1 Shares.
Article 17 - Acceleration
17.1 Subject to the provisions of this Article, each holder of a Series 1 Share
shall have the right to have the Series 1 Share Exchange Multiple determined as
at a period ending prior to December 31, 1999 in the event:
(a) of the death, permanent disability or termination of employment,
without cause, of Donald Kilimnik by IMSI;
(b) Michael A. Steele is not the Chief Executive Officer of IMSC; or
(c) a take-over bid for IMSC results in a single shareholder acquiring
more than fifty percent of the issued and outstanding common stock of
IMSC (not including any common stock of IMSC to which a holder of
Class E Special Shares Series 1is entitled either by exchange or
otherwise).
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17.2 Upon the occurrence of any of the events specified in Section 17.1 (a
"Triggering Event"), the holders of Series 1 Shares shall have the right to
elect to determine the Series 1 Share Exchange Multiple as at a period ending
prior to December 31, 1999 which right to elect shall continue for a sixty (60)
day period following the date of the Triggering Event, after which, if such
election is not exercised, such right shall be at an end with respect to such
Triggering Event.
17.3 If holders of Series 1 Shares elect, pursuant to Section 17.2 to determine
the Series 1 Share Exchange Multiple as at a period ending prior to December 31,
1999:
(a) Adjusted EBIDTA as at the date determined pursuant to Section 17.2
shall be determined in accordance with the provisions of subsection
2.03(f) of the Share Purchase Agreement dated May 10, 1999 between
Donald Kilimnik, Deborah Kilimnik, Robert Curik, Anjela Curik, IMSC
and the Corporation.
(b) each reference to December 31, 1999 in these Series 1 Share provisions
shall be deemed to be a reference to the accelerated date for
determining the Series 1 Share Exchange Multiple as determined
pursuant Section 17.2.
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SCHEDULE "A"
TO THE RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS OF THE
CLASS E SPECIAL SHARES - SERIES 1 SHARES
RETRACTION REQUEST
TO: International Menu Solutions Inc. (the "Corporation")
AND TO: International Menu Solutions Corporation ("IMSC")
TAKE NOTICE THAT the undersigned, the holder of Class E Shares Series 1 of
the Corporation, does hereby require the Corporation to redeem [INSERT NUMBER]
of such Class E Shares Series 1 (the "Retracted Shares") on the _____ day of
____________, _____ (the "Retraction Date").
AND FURTHER TAKE NOTICE THAT the undersigned acknowledges that
International Menu Solutions Corporation ("IMSC") has the right to exercise the
Series 1 Retraction Call Right and in that event this Retraction Request shall
be deemed to be a revocable offer by the undersigned to sell the Retracted
Shares to IMSC in accordance with the terms and conditions set out in the share
provisions of the Class E Shares Series 1.
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law, the Corporation is unable to redeem all Retracted Shares, the
undersigned will be deemed to have exercised the [Put Right] so as to require
IMSC to purchase the unredeemed Retracted Shares.
DATED this __________ day of __________, __________.
________________________
Signature of Shareholder
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RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
OF THE CLASS E SPECIAL SHARES SERIES 2
The first series of Class E Special Shares are designated as Class E
Special Shares Series 2 ("Series 2 Shares") and shall consist of 250,000 Series
2 Shares. In addition to the rights, privileges, restrictions and conditions
attached to the Class E Special Shares as a class, the Series 2 Shares shall
have attached thereto the following rights, privileges, restrictions and
conditions:
PART A
GENERAL PROVISIONS
Article 1 - Interpretation
1.1 For the purposes of these share provisions, unless the context or subject
matter otherwise requires, the following terms shall have the following
meanings:
(a) "100Co" means 1005549 Ontario Ltd;
(b) "Adjusted EBITDA" means the consolidated earnings of 100Co and DCFood
before interest, income taxes, depreciation and amortization, as
calculated in accordance with GAAP and past practice including actual
management salaries and bonuses paid (but, notwithstanding the
foregoing, only 50% of the salary and bonuses paid during the relevant
period to Donald Kilimnik and Robert Curik), adjusted by adding back
any inter-company management fees or allocations of overhead expenses
that are expensed subsequent to May 10, 1999 for the relevant period,
the intent being that the calculation should be based on a
"normalized" EBITDA of the businesses carried on by 100Co and DCFood.
For the purpose of the Adjusted EBITDA calculations, if any expenses
are charged to 100Co and DCFood by an Affiliate (as such term is
defined in the Business Corporations Act (Ontario)) of 100Co or DCFood
for services not reasonably required in the normal course of the 100Co
and DCFood business and past practice, such expenses shall not be
included in the Adjusted EBITDA calculations;
(c) "Board of Directors" means the board of directors of the Corporation;
(d) "Business Day" means any day other than a Saturday, a Sunday or a day
on which banks are not open for business in Toronto, Ontario;
(e) "Canadian Dollar Equivalent" means in respect of any amount expressed
in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (i) the Foreign Currency Amount by
(ii) the noon spot exchange rate on such date for such foreign
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currency expressed in Canadian dollars as reported by the Bank of
Canada or, in the event such spot exchange rate is not available, such
exchange rate on such date for such foreign currency expressed in
Canadian dollars as may be deemed by the Board of Directors to be
appropriate for such purpose;
(f) "Class B Special Shares" means the Class B Special Shares of the
Corporation;
(g) "Class C Special Shares" means the Class C Special Shares of the
Corporation;
(h) "Class D Special Shares" means the Class D Special Shares of the
Corporation;
(i) "Class X Shares" means the Class X Shares of the Corporation;
(j) "Common Shares" means Common Shares of the Corporation;
(k) "Current Market Price" means, in respect of an IMSC Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing
bid and asked prices of IMSC Common Shares during a period of 20
consecutive trading days ending not more than 5 trading days before
such date on the National Market System of the National Association of
Securities Dealers Automated Quotation System or, if the IMSC Common
Shares are not then quoted on the National Market System of the
National Association of Securities Dealers Automated Quotation System,
on such other stock exchange or automated quotation system on which
the IMSC Common Shares are listed or quoted, as the case may be, as
may be selected by the Board of Directors for such purpose; provided,
however, that in the event IMSC Common Shares are not then listed or
quoted on any recognized stock exchange or automated quotation system
or if, in the opinion of the Board of Directors, the public
distribution or trading activity of IMSC Common Shares during such
period does not create a market which reflects the fair market value
of the IMSC Common Shares, then the Current Market Price of an IMSC
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
than any such selection, opinion or determination by the board of
Directors shall be conclusive and binding;
(l) "DCFood" means D.C. Food Processing Inc.;
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(m) "GAAP" means Canadian generally accepted accounting principles applied
on a consistent basis;
(n) "IMSC" means International Menu Solutions Corporation, a Nevada
corporation and any successor thereto;
(o) "IMSC Common Shares" means the shares of common stock of IMSC, with a
par value of U.S. $0.001 per share, having voting rights of one vote
per share;
(p) "IMSC Dividend Payment Date" means the date upon which payment of
dividends declared by IMSC on the IMSC Dividend Declaration Date is
made; and "IMSC Dividend Declaration Date" means the date upon which
IMSC declares a dividend on the IMSC Common Shares;
(q) "Series 2 Liquidation Amount" means the amount per Series 2 Share that
each holder of Series 2 Shares shall be entitled to under Section 11.1
or 11.2 hereof, as the case may be;
(r) "Series 2 Liquidation Date" means the effective date of the
liquidation, dissolution or winding-up of the Corporation or other
distribution of the assets of the Corporation among its shareholders
for the purpose of liquidation of the Corporation or winding up of its
affairs;
(s) "Series 2 Share Exchange Multiple" means the quotient obtained by
dividing:
i) 50% of the Adjusted EBITDA for the period from and including
December 7, 1998 to and including December 31, 1999 or such
earlier date as may be determined pursuant to Article 17; by
ii) the Current Market Price of one IMSC Common Share determined as
at December 31, 1999 or such earlier date as may be determined
pursuant to Article 17;
and "Series 2 Share Exchange Multiple Per Share" means the quotient
obtained by dividing the Series 2 Share Exchange Multiple by the
number of Series 2 Shares issued and outstanding as at the close of
business (Toronto time) on December 31, 1999 or on such earlier date
as may be determined pursuant to Article 17;
(t) "Support Agreement" means that certain support agreement relating to
the Series 2 Shares dated the 10th day of May, 1999 between Donald
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Kilimnik, Deborah Kilimnick, Robert Curik and Anjela Curik, the
Corporation and IMSC;
(u) "Transfer Agent" means the secretary of the Corporation or such other
person as may from time to time be the registrar and transfer agent
for the Class E Special Shares.
1.2 The Board of Directors shall determine, in good faith and in its discretion,
acting reasonably, (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the Board of Directors
may require), what is the "Economic Equivalent" for the purposes of these share
provisions, and each such determination shall be conclusive and binding on IMSC,
and the term "Economic Equivalent" where used in these share provisions shall
refer to such determination. In making such determination, the following factors
shall, without excluding other factors determined by the Board of Directors to
be relevant, be considered by the Board of Directors:
(i) in the case of any stock dividend or other distribution payable
in IMSC Common Shares, the number of such shares issued in
proportion to the number of IMSC Common Shares previously
outstanding;
(ii) in the case of the issuance or distribution of any options,
rights, warrants to subscribe for or purchase IMSC Common Shares
(or securities exchangeable for or convertible into or carrying
rights to acquire IMSC Common Shares), the relationship between
the exercise price of each such option, right or warrant and the
Current Market Price of IMSC Common Shares;
(iii)in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities
of IMSC of any class other than IMSC Common Shares, any rights,
options or warrants other than those referred to in Section
1.2(ii) above, any evidences of indebtedness of IMSC or any
assets of IMSC), the relationship between the fair market value
(as determined by the Board of Directors) of such property to be
issued or distributed with respect to each outstanding IMSC
Common Share and the Current Market Price of an IMSC Common
Share;
(iv) in the case of any subdivision, redivision or change of the then
outstanding IMSC Common Shares into a greater number of IMSC
Common Shares or the reduction, combination or consolidation or
change of the then outstanding IMSC Common
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1dd
Shares into a lesser number of IMSC Common Shares or any
amalgamation, merger reorganization or other transaction
affecting the IMSC Common Shares, the effect thereof upon the
then outstanding IMSC Common Shares; and
(v) in all such cases, the general taxation consequences of the
relevant event to holders of Series 2 Shares to the extent that
such consequences may differ from the taxation consequences to
holders of IMSC Common Shares as a result of differences between
taxation laws of Canada and the United States (except for any
differing consequences arising as a result of differing marginal
taxation rates and without regard to the individual circumstances
of holders of Series 2 Shares.
Article 2 - Reciprocal Changes, etc. In Respect of IMSC Common Shares
2.1 Each holder of a Series 2 Share acknowledges that the Support Agreement
provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Series 2 Shares, given
in accordance with these share provisions:
(a) issue or distribute IMSC Common Shares (or securities exchangeable for
or convertible into or carrying rights to acquire IMSC Common Shares)
to the holders of all or substantially all of the then outstanding
IMSC Common Shares by way of stock dividend or other distribution,
other than an issue of IMSC Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire IMSC Common
Shares) to holders of IMSC Common Shares who exercise an option to
receive dividends in IMSC Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire IMSC Common
Shares) in lieu of receiving cash dividends; or
(b) issue or distribute rights, options or warrants to the holders of all
or substantially all of the then outstanding IMSC Common Shares
entitling them to subscribe for or to purchase IMSC Common Shares (or
securities exchangeable for or convertible into or carrying rights to
acquire IMSC Common Shares); or
(c) issue or distribute to the holders of all or substantially all of the
then outstanding IMSC Common Shares (A) shares or securities of IMSC
of any class other than IMSC Common Shares (other than shares
convertible into or exchangeable for or carrying rights to acquire
IMSC Common Shares), (B) rights, options or warrants other than those
referred to in Section 2.1(b) above, (C) evidences of indebtedness of
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IMSC or (D) assets of IMSC;
unless the Economic Equivalent on a per share basis of such rights, securities,
shares, evidences of indebtedness or other assets is issued or distributed
simultaneously to the holders of the Series 2 Shares.
2.2 Each holder of a Series 2 Share acknowledges that the Support Agreement
further provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Series 2 Shares, given
in accordance with these share provisions:
(a) subdivide, redivide or change the then outstanding IMSC Common Shares
into a greater number of IMSC Common Shares; or
(b) reduce, combine or consolidate or change the then outstanding IMSC
Common Shares into a lesser number of IMSC Common Shares; or
(c) reclassify or otherwise change IMSC Common Shares or effect an
amalgamation, merger, reorganization or other transaction affecting
IMSC Common Shares;
unless the Economic Equivalent of such change shall simultaneously be made to,
or in the rights of the holders of, the Series 2 Shares.
2.3 The Support Agreement further provides, in part, that the provisions of the
Support Agreement referred to in the preceding Sections 2.1 and 2.2 shall not be
changed without the approval of the holders of the Series 2 Shares, given in
accordance with these share provisions.
Article 3 - Actions by the Corporation under Support Agreement
3.1 The Corporation 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 IMSC with all provisions of the Support Agreement applicable
to the Corporation and IMSC, 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 ensure to the fullest extent possible for
the direct benefit of the Corporation all rights and benefits in favour of the
Corporation under or pursuant to such agreement.
3.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement without the approval of the holders of Series 2 Shares, given
in accordance with these share provisions, other than such amendments, waivers
and/or forgiveness as may be necessary or advisable for the purposes of:
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(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Series 2 Shares thereunder; or
(b) 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 of the Corporation, it may be expedient to make, provided
that the Board of Directors shall be of the opinion, after
consultation with counsel, that such provisions and modifications will
not be prejudicial to the interests of the holders of the Series 2
Shares; or
(c) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error contained therein,
provided that the Board of Directors of the Corporation 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 Series 2 Shares.
The Corporation shall provide each holder of Series 2 Shares with written
notification of any such amendment, waiver and/or forgiveness.
Article 4 - Notices
4.1 Any notice, request or other communication to be given to the Corporation by
a holder of Series 2 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 Corporation and addressed to the attention of the
Secretary. 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 Corporation.
4.2 Any presentation and surrender by a holder of Series 2 Shares to the
Corporation of certificates representing Series 2 Shares in connection with the
liquidation, dissolution or winding up of the Corporation or the retraction or
redemption of Series 2 Shares shall be made by registered mail (postage prepaid)
or by delivery to the registered office of the Corporation or any other office
of the Corporation designated by it in accordance with these share provisions
addressed to the attention of the Secretary of the Corporation. Any such
presentation and surrender of certificates shall only be deemed to have been
made and to be effective upon actual
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receipt thereof by the Corporation. Any such presentation and surrender of
certificates made by registered mail shall be at the sole risk of the holder
mailing the same.
4.3 Any notice, request or other communication to be given to a holder of Series
2 Shares by or on behalf of the Corporation 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 Corporation or,
in the event of the address of any holder not being so recorded, then at the
last known address of such holder. A copy of such notice will be sent to any
financial institution which has provided notice to the Corporation that it is a
pledgee of any Series 2 Shares. Any such notice, request or other communication,
if given by mail, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Series 2 Shares shall not invalidate or
otherwise alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
Article 5 - Withholding Taxes
5.1 If the payment or delivery of cash or property to the holder of a Series 2
Share pursuant to the provisions hereof would result in the Corporation or IMSC
becoming liable to withhold or deduct and remit therefrom an amount on account
of the tax liability of such holder under the Income Tax Act (Canada) or the
applicable taxation legislation of any other jurisdiction, then, unless such
holder provides to the Corporation or IMSC, as the case may be, certificates or
such other assurances as are provided for under the Income Tax Act (Canada) or
such other applicable taxation legislation as are required to ensure that
neither the Corporation nor IMSC is so liable, the cash or property required to
be so delivered shall be net of any amounts required to be so withheld or
deducted and remitted.
Article 6 - Specified Amounts for the Purposes of the Income Tax Act
6.1 For the purposes of subsection 191(4) of the Income Tax Act (Canada), the
specified amount for the Series 2 Shares shall be $5.00 per share.
Article 7 - No Fractional IMSC Common Shares
7.1 No certificates or scrip representing a fractional IMSC Common Share shall
be required to be delivered to the holder of any of the Series 2 Shares upon the
redemption of such Series 2 Shares, or distribution to the holder of such Series
2 Shares upon the liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of liquidation of the Corporation's assets or winding up its affairs, or
a purchase of such Series 2 Shares by IMSC pursuant to and as provided for in
these share provisions (an "Exchange Event"). In lieu of any such fractional
IMSC Common Share, each holder of a Series 2 Share entitled to a fractional
interest in an IMSC Common Share upon an Exchange Event shall
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receive an amount of cash (rounded to the nearest whole cent), without interest,
equal to the Canadian Dollar Equivalent of the product of (i) such fraction,
multiplied by (ii) the Current Market Price of one IMSC Common Share determined
as at the date upon which such holder becomes entitled to such fractional
interest.
Article 8 - Legend
8.1 The certificates evidencing the Series 2 Shares shall contain or have
affixed thereto a legend, in form and on the terms approved by the Board of
Directors with respect to the Support Agreement between IMSC and the
Corporation.
Article 9 - Dividends
9.1 From the date of the issuance of the Series 2 Shares up to and including
December 31, 1999 or such earlier date as may be determined pursuant to Article
17, a holder of the Series 2 Shares shall be entitled to receive, and the
Corporation shall pay thereon, out of monies properly applicable to the payment
of dividends, such dividends as the Board of Directors may from time to time
declare.
9.2 After December 31, 1999 or such earlier date as may be determined pursuant
to Article 17, a holder of Series 2 Shares shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each IMSC Dividend
Declaration Date, declare a dividend on each Series 2 Share (i) in the case of a
cash dividend declared on the IMSC Common Shares, in an amount in cash for each
Series 2 Share equal to the Canadian Dollar Equivalent on the IMSC Dividend
Declaration Date of the cash dividend declared on each IMSC Common Share
multiplied by the Series 2 Share Exchange Multiple Per Share or (ii) in the case
of a stock dividend declared on the IMSC Common Shares to be paid in IMSC Common
Shares, in such number of Series 2 Shares for each Series 2 Share as is equal to
the number of IMSC Common Shares to be paid on each IMSC Common Share or (iii)
in the case of a dividend declared on the IMSC Common Shares in property other
than cash or IMSC Common Shares, in such type and amount of property for each
Series 2 Share as is the same as or the Economic Equivalent of the type and
amount of property declared as a dividend on each IMSC Common Share, multiplied
by the Series 2 Exchange Multiple Per Share. Such dividends shall be paid out of
money, assets or property of the Corporation properly applicable to the payment
of dividends, or out of authorized but unissued shares of the Corporation.
9.3 The record date for the determination of the holders of Series 2 Shares
entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Series 2 Shares under Section 9.2 hereof shall be
the same as the record date and the payment date, respectively, for the
corresponding dividend or distribution declared on the IMSC Common Shares.
9.4 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation in Canada shall be issued in respect of any cash dividends
contemplated by Section 9.2(i) hereof and the sending of such a cheque to each
holder
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of a Series 2 Share shall satisfy the cash dividend represented thereby unless
the cheque is not paid on presentation. Certificates registered in the name of
the registered holders of Series 2 Shares shall be issued or transferred in
respect of any stock dividends contemplated by Section 9.2(ii) hereof and the
sending of such a certificate to each holder of a Series 2 Share shall satisfy
the stock dividend represented thereby. Such other type and amount of property
in respect of any dividends contemplated by Section 9.2(iii) hereof shall be
issued, distributed or transferred by the Corporation in such manner as it shall
determine and the issuance, distribution or transfer thereof by the Corporation
to each holder of a Series 2 Share shall satisfy the dividend represented
thereby. No holder of a Series 2 Share shall be entitled to recover by action or
other legal process against the Corporation any dividend that is represented by
a cheque that has not been duly presented to the Corporation's bankers for
payment or that otherwise remains unclaimed for a period of six years from the
date on which such dividend was payable.
9.5 If on any payment date for any dividends declared on the Series 2 Shares
under Section 9.2 hereof, such dividends are not paid in full on all of the
Series 2 Shares then outstanding because the Corporation does not then have
sufficient monies, assets or property applicable to the payment of such
dividends, then any such dividends that remain unpaid shall be paid on the
earliest subsequent date or dates determined by the Board of Directors on which
the Corporation shall have sufficient monies, assets or property applicable to
the payment of such dividends. If on any date for the declaration or payment of
any dividend declared or to be declared on the Series 2 Shares under Section 9.2
above such dividends are not declared or are not paid in full on all of the
Series 2 Shares then outstanding because the Series 2 Exchange Multiple has not
then been determined, then any such dividends that remain undeclared and/or
unpaid shall be declared and/or paid on the earliest subsequent date or dates
determined by the Board of Directors on which the Series 2 Share Exchange
Multiple shall have been determined. If on any date for the payment of a
dividend declared or to be declared on the Series 2 Shares under Section 9.2
above such dividend is not paid in full on all of the Series 2 Shares for any
reason whatsoever, then the Corporation shall pay to the holders of the Series 2
Shares interest at the rate per annum which is equal to the interest rate then
charged to the Corporation by its principal banker for operating credit
facilities provided to the Corporation, on the principal amount of such
outstanding dividend, from the IMSC Dividend Payment Date to the date of actual
payment of such dividend.
Article 10 - Certain Restrictions
10.1 So long as any of the Series 2 Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Series 2 Shares given in accordance with these share provisions:
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(a) pay any dividends on the Class A Special Preferred Shares, the Common
Shares, or any other shares ranking junior to the Series 2 Shares,
other than stock dividends payable in Common Shares or any such other
shares ranking junior to the Series 2 Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
Class A Special Preferred Shares, Common Shares or any other shares
ranking junior to the Series 2 Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Series 2 Shares with respect to the payment of dividends or
on any liquidation distribution; or
(d) issue any Series 2 Shares or any other shares of the Corporation
ranking superior to the Series 2 Shares other than the issuance of
Class X Shares and other than by way of stock dividends to the holders
of such Series 2 Shares or as contemplated by the Support Agreement.
The restrictions in Sections 10.1(a), 10.1(b) and 10.1(c) above shall not
apply if all dividends on the outstanding Series 2 Shares corresponding to
dividends declared to date on IMSC Common Shares shall have been declared on the
Series 2 Shares and paid in full.
Article 11 - Participation Upon Liquidation, Dissolution or Winding-Up
11.1 At any time from the date of the issuance of each Series 2 Share up to and
including December 31, 1999 or such earlier date as may be determined pursuant
to Article 17, in the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of assets of the Corporation among its
shareholders for the purpose of liquidation of the Corporation's assets or
winding up its affairs, each holder of Series 2 Shares shall be entitled,
subject to applicable law, to receive in respect of each Series 2 Share held by
such holder on the Series 2 Liquidation Date 1.11111 IMSC Common Shares for each
such Series 2 Share which shall be satisfied in full by the Corporation causing
to be delivered to such holder 1.11111 IMSC Common Shares for each Series 2
share held, plus an additional amount equivalent to the full amount of all
dividends declared and unpaid on such Series 2 Share, but such holder shall not
be entitled to share any further in the distribution of the property or assets
of the Corporation; if the assets of the Corporation including surplus, are not
sufficient in respect of each Series 2 Share to pay such amount in full, then
all the said assets or their proceeds remaining after such payment shall be
distributed rateably among the holders of the Series 2 Shares.
11.2 At any time after December 31, 1999 or such earlier date as may be
determined pursuant to Article 17, in the event of the liquidation, dissolution
or winding-up of the Corporation or other distribution of assets of the
Corporation among
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its shareholders for the purpose of liquidation of the Corporation's assets or
winding up its affairs, each holder of Series 2 Shares shall be entitled,
subject to applicable law, to receive in respect of each Series 2 Share held by
such holder on the Series 2 Liquidation Date to an amount per share equal to:
(i) the Current Market Price of an IMSC Common Share determined as at the last
Business Day prior to the Series 2 Liquidation Date multiplied by the Series 2
Share Exchange Multiple Per Share, which shall be satisfied in full by the
Corporation causing to be delivered to such holder that number of IMSC Common
Shares which is equal to the Series 2 Share Exchange Multiple Per Share, plus
(ii) an additional amount equivalent to the full amount of all dividends
declared and unpaid on such Series 2 Share prior to the Liquidation Date.
11.3 In the case of a distribution on Series 2 Shares under this Article 11, on
or promptly after the Series 2 Liquidation Date, and subject to the exercise by
IMSC of the Series 2 Liquidation Call Right (as set forth and defined below),
the Corporation shall cause to be delivered to the holders of Series 2 Shares
the Series 2 Liquidation Amount for each such Series 2 Share upon presentation
and surrender of the certificates representing such Series 2 Shares, together
with such other documents and instruments as may be required to effect a
transfer of Series 2 Shares under the Business Corporations Act (Ontario) and
such additional documents and instruments as the Transfer Agent may reasonably
require, at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of the Series 2 Shares. Payment of the aggregate Series 2 Liquidation Amount for
such Series 2 Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Corporation for the Series
2 Shares or by holding for pick-up by the holder at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of the Series 2 Shares of certificates
representing IMSC 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 Corporation payable at
par in Canadian dollars at any branch of the bankers of the Corporation in
Canada in payment of the amount equivalent to the full amount of all declared
and unpaid dividends comprising part of the Series 2 Liquidation Amount.
11.4 If on the Series 2 Liquidation Date, the Series 2 Liquidation Amount in
respect of any of the Series 2 Shares payable under Section 11.2 above cannot be
paid because the Series 2 Share Exchange Multiple has not then been determined,
then such Series 2 Liquidation Amount or any part thereof that remains unpaid
shall be paid on the earliest subsequent date or dates determined by the Board
of Directions on which the Series 2 Share Exchange Multiple shall have been
determined; provided that in such event, the Corporation shall pay to the
holders of the Series 2 Shares interest at the rate per annum which is equal to
the interest rate charged to the Corporation by its principal banker at the
Series 2 Liquidation Date for operating credit facilities provided to the
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Corporation, on the principal amount of such outstanding Series 2 Liquidation
Amount, from the Series 2 Liquidation Date to the date of actual payment
thereof.
11.5 On and after the Series 2 Liquidation Date, the holders of the Series 2
Shares shall cease to be holders of such Series 2 Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive the Series 2 Liquidation Amount in respect of the Series 2
Shares held by them, unless payment of the Series 2 Liquidation Amount for such
Series 2 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 Series 2 Liquidation
Amount has been paid in the manner hereinbefore provided.
11.6 The Corporation shall have the right at any time after the Series 2
Liquidation Date to deposit or cause to be deposited the Series 2 Liquidation
Amount in respect of the Series 2 Shares represented by certificates that have
not at the Series 2 Liquidation Date been surrendered by the holders thereof in
a custodial account with any chartered bank or trust company in Canada
designated by the Board of Directors of the Corporation (the "Deposit Agent").
Upon such deposit being made, the rights of the holders of Series 2 Shares after
such deposit shall be limited to receiving the Series 2 Liquidation Amount in
respect of such Series 2 Shares, 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 Series 2 Liquidation Amount, the
holders of the Series 2 Shares shall thereafter be considered and deemed for all
purposes to be the holders of the IMSC Common Shares delivered to them. After
the Corporation has satisfied its obligations to pay the holders of the Series 2
Shares the Series 2 Liquidation Amount per Series 2 Share pursuant to Section
11.2 above or the amounts payable pursuant to Section 11.1 above, as the case
may be, such holders shall not be entitled to share in any further distribution
of the assets of the Corporation.
11.7 IMSC shall have the overriding right (the "Series 2 Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of the Corporation at any time after the Series 2
Liquidation Date, to purchase from all, but not less than all, of the holders of
Series 2 Shares on the Series 2 Liquidation Date all, but not less than all, of
the Series 2 Shares held by each such holder on payment by IMSC to each holder
of an amount per share equal to the Series 2 Liquidation Amount (as determined
pursuant to the provisions of Section 11.1 or 11.2, as applicable (the "Series 2
Liquidation Call Purchase Price")). In the event of the exercise of the Series 2
Liquidation Call Right by IMSC, each holder shall be obliged to sell all of the
Series 2 Shares held by such holder to IMSC on the Series 2 Liquidation Date on
payment by IMSC to the holder of the Series 2 Liquidation Call Purchase Price
for each such share.
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11.8 In order to exercise its Series 2 Liquidation Call Right, IMSC must notify,
in writing, the holders of the Series 2 Shares and the Corporation, of IMSC's
intention to exercise such right at least 55 days before the Series 2
Liquidation Date in the case of a voluntary liquidation, dissolution or winding
up of the Corporation and at least 5 Business Days before the Series 2
Liquidation Date in the case of an involuntary liquidation, dissolution or
winding up of the Corporation. If IMSC exercises the Series 2 Liquidation Call
Right, then on the Series 2 Liquidation Date, IMSC will purchase and the holders
will sell all of the Series 2 Shares then outstanding for a price per share
equal to the Series 2 Liquidation Call Purchase Price.
11.9 For the purposes of completing the purchase of the Series 2 Shares pursuant
to the exercise of the Series 2 Liquidation Call Right, IMSC shall deliver to
each holder at the address of the holder recorded in the securities register of
the Corporation for the Series 2 Shares or by holding for pick-up by the holder
at the registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of the
Series 2 Shares, of certificates representing the IMSC Common Shares required to
be delivered by IMSC in payment of the Series 2 Liquidation Call Purchase Price
(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 Corporation payable at par in Canadian dollars at any
branch of the bankers of the Corporation in payment of the amount equivalent to
the full amount of all declared and unpaid dividends comprising part of the
Series 2 Liquidation Amount.
11.10 Provided that the Series 2 Liquidation Call Purchase Price has been paid
as provided for in Section 11.9, on and after the Series 2 Liquidation Date, the
rights of each holder of Series 2 Shares will be limited to receiving the Series
2 Liquidation Call Purchase Price payable by IMSC in respect of the Series 2
Shares held by such holder upon presentation and surrender by such holder of
certificates representing such Series 2 Shares and the holder shall on and after
the Series 2 Liquidation Date be considered and deemed for all purposes to be
the holder of the IMSC Common Shares delivered to it. Upon surrender to the
Deposit Agent (as defined in Section 11.6 above) of the certificates
representing Series 2 Shares, together with such other documents and instruments
as may be required to effect a transfer of Series 2 Shares under the Business
Corporations Act (Ontario), and such additional documents and instruments as the
Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange therefor,
and the Transfer Agent on behalf of IMSC shall deliver to such holder,
certificates representing the IMSC Common Shares to which the holder is entitled
and a cheque or cheques of IMSC payable at par and in Canadian dollars at any
branch of the bankers of IMSC or of the Corporation in Canada in payment of the
remaining portion, if any, of the Series 2 Liquidation Call Purchase Price. If
IMSC does not exercise the Series 2 Liquidation Call Right in the manner
described above, on the Series 2 Liquidation Date, the holders of the Series 2
Shares will be entitled to receive in exchange therefor the Series 2
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Liquidation Amount otherwise payable by the Corporation in connection with the
liquidation, dissolution or winding-up of the Corporation pursuant to this
Article 11.
11.11 The Corporation shall provide prompt written notice to each holder of
outstanding Series 2 Shares of any action, step or proceedings initiated or
taken by the Corporation, or another person, in respect of, or for the purpose
of, a liquidation, winding-up or dissolution of the Corporation.
Article 12 - Retraction of Series 2 Shares by Holder
12.1 A holder of Series 2 Shares shall be entitled at any time after December
31, 1999 or such earlier date as may be determined pursuant to Article 17
subject to the exercise by IMSC of the Series 2 Retraction Call Right (as set
forth and defined below) and otherwise upon compliance with the provisions of
this Article 12, to require the Corporation to redeem, on the Series 2
Retraction Date (defined below), any or all of the Series 2 Shares registered in
the name of such holder for an amount per share equal to: (i) the Current Market
Price of one IMSC Common Share determined as at the last Business Day prior to
the Series 2 Retraction Date (as defined below) multiplied by the Series 2 Share
Exchange Multiple Per Share, which shall be paid and satisfied in full by the
Corporation causing to be delivered to such holder that number of IMSC Common
Shares which is equal to the Series 2 Share Exchange Multiple Per Share for each
Series 2 Share presented and surrendered by the holder plus (ii) an additional
amount equivalent to the full amount of all dividends declared and unpaid on
each Series 2 Share prior to the Series 2 Retraction Date (collectively, the
"Series 2 Retraction Price" provided that if the record date for any such
declared and unpaid dividend occurs on or after the Series 2 Retraction Date,
the Series 2 Retraction Price shall not include such additional amount
equivalent to the declared and unpaid dividend).
12.2 To exercise the right of retraction provided for in Section 12.1, the
holder shall present and surrender at the registered office of the Corporation
or at any office of the Transfer Agent as may be specified by the Corporation by
written notice to the holders of Series 2 Shares, the certificate or
certificates representing the Series 2 Shares which the holder desires to have
the Corporation redeem, together with such other documents and instruments as
may be required to effect a transfer of Series 2 Shares under the Business
Corporations Act (Ontario), and such additional documents and instruments as the
Transfer Agent may reasonably require, and together with a duly executed
statement in the form attached hereto as Schedule "A", or such other form as may
be acceptable to the Corporation, acting reasonably (the "Series 2 Retraction
Request"):
(a) specifying that the holder desires to have all or any number specified
therein of the Series 2 Shares represented by such certificate or
certificates (the "Retracted Series 2 Shares") redeemed by the
Corporation;
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(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Series 2 Shares (the "Series 2
Retraction Date"), provided that the Series 2 Retraction Date shall
not be less than five (5) Business Days after the date on which the
Series 2 Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is specified by
the holder in the Series 2 Retraction Request, the Series 2 Retraction
Date shall be deemed to be the tenth (10th) Business Day after the
date on which the Series 2 Retraction Request is received by the
Corporation; and
(c) acknowledging the overriding right (the "Series 2 Retraction Call
Right") of IMSC to purchase all but not less than all the Series 2
Retracted Shares directly from the holder and that the Series 2
Retraction Request shall be deemed to be a revocable offer by the
holders to sell the Retracted Series 2 Shares to IMSC in accordance
with the Series 2 Retraction Call Right.
12.3 Subject to the exercise by IMSC of the Series 2 Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in this
Article 12 of a certificate or certificates representing the number of Series 2
Shares which the holder desires to have the Corporation redeem, together with a
Series 2 Retraction Request, and provided further that the Series 2 Retraction
Request is not revoked by the holder in the manner specified in Section 12.10,
the Corporation shall redeem the Series 2 Retracted Shares effective at the
close of business on the Series 2 Retraction Date and shall cause to be
delivered to such holder the Series 2 Retraction Price with respect to such
shares. If only a part of the Series 2 Shares represented by any certificate is
redeemed or purchased by IMSC pursuant to the Series 2 Retraction Call Right, a
new certificate for the balance of such Series 2 Shares shall be issued to the
holder at the expense of the Corporation.
12.4 Upon receipt by the Corporation of a Series 2 Retraction Request, the
Corporation shall immediately notify IMSC thereof. In order to exercise the
Series 2 Retraction Call Right, IMSC must notify the Corporation in writing of
its determination to do so (the "Series 2 Retraction Call Notice") within two
(2) Business Days of notification to IMSC by the Corporation of the receipt by
the Corporation of the Series 2 Retraction Request. If IMSC does not so notify
the Corporation within such two (2) Business Day period, the Corporation will
notify the holder as soon as possible thereafter that IMSC will not exercise the
Series 2 Retraction Call Right. If IMSC delivers the Series 2 Retraction Call
Notice within such two (2) Business Day period, and provided that the Series 2
Retraction Request is not revoked by the holder in the manner specified in
Section 12.10, the Series 2 Retraction Request shall thereupon be considered
only to be an offer by the holder to sell the Retracted Series 2 Shares to IMSC
in accordance with the Series 2 Retraction Call Right. In such event, the
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Corporation shall not redeem the Retracted Series 2 Shares and IMSC shall
purchase from such holder and such holder shall sell to IMSC on the Series 2
Retraction Date the Retracted Series 2 Shares for a purchase price (the "Series
2 Retraction Call Purchase Price") per share equal to the Series 2 Retraction
Price per share.
12.5 For the purpose of completing a purchase pursuant to the Series 2
Retraction Call Right, IMSC shall deposit with the Transfer Agent, on or before
the Series 2 Retraction Date, certificates representing IMSC Common Shares and a
cheque in the amount of the remaining portion, if any, of the Series 2
Retraction Call Purchase Price in respect of the Retracted Series 2 Shares.
12.6 Provided that the Series 2 Retraction Call Purchase Price in respect of the
Retracted Series 2 Shares has been so deposited with the Corporation or the
Transfer Agent, the closing of the purchase and sale of the Retracted Series 2
Shares pursuant to the Series 2 Retraction Call Right shall be deemed to have
occurred as at the close of business on the Series 2 Retraction Date and, for
greater certainty, no purchase by the Corporation of such Retracted Series 2
Shares shall take place on the Series 2 Retraction Date. In the event that IMSC
does not deliver a Series 2 Retraction Call Notice within the said two (2)
Business Day period, and provided that the Series 2 Retraction Request is not
revoked by the holder in the manner specified in Section 12.10, the Corporation
shall purchase the Retracted Series 2 Shares on the Series 2 Retraction Date in
the manner otherwise contemplated in this Article 12.
12.7 Promptly and without delay, the Corporation or IMSC, as the case may be,
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the securities register of the Corporation
for the Series 2 Shares or at the address specified in the holder's Series 2
Retraction Request or by holding for pick-up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation or IMSC, as the case may be, by notice to the
holders of Series 2 Shares, certificates representing IMSC 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)
registered in the name of the holder or in such other name as the holder may
request in payment of the Series 2 Retraction Price or the Series 2 Retraction
Call Purchase Price (as the case may be) in respect of the Retracted Series 2
Shares, and a cheque of the Corporation payable at par in Canadian dollars at
any branch of the bankers of the Corporation in Canada in payment of the
remaining portion, if any, of the Series 2 Retraction Price (less any tax
required to be deducted and withheld therefrom by the Corporation) or a cheque
of IMSC payable at par in Canadian dollars at any branch of the bankers of IMSC
in Canada in payment of the remaining portion, if any, of the total Series 2
Retraction Call Purchase Price (as the case may be) in respect of the Retracted
Series 2 Shares and such delivery of such certificates and cheque by or on
behalf of the Corporation or by or on behalf of IMSC (as the case may be) by the
Transfer Agent, shall be deemed to be payment of and shall satisfy and
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discharge all liability for the Series 2 Retraction Price or Series 2 Retraction
Call Purchase Price (as the case may be) in respect of the Retracted Series 2
Shares to the extent that the same is represented by such share certificates and
cheque (plus any tax required and in fact deducted and withheld therefrom and
remitted to the proper tax authority, without interest), unless such cheque is
not paid on due presentation.
12.8 On and after the close of business on the Series 2 Retraction Date, the
holder of the Retracted Series 2 Shares shall cease to be a holder of such
Retracted Series 2 Shares and shall not be entitled to exercise any of the
rights of a holder in respect thereof, other than the right to receive the
Series 2 Retraction Price or Series 2 Retraction Call Purchase Price (as the
case may be) in respect of such Retracted Series 2 Shares unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the Series 2 Retraction Price or the Series 2 Retraction
Call Purchase Price (as the case may be) shall not be made, in which case the
rights of such holder shall remain unaffected until such Series 2 Retraction
Price or Series 2 Retraction Call Purchase Price (as the case may be) has been
paid in the manner hereinbefore provided. On and after the close of business on
the Series 2 Retraction Date, provided that presentation and surrender of
certificates and payment of such Series 2 Retraction Price or Series 2
Retraction Call Purchase Price (as the case may be) has been made in accordance
with the foregoing provisions, the holder of the Retracted Series 2 Shares so
redeemed by the Corporation or purchased by IMSC shall thereafter be considered
and deemed for all purposes to be a holder of the IMSC Common Shares delivered
to it.
12.9 Notwithstanding any other provision of this Article 12, the Corporation
shall not be required to redeem Retracted Series 2 Shares specified by a holder
in a Series 2 Retraction Request to the extent that such redemption of Retracted
Series 2 Shares would be contrary to solvency requirements or other provisions
of applicable law. If the Corporation believes that on any Series 2 Retraction
Date it would not be permitted by any of such provisions to purchase the
Retracted Series 2 Shares tendered for redemption on such date, and provided
that IMSC shall not have exercised the Series 2 Retraction Call Right with
respect to the Retracted Series 2 Shares, the Corporation shall only be required
to redeem Retracted Series 2 Shares specified by a holder in a Series 2
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 (2) Business Days prior to
the Series 2 Retraction Date as to the number of Retracted Series 2 Shares which
will not be redeemed by the Corporation. In any case in which the redemption by
the Corporation of Retracted Series 2 Shares would be contrary to solvency
requirements or other provisions of applicable law, the Corporation shall as
soon as practicable and from time to time redeem Retracted Series 2 Shares in
accordance with Section 12.3 above on a pro rata basis and shall issue to each
holder of Retracted Series 2 Shares a new certificate, at the expense of the
Corporation, representing Series 2 Shares not purchased by the Corporation
pursuant to Section 12.3. Provided that the Series 2
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Retraction Request is not revoked by the holder in the manner specified in
Section 12.10, the holder of any such Retracted Series 2 Shares not redeemed by
the Corporation pursuant to Section 12.3 as a result of solvency requirements or
other provisions of applicable law shall be deemed by giving the Series 2
Retraction Request to require IMSC to purchase such Retracted Series 2 Shares
from such holder on the Series 2 Retraction Date or as soon as practicable
thereafter on payment by IMSC to such holder of the Series 2 Retraction Call
Purchase Price for each such Retracted Series 2 Share, all as more specifically
provided in the Support Agreement.
12.10 A holder of Retracted Series 2 Shares may, by notice in writing given by
the holder to the Corporation no later than the close of business on the
Business Day immediately preceding the Series 2 Retraction Date, withdraw its
Series 2 Retraction Request in which event such Series 2 Retraction Request
shall be null and void and, for greater certainty, the revocable offer
constituted by the Series 2 Retraction Request to sell the Retracted Series 2
Shares to IMSC shall be deemed to have been revoked.
Article 13 - Redemption of Series 2 Shares by the Corporation
13.1 In this Article 13, the term "Automatic Redemption Date" means the date for
the automatic redemption by the Corporation of the Series 2 Shares pursuant to
this Article 13, which date shall be December 31, 2013, unless (a) such date
shall be extended at any time or from time to time to a specified later date by
the Board of Directors, or (b) such date shall be accelerated at any time to a
specified earlier date by the Board of Directors if at such time there are less
than 25,000 Series 2 Shares outstanding (other than Series 2 Shares held by IMSC
and its Affiliates and 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 Series 2 Shares, any
issue or distribution rights to acquire Series 2 Shares or securities
exchangeable for or convertible into Series 2 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 Series 2
Shares).
13.2 Subject to applicable law and if IMSC does not exercise of the Series 2
Redemption Call Right (as set forth and defined below), the Corporation shall on
the Automatic Redemption Date redeem all but not less than all of the then
outstanding Series 2 Shares for an amount per share equal to: (i) the Current
Market Price of one IMSC Common Share determined as at the last Business Day
prior to the Automatic Redemption Date multiplied by the Series 2 Share Exchange
Multiple Per Share, which shall be paid and satisfied in full by the Corporation
causing to be delivered to each holder of a Series 2 Share that number of IMSC
Common Shares which is equal to the Series 2 Share Exchange Multiple Per Share
for each Series 2 Share held by such holder, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid thereon
(collectively, the "Series 2 Redemption Price").
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13.3 In any case of a redemption of Series 2 Shares under this Article 13, the
Corporation shall, at least one hundred and twenty (120) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Series 2
Shares a notice in writing of the redemption by the Corporation or the purchase
by IMSC under the Series 2 Redemption Call Right (as set forth and defined
below), as the case may be, of the Series 2 Shares held by such holder. Such
notice shall set out the formula for determining the Series 2 Redemption Price
or the Series 2 Redemption Call Purchase Price (as the case may be), the
Automatic Redemption Date and, if applicable, particulars of the Series 2
Redemption Call Right.
13.4 On or after the Automatic Redemption Date and subject to exercise of the
Series 2 Redemption Call Right, the Corporation shall cause to be delivered to
the holders of the Series 2 Shares to be redeemed, the Series 2 Redemption Price
for each such Series 2 Share upon presentation and surrender at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation in such notice of the certificate or certificates
representing the Series 2 Shares to be redeemed, together with such other
documents and instruments as may be required to effect a transfer of Series 2
Shares pursuant to the Business Corporations Act (Ontario) and such additional
documents and instruments as the Transfer Agent may reasonably require. Payment
of the Series 2 Redemption Price for such Series 2 Shares shall be made by
delivery to each holder, at the address of the holder recorded in the securities
register of the Corporation or by holding for pick-up by the holder at the
registered office of the Corporation or at the office of the Transfer Agent as
may be specified by the Corporation in such notice, the certificate or
certificates representing the IMSC 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
Corporation payable at par in Canadian dollars at any branch of the bankers of
the Corporation in Canada in respect of the amount equivalent to the full amount
of all declared and unpaid dividends comprising part of the Series 2 Redemption
Price. Upon such payment or deposit of the Series 2 Redemption Price, the
holders of the Series 2 Shares redeemed shall be considered and deemed for all
purposes to be the holders of the IMSC Common Shares delivered to them.
13.5 Subject to the exercise of the Series 2 Redemption Call Right, on and after
the Automatic Redemption Date, the holders of the Series 2 Shares called for
redemption shall cease to be holders of such Series 2 Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive the Series 2 Redemption Price in respect of such Series 2
Shares, unless payment of the Series 2 Redemption Price for such Series 2 Shares
shall not be made upon presentation and surrender of certificates in accordance
with Section 13.4, in which case the rights of the holders shall remain
unaffected until such Series 2 Redemption Price has been paid in the manner
hereinbefore provided.
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13.6 The Corporation shall have the right, at any time after the sending of
notice of its intention to redeem the Series 2 Shares as aforesaid, to deposit
or cause to be deposited the Series 2 Redemption Price of the Series 2 Shares so
called for redemption, or such of the said Series 2 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 named in such notice. Upon the later of such
deposit being made and the Automatic Redemption Date, the Series 2 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 the Series 2 Redemption Price
for such Series 2 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 such Series 2 Redemption Price, the
holders of the Series 2 Shares so redeemed shall thereafter be considered and
deemed for all purposes to be holders of the IMSC Common Shares so delivered to
them.
13.7 Notwithstanding the provisions of Section 13.2, IMSC shall have the
overriding right (the "Series Redemption Call Right") notwithstanding the
proposed redemption of the Series 2 Shares by the Corporation pursuant to this
Article 13, to purchase all but not less than all of the Series 2 Shares on the
Automatic Redemption Date from the holders for a purchase price (the "Series 2
Redemption Call Purchase Price") per share equal to the Series 2 Redemption
Price per share. In the event of the exercise of the Series 2 Redemption Call
Right by IMSC, each holder shall be obligated to sell all the Series 2 Shares
held by such holder to IMSC on the Automatic Redemption Date on payment by IMSC
to such holder of the Series 2 Redemption Call Purchase Price for each such
share.
13.8 To exercise the Series 2 Redemption Call Right, IMSC must notify the
Transfer Agent, as agent for the holders of the Series 2 Shares and the
Corporation, of IMSC's intention to exercise such right not less than one
hundred and twenty-five (125) days before the Automatic Redemption Date. The
Transfer Agent shall notify the holders of the Series 2 Shares as to whether or
not IMSC has exercised the Series 2 Redemption Call Right forthwith after the
expiry of the period during which the same may be exercised by IMSC. If IMSC
exercises the Series 2 Redemption Call Right on the Automatic Redemption Date,
IMSC will purchase and the holders will sell all of the Series 2 Shares then
outstanding for a price per share equal to the Series 2 Redemption Call Purchase
Price.
13.9 For the purposes of completing the purchase of the Series 2 Shares pursuant
to the Series 2 Redemption Call Right, IMSC shall deposit with the Transfer
Agent, on or before the Automatic Redemption Date, certificates representing
IMSC Common Shares and a cheque in the amount of the remaining portion, if any,
of the Series 2 Redemption Call Purchase Price in respect of the Series 2
Shares.
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13.10 Provided that the Series 2 Redemption Call Purchase Price has been so
deposited with the Transfer Agent, on and after the Automatic Redemption Date
the rights of each holder of Series 2 Shares will be limited to receiving the
Series 2 Redemption Call Purchase Price payable by IMSC in respect of the Series
2 Shares upon presentation and surrender by the holder of certificates
representing such Series 2 Shares and the holder shall, with respect to the
Series 2 Shares so purchased, on and after the Series 2 Redemption Date, be
considered and deemed for all purposes to be the holder of IMSC Common Shares
delivered to such holder. Upon surrender to the Transfer Agent of a certificate
or certificates representing the Series 2 Shares so purchased, together with
such other documents and instruments as may be required to effect a transfer of
Series 2 Shares under the Business Corporations Act (Ontario) and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent on behalf of
IMSC shall deliver to such holder, certificates representing the IMSC Common
Shares to which the holder is entitled and a cheque or cheques of IMSC payable
in at par in Canadian dollars at any branch of the bankers of IMSC in Canada in
payment of the remaining portion, if any, of the Series 2 Redemption Call
Purchase Price. If IMSC does not exercise the Series 2 Redemption Call Right in
the manner described above, the holders of the Series 2 Shares will be entitled
to receive in exchange therefor the Series 2 Redemption Price otherwise payable
by the Corporation pursuant to this Article 13 on the Automatic Redemption Date.
Article 14 - Purchase for Cancellation
14.1 Subject to applicable law, the Corporation may at any time and from time to
time offer to purchase for cancellation all or any part of the outstanding
Series 2 Shares at any price by the tender to all holders of record of Series 2
Shares then outstanding together with an amount equal to all declared and unpaid
dividends thereon. The holders of Series 2 Shares may accept or refuse such
offer at their discretion. If in response to an invitation for tenders under the
provisions of this Article 14, more Series 2 Shares are tendered than the
Corporation is prepared to purchase, the Series 2 Shares to be purchased by the
Corporation shall be purchased as nearly as may be pro rata according to the
number of shares tendered by each holder who submits a tender to the
Corporation. If only part of the Series 2 Shares represented by any certificate
shall be purchased, a new certificate for the balance of such shares shall be
issued at the expense of the Corporation.
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Article 15 - Amendment With Approval of Holders
15.1 The rights, privileges, restrictions and conditions attached to the Series
2 Shares as a class may be added to, changed or removed but only with the
approval of the holders of the Series 2 Shares given in accordance with these
share provisions.
Article 16 - Approval of the Holders
16.1 Any approval given by the holders of the Series 2 Shares to add to, change
or remove any right, privilege, restriction or condition attaching to the Series
2 Shares or any other matter requiring the approval or consent of the holders of
the Series 2 Shares 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 a resolution passed by not less
than two-thirds of the votes cast on such resolution at a meeting of holders of
Series 2 Shares duly called and held at which holders of at least 50% of the
outstanding Series 2 Shares at that time are present and represented by a proxy;
provided that such approval must be given also by the affirmative vote of
holders of more than two-thirds of the Series 2 Shares represented in person or
by proxy at the meeting excluding Series 2 Shares beneficially owned by IMSC or
any of its Affiliates (as such term is defined in the Business Corporations Act
(Ontario)). If at any such meeting of the holders of at least 50% of the
outstanding Series 2 Shares at that time are not present or represented by proxy
within one-half hour after the time appointed for such meeting then the meeting
shall be adjourned to such date not less than ten days thereafter and to such
time and place as may be designated by the chairman of such meeting. At such
adjourned meeting, the holders of Series 2 Shares present or represented by
proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on such resolution at such meeting shall constitute
the approval or consent of the holders of the Series 2 Shares.
Article 17 - Acceleration
17.1 Subject to the provisions of this Article, each holder of a Series 2 Share
shall have the right to have the Series 2 Share Exchange Multiple determined as
at a period ending prior to December 31, 1999 in the event:
(a) of the death, permanent disability or termination of employment,
without cause, of Robert Curik by IMSI;
(b) Michael A. Steele is not the Chief Executive Officer of IMSC; or
(c) a take-over bid for IMSC results in a single shareholder acquiring
more than fifty percent of the issued and outstanding common stock of
IMSC
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(not including any common stock of IMSC to which a holder of Class E
Special Shares Series 2is entitled either by exchange or otherwise).
17.2 Upon the occurrence of any of the events specified in Section 17.1 (a
"Triggering Event"), the holders of Series 2 Shares shall have the right to
elect to determine the Series 2 Share Exchange Multiple as at a period ending
prior to December 31, 1999 which right to elect shall continue for a sixty (60)
day period following the date of the Triggering Event, after which, if such
election is not exercised, such right shall be at an end with respect to such
Triggering Event.
17.3 If holders of Series 2 Shares elect, pursuant to Section 17.2 to determine
the Series 2 Share Exchange Multiple as at a period ending prior to December 31,
1999:
(a) Adjusted EBIDTA as at the date determined pursuant to Section 17.2
shall be determined in accordance with the provisions of subsection
2.03(f) of the Share Purchase Agreement dated May 10, 1999 between
Donald Kilimnik, Deborah Kilimnik, Robert Curik, Anjela Curik, IMSC
and the Corporation.
(b) each reference to December 31, 1999 in these Series 2 Share provisions
shall be deemed to be a reference to the accelerated date for
determining the Series 2 Share Exchange Multiple as determined
pursuant Section 17.2.
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SCHEDULE "A"
TO THE RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS OF THE
CLASS E SPECIAL SHARES - SERIES 2 SHARES
RETRACTION REQUEST
TO: International Menu Solutions Inc. (the "Corporation")
AND TO: International Menu Solutions Corporation ("IMSC")
TAKE NOTICE THAT the undersigned, the holder of Class E Shares Series 2 of
the Corporation, does hereby require the Corporation to redeem [INSERT NUMBER]
of such Class E Shares Series 2 (the "Retracted Shares") on the _____ day of
____________, _____ (the "Retraction Date").
AND FURTHER TAKE NOTICE THAT the undersigned acknowledges that
International Menu Solutions Corporation ("IMSC") has the right to exercise the
Series 2 Retraction Call Right and in that event this Retraction Request shall
be deemed to be a revocable offer by the undersigned to sell the Retracted
Shares to IMSC in accordance with the terms and conditions set out in the share
provisions of the Class E Shares Series 2.
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law, the Corporation is unable to redeem all Retracted Shares, the
undersigned will be deemed to have exercised the [Put Right] so as to require
IMSC to purchase the unredeemed Retracted Shares.
DATED this __________ day of __________, __________.
________________________
Signature of Shareholder
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RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
OF THE CLASS E SPECIAL SHARES SERIES 3
The first series of Class E Special Shares are designated as
Class E Special Shares Series 3 ("Series 3 Shares") and shall consist of 250,000
Series 3 Shares. In addition to the rights, privileges, restrictions and
conditions attached to the Class E Special Shares as a class, the Series 3
Shares shall have attached thereto the following rights, privileges,
restrictions and conditions:
PART A
GENERAL PROVISIONS
Article 1 - Interpretation
1.1 For the purposes of these share provisions, unless the context or subject
matter otherwise requires, the following terms shall have the following
meanings:
(a) "100Co" means 1005549 Ontario Ltd;
(b) "Adjusted EBITDA" means the consolidated earnings of 100Co and DCFood
before interest, income taxes, depreciation and amortization, as
calculated in accordance with GAAP and past practice including actual
management salaries and bonuses paid (but, notwithstanding the
foregoing, only 50% of the salary and bonuses paid during the relevant
period to Donald Kilimnik and Robert Curik), adjusted by adding back
any inter-company management fees or allocations of overhead expenses
that are expensed subsequent to May 10, 1999 for the relevant period,
the intent being that the calculation should be based on a
"normalized" EBITDA of the businesses carried on by 100Co and DCFood.
For the purpose of the Adjusted EBITDA calculations, if any expenses
are charged to 100Co and DCFood by an Affiliate (as such term is
defined in the Business Corporations Act (Ontario)) of 100Co or DCFood
for services not reasonably required in the normal course of the 100Co
and DCFood business and past practice, such expenses shall not be
included in the Adjusted EBITDA calculations;
(c) "Board of Directors" means the board of directors of the Corporation;
(d) "Business Day" means any day other than a Saturday, a Sunday or a day
on which banks are not open for business in Toronto, Ontario;
(e) "Canadian Dollar Equivalent" means in respect of any amount expressed
in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (i) the Foreign Currency Amount by
(ii) the noon spot exchange rate on such date for such foreign
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currency expressed in Canadian dollars as reported by the Bank of
Canada or, in the event such spot exchange rate is not available, such
exchange rate on such date for such foreign currency expressed in
Canadian dollars as may be deemed by the Board of Directors to be
appropriate for such purpose;
(f) "Class B Special Shares" means the Class B Special Shares of the
Corporation;
(g) "Class C Special Shares" means the Class C Special Shares of the
Corporation;
(h) "Class D Special Shares" means the Class D Special Shares of the
Corporation;
(i) "Class X Shares" means the Class X Shares of the Corporation;
(j) "Common Shares" means Common Shares of the Corporation;
(k) "Current Market Price" means, in respect of an IMSC Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing
bid and asked prices of IMSC Common Shares during a period of 20
consecutive trading days ending not more than 5 trading days before
such date on the National Market System of the National Association of
Securities Dealers Automated Quotation System or, if the IMSC Common
Shares are not then quoted on the National Market System of the
National Association of Securities Dealers Automated Quotation System,
on such other stock exchange or automated quotation system on which
the IMSC Common Shares are listed or quoted, as the case may be, as
may be selected by the Board of Directors for such purpose; provided,
however, that in the event IMSC Common Shares are not then listed or
quoted on any recognized stock exchange or automated quotation system
or if, in the opinion of the Board of Directors, the public
distribution or trading activity of IMSC Common Shares during such
period does not create a market which reflects the fair market value
of the IMSC Common Shares, then the Current Market Price of an IMSC
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
than any such selection, opinion or determination by the board of
Directors shall be conclusive and binding;
(l) "DCFood" means D.C. Food Processing Inc.;
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(m) "GAAP" means Canadian generally accepted accounting principles applied
on a consistent basis;
(n) "IMSC" means International Menu Solutions Corporation, a Nevada
corporation and any successor thereto;
(o) "IMSC Common Shares" means the shares of common stock of IMSC, with a
par value of U.S. $0.001 per share, having voting rights of one vote
per share;
(p) "IMSC Dividend Payment Date" means the date upon which payment of
dividends declared by IMSC on the IMSC Dividend Declaration Date is
made; and "IMSC Dividend Declaration Date" means the date upon which
IMSC declares a dividend on the IMSC Common Shares;
(q) "Series 3 Liquidation Amount" means the amount per Series 3 Share that
each holder of Series 3 Shares shall be entitled to under Section 11.1
or 11.2 hereof, as the case may be;
(r) "Series 3 Liquidation Date" means the effective date of the
liquidation, dissolution or winding-up of the Corporation or other
distribution of the assets of the Corporation, among its shareholders
for the purpose of liquidation of the Corporation or winding up of its
affairs;
(s) "Series 3 Share Exchange Multiple" means the quotient obtained by
dividing:
i) 50% of [four times the Adjusted EBITDA for the one year period
ending March 31, 2002 or December 31, 2002 (such period to be
selected by Donald Kilimnik and Deborah Kilimnik in accordance
with section 2.02 of the Share Purchase Agreement dated May 10,
1999 between such persons, IMSC and the Corporation) or such
other period as may be determined pursuant to Article 17, minus
(A) $6,000,000.00 and (B) an amount equal to the greater of (i)
the Adjusted EBITDA of the Corporate Entities for the 1999 Period
(as such terms are defined in the Share Purchase Agreement dated
May 10, 1999 between Donald Kilimnik, Deborah Kilimnik, Robert
Curik, Anjela Curik, IMSC and the Corporation), and (ii) zero];
by
ii) the Current Market Price of one IMSC Common Share determined as
at March 31, 2002 or December 31, 2002, as applicable, or such
earlier date as may be determined
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pursuant to Article 17;
and "Series 3 Share Exchange Multiple Per Share" means the quotient
obtained by dividing the Series 3 Share Exchange Multiple by the
number of Series 3 Shares issued and outstanding as at the close of
business (Toronto time) on March 31, 2002 or December 31, 2002, as
applicable, or on such earlier date as may be determined pursuant to
Article 17;
(t) "Support Agreement" means that certain support agreement relating to
the Series 3 Shares dated the 10th day of May, 1999 between Donald
Kilimnik, Deborah Kilimnick, Robert Curik and Anjela Curik, the
Corporation and IMSC;
(u) "Transfer Agent" means the secretary of the Corporation or such other
person as may from time to time be the registrar and transfer agent
for the Class E Special Shares.
1.2 The Board of Directors shall determine, in good faith and in its discretion,
acting reasonably, (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the Board of Directors
may require), what is the "Economic Equivalent" for the purposes of these share
provisions, and each such determination shall be conclusive and binding on IMSC,
and the term "Economic Equivalent" where used in these share provisions shall
refer to such determination. In making such determination, the following factors
shall, without excluding other factors determined by the Board of Directors to
be relevant, be considered by the Board of Directors:
(i) in the case of any stock dividend or other distribution payable in
IMSC Common Shares, the number of such shares issued in proportion to
the number of IMSC Common Shares previously outstanding;
(ii) in the case of the issuance or distribution of any options, rights,
warrants to subscribe for or purchase IMSC Common Shares (or
securities exchangeable for or convertible into or carrying rights to
acquire IMSC Common Shares), the relationship between the exercise
price of each such option, right or warrant and the Current Market
Price of IMSC Common Shares;
(iii)in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of
IMSC of any class other than IMSC Common Shares, any rights, options
or warrants other than those referred to in Section 1.2(ii)
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above, any evidences of indebtedness of IMSC or any assets of IMSC),
the relationship between the fair market value (as determined by the
Board of Directors) of such property to be issued or distributed with
respect to each outstanding IMSC Common Share and the Current Market
Price of an IMSC Common Share;
(iv) in the case of any subdivision, redivision or change of the then
outstanding IMSC Common Shares into a greater number of IMSC Common
Shares or the reduction, combination or consolidation or change of the
then outstanding IMSC Common Shares into a lesser number of IMSC
Common Shares or any amalgamation, merger reorganization or other
transaction affecting the IMSC Common Shares, the effect thereof upon
the then outstanding IMSC Common Shares; and
(v) in all such cases, the general taxation consequences of the relevant
event to holders of Series 3 Shares to the extent that such
consequences may differ from the taxation consequences to holders of
IMSC Common Shares as a result of differences between taxation laws of
Canada and the United States (except for any differing consequences
arising as a result of differing marginal taxation rates and without
regard to the individual circumstances of holders of Series 3 Shares.
Article 2 - Reciprocal Changes, etc. In Respect of IMSC Common Shares
2.1 Each holder of a Series 3 Share acknowledges that the Support Agreement
provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Series 3 Shares, given
in accordance with these share provisions:
(a) issue or distribute IMSC Common Shares (or securities exchangeable for
or convertible into or carrying rights to acquire IMSC Common Shares)
to the holders of all or substantially all of the then outstanding
IMSC Common Shares by way of stock dividend or other distribution,
other than an issue of IMSC Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire IMSC Common
Shares) to holders of IMSC Common Shares who exercise an option to
receive dividends in IMSC Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire IMSC Common
Shares) in lieu of receiving cash dividends; or
(b) issue or distribute rights, options or warrants to the holders of all
or
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substantially all of the then outstanding IMSC Common Shares entitling
them to subscribe for or to purchase IMSC Common Shares (or securities
exchangeable for or convertible into or carrying rights to acquire
IMSC Common Shares); or
(c) issue or distribute to the holders of all or substantially all of the
then outstanding IMSC Common Shares (A) shares or securities of IMSC
of any class other than IMSC Common Shares (other than shares
convertible into or exchangeable for or carrying rights to acquire
IMSC Common Shares), (B) rights, options or warrants other than those
referred to in Section 2.1(b) above, (C) evidences of indebtedness of
IMSC or (D) assets of IMSC;
unless the Economic Equivalent on a per share basis of such rights, securities,
shares, evidences of indebtedness or other assets is issued or distributed
simultaneously to the holders of the Series 3 Shares.
2.2 Each holder of a Series 3 Share acknowledges that the Support
Agreement further provides, in part, that IMSC will not without the
prior approval of the Corporation and the prior approval of the
holders of the Series 3 Shares, given in accordance with these share
provisions:
(a) subdivide, redivide or change the then outstanding IMSC Common Shares
into a greater number of IMSC Common Shares; or
(b) reduce, combine or consolidate or change the then outstanding IMSC
Common Shares into a lesser number of IMSC Common Shares; or
(c) reclassify or otherwise change IMSC Common Shares or effect an
amalgamation, merger, reorganization or other transaction affecting
IMSC Common Shares;
unless the Economic Equivalent of such change shall simultaneously be made to,
or in the rights of the holders of, the Series 3 Shares.
2.3 The Support Agreement further provides, in part, that the provisions of the
Support Agreement referred to in the preceding Sections 2.1 and 2.2 shall not be
changed without the approval of the holders of the Series 3 Shares, given in
accordance with these share provisions.
Article 3 - Actions by the Corporation under Support Agreement
3.1 The Corporation 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 IMSC with all provisions of the Support Agreement applicable
to the
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Corporation and IMSC, 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 ensure to the fullest extent possible for
the direct benefit of the Corporation all rights and benefits in favour of the
Corporation under or pursuant to such agreement.
3.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement without the approval of the holders of Series 3 Shares, given
in accordance with these share provisions, other than such amendments, waivers
and/or forgiveness as may be necessary or advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Series 3 Shares thereunder; or
(b) 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 of the Corporation, it may be expedient to make, provided
that the Board of Directors shall be of the opinion, after
consultation with counsel, that such provisions and modifications will
not be prejudicial to the interests of the holders of the Series 3
Shares; or
(c) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error contained therein,
provided that the Board of Directors of the Corporation 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 Series 3 Shares.
The Corporation shall provide each holder of Series 3 Shares with written
notification of any such amendment, waiver and/or forgiveness.
Article 4 - Notices
4.1 Any notice, request or other communication to be given to the Corporation by
a holder of Series 3 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 Corporation and addressed to the attention of the
Secretary. Any such notice, request or other communication, if given by mail,
telecopy or
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delivery, shall only be deemed to have been given and received upon actual
receipt thereof by the Corporation.
4.2 Any presentation and surrender by a holder of Series 3 Shares to the
Corporation of certificates representing Series 3 Shares in connection with the
liquidation, dissolution or winding up of the Corporation or the retraction or
redemption of Series 3 Shares shall be made by registered mail (postage prepaid)
or by delivery to the registered office of the Corporation or any other office
of the Corporation designated by it in accordance with these share provisions
addressed to the attention of the Secretary of the Corporation. 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 Corporation. Any
such presentation and surrender of certificates made by registered mail shall be
at the sole risk of the holder mailing the same.
4.3 Any notice, request or other communication to be given to a holder of Series
3 Shares by or on behalf of the Corporation 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 Corporation or,
in the event of the address of any holder not being so recorded, then at the
last known address of such holder. A copy of such notice will be sent to any
financial institution which has provided notice to the Corporation that it is a
pledgee of any Series 3 Shares. Any such notice, request or other communication,
if given by mail, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Series 3 Shares shall not invalidate or
otherwise alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
Article 5 - Withholding Taxes
5.1 If the payment or delivery of cash or property to the holder of a Series 3
Share pursuant to the provisions hereof would result in the Corporation or IMSC
becoming liable to withhold or deduct and remit therefrom an amount on account
of the tax liability of such holder under the Income Tax Act (Canada) or the
applicable taxation legislation of any other jurisdiction, then, unless such
holder provides to the Corporation or IMSC, as the case may be, certificates or
such other assurances as are provided for under the Income Tax Act (Canada) or
such other applicable taxation legislation as are required to ensure that
neither the Corporation nor IMSC is so liable, the cash or property required to
be so delivered shall be net of any amounts required to be so withheld or
deducted and remitted.
Article 6 - Specified Amounts for the Purposes of the Income Tax Act
6.1 For the purposes of subsection 191(4) of the Income Tax Act (Canada), the
specified amount for the Series 3 Shares shall be $23.00 per share.
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Article 7 - No Fractional IMSC Common Shares
7.1 No certificates or scrip representing a fractional IMSC Common Share shall
be required to be delivered to the holder of any of the Series 3 Shares upon the
redemption of such Series 3 Shares, or distribution to the holder of such Series
3 Shares upon the liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of liquidation of the Corporation's assets or winding up its affairs, or
a purchase of such Series 3 Shares by IMSC pursuant to and as provided for in
these share provisions (an "Exchange Event"). In lieu of any such fractional
IMSC Common Share, each holder of a Series 3 Share entitled to a fractional
interest in an IMSC Common Share upon an Exchange Event shall receive an amount
of cash (rounded to the nearest whole cent), without interest, equal to the
Canadian Dollar Equivalent of the product of (i) such fraction, multiplied by
(ii) the Current Market Price of one IMSC Common Share determined as at the date
upon which such holder becomes entitled to such fractional interest.
Article 8 - Legend
8.1 The certificates evidencing the Series 3 Shares shall contain or have
affixed thereto a legend, in form and on the terms approved by the Board of
Directors with respect to the Support Agreement between IMSC and the
Corporation.
Article 9 - Dividends
9.1 From the date of the issuance of the Series 3 Shares up to and including
March 31, 2002 or December 31, 2002, as applicable, or such earlier date as may
be determined pursuant to Article 17, a holder of the Series 3 Shares shall be
entitled to receive, and the Corporation shall pay thereon, out of monies
properly applicable to the payment of dividends, such dividends as the Board of
Directors may from time to time declare.
9.2 After March 31, 2002 or December 31, 2002, as applicable, or such earlier
date as may be determined pursuant to Article 17, a holder of Series 3 Shares
shall be entitled to receive and the Board of Directors shall, subject to
applicable law, on each IMSC Dividend Declaration Date, declare a dividend on
each Series 3 Share (i) in the case of a cash dividend declared on the IMSC
Common Shares, in an amount in cash for each Series 3 Share equal to the
Canadian Dollar Equivalent on the IMSC Dividend Declaration Date of the cash
dividend declared on each IMSC Common Share multiplied by the Series 3 Share
Exchange Multiple Per Share or (ii) in the case of a stock dividend declared on
the IMSC Common Shares to be paid in IMSC Common Shares, in such number of
Series 3 Shares for each Series 3 Share as is equal to the number of IMSC Common
Shares to be paid on each IMSC Common Share or (iii) in the case of a dividend
declared on the IMSC Common Shares in property other than cash or IMSC Common
Shares, in such type and amount of property for each Series 3 Share as is the
same as or the Economic Equivalent of the type and amount of property declared
as a
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dividend on each IMSC Common Share, multiplied by the Series 3 Exchange Multiple
Per Share. Such dividends shall be paid out of money, assets or property of the
Corporation properly applicable to the payment of dividends, or out of
authorized but unissued shares of the Corporation.
9.3 The record date for the determination of the holders of Series 3 Shares
entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Series 3 Shares under Section 9.2 hereof shall be
the same as the record date and the payment date, respectively, for the
corresponding dividend or distribution declared on the IMSC Common Shares.
9.4 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation in Canada shall be issued in respect of any cash dividends
contemplated by Section 9.2(i) hereof and the sending of such a cheque to each
holder of a Series 3 Share shall satisfy the cash dividend represented thereby
unless the cheque is not paid on presentation. Certificates registered in the
name of the registered holders of Series 3 Shares shall be issued or transferred
in respect of any stock dividends contemplated by Section 9.2(ii) hereof and the
sending of such a certificate to each holder of a Series 3 Share shall satisfy
the stock dividend represented thereby. Such other type and amount of property
in respect of any dividends contemplated by Section 9.2(iii) hereof shall be
issued, distributed or transferred by the Corporation in such manner as it shall
determine and the issuance, distribution or transfer thereof by the Corporation
to each holder of a Series 3 Share shall satisfy the dividend represented
thereby. No holder of a Series 3 Share shall be entitled to recover by action or
other legal process against the Corporation any dividend that is represented by
a cheque that has not been duly presented to the Corporation's bankers for
payment or that otherwise remains unclaimed for a period of six years from the
date on which such dividend was payable.
9.5 If on any payment date for any dividends declared on the Series 3 Shares
under Section 9.2 hereof, such dividends are not paid in full on all of the
Series 3 Shares then outstanding because the Corporation does not then have
sufficient monies, assets or property applicable to the payment of such
dividends, then any such dividends that remain unpaid shall be paid on the
earliest subsequent date or dates determined by the Board of Directors on which
the Corporation shall have sufficient monies, assets or property applicable to
the payment of such dividends. If on any date for the declaration or payment of
any dividend declared or to be declared on the Series 3 Shares under Section 9.2
above such dividends are not declared or are not paid in full on all of the
Series 3 Shares then outstanding because the Series 3 Exchange Multiple has not
then been determined, then any such dividends that remain undeclared and/or
unpaid shall be declared and/or paid on the earliest subsequent date or dates
determined by the Board of Directors on which the Series 3 Share Exchange
Multiple shall have been determined. If on any date for the payment of a
dividend declared or to be declared on the Series 3 Shares under Section 9.2
above such dividend is not paid in full on all of
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the Series 3 Shares for any reason whatsoever, then the Corporation shall pay to
the holders of the Series 3 Shares interest at the rate per annum which is equal
to the interest rate then charged to the Corporation by its principal banker for
operating credit facilities provided to the Corporation, on the principal amount
of such outstanding dividend, from the IMSC Dividend Payment Date to the date of
actual payment of such dividend.
Article 10 - Certain Restrictions
10.1 So long as any of the Series 3 Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Series 3 Shares given in accordance with these share provisions:
(a) pay any dividends on the Class A Special Preferred Shares, the Common
Shares, or any other shares ranking junior to the Series 3 Shares,
other than stock dividends payable in Common Shares or any such other
shares ranking junior to the Series 3 Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
Class A Special Preferred Shares, Common Shares or any other shares
ranking junior to the Series 3 Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Series 3 Shares with respect to the payment of dividends or
on any liquidation distribution; or
(d) issue any Series 3 Shares or any other shares of the Corporation
ranking superior to the Series 3 Shares other than the issuance of
Class X Shares and other than by way of stock dividends to the holders
of such Series 3 Shares or as contemplated by the Support Agreement.
The restrictions in Sections 10.1(a), 10.1(b) and 10.1(c) above shall not
apply if all dividends on the outstanding Series 3 Shares corresponding to
dividends declared to date on IMSC Common Shares shall have been declared on the
Series 3 Shares and paid in full.
Article 11 - Participation Upon Liquidation, Dissolution or Winding-Up
11.1 At any time from the date of the issuance of each Series 3 Share up to and
including March 31, 2002 or December 31, 2002, as applicable, or such earlier
date as may be determined pursuant to Article 17, in the event of the
liquidation, dissolution or winding-up of the Corporation or other distribution
of assets of the Corporation among its shareholders for the purpose of
liquidation of the Corporation's assets or winding up its affairs, each holder
of Series 3 Shares shall be entitled, subject to applicable law, to receive in
respect of each Series 3 Share held by such holder on
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the Series 3 Liquidation Date 1.91666 IMSC Common Shares for each such Series 3
Share which shall be satisfied in full by the Corporation causing to be
delivered to such holder 1.91666 IMSC Common Shares for each Series 3 share
held, plus an additional amount equivalent to the full amount of all dividends
declared and unpaid on such Series 3 Share, but such holder shall not be
entitled to share any further in the distribution of the property or assets of
the Corporation; if the assets of the Corporation including surplus, are not
sufficient in respect of each Series 3 Share to pay such amount in full, then
all the said assets or their proceeds remaining after such payment shall be
distributed rateably among the holders of the Series 3 Shares.
11.2 At any time after March 31, 2002 or December 31, 2002, as applicable, or
such earlier date as may be determined pursuant to Article 17, in the event of
the liquidation, dissolution or winding-up of the Corporation or other
distribution of assets of the Corporation among its shareholders for the purpose
of liquidation of the Corporation's assets or winding up its affairs, each
holder of Series 3 Shares shall be entitled, subject to applicable law, to
receive in respect of each Series 3 Share held by such holder on the Series 3
Liquidation Date to an amount per share equal to: (i) the Current Market Price
of an IMSC Common Share determined as at the last Business Day prior to the
Series 3 Liquidation Date multiplied by the Series 3 Share Exchange Multiple Per
Share, which shall be satisfied in full by the Corporation causing to be
delivered to such holder that number of IMSC Common Shares which is equal to the
Series 3 Share Exchange Multiple Per Share, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid on such
Series 3 Share prior to the Liquidation Date.
11.3 In the case of a distribution on Series 3 Shares under this Article 11, on
or promptly after the Series 3 Liquidation Date, and subject to the exercise by
IMSC of the Series 3 Liquidation Call Right (as set forth and defined below),
the Corporation shall cause to be delivered to the holders of Series 3 Shares
the Series 3 Liquidation Amount for each such Series 3 Share upon presentation
and surrender of the certificates representing such Series 3 Shares, together
with such other documents and instruments as may be required to effect a
transfer of Series 3 Shares under the Business Corporations Act (Ontario) and
such additional documents and instruments as the Transfer Agent may reasonably
require, at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of the Series 3 Shares. Payment of the aggregate Series 3 Liquidation Amount for
such Series 3 Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Corporation for the Series
3 Shares or by holding for pick-up by the holder at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of the Series 3 Shares of certificates
representing IMSC 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 Corporation payable at
par in Canadian dollars at
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any branch of the bankers of the Corporation in Canada in payment of the amount
equivalent to the full amount of all declared and unpaid dividends comprising
part of the Series 3 Liquidation Amount.
11.4 If on the Series 3 Liquidation Date, the Series 3 Liquidation Amount in
respect of any of the Series 3 Shares payable under Section 11.2 above cannot be
paid because the Series 3 Share Exchange Multiple has not then been determined,
then such Series 3 Liquidation Amount or any part thereof that remains unpaid
shall be paid on the earliest subsequent date or dates determined by the Board
of Directions on which the Series 3 Share Exchange Multiple shall have been
determined; provided that in such event, the Corporation shall pay to the
holders of the Series 3 Shares interest at the rate per annum which is equal to
the interest rate charged to the Corporation by its principal banker at the
Series 3 Liquidation Date for operating credit facilities provided to the
Corporation, on the principal amount of such outstanding Series 3 Liquidation
Amount, from the Series 3 Liquidation Date to the date of actual payment
thereof.
11.5 On and after the Series 3 Liquidation Date, the holders of the Series 3
Shares shall cease to be holders of such Series 3 Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive the Series 3 Liquidation Amount in respect of the Series 3
Shares held by them, unless payment of the Series 3 Liquidation Amount for such
Series 3 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 Series 3 Liquidation
Amount has been paid in the manner hereinbefore provided.
11.6 The Corporation shall have the right at any time after the Series 3
Liquidation Date to deposit or cause to be deposited the Series 3 Liquidation
Amount in respect of the Series 3 Shares represented by certificates that have
not at the Series 3 Liquidation Date been surrendered by the holders thereof in
a custodial account with any chartered bank or trust company in Canada
designated by the Board of Directors of the Corporation (the "Deposit Agent").
Upon such deposit being made, the rights of the holders of Series 3 Shares after
such deposit shall be limited to receiving the Series 3 Liquidation Amount in
respect of such Series 3 Shares, 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 Series 3 Liquidation Amount, the
holders of the Series 3 Shares shall thereafter be considered and deemed for all
purposes to be the holders of the IMSC Common Shares delivered to them. After
the Corporation has satisfied its obligations to pay the holders of the Series 3
Shares the Series 3 Liquidation Amount per Series 3 Share pursuant to Section
11.2 above or the amounts payable pursuant to Section 11.1 above, as the case
may be, such holders shall not be entitled to share in any further distribution
of the assets of the Corporation.
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11.7 IMSC shall have the overriding right (the "Series 3 Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of the Corporation at any time after the Series 3
Liquidation Date, to purchase from all, but not less than all, of the holders of
Series 3 Shares on the Series 3 Liquidation Date all, but not less than all, of
the Series 3 Shares held by each such holder on payment by IMSC to each holder
of an amount per share equal to the Series 3 Liquidation Amount (as determined
pursuant to the provisions of Section 11.1 or 11.2, as applicable (the "Series 3
Liquidation Call Purchase Price")). In the event of the exercise of the Series 3
Liquidation Call Right by IMSC, each holder shall be obliged to sell all of the
Series 3 Shares held by such holder to IMSC on the Series 3 Liquidation Date on
payment by IMSC to the holder of the Series 3 Liquidation Call Purchase Price
for each such share.
11.8 In order to exercise its Series 3 Liquidation Call Right, IMSC must notify,
in writing, the holders of the Series 3 Shares and the Corporation, of IMSC's
intention to exercise such right at least 55 days before the Series 3
Liquidation Date in the case of a voluntary liquidation, dissolution or winding
up of the Corporation and at least 5 Business Days before the Series 3
Liquidation Date in the case of an involuntary liquidation, dissolution or
winding up of the Corporation. If IMSC exercises the Series 3 Liquidation Call
Right, then on the Series 3 Liquidation Date, IMSC will purchase and the holders
will sell all of the Series 3 Shares then outstanding for a price per share
equal to the Series 3 Liquidation Call Purchase Price.
11.9 For the purposes of completing the purchase of the Series 3 Shares pursuant
to the exercise of the Series 3 Liquidation Call Right, IMSC shall deliver to
each holder at the address of the holder recorded in the securities register of
the Corporation for the Series 3 Shares or by holding for pick-up by the holder
at the registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of the
Series 3 Shares, of certificates representing the IMSC Common Shares required to
be delivered by IMSC in payment of the Series 3 Liquidation Call Purchase Price
(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 Corporation payable at par in Canadian dollars at any
branch of the bankers of the Corporation in payment of the amount equivalent to
the full amount of all declared and unpaid dividends comprising part of the
Series 3 Liquidation Amount.
11.10 Provided that the Series 3 Liquidation Call Purchase Price has been paid
as provided for in Section 11.9, on and after the Series 3 Liquidation Date, the
rights of each holder of Series 3 Shares will be limited to receiving the Series
3 Liquidation Call Purchase Price payable by IMSC in respect of the Series 3
Shares held by such holder upon presentation and surrender by such holder of
certificates representing such Series 3 Shares and the holder shall on and after
the Series 3 Liquidation Date be considered and deemed for all purposes to be
the holder of the IMSC Common Shares delivered to
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it. Upon surrender to the Deposit Agent (as defined in Section 11.6 above) of
the certificates representing Series 3 Shares, together with such other
documents and instruments as may be required to effect a transfer of Series 3
Shares under the Business Corporations Act (Ontario), and such additional
documents and instruments as the Transfer Agent may reasonably require, the
holder of such surrendered certificate or certificates shall be entitled to
receive in exchange therefor, and the Transfer Agent on behalf of IMSC shall
deliver to such holder, certificates representing the IMSC Common Shares to
which the holder is entitled and a cheque or cheques of IMSC payable at par and
in Canadian dollars at any branch of the bankers of IMSC or of the Corporation
in Canada in payment of the remaining portion, if any, of the Series 3
Liquidation Call Purchase Price. If IMSC does not exercise the Series 3
Liquidation Call Right in the manner described above, on the Series 3
Liquidation Date, the holders of the Series 3 Shares will be entitled to receive
in exchange therefor the Series 3 Liquidation Amount otherwise payable by the
Corporation in connection with the liquidation, dissolution or winding-up of the
Corporation pursuant to this Article 11.
11.11 The Corporation shall provide prompt written notice to each holder of
outstanding Series 3 Shares of any action, step or proceedings initiated or
taken by the Corporation, or another person, in respect of, or for the purpose
of, a liquidation, winding-up or dissolution of the Corporation.
Article 12 - Retraction of Series 3 Shares by Holder
12.1 A holder of Series 3 Shares shall be entitled at any time after March 31,
2002 or December 31, 2002, as applicable, or such earlier date as may be
determined pursuant to Article 17 subject to the exercise by IMSC of the Series
3 Retraction Call Right (as set forth and defined below) and otherwise upon
compliance with the provisions of this Article 12, to require the Corporation to
redeem, on the Series 3 Retraction Date (defined below), any or all of the
Series 3 Shares registered in the name of such holder for an amount per share
equal to: (i) the Current Market Price of one IMSC Common Share determined as at
the last Business Day prior to the Series 3 Retraction Date (as defined below)
multiplied by the Series 3 Share Exchange Multiple Per Share, which shall be
paid and satisfied in full by the Corporation causing to be delivered to such
holder that number of IMSC Common Shares which is equal to the Series 3 Share
Exchange Multiple Per Share for each Series 3 Share presented and surrendered by
the holder plus (ii) an additional amount equivalent to the full amount of all
dividends declared and unpaid on each Series 3 Share prior to the Series 3
Retraction Date (collectively, the "Series 3 Retraction Price" provided that if
the record date for any such declared and unpaid dividend occurs on or after the
Series 3 Retraction Date, the Series 3 Retraction Price shall not include such
additional amount equivalent to the declared and unpaid dividend).
12.2 To exercise the right of retraction provided for in Section 12.1, the
holder shall present and surrender at the registered office of the Corporation
or at any
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office of the Transfer Agent as may be specified by the Corporation by written
notice to the holders of Series 3 Shares, the certificate or certificates
representing the Series 3 Shares which the holder desires to have the
Corporation redeem, together with such other documents and instruments as may be
required to effect a transfer of Series 3 Shares under the Business Corporations
Act (Ontario), and such additional documents and instruments as the Transfer
Agent may reasonably require, and together with a duly executed statement in the
form attached hereto as Schedule "A", or such other form as may be acceptable to
the Corporation, acting reasonably (the "Series 3 Retraction Request"):
(a) specifying that the holder desires to have all or any number specified
therein of the Series 3 Shares represented by such certificate or
certificates (the "Retracted Series 3 Shares") redeemed by the
Corporation;
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Series 3 Shares (the "Series 3
Retraction Date"), provided that the Series 3 Retraction Date shall
not be less than five (5) Business Days after the date on which the
Series 3 Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is specified by
the holder in the Series 3 Retraction Request, the Series 3 Retraction
Date shall be deemed to be the tenth (10th) Business Day after the
date on which the Series 3 Retraction Request is received by the
Corporation; and
(c) acknowledging the overriding right (the "Series 3 Retraction Call
Right") of IMSC to purchase all but not less than all the Series 3
Retracted Shares directly from the holder and that the Series 3
Retraction Request shall be deemed to be a revocable offer by the
holders to sell the Retracted Series 3 Shares to IMSC in accordance
with the Series 3 Retraction Call Right.
12.3 Subject to the exercise by IMSC of the Series 3 Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in this
Article 12 of a certificate or certificates representing the number of Series 3
Shares which the holder desires to have the Corporation redeem, together with a
Series 3 Retraction Request, and provided further that the Series 3 Retraction
Request is not revoked by the holder in the manner specified in Section 12.10,
the Corporation shall redeem the Series 3 Retracted Shares effective at the
close of business on the Series 3 Retraction Date and shall cause to be
delivered to such holder the Series 3 Retraction Price with respect to such
shares. If only a part of the Series 3 Shares represented by any certificate is
redeemed or purchased by IMSC pursuant to the Series 3 Retraction Call Right, a
new certificate for the balance of such Series 3 Shares shall be issued to the
holder at the expense of the Corporation.
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12.4 Upon receipt by the Corporation of a Series 3 Retraction Request, the
Corporation shall immediately notify IMSC thereof. In order to exercise the
Series 3 Retraction Call Right, IMSC must notify the Corporation in writing of
its determination to do so (the "Series 3 Retraction Call Notice") within two
(2) Business Days of notification to IMSC by the Corporation of the receipt by
the Corporation of the Series 3 Retraction Request. If IMSC does not so notify
the Corporation within such two (2) Business Day period, the Corporation will
notify the holder as soon as possible thereafter that IMSC will not exercise the
Series 3 Retraction Call Right. If IMSC delivers the Series 3 Retraction Call
Notice within such two (2) Business Day period, and provided that the Series 3
Retraction Request is not revoked by the holder in the manner specified in
Section 12.10, the Series 3 Retraction Request shall thereupon be considered
only to be an offer by the holder to sell the Retracted Series 3 Shares to IMSC
in accordance with the Series 3 Retraction Call Right. In such event, the
Corporation shall not redeem the Retracted Series 3 Shares and IMSC shall
purchase from such holder and such holder shall sell to IMSC on the Series 3
Retraction Date the Retracted Series 3 Shares for a purchase price (the "Series
3 Retraction Call Purchase Price") per share equal to the Series 3 Retraction
Price per share.
12.5 For the purpose of completing a purchase pursuant to the Series 3
Retraction Call Right, IMSC shall deposit with the Transfer Agent, on or before
the Series 3 Retraction Date, certificates representing IMSC Common Shares and a
cheque in the amount of the remaining portion, if any, of the Series 3
Retraction Call Purchase Price in respect of the Retracted Series 3 Shares.
12.6 Provided that the Series 3 Retraction Call Purchase Price in respect of the
Retracted Series 3 Shares has been so deposited with the Corporation or the
Transfer Agent, the closing of the purchase and sale of the Retracted Series 3
Shares pursuant to the Series 3 Retraction Call Right shall be deemed to have
occurred as at the close of business on the Series 3 Retraction Date and, for
greater certainty, no purchase by the Corporation of such Retracted Series 3
Shares shall take place on the Series 3 Retraction Date. In the event that IMSC
does not deliver a Series 3 Retraction Call Notice within the said two (2)
Business Day period, and provided that the Series 3 Retraction Request is not
revoked by the holder in the manner specified in Section 12.10, the Corporation
shall purchase the Retracted Series 3 Shares on the Series 3 Retraction Date in
the manner otherwise contemplated in this Article 12.
12.7 Promptly and without delay, the Corporation or IMSC, as the case may be,
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the securities register of the Corporation
for the Series 3 Shares or at the address specified in the holder's Series 3
Retraction Request or by holding for pick-up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation or IMSC, as the case may be, by notice to the
holders of Series 3 Shares, certificates representing IMSC
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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) registered in the name of the holder or in
such other name as the holder may request in payment of the Series 3 Retraction
Price or the Series 3 Retraction Call Purchase Price (as the case may be) in
respect of the Retracted Series 3 Shares, and a cheque of the Corporation
payable at par in Canadian dollars at any branch of the bankers of the
Corporation in Canada in payment of the remaining portion, if any, of the Series
3 Retraction Price (less any tax required to be deducted and withheld therefrom
by the Corporation) or a cheque of IMSC payable at par in Canadian dollars at
any branch of the bankers of IMSC in Canada in payment of the remaining portion,
if any, of the total Series 3 Retraction Call Purchase Price (as the case may
be) in respect of the Retracted Series 3 Shares and such delivery of such
certificates and cheque by or on behalf of the Corporation or by or on behalf of
IMSC (as the case may be) by the Transfer Agent, shall be deemed to be payment
of and shall satisfy and discharge all liability for the Series 3 Retraction
Price or Series 3 Retraction Call Purchase Price (as the case may be) in respect
of the Retracted Series 3 Shares to the extent that the same is represented by
such share certificates and cheque (plus any tax required and in fact deducted
and withheld therefrom and remitted to the proper tax authority, without
interest), unless such cheque is not paid on due presentation.
12.8 On and after the close of business on the Series 3 Retraction Date, the
holder of the Retracted Series 3 Shares shall cease to be a holder of such
Retracted Series 3 Shares and shall not be entitled to exercise any of the
rights of a holder in respect thereof, other than the right to receive the
Series 3 Retraction Price or Series 3 Retraction Call Purchase Price (as the
case may be) in respect of such Retracted Series 3 Shares unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the Series 3 Retraction Price or the Series 3 Retraction
Call Purchase Price (as the case may be) shall not be made, in which case the
rights of such holder shall remain unaffected until such Series 3 Retraction
Price or Series 3 Retraction Call Purchase Price (as the case may be) has been
paid in the manner hereinbefore provided. On and after the close of business on
the Series 3 Retraction Date, provided that presentation and surrender of
certificates and payment of such Series 3 Retraction Price or Series 3
Retraction Call Purchase Price (as the case may be) has been made in accordance
with the foregoing provisions, the holder of the Retracted Series 3 Shares so
redeemed by the Corporation or purchased by IMSC shall thereafter be considered
and deemed for all purposes to be a holder of the IMSC Common Shares delivered
to it.
12.9 Notwithstanding any other provision of this Article 12, the Corporation
shall not be required to redeem Retracted Series 3 Shares specified by a holder
in a Series 3 Retraction Request to the extent that such redemption of Retracted
Series 3 Shares would be contrary to solvency requirements or other provisions
of applicable law. If the Corporation believes that on any Series 3 Retraction
Date it would not be permitted by any of such provisions to purchase the
Retracted Series 3 Shares tendered
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for redemption on such date, and provided that IMSC shall not have exercised the
Series 3 Retraction Call Right with respect to the Retracted Series 3 Shares,
the Corporation shall only be required to redeem Retracted Series 3 Shares
specified by a holder in a Series 3 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 (2) Business Days prior to the Series 3 Retraction Date as to the
number of Retracted Series 3 Shares which will not be redeemed by the
Corporation. In any case in which the redemption by the Corporation of Retracted
Series 3 Shares would be contrary to solvency requirements or other provisions
of applicable law, the Corporation shall as soon as practicable and from time to
time redeem Retracted Series 3 Shares in accordance with Section 12.3 above on a
pro rata basis and shall issue to each holder of Retracted Series 3 Shares a new
certificate, at the expense of the Corporation, representing Series 3 Shares not
purchased by the Corporation pursuant to Section 12.3. Provided that the Series
3 Retraction Request is not revoked by the holder in the manner specified in
Section 12.10, the holder of any such Retracted Series 3 Shares not redeemed by
the Corporation pursuant to Section 12.3 as a result of solvency requirements or
other provisions of applicable law shall be deemed by giving the Series 3
Retraction Request to require IMSC to purchase such Retracted Series 3 Shares
from such holder on the Series 3 Retraction Date or as soon as practicable
thereafter on payment by IMSC to such holder of the Series 3 Retraction Call
Purchase Price for each such Retracted Series 3 Share, all as more specifically
provided in the Support Agreement.
12.10 A holder of Retracted Series 3 Shares may, by notice in writing given by
the holder to the Corporation no later than the close of business on the
Business Day immediately preceding the Series 3 Retraction Date, withdraw its
Series 3 Retraction Request in which event such Series 3 Retraction Request
shall be null and void and, for greater certainty, the revocable offer
constituted by the Series 3 Retraction Request to sell the Retracted Series 3
Shares to IMSC shall be deemed to have been revoked.
Article 13 - Redemption of Series 3 Shares by the Corporation
13.1 In this Article 13, the term "Automatic Redemption Date" means the date for
the automatic redemption by the Corporation of the Series 3 Shares pursuant to
this Article 13, which date shall be December 31, 2013, unless (a) such date
shall be extended at any time or from time to time to a specified later date by
the Board of Directors, or (b) such date shall be accelerated at any time to a
specified earlier date by the Board of Directors if at such time there are less
than 25,000 Series 3 Shares outstanding (other than Series 3 Shares held by IMSC
and its Affiliates and 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 Series 3 Shares, any
issue or distribution rights to acquire Series 3 Shares or securities
exchangeable for or convertible into Series 3 Shares, any issue or distribution
of other securities or rights or evidences of indebtedness or assets or any
other capital
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reorganization or other transaction affecting the Series 3 Shares).
13.2 Subject to applicable law and if IMSC does not exercise of the Series 3
Redemption Call Right (as set forth and defined below), the Corporation shall on
the Automatic Redemption Date redeem all but not less than all of the then
outstanding Series 3 Shares for an amount per share equal to: (i) the Current
Market Price of one IMSC Common Share determined as at the last Business Day
prior to the Automatic Redemption Date multiplied by the Series 3 Share Exchange
Multiple Per Share, which shall be paid and satisfied in full by the Corporation
causing to be delivered to each holder of a Series 3 Share that number of IMSC
Common Shares which is equal to the Series 3 Share Exchange Multiple Per Share
for each Series 3 Share held by such holder, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid thereon
(collectively, the "Series 3 Redemption Price").
13.3 In any case of a redemption of Series 3 Shares under this Article 13, the
Corporation shall, at least one hundred and twenty (120) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Series 3
Shares a notice in writing of the redemption by the Corporation or the purchase
by IMSC under the Series 3 Redemption Call Right (as set forth and defined
below), as the case may be, of the Series 3 Shares held by such holder. Such
notice shall set out the formula for determining the Series 3 Redemption Price
or the Series 3 Redemption Call Purchase Price (as the case may be), the
Automatic Redemption Date and, if applicable, particulars of the Series 3
Redemption Call Right.
13.4 On or after the Automatic Redemption Date and subject to exercise of the
Series 3 Redemption Call Right, the Corporation shall cause to be delivered to
the holders of the Series 3 Shares to be redeemed, the Series 3 Redemption Price
for each such Series 3 Share upon presentation and surrender at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation in such notice of the certificate or certificates
representing the Series 3 Shares to be redeemed, together with such other
documents and instruments as may be required to effect a transfer of Series 3
Shares pursuant to the Business Corporations Act (Ontario) and such additional
documents and instruments as the Transfer Agent may reasonably require. Payment
of the Series 3 Redemption Price for such Series 3 Shares shall be made by
delivery to each holder, at the address of the holder recorded in the securities
register of the Corporation or by holding for pick-up by the holder at the
registered office of the Corporation or at the office of the Transfer Agent as
may be specified by the Corporation in such notice, the certificate or
certificates representing the IMSC 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
Corporation payable at par in Canadian dollars at any branch of the bankers of
the Corporation in Canada in respect of the amount equivalent to the full amount
of all declared and unpaid dividends comprising part of the Series 3 Redemption
Price. Upon such payment or deposit of the Series 3
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Redemption Price, the holders of the Series 3 Shares redeemed shall be
considered and deemed for all purposes to be the holders of the IMSC Common
Shares delivered to them.
13.5 Subject to the exercise of the Series 3 Redemption Call Right, on and after
the Automatic Redemption Date, the holders of the Series 3 Shares called for
redemption shall cease to be holders of such Series 3 Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive the Series 3 Redemption Price in respect of such Series 3
Shares, unless payment of the Series 3 Redemption Price for such Series 3 Shares
shall not be made upon presentation and surrender of certificates in accordance
with Section 13.4, in which case the rights of the holders shall remain
unaffected until such Series 3 Redemption Price has been paid in the manner
hereinbefore provided.
13.6 The Corporation shall have the right, at any time after the sending of
notice of its intention to redeem the Series 3 Shares as aforesaid, to deposit
or cause to be deposited the Series 3 Redemption Price of the Series 3 Shares so
called for redemption, or such of the said Series 3 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 named in such notice. Upon the later of such
deposit being made and the Automatic Redemption Date, the Series 3 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 the Series 3 Redemption Price
for such Series 3 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 such Series 3 Redemption Price, the
holders of the Series 3 Shares so redeemed shall thereafter be considered and
deemed for all purposes to be holders of the IMSC Common Shares so delivered to
them.
13.7 Notwithstanding the provisions of Section 13.2, IMSC shall have the
overriding right (the "Series Redemption Call Right") notwithstanding the
proposed redemption of the Series 3 Shares by the Corporation pursuant to this
Article 13, to purchase all but not less than all of the Series 3 Shares on the
Automatic Redemption Date from the holders for a purchase price (the "Series 3
Redemption Call Purchase Price") per share equal to the Series 3 Redemption
Price per share. In the event of the exercise of the Series 3 Redemption Call
Right by IMSC, each holder shall be obligated to sell all the Series 3 Shares
held by such holder to IMSC on the Automatic Redemption Date on payment by IMSC
to such holder of the Series 3 Redemption Call Purchase Price for each such
share.
13.8 To exercise the Series 3 Redemption Call Right, IMSC must notify the
Transfer Agent, as agent for the holders of the Series 3 Shares and the
Corporation, of
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IMSC's intention to exercise such right not less than one hundred and
twenty-five (125) days before the Automatic Redemption Date. The Transfer Agent
shall notify the holders of the Series 3 Shares as to whether or not IMSC has
exercised the Series 3 Redemption Call Right forthwith after the expiry of the
period during which the same may be exercised by IMSC. If IMSC exercises the
Series 3 Redemption Call Right on the Automatic Redemption Date, IMSC will
purchase and the holders will sell all of the Series 3 Shares then outstanding
for a price per share equal to the Series 3 Redemption Call Purchase Price.
13.9 For the purposes of completing the purchase of the Series 3 Shares pursuant
to the Series 3 Redemption Call Right, IMSC shall deposit with the Transfer
Agent, on or before the Automatic Redemption Date, certificates representing
IMSC Common Shares and a cheque in the amount of the remaining portion, if any,
of the Series 3 Redemption Call Purchase Price in respect of the Series 3
Shares.
13.10 Provided that the Series 3 Redemption Call Purchase Price has been so
deposited with the Transfer Agent, on and after the Automatic Redemption Date
the rights of each holder of Series 3 Shares will be limited to receiving the
Series 3 Redemption Call Purchase Price payable by IMSC in respect of the Series
3 Shares upon presentation and surrender by the holder of certificates
representing such Series 3 Shares and the holder shall, with respect to the
Series 3 Shares so purchased, on and after the Series 3 Redemption Date, be
considered and deemed for all purposes to be the holder of IMSC Common Shares
delivered to such holder. Upon surrender to the Transfer Agent of a certificate
or certificates representing the Series 3 Shares so purchased, together with
such other documents and instruments as may be required to effect a transfer of
Series 3 Shares under the Business Corporations Act (Ontario) and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent on behalf of
IMSC shall deliver to such holder, certificates representing the IMSC Common
Shares to which the holder is entitled and a cheque or cheques of IMSC payable
in at par in Canadian dollars at any branch of the bankers of IMSC in Canada in
payment of the remaining portion, if any, of the Series 3 Redemption Call
Purchase Price. If IMSC does not exercise the Series 3 Redemption Call Right in
the manner described above, the holders of the Series 3 Shares will be entitled
to receive in exchange therefor the Series 3 Redemption Price otherwise payable
by the Corporation pursuant to this Article 13 on the Automatic Redemption Date.
Article 14 - Purchase for Cancellation
14.1 Subject to applicable law, the Corporation may at any time and from time to
time offer to purchase for cancellation all or any part of the outstanding
Series 3 Shares at any price by the tender to all holders of record of Series 3
Shares then outstanding together with an amount equal to all declared and unpaid
dividends thereon.
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The holders of Series 3 Shares may accept or refuse such offer at their
discretion. If in response to an invitation for tenders under the provisions of
this Article 14, more Series 3 Shares are tendered than the Corporation is
prepared to purchase, the Series 3 Shares to be purchased by the Corporation
shall be purchased as nearly as may be pro rata according to the number of
shares tendered by each holder who submits a tender to the Corporation. If only
part of the Series 3 Shares represented by any certificate shall be purchased, a
new certificate for the balance of such shares shall be issued at the expense of
the Corporation.
Article 15 - Amendment With Approval of Holders
15.1 The rights, privileges, restrictions and conditions attached to the Series
3 Shares as a class may be added to, changed or removed but only with the
approval of the holders of the Series 3 Shares given in accordance with these
share provisions.
Article 16 - Approval of the Holders
16.1 Any approval given by the holders of the Series 3 Shares to add to, change
or remove any right, privilege, restriction or condition attaching to the Series
3 Shares or any other matter requiring the approval or consent of the holders of
the Series 3 Shares 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 a resolution passed by not less
than two-thirds of the votes cast on such resolution at a meeting of holders of
Series 3 Shares duly called and held at which holders of at least 50% of the
outstanding Series 3 Shares at that time are present and represented by a proxy;
provided that such approval must be given also by the affirmative vote of
holders of more than two-thirds of the Series 3 Shares represented in person or
by proxy at the meeting excluding Series 3 Shares beneficially owned by IMSC or
any of its Affiliates (as such term is defined in the Business Corporations Act
(Ontario)). If at any such meeting of the holders of at least 50% of the
outstanding Series 3 Shares at that time are not present or represented by proxy
within one-half hour after the time appointed for such meeting then the meeting
shall be adjourned to such date not less than ten days thereafter and to such
time and place as may be designated by the chairman of such meeting. At such
adjourned meeting, the holders of Series 3 Shares present or represented by
proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on such resolution at such meeting shall constitute
the approval or consent of the holders of the Series 3 Shares.
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Article 17 - Acceleration
17.1 Subject to the provisions of this Article, each holder of a Series 3 Share
shall have the right to have the Series 3 Share Exchange Multiple determined as
at a period ending prior to March 31, 2002 or December 31, 2002, as applicable,
in the event:
(a) of the death, permanent disability or termination of employment,
without cause, of Donald Kilimnik by IMSI;
(b) Michael A. Steele is not the Chief Executive Officer of IMSC; or
(e) a take-over bid for IMSC results in a single shareholder acquiring
more than fifty percent of the issued and outstanding common stock of
IMSC (not including any common stock of IMSC to which a holder of
Class E Special Shares Series 3is entitled either by exchange or
otherwise).
17.2 Upon the occurrence of any of the events specified in Section 17.1 (a
"Triggering Event"), the holders of Series 3 Shares shall have the right to
elect to determine the Series 3 Share Exchange Multiple as at a period ending
prior to March 31, 2002 or December 31, 2002, as applicable, which right to
elect shall continue for a sixty (60) day period following the date of the
Triggering Event, after which, if such election is not exercised, such right
shall be at an end with respect to such Triggering Event.
17.3 If holders of Series 3 Shares elect, pursuant to Section 17.2 to determine
the Series 3 Share Exchange Multiple as at a period ending prior to March 31,
2002 or December 31, 2002, as applicable:
(a) Adjusted EBIDTA as at the date determined pursuant to Section 17.2
shall be determined in accordance with the provisions of subsection
2.03(f) of the Share Purchase Agreement dated May 10, 1999 between
Donald Kilimnik, Deborah Kilimnik, Robert Curik, Anjela Curik, IMSC
and the Corporation.
(b) each reference to March 31, 2002 or December 31, 2002, as applicable,
in these Series 3 Share provisions shall be deemed to be a reference
to the accelerated date for determining the Series 3 Share Exchange
Multiple as determined pursuant Section 17.2.
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SCHEDULE "A"
TO THE RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS OF THE
CLASS E SPECIAL SHARES - SERIES 3 SHARES
RETRACTION REQUEST
TO: International Menu Solutions Inc. (the "Corporation")
AND TO: International Menu Solutions Corporation ("IMSC")
TAKE NOTICE THAT the undersigned, the holder of Class E Shares Series 3 of
the Corporation, does hereby require the Corporation to redeem [INSERT NUMBER]
of such Class E Shares Series 3 (the "Retracted Shares") on the _____ day of
____________, _____ (the "Retraction Date").
AND FURTHER TAKE NOTICE THAT the undersigned acknowledges that
International Menu Solutions Corporation ("IMSC") has the right to exercise the
Series 3 Retraction Call Right and in that event this Retraction Request shall
be deemed to be a revocable offer by the undersigned to sell the Retracted
Shares to IMSC in accordance with the terms and conditions set out in the share
provisions of the Class E Shares Series 3.
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law, the Corporation is unable to redeem all Retracted Shares, the
undersigned will be deemed to have exercised the [Put Right] so as to require
IMSC to purchase the unredeemed Retracted Shares.
DATED this __________ day of __________, __________.
________________________
Signature of Shareholder
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RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
OF THE CLASS E SPECIAL SHARES SERIES 4
The first series of Class E Special Shares are designated as Class E
Special Shares Series 4 ("Series 4 Shares") and shall consist of 250,000 Series
4 Shares. In addition to the rights, privileges, restrictions and conditions
attached to the Class E Special Shares as a class, the Series 4 Shares shall
have attached thereto the following rights, privileges, restrictions and
conditions:
PART A
GENERAL PROVISIONS
Article 1 - Interpretation
1.1 For the purposes of these share provisions, unless the context or subject
matter otherwise requires, the following terms shall have the following
meanings:
(a) "100Co" means 1005549 Ontario Ltd;
(b) "Adjusted EBITDA" means the consolidated earnings of 100Co and DCFood
before interest, income taxes, depreciation and amortization, as
calculated in accordance with GAAP and past practice including actual
management salaries and bonuses paid (but, notwithstanding the
foregoing, only 50% of the salary and bonuses paid during the relevant
period to Donald Kilimnik and Robert Curik), adjusted by adding back
any inter-company management fees or allocations of overhead expenses
that are expensed subsequent to May 10, 1999 for the relevant period,
the intent being that the calculation should be based on a
"normalized" EBITDA of the businesses carried on by 100Co and DCFood.
For the purpose of the Adjusted EBITDA calculations, if any expenses
are charged to 100Co and DCFood by an Affiliate (as such term is
defined in the Business Corporations Act (Ontario)) of 100Co or DCFood
for services not reasonably required in the normal course of the 100Co
and DCFood business and past practice, such expenses shall not be
included in the Adjusted EBITDA calculations;
(c) "Board of Directors" means the board of directors of the Corporation;
(d) "Business Day" means any day other than a Saturday, a Sunday or a day
on which banks are not open for business in Toronto, Ontario;
(e) "Canadian Dollar Equivalent" means in respect of any amount expressed
in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (i) the Foreign Currency Amount by
(ii) the noon spot exchange rate on such date for such foreign
currency expressed in Canadian dollars as reported by the Bank of
Canada or, in the event such spot exchange rate is not available, such
exchange rate on such date for such foreign
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currency expressed in Canadian dollars as may be deemed by the Board
of Directors to be appropriate for such purpose;
(f) "Class B Special Shares" means the Class B Special Shares of the
Corporation;
(g) "Class C Special Shares" means the Class C Special Shares of the
Corporation;
(h) "Class D Special Shares" means the Class D Special Shares of the
Corporation;
(i) "Class X Shares" means the Class X Shares of the Corporation;
(j) "Common Shares" means Common Shares of the Corporation;
(k) "Current Market Price" means, in respect of an IMSC Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing
bid and asked prices of IMSC Common Shares during a period of 20
consecutive trading days ending not more than 5 trading days before
such date on the National Market System of the National Association of
Securities Dealers Automated Quotation System or, if the IMSC Common
Shares are not then quoted on the National Market System of the
National Association of Securities Dealers Automated Quotation System,
on such other stock exchange or automated quotation system on which
the IMSC Common Shares are listed or quoted, as the case may be, as
may be selected by the Board of Directors for such purpose; provided,
however, that in the event IMSC Common Shares are not then listed or
quoted on any recognized stock exchange or automated quotation system
or if, in the opinion of the Board of Directors, the public
distribution or trading activity of IMSC Common Shares during such
period does not create a market which reflects the fair market value
of the IMSC Common Shares, then the Current Market Price of an IMSC
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
than any such selection, opinion or determination by the board of
Directors shall be conclusive and binding;
(l) "DCFood" means D.C. Food Processing Inc.;
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(m) "GAAP" means Canadian generally accepted accounting principles applied
on a consistent basis;
(n) "IMSC" means International Menu Solutions Corporation, a Nevada
corporation and any successor thereto;
(o) "IMSC Common Shares" means the shares of common stock of IMSC, with a
par value of U.S. $0.001 per share, having voting rights of one vote
per share;
(p) "IMSC Dividend Payment Date" means the date upon which payment of
dividends declared by IMSC on the IMSC Dividend Declaration Date is
made; and "IMSC Dividend Declaration Date" means the date upon which
IMSC declares a dividend on the IMSC Common Shares;
(q) "Series 4 Liquidation Amount" means the amount per Series 4 Share that
each holder of Series 4 Shares shall be entitled to under Section 11.1
or 11.2 hereof, as the case may be;
(r) "Series 4 Liquidation Date" means the effective date of the
liquidation, dissolution or winding-up of the Corporation or other
distribution of the assets of the Corporation, among its shareholders
for the purpose of liquidation of the Corporation or winding up of its
affairs;
(s) "Series 4 Share Exchange Multiple" means the quotient obtained by
dividing:
i) 50% of [four times the Adjusted EBITDA for the one year
period ending March 31, 2002 or December 31, 2002 (such
period to be selected by Robert Curik and Anjela Curik in
accordance with section 2.02 of the Share Purchase Agreement
dated May 10, 1999 between such persons, IMSC and the
Corporation) or such other period as may be determined
pursuant to Article 17, minus (A) $6,000,000.00 and (B) an
amount equal to the greater of (i) the Adjusted EBITDA of
the Corporate Entities for the 1999 Period (as such terms
are defined in the Share Purchase Agreement dated May 10,
1999 between Donald Kilimnik, Deborah Kilimnik, Robert
Curik, Anjela Curik, IMSC and the Corporation), and (ii)
zero]; by
ii) the Current Market Price of one IMSC Common Share determined
as at March 31, 2002 or December 31, 2002, as applicable, or
such earlier date as may be determined pursuant to Article
17;
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and "Series 4 Share Exchange Multiple Per Share" means the quotient
obtained by dividing the Series 4 Share Exchange Multiple by the
number of Series 4 Shares issued and outstanding as at the close of
business (Toronto time) on March 31, 2002 or December 31, 2002, as
applicable, or on such earlier date as may be determined pursuant to
Article 17;
(t) "Support Agreement" means that certain support agreement relating to
the Series 4 Shares dated the 10th day of May, 1999 between Donald
Kilimnik, Deborah Kilimnick, Robert Curik and Anjela Curik, the
Corporation and IMSC;
(u) "Transfer Agent" means the secretary of the Corporation or such other
person as may from time to time be the registrar and transfer agent
for the Class E Special Shares.
1.2 The Board of Directors shall determine, in good faith and in its discretion,
acting reasonably, (with the assistance of such reputable and qualified
independent financial advisors and/or other experts as the Board of Directors
may require), what is the "Economic Equivalent" for the purposes of these share
provisions, and each such determination shall be conclusive and binding on IMSC,
and the term "Economic Equivalent" where used in these share provisions shall
refer to such determination. In making such determination, the following factors
shall, without excluding other factors determined by the Board of Directors to
be relevant, be considered by the Board of Directors:
(i) in the case of any stock dividend or other distribution payable
in IMSC Common Shares, the number of such shares issued in
proportion to the number of IMSC Common Shares previously
outstanding;
(ii) in the case of the issuance or distribution of any options,
rights, warrants to subscribe for or purchase IMSC Common Shares
(or securities exchangeable for or convertible into or carrying
rights to acquire IMSC Common Shares), the relationship between
the exercise price of each such option, right or warrant and the
Current Market Price of IMSC Common Shares;
(iii)in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities
of IMSC of any class other than IMSC Common Shares, any rights,
options or warrants other than those referred to in Section
1.2(ii) above, any evidences of indebtedness of IMSC or any
assets of
<PAGE>
IMSC), the relationship between the fair market value (as
determined by the Board of Directors) of such property to be
issued or distributed with respect to each outstanding IMSC
Common Share and the Current Market Price of an IMSC Common
Share;
(iv) in the case of any subdivision, redivision or change of the then
outstanding IMSC Common Shares into a greater number of IMSC
Common Shares or the reduction, combination or consolidation or
change of the then outstanding IMSC Common Shares into a lesser
number of IMSC Common Shares or any amalgamation, merger
reorganization or other transaction affecting the IMSC Common
Shares, the effect thereof upon the then outstanding IMSC Common
Shares; and
(v) in all such cases, the general taxation consequences of the
relevant event to holders of Series 4 Shares to the extent that
such consequences may differ from the taxation consequences to
holders of IMSC Common Shares as a result of differences between
taxation laws of Canada and the United States (except for any
differing consequences arising as a result of differing marginal
taxation rates and without regard to the individual circumstances
of holders of Series 4 Shares.
Article 2 - Reciprocal Changes, etc. In Respect of IMSC Common Shares
2.1 Each holder of a Series 4 Share acknowledges that the Support Agreement
provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Series 4 Shares, given
in accordance with these share provisions:
(a) issue or distribute IMSC Common Shares (or securities
exchangeable for or convertible into or carrying rights to
acquire IMSC Common Shares) to the holders of all or
substantially all of the then outstanding IMSC Common Shares by
way of stock dividend or other distribution, other than an issue
of IMSC Common Shares (or securities exchangeable for or
convertible into or carrying rights to acquire IMSC Common
Shares) to holders of IMSC Common Shares who exercise an option
to receive dividends in IMSC Common Shares (or securities
exchangeable for or convertible into or carrying rights to
acquire IMSC Common Shares) in lieu of receiving cash dividends;
or
(b) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding IMSC Common
Shares entitling
<PAGE>
them to subscribe for or to purchase IMSC Common Shares (or
securities exchangeable for or convertible into or carrying
rights to acquire IMSC Common Shares); or
(c) issue or distribute to the holders of all or substantially all of
the then outstanding IMSC Common Shares (A) shares or securities
of IMSC of any class other than IMSC Common Shares (other than
shares convertible into or exchangeable for or carrying rights to
acquire IMSC Common Shares), (B) rights, options or warrants
other than those referred to in Section 2.1(b) above, (C)
evidences of indebtedness of IMSC or (D) assets of IMSC;
unless the Economic Equivalent on a per share basis of such rights, securities,
shares, evidences of indebtedness or other assets is issued or distributed
simultaneously to the holders of the Series 4 Shares.
2.2 Each holder of a Series 4 Share acknowledges that the Support Agreement
further provides, in part, that IMSC will not without the prior approval of the
Corporation and the prior approval of the holders of the Series 4 Shares, given
in accordance with these share provisions:
(a) subdivide, redivide or change the then outstanding IMSC Common
Shares into a greater number of IMSC Common Shares; or
(b) reduce, combine or consolidate or change the then outstanding
IMSC Common Shares into a lesser number of IMSC Common Shares; or
(c) reclassify or otherwise change IMSC Common Shares or effect an
amalgamation, merger, reorganization or other transaction
affecting IMSC Common Shares;
unless the Economic Equivalent of such change shall simultaneously be made to,
or in the rights of the holders of, the Series 4 Shares.
2.3 The Support Agreement further provides, in part, that the provisions of the
Support Agreement referred to in the preceding Sections 2.1 and 2.2 shall not be
changed without the approval of the holders of the Series 4 Shares, given in
accordance with these share provisions.
Article 3 - Actions by the Corporation under Support Agreement
3.1 The Corporation 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 IMSC with all provisions of the Support Agreement applicable
to the Corporation and IMSC, respectively, in accordance with the terms thereof
including,
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1ddd
without limitation, taking all such actions and doing all such things as shall
be necessary or advisable to ensure to the fullest extent possible for the
direct benefit of the Corporation all rights and benefits in favour of the
Corporation under or pursuant to such agreement.
3.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement without the approval of the holders of Series 4 Shares, given
in accordance with these share provisions, other than such amendments, waivers
and/or forgiveness as may be necessary or advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Series 4 Shares thereunder; or
(b) 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 of the Corporation, it may be expedient to make, provided
that the Board of Directors shall be of the opinion, after
consultation with counsel, that such provisions and modifications will
not be prejudicial to the interests of the holders of the Series 4
Shares; or
(c) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error contained therein,
provided that the Board of Directors of the Corporation 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 Series 4 Shares.
The Corporation shall provide each holder of Series 4 Shares with written
notification of any such amendment, waiver and/or forgiveness.
Article 4 - Notices
4.1 Any notice, request or other communication to be given to the Corporation by
a holder of Series 4 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 Corporation and addressed to the attention of the
Secretary. 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 Corporation.
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4.2 Any presentation and surrender by a holder of Series 4 Shares to the
Corporation of certificates representing Series 4 Shares in connection with the
liquidation, dissolution or winding up of the Corporation or the retraction or
redemption of Series 4 Shares shall be made by registered mail (postage prepaid)
or by delivery to the registered office of the Corporation or any other office
of the Corporation designated by it in accordance with these share provisions
addressed to the attention of the Secretary of the Corporation. 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 Corporation. Any
such presentation and surrender of certificates made by registered mail shall be
at the sole risk of the holder mailing the same.
4.3 Any notice, request or other communication to be given to a holder of Series
4 Shares by or on behalf of the Corporation 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 Corporation or,
in the event of the address of any holder not being so recorded, then at the
last known address of such holder. A copy of such notice will be sent to any
financial institution which has provided notice to the Corporation that it is a
pledgee of any Series 4 Shares. Any such notice, request or other communication,
if given by mail, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Series 4 Shares shall not invalidate or
otherwise alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
Article 5 - Withholding Taxes
5.1 If the payment or delivery of cash or property to the holder of a Series 4
Share pursuant to the provisions hereof would result in the Corporation or IMSC
becoming liable to withhold or deduct and remit therefrom an amount on account
of the tax liability of such holder under the Income Tax Act (Canada) or the
applicable taxation legislation of any other jurisdiction, then, unless such
holder provides to the Corporation or IMSC, as the case may be, certificates or
such other assurances as are provided for under the Income Tax Act (Canada) or
such other applicable taxation legislation as are required to ensure that
neither the Corporation nor IMSC is so liable, the cash or property required to
be so delivered shall be net of any amounts required to be so withheld or
deducted and remitted.
Article 6 - Specified Amounts for the Purposes of the Income Tax Act
6.1 For the purposes of subsection 191(4) of the Income Tax Act (Canada), the
specified amount for the Series 4 Shares shall be $23.00 per share.
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Article 7 - No Fractional IMSC Common Shares
7.1 No certificates or scrip representing a fractional IMSC Common Share shall
be required to be delivered to the holder of any of the Series 4 Shares upon the
redemption of such Series 4 Shares, or distribution to the holder of such Series
4 Shares upon the liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of liquidation of the Corporation's assets or winding up its affairs, or
a purchase of such Series 4 Shares by IMSC pursuant to and as provided for in
these share provisions (an "Exchange Event"). In lieu of any such fractional
IMSC Common Share, each holder of a Series 4 Share entitled to a fractional
interest in an IMSC Common Share upon an Exchange Event shall receive an amount
of cash (rounded to the nearest whole cent), without interest, equal to the
Canadian Dollar Equivalent of the product of (i) such fraction, multiplied by
(ii) the Current Market Price of one IMSC Common Share determined as at the date
upon which such holder becomes entitled to such fractional interest.
Article 8 - Legend
8.1 The certificates evidencing the Series 4 Shares shall contain or have
affixed thereto a legend, in form and on the terms approved by the Board of
Directors with respect to the Support Agreement between IMSC and the
Corporation.
Article 9 - Dividends
9.1 From the date of the issuance of the Series 4 Shares up to and including
March 31, 2002 or December 31, 2002, as applicable, or such earlier date as may
be determined pursuant to Article 17, a holder of the Series 4 Shares shall be
entitled to receive, and the Corporation shall pay thereon, out of monies
properly applicable to the payment of dividends, such dividends as the Board of
Directors may from time to time declare.
9.2 After March 31, 2002 or December 31, 2002, as applicable, or such earlier
date as may be determined pursuant to Article 17, a holder of Series 4 Shares
shall be entitled to receive and the Board of Directors shall, subject to
applicable law, on each IMSC Dividend Declaration Date, declare a dividend on
each Series 4 Share (i) in the case of a cash dividend declared on the IMSC
Common Shares, in an amount in cash for each Series 4 Share equal to the
Canadian Dollar Equivalent on the IMSC Dividend Declaration Date of the cash
dividend declared on each IMSC Common Share multiplied by the Series 4 Share
Exchange Multiple Per Share or (ii) in the case of a stock dividend declared on
the IMSC Common Shares to be paid in IMSC Common Shares, in such number of
Series 4 Shares for each Series 4 Share as is equal to the number of IMSC Common
Shares to be paid on each IMSC Common Share or (iii) in the case of a dividend
declared on the IMSC Common Shares in property other than cash or IMSC Common
Shares, in such type and amount of property for each Series 4 Share as is the
same as or the Economic Equivalent of the type and amount of property declared
as a dividend on each IMSC Common Share, multiplied by the Series 4 Exchange
Multiple
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Per Share. Such dividends shall be paid out of money, assets or property of the
Corporation properly applicable to the payment of dividends, or out of
authorized but unissued shares of the Corporation.
9.3 The record date for the determination of the holders of Series 4 Shares
entitled to receive payment of, and the payment date for, any dividend or
distribution declared on the Series 4 Shares under Section 9.2 hereof shall be
the same as the record date and the payment date, respectively, for the
corresponding dividend or distribution declared on the IMSC Common Shares.
9.4 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation in Canada shall be issued in respect of any cash dividends
contemplated by Section 9.2(i) hereof and the sending of such a cheque to each
holder of a Series 4 Share shall satisfy the cash dividend represented thereby
unless the cheque is not paid on presentation. Certificates registered in the
name of the registered holders of Series 4 Shares shall be issued or transferred
in respect of any stock dividends contemplated by Section 9.2(ii) hereof and the
sending of such a certificate to each holder of a Series 4 Share shall satisfy
the stock dividend represented thereby. Such other type and amount of property
in respect of any dividends contemplated by Section 9.2(iii) hereof shall be
issued, distributed or transferred by the Corporation in such manner as it shall
determine and the issuance, distribution or transfer thereof by the Corporation
to each holder of a Series 4 Share shall satisfy the dividend represented
thereby. No holder of a Series 4 Share shall be entitled to recover by action or
other legal process against the Corporation any dividend that is represented by
a cheque that has not been duly presented to the Corporation's bankers for
payment or that otherwise remains unclaimed for a period of six years from the
date on which such dividend was payable.
9.5 If on any payment date for any dividends declared on the Series 4 Shares
under Section 9.2 hereof, such dividends are not paid in full on all of the
Series 4 Shares then outstanding because the Corporation does not then have
sufficient monies, assets or property applicable to the payment of such
dividends, then any such dividends that remain unpaid shall be paid on the
earliest subsequent date or dates determined by the Board of Directors on which
the Corporation shall have sufficient monies, assets or property applicable to
the payment of such dividends. If on any date for the declaration or payment of
any dividend declared or to be declared on the Series 4 Shares under Section 9.2
above such dividends are not declared or are not paid in full on all of the
Series 4 Shares then outstanding because the Series 4 Exchange Multiple has not
then been determined, then any such dividends that remain undeclared and/or
unpaid shall be declared and/or paid on the earliest subsequent date or dates
determined by the Board of Directors on which the Series 4 Share Exchange
Multiple shall have been determined. If on any date for the payment of a
dividend declared or to be declared on the Series 4 Shares under Section 9.2
above such dividend is not paid in full on all of the Series 4 Shares for any
reason whatsoever, then the Corporation shall pay to the
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holders of the Series 4 Shares interest at the rate per annum which is equal to
the interest rate then charged to the Corporation by its principal banker for
operating credit facilities provided to the Corporation, on the principal amount
of such outstanding dividend, from the IMSC Dividend Payment Date to the date of
actual payment of such dividend.
Article 10 - Certain Restrictions
10.1 So long as any of the Series 4 Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Series 4 Shares given in accordance with these share provisions:
(a) pay any dividends on the Class A Special Preferred Shares, the Common
Shares, or any other shares ranking junior to the Series 4 Shares,
other than stock dividends payable in Common Shares or any such other
shares ranking junior to the Series 4 Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
Class A Special Preferred Shares, Common Shares or any other shares
ranking junior to the Series 4 Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Series 4 Shares with respect to the payment of dividends or
on any liquidation distribution; or
(d) issue any Series 4 Shares or any other shares of the Corporation
ranking superior to the Series 4 Shares other than the issuance of
Class X Shares and other than by way of stock dividends to the holders
of such Series 4 Shares or as contemplated by the Support Agreement.
The restrictions in Sections 10.1(a), 10.1(b) and 10.1(c) above shall not
apply if all dividends on the outstanding Series 4 Shares corresponding to
dividends declared to date on IMSC Common Shares shall have been declared on the
Series 4 Shares and paid in full.
Article 11 - Participation Upon Liquidation, Dissolution or Winding-Up
11.1 At any time from the date of the issuance of each Series 4 Share up to and
including March 31, 2002 or December 31, 2002, as applicable, or such earlier
date as may be determined pursuant to Article 17, in the event of the
liquidation, dissolution or winding-up of the Corporation or other distribution
of assets of the Corporation among its shareholders for the purpose of
liquidation of the Corporation's assets or winding up its affairs, each holder
of Series 4 Shares shall be entitled, subject to applicable law, to receive in
respect of each Series 4 Share held by such holder on the Series 4 Liquidation
Date 1.91666 IMSC Common Shares for each such Series 4
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Share which shall be satisfied in full by the Corporation causing to be
delivered to such holder 1.91666 IMSC Common Shares for each Series 4 share
held, plus an additional amount equivalent to the full amount of all dividends
declared and unpaid on such Series 4 Share, but such holder shall not be
entitled to share any further in the distribution of the property or assets of
the Corporation; if the assets of the Corporation including surplus, are not
sufficient in respect of each Series 4 Share to pay such amount in full, then
all the said assets or their proceeds remaining after such payment shall be
distributed rateably among the holders of the Series 4 Shares.
11.2 At any time after March 31, 2002 or December 31, 2002, as applicable, or
such earlier date as may be determined pursuant to Article 17, in the event of
the liquidation, dissolution or winding-up of the Corporation or other
distribution of assets of the Corporation among its shareholders for the purpose
of liquidation of the Corporation's assets or winding up its affairs, each
holder of Series 4 Shares shall be entitled, subject to applicable law, to
receive in respect of each Series 4 Share held by such holder on the Series 4
Liquidation Date to an amount per share equal to: (i) the Current Market Price
of an IMSC Common Share determined as at the last Business Day prior to the
Series 4 Liquidation Date multiplied by the Series 4 Share Exchange Multiple Per
Share, which shall be satisfied in full by the Corporation causing to be
delivered to such holder that number of IMSC Common Shares which is equal to the
Series 4 Share Exchange Multiple Per Share, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid on such
Series 4 Share prior to the Liquidation Date.
11.3 In the case of a distribution on Series 4 Shares under this Article 11, on
or promptly after the Series 4 Liquidation Date, and subject to the exercise by
IMSC of the Series 4 Liquidation Call Right (as set forth and defined below),
the Corporation shall cause to be delivered to the holders of Series 4 Shares
the Series 4 Liquidation Amount for each such Series 4 Share upon presentation
and surrender of the certificates representing such Series 4 Shares, together
with such other documents and instruments as may be required to effect a
transfer of Series 4 Shares under the Business Corporations Act (Ontario) and
such additional documents and instruments as the Transfer Agent may reasonably
require, at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation by notice to the holders
of the Series 4 Shares. Payment of the aggregate Series 4 Liquidation Amount for
such Series 4 Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Corporation for the Series
4 Shares or by holding for pick-up by the holder at the registered office of the
Corporation or at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of the Series 4 Shares of certificates
representing IMSC 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 Corporation payable at
par in Canadian dollars at any branch of the bankers of the Corporation in
Canada in payment of the amount
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equivalent to the full amount of all declared and unpaid dividends comprising
part of the Series 4 Liquidation Amount.
11.4 If on the Series 4 Liquidation Date, the Series 4 Liquidation Amount in
respect of any of the Series 4 Shares payable under Section 11.2 above cannot be
paid because the Series 4 Share Exchange Multiple has not then been determined,
then such Series 4 Liquidation Amount or any part thereof that remains unpaid
shall be paid on the earliest subsequent date or dates determined by the Board
of Directions on which the Series 4 Share Exchange Multiple shall have been
determined; provided that in such event, the Corporation shall pay to the
holders of the Series 4 Shares interest at the rate per annum which is equal to
the interest rate charged to the Corporation by its principal banker at the
Series 4 Liquidation Date for operating credit facilities provided to the
Corporation, on the principal amount of such outstanding Series 4 Liquidation
Amount, from the Series 4 Liquidation Date to the date of actual payment
thereof.
11.5 On and after the Series 4 Liquidation Date, the holders of the Series 4
Shares shall cease to be holders of such Series 4 Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive the Series 4 Liquidation Amount in respect of the Series 4
Shares held by them, unless payment of the Series 4 Liquidation Amount for such
Series 4 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 Series 4 Liquidation
Amount has been paid in the manner hereinbefore provided.
11.6 The Corporation shall have the right at any time after the Series 4
Liquidation Date to deposit or cause to be deposited the Series 4 Liquidation
Amount in respect of the Series 4 Shares represented by certificates that have
not at the Series 4 Liquidation Date been surrendered by the holders thereof in
a custodial account with any chartered bank or trust company in Canada
designated by the Board of Directors of the Corporation (the "Deposit Agent").
Upon such deposit being made, the rights of the holders of Series 4 Shares after
such deposit shall be limited to receiving the Series 4 Liquidation Amount in
respect of such Series 4 Shares, 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 Series 4 Liquidation Amount, the
holders of the Series 4 Shares shall thereafter be considered and deemed for all
purposes to be the holders of the IMSC Common Shares delivered to them. After
the Corporation has satisfied its obligations to pay the holders of the Series 4
Shares the Series 4 Liquidation Amount per Series 4 Share pursuant to Section
11.2 above or the amounts payable pursuant to Section 11.1 above, as the case
may be, such holders shall not be entitled to share in any further distribution
of the assets of the Corporation.
11.7 IMSC shall have the overriding right (the "Series 4 Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or
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winding-up of the Corporation at any time after the Series 4 Liquidation Date,
to purchase from all, but not less than all, of the holders of Series 4 Shares
on the Series 4 Liquidation Date all, but not less than all, of the Series 4
Shares held by each such holder on payment by IMSC to each holder of an amount
per share equal to the Series 4 Liquidation Amount (as determined pursuant to
the provisions of Section 11.1 or 11.2, as applicable (the "Series 4 Liquidation
Call Purchase Price")). In the event of the exercise of the Series 4 Liquidation
Call Right by IMSC, each holder shall be obliged to sell all of the Series 4
Shares held by such holder to IMSC on the Series 4 Liquidation Date on payment
by IMSC to the holder of the Series 4 Liquidation Call Purchase Price for each
such share.
11.8 In order to exercise its Series 4 Liquidation Call Right, IMSC must notify,
in writing, the holders of the Series 4 Shares and the Corporation, of IMSC's
intention to exercise such right at least 55 days before the Series 4
Liquidation Date in the case of a voluntary liquidation, dissolution or winding
up of the Corporation and at least 5 Business Days before the Series 4
Liquidation Date in the case of an involuntary liquidation, dissolution or
winding up of the Corporation. If IMSC exercises the Series 4 Liquidation Call
Right, then on the Series 4 Liquidation Date, IMSC will purchase and the holders
will sell all of the Series 4 Shares then outstanding for a price per share
equal to the Series 4 Liquidation Call Purchase Price.
11.9 For the purposes of completing the purchase of the Series 4 Shares pursuant
to the exercise of the Series 4 Liquidation Call Right, IMSC shall deliver to
each holder at the address of the holder recorded in the securities register of
the Corporation for the Series 4 Shares or by holding for pick-up by the holder
at the registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of the
Series 4 Shares, of certificates representing the IMSC Common Shares required to
be delivered by IMSC in payment of the Series 4 Liquidation Call Purchase Price
(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 Corporation payable at par in Canadian dollars at any
branch of the bankers of the Corporation in payment of the amount equivalent to
the full amount of all declared and unpaid dividends comprising part of the
Series 4 Liquidation Amount.
11.10 Provided that the Series 4 Liquidation Call Purchase Price has been paid
as provided for in Section 11.9, on and after the Series 4 Liquidation Date, the
rights of each holder of Series 4 Shares will be limited to receiving the Series
4 Liquidation Call Purchase Price payable by IMSC in respect of the Series 4
Shares held by such holder upon presentation and surrender by such holder of
certificates representing such Series 4 Shares and the holder shall on and after
the Series 4 Liquidation Date be considered and deemed for all purposes to be
the holder of the IMSC Common Shares delivered to it. Upon surrender to the
Deposit Agent (as defined in Section 11.6 above) of the certificates
representing Series 4 Shares, together with such other documents and
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instruments as may be required to effect a transfer of Series 4 Shares under the
Business Corporations Act (Ontario), and such additional documents and
instruments as the Transfer Agent may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of IMSC shall deliver to such holder,
certificates representing the IMSC Common Shares to which the holder is entitled
and a cheque or cheques of IMSC payable at par and in Canadian dollars at any
branch of the bankers of IMSC or of the Corporation in Canada in payment of the
remaining portion, if any, of the Series 4 Liquidation Call Purchase Price. If
IMSC does not exercise the Series 4 Liquidation Call Right in the manner
described above, on the Series 4 Liquidation Date, the holders of the Series 4
Shares will be entitled to receive in exchange therefor the Series 4 Liquidation
Amount otherwise payable by the Corporation in connection with the liquidation,
dissolution or winding-up of the Corporation pursuant to this Article 11.
11.11 The Corporation shall provide prompt written notice to each holder of
outstanding Series 4 Shares of any action, step or proceedings initiated or
taken by the Corporation, or another person, in respect of, or for the purpose
of, a liquidation, winding-up or dissolution of the Corporation.
Article 12 - Retraction of Series 4 Shares by Holder
12.1 A holder of Series 4 Shares shall be entitled at any time after March 31,
2002 or December 31, 2002, as applicable, or such earlier date as may be
determined pursuant to Article 17 subject to the exercise by IMSC of the Series
4 Retraction Call Right (as set forth and defined below) and otherwise upon
compliance with the provisions of this Article 12, to require the Corporation to
redeem, on the Series 4 Retraction Date (defined below), any or all of the
Series 4 Shares registered in the name of such holder for an amount per share
equal to: (i) the Current Market Price of one IMSC Common Share determined as at
the last Business Day prior to the Series 4 Retraction Date (as defined below)
multiplied by the Series 4 Share Exchange Multiple Per Share, which shall be
paid and satisfied in full by the Corporation causing to be delivered to such
holder that number of IMSC Common Shares which is equal to the Series 4 Share
Exchange Multiple Per Share for each Series 4 Share presented and surrendered by
the holder plus (ii) an additional amount equivalent to the full amount of all
dividends declared and unpaid on each Series 4 Share prior to the Series 4
Retraction Date (collectively, the "Series 4 Retraction Price" provided that if
the record date for any such declared and unpaid dividend occurs on or after the
Series 4 Retraction Date, the Series 4 Retraction Price shall not include such
additional amount equivalent to the declared and unpaid dividend).
12.2 To exercise the right of retraction provided for in Section 12.1, the
holder shall present and surrender at the registered office of the Corporation
or at any office of the Transfer Agent as may be specified by the Corporation by
written notice to the holders of Series 4
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Shares, the certificate or certificates representing the Series 4 Shares which
the holder desires to have the Corporation redeem, together with such other
documents and instruments as may be required to effect a transfer of Series 4
Shares under the Business Corporations Act (Ontario), and such additional
documents and instruments as the Transfer Agent may reasonably require, and
together with a duly executed statement in the form attached hereto as Schedule
"A", or such other form as may be acceptable to the Corporation, acting
reasonably (the "Series 4 Retraction Request"):
(a) specifying that the holder desires to have all or any number specified
therein of the Series 4 Shares represented by such certificate or
certificates (the "Retracted Series 4 Shares") redeemed by the
Corporation;
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Series 4 Shares (the "Series 4
Retraction Date"), provided that the Series 4 Retraction Date shall
not be less than five (5) Business Days after the date on which the
Series 4 Retraction Request is received by the Corporation and further
provided that, in the event that no such Business Day is specified by
the holder in the Series 4 Retraction Request, the Series 4 Retraction
Date shall be deemed to be the tenth (10th) Business Day after the
date on which the Series 4 Retraction Request is received by the
Corporation; and
(c) acknowledging the overriding right (the "Series 4 Retraction Call
Right") of IMSC to purchase all but not less than all the Series 4
Retracted Shares directly from the holder and that the Series 4
Retraction Request shall be deemed to be a revocable offer by the
holders to sell the Retracted Series 4 Shares to IMSC in accordance
with the Series 4 Retraction Call Right.
12.3 Subject to the exercise by IMSC of the Series 4 Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in this
Article 12 of a certificate or certificates representing the number of Series 4
Shares which the holder desires to have the Corporation redeem, together with a
Series 4 Retraction Request, and provided further that the Series 4 Retraction
Request is not revoked by the holder in the manner specified in Section 12.10,
the Corporation shall redeem the Series 4 Retracted Shares effective at the
close of business on the Series 4 Retraction Date and shall cause to be
delivered to such holder the Series 4 Retraction Price with respect to such
shares. If only a part of the Series 4 Shares represented by any certificate is
redeemed or purchased by IMSC pursuant to the Series 4 Retraction Call Right, a
new certificate for the balance of such Series 4 Shares shall be issued to the
holder at the expense of the Corporation.
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12.4 Upon receipt by the Corporation of a Series 4 Retraction Request, the
Corporation shall immediately notify IMSC thereof. In order to exercise the
Series 4 Retraction Call Right, IMSC must notify the Corporation in writing of
its determination to do so (the "Series 4 Retraction Call Notice") within two
(2) Business Days of notification to IMSC by the Corporation of the receipt by
the Corporation of the Series 4 Retraction Request. If IMSC does not so notify
the Corporation within such two (2) Business Day period, the Corporation will
notify the holder as soon as possible thereafter that IMSC will not exercise the
Series 4 Retraction Call Right. If IMSC delivers the Series 4 Retraction Call
Notice within such two (2) Business Day period, and provided that the Series 4
Retraction Request is not revoked by the holder in the manner specified in
Section 12.10, the Series 4 Retraction Request shall thereupon be considered
only to be an offer by the holder to sell the Retracted Series 4 Shares to IMSC
in accordance with the Series 4 Retraction Call Right. In such event, the
Corporation shall not redeem the Retracted Series 4 Shares and IMSC shall
purchase from such holder and such holder shall sell to IMSC on the Series 4
Retraction Date the Retracted Series 4 Shares for a purchase price (the "Series
4 Retraction Call Purchase Price") per share equal to the Series 4 Retraction
Price per share.
12.5 For the purpose of completing a purchase pursuant to the Series 4
Retraction Call Right, IMSC shall deposit with the Transfer Agent, on or before
the Series 4 Retraction Date, certificates representing IMSC Common Shares and a
cheque in the amount of the remaining portion, if any, of the Series 4
Retraction Call Purchase Price in respect of the Retracted Series 4 Shares.
12.6 Provided that the Series 4 Retraction Call Purchase Price in respect of the
Retracted Series 4 Shares has been so deposited with the Corporation or the
Transfer Agent, the closing of the purchase and sale of the Retracted Series 4
Shares pursuant to the Series 4 Retraction Call Right shall be deemed to have
occurred as at the close of business on the Series 4 Retraction Date and, for
greater certainty, no purchase by the Corporation of such Retracted Series 4
Shares shall take place on the Series 4 Retraction Date. In the event that IMSC
does not deliver a Series 4 Retraction Call Notice within the said two (2)
Business Day period, and provided that the Series 4 Retraction Request is not
revoked by the holder in the manner specified in Section 12.10, the Corporation
shall purchase the Retracted Series 4 Shares on the Series 4 Retraction Date in
the manner otherwise contemplated in this Article 12.
12.7 Promptly and without delay, the Corporation or IMSC, as the case may be,
shall deliver or cause the Transfer Agent to deliver to the relevant holder, at
the address of the holder recorded in the securities register of the Corporation
for the Series 4 Shares or at the address specified in the holder's Series 4
Retraction Request or by holding for pick-up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation or IMSC, as the case may be, by notice to the
holders of Series 4 Shares, certificates representing IMSC Common Shares (which
shares shall be duly issued as fully paid and non-assessable and
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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 Series 4 Retraction Price or the Series 4
Retraction Call Purchase Price (as the case may be) in respect of the Retracted
Series 4 Shares, and a cheque of the Corporation payable at par in Canadian
dollars at any branch of the bankers of the Corporation in Canada in payment of
the remaining portion, if any, of the Series 4 Retraction Price (less any tax
required to be deducted and withheld therefrom by the Corporation) or a cheque
of IMSC payable at par in Canadian dollars at any branch of the bankers of IMSC
in Canada in payment of the remaining portion, if any, of the total Series 4
Retraction Call Purchase Price (as the case may be) in respect of the Retracted
Series 4 Shares and such delivery of such certificates and cheque by or on
behalf of the Corporation or by or on behalf of IMSC (as the case may be) by the
Transfer Agent, shall be deemed to be payment of and shall satisfy and discharge
all liability for the Series 4 Retraction Price or Series 4 Retraction Call
Purchase Price (as the case may be) in respect of the Retracted Series 4 Shares
to the extent that the same is represented by such share certificates and cheque
(plus any tax required and in fact deducted and withheld therefrom and remitted
to the proper tax authority, without interest), unless such cheque is not paid
on due presentation.
12.8 On and after the close of business on the Series 4 Retraction Date, the
holder of the Retracted Series 4 Shares shall cease to be a holder of such
Retracted Series 4 Shares and shall not be entitled to exercise any of the
rights of a holder in respect thereof, other than the right to receive the
Series 4 Retraction Price or Series 4 Retraction Call Purchase Price (as the
case may be) in respect of such Retracted Series 4 Shares unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the Series 4 Retraction Price or the Series 4 Retraction
Call Purchase Price (as the case may be) shall not be made, in which case the
rights of such holder shall remain unaffected until such Series 4 Retraction
Price or Series 4 Retraction Call Purchase Price (as the case may be) has been
paid in the manner hereinbefore provided. On and after the close of business on
the Series 4 Retraction Date, provided that presentation and surrender of
certificates and payment of such Series 4 Retraction Price or Series 4
Retraction Call Purchase Price (as the case may be) has been made in accordance
with the foregoing provisions, the holder of the Retracted Series 4 Shares so
redeemed by the Corporation or purchased by IMSC shall thereafter be considered
and deemed for all purposes to be a holder of the IMSC Common Shares delivered
to it.
12.9 Notwithstanding any other provision of this Article 12, the Corporation
shall not be required to redeem Retracted Series 4 Shares specified by a holder
in a Series 4 Retraction Request to the extent that such redemption of Retracted
Series 4 Shares would be contrary to solvency requirements or other provisions
of applicable law. If the Corporation believes that on any Series 4 Retraction
Date it would not be permitted by any of such provisions to purchase the
Retracted Series 4 Shares tendered for redemption on such date, and provided
that IMSC shall not have exercised the
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Series 4 Retraction Call Right with respect to the Retracted Series 4 Shares,
the Corporation shall only be required to redeem Retracted Series 4 Shares
specified by a holder in a Series 4 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 (2) Business Days prior to the Series 4 Retraction Date as to the
number of Retracted Series 4 Shares which will not be redeemed by the
Corporation. In any case in which the redemption by the Corporation of Retracted
Series 4 Shares would be contrary to solvency requirements or other provisions
of applicable law, the Corporation shall as soon as practicable and from time to
time redeem Retracted Series 4 Shares in accordance with Section 12.3 above on a
pro rata basis and shall issue to each holder of Retracted Series 4 Shares a new
certificate, at the expense of the Corporation, representing Series 4 Shares not
purchased by the Corporation pursuant to Section 12.3. Provided that the Series
4 Retraction Request is not revoked by the holder in the manner specified in
Section 12.10, the holder of any such Retracted Series 4 Shares not redeemed by
the Corporation pursuant to Section 12.3 as a result of solvency requirements or
other provisions of applicable law shall be deemed by giving the Series 4
Retraction Request to require IMSC to purchase such Retracted Series 4 Shares
from such holder on the Series 4 Retraction Date or as soon as practicable
thereafter on payment by IMSC to such holder of the Series 4 Retraction Call
Purchase Price for each such Retracted Series 4 Share, all as more specifically
provided in the Support Agreement.
12.10 A holder of Retracted Series 4 Shares may, by notice in writing given by
the holder to the Corporation no later than the close of business on the
Business Day immediately preceding the Series 4 Retraction Date, withdraw its
Series 4 Retraction Request in which event such Series 4 Retraction Request
shall be null and void and, for greater certainty, the revocable offer
constituted by the Series 4 Retraction Request to sell the Retracted Series 4
Shares to IMSC shall be deemed to have been revoked.
Article 13 - Redemption of Series 4 Shares by the Corporation
13.1 In this Article 13, the term "Automatic Redemption Date" means the date for
the automatic redemption by the Corporation of the Series 4 Shares pursuant to
this Article 13, which date shall be December 31, 2013, unless (a) such date
shall be extended at any time or from time to time to a specified later date by
the Board of Directors, or (b) such date shall be accelerated at any time to a
specified earlier date by the Board of Directors if at such time there are less
than 25,000 Series 4 Shares outstanding (other than Series 4 Shares held by IMSC
and its Affiliates and 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 Series 4 Shares, any
issue or distribution rights to acquire Series 4 Shares or securities
exchangeable for or convertible into Series 4 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 Series 4
Shares).
<PAGE>
1qqqq
13.2 Subject to applicable law and if IMSC does not exercise of the Series 4
Redemption Call Right (as set forth and defined below), the Corporation shall on
the Automatic Redemption Date redeem all but not less than all of the then
outstanding Series 4 Shares for an amount per share equal to: (i) the Current
Market Price of one IMSC Common Share determined as at the last Business Day
prior to the Automatic Redemption Date multiplied by the Series 4 Share Exchange
Multiple Per Share, which shall be paid and satisfied in full by the Corporation
causing to be delivered to each holder of a Series 4 Share that number of IMSC
Common Shares which is equal to the Series 4 Share Exchange Multiple Per Share
for each Series 4 Share held by such holder, plus (ii) an additional amount
equivalent to the full amount of all dividends declared and unpaid thereon
(collectively, the "Series 4 Redemption Price").
13.3 In any case of a redemption of Series 4 Shares under this Article 13, the
Corporation shall, at least one hundred and twenty (120) days before the
Automatic Redemption Date, send or cause to be sent to each holder of Series 4
Shares a notice in writing of the redemption by the Corporation or the purchase
by IMSC under the Series 4 Redemption Call Right (as set forth and defined
below), as the case may be, of the Series 4 Shares held by such holder. Such
notice shall set out the formula for determining the Series 4 Redemption Price
or the Series 4 Redemption Call Purchase Price (as the case may be), the
Automatic Redemption Date and, if applicable, particulars of the Series 4
Redemption Call Right.
13.4 On or after the Automatic Redemption Date and subject to exercise of the
Series 4 Redemption Call Right, the Corporation shall cause to be delivered to
the holders of the Series 4 Shares to be redeemed, the Series 4 Redemption Price
for each such Series 4 Share upon presentation and surrender at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation in such notice of the certificate or certificates
representing the Series 4 Shares to be redeemed, together with such other
documents and instruments as may be required to effect a transfer of Series 4
Shares pursuant to the Business Corporations Act (Ontario) and such additional
documents and instruments as the Transfer Agent may reasonably require. Payment
of the Series 4 Redemption Price for such Series 4 Shares shall be made by
delivery to each holder, at the address of the holder recorded in the securities
register of the Corporation or by holding for pick-up by the holder at the
registered office of the Corporation or at the office of the Transfer Agent as
may be specified by the Corporation in such notice, the certificate or
certificates representing the IMSC 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
Corporation payable at par in Canadian dollars at any branch of the bankers of
the Corporation in Canada in respect of the amount equivalent to the full amount
of all declared and unpaid dividends comprising part of the Series 4 Redemption
Price. Upon such payment or deposit of the Series 4 Redemption Price, the
holders of the Series 4 Shares redeemed shall be considered and
<PAGE>
1rrrrr
deemed for all purposes to be the holders of the IMSC Common Shares delivered to
them.
13.5 Subject to the exercise of the Series 4 Redemption Call Right, on and after
the Automatic Redemption Date, the holders of the Series 4 Shares called for
redemption shall cease to be holders of such Series 4 Shares and shall not be
entitled to exercise any of the rights of holders in respect thereof, other than
the right to receive the Series 4 Redemption Price in respect of such Series 4
Shares, unless payment of the Series 4 Redemption Price for such Series 4 Shares
shall not be made upon presentation and surrender of certificates in accordance
with Section 13.4, in which case the rights of the holders shall remain
unaffected until such Series 4 Redemption Price has been paid in the manner
hereinbefore provided.
13.6 The Corporation shall have the right, at any time after the sending of
notice of its intention to redeem the Series 4 Shares as aforesaid, to deposit
or cause to be deposited the Series 4 Redemption Price of the Series 4 Shares so
called for redemption, or such of the said Series 4 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 named in such notice. Upon the later of such
deposit being made and the Automatic Redemption Date, the Series 4 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 the Series 4 Redemption Price
for such Series 4 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 such Series 4 Redemption Price, the
holders of the Series 4 Shares so redeemed shall thereafter be considered and
deemed for all purposes to be holders of the IMSC Common Shares so delivered to
them.
13.7 Notwithstanding the provisions of Section 13.2, IMSC shall have the
overriding right (the "Series Redemption Call Right") notwithstanding the
proposed redemption of the Series 4 Shares by the Corporation pursuant to this
Article 13, to purchase all but not less than all of the Series 4 Shares on the
Automatic Redemption Date from the holders for a purchase price (the "Series 4
Redemption Call Purchase Price") per share equal to the Series 4 Redemption
Price per share. In the event of the exercise of the Series 4 Redemption Call
Right by IMSC, each holder shall be obligated to sell all the Series 4 Shares
held by such holder to IMSC on the Automatic Redemption Date on payment by IMSC
to such holder of the Series 4 Redemption Call Purchase Price for each such
share.
13.8 To exercise the Series 4 Redemption Call Right, IMSC must notify the
Transfer Agent, as agent for the holders of the Series 4 Shares and the
Corporation, of IMSC's intention to exercise such right not less than one
hundred and twenty-five (125)
<PAGE>
1ssss
days before the Automatic Redemption Date. The Transfer Agent shall notify the
holders of the Series 4 Shares as to whether or not IMSC has exercised the
Series 4 Redemption Call Right forthwith after the expiry of the period during
which the same may be exercised by IMSC. If IMSC exercises the Series 4
Redemption Call Right on the Automatic Redemption Date, IMSC will purchase and
the holders will sell all of the Series 4 Shares then outstanding for a price
per share equal to the Series 4 Redemption Call Purchase Price.
13.9 For the purposes of completing the purchase of the Series 4 Shares pursuant
to the Series 4 Redemption Call Right, IMSC shall deposit with the Transfer
Agent, on or before the Automatic Redemption Date, certificates representing
IMSC Common Shares and a cheque in the amount of the remaining portion, if any,
of the Series 4 Redemption Call Purchase Price in respect of the Series 4
Shares.
13.10 Provided that the Series 4 Redemption Call Purchase Price has been so
deposited with the Transfer Agent, on and after the Automatic Redemption Date
the rights of each holder of Series 4 Shares will be limited to receiving the
Series 4 Redemption Call Purchase Price payable by IMSC in respect of the Series
4 Shares upon presentation and surrender by the holder of certificates
representing such Series 4 Shares and the holder shall, with respect to the
Series 4 Shares so purchased, on and after the Series 4 Redemption Date, be
considered and deemed for all purposes to be the holder of IMSC Common Shares
delivered to such holder. Upon surrender to the Transfer Agent of a certificate
or certificates representing the Series 4 Shares so purchased, together with
such other documents and instruments as may be required to effect a transfer of
Series 4 Shares under the Business Corporations Act (Ontario) and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Transfer Agent on behalf of
IMSC shall deliver to such holder, certificates representing the IMSC Common
Shares to which the holder is entitled and a cheque or cheques of IMSC payable
in at par in Canadian dollars at any branch of the bankers of IMSC in Canada in
payment of the remaining portion, if any, of the Series 4 Redemption Call
Purchase Price. If IMSC does not exercise the Series 4 Redemption Call Right in
the manner described above, the holders of the Series 4 Shares will be entitled
to receive in exchange therefor the Series 4 Redemption Price otherwise payable
by the Corporation pursuant to this Article 13 on the Automatic Redemption Date.
Article 14 - Purchase for Cancellation
14.1 Subject to applicable law, the Corporation may at any time and from time to
time offer to purchase for cancellation all or any part of the outstanding
Series 4 Shares at any price by the tender to all holders of record of Series 4
Shares then outstanding together with an amount equal to all declared and unpaid
dividends thereon. The holders of Series 4 Shares may accept or refuse such
offer at their discretion. If in
<PAGE>
1tttt
response to an invitation for tenders under the provisions of this Article 14,
more Series 4 Shares are tendered than the Corporation is prepared to purchase,
the Series 4 Shares to be purchased by the Corporation shall be purchased as
nearly as may be pro rata according to the number of shares tendered by each
holder who submits a tender to the Corporation. If only part of the Series 4
Shares represented by any certificate shall be purchased, a new certificate for
the balance of such shares shall be issued at the expense of the Corporation.
Article 15 - Amendment With Approval of Holders
15.1 The rights, privileges, restrictions and conditions attached to the Series
4 Shares as a class may be added to, changed or removed but only with the
approval of the holders of the Series 4 Shares given in accordance with these
share provisions.
Article 16 - Approval of the Holders
16.1 Any approval given by the holders of the Series 4 Shares to add to, change
or remove any right, privilege, restriction or condition attaching to the Series
4 Shares or any other matter requiring the approval or consent of the holders of
the Series 4 Shares 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 a resolution passed by not less
than two-thirds of the votes cast on such resolution at a meeting of holders of
Series 4 Shares duly called and held at which holders of at least 50% of the
outstanding Series 4 Shares at that time are present and represented by a proxy;
provided that such approval must be given also by the affirmative vote of
holders of more than two-thirds of the Series 4 Shares represented in person or
by proxy at the meeting excluding Series 4 Shares beneficially owned by IMSC or
any of its Affiliates (as such term is defined in the Business Corporations Act
(Ontario)). If at any such meeting of the holders of at least 50% of the
outstanding Series 4 Shares at that time are not present or represented by proxy
within one-half hour after the time appointed for such meeting then the meeting
shall be adjourned to such date not less than ten days thereafter and to such
time and place as may be designated by the chairman of such meeting. At such
adjourned meeting, the holders of Series 4 Shares present or represented by
proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on such resolution at such meeting shall constitute
the approval or consent of the holders of the Series 4 Shares.
Article 17 - Acceleration
17.1 Subject to the provisions of this Article, each holder of a Series 4 Share
shall have the right to have the Series 4 Share Exchange Multiple determined as
at a period ending prior to March 31, 2002 or December 31, 2002, as applicable,
in the event:
<PAGE>
(a) of the death, permanent disability or termination of employment,
without cause, of Robert Curik by IMSI;
(b) Michael A. Steele is not the Chief Executive Officer of IMSC; or
(c) a take-over bid for IMSC results in a single shareholder acquiring
more than fifty percent of the issued and outstanding common stock of
IMSC (not including any common stock of IMSC to which a holder of
Class E Special Shares Series 4 is entitled either by exchange or
otherwise).
17.2 Upon the occurrence of any of the events specified in Section 17.1 (a
"Triggering Event"), the holders of Series 4 Shares shall have the right to
elect to determine the Series 4 Share Exchange Multiple as at a period ending
prior to March 31, 2002 or December 31, 2002, as applicable, which right to
elect shall continue for a sixty (60) day period following the date of the
Triggering Event, after which, if such election is not exercised, such right
shall be at an end with respect to such Triggering Event.
17.3 If holders of Series 4 Shares elect, pursuant to Section 17.2 to determine
the Series 4 Share Exchange Multiple as at a period ending prior to March 31,
2002 or December 31, 2002, as applicable:
(a) Adjusted EBIDTA as at the date determined pursuant to Section 17.2
shall be determined in accordance with the provisions of subsection
2.03(f) of the Share Purchase Agreement dated May 10, 1999 between
Donald Kilimnik, Deborah Kilimnik, Robert Curik, Anjela Curik, IMSC
and the Corporation.
(b) each reference to March 31, 2002 or December 31, 2002, as applicable,
in these Series 4 Share provisions shall be deemed to be a reference
to the accelerated date for determining the Series 4 Share Exchange
Multiple as determined pursuant Section 17.2.
<PAGE>
SCHEDULE "A"
TO THE RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS OF THE
CLASS E SPECIAL SHARES - SERIES 4 SHARES
RETRACTION REQUEST
TO: International Menu Solutions Inc. (the "Corporation")
AND TO: International Menu Solutions Corporation ("IMSC")
TAKE NOTICE THAT the undersigned, the holder of Class E Shares Series 4 of
the Corporation, does hereby require the Corporation to redeem [INSERT NUMBER]
of such Class E Shares Series 4 (the "Retracted Shares") on the _____ day of
____________, _____ (the "Retraction Date").
AND FURTHER TAKE NOTICE THAT the undersigned acknowledges that
International Menu Solutions Corporation ("IMSC") has the right to exercise the
Series 4 Retraction Call Right and in that event this Retraction Request shall
be deemed to be a revocable offer by the undersigned to sell the Retracted
Shares to IMSC in accordance with the terms and conditions set out in the share
provisions of the Class E Shares Series 4.
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law, the Corporation is unable to redeem all Retracted Shares, the
undersigned will be deemed to have exercised the [Put Right] so as to require
IMSC to purchase the unredeemed Retracted Shares.
DATED this __________ day of __________, __________.
________________________
Signature of Shareholder
<PAGE>
5. The amendment has been duly authorized as required by sections 168 and 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement aux articles 168 et 170
(selon le cas) de la Loi sur les societes par actions.
6. The resolution authorizing the the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires oules administrateurs (selon le cas) de la societe ont
approuve la resolution autorisant la modification le
10, May, 1999
- - --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents statuts sont signes en double exemplaire.
INTERNATIONAL MENU SOLUTIONS
INC.
----------------------------
(Name of Corporation)
(Denomination sociale de la societe)
By/Par: /s/ Michael A. Steele
-------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
Michael A. Steele, President
BY LAWS OF
ANM Holdings Corporation
A NEVADA CORPORATION
ARTICLE I STOCKHOLDER'S MEETINGS
A) ANNUAL MEETINGS shall be held on or before the anniversary of the
corporation each year, or at such other time as may be determined by the board
of directors or the president, for the purposes of electing directors, and
transacting such other business as may properly come before the meeting.
B) SPECIAL MEETINGS may be called at any time by the Board of Directors or
by the President, and shall be called by the President or the Secretary at the
written request of the holders of a majority of the shares then outstanding and
entitled to vote.
C) WRITTEN NOTICE stating the time and place of the meeting, signed by the
President or the Secretary, shall be served either personally or by mail, not
less than ten (10) nor more than sixty (60) days before the meeting upon each
Stockholder entitled to vote. Said notice shall state the purpose for which the
meeting is called, no other business may be transacted at said meeting, unless
by unanimous consent of all Stockholders present, either in person or by proxy.
D) PLACE of all meetings shall be at the principal office of the
Corporation, or at such other place as the Board of Directors or the President
may designate.
E) A QUORUM necessary for the transaction of business at a Stockholder's
meeting shall be a majority of the stock issued and outstanding, either in
person or by proxy. If a quorum is not present, the
<PAGE>
Stockholders present may adjourn to a future time, and notice of the future time
must be served as provided in Article I, C), if a quorum is present they may
adjourn from day to day, without notice.
F) VOTING: Each stockholder shall have one vote for each share of stock
registered in his name on the books of the Corporation, a majority vote shall
authorize any Corporate action, except the election of the Directors, who shall
be elected by a pluraiity of the votes cast
G) PROXY: At any meeting of the stockholders any stockholder may be
represented and vote by a proxy, appointed in writing and signed. No proxy shall
be valid after the expiration of six (6) months from date of its execution,
unless the person executing it specifies the length of time it is to continue in
force, which in no case shall exceed seven (7) years from its execution.
H) CONSENT: Any action, except election of Directors, which may be taken by
a vote of stockholders at a meeting, may be taken without a meeting if
authorized by a written consent of shareholders holding at least a majority of
the voting power.
ARTICLE II BOARD OF DIRECTORS
A) OFFICE: At least one person chosen annually by the stockholders shall
constitute the Board of Directors. Additional Directors may be appointed by the
Board of Directors. The Director's term shall be for one year, and Directors may
be re-elected for successive annual terms.
B) DUTIES: The Board of Directors shall be responsible for the control and
management of the affairs, property and interests of the Corporation and may
exercise all powers of the Corporation, except as are in the Articles of
Incorporation or by statute expressly conferred upon or reserved to the
stockholders.
<PAGE>
C) MEETINGS: Regular meetings of the Board of Directors shall be held
immediately following the annual meeting of the stockholders, at the place of
the annual meeting of the stockholders, or at such other time and place as the
Board of Directors shall by resolution establish. Notice of any regular meeting
shall not be required, unless the Board of Directors shall change the time or
place of the regular meeting, notice must be given to each Director who was not
present at the meeting at which change was made. Special meetings may be called
by the President or by one of the Directors at such time and place specified in
the notice or waiver of notice thereof. The notice of special meeting shall be
mailed to each Director at least five (5) days before the meeting day, or if the
notice is delivered personally, by telegram or telephone then the notice must be
delivered the day before the meeting Special meetings may be called without
notice, provided a written waiver of notice is executed by a majority of the
Board of Directors.
D) CHAIRMAN: At all meetings of the Board of Directors, the Chairman shall
preside. If there is no Chairman one shall be chosen by the Directors.
E) QUORUM: A majority of the Board of Directors shall constitute a quorum.
F) VACANCIES: Any vacancy in the Board of Directors, unless the vacancy was
caused by stockholder removal of a Director, shall be filled for the unexpired
term by a majority vote of the remaining Directors, though less than a quorum,
at any regular or special meeting of the Board of Directors called for that
purpose.
<PAGE>
C) A RESOLUTION in writing signed by a majority of the Board of Directors,
shall constitute action by the Board, with the same force and effect as though
such resolution had been passed at a duly convened meeting. The Secretary shall
record each resolution in the minute book.
H) COMMITTEES may be appointed by a majority of the Board of Directors from
its number, by resolution, with such powers and authority to manage the business
as granted by the resolution.
I) SALARIES of the Corporate Officers shall be determined by the Board of
Directors.
ARTICLE III OFFICERS
A) TITLE: This Corporation shall have a president, secretary, treasurer,
and such other officers as may be necessary. Any two or more offices may be held
by the same person. The officers shall be appointed by the Board of Directors at
the regular annual meeting of the Board.
B) DUTIES:
THE PRESIDENT SHALL:
1) Be the chief executive officer of the Corporation.
2) Preside at all meetings of the Directors and the Stockholders.
3) Sign or countersign all certificates, contracts and other instruments of the
Corporation as authorized by the Board of Directors and shall perform all such
other incidental duties.
THE SECRETARY SHALL:
1) have charge of the corporate books, responsible to make the necessary reports
to the Stockholders and the Board of Directors.
2) prepare and disseminate notices, waivers, consents, proxies and other
material necessary for all meetings.
<PAGE>
3) file the sixty (60) day list of officers, directors, name of the resident
agent and the filing fee to the Secretary of State.
4) file the designation of resident agent in the office of the County Clerk in
which the principal office of the Corporation in Nevada is located.
5) file the annual list of officers, directors and designation of resident agent
along with the filing fee.
6) be the custodian of the certified articles of incorporation, bylaws and
amendments thereto.
7) supply to the Resident Agent or Principal Corporate Nevada Office the name of
the custodian of the stock ledger or duplicate stock ledger, along with the
complete Post Office address of the custodian, where such stock ledger or
duplicate stock ledger is kept.
THE TREASURER SHALL:
1) Have the custody of all monies and securities of the Corporation and shall
keep regular books of account.
2) Perform all duties incidental to his office as directed of him by the Board
of Directors and the President.
ARTICLE IV STOCK
A) The certificates representing shares of the Corporation's stock shall be
in such form as shall be adopted by the Board of Directors, numbered and
registered in the order issued. The certificates shall bear the following; the
holders name, the number of shares of stock, the signature either of the
Chairman of the Board of Directors or the President, and either the Secretary or
Treasurer.
B) No certificate shall be issued until the full amount of consideration
has been paid, except as otherwise provided by law.
C) Each share of stock shall entitle the holder to one vote.
<PAGE>
ARTICLE V DIVIDENDS
DIVIDENDS may be declared and paid out of any funds available therefor, as
often, in such amounts as the Board of Directors may determine, except as
limited by law.
ARTICLE VI FISCAL YEAR
THE FISCAL YEAR of the Corporation shall be determined by the Board of
Directors.
ARTICLE VII INDEMNIFICATION
PURSUANT TO NRS 78.751 any person who is a Director, Officer, Employee, or Agent
of this Corporation, who becomes a party to an action is entitled to
indemnification against expenses including attorney fees, judgments, fines and
amounts paid in settlement, if he acted in good faith and he reasoned his
conduct or action to be in the best interest of the Corporation
ARTICLE VIII AMENDMENTS
A) STOCKHOLDERS shall have the authority to amend or repeal all the bylaws
of the Corporation and enact new bylaws, by affirmative vote of the majority of
the outstanding shares of stock entitled to vote.
B) THE BOARD OF DIRECTORS shall have the authority to amend, repeal, or
adopt new bylaws of the Corporation, but shall not alter or repeal any bylaws
adopted by the stockholders of the Corporation.
THIS AGREEMENT made as of the 1st day of August, 1998.
AMONG:
INTERNATIONAL MENU SOLUTIONS CORPORATION, a corporation incorporated
under the laws of State of Nevada, (hereinafter referred to as the
"Corporation"),
OF THE FIRST PART,
- and -
MICHAEL A. STEELE, of the City of Toronto, in the Province of Ontario,
(hereinafter referred to as "Executive"),
OF THE SECOND PART.
WHEREAS the Corporation wishes to retain the services of the Executive to
provide the services hereinafter described during the term hereinafter set out;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements here contained and for other good and valuable
consideration, the parties agree as follows:
1. TERM
The Corporation shall employ the Executive from August 1, 1998 unless such
employment shall be terminated as hereinafter provided.
2. DUTIES
The Executive shall serve the Corporation and any subsidiaries of the
Corporation in such capacity or capacities and shall perform such duties and
exercise such powers pertaining to the management and operation of the
Corporation and any subsidiaries and associates of the Corporation (as those
terms are defined in the Ontario Business Corporations Act) as may be determined
from time to time by the board of directors of the Corporation consistent with
the office of the Executive. Without limitation of the foregoing, the Executive
shall occupy the office of President and Chief Executive Officer of the
Corporation. The Executive shall:
(a) devote his full time and attention and his best efforts during normal
business hours to the business and affairs of the Corporation;
(b) perform those duties that may reasonably be assigned to the Executive
diligently and faithfully to the best of the Executive's abilities and
in the best interests of the Corporation; and
(c) use his best efforts to promote the interests and goodwill of the
Corporation.
<PAGE>
Page 2
3. REPORTING PROCEDURES
The Executive shall report to the board of directors of the Corporation.
The Executive shall report fully on the management, operations and business
affairs of the Corporation and advise to the best of his ability and in
accordance with reasonable business standards on matters that may arise from
time to time during the term of this agreement.
4. REMUNERATION
(a) The annual base salary payable to the Executive for his services
hereunder for the first year of the term of this agreement shall be
$160,O0O.00(USD), exclusive of bonuses, benefits and other compensation. The
annual base salary payable to the Executive for his services hereunder for each
successive year of the term of this agreement, exclusive of bonuses, benefits
and other compensation, shall be the subject of determination by the Executive
and the compensation committee of the board of directors of the Corporation. The
annual base salary payable to the Executive pursuant to the provisions of this
section 4 shall be payable in equal semi-monthly installments in arrears on the
1st and 15th day of each month or in such other manner as may be mutually agreed
upon, less, in any case, any deductions or withholdings required by law.
(b) The Corporation shall provide the Executive with employee benefits
comparable to those provided by the Corporation from time to time to other
senior executives of the Corporation and shall permit the Executive to
participate in any share option plan, share purchase plan, retirement plan or
similar plan offered by the Corporation from time to time to its senior
executives in the manner and to the extent authorized by the board of directors
of the Corporation.
(c) The Corporation shall pay to the Executive a bonus of $50,000.00 (USD)
upon execution of this Agreement which shall vest as to $ 10,000.00 (USD) for
each full year of employment following the date hereof and in the event that the
Executive voluntarily terminates his employment with the Corporation, the
unvested amount shall be repaid by the Executive to the Corporation.
5. PERFORMANCE BONUS
In addition to the Executive's annual base salary, the Executive shall
receive following each fiscal year end of the Corporation presently being
December 31 the following performance bonus:
1. Annual Stock Option Grant. An annual grant of stock options for common
shares in the capital stock of the Corporation with the number of such
options to be determined as follows:
(a) the number being five percent of the aggregate number of issued
and outstanding common shares and Class N shares in the capital
stock of the
<PAGE>
Page 3
Corporation as at December 31 shall be determined, the "Five
Percent Amount"); less
(b) the aggregate number of options previously granted to the
Executive as at such December 31 shall be determined (the
"Current Options");
such difference being the number of options to be granted to the
Executive. The options shall be granted within sixty days of the end
of each fiscal year of the Corporation and at the option price of the
average of the closing price for the Corporation's common shares for
the ten (10) trading days prior to each such December 31.
2. Cash Bonus. The Corporation shall pay to the Executive within sixty
days following the approval of the audited financial statements of the
Corporation each year a cash bonus equal to five percent (5%) of the
EBDTA of the Corporation on a consolidated basis for the fiscal period
covered by the audited statements so approved. In the event that the
Corporation is not in a position to pay such bonus at the time for
payment the outstanding amount shall accrue interest at the rate of
interest being the aggregate of the Corporation's Canadian banker's
prime rate plus three percent. For purposes hereof "EBTDA" shall mean
earnings before income taxes, depreciation and amortization, as
calculated in accordance with generally accepted accounting principles
consistent with the policies used to prepare the consolidated
financial statements of the Corporation for the relevant period.
6. NO FURTHER SALARY OR BONUS ADJUSTMENTS
Other than as herein provided, there shall be no cost-of-living increase or
merit increase in the annual base salary or the executive bonus unless agreed to
in writing by the Corporation.
7. VACATION
The Executive shall be entitled to six (6) weeks' paid vacation per fiscal
year of the Corporation at a time approved in advance by the Chairman, which
approval shall not be unreasonably withheld but shall take into account the
staffing requirements of the Corporation and the need for the timely performance
of the Executive's responsibilities. In the event that the Executive decides not
to take all the vacation to which he is entitled in any fiscal year, the
Executive shall be entitled to take up to one week of such vacation in the next
following fiscal year at a time approved in advance by the Chairman.
All references in this Agreement to "Chairman" shall mean such person so
appointed by the board of directors of the Corporation from time to time
provided that such person is not the Executive and in the event that such person
is one and the same as the Executive, then all references herein to "Chairman"
shall mean the board of directors of the Corporation or such other person
designated by the board of directors of the Corporation.
<PAGE>
Page 4
8. AUTOMOBILE
The Executive shall be supplied with a leased car selected by the
Corporation to be by him for Corporation's business. The Corporation shall pay
or reimburse the Executive for all reasonable operating costs of this vehicle,
including leasing costs, insurance, maintenance, gas and oil, properly incurred
or to be incurred in connection with the Executive carrying out his duties
hereunder. The Executive shall supply the Corporation with the originals of all
invoices or statements in respect of which the Executive seeks reimbursement.
9. EXPENSES
The Executive shall be reimbursed for all reasonable travel and other
out-of-pocket expenses actually and properly incurred by the Executive from time
to time in connection with carrying out his duties hereunder. For all such
expenses the Executive shall furnish to the Corporation originals of all
invoices or statements in respect of which the Executive seeks reimbursement.
10. TERMINATION
(a) For Cause
The Corporation may terminate the employment of the Executive without
notice or any payment in lieu of notice for cause which, without limiting the
generality of the foregoing, shall include:
(i) if there is a repeated and demonstrated failure on the part of the
Executive to perform the material duties of the Executive's position in a
competent manner and where the Executive fails to substantially remedy the
failure within a reasonable period of time after receiving written notice
of such failure from the Corporation;
(ii) if the Executive is convicted of a criminal offence involving
fraud or dishonesty;
(iii) if the Executive or any member of his family makes any personal
profit arising out of or in connection with a transaction to which the
Corporation is a party or with which it is associated without making
disclosure to and obtaining the prior written consent of the Corporation;
(iv) if the Executive fails to honour his fiduciary to the
Corporation, including the duty to act in the best interests of the
Corporation; or
(v) if the Executive disobeys reasonable instructions given in the
course of employment by the Chairman (if a person other than the Executive)
or the board of directors of the Corporation that are not inconsistent with
the Executive's management position and
<PAGE>
Page 5
not remedied by the Executive within a reasonable period of time after
receiving written notice of such disobedience.
(b) For Disability/Death
This agreement may be immediately terminated by the Corporation by notice
to the Executive if the Executive becomes permanently disabled. The Executive
shall be deemed to have become permanently disabled if in any year during the
employment period, because of ill health, physical or mental disability, or for
other causes beyond the control of the Executive, the Executive has been
continuously unable or unwilling or has failed to perform the Executive's duties
for 120 consecutive days, or if, during any year of the employment period, the
Executive has been unable or unwilling or has failed to perform his duties for a
total of 180 days, consecutive or not. The term "any year of the employment
period" means any period of 12 consecutive months during the employment period.
This agreement shall terminate without notice upon the death of the
Executive.
11. SEVERANCE PAYMENTS
(a) Upon termination of the Executive's employment: (i) for cause; (ii) by
the voluntary termination of employment of the Executive; or (iii) by the
non-renewal of this Agreement, the Executive shall not be entitled to any
severance payment other than compensation earned by the Executive before the
date of termination calculated pro rata up to and including the date of
termination, together with any amount to which the Executive is entitled under
the Employment Standards Act (Ontario), as amended and in force from time to
time.
(b) if the Executive's employment is terminated for any other reason other
than the reason set forth subsection 11(a), the Executive shall be entitled to
receive the lesser of:
(i) the total of:
(A) 24 months' salary at the then applicable base salary rate;
(B) the present value, as determined by the Chairman, acting
reasonably, of the benefits described in section 4(b) that would be
enjoyed by the Executive during the next 24 months assuming his
employment was not terminated and assuming the then current level of
benefits were continued for those 24 months;
(C) the present value, as determined by the Chairman, acting
reasonably, of the amount that the Chairman estimates would be the
amount payable to the Executive out of the Executive Bonus Pool
assuming that the Executive's employment was not terminated until the
end of the current fiscal year and all other participants of the
Executive Bonus Pool continued in the employment of the Corporation
for the full then current fiscal year; and
<PAGE>
Page 6
(D) the present value, as determined by the Chairman, acting
reasonably, of the amounts that would have been paid by the
Corporation or reimbursed to the Executive pursuant to section 8
during the next 24 months assuming that his employment had not been
terminated; and
(ii) the salary otherwise payable to the Executive for the unexpired
term of this agreement together with the other amounts described in clause
11 (b)(i), mutatis mutandis, provided that in no case will the Executive
receive less than the amount to which he is entitled under the Employment
Standards Act (Ontario).
The payment described in this subsection 11(b) is the only severance payment the
Executive will receive in the event of the termination of this agreement for
reasons contemplated in this subsection 11(b) unless overridden by golden
parachute.
(c) If the Executive's employment is terminated as result of the permanent
disability or death of the Executive, the Executive or his estate, as
applicable, shall be entitled to receive, within 30 days of the date of such
termination, the balance of the base salary that would otherwise be paid to the
Executive during the reminder of the term of this agreement. The Executive
agrees to reasonably comply with all requirements necessary for the Corporation
to obtain life insurance for the term of this agreement.
(d) For the purposes of this section 11, whenever a payment is to be
determined with reference to the remaining term of this agreement, if less than
six months remain in the term of this agreement and no party has given notice of
its intention not to renew this agreement as contemplated by section 1, the
"remaining term of this agreement" shall include the remainder of the then
existing term of this agreement plus the renewal period.
12. Termination of Employment
12.01 In the event that at any time after the date hereof:
(a) a Fundamental Change (as hereinafter defined) occurs with respect to
the Company, and the Executive, at any time within 180 days following
the date of such Fundamental Change, voluntarily resigns as an
officer, director and employee of the Company; or
(b) The Executive's office and employment are terminated by the Company on
or after the occurrence of a Fundamental Change;
<PAGE>
Page 7
the Executive shall be entitled to receive, and the Company shall pay
to the Executive immediately following the earlier of the effective
date of resignation or of termination (the "Date of Termination"), a
cash amount payable as a retiring allowance equal to the aggregate of:
(c) all amounts earned or accrued to the Date of Termination but unpaid,
including unpaid salary, reimbursement of expenses and all other
benefits and entitlements which F-re payable in cash and to which the
Executive is then entitled; and
(d) the product obtained by multiplying by three the aggregate of:
(A) the aggregate salary paid or payable by the Company to the
Executive in respect of the 12 month period preceding the month
in which the date of Termination occurred; and
(B) the aggregate of all bonuses paid or payable by the Company to
the Executive in respect of the 12 month period preceding the
month in which the Date of Termination occurred.
12.02 For the purposes of Section 12.01;
(a) a "Fundamental Change" means:
(i) a transaction or series of' transactions in or pursuant to which,
directly or indirectly, the Company shall merge, consolidate or
amalgamate with or into or enter into an arrangement with) any other
person where all or part of the outstanding voting securities of the
Company are changed in any way, reclassified or convened into or
exchanged for shares or other securities or cash or any other
property;
(ii) a transaction or series of transactions in which, directly or
indirectly, the Company (or any successor company) shall sell or
otherwise transfer, dispose of (or one or more of its subsidiaries
shall sell or otherwise transfer or dispose of) all or substantially
all of the business, operations, properties and/or assets of the
Company (taken on a consolidated basis);
(iii) any change in Beneficial Ownership, direct or indirect, of
voting securities of the Company (or any successor company) which
occurs which results in a Person beneficially owning greater than 20%
of the voting securities of the Company calculated on a Partially
Diluted Basis; and/or
<PAGE>
Page 8
(iv) any change in the constitution of the membership of the board of
directors of the Company as it exists on the date hereof, such that
more than 50% of the directors of the Company are individuals who are
not directors of the Company as at the date hereof and are not
approved by a majority of the board of directors of the Company as it
exists on the date hereof;
(b) a Person shall be deemed to be the "Beneficial Owner" and to have
"Beneficial Ownership" of, and to "Beneficially Own" any securities which
it or any Person Acting Jointly or in concert with it is or may be deemed
to be the beneficial owner of pursuant to Section 90 of - the Securities
Act (Ontario) (or, pursuant to any comparable or successor laws or
regulations or, if the said section shall be rescinded and there shall be
no comparable or successor laws or regulations, pursuant to Section 90 of
the Securities Act (Ontario) as in effect on the date of this Agreement);
(c) a Person shall be deemed to be a "Person Acting Jointly or in Concert"
with another Person if either Person is an "associate" or an "affiliate" of
the other Person (as such terms are defined in the Securities Act
(Ontario));
(d) a "Person" means an individual, corporation, partnership or trust,
unincorporated association, pension fund, government or government agency,
department or instrumentality and pronouns have a familiarly extended
meaning;
(e) for the purposes of calculating the number of securities Beneficially
Owned by a Person on a "Partially Diluted Basis", if a Person is deemed to
be the Beneficial Owner of unissued securities pursuant to subsection
12.02(b) hereof, such securities shall be deemed to be outstanding;
12.03 The provisions of Section 12.01 shall apply successively to each
Fundamental Change affecting the Company.
12.04 Notwithstanding anything in this Agreement to the contrary, if the
Executive's employment is terminated prior to a Fundamental Change and the
Executive reasonably demonstrates that such termination (i) was at the request
or instance of a Person or group of Persons whose subsequent acquisition of
voting securities of the Company (or any successor company) resulted in a
Fundamental Change occurring or ii) otherwise occurred in connection with or in
anticipation of or as a precondition to a Fundamental Change, then, for all
purposes of this Agreement, the Executive shall be entitled to receive all
payments referred to in Section 12.01 as if such Executive's employment had been
terminated following the occurrence of such Fundamental Change.
12.05 The parties acknowledge and agree that the intention of this
Agreement is:
(a) to avoid litigation; and
<PAGE>
Page 9
(b) to provide both the Company and the Executive with a genuine negotiated
pre-estimate of damages.
The parties further acknowledge and agree that the Executive shall have no
obligation to mitigate the Executive's damages in the event of termination of
the Executive's employment in the circumstances described in Section 12.01.
12.06 In the event of termination of the Executive's employment in the
circumstances described in Section 12.01, the Executive shall, upon due payment
and performance by the Company of its obligations set out under Section 12.01,
be deemed to have accepted such payment and performance in full satisfaction of
any legal rights or remedies which the Executive might otherwise have as a
result of termination and the Company and the Executive shall each be required
forthwith to execute in favour of the other a general release signifying such
satisfaction.
12.07 The Executive hereby acknowledges and agrees that the directors of the
Company, from time to time, shall not be personally liable or responsible for
the payment of any amounts owing to the Executive hereunder, such payment being
the sole obligation of the Company and the Executive further acknowledges and
agrees that he shall have no cause of action against any director of the Company
in such director's personal capacity with respect to the non-payment of any
monies by the Company hereunder.
12.08 The Company shall pay all reasonable legal fees incurred by the Executive
in enforcing the Executive's rights hereunder.
13. CONFIDENTIALITY
The Executive acknowledges and agrees that:
(a) in the course of performing his duties and responsibilities as an
officer of the Corporation, he has had and will continue in the future to
have access to and has been will be entrusted with detailed confidential
information and trade secrets (printed or otherwise) concerning past,
present, future and contemplated products, services, operations and
marketing techniques and procedures of the Corporation and its
subsidiaries, (collectively, "Trade Secrets"), the disclosure of any of
which to competitors of the Corporation or to the general public, or the
use of same by the Executive or any competitor of the Corporation or any of
its subsidiaries, would be highly detrimental to the interests of the
Corporation;
(b) in the course of performing his duties and responsibilities for
the Corporation, the Executive has been and will continue in the future to
be a representative of the Corporation to its customers, clients and
suppliers and as such has had and will continue in the future to have
significant responsibility for maintaining and enhancing the goodwill of
the Corporation with such customers,
<PAGE>
Page 10
clients and suppliers and would not have, except by virtue of his employment
with the Corporation, developed a close and direct relationship with the
customers, clients and suppliers of the Corporation;
(c) the Executive, as an officer of the Corporation, owes fiduciary
duties to the Corporation, including the duty to act in the best interests
of the Corporation; and
(d) the right to maintain the confidentiality of the Trade Secrets,
the right to preserve the goodwill of the Corporation and the right to the
benefit of any relationships that developed between the Executive and the
customers, clients and suppliers of the Corporation by virtue of the
Executive's employment with the Corporation constitute proprietary rights
of the Corporation, which the Corporation is entitled to protect.
In acknowledgment of the matters described above and in consideration of
the payments to be received by the Executive pursuant to this agreements the
Executive hereby agrees that he will not, for one (1) year from the date hereof,
directly or indirectly disclose to any person or in any way make use of (other
than for the benefit of the Corporation), in any manner, any of the Trade
Secrets, provided that such Trade Secrets shall be deemed not to include
information that is or becomes generally available to the public other than as a
result of disclosure by the Executive.
14. NON-SOLICITATION
The Executive hereby agrees that he will not, during the period commencing
on the date hereof and ending one (1) year following the expiration of the terms
of this agreement, be a party to or abet any solicitation of customers, clients
or suppliers of the Corporation or any of its subsidiaries, to transfer business
from the Corporation or any of its subsidiaries, to any other person, or seek in
any way to persuade or entice any employee of the Corporation or any of its
subsidiaries to leave that employment or to be a party to or abet any such
action.
15. DISCLOSURE
During the employment period, the Executive shall promptly disclose to the
Chairman full information concerning any interest, direct or indirect, of the
Executive (as owner, shareholder, partner, lender or other investor, director,
officer, employee, consultant or otherwise) or any member of his family in any
business that is reasonably known to the Executive to purchase or otherwise
obtain services or products from, or to sell or otherwise provide services or
products to the Corporation or to any of its suppliers or customers.
16. PLACE OF EMPLOYMENT
The Corporation shall not move or otherwise relocate the place of business
at which the Executive reports to work more than 50 kilometres from the current
place of business at Toronto, Ontario.
<PAGE>
Page 11
17. RETURN OF MATERIALS
All files, forms, brochures, books, materials, written correspondence,
memoranda, documents, manuals, computer disk, software products and lists
(including lists of customers, suppliers, products and prices) pertaining to the
business of the Corporation or any of its subsidiaries and associates that may
come into the possession or control of the Executive shall at all times remain
the property of the Corporation or such subsidiary or associate, as the case may
be. On termination of the Executive's employment for any reason, the Executive
agrees to deliver promptly to the Corporation all such property of the
Corporation in the possession of the Executive or directly or indirectly under
the control of the Executive, The Executive agrees not to make for his personal
or business use or that of any other party, reproductions or copies of any such
property or other property of the Corporation.
18. GOVERNING LAW
This agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario.
19. SEVERABILITY
If any provision of this agreement, including the breadth or scope of such
provision, shall be held by any court of competent jurisdiction to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall
not affect the validity or enforceability of the remaining provisions, or part
thereof, of this agreement and such remaining provisions, or part thereof, shall
remain enforceable and binding.
20. ENFORCEABILITY
The executive hereby confirms and agree that the covenants and restrictions
pertaining to the Executive contained in this agreement, including, without
limitation those contained in section 12 and 13 hereof, are reasonable and valid
and hereby further acknowledges and agree that the Corporation would suffer
irreparable injury in the event of any breach by the Executive of his
obligations under any such covenant or restriction. Accordingly, the Executive
hereby acknowledges and agrees that damages would be an inadequate remedy at law
in connection with any such breach and that the Corporation shall therefore be
entitled in lieu of any action for damages, temporary and permanent injunctive
relief enjoining and restraining the Executive from any such breach.
21. NO ASSIGNMENT
The Executive may not assign, pledge or encumber the Executive's interest
in this agreement nor assign any of the rights or duties of the Executive under
this agreement without the prior written consent of the Corporation.
<PAGE>
Page 12
22. SUCCESSORS
This agreement shall be binding on and enure to the benefit of the
successors and assigns of the Corporation and the heirs, executors, personal
legal representatives and permitted assigns of the Executive.
23. NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and either delivered by hand or mailed by prepaid
registered mail. At any time other than during a general discontinuance of
postal service due to strike, lock-out or otherwise, a notice so mailed shall be
deemed to have been received three business days after the postmarked date
thereof or, if delivered by hand, shall be deemed to have been received at the
time it is delivered, If there is a general discontinuance of postal service due
to strike, lock-out or otherwise, a notice sent by prepaid registered mail shall
be deemed to have been received three business days after the resumption of
postal service. Notice shall be addressed as follows:
(a) If to the Corporation:
350 Creditstone Road
Concord, Ontario
L4L 3Z2
(b) If to the Executive:
No. 1 Palace Pier Court
Suite 3001
Etobicoke, Ontario
MSV3W9
24. LEGAL ADVICE
The Executive hereby represents and warrants to the Corporation and
acknowledges and agrees that he had the opportunity to seek and was not
prevented nor discouraged by the Corporation from seeking independent legal
advice prior to the executive and delivery of this agreement and that, in the
event that he did not avail himself of that opportunity prior to signing this
agreement, he did so voluntarily without any undue pressure and agrees that his
failure to obtain independent legal advice shall not be used by him as a defence
to the enforcement of his obligations under this agreement.
25. COUNTERPARTS
This agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement.
<PAGE>
Page 13
IN WITNESS WHEREOF the parties hereto have executed this agreement as of
the date first above written.
INTERNATIONAL MENU SOLUTIONS
CORPORATION
Per: /s/ [ILLEGIBLE]
---------------------------------
Director
Per: /s/ [ILLEGIBLE]
---------------------------------
Director
- - --------------------------------- /s/ Michael A. Steele
Witness ---------------------------------
Michael A. Steele
AGENCY AGREEMENT
PRIVATE AND CONFIDENTIAL
April 10, 1999
Mr. Michael Steele
International Menu Solutions Inc.
172 King Street East,
Toronto, Ontario
M3J 3A8
Dear Gentlemen:
Further to our discussions, we have set out below the terms and conditions of
the Agency Agreement between International Menu Solutions Inc., (the Company")
and Robert Caldwell Capital Corporation ("Caldwell" or "the Agent"). For the
purposes of this agreement all figures are in Canadian dollars.
1. Mandate:
The Company hereby engages the services of Caldwell to use its best efforts
to arrange approximately $8,000,000 Canadian Funds (or any portion thereof)
of equity or near-equity ("The Financing") for the purpose of funding the
Company's business plans.
2. Agent's Role:
(a) Review the Company's future cash flow and capital requirements in
order to confirm that the Financing is acceptable to potential
investors.
(b) Identify potential investors/lenders/purchasers and/or strategic
partners (the "Investor(s)"), market the Financing Proposal and
assist the Company in any presentations and negotiations with such
investors/lenders/purchasers and/or strategic partners.
(c) Receive and review Letters of Intent or Discussion Papers from
potential investors and initiate due diligence and closing procedures.
(d) Undertake and provide a valuation of certain shares of the Company as
required by the Company's auditors.
(e) Undertake such other tasks with respect to the Financing as the
Company may reasonably request.
<PAGE>
The Agent shall not disclose to any third party any information with
respect to the Company until a Non-Disclosure Agreement has been signed by
such party. This obligation shall survive the termination of this Agreement
for a period of 5 years therefrom.
3. Term:
Caldwell agrees to act of the Company as its non-exclusive agent for the
period from the date hereof up to and until December 30, 1999 (the "Term"),
unless this Agency Agreement is extended by mutual consent, or is
terminated in accordance with the provision hereof.
Notwithstanding the expiry or termination of the Agreement as provided
herein, a commission as provided in paragraph 4 hereof shall be payable to
Caldwell by the Company if during the Term and for a period of 24 months
following the termination of the Agreement, the Company obtains financing
form a person or an associate or affiliate of such person or a party
related to such person (collectively, the "Investor(s)") where such
Investor was introduced to the Company by Caldwell during the Term. For
purposes of clarification, the word "introduced" shall mean a person that
has been introduced to, and had extensive discussions with, any officers of
the Company with respect to the specific financing requirements of the
Company.
4. Commissions, Fees and Expenses:
In consideration for the services provided by Caldwell to the Company
hereunder, the Company hereby agrees to compensate (the "Compensation")
Caldwell as follows:
(a) A commission of 6% (see paragraph (c) below for exceptions to this fee
%) of the gross proceeds of the placement secured by Caldwell, which
commission will be fully paid in cash on the closing date(s) of each
draw of such private placement(s) (the "Cash Commission"). The Company
hereby directs, its solicitor, and any Investors to pay the Cash
Commission to Caldwell on closing; and
(b) The Company shall also provide Caldwell a success fee ( the "Success
Fee"), such fee to consist of a dealer's option on treasury shares of
International Menu Solutions Corp., at the same price paid for such
shares by the Investor(s) where the number of shares subject to such
option is to be based on the following formula:
2
<PAGE>
Number of Shares Under Success Fee Option ("Success Fee Option") "(%
of the Cash Commission x Gross Proceeds Raised x 100%)/ Price of
Shares Comprising Private Placement.
Examples:
If $4 million raised at $2.62 with a Cash Commission of 6% then: (6%
of $4,000,000 x 100%)/ $2.62= 91,603 shrs.
And/Or;
If $4 million raised at $2.62 then: (3.5% of $4,000,000 x 100%)/ $2.62
= 53,435 shrs.
The obligation to pay Caldwell the Success Fee shall be conditional on
a minimum of $2,500,000 of gross proceeds being raised by the Agent.
The Success Fee Option shall be granted at the time of closing and
shall be exercisable for a period of 12 months from same.
(c) The Cash Commission and Success Fee shall be payable at the time that
the corresponding proceeds on which such remuneration is based are
received from the Investor(s). In the case of Bank of Montreal Capital
and Crosbie Capital Management Inc., the above mentioned Cash
Commission and Success Fee shall be reduced to a level of 3.5% due to
the previous contact that the Company had with these Investors.
(d) In the event that the Company accepts a financing proposal in
accordance with the mandate set out herein and then chooses not to
proceed to close same for reasons unrelated to such financing, the
Agent shall be entitled to receive a one time fee of 1.5% of the
financing proposal.
(e) The Company agrees to reimburse Caldwell for all of its reasonable
out-of-pocket expenses in connection with this financing whether or
not the financing proceeds, including, without limitation, the
reasonable fees and disbursements of its legal counsel. All such
expenses shall be approved by the Company prior to the commitment of
same.
(f) Any retail and goods and services taxes if applicable to the
commissions and expenses paid to Caldwell are extra and will be added
to the amounts owing.
3
<PAGE>
5. Additional Financing:
In the event that the Financing is successfully completed during the Term
and if the Company seeks to raise additional capital during the period to
and including December 30, 1999 by private placements in the Province of
Ontario, the Company will first have good faith discussions with Caldwell
to determine what role Caldwell may be able to provide to act on behalf of
the Company to raise such additional capital for the Company. It is
understood that the Company has no written or implied obligation to use
Caldwell should it believe an alternative best serves the Company.
6. Undertakings of the Company:
The Company agrees that Caldwell will be kept fully and promptly informed
of all material changes relating to the Company. The Company agrees as
follows:
(a) the Financing shall be in accordance with all applicable laws of the
Province Of Ontario and the applicable securities laws in both Ontario
and the United States of America;
(b) it shall provide the Agent with full access to the books, records,
financial statements, personnel and facilities to the Company and its
subsidiaries and otherwise make full disclosure of its affairs so as
to enable the Agent to familiarize themselves with the business and
operations thereof,
(c) to take all corporate action as the Company may require to authorize
this Agreement, the Financing and the engagement of the Agent
hereunder, and
(d) that the Financing will not cause a breach or be in contravention of
the Company's constating documents or any other agreement or
instrument of which the Company is a party or is otherwise bound.
The Company agrees to provide such representations and warranties to
Investors as may be required by closing documents.
7. Termination
If the Agent fails to fulfill its role as described in paragraph 2 hereof,
the Company may give written notice to the Agent of such default and in the
event that the Agent fails to take corrective action within 30 days, then
the Company may terminate this agreement by giving written notice to that
effect to Caldwell, it being understood that the provisions relating to the
payment of earned commissions, fees and expenses and indemnification will
survive any such termination.
4
<PAGE>
8. Counterparts:
This letter agreement may be executed in counterparts, each of which shall
constitute an original and all of which taken together shall constitute one
and the same instrument.
Please confirm that the foregoing correctly sets forth our agreement by signing
and returning to Caldwell the duplicate copy of this letter enclosed herewith.
Yours truly,
ROBERT CALDWELL CAPITAL CORPORATION
/s/ Stewart Campbell
- - --------------------
Stewart Campbell
Corporate Finance
The foregoing provisions are hereby accepted and agreed to this 28th day of
April 1999, and the undersigned agrees to be bound hereby.
INTERNATIONAL MENU SOLUTIONS INC.
/s/ Michael Steele
- - ------------------
Michael Steele, President
(I have authority to bind the company)
5
