<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 2000
REGISTRATION NO. 333-32606
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NEW YORK 3570 13-0871985
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
Incorporation or organization)
</TABLE>
NEW ORCHARD ROAD
ARMONK, NEW YORK 10504
(914) 499-1900
(Address, Including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
----------------------------------
LAWRENCE R. RICCIARDI, ESQ.
SENIOR VICE PRESIDENT & GENERAL COUNSEL
INTERNATIONAL BUSINESS MACHINES CORPORATION
ARMONK, NEW YORK 10504
(914) 499-1900
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
----------------------------------
COPIES TO:
SCOTT A. BARSHAY, ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA, 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the registration statement becomes
effective and all other conditions to the offer to purchase have been satisfied
or waived.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE(3)(4)
<S> <C> <C> <C> <C>
Common Stock, par value $0.20 per share 1,860,120 N/A $188,551,786 $49,777.67
</TABLE>
(1) Based upon the maximum number of shares of IBM Common Stock to be issued in
the merger, calculated as the product of (x) 15,000,000, the aggregate
number of Class A Voting Shares and Class B Multiple Voting Shares of LGS
Group Inc. on a fully diluted basis, and (y) 0.12, the exchange ratio of IBM
Common Stock for each share of LGS Group Inc., based upon the per share
purchase price to be paid for shares of LGS Group Inc. and the average
trading price of IBM Common Stock on March 10, 2000.
(2) The proposed maximum aggregate offering price has been estimated solely for
purposes of calculating the registration fee required by Section 6(b) of the
Securities Act and calculated pursuant to Rule 457(f) under the Securities
Act. Pursuant to Rule 457(f)(1) under the Securities Act, the proposed
maximum aggregate offering price was calculated in accordance with
Rule 457(c) under the Securities Act as: (a) C$18.375, the average of the
high and low sales prices per share of LGS Group Class A Subordinate Voting
Shares on the Toronto Stock Exchange as reported on March 10, 2000,
multiplied by (b) 15,000,000, the aggregate number of shares of LGS Group on
a fully diluted basis, which is converted into U.S. dollars based upon the
noon spot exchange rate of 1.4618 as reported by the Bank of Canada on such
date.
(3) $37,710 of the registration fee was previously paid in connection with the
filing of a Schedule 14D-1F by IBM Acquisition Inc. and
IBM Acquisition II L.L.C., filed with the Commission on March 15, 2000.
Pursuant to Rule 457(b), this amount is not remitted herewith, and only the
balance of 12,067.67 is required to be paid in connection with the filing of
this Registration Statement.
(4) This amount was previously paid on March 15, 2000.
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<PAGE>
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
[LOGO]
OFFERS TO PURCHASE
all of the outstanding Class A Subordinate Voting Shares and
all of the outstanding Class B Multiple Voting Shares
of
LGS GROUP INC.
FOR C$19.00 PER SHARE
as described herein
by
IBM ACQUISITION INC.
AND
IBM ACQUISITION II L.L.C.
IBM Acquisition Inc. and IBM Acquisition II L.L.C. are hereby offering to
purchase all of the issued and outstanding Class A Subordinate Voting Shares and
all of the issued and outstanding Class B Multiple Voting Shares of LGS Group
for a per share purchase price equal to C$19.00. The Offers will be open for
acceptance until 5:00 p.m., Toronto time, on April 5, 2000 (expiry time) unless
withdrawn or extended.
ON FEBRUARY 15, 2000, MR. RAYMOND LAFONTAINE, MR. ANDRE GAUTHIER, 115523
CANADA INC. AND 115525 CANADA INC. ENTERED INTO A SUPPORT AGREEMENT WITH IBM
CANADA PURSUANT TO WHICH THEY AGREED TO DEPOSIT UNDER THE OFFERS ALL LGS SHARES
HELD BY THEM. THESE SHARES REPRESENT APPROXIMATELY 3.05% OF THE OUTSTANDING LGS
CLASS A SHARES AND 100% OF THE OUTSTANDING LGS CLASS B SHARES (2.57% AND 100% ON
A FULLY-DILUTED BASIS).
If you are a resident of Canada you can elect to receive the purchase price in
the form of cash or exchangeable shares of IBM Acquisition Inc. If you are not a
resident of Canada you can receive the purchase price in the form of cash or
shares of common stock of IBM. If you deposit your shares but make no election
you will be deemed to have elected to receive the purchase price in cash. The
number of exchangeable shares or shares of IBM common stock to be issued for
each LGS share will be calculated by dividing the US dollar equivalent of the
purchase price by the average closing price of a share of IBM Common Stock on
the New York Stock Exchange for the ten trading days ending immediately prior to
the date on which we first take up and pay for shares under the Offers. The US
dollar equivalent will be determined by reference to the noon spot rate
established by the Bank of Canada for the conversion of Canadian dollars into US
dollars on the business day preceding the Payment Date.
Our obligation to take-up and pay for LGS shares is subject to a number of
conditions listed under "Offers to Purchase--Conditions of the Offers." IBM
common stock trades on the New York Stock Exchange, the Chicago Stock Exchange
and the Pacific Stock Exchange under the symbol "IBM". The LGS Class A
Subordinate Voting Shares trade on NASDAQ under the symbol "LGSA".
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
YOU SHOULD CONSIDER IN CONNECTION WITH OF THE OFFERS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE EXCHANGEABLE SHARES DESCRIBED IN THIS TAKE-OVER BID CIRCULAR HAVE NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "US SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES OR TO US PERSONS UNLESS REGISTERED UNDER THE US SECURITIES ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT IS
AVAILABLE. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED
UNLESS IN COMPLIANCE WITH THE US SECURITIES ACT.
The Dealer Managers for the Offers are:
------------------------------------
<TABLE>
<S> <C>
IN CANADA IN THE UNITED STATES
CIBC WORLD MARKETS INC. CIBC WORLD MARKETS CORP.
</TABLE>
April 5, 2000
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION
Q: WHAT ARE IBM ACQUISITION AND IBM AQUISITION II PROPOSING?
A: The offerors are offering to purchase all the outstanding Class A
Subordinate Voting Shares and Class B Multiple Voting Shares of LGS Group.
Q: WHAT WILL I RECEIVE FOR MY LGS GROUP SHARES?
A: If you are a Canadian resident, you will have the right to receive C$19.00
in cash or, if you so elect, a fraction of an exchangeable share of IBM
Acquisition Inc. If you are not a Canadian resident, you will have the right to
receive $19.00 in cash or, if you so elect, a fraction of a share of IBM common
stock. The fraction of an exchangeable share and the fraction of a share of IBM
Common Stock issued pursuant to the offers will each be determined by dividing
the US dollar equivalent of C$19.00 by the average closing price of IBM Common
Stock on the New York Stock Exchange for the ten trading days ending immediately
prior to the date on which IBM Acquisition and IBM Acquisition II first takes up
and pays for shares under the offers.
Q: WHAT IS THE TIMING OF THE OFFERS?
A: You may accept the offer until 5:00 p.m., Toronto time, on April 5, 2000,
unless withdrawn or extended.
Q: HOW DO I PARTICIPATE IN THE OFFERS?
A: To deposit your shares, you should do the following:
- For you to validly accept the offer you must deposit the certificate or
certificates representing your shares, together with the letter of
acceptance and transmittal properly completed and duly executed, on or
before April 5, 2000, the date on which the offers expire, at the
offices of CIBC Mellon Trust Company in accordance with the instructions
in the letter of acceptance and transmittal.
- If your shares are held in the name of a nominee, you should request a
broker, dealer, bank, trust company or other nominee to effect the
transaction for you.
- For more information on the timing of the offer, extension of the offer
period and your rights to withdraw your shares from the offer before the
expiration date, please refer to "The Offers" beginning on page 17.
Q: WHAT ARE THE CONDITIONS TO THE OFFERS?
A: The offers are subject to several conditions, including:
- 66 2/3% of the Class A Shares, on a fully diluted basis, having been
tendered and not withdrawn
- 100% of the Class B Shares, on a fully diluted basis, having been
tendered and not withdrawn
- waiting periods under the applicable antitrust and merger approval laws
having expired or been terminated
- there having been no material adverse change in the business of LGS
Group.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT IBM AND LGS GROUP?
A: You can find more information about IBM and under "Further Information About
IBM" on page 30 and you can find more information about LGS under "Further
Information About LGS" on page 35.
Q: WHAT SHOULD I DO IF I HAVE MORE QUESTIONS?
A: If you have more questions about the offer or the proposed combination of
IBM and LGS Group, please call our information agent, ChaseMellon Consulting
Services L.L.C., at 1-877-698-6869.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward looking and Cautionary Statements: Certain statements contained in
this document may constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 ("Reform Act"). The company
may also make forward-looking statements in other reports filed with the
Securities and Exchange Commission, in materials delivered to stockholders and
in press releases. Forward-looking statements provide current expectations of
future events based on certain assumptions and include any statement that does
not directly relate to any historical or current fact. Words such as
"anticipates," "believes," "expects," "estimates," "intends," "plans,"
"projects," and similar expressions, may identify such forward-looking
statements. In accordance with the Reform Act, set forth under "Risk
Factors -- Risk Factors Related to an Investment in IBM Common Stock or in
Exchangeable Shares" on p. 11 are cautionary statements that accompany those
forward-looking statements. You should carefully review these cautionary
statements as they identify certain important factors that could cause actual
results to differ materially from those in the forward-looking statements and
from historical trends. Those statements are not exclusive and are in addition
to other factors discussed elsewhere in this document, in the company's filings
with the Securities and Exchange Commission or in materials incorporated therein
by reference.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
SUMMARY............................... 1
RISK FACTORS.......................... 11
DEFINITIONS........................... 14
EXCHANGE RATES OF CANADIAN
AND US DOLLARS...................... 19
OFFERS TO PURCHASE.................... 20
1. The Offers....................... 20
2. Manner and Time of Acceptance.... 21
3. Procedure for Guaranteed
Delivery......................... 22
4. Extension and Variation of
the Offers....................... 22
5. Conditions of the Offers......... 23
6. Right to Withdraw Deposited
Shares........................... 26
7. Take up and Payment for
Deposited Shares................. 27
8. General.......................... 27
9. Return of Deposited Shares....... 29
10. Mail Service Interruption........ 29
11. Dividends and Distributions;
Liens............................ 30
12. Notice and Delivery.............. 30
13. Market Purchases during
the Offer........................ 31
14. Other Terms of the Offer......... 31
OFFERING CIRCULAR..................... 33
1. Risk Factors..................... 33
2. IBM Corporate Structure.......... 34
3. IBM Corporation.................. 35
4. IBM Canada Limited............... 37
5. The Offerors..................... 37
6. LGS Group Inc.................... 39
7. Exchangeable Share Terms......... 42
8. Background to and Reasons for
the Offers....................... 48
9. Purpose of the Offers and Plans
for the Corporation.............. 51
10. Acquisition of Shares Not
Deposited........................ 51
11. Comparison of Shareholder
Rights........................... 55
12. Source of Funds for Payment...... 62
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
13. Beneficial Ownership of and
Trading in Shares of LGS......... 63
14. Price Ranges and Volume of
Trading of Shares................ 63
15. Effect of the Offers on Markets
for Shares and Stock
Exchange Listings................ 64
16. Commitments to Acquire
Securities....................... 64
17. Arrangements, Agreements or
Understandings................... 64
18. Regulatory Matters............... 65
19. Canadian Federal Income Tax
Considerations................... 66
20. United States Federal Income Tax
Considerations................... 73
21. Previous Distributions, Sales
and Purchases.................... 76
22. Material Change and Other
Information...................... 76
23. Eligibility for Investment
in Canada........................ 77
24. Depositary Arrangements.......... 78
25. US Forwarding Agent and US
Information Agent................ 78
26. Dealer Managers and Soliciting
Dealer Group..................... 78
27. Legal Matters.................... 79
28. Experts.......................... 79
29. Directors' Approval.............. 79
30. Offerees' Statutory Rights....... 79
CONSENT OF OSLER, HOSKIN &
HARCOURT LLP........................ 80
CONSENT OF CHARTERED
ACCOUNTANTS......................... 81
APPROVAL AND CERTIFICATE.............. 85
ANNEX A INFORMATION
CONCERNING
ACQUISITIONCO............... A-1
ANNEX B INFORMATION
CONCERNING US BUYCO......... B-1
</TABLE>
i
<PAGE>
NOTICE TO U.S. SHAREHOLDERS
This document incorporates important business and financial information
about IBM that is not included in or delivered with this document. That
information is available without charge to you upon written or oral request. You
must address your request to Investor Relations, International Business Machines
Corporation, New Orchard Road, Armonk, NY 10504, telephone 1-800-426-4968 or to
IBM Canada Limited, 3600 Steeles Avenue East, Markham, Ontario L5R 9Z7,
Attention: Ms Judy McAdam, Telephone 1-800-426-4968. To obtain timely delivery,
you must request the information no later than March 24, 2000.
This document incorporates important business and financial information
about LGS Group that is not included in or delivered with this document. That
information is filed with the Securities and Exchange Commission and you may
read and copy this information at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
THE TENDER OFFERS DESCRIBED HEREIN ARE MADE FOR THE SECURITIES OF A FOREIGN
ISSUER AND WHILE SUCH OFFERS ARE SUBJECT TO THE DISCLOSURE REQUIREMENTS OF THE
COUNTRY IN WHICH THE SUBJECT COMPANY IS INCORPORATED OR ORGANIZED, INVESTORS
SHOULD BE AWARE THAT THESE REQUIREMENTS ARE DIFFERENT FROM THOSE OF THE UNITED
STATES. THE FINANCIAL STATEMENTS OF LGS INCLUDED HEREIN HAVE BEEN PREPARED IN
ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND THUS MAY
NOT BE COMPARABLE TO FINANCIAL STATEMENTS OF UNITED STATES COMPANIES.
THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE FEDERAL
SECURITIES LAWS MAY BE AFFECTED ADVERSELY BY THE FACT THAT THE SUBJECT COMPANY
IS LOCATED IN A FOREIGN COUNTRY AND THAT SOME OR ALL OF ITS OFFICERS AND
DIRECTORS ARE RESIDENTS OF A FOREIGN COUNTRY.
INVESTORS SHOULD BE AWARE THAT THE OFFERORS OR THEIR AFFILIATES, DIRECTLY OR
INDIRECTLY, MAY BID FOR OR MAKE PURCHASES OF SECURITIES OF THE SUBJECT COMPANY
THAT ARE THE SUBJECT OF THE TENDER OFFERS (OR RELATED SECURITIES OF THE SUBJECT
COMPANY), OR OF THE OFFERORS' SECURITIES TO BE DISTRIBUTED (OR OF THE OFFERORS'
RELATED SECURITIES), DURING THE PERIOD OF THE TENDER OFFERS, AS PERMITTED BY
APPLICABLE CANADIAN LAWS OR PROVINCIAL LAWS OR REGULATIONS.
ii
<PAGE>
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE OFFERS TO PURCHASE
AND CIRCULAR AND IS QUALIFIED IN ITS ENTIRETY BY THE CONTENTS OF THE OFFERS TO
PURCHASE AND CIRCULAR. THIS DOCUMENT MAY NOT CONTAIN ALL THE INFORMATION THAT IS
IMPORTANT TO YOU. TO BETTER UNDERSTAND THE OFFERS, YOU SHOULD READ THIS ENTIRE
DOCUMENT CAREFULLY, AS WELL AS THE ADDITIONAL DOCUMENTS TO WHICH WE REFER YOU.
SEE "FURTHER INFORMATION ABOUT IBM" AT PAGE 30, AND "FURTHER INFORMATION ABOUT
LGS" AT PAGE 35.
SUMMARY
THE OFFERS
OPTIONS RELATING TO THE PURCHASE PRICE
IBM Acquisition Inc. and IBM Acquisition II L.L.C. (collectively, the
Offeror) are offering to purchase, upon the respective terms and subject to the
respective conditions described herein, (i) all of the issued and outstanding
Class A Shares and (ii) all of the issued and outstanding Class B Shares of
LGS Group Inc., for a per share purchase price of C$19.00.
LGS shareholders who are residents of Canada can elect to receive the
purchase price in the form of cash or exchangeable shares of IBM Acquisition.
Shareholders who elect to receive the purchase price in the form of exchangeable
shares will also receive certain ancillary rights related to the exchangeable
shares. Shareholders of LGS who are not residents of Canada can elect to receive
the purchase price in the form of cash (in which case such LGS shareholders will
receive the US dollar equivalent of the purchase price) or in the form of shares
of common stock of IBM. Shareholders who make no election will be deemed to have
elected to receive cash. The fraction of an exchangeable share and the fraction
of a share of IBM common stock issued in the offers for each LGS share will be
calculated by dividing the US dollar equivalent of the purchase price by the
average closing price of a share of IBM common stock on the New York Stock
Exchange for the ten trading days ending immediately prior to the date on which
the Offeror first takes up and pays for shares under the offers. The US dollar
equivalent will be determined by reference to the noon spot rate established by
the Bank of Canada for the conversion of Canadian dollars into US dollars on the
business day preceding such date.
No fractional exchangeable shares or shares of IBM common stock will be
issued in the offers and shareholders who elect one of the share options will
receive cash in lieu of any fractional share which would otherwise be issued.
TIMING OF THE OFFERS
You may accept the offers until 5:00 p.m., Toronto time, on April 5, 2000,
unless withdrawn or extended.
CONDITIONS OF THE OFFER FOR CLASS B SHARES
The Offeror's obligation to consummate the offer for Class B Shares is
subject to various conditions described under Section 5(a) of the Offers to
Purchase -- "Conditions of the Offers", including:
- 66 2/3% of the Class A Shares, on a fully-diluted basis, excluding those
Class A Shares held by persons whose shares cannot be voted as part of a
"minority" in any subsequent acquisition transaction pursuant to the
policies of the Ontario Securities Commission and the Commission des
valeurs mobilieres du Quebec, having been tendered and not withdrawn
- 100% of the Class B Shares, on a fully diluted basis, having been tendered
and not withdrawn
- the waiting periods under applicable antitrust and merger approval laws
having expired or been terminated
1
<PAGE>
- the shares of IBM common stock to be issued in the offers or to be issued
upon the exchange of exchangeable shares having been approved for listing
on the New York Stock Exchange
- there being no pending or threatened litigation seeking to prevent the
purchase of all the LGS shares or prohibiting or materially limiting IBM
Canada or its affiliates from effectively controlling LGS
- there having been no material adverse change in the business of LGS
- all outstanding options, warrants or other rights to acquire any LGS
shares having been exercised or terminated.
CONDITIONS OF THE OFFER FOR CLASS A SHARES
The Offeror's obligation to consummate the offer for Class A Shares is
subject to the condition that the Offeror shall have taken up and paid for the
Class B Shares under the offer to purchase Class B Shares.
MANNER AND TIME OF ACCEPTANCE
For you to validly accept either offer you must deposit the certificate or
certificates representing your shares, together with the letter of acceptance
and transmittal (printed on yellow paper) or a facsimile thereof, properly
completed and duly executed, on or before April 5, 2000, the date on which the
offers expire, at one of the offices of CIBC Mellon Trust Company specified in
the letter of acceptance and transmittal, in accordance with the instructions in
the letter of acceptance and transmittal. If your shares are held in the name of
a nominee, you should request the broker, dealer, bank, trust company or other
nominee to effect the transaction for you. If you wish to accept either offer
but your LGS shares are not immediately available, you may validly accept that
offer by following the procedures for guaranteed delivery set forth in the
notice of guaranteed delivery (printed on blue paper).
Any holder of options, warrants, rights or other entitlements to acquire
LGS shares who wishes to accept either offer must, to the extent permitted,
exercise such rights in order to obtain certificates representing shares and
deposit those shares in accordance with the applicable offer. See Section 3 of
the Offers to Purchase -- "Procedure for Guaranteed Delivery".
PAYMENT FOR DEPOSITED SHARES
Subject to the terms and conditions of the offers, the Offeror will take up
and pay for LGS shares validly deposited under the offers and not withdrawn
within all time periods prescribed by applicable securities laws. Any LGS shares
deposited under the offers after the first date on which LGS shares have been
taken up and paid for by the Offeror will be taken up and paid for within ten
days of that deposit. See Section 7 of the Offers to Purchase -- "Take up and
Payment for Deposited Shares".
RIGHT TO WITHDRAW DEPOSITED SHARES
All deposits of LGS shares pursuant to the offers are irrevocable except
that deposited shares may be withdrawn at any time before April 5, 2000, the
date on which the offers expire, and at any time after April 29, 2000, if the
shares deposited under the relevant offer have not then been taken up and paid
for by the Offeror. See Section 6 of the Offers to Purchase -- "Right to
Withdraw Deposited Shares".
PURPOSE OF THE OFFERS AND PLANS FOR LGS
The purpose of the offers is to enable the Offeror to acquire all of the
outstanding LGS shares. If the offers are completed, the Offeror intends to
acquire any LGS shares not purchased in the offers by means of a compulsory
acquisition or subsequent acquisition transaction. If permitted by applicable
law, after the completion of the offers or any compulsory acquisition or
subsequent acquisition transaction, the Offeror
2
<PAGE>
intends to delist the Class A Shares from the TSE and NASDAQ and to cause LGS to
cease to be a reporting issuer under applicable Canadian and US securities laws.
See Section 9 of the Circular -- "Purpose of the Offers and Plans for the
Corporation".
Following the completion of the offers, IBM Canada intends to conduct a
review of LGS' service offerings and business strategy with a view to
determining how best to combine the operations of LGS with those of IBM Canada.
The Offeror believes that the acquisition of LGS is consistent with IBM's
established acquisition criteria and will further IBM's goal of providing a more
comprehensive offering of services to its customers and to expand its client
base.
ACQUISITION OF SHARES NOT DEPOSITED
COMPULSORY ACQUISITION
If, within 120 days after the date of this document, each of the offers has
been accepted by the holders of not less than 90% of the applicable LGS shares,
other than the shares held on the date hereof by or on behalf of the Offeror and
its affiliates and associates (as such terms are defined in the CANADA BUSINESS
CORPORATIONS ACT), and the deposited LGS shares have been taken up and paid for
by the Offeror, the Offeror intends to effect a compulsory acquisition under the
CBCA and acquire the remaining LGS shares of the relevant class, on the terms on
which the shares were acquired under the offers.
SUBSEQUENT ACQUISITION TRANSACTION
If, for any reason, a compulsory acquisition is not pursued, the Offeror
intends to acquire the remaining LGS shares through a subsequent acquisition
transaction, on terms that the Offeror at the time believes to be fair to LGS
and its remaining shareholders. In order to complete a subsequent acquisition
transaction, the Offeror may seek to cause a special meeting of shareholders of
LGS to be called to consider an amalgamation, statutory arrangement, or other
transaction which would result in the Offeror acquiring all of the shares not
acquired under the offers. If the minimum tender conditions under the offers are
satisfied, the Offeror will have acquired sufficient shares to carry out the
acquisition of all of the remaining shares in any such amalgamation, statutory
arrangement or other transaction.
DISSENT RIGHTS
Shareholders of LGS may have the right to dissent under the CBCA with
respect to any compulsory acquisition or subsequent acquisition transaction and
to be paid the fair value for their shares, with such fair value to be
determined by a court.
REGULATORY MATTERS
COMPETITION ACT (CANADA)
Under the COMPETITION ACT (Canada), the Canadian Competition Tribunal can
make an order to, among other things, prohibit a merger transaction from being
completed or order dissolution of a merger within three years following its
completion. The transaction contemplated by the offers is subject to the
pre-notification requirements of this Act and hence cannot be completed prior to
the expiry of the applicable "waiting period" on March 23, 2000.
HART-SCOTT-RODINO ACT
IBM Acquisition and IBM Acquisition II have determined that no filings are
required under the United States antitrust laws in connection with the purchase
of the shares deposited in the offers.
3
<PAGE>
THE COMPANIES
IBM
IBM is a leading developer, manufacturer and supplier of advanced
information processing products, including computers and microelectronic
technology, software, networking systems and information technology-related
services. IBM was incorporated under the laws of the State of New York on
June 15, 1911 as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation
of the Computing Scale Co. of America, The Tabulating Machine Co., and The
International Time Recording Co. of New York. In 1924, C-T-R adopted the name
International Business Machines Corporation.
IBM is in the business of providing customer solutions through the use of
advanced information technology. IBM operates primarily in a single industry
utilizing several segments that create value by offering a variety of solutions
that include, either singularly or in some combination, technologies, systems,
products, services, software and financing. IBM employs over 300,000 persons in
more than 150 countries worldwide.
IBM offers its products through its global sales and distribution
organization. The sales and distribution organization has both a geographic
focus (in the Americas, Europe/Middle East/Africa, and Asia Pacific) and a
specialized and global industry focus. In addition, this organization includes a
global sales and distribution force devoted exclusively to small and medium size
businesses. IBM also offers its products through a variety of third party
distributors and resellers, as well as through its on-line channels.
Through its Global Services segment, IBM provides its customers with
services that include business and information technology consulting, business
transformational services, e-business services and full scope services such as
strategic outsourcing.
IBM's principal office is located at New Orchard Road, Armonk, NY 10504,
telephone number 1-914-499-1900.
IBM ACQUISITION INC.
IBM Acquisition is a wholly-owned, indirect subsidiary of IBM. IBM
Acquisition was incorporated under the CBCA on March 10, 2000 for the purpose of
making the offers described in this document. IBM Acquisition has no material
assets or liabilities and no operating history. IBM Acquisition's registered and
principal executive office is located at 3600 Steeles Avenue East, Markham,
Ontario, L3R 9Z7, telephone number 1-800-426-4968.
IBM ACQUISITION II
IBM Acquisition II is a wholly-owned, special purpose subsidiary of IBM. IBM
Acquisition II was formed as a limited liability company under the laws of
Delaware on March 14, 2000 for the purposes of making the offers described in
this document. IBM Acquisition II has no material assets and no operating
history. IBM Acquisition II's registered and principal executive office is
located at New Orchard Road, Armonk, NY 10504, telephone number 1-800-426-4968.
LGS GROUP INC.
LGS is a corporation existing under the laws of Canada. LGS provides a
diverse suite of information technology and management consulting services
including application development and implementation, business transformation
services and technology consulting services. The registered head office of LGS
is located at 1155 Metcalfe Street, 12(th) Floor, Montreal, Quebec H3B 2V6,
telephone number 1-514-392-9193.
4
<PAGE>
SUPPORT AGREEMENT
On February 15, 2000, Mr. Raymond Lafontaine, Mr. Andre Gauthier, 115523
Canada Inc. and 115525 Canada Inc., the principal shareholders of LGS, entered
into a support agreement with IBM Canada. Under the support agreement, the
principal shareholders have agreed to deposit under the offers all of their
shares of LGS, representing approximately 3.05% of the outstanding Class A
Shares and 100% of the outstanding Class B Shares (2.57% and 100% on a
fully-diluted basis). See Section 8 of the Circular -- "Background to and
Reasons for the Offers -- Support Agreement".
RETENTION AGREEMENTS WITH CERTAIN KEY EXECUTIVES
Messrs. Lafontaine and Gauthier have agreed in the support agreement
described above to enter into retention agreements with IBM Canada on terms
described in a schedule to that agreement. Pursuant to those agreements,
IBM Canada or LGS will make certain cash payments to Lafontaine and Gauthier in
order to promote and encourage their continued employment with LGS or one of its
affiliates. The aggregate amount of the payments made to Lafontaine and Gauthier
under the retention agreements will be based on such person's 1999 compensation
including salary and bonus. The cash payments will be made over a two-year
period and will be dependent on continued employment as well as the attainment
of certain business objectives. The retention agreements will contain
non-competition and non-solicitation restrictions of Lafontaine and Gauthier.
The retention agreements to be entered into with Messrs. Lafontaine and Gauthier
will also provide for the granting of certain IBM stock options, in addition to
the cash payments referred to above. The terms of the retention agreements fall
within the range of programs employed by IBM in numerous prior acquisitions.
IBM Canada intends to enter into similar retention agreements with certain
other senior executives and key employees of LGS.
See Section 17 of the Circular -- "Arrangements, Agreements or
Understandings -- Retention Agreements".
TERMS OF THE EXCHANGEABLE SHARES
Each exchangeable share will be exchangeable, at any time at the option of
the holder, for one share of IBM common stock plus an amount in cash equal to
all declared but unpaid dividends on the exchangeable share.
DIVIDENDS
Holders of exchangeable shares will be entitled to receive dividends which
are equivalent to those which are paid on the IBM common stock. IBM has agreed
that on each occasion on which it pays dividends on its common stock, it will
take all necessary steps to cause IBM Acquisition to pay equivalent dividends on
the exchangeable shares. Holders of exchangeable shares will also be entitled to
participate in any liquidation of IBM on the same basis as holders of IBM common
stock.
EXCHANGE RIGHTS
A holder of exchangeable shares may, at any time, require IBM Acquisition to
redeem such holder's exchangeable shares in exchange for an equivalent number of
shares of IBM common stock plus an amount of cash equal to all declared but
unpaid dividends on the exchangeable shares. If IBM Acquisition receives a
request for redemption, it will notify IBM and 3040696 Nova Scotia Company who
will be entitled to purchase the exchangeable shares from the holder for an
equivalent number of shares of IBM common stock plus an amount in cash equal to
all declared but unpaid dividends on the exchangeable shares. If this right is
not exercised, IBM Acquisition is required to effect the requested redemption,
unless the shareholder withdraws its request for redemption.
5
<PAGE>
REDEMPTION
Beginning on the tenth anniversary of the issuance of the exchangeable
shares, IBM Acquisition may redeem all outstanding exchangeable shares in
exchange for an equivalent number of shares of IBM common stock plus an amount
in cash equal to all declared but unpaid dividends on the exchangeable shares.
IBM Acquisition will also have the right, exercisable at any time, to redeem all
of the outstanding exchangeable shares on the same terms if there are fewer than
170,000 exchangeable shares outstanding. In either case, each of IBM and 3040696
Nova Scotia Company will have the overriding right to purchase the outstanding
exchangeable shares for an equivalent number of shares of IBM common stock plus
an amount in cash equal to all declared but unpaid dividends on the exchangeable
shares on the last business day prior to the relevant redemption date. If either
IBM or 3040696 Nova Scotia Company exercises such right, IBM Acquisition's right
to redeem the exchangeable shares on the relevant redemption date will
terminate. See Section 7 of the Circular -- "Exchangeable Share Terms".
TRADEABILITY AND TAX IMPLICATIONS
THE EXCHANGEABLE SHARES ARE NOT, AND WILL NOT BE, LISTED OR POSTED FOR
TRADING ON ANY RECOGNIZED STOCK EXCHANGE OR QUOTATION SYSTEM. THE EXCHANGEABLE
SHARES ARE DESIGNED TO PROVIDE AN OPPORTUNITY FOR CANADIAN RESIDENTS TO ACHIEVE
A CANADIAN TAX DEFERRAL IN CERTAIN CIRCUMSTANCES.
The IBM common stock is listed on the New York Stock Exchange, the Chicago
Stock Exchange and the Pacific Stock Exchange and trades under the symbol "IBM".
ELIGIBILITY FOR INVESTMENT
The exchangeable shares will not be qualified investments under the INCOME
TAX ACT (Canada) for trusts governed by registered retirement savings plans
("RRSPs"), registered retirement income plans ("RRIFs"), deferred profit sharing
plans ("DPSPs") or registered education savings plans ("RESPs"). The
exchangeable shares will be foreign property under the INCOME TAX ACT (Canada)
for trusts governed by registered pension plans, RRSPs, RRIFs or DPSPs, and for
certain other tax-exempt persons to whom Part XI of the INCOME TAX ACT (Canada)
is applicable, although the cost amount of the exchangeable shares will not
generally be included in determining the amount of such persons' excess foreign
property subject to Part XI tax.
ADVERSE TAX CONSEQUENCES WILL GENERALLY ARISE AS A RESULT OF THE ACQUISITION
OF A NON-QUALIFIED INVESTMENT BY A TRUST GOVERNED BY AN RRSP, RRIF, DPSP OR
RESP. SHAREHOLDERS WHO ARE REGISTERED PENSION PLANS OR WHO WILL HOLD THEIR
EXCHANGEABLE SHARES THROUGH A RRSP, RRIF, DPSP OR RESP SHOULD CONSULT THEIR OWN
TAX ADVISORS FOR ADVICE HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCES. For
further information concerning the eligibility for investment of the
exchangeable shares, see Section 23 of the Circular -- "Eligibility for
Investment in Canada".
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
SHAREHOLDERS OF LGS SHOULD READ CAREFULLY THE INFORMATION UNDER "CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS" WHICH QUALIFIES THE INFORMATION SET OUT
BELOW.
The sale of shares of LGS to the Offeror by Canadian shareholders of LGS who
elect, or are deemed to have elected, to receive cash will be a taxable
transaction for such shareholders.
Canadian shareholders of LGS who elect to receive exchangeable shares and
the related ancillary rights and who would generally otherwise be subject to
Canadian tax on the exchange of their shares of LGS for exchangeable shares and
the related ancillary rights may obtain a full or partial deferral of such tax
by making a joint election under the INCOME TAX ACT (Canada).
6
<PAGE>
IN ORDER TO OBTAIN THE DEFERRAL DISCUSSED IN THE PRECEDING PARAGRAPH, SUCH
LGS SHAREHOLDERS MUST MAKE AN INCOME TAX ELECTION WITH IBM ACQUISITION PURSUANT
TO SUBSECTION 85(1) OR SUBSECTION 85(2) OF THE INCOME TAX ACT (CANADA), AS
APPLICABLE, BY PROVIDING TO IBM ACQUISITION A COMPLETED TAX ELECTION FILING
PACKAGE, INCLUDING TWO DULY COMPLETED AND SIGNED COPIES OF THE NECESSARY
ELECTION FORM, WITHIN 90 DAYS FOLLOWING THE DATE OF THE EXCHANGE. SEE
SECTION 19 OF THE CIRCULAR -- "CANADIAN FEDERAL INCOME TAX CONSIDERATIONS".
The exchange of exchangeable shares for shares of common stock of IBM will
be a taxable transaction for Canadian shareholders.
Non-Canadian shareholders of LGS will not generally be subject to Canadian
income tax on the sale of shares to the Offeror for cash or IBM common stock.
UNITED STATES INCOME TAX CONSIDERATIONS
SHAREHOLDERS OF LGS SHOULD READ CAREFULLY THE INFORMATION UNDER "UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS" WHICH QUALIFIES THE INFORMATION SET
OUT BELOW.
The receipt of cash or IBM common stock by a United States shareholder of
LGS will be a taxable transaction for United States federal income tax purposes.
See Section 20 of the Circular -- "United States Federal Income Tax
Considerations -- US Holders -- Receipt of Cash or IBM Common Stock".
Non-United States shareholders generally will not be subject to United
States federal income tax on the receipt of cash or IBM common stock or
exchangeable shares. See Section 20 of the Circular--United States Federal
Income Tax Considerations--Non-US Holders--Receipt of Cash or IBM Common Stock
or Exchangeable Shares".
No statutory, judicial or administrative authority exists that directly
addresses the United States federal income tax consequences to non-United States
holders of owning the exchangeable shares. Because of the risk that the
exchangeable shares will be considered equity of IBM for United States federal
income tax purposes, IBM Acquisition or its paying agent will withhold 30% of
any dividends paid with respect to the exchangeable shares, unless the holder of
such exchangeable shares is eligible for a reduced treaty rate. See Section 20
of the Circular -- "United States Federal Income Tax Considerations -- Non-US
Holders -- Dividends on Exchangeable Shares".
STOCK EXCHANGE LISTINGS
The outstanding shares of IBM common stock are quoted on the New York Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange. The shares
of IBM common stock to be issued upon the exchange of the exchangeable shares
will be approved for listing on the New York Stock Exchange, the Chicago Stock
Exchange and the Pacific Stock Exchange prior to the completion of the offers.
RISK FACTORS
For a discussion of risk factors to be considered by shareholders of LGS in
evaluating whether to accept the offers, see page 11.
COMPARATIVE MARKET PRICE DATA
On February 15, 2000, IBM Canada announced that it had entered into a
support agreement pursuant to which Mr. Raymond Lafontaine, Mr. Andre Gauthier,
115523 Canada Inc. and 115525 Canada Inc. agreed to deposit all their shares of
LGS pursuant to the offers. The following table shows the closing
7
<PAGE>
prices for the Class A Shares on the TSE and NASDAQ and the closing prices for
the IBM common stock on the New York Stock Exchange for each of the dates
indicated:
<TABLE>
<CAPTION>
LGS CLASS A LGS CLASS A IBM COMMON
TSE NASDAQ NYSE
------------ ------------------ -------------------
<S> <C> <C> <C>
February 14, 2000.................................... C$16.05 US$11 7/16(ths) US$116 1/16(ths)
February 15, 2000.................................... C$18.60 US$12 7/8(ths) US$117 1/8(ths)
April 4, 2000........................................ C$18.90 US$13.06 US$121 3/16(ths)
</TABLE>
The last trade of Class A Shares on NASDAQ was completed on March 13, 2000.
DEPOSITARY
CIBC Mellon Trust Company is acting as depositary under the offers. CIBC
Mellon Trust Company will receive deposits of Class A Shares and Class B Shares
and accompanying documentation at the offices specified in the letter of
acceptance and transmittal. CIBC Mellon Trust Company will also be responsible
for giving notices, if required, and for making payment for all Class A Shares
and Class B Shares purchased by the Offeror under the offers.
DEALER MANAGERS
CIBC World Markets Inc. has been retained to act as financial advisor to IBM
in connection with the acquisition of LGS. CIBC World Markets Inc. has been
appointed to act as the dealer manager of the offers in Canada and will form a
soliciting dealer group comprised of members of the Investment Dealers
Association of Canada and members of Canadian stock exchanges to solicit
acceptances in Canada of the offers. CIBC World Markets Corp. has been appointed
to act as the dealer manager in the United States to solicit acceptances of the
offers in such country.
No brokerage fees or commissions will be payable by any shareholder who
deposits Class A Shares or Class B Shares directly with CIBC Mellon Trust
Company or the US forwarding agent or who uses the services of a dealer manager
or a member of the soliciting dealer group to accept an offer.
US INFORMATION AGENT AND DOCUMENT FORWARDING AGENT
IBM Acquisition has retained ChaseMellon Consulting Services L.L.C. to act
as the US information agent and ChaseMellon Shareholder Services L.L.C. to act
as US forwarding agent in connection with the offers.
ChaseMellon Consulting Services may contact shareholders of LGS by mail,
telephone, telex, telegraph or personal interview and may request brokers,
dealers and other nominee shareholders to forward materials relating to the
offers to the beneficial owners of Class A Shares and Class B Shares.
ChaseMellon Consulting Services may also set up a dedicated toll-free line in
order to answer questions in connection with the offers.
ChaseMellon Shareholder Services has been retained to accept the deposit of
hand-delivered certificates representing the Class A Shares and Class B Shares
and related letters of acceptance and transmittal deposited under the offers by
LGS shareholders resident in the United States, and to distribute to such US
shareholders the consideration paid by the Offeror for LGS shares purchased by
the Offeror from such shareholders pursuant to the offers.
ChaseMellon Consulting Services and ChaseMellon Shareholder Services will
receive reasonable and customary compensation for their respective services,
will be reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities in connection therewith, including
certain liabilities under federal securities laws. Neither ChaseMellon
Consulting Services nor ChaseMellon
8
<PAGE>
Shareholder Services has been retained to make solicitations or recommendations
in their respective roles as US information agent or US forwarding agent.
REQUESTS FOR ASSISTANCE
Shareholders should contact CIBC Mellon Trust Company, the US forwarding
agent, the US information agent, the applicable dealer manager or a broker or
investment dealer for assistance in accepting the offers and in depositing
shares with CIBC Mellon Trust Company or the US forwarding agent.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical consolidated financial data
which should be read in conjunction with and is qualified in its entirety by
reference to the consolidated financial statements of IBM and the notes thereto
for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 have been
derived from financial statements of IBM.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999(1) 1998(1) 1997(1) 1996(1) 1995(1)
------------- ------------- ------------- ------------- -------------
(in millions of US$ except for per share amounts and percentages)
<S> <C> <C> <C> <C> <C>
Net Sales....................... 87,548 81,667 78,508 75,947 71,940
Cost............................ 55,619 50,795 47,899 45,408 41,573
Gross Profit.................... 31,929 30,872 30,609 30,539 30,367
Gross Profit Margin............. 36.4% 37.8% 39.0% 40.2% 42.2%
Net Income...................... 7,712 6,328 6,093 5,429 4,178
Earnings per share of common
stock:
Assuming Dilution(2)........ 4.12 3.29 3.00 2.50 1.76
Basic(2).................... 4.25 3.38 3.09 2.56 1.81
Balance Sheet Data
Assets........................ 87,495 86,100 81,499 81,132 80,292
Liabilities................... 66,984 66,667 61,683 59,504 57,869
Long-term Debt.................. 14,124 15,508 13,696 9,872 10,060
Cash and Cash Equivalents and
Marketable Securities......... 5,831 5,768 7,553 8,137 7,701
Cash dividends per share of
common stock(2)............... .47 .43 .39 .33 .25
Cash dividends.................. 859 814 763 686 572
Book value per share of common
stock(2)...................... 11.36 10.47 10.21 10.52 10.12
</TABLE>
- ------------
Notes:
(1) The information set forth in this table has been extracted from the
financial statements referred to above which have been prepared in
accordance with US GAAP.
(2) Adjusted to reflect a two-for-one split of the common stock effective on
each of May 9, 1997 and May 10, 1999.
9
<PAGE>
LGS GROUP INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical consolidated financial
information of LGS which has been derived from the publicly disclosed financial
statements of LGS and the notes thereto for the years ended March 31, 1999,
1998, 1997, 1996 and 1995, and for the three months ended June 30, 1999,
September 30, 1999 and December 31, 1999.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE MONTHS ENDED(1)
ENDED MARCH 31,(1) ---------------------------------------
----------------------------------------------------- JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1998 1997 1996 1995 1999 1999 1999
-------- -------- -------- -------- -------- -------- ------------- ------------
(in thousands of C$ except for per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $230,066 $134,641 $92,113 $83,439 $70,183 $63,608 $55,012 $57,010
Expenses............. 214,996 128,170 91,349 79,810 69,658 59,627 53,069 59,727
EBITDA............... 19,354 9,692 3,961 6,013 2,256 5,548 3,317 (1,199)
Income (loss) Before
Tax................ 15,070 6,471 764 3,629 525 3,981 1,641 (2,955)
Net Income (Loss).... 8,468 3,502 381 2,003 286 2,238 704 (1,625)
Earnings (Loss) Per
Common Share:
Basic.............. 0.72 0.36 0.04 0.21 0.03 0.17 0.07 (0.13)
Fully Diluted...... 0.65 0.36 0.04 0.21 0.03 0.17 0.07 (0.12)
Cash and Cash
Equivalents........ 24,030 1,708 3,194 406 51 21,504 16,669 13,345
Net Book Value Per
Common Share....... 5.72 2.24 1.41 1.41 1.24 5.87 5.93 5.74
</TABLE>
- ------------
Note:
(1) The information set forth in this table has been extracted or derived from
the financial statements of LGS referred to above which have been prepared
in accordance with Canadian GAAP.
10
<PAGE>
RISK FACTORS
The following risk factors should be considered by LGS shareholders (the
"Shareholders") in evaluating whether or not to accept the Offers. Some of these
risk factors relate directly to the completion of the Offers, a Compulsory
Acquisition or a Subsequent Acquisition Transaction (each an "Acquisition
Transaction") while others relate to the business and properties of IBM and its
affiliates, independent of any Acquisition Transaction. These risk factors
should be considered in conjunction with the other information included herein.
Shareholders are urged to read this section in its entirety. Capitalized terms
used but not defined in this section are defined below under "Definitions".
RISK FACTORS RELATED TO AN INVESTMENT IN EXCHANGEABLE SHARES
CANADIAN TAX CONSEQUENCES OF REDEMPTION OR EXCHANGE OF EXCHANGEABLE SHARES
The Offers provide the opportunity for a tax deferral to certain taxable
Canadian resident Shareholders who receive Exchangeable Shares and Ancillary
Rights pursuant to the Offers and file the appropriate elections. However, such
Shareholders will generally only be able to obtain a Canadian tax deferral for
as long as they hold the Exchangeable Shares. If the number of outstanding
Exchangeable Shares (other than shares held by IBM or its affiliates) is at any
time fewer than 170,000, and in any event, from and after the tenth anniversary
date of the Payment Date, AcquisitionCo may redeem the Exchangeable Shares for
shares of IBM Common Stock, subject to the overriding call right of IBM and
Parentco to acquire the Exchangeable Shares for shares of IBM Common Stock. The
exchange of Exchangeable Shares for shares of IBM Common Stock will be a taxable
transaction for taxable Canadian Shareholders. See Section 19 of the
Circular -- "Canadian Federal Income Tax Considerations".
EXCHANGEABLE SHARES ARE NOT QUALIFIED INVESTMENTS; EXCHANGEABLE SHARES ARE
FOREIGN PROPERTY
The Exchangeable Shares will not be qualified investments under the Canadian
Tax Act for trusts governed by registered retirement savings plans ("RRSPs"),
registered retirement income plans ("RRIFs"), deferred profit sharing plans
("DPSPs") or registered education savings plans ("RESPs"). The Exchangeable
Shares will be foreign property under the Canadian Tax Act for trusts governed
by registered pension plans, RRSPs, RRIFs or DPSPs, and certain other persons to
whom Part XI of the Canadian Tax Act is applicable, but the cost amount of the
Exchangeable Shares will not generally be included in determining the amount of
such persons' excess foreign property subject to tax under Part XI. Adverse tax
consequences will generally arise as a result of the acquisition of a
non-qualified investment by a trust governed by an RRSP, RRIF, DPSP or RESP.
Shareholders who are registered pension plans or who will hold their
Exchangeable Shares through a RRSP, RRIF, DPSP or RESP should consult their own
tax advisors for advice having regard to their particular circumstances. For
further information concerning the eligibility for investment of the
Exchangeable Shares, see Section 23 of the Circular -- "Eligibility for
Investment in Canada".
NO MARKET FOR EXCHANGEABLE SHARES
The Exchangeable Shares are not, and will not be, listed or posted for
trading on any recognized stock exchange or quotation system. There is no
established trading market for the Exchangeable Shares and none will develop.
The Offeror has no intention to have the Exchangeable Shares listed for trading
on any securities exchange or quoted on any automated dealer quotation system.
RISK FACTORS RELATED TO AN INVESTMENT IN IBM COMMON STOCK OR IN EXCHANGEABLE
SHARES
THE VALUE OF OUR PATENTS AND OTHER INTELLECTUAL PROPERTY MAY BE IMPAIRED BY
COMPETITORS WHO MISUSE OUR INTELLECTUAL PROPERTY RIGHTS.
11
<PAGE>
IBM owns or is licensed under a number of patents relating to its products.
Licenses under patents owned by IBM have been and are being granted to others
under reasonable terms and conditions. IBM protects its intellectual property
rights in a variety of ways. These protections may not prevent competitors from
independently developing products and services similar to or duplicative of
IBM's nor can there be any assurance that these protections will adequately
deter misappropriation or improper use of IBM's technology. There can also be no
assurances that IBM will be able to obtain from third parties the licenses it
needs in the future.
THE FAILURE OF IBM'S SUPPLIERS TO DELIVER COMPONENTS, SUPPLIES AND RAW
MATERIAL IN SUFFICIENT QUANTITIES AND IN A TIMELY MANNER COULD ADVERSELY AFFECT
IBM'S BUSINESSES.
IBM's businesses employ a wide variety of components, supplies and raw
materials from a substantial number of suppliers around the world. To date, IBM
has found that the components, supplies and raw materials necessary for the
manufacture, production and delivery of its products and services have been
available in the quantities required. Certain of IBM's businesses may rely on a
single or limited number of suppliers, although IBM makes every effort to assure
the alternative sources are available if the need arises.
BECAUSE OF ITS SIZE, IBM MAY NOT COMPETE EFFECTIVELY IN ALL AREAS OF ITS
BUSINESSES.
IBM operates in businesses that are subject to intense competitive
pressures. IBM's businesses face a significant number of competitors, ranging
from Fortune 50 companies to an increasing number of relatively small, rapidly
growing and highly specialized organizations. IBM believes that its combination
of technology, performance, quality, reliability, price and breadth of products
and service offerings are important competitive factors. Intense competitive
pressures could affect prices or demand for IBM's products and services,
resulting in reduced profit margins and/or loss of market opportunity. Unlike
many of its competitors, IBM has a portfolio of businesses while competing with
companies that specialize in one or more of these product lines. As a result,
IBM may not fund or invest in certain of its businesses to the same degree that
its competitors do and these companies may have greater financial, technical and
marketing resources available to them than the businesses of IBM against which
they compete.
ECONOMIC AND OTHER CHANGES IN COUNTRIES OUTSIDE THE UNITED STATES MAY AFFECT
IBM'S BUSINESSES.
IBM operates in more than 150 countries worldwide and derives more than half
of its revenues from sales outside the United States. Changes in the laws or
policies of the countries in which IBM operates could affect its business in
that country and its results of operations. IBM's results of operations could
also be affected by economic changes in those countries and by macroeconomic
changes, including recessions and inflation. For example, weakness in the Asian
and Latin American economies had an adverse impact on IBM's business in 1998.
THE INABILITY TO SUCCESSFULLY DEVELOP NEW PRODUCTS MAY ADVERSELY AFFECT
IBM'S BUSINESSES.
IBM's results of operations depend upon the continued successful development
and marketing of new and innovative products and services which require
significant capital investments by IBM's various businesses and the success of
these products and services depends on their acceptance by customers and
business partners. Further, IBM's businesses are characterized by rapid
technological changes and corresponding shifts in customer demand, resulting in
unpredictable product transitions, shortened life cycles and an increasing
emphasis on being first to market with new products and services. There can be
no assurance that IBM will successfully introduce new products and services,
that these products and services will be accepted by customers, or that IBM's
businesses will recoup or realize a return on their capital investments. In
addition, from time to time IBM may experience difficulties or delays in the
development, production or marketing of new products and services.
THE INABILITY TO RETAIN SKILLED PERSONNEL MAY ADVERSELY AFFECT IBM'S
BUSINESSES.
12
<PAGE>
Much of the future success of IBM depends on the continued service and
availability of skilled personnel, including technical, marketing and staff
positions. Experienced personnel in the information technology industry are in
high demand and competition for their talents is intense. There can be no
assurance that IBM will be able to successfully retain and attract the key
personnel it needs.
13
<PAGE>
DEFINITIONS
IN THE OFFERS TO PURCHASE AND THE CIRCULAR, UNLESS THE SUBJECT MATTER OR
CONTEXT IS INCONSISTENT THEREWITH, THE FOLLOWING TERMS SHALL HAVE THE MEANINGS
SET FORTH BELOW:
"ACQUISITIONCO" means IBM Acquisition Inc., a wholly-owned subsidiary of
Parentco, incorporated under the CBCA for the purposes of making the Offers and
issuing the Exchangeable Shares;
"AFFILIATE" has the meaning ascribed thereto in the SECURITIES ACT (Ontario) as
constituted on the date hereof;
"ANCILLARY RIGHTS" mean the automatic right to exchange Exchangeable Shares for
IBM Common Stock in the event of an IBM Liquidation Event as described at
Section 7 of the Circular -- "Exchangeable Share Terms -- Automatic Exchange on
Liquidation of IBM", and the optional Exchange Right of the Trustee for the use
and benefit of the holders of the Exchangeable Shares as described at Section 7
of the Circular, "Exchangeable Share Terms -- Exchange Trust Agreement and IBM
Support Agreement -- Optional Exchange Right in the case of an Offeror
Insolvency Event";
"ANNEX" means an Annex attached to the Circular, each of which is deemed to form
part of the Circular;
"ASSOCIATE" has the meaning ascribed thereto in the SECURITIES ACT (Ontario) as
constituted on the date hereof and for purposes of the Offers to Purchase and
the Circular, "associate", where used to indicate a relationship with any person
or company, shall, in addition, include (i) a child or spouse of that person who
does not reside in the same home as that person, and (ii) a body corporate of
which that person beneficially owns or controls, directly or indirectly, shares
or securities currently convertible into shares carrying more than ten per cent
of the voting rights under all circumstances or by reason of the occurrence of
an event that has occurred and is continuing, or a currently exercisable option
or right to purchase such shares or such convertible securities;
"BUSINESS DAY" means a day, other than a Saturday, a Sunday or a statutory
holiday, on which the commercial banks in Toronto and Montreal are open for
business during normal banking hours;
"C$" means Canadian dollars;
"CANADIAN DOLLAR EQUIVALENT" means, with respect to any date, the product
obtained by multiplying the relevant US dollar amount by the noon spot exchange
rate on such date for US dollars expressed in Canadian dollars as reported by
the Bank of Canada;
"CANADIAN GAAP" means generally accepted accounting principles in Canada;
"CANADIAN SHAREHOLDER" has the meaning set forth in Section 19 of the
Circular -- "Canadian Federal Income Tax Considerations";
"CANADIAN SHARE OPTION" means the option available to Shareholders who are
resident in Canada to receive the Purchase Price in the form of Exchangeable
Shares and Ancillary Rights in the manner described herein;
"CANADIAN TAX ACT" means the INCOME TAX ACT (Canada), as amended;
"CASH OPTION" means the option available to Shareholders to receive the Purchase
Price in the form of cash;
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as amended;
"CCRA" means the Canada Customs and Revenue Agency;
"CIRCULAR" means this take-over bid circular and all of the Annexes hereto;
"CLASS A OFFER" means the offer to purchase Class A Shares made hereby, the
terms and conditions of which are set forth in the Offers to Purchase, the
Circular, the Letter of Acceptance and Transmittal, and the Notice of Guaranteed
Delivery;
14
<PAGE>
"CLASS A SHARES" means the Class A Subordinate Voting Shares of LGS;
"CLASS B OFFER" means the offer to purchase Class B Shares made hereby, the
terms and conditions of which are set forth in the Offers to Purchase, the
Circular, the Letter of Acceptance and Transmittal and the Notice of Guaranteed
Delivery;
"CLASS B SHARES" means the Class B Multiple Voting Shares of LGS;
"CLASS C SHARES" means the Class C Multiple Voting Shares of LGS;
"COMPETITION ACT" means the COMPETITION ACT (Canada), as amended;
"COMPULSORY ACQUISITION" has the meaning set forth in Section 10 of the
Circular -- "Acquisition of Shares Not Deposited";
"CORPORATION" or "LGS" means LGS Group Inc., a corporation governed by the CBCA;
"DEALER MANAGERS" means CIBC World Markets Inc. and CIBC World Markets Corp.;
"DEPOSITARY" means CIBC Mellon Trust Company;
"ELIGIBLE INSTITUTION" means a Canadian chartered bank, a trust company in
Canada, a commercial bank or trust company having an office or correspondent in
Toronto, Ontario, or a firm which is a member of the Investment Dealers
Association of Canada, a recognized stock exchange in Canada, a member of a
national securities exchange in the United States of America, or a member of the
National Association of Securities Dealers, Inc.;
"ELIGIBLE SHAREHOLDER" has the meaning set forth in Section 19 of the
Circular -- "Canadian Federal Income Tax Considerations";
"EXCHANGE ACT" means the United States SECURITIES EXCHANGE ACT OF 1934, as
amended, and the rules and regulations promulgated thereunder;
"EXCHANGEABLE SHARE TERMS" means the rights, privileges, restrictions and
conditions attaching to the Exchangeable Shares, which are described in
Section 7 of the Circular -- "Exchangeable Share Terms";
"EXCHANGEABLE SHARES" means the Exchangeable Shares of AcquisitionCo;
"EXCHANGE TRUST AGREEMENT" means the Exchange Trust Agreement to be entered into
between AcquisitionCo, Parentco, IBM and the Trustee, in connection with the
Exchangeable Shares;
"EXPIRY TIME" means 5:00 p.m., Toronto time, on April 5, 2000, or such later
time and date as may be fixed by the Offeror from time to time pursuant to
Section 4 of the Offers to Purchase -- "Extension and Variation of the Offers";
"FULLY-DILUTED BASIS" means with respect to the number of Class A Shares or
Class B Shares, such number calculated assuming that all Rights are exercised;
"IBM" means International Business Machines Corporation, a corporation
incorporated under the laws of the State of New York;
"IBM CANADA" means IBM Canada Limited, a corporation existing under the CBCA and
a wholly-owned indirect subsidiary of IBM;
"IBM COMMON STOCK" means the common stock, par value US$0.20, of IBM;
"IBM LIQUIDATION EVENT" has the meaning ascribed to it in Section 7 of the
Circular -- "Exchangeable Share Terms -- Automatic Exchange on Liquidation of
IBM";
"IBM SUPPORT AGREEMENT" means the support agreement to be entered into between
AcquisitionCo, Parentco and IBM in connection with the Exchangeable Shares;
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<PAGE>
"IRS" means the United States Internal Revenue Service;
"LETTER OF ACCEPTANCE AND TRANSMITTAL" means the accompanying letter of
acceptance and transmittal (printed on yellow paper) prepared for use in
connection with the Class A Offer and the Class B Offer;
"LGS ARTICLES" means the articles of incorporation of LGS;
"LOCKED-UP SHARES" means the 305,852 Class A Shares (representing approximately
2.57% of the outstanding Class A Shares on a fully-diluted basis) and the
2,852,800 Class B Shares held by the Locked-up Shareholders (representing 100%
of the outstanding Class B Shares on a fully-diluted basis);
"LOCKED-UP SHAREHOLDERS" means Mr. Raymond Lafontaine, Mr. Andre Gauthier,
115523 Canada Inc. and 115525 Canada Inc.;
"MATERIAL ADVERSE EFFECT" means any condition, event or development which is, or
could reasonably be expected to result in or represent, a material adverse
effect or material adverse change (or any condition, event or development
involving a prospective material adverse change) individually or in the
aggregate on or in the business, affairs, operations, assets, capitalization,
financial condition, rights, results of operations, or liabilities (including
without limitation any contingent liabilities that may arise through
outstanding, pending or threatened litigation or otherwise), whether contractual
or otherwise, of the Corporation and its subsidiaries considered as a whole,
provided that a Material Adverse Effect shall not include any material change or
effect on the information technology industry generally or the North American
stock markets generally, and shall also not include any material change or
effect which occurs solely as a result of interest rate or exchange rate
fluctuations;
"MINIMUM CONDITION" means the condition of the Class B Offer set out in
Section 5(a)(i) of the Offers to Purchase;
"NASDAQ" means The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the
National Association of Securities Dealers, Inc.;
"NOTICE OF GUARANTEED DELIVERY" means the accompanying notice of guaranteed
delivery (printed on blue paper) prepared for use in connection with the
Class A Offer and the Class B Offer;
"NYSE" means the New York Stock Exchange;
"NOON SPOT RATE" means with respect to any date the noon spot exchange rate for
US dollars expressed in Canadian dollars as reported by the Bank of Canada on
such date;
"OFFER" means either the Class A Offer or the Class B Offer, and "OFFERS" means
the Class A Offer and Class B Offer, collectively. For greater certainty, the
Class A Offer is a separate offer to purchase Class A Shares and the Class B
Offer is a separate offer to purchase Class B Shares;
"OFFEROR" means, collectively, AcquisitionCo and US BuyCo as joint offerors
under the Offers or either of them if the context so requires;
"OPTIONAL REDEMPTION DATE" has the meaning ascribed to it in Section 7 of the
Circular -- "Exchangeable Share Terms -- Redemption of Exchangeable Shares";
"OSC" means the Ontario Securities Commission;
"PARENTCO" means 3040696 Nova Scotia Company, an unlimited company incorporated
under the COMPANIES ACT (Nova Scotia) and a wholly-owned indirect subsidiary of
IBM and the direct parent of AcquisitionCo;
"PAYMENT DATE" means the date on which the Offeror first takes-up and pays for
Shares deposited under the Offers;
"POLICY Q-27" means Policy Q-27 of the QSC;
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<PAGE>
"POLICY 9.1" means Policy Statement No. 9.1 of the OSC;
"PURCHASE PRICE" means the C$19.00 offered as consideration by the Offeror for
each Share deposited by a Shareholder pursuant to the Offers;
"QSC" means the Commission des valeurs mobilieres du Quebec;
"RETENTION AGREEMENT" means the retention agreements to be entered into with
Lafontaine and Gauthier and other key employees of the Corporation which are
further described in Section 17 of the Circular -- "Arrangements, Agreements or
Understandings -- Retention Agreements";
"RIGHTS" means options, warrants, rights or other entitlements to acquire
Class A Shares or Class B Shares as the case may be;
"SEC" means the United States Securities and Exchange Commission;
"SHARE OPTIONS" mean collectively, the Canadian Share Option and the US Share
Option;
"SHAREHOLDERS" means the holders of Class A Shares or Class B Shares;
"SHARES" means, collectively, the Class A Shares and Class B Shares and includes
a reference to either class where the context so requires;
"SOLICITING DEALER GROUP" means the group of dealers formed by the Dealer
Managers for the purposes of soliciting acceptances of the Offers as is more
particularly described in Section 26 of the Circular -- "Dealer Managers and
Soliciting Dealer Group";
"SUBSEQUENT ACQUISITION TRANSACTION" has the meaning set forth in Section 10 of
the Circular -- "Acquisition of Shares Not Deposited";
"SUBSIDIARY" has the meaning ascribed thereto in the SECURITIES ACT (Ontario) as
constituted on the date hereof;
"SUPPORT AGREEMENT" means the support agreement dated February 15, 2000 between
IBM Canada and the Locked-up Shareholders pursuant to which IBM Canada agreed,
subject to the satisfaction of certain conditions specified in the Support
Agreement, to cause the Offers to be made and the Locked-up Shareholders agreed
to irrevocably deposit all their Shares to the Offers all as is more
particularly described in Section 8 of the Circular -- "Background to and
Reasons for the Offers -- Support Agreement";
"TAX ELECTION FILING PACKAGE" has the meaning set forth in Section 19 of the
Circular -- "Canadian Federal Income Tax Considerations -- Shareholders Resident
in Canada -- Tax Elections";
"TAX PROPOSALS" means any specific proposals to amend the Canadian Tax Act and
the regulations thereunder publicly announced by or on behalf of the Minister of
Finance (Canada) prior to the date of this Circular;
"TRANSFER AGENT" means CIBC Mellon Trust Company in its capacity as transfer
agent and registrar of the Exchangeable Shares;
"TRUST AGREEMENTS" has the meaning ascribed to such term in Section 6 of the
Circular -- "LGS Group Inc. -- Description of Share Capital of LGS -- Coattail
Rights";
"TRUSTEE" means CIBC Mellon Trust Company, or any successor thereto that is
appointed to act as trustee under the Exchange Trust Agreement for the benefit
of holders of Exchangeable Shares;
"TSE" means The Toronto Stock Exchange;
"US$" means United States dollars;
17
<PAGE>
"US BUYCO" means IBM Acquisition II L.L.C. a wholly-owned subsidiary of IBM,
formed as a limited liability company under the laws of Delaware for the
purposes of making the Offers;
"US CODE" means the United States INTERNAL REVENUE CODE OF 1986, as amended;
"US GAAP" means generally accepted accounting principles in the United States;
"US FORWARDING AGENT" means ChaseMellon Shareholder Services L.L.C. in its
capacity as the US forwarding agent appointed in respect of the Offers;
"US INFORMATION AGENT" means ChaseMellon Consulting Services L.L.C. in its
capacity as the US information agent appointed in respect of the Offers;
"US SECURITIES ACT" means the United States SECURITIES ACT OF 1933, as amended,
and the rules and regulations promulgated thereunder; and
"US SHARE OPTION" means the option available to Shareholders who are not
resident in Canada to receive the Purchase Price in the form of shares of
IBM Common Stock in the manner described in the Offers to Purchase.
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<PAGE>
EXCHANGE RATES OF CANADIAN AND US DOLLARS
The following table sets forth, for each period indicated, the high and low
exchange rates for one US dollar expressed in Canadian dollars, the average of
such exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based upon the Noon Spot Rate.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
---------------------------------- ---------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1998 1997 1999 1999 1999 1999
-------- ------------ -------- --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
High.................. 1.5298 1.5765 1.4392 1.5298 1.5034 1.5132 1.4949
Low................... 1.4433 1.4075 1.3353 1.4870 1.4505 1.4637 1.4433
Average............... 1.4858 1.4840 1.3844 1.5112 1.4730 1.4860 1.4726
Period End............ 1.4433 1.5305 1.4291 1.5092 1.4720 1.4700 1.4433
</TABLE>
On April 4, 2000, the exchange rate for one US dollar expressed in Canadian
dollars was C$1.4531, based on the Noon Spot Rate.
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<PAGE>
OFFERS TO PURCHASE
TO: HOLDERS OF CLASS A SUBORDINATE VOTING SHARES AND
HOLDERS OF CLASS B MULTIPLE VOTING SHARES
OF LGS GROUP INC.
1. THE OFFERS
AcquisitionCo and US BuyCo (collectively, the "Offeror") hereby offer to
purchase, upon the respective terms and subject to the respective conditions set
forth in the Offers to Purchase, the attached Circular, the Letter of Acceptance
and Transmittal, and the Notice of Guaranteed Delivery, (i) all of the issued
and outstanding Class A Shares (the "Class A Offer") and (ii) all of the issued
and outstanding Class B Shares (the "Class B Offer", and together with the
Class A Offer, the "Offers"), not already owned by the Offeror including, in the
case of the Class A Offer, Class A Shares issuable upon the exercise of existing
options, warrants, rights or other entitlements ("Rights") to acquire Class A
Shares and in the case of the Class B Offer, Class B Shares issuable upon the
exercise of existing Rights to acquire Class B Shares, for consideration of
C$19.00 per Share (the "Purchase Price").
The Offers are made only for Shares and are not made for any Rights. Any
holder of Rights who wishes to accept the Class A Offer or the Class B Offer
should exercise its Rights in order to obtain certificates representing Class A
Shares or Class B Shares, as the case may be, and then deposit such Shares under
the applicable Offer. Any such exercise must be made sufficiently in advance of
the Expiry Time to assure the holders of the Rights that they will have
sufficient time prior to the Expiry Time to obtain certificates representing
Shares for deposit under the applicable Offer or sufficient time to comply with
the procedures referred to in Section 3 of the Offers to Purchase -- "Procedure
for Guaranteed Delivery".
Shareholders who are residents of Canada can elect to receive the Purchase
Price in the form of cash (the "Cash Option") or in the form of Exchangeable
Shares and Ancillary Rights (the "Canadian Share Option"). Shareholders who are
not resident in Canada can elect the Cash Option or can elect to receive the
Purchase Price in the form of shares of IBM Common Stock (the "US Share Option"
and together with the Canadian Share Option, the "Share Options"). If an
election as to a Share Option or the Cash Option is not made by a depositing
Shareholder, such Shareholder will be deemed to have elected the Cash Option.
Shareholders who are residents of Canada who elect, or are deemed to have
elected, the Cash Option will receive the Purchase Price in the form of Canadian
dollars. Shareholders who are not resident in Canada who elect, or are deemed to
have elected, the Cash Option will receive the US dollar equivalent of the
Purchase Price by reference to the Noon Spot Rate in effect on the Business Day
preceding the Payment Date.
Shareholders who are entitled to elect and who do elect (i) the Canadian
Share Option or (ii) the US Share Option, will receive, for each Share purchased
in the applicable Offer, respectively, a fraction of an Exchangeable Share and
corresponding Ancillary Rights or a fraction of a share of IBM Common Stock,
which fraction, in each case, will be calculated by dividing the US dollar
equivalent of the Purchase Price by the average closing price of a share of IBM
Common Stock on the NYSE for the ten trading days ending immediately prior to
the Payment Date (the "Ten Day Average"). Such fractions will be calculated to
four decimal points and rounded up, if the fifth decimal point is five or
greater and rounded down in all other cases. The US dollar equivalent will be
determined by reference to the Noon Spot Rate in effect on the Business Day
preceding the Payment Date. AcquisitionCo will purchase all Shares deposited to
the Offers and not withdrawn other than Shares in respect of which the
depositing Shareholders have elected the US Share Option, which Shares will be
purchased by US BuyCo.
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<PAGE>
Fractional Exchangeable Shares and fractional shares of IBM Common Stock
will not be issued. Any Shareholder who is entitled to elect and who does elect
one of the Share Options and whose aggregate entitlement to receive Exchangeable
Shares and Ancillary Rights or shares of IBM Common Stock, as the case may be,
would include a fraction of an Exchangeable Share (and corresponding Ancillary
Rights) or a fraction of a share of IBM Common Stock, as the case may be, will
receive cash in lieu of such fractional interests. The amount of cash which a
Shareholder will receive in respect of such fractional interest will be
determined by multiplying the relevant fraction by the Ten Day Average (the
"Fractional Amount"). Shareholders whose entitlement to receive cash in respect
of a fractional share amount resulted from its election of the Canadian Share
Option will receive the Canadian Dollar Equivalent (calculated by reference to
the Noon Spot Rate in effect on the Business Day preceding the Payment Date) of
the Fractional Amount in Canadian dollars while Shareholders whose entitlement
to receive cash in respect of a fractional share amount resulted from its
election of the US Share Option will receive the Fractional Amount in
US dollars.
Each of the Class A Offer and the Class B Offer is a separate offer to
purchase, and, subject to the provisions of the Trust Agreements, either Offer
may be extended, varied or changed, and any condition or conditions of either
Offer to purchase may be waived without similarly extending, varying or changing
the other Offer or waiving a condition or conditions of the other Offer,
provided, however, that the Offeror may not vary the consideration offered under
either Offer without identically varying the consideration offered under the
other Offer.
Each of the Offers will be open for acceptance until 5:00 p.m., Toronto
time, on April 5, 2000, unless withdrawn or extended at the Offeror's sole
discretion.
Depositing Shareholders will not be obliged to pay brokerage fees or
commissions if they accept either of the Offers by depositing their Shares
directly with the Depositary or the US Forwarding Agent or if they use the
services of the applicable Dealer Manager or a member of the Soliciting Dealer
Group to accept the Offers.
2. MANNER AND TIME OF ACCEPTANCE
In order for a Shareholder to accept the relevant Offer, the following
documents must be received by the Depositary or, in the case of a US Shareholder
who wishes to hand-deliver the following documents, by the US Forwarding Agent,
as applicable, at one of the respective offices specified in the Letter of
Acceptance and Transmittal at or before the Expiry Time:
(a) the certificate or certificates representing the deposited Shares in
respect of which the Offer is being accepted;
(b) a properly completed and duly executed copy of the Letter of Acceptance
and Transmittal in the accompanying form or a facsimile thereof with the
signature or signatures guaranteed in accordance with the instructions
set out in the Letter of Acceptance and Transmittal; and
(c) all other documents required by the Letter of Acceptance and Transmittal
(including, for Shareholders with a registered address in the United
States, a properly completed Substitute Form W-9 included in the
materials sent to US shareholders).
Except as otherwise provided in Instruction 9(c) of the Letter of Acceptance
and Transmittal, the signature on the Letter of Acceptance and Transmittal must
be guaranteed by an Eligible Institution.
If a Letter of Acceptance and Transmittal is executed by a person other than
the registered holder of deposited Shares, or if certificates representing
Shares for which the Class A Offer or the Class B Offer has not been accepted
are to be issued to a person other than the registered owner, then the
certificates must be endorsed or accompanied by share transfer powers duly and
properly completed by the registered
21
<PAGE>
holder with the signature on the endorsement or share transfer power guaranteed
by an Eligible Institution.
Shareholders wishing to accept either of the Offers whose Shares are
registered in the name of a nominee should contact their broker, investment
dealer, bank, trust company or other nominee for assistance in depositing their
Shares.
Holders of Class A Shares or Class B Shares who cannot comply on a timely
basis with the foregoing procedures for acceptance of the Class A Offer or the
Class B Offer, respectively, may nevertheless accept the relevant Offer by
following the procedures for guaranteed delivery described below.
3. PROCEDURE FOR GUARANTEED DELIVERY
If a Shareholder wishes to accept the Class A Offer or the Class B Offer and
(i) its Shares are not immediately available or (ii) such Shareholder cannot
deliver the certificates representing such Shares and all other required
documents to one of the offices of the Depositary or the US Forwarding Agent at
or before the Expiry Time, such Shareholder's Shares may nevertheless be
deposited under the applicable Offer, provided that all of the following
conditions are met:
(a) such deposit is made only at the principal office of the Depositary in
Toronto by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery in
the accompanying form, or a facsimile thereof, is received by the
Depositary at its principal office in Toronto at or before the Expiry
Time; and
(c) the certificate or certificates representing such deposited Shares, in
proper form for transfer, together with a properly completed and duly
executed Letter of Acceptance and Transmittal, or facsimile thereof,
covering such Shares with any required signature guarantees and any other
required documents are received by the Depositary at its principal office
in Toronto prior to 4:30 p.m. Toronto time on the third trading day on
the TSE after the Expiry Time.
Delivery to any office of the Depositary other than its principal office in
Toronto does not constitute delivery for the purpose of effecting a guaranteed
delivery. The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by telecopier or mailed to the Depositary only at its principal
office in Toronto and must include a guarantee by an Eligible Institution.
4. EXTENSION AND VARIATION OF THE OFFERS
The Offers are open for acceptance until, but not after, the Expiry Time
unless withdrawn or extended.
The Offeror expressly reserves the right, in its sole discretion, at any
time and from time to time while an Offer is open for acceptance (or otherwise
as permitted by applicable law), to extend the period of time during which such
Offer is open or to vary such Offer, by giving oral notice followed by written
confirmation of such notice of extension or variation to the Depositary at its
office in Montreal and by causing the Depositary to provide as soon as
practicable thereafter a copy of such notice to all the Shareholders in the
manner set forth in Section 12 of the Offers to Purchase. The Offeror shall,
forthwith after giving notice to the Depositary of an extension or variation,
make a public announcement of the extension or variation and provide a copy of
the notice thereof to the TSE and to Nasdaq. In the case of an extension, such
announcement shall be made not later than 9:00 a.m., Toronto time, on the next
Business Day after the previously scheduled Expiry Time. Any notice of extension
or variation will be deemed to have been given and be effective on the day on
which it is delivered or otherwise communicated to the Depositary at its office
in Montreal.
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<PAGE>
An extension of the Expiry Time shall not in and of itself constitute a
waiver by the Offeror of any of its rights under Sections 5(a), 5(b) or 5(c) of
the Offers to Purchase. During any such extension or in the event of any
variation, all Shares previously deposited and not taken up or withdrawn will
remain subject to the Offers and may be accepted for purchase by the Offeror in
accordance with the terms hereof subject to Section 6 of the Offers to Purchase.
Under applicable Canadian provincial securities legislation, if there is a
variation in the terms of an offer, the period during which securities may be
deposited pursuant to such offer shall not expire before the date which is ten
days after the notice of variation has been delivered. If, prior to the Expiry
Time, the Offeror, in its sole discretion, shall increase the consideration
offered to Shareholders under an Offer, such increase shall be applicable to all
Shareholders whose Shares are, or have been, taken up pursuant to either Offer.
Notwithstanding the foregoing, an Offer may not be extended by the Offeror if
all the terms and conditions of such Offer have been complied with, except those
waived by the Offeror, unless the Offeror first takes up and pays for all Shares
validly deposited under such Offers and not withdrawn.
5. CONDITIONS OF THE OFFERS
(a) CONDITIONS OF THE CLASS B OFFER
The Offeror reserves the right to withdraw, amend or terminate the Class B
Offer and not take up and pay for, or to extend the Expiry Time and postpone
taking up and paying for, any Shares deposited under the Class B Offer unless
all of the following conditions have been satisfied or waived by the Offeror
prior to the Expiry Time:
(i) There shall have been validly deposited under the Class A Offer and
not withdrawn not less than 66 2/3% of the outstanding Class A
Shares (calculated on a fully-diluted basis) excluding those
Class A Shares held by persons whose Class A Shares may not be voted
as part of the "minority" in connection with any Subsequent
Acquisition Transaction pursuant to Policy 9.1 or Policy Q-27.
(ii) There shall have been validly deposited under the Class B Offer and
not withdrawn not less than 100% of the outstanding Class B Shares
(calculated on a fully-diluted basis).
(iii) All government or regulatory consents, confirmations or approvals
(including in Canada, the United States or elsewhere) which are
necessary or desirable in connection with the Offers, and the
acquisition of Shares pursuant to the Offers or pursuant to a
Compulsory Acquisition or Subsequent Acquisition Transaction shall
have been obtained on terms and conditions satisfactory to the
Offeror acting reasonably.
(iv) Without limiting the scope of the condition in paragraph (iii)
above:
(A) the Commissioner of Competition appointed under the Competition
Act shall have issued either an advance ruling certificate
pursuant to Section 102 of such statute in respect of the
purchase of the Shares by the Offeror or a written opinion that
he does not intend to make an application to the Competition
Tribunal challenging the Offeror's purchase of the Shares;
(B) the applicable waiting periods, if any, under the
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, as amended,
and the Competition Act shall have expired or been earlier
terminated;
(C) any applicable waiting periods or consents under any other
competition, merger control or similar law, rule, regulation or
policy or any approval or consent of any governmental authority
in respect of competition or merger control matters having
jurisdiction shall have terminated or expired or been obtained on
terms and conditions satisfactory to the Offeror acting
reasonably, as the case may be; and
23
<PAGE>
(D) all regulatory filings have been made, rulings and orders
obtained and other proceedings taken so that:
(1) the Exchangeable Shares and the shares of IBM Common Stock
issuable on the exchange of Exchangeable Shares and the
shares of IBM Common Stock issuable to eligible Shareholders
who elect the US Share Option may be issued and distributed
in accordance with, or on the basis of exemptions from, the
registration and prospectus requirements of applicable United
States and Canadian securities laws; and
(2) all shares of IBM Common Stock issued on the exchange of
Exchangeable Shares and all shares of IBM Common Stock
issuable to eligible Shareholders who elect the US Share
Option will be, when issued, "freely tradeable" in the United
States by the persons to whom they are issued or delivered
subject to restrictions applicable to trades by affiliates
and other customary restrictions under applicable United
States and state securities laws.
(v) The shares of IBM Common Stock issuable pursuant to the exchange of
the Exchangeable Shares from time to time and all shares of IBM
Common Stock issuable to eligible Shareholders who elect the
US Share Option shall have been approved for listing on the NYSE,
subject only to notice of issuance.
(vi) No act, action, suit or proceeding shall have been threatened to be
taken or taken before or by any domestic or foreign arbitrator,
court or tribunal or governmental agency or other regulatory
authority or administrative agency or commission or by any elected
or appointed public official or private person (including, without
limitation, any individual, corporation, firm, group or other
entity) in Canada or elsewhere, whether or not having the force of
law, and no law, regulation, rule or policy shall have been
proposed, enacted, promulgated or applied:
(A) to cease trade, enjoin, prohibit or impose material limitations
or conditions on:
(1) the purchase by or the sale to the Offeror of 100% of the
Shares or the right of the Offeror directly, or indirectly
through IBM Canada or another affiliate, to own or exercise
full rights of ownership over the Shares; or
(2) the consummation of any of the transactions contemplated by
the Offers, including a Compulsory Acquisition or a
Subsequent Acquisition Transaction;
(B) which would prevent or make uncertain the completion of a
Compulsory Acquisition or Subsequent Acquisition Transaction of
Shares not deposited under the Offers or which could reasonably
be expected to have such an effect;
(C) to prohibit or materially limit the ownership or operation by the
Corporation or any of its subsidiaries, or by IBM Canada or any
of its affiliates, of all or any material portion of the business
or assets of the Corporation and its subsidiaries, on a
consolidated basis, or of all or any material portion of the
business or assets of IBM Canada and its affiliates, as a result
of the transactions contemplated by the Offers including a
Compulsory Acquisition or a Subsequent Acquisition Transaction;
(D) which would require or compel IBM Canada or any of its
affiliates, directly or indirectly, to dispose of or hold
separate all or any material portion of the business or assets of
the Corporation and its subsidiaries, on a consolidated basis, or
any material portion of the business or assets of IBM Canada and
its affiliates, as a result of the transactions contemplated by
the Offers including a Compulsory Acquisition or a Subsequent
Acquisition Transaction; or
24
<PAGE>
(E) which has had or would have a Material Adverse Effect.
(vii) There shall not exist any prohibition at law against the Offeror
making the Offers or taking up and paying for any Shares under the
Offers or completing a Compulsory Acquisition or Subsequent
Acquisition Transaction.
(viii) There shall not have occurred or arisen (or there shall not have
been generally disclosed or discovered, if not previously disclosed
in writing to and acknowledged by IBM Canada) at any time after
February 15, 2000 any Material Adverse Effect.
(ix) All outstanding rights or entitlements of any type whatsoever to
purchase or otherwise acquire authorized and unissued Shares shall
have been exercised or cancelled.
(x) All representations and warranties of the Locked-up Shareholders in
the Support Agreement shall have been, as of the date made, and
shall be, at the time immediately prior to the taking up of the
Shares pursuant to the Offers, true and correct in all material
respects and the Locked-up Shareholders shall have performed in all
material respects all of their respective covenants and complied in
all material respects with all of their respective agreements to be
performed and complied with under the Support Agreement to the
extent such covenants or agreements were to have been observed or
performed at or prior to the expiry of the Offers.
(b) CONDITIONS OF THE CLASS A OFFER
The Offeror reserves the right to withdraw, amend or terminate the Class A
Offer and not take up and pay for, or to extend the Expiry Time and postpone
taking up and paying for, any Shares deposited under the Class A Offer unless
the following condition has been satisfied or waived by the Offeror prior to the
Expiry Time:
(i) The Offeror shall have taken up and paid for any Class B Shares
deposited under the Class B Offer and not withdrawn.
(c) WAIVER OF CONDITIONS AND WITHDRAWAL OF THE OFFERS
The conditions described in Sections 5(a) and 5(b) of the Offers to Purchase
are for the exclusive benefit of the Offeror and may be asserted by the Offeror
regardless of the circumstances or may be waived by the Offeror in its sole
discretion, in whole or in part, at any time and from time to time without
prejudice to any other rights which the Offeror may have under the Offers except
that the Offeror may not waive the conditions set forth above at
Section 5(a)(iv)(D) or Section 5(a)(v). The failure by the Offeror at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by the Offeror concerning
the events described in this Section 5 will be final and binding upon all
parties.
Any waiver of a condition or the withdrawal of the Offers shall be effective
upon oral or written notice by the Offeror to that effect to the Depositary at
its principal office in Toronto, Ontario. The Offeror, forthwith after giving
any such notice, shall make a public announcement of such waiver or withdrawal,
shall cause the Depositary as soon as practicable thereafter to notify the
Shareholders in the manner set forth in Section 12 of the Offers to Purchase and
shall provide a copy of the notice to the TSE and to Nasdaq. If the Offers are
withdrawn in accordance with their terms, the Offeror shall not be obligated to
take up or pay for any Shares deposited under the Offers and the Depositary will
promptly return all certificates for deposited Shares and Letters of Acceptance
and Transmittal and related documents to the parties by whom they were
deposited.
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6. RIGHT TO WITHDRAW DEPOSITED SHARES
Except as otherwise stated in this Section 6, all deposits of Shares
pursuant to each of the Offers are irrevocable, unless otherwise agreed to in
writing by the Offeror provided that any Shares deposited may be withdrawn by or
on behalf of the depositing Shareholder (unless otherwise required or permitted
by applicable law):
(a) at any time before the Expiry Time;
(b) at any time before the expiration of the tenth day after the date upon
which either:
(i) a notice of change is delivered in accordance with Section 12 of the
Offers to Purchase, relating to a change which has occurred in the
information contained in the Offers to Purchase or the Circular or
in any notice of change or notice of variation delivered in
connection herewith (except any change that is not within the
control of the Offeror or an affiliate of the Offeror) that would
reasonably be expected to affect the decision of a Shareholder to
accept or reject the applicable Offer, which change occurred prior
to the Expiry Time or after the Expiry Time but before the expiry of
all rights of withdrawal in respect of the relevant Offer; or
(ii) a notice of variation concerning a variation in the terms of the
applicable Offer is delivered in accordance with Section 12 of the
Offers to Purchase, unless the variation in the terms of the
applicable Offer consists solely of an increase in the
consideration (cash and/or non-cash) offered for Shares and the
time for deposit is not extended for a period of greater than
10 days; and
(c) at any time after midnight (local time) on April 29, 2000, if the Shares
have not been taken up and paid for by the Offeror prior to receipt by
the Depositary or the US Forwarding Agent of the notice of withdrawal in
respect of such Shares.
Withdrawals of Shares deposited under the Offers must be effected by notice
of withdrawal made by or on behalf of the depositing Shareholder and must be
received by the Depositary or the US Forwarding Agent at the place of deposit of
the applicable Shares within the time limits indicated above. Notice of
withdrawal must (i) be in writing (which includes telegraphic communication or
notice by electronic means that produces a printed copy), (ii) be signed by the
person who signed the Letter of Acceptance and Transmittal accompanying the
Shares which are to be withdrawn and (iii) specify such person's name, the
number of Shares to be withdrawn, the name of the registered holder and the
certificate number shown on each certificate representing the Shares to be
withdrawn. The withdrawal shall take effect upon receipt of the written notice
by the Depositary. Any signature on the withdrawal notice must be guaranteed by
an Eligible Institution, except in the case of Shares deposited for the account
of an Eligible Institution. None of the Offeror, the Depositary, the Dealer
Managers, the US Information Agent, the US Forwarding Agent or any other person
will be under any duty or obligation to give notice of any defect or
irregularity in any notice of withdrawal or shall incur any liability for
failure to give such notice.
Withdrawals may not be rescinded and any Shares withdrawn will thereafter be
deemed not validly deposited for purposes of the Offers. However, withdrawn
Shares may be redeposited at any time at or before the Expiry Time by again
following one of the procedures described in Section 2 of the Offers to
Purchase.
If the Offeror extends either of the Offers, is delayed in taking up or
paying for Shares or is unable to take up or pay for Shares for any reason,
then, without prejudice to the Offeror's other rights, Shares may not be
withdrawn except to the extent that depositing Shareholders are entitled to the
withdrawal rights set forth in this Section 6.
The laws of other jurisdictions may differ from the laws of the Province of
Ontario with respect to the withdrawal of deposited Shares. Residents in
jurisdictions other than the Province of Ontario should
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consult their investment dealer, lawyer or other advisor for further details. In
addition to the foregoing rights of withdrawal, Shareholders in certain
Provinces of Canada are entitled to statutory rights of rescission in certain
circumstances. See Section 30 of the Circular -- "Offerees' Statutory Rights".
All questions as to the validity (including timely receipt) and forms of
notice of withdrawal shall be determined by the Offeror in its sole discretion,
and such determination shall be final and binding.
7. TAKE UP AND PAYMENT FOR DEPOSITED SHARES
Upon the terms and subject to the respective conditions of the Offers, the
Offeror will, pursuant to applicable laws, become obligated to take up and pay
for Shares validly deposited under the Offers (and not withdrawn pursuant to
Section 6 of the Offers to Purchase) within all time periods prescribed by
applicable securities laws.
8. GENERAL
In all cases, payment for Shares deposited and accepted for payment pursuant
to the Offers will be made only after timely receipt by the Depositary of
certificates representing beneficial ownership of Shares, together with a
properly completed and duly executed copy of the Letter of Acceptance and
Transmittal or a facsimile thereof covering such Shares and other required
documents.
Subject to applicable law, the Offeror may, in its discretion, at any time
before the Expiry Time if the applicable rights to withdraw any deposited Shares
have expired, take up and pay for all such Shares then deposited under the
Class A Offer or the Class B Offer or both Offers provided the Offeror agrees to
take up and pay for all additional Shares validly deposited under such Offer or
Offers thereafter.
Subject to applicable securities laws, the Offeror expressly reserves the
right, in its sole discretion, to delay taking up or paying for any Class B
Shares or to terminate the Class B Offer and not take up and pay for any
Class B Shares if any condition specified in Section 5(a) of the Offers to
Purchase is not satisfied or waived, by giving written notice thereof to the
Depositary at its principal office in Toronto.
The Offeror also expressly reserves the right, in its sole discretion, to
delay taking up and paying for Shares in order to comply, in whole or in part,
with any applicable law. For the purposes of an Offer, the Offeror will be
deemed to have accepted for payment Shares validly deposited and not withdrawn
as, if and when the Offeror gives oral or written notice to the Depositary of
its acceptance for payment of such Shares pursuant to such Offer followed by
written confirmation of such notice.
The Offeror will pay for Shares validly deposited pursuant to an Offer and
not withdrawn by providing the Depositary with sufficient funds (by bank
transfer or other means satisfactory to the Depositary) and sufficient
certificates for Exchangeable Shares and shares of IBM Common Stock, for
transmittal to persons depositing Shares pursuant to the Offers. Under no
circumstances will interest accrue or be paid by the Offeror or the Depositary
to depositing Shareholders on the Purchase Price regardless of any delay in
making such payment.
The Depositary will act as the agent of persons who have deposited Shares
under the Offers for the purposes of receiving Exchangeable Shares, shares of
IBM Common Stock and/or cash, from the Offeror and transmitting Exchangeable
Shares, shares of IBM Common Stock and/or cash, to such persons. Upon delivery
of sufficient funds and certificates for Exchangeable Shares and shares of IBM
Common Stock to the Depositary, the Offeror shall be deemed to have made payment
for the Shares accepted for payment.
Settlement will be made by the Depositary by issuing or causing to be issued
to each person who has validly deposited and not withdrawn Shares under an Offer
(i) a cheque payable in US funds to persons who have elected the Cash Option or
who are deemed to have elected the Cash Option other than Shareholders resident
in Canada which Shareholders will receive a cheque payable in Canadian funds,
(ii) a certificate representing Exchangeable Shares plus a cheque payable in
Canadian funds representing
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any fractional amounts of Exchangeable Shares to persons who have elected the
Canadian Share Option, or (iii) a certificate representing shares of IBM Common
Stock plus a cheque payable in US funds representing fractional amounts of
IBM Common Stock to persons who have elected the US Share Option, in each case
in such amounts as such persons are entitled to receive under the applicable
Offer.
Unless otherwise directed in the Letter of Acceptance and Transmittal, the
cheque and/or the certificate representing Exchangeable Shares or shares of IBM
Common Stock will be issued in the name of the registered holder of deposited
Shares. Certificates and cheques will be forwarded by first class mail, postage
prepaid, to such persons at the address specified in the Letter of Acceptance
and Transmittal. If no address is specified, certificates and cheques payable in
respect of such Shares will be forwarded to the address of the holder as shown
on the applicable share register maintained by the Corporation.
THE METHOD OF DELIVERY OF CERTIFICATES REPRESENTING SHARES, THE LETTER OF
ACCEPTANCE AND TRANSMITTAL, THE NOTICE OF GUARANTEED DELIVERY AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE PERSON DEPOSITING SUCH
DOCUMENTS. THE OFFEROR RECOMMENDS THAT ALL SUCH DOCUMENTS BE DELIVERED BY HAND
TO THE DEPOSITARY AND A RECEIPT OBTAINED OR, IF MAILED, THAT REGISTERED MAIL,
WITH RETURN RECEIPT REQUESTED, BE USED AND THAT PROPER INSURANCE BE OBTAINED.
The execution of a Letter of Acceptance and Transmittal irrevocably
constitutes and appoints certain senior officers of the Offeror, and each of
them, and any other person designated by the Offeror in writing, as the true and
lawful agent, attorney and attorney-in-fact and proxy of the holder of the
Shares covered by the Letter of Acceptance and Transmittal with respect to
Shares registered in the name of the holder of such Shares on the books of the
Corporation and deposited under the applicable Offer and purchased by the
Offeror (the "Purchased Shares"), and with respect to any and all securities,
rights, warrants or other interests issued, transferred or distributed on or in
respect of the Purchased Shares on or after the date hereof (collectively,
"Other Securities"), effective from and after the date that the Offeror takes up
and pays for the Purchased Shares (the "Effective Date"), with full power of
substitution in the name and on behalf of such Shareholders (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to:
(a) register or record, transfer and enter the transfer of the Purchased Shares
and any Other Securities on the appropriate register of holders of such
Purchased Shares and Other Securities; (b) vote, execute and deliver any and all
instruments of proxy, authorizations or consents in respect of any or all of the
Purchased Shares and any or all Other Securities, revoke any such instrument,
authorization or consent given prior to or after the Effective Date, designate
in any such instruments of proxy any person or persons as the proxy or the proxy
nominee or nominees of the Shareholder in respect of the Purchased Shares and
Other Securities for all purposes including, without limitation, in connection
with any meeting (whether annual, special or otherwise) of holders of securities
of the Corporation (or any adjournment thereof), and execute, endorse and
negotiate, for and in the name of and on behalf of the registered holder of the
Purchased Shares and Other Securities any and all cheques or other instruments
respecting any distribution payable to or to the order of such registered
holder; and (c) exercise any and all rights of the holder in respect of the
Purchased Shares and Other Securities. Further, a holder of Purchased Shares or
Other Securities who executes a Letter of Acceptance and Transmittal agrees,
effective from the Effective Date, not to vote any of the Purchased Shares or
Other Securities at any meeting (whether annual, special or otherwise) of
holders of Shares or Other Securities and not to exercise any or all of the
other rights or privileges attached to any or all instruments of proxy,
authorizations or consents in respect of any or all of the Purchased Shares or
Other Securities, and to designate in any such instruments of proxy the person
or persons specified by the Offeror as the proxy or the proxy nominee or
nominees of the holder in respect of the Purchased Shares and Other Securities.
Upon such appointment, all prior proxies given by the holder of the Purchased
Shares and Other Securities with respect thereto shall be revoked and no
subsequent proxies may be given by such person with respect thereto. A holder of
Purchased Shares or Other Securities who executes the Letter of Acceptance and
Transmittal covenants to execute and deliver, upon request, any additional
documents deemed by the Offeror to be necessary or desirable to complete the
sale, assignment and transfer of the Purchased Shares and Other Securities to
the Offeror and
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acknowledges that all authority therein conferred or agreed to be conferred
shall survive the death or incapacity, bankruptcy or insolvency of the holder
and all obligations of the holder therein shall be binding upon the heirs,
personal representatives, successors and assigns of the holder.
All questions as to the validity, form, eligibility (including timely
receipt) and acceptance of any Shares deposited pursuant to the Offer will be
determined by the Offeror in its sole discretion. Depositing Shareholders agree
that such determination shall be final and binding. The Offeror reserves the
absolute right to reject any and all deposits of Shares which it determines not
to be in proper form or which, in the opinion of its counsel, may be unlawful to
accept under the laws of any jurisdiction. The Offeror reserves the absolute
right to waive any defects or irregularities in the deposit of any Shares. There
shall be no obligation on the Offeror, the Depositary or any other Person to
give notice of any defects or irregularities in any deposit of any Shares and no
liability shall be incurred by any of them for failure to give any such notice.
The Offeror's interpretation of the terms and conditions of the Offers to
Purchase (including without limitation the Offers to Purchase, the Circular, the
Letter of Acceptance and Transmittal and the Notice of Guaranteed Delivery) will
be final and binding.
The deposit of Shares pursuant to the procedures described herein will
constitute a binding agreement between the depositing Shareholder and the
Offeror upon the terms and subject to the conditions of the Offers to Purchase
including the depositing Shareholder's representation and warranty that
(i) such Shareholder has full power and authority to deposit, sell, assign and
transfer the Shares (and any Other Securities) being deposited, (ii) such
Shareholder owns the Shares (and any Other Securities) which are being deposited
within the meaning of applicable securities laws, (iii) the deposit of such
Shares (and any Other Securities) complies with applicable securities laws and
(iv) when such Shares (and any Other Securities) are taken up and paid for by
the Offeror, the Offeror will acquire good title thereto free and clear of all
liens, restrictions, charges, encumbrances, claims and equities, and the
depositing Shareholder's agreement to release the Corporation from and against
all claims that such Shareholder may have against the Corporation in such
Shareholder's capacity as a Shareholder.
9. RETURN OF DEPOSITED SHARES
If any deposited Shares are not taken up pursuant to the terms and
conditions of the Class A Offer or the Class B Offer for any reason or if
certificates are submitted for more Shares than are deposited, certificates for
Shares that are not purchased will be returned, at the expense of the Offeror,
to the depositing Shareholder by first class registered or insured mail to the
address of the depositing Shareholder specified in the Letter of Acceptance and
Transmittal or, if no such address is specified, to the address of such
Shareholder as shown on the share registers maintained by the Corporation, as
promptly as practicable following the Expiry Time or withdrawal and early
termination of the applicable Offer.
10. MAIL SERVICE INTERRUPTION
Notwithstanding the provisions of the Offers to Purchase, the Circular, the
Letter of Acceptance and Transmittal or the Notice of Guaranteed Delivery,
certificates for Exchangeable Shares and shares of IBM Common Stock and/or
cheques issued by the Depositary in satisfaction of the Purchase Price or in
respect of fractional share amounts will not be mailed if the Offeror determines
that delivery thereof by mail may be delayed. A person entitled to certificates
and/or a cheque which is not mailed for the foregoing reason may take delivery
thereof at the office of the Depositary or the US Forwarding Agent at which the
Shares in respect of which the certificates and/or the cheque is being issued
were deposited, upon application to the Depositary or the US Forwarding Agent,
until such time as the Offeror has determined that delivery by mail will no
longer be delayed. Notwithstanding Section 7 of the Offers to Purchase,
certificates and cheques not mailed for the foregoing reason will be
conclusively deemed to have been delivered on the first day upon which they are
available for delivery to the depositing Shareholder at the appropriate office
of the Depositary or the US Forwarding Agent. Notice of any determination
regarding mail service delay or interruption made by the Offeror shall be given
in accordance with Section 12 of the Offers to Purchase.
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11. DIVIDENDS AND DISTRIBUTIONS; LIENS
If, on or after the date of the Offers, the Corporation should split,
combine or otherwise change any of the Shares or its capitalization, or disclose
that it has taken or intends to take any such action, then the Offeror may, in
its sole discretion, make such adjustments as it deems appropriate to reflect
such split, combination or other change in the Purchase Price and the other
terms of the Offers (including, without limitation, the type of securities
offered to be purchased and the amounts payable therefor).
Purchased Shares and Other Securities acquired pursuant to the Offers shall
be acquired by the Offeror free and clear of all liens, charges, encumbrances,
claims and equities and together with all rights and benefits arising therefrom
including the right to all dividends, distributions, payments, securities,
rights, assets or other interests which may be declared, paid, issued,
distributed, made or transferred on or after the date of the Offers on, or in
respect of, the Purchased Shares and Other Securities.
Subject to the foregoing, if the Corporation should declare or pay any cash
dividend or stock dividend or declare, make or pay any other distribution or
payment on or declare, allot, reserve or issue any securities, rights or other
interests with respect to any of the Shares or Other Securities which is or are
payable or distributable to the Shareholders of record on a record date which is
prior to the date of transfer into the name of the Offeror or its nominees or
transferees on the Corporation's share register of such Shares or Other
Securities following acceptance thereof for purchase pursuant to the Offer, then
without prejudice to the Offeror's rights under Section 5 of the Offers to
Purchase:
(a) in the case of cash dividends, distributions or payments (collectively,
"Cash Distributions") paid to Shareholders:
(i) who have elected a Share Option, the whole amount of the Cash
Distributions shall be received and held by the depositing
Shareholders, and
(ii) who have elected the Cash Option, to the extent that such Cash
Distributions do not exceed the Purchase Price, the Purchase Price
will be reduced by the amount of any such Cash Distributions and
where the Cash Distributions exceed the Purchase Price, the amount
of the Cash Distributions in excess of the Purchase Price will be
held by the depositing Shareholders,
for the account of the Offeror and shall be promptly remitted and
transferred by the depositing Shareholder to the Depositary for the
account of the Offeror when the Offeror takes up the deposited Shares,
and
(b) in the case of non-cash dividends, distributions, payments, rights or
other interests, the whole of any such non-cash dividend, distributions,
payment, right or other interest will be received and held by the
depositing Shareholders for the account of the Offeror and shall be
required to be promptly remitted and transferred by the depositing
Shareholders to the Depositary for the account of the Offeror,
accompanied by appropriate documentation of transfer when the Offeror
takes up the deposited Shares.
Pending any such remittance, the Offeror will be entitled to all rights and
privileges as if it were the owner of any such dividend, distribution, payment,
right or other interest and may withhold the entire Purchase Price or deduct
from the Purchase Price the amount or value thereof as determined by the Offeror
in its sole discretion.
12. NOTICE AND DELIVERY
Without limiting any other lawful means of giving notices, any notice which
the Offeror or the Depositary may give or cause to be given under the Offers
will be deemed to have been properly given to Shareholders if it is mailed by
prepaid, first class mail to the registered Shareholders at their respective
addresses as shown on the share registers maintained by the registrar for the
Corporation and will be
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deemed to have been received on the first Business Day following the date of
mailing. These provisions apply notwithstanding any accidental omission to give
notice to any one or more Shareholders and notwithstanding any interruption of
mail service following mailing. In the event of any interruption of mail
service, the Offeror intends to make reasonable efforts to disseminate the
notice by other means such as publication. In the event that post offices are
not open for the deposit of mail, or there is reason to believe there is or
could be a disruption in all or any part of the postal service, any notice which
the Offeror or the Depositary may give or cause to be given under the Offers
will be deemed to have been properly given and to have been received by
Shareholders if it is given to the TSE and Nasdaq for dissemination through
their facilities or if it is published in a newspaper or newspapers of general
circulation in Toronto, Montreal and New York or if it is given to the Canada
News Wire Service.
Unless post offices are not open for the deposit of mail, the Offers to
Purchase, the Circular, the Letter of Acceptance and Transmittal, and the Notice
of Guaranteed Delivery will be mailed to registered holders of Shares (and to
registered holders of Rights). In addition, the Offeror will use its reasonable
efforts to furnish such documents to brokers, banks and similar persons whose
names, or the names of whose nominees, appear on the security holder list, or,
if applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmission to beneficial owners of Shares and
Rights when such list or listing is received.
Wherever the Offers to purchase call for documents to be delivered to the
Depositary or the US Forwarding Agent, such documents will not be considered
delivered unless and until they have been received at one of the offices
specified in the Letter of Acceptance and Transmittal or Notice of Guaranteed
Delivery, as applicable.
13. MARKET PURCHASES DURING THE OFFER
The Offeror has no present intention of acquiring beneficial ownership of
Shares while the Offers are outstanding other than as described in the Circular.
However, the Offeror reserves the right to, and may acquire, or cause an
affiliate to acquire, beneficial ownership of Class A Shares by making purchases
through the facilities of the TSE, subject to applicable law, at any time prior
to the Expiry Time. In no event will the Offeror make any such purchases of
Class A Shares until the third Business Day following the date of the Offers.
The payment other than pursuant to the Offers of an amount per Share that is
greater than the amount offered pursuant to the Offers would be deemed under the
SECURITIES ACT (Ontario) to be an amendment to the Offers that increases the
consideration offered for the Shares and the Offeror would be required to pay
the increased consideration to all Shareholders whose Shares are taken up and
paid for pursuant to the Offers. Should this occur, the Offeror shall
immediately advise all Shareholders of the increased consideration.
If the Offeror should acquire beneficial ownership of Class A Shares by
making purchases through the facilities of the TSE while the Offers are
outstanding, any Class A Shares so purchased shall be counted in any
determination as to whether the Minimum Condition has been fulfilled. The
aggregate number of Class A Shares beneficially acquired by the Offeror through
the facilities of the TSE while the Offers are outstanding shall not exceed 5%
of the outstanding Shares.
14. OTHER TERMS OF THE OFFER
NO BROKER, DEALER OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE OFFEROR OTHER THAN AS
CONTAINED IN THE OFFERS TO PURCHASE, THE CIRCULAR, THE LETTER OF ACCEPTANCE AND
TRANSMITTAL AND THE NOTICE OF GUARANTEED DELIVERY, AND IF ANY SUCH INFORMATION
OR REPRESENTATION IS GIVEN OR MADE, IT MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NO BROKER, INVESTMENT DEALER OR OTHER PERSON SHALL BE DEEMED TO BE
THE AGENT OF THE OFFEROR, THE DEPOSITARY OR THE DEALER MANAGERS FOR THE PURPOSES
OF THE OFFERS. IN ANY JURISDICTION IN WHICH THE OFFERS ARE REQUIRED TO BE
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MADE BY A LICENSED BROKER OR INVESTMENT DEALER, THE OFFERS SHALL BE MADE ON
BEHALF OF THE OFFEROR BY BROKERS OR INVESTMENT DEALERS LICENSED UNDER THE LAWS
OF SUCH JURISDICTION.
Although the Offeror has no present intention of entering into any
arrangement, commitment or understanding to sell Shares that may be taken up by
the Offeror pursuant to the Offers, after the expiry of the bid, it reserves the
right to do so. The Offeror also reserves the right to transfer to one or more
affiliates of the Offeror, the right to purchase all or any portion of the
Shares deposited pursuant to the Offers, but any such transfer will not relieve
the Offeror of its obligations under the Offers and will in no way prejudice the
rights of persons depositing Shares to receive payment for Shares validly
deposited and accepted for payment pursuant to the Offers to Purchase.
The Offers and all contracts resulting from the acceptance thereof shall be
governed by and construed in accordance with the laws of the Province of Ontario
and the federal laws of Canada applicable therein.
This document does not constitute an offer or a solicitation to any person
in any jurisdiction in which such offer or solicitation is unlawful. The Offers
are not being made to, nor will deposits be accepted from or on behalf of,
holders of Shares residing in any jurisdiction in which the making of the Offers
or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. The Offeror may, in its sole discretion, take such action as it
may deem necessary to make the Offers in any such jurisdiction and extend the
Offers to holders of Shares in any such jurisdiction.
The provisions of the Circular, the Letter of Acceptance and Transmittal,
and the Notice of Guaranteed Delivery accompanying the Offers to Purchase,
including the instructions and rules contained therein, as applicable, form part
of the terms and conditions of the Offers to Purchase.
The accompanying Circular, together with the Offers to Purchase constitute
the take-over bid circular required under the Canadian provincial securities
legislation with respect to the Offers.
Dated: March 15, 2000
IBM ACQUISITION INC.
/s/ ARTHUR B. JAMES
--------------------------------------
By: (Signed) ARTHUR B. JAMES
President, Chief Executive Officer
and Director
IBM ACQUISITION II L.L.C.
/s/ PATRICK J. GLENNON
--------------------------------------
By: (Signed) PATRICK J. GLENNON
Vice President and Treasurer
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OFFERING CIRCULAR
This Circular is furnished in connection with the Offers to Purchase dated
March 15, 2000 by the Offeror comprising an offer to purchase all of the issued
and outstanding Class A Shares and a concurrent offer to purchase all of the
issued and outstanding Class B Shares of the Corporation, including all Shares
issuable upon the exercise of outstanding Rights. The terms and provisions of
the Offers to Purchase are incorporated into and form part of this Circular and
Shareholders should refer to the Offers to Purchase for details of the
respective terms and conditions of the Offers, including details as to payment
and withdrawal rights. Defined terms used in the Offers to Purchase are used in
this Circular with the same meaning unless the context otherwise requires.
Except as otherwise indicated, the information concerning the Corporation
contained in the Offers to Purchase and this Circular has been taken from or is
based upon publicly available documents and records on file with Canadian
securities administrators and other public sources. Except as described in the
Offers to Purchase or in this Circular, the Offeror has no information that
indicates that any material change has occurred in the affairs of the
Corporation, other than the Offers, since the date of its last public financial
statements, being its quarterly financial statements for the three-month period
ended December 31, 1999. Although the Offeror has no knowledge that would
indicate that any statements contained herein relating to the Corporation which
have been taken from or based on such documents and records are untrue or
incomplete, none of IBM, the Offeror, Parentco or IBM Canada, nor any of their
respective officers or directors assume any responsibility for the accuracy or
completeness of the information relating to the Corporation contained in such
documents and records, or for any failure by the Corporation to disclose events
which may have occurred which may affect the accuracy of any such information
but which are unknown to IBM, the Offeror, Parentco or IBM Canada.
1. RISK FACTORS
There are certain risk factors which should be considered by Shareholders in
evaluating whether or not to accept the Offers. Some of these risk factors
relate directly to the completion of the Offers, a Compulsory Acquisition or a
Subsequent Acquisition Transaction while others relate to the business and
properties of IBM and its affiliates, independent of any Acquisition
Transaction. These risk factors should be considered in conjunction with the
other information included herein. See page 10 of this document -- "Risk
Factors".
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2. IBM CORPORATE STRUCTURE
IBM and a number of its subsidiaries are involved in the Offers and certain
related transactions. Set forth below is a chart which illustrates the
relationship between the participating IBM companies on the date hereof. The
chart set forth below relates only to the IBM entities participating in the
transactions described herein and is not an exhaustive list of all subsidiaries
of IBM.
[LOGO]
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3. IBM CORPORATION
CORPORATE OVERVIEW
International Business Machines Corporation is a leading developer,
manufacturer and supplier of advanced information processing products, including
computers and microelectronic technology, software, networking systems and
information technology-related services.
IBM was incorporated under the laws of the State of New York on June 15,
1911 as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation of the
Computing Scale Co. of America, The Tabulating Machine Co., and The
International Time Recording Co. of New York. In 1924, C-T-R adopted the name
International Business Machines Corporation.
IBM is in the business of providing customer solutions through the use of
advanced information technology. IBM operates primarily in a single industry
utilizing several segments that create value by offering a variety of solutions
that include, either singularly or in some combination, technologies, systems,
products, services, software and financing. IBM employs over 300,000 persons in
more than 150 countries worldwide.
IBM offers its products through its global sales and distribution
organization. The sales and distribution organization has both a geographic
focus (in the Americas, Europe/Middle East/Africa, and Asia Pacific) and a
specialized and global industry focus. In addition, this organization includes a
global sales and distribution force devoted exclusively to small and medium size
businesses. IBM also offers its products through a variety of third party
distributors and resellers, as well as through its on-line channels.
Through its Global Services segment, IBM provides its customers with
services that include business and IT consulting, business transformational
services, e-business services and full scope services such as strategic
outsourcing.
IBM's principal office is located at New Orchard Road, Armonk, NY 10504,
telephone number 1-914-499-1900.
DESCRIPTION OF SHARE CAPITAL OF IBM
IBM's authorized share capital consists of 150,000,000 shares of preferred
stock and 4,687,500,000 shares of IBM Common Stock. As of December 31, 1999,
IBM's issued capital consisted of 2,546,011 Preferred Shares and 1,876,665,245
shares of IBM Common Stock. The IBM Common Stock is listed on the NYSE, the
Chicago Stock Exchange and the Pacific Stock Exchange. As of March 1, 2000,
there were 1,793,760,770 shares of IBM Common Stock outstanding. The closing
price of the IBM Common Stock on the NYSE on March 14, 2000 was US$109.
FURTHER INFORMATION ABOUT IBM
IBM files annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any reports, statements or other information that IBM files with the
SEC at the SEC's public reference rooms at the following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Chicago Regional Office
450 Fifth Street, N.W. Regional Office Citicorp Center
Room 1024 7 World Trade Center 500 West Madison Street
Washington, D.C. Suite 1300 Suite 1400
20549 New York, NY Chicago, IL
10048 60661-2511
</TABLE>
Please call the public reference rooms noted above or the SEC at
1-800-SEC-0330 for further information. These SEC filings are also available to
the public from commercial document retrieval
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services and the Internet World Wide Web site maintained by the SEC at
"HTTP://WWW.SEC.GOV". Reports, proxy statements and other information concerning
IBM may also be inspected at the offices of the NYSE at 20 Broad Street,
New York, New York 10005.
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330.
The SEC allows the Offeror to "incorporate by reference" information
regarding IBM in this Circular, which means that the Offeror can disclose
important information to you by referring you to other documents filed
separately with the SEC. The information incorporated by reference is considered
part of this Circular, except for any information superseded by information
contained directly in this Circular or in later filed documents incorporated by
reference in this Circular.
Incorporated by reference are the following documents, each of which have
been filed by IBM with the SEC: IBM's 10-K dated March 13, 2000; IBM's S-8 filed
February 15, 2000 (registration statement no. 333-30424); IBM's 8-K filed
April 28, 1999; IBM's 8-K filed January 29, 1999; IBM's 8-A filed January 29,
1999; IBM's 10-Q for the quarter ended September 30, 1998; IBM's 8-K filed
January 8, 1998; IBM's 10-K for year ended December 31, 1997; IBM's 8-K filed
August 1, 1997; IBM's S-8 filed July 15, 1997; IBM's 10-K for year ended
December 31, 1996; IBM's 8-K/A filed December 6, 1996; IBM's 10-K for year ended
December 31, 1995; IBM's 8-K filed October 30, 1995; IBM's Proxy Statement dated
March 14, 1995; IBM's 10-K for the year ended December 31, 1994; IBM's S-8 filed
May 24, 1994 (registration statement no. 33-53777); IBM's S-3 filed May 24, 1993
(registration statement no. 33-49475(1)); IBM's 10-Q dated March 31, 1993; IBM's
S-3 filed February 22, 1990; and IBM's S-3 filed October 24, 1989.
All documents filed by IBM with the SEC pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the termination
of any offering of securities made by the Offers to Purchase and Circular shall
be deemed to be incorporated by reference into the Offers to Purchase and
Circular and to be a part of the Offers to Purchase and Circular from the
respective dates of filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of the Offers to
Purchase and Circular to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement or
document so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute part of the Offers to Purchase and Circular. As used
herein, the terms "Offers to Purchase and Circular" and "herein" mean these
Offers to Purchase and Circular, including the documents incorporated or deemed
incorporated by reference, as the same may be amended, supplemented or otherwise
modified from time to time. Statements contained in the Offers to Purchase and
Circular as to the contents of any contract or other document referred to herein
do not purport to be complete and are qualified in all respects by reference to
all of the provisions of such contract or other document.
If you are a shareholder of IBM, IBM may have sent you some of the documents
incorporated by reference, but you can obtain any of them from IBM, the SEC or
the SEC's Internet web site as described above. Documents incorporated by
reference are available from IBM and IBM Canada without charge, excluding all
exhibits, except that if IBM has specifically incorporated by reference an
exhibit in this document, the exhibit will also be provided without charge.
Shareholders may obtain documents
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incorporated by reference in this document by requesting them in writing or by
telephone from the Offeror at the following address:
<TABLE>
<CAPTION>
<S> <C>
IF IN CANADA FROM: IF IN THE UNITED STATES FROM:
IBM Canada Limited International Business Machines
3600 Steeles Avenue East Corporation
Markham, Ontario L3R 9Z7 Armonk, NY 10504
Telephone: 1-800-426-4968 Telephone: 1-800-426-4968
Attention: Ms Judy McAdam Attention: Shareholder Relations
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY MARCH 24, 2000.
You should rely only on the information contained or incorporated by
reference in this document. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated March 15, 2000. You should not assume that the information
contained in this document is accurate as of any date other than that date.
Neither the mailing of this document to Shareholders nor the issuance of
IBM Common Stock in connection with the Offers creates any implication to the
contrary.
4. IBM CANADA LIMITED
IBM Canada is a wholly-owned indirect subsidiary of IBM and was incorporated
under the laws of Canada on November 29, 1917. IBM Canada is a leading provider
of advanced information technology products and services in Canada. IBM Canada's
registered office and principal executive offices are located at 3600 Steeles
Avenue East, Markham, Ontario L3R 9Z7, telephone number 1-800-426-4968.
5. THE OFFERORS
IBM ACQUISITION INC.
CORPORATE OVERVIEW
AcquisitionCo is a wholly-owned indirect subsidiary of IBM. AcquisitionCo
was incorporated under the laws of Canada on March 10, 2000 for the purposes of
making the Offers and issuing the Exchangeable Shares. To date, AcquisitionCo
has not engaged in any activities other than those incidental to its
organization and the making of the Offers. AcquisitionCo's registered and
principal executive offices are located at 3600 Steeles Avenue East, Markham,
Ontario L3R 9Z7, telephone number 1-800-426-4968.
AUTHORIZED AND ISSUED CAPITAL
The authorized capital of AcquisitionCo consists of an unlimited number of
common shares. On the date hereof, AcquisitionCo's issued capital consists of
100 common shares, all of which are owned by Parentco. Prior to taking up and
paying for Shares deposited under the Offers, Articles of Amendment of
AcquisitionCo will be filed to create an unlimited number of Exchangeable Shares
on the terms described in this Circular. See Section 7 of the
Circular -- "Exchangeable Share Terms".
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DIRECTORS AND OFFICERS
The names, municipalities and principal occupations for the directors and
officers of AcquisitionCo are as follows:
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE POSITION WITH IBM ACQUISITION INC. PRINCIPAL OCCUPATION
- ---------------------------------- ---------------------------------- --------------------
<S> <C> <C>
Arthur B. James................ President, Chief Executive Officer Vice President, Law and
Toronto, Ontario and Director Corporate Relations and
Secretary, IBM Canada Limited
Belinda C. Tang................ Secretary and Director Treasurer, IBM Canada Limited
Municipality of York, Ontario
Tom Gray....................... Chief Financial Officer and Vice President, Finance, IBM
Whitchurch-Stouffville, Ontario Director Canada Limited
John A. Kazanjian.............. Director Partner, Osler, Hoskin &
Toronto, Ontario Harcourt LLP
Frank J. Turner................ Director Partner, Osler, Hoskin &
Toronto, Ontario Harcourt LLP
</TABLE>
FURTHER INFORMATION
Further information with respect to AcquisitionCo is set forth in Annex A
hereto, which is incorporated into and forms part of this Circular.
IBM ACQUISITION II L.L.C.
CORPORATE OVERVIEW
US BuyCo is a wholly-owned, special purpose subsidiary of IBM. US BuyCo was
formed as a limited liability company under the laws of Delaware on March 14,
2000 for the purposes of making the Offers described in this document. US BuyCo
has no material assets and no operating history. IBM is the sole member of US
BuyCo. US BuyCo's registered and principal executive office is located at New
Orchard Road, Armonk, NY 10504, telephone number 1-800-426-4968.
DIRECTORS AND OFFICERS
The names, municipalities and principal occupations for the directors and
officers of US BuyCo are as follows:
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE POSITION WITH IBM ACQUISITION II L.L.C. PRINCIPAL OCCUPATION
- ---------------------------------- --------------------------------------- --------------------
<S> <C> <C>
Lee A. Dayton.................. President Vice President, Corporate
Greenwich, Connecticut Development and Real Estate,
IBM
Patrick J. Glennon............. Vice President and Treasurer Corporate Development
Fishkill, New York Executive, IBM
Donald D. Westfall............. Manager Associate General Counsel,
Cross River, New York IBM
Andrew Bonzani................. Manager Assistant Secretary and
Somers, New York Senior Counsel
</TABLE>
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<PAGE>
FURTHER INFORMATION
Further information with respect to US BuyCo is set forth in Annex B hereto,
which is incorporated into and forms part of this Circular.
6. LGS GROUP INC.
LGS is a corporation existing under the laws of Canada. The Corporation
provides a diverse suite of information technology and management consulting
services including application development and implementation, business
transformation services and technology consulting services. The registered head
office of the Corporation is located at 1155 Metcalfe Street, 12(th) Floor,
Montreal, Quebec H3B 2V6, telephone number 1-514-392-9193.
DESCRIPTION OF SHARE CAPITAL OF LGS
AUTHORIZED AND ISSUED SHARE CAPITAL
The authorized share capital of the Corporation consists of an unlimited
number of first preferred shares, issuable in series ("First Preferred Shares"),
an unlimited number of second preferred shares, issuable in series ("Second
Preferred Shares"), an unlimited number of Class A Shares, an unlimited number
of Class B Shares and an unlimited number of Class C Shares.
According to information provided by the Corporation, as of March 10, there
were outstanding 10,041,573 Class A Shares, 2,852,800 Class B Shares and no
Class C shares, First Preferred Shares or Second Preferred Shares. In addition,
as of such date the Corporation had outstanding Rights entitling holders to
acquire an additional 1,859,429 Class A Shares. The Locked-up Shareholders have
represented to IBM Canada that such holders hold, in the aggregate, 2,852,800
Class B Shares, 305,852 Class A Shares and no Rights to acquire Shares.
MATERIAL ATTRIBUTES OF THE COMMON SHARES
Each Class B Share may, from time to time, at the holder's option, be
converted into one Class A Share. Each Class C Share may, from time to time, at
the holder's option, be converted into one Class A Share. The holders of
Class A Shares are entitled to one vote per share, the holders of Class B Shares
are entitled to ten votes per share and the holders of Class C Shares are
entitled to two votes per share. The Corporation is required to give notice of
any annual or special meeting of shareholders to all holders of Class A Shares,
Class B Shares and Class C Shares. Except as otherwise provided above, each
Class A Share, each Class B Share and each Class C Share carry the same rights,
are equal in all respects and must be dealt with by the Corporation as if they
were shares of a single class. Class A Shares, Class B Shares and Class C Shares
rank, as to the payment of dividends and the return of capital in the event of
liquidation or dissolution of the Corporation, after the First Preferred Shares
and the Second Preferred Shares, respectively.
RESTRICTIONS ON THE ISSUE OF MULTIPLE VOTING SHARES
So long as Class A Shares are outstanding, the Corporation may not, unless
the holders of Class A Shares have given their consent, issue Class B Shares or
Class C Shares unless the Corporation offers to the holders of Class A Shares
the right to acquire, at the market price, pro rata to the number of shares they
hold, a number of Class A Shares in order to maintain their proportion of voting
rights following the issue of the Class B Shares or Class C Shares. The rights
of Shareholders described in this paragraph are set out in their entirety in the
LGS Articles which may be examined by reviewing the public file maintained by
the Director appointed under the CBCA.
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COATTAIL RIGHTS
The holders of Class A Shares are entitled to certain conversion rights in
relation to a public offer being made for Class B Shares in certain
circumstances ("Coattail Rights"). Reference should principally be made to
(a) the LGS Articles and (b) to the trust agreement made as of October 14, 1999
between Raymond Lafontaine, the Corporation, Desjardins Trust and Montreal Trust
Company of Canada and the trust agreement on substantially identical terms made
as of October 14, 1999 between Andre Gauthier, the Corporation, Desjardins Trust
and Montreal Trust Company of Canada (collectively, the "Trust Agreements") on
file with the TSE.
The purpose of the Coattail Rights is to ensure that the holders of the
Class A Shares receive the same per share consideration as the holders of the
Class B Shares in the event of a change of control transaction effected by way
of a take-over bid. The Offers meet the objectives of the Coattail Rights as the
holders of Class A Shares and Class B Shares will receive the same per share
consideration under the Offers.
The share conversion elements of the Coattail Rights do not apply to an
"Exempt Offer". Under the Articles, an Exempt Offer means:
(i) any offer made by a Majority Holder or an Acceptable Successor to one or
more Majority Holders or Acceptable Successors (as each such term is
defined in the Articles); and
(ii) an offer made to all holders of Class B Shares . . . and which is made
simultaneously for the same price and on the same terms and conditions to
all the holders of Class A Shares whose last address in the Corporation's
register is in Canada.
The Offeror understands that counsel to the Corporation intends to advise
the Corporation's transfer agent that the Offers are an Exempt Offer.
The Trust Agreements provide that Messrs. Lafontaine and Gauthier shall not
sell any Class B Shares pursuant to a take-over bid as defined in applicable
securities legislation under circumstances in which securities legislation would
have required the same offer or a follow up offer to be made to holders of
Class A Shares if the sale had been of Class A Shares rather than Class B
Shares, but otherwise on the same terms, unless an identical offer (in terms of
price per share, percentage of outstanding shares to be taken up exclusive of
shares owned immediately prior to the offer by the Offeror or associates or
affiliates of the Offeror, and in all other material respects) is made
concurrently to purchase the Class A Shares, which offer has no condition
attached other than the right to not to take up and pay for shares tendered if
no shares are purchased pursuant to the Offer for Class B Shares.
The Class A Offer is an identical offer (in terms of price per share,
percentage of outstanding Shares to be taken-up exclusive of Shares owned
immediately prior to the offer by the Offeror or associates or affiliates of the
Offeror and in all other material respects), is being made concurrently with the
Class B Offer and has no condition attached other than the condition that the
Offeror take-up and pay for any Class B Shares tendered to the Class B Offer. As
such, the Offeror has been advised by its counsel that the Offers comply with
the provisions of the Trust Agreements.
DIVIDEND RECORD OF LGS
Based on publicly available information, the Offeror believes that the
Corporation has paid no dividends on the Shares during the period commencing on
April 1, 1997 and ending on the date thereof.
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FURTHER INFORMATION ABOUT LGS
LGS files annual and quarterly reports with the SEC. You may read and copy
any reports, statements or other information that LGS files with the SEC at the
SEC's public reference rooms at the following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Chicago Regional Office
450 Fifth Street, N.W. Regional Office Citicorp Center
Room 1024 7 World Trade Center 500 West Madison Street
Washington, D.C. Suite 1300 Suite 1400
20549 New York, NY Chicago, IL
10048 60661-2511
</TABLE>
Please call the public reference rooms noted above or the SEC at
1-800-SEC-0330 for further information. Reports, proxy statements and other
information concerning LGS may also be inspected at 1735 K Street, N.W.,
Washington, D.C. 2006.
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330.
The SEC allows the Offeror to "incorporate by reference" information
regarding LGS in this Circular, which means that the Offeror can disclose
important information to you by referring you to other documents filed
separately with the SEC. The information incorporated by reference is considered
part of this Circular, except for any information superseded by information
contained directly in this Circular or in later filed documents incorporated by
reference in this Circular.
Incorporated by reference are the following documents, each of which have
been filed by LGS with the SEC: LGS's 40-K for the fiscal year ended March 31,
1999; LGS's 6-K for the fiscal quarter ended June 30, 1999; LGS's 6-K for the
fiscal quarter ended September 30, 1999; and LGS's 6-K for the fiscal quarter
ended December 31, 1999.
All documents filed by LGS with the SEC pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the termination
of any offering of securities made by the Offers to Purchase and Circular shall
be deemed to be incorporated by reference into the Offers to Purchase and
Circular and to be a part of the Offers to Purchase and Circular from the
respective dates of filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of the Offers to
Purchase and Circular to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement or
document so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute part of the Offers to Purchase and Circular. As used
herein, the terms "Offers to Purchase and Circular" and "herein" mean these
Offers to Purchase and Circular, including the documents incorporated or deemed
incorporated by reference, as the same may be amended, supplemented or otherwise
modified from time to time. Statements contained in the Offers to Purchase and
Circular as to the contents of any contract or other document referred to herein
do not purport to be complete and are qualified in all respects by reference to
all of the provisions of such contract or other document.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY MARCH 24, 2000.
You should rely only on the information contained or incorporated by
reference in this document. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated March 15, 2000. You should not assume that the information
contained
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<PAGE>
in this document is accurate as of any date other than that date. Neither the
mailing of this document to Shareholders nor the issuance of IBM Common Stock or
Exchangeable Shares in connection with the Offers creates any implication to the
contrary.
7. EXCHANGEABLE SHARE TERMS
The following is a summary description of the material Exchangeable Share
Terms and is qualified in its entirety by the full text of such terms which are
available upon request from IBM Canada.
RANKING
The Exchangeable Shares are entitled to a preference over the common shares
of AcquisitionCo and any other shares ranking junior to the Exchangeable Shares
with respect to the payment of dividends and the distribution of assets in the
event of the liquidation, dissolution or winding-up of AcquisitionCo.
DIVIDENDS
Holders of Exchangeable Shares will be entitled to receive dividends on a
per share basis, subject to anti-dilution adjustments, equivalent to any
dividends paid from time to time by IBM on a share of IBM Common Stock. Where
IBM pays dividends or makes distributions on shares of IBM Common Stock in a
form other than cash, holders of Exchangeable Shares will be entitled to receive
the same dividend or distribution, or the economic equivalent of such dividend
or distribution. The record date and payment date for dividends on the
Exchangeable Shares will be the same as that for the corresponding dividends on
the shares of IBM Common Stock.
VOTING RIGHTS
Except as required by applicable law, the holders of the Exchangeable Shares
are not entitled to receive notice of or to attend any meeting of the
shareholders of AcquisitionCo or IBM or to vote at any such meeting.
CERTAIN RESTRICTIONS
If at any time (i) a dividend or other distribution has been declared on the
IBM Common Stock, (ii) no corresponding dividend or other distribution has been
declared on the Exchangeable Shares or, if declared, has not been paid, and
(iii) AcquisitionCo does not have available to it sufficient assets and funds to
pay such dividend or distribution, then AcquisitionCo will not without obtaining
the approval of the holders of the Exchangeable Shares in accordance with the
Exchangeable Share Terms:
(a) pay any dividend on the common shares of AcquisitionCo or any other
shares ranking junior to the Exchangeable Shares, other than stock
dividends payable in common shares or any such other shares ranking
junior to the Exchangeable Shares, as the case may be; or
(b) redeem, purchase or make any capital distribution in respect of the
common shares of AcquisitionCo or any other shares ranking junior to the
Exchangeable Shares.
AcquisitionCo will also not without obtaining the approval of the holders of
the Exchangeable Shares in accordance with the Exchangeable Share Terms:
(a) amend the Exchangeable Share Terms; or
(b) issue any shares which rank senior to the Exchangeable Shares.
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RETRACTION OF EXCHANGEABLE SHARES BY HOLDERS
Subject to the Retraction Call Right (as defined below) of IBM and Parentco,
a holder of Exchangeable Shares will be entitled at any time to require
AcquisitionCo to redeem any or all of the Exchangeable Shares held by such
holder for a retraction price per Exchangeable Share to be satisfied by delivery
of one share of IBM Common Stock, plus an amount of cash equivalent to the full
amount of all declared and unpaid dividends, if any, on the Exchangeable Shares.
Holders of the Exchangeable Shares may request redemption by presenting a
certificate or certificates to AcquisitionCo or the Transfer Agent representing
the number of Exchangeable Shares the holder desires to have redeemed, together
with a duly executed Retraction Request and such other documents as may be
required to effect the redemption of the Exchangeable Shares. For the purposes
of this Circular, a "Retraction Request" consists of a duly executed notice
given by a holder of Exchangeable Shares in the form of Schedule A to the
Exchangeable Share Terms, or in such other form as may be acceptable to
AcquisitionCo, pursuant to which such holder can require AcquisitionCo to redeem
such holder's Exchangeable Shares. The redemption will be made ten Business Days
after the date on which AcquisitionCo receives the Retraction Request from the
holder (the "Retraction Date").
When a holder requests AcquisitionCo to redeem the Exchangeable Shares, IBM
and Parentco will have an overriding right (the "Retraction Call Right") to
purchase on the Retraction Date all but not less than all of the Exchangeable
Shares that the holder has requested AcquisitionCo to redeem at a purchase price
per Exchangeable Share to be satisfied by delivery of one share of IBM Common
Stock, plus an amount of cash equivalent to the full amount of all declared and
unpaid dividends, if any, on the Exchangeable Shares.
Upon receipt of a Retraction Request by a holder of Exchangeable Shares,
AcquisitionCo will immediately notify IBM and Parentco. IBM or Parentco must
then advise AcquisitionCo within five Business Days as to whether the Retraction
Call Right will be exercised. If either IBM or Parentco so advises AcquisitionCo
within such five Business Day period, AcquisitionCo will notify the holder of
Exchangeable Shares as soon as possible thereafter that the Retraction Call
Right will be exercised. A holder may revoke his or her Retraction Request any
time prior to the close of business on the Business Day preceding the Retraction
Date, in which case the holder's Exchangeable Shares will neither be purchased
by IBM or Parentco nor be redeemed by AcquisitionCo. If the holder does not
revoke his or her Retraction Request, on the Retraction Date the Exchangeable
Shares that the holder has requested AcquisitionCo to redeem will be purchased
by IBM or Parentco or redeemed by AcquisitionCo, as the case may be, in each
case at a purchase price per Exchangeable Share to be satisfied by delivery of
one share of IBM Common Stock, plus an amount of cash equivalent to the full
amount of all declared and unpaid dividends, if any, on the Exchangeable Shares.
The Retraction Call Right may be exercised, at the election of IBM, by
either IBM or Parentco.
If, as a result of solvency provisions of applicable law, AcquisitionCo is
not permitted to redeem all Exchangeable Shares tendered by a retracting holder,
AcquisitionCo will redeem only those Exchangeable Shares tendered by the holder
as would not be contrary to such provisions of applicable law. The holder of any
Exchangeable Shares not redeemed by AcquisitionCo will be deemed to have
required IBM to purchase such unredeemed Exchangeable Shares in exchange for IBM
Common Stock on the Retraction Date pursuant to the optional Exchange Right. See
"Optional Exchange Right in the case of an AcquisitionCo Insolvency Event".
REDEMPTION OF EXCHANGEABLE SHARES
Subject to applicable law and the Redemption Call Right (defined below) of
IBM and Parentco, the board of directors of AcquisitionCo may establish a date
(the "Optional Redemption Date") on which AcquisitionCo will redeem all but not
less than all of the then outstanding Exchangeable Shares for a redemption price
per Exchangeable Share to be satisfied by the delivery of one share of IBM
Common
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Stock, plus an amount of cash equivalent to the full amount of all declared and
unpaid dividends, if any, on the Exchangeable Shares (the "Redemption Price").
The Optional Redemption Date may be no earlier than the tenth anniversary of the
date that the Offeror first takes up and pays for Shares deposited under the
Offers unless at any time there are then less than 170,000 Exchangeable Shares
outstanding (other than Exchangeable Shares held by IBM and its subsidiaries and
subject to adjustment to such number of shares to reflect permitted changes to
the Exchangeable Shares), in which event the Optional Redemption Date may be
established as any date after such time. AcquisitionCo will, at least 60 days
prior to the Optional Redemption Date, provide the registered holders of the
Exchangeable Shares with written notice of the proposed redemption of the
Exchangeable Shares by AcquisitionCo. On or after the date such notice is
provided, upon the holder's presentation and surrender of the certificates
representing the Exchangeable Shares and such other documents as may be required
at the office of the Transfer Agent or the registered office of AcquisitionCo,
AcquisitionCo will deliver the Redemption Price for pick up by the holder at the
registered office of AcquisitionCo or the office of the Transfer Agent as
specified in the written notice.
IBM and Parentco will be granted a right (the "Redemption Call Right"),
notwithstanding a proposed redemption of the Exchangeable Shares by
AcquisitionCo on the Optional Redemption Date pursuant to the Exchangeable Share
Provisions, to purchase on the Optional Redemption Date all but not less than
all of the Exchangeable Shares then outstanding (other than Exchangeable Shares
held by IBM and its subsidiaries) in exchange for the Redemption Price and, upon
the exercise of the Redemption Call Right, the holders of all of the then
outstanding Exchangeable Shares will be obligated to sell such shares to IBM or
Parentco, as applicable. If either IBM or Parentco exercises the Redemption Call
Right, AcquisitionCo's right to redeem the Exchangeable Shares on the Optional
Redemption Date will terminate. The Redemption Call Right may be exercised, at
the election of IBM, by either IBM or Parentco.
LIQUIDATION OF THE OFFEROR
In the event of the liquidation, dissolution or winding-up of AcquisitionCo,
a holder of Exchangeable Shares will be entitled to receive from AcquisitionCo,
subject to the overriding Liquidation Call Right (as defined below), for each
Exchangeable Share on the effective date of such event (the "Liquidation Date")
an amount to be satisfied by the delivery of one share of IBM Common Stock, plus
an amount of cash equivalent to the full amount of all declared and unpaid
dividends, if any, on the Exchangeable Share.
On or after the Liquidation Date, a holder of Exchangeable Shares may
surrender certificates representing such Exchangeable Shares, together with such
other documents as may be required, at AcquisitionCo's registered office or the
office of the Transfer Agent. Upon receipt of the certificates and other
documents and subject to the exercise by IBM or Parentco of the Liquidation Call
Right described below, AcquisitionCo will deliver the shares of IBM Common Stock
and cash (if applicable) for pick up by the holder at AcquisitionCo's registered
office or the office of the Transfer Agent, as specified by AcquisitionCo in a
notice to such holders.
In the event of the liquidation, dissolution or winding-up of AcquisitionCo,
IBM and Parentco will have the right (a "Liquidation Call Right") to purchase
all but not less than all of the Exchangeable Shares then outstanding (other
than Exchangeable Shares held by IBM or Parentco) at a purchase price per
Exchangeable Share to be satisfied by the delivery of one share of IBM Common
Stock, plus an amount of cash equivalent to the full amount of all declared and
unpaid dividends, if any, on the Exchangeable Shares and, upon the exercise of
the Liquidation Call Right, the holders thereof will be obligated to sell such
Exchangeable Shares to IBM or Parentco, as applicable. The Liquidation Call
Right may be exercised, at the election of IBM, by either IBM or Parentco.
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RESTRICTIONS ON TRANSFER OF EXCHANGEABLE SHARES
ONTARIO
As AcquisitionCo does not intend to apply to the OSC to become a reporting
issuer in Ontario, the transferability of the Exchangeable Shares in that
province will be restricted. In this regard, the Offeror will shortly apply for
relief from the OSC to permit transfers of Exchangeable Shares in Ontario to the
following persons without complying with the prospectus requirements:
(a) any relative of the holder thereof;
(b) any person of the same or opposite sex to whom the holder is married or
with whom that holder is living in a conjugal relationship outside
marriage;
(c) any trust or estate in which the holder or any of the foregoing has a
beneficial interest in the income or capital thereof or as to which the
holder or any of the foregoing serves as a trustee, or in similar
capacity;
(d) any partner of any of the foregoing;
(e) any corporation controlled by any of the foregoing; or
(f) any other holder of Exchangeable Shares.
UNITED STATES
Notwithstanding the foregoing, the Exchangeable Shares may not be offered or
sold within the United States or to, or for the benefit of, US persons and may
only be sold outside the United States in compliance with Regulation S under the
US Securities Act or pursuant to an available exemption from registration under
the US Securities Act. For this purpose, the term "US person" has the meaning
ascribed to it in Regulation S under the US Securities Act, which term includes
a natural person resident in the United States, a corporation or partnership
organized in the United States and any professional fiduciary in the United
States acting on a discretionary basis for foreign beneficial persons. The
certificates representing the Exchangeable Shares will carry the following
legend:
THE EXCHANGEABLE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER, (1) REPRESENTS THAT
IT IS NOT A U.S. PERSON AND IS ACQUIRING THE EXCHANGEABLE SHARES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT AND
(2) AGREES THAT (I) IT WILL NOT, WITHIN ONE YEAR AFTER THE ORIGINAL ISSUANCE OF
THE EXCHANGEABLE SHARES, RESELL OR OTHERWISE TRANSFER THE EXCHANGEABLE SHARES
EXCEPT (A) TO INTERNATIONAL BUSINESS MACHINES CORPORATION, 3040696 NOVA SCOTIA
COMPANY, THE CORPORATION OR ANY OF THE CORPORATION'S SUBSIDIARIES, (B) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT OR (C) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT, (II) IT WILL NOT ENGAGE IN HEDGING TRANSACTIONS UNLESS
IN COMPLIANCE WITH THE SECURITIES ACT AND (III) IT WILL DELIVER TO EACH PERSON
TO WHOM THE EXCHANGEABLE SHARES ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
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EXCHANGE TRUST AGREEMENT AND IBM SUPPORT AGREEMENT
The following is a summary description of the material provisions of the
Exchange Trust Agreement and the IBM Support Agreement. The description of such
agreements set forth below is qualified in its entirety by reference to the full
text of the form of the Exchange Trust Agreement and the IBM Support Agreement
which are available upon request from IBM Canada.
OPTIONAL EXCHANGE RIGHT IN THE CASE OF AN ACQUISITIONCO INSOLVENCY EVENT
Upon the occurrence and during the continuance of an AcquisitionCo
Insolvency Event, a holder of Exchangeable Shares will be entitled to instruct
the Trustee to exercise the optional Exchange Right with respect to any or all
of the Exchangeable Shares held by such holder, thereby requiring IBM or, at the
election of IBM, Parentco to purchase such Exchangeable Shares from the holder.
An "Exchange Right" is the optional exchange right granted to the Trustee for
the use and benefit of the holders of the Exchangeable Shares pursuant to the
Exchange Trust Agreement to require IBM to exchange, or cause Parentco to
exchange, Exchangeable Shares for shares of IBM Common Stock, plus an amount of
cash equivalent to all declared and unpaid dividends on such Exchangeable
Shares, upon the occurrence of an AcquisitionCo Insolvency Event.
The purchase price payable by IBM or Parentco for each Exchangeable Share to
be purchased under the optional Exchange Right will be satisfied by the delivery
of one share of IBM Common Stock plus an additional amount in cash equivalent to
the full amount of all declared and unpaid dividends, if any, on the
Exchangeable Shares.
An AcquisitionCo Insolvency Event will occur upon the institution by
AcquisitionCo of any proceeding to be adjudicated a bankrupt or insolvent or to
be dissolved or wound up, or the consent of AcquisitionCo to the institution of
bankruptcy, insolvency, dissolution or winding-up proceedings against it, or the
filing of a petition, answer or consent seeking dissolution or winding-up under
any bankruptcy, insolvency or analogous laws, including without limitation the
COMPANIES CREDITORS' ARRANGEMENT ACT (Canada) and the BANKRUPTCY AND INSOLVENCY
ACT (Canada), and the failure by AcquisitionCo to contest in good faith any such
proceedings commenced in respect of AcquisitionCo within 15 days of becoming
aware thereof, or the consent by AcquisitionCo to the filing of any such
petition or to the appointment of a receiver, or the making by AcquisitionCo of
a general assignment for the benefit of creditors, or the admission in writing
by AcquisitionCo of its inability to pay its debts generally as they become due,
or AcquisitionCo not being permitted, pursuant to solvency requirements of
applicable law, to redeem any Exchangeable Shares pursuant to the Exchangeable
Share Terms.
If, as a result of the solvency provisions of applicable law, AcquisitionCo
is unable to redeem all of a holder's Exchangeable Shares which such holder is
entitled to have redeemed in accordance with the Exchangeable Share Terms, the
holder will be deemed to have exercised the optional Exchange Right with respect
to the unredeemed Exchangeable Shares and IBM or, at the election of IBM,
Parentco will be required to purchase such Exchangeable Shares from the holder
in the manner set forth above.
AUTOMATIC EXCHANGE ON LIQUIDATION OF IBM
In the event of an IBM Liquidation Event (as defined below), IBM or, at the
election of IBM, Parentco will be required to purchase each outstanding
Exchangeable Share (other than Exchangeable Shares held by IBM or Parentco) and
holders of Exchangeable Shares will be required to sell the Exchangeable Shares
held by them at that time, by exchanging one share of IBM Common Stock for each
such Exchangeable Share, plus an amount of cash equivalent to the full amount of
all declared and unpaid dividends, if any, on the Exchangeable Shares.
Upon a holder's request and surrender of Exchangeable Share certificates,
duly endorsed in blank and accompanied by such instruments of transfer as IBM or
Parentco may reasonably require, IBM or Parentco
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will deliver to such holder certificates representing the appropriate number of
shares of IBM Common Stock plus an amount of cash equivalent to the full amount
of all declared and unpaid dividends, if any, on the Exchangeable Shares.
An IBM Liquidation Event will occur upon (i) any determination by IBM's
board of directors to institute voluntary liquidation, dissolution or winding-up
proceedings (not including a reorganization under applicable bankruptcy laws)
with respect to IBM or to effect any other distribution of assets of IBM among
its shareholders for the purpose of winding-up its affairs or (ii) receipt by
IBM of notice of, or IBM otherwise becoming aware of, any threatened or
instituted claim, suit, petition or other proceeding with respect to the
involuntary liquidation, dissolution or winding-up (not including a
reorganization under applicable bankruptcy laws) of IBM or to effect any other
distribution of assets of IBM among its shareholders for the purpose of
winding-up its affairs.
IBM SUPPORT OBLIGATION
Under the IBM Support Agreement, IBM will agree that for so long as any
Exchangeable Shares are outstanding, (i) it will take all necessary actions to
ensure that, if any dividends are declared on the IBM Common Stock,
AcquisitionCo will have sufficient money or other assets or authorized
securities available to enable the due declaration and payment of an equivalent
dividend on the Exchangeable Shares; (ii) it will take all necessary actions to
ensure that if any dividends are paid on the IBM Common Stock, AcquisitionCo
will simultaneously pay an equivalent dividend on the Exchangeable Shares;
(iii) it will advise AcquisitionCo of the declaration of any dividend on the IBM
Common Stock and ensure that the record date and payment date for dividends on
the Exchangeable Shares are the same as that for the IBM Common Stock; (iv) it
will take all actions and do all things necessary to ensure that AcquisitionCo
is able to pay to the holders of the Exchangeable Shares the equivalent number
of shares of IBM Common Stock plus an amount of cash equivalent to the full
amount of all declared and unpaid dividends, if any, on the Exchangeable Shares
in the event of the occurrence of an AcquisitionCo Insolvency Event, the giving
of a Retraction Request by a holder of Exchangeable Shares or a redemption of
Exchangeable Shares by AcquisitionCo; (v) it will take all such actions and do
all such things as are necessary or desirable to enable and permit Parentco to
pay and otherwise perform its obligations arising out of the exercise by it of
the Liquidation Call Right, the Retraction Call Right or the Redemption Call
Right; (vi) it will not vote or otherwise take any action or omit to take any
action causing the liquidation, dissolution or winding-up of AcquisitionCo; and
(vii) as long as it is a "specified financial institution" (as such term is
defined in the Canadian Tax Act) or does not deal at arm's length with such a
person, it will take all such action and do all such things as are reasonably
necessary or desirable to exercise or to cause Parentco to exercise the
Retraction Call Right, the Redemption Call Right or the Liquidation Call Right
if requested to do so by a holder of Exchangeable Shares.
The IBM Support Agreement will also provide that, except with the prior
approval of AcquisitionCo and the holders of Exchangeable Shares, if IBM
distributes additional shares of IBM Common Stock or rights to subscribe
therefor or other property or assets to all or substantially all holders of
shares of IBM Common Stock, or subdivides, consolidates, reclassifies or
otherwise changes the IBM Common Stock, then IBM will take all necessary actions
to ensure that the same or equivalent distribution on, or change to the
Exchangeable Shares (or in the rights of the holders thereof) is made
simultaneously. In the event of any proposed tender offer, share exchange offer,
issuer bid, take-over bid or similar transaction affecting the IBM Common Stock,
IBM will use reasonable efforts to take all actions necessary or desirable to
enable holders of Exchangeable Shares to participate in such transaction to the
same extent and on an economically equivalent basis as the holders of IBM Common
Stock.
The IBM Support Agreement and the Exchange Trust Agreement will also provide
that, as long as any outstanding Exchangeable Shares are owned by any person or
entity other than IBM or any of its subsidiaries, IBM will, unless approval to
do otherwise is obtained from the holders of the Exchangeable
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Shares, remain the direct or indirect beneficial owner of at least 50.1% of all
issued and outstanding voting securities of AcquisitionCo.
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the Exchangeable Shares, making
certain necessary amendments or curing ambiguities or clerical errors (in each
case provided that the board of directors of IBM, AcquisitionCo's board of
directors, and the Trustee are of the opinion that such amendments are not
prejudicial to the interest of the holders of the Exchangeable Shares), the IBM
Support Agreement and the Exchange Trust Agreement may not be amended without
the approval of the holders of the Exchangeable Shares.
DELIVERY OF IBM COMMON STOCK
IBM will make such filings and seek such regulatory consents and approvals
as are necessary so that the IBM Common Stock deliverable upon the exchange of
Exchangeable Shares will be delivered in compliance with applicable securities
laws in Canada and the United States and may be traded freely on such United
States stock markets or quotation systems on which such shares may be listed,
quoted or posted for trading from time to time.
In accordance with the Co-operation Agreement IBM has agreed to make
available to US BuyCo, from time to time, a number of shares of IBM Common Stock
in order to permit US BuyCo to satisfy its obligations under the Offers.
AMENDMENT AND APPROVAL
The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be changed only with the approval of the holders
thereof. Any such approval or any other approval or consent to be given by the
holders of the Exchangeable Shares will be sufficiently given if given in
accordance with applicable law and subject to a minimum requirement that such
approval or consent be evidenced by a resolution passed by not less than
two-thirds of the votes cast thereon (other than shares beneficially owned by
IBM and its subsidiaries) at a meeting of the holders of Exchangeable Shares
duly called and held at which holders of at least 20% of the then outstanding
Exchangeable Shares are present in person or represented by proxy. In the event
that no such quorum is present at such meeting within one-half hour after the
time appointed therefor, then the meeting will be adjourned to such place and
time (not less than 10 days later) as may be determined at the original meeting
and the holders of Exchangeable Shares present in person or represented by proxy
at the adjourned meeting will constitute a quorum thereat and may transact the
business for which the meeting was originally called. At the adjourned meeting,
a resolution passed by the affirmative vote of not less than two-thirds of the
votes cast thereon will constitute the approval or consent of the holders of the
Exchangeable Shares.
8. BACKGROUND TO AND REASONS FOR THE OFFERS
BACKGROUND TO THE OFFERS
LGS is well known to IBM Canada as the founders of LGS were employees of
IBM Canada prior to leaving to form their own company. Since that time,
IBM Canada and LGS have enjoyed a long-standing business relationship whereby
LGS has provided services to IBM Canada in areas which have been complementary
to IBM's set of offerings, and IBM Canada and LGS have often combined to serve
the needs of mutual customers. In addition, each of LGS and IBM Canada has acted
as subcontractor to the other in servicing Canadian customers.
In the later part of 1999, IBM Canada's interest in LGS increased and
IBM Canada personnel were instructed to prepare financial models contemplating
the acquisition of LGS. In December of 1999, IBM Canada retained counsel to
advise it in connection with a possible acquisition of the Corporation and in
early January 2000, financial advisers were engaged. During the middle of
January 2000, the working
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group considered a variety of acquisition models and strategies and on
January 31, 2000, John Wetmore and John Bothwell, senior executives of
IBM Canada and Lee Dayton, Vice President, Real Estate and Corporate Development
of IBM, first discussed IBM Canada's possible interest in an acquisition of the
shares of LGS with Messrs. Raymond Lafontaine and Andre Gauthier, the
controlling shareholders of LGS. Between January 31 and February 11, there were
a number of preliminary discussions between John Wetmore and the controlling
shareholders with respect to a possible transaction involving IBM Canada and the
controlling shareholders. On February 11, IBM Canada and the controlling
shareholders signed a confidentiality agreement and agreed to meet in person in
Montreal on February 13. Between February 13 and February 15, the parties
negotiated the terms of the Support Agreement. On February 15, 2000 a Support
Agreement was signed by IBM Canada and Messrs. Lafontaine and Gauthier whereby
Lafontaine and Gauthier and their respective holding companies agreed to tender
their Shares if and when the Offers were made. Pursuant to the terms of the
Support Agreement, the obligation to make the Offers was conditional on certain
conditions being satisfied, including the condition that the board of directors
of IBM and IBM Canada approve the making of the Offers. See below -- "Support
Agreement". The entering into of the Support Agreement was publicly announced by
IBM Canada on February 15, 2000 and on February 18, 2000, LGS entered into a
confidentiality agreement with IBM Canada. On February 29, 2000 the making of
the Offers, in the manner described in the Support Agreement, was approved by
the board of directors of IBM and the condition for IBM Canada board approval
was waived.
REASONS FOR THE OFFERS
The acquisition of LGS is consistent with IBM Canada's objective of
providing a more comprehensive set of offerings to its customers and acquiring
key information technology resources. The acquisition will serve to expand IBM's
presence in certain markets, provide services in non-IBM related technologies
and accelerate the delivery of application development and maintenance
capabilities.
The Offeror also believes that there are benefits to Shareholders who
dispose of their Shares in the Offers. For example:
(a) Shareholders are being offered a 77.4% premium to market based on the
20-day average closing price of the Shares on the TSE for the period
ended February 14, 2000;
(b) eligible Shareholders who elect the Canadian Share Option may be able to
dispose of their Shares and obtain Exchangeable Shares and Ancillary
Rights on a tax deferred basis; and
(c) holders of Exchangeable Shares and holders of shares of IBM Common Stock
will participate in the economic growth of IBM, a global,
industry-leading company with a large, stable and balanced asset and
technology base with good access to the global capital markets.
SUPPORT AGREEMENT
On February 15, 2000, the Locked-up Shareholders entered into the Support
Agreement with IBM Canada pursuant to which the Locked-up Shareholders agreed to
deposit or cause to be deposited under the Offers all of their Shares,
representing approximately 3.05% of the outstanding Class A Shares and 100% of
the outstanding Class B Shares (2.57% and 100% on a fully-diluted basis).
Pursuant to the Support Agreement, IBM Canada agreed to cause the Offers to
be made by not later than March 15, 2000, provided certain conditions had been
met or had been waived. Such conditions included the approval of the Offers by
the boards of directors of IBM and IBM Canada, that the representations and
warranties of the Locked-up Shareholders were true and correct on the date of
the Offers, that the Locked-up Shareholders had on the date of the Offers,
performed or complied with in all material respects, all covenants and
agreements to be complied with or performed prior to such date, the Offeror
having obtained relief from the applicable provincial securities regulatory
authorities relating to the collateral benefit and non-identical consideration
requirements of applicable securities laws, that no
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prohibition at law existed and no action, suit or proceeding had been threatened
or taken which would prevent the Offeror from making or consummating the Offers
or effecting a Compulsory Acquisition or a Subsequent Acquisition Transaction
following completion of such Offers and no Material Adverse Effect having
occurred.
The Support Agreement contains customary representations and warranties of
the parties relating to their capacity to perform their obligations under such
agreement. In particular, the Locked-up Shareholders have warranted that they
are the holders of all of the outstanding Class B Shares and that they have the
unfettered ability, authorization and capacity, and the exclusive right to
dispose of all Shares held by them under the Offers. Moreover the Locked-up
Shareholders have covenanted in the Support Agreement that in the event they are
requested to do so by IBM Canada, such Shareholders will provide a notice to the
LGS transfer agent, in the manner contemplated in the provisions of the LGS
Articles relating to the Coattail Rights, that they have not accepted and will
not be accepting any offer other than the Offers of the Offeror. In addition,
the Support Agreement contains a covenant of the Locked-up Shareholders, in
their capacities as Shareholders, to not solicit, invite, respond to, encourage,
entertain or be a party to any discussions, inquiries or proposals which could
result in a transaction involving the Shares, the Corporation or its assets, nor
to provide any information with respect to any such alternative transaction.
The Support Agreement requires the Locked-up Shareholders to deposit all
Shares held by them to the Offers and not to withdraw such Shares
notwithstanding certain rights which such Shareholders may have under applicable
law or pursuant to the provisions of the Letter of Acceptance and Transmittal.
However, the Locked-up Shareholders, when not in default of their obligations
under the Support Agreement, can terminate the Support Agreement if the Offeror
has not taken up and paid for such Shares by April 30, 2000, provided that if
(i) a regulatory authority shall have commenced a formal investigation, (ii) a
Shareholder, regulatory authority or other interested person shall have
commenced an action or proceeding, in either case in connection with the Offers,
or (iii) the board of directors of LGS shall have recommended rejection of the
Offers, then such rights of termination do not commence until June 30, 2000.
The Offeror is required to assume the obligations of the Locked-up
Shareholders under the Trust Agreements. See Section 6 of the Circular -- "LGS
Group Inc. -- Description of Share Capital of LGS -- Trust Agreements". The
Locked-up Shareholders may however terminate the Support Agreement, provided
that they are not then in default of any of their obligations under such
agreement, or if the Offers or any amendments thereto do not conform to the
description thereof contained in the Support Agreement.
The Support Agreement also contains the covenant of Raymond Lafontaine and
Andre Gauthier to enter into the Retention Agreements in the event that the
Offeror takes up and pays for Shares under the Offers. See Section 17 of the
Circular -- "Arrangements, Agreements or Understandings -- Retention
Agreements".
Pursuant to the Support Agreement, the parties are required to pay their
respective fees and other expenses in connection with the transactions
contemplated thereby.
CO-OPERATION AGREEMENT
Pursuant to its obligations under the Support Agreement, IBM Canada is
required, subject to the satisfaction of certain conditions, to cause an
affiliate or a subsidiary to make the Offers on the terms described therein. IBM
Canada has determined that it would be desirable for its affiliates,
AcquisitionCo and US BuyCo, to make the Offers jointly. On March 14, 2000, IBM,
IBM Canada, AcquisitionCo and US BuyCo entered into an agreement (the
"Co-operation Agreement") pursuant to which such parties agreed as to how
AcquisitionCo and US BuyCo would make the Offers jointly. Among other things,
the Co-operation Agreement provides that on the Payment Date, US BuyCo will
purchase all Shares deposited to
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the Offers and not withdrawn in respect of which the depositing Shareholder has
elected the US Share Option ("US Option Shares") and will provide to the
Depositary certificates representing such number of shares of IBM Common Stock
and such amount of US dollars in respect of fractional share amounts as are
required to satisfy the Purchase Price in respect of such US Option Shares. IBM
has agreed to make available to US BuyCo, from time to time, a number of shares
of IBM Common Stock in order to satisfy its obligations under the Offers.
Pursuant to the Co-operation Agreement, AcquisitionCo will purchase all Shares
deposited to the Offers and not withdrawn, other than the US Option Shares, and
will provide to the Depositary certificates representing such number of
Exchangeable Shares and such amount of US dollars and Canadian dollars as are
required to satisfy the Purchase Price in respect of such Shares.
IBM, AcquisitionCo and US BuyCo have agreed in the Co-operation Agreement to
co-operate in all aspects of making the Offers.
9. PURPOSE OF THE OFFERS AND PLANS FOR THE CORPORATION
PURPOSE OF THE OFFERS
The purpose of the Offers is to enable the Offeror to acquire all of the
Shares. If the respective conditions of the Offers are satisfied and the Offeror
takes up and pays for the Shares validly deposited under the Offers, the Offeror
intends to acquire any Shares not deposited by effecting a Compulsory
Acquisition or Subsequent Acquisition Transaction. See Section 10 of the
Circular -- "Acquisition of Shares Not Deposited".
PLANS FOR LGS
Following the successful completion of the Offers, and if required a
Compulsory Acquisition or Subsequent Acquisition Transaction, IBM Canada intends
to conduct a review of the Corporation's service offerings and business strategy
with a view to determining how best to combine the Corporation's operations with
those of IBM Canada in order to maximize synergies and achieve operational
efficiency. The corporate organization of IBM Canada, LGS, AcquisitionCo and/or
US BuyCo may also be restructured in connection with such integration. In any
event, it is expected that certain changes may be effected with respect to the
composition of the board of directors of the Corporation to allow nominees of
AcquisitionCo to be elected.
The Offeror believes that the acquisition of the Corporation is consistent
with IBM's established acquisition criteria and will further IBM's goal of
providing a more comprehensive offering of services to its customers and to
expand its client base.
If permitted by applicable law, subsequent to the completion of the Offers,
the Offeror intends to delist the Class A Shares from the TSE and Nasdaq and to
cause the Corporation to cease to be a reporting issuer under Canadian and US
securities laws.
10. ACQUISITION OF SHARES NOT DEPOSITED
COMPULSORY ACQUISITION
If within 120 days after the date hereof, each of the Offers has been
accepted by holders of not less than 90% of either the issued and outstanding
Class A Shares or Class B Shares (or both), other than the Shares held on the
date hereof by or on behalf of the Offeror and its affiliates and associates (as
such terms are defined in the CBCA), and such Shares have been taken up and paid
for by the Offeror, the Offeror intends to acquire pursuant to the provisions of
Section 206 of the CBCA the remaining Shares of the relevant class on the same
terms as the Shares acquired under the Offers (a "Compulsory Acquisition").
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To exercise such statutory rights and effect a Compulsory Acquisition, the
Offeror must give notice (the "Offeror's Notice") to each holder of Shares who
did not accept the relevant Offer (and each person who subsequently acquires any
such Shares) (in each case, an "Offeree") and to the Director under the CBCA of
such proposed acquisition on or before the earlier of 60 days from the Expiry
Time and 180 days from the date of the Offers. Within 20 days of giving the
Offeror's Notice, the Offeror must pay or transfer to the Corporation the
consideration the Offeror would have had to pay or transfer to the Offerees if
they had elected to accept the relevant Offer, to be held in trust for the
Offerees. In accordance with Section 206 of the CBCA, within 20 days after
receipt of the Offeror's Notice, each Offeree must send the certificates
representing the Shares held by such Offeree to the Corporation, and must elect
either to transfer such Shares to the Offeror on the terms of the relevant Offer
or to demand payment of the fair value of such Shares held by such holder by so
notifying the Offeror. If an Offeree has elected to demand payment of the fair
value of such Shares, the Offeror may apply to a court having jurisdiction to
hear an application to fix the fair value of such Shares of that Offeree. If the
Offeror fails to apply to such court within 20 days after it made the payment or
transferred the consideration to the Corporation referred to above, the Offeree
may then apply to the court within a further period of 20 days to have the court
fix the fair value. If there is no such application made by the Offeree within
such period, the Offeree will be deemed to have elected to transfer such Shares
to the Offeror on the terms of the relevant Offer. Any judicial determination of
the fair value of the Shares could be more or less than the amount paid pursuant
to the Offers.
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THE FOREGOING IS A SUMMARY ONLY. REFERENCE IS MADE TO SECTION 206 OF THE
CBCA FOR THE TEXT OF THE RELEVANT STATUTORY PROVISIONS. SECTION 206 OF THE CBCA
IS COMPLEX AND MAY REQUIRE STRICT ADHERENCE TO NOTICE AND TIMING PROVISIONS,
FAILING WHICH SUCH RIGHTS MAY BE LOST OR ALTERED. SHAREHOLDERS WHO WISH TO BE
BETTER INFORMED ABOUT THESE PROVISIONS SHOULD CONSULT THEIR LEGAL ADVISORS.
SUBSEQUENT ACQUISITION TRANSACTIONS
If the Offeror takes up and pays for Shares validly deposited under the
Offers, and if, for any reason a Compulsory Acquisition is not available or the
Offeror elects not to pursue such right, the Offeror intends to pursue other
means of acquiring, directly or indirectly, all of the issued and outstanding
Shares in accordance with applicable law, including an amalgamation,
reclassification, statutory arrangement, consolidation or other transaction
(each, a "Subsequent Acquisition Transaction"). In order to effect a Subsequent
Acquisition Transaction, the Offeror may seek to cause a special meeting of
Shareholders of the Corporation to be called to consider any proposed
amalgamation, statutory arrangement or other transaction involving the
Corporation and AcquisitionCo or one or more affiliates of AcquisitionCo for the
purposes of enabling AcquisitionCo to acquire all of the Shares not acquired
under the Offers. If the Minimum Condition is satisfied, the Offeror will have
acquired sufficient Shares to carry out the acquisition of all of the remaining
Shares. In connection with a Subsequent Acquisition Transaction, Shareholders
may have the right to dissent under the CBCA and to be paid the fair value for
their Shares, with such fair value to be determined by a court.
Each of the methods of acquiring the remaining outstanding Shares described
above, other than a Compulsory Acquisition, would be a "going private
transaction" within the meaning of the regulations under the SECURITIES ACT
(Ontario) (the "Regulation"), Policy 9.1 and Policy Q-27 if such method would
result in the interest of a holder of Shares (the "affected securities") being
terminated without the consent of the holder and without the substitution
therefor of an interest of equivalent value in a participating security of the
Corporation, a successor to the business of the Corporation or person who
controls the Corporation or, in the case of Policy 9.1 and Policy Q-27, a person
who controls a successor to the business of the Corporation. The transaction
could also be a "related party transaction" for purposes of Policy 9.1 and
Policy Q-27.
Policy 9.1 and Policy Q-27 provide that, unless exempted, a corporation
proposing to carry out a Subsequent Acquisition Transaction is required to
prepare a valuation of the affected securities (and any non-cash consideration
being offered therefor) and provide to the holders of the affected securities a
summary of such valuation. An exemption from the valuation requirement is
generally available when the price offered to security holders was arrived at
within the 12 months immediately preceding the date of the Subsequent
Acquisition Transaction through an arm's length negotiation with a selling
security holder of a sizeable block of securities where the selling security
holder had full knowledge and access to information concerning the offeree
issuer such that the underlying value of the offeree issuer was a material
factor considered by the selling security holder in arriving at the price. The
Purchase Price was arrived at as the result of such negotiations between
IBM Canada and the Locked-up Shareholders. The Offeror is not aware of any
non-financial factors or factors peculiar to the Locked-up Shareholders which
were considered to be relevant by the Locked-up Shareholders in assessing the
amount agreed upon in the Support Agreement as the price to be offered pursuant
to the Offers. The Offeror intends to rely on any exemption then available or to
seek waivers pursuant to Policy 9.1 and Policy Q-27 from the valuation
requirement in Policy 9.1 and Policy Q-27 in connection with any Subsequent
Acquisition Transaction.
Policy 9.1 and Policy Q-27 require that, in addition to any other required
securityholder approval, in order to complete a Subsequent Acquisition
Transaction, the approval of a simple or two-thirds majority (depending on the
nature of the transaction) of the votes cast by "minority" shareholders of the
affected securities must be obtained. In relation to the Offers and any
Subsequent Acquisition Transaction, Policy 9.1 and Policy Q-27 provide that the
Offeror may treat Shares acquired pursuant to the Offers as "minority" Shares
and vote them in favour of such a Subsequent Acquisition Transaction if the
intent to
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effect a Subsequent Acquisition Transaction was disclosed at the time of the
Offers, if a summary of a valuation was provided or no valuation was required in
respect of the Offers and if the consideration per security in the Subsequent
Acquisition Transaction is at least equal in value to the consideration paid
under the Offers. Where the consideration offered in the Subsequent Acquisition
Transaction is payable in whole or in part other than in cash, the approval of a
two-thirds majority of the votes cast by "minority" holders of the affected
securities must be obtained. The Offeror intends that the value of consideration
offered under any Subsequent Acquisition Transaction proposed subsequent to the
Offers would be at least equal to the consideration offered under the Offers.
In the context of the Offers and any Subsequent Acquisition Transaction or
related party transaction, holders of Class A Shares and Class B Shares will be
entitled to vote separately in respect of any vote by "minority" Shareholders,
unless the Offeror is granted an exemption from this requirement. In relation to
the Offers and any Subsequent Acquisition Transaction, the "minority"
Shareholders would be, absent discretionary relief from the OSC and the QSC, the
Offeror with respect to Shares acquired pursuant to the Offers, other than
Shares deposited by the Locked-up Shareholders, and with respect to all other
Shares, all Shareholders, other than the Offeror, its directors and senior
officers, any associate or affiliate of the Offeror or its directors or senior
officers, any person or company acting jointly or in concert with the Offeror or
any of its directors or senior officers in connection with the Offers or the
Subsequent Acquisition Transaction, and any person who is a "related party" of
the Offeror as defined by Policy 9.1 and Policy Q-27.
In the event that a Subsequent Acquisition Transaction is required, the
Offeror intends, to the extent then necessary, to apply to the applicable
securities regulatory authorities for relief from the minority approval
requirement or for an order permitting the Offeror to vote the Shares deposited
to the Offers by the Locked-up Shareholders in connection with any such minority
approval requirement.
In the event a Subsequent Acquisition Transaction were to be consummated,
under the CBCA holders of Shares may have the right to dissent and demand
payment of the fair value of such Shares. This right, if the statutory
procedures are complied with, would lead to a judicial determination of the fair
value required to be paid to such dissenting holders for their Shares. The fair
value of Shares so determined could be more or less than the value of the
consideration offered per Share pursuant to the Subsequent Acquisition
Transaction or the Offer. Any such determination of the fair value of the Shares
could be based upon considerations other than, or in addition to, the market
price of the Shares.
It is anticipated that on May 1, 2000, proposed Rule 61-501 under the
SECURITIES ACT (Ontario) ("Rule 61-501") will come into force which will replace
Policy 9.1. Rule 61-501 is different than Policy 9.1 in certain material
respects. For example, the definition of "going private transaction" has been
narrowed in Rule 61-501 from that contained in Policy 9.1 to apply only to
transactions where the related parties would not be treated identically to other
security holders. In the event that Rule 61-501 is in effect when the Offeror
proposes a Subsequent Acquisition Transaction, and provided that the Locked-up
Shareholders are treated identically to the other Shareholders, then such
Subsequent Acquisition Transaction may not be a going private transaction for
the purposes of Rule 61-501 with the result that in Ontario such transaction
could be effected without attracting the minority approval and valuations
requirements which would have been applicable had Policy 9.1 been in effect at
such time. Since there is no certainty that Policy Q-27 will be amended in a
similar and timely manner, relief from the valuation and minority approval
requirements would still be required.
In September 1994 the Director appointed under the CBCA released a policy on
"going private transactions" stating, among other things, that the Director is
of the opinion that "going-private transactions" are permitted under the CBCA
provided that the transaction is not oppressive or unfairly prejudicial to or
unfairly disregards the interests of a person whose interest in a participating
security is being terminated without his or her consent. In determining whether
a "going-private transaction" is fair,
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the policy states that compliance with the requirements set forth in Policy 9.1
or Policy Q-27 will usually be viewed by the Director as sufficient.
Certain judicial decisions may be considered relevant to any proposed
Subsequent Acquisition Transaction. Prior to the adoption of Policy 9.1 and
Policy Q-27, Canadian courts, in a few instances, granted preliminary
injunctions to prohibit transactions involving a "going private transaction".
The current trend both in legislation and in the Canadian jurisprudence is
toward permitting "going private transactions" to proceed, subject to compliance
with procedures designed to ensure substantive fairness to minority
shareholders. The Offeror intends to comply with all applicable requirements, or
obtain relief from such requirements, in respect of any Subsequent Acquisition
Transaction.
Shareholders should consult their legal advisors for a determination of
their legal rights with respect to a "going private transaction".
11. COMPARISON OF SHAREHOLDER RIGHTS
In the event that the acquisition contemplated by the Offers is consummated,
Shareholders who tender Shares under the Offers pursuant to one of the Share
Options will have their Shares exchanged for Exchangeable Shares or shares of
IBM Common Stock. A holder of Exchangeable Shares will have the right to
exchange such shares for that number of shares of IBM Common Stock that is equal
to the number of such Exchangeable Shares. IBM is a corporation organized under
the laws of the state of New York. While the rights and privileges of
shareholders of a Canadian corporation are, in many instances, comparable to
those of stockholders of a New York corporation, there are certain differences.
These differences arise from differences between Canadian and New York law,
between the CBCA and the New York Business Corporation Law, as amended (the
"NYBCL") and between the articles and by-laws of the Corporation and the
Certificate of Incorporation and By-laws of IBM. For a description of the rights
of holders of IBM Common Stock, see Annex A. The following description
summarizes the major differences which may affect the rights of Shareholders and
the Offeror does not purport this to be a complete statement of all such
differences or a complete statement of the specific provisions referred to in
this summary.
The identification of specific differences is not intended to indicate that
other equally or more significant differences do not exist. Shareholders should
read carefully the relevant provisions of the CBCA and the NYBCL, LGS's
Articles, LGS's By-laws, IBM's Certificate of Incorporation and IBM's By-laws.
CAPITALIZATION
The IBM board of directors is authorized to issue preferred stock, to divide
the shares of preferred stock into series, to determine the number of shares in
such series, and to fix the voting powers, if any, and the designations, powers,
preferences and rights of the shares of any series and any qualifications,
limitations or restrictions thereon with certain limitations.
VOTING RIGHTS
Each holder of IBM common stock is entitled to one vote per share and may
not cumulate votes for the election of directors.
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Under the CBCA, certain extraordinary corporate actions, such as certain
amalgamations, continuances and sales, leases or exchanges of all or
substantially all the property of a corporation other than in the ordinary
course of business, and other extraordinary corporate actions such as
liquidations, dissolutions and (if ordered by a court) arrangements, are
required to be approved by special resolution. A
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special resolution is a resolution passed at a meeting by a majority of not less
than two thirds of the votes cast by the shareholders who voted in respect of
that resolution or signed by all the shareholders entitled to vote on that
resolution. Under the CBCA, each share of the corporation carries the right to
vote in respect of certain extraordinary corporate actions whether or not it
otherwise carries the right to vote. In certain cases, a special resolution to
approve an extraordinary corporate action is also required to be approved
separately by the holders of a class or series of shares.
Under New York law, a merger or consolidation of a corporation such as IBM
generally requires, in addition to the adoption of a plan of merger by the board
of directors, the adoption of the agreement by the affirmative vote of
two-thirds of the outstanding stock of such corporation entitled to vote on the
transaction, and, in certain situations, the affirmative vote by the holders of
a majority of all outstanding shares of certain classes or series of stock.
Approval of stockholders generally is not required for the issuance of common
stock under New York law but the NYSE Listing Rules require stockholder approval
if the issuance equals 20% or more of the common or voting stock of the
corporation outstanding immediately prior to the issuance. Where the corporation
owns at least 90% of the outstanding stock of each class of stock of another
corporation, stockholder approval is not required under New York law from either
corporation to merge the subsidiary corporation into the parent provided that
such merger is permitted by the jurisdiction of incorporation of each
constituent corporation.
AMENDMENT TO GOVERNING DOCUMENTS
Under the CBCA, any amendment to a corporation's articles of incorporation
generally requires approval by special resolution, which is a resolution passed
by a majority of not less than two-thirds of the votes cast by shareholders who
voted in respect of that resolution or signed by all the shareholders entitled
to vote on that resolution. The CBCA provides that unless the articles, bylaws
or a unanimous shareholder agreement (as defined in the CBCA) otherwise provide,
the board of directors may, by resolution, make, amend or repeal any bylaws that
regulate the business or affairs of a corporation. Where the board of directors
make, amend or repeal a bylaw, they are required under the CBCA to submit the
bylaw, amendment or repeal to the shareholders at the next meeting of
shareholders, and the shareholders may confirm, reject or amend the bylaw,
amendment or repeal by an ordinary resolution, which is a resolution passed by a
majority of the votes cast by the shareholders who voted in respect of that
resolution.
New York law provides that, in addition to approval of a proposed amendment
by a corporation's board of directors, the vote of holders of a majority in
voting power of the outstanding shares entitled to vote is generally required to
amend a corporation's certificate of incorporation, unless a greater proportion
is otherwise specified in the corporation's certificate of incorporation.
New York law further provides that the holders of shares of a class shall be
entitled to vote and to vote as a class on a proposed amendment to the
certificate of incorporation if the amendment would exclude or limit their right
to vote in any matter, subordinate their right by authorizing shares that have
superior rights, increase or decrease the number of authorized shares of such
class, change the par value of the shares of such class, or alter or change the
relative rights, preferences or limitations of the shares of such class so as to
affect them adversely.
The IBM By-laws provide that the provisions of IBM's By-laws may be amended
or repealed or new by-laws may be adopted by the IBM stockholders at any annual
or special meeting if notice for such meeting mentions the proposed amendment,
repeal or the adoption of new by-laws as one of the purposes of the meeting. The
IBM By-laws may also be amended or repealed or new By-laws may be adopted by the
majority vote of IBM's board of directors at any meeting where proper notice is
given.
VOTE REQUIRED FOR ORDINARY TRANSACTIONS; QUORUM
Under the CBCA, matters which do not require approval by special resolution
by the CBCA, the articles, the bylaws or a unanimous shareholder agreement and
which are questions proposed for the consideration of the shareholders generally
must be approved by a majority of the votes cast by the
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shareholders who voted in respect of that resolution. The CBCA provides that
unless the bylaws of a corporation otherwise provide, a quorum of shareholders
is present at a meeting irrespective of the number of persons actually present
at the meeting, if the holders of a majority of shares entitled to vote at a
meeting of shareholders are present in person or represented by proxy.
Under New York law, a corporation's certificate of incorporation and by-laws
may specify the number of shares necessary to constitute a quorum at any meeting
of shareholders; provided, however, that a quorum may not consist of less than
one-third of the shares entitled to vote at the meeting. The IBM By-laws provide
that the presence in person or by proxy of the holders of a majority of the
total voting power of IBM then outstanding and entitled to vote at any meeting
will constitute a quorum for the transaction of business at that meeting.
Under New York law and the IBM By-laws, matters requiring stockholder
approval generally must be approved by the vote of the holders of a majority of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the matter.
DISSENTERS' AND APPRAISAL RIGHTS
The CBCA provides that shareholders of a CBCA corporation entitled to vote
on certain matters are entitled to exercise dissent rights and to be paid the
fair value of their shares in connection therewith. The CBCA does not
distinguish for this purpose between listed and unlisted shares. Such matters
include (i) any amalgamation with another corporation (other than with certain
affiliated corporations), (ii) an amendment to the corporation's articles to
add, change or remove any provisions restricting the issue, transfer or
ownership of shares, (iii) an amendment to the corporation's articles to add,
change or remove any restriction upon the business or businesses that the
corporation may carry on, (iv) a continuance under the laws of another
jurisdiction, (v) a sale, lease or exchange of all or substantially all the
property of the corporation other than in the ordinary course of business,
(vi) a court order permitting a shareholder to dissent in connection with an
application to the court for an order approving an arrangement (as defined in
the CBCA) proposed by the corporation, or (vii) certain amendments to the
articles of a corporation which require a separate class or series vote,
provided that a shareholder is not entitled to dissent if an amendment to the
articles is effected by a court order approving a reorganization (as defined in
the CBCA) or by a court order made in connection with an action for an
oppression remedy. Under the CBCA, a shareholder may, in addition to exercising
dissent rights, seek an oppression remedy for any act or omission of a
corporation which is oppressive, unfairly prejudicial to or that unfairly
disregards a shareholder's interest.
New York law provides that a stockholder of a corporation who has not voted
for, or consented in writing to, a merger or consolidation of, sale of all or
substantially all the assets of, or share exchange involving that corporation
has the right to receive payment of the fair value of his shares except that the
right to receive payment of the fair value of his shares shall not be available:
(a) to a stockholder of the parent corporation in a merger of the parent and
its 90 percent owned subsidiary;
(b) to a stockholder of the surviving corporation in a merger except when
such merger effects changes in the preferential, preemptive or voting
rights of the shares held by such stockholder; or
(c) to a stockholder for the shares of any class or series of stock, which
shares or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of the
meeting of stockholders to vote upon the plan of merger or consolidation,
were listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc.
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Other stockholders are entitled to the fair value of their shares when they
are:
(a) stockholders of the subsidiary corporation in a merger or a share
exchange described in paragraph (a) above who files with the corporation
a written notice of election to dissent; or
(b) stockholders, not entitled to vote with respect to a plan of merger or
consolidation to which the corporation is a party, whose shares will be
cancelled or exchanged in the merger or consolidation for cash or other
consideration other than shares of the surviving or consolidated
corporation or another corporation.
OPPRESSION REMEDY
The CBCA provides an oppression remedy that enables the court to make any
order, both interim and final, to rectify the matters complained of if the court
is satisfied upon application by a complainant (as defined below) that in
respect of a corporation or any of its affiliates: (i) any act or omission of
the corporation or of its affiliates effects a result, (ii) the business or
affairs of the corporation or any of its affiliates are or have been carried on
or conducted in a manner, or (iii) the powers of the directors of the
corporation or any of its affiliates are or have been exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the
interests of any security holder, creditor, director or officer of the
corporation. A complainant includes (a) a present or former registered holder or
beneficial owner of securities of a corporation or any of its affiliates; (b) a
present or former officer or director of the corporation or any of its
affiliates; (c) the Director appointed under Section 260 of the CBCA, and
(d) any other person who in the discretion of the court is a proper person to
make such application.
Because of the breadth of the conduct which can be complained of and the
scope of the court's remedial powers, the oppression remedy is very flexible and
is sometimes relied upon to safeguard the interests of shareholders and other
complainants with a substantial interest in the corporation. Under the CBCA, it
is not necessary to prove that the directors of a corporation acted in bad faith
in order to seek an oppression remedy. Furthermore, the court may order the
corporation to pay the interim costs of a complainant seeking an oppression
remedy, including legal fees and disbursements, but the complainant may be held
accountable for such interim costs on final disposition of the complaint (as in
the case of a derivative action).
New York law does not provide for an oppression remedy.
DERIVATIVE ACTIONS
Under the CBCA, a complainant may apply to the court (as defined in the
CBCA) for leave to bring an action in the name of and on behalf of a corporation
or any subsidiary, or to intervene in an existing action to which any such body
corporate is a party, for the purpose of prosecuting, defending or discontinuing
the action on behalf of the body corporate. Under the CBCA, no action may be
brought and no intervention in an action may be made unless the court is
satisfied that (i) the complainant has given reasonable notice to the directors
of the corporation or its subsidiary of the complainant's intention to apply to
the court if the directors of the corporation or its subsidiary do not bring,
diligently prosecute or defend or discontinue the action, (ii) the complainant
is acting in good faith, and (iii) it appears to be in the interests of the
corporation or its subsidiary that the action be brought, prosecuted, defended
or discontinued.
Under the CBCA, the court in a derivative action may make any order it
thinks fit. Additionally, under the CBCA, a court may order a corporation or its
subsidiary to pay the complainant's interim costs, including reasonable legal
fees. Although the complainant may be held accountable for the interim costs on
final disposition of the complaint, it is not required to give security for
costs in a derivative action.
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Under New York law, stockholders may bring an action in the right of a
corporation, so long as the stockholder was a stockholder of the corporation at
the time of the conduct in question or he or she obtained the stock thereafter
by operation of law.
SHAREHOLDER CONSENT IN LIEU OF MEETING
Under the CBCA, shareholder action without a meeting may only be taken by
written resolution signed by all shareholders who would be entitled to vote
thereon at a meeting.
Under New York law, unless otherwise provided in the certificate of
incorporation, any action required to be taken or which may be taken at an
annual or special meeting of stockholders may be taken without a meeting if a
consent in writing is signed by the holders of all the outstanding stock
entitled to vote on the action.
DIRECTORS
IBM's Certificate of Incorporation provides that the total number of
directors must be at least 9 and no more than 25, as provided in IBM's By-laws.
The By-laws currently provide for 12 directors.
DIRECTOR QUALIFICATIONS
A majority of the directors of a Canadian corporation generally must be
resident Canadians. The CBCA also requires that a corporation any of the issued
securities of which are or were part of a distribution to the public and remain
outstanding and are held by more than one person shall have no fewer than three
directors, at least two of whom must not be officers or employees of the
corporation or any of its affiliates.
New York law does not have any residency requirements. The IBM Certificate
requires that directors of IBM be IBM stockholders.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations governed by the CBCA have fiduciary obligations to
the corporation. Pursuant to these fiduciary obligations, the directors must act
in accordance with duties of loyalty and due care. The duty of loyalty requires
directors of a Canadian corporation to act honestly and in good faith with a
view to the best interests of the corporation, and the duty of care requires
that the directors exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances.
Directors of corporations organized under New York law have fiduciary
obligations to the corporation and to its stockholders. Pursuant to these
fiduciary obligations, the directors must act in good faith and with the degree
of care which an ordinarily prudent person in a like position would use under
similar circumstances.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the CBCA, a corporation may indemnify a director or officer, a former
director or officer or a person who acts or acted at the corporation's request
as a director or officer of a body corporate of which the corporation is or was
a shareholder or creditor, and his or her heirs and legal representatives (an
"Indemnifiable Person"), against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him or her in respect of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of being or having been
a director or officer of such corporation or such body corporate, if (i) such
person acted honestly and in good faith with a view to the best interests of the
corporation and (ii) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, such person had reasonable
grounds for believing that his or her conduct was lawful. An Indemnifiable
Person is entitled to such
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indemnity from the corporation if such person was substantially successful on
the merits of his or her defence of the action or proceeding and fulfilled the
conditions set out in (i) and (ii) above. A corporation may, with the approval
of a court, also indemnify an Indemnifiable Person in respect of an action by or
on behalf of the corporation or body corporate to procure a judgment in its
favour, to which such person is made a party by reason of being or having been a
director or an officer of the corporation or body corporate, if he or she
fulfills the conditions set out in (i) and (ii) above. The Offeror has provided
for indemnification of directors and officers to the fullest extent authorized
by the CBCA.
New York law permits indemnification against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with actions, suits, or proceedings in which an officer,
director, employee or agent is a party by reason of the fact that he is or was
such a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another entity or enterprise, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, in respect of any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. However, in connection
with actions by or in the right of the corporation, such indemnification is not
permitted if such action has been settled or if such person has been adjudged
liable to the corporation, unless the court in which the action or suit was
brought determines that, under all of the circumstances, such person is
nonetheless fairly and reasonably entitled to indemnity for such expenses as the
court deems proper. Under the IBM By-laws, IBM will indemnify directors and
officers to the fullest extent permitted by law.
New York law also permits a corporation to purchase and maintain insurance
on behalf of its directors, officers, employees and agents against any liability
which may be asserted against, or incurred by, such persons in their capacities
as such whether or not the corporation would have the power to indemnify such
persons against such liabilities. IBM has purchased such insurance. New York law
further provides that the statutory provisions regarding indemnification are not
exclusive of any right which may exist under any by-law, agreement, vote of
stockholders or independent directors, or otherwise.
DIRECTOR LIABILITY
The CBCA does not permit the articles of a corporation to provide
limitations on a director's liability.
New York law provides that the charter of a corporation may include a
provision which limits or eliminates the liability of directors to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided such liability does not arise from certain
prescribed conduct, including acts or omissions not in good faith or which
involve intentional misconduct, breach of the duty of loyalty, a knowing
violation of law or gain of a financial profit or other advantage to which such
director was not legally entitled. The IBM Certificate contains a provision, as
permitted by New York law, eliminating the personal monetary liability of
directors for breach of duties as a director to the fullest extent permitted
under New York law.
ANTI-TAKE-OVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
Policy 9.1 and Policy Q-27 contain requirements in connection with related
party transactions. A related party transaction means, generally, any
transaction by which an issuer, directly or indirectly, acquires or transfers an
asset or acquires or issues treasury securities or assumes or transfers a
liability from or to, as the case may be, a related party by any means in any
one or any combination of transactions. "Related party" is defined in
Policy 9.1 and Policy Q-27 and includes directors, senior officers and holders
of at least 10% of the voting securities of the issuer.
Policy 9.1 and Policy Q-27 require more detailed disclosure in the proxy
material sent to security holders in connection with a related party
transaction, and, subject to certain exceptions, the preparation of a formal
valuation of the subject matter of the related party transaction and any
non-cash consideration
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offered therefor and the inclusion of a summary of the valuation in the proxy
material. Policy 9.1 and Policy Q-27 also require, subject to certain
exceptions, that the minority shareholders of the issuer separately approve the
transaction, by either a simple majority or by two-thirds of the votes cast,
depending on the circumstances.
In the case of IBM, with certain exceptions described below, New York law
prohibits a "business combination" between the corporation and an "interested
stockholder" within five years following the time that the stockholder became an
"interested stockholder." An "interested stockholder" is generally one who,
directly or indirectly, beneficially owns 20% or more of the voting shares
outstanding. A "business combination" includes a merger, consolidation, sale or
other disposition of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain other transactions that
would increase the interested stockholder's proportionate share ownership in the
corporation. This provision does not apply where:
(a) the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the time the stockholder became
an interested stockholder;
(b) no earlier than five years after the time that the interested
stockholder became such, the business combination is approved by a
majority of the shares not owned by the interested stockholder or its
affiliates; or
(c) certain fair price requirements are met.
TRANSACTIONS WITH INTERESTED DIRECTORS OR OFFICERS
Under the CBCA, material contracts or transactions in which a director or
officer has an interest are not invalid because of such interest provided that
the director or officer who is party to a material contract or transaction
discloses his or her interest in writing to the corporation or requests to have
entered in the minutes of meetings of directors the nature and extent of his or
her interest in accordance with the provisions of the CBCA, the contract was
approved by the directors or shareholders and it was reasonable and fair to the
corporation at the time it was approved.
Under the CBCA, where a material contract or transaction or a proposed
material contract or transaction that, in the ordinary course of the
corporation's business, would not require approval by the directors or
shareholders is proposed, the interested director or officer is required to
disclose in writing to the corporation or request to have entered in the minutes
of meetings of directors the nature and extent of his or her interest forthwith
after the director or officer becomes aware of the contract or transaction or
proposed contract or transaction.
Under the CBCA, where a director or officer of a corporation fails to
disclose his or her interest in a material contract or transaction in accordance
with the provisions of the CBCA, the corporation or a shareholder of the
corporation may apply to the court for an order setting aside the contract or
transaction.
New York law provides that a contract or transaction ("transaction") between
a New York corporation and one or more of its directors or officers (an
"interested person"), or an entity in which such person is an officer or
director or has a financial interest, is not void or voidable solely because of
such interest, or solely because such interested person is present at or
participates in a board or committee meeting approving the transaction or solely
because such interested person's votes are counted for such purposes if:
(a) the material facts of the relationship or interest and the transaction
are disclosed in good faith or are known to the board or committee and
the board or committee authorizes the transaction by a majority of the
disinterested directors or, if a majority of disinterested directors is
not sufficient to constitute an act of the board, by unanimous vote of
the disinterested directors;
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(b) the material facts of the relationship or interest and the transaction
are disclosed in good faith or are known to, and the transaction is
approved by, the stockholders; or
(c) the transaction is fair as to the corporation at the time it is
authorized, approved or ratified.
EXAMINATION OF CORPORATE RECORDS
Under the CBCA, shareholders and creditors of a corporation, their agents
and legal representatives may examine the articles and by-laws of the
corporation and all amendments thereto, any unanimous shareholders agreement,
minutes of meetings and resolutions of shareholders, notices of directors and
change in directors and a securities register during the usual business hours of
the corporation, and may take extracts free of charge. Where the corporation is
a public company, any other person may examine such records on payment of a
reasonable fee.
Under New York law, stockholders of record have the right for any proper
purpose to inspect, upon written demand, the corporation's stock ledger, list of
stockholders, and its other books and records, and to make copies or extracts of
the same. A proper purpose means a purpose reasonably related to a person's
interest as a stockholder and the corporation may deny a stockholder access if
the stockholder will not provide an affidavit of proper purpose and certain
other matters.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
The shareholders of a CBCA corporation such as AcquisitionCo or LGS may, by
resolution passed by a majority of the votes cast thereon at a meeting of
shareholders called for that purpose, remove any director or directors before
the expiration of such director's term of office and may fill the vacancy
created by the removal of a director at the meeting at which the director is
removed. Unless the articles of a corporation provide that a vacancy may only be
filled by the shareholders, generally, under the CBCA, if a vacancy should occur
in the board of directors, the remaining directors, if constituting a quorum,
may appoint a person to fill the vacancy, except a vacancy resulting from an
increase in the number or minimum number of directors or from a failure to elect
the number or minimum number of directors required by the articles. In the
absence of a quorum, the remaining directors shall call a meeting of
shareholders to fill the vacancy. A director appointed or elected to fill a
vacancy holds office for the unexpired term of his predecessor.
Under New York law, unless the Certificate or By-laws otherwise provides,
the stockholders of the corporation may remove a director only for cause, by the
affirmative vote of the holders of a majority of the shares then entitled to
vote at an election of directors. Neither the IBM Certificate or By-laws provide
for removal without cause. As permitted by New York law, the IBM By-laws provide
that any vacancy on the IBM board may be filled by the IBM board.
SPECIAL MEETING OF STOCKHOLDERS
The CBCA provides that the board of directors or the holders of not less
than 5% of the issued shares of the corporation, that carry the right to vote at
a meeting sought to be held, may requisition the directors to call a meeting of
shareholders for the purposes stated in the requisition.
As permitted by New York law, the IBM By-laws provide that a special meeting
may be called at any time by the Chairman of the IBM board of directors or by
the board of directors itself.
12. SOURCE OF FUNDS FOR PAYMENT
The Offeror estimates that if it acquires all of the outstanding Shares
under the Offers, including the Shares issuable upon the exercise of all
existing Rights, the total amount of funds required to purchase such Shares will
be approximately C$280,440,684 (assuming all Shareholders elect the Cash Option)
and IBM has agreed to provide such funds or cause such funds to be provided.
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13. BENEFICIAL OWNERSHIP OF AND TRADING IN SHARES OF LGS
To the best of the Offeror's knowledge, neither the Offeror nor any director
or senior officer of the Offeror and to the knowledge of the directors and
officers of the Offeror, after reasonable enquiry, no associate of a director or
senior officer of the Offeror, no person acting jointly or in concert with the
Offeror or no person or company who beneficially owns, directly or indirectly,
more than 10% of any class of equity securities of the Offeror, beneficially
owns or exercises control or direction over any securities of the Corporation.
To the best of the Offeror's knowledge, no securities of the Corporation
have been traded during the six month period preceding the date of the Offers by
the Offeror or any director or senior officer of the Offeror nor, to the
knowledge of the directors and officers of the Offeror after reasonable inquiry,
by associates of the directors or senior officers of the Offeror, any person
acting jointly or in concert with the Offeror or any person or company who
beneficially owns, directly or indirectly, more than 10% of any class of equity
securities of the Offeror.
14. PRICE RANGES AND VOLUME OF TRADING OF SHARES
The Class A Shares are listed and posted for trading on the TSE and Nasdaq.
The following tables set forth for the periods indicated, the reported high and
low closing prices and the volume of trading of the Class A Shares on the TSE
and Nasdaq.
CLASS A SHARES
<TABLE>
<CAPTION>
THE TORONTO STOCK EXCHANGE THE NASDAQ STOCK MARKET
(C$) (US$)
------------------------------- ------------------------------
HIGH LOW VOLUME HIGH LOW VOLUME
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1999
January........................................ 15.25 11.15 618,381 10.00 7.31 96,000
February....................................... 14.75 13.25 317,272 9.75 8.75 49,800
March.......................................... 14.00 11.25 593,997 8.81 7.03 38,200
April.......................................... 12.45 10.85 998,351 8.25 7.13 28,100
May............................................ 14.55 12.00 435,338 10.25 8.25 78,100
June........................................... 14.45 13.10 237,501 9.66 9.13 23,700
July........................................... 13.50 12.00 276,042 9.13 7.88 59,300
August......................................... 13.30 10.10 636,447 8.75 6.70 26,000
September...................................... 10.40 9.80 301,166 7.25 6.69 48,100
October........................................ 9.60 8.00 292,997 6.69 5.38 38,400
November....................................... 10.10 7.05 602,545 6.56 4.88 250,500
December....................................... 12.25 8.15 1,097,739 8.50 5.25 235,700
2000
January........................................ 11.70 8.60 830,618 8.00 6.25 37,500
February....................................... 18.60 8.20 7,774,231 12.88 6.13 253,900
March.......................................... 18.91 18.25 3,576,500 13.00 12.00 106,988
</TABLE>
On February 14, 2000, the day prior to the date that IBM Canada announced
that it had entered into the Support Agreement with the Locked-up Shareholders,
the closing price of the Class A Shares on the TSE and Nasdaq was, respectively,
C$16.05 and US$11 7/16. The closing price of the Class A Shares on the TSE and
on Nasdaq on April 4, 2000 was respectively C$18.09 and US$13.06. The last trade
of Class A Shares on Nasdaq was completed on March 13, 2000.
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15. EFFECT OF THE OFFERS ON MARKETS FOR SHARES AND STOCK EXCHANGE LISTINGS
The purchase of Shares by the Offeror pursuant to the Offers will reduce the
number of Shares that might otherwise trade publicly, as well as the number of
Shareholders, and, depending on the number of holders depositing and the number
of Shares purchased under the Offers, could adversely affect the liquidity and
market value of the remaining Shares held by the public.
The rules and regulations of the TSE and Nasdaq establish certain criteria
which, if not met, could lead to the delisting of the Shares from such
exchanges. Among such criteria are the number of shareholders, the number of
shares publicly held and the aggregate market value of the shares publicly held.
Depending on the number of Shares purchased pursuant to the Offers, it is
possible that the Shares would fail to meet the criteria for continued listing
on the TSE and Nasdaq. It is the intention of the Offeror to apply to delist the
Shares from such exchanges as soon as practicable after completion of the Offers
if all the issued and outstanding Shares are deposited, or after effecting a
Compulsory Acquisition or a Subsequent Acquisition Transaction, if any.
16. COMMITMENTS TO ACQUIRE SECURITIES
Other than as disclosed in Section 8 of the Circular -- "Background to and
Reasons for the Offers -- Support Agreement", no securities of the Corporation
are covered by any commitments made by AcquisitionCo, US BuyCo or their
respective directors or senior officers, nor to the knowledge of AcquisitionCo
and US BuyCo, after reasonable inquiry, by any associate of a director or senior
officer of AcquisitionCo and US BuyCo, any person acting jointly or in concert
with AcquisitionCo and US BuyCo or by any person or company who beneficially
owns, directly or indirectly, more than 10% of any class of equity securities of
AcquisitionCo or US BuyCo.
17. ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS
Other than as set forth below and other than as described at Section 8 of
the Circular -- "Background to and Reasons for the Offers -- Support Agreement",
there are no arrangements or agreements made or proposed to be made between the
Offeror and any of the directors or senior officers of the Corporation and no
payments or other benefits are proposed to be made or given by way of
compensation for loss of office or as to such directors or officers remaining in
or retiring from office and there are no contracts, arrangements or
understandings, formal or informal, between the Offeror and any securityholder
of the Corporation with respect to the Offers or between the Offeror and any
person or company with respect to any securities of the Corporation in relation
to the Offers.
RETENTION AGREEMENTS
Messrs. Lafontaine and Gauthier (each a "Principal" and collectively the
"Principals") have covenanted in the Support Agreement to enter into Retention
Agreements with IBM Canada on terms described in a schedule to such agreement.
The Retention Agreements to be entered into between IBM Canada and the
Principals will have the following material features:
- A covenant of the Principal: (i) prohibiting the Principal from engaging
in any line of business conducted by LGS at the date of the Retention
Agreement in either North America or Europe for a period of one year
commencing on the date on which the Principal ceases to be employed by LGS
(or a successor of LGS or an affiliate of IBM) or for a period of
18 months from the date of termination of employment in the event that the
Principal ceases to be employed by LGS (or a successor of LGS or an
affiliate of IBM) within one year from the date of the Retention
Agreement; (ii) prohibiting the Principal from soliciting any employees or
customers of LGS (or any successor thereof) for a period of one year
commencing on the date on which the Principal
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ceases to be employed by LGS (or a successor of LGS or an affiliate of
IBM); and (iii) to devote substantially all of the Principal's time to his
or her employment with LGS (including any successor of LGS or an affiliate
of IBM) and to work exclusively for such entity and with a view to its
best interests, except for reasonable social, political or charitable
activities or existing undertakings;
- A Principal will be entitled to receive payments over a period of
24 months provided: (i) the Principal remains in the employ of LGS (or a
successor of LGS or an affiliate of IBM); and (ii) the Principal attains
certain mutually agreed upon business objectives. The aggregate amount of
the payments which a Principal can obtain under the applicable Retention
Agreement may vary but will be up to approximately 2 times his or her 1999
compensation, inclusive of salary and bonus;
- The Principals will be entitled to benefits and perquisites comparable to
those provided to IBM Canada's employees in similar circumstances and with
comparable levels of responsibility;
- The Principals will each receive a grant of 20,000 options each of which
is exercisable into one share of IBM Common Stock. The options will be
issued by reference to the average of the daily high and low trade price
of the shares of IBM Common Stock on the NYSE on the date of grant. The
options vest as to 50% on the second anniversary of grant, as to 25% on
the third anniversary of grant and as to 25% on the fourth anniversary of
grant. The options are non-transferable and if unvested, terminate
automatically upon termination of the Principal's employment with LGS (or
any successor of LGS or an affiliate of IBM) for any reason. Vested
options terminate 90 days after termination of employment for any reason.
The options are being granted as partial consideration for the
non-competition, non-solicitation and employment covenants of the
Principal contained in the Retention Agreements. Accordingly, such options
will be revoked or otherwise cancelled or rescinded if there is a breach
of such covenants; and
- The Principals shall release LGS (and any successor of LGS or an affiliate
of IBM) from any obligations relating to any other termination, retention,
golden parachute or golden handshake agreements (other than any other
right that may exist pursuant to law).
IBM Canada intends to enter into retention agreements on similar terms with
certain other senior executives and key employees of the Corporation.
18. REGULATORY MATTERS
COMPETITION ACT (CANADA)
The merger provisions of the Competition Act permit the Commissioner of
Competition appointed under the Competition Act (the "Commissioner") to apply to
the Competition Tribunal (the "Tribunal") to seek relief in respect of merger
transactions (including acquisitions of Shares by the Offeror pursuant to the
Offers) which are likely to prevent or lessen competition substantially. The
relief that may be ordered by the Tribunal includes, in the case of a proposed
merger transaction, prohibiting completion of the transaction and, in the case
of a completed merger, the dissolution of the merger or the divestiture of the
assets or shares. Proceedings under the merger provisions of the Competition Act
may be instituted for a period of three years after a merger transaction has
been substantially completed.
The Competition Act also requires the parties to certain proposed merger
transactions which exceed specified size thresholds to provide the Commissioner
with prior notice of and information relating to the transaction and the parties
thereto, and to await the expiration of a prescribed "waiting period" prior to
completing the transaction. The waiting period may be 14 or 42 days from the
time a complete pre-merger notification is provided to the Commissioner,
depending on whether a "short-form" or a more detailed "long-form" filing is
provided to the Commissioner.
AcquisitionCo filed a request for an advance ruling certificate on
February 29, 2000 and both parties filed a short-form pre-merger notification
with the Commissioner pursuant to the provisions of the
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Competition Act. The notification was certified complete on March 9, 2000 and
the applicable 14-day waiting period under the Competition Act expires on
March 23, 2000.
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 (UNITED STATES)
Based on the public disclosure documents that the Corporation has filed with
the OSC, the Offeror will not have to make any filings or notifications under
the HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 (United States).
SECURITIES REGULATORY MATTERS
Upon the filing of this Circular with the Canadian securities regulatory
authorities, AcquisitionCo will become a reporting issuer (or its equivalent) in
certain of the Canadian provinces. The Offeror will shortly apply to obtain
relief from statutory financial and other reporting requirements imposed by
Canadian provincial securities legislation, including relief exempting insiders
of the Offeror from the requirements to file insider reports with respect to
trades of the Offeror's securities. In the event such relief is granted, the
Offeror will file with the Canadian securities regulatory authorities copies of
certain of the reports filed by IBM with the SEC and holders of Exchangeable
Shares will receive certain materials that are sent by IBM to holders of IBM
Common Stock.
In addition, the shares of IBM Common Stock issuable on exercise of the
Exchangeable Shares will not be freely tradeable in certain provinces of Canada.
However, the Offeror will apply to the applicable securities regulatory
authorities for a ruling that the shares of IBM Common Stock issuable on the
exchange of Exchangeable Shares will be able to be traded through the facilities
of the NYSE in accordance with the NYSE's rules. The Exchangeable Shares will
not be listed on any stock exchange in Canada.
In connection with the Offers, on February 22, 2000, IBM Canada and IBM, in
their own right and on behalf of the Offeror, applied to the Canadian securities
regulatory authorities for an order exempting the Offers from the identical
consideration requirements and collateral benefit prohibitions of such laws. On
March 1, 2000, IBM and IBM Canada, in their own right and on behalf of the
Offeror, applied for further relief to permit the Offeror to satisfy its
disclosure obligations with respect to IBM by providing the information set
forth at Annex A and to exempt the Offeror from the requirement to reconcile the
IBM financial statements contained in Annex A to Canadian GAAP. A similar
application was filed with the SEC for relief from the identical consideration
requirements of US Federal Securities laws.
19. CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Osler, Hoskin & Harcourt LLP, Canadian counsel to the
Offeror, the following summary fairly describes the principal Canadian federal
income tax considerations generally applicable to Shareholders who dispose of
their Shares pursuant to the Offers or pursuant to certain transactions
described in "Acquisition of Shares Not Deposited" and at all relevant times,
for purposes of the Canadian Tax Act, hold Shares, any Exchangeable Shares and
any IBM Common Stock as capital property, deal at arm's length and are not
affiliated with the Corporation and the Offeror. This summary does not apply to
a Shareholder with respect to whom IBM is or will be a foreign affiliate within
the meaning of the Canadian Tax Act.
Shares, Exchangeable Shares and IBM Common Stock will generally be
considered to be capital property to a Shareholder unless any such Shares,
Exchangeable Shares and IBM Common Stock are held in the course of carrying on a
business of buying and selling shares or such shares were acquired in a
transaction considered to be an adventure in the nature of trade. Canadian
resident Shareholders whose Shares or Exchangeable Shares in respect of which no
election under subsection 85(1) or subsection 85(2) of Canadian Tax Act is made
might not otherwise qualify as capital property, may be entitled to obtain such
qualification by making the irrevocable election provided by subsection 39(4) of
the Canadian Tax Act
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following a disposition of such Shares or Exchangeable Shares. Shareholders who
do not hold Shares, Exchangeable Shares or IBM Common Stock as capital property
should consult their own tax advisors regarding their particular circumstances.
Certain "financial institutions", as defined in the Canadian Tax Act (including
certain financial institutions, registered securities dealers and corporations
controlled by one or more of the foregoing) will be precluded from holding
Shares, Exchangeable Shares and IBM Common Stock as capital property for
purposes of the Canadian Tax Act pursuant to certain rules in the Canadian Tax
Act relating to securities held by financial institutions. This summary does not
address these rules and Shareholders that are "financial institutions" should
consult their own tax advisors with respect to the tax consequences to them of
the application of these rules.
This summary is based on the current provisions of the Canadian Tax Act, the
regulations thereunder (the "Regulations") in force as of the date hereof, and
counsel's understanding of the current published administrative and assessing
practice of the CCRA in effect as of the date hereof. This summary takes into
account specific proposals to amend the Canadian Tax Act and the Regulations
publicly announced by or on behalf of the Minister of Finance (Canada) prior to
the date hereof (the "Tax Proposals"). There is no certainty that the Tax
Proposals will be enacted in the form proposed, if at all. This summary is not
exhaustive of all possible Canada federal income tax considerations and, except
for the Tax Proposals, does not otherwise take into account or anticipate any
changes in law or administrative practice whether by legislative, governmental
or judicial action, nor does it take into account provincial or foreign tax
considerations which may differ significantly from the certain Canadian federal
income tax considerations discussed herein. No advance income tax ruling has
been sought or obtained from the CCRA to confirm the tax consequences of any of
the transactions described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER, AND NO REPRESENTATION WITH RESPECT TO THE INCOME TAX CONSEQUENCES
TO ANY PARTICULAR SHAREHOLDER IS MADE. ACCORDINGLY, SHAREHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
IF THE OFFEROR EFFECTS A SUBSEQUENT ACQUISITION TRANSACTION, THE TAX
CONSEQUENCES TO A SHAREHOLDER MAY DIFFER SIGNIFICANTLY FROM THOSE DESCRIBED
BELOW. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
TAX CONSEQUENCES OF A SUBSEQUENT ACQUISITION TRANSACTION.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of IBM Common Stock including dividends,
adjusted cost base and proceeds of disposition must be expressed in Canadian
dollars and therefore must generally be converted into Canadian dollars based on
the prevailing United States dollar exchange rate at the time such amounts
arise.
SHAREHOLDERS RESIDENT IN CANADA
The following portion of the summary is generally applicable to a
Shareholder who for purposes of the Canadian Tax Act and any relevant tax treaty
or convention is resident or is deemed to be resident in Canada (a "Canadian
Shareholder") at all relevant times.
CASH OPTION
A Canadian Shareholder who elects the Cash Option and transfers Shares to
AcquisitionCo in return for cash (including on a Compulsory Acquisition) will
realize a capital gain (or capital loss) to the extent that the amount of cash
received for the Canadian Shareholder's Shares, net of any reasonable costs of
disposition, exceeds (or is less than) the adjusted cost base of the Shares to
the Canadian Shareholder.
The general tax treatment of capital gains and losses is discussed below
under the heading "Capital Gains and Losses".
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SHARE OPTION
A Canadian Shareholder who elects the Share Option and exchanges Shares for
Exchangeable Shares and Ancillary Rights (including on a Compulsory Acquisition)
will generally be considered to have:
(a) disposed of such Shares for proceeds of disposition equal to the
aggregate fair market value at the date of such exchange of the
Exchangeable Shares and the Ancillary Rights received on the exchange
plus the amount of any cash received in lieu of fractional shares, less
the fair market value at the date of such exchange of the Redemption Call
Right, the Retraction Call Right and the Liquidation Call Right
(collectively, the "Call Rights"); and
(b) granted the Call Rights to IBM and Parentco for consideration equal to
the fair market value at the date of such exchange of the Call Rights.
Canadian Shareholders who elect the Share Option and who are not tax-exempt
for purposes of Part I of the Canadian Tax Act ("Eligible Shareholders") or, in
the case of a Shareholder which is a partnership, where one or more members of
the partnership would be an Eligible Shareholder if such member(s) held such
shares directly, will be entitled to make a joint election with AcquisitionCo
under subsection 85(1) or subsection 85(2), as applicable, of the Canadian Tax
Act which may result in the deferral of capital gains otherwise arising under
(a) above. See commentary under the heading "Canadian Federal Income Tax
Considerations -- Shareholders Resident in Canada -- Tax Elections" below.
To the extent that a subsection 85(1) or 85(2) election is not made in
respect of the exchange of Shares for Exchangeable Shares and Ancillary Rights,
Canadian Shareholders will realize a capital gain (or a capital loss) equal to
the amount by which the proceeds of disposition described in (a) above received
by the holder, net of any reasonable costs of disposition, exceed (or are less
than) the adjusted cost base of the Shares exchanged. In these circumstances,
the aggregate cost of the Exchangeable Shares and the Ancillary Rights acquired
by the holder on the disposition of the Shares to AcquisitionCo will be an
amount equal to their aggregate fair market values. Such aggregate cost must be
allocated between the Exchangeable Shares and the Ancillary Rights on a
reasonable basis based on their respective fair market values for purposes of
determining any gain or loss on a subsequent disposition thereof (see below
under the heading "Redemption or Exchange of Exchangeable Shares").
Whether or not a subsection 85(1) or 85(2) election is made, for the
purposes of determining the tax implications of both the disposition described
in (a) above and any subsequent disposition, a Canadian Shareholder who elects
the Share Option will be required to determine the fair market value of the
Ancillary Rights on a reasonable basis. The implications of making a subsection
85(1) or 85(2) election are discussed below under the heading "Tax Elections".
The Offeror is of the view, and has advised counsel, that any Ancillary
Rights granted will have only nominal fair market value. Counsel expresses no
opinion as to the appropriateness or accuracy of this valuation. The Offeror's
view as to the valuation of the Ancillary Rights is not binding on the CCRA. It
is possible that the CCRA could take the position that the Ancillary Rights have
a fair market value in excess of a nominal amount.
For purposes of determining the tax implications of (a) and (b) above,
Shareholders will be required to determine the fair market value of the Call
Rights granted to IBM and Parentco. The Offeror is of the view, and has advised
counsel, that the Call Rights granted will have only nominal fair market value.
Counsel expresses no opinion as to the appropriateness or accuracy of this
valuation. The Offeror's view as to the valuation of the Call Rights is not
binding on the CCRA. Provided that the Offeror's view as to the valuation of the
Call Rights is correct, the granting of the Call Rights to IBM and Parentco will
not result in any material adverse income tax consequences to holders. However,
should the CCRA challenge this valuation, and ultimately succeed in establishing
that the Call Rights have a fair market value in excess of a nominal amount,
holders will realize a capital gain in an amount equal to the fair market value
of the Call
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Rights (although the proceeds of disposition of the Shares for purposes of
(a) above will be correspondingly reduced).
The general tax treatment of capital gains and losses is discussed below
under the heading "Capital Gains and Losses".
CAPITAL GAINS AND LOSSES
Under the current provisions of the Canadian Tax Act, a Shareholder's
taxable capital gain (or allowable capital loss) from the disposition of Shares,
Exchangeable Shares and Ancillary Rights or IBM Common Stock will be equal to
three-quarters of the amount of the Shareholder's capital gain (or capital loss)
in respect of such disposition. Pursuant to the Tax Proposals, subject to
certain transitional rules which apply in certain limited circumstances, a
Shareholder's taxable capital gain (or allowable capital loss) from the
disposition of Shares, Exchangeable Shares or IBM Common Stock on or after
February 28, 2000 will be two-thirds of the amount of the Shareholder's capital
gain (or capital loss) in respect of such disposition. A Shareholder must
include any such taxable capital gain in income for the taxation year of
disposition, and may, subject to the detailed provisions of the Canadian Tax Act
and the Tax Proposals, deduct any such allowable capital loss from taxable
capital gains in the year in which such allowable capital loss is realized.
Subject to the detailed rules contained in the Canadian Tax Act and the Tax
Proposals, any remaining allowable capital loss may generally be applied to
reduce net taxable capital gains realized by the holder in the three preceding
taxation years or in any subsequent taxation year.
If the Shareholder is a corporation, the amount of any capital loss arising
from a disposition or deemed disposition of a Share or an Exchangeable Share may
be reduced by the amount of dividends received or deemed to have been received
by it on the Share or the Exchangeable Share, as the case may be, to the extent
and under circumstances prescribed by the Canadian Tax Act. Similar rules may
apply where a corporation is a member of a partnership or a beneficiary of a
trust that owns shares or where a trust or partnership of which a corporation is
a beneficiary or a member is a member of a partnership or a beneficiary of a
trust that owns such shares.
Capital gains realized by certain individuals may be subject to alternative
minimum tax under the Canadian Tax Act, depending on the individual's
circumstances.
Shareholders who are "Canadian-controlled private corporations" (as defined
in the Canadian Tax Act) may be liable to pay an additional 6 2/3% refundable
tax in respect of taxable capital gains realized.
TAX ELECTIONS
AcquisitionCo will make a joint election under subsection 85(1) or
subsection 85(2), as applicable, of the Canadian Tax Act, with any Shareholder
who is an Eligible Shareholder or, in the case of a partnership, where one or
more members of the partnership is an Eligible Shareholder, as a result of which
the Shareholder may be entitled to obtain a full or partial tax-deferred
rollover on the disposition of the Shareholder's Shares to AcquisitionCo in
exchange for Exchangeable Shares and Ancillary Rights. The joint election allows
the Shareholder to elect an amount which will be treated for purposes of the
Canadian Tax Act as the Shareholder's proceeds of disposition in respect of such
Shares. The elected amount will be determined by each Shareholder who makes such
a joint election, subject to the limitations under the Canadian Tax Act
described generally below. The elected amount cannot be (i) less than the
greater of the adjusted cost base to such Shareholder of such Shares and the
aggregate of the fair market value of the Ancillary Rights received on the
exchange and the amount of any cash received in lieu of fractional shares
(collectively, the "Non-share Consideration"), or (ii) more than the aggregate
fair market value of such Shares. The cost of the Exchangeable Shares acquired
on such exchange will be the difference between the amount elected and the
aggregate fair market value of the Non-share Consideration received by the
Shareholder on the exchange. A capital gain (or capital loss) will be realized
by a Shareholder to the extent that the proceeds of disposition (i.e., the
elected amount) of the Shares, net of any reasonable costs
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associated with the disposition, exceed (or are less than) the adjusted cost
base to the Shareholder of such Shares. A Shareholder will be required to
include in income capital gains or capital losses in the manner and subject to
the rules described above under the heading "Capital Gains and Losses". The cost
of the Ancillary Rights received will equal the fair market value thereof at the
date the Shares are exchanged. The comments above under the heading "Canadian
Federal Income Tax Considerations -- Shareholders Resident in Canada -- Share
Option" apply equally in respect of determining the fair market value of the
Ancillary Rights for purposes of arriving at the appropriate elected amount.
Shareholders who wish to make an election under subsection 85(1) or
subsection 85(2) of the Canadian Tax Act (a "Tax Election") must duly complete
and forward to AcquisitionCo by registered mail a package of documents described
below (a "Tax Election Filing Package") in the manner and within the time set
out below. A Shareholder interested in obtaining a Tax Election Filing Package
should so indicate on the Letter of Transmittal. The Tax Election Filing Package
will include copies of the relevant election forms and a letter authorizing
AcquisitionCo to file the Tax Election on behalf of the Shareholder.
Alternatively, the Tax Election forms may be obtained directly from the CCRA.
Certain provincial or territorial jurisdictions may require that a separate
joint election be filed for provincial or territorial income tax purposes.
AcquisitionCo will also make a provincial or territorial joint election with an
Eligible Shareholder under provisions of any relevant provincial or territorial
income tax legislation with similar effect to subsection 85(1) or
subsection 85(2) of the Canadian Tax Act. ELIGIBLE SHAREHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS TO DETERMINE WHETHER SEPARATE ELECTION FORMS MUST BE
FILED WITH ANY PROVINCIAL OR TERRITORIAL TAXING AUTHORITY. It will be the
responsibility of each Eligible Shareholder who wishes to make such an election
to obtain the necessary provincial or territorial election forms and to submit
such forms to AcquisitionCo.
A duly completed Tax Election Filing Package together with any required
supporting schedules must be signed by a Shareholder and received by
AcquisitionCo within 90 days of the date on which the Shareholder exchanges his
or her Shares for Exchangeable Shares. AcquisitionCo will execute any properly
completed Tax Election contained in a Tax Election Filing Package and, if so
directed by a Shareholder, will forward such Tax Election by mail within
30 days after the receipt thereof by AcquisitionCo to the CCRA with a copy to
the Shareholder. Alternatively, Shareholders may direct AcquisitionCo to return
the signed election forms directly to them. In order for the CCRA to accept a
Tax Election without a late filing penalty being paid by the Shareholder, the
Tax Election, duly completed and executed by both the Shareholder and
AcquisitionCo, must be received by the CCRA on or before the day that is the
earlier of June 30, 2001 and the date on or before which the holder is required
to file an income tax return for the taxation year in which the Shares are
acquired by AcquisitionCo (i.e., April 30, 2001 in the case of holders who are
individuals).
AcquisitionCo will not be responsible or liable for taxes, interest,
penalties, damages or expenses resulting from the failure by anyone to properly
complete any Tax Election, nor will AcquisitionCo be responsible or liable for
taxes, interest, penalties, damages or expenses resulting from the failure by
anyone to properly file a Tax Election in the prescribed form and manner and
within the time prescribed in the Canadian Tax Act (except with respect to any
failure by AcquisitionCo to file a properly completed Tax Election Filing
Package within 30 days of its being received by AcquisitionCo).
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
TAX CONSEQUENCES TO THEM OF THE RECOGNITION OF A CAPITAL GAIN AS A RESULT OF THE
TRANSFER OF SHARES TO ACQUISITIONCO. A HOLDER WHO DOES NOT MAKE A VALID ELECTION
UNDER SUBSECTION 85(1) OR SUBSECTION 85(2), AS APPLICABLE, OF THE CANADIAN TAX
ACT MAY REALIZE A TAXABLE CAPITAL GAIN.
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DIVIDENDS ON EXCHANGEABLE SHARES
A Canadian Shareholder who is an individual will be required to include in
income dividends received or deemed to be received on the Exchangeable Shares,
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from taxable Canadian corporations.
AcquisitionCo has informed counsel that it is of the view that a person with
whom AcquisitionCo does not deal at arm's length is a "specified financial
institution" at the current time. Accordingly, dividends received or deemed to
be received by a Shareholder that is a corporation will not be deductible in
computing taxable income but will be fully includable in taxable income under
Part I of the Canadian Tax Act. A Shareholder that is a "Canadian-controlled
private corporation" (as defined in the Canadian Tax Act) may be liable to pay
an additional refundable tax of 6 2/3% on dividends or deemed dividends that are
not deductible in computing taxable income.
The Exchangeable Shares will be "taxable preferred shares" and "short-term
preferred shares" for purposes of the Canadian Tax Act. Accordingly,
AcquisitionCo, a taxable Canadian corporation related to AcquisitionCo (a
"Related Corporation") or AcquisitionCo and a Related Corporation, if an
agreement in a prescribed form is filed, will be subject to a 66 2/3% tax under
Part VI.1 of the Canadian Tax Act on dividends paid or deemed to be paid on the
Exchangeable Shares and the corporation that is liable to pay such tax will be
entitled to deduct 9/4 of the tax payable in computing its taxable income under
Part I of the Canadian Tax Act.
IF U.S. WITHHOLDING TAX ARISES WITH RESPECT TO DIVIDENDS PAID ON THE
EXCHANGEABLE SHARES AS SET OUT IN SECTION 20 OF THE CIRCULAR -- "UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS -- NON-US HOLDERS -- DIVIDENDS ON EXCHANGEABLE
SHARES", IT IS UNLIKELY THAT A CANADIAN RESIDENT HOLDER OF EXCHANGEABLE SHARES
WILL BE ENTITLED TO A FOREIGN TAX CREDIT IN CANADA WITH RESPECT TO ANY SUCH US
WITHHOLDING TAX.
REDEMPTION OR EXCHANGE OF EXCHANGEABLE SHARES
A Canadian Shareholder will be considered under the Canadian Tax Act to have
disposed of Exchangeable Shares on (i) a redemption (including pursuant to a
Retraction Request or in the event of the liquidation, dissolution or winding up
of AcquisitionCo) of such Exchangeable Shares by AcquisitionCo, or (ii) an
acquisition of such Exchangeable Shares by IBM or Parentco pursuant to the Call
Rights or the Ancillary Rights. The Canadian federal income tax consequences of
such a disposition are significantly different for the Shareholder depending on
whether the event that give rise to the disposition is a redemption by
AcquisitionCo or an acquisition by IBM or Parentco.
On the redemption (including pursuant to a Retraction Request or in the
event of the liquidation, dissolution or winding up of AcquisitionCo) of an
Exchangeable Share by AcquisitionCo, the holder of an Exchangeable Share will be
deemed to have received a taxable dividend equal to the amount, if any, by which
the redemption proceeds (the fair market value at that time of the IBM Common
Stock received by the holder from the Offeror on the redemption plus the amount
of any accrued and unpaid dividends on the Exchangeable Share) exceeds the
paid-up capital (for purposes of the Canadian Tax Act) at that time of the
Exchangeable Share so redeemed. The amount of any such deemed dividend will be
subject to the tax treatment described above under the heading "Dividends on the
Exchangeable Shares". On the redemption, the holder of an Exchangeable Share
will also be considered to have disposed of the Exchangeable Share for proceeds
of disposition equal to the redemption proceeds less the amount of such deemed
dividend. A holder will in general realize a capital loss (or a capital gain)
equal to the amount by which the adjusted cost base to the holder of the
Exchangeable Share exceeds (or is less than) such proceeds of disposition. The
general tax treatment of capital gains and capital losses is discussed above
under the heading "Capital Gains and Capital Losses". In the case of a holder
that is a corporation, in some circumstances the amount of any such deemed
dividend may be treated as proceeds of disposition and not as a dividend.
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On the exchange of an Exchangeable Share by the holder thereof with IBM or
Parentco for IBM Common Stock, such holder will be considered to have disposed
of the Exchangeable Share for proceeds of disposition equal to the fair market
value at that time of the IBM Common Stock received on such exchange plus the
amount of any accrued and unpaid dividends on the Exchangeable Share. Such
holder will in general realize a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition of the Exchangeable Share, net of
any reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to the holder of the Exchangeable Share. The general tax treatment of
capital gains and capital losses is discussed above under the heading "Capital
Gains and Losses".
ACQUISITION AND DISPOSITION OF IBM COMMON STOCK
The cost of the IBM Common Stock received on the redemption of an
Exchangeable Share by AcquisitionCo will be equal to the fair market value of
the IBM Common Stock received on the redemption. The cost of IBM Common Stock
received on the exchange of an Exchangeable Share with IBM or Parentco will be
equal to the fair market value of the IBM Common Stock received on the exchange.
In either case, the cost of any such IBM Common Stock will be averaged with the
adjusted cost base of any other IBM Common Stock held by the holder immediately
before that time for the purposes of determining the holder's adjusted cost base
of the holder's IBM Common Stock.
A disposition or deemed disposition of IBM Common Stock by a holder thereof
will generally result in a capital gain (or capital loss) to the extent that the
proceeds of disposition, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base to the holder of the IBM Common Stock
immediately before the disposition. The treatment of capital gains and losses is
discussed above under "Capital Gains and Losses".
DIVIDENDS ON IBM COMMON STOCK
Dividends on IBM Common Stock will be required to be included in the
recipient's income for the purposes of the Canadian Tax Act. Such dividends
received by a Canadian Shareholder who is an individual will not be subject to
the gross-up and dividend tax credit rules generally applicable to taxable
dividends received from taxable Canadian corporations. A Shareholder that is a
corporation will include such dividends in computing its income and generally
will not be entitled to deduct the amount of such dividends in computing its
taxable income. A Shareholder that is a "Canadian-controlled private
corporation" (as defined in the Canadian Tax Act) may be liable to pay an
additional refundable tax of 6 2/3% on such dividends. United States
non-resident withholding tax on such dividends generally will be eligible for
foreign tax credit or deduction treatment where applicable under the Canadian
Tax Act. See the commentary below under the heading "United States Federal
Income Tax Considerations -- Non-US Holders -- Dividends on IBM Common Stock".
DISSENTING SHAREHOLDERS
A dissenting Canadian Shareholder who receives payment of fair value of the
Shares as contemplated by Section 206(3)(a)(ii) of the CBCA will be considered
to have disposed of the shares for proceeds of disposition equal to the amount
received by the Shareholder less the amount of any interest awarded by a court
and thus may realize a capital gain or loss. The general tax treatment of
capital gains and capital losses is discussed above under the heading "Capital
Gains and Capital Losses". Additional income tax considerations may be relevant
to dissenting Shareholders who fail to perfect or withdraw their claims pursuant
to their dissent right.
Interest awarded to a dissenting Shareholder by a court will included in the
dissenting Shareholder's income for purposes of the Canadian Tax Act.
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SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the summary is generally applicable to Shareholders
who for purposes of the Canadian Tax Act and any relevant tax treaty or
convention, at all relevant times, are not and have not been resident or deemed
to be resident in Canada, who do not use or hold and are not deemed to use or
hold their Shares in carrying on a business in Canada (a "Non-Resident
Shareholder"). This summary does not apply to a non-resident insurer that
carries on business in Canada and elsewhere.
Generally, the Shares will not be taxable Canadian property to a
Non-Resident Shareholder provided that such shares are listed on a prescribed
stock exchange (which currently includes the TSE and Nasdaq) and none of the
Non-Resident Shareholder, persons with whom the Non-Resident Shareholder does
not deal at arm's length or the Non-Resident Shareholder together with such
persons owned (or had under option) at any time during the immediately preceding
five year period, 25% or more of the issued shares of any class or series of
capital stock of the Corporation, as the case may be. In certain circumstances,
Shares held by a Non-Resident Shareholder may be deemed to be "taxable Canadian
property" where such Shares were acquired as part of a tax-deferred
reorganization.
A Non-Resident Shareholder will not be subject to tax under the Canadian Tax
Act on the transfer of Shares to the Offeror pursuant to the Cash Option or the
US Share Option provided that such Shares are not "taxable Canadian property" to
the Non-Resident Shareholder at the time of the transfer.
A dissenting Non-Resident Shareholder who receives payment of fair value of
the Shares as contemplated by Section 206(3)(a)(ii) of the CBCA will be subject
to the same income tax considerations as those above with respect to dissenting
Canadian Shareholders, except that the dissenting Non-Resident Shareholder will
not be subject to tax under the Canadian Tax Act in respect of capital gains
realized on the disposition of Shares provided that the Shares are not "taxable
Canadian property" to the Shareholder. Additional income tax considerations may
be relevant to dissenting Non-Resident Shareholders who fail to perfect or
withdraw their claims pursuant to their rights of dissent. An award of interest
to a dissenting Non-Resident Shareholder will be subject to a non-resident
withholding tax under the Canadian Tax Act at a rate of 25%. Such rate may be
reduced under the provisions of an applicable income tax treaty or convention.
The tax consequences to Non-Resident Shareholders who deposit Class B Shares
pursuant to the Class B Offer will differ from those described above. Such
Non-Resident Shareholders should consult their own tax advisors with respect to
the tax consequences of depositing Class B Shares pursuant to the Class B Offer.
20. UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material United States federal income tax
consequences to US Holders and Non-US holders (as defined below) that dispose of
their Shares pursuant to the Offers or pursuant to certain transactions
described in "Acquisition of Shares Not Deposited". The summary represents the
views of Cravath, Swaine & Moore, the Offeror's United States tax counsel, and
is based on the US Code, administrative pronouncements, judicial decisions, and
Treasury Department regulations, changes to any of which subsequent to the date
hereof could be applied retroactively and may affect the consequences described
below. In addition, this summary assumes, but Cravath, Swaine & Moore has not
independently verified, that the Corporation is not and has not been a "passive
foreign investment company" for United States federal income tax purposes.
The summary discusses only Shares held as capital assets within the meaning
of Section 1221 of the Code. It does not discuss all of the tax consequences
that may be relevant to a holder in light of his particular circumstances or to
holders subject to special rules, such as insurance companies, tax-exempt
organizations, dealers in securities or foreign currencies, employees that
acquired Shares pursuant to the exercise of options, as compensation or under
employee benefit plans, persons who hold their Shares
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through partnerships or other flow-through entities, or holders whose functional
currency is not the US dollar. Furthermore, the summary does not consider the
potential effects of any state, local or foreign tax laws. Holders should
consult their tax advisors with regard to the application of the United States
federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local, or foreign taxing
jurisdiction.
As used herein, the term "US Holder" means an owner of a Share that is for
United States federal income tax purposes (i) a citizen or resident of the
United States (including certain non-resident alien individuals who have a "tax
home" in the United States), (ii) a corporation or other entity taxable as a
corporation created or organized in or under the laws of the United States or
any political subdivision thereof, or (iii) an estate or trust the income of
which is subject to United States federal income taxation regardless of its
sources. A "Non-US Holder" is any holder that is not a US Holder.
US HOLDERS
RECEIPT OF CASH OR IBM COMMON STOCK
The receipt of cash or IBM Common Stock by US Holders pursuant to the Offers
or the transactions described in "Acquisition of Shares Not Deposited" will
constitute a taxable transaction for United States federal income tax purposes.
As a result, a US Holder will recognize gain or loss for federal income tax
purposes in an amount equal to the difference between the amount of cash or the
fair market value of IBM Common Stock received by such Shareholder and such
Shareholder's adjusted tax basis in the Shares. Gain or loss will be calculated
separately for each block of Shares sold by the US Holder. Any gain or loss
recognized by a US Holder will constitute capital gain or loss, and will
constitute long-term capital gain or loss if the US Holder held the Shares for
more than 12 months as of the date of disposition. For noncorporate
Shareholders, long-term capital gain is subject to federal income tax at a
maximum rate of 20%. There are limits on the deductibility of capital losses.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Each US Holder should complete and sign the Substitute W-9 included as part
of the Letter of Transmittal. If a US Holder fails to do so, such holder may be
subject to a penalty imposed by the IRS, and gross cash proceeds payable to such
US Holder may be subject to backup withholding at a rate of 31%.
Backup withholding is not an additional tax. Rather, the amount of backup
withholding can be credited against the federal income tax liability of the
US Holder.
NON-US HOLDERS
RECEIPT OF CASH OR IBM COMMON STOCK OR EXCHANGEABLE SHARES
A Non-US Holder will generally not be subject to United States federal
income tax with respect to gain recognized on the receipt of cash or IBM Common
Stock or Exchangeable Shares pursuant to the Offers or the transactions
described in "Acquisition of Shares Not Deposited" unless (i) such gain is
effectively connected with the conduct of a United States trade or business by
such Non-US Holder or (ii) in the case of an individual Non-US Holder, such
holder is present in the United States for 183 days or more during the taxable
year of disposition and certain other conditions are met.
DIVIDENDS ON EXCHANGEABLE SHARES
No statutory, judicial or administrative authority exists that directly
addresses the tax treatment of Non-US Holders that elect to receive Exchangeable
Shares. Exchangeable Shares might be considered equity of IBM for United States
federal income tax purposes. If so, dividends distributed on the Exchangeable
Shares would constitute income from United States sources and would be subject
to United States withholding tax at a rate of 30% or such lower rate as may be
specified by an applicable income tax
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treaty between the United States and the country of residence of the Non-US
Holder. Under the US-Canada income tax treaty, a maximum rate of 15% applies to
dividends from United States sources distributed to Canadian residents.
Because of the risk that dividend withholding would apply to the
Exchangeable Shares, IBM or its paying agent will withhold 30% of any dividends
paid on the Exchangeable Shares to a Non-US Holder, unless such holder is
eligible for a reduced treaty rate. Dividends paid before January 1, 2001 to an
address in a foreign country are presumed to be paid to a resident of such
country for purposes of determining the applicability of a reduced treaty rate.
To receive a reduced rate of withholding for dividends paid after December 31,
2000, a Non-US Holder must furnish to IBM or its paying agent a duly completed
Form W-8BEN (or substitute form) certifying to its qualification for such a
reduced rate. A Non-US Holder will be able to apply to the IRS for a refund of
withholding tax on the theory that no withholding tax was due. IBM can give no
assurance that any such refund claim will be successful.
Dividends paid to a Non-US Holder that are effectively connected with the
conduct of a United States trade or business by such holder are exempt from
United States withholding tax, provided that the Non-US Holder furnishes to IBM
or its paying agent a duly completed Form 4224 (for dividends paid before
January 1, 2001) or Form W-8ECI (or substitute form). Any such effectively
connected dividends will, however, be subject to United States federal income
tax on a net income basis at the same graduated rates applicable to US Holders
and may, if received by a foreign corporation, be subject to an additional
"branch profits tax" at a rate of 30% or such lower rate as may be specified by
an applicable income tax treaty.
DIVIDENDS ON IBM COMMON STOCK
Dividends distributed on IBM Common Stock to Non-US Holders will be subject
to withholding tax at a rate of 30% or such lower rate as may be specified by an
applicable income tax treaty. Non-US Holders must comply with the requirements
described above under "Dividends on Exchangeable Shares" in order to receive the
benefit or a reduced treaty rate.
Dividends paid to a Non-US Holder that are effectively connected with the
conduct of a United States trade or business by such holder are exempt from
United States withholding tax, provided that the Non-US Holder furnishes to IBM
or its paying agent a duly completed Form 4224 (for dividends paid before
January 1, 2001) or Form W-8ECI (or substitute form), as described above.
SALE OR EXCHANGE OF EXCHANGEABLE SHARES OR IBM COMMON STOCK
A Non-US Holder will generally not be subject to United States federal
income tax with respect to a gain recognized on a sale or other disposition of
Exchangeable Shares or IBM Common Stock, including an exchange of Exchangeable
Shares for IBM Common Stock, unless (i) such gain is effectively connected with
the conduct of United States trade or business by such Non-US Holder or (ii) in
the case of an individual Non-US Holder, such holder is present in the United
States for 183 days or more during the taxable year of disposition and certain
other conditions are met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
United States backup withholding generally will not apply to dividends paid
on the Exchangeable Shares or IBM Common Stock before January 1, 2001, to a
Non-US Holder at an address outside the United States, or to dividends paid on
the Exchangeable Shares or IBM Common Stock after December 31, 2000 if the
Non-US Holder certifies that it is a Non-US Holder on a Form W-8BEN or otherwise
establishes an exemption. IBM must report annually to the IRS and to each
Non-US Holder the amount of dividends paid to such holder and the amounts of tax
withheld, if any.
Upon the sale or other disposition of Exchangeable Shares or IBM Common
Stock by a Non-US Holder, information reporting and/or backup withholding may
apply if the sale or disposition is made
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through a broker with certain connections to the United States unless the
Non-US Holder establishes an exemption.
21. PREVIOUS DISTRIBUTIONS, SALES AND PURCHASES
Based on publicly available information, the Offeror believes that the only
distributions of Shares or Rights (but not including distributions of options
granted under the share option plan adopted for officers, directors and certain
employees of the Corporation) effected during the previous four completed fiscal
years of the Corporation (other than pursuant to the exercise of options granted
under the stock option plan) were as follows:
- On May 28, 1998, the Corporation completed a special warrant issue for
total cash consideration of C$39,100,000, which were subsequently
converted into 2,300,000 Class A Shares.
- During the year ended March 31, 1998, the Corporation issued 530,000
Class A Shares upon the conversion of 30,000 Class C Shares and 500,000
Class B Shares.
- In December 1998, the Corporation acquired all of the outstanding shares
of CallPro Canada Inc., a company involved in E-commerce solutions, for
total consideration of C$11,698,000. The purchase price was paid in part
by the issuance of 350,000 Class A Shares for consideration of C$3,850,000
and 350,000 warrants, for consideration of C$647,500, each warrant
entitling its holder to purchase one Class A Share at a price of C$13.18
per share exercisable until December 21, 2003.
- In January of 1998, the Corporation acquired all of the outstanding shares
of Artefact Informatique Inc., a company specialising in providing
services in the health care field, for total consideration of C$460,000.
The purchase price was paid by the issuance of 24,338 Class A Shares,
issued for consideration of C$377,500, and C$82,500 in cash.
- During the year ended March 31, 1997, the Corporation issued 1,051,640
Class A Shares upon the conversion of 251,640 Class C Shares and 800,000
Class B Shares.
- In November 1997, the Corporation completed a private placement and issued
408,163 Class A Shares and 408,163 warrants for total cash consideration
of C$5,000,000. Each warrant entitles its holder to purchase one Class A
Share at a price of C$14.40 per share exercisable until October 31, 2002.
- In September 1997, the Corporation issued 100,000 warrants, each warrant
entitling its holder to purchase one Class A Share at a price of C$9.00
per share. The rights represented by these warrants vest monthly over
three years and may be exercised until September 4, 2002.
- During the year ended March 31, 1996, the Corporation issued 306,280
Class A Shares upon the conversion of 306,280 Class C Shares.
- The Corporation authorized a normal course issuer bid to purchase for
cancellation, from April 1, 1999 to March 31, 2000, a maximum of 946,445
Class A Shares, which represents less than 10% of the outstanding Class A
Shares as at March 31, 1999.
22. MATERIAL CHANGE AND OTHER INFORMATION
Based on the Offeror's review of the Corporation's operations in the context
of its due diligence review, the Offeror believes that the Corporation's
financial performance will be negatively impacted by the loss of Y2K related
business. Other than as set forth above and except for these Offers and except
as otherwise disclosed publicly by LGS, the Offeror is not aware of any
information which indicates that any material change has occurred in the affairs
of the Corporation since December 31, 1999, the date of the last available
published financial statements of the Corporation.
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23. ELIGIBILITY FOR INVESTMENT IN CANADA
In the opinion of Osler, Hoskin & Harcourt LLP, Canadian counsel to IBM and
the Offeror, subject to compliance with the prudent investment standards and the
general investment provisions and restrictions of the following statutes (and,
where applicable, the regulations thereunder) and, in certain cases, subject to
the satisfaction of additional requirements relating to investment or lending
policies, procedures or goals and, in certain circumstances, the filing of such
polices, procedures and goals, the Exchangeable Shares are not, at the date
hereof, precluded as investments under or by the following statutes:
INSURANCE COMPANIES ACT (Canada)
PENSION BENEFITS STANDARDS ACT, 1985 (Canada)
TRUST AND LOAN COMPANIES ACT (Canada)
LOAN AND TRUST CORPORATIONS ACT (Ontario)
PENSION BENEFITS ACT (Ontario)
TRUSTEE ACT (Ontario)
The Exchangeable Shares will not be listed on any prescribed stock exchange
in Canada or outside Canada and the Offeror will not elect to be a public
corporation for purposes of the Canadian Tax Act. IBM has advised the Offeror
that it will maintain the listing of the IBM Common Stock on the NYSE or another
prescribed exchange.
QUALIFIED INVESTMENTS
In the opinion of Osler, Hoskin & Harcourt, LLP, Canadian counsel to the
Offeror, the Exchangeable Shares and Ancillary Rights will not be qualified
investments under the Canadian Tax Act for trusts governed by registered
retirement savings plans (RRSPs"), registered retirement income funds ("RRIFs"),
deferred profit sharing plans ("DPSPs") or registered education savings plans
("RESPs"). An annuitant of a trust governed by an RRSP or RRIF will be required
to include in income and a trust governed by a DPSP will be liable for tax on an
amount equal to the fair market value of a non-qualified investment at the time
it is acquired, subject to possible deduction or refund at the time of
disposition. A trust governed by an RRSP or RRIF is liable for tax in respect of
income from non-qualified investments, including on the full amount of any
capital gain realized on the disposition thereof. Part XI.1 tax is imposed on a
trust governed by an RESP at a rate of 1% per month of the fair market value, at
the time of acquisition, of non-qualified investments held at the end of any
month and, in addition, holding a non-qualified investment may have other
adverse consequences to a trust governed by an RESP.
Provided that the IBM Common Stock is listed on a prescribed stock exchange
(which currently includes the NYSE), the IBM Common Stock will be a qualified
investment for trusts governed by RRSPs, RRIFs, DPSPs or RESPs.
FOREIGN PROPERTY
The Exchangeable Shares will be foreign property under the Canadian Tax Act
for trusts governed by registered pension plans, RRSPs, RRIFs or DPSPs and
certain other persons to whom Part XI of the Canadian Tax Act is applicable. The
Ancillary Rights will also be foreign property under the Canadian Tax Act;
however, the Offeror is of the view that the fair market value of such rights is
nominal. Part XI tax is generally imposed on trusts governed by registered
pension plans, RRSPs, RRIFs or DPSPs where the cost amount of foreign property
held by the trust at the end of a month exceeds 20%, and, pursuant to the Tax
Proposals, 25% for the year 2000 and 30% after the year 2000 of the cost amount
of all property held by the trust at the end of a month. Part XI tax is imposed
at a rate of 1% per month of the cost amount of such excess foreign property.
However, since the Exchangeable Shares and Ancillary Rights are not a qualified
investment for trusts governed by RRSPs, RRIFs or DPSPs, the cost amount of the
Exchangeable Shares and Ancillary Rights will not be included in determining the
amount of excess foreign property subject to Part XI tax for such deferred
income plans. For other persons to whom Part XI tax is applicable, since the
Exchangeable Shares are acquired by a Shareholder in exchange for Shares in the
course of a transaction in which control of the Corporation is acquired by the
Offeror, the cost amount of the
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Exchangeable Shares will only become relevant in determining the amount of
excess foreign property subject to Part XI tax for such persons at the end of a
month which is more than 24 months after the Exchangeable Shares are issued to
such persons.
The IBM Common Stock will be foreign property under the Canadian Tax Act.
SHAREHOLDERS WHO ARE REGISTERED PENSION PLANS OR WHO HOLD THEIR SHARES
THROUGH A RRSP, RRIF, DPSP OR RESP SHOULD CONSULT THEIR OWN TAX ADVISORS FOR
ADVICE HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCE.
24. DEPOSITARY ARRANGEMENTS
The Offeror has engaged CIBC Mellon Trust Company to act as the Depositary
for the receipt of certificates in respect of the Shares, Letters of Acceptance
and Transmittal and Notices of Guaranteed Delivery deposited under the Offers
and for the payment for Shares purchased by the Offeror pursuant to the Offers.
The Depositary will receive reasonable and customary compensation from the
Offeror for its services in connection with the Offers, will be reimbursed for
certain out-of-pocket expenses and will be indemnified against certain
liabilities, including liabilities under applicable securities laws and expenses
in connection therewith.
25. US FORWARDING AGENT AND US INFORMATION AGENT
The Offeror has retained ChaseMellon Consulting Services L.L.C. to act as
the US Information Agent and ChaseMellon Shareholder Services L.L.C. to act as
US Forwarding Agent in connection with the Offers. The US Information Agent may
contact Shareholders by mail, telephone, telex, telegraph or personal interview
and may request brokers, dealers and other nominee shareholders to forward
materials relating to the Offers to the beneficial owners of Shares. The
US Information Agent may also set-up a dedicated 1-800 line in order to answer
questions in connection with the Offers. The US Forwarding Agent has been
retained to accept the deposit of hand-delivered certificates representing the
Shares and related Letters of Acceptance and Transmittal deposited under the
Offers by Shareholders resident in the United States, and to distribute to such
US Shareholders the consideration paid by the Offeror for Shares purchased by
the Offeror pursuant to the Offers. The US Information Agent and the
US Forwarding Agent will receive reasonable and customary compensation for their
respective services, will be reimbursed for certain reasonable out-of-pocket
expenses and will be indemnified against certain liabilities in connection
therewith, including certain liabilities under the federal securities laws.
Neither the US Information Agent nor the US Forwarding Agent has been retained
to make solicitations or recommendations in their respective roles as
US Information Agent or US Forwarding Agent.
26. DEALER MANAGERS AND SOLICITING DEALER GROUP
The Offeror has engaged the services of CIBC World Markets Inc. to act as
Dealer Manager in Canada and to solicit acceptances of the Offers in Canada.
CIBC World Markets Inc. has undertaken to form the Soliciting Dealer Group
comprised of members of the Investment Dealers Association of Canada and members
of the stock exchanges in Canada to solicit acceptances of the Offers. CIBC
World Markets Corp. will solicit acceptances of the Offers in the United States.
Each member of the Soliciting Dealer Group, and CIBC World Markets Inc., is
referred to herein as a "Soliciting Dealer". The Offeror has agreed to pay to
each Soliciting Dealer whose name appears in the appropriate space in the Letter
of Acceptance and Transmittal accompanying a deposit of Shares a fee of C$.15
for each such Share deposited and taken up and paid for by the Offeror under the
Offers. The aggregate amount payable to a Soliciting Dealer with respect to any
single depositing holder of Shares will be not less than C$85.00 nor more than
C$1,500.00 provided that no fees will be payable in respect of any Letter of
Acceptance and Transmittal representing less than 200 Shares. Where Shares
deposited and registered in a single name are beneficially owned by more than
one person, the minimum and maximum amounts will be applied
78
<PAGE>
separately in respect of each such beneficial owner. The Offeror may require
each Soliciting Dealer to furnish evidence of such beneficial ownership
satisfactory to the Offeror at the time of the deposit.
The Dealer Managers will also be reimbursed by the Offeror for their
reasonable out-of-pocket expenses in connection with the Offers and will be
indemnified against certain liabilities.
No fee or commission will be payable by any holder of Shares who transmits
its Shares directly to the Depositary including, in the case of US Shareholders,
through the facilities of the US Forwarding Agent, or who makes use of the
facilities of a Soliciting Dealer to accept the Offers. Except as set forth
above, the Offeror will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of Shares pursuant to the Offers. Brokers,
dealers, commercial banks and trust companies and other nominees will, upon
request, be reimbursed by the Offeror for customary clerical and mailing
expenses incurred by them in forwarding materials to their customers.
In Canada, questions and requests for assistance concerning the Offers
should be made directly to a Dealer Manager or the Depositary. In the United
States, questions and requests for assistance concerning the Offers should be
made directly to the US Information Agent.
27. LEGAL MATTERS
The validity of the Exchangeable Shares offered hereby by the Offeror will
be passed upon for the Offeror and IBM and the opinions contained under the
headings "Canadian Federal Income Tax Considerations" and "Eligibility for
Investment in Canada" have been provided, by Osler, Hoskin & Harcourt LLP,
Canadian counsel to IBM and the Offeror. The validity of the shares of IBM
Common Stock and the Ancillary Rights offered by IBM will be passed upon for IBM
by Mr. Andrew Bonzani, Assistant Secretary and Senior Counsel. Mr. Bonzani
beneficially owns shares of IBM Common Stock and has options to purchase shares
of IBM Common Stock.
28. EXPERTS
The financial statements for IBM as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 included in this
Offers to Purchase and Circular have been so included in the reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The audited consolidated financial statements of AcquisitionCo, US BuyCo and
LGS included and/or incorporated by reference in these Offers to Purchase and
Circular have been audited by PricewaterhouseCoopers LLP, Chartered Accountants,
as indicated in their reports with respect thereto and are included herein in
reliance upon the authority of said firm as experts in giving such reports.
29. DIRECTORS' APPROVAL
The contents of the Offers to Purchase and this Circular have been approved,
and the sending thereof to the holders of the Shares has been authorized by the
board of directors of IBM and AcquisitionCo.
30. OFFEREES' STATUTORY RIGHTS
Securities legislation in certain of the Provinces and Territories of Canada
provides holders of Shares with, in addition to any other rights they may have
at law, rights for rescission or to damages, or both, if there is a
misrepresentation in a circular or notice that is required to be delivered to
such holders of Shares. However, such rights must be exercised within prescribed
time limits. Holders of Shares should refer to the applicable provisions of the
securities legislation of their Province or Territory for the particulars of
those rights or consult with a lawyer.
79
<PAGE>
CONSENT OF OSLER, HOSKIN & HARCOURT LLP
To: The Directors of IBM Acquisition Inc.
We hereby consent to the reference to our opinion contained at Section 19 of
the Circular -- "Canadian Federal Income Tax Considerations" and our opinion
contained at Section 23 of the Circular -- "Eligibility for Investment in
Canada" accompanying the Offers to Purchase dated March 15, 2000 made by IBM
Acquisition Inc. and IBM Acquisition II L.L.C. to the holders of Class A
Subordinate Voting Shares and Class B Multiple Voting Shares of LGS Group Inc.
Toronto, Ontario (Signed) OSLER, HOSKIN & HARCOURT LLP
March 15, 2000
80
<PAGE>
CONSENT OF CHARTERED ACCOUNTANTS
Dear Sirs:
RE: LGS GROUP INC.
We hereby consent to the incorporation by reference in the Offers to
Purchase and Circular dated March 15, 2000 and in the Registration Statement on
Form S-4 of International Business Machines Corp., dated March 15, 2000, of our
report as auditors dated June 4, 1999 relating to the consolidated financial
statements of LGS Group Inc. as at March 31, 1999 and 1998 included in the
Annual Report of LGS Group Inc. for the year ended March 31, 1999, which forms
part of such Offers to Purchase and Circular and Registration Statement.
Montreal, Canada (Signed) PRICEWATERHOUSECOOPERS LLP
March 15, 2000 Chartered Accountants
81
<PAGE>
CONSENT OF CHARTERED ACCOUNTANTS
Ontario Securities Commission
British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Commission des valeurs mobilieres du Quebec
Office of the Administrator of Securities, New Brunswick
Nova Scotia Securities Commission
Registrar of Securities, Prince Edward Island
Securities Commission of Newfoundland
Registrar of Securities, Government of Northwest Territories
Registrar of Securities, Government of The Yukon Territory
Nunavut Legal Registries
Dear Sirs:
Re: IBM Acquisition Inc.
We refer to the Offers to Purchase and Circular dated March 15, 2000 by IBM
Acquisition Inc. and IBM Acquisition II L.L.C. to the holders of Class A Shares
and Class B Shares of LGS Group Inc.
We consent to the use in the above mentioned Offers to Purchase and Circular
of our auditors' report dated March 15, 2000 to the shareholder of
IBM Acquisition Inc. on the balance sheet of IBM Acquisition Inc. as at
March 10, 2000 included at Annex B of the Circular.
Toronto, Ontario (Signed) PRICEWATERHOUSECOOPERS LLP
March 15, 2000 Chartered Accountants
82
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Offers to Purchase and Circular and in
the Registration Statement on Form S-4 of International Business Machines
Corporation of our report dated January 19, 2000 relating to the financial
statements and financial statement schedule of International Business Machines
Corporation, which appear in such Offers to Purchase and Circular and
Registration Statement. We also consent to the references to us under the
headings "Experts" in such Offers to Purchase and Circular and Registration
Statement.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 15, 2000
83
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Offers to Purchase and Circular and in
the Registration Statement on Form S-4 of International Business Machines
Corporation of our report dated March 14, 2000 relating to the financial
statements of IBM Acquisition II L.L.C., which appears in such Offers to
Purchase and Circular and Registration Statement.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 15, 2000
84
<PAGE>
APPROVAL AND CERTIFICATE
March 15, 2000
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in the light of the circumstances in which it
was made. In addition, the foregoing does not contain any misrepresentation
likely to affect the value or the market price of the Shares which are the
subject of the Offers.
<TABLE>
<S> <C>
IBM ACQUISITION INC.
By: ARTHUR B. JAMES By: TOM GRAY
President, Chief Executive Officer and Chief Financial Officer and Director
Director
On behalf of the Board of Directors
By: BELINDA C. TANG By: FRANK J. TURNER
Secretary and Director Director
IBM ACQUISITION II L.L.C.
By: LEE A. DAYTON By: PATRICK J. GLENNON
President Vice President and Treasurer
On behalf of the Member
By: DONALD D. WESTFALL By: ANDREW BONZANI
Manager Manager
</TABLE>
85
<PAGE>
ANNEX A
INFORMATION CONCERNING ACQUISITIONCO
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Auditors' report............................................ A-2
IBM Acquisition Inc. Balance Sheet as of March 10, 2000..... A-3
IBM Acquisition Inc. Notes to Balance Sheet................. A-4
</TABLE>
A-1
<PAGE>
AUDITORS' REPORT
To the Shareholder of IBM Acquisition Inc.:
We have audited the balance sheet of IBM Acquisition Inc. as at
March 10, 2000. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, the balance sheet presents fairly, in all material respects,
the financial position of IBM Acquisition Inc. as at March 10, 2000 in
accordance with generally accepted accounting principles.
Toronto, Ontario (Signed) PRICEWATERHOUSECOOPERS LLP
March 15, 2000 Chartered Accountants
A-2
<PAGE>
IBM ACQUISITION INC.
BALANCE SHEET
AS AT MARCH 10, 2000
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash...................................................... $ 100
======
SHAREHOLDER'S EQUITY
Common shares, no par value, authorized -- unlimited, issued
and outstanding -- 100 shares............................. $ 100
======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<TABLE>
<CAPTION>
<S> <C>
(Signed) JOHN A. KAZANJIAN (Signed) FRANK J. TURNER
Director Director
</TABLE>
A-3
<PAGE>
IBM ACQUISITION INC.
NOTES TO BALANCE SHEET
AS AT MARCH 10, 2000
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
IBM Acquisition Inc. was incorporated on March 10, 2000 for the purpose of
making offers to purchase the outstanding Class A Shares and outstanding
Class B Shares of LGS Group Inc., whose primary activities are conducted in
Canada.
IBM Acquisition Inc. is a wholly-owned subsidiary of 3040696 Nova Scotia
Company and has no material assets or liabilities and no operating history.
BASIS OF REPORTING:
The balance sheet of IBM Acquisition Inc. is prepared in accordance with
generally accepted accounting principles in Canada.
The presentation of a statement of income, a statement of changes in
shareholder's equity and a statement of cash flows is not included as there was
no activity in the period presented, except for the issuance of common shares to
3040696 Nova Scotia Company.
NOTE 2 -- POTENTIAL CORPORATE RESTRUCTURING
Following the successful completion of the offers noted above, the corporate
organization of IBM Canada Limited, LGS Group Inc., IBM Acquisition Inc. and/or
IBM Acquisition II L.L.C. may be restructured in connection with the integration
of the operations of IBM Canada Limited and LGS Group Inc.
A-4
<PAGE>
ANNEX B
INFORMATION CONCERNING US BUYCO
INDEX
<TABLE>
<CAPTION>
PAGE(S)
--------
<S> <C>
Report of Independent Accountants........................... B-2
IBM Acquisition II L.L.C. Balance Sheet as of March 14,
2000...................................................... B-3
IBM Acquisition II L.L.C. Notes to Balance Sheet............ B-4
</TABLE>
B-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Member of IBM Acquisition II L.L.C.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of IBM Acquisition II L.L.C. at
March 14, 2000 in conformity with accounting principles generally accepted in
the United States. This balance sheet is the responsibility of the Company's
management; our responsibility is to express an opinion on this balance sheet
based on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 14, 2000
B-2
<PAGE>
IBM ACQUISITION II L.L.C.
NOTES TO BALANCE SHEET
AS OF MARCH 14, 2000
(IN US DOLLARS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Promissory Note Receivable from International Business
Machines Corporation.................................... $100
MEMBER'S EQUITY $100
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<TABLE>
<S> <C>
By: (Signed) DONALD D. WESTFALL By: (Signed) ANDREW BONZANI
Manager Manager
</TABLE>
B-3
<PAGE>
IBM ACQUISITION II L.L.C.
NOTES TO BALANCE SHEET
AS OF MARCH 14, 2000
(IN US DOLLARS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
IBM Acquisition II L.L.C. was formed on March 14, 2000 for the purpose of
making offers to purchase all of the outstanding Class A Subordinate Voting
Shares and all of the outstanding Class B Multiple Voting Shares of LGS
Group Inc., a Canadian corporation.
IBM Acquisition II L.L.C. is a wholly-owned subsidiary of International
Business Machines Corporation and has no material assets or liabilities and
no operating history.
BASIS OF REPORTING:
The balance sheet of IBM Acquisition II L.L.C. is prepared in accordance
with accounting principles generally accepted in the United States.
The presentation of a statement of income, a statement of changes in
member's equity and a statement of cash flows is not included as there was
no activity in the period presented, except for the receipt of a promissory
note from International Business Machines Corporation.
NOTE 2-- PROMISSORY NOTE RECEIVABLE FROM INTERNATIONAL BUSINESS MACHINES
CORPORATION
IBM Acquisition II L.L.C. holds a non-interest bearing promissory note in
the amount of $100 payable on demand from International Business Machines
Corporation relating to the initial capitalization of IBM Acquisition II
L.L.C.
NOTE 3--POTENTIAL CORPORATE RESTRUCTURING
Following the successful completion of the offers noted above, the
organization of IBM Acquisition II L.L.C. may be restructured.
B-4
<PAGE>
THE DEPOSITARY FOR THE OFFERS IS
CIBC MELLON TRUST COMPANY
FOR DELIVERY BY MAIL:
CIBC MELLON TRUST COMPANY
P.O. Box 1036
Adelaide Street Postal Station
Toronto, Ontario
M5C 2K4
Attention: Special Projects
Telephone: 1-416-643-5500
Toll Free: 1-800-387-0825
E-Mail: [email protected]
FOR DELIVERY BY HAND OR COURIER:
CIBC Mellon Trust Company
199 Bay Street
Commerce Court West
Securities Level
Toronto, Ontario
M5L 1G9
Attention: Courier Window
<TABLE>
<S> <C>
MONTREAL VANCOUVER
2001 University Street 16(th) Floor
16(th) Floor 1066 West Hastings Street
Montreal, PQ Vancouver, BC
H3A 2A6 V6E 3X1
OFFICE OF THE US INFORMATION AGENT OFFICE OF THE US INFORMATION AGENT
UNTIL MARCH 31, 2000 EFFECTIVE APRIL 1, 2000
ChaseMellon Consulting Services L.L.C. ChaseMellon Consulting Services L.L.C.
450 West 33(rd) Street, 14(th) Floor 44 Wall Street, 7(th) Floor
New York, NY 10001 New York, NY 10005
Toll Free: 1-877-698-6869 Toll Free: 1-877-698-6869
OFFICE OF THE US FORWARDING AGENT
ChaseMellon Shareholder Services L.L.C.
120 Broadway, 13(th) Floor
New York, NY 10271
</TABLE>
<TABLE>
<CAPTION>
THE DEALER MANAGERS ARE:
<S> <C>
IN CANADA: IN THE UNITED STATES:
CIBC World Markets Inc. CIBC World Markets Corp.
600 de Maisonneuve Blvd. West 425 Lexington Avenue
31(st) Floor 6(th) Floor
Montreal, Quebec New York, NY 10017
H3A 3J2 Telephone: 1-212-856-3680
Telephone: 1-514-847-6506
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
OUR BY-LAWS (ARTICLE VI, SECTION 6) PROVIDE THE FOLLOWING:
"The Corporation shall, to the fullest extent permitted by applicable law as
in effect at any time, indemnify any person made, or threatened to be made, a
party to an action or proceeding whether civil or criminal (including an action
or proceeding by or in the right of the Corporation or any other corporation of
any type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, for which any director or officer of
the Corporation served in any capacity at the request of the Corporation), by
reason of the fact that such person or such person's testator or intestate was a
director or officer of the Corporation, or served such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and necessarily incurred
as a result of such action or proceeding, or any appeal therein. Such
indemnification shall be a contract right and shall include the right to be paid
advances of any expenses incurred by such person in connection with such action,
suit or proceeding, consistent with the provisions of applicable law in effect
at any time. Indemnification shall be deemed to be "permitted' within the
meaning of the first sentence hereof if it is not expressly prohibited by
applicable law as in effect at the time."
Our Certificate of Incorporation (Article ELEVEN) provides the following:
"Pursuant to Section 402(b) of the Business Corporation Law of the State of
New York, the liability of the Corporation's directors to the Corporation or its
stockholders for damages for breach of duty as a director shall be eliminated to
the fullest extent permitted by the Business Corporation Law of the State of New
York, as it exists on the date hereof or as it may hereafter be amended. No
amendment to or repeal of this Article shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal."
With certain limitations, Sections 721 through 726 of the New York Business
Corporation Law permit a corporation to indemnify a director or officer made a
party to an action (i) by a corporation or in its right in order to procure a
judgment in its favor unless he shall have breached his duties, or (ii) other
than an action by or in the right of the corporation in order to procure a
judgment in its favor, if such director or officer acted in good faith and in a
manner he reasonably believed to be in or, in certain cases not opposed to such
corporation's interest and additionally, in criminal actions, had no reasonable
cause to believe his conduct was unlawful.
In addition, we maintain directors' and officers' liability insurance
policies.
UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement (other than as provided
in the proviso and instructions to Item 512(a) of Regulation S-K) (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities
<PAGE>
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, PROVIDED, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on
Form F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
(5) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such officer, director or controlling person in connection with the
securities being registered, the registrant 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 of whether or not such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(7) To respond to requests for information that is incorporated by reference
into the prospectus within one business day of receipt of such request, and to
send the documents by first class mail or equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Armonk, State of New York, on
April 4, 2000.
<TABLE>
<S> <C> <C>
INTERNATIONAL BUSINESS MACHINES CORPORATION
By: /s/ ANDREW BONZANI
-----------------------------------------
Assistant Secretary and Senior Counsel
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board and
* Chief Executive Officer
------------------------------------------- (Principal Executive April 4, 2000
Louis V. Gerstner, Jr. Officer)
Senior Vice President and
* Chief Financial Officer
------------------------------------------- (Principal Financial April 4, 2000
John R. Joyce Officer)
* Vice President and
------------------------------------------- Controller (Principal April 4, 2000
Mark Loughridge Accounting Officer)
*
------------------------------------------- Director April 4, 2000
Cathleen P. Black
*
------------------------------------------- Director April 4, 2000
Kenneth I. Chenault
*
------------------------------------------- Director April 4, 2000
Nannerl O. Keohane
*
------------------------------------------- Director April 4, 2000
Charles F. Knight
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Director April 4, 2000
Minoru Makihara
*
------------------------------------------- Director April 4, 2000
Lucio A. Noto
*
------------------------------------------- Director April 4, 2000
John B. Slaughter
*
------------------------------------------- Director April 4, 2000
Alex Trotman
*
------------------------------------------- Director April 4, 2000
Lodewijk C. van Wachem
------------------------------------------- Director
Charles M. Vest
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ANDREW BONZANI
--------------------------------------
Andrew Bonzani
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- ---------------------
<C> <S>
5.1 Opinion regarding the legality of the securities being
issued
8.1* Opinion of Osler, Hoskin & Harcourt LLP regarding certain
tax matters (included in the document under the heading
"Canadian Federal Income Tax Considerations")
10.1* Support Agreement dated as of February 15, 2000, among IBM
Canada Limited,
Mr. Raymond Lafontaine, Mr. Andre Gauthier, 115523 Canada
Inc. and 15525 Canada Inc.
10.2* Co-Operation Agreement dated as of March 14, 2000 among
International Business Machines Corporation, IBM Canada
Limited, IBM Acquisition II L.L.C. and IBM Acquisition
Inc.
10.3 Support Agreement dated as of April 4, 2000 among
International Business Machines Corporation, 3040696 Nova
Scotia Company and IBM Acquisition Inc.
10.4 Exchange Trust Agreement dated as of April 4, 2000 among
International Business Machines Corporation, 3040696 Nova
Scotia Company, IBM Acquisition Inc. and CIBC Mellon Trust
Company
23.1* Consent of Osler, Hoskin & Harcourt LLP (included as page 71
of the document)
23.2 Consents of PricewaterhouseCoopers LLP
24.1* Powers of Attorney
</TABLE>
- ------------
* Previously filed.
<PAGE>
Exhibit 5.1
April 3, 2000
International Business Machines Corporation
New Orchard Road
Armonk, NY 10504
Ladies and Gentlemen:
I am Assistant Secretary and Senior Counsel of International Business
Machines Corporation (herein called the "Corporation") and an attorney duly
admitted to practice in the State of New York. I am familiar with the
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") regarding the shares of common
stock, par value $.20 per share, of the Corporation (the "Shares") to be
issued pursuant to the Offers to Purchase all of the issued and outstanding
Class A Subordinate Voting Shares and all of the issued and outstanding Class
B Multiple Voting Shares of LGS Group Inc.
I have reviewed such documents and records as I have deemed necessary or
appropriate to enable me to express an informed opinion with respect to the
matters covered hereby.
Based upon the foregoing, I am of the opinion that, when issued or sold in
accordance with the terms of the Offers to Purchase, the Shares will be
validly issued, fully paid and nonassessable.
I hereby consent to the use of my name in the Registration Statement as
counsel who has passed upon the legality of the Shares, and to the use of
this opinion as part of the Registration Statement as required by Section 7
of the Securities Act.
Very truly yours,
/s/ Andrew Bonzani
----------------------------------------
Andrew Bonzani, Esq.
Assistant Secretary and Senior Counsel
<PAGE>
Exhibit 10.3
SUPPORT AGREEMENT
AGREEMENT made as of the 4th day of April, 2000.
AMONG:
INTERNATIONAL BUSINESS MACHINES CORPORATION, a corporation
existing under the laws of the State of New York ("IBM")
-and-
3040696 NOVA SCOTIA COMPANY, an unlimited company existing
under the laws of the Province of Nova Scotia ("Holdco")
- and -
IBM ACQUISITION INC., a corporation existing under the laws of
Canada (the "Corporation")
WHEREAS pursuant to the terms of the offer by the Corporation
and IBM Acquisition II L.L.C. dated March 15, 2000, to purchase all of the Class
A Subordinate Voting Shares and all of the Class B Multiple Voting Shares of LGS
Group Inc., IBM and the Corporation agreed that IBM, Holdco and the Corporation
would execute and deliver a Support Agreement;
NOW THEREFORE, in consideration of the respective covenants
and agreements provided in this agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this agreement, unless something in the subject matter or content is
inconsistent therewith:
"APPLICABLE LAWS" has the meaning set out in Section 2.6 hereof.
"AUTOMATIC EXCHANGE RIGHT" has the meaning set out in Section 1.1 of
the Exchange Trust Agreement.
"BOARD OF DIRECTORS" means the board of directors of the Corporation.
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"BUSINESS DAY" means a day, other than a Saturday, a Sunday or a
statutory holiday, when banks are generally open in each of Montreal,
Quebec and Toronto, Ontario for the transaction of banking business.
"EXCHANGE RIGHT" has the meaning set out in Section 1.1 of the Exchange
Trust Agreement.
"EXCHANGE TRUST AGREEMENT" means the exchange trust agreement made as
of April 4, 2000 among IBM, Holdco, the Corporation and CIBC Mellon
Trust Company.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares.
"EXCHANGEABLE SHARES" means the Exchangeable Shares in the capital of
the Corporation.
"IBM BOARD OF DIRECTORS" means the board of directors of IBM.
"IBM COMMON STOCK" means the shares of common stock of IBM, par value
US $0.20 per share, having voting rights of one vote per share, and any
other securities into which such shares may be changed or for which
such shares may be exchanged (whether or not IBM shall be the issuer of
such other securities) or any other consideration which may be received
by the holders of such shares, pursuant to a recapitalization,
reconstruction, reorganization or reclassification of, or amalgamation,
merger, liquidation or similar transaction, affecting such shares.
"IBM SUCCESSOR" has the meaning set out in Section 3.1 hereof.
"LIQUIDATION CALL RIGHT" has the meaning set out in Section 5.2(1) of
the Exchangeable Share Provisions.
"OFFER" has the meaning set out in Section 2.8 hereof.
"REDEMPTION CALL RIGHT" has the meaning set out in Section 7.2(1) of
the Exchangeable Share Provisions.
"RETRACTION CALL RIGHT" has the meaning set out in Section 6.2(1) of
the Exchangeable Share Provisions.
"SUBSIDIARY" of IBM means any corporation more than 50% of the
outstanding stock of which, by vote or value, is owned, directly or
indirectly, by IBM, by one or more other Subsidiaries of IBM or by IBM
and one or more other Subsidiaries of IBM.
"TRANSFER AGENT" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
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1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles and Sections and the insertion of
headings are for reference purposes only and shall not affect the interpretation
of this agreement. Unless otherwise indicated, any reference in this agreement
to an article or Section refers to the specified article or Section of this
agreement.
1.3 NUMBER, GENDER AND PERSONS
In this agreement, unless the context otherwise requires, words importing the
singular number include the plural and vice versa, words importing any gender
include all genders and words importing persons include individuals,
corporations, partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business entitles of any
kind.
1.4 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this agreement is
not a Business Day, such action shall be required to be taken on the next
succeeding Business Day.
ARTICLE 2
COVENANTS, REPRESENTATIONS AND WARRANTIES
2.1 COVENANTS OF IBM REGARDING EXCHANGEABLE SHARES
So long as any Exchangeable Shares are outstanding IBM will:
(a) take all necessary actions to ensure that (i) if any dividend
is declared on the IBM Common Stock, the Corporation will
declare, and will have sufficient money or other assets or
authorized securities available to enable the due declaration
and the due and punctual payment in accordance with applicable
law, of an equivalent dividend on the Exchangeable Shares; and
(ii) if any dividend is paid on the IBM Common Stock, the
Corporation will simultaneously pay an equivalent dividend on
the Exchangeable Shares;
(b) advise the Corporation of the declaration by IBM of any
dividend on the IBM Common Stock and take all such other
actions as are necessary, in cooperation with the Corporation,
to ensure that the respective record date and payment date for
a dividend on the Exchangeable Shares shall be the same as the
record date and payment date for the corresponding dividend on
the IBM Common Stock;
(c) take all such actions and do all such things as are necessary
or desirable to enable and permit the Corporation, in
accordance with applicable law, to pay and otherwise perform
its obligations with respect to the satisfaction of the
Liquidation Amount in respect of each issued and outstanding
Exchangeable Share upon the liquidation, dissolution or
winding up of the Corporation,
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including without limitation all such actions and all such
things as are necessary or desirable to enable and permit the
Corporation to cause to be delivered shares of IBM Common
Stock to the holders of Exchangeable Shares in accordance with
the provisions of Article 5 of the Exchangeable Share
Provisions;
(d) take all such actions and do all such things as are necessary
or desirable to enable and permit the Corporation, in
accordance with applicable law, to pay and otherwise perform
its obligations with respect to the satisfaction of the
Retraction Price and the Redemption Price, including without
limitation all such actions and all such things as are
necessary or desirable to enable and permit the Corporation to
cause to be delivered shares of IBM Common Stock to the
holders of Exchangeable Shares, upon the retraction or
redemption of the Exchangeable Shares in accordance with the
provisions of Article 6 or Article 7 of the Exchangeable Share
Provisions as the case may be;
(e) take all such actions and do all such things as are necessary
or desirable to enable and permit Holdco, in accordance with
applicable law, to pay and otherwise perform its obligations
arising out of the exercise by it of the Liquidation Call
Right, the Retraction Call Right, the Redemption Call Right,
the Exchange Right or the Automatic Exchange Rights, including
without limitation all such actions and all such things as are
necessary or desirable to enable and permit Holdco to cause to
be delivered shares of IBM Common Stock to the holders of
Exchangeable Shares, upon the retraction or redemption of the
Exchangeable Shares in accordance with the provisions of
Article 6 or Article 7 of the Exchangeable Share Provisions as
the case may be;
(f) not exercise its vote as a shareholder to initiate the
voluntary liquidation, dissolution or winding-up of the
Corporation nor take any action or omit to take any action
that is designed to result in the liquidation, dissolution or
winding up of the Corporation; and
(g) as long as it is a "specified financial institution" (as such
term is defined in the INCOME TAX ACT (Canada)) or does not
deal at arm's length with such a person, take all such action
and do all such things as are reasonably necessary or
desirable to exercise (or, at IBM's election, to cause Holdco
to exercise), the Retraction Call Right, the Redemption Call
Right or the Liquidation Call Right if requested in writing to
do so by a holder of Exchangeable Shares.
2.2 AVAILABILITY OF FUNDS
IBM will cause the Corporation to have available to it from time to time
sufficient funds and other assets as are necessary to enable the Corporation to
satisfy its obligations (as they arise from time to time) to pay or otherwise
satisfy the applicable dividends, Liquidation Amount, Retraction Price or
Redemption Price, in each case for the benefit of Non-Affiliated Holders from
time to time of the Exchangeable Shares.
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2.3 CERTAIN REPRESENTATIONS
IBM will at all times keep available for delivery hereunder, under the Exchange
Trust Agreement or under the Exchangeable Share Provisions, free from
pre-emptive and other rights, out of its authorized capital stock such number of
shares of IBM Common Stock (or other shares or securities into which the IBM
Common Stock may be reclassified or changed as contemplated by Section 2.7
hereof) (i) as is equal to the sum of (x) the number of Exchangeable Shares
issued and outstanding from time to time and (y) the number of Exchangeable
Shares issuable upon the exercise of all rights to acquire Exchangeable Shares
outstanding from time to time, and (ii) as are now and may hereafter be required
to enable and permit each of the Corporation, IBM and Holdco to meet its
obligations hereunder, under the Exchange Trust Agreement and under the
Exchangeable Share Provisions.
2.4 NOTIFICATION OF CERTAIN EVENTS
In order to assist IBM to comply with its obligations hereunder, the Corporation
will give IBM notice of each of the following events at the time set forth
below:
(a) in the event of any determination by the Board of Directors to
institute voluntary liquidation, dissolution or winding up
proceedings with respect to the Corporation or to effect any
other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, at
least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding up or other distribution;
(b) immediately, upon the earlier of (i) receipt by the
Corporation of notice of, and (ii) the Corporation otherwise
becoming aware of, any threatened or instituted claim, suit,
petition or other proceedings with respect to the involuntary
liquidation, dissolution or winding up of the Corporation or
to effect any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding
up its affairs;
(c) immediately, upon receipt by the Corporation of a Retraction
Request (as defined in the Exchangeable Share Provisions);
(d) at least 60 days prior to any Optional Redemption Date
determined by the Board of Directors in accordance with the
Exchangeable Share Provisions; and
(e) as soon as practicable upon the issuance by the Corporation of
any Exchangeable Shares or rights to acquire Exchangeable
Shares.
2.5 DELIVERY OF SHARES OF IBM COMMON STOCK
Upon notice of any event that requires the Corporation to cause to be delivered
shares of IBM Common Stock to any holder of Exchangeable Shares, IBM or Holdco
shall, in any manner deemed appropriate by it, provide such shares or cause such
shares to be provided to the
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Corporation or Holdco, or as either may request, which shall forthwith deliver
or cause to be delivered the requisite shares of IBM Common Stock to or to the
order of the former holder of the surrendered Exchangeable Shares as the
Corporation shall direct. All such shares of IBM Common Stock shall be duly
issued as fully paid, non-assessable, free of pre-emptive rights and shall be
free and clear of any lien, claim, encumbrance, security interest or adverse
claim.
2.6 QUALIFICATION OF SHARES OF IBM COMMON STOCK
IBM covenants that if any shares of IBM Common Stock (or other shares or
securities into which IBM Common Stock may be reclassified or changed as
contemplated by Section 2.7 hereof) to be delivered hereunder, the Exchangeable
Share Provisions or the Exchange Right require registration or qualification
with or approval of or the filing of any document including any prospectus or
similar document or the taking of any proceeding with or the obtaining of any
order, ruling or consent from any governmental or regulatory authority under any
Canadian or United States federal, provincial or state law or regulation or
pursuant to the rules and regulations of any regulatory authority or the
fulfilment of any other legal requirement (collectively, the "Applicable Laws")
before such shares (or other shares or securities into which IBM Common Stock
may be reclassified or changed as contemplated by Section 2.7 hereof) may be
delivered by IBM to the initial holder thereof or in order that such shares may
be freely traded thereafter (other than any restrictions on transfer by reason
of a holder being a "control person" of IBM for purposes of Canadian federal or
provincial securities law or an "affiliate" of IBM), IBM will in good faith
expeditiously take all such actions and do all such things as are necessary to
cause such shares of IBM Common Stock (or other shares or securities into which
IBM Common Stock may be reclassified or changed as contemplated by Section 2.7
hereof) to be and remain duly registered, qualified or approved. IBM represents
and warrants that it has in good faith taken all actions and done all things
necessary under Applicable Laws as they exist on the date hereof to cause the
shares of IBM Common Stock (or other shares or securities into which IBM Common
Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to
be delivered hereunder, including for greater certainty, pursuant to the Offer,
the Exchangeable Share Provisions or the Automatic Exchange Right or the
Exchange Right, to be freely tradable thereafter (other than restrictions on
transfer by reason of a holder being a "control person" of IBM for the purposes
of Canadian federal and provincial securities law or an "affiliate" of IBM). IBM
will in good faith expeditiously take all such actions and do all such things
necessary to cause all shares of IBM Common Stock (or other shares or securities
into which IBM Common Stock may be reclassified or changed as contemplated by
Section 2.7 hereof) to be delivered hereunder, including for greater certainty,
pursuant to the Offer, the Exchangeable Share Provisions or the Exchange Right,
to be listed, quoted or posted for trading on all United States stock exchanges
and quotation systems on which other outstanding shares of IBM Common Stock are
listed, quoted or posted for trading at such time.
2.7 ECONOMIC EQUIVALENCE
(a) Except with the prior approval of the Corporation and the
prior approval of the holders of the Exchangeable Shares given
in accordance with Section 9.2 of the Exchangeable Share
Provisions, in the event that IBM:
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(i) issues or distributes shares of IBM Common Stock (or
securities exchangeable for or convertible into or
carrying rights to acquire shares of IBM Common
Stock) to the holders of all or substantially all of
the then outstanding IBM Common Stock by way of stock
dividend or other distribution, other than an issue
of shares of IBM Common Stock (or securities
exchangeable for or convertible into or carrying
rights to acquire shares of IBM Common Stock) to
holders of shares of IBM Common Stock who exercise an
option to receive dividends in IBM Common Stock (or
securities exchangeable for or convertible into or
carrying rights to acquire shares of IBM Common
Stock) in lieu of receiving cash dividends;
(ii) issues or distributes rights, options or warrants to
the holders of all or substantially all of the then
outstanding shares of IBM Common Stock entitling them
to subscribe for or to purchase shares of IBM Common
Stock (or securities exchangeable for or convertible
into or carrying rights to acquire shares of IBM
Common Stock); or
(iii) issues or distributes to the holders of all or
substantially all of the then outstanding shares of
IBM Common Stock (i) shares or securities of IBM of
any class other than IBM Common Stock (other than
shares convertible into or exchangeable for or
carrying rights to acquire shares of IBM Common
Stock), (ii) rights, options or warrants other than
those referred to in Section 2.7(a)(ii) above, (iii)
evidences of indebtedness of IBM or (iv) assets of
IBM;
then IBM will take all necessary actions to ensure that the
Corporation shall issue or distribute the economic equivalent
(on a per share basis) of such rights, options, securities,
shares, evidences of indebtedness or other assets
simultaneously to holders of the Exchangeable Shares.
(b) Except with the prior approval of the Corporation and the
prior approval of the holders of the Exchangeable Shares
given in accordance with Section 9.2 of the Exchangeable
Share Provisions, in the event that IBM:
(i) subdivides, redivides or changes the then
outstanding shares of IBM Common Stock into a
greater number of shares of IBM Common Stock;
(ii) reduces, combines or consolidates or changes the
then outstanding shares of IBM Common Stock into a
lesser number of shares of IBM Common Stock; or
(iii) reclassifies or otherwise changes the shares of
IBM Common Stock or effects an amalgamation,
merger, reorganization or other transaction
affecting the shares of IBM Common Stock;
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then IBM will take all necessary actions to ensure that the
same or an economically equivalent change is made to, or in
the rights of the holders of, the Exchangeable Shares.
(c) IBM will ensure that prompt notice of any event referred to in
Section 2.7(a) or 2.7(b) above, is given by IBM to the
Corporation.
(d) The Board of Directors shall determine, in good faith and in
its sole discretion (with the assistance of such reputable and
qualified independent financial advisors and/or other experts
as the Board of Directors may require), economic equivalence
for the purposes of any event referred to in Section 2.7(a) or
2.7(b) and each such determination shall be conclusive and
binding on IBM. In making each 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 shares of IBM Common Stock,
the number of such shares issued in proportion to the
number of shares of IBM Common Stock previously
outstanding;
(ii) in the case of the issuance or distribution of any
rights, options or warrants to subscribe for or
purchase shares of IBM Common Stock (or securities
exchangeable for or convertible into or carrying
rights to acquire shares of IBM Common Stock), the
relationship between the exercise price of each such
right, option or warrant and the current market value
(as determined by the Board of Directors in the
manner above contemplated) of a share of IBM Common
Stock;
(iii) in the case of the issuance or distribution of any
other form of property (including without limitation
any shares or securities of IBM of any class other
than IBM Common Stock, any rights, options or
warrants other than those referred to in Section
2.7(d)(ii) above, any evidences of indebtedness of
IBM or any assets of IBM), the relationship between
the fair market value (as determined by the Board of
Directors in the manner above contemplated) of such
property to be issued or distributed with respect to
each outstanding share of IBM Common Stock and the
current market value (as determined by the Board of
Directors in the manner above contemplated) of a
share of IBM Common Stock;
(iv) in the case of any subdivision, redivision or change
of the then outstanding shares of IBM Common Stock
into a greater number of shares of IBM Common Stock
or the reduction, combination or consolidation or
change of the then outstanding shares of IBM Common
Stock into a lesser number of shares of IBM Common
Stock or any amalgamation, merger, reorganization or
other transaction affecting IBM Common Stock, the
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effect thereof upon the then outstanding shares of
IBM Common Stock; and
(v) in all such cases, the general taxation consequences
in Canada of the relevant event to holders of
Exchangeable Shares in Canada to the extent that such
consequences may differ from the taxation
consequences to holders of shares of IBM Common Stock
as a result of differences between taxation laws of
Canada and those of 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
Exchangeable Shares).
For purposes of the foregoing determinations, the current
market value of any security listed and traded or quoted on a
securities exchange shall be the weighted average of the daily
trading prices of such security during a period of not less
than five consecutive trading days ending not more than five
trading days before the date of determination on the principal
securities exchange on which such securities are listed and
traded or quoted; provided, however, that if in the opinion of
the Board of Directors the public distribution or trading
activity of such securities during such period does not create
a market that reflects the fair market value of such
securities, then the current market value thereof shall be
determined by the Board of Directors, in good faith and in its
sole discretion (with the assistance of such reputable and
qualified independent financial advisors and/or other experts
as the board may require), and provided further that any such
determination by the Board of Directors shall be conclusive
and binding on IBM.
2.8 TENDER OFFERS, ETC.
In the event that a tender offer, share exchange offer, issuer bid, take-over
bid or similar transaction with respect to IBM Common Stock (each, an "Offer")
is proposed by IBM or is proposed to IBM or its shareholders and is recommended
by the Board of Directors of IBM, or is otherwise effected or to be effected
with the consent or approval of the Board of Directors of IBM, IBM will use
reasonable efforts (to the extent, in the case of an Offer by a third party,
within its control) expeditiously and in good faith to take all such actions and
do all such things as are necessary or desirable to enable and permit holders of
Exchangeable Shares to participate in such Offer to the same extent and on an
economically equivalent basis as the holders of shares of IBM Common Stock,
without discrimination. IBM may discharge this obligation by ensuring that
holders of Exchangeable Shares may participate in all such Offers by means of
retraction of Exchangeable Shares as against the Corporation (subject to
Holdco's Retraction Call Right) which shall be effective only upon, and shall be
conditional upon, the closing of the Offer and only to the extent necessary to
tender or deposit to the Offer.
2.9 OWNERSHIP OF OUTSTANDING SHARES
Without the prior approval of the Corporation and the prior approval of the
Non-Affiliated Holders given in accordance with Section 9.2 of the Exchangeable
Share Provisions, IBM
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covenants and agrees that, as long as any outstanding Exchangeable Shares are
owned by any person or entity other than IBM, Holdco or any of their
Subsidiaries, IBM will be and remain the direct or indirect beneficial owner of
at least 50.1% of all issued and outstanding securities of the Corporation
carrying or otherwise entitled to voting rights in any circumstances, other than
the Exchangeable Shares.
2.10 IBM NOT TO VOTE EXCHANGEABLE SHARES
IBM and Holdco will appoint and cause to be appointed proxyholders with respect
to all Exchangeable Shares held by IBM or Holdco and their Subsidiaries for the
sole purpose of attending each meeting of holders of Exchangeable Shares in
order to be counted as part of the quorum for each such meeting. IBM and Holdco
further covenant and agree that they will not, and will cause their Subsidiaries
not to, exercise any voting rights that may be exercisable by holders of
Exchangeable Shares from time to time pursuant to the provisions of the CANADA
BUSINESS CORPORATIONS ACT (or any successor or other corporate statute by which
the Corporation may in the future be governed) with respect to any Exchangeable
Shares held by it or by its direct or indirect Subsidiaries in respect of any
matter considered at any meeting of holders of Exchangeable Shares.
2.11 DUE PERFORMANCE
On and after the Effective Date of the Offer, IBM shall duly and timely perform
all of its obligations provided for in the Offer including any obligations that
may arise upon the exercise of rights by any holder of Exchangeable Shares, or
IBM under the Exchangeable Share Provisions. IBM shall be responsible for the
due performance of all of Holdco's obligations hereunder and under the Offer
including the Exchangeable Share Provisions, except that in respect of the
rights of Holdco under the Liquidation Call Right, the Redemption Call Right and
the Retraction Call Right, IBM's obligation shall be limited to acting to ensure
that Holdco will exercise its rights under the Liquidation Call Right, the
Redemption Call Right and the Retraction Call Right only in circumstances where
Holdco is able to duly and timely perform in accordance with applicable law its
obligations with respect to the Liquidation Call Right, the Redemption Call
Right and the Retraction Call Right.
ARTICLE 3
IBM SUCCESSORS
3.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC.
If IBM enters into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets would
become the property of any other person or, in the case of a merger, of the
continuing corporation resulting therefrom, then IBM will take all necessary
actions to ensure that:
(a) such other person or continuing corporation (the "IBM
Successor"), by operation of law, becomes, without more, bound
by the terms and provisions of this
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agreement or, if not so bound, executes, prior to or
contemporaneously with the consummation of such transaction an
agreement supplemental hereto and such other instruments (if
any) as are satisfactory to the Corporation, acting
reasonably, and in the opinion of legal counsel to the
Corporation, are reasonably necessary or advisable to evidence
the assumption by the IBM Successor of liability for all money
payable and property deliverable hereunder and the covenant of
such IBM Successor to pay and deliver or cause to be delivered
the same and its agreement to observe and perform all the
covenants and obligations of IBM under this agreement; and
(b) such transaction shall be upon such terms as to substantially
preserve and not to impair in any material respect any of the
rights, duties, powers and authorities of the Corporation or
of the Non-Affiliated Holders hereunder.
3.2 VESTING OF POWERS IN SUCCESSOR
Whenever the covenants of Section 3.1 hereof have been duly observed and
performed, if required by Section 3.1 hereof, the IBM Successor, Holdco and the
Corporation shall execute and deliver the amended agreement as set forth in
Article 4 hereof and thereupon the IBM Successor shall possess and from time to
time may exercise each and every right and power of IBM under this agreement in
the name of IBM or otherwise and any act or proceeding by any provision of this
agreement required to be done or performed by the IBM Board of Directors or any
officers of IBM may be done and performed with like force and effect by the
directors or officers of such IBM Successor.
3.3 WHOLLY-OWNED SUBSIDIARIES
Nothing herein shall be construed as preventing the amalgamation or merger of
any Subsidiary of IBM with or into IBM or the winding up, liquidation or
dissolution of any Subsidiary of IBM. In addition, nothing herein shall be
construed as preventing the amalgamation or merger of LGS Group Inc. and/or IBM
Canada Limited with, and or into the Corporation and/or one or more other
corporations, or the winding up, liquidation or dissolution of LGS Group Inc.
ARTICLE 4
GENERAL
4.1 TERM
This Agreement shall come into force and be effective as of the date hereof and
shall terminate and be of no further force and effect at such time as no
Exchangeable Shares (or securities or rights convertible into or exchangeable
for or carrying rights to acquire Exchangeable Shares) are held by any person or
entity other than IBM and any of its Affiliates.
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4.2 CHANGES IN CAPITAL OF IBM AND THE CORPORATION
At all times after the occurrence of any event contemplated pursuant to sections
2.7 and 2.8 hereof or otherwise, as a result of which either IBM Common Stock or
the Exchangeable Shares or both are in any way changed, this Agreement shall
forthwith be amended and modified as necessary in order that it shall apply with
full force and effect, MUTATIS MUTANDIS, to all new securities into which IBM
Common Stock or the Exchangeable Shares or both are so changed and the parties
hereto shall execute and deliver an agreement in writing giving effect to and
evidencing such necessary amendments and modifications.
4.3 SEVERABILITY
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
Agreement shall not in any way be affected or impaired thereby and this
Agreement shall be carried out as nearly as possible in accordance with its
original terms and conditions.
4.4 AMENDMENTS, MODIFICATIONS
This Agreement may not be amended or modified except by an agreement in writing
executed by IBM, Holdco and the Corporation and approved by the holders of the
Exchangeable Shares in accordance with section 9.2 of the Share Provisions.
4.5 MINISTERIAL AMENDMENTS
Notwithstanding the provisions of section 4.4, the parties to this Agreement may
in writing at any time and from time to time, without the approval of the
holders of the Exchangeable Shares, amend or modify this Agreement for the
purposes of:
(a) adding to the covenants of any or all parties provided that
each of IBM, Holdco and the Corporation shall be of the good
faith opinion that such additions will not be prejudicial to
the rights or interests of the holders of the Exchangeable
Shares;
(b) making such amendments or modifications not inconsistent with
this Agreement as may be necessary or desirable with respect
to matters or questions which, in the good faith opinion of
each of IBM, Holdco and the Corporation, it may be expedient
to make, provided that each shall be of the good faith opinion
that such amendments or modifications will not be prejudicial
to the rights or interests of the holders of the Exchangeable
Shares; or
(c) making such changes or corrections which are required for the
purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error, provided that each of IBM, Holdco and the
Corporation shall be of the good faith opinion that such
changes or corrections will not be prejudicial to the rights
or interests of the holders of the Exchangeable Shares.
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4.6 MEETING TO CONSIDER AMENDMENTS
The Corporation, at the request of IBM, shall call a meeting or meetings of the
holders of the Exchangeable Shares for the purpose of considering any proposed
amendment or modification requiring approval pursuant to section 4.4 hereof. Any
such meeting or meetings shall be called and held in accordance with the by-laws
of the Corporation, the Share Provisions and all applicable laws.
4.8 ENUREMENT
This Agreement shall be binding upon and enure to the benefit of the parties
hereto and their respective successors and permitted assigns and to the benefit
of the Non-Affiliated Holders.
4.9 NOTICES TO PARTIES
All notices and other communications between the parties hereunder shall be in
writing and shall be deemed to have been given if delivered personally or by
confirmed telecopy to the parties at the following addresses (or at such other
address for such party as shall be specified in like notice):
(a) if to IBM at:
New Orchard Road
Armonk, NY
10504
Attention:
(b) if to Holdco at:
3600 Steeles Avenue East
Markham, Ontario
L3R 9Z7
Attention: President and Secretary
(c) if to the Corporation at:
3600 Steeles Avenue East
Markham, Ontario
L3R 9Z7
Attention: President and Secretary
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Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the next Business Day after the date
of receipt thereof unless such day is not a Business Day in which case it shall
be deemed to have been given and received upon the immediately following
Business Day.
4.10 COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
4.11 JURISDICTION
This Agreement shall be construed and enforced in accordance with the laws of
the Province of Ontario and the laws of Canada applicable therein.
4.12 ATTORNMENT
IBM agrees that any action or proceeding arising out of or relating to this
Agreement may be instituted in the courts of Ontario, waives any objection which
it may have now or hereafter to the venue of any such action or proceeding,
irrevocably submits to the jurisdiction of the said courts in any such action or
proceeding, agrees to be bound by any final and unappealable judgment of the
said courts and hereby appoints the Corporation at its registered office in the
Province of Ontario as its attorney for service of process.
<PAGE>
-15-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
INTERNATIONAL BUSINESS IBM ACQUISITION INC.
MACHINES CORPORATION
By: /s/ Lee A. Dayton By: /s/ Belinda C. Tang
-------------------------- --------------------------
Name: Lee A. Dayton Name: Belinda C. Tang
Title: Vice President of Title: Secretary
Corporate Development
and Real Estate
3040696 NOVA SCOTIA COMPANY
By: /s/ Arthur B. James
--------------------------
Name: Arthur B. James
Title: President and Secretary
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1
DEFINITIONS AND INTERPRETATION........................................1
1.1 Definitions..................................................1
1.2 Interpretation Not Affected by Headings, etc.................2
1.3 Number, Gender and Persons...................................3
1.4 Date for Any Action..........................................3
ARTICLE 2
COVENANTS, REPRESENTATIONS AND WARRANTIES.............................3
2.1 Covenants of IBM Regarding Exchangeable Shares...............3
2.2 Segregation of Funds.........................................4
2.3 Certain Representations......................................4
2.4 Notification of Certain Events...............................5
2.5 Delivery of Shares of IBM Common Stock.......................5
2.6 Qualification of Shares of IBM Common Stock..................6
2.7 Economic Equivalence.........................................6
2.8 Tender Offers, etc...........................................9
2.9 Ownership of Outstanding Shares..............................9
2.10 IBM Not to Vote Exchangeable Shares.........................10
2.11 Due Performance.............................................10
ARTICLE 3
IBM SUCCESSORS.......................................................10
3.1 Certain Requirements in Respect of Combination, etc.........10
3.2 Vesting of Powers in Successor..............................11
3.3 Wholly-Owned Subsidiaries...................................11
ARTICLE 4
GENERAL..............................................................11
4.1 Term........................................................11
4.2 Changes in Capital of IBM and the Corporation...............11
4.3 Severability................................................12
4.4 Amendments, Modifications...................................12
4.5 Ministerial Amendments......................................12
4.6 Meeting to Consider Amendments..............................12
4.7 Amendments Only in Writing..................................13
4.8 Enurement...................................................13
4.9 Notices to Parties..........................................13
4.10 Counterparts................................................13
4.11 Jurisdiction................................................13
4.12 Attornment..................................................14
</TABLE>
-i-
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION, a
corporation existing under the laws of the State of
New York ("IBM")
- and -
3040696 NOVA SCOTIA COMPANY, an unlimited company
existing under the laws of the Province of Nova
Scotia ("Holdco")
- and -
IBM ACQUISITION INC., a corporation existing under
the laws of Canada (the "Corporation")
- ------------------------------------------------------------------------------
SUPPORT AGREEMENT
- ------------------------------------------------------------------------------
<PAGE>
Exhibit 10.4
EXCHANGE TRUST AGREEMENT
AGREEMENT made as of the 4th day of April, 2000.
AMONG:
INTERNATIONAL BUSINESS MACHINES CORPORATION, a corporation
existing under the laws of the State of New York ("IBM")
-and-
3040696 NOVA SCOTIA COMPANY, an unlimited company existing
under the laws of the Province of Nova Scotia ("Holdco")
-and-
IBM ACQUISITION INC., a corporation existing under the laws of
Canada (the "Corporation")
-and-
CIBC MELLON TRUST COMPANY, a trust company existing under the
laws of Canada (the "Trustee")
WHEREAS pursuant to the terms of the offer by the Corporation
and IBM Acquisition II L.L.C. dated March 15, 2000, to purchase all of the Class
A Subordinate Voting Shares and all of the Class B Multiple Voting Shares of LGS
Group Inc., IBM, Holdco and the Corporation agreed that IBM, Holdco, the
Corporation, and a Canadian trust company would execute and deliver an Exchange
Trust Agreement;
AND WHEREAS pursuant to that offer, certain Class A
Subordinate Voting Shares and Class B Multiple Voting Shares of LGS Group Inc.
are to be acquired by the Corporation in exchange for Exchangeable Shares of the
Corporation (the "Exchangeable Shares") and certain rights granted hereunder;
AND WHEREAS the Corporation may issue additional Exchangeable
Shares following completion of the Offer, including pursuant to any compulsory
acquisition rights the Corporation may exercise;
AND WHEREAS IBM is to grant to and in favour of Non-Affiliated
Holders (as hereinafter defined) of Exchangeable Shares the right, in the
circumstances set forth herein, to require IBM (or, at the election of IBM,
Holdco) to purchase from each Non-Affiliated Holder all or any part of the
Exchangeable Shares held by the Non-Affiliated Holder;
<PAGE>
-2-
AND WHEREAS in certain circumstances the Exchangeable Shares
are to be automatically exchanged for shares of IBM Common Stock;
AND WHEREAS the parties desire to make appropriate provision
and to establish a procedure whereby IBM and Holdco will be able to take certain
actions and make certain payments and to deliver or cause to be delivered shares
of Common Stock of IBM, par value US$0.20 per share (the "IBM Common Stock") in
satisfaction of the obligations of IBM and/or Holdco under the Exchangeable
Share Provisions (as hereinafter defined) and this trust agreement and IBM will
take certain actions such that if Holdco seeks to exercise its rights under the
Exchangeable Share Provisions, it will only do so if it will be able to make
certain payments and cause to be delivered shares of IBM Common Stock in
satisfaction of the obligations of Holdco under the Exchangeable Share
Provisions;
AND WHEREAS these recitals and any statements of fact in this
trust agreement are made by IBM, Holdco and the Corporation and not by the
Trustee;
NOW THEREFORE, in consideration of the respective covenants
and agreements provided in this trust agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this trust agreement, unless something in the subject matter or content is
inconsistent therewith:
"AUTOMATIC EXCHANGE RIGHT" means the benefit of the obligation of IBM
to effect the automatic exchange of shares of IBM Common Stock for
Exchangeable Shares pursuant to Section 4.11 hereof.
"BOARD OF DIRECTORS" means the board of directors of the Corporation.
"BUSINESS DAY" means a day, other than a Saturday, a Sunday or a
statutory holiday, when banks are generally open in each of Montreal,
Quebec and Toronto, Ontario for the transaction of banking business.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an 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 official noon spot exchange rate on such date for such foreign
currency 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 as may be deemed by the Board of Directors to be
appropriate for such purpose.
<PAGE>
-3-
"CURRENT MARKET PRICE" means, in respect of a share of IBM Common Stock
on any date, the Canadian Dollar Equivalent of the average closing
sales price of shares of IBM Common Stock during a period of five
consecutive trading days ending not more than five trading days before
such date on the New York Stock Exchange or, if the shares of IBM
Common Stock are not then listed on the New York Stock Exchange, on
such other stock exchange or automated quotation system on which the
shares of IBM Common Stock are listed or quoted, as the case may be, as
may be selected by the Board of Directors for such purpose; provided,
however, that if in the opinion of the Board of Directors the public
distribution or trading activity of IBM Common Stock during such period
is inadequate to create a market that reflects the fair market value of
the IBM Common Stock, then the Current Market Price of a share of IBM
Common Stock shall be determined by the Board of Directors based upon
the advice of such qualified independent financial advisors as the
Board of Directors may deem to be appropriate, and provided further
that any such selection, opinion or determination by the Board of
Directors shall be conclusive and binding.
"DIVIDEND AMOUNT" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
"EXCHANGE RIGHT" has the meaning set out in Section 4.1 hereof.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares.
"EXCHANGEABLE SHARES" has the meaning set out in the recitals hereto.
"IBM BOARD OF DIRECTORS" means the board of directors of IBM.
"IBM COMMON STOCK" means the shares of common stock of IBM, par value
US $0.20 per share, having voting rights of one vote per share, and any
other securities into which such shares may be changed or for which
such shares may be exchanged (whether or not IBM shall be the issuer of
such other securities) or any other consideration which may be received
by the holders of such shares, pursuant to a recapitalization,
reconstruction, reorganization or reclassification of, or amalgamation,
merger, liquidation or similar transaction, affecting such shares.
"IBM LIQUIDATION EVENT" has the meaning set out in Section 4.11 hereof.
"IBM LIQUIDATION EVENT EFFECTIVE DATE" has the meaning set out in
Section 4.11 hereof.
"IBM SUCCESSOR" has the meaning set out in Section 9.1 hereof.
"INSOLVENCY EVENT" means the institution by Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved
or wound up, or the consent of the Corporation to the institution of
bankruptcy, insolvency, dissolution or
<PAGE>
-4-
winding-up proceedings against it, or the filing of a petition, answer
or consent seeking dissolution or winding up under any bankruptcy,
insolvency or analogous laws, including without limitation the
COMPANIES CREDITORS' ARRANGEMENT ACT (Canada) and the BANKRUPTCY AND
INSOLVENCY ACT (Canada), and the failure by the Corporation to contest
in good faith any such proceedings commenced in respect of the
Corporation within 15 days of becoming aware thereof, or the consent by
the Corporation to the filing of any such petition or to the
appointment of a receiver, or the making by the Corporation of a
general assignment for the benefit of creditors, or the admission in
writing by the Corporation of its inability to pay its debts generally
as they become due, or the Corporation not being permitted, pursuant to
solvency requirements or other provisions of applicable law to redeem
any Retracted Shares pursuant to Section 6.1 of the Exchangeable Share
Provisions.
"LIQUIDATION AMOUNT" has the meaning set out in Section 5.1(1) of the
Exchangeable Share Provisions.
"LIQUIDATION CALL RIGHT" has the meaning set out in Section 5.2(1) of
the Exchangeable Share Provisions.
"NON-AFFILIATED HOLDERS" means the registered holders of Exchangeable
Shares other than IBM and its Subsidiaries.
"OFFER" has the meaning set out in Section 5.8 hereof.
"OFFICER'S CERTIFICATE" means, with respect to IBM or the Corporation,
as the case may be, a certificate signed by any one of the Chairman of
the Board, the Chief Executive Officer, the President, any
Vice-President or any other senior officer of IBM or the Corporation,
as the case may be.
"REDEMPTION CALL RIGHT" has the meaning set out in Section 7.2(1) of
the Exchangeable Share Provisions.
"REDEMPTION PRICE" has the meaning set out in Section 7.1(1) of the
Exchangeable Share Provisions.
"RETRACTED SHARES" has the meaning set out in Section 4.7 hereof.
"RETRACTION CALL RIGHT" has the meaning set out in Section 6.2(1) of
the Exchangeable Share Provisions.
"RETRACTION PRICE" has the meaning set out in Section 6.1(1) of the
Exchangeable Share Provisions.
"SUBSIDIARY" of IBM means any corporation more than 50% of the
outstanding stock of which, by vote or value, is owned, directly or
indirectly, by IBM, by one or more other Subsidiaries of IBM or by IBM
and one or more other Subsidiaries of IBM.
<PAGE>
-5-
"SUPPORT AGREEMENT" means the support agreement made as of April 4,
2000 among IBM, Holdco and the Corporation.
"TRANSFER AGENT" has the meaning set out in Section 1.1 of the
Exchangeable Share Provisions.
"TRUST" means the trust created by this trust agreement.
"TRUST ESTATE" means any securities, the Exchange Right, the Automatic
Exchange Rights and any money or other rights or assets that may be
held by the Trustee from time to time pursuant to this trust agreement.
"TRUSTEE" means CIBC Mellon Trust Company and, subject to the
provisions of Article 8 hereof, includes any successor trustee or
permitted assigns.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this trust agreement into articles and Sections and the
insertion of headings are for reference purposes only and shall not affect the
interpretation of this trust agreement. Unless otherwise indicated, any
reference in this trust agreement to an article or Section refers to the
specified article or Section of this trust agreement.
1.3 NUMBER, GENDER AND PERSONS
In this trust agreement, unless the context otherwise requires, words importing
the singular number include the plural and vice versa, words importing any
gender include all genders and words importing persons include individuals,
corporations, partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business entitles of any
kind.
1.4 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this trust
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
1.5 PAYMENTS
All payments to be made hereunder shall be made without interest. Further, IBM,
Holdco, the Corporation and the Trustee shall be entitled to deduct and withhold
from any consideration otherwise payable under this trust agreement to any
holder of Exchangeable Shares such amounts as IBM, Holdco, the Corporation or
the Trustee is required or permitted to deduct and withhold with respect to such
payment under the INCOME TAX ACT (Canada), the United States Internal Revenue
Code of 1986 or any provision of provincial, state, local or foreign tax law, in
each case as amended or succeeded. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes as having been paid to
the holder of the shares in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amounts
<PAGE>
-6-
so required or permitted to be deducted or withheld from any payment to a holder
exceeds the cash portion of the consideration otherwise payable to the holder,
IBM, Holdco, the Corporation and the Trustee are hereby authorized to sell or
otherwise dispose of such portion of the consideration as is necessary to
provide sufficient funds to IBM, Holdco, the Corporation or the Trustee, as the
case may be, to enable it to comply with such deduction or withholding
requirements and IBM, Holdco, the Corporation or the Trustee shall notify the
holder thereof and remit to such holder any unapplied balance of the net
proceeds of such sale.
ARTICLE 2
TRUST
2.1 ESTABLISHMENT OF TRUST
One of the purposes of this trust agreement is to create the Trust for the
benefit of the Non-Affiliated Holders, as herein provided. The Trustee will hold
the Exchange Right and the Automatic Exchange Rights in order to enable the
Trustee to exercise such rights and will hold the other rights granted in or
resulting from the Trustee being a party to this trust agreement in order to
enable the Trustee to exercise or enforce such rights, in each case as trustee
for and on behalf of the Non-Affiliated Holders as provided in this trust
agreement.
ARTICLE 3
STOCKHOLDER INFORMATION RIGHTS
3.1 COPIES OF STOCKHOLDER INFORMATION
IBM will deliver to the Trustee copies of all proxy materials (including notices
of IBM Meetings but excluding proxies to vote shares of IBM Common Stock),
information statements, reports (including without limitation all interim and
annual financial statements) and other written communications that are to be
distributed to holders of IBM Common Stock, in sufficient quantities and in
sufficient time so as to enable the Trustee to send those materials to each
Non-Affiliated Holder at the same time as such materials are first sent to
holders of IBM Common Stock. The Trustee will mail or otherwise send to each
Non-Affiliated Holder, at the expense of IBM, copies of all such materials (and
all materials specifically directed to the Non-Affiliated Holders or to the
Trustee for the benefit of the Non-Affiliated Holders by IBM) received by the
Trustee from IBM at the same time as such materials are first sent to holders of
IBM Common Stock. The Trustee will make copies of all such materials available
for inspection by any Non-Affiliated Holder at the Trustee's principal office in
the cities of Toronto and Montreal.
3.2 OTHER MATERIALS
Promptly after receipt by IBM of any material to be sent or given generally to
the holders of IBM Common Stock by or on behalf of a third party, including
without limitation dissident proxy and information circulars (and related
information and material) and tender and exchange offer circulars (and related
information and material), IBM shall use reasonable efforts to obtain and
deliver to the Trustee copies thereof in sufficient quantities so as to enable
the Trustee to forward such material (unless the same has been provided to the
Trustee or sent directly to Non-Affiliated
<PAGE>
-7-
Holders by such third party) to each Non-Affiliated Holder as soon as
practicable thereafter. As soon as practicable after receipt thereof, the
Trustee will mail or otherwise send to each Non-Affiliated Holder, at the
expense of IBM, copies of all such materials received by the Trustee from IBM.
The Trustee will also make copies of all such materials available for inspection
by any Non-Affiliated Holder at the Trustee's principal office in the cities of
Toronto and Montreal.
3.3 DISTRIBUTION OF WRITTEN MATERIALS
Any written materials to be distributed by the Trustee to the Non-Affiliated
Holders pursuant to this trust agreement shall be delivered or sent by mail (or
otherwise communicated in the same manner as IBM utilizes in communications to
holders of IBM Common Stock, subject to the Trustee being advised in writing of
such method of communication and its ability to provide same) to each
Non-Affiliated Holder at its address as shown on the share register of the
Corporation. The Corporation shall provide or cause to be provided to the
Trustee for this purpose, on a timely basis and without charge or other expense:
(a) current lists of the Non-Affiliated Holders; and
(b) upon the request of the Trustee, mailing labels to enable the
Trustee to carry out its duties under this trust agreement.
The materials referred to above are to be provided by IBM to the Trustee, but
shall be subject to review and comment by the Trustee.
ARTICLE 4
EXCHANGE RIGHT
4.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT
IBM hereby grants to the Trustee as trustee for and on behalf of, and for the
use and benefit of, the Non-Affiliated Holders the right (the "Exchange Right"),
upon the occurrence and during the continuance of an Insolvency Event, to
require IBM (or, at the election of IBM, Holdco) to purchase from each
Non-Affiliated Holder all or any part of the Exchangeable Shares held by the
Non-Affiliated Holders, all in accordance with the provisions of this trust
agreement. IBM hereby acknowledges receipt from the Trustee, as trustee for and
on behalf of the Non-Affiliated Holders, of good and valuable consideration (and
the adequacy thereof) for the grant of the Exchange Right by IBM to the Trustee.
During the term of the Trust and subject to the terms and conditions of this
trust agreement, the Trustee shall possess and be vested with full legal
ownership of the Exchange Right and shall be entitled to exercise all of the
rights and powers of an owner with respect to the Exchange Right, provided that
the Trustee shall:
(a) hold the Exchange Right and the legal title thereto as trustee
solely for the use and benefit of the Non-Affiliated Holders
in accordance with the provisions of this trust agreement; and
<PAGE>
-8-
(b) except as specifically authorized by this trust agreement,
have no power or authority to exercise or otherwise deal in or
with the Exchange Right, and the Trustee shall not exercise
such right for any purpose other than the purposes for which
this Trust is created pursuant to this trust agreement.
4.2 LEGENDED SHARE CERTIFICATE
The Corporation shall cause each certificate representing Exchangeable Shares to
bear an appropriate legend notifying the Non-Affiliated Holders of their right
to instruct the Trustee with respect to the exercise of the Exchange Right in
respect of the Exchangeable Shares held by a Non-Affiliated Holder.
4.3 GENERAL EXERCISE OF EXCHANGE RIGHT
The Exchange Right shall be and remain vested in and exercisable by the Trustee.
Subject to Sections 5.7 and 5.15 hereof, the Trustee shall exercise the Exchange
Right only on the basis of instructions received pursuant to this Article 4 from
Non-Affiliated Holders entitled to instruct the Trustee as to the exercise
thereof. To the extent that no instructions are received from a Non-Affiliated
Holder with respect to the Exchange Right, the Trustee shall not exercise or
permit the exercise of the Exchange Right.
4.4 PURCHASE PRICE
The purchase price payable by IBM or Holdco for each Exchangeable Share to be
purchased by IBM or Holdco under the Exchange Right shall be an amount per share
equal to (a) the Current Market Price of a share of IBM Common Stock on the last
Business Day prior to the day of closing of the purchase and sale of such
Exchangeable Share under the Exchange Right, which shall be satisfied in full by
causing to be delivered to such holder one share of IBM Common Stock plus (b)
the Dividend Amount, if any. In connection with each exercise of the Exchange
Right, the Corporation will provide to the Trustee an Officer's Certificate
setting forth the purchase price for each Exchangeable Share. The purchase
price for each such Exchangeable Share so purchased may be satisfied only by
IBM or Holdco delivering or causing to be delivered to the Trustee, on behalf
of the relevant Non-Affiliated Holder, one share of IBM Common Stock and a
cheque for the balance, if any, of the purchase price without interest.
4.5 EXERCISE INSTRUCTIONS
Subject to the terms and conditions herein set forth, a Non-Affiliated Holder
shall be entitled, upon the occurrence and during the continuance of an
Insolvency Event, to instruct the Trustee to exercise the Exchange Right with
respect to all or any part of the Exchangeable Shares registered in the name of
such Non-Affiliated Holder on the books of the Corporation. To cause the
exercise of the Exchange Right by the Trustee, the Non-Affiliated Holder shall
deliver to the Trustee, in person or by certified or registered mail, at its
principal office in Montreal, Quebec or at such other places in Canada as the
Trustee may from time to time designate by written notice to the Non-Affiliated
Holders, the certificates representing the Exchangeable Shares which such
Non-Affiliated Holder desires IBM (or, at the election of IBM, Holdco) to
purchase, duly endorsed in blank, and accompanied by such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the CANADA BUSINESS CORPORATIONS
<PAGE>
-9-
ACT and the by-laws of the Corporation and such additional documents and
instruments as IBM, Holdco, the Trustee and the Corporation may reasonably
require together with (a) a duly completed form of notice of exercise of the
Exchange Right, contained on the reverse of or attached to the Exchangeable
Share certificates, stating (i) that the Non-Affiliated Holder thereby
instructs the Trustee to exercise the Exchange Right so as to require IBM
(or, at the election of IBM, Holdco) to purchase from the Non-Affiliated
Holder the number of Exchangeable Shares specified therein, (ii) that such
Non-Affiliated Holder has good title to and owns all such Exchangeable Shares
to be acquired by IBM or Holdco free and clear of all liens, claims,
encumbrances, security interests and adverse claims, (iii) the names in which
the certificates representing IBM Common Stock issuable in connection with
the exercise of the Exchange Right are to be issued and (iv) the names and
addresses of the persons to whom such new certificates should be delivered
and (b) payment (or evidence satisfactory to the Trustee, the Corporation,
IBM and Holdco of payment) of the taxes (if any) payable as contemplated by
Section 4.8 of this trust agreement. If only a portion of the Exchangeable
Shares represented by any certificate delivered to the Trustee are to be
purchased by IBM or Holdco under the Exchange Right, a new certificate for
the balance of such Exchangeable Shares shall be issued to the holder at the
expense of the Corporation.
4.6 DELIVERY OF IBM COMMON STOCK; EFFECT OF EXERCISE
As soon as practicable after receipt of the certificates representing the
Exchangeable Shares that a Non-Affiliated Holder desires IBM or Holdco to
purchase under the Exchange Right (together with such documents and
instruments of transfer and a duly completed form of notice of exercise of
the Exchange Right and payment of taxes payable as contemplated by Section
4.8, if any, or evidence thereof), duly endorsed for transfer to IBM or
Holdco, the Trustee shall notify IBM, Holdco and the Corporation of its
receipt of the same, which notice to IBM, Holdco and the Corporation shall
constitute exercise of the Exchange Right by the Trustee on behalf of the
holder of such Exchangeable Shares, and IBM or Holdco shall immediately
thereafter deliver or cause to be delivered to the Trustee, for delivery to
the Non-Affiliated Holder of such Exchangeable Shares (or to such other
persons, if any, properly designated by such Non-Affiliated Holder), a
certificate for the number of shares of
<PAGE>
-10-
IBM Common Stock deliverable in connection with such exercise of the Exchange
Right (which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim or encumbrance, security interest or
adverse claim) and a cheque for the balance, if any, of the purchase price
therefor; provided, however, that no such delivery shall be made unless and
until the Non-Affiliated Holder requesting the same shall have paid (or provided
evidence satisfactory to the Trustee, Holdco, the Corporation and IBM of the
payment of) the taxes (if any) payable as contemplated by Section 4.8 of this
trust agreement. Immediately upon the giving of notice by the Trustee to IBM,
Holdco and the Corporation of the exercise of the Exchange Right, as provided in
this Section 4.6, the closing of the transaction of purchase and sale
contemplated by the Exchange Right shall be deemed to have occurred, and the
Non-Affiliated Holder of such Exchangeable Shares shall be deemed to have
transferred to IBM or Holdco all of its right, title and interest in and to such
Exchangeable Shares and the related interest in the Trust Estate and shall not
be entitled to exercise any of the rights of a holder in respect thereof, other
than the right to receive its proportionate part of the total purchase price
therefor, unless the requisite number of shares of IBM Common Stock (together
with a cheque for the balance, if any, of the total purchase price thereof
without interest) is not delivered by IBM or Holdco to the Trustee, for
delivery to such Non-Affiliated Holder (or to such other persons, if any,
properly designated by such Non-Affiliated Holder), within five Business Days
of the date of the giving of such notice by the Trustee, in which case the
rights of the Non-Affiliated Holder shall remain unaffected until such shares
of IBM Common Stock are so delivered by IBM or Holdco and any such cheque is
so delivered and paid. Concurrently with the closing of the transaction of
purchase and sale contemplated by the Exchange Right, such Non-Affiliated
Holder shall be considered and deemed for all purposes to be the holder of
the shares of IBM Common Stock delivered to it pursuant to the Exchange Right.
4.7 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION
In the event that a Non-Affiliated Holder has exercised its right under Article
5 of the Exchangeable Share Provisions to require the Corporation to redeem any
or all of the Exchangeable Shares held by the Non-Affiliated Holder (the
"Retracted Shares") and is notified by the Corporation pursuant to Section
6.1(4) of the Exchangeable Share Provisions that the Corporation will not be
permitted as a result of solvency requirements of applicable law to redeem all
such Retracted Shares, subject to receipt by the Trustee of written notice to
that effect from the Corporation and provided that neither IBM nor Holdco shall
have exercised its Retraction Call Right with respect to the Retracted Shares
and that the Non-Affiliated Holder shall not have revoked the retraction request
delivered by the Non-Affiliated Holder to the Corporation pursuant to Section
6.1(5) of the Exchangeable Share Provisions, the retraction request will
constitute and will be deemed to constitute notice from the Non-Affiliated
Holder to the Trustee instructing the Trustee to exercise the Exchange Right
with respect to those Retracted Shares that the Corporation is unable to redeem.
In any such event, the Corporation hereby agrees with the Trustee and in favour
of the Non-Affiliated Holder immediately to notify the Trustee of such
prohibition against the Corporation redeeming all of the Retracted Shares and
immediately to forward or cause to be forwarded to the Trustee all relevant
materials delivered by the Non-Affiliated Holder to the Corporation or to the
Transfer Agent (including without limitation a copy of the retraction request
delivered pursuant to Section 6.1(1) of the Exchangeable Shares Provisions) in
connection with such proposed redemption of the Retracted Shares and the Trustee
will thereupon exercise the Exchange Right with respect to the Retracted Shares
that the Corporation is not permitted to redeem and will require IBM to purchase
such shares in accordance with the provisions of this Article 4.
4.8 STAMP OR OTHER TRANSFER TAXES
Upon any sale of Exchangeable Shares to IBM or Holdco pursuant to the Exchange
Right, the share certificate or certificates representing the IBM Common Stock
to be delivered in connection with the payment of the total purchase price
therefor shall be issued in the name of the Non-Affiliated Holder of the
Exchangeable Shares so sold or in such names as such Non-Affiliated Holder may
otherwise direct in writing without charge to the holder of the Exchangeable
Shares so sold; provided, however, that such Non-Affiliated Holder (a) shall pay
(and neither IBM, Holdco, the Corporation nor the Trustee shall be required to
pay) any documentary, stamp, transfer or other similar taxes that may be payable
in respect of any transfer
<PAGE>
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involved in the issuance or delivery of such shares to a person other than such
Non-Affiliated Holder or (b) shall have established to the satisfaction of the
Trustee, IBM, Holdco and the Corporation that such taxes, if any, have been
paid.
4.9 NOTICE OF INSOLVENCY EVENT
Promptly upon the occurrence of an Insolvency Event or any event that with
the giving of notice or the passage of time or both would be an Insolvency
Event, the Corporation, IBM and Holdco shall give written notice thereof to
the Trustee. As soon as practicable after receiving notice from the
Corporation or IBM or from any other person of the occurrence of an
Insolvency Event, the Trustee will mail to each Non-Affiliated Holder, at the
expense of IBM (such funds to be received in advance), a notice of such
Insolvency Event in the form provided by IBM, which notice shall contain a
brief statement of the right of the Non-Affiliated Holders with respect to
the Exchange Right.
4.10 IBM COMMON STOCK
All shares of IBM Common Stock delivered to or to the order of a former holder
of surrendered Exchangeable Shares shall be duly issued as fully paid,
non-assessable, free of pre-emptive rights and shall be free and clear of any
lien, claim, encumbrance, security interest or adverse claim.
4.11 AUTOMATIC EXCHANGE ON LIQUIDATION OF IBM
(a) IBM shall give the Trustee prompt written notice of each of
the following events (each an "IBM Liquidation Event"):
(i) any determination by the board of directors of IBM to
institute voluntary liquidation, dissolution or
winding-up proceedings with respect to IBM (not
including a reorganization under applicable
bankruptcy laws) or to effect any other distribution
of assets of IBM among its stockholders for the
purpose of winding-up its affairs; and
(ii) receipt by IBM of notice of, or IBM otherwise
becoming aware of, any instituted claim, suit,
petition or other proceedings with respect to the
involuntary liquidation, dissolution or winding-up of
IBM (not including a reorganization under applicable
bankruptcy laws) or to effect any other distribution
of assets of IBM among its stockholders for the
purpose of winding-up its affairs.
(b) Immediately following receipt by the Trustee from IBM of
notice of any IBM Liquidation Event contemplated by Section
4.11(a), the Trustee will give notice thereof to the holders
of Exchangeable Shares. Such notice shall be provided by IBM
to the Trustee and shall include a brief description of the
automatic exchange of Exchangeable Shares for shares of IBM
Common Stock provided for in Section 4.11(c).
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(c) In order that the holders of Exchangeable Shares (other than
IBM and any Subsidiary) will be able to participate on a PRO
RATA basis with the holders of IBM Common Stock in the
distribution of assets of IBM in connection with a IBM
Liquidation Event, on the fifth Business Day prior to the
effective date (the "IBM Liquidation Event Effective Date") of
an IBM Liquidation Event all of the then outstanding
Exchangeable Shares (other than Exchangeable Shares held by
IBM and any Subsidiary) shall be automatically exchanged for
shares of IBM Common Stock. To effect such automatic exchange,
IBM (or, at the election of IBM, Holdco) shall purchase each
Exchangeable Share outstanding on the fifth Business Day prior
to the IBM Liquidation Event Effective Date and held by a
holder of Exchangeable Shares (other than IBM and any of its
Subsidiaries), and each such holder shall sell the
Exchangeable Shares held by it at such time, for a purchase
price per share equal to (i) the Current Market Price of a
share of IBM Common Stock on the fifth Business Day prior to
the IBM Liquidation Event Effective Date, which shall be
satisfied in full by IBM or Holdco delivering to such holder
one share of IBM Common Stock, plus (ii) the Dividend Amount,
if any. In connection with such automatic exchange, the
Corporation will provide to the Trustee an Officer's
Certificate setting forth the calculation of the purchase
price for each Exchangeable Share.
(d) On the fifth Business Day prior to the IBM Liquidation Event
Effective Date, the closing of the transaction of purchase and
sale contemplated by the automatic exchange of Exchangeable
Shares for IBM Common Stock shall be deemed to have occurred,
and each holder of Exchangeable Shares (other than IBM and any
Subsidiary) shall be deemed to have transferred to IBM (or, at
the election of IBM, Holdco) all of such holder's right, title
and interest in and to such Exchangeable Shares and shall
cease to be a holder of such Exchangeable Shares at such time
as IBM or Holdco shall deliver or cause to be delivered to the
Transfer Agent, for delivery to such holders, the certificates
representing the number of shares of IBM Common Stock
deliverable upon the automatic exchange of Exchangeable Shares
for IBM Common Stock (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of
any lien, claim or encumbrance, security interest or adverse
claim) and a cheque for the balance, if any, of the total
purchase price for such Exchangeable Shares without
interest; interest on such deposit shall belong to IBM.
Concurrently with each such holder ceasing to be a holder
of Exchangeable Shares, such holder shall be considered and
deemed for all purposes to be the holder of the shares of
IBM Common Stock delivered to it, or to the Transfer Agent
on its behalf, pursuant to the automatic exchange of
Exchangeable Shares for IBM Common Stock and the
certificates held by such holder previously representing
the Exchangeable Shares exchanged by such holder with IBM
pursuant to such automatic exchange shall thereafter be
deemed to represent the shares of IBM Common Stock
delivered to such holder by IBM pursuant to such automatic
exchange. Upon the request of any such former holder of
Exchangeable Shares and the surrender by such holder of
Exchangeable Share certificates deemed to represent shares
of IBM Common Stock, duly endorsed in blank and accompanied
by such instruments of transfer as IBM may reasonably
require, IBM shall deliver or cause to be delivered to such
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holder certificates representing the shares of IBM Common
Stock of which such holder is the holder and a cheque in
payment of the remaining portion, if any, of the aggregate
purchase price therefor.
4.12 CALL RIGHTS
The Liquidation Call Right, the Redemption Call Right, the Retraction Call Right
and the Automatic Exchange Right are hereby agreed, acknowledged and confirmed.
It is agreed and acknowledged that such rights are enforceable against each
holder of Exchangeable Shares by IBM or Holdco, as the case may be.
4.13 ACKNOWLEDGEMENT OF CONSIDERATION
It is expressly acknowledged that the Exchange Right and the Automatic Exchange
Right granted to the holders of the Exchangeable Shares hereunder are granted in
partial consideration for the transfer of shares of LGS Group Inc. to the
Corporation.
ARTICLE 5
CONCERNING THE TRUSTEE
5.1 POWERS AND DUTIES OF THE TRUSTEE
The rights, powers and authorities of the Trustee under this trust agreement, in
its capacity as trustee of the Trust, shall include:
(a) distributing materials to Non-Affiliated Holders as provided
in this trust agreement;
(b) receiving the grant of the Exchange Right and the Automatic
Exchange Rights from IBM as trustee for and on behalf of the
Non-Affiliated Holders in accordance with the provisions of
this trust agreement;
(c) exercising the Exchange Right in accordance with the
provisions of this trust agreement, and in connection
therewith receiving from Non-Affiliated Holders Exchangeable
Shares and other requisite documents and distributing to such
Non-Affiliated Holders the shares of IBM Common Stock and
cheques, if any, to which such Non-Affiliated Holders are
entitled upon the exercise of the Exchange Right;
(d) holding title to the Trust Estate;
(e) investing any money forming, from time to time, a part of the
Trust Estate as provided in this trust agreement;
(f) taking action at the direction of a Non-Affiliated Holder to
enforce the obligations of the Corporation and/or IBM under
this trust agreement; and
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(g) taking such other actions and doing such other things as are
specifically provided in this trust agreement.
In the exercise of such rights, powers and authorities the Trustee shall have
(and is granted) such incidental and additional rights, powers and authority not
in conflict with any of the provisions of this trust agreement as the Trustee,
acting in good faith and in the reasonable exercise of its discretion, may deem
necessary, appropriate or desirable to effect the purpose of the Trust. Any
exercise of such discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in this
trust agreement. The Trustee in exercising its rights, powers, duties and
authorities hereunder shall act honestly and in good faith with a view to the
best interests of the Non-Affiliated Holders and shall exercise the care,
diligence and skill that a reasonably prudent trustee would exercise in
comparable circumstances. The Trustee shall not be bound to give any notice or
do or take any act, action or proceeding by virtue of the powers conferred on it
hereby unless and until it shall be specifically required to do so under the
terms hereof; nor shall the Trustee be required to take any notice of, or to do
or to take any act, action or proceeding as a result of any default or breach of
any provision hereunder, unless and until notified in writing of such default or
breach, which notice shall distinctly specify the default or breach desired to
be brought to the attention of the Trustee and in the absence of such notice the
Trustee may for all purposes of this trust agreement conclusively assume that no
default or breach has been made in the observance or performance of any of the
representations, warranties, covenants, agreements or conditions contained
herein.
5.2 NO CONFLICT OF INTEREST
The Trustee represents to the Corporation and IBM that at the date of execution
and delivery of this trust agreement there exists no material conflict of
interest in the role of the Trustee as a fiduciary hereunder and the role of the
Trustee in any other capacity. The Trustee shall, within 90 days after it
becomes aware that such a material conflict of interest exists, either eliminate
such material conflict of interest or resign in the manner and with the effect
specified in Article 8 hereof. If, notwithstanding the foregoing provisions of
this Section 5.2, the Trustee has such a material conflict of interest, the
validity and enforceability of this trust agreement shall not be affected in any
manner whatsoever by reason only of the existence of such material conflict of
interest. If the Trustee contravenes the foregoing provisions of this Section
5.2, any interested party may apply to the Ontario Court (General Division) for
an order that the Trustee be replaced as trustee hereunder.
5.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC.
The Corporation and IBM irrevocably authorize the Trustee, from time to time,
to:
(a) consult, communicate and otherwise deal with the registrar and
transfer agent, and with any such subsequent registrar or
transfer agent, of the IBM Common Stock; and
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(b) requisition, from time to time, (i) from any such registrar or
transfer agent any information readily available from the
records maintained by it which the Trustee may reasonably
require for the discharge of its duties and responsibilities
under this trust agreement; and (ii) from the transfer
agent of the IBM Common Stock, and any subsequent transfer
agent of such shares, the share certificates issuable upon
the exercise from time to time of the Exchange Right and
pursuant to the Automatic Exchange Right in the manner
specified in Article 4 hereof.
IBM covenants that it will supply, and will cause Holdco to supply, the Trustee,
or the Transfer Agent, as the case may be, in a timely manner with duly executed
share certificates for the purpose of completing the exercise from time to time
of all rights to acquire IBM Common Stock hereunder, under the Offer, under the
Exchangeable Share Provisions and under any other security or commitment given
to the Non-Affiliated Holders pursuant thereto, in each case pursuant to the
provisions hereof, the terms of the Offer or of the Exchangeable Share
Provisions or otherwise.
5.4 BOOKS AND RECORDS
The Trustee shall keep available for inspection by IBM and the Corporation, at
the Trustee's principal office in Toronto, Ontario, correct and complete books
and records of account relating to the Trustee's actions under this trust
agreement, including without limitation all information relating to mailings and
instructions to and from Non-Affiliated Holders and all transactions pursuant to
the Exchange Right for the term of this Agreement. On or before March 31, 2001
and on or before March 31 in every year thereafter, so long as any Exchangeable
Shares are held by Non-Affiliated Holders, the Trustee shall transmit to IBM and
the Corporation a brief report, dated as of the preceding December 31, with
respect to: (a) the property and funds comprising the Trust Estate as of that
date; (b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the Trustee on behalf of
Non-Affiliated Holders in consideration of the issue and delivery by IBM of
shares of IBM Common Stock in connection with the Exchange Right, during the
calendar year ended on such date; and (c) all other actions taken by the Trustee
in the performance of its duties under this trust agreement which it had not
previously reported.
5.5 INCOME TAX RETURNS AND REPORTS
The Trustee shall, to the extent necessary, prepare and file on behalf of the
Trust appropriate United States and Canadian income tax returns and any other
returns or reports as may be required by applicable law or pursuant to the rules
and regulations of any securities exchange or other trading system through which
the Exchangeable Shares are traded and, in connection therewith, may obtain the
advice and assistance of such experts as the Trustee may consider necessary or
advisable. If required by the Trustee, IBM shall retain such experts as may be
required for the purposes of providing such advice and assistance.
5.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE
The Trustee shall exercise any or all of the rights, duties, powers or
authorities vested in it by this trust agreement at the request, order or
direction of any Non-Affiliated Holder upon such Non-Affiliated Holder
furnishing to the Trustee reasonable funding, security and indemnity against the
costs, expenses and liabilities that may be incurred by the Trustee therein or
thereby,
<PAGE>
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provided that no Non-Affiliated Holder shall be obligated to furnish to the
Trustee any such funding, security or indemnity in connection with the
exercise by the Trustee of any of its rights, duties, powers and authorities
with respect to the Exchange Right and the Automatic Exchange Right pursuant
to Article 4 hereof, subject to the provisions of Section 5.15 hereof. None
of the provisions contained in this trust agreement shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
exercise of any of its rights, powers, duties or authorities unless funded,
given funds, security and indemnified as aforesaid.
5.7 ACTIONS BY NON-AFFILIATED HOLDERS
No Non-Affiliated Holder shall have the right to institute any action, suit or
proceeding or to exercise any other remedy authorized by this trust agreement
for the purpose of enforcing any of its rights or for the execution of any trust
or power hereunder unless the Non-Affiliated Holder has requested the Trustee to
take or institute such action, suit or proceeding and furnished the Trustee with
the funding, security and indemnity referred to in Section 5.6 hereof and the
Trustee shall have failed to act within a reasonable time thereafter. In such
case, but not otherwise, the Non-Affiliated Holder shall be entitled to take
proceedings in any court of competent jurisdiction such as the Trustee might
have taken; it being understood and intended that no one or more Non-Affiliated
Holders shall have any right in any manner whatsoever to affect, disturb or
prejudice the rights hereby created by any such action, or to enforce any right
hereunder or under the Voting Rights or the Exchange Right except subject to the
conditions and in the manner herein provided, and that all powers and trusts
hereunder shall be exercised and all proceedings at law be instituted, had and
maintained by the Trustee, except only as herein provided, and in any event for
the equal benefit of all Non-Affiliated Holders.
5.8 RELIANCE UPON DECLARATIONS
The Trustee shall not be considered to be in contravention of any of its rights,
powers, duties and authorities hereunder if, when required, it acts and relies
in good faith upon lists, mailing labels, notices, statutory declarations,
certificates, opinions, reports or other papers or documents furnished pursuant
to the provisions hereof or required by the Trustee to be furnished to it in the
exercise of its rights, powers, duties and authorities hereunder and such lists,
mailing labels, notices, statutory declarations, certificates, opinions, reports
or other papers or documents comply with the provisions of Section 5.9 hereof,
if applicable, and with any other applicable provisions of this trust agreement.
5.9 EVIDENCE AND AUTHORITY TO TRUSTEE
The Corporation and/or IBM shall furnish to the Trustee evidence of
compliance with the conditions provided for in this trust agreement relating
to any action or step required or permitted to be taken by the Corporation
and/or IBM or the Trustee under this trust agreement or as a result of any
obligation imposed under this trust agreement, including, without limitation,
in respect of the Exchange Right or the Automatic Exchange Right and the
taking of any other action to be taken by the Trustee at the request of or on
the application of the Corporation and/or IBM forthwith if and when:
<PAGE>
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(a) such evidence is required by any other Section of this trust
agreement to be furnished to the Trustee in accordance with
the terms of this Section 5.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this trust agreement, gives the Corporation
and/or IBM written notice requiring it to furnish such
evidence in relation to any particular action or obligation
specified in such notice.
Such evidence shall consist of an Officer's Certificate of the Corporation
and/or IBM or a statutory declaration or a certificate made by persons entitled
to sign an Officer's Certificate stating that any such condition has been
complied with in accordance with the terms of this trust agreement. Whenever
such evidence relates to a matter other than the Exchange Right and except as
otherwise specifically provided herein, such evidence may consist of a report or
opinion of any solicitor, auditor, accountant, appraiser, valuer, engineer or
other expert or any other person whose qualifications give authority to a
statement made by such person, provided that if such report or opinion is
furnished by a director, officer or employee of the Corporation and/or IBM it
shall be in the form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the
Trustee as evidence of compliance with a condition provided for in this trust
agreement shall include a statement by the person giving the evidence:
(a) declaring that such person has read and understands the
provisions of this trust agreement relating to the condition
in question; and
(b) declaring that such person has made such examination or
investigation as such person believes is necessary to enable
such person to make the statements or give the opinions
contained or expressed therein.
5.10 EXPERTS, ADVISORS AND AGENTS
The Trustee may:
(a) in relation to these presents act and rely on the opinion or
advice of or information obtained from or prepared by any
solicitor, auditor, accountant, appraiser, valuer, engineer or
other expert, whether retained by the Trustee or by the
Corporation and/or IBM or otherwise, and may employ such
assistants as may be necessary to the proper determination and
discharge of its powers and duties and determination of its
rights hereunder and may pay proper and reasonable
compensation for all such legal and other advice or assistance
as aforesaid; and
(b) employ such agents and other assistants as it may reasonably
require for the proper determination and discharge of its
powers and duties hereunder, and may pay reasonable
remuneration for all services performed for it (and shall be
entitled to receive reasonable remuneration for all services
performed by it) in the discharge of the trusts hereof and
compensation for all disbursements, costs and
<PAGE>
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expenses made or incurred by it in the determination and
discharge of its duties hereunder and in the management of the
Trust.
5.11 INVESTMENT OF MONEY HELD BY TRUSTEE
Unless otherwise provided in this trust agreement, any money held by or on
behalf of the Trustee which under the terms of this trust agreement may or
ought to be invested or which may be on deposit with the Trustee or which may
be in the hands of the Trustee may be invested and reinvested in the name or
under the control of the Trustee (in trust for the Corporation) in securities
in which, under the laws of the Province of Ontario, trustees are authorized
to invest trust money, provided that such securities are stated to mature
within two years after their purchase by the Trustee, and the Trustee shall
so invest such money on the written direction of the Corporation. Pending the
investment of any money as hereinbefore provided, such money may be deposited
in the name of the Trustee, in trust for the corporation, in any chartered
bank in Canada or, with the consent of the Corporation, in the deposit
department of the Trustee or any other loan or trust company authorized to
accept deposits under the laws of Canada or any province thereof at the rate
of interest then current on similar deposits.
5.12 TRUSTEE NOT REQUIRED TO GIVE SECURITY
The Trustee shall not be required to give any bond or security in respect of the
execution of the trusts, rights, duties, powers and authorities of this trust
agreement or otherwise in respect of the premises.
5.13 TRUSTEE NOT BOUND TO ACT ON THE CORPORATION'S REQUEST
Except as in this trust agreement otherwise specifically provided, the Trustee
shall not be bound to act in accordance with any direction or request of the
Corporation and/or IBM or of the directors thereof until a written copy of the
instrument or resolution containing such direction or request shall have been
delivered to the Trustee, and the Trustee shall be empowered to act and rely
upon any such copy believed by the Trustee to be genuine.
5.14 AUTHORITY TO CARRY ON BUSINESS
The Trustee represents to the Corporation and IBM that at the date of execution
and delivery by it of this trust agreement it is authorized to carry on the
business of a trust company in the Province of Ontario but if, notwithstanding
the provisions of this Section 5.14, it ceases to be so authorized to carry on
business, the validity and enforceability of this trust agreement and the
Exchange Right and the other rights granted in or resulting from the Trustee
being a party to this trust agreement shall not be affected in any manner
whatsoever by reason only of such event but the Trustee shall, within 90 days
after ceasing to be authorized to carry on the business of a trust company in
the Province of Ontario, either become so authorized or resign in the manner and
with the effect specified in Article 8 hereof.
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5.15 CONFLICTING CLAIMS
If conflicting claims or demands are made or asserted with respect to any
interest of any Non-Affiliated Holder in any Exchangeable Shares, including any
disagreement between the heirs, representatives, successors or assigns
succeeding to all or any part of the interest of any Non-Affiliated Holder in
any Exchangeable Shares resulting in conflicting claims or demands being made in
connection with such interest, then the Trustee shall be entitled, at its sole
discretion, to refuse to recognize or to comply with any such claim or demand.
In so refusing, the Trustee may elect not to exercise the Exchange Right or
other rights subject to such conflicting claims or demands and, in so doing, the
Trustee shall not be or become liable to any person on account of such election
or its failure or refusal to comply with any such conflicting claims or demands.
The Trustee shall be entitled to continue to refrain from acting and to refuse
to act until:
(a) the rights of all adverse claimants with respect to the
Exchange Right or other rights subject to such conflicting
claims or demands have been adjudicated by a final judgment of
a court of competent jurisdiction; or
(b) all differences with respect to the Exchange Right or other
rights subject to such conflicting claims or demands have been
conclusively settled by a valid written agreement binding on
all such adverse claimants, and the Trustee shall have been
furnished with an executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by
any such adverse claimant, it may in its discretion require such claimant to
furnish such surety, bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
5.16 ACCEPTANCE OF TRUST
The Trustee hereby accepts the Trust created and provided for by and in this
trust agreement and agrees to perform the same upon the terms and conditions
herein set forth and to hold all rights, privileges and benefits conferred
hereby and by law in trust for the various persons who shall from time to time
be Non-Affiliated Holders, subject to all the terms and conditions herein set
forth.
ARTICLE 6
COMPENSATION
6.1 FEES AND EXPENSES OF THE TRUSTEE
IBM and the Corporation jointly and severally agree to pay to the Trustee
reasonable compensation for all of the services rendered by it under this trust
agreement and will reimburse the Trustee for all reasonable expenses (including
but not limited to taxes (other than taxes based on income), compensation paid
to experts, agents and advisors and travel expenses) and disbursements,
including the cost and expense of any suit or litigation of any character and
any proceedings before any governmental agency reasonably incurred by the
Trustee in connection
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with its rights and duties under this trust agreement; provided that IBM and the
Corporation shall have no obligation to reimburse the Trustee for any expenses
or disbursements paid, incurred or suffered by the Trustee in any suit or
litigation in which the Trustee is determined to have acted in bad faith or with
negligence or wilful misconduct or for any matter in respect of which the
provisions of Section 5.6 entitle the Trustee to funding, security and indemnity
from any Non-Affiliated Holder.
ARTICLE 7
INDEMNIFICATION AND LIMITATION OF LIABILITY
7.1 INDEMNIFICATION OF THE TRUSTEE
IBM and the Corporation jointly and severally agree to indemnify and hold
harmless the Trustee and each of its directors, officers, employees and agents
appointed and acting in accordance with this trust agreement (collectively, the
"Indemnified Parties") against all claims, losses, damages, costs, penalties,
fines and reasonable expenses (including reasonable expenses of the Trustee's
legal counsel) which, without fraud, negligence, wilful misconduct or bad faith
on the part of such Indemnified Party, may be paid, incurred or suffered by the
Indemnified Party by reason of or as a result of the Trustee's acceptance or
administration of the Trust, its compliance with its duties set forth in this
trust agreement, or any written or oral instructions delivered to the Trustee by
IBM or the Corporation pursuant hereto. In no case shall IBM or the Corporation
be liable under this indemnity for any claim against any of the Indemnified
Parties if such claim is incurred or suffered by reason of or as a result of the
fraud, negligence, wilful misconduct or bad faith of an Indemnified Party and
unless IBM and the Corporation shall be notified by the Trustee of the written
assertion of a claim or of any action commenced against the Indemnified Parties,
promptly after any of the Indemnified Parties shall have received any such
written assertion of a claim or shall have been served with a summons or other
first legal process giving information as to the nature and basis of the claim.
Subject to (ii), below, IBM and the Corporation shall be entitled to participate
at their own expense in the defense and, if IBM or the Corporation so elect at
any time after receipt of such notice, any of them may assume the defense of any
suit brought to enforce any such claim. The Trustee shall have the right to
employ separate counsel in any such suit and participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of the Trustee
unless: (i) the employment of such counsel has been authorized by IBM or the
Corporation, such authorization not to be unreasonably withheld; or (ii) the
named parties to any such suit include both the Trustee and IBM or the
Corporation and the Trustee shall have been advised by counsel acceptable to IBM
or the Corporation that there may one or more legal defenses available to the
Trustee that are different from or in addition to those available to IBM or the
Corporation and that an actual or potential conflict of interest exists (in
which case IBM and the Corporation shall not have the right to assume the
defense of such suit on behalf of the Trustee but shall be liable to pay the
reasonable fees and expenses of one counsel for the Trustee). Such
indemnification shall survive the resignation or removal of the Trustee and the
termination of this trust agreement.
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7.2 LIMITATION OF LIABILITY
The Trustee shall not be held liable for any loss which may occur by reason of
depreciation of the value of any part of the Trust Estate or any loss incurred
on any investment of funds pursuant to this trust agreement, except to the
extent that such loss is attributable to the fraud, negligence, wilful
misconduct or bad faith on the part of the Trustee.
ARTICLE 8
CHANGE OF TRUSTEE
8.1 RESIGNATION
The Trustee, or any trustee hereafter appointed, may at any time resign by
giving written notice of such resignation to IBM and the Corporation specifying
the date on which it desires to resign, provided that such notice shall never be
given less than 60 days before such desired resignation date unless IBM and
Corporation otherwise agree and provided further that such resignation shall not
take effect until the date of the appointment of a successor trustee and the
acceptance of such appointment by the successor trustee. Upon receiving such
notice of resignation, IBM and the Corporation shall promptly appoint a
successor trustee by written instrument in duplicate, one copy of which shall be
delivered to the resigning trustee and one copy to the successor trustee.
Failing acceptance by a successor trustee, a successor trustee may be appointed
by an order of the Ontario Court (General Division) upon application of one or
more of the parties hereto. Should the retiring Trustee apply for the
appointment of a successor trustee by an order of the Ontario Court (General
Division) it shall be at the expense of the Corporation.
8.2 REMOVAL
The Trustee, or any trustee hereafter appointed, may be removed with or without
cause, at any time on 60 days' prior notice by written instrument executed by
IBM and the Corporation, in duplicate, one copy of which shall be delivered to
the trustee so removed and one copy to the successor trustee.
8.3 SUCCESSOR TRUSTEE
Any successor trustee appointed as provided under this trust agreement shall
execute, acknowledge and deliver to IBM and the Corporation and to its
predecessor trustee an instrument accepting such appointment. Thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, duties and obligations of its
predecessor under this trust agreement, with like effect as if originally named
as trustee in this trust agreement. However, on the written request of IBM and
the Corporation or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of this trust
agreement, execute and deliver an instrument transferring to such successor
trustee all the rights and powers of the trustee so ceasing to act. Upon the
request of any such successor trustee, IBM and the Corporation and such
predecessor trustee shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers.
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8.4 NOTICE OF SUCCESSOR TRUSTEE
Upon acceptance of appointment by a successor trustee as provided herein, IBM
and the Corporation shall cause to be mailed notice of the succession of such
trustee hereunder to each Non-Affiliated Holder specified in a List. If IBM or
the Corporation shall fail to cause such notice to be mailed within 10 days
after acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be mailed at the expense of IBM and the Corporation.
ARTICLE 9
IBM SUCCESSORS
9.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC.
If IBM enters into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets would
become the property of any other person or, in the case of a merger, of the
continuing corporation resulting therefrom, then IBM will take all necessary
actions to ensure that:
(a) such other person or continuing corporation (the "IBM
Successor"), by operation of law, becomes, without more, bound
by the terms and provisions of this trust agreement and the
Trustee acting and relying on an opinion of counsel to the
Trust is so satisfied or, if not so bound, executes, prior
to or contemporaneously with the consummation of such
transaction a trust agreement supplemental hereto and such
other instruments (if any) as are satisfactory to the
Trustee, acting reasonably, and in the opinion of legal
counsel to the Trustee, are reasonably necessary or
advisable to evidence the assumption by the IBM Successor
of liability for all money payable and property deliverable
hereunder and the covenant of such IBM Successor to pay and
deliver or cause to be delivered the same and its agreement
to observe and perform all the covenants and obligations of
IBM under this trust agreement; and
(b) such transaction shall, to the satisfaction of the Trustee
acting and relying on the opinion of legal counsel to the
Trustee, be upon such terms as substantially to preserve
and not to impair in any material respect any of the
rights, duties, powers and authorities of the Trustee or of
the Non-Affiliated Holders hereunder.
9.2 VESTING OF POWERS IN SUCCESSOR
Whenever the covenants of Section 9.1 hereof have been duly observed and
performed, if required by Section 9.1 hereof, the Trustee, the IBM Successor and
the Corporation shall execute and deliver the supplemental trust agreement
provided for in Article 10 hereof and thereupon the IBM Successor shall possess
and from time to time may exercise each and every right and power of IBM under
this trust agreement in the name of IBM or otherwise and any act or proceeding
by any provision of this trust agreement required to be done or performed by the
IBM Board of Directors or any officers of IBM may be done and performed with
like force and effect by the directors or officers of such IBM Successor.
<PAGE>
-23-
ARTICLE 10
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
10.1 AMENDMENTS, MODIFICATIONS, ETC.
This trust agreement may not be amended or modified except by an agreement in
writing executed by the Corporation, IBM and the Trustee and approved by the
Non-Affiliated Holders in accordance with Section 9.2 of the Exchangeable Share
Provisions. This trust agreement shall apply in respect of any issuance of
additional Exchangeable Shares in one or more transactions or financings which,
for greater certainty, may be unrelated to the Offer or the transactions
contemplated thereby.
10.2 MINISTERIAL AMENDMENTS
Notwithstanding the provisions of Section 10.1 hereof, the parties to this trust
agreement may in writing, at any time and from time to time, without the
approval of the Non-Affiliated Holders, amend or modify this trust agreement for
the purposes of:
(a) adding to the covenants of any or all of the parties hereto
for the protection of the Non-Affiliated Holders hereunder
subject to receipt by the Trustee of an opinion of counsel
to the Trustee that the addition of the proposed covenant
is not predjudicial to the interests of the Non-Affiliated
Holders or the Trustee;
(b) making such amendments or modifications not inconsistent
with this trust agreement as may be necessary or desirable
with respect to matters or questions which, in the opinion
of the Board of Directors and the Board of Directors of IBM
and in the opinion of the Trustee (relying on the opinion
of legal counsel to the Trustee), having in mind the best
interests of the Non-Affiliated Holders as a whole, it may
be expedient to make, provided that such boards of
directors and the Trustee and its counsel shall be of the
opinion that such amendments and modifications will not be
prejudicial to the interests of the Non-Affiliated Holders
as a whole; or
(c) making such changes or corrections which are required for the
purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error, provided that each of the Trustee and its
counsel, the Board of Directors and the Board of Directors
of IBM shall be of the opinion that such changes or
corrections will not be prejudicial to the interests of the
Non-Affiliated Holders as a whole.
10.3 MEETING TO CONSIDER AMENDMENTS
The Corporation, at the request of IBM, shall call a meeting or meetings of the
Non-Affiliated Holders for the purpose of considering any proposed amendment or
modification requiring approval pursuant hereto. Any such meeting or meetings
shall be called and held in accordance with the by-laws of the Corporation, the
Exchangeable Share Provisions and all applicable laws.
<PAGE>
-24-
10.4 CHANGES IN CAPITAL OF IBM AND THE CORPORATION
At all times after the occurrence of any event effected pursuant to Section 2.7
or Section 2.8 of the Support Agreement or Section 9.1 of this trust agreement,
as a result of which either IBM Common Stock or the Exchangeable Shares or both
are in any way changed, this trust agreement shall forthwith be amended and
modified as necessary in order that it shall apply with full force and effect,
MUTATIS MUTANDIS, to all new securities into which IBM Common Stock or the
Exchangeable Shares or both are so changed and the parties hereto shall execute
and deliver a supplemental trust agreement giving effect to and evidencing such
necessary amendments and modifications.
10.5 EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS
No amendment to or modification or waiver of any of the provisions of this trust
agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by all of the parties hereto. From time to time the
Corporation, IBM and the Trustee may, subject to the provisions of these
presents, and they shall, when so directed by these presents, execute and
deliver by their proper officers, trust agreements or other instruments
supplemental hereto, which thereafter shall form part hereof, for any one or
more of the following purposes:
(a) evidencing the succession of IBM Successors to IBM and the
covenants of and obligations assumed by each such IBM
Successor in accordance with the provisions of Article 9 and
the successor of any successor trustee in accordance with the
provisions of Article 8;
(b) making any additions to, deletions from or alterations of the
provisions of this trust agreement, the Exchange Right or the
Automatic Exchange Rights which, in the opinion of the
Trustee acting and relying on the opinion of counsel to the
Trustee, will not be prejudicial to the interests of the
Non-Affiliated Holders as a whole or are, in the opinion of
counsel to the Trustee, necessary or advisable in order to
incorporate, reflect or comply with any legislation the
provisions of which apply to IBM, the Corporation, the Trustee
or this trust agreement; and
(c) for any other purposes not inconsistent with the provisions of
this trust agreement, including without limitation to make or
evidence any amendment or modification to this trust agreement
as contemplated hereby, provided that, in the opinion of the
counsel to Trustee, the rights, duties and authorities of the
Trustee and the Non-Affiliated Holders as a whole will not be
prejudiced thereby.
10.6 WHOLLY-OWNED SUBSIDIARIES
Nothing herein shall be construed as preventing the amalgamation or merger of
any Subsidiary of IBM with or into IBM or the winding up, liquidation or
dissolution of any Subsidiary of IBM. In addition, nothing herein shall be
construed as preventing the amalgamation or merger of LGS Group Inc. and/or IBM
Canada Limited with, and or into Holdco or the Corporation and/or one or more
other corporations, or the winding up, liquidation or dissolution of LGS Group
Inc.
<PAGE>
-25-
ARTICLE 11
TERMINATION
11.1 TERM
The Trust created by this trust agreement shall continue until the earliest to
occur of the following events:
(a) no outstanding Exchangeable Shares are held by any
Non-Affiliated Holder;
(b) each of the Corporation, IBM and Holdco elects in writing
to terminate the Trust and such termination is approved by
the Non-Affiliated Holders of the Exchangeable Shares in
accordance with Section 9.2 of the Exchangeable Share
Provisions; and
(c) 21 years after the death of the last survivor of the
descendants of His Majesty King George VI of the United
Kingdom of Great Britain and Northern Ireland living on the
date of the creation of the Trust.
11.2 SURVIVAL OF AGREEMENT
This trust agreement shall survive any termination of the Trust and shall
continue until there are no Exchangeable Shares outstanding held by any
Non-Affiliated Holder; provided, however, that the provisions of Articles 6 and
7 hereof shall survive any such termination of this trust agreement.
ARTICLE 12
GENERAL
12.1 SEVERABILITY
If any provision of this trust agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
trust agreement shall not in any way be affected or impaired thereby and this
trust agreement shall be carried out as nearly as possible in accordance with
its original terms and conditions.
12.2 ENUREMENT
This trust agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted assigns and to the
benefit of the Non-Affiliated Holders.
12.3 NOTICES TO PARTIES
All notices and other communications between the parties hereunder shall be in
writing and shall be deemed to have been given if delivered personally or by
confirmed telecopy to the parties at the following addresses (or at such other
address for such party as shall be specified in like notice):
<PAGE>
-26-
(a) if to IBM at:
New Orchard Road
Armonk, NY
10504
Attention:
(b) if to Holdco at:
3600 Steeles Avenue East
Markham, Ontario
L3R 9Z7
Attention: President and Secretary
(c) if to the Corporation at:
3600 Steeles Avenue East
Markham, Ontario
L3R 9Z7
Attention: President and Chief Executive Officer
(d) if to the Trustee at:
2001 University Street, 16th Floor
Montreal, Quebec
H3A 2A6
Attention: Branch Manager
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the next Business Day after the date
of receipt thereof unless such day is not a Business Day in which case it shall
be deemed to have been given and received upon the immediately following
Business Day.
12.4 NOTICE OF NON-AFFILIATED HOLDERS
Any and all notices to be given and any documents to be sent to any
Non-Affiliated Holder may be given or sent to the address of such holder shown
on the register of holders of Exchangeable Shares in any manner permitted by the
CANADA BUSINESS CORPORATIONS ACT from time to time in force in respect of
notices to shareholders and shall be deemed to be received (if given or sent in
such manner) at the time specified in such Act, the provisions of which Act
shall apply MUTATIS MUTANDIS to notices or documents as aforesaid sent to such
holders.
<PAGE>
-27-
12.5 RISK OF PAYMENTS BY POST
Whenever payments are to be made or documents are to be sent to any
Non-Affiliated Holder by the Trustee or by the Corporation, IBM or by such
Non-Affiliated Holder to the Trustee or to IBM or the Corporation, the making of
such payment or sending of such document sent through the post or by courier
shall be at the risk of Corporation, in the case of payments made or documents
sent by the Trustee or the Corporation or IBM and the Non-Affiliated Holder, in
the case of payments made or documents sent by the Non-Affiliated Holder.
12.6 COUNTERPARTS
This trust agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
12.7 JURISDICTION
This trust agreement shall be construed and enforced in accordance with the laws
of the Province of Ontario and the laws of Canada applicable therein.
12.8 ATTORNMENT
Each of the Corporation, IBM and Holdco agrees that any action or proceeding
arising out of or relating to this trust agreement may be instituted in the
courts of Ontario, waives any objection which it may have now or hereafter to
the venue of any such action or proceeding, irrevocably submits to the
jurisdiction of the said courts in any such action or proceeding, agrees to
be bound by any final and unappealable judgment of the said courts, and
hereby waives any review of the merits of any such judgement by the court of
any other jurisdiction and hereby appoints the Corporation at its registered
office in the Province of Ontario as its attorney for service of process.
<PAGE>
-28-
IN WITNESS WHEREOF, the parties hereto have caused this trust
agreement to be duly executed as of the date first above written.
INTERNATIONAL BUSINESS IBM ACQUISITION INC.
MACHINES CORPORATION
By: /s/ Lee Dayton By: /s/ Belinda C. Tang
-------------------------- --------------------------
Name: Lee Dayton Name: Belinda C. Tang
Title: Vice President of Title: Secretary
Corporate Development
and Real Estate
3040696 NOVA SCOTIA COMPANY CIBC MELLON TRUST COMPANY
By: /s/ Arthur B. James By: /s/ Michel Longpre
-------------------------- --------------------------
Name: Arthur B. James Name: Michel Longpre
Title: President and Secretary Title: Authorized Signing
Officer
By: /s/ Monica Bynoe
--------------------------
Name: Monica Bynoe
Title: Authorized Signing
Officer
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1
DEFINITIONS AND INTERPRETATION........................................2
1.1 Definitions..................................................2
1.2 Interpretation Not Affected by Headings, etc.................5
1.3 Number, Gender and Persons...................................5
1.4 Date for Any Action..........................................5
1.5 Payments.....................................................5
ARTICLE 2
TRUST.................................................................6
2.1 Establishment of Trust.......................................6
ARTICLE 3
STOCKHOLDER INFORMATION RIGHTS........................................6
3.1 Copies of Stockholder Information............................6
3.2 Other Materials..............................................6
3.3 Distribution of Written Materials............................7
ARTICLE 4
EXCHANGE RIGHT........................................................7
4.1 Grant and Ownership of the Exchange Right....................7
4.2 Legended Share Certificate...................................8
4.3 General Exercise of Exchange Right...........................8
4.4 Purchase Price...............................................8
4.5 Exercise Instructions........................................8
4.6 Delivery of IBM Common Stock; Effect of Exercise.............9
4.7 Exercise of Exchange Right Subsequent to Retraction.........10
4.8 Stamp or other Transfer Taxes...............................10
4.9 Notice of Insolvency Event..................................11
4.10 IBM Common Stock............................................11
4.11 Automatic Exchange on Liquidation of IBM....................11
4.12 Call Rights.................................................13
4.13 Acknowledgement of Consideration............................13
ARTICLE 5
CONCERNING THE TRUSTEE...............................................13
5.1 Powers and Duties of the Trustee............................13
5.2 No Conflict of Interest.....................................14
5.3 Dealings with Transfer Agents, Registrars, etc..............14
5.4 Books and Records...........................................15
5.5 Income Tax Returns and Reports..............................15
5.6 Indemnification Prior to Certain Actions by Trustee.........15
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.7 Actions by Non-Affiliated Holders...........................16
5.8 Reliance upon Declarations..................................16
5.9 Evidence and Authority to Trustee...........................16
5.10 Experts, Advisors and Agents................................17
5.11 Investment of Money Held by Trustee.........................18
5.12 Trustee Not Required to Give Security.......................18
5.13 Trustee Not Bound to Act on the Corporation's Request.......18
5.14 Authority to Carry on Business..............................18
5.15 Conflicting Claims..........................................19
5.16 Acceptance of Trust.........................................19
ARTICLE 6
COMPENSATION.........................................................19
6.1 Fees and Expenses of the Trustee............................19
ARTICLE 7
INDEMNIFICATION AND LIMITATION OF LIABILITY..........................20
7.1 Indemnification of the Trustee..............................20
7.2 Limitation of Liability.....................................21
ARTICLE 8
CHANGE OF TRUSTEE....................................................21
8.1 Resignation.................................................21
8.2 Removal.....................................................21
8.3 Successor Trustee...........................................21
8.4 Notice of Successor Trustee.................................22
ARTICLE 9
IBM SUCCESSORS.......................................................22
9.1 Certain Requirements in Respect of Combination, etc.........22
9.2 Vesting of Powers in Successor..............................22
9.3 Wholly-Owned Subsidiaries...................................23
ARTICLE 10
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS.........................23
10.1 Amendments, Modifications, etc..............................23
10.2 Ministerial Amendments......................................23
10.3 Meeting to Consider Amendments..............................24
10.4 Changes in Capital of IBM and the Corporation...............24
10.5 Execution of Supplemental Trust Agreements..................24
10.6 Wholly-Owned Subsidiaries...................................25
ARTICLE 11
TERMINATION..........................................................25
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
11.1 Term........................................................25
11.2 Survival of Agreement.......................................25
ARTICLE 12
GENERAL..............................................................25
12.1 Severability................................................25
12.2 Enurement...................................................26
12.3 Notices to Parties..........................................26
12.4 Notice of Non-Affiliated Holders............................26
12.5 Risk of Payments by Post....................................27
12.6 Counterparts................................................27
12.7 Jurisdiction................................................27
12.8 Attornment..................................................27
</TABLE>
-iii-
<PAGE>
INTERNATIONAL BUSINESS MACHINES CORPORATION, a corporation
existing under the laws of the State of New York ("IBM")
-and-
3040696 NOVA SCOTIA COMPANY, an unlimited company existing
under the laws of the Province of Nova Scotia ("Holdco")
- and -
IBM ACQUISITION INC., a corporation existing under the laws
of Canada ("Corporation")
- and -
CIBC MELLON TRUST COMPANY, a trust company existing under the
laws of Canada (the "Trustee")
- ------------------------------------------------------------------------------
EXCHANGE TRUST AGREEMENT
- ------------------------------------------------------------------------------
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-4 of
International Business Machines Corporation of our report dated March 14,
2000 relating to the financial statements of IBM Acquisition II L.L.C., which
appears in such Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
March 15, 2000
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of the Registration Statement on Form S-4 of
International Business Machines Corporation of our report dated January 19,
2000 relating to the financial statements and financial statement schedule of
International Business Machines Corporation, which appear in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
March 15, 2000
