<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
JANUARY 15, 1997
SOURCE MEDIA, INC.
(Exact name of registrant as specified in is charter)
DELAWARE 0-21894 13-3700438
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
8140 WALNUT HILL LANE, SUITE 1000
DALLAS, TEXAS 75231 75231
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(214) 890-9050
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On November 13, 1996, Source Media, Inc. (the "Company") entered into
an agreement with its majority owned subsidiary, Cableshare Inc. ("Cableshare"),
(the "Arrangement Agreement") to, in effect, acquire the outstanding voting
stock of Cableshare that it and its subsidiaries did not already own. Pursuant
to the Arrangement Agreement, the Company acquired the balance of Cableshare's
voting shares (the "Cableshare Common Shares") pursuant to a procedure known as
a statutory arrangement (the "Arrangement"). The Arrangement was subject to
approval by the Ontario Court of Justice (General Division) pursuant to Section
182 of the Business Corporations Act (Ontario), which approval was granted
December 18, 1996. In general, the Arrangement, which was consummated on January
14, 1996, involved a recapitalization of the Cableshare Common Shares pursuant
to which the outstanding Cableshare Common Shares were exchanged for shares of
common stock, $.001 par value per share, of the Company ("Source Common
Shares"), and the Company and its subsidiaries became the owners of all the
outstanding Cableshare Common Shares. The Arrangement was also approved by
Cableshare's shareholders on December 18, 1996. Pursuant to the Arrangement,
each holder of Cableshare Common Shares, (other than the Company and its
subsidiaries and dissenting shareholders) received the number of Source Common
Shares obtained by dividing the number of Cableshare Common Shares owned by such
holder by 5.0156, rounded down to the nearest whole share, plus a cash payment
in lieu of any fractional shares. The Company issued an aggregate of 1,425,000
Source Common Shares pursuant to the Arrangement.
Cableshare has developed a patented interactive television technology
currently being used by the Company under a license agreement that uses
telephone lines and cable television to deliver interactive services to
consumers. This interactive television technology is a multi-user multimedia
system designed to deliver pictures, text, graphics and audio on demand to a
user's television set through existing coaxial cable television and telephone
networks. This technology stores the video and audio presentations in a
compressed digital form on a computer hard drive.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
It is impractical to provide at this time the financial
statements required by Item 7(a) of Form 8-K. Pursuant to Item
7(a)(4) of Form 8-K, such financial statements will be filed as soon
as they are available and on or before March 31, 1997.
(b) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Consolidated Balance Sheet at September
30, 1996
Unaudited Pro Forma Condensed Consolidated Balance Sheet at November
30, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1995
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Nine Months Ended September 30, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Eleven Months Ended November 30, 1996
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits.
Exhibit 10.1 - Arrangement Agreement dated November 13, 1996 between
Source Media, Inc. and Cableshare Inc.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 15, 1997 SOURCE MEDIA, INC.
By: /s/ Timothy P. Peters
-----------------------------------
Timothy P. Peters, Chief Executive
Officer
3
<PAGE> 4
SOURCE MEDIA, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ...................................... F-2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996..................... F-3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1996 ..................... F-4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 ...................................................................... F-5
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 .............................................................. F-6
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
ELEVEN MONTHS ENDED NOVEMBER 30, 1996 ............................................................. F-7
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ............................ F-8
</TABLE>
F-1
<PAGE> 5
SOURCE MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheets as
of September 30, 1996 and November 30, 1996 reflect (i) the issuance of
1,425,000 shares of Source Media, Inc. common stock, $.001 par value ("Source
Common Shares") for all of the outstanding Cableshare Common Shares and (ii)
the issuance of options to purchase Source Common Shares in exchange for all of
the outstanding options to purchase Cableshare Common Shares as if such
transactions had been consummated on September 30, 1996 and November 30, 1996,
respectively. The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1995, the nine months ended September
30, 1996 and the eleven months ended November 30, 1996 give effect to such
transactions as if they had been consummated on January 1, 1995.
These statements are not necessarily indicative of the results that would
have been obtained had the transactions described above been consummated on the
dates indicated. The unaudited pro forma condensed consolidated balance sheets
and statements of operations are based on a preliminary purchase allocation
with respect to the assets and liabilities of Cableshare. The final purchase
price allocation may differ from the preliminary allocation used for purposes
of these unaudited pro forma condensed consolidated financial statements. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and the Company's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1996.
F-2
<PAGE> 6
SOURCE MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
SOURCE PRO FORMA AS
MEDIA, INC. ADJUSTMENTS ADJUSTED
----------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 12,159 $ (600)(c) $ 10,959
(600)(f)
Accounts receivable, net.............................. 1,049 1,049
Prepaid expenses and other current assets............. 1,514 1,514
--------- --------- --------
Total current assets.................................... 14,722 (1,200) 13,522
Property and equipment, net............................. 2,754 1,800 (f) 4,554
Intangible assets:
Patents, net ......................................... 730 10,440 (a) 12,311
541 (b)
600 (c)
Goodwill, net ........................................ 594 594
Other non-current assets................................ 355 355
--------- --------- --------
Total assets............................................ $ 19,155 $ 12,181 $ 31,336
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................ $ 909 $ 909
Accrued payroll and other accrued liabilities......... 1,466 1,200 2,666
Unearned income....................................... 4,508 4,508
Current portion of capital lease obligations.......... 119 119
--------- --------- --------
Total current liabilities............................... 7,002 1,200 8,202
Long-term debt, net of discount......................... 4,580 4,580
Capital lease obligations, less current portion......... 39 39
Minority interests in consolidated subsidiaries, net of
note receivable from minority stockholder............. 2,897 290 (a) 3,187
Total stockholders' equity.............................. 4,637 10,150 (a) 15,328
541 (b)
--------- --------- --------
Total liabilities and stockholders' equity.............. $ 19,155 $ 12,181 $ 31,336
========= ========= ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
F-3
<PAGE> 7
SOURCE MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
SOURCE PRO FORMA AS
MEDIA, INC. ADJUSTMENTS ADJUSTED
----------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 7,633 $ (600)(c) $ 6,433
(600)(f)
Accounts receivable, net.............................. 939 939
Prepaid expenses and other current assets............. 2,232 2,232
--------- --------- --------
Total current assets.................................... 10,804 (1,200) 9,604
Property and equipment, net............................. 3,901 1,800 (f) 5,701
Intangible assets:
Patents, net.......................................... 638 10,440 (a) 12,219
541 (b)
600 (c)
Goodwill, net......................................... 514 514
Other non-current assets................................ 316 316
--------- --------- --------
Total assets............................................ $ 16,173 $ 12,181 $ 28,354
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................ $ 886 $ 886
Accrued payroll and other accrued liabilities......... 1,681 1,200 (f) 2,881
Unearned income....................................... 4,312 4,312
Current portion of capital lease obligations.......... 99 99
--------- --------- --------
Total current liabilities............................... 6,978 1,200 8,178
Long-term debt, net of discount......................... 4,580 4,580
Capital lease obligations, less current portion......... 27 27
Minority interests in consolidated subsidiaries, net of
note receivable from minority stockholder............. 2,908 290 (a) 3,198
Total stockholders' equity.............................. 1,680 10,150 (a) 12,371
541 (b)
--------- --------- --------
Total liabilities and stockholders' equity.............. $ 16,173 $ 12,181 $ 28,354
========= ========= ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
F-4
<PAGE> 8
SOURCE MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(in thousands except for per share data)
<TABLE>
<CAPTION>
SOURCE PRO FORMA AS
MEDIA, INC. ADJUSTMENTS ADJUSTED
----------- ----------- --------
<S> <C> <C> <C>
Monetary revenues....................................... $ 9,342 $ 9,342
Nonmonetary revenues.................................... 15,944 15,944
--------- --------
Total revenues........................................ 25,286 25,286
Monetary cost of sales.................................. 4,937 4,937
Nonmonetary cost of sales............................... 15,944 15,944
--------- --------
Total cost of sales................................... 20,881 20,881
--------- --------
Gross profit............................................ 4,405 4,405
Selling, general and administrative expenses............ 7,952 600(g) 8,552
Amortization of intangible assets....................... 1,031 2,316(d) 3,347
Research and development expenses....................... 3,750 3,750
--------- ------- --------
12,733 2,916 15,649
--------- ------- --------
Operating loss.......................................... (8,328) (2,916) (11,244)
Interest expense........................................ 354 354
Interest income......................................... (217) (217)
Other (income).......................................... (25) (25)
Minority interest in losses of consolidated
subsidiaries.......................................... (252) 252(d) --
Charges related to financing incentives................. 1,581 1,581
--------- ------- --------
Net loss................................................ (9,769) (3,168) (12,937)
Preferred stock dividends............................... 833 833
--------- ------- --------
Net loss attributable to common stockholders............ $ (10,602) $(3,168) $(13,770)
========= ======= ========
Net loss per common share............................... $ (1.65) $ (1.76)(e)
========= ========
Weighted average common shares outstanding.............. 6,413 7,837
========= ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
F-5
<PAGE> 9
SOURCE MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands except for per share data)
<TABLE>
<CAPTION>
SOURCE PRO FORMA AS
MEDIA, INC. ADJUSTMENTS ADJUSTED
----------- ----------- --------
<S> <C> <C> <C>
Monetary revenues....................................... $ 6,406 $ 6,406
Nonmonetary revenues.................................... 8,041 8,041
------- --------
Total revenues........................................ 14,447 14,447
Monetary cost of sales.................................. 2,708 2,708
Nonmonetary cost of sales............................... 8,041 8,041
------- --------
Total cost of sales................................... 10,749 10,749
------- --------
Gross profit............................................ 3,698 3,698
Selling, general and administrative expenses............ 8,081 450 (g) 8,531
Amortization of intangible assets....................... 774 1,737 (d) 2,511
Research and development expenses....................... 4,414 4,414
------- ------- --------
13,269 2,187 15,456
------- ------- --------
Operating loss.......................................... (9,571) (2,187) (11,758)
Interest expense........................................ 361 361
Interest income......................................... (662) (662)
Other (income).......................................... (32) (32)
Minority interest in losses of consolidated
subsidiaries.......................................... (69) 69 (d) --
------- ------- --------
Net loss................................................ $(9,169) $(2,256) $(11,425)
======= ======= ========
Net loss per common share............................... $ (0.92) $ (1.00)(e)
======= ========
Weighted average common shares outstanding.............. 9,933 11,357
======= ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
F-6
<PAGE> 10
SOURCE MEDIA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
ELEVEN MONTHS ENDED NOVEMBER 30, 1996
(in thousands except for per share data)
<TABLE>
<CAPTION>
SOURCE PRO FORMA AS
MEDIA, INC. ADJUSTMENTS ADJUSTED
----------- ----------- --------
<S> <C> <C> <C>
Monetary revenues....................................... $ 7,599 $ 7,599
Nonmonetary revenues.................................... 9,026 9,026
-------- --------
Total revenues........................................ 16,625 16,625
Monetary cost of sales.................................. 3,193 3,193
Nonmonetary cost of sales............................... 9,026 9,026
-------- --------
Total cost of sales................................... 12,219 12,219
-------- --------
Gross profit............................................ 4,406 4,406
Selling, general and administrative expenses............ 10,291 550 (g) 10,841
Amortization of intangible assets....................... 945 2,123 (d) 3,068
Research and development expenses....................... 5,709 5,709
-------- ------- --------
16,945 2,673 19,618
-------- ------- --------
Operating loss.......................................... (12,539) (2,673) (15,212)
Interest expense........................................ 484 484
Interest income......................................... (750) (750)
Other (income).......................................... (35) (35)
Minority interest in losses of consolidated
subsidiaries.......................................... (48) 48 (d) --
-------- ------- --------
Net loss................................................ $(12,190) $(2,721) $(14,911)
======== ======= ========
Net loss per common share............................... $ (1.23) $ (1.31)(e)
======== ========
Weighted average common shares outstanding.............. 9,935 11,359
======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
F-7
<PAGE> 11
SOURCE MEDIA, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated balance sheets
reflect the pro forma adjustments described below as if the Arrangement had
been consummated on their respective dates -- September 30, 1996 and
November 30, 1996. The accompanying unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1995,
the nine months ended September 30, 1996 and the eleven months ended
November 30, 1996 reflect the pro forma adjustments described below as if
the Arrangement had been consummated on January 1, 1995.
The historical financial statements of the Company include the accounts of
the Company and its wholly and majority owned subsidiaries, including
Cableshare, for all periods presented.
The accompanying unaudited pro forma condensed financial statements are not
necessarily indicative of the results that would have been obtained had the
Arrangement occurred on the dates indicated. The unaudited pro forma
condensed consolidated balance sheet and statements of operations are based
on a preliminary purchase price allocation with respect to the assets and
liabilities of Cableshare. The final purchase price allocation may differ
from the preliminary allocation used for purposes of these unaudited pro
forma condensed financial statements.
2. PRO FORMA ADJUSTMENTS
(a) To record the issuance on January 14, 1997 by the Company of 1,425,000
Source Common Shares in exchange for all of the outstanding Cableshare
Common Shares not owned by the Company and its subsidiaries. The per
share market price of Source Common Shares on the closing date of the
Arrangement, January 14, 1997, was $7.125.
(b) To record the issuance of options to purchase 177,000 Source Common
Shares with exercise prices ranging from US$4.96 to US$1.43 in
exchange for all of the outstanding options to purchase Cableshare
Common Shares.
(c) To record the estimated costs of the Arrangement.
(d) To record the amortization of the patents to be recorded upon the
consummation of the Arrangement, assuming a five year amortization
period, and to eliminate the minority interests in losses of
Cableshare.
(e) The pro-forma loss per common share is calculated based on the
aggregate of the weighted average number of Source Common Shares
outstanding, assuming that the Arrangement occurred at the beginning
of the period. Stock options are not considered in the calculation of
the pro forma loss per common share because they are anti-dilutive.
(f) To record the purchase of certain assets from GTE Directories
Corporation ("GTE") in December 1996.
(g) To record the depreciation related to the purchase of certain assets
from GTE, assuming a three year depreciation period.
F-8
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 - Arrangement Agreement dated November 13, 1996 between Source
Media, Inc. and Cableshare Inc.
<PAGE> 1
EXHIBIT 10.1
ARRANGEMENT AGREEMENT
BETWEEN
SOURCE MEDIA, INC.
-- AND --
CABLESHARE INC.
November 13, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE 1.
INTERPRETATION
1.1 Definitions............................................. 5
1.2 Currency................................................ 8
1.3 Number and Gender....................................... 8
1.4 Entire Agreement........................................ 8
1.5 Interpretation.......................................... 9
1.6 Knowledge............................................... 9
1.7 References to Statutes.................................. 9
1.8 Date of Any Action...................................... 9
1.9 Exhibits................................................ 9
ARTICLE 2.
THE ARRANGEMENT
2.1 Implementation Steps by Cableshare...................... 9
2.2 Implementation Steps by Source.......................... 10
2.3 Interim Order........................................... 10
2.4 Articles of Arrangement................................. 10
2.5 Cableshare Options...................................... 11
2.6 Cableshare Information Circular......................... 11
2.7 Securities Compliance................................... 11
2.8 Preparation of Filings.................................. 11
2.9 Exchangeable Shares Generally........................... 12
2.10 Trustee................................................. 13
2.11 Cableshare Shareholder List............................. 13
2.12 Place of Closing........................................ 13
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF CABLESHARE
3.1 Incorporation, Status and Power......................... 13
3.2 Subsidiaries............................................ 13
3.3 Authority............................................... 13
3.4 Recommendation.......................................... 13
3.5 No Conflict............................................. 13
3.6 Share Capitalization.................................... 14
3.7 Shareholder and Similar Agreements...................... 14
3.8 No Changes.............................................. 14
3.9 No Fee or Commission.................................... 14
3.10 Disclosure.............................................. 14
3.11 Material Facts.......................................... 14
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SOURCE
4.1 Incorporation, Status and Power......................... 15
4.2 Authority............................................... 15
4.3 No Conflict............................................. 15
4.4 Share Capitalization.................................... 15
4.5 Disclosure.............................................. 15
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 5.
SURVIVAL AND EFFECT OF REPRESENTATIONS AND WARRANTIES
5.1 Repetition of Representations and Warranties............ 15
5.2 Survival of Representations and Warranties.............. 15
5.3 Reliance................................................ 16
ARTICLE 6.
COVENANTS OF CABLESHARE
6.1 Recommendation.......................................... 16
6.2 Operation of Cableshare................................. 16
6.3 Notification............................................ 17
6.4 Access to Information................................... 17
6.5 Depositary.............................................. 17
6.6 Compliance.............................................. 17
6.7 No Solicitations........................................ 17
6.8 Better Offers........................................... 17
6.9 Exercise of Dissent Rights.............................. 17
ARTICLE 7.
COVENANTS OF SOURCE
7.1 Conduct of Source's Business............................ 18
7.2 Insurance............................................... 18
7.3 Northstar Consent....................................... 18
7.4 Notification............................................ 18
7.5 Exchangeable Shares..................................... 18
ARTICLE 8.
COVENANTS REGARDING SATISFACTION OF CONDITIONS
8.1 Satisfaction of Conditions.............................. 19
8.2 Defence of Proceedings.................................. 19
8.3 Notification............................................ 19
ARTICLE 9.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARTIES
9.1 Conditions in Favour of Both Parties.................... 19
9.2 Conditions in Favour of Source.......................... 20
9.3 Conditions in Favour of Cableshare...................... 20
ARTICLE 10.
AMENDMENT AND TERMINATION
10.1 Termination............................................. 20
10.2 Effect of Termination................................... 21
10.3 Expenses................................................ 21
10.4 Amendment............................................... 21
10.5 Waiver Without Prejudice................................ 21
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE 11.
GENERAL
11.1 Notices................................................. 21
11.2 Survival................................................ 22
11.3 Further Assurances...................................... 22
11.4 Public Announcements.................................... 22
11.5 Binding Effect and Assignment........................... 22
11.6 Waiver of Jury Trial.................................... 22
11.7 Severability............................................ 22
11.8 Specific Performance.................................... 22
11.9 Construction............................................ 22
11.10 Time of the Essence...................................... 23
11.11 Governing Law............................................ 23
11.12 Counterparts............................................. 23
</TABLE>
EXHIBITS
Exhibit 1 -- Plan of Arrangement
Exhibit 2 -- Arrangement Resolution
Exhibit 3 -- Support Agreement
Exhibit 4 -- Voting and Exchange Trust Agreement
Exhibit 5 -- Disclosure Exhibit
4
<PAGE> 5
ARRANGEMENT AGREEMENT
THIS AGREEMENT made as of the 13th day of November, 1996.
B E T W E E N :
SOURCE MEDIA, INC.,
a corporation existing under the laws of the State of
Delaware,
(hereinafter referred to as the "Source"),
OF THE FIRST PART,
- and -
CABLESHARE INC.,
a corporation existing under the laws of the Province of
Ontario,
(hereinafter referred to as "Cableshare"),
OF THE SECOND PART.
WHEREAS the parties have agreed, on the terms and subject to the conditions
hereinafter provided, to enter into a transaction whereby Source will acquire
all of the outstanding shares in the capital of Cableshare not currently owned
by the Source Affiliates;
AND WHEREAS the board of directors of Cableshare has determined that it
would be in the best interests of Cableshare to enter into this Agreement and to
recommend to the shareholders of Cableshare in writing that they vote in favour
of a resolution approving the Arrangement, all on the terms and subject to the
conditions hereinafter provided;
AND WHEREAS the foregoing determination of the board of directors of
Cableshare was made on the recommendation of the Special Committee following the
receipt of an opinion from its financial advisor as to the fairness of the
Arrangement from a financial point of view to Cableshare's shareholders (other
than the Source Affiliates);
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
respective covenants, representations and warranties herein contained and for
other good and valuable consideration (the receipt and sufficiency of which are
hereby expressly acknowledged by each party), the parties hereby agree as
follows:
ARTICLE 1.
INTERPRETATION
1.1 DEFINITIONS. For the purposes of this Agreement, unless the context
otherwise requires, the following terms shall have the respective meanings set
out below and grammatical variations of such terms shall have corresponding
meanings:
"ACQUISITION PROPOSAL" has the meaning ascribed thereto in section 6.7.
"ACT" means the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16.
"ARRANGEMENT" means the arrangement to be effected under the provisions of
sections 182 and 183 of the Act on the terms and conditions set forth in
the Plan of Arrangement, subject to any amendment to the Plan of
Arrangement made in accordance therewith or at the direction of the Court
in the Final Order.
"ARRANGEMENT RESOLUTION" means the special resolution of Cableshare in
content and form substantially similar to the form of special resolution
appended hereto as Exhibit 2.
5
<PAGE> 6
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of Cableshare
relating to the Arrangement.
"AUDITED FINANCIAL STATEMENTS" means the consolidated balance sheet of
Cableshare as at March 31, 1996 and the consolidated statements of
earnings, deficit and changes in financial position for the year then
ended, together in each case with the notes thereto and the auditors'
report thereon, all as contained in the annual report of Cableshare for
the fiscal year ended March 31, 1996.
"AVERAGE TRADING PRICE OF SOURCE COMMON SHARES" means the number that
equals the volume weighted average trading price, denominated in U.S.
dollars, of Source Common Shares as reported on NASDAQ for the 20 days on
which trading took place on NASDAQ ending on the Determination Date.
"BUSINESS DAY" means a day which is not a Saturday, Sunday, a statutory
holiday within the meaning of the Interpretation Act (Canada) or a day on
which banks are required or permitted by law to be closed for business in
Toronto, Ontario.
"CABLESHARE DISCLOSURE DOCUMENTS" means, collectively:
(a) the Audited Financial Statements;
(b) the management proxy circular of Cableshare dated November 7, 1995;
(c) the Unaudited Financial Statements;
(d) all material change reports filed by Cableshare with the OSC from and
after March 31, 1996 to but excluding the date hereof; and
(e) all press releases issued by Cableshare from and after March 31, 1996
to but excluding the date hereof;
which disclosure documents have been filed under applicable securities
Laws.
"CABLESHARE INFORMATION CIRCULAR" means the management information
circular of Cableshare to be prepared and sent to the shareholders of
Cableshare in connection with the Cableshare Shareholders' Meeting.
"CABLESHARE NEW COMMON SHARES" means shares in the new class of common
shares in the capital of Cableshare described in subsection 2.4(a).
"CABLESHARE OPTIONS" means those options to acquire Class A Shares from
Cableshare that are described in the Cableshare Information Circular and
that remain in existence at the Effective Time.
"CABLESHARE SHAREHOLDERS' MEETING" means the annual and special meeting of
the shareholders of Cableshare (including any adjournment thereof) that is
to be convened as provided by the Interim Order to consider, and if deemed
advisable, approve the Arrangement, all as further described in subsection
2.1(b).
"CERTIFICATE" means the certificate of arrangement giving effect to the
reorganization of, and amendments to, the share capital of Cableshare
effected by the Arrangement, issued pursuant to subsection 183(2) of the
Act after the Articles of Arrangement have been filed.
"CLASS A SHARES" means the Class A Subordinate Voting Shares without par
value in the capital of Cableshare.
"CLASS B SHARES" means the Class B Multiple Voting Shares without par
value in the capital of Cableshare.
"CONTRACT" means any agreement, contract, deed, indenture, licence,
sub-licence, undertaking, arrangement, understanding, commitment or other
document or oral statement creating or evidencing legal obligations.
"COURT" means the Ontario Court of Justice (General Division).
"DETERMINATION DATE" means the day which is the second Business Day prior
to the date of the Cableshare Shareholders' Meeting.
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"DETERMINATION DATE FOREIGN EXCHANGE RATE" means the number (including any
decimal fraction) which is the value in Canadian dollars of one U.S.
dollar at the rate of exchange equal to the Bank of Canada's noon rate for
such currencies on the Determination Date.
"DIRECTOR" means the Director appointed under section 278 of the Act.
"DISSENT RIGHTS" means the rights of dissent in respect of the Arrangement
described in section 3.1 of the Plan of Arrangement.
"EFFECTIVE DATE" means the date shown on the Certificate.
"EFFECTIVE TIME" has the meaning ascribed thereto in the Plan of
Arrangement.
"ENCUMBRANCES" means all mortgages, liens, charges, restrictions, security
interests, adverse claims, pledges, encumbrances, rights of set-off and
demands or rights of others of any nature or kind whatsoever, including
any Contract for the purchase or transfer of any of Cableshare's property.
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934.
"EXCHANGE RATIO" means the number equal to the lesser of: (a) the Average
Trading Price of Source Common Shares multiplied by the Determination Date
Foreign Exchange Rate and divided by C$2.25; and (b) 7.5.
"EXCHANGEABLE SHARES" means shares in the new class of exchangeable shares
in the capital of Cableshare described in subsection 2.4(a).
"FINAL ORDER" means the final order of the Court approving the Arrangement
following the application therefor as contemplated by subsection 2.1(a).
"FINANCIAL STATEMENTS" means the Audited Financial Statements and the
Unaudited Financial Statements.
"INTERIM ORDER" means the interim order of the Court made in connection
with the approval of the Arrangement following application therefor, as
contemplated by subsection 2.1(a).
"LAWS" means all statutes, regulations, statutory, rules, principles of
law, orders, published policies and guidelines, and terms and conditions
of any grant of approval, permission, authority or licence of any court,
government, governmental authority or agency, statutory body (including
The Toronto Stock Exchange) or self-regulatory authority, and the term
"applicable" with respect to such Laws and in a context that refers to one
or more Persons, means that such Laws apply to such Person or Persons or
its or their business, undertaking, property or securities and emanate
from a Person having jurisdiction over the Person or Persons or its or
their business, undertaking, property or securities.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation National Market System.
"NORTHSTAR CONSENT" means any consent that may be required in connection
with the Arrangement in connection with the note agreement made as of
March 28, 1996 between Source and Northstar Advantage High Total Return
Fund.
"ONTARIO SECURITIES ACT" means the Securities Act (Ontario), R.S.O. 1990,
c. S.5.
"OSC" means the Ontario Securities Commission.
"PERSON" includes any individual, firm, partnership, joint venture,
venture capital fund, association, trust, trustee, executor,
administrator, legal personal representative, estate, group, body
corporate, corporation, unincorporated association or organization,
government body, syndicate or other entity, whether or not having legal
status.
"PLAN OF ARRANGEMENT" means the plan of arrangement set out as Exhibit 1
to this Agreement, as the same may be amended as set out in Exhibit 1.
"RECOMMENDATION" means the recommendation of the board of directors of
Cableshare, made at its meeting held November 12, 1996, that holders of
Class A Shares and Class B Shares vote in favour of
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the Arrangement Resolution at the Cableshare Shareholders' Meeting, all as
described in the Cableshare Information Circular.
"REPLACEMENT SOURCE OPTION" has the meaning ascribed thereto in section
2.5.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the United States Securities Act of 1933.
"SOURCE AFFILIATES" means IT Network, Inc., a Texas corporation, and
997758 Ontario Inc., an Ontario corporation.
"SOURCE COMMON SHARE" means a share of common stock of Source, par value
U.S.$0.001.
"SOURCE DISCLOSURE DOCUMENTS" means, collectively:
(a) the prospectus dated December 7, 1995 in relation to the offering of
2,350,000 Source Common Shares;
(b) the consolidated balance sheet of Source as at December 31, 1995 and
the consolidated statements of operations, stockholders' equity
(capital deficiency) and cash flows for the year then ended, together
in each case with the notes thereto and the auditors' report thereon,
all as contained in the annual report of Source for the fiscal year
ended December 31, 1995;
(c) the Form 10-K filed by Source with the SEC for the fiscal year ended
December 31, 1995, including the documents incorporated therein by
reference;
(d) the management proxy statement of Source for the annual meeting of
stockholders held May 22, 1996;
(e) all Forms 10-Q filed by Source with the SEC since December 31, 1995;
and
(f) all Forms 8-K filed by Source with the SEC since December 7, 1995;
which disclosure documents have been filed under applicable securities
Laws.
"SPECIAL COMMITTEE" means the special committee of the directors of
Cableshare, consisting of directors who are neither officers of Cableshare
nor officers or directors of Source, that has considered the Arrangement
and made a recommendation regarding it to the board of directors of
Cableshare.
"SPECIAL SHARES" means the Special Shares without par value in the capital
of Cableshare.
"SPECIAL VOTING SHARE" means a share in the Special Voting Stock of Source
as described in the Voting and Exchange Trust Agreement.
"SUBSIDIARY" means any one of Cableshare International Inc., a Barbados
limited company, Cableshare B.V., a Netherlands corporation, and
Cableshare (U.S.) Limited, an Illinois corporation, and "Subsidiaries"
means all of them collectively.
"SUPPORT AGREEMENT" means an agreement to be made between Source and
Cableshare on the terms and conditions set forth in Exhibit 3 hereto,
together with such other terms and conditions as may be customary for
agreements of a similar nature and as may be agreed to by the parties,
acting reasonably.
"TERMINATION DATE" means December 31, 1996.
"TRUSTEE" means the trustee referred to in section 2.10.
"UNAUDITED FINANCIAL STATEMENTS" means the unaudited consolidated balance
sheet of Cableshare as at September 30, 1996 and the consolidated
statements of earnings and changes in financial position for the six-month
period ended September 30, 1996, all as contained in the Cableshare
Information Circular.
"VOTING AND EXCHANGE TRUST AGREEMENT" means an agreement to be made
between Source, Cableshare and the Trustee on the terms and conditions set
forth in Exhibit 4 hereto, together with such other terms and conditions
as may be customary for agreements of a similar nature or as may be agreed
to by the parties, acting reasonably.
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1.2 CURRENCY. References to "C$" or "Canadian dollars" in this Agreement are
to the lawful currency of Canada. References to "U.S.$" or "U.S. dollars" are to
the lawful currency of the United States.
1.3 NUMBER AND GENDER. In this Agreement, words importing the singular number
only shall include the plural and vice versa, and words importing any gender
shall include all genders. The use of the words "any" or "a" in relation to a
group or class of Persons or things shall, unless the context otherwise
requires, refer to any one Person or thing included in that group or class.
1.4 ENTIRE AGREEMENT. This Agreement, including its Exhibits, constitutes the
entire agreement between the parties hereto and their affiliates with respect to
the subject matter hereof and except as hereinafter provided supersedes all
prior agreements, understandings, negotiations and discussions, whether written
or oral, including the offer letters sent on August 30, 1996 and October 28,
1996 by Source to the Special Committee (in respect of which Cableshare and
Source acknowledge and agree that any agreement made thereunder is terminated in
accordance with its terms upon the execution and delivery by the parties hereto
of this Agreement). Each of Source and Cableshare acknowledges and agrees that
any confidentiality agreement made between Cableshare and Source relating to the
subject matter hereof is superseded by this Agreement to the extent of any
inconsistency or conflict between this Agreement and that agreement and to the
extent that the compliance by any party with its covenants under this Agreement
constitutes a default under or non-compliance by that party with its covenants
under that agreement, but otherwise any such confidentiality agreement remains
in full force and effect. Cableshare further acknowledges and agrees that all
such confidentiality agreements shall be terminated without further notice or
action upon the issuance by the Director of the Certificate. There are no
covenants, conditions, agreements, representations, warranties or other terms or
provisions, express or implied, collateral, statutory or otherwise, relating to
the subject matter hereof except as herein provided.
1.5 INTERPRETATION. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and neither such division nor the insertion of such headings
shall affect the construction or interpretation hereof. The terms "this
Agreement", "herein", "hereof", "hereunder" and similar expressions refer to
this arrangement agreement, including the Exhibits hereto, and not to any
particular article, section, subsection, paragraph or other portion hereof, and
any agreement or instrument supplementary or ancillary hereto. When used herein,
"including" shall mean "including, without limitation".
1.6 KNOWLEDGE. For the purposes of section 3.7, "to the knowledge of
Cableshare" refers to the actual knowledge of the senior officers of Cableshare
after due inquiry of the relevant employees of Cableshare and due review of all
documents in the possession or under the control of Cableshare.
1.7 REFERENCES TO STATUTES. Any reference herein to any statute or
legislation shall be deemed to be a reference to such statute or legislation and
all regulations and rules made thereunder, in each case as amended,
supplemented, replaced, consolidated or superseded from time to time.
1.8 DATE OF ANY ACTION. In the event that the date on which any action is
required or permitted to be taken hereunder is not a Business Day, such action
shall be required or permitted to be taken on or by the next succeeding day
which is a Business Day.
1.9 EXHIBITS. The following Exhibits are annexed to and incorporated into
this Agreement by reference and are deemed to be a part hereof:
Exhibit 1 -- Plan of Arrangement
Exhibit 2 -- Arrangement Resolution
Exhibit 3 -- Support Agreement
Exhibit 4 -- Voting and Exchange Trust Agreement
Exhibit 5 -- Disclosure Exhibit
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ARTICLE 2.
THE ARRANGEMENT
2.1 IMPLEMENTATION STEPS BY CABLESHARE. Cableshare covenants in favour of
Source that it shall:
(a) as soon as reasonably practicable, and in any event not later than
the third Business Day following the date hereof, apply in a manner
acceptable to Source, acting reasonably, under subsection 182(5) of
the Act for an order approving the Arrangement and for an interim
order as described in section 2.2, and thereafter proceed with and
diligently pursue the obtaining of such interim order;
(b) convene and hold a special meeting of the holders of the outstanding
Class A Shares and Class B Shares of Cableshare for the purpose of
considering the Arrangement Resolution (and for any other proper
purpose as may be set out in the notice for such meeting);
(c) subject to obtaining such shareholder approval as is required by the
Interim Order, proceed with and diligently pursue the application to
the Court for a final order approving the Arrangement under paragraph
182(5)(f) of the Act;
(d) subject to obtaining the Final Order and the satisfaction or waiver
of the other conditions herein contained in favour of each party, send
to the Director for endorsement and filing by the Director, pursuant
to section 273 of the Act, the Articles of Arrangement, containing
share provisions in form and content substantially similar to those
appended to the Plan of Arrangement, and such other documents as may
be required in connection therewith under the Act to give effect to
the Arrangement;
(e) forthwith following the filing of the Articles of Arrangement with
the Director, execute and deliver the Support Agreement; and
(f) forthwith following the filing of the Articles of Arrangement with
the Director, execute and deliver the Voting and Exchange Trust
Agreement.
2.2 IMPLEMENTATION STEPS BY SOURCE. Source covenants in favour of Cableshare
that it shall, on or prior to the Effective Date and subject to the satisfaction
or waiver of the other conditions herein contained in favour of each party:
(a) execute and deliver the Support Agreement;
(b) execute and deliver the Voting and Exchange Trust Agreement; and
(c) issue to the Trustee the Special Voting Share.
2.3 INTERIM ORDER. The notice of motion for the application referred to in
subsection 2.1(a) shall request that the Interim Order provide:
(a) for the class of Persons to whom notice is to be provided in respect
of the Arrangement and the Cableshare Shareholders' Meeting and for
the manner in which such notice is to be provided;
(b) that holders of outstanding Class A Shares and Class B Shares as such
shall be entitled to vote on the Arrangement Resolution together as a
single class, and not as separate classes, and holders of Class A
Shares shall be entitled to one vote for each Class A Share held of
record and holders of Class B Shares shall be entitled to 20 votes for
each Class B Share held of record;
(c) that the requisite shareholder approval for the Arrangement
Resolution shall be 66-2/3% of the votes cast on the Arrangement
Resolution by holders of Class A Shares and Class B Shares present in
person or by proxy at the Cableshare Shareholders' Meeting, voting
together, and a majority of the votes cast on the Arrangement
Resolution by holders of Class A Shares and holders of Class B Shares
present in person or by proxy at the Cableshare Shareholders' Meeting
excluding shares held by the Source Affiliates and other Persons whose
votes would be excluded for the purpose of determining "minority
approval" as such term is defined in Policy 9.1 of the OSC;
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(d) that, in all other respects, the terms, restrictions and conditions
of the by-laws and articles of Cableshare, including quorum
requirements all other matters, shall apply in respect of the
Cableshare Shareholders' Meeting; and
(e) for the grant of the Dissent Rights.
2.4 ARTICLES OF ARRANGEMENT. The Articles of Arrangement shall, with such
other matters as are necessary to effect the Arrangement, and all as subject to
the provisions of the Plan of Arrangement (including as described in section
2.9), provide as follows:
(a) the authorized share capital of Cableshare shall be increased by the
creation of an unlimited number of a new class of common shares
("Cableshare New Common Shares"), an unlimited number of a new class
of exchangeable shares ("Exchangeable Shares") if the same are to be
issued pursuant to the Plan of Arrangement, and an unlimited number of
a new class of preferred shares, issuable in series, each such class
having the rights, privileges, restrictions and conditions described
with respect to it in the Plan of Arrangement;
(b) the authorized share capital of Cableshare shall be decreased by
cancelling all of the authorized but unissued Class A Shares and Class
B Shares;
(c) each shareholder of Cableshare who has elected to receive
Exchangeable Shares will receive that number of Exchangeable Shares
equal to the aggregate number of Class A Shares and Class B Shares
held of record by it, divided by the Exchange Ratio, provided that
Exchangeable Shares are to be issued pursuant to the Plan of
Arrangement;
(d) each other shareholder of Cableshare (other than shareholders who
exercise Dissent Rights and who are ultimately entitled to be paid the
fair value of the Class A Shares and Class B Shares held by them), and
other than the Source Affiliates, will receive that number of Source
Common Shares equal to the aggregate number of Class A Shares and
Class B Shares held of record by it, divided by the Exchange Ratio;
(e) immediately following the exchanges outlined in paragraph (d) above,
each issued and outstanding Class A Share and Class B Share (all of
which will be held by Source or the Source Affiliates) will be
converted into one Cableshare New Common Share; and
(f) the stated capital attributable to the Cableshare New Common Shares
and the Exchangeable Shares will be as set out in the Plan of
Arrangement.
2.5 CABLESHARE OPTIONS.
At the Effective Time, each of the Cableshare Options shall be exchanged
for an option (a "Replacement Source Option") to purchase that number of Source
Common Shares equal to the number of Class A Shares or Class B Shares subject to
the Cableshare Option at the Effective Time divided by the Exchange Ratio, or,
at the election of the holder of each Cableshare Option in the event that
Exchangeable Shares are to be issued in accordance with the Plan of Arrangement,
the Cableshare Option shall become an option to purchase that number of
Exchangeable Shares equal to the Class A Shares or Class B Shares subject to the
Cableshare Option at the Effective Time divided by the Exchange Ratio, provided
that no Replacement Source Option shall be exercisable unless the corresponding
Cableshare Option has first been terminated by the holder thereof without having
been exercised. The Replacement Source Options and the Cableshare Options shall
provide for an exercise price per Source Common Share (or Exchangeable Share)
equal to the exercise price per share of such Cableshare Option immediately
prior to the Effective Time multiplied by the Exchange Ratio. If the foregoing
calculation results in a Replacement Source Option or Cableshare Option being
exercisable for a fraction of a Source Common Share (or Exchangeable Share),
then the number of Source Common Shares (or Exchangeable Shares) subject to such
option shall be rounded down to the next whole number of Source Common Shares
(or Exchangeable Shares) and the total exercise price for the option will be
reduced by the exercise price of the fractional Source Common Share (or
Exchangeable Share). The term to expiry, conditions to and manner of exercising,
vesting schedule, status under of the United States Internal Revenue Code, and
all other terms and conditions of the Replacement Source Options and Cableshare
Options will otherwise be unchanged. Source shall reserve a sufficient number of
Source
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Common Shares (and, as applicable, Cableshare shall reserve a sufficient number
of Exchangeable Shares) for issuance upon exercise of the Replacement Source
Options and the Cableshare Options.
2.6 CABLESHARE INFORMATION CIRCULAR. As promptly as practicable after the
execution and delivery of this Agreement, Source and Cableshare shall prepare
the Cableshare Information Circular together with any other documents required
by the Securities Act, the Exchange Act, the Ontario Securities Act or other
applicable Law in connection with the Arrangement, and Cableshare shall cause
the Cableshare Information Circular and other documentation required in
connection with the Cableshare Shareholders' Meeting to be mailed to each holder
of Class A Shares and Class B Shares and filed as required with the SEC (if
necessary), the OSC and any other securities regulatory authority having
jurisdiction, all at the expense of Source and in accordance with National
Policy No. 41 of the Canadian Securities Administrators, the Interim Order and
applicable Law.
2.7 SECURITIES COMPLIANCE. Source and Cableshare shall use all reasonable
efforts to obtain all orders required from the applicable Canadian securities
authorities to permit the issuance and first resale of (a) the Exchangeable
Shares and Source Common Shares pursuant to the Arrangement, (b) the Source
Common Shares upon exchange of the Exchangeable Shares, and (c) Source Common
Shares or Exchangeable Shares upon the exercise of the Replacement Source
Options or Cableshare Options, in each case without 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 further
order, ruling or consent from, any governmental or regulatory authority under
any Canadian federal, provincial or territorial Law or pursuant to the rules and
regulations of any regulatory authority administering such Law, or the
fulfilment of any other legal requirement in any such jurisdiction (other than,
with respect to such first resales, any restrictions on transfer by reason of
(x) a holder being a "control person" of Source or Cableshare for purposes of
Canadian federal, provincial or territorial securities Law, (y) any unusual
effort being made to prepare the market or create a demand for the securities,
or (z) any extraordinary commission or consideration being paid in respect of
the trade).
2.8 PREPARATION OF FILINGS.
(a) Source and Cableshare shall cooperate in:
(i) the preparation of any application for the orders referred to in
section 2.7, and any other documents reasonably deemed by Source
or Cableshare to be necessary to discharge their respective
obligations under United States and Canadian federal, provincial,
territorial or state securities Laws in connection with the
Arrangement and the other transactions contemplated hereby;
(ii) the taking of all such action as may be required under any
applicable provincial, territorial or state securities Laws
(including "blue sky laws") in connection with the issuance of
the Exchangeable Shares and the Source Common Shares in
connection with the Arrangement; provided, however, that with
respect to United States blue sky and Canadian provincial
qualifications neither Source nor Cableshare shall be required to
register or qualify as a foreign corporation or to take any
action that would subject it to service of process in any
jurisdiction where any such entity is not now so subject, except
as to matters and transactions arising solely from the offer and
sale of the Exchangeable Shares and the Source Common Shares; and
(iii) the taking of all such action as may be required under the Act
in connection with the transactions contemplated by this
Agreement and the Plan of Arrangement.
(b) Each of Source and Cableshare shall furnish to the other all such
information concerning it and its shareholders as may be required for
the effectuation of the actions described in sections 2.6 and 2.7 and
the foregoing provisions of this section 2.8, and each covenants that
no information furnished by it in connection with such actions or
otherwise in connection with the consummation of the Arrangement and
the other transactions contemplated by this Agreement will contain any
untrue statement of a material fact or omit to state a material fact
required to be stated in
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any such document or necessary in order to make any information so
furnished for use in any such document not misleading in light of the
circumstances in which it is furnished or to be used.
(c) Source and Cableshare shall each promptly notify the other if at any
time before or after the Effective Time it becomes aware that the
Cableshare Information Circular or an application for an order
described in section 2.7 contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein
or necessary to make the statements contained therein not misleading
or that otherwise requires an amendment or supplement to the
Cableshare Information Circular or such application. In any such
event, Source and Cableshare shall cooperate in the preparation of a
supplement or amendment to the Cableshare Information Circular or such
other document, as required and as the case may be, and, if required,
shall cause the same to be distributed to shareholders of Source or
Cableshare and/or filed with the OSC and other relevant securities
regulatory authorities.
(d) Each party shall ensure that the Cableshare Information Circular
complies with all applicable Laws except as relate to the disclosure
of information regarding the other party (and, with respect to Source,
except as relate to matters coming before the Cableshare Shareholders'
Meeting other than the Arrangement Resolution), and, without limiting
the generality of the foregoing, provides holders of Class A Shares
and Class B Shares receiving the Cableshare Information Circular with
information in sufficient detail to permit them to form a reasoned
judgment concerning the matters to be before them at the Cableshare
Shareholders' Meeting.
(e) Each party shall promptly notify the other of the receipt of any
comments from the staff of any securities regulatory authority on the
Cableshare Information Circular and of any request by the staff of any
securities regulatory authority for any amendment thereof or
supplement thereto, and shall supply the other with copies of all
correspondence received from the staff of any securities regulatory
authority with respect to the Cableshare Information Circular.
2.9 EXCHANGEABLE SHARES GENERALLY. In the event that holders of Class A
Shares and Class B Shares resident in Canada have elected in accordance with the
Plan of Arrangement to receive Exchangeable Shares in respect of fewer than 50%
of the Class A Shares and Class B Shares (taken together, but excluding those
Class A Shares and Class B Shares held by the Source Affiliates and (without
duplication) those not held by residents of Canada) outstanding immediately
prior to the Effective Time, then, in accordance with the Plan of Arrangement,
the Exchangeable Shares shall not be added to the authorized capital of
Cableshare, no Person need execute or deliver (or use any efforts to cause any
other Person to execute and deliver) the Voting and Exchange Trust Agreement or
the Support Agreement, holders of Class A Shares and Class B Shares shall
receive only Source Common Shares under the Arrangement, and all other
provisions of this Agreement relating to Exchangeable Shares shall be deemed to
never have been in force or to have had effect insofar (and only insofar) as
they relate to Exchangeable Shares.
2.10 TRUSTEE. Source shall use its reasonable efforts to (a) identify a
corporate trustee, acceptable to Cableshare, acting reasonably, to be the
trustee under the Voting and Exchange Trust Agreement, and (b) have such trustee
execute and deliver, forthwith following the grant of the Final Order, the
Voting and Exchange Trust Agreement.
2.11 CABLESHARE SHAREHOLDER LIST. Cableshare shall cause a list of Cableshare
shareholders as of the record date for the Cableshare Shareholders' Meeting and
shareholder mailing information, in a form suitable for soliciting Cableshare
Shareholders, to be prepared by the transfer agent of Cableshare and to be
delivered to Source no later than the Business Day after such record date.
2.12 PLACE OF CLOSING. The execution and delivery of the documents required to
effectuate the Arrangement (the "Closing") shall take place at the offices of
Davies, Ward & Beck, Suite 4400, 1 First Canadian Place, Toronto, Ontario, or at
such other place as to which the parties may agree.
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ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF CABLESHARE
Cableshare represents and warrants to and in favour of Source as follows.
3.1 INCORPORATION, STATUS AND POWER. Cableshare is a corporation duly
incorporated, organized and validly existing under the laws of the Province of
Ontario and has all requisite corporate power to own or lease its property, to
carry on its operations as now carried on or currently proposed to be carried
on, to execute and deliver this Agreement and to perform its obligations
hereunder.
3.2 SUBSIDIARIES. Cableshare has no direct or indirect subsidiaries (as such
term is defined in the Act) other than the Subsidiaries. Cableshare is the
registered and beneficial holder, free from all Encumbrances, of all of the
issued and outstanding securities (including shares in the capital) of each
Subsidiary. Each Subsidiary is a corporation duly incorporated, organized and
validly existing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power to own or lease its property, to carry on its
operations as now carried on or currently proposed to be carried on. There
exists no Contract or other arrangement or circumstance under which any Person
other than Cableshare (or Persons who are officers or directors of Cableshare)
has the power or ability to manage or direct the conduct of the business and
affairs of any Subsidiary.
3.3 AUTHORITY. The execution and delivery of this Agreement by Cableshare and
the performance by Cableshare of its obligations hereunder have been duly and
validly authorized by all necessary corporate action on the part of Cableshare
and, subject to obtaining the requisite shareholder approvals contemplated in
the Interim Order, no other corporate proceedings on the part of Cableshare are
necessary to authorize this Agreement or consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Cableshare and constitutes a legal, valid and binding obligation of Cableshare
enforceable against it by Source in accordance with its terms, subject to the
availability of equitable remedies and the enforcement of creditors' rights
generally.
3.4 RECOMMENDATION. The board of directors of Cableshare has adopted the
Recommendation following the receipt by it of a recommendation from the Special
Committee and an opinion from the financial advisor to the Special Committee
that the terms of the Arrangement as proposed in the Plan of Arrangement are
fair from a financial point of view to Cableshare's shareholders (other than the
Source Affiliates).
3.5 NO CONFLICT. Except as disclosed in Exhibit 5, the execution and delivery
of this Agreement and the performance by Cableshare of its obligations hereunder
do not and will not:
(a) conflict with or breach in any material respect (i) the constating
documents or by-laws of Cableshare or the resolutions of its directors
or shareholders, (ii) Contracts binding on Cableshare, or (iii) Laws
applicable to Cableshare or any Subsidiary;
(b) give rise to any right to terminate or any restriction on the rights
or benefits of Cableshare or any Subsidiary under any material
Contract to which Cableshare or any Subsidiary is a party; or
(c) result in the imposition of any Encumbrance on any material asset of
Cableshare or any Subsidiary.
3.6 SHARE CAPITALIZATION.
(a) The authorized capital of Cableshare consists of an unlimited number
of Special Shares, an unlimited number of Class A Shares and an
unlimited number of Class B Shares.
(b) As at the date hereof: (i) 11,950,088 Class A Shares and 2,432,517
Class B Shares are issued and outstanding; (ii) no Special Shares are
issued and outstanding; and (iii) there are no other issued and
outstanding shares in the capital of Cableshare.
(c) All issued and outstanding shares of Cableshare have been validly
authorized and issued and are fully paid and non-assessable. The Class
A Shares and Class B Shares are listed and posted for trading on The
Toronto Stock Exchange, but not on any other exchange or stock
quotation and trading system.
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(d) There are no options, warrants, conversion privileges, calls or other
rights of any nature whatsoever, and no Contract or any other document
under which Cableshare is obligated, contingently or otherwise, to
issue or sell any shares in the capital stock of Cableshare or
securities or obligations of any kind convertible into or exchangeable
for any shares in the capital stock of Cableshare, nor are there
outstanding any stock appreciation rights, phantom equity or similar
rights, agreements, arrangements or commitments based upon the book
value, income or other attributes of Cableshare, except for (i) the
options to acquire Class A Shares described as to date of grant,
number of Class A Shares under option, holder, option exercise price
and expiry date described in the Cableshare Information Circular, and
(ii) the rights of holders of Class B Shares to convert each Class B
Share into a Class A Share in accordance with the articles of
Cableshare. No holder of Cableshare shares is entitled to any
pre-emptive or other similar rights in respect of shares in the
capital of Cableshare.
3.7 SHAREHOLDER AND SIMILAR AGREEMENTS. To the knowledge of Cableshare, there
are no shareholder, pooling, voting trust or other agreements relating to the
issued and outstanding shares of Cableshare.
3.8 NO CHANGES. Since the date of the Audited Financial Statements:
(a) Cableshare and each Subsidiary has carried on its affairs in the
ordinary course consistent with past practice; and
(b) Cableshare has not made any change in its accounting principles and
practices as theretofore applied, including the basis upon which its
assets and liabilities are recorded on its books and its earnings and
profits and losses are ascertained.
3.9 NO FEE OR COMMISSION. Except as described as to payee and amount in the
Cableshare Information Circular, Cableshare is not liable for any brokers' fee,
financial advisory fee or commission in connection with any transaction
contemplated by this Agreement.
3.10 DISCLOSURE. The Cableshare Disclosure Documents, when taken together and
as at their respective dates, include all documents that Cableshare has been
required by Laws applicable to it to file with the OSC since March 31, 1996,
were prepared in accordance with the requirements of applicable Laws and did
not, when filed, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein not misleading in light of the circumstances
under which they were made. This Agreement contains no untrue statement of a
material fact and does not omit to state any material fact required to be stated
herein or necessary in order to make the statements made herein not misleading
in light of the circumstances under which they are made. No material fact exists
on the date hereof which has not been disclosed in the Cableshare Disclosure
Documents which, if publicly disclosed, would reflect that an adverse material
change (or any event, condition or state of facts which might reasonably be
expected to give rise to any such material change) had occurred in the affairs,
capital, assets, liabilities, financial condition, operations or prospects of
Cableshare.
3.11 MATERIAL FACTS. Cableshare has attempted in good faith to deliver all
documents that Cableshare is reasonably able to deliver or cause to be delivered
that have been requested by Source or its advisors, and has not withheld any
material fact actually known to Cableshare in responding to the inquiries made
to it in writing by Source or its advisors in connection with the transactions
contemplated by this Agreement.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SOURCE
Source represents and warrants to and in favour of Cableshare as follows.
4.1 INCORPORATION, STATUS AND POWER. Source is a corporation duly
incorporated, organized and validly existing under the laws of the State of
Delaware and has all requisite corporate power to own or lease its property, to
carry on its operations as now carried on or currently proposed to be carried
on, to execute and deliver this Agreement and to perform its obligations
hereunder.
4.2 AUTHORITY. The execution and delivery of this Agreement by Source and the
performance by Source of its obligations hereunder have been duly and validly
authorized by all necessary corporate action on the part of Source and no other
corporate proceedings on the part of Source are necessary to authorize this
Agreement or consummate the transactions contemplated hereby, including the
issuance of Source Common Shares as contemplated pursuant to the Arrangement.
This Agreement has been duly executed and delivered by Source and constitutes a
legal, valid and binding obligation of Source enforceable against it by
Cableshare in accordance with its terms, subject to the availability of
equitable remedies and the enforcement of creditors' rights generally.
4.3 NO CONFLICT. The execution and delivery of this Agreement and the
performance by Source of its obligations hereunder do not and will not:
(a) conflict with or breach in any material respect (i) the constating
documents or by-laws of Source or the resolutions of its directors or
shareholders; (ii) Contracts binding on Source; or (iii) Laws
applicable to Source;
(b) give rise to any right to terminate or any restriction on the rights
or benefits of Source under any material Contract to which Source is a
party; or
(c) result in the imposition of any Encumbrance on any material asset of
Source.
4.4 SHARE CAPITALIZATION.
(a) The authorized capital of Source consists of 1,000,000 shares of
Preferred Stock, U.S.$0.001 par value, 50,000,000 Source Common
Shares, and an unlimited number of shares of treasury stock.
(b) As at the date hereof: (i) 9,945,690 Source Common Shares are issued
and outstanding; (ii) no shares of Preferred Stock are issued and
outstanding; and (iii) there are no other outstanding shares in the
capital of Source.
(c) All issued and outstanding shares of Source have been validly
authorized and issued and are fully paid and non-assessable. The
Source Common Shares are listed and posted for trading on NASDAQ, but
not on any other exchange or stock quotation and trading system.
4.5 DISCLOSURE. The Source Disclosure Documents, when taken together and as
at their respective dates, include all documents that Source has been required
by Laws applicable to it to file with the SEC since December 7, 1995, were
prepared in accordance with the requirements of applicable Laws and did not,
when filed, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading in light of the circumstances under which
they were made and, in particular, no material fact exists on the date hereof
that has not been disclosed in the Source Disclosure Documents which, if
publicly disclosed, would reflect that an adverse material change (or any event,
condition or state of facts which might reasonably be expected to give rise to
any such material change) had occurred in the affairs, capital, assets,
liabilities, financial condition, operations or prospects of Source.
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ARTICLE 5.
SURVIVAL AND EFFECT OF REPRESENTATIONS AND WARRANTIES
5.1 REPETITION OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each of the parties shall be deemed to be repeated on the date
hereof and on the Effective Date.
5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each party shall survive the execution and delivery of this
Agreement and shall terminate on the earlier of the termination of this
Agreement and the day after the Effective Date.
5.3 RELIANCE. No investigation by either party or its advisors will affect
the representations and warranties of the other party or diminish the first
party's reliance on any of them.
ARTICLE 6.
COVENANTS OF CABLESHARE
Cableshare covenants in favour of Source as follows.
6.1 RECOMMENDATION. Subject to section 6.8, the Recommendation shall be
reflected in the Cableshare Information Circular.
6.2 OPERATION OF CABLESHARE. Until the earlier of the termination of this
Agreement and the Effective Date and subject to the terms of this Agreement,
Cableshare shall, and shall cause each Subsidiary to, except with the prior
written consent of Source:
(a) carry on its operations only in, and not take any action except in,
the ordinary course in substantially the same manner as heretofore
carried on and use all reasonable efforts to preserve intact its
present organization, licences and permits, comply with applicable
Laws and orders, maintain all beneficial relationships, retain the
benefit of all material Contracts and retain the services of its
employees to the end that its goodwill and operations shall be
maintained;
(b) not issue, sell or authorize the issuance or sale, or grant any right
to acquire of any nature whatsoever any securities of Cableshare
(except pursuant to the exercise of the Options or the conversion into
Class A Shares or Class B Shares now outstanding), or split, combine,
reclassify any share or effect any other change in its share capital;
(c) not purchase or propose the purchase of any of its shares of any
class or securities convertible into or rights, warrants or options to
acquire any such shares or other exchangeable or convertible
securities, or the conversion of convertible securities outstanding on
the date hereof;
(d) not sell, transfer, convey, assign, encumber or otherwise dispose of
any material asset except for fair value in the normal course of
business, consistent with the practice in prior periods;
(e) not sell, transfer, convey, assign, encumber or otherwise dispose of
any equity interest in any Subsidiary;
(f) not acquire or agree to acquire any assets or securities of or make
any investment in or loan to any Person, or acquire or agree to
acquire by amalgamating, merging or consolidating with, purchasing
substantially all of the assets of or otherwise, any Person, except
that Cableshare may acquire assets in the ordinary course of its
business, consistent with the practice in prior periods;
(g) not pay, discharge or satisfy any material claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise) other than in the ordinary course of business consistent
with prior practice of liabilities reflected or reserved against in
the Financial Statements or incurred in the ordinary course of
business since September 30, 1996 consistent with past practice;
(h) not incur, commit to incur or guarantee the payment of indebtedness
for borrowed money or issue any debt securities;
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<PAGE> 18
(i) not make any material tax election inconsistent with past practices
or settle or compromise any material federal, provincial, state, local
or foreign tax liability or agree or seek an extension to the filing
of any return or other filing relating to the assessment or payment of
taxes;
(j) not terminate or amend any material Contract or enter into any
material Contract;
(k) not adopt or amend any employee benefit, bonus, savings, deferred
compensation, stock option, stock purchase, stock appreciation, group
insurance, profit sharing, retirement, health, dental, vision,
employment or unemployment, education, disability or like plans,
programs or arrangements under which Cableshare or any Subsidiary has
any obligation (other than the Canada Pension Plan and programs
administered under the Workers Compensation Act (Ontario) and the
Unemployment Insurance Act (Canada)), or any pension plan for the
benefit of the current or former employees of Cableshare or any
Subsidiary or their spouses, children, dependants, beneficiaries or
estates; and
(l) not enter into any Contract to do any act or thing it is required not
to do by the foregoing provisions of this section 6.2.
6.3 NOTIFICATION. Cableshare shall promptly notify Source orally and in
writing of (as and when Cableshare becomes aware of the same):
(a) any material change in the working capital, financial condition,
assets, liabilities, operations or prospects of Cableshare or any
Subsidiary;
(b) any litigation, proceeding, third party complaint or regulatory
action that could materially adversely affect any of the working
capital, financial condition, assets, liabilities, operations or
prospects of Cableshare or any Subsidiary;
(c) all relevant details of any proposal or offer of the type referred to
in section 6.7, or of the possibility of any such proposal or offer
being made by any Person; and
(d) the occurrence or failure to occur of any event or matter that may
cause any representation or warranty of Cableshare hereunder to be
untrue or inaccurate at any time.
6.4 ACCESS TO INFORMATION. Cableshare shall provide Source and its advisors
with such information and documentation relating to Cableshare and the
Subsidiaries (including its books and records), and such access to the
directors, officers, employees, agents, auditors and advisors to and facilities
of Cableshare and such Subsidiaries, as Source may reasonably request from time
to time.
6.5 DEPOSITARY. Cableshare shall permit and direct Cableshare's registrar and
transfer agent to act as Source's depositary under the Arrangement.
6.6 COMPLIANCE. Cableshare shall ensure that the Cableshare Shareholders'
Meeting is conducted in compliance with the articles and by-laws of Cableshare
and with the Interim Order.
6.7 NO SOLICITATIONS. Cableshare shall not directly or indirectly make,
solicit, initiate or encourage enquiries or the submission of proposals or
offers from any Person other than Source relating to the acquisition,
recapitalization, merger, amalgamation, arrangement, purchase or dissolution of
Cableshare or, except with the prior written consent of Source, of any
Subsidiary or other material assets or any ownership or debt interest of or in
Cableshare or any similar or business combination transaction (any of the
foregoing proposals or offers being referred to herein as an "Acquisition
Proposal"), or participate in discussions or negotiations, or in any way assist,
facilitate or cooperate with any Person other than Source seeking to do any of
the foregoing, including by furnishing information to any such Person, provided
that the foregoing shall not prevent the board of directors of Cableshare from
responding to any bona fide offer, proposal or enquiry made by a third party in
connection with the foregoing and providing information to such a Person if, in
the opinion of the directors, acting in good faith and upon the advice of their
financial and legal advisors, the failure to do so would be inconsistent with
the directors' fiduciary duties under applicable Law.
6.8 BETTER OFFERS.
(a) If a competing bona fide Acquisition Proposal is made that is more
favourable from a financial point of view to shareholders of
Cableshare (other than the Source Affiliates), then the board of
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directors of Cableshare may withdraw the Recommendation and may
support the competing bona fide Acquisition Proposal provided that, in
the opinion of the directors, acting in good faith and upon the advice
of their financial and legal advisors, the failure to do so would be
inconsistent with the directors' fiduciary duties under applicable
Law.
(b) Cableshare and its board of directors may cause any withdrawal of the
Recommendation and any support for or recommendation of a competing
bona fide Acquisition Proposal made as permitted by subsection 6.8(a)
to be reflected in a public announcement and in an information
circular or amendment thereto.
6.9 EXERCISE OF DISSENT RIGHTS. Cableshare shall give Source (a) prompt
notice of any written demands of holders of Class A Shares or Class B Shares in
exercise of the Dissent Rights, withdrawals of such demands, and any other
instruments served pursuant to the Act and received by Cableshare, and (b) the
opportunity to participate in all negotiations and proceedings with respect to
such rights. Cableshare shall not, except with the prior written consent of
Source, voluntarily make any payment with respect to any such rights or offer to
settle or settle any such rights.
ARTICLE 7.
COVENANTS OF SOURCE
Source covenants in favour of Cableshare as follows.
7.1 CONDUCT OF SOURCE'S BUSINESS. Until the earlier of the termination of
this Agreement and the Effective Date, Source shall not:
(a) amend its constating documents in any manner that would consolidate,
subdivide, reorganize, reclassify or otherwise affect the terms of the
Source Common Shares;
(b) acquire or agree to acquire, by amalgamation or consolidation with,
or by purchasing equity of, any other Person or all or substantially
all of the business and assets of any other Person, other than a
subsidiary of Source (as that term is defined in the Act) or pursuant
to this Agreement;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock;
(d) sell, transfer or dispose of all or substantially all of its business
and assets; or
(e) enter into any Contract to do any of the foregoing acts or things.
7.2 INSURANCE. If the Arrangement becomes effective, Source shall cause
Cableshare and its successors to continue for two years after the Effective Date
to indemnify the officers and directors and former officers and directors of
Cableshare for claims made during such period relating to their acts or
omissions on or prior to the Effective Date on terms substantially similar to
those of the indemnity now provided by Cableshare to its officers and directors
as provided for in the by-laws of Cableshare as currently in effect, provided
that insurance coverage in respect of such indemnity can be obtained on
reasonable terms.
7.3 NORTHSTAR CONSENT. Until the Arrangement has become effective and Source
has issued the Source Common Shares required by subsection 2.2(d) or 2.3(c) of
the Plan of Arrangement, Source shall:
(a) if necessary, obtain and, once obtained, not consent to the
amendment, termination or withdrawal of the Northstar Consent or waive
or suffer any non-compliance with any right, benefit or covenant in
its favour therein contained, except with the prior written consent of
Cableshare;
(b) if necessary, obtain and, once obtained, use its best efforts to keep
in full force and effect the Northstar Consent; and
(c) do all such acts and things as may be necessary for Source to issue
the Source Common Shares required by subsection 2.2(d) or 2.3(c) of
the Plan of Arrangement, as applicable.
7.4 NOTIFICATION. Source shall promptly notify Cableshare orally and in
writing of (as and when Source becomes aware of the same):
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(a) any material change in the working capital, financial condition,
assets, liabilities, operations or prospects of Source, on a
consolidated basis;
(b) any litigation, proceeding, third party complaint or regulatory
action that could materially adversely affect any of the working
capital, financial condition, assets, liabilities, operations or
prospects of Source, on a consolidated basis; and
(c) the occurrence or failure to occur of any event or matter that may
cause any representation or warranty of Source hereunder to be untrue
or inaccurate at any time.
7.5 EXCHANGEABLE SHARES. If the Arrangement becomes effective and the
Exchangeable Share Condition is satisfied, Source shall:
(a) use its best efforts to ensure that Cableshare remains a "public
corporation" within the meaning of the Income Tax Act (Canada) for so
long as there are Exchangeable Shares outstanding (other than those
held by Source or the Source Affiliates); and
(b) if there are Exchangeable Shares outstanding (other than those held
by Source or the Source Affiliates) when Source is eligible to file a
registration statement on form S-3 in respect of Source Common Shares
under the Securities Act, cause Cableshare to list the Exchangeable
Shares on a stock exchange in Canada (and, if necessary in connection
therewith, Source shall file a registration statement with the SEC
relating to Source Common Shares), provided that Source shall not be
obligated hereby to file any registration statement with the SEC at
any time when Source is in the course of making a public offering or
distribution of its securities or for 90 days following such an
offering or distribution, and further provided that nothing in this
section 7.5 shall derogate from any provisions hereof relating to the
redemption, retraction, exchange or call of Exchangeable Shares.
ARTICLE 8.
COVENANTS REGARDING SATISFACTION OF CONDITIONS
8.1 SATISFACTION OF CONDITIONS. Each of Cableshare and Source covenants in
favour of the other party that it shall use all reasonable commercial efforts to
satisfy (or cause the satisfaction of) as and when required in accordance
herewith the conditions precedent to both parties' obligations hereunder that
are reasonably capable of being performed by that party and to take, or cause to
be taken, all other action and to do, or cause to be done, all other things
necessary, proper or advisable under applicable Laws and regulations to complete
the Arrangement as soon as reasonably practicable and, if reasonably
practicable, on or before December 31, 1996. In particular, and without limiting
the generality of the foregoing, each party shall cooperate with the other party
in the preparation of all necessary documents and filings and in the obtaining
of all governmental and other third party consents, waivers and approvals
necessary or desirable to effect the Arrangement and to satisfy the conditions
precedent to the parties' respective obligations hereunder, including the
obtaining of the Interim Order and the Final Order as provided in section 2.1,
the preparation of the Cableshare Information Circular and the holding of the
Cableshare Shareholders' Meeting. In addition to, but not in limitation of, the
foregoing, Cableshare shall use all reasonable commercial efforts to secure all
consents from the National Research Council or its successors that are necessary
in order for the Arrangement to be completed.
8.2 DEFENCE OF PROCEEDINGS. Each party shall defend all lawsuits and other
legal, regulatory or other proceedings challenging or affecting this Agreement
or the consummation of the transactions contemplated hereby and shall use its
best efforts to have lifted or rescinded any injunction or restraining order or
other order that may adversely affect the ability of the parties to consummate
the transactions contemplated hereby.
8.3 NOTIFICATION. Each party shall promptly notify the other party orally and
in writing (as and when such party becomes aware of the same) of:
(a) any failure of such party to comply with its obligations under this
Agreement and any failure or anticipated failure to satisfy any
condition in favour of that party under this Agreement; and
(b) the taking of any action, act, suit or proceeding of a type described
in subsection 9.1(d) or 9.2(e).
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ARTICLE 9.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARTIES
9.1 CONDITIONS IN FAVOUR OF BOTH PARTIES. The obligations of each party to
complete the transactions contemplated hereby are subject to the satisfaction or
waiver of the following conditions:
(a) the compliance by the other party in all material respects with its
covenants made hereunder in favour of such party to be performed on or
prior to the Effective Date;
(b) the representations and warranties of the other party made hereunder
in favour of such party being true and accurate in all material
respects when made and as of the Effective Date;
(c) the receipt of all necessary government, court, regulatory and
Cableshare shareholder approvals and all necessary waivers, permits,
consents and orders (including the Interim Order, the Final Order and
a favourable no action letter from the SEC) in respect of the
Arrangement, except that neither party may rely on this condition with
respect to an approval that is or was within the ability of that party
to give or withhold;
(d) no act, action, suit or proceeding having been commenced or taken
before or by any domestic or foreign 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 any individual, corporation, firm, group or other
entity) in Canada or elsewhere and no Law having been proposed,
enacted, promulgated or applied to cease trade, enjoin, prohibit,
unwind or impose material limitations or conditions on the
transactions contemplated by this Agreement; and
(e) in the event that Exchangeable Shares are to be issued pursuant to
the Plan of Arrangement, the Trustee having executed and delivered the
Voting and Exchange Trust Agreement.
9.2 CONDITIONS IN FAVOUR OF SOURCE. The obligations of Source to complete the
transactions contemplated hereby are also subject to the satisfaction or waiver
by it of the following conditions:
(a) except as otherwise disclosed in the Cableshare Disclosure Documents
prior to the date hereof, no material adverse change in the
operations, capital, investments, financial condition or prospects of
Cableshare, on a consolidated basis, having occurred since the date of
the Audited Financial Statements;
(b) Cableshare not having received prior to the Effective Time notice
from holders of more than 10% of the then outstanding Class A Shares
or from holders of more than 10% of the then outstanding Class B
Shares of the intention of such holders to exercise their Dissent
Rights;
(c) the Exchange Ratio being not less than 5.0;
(d) there not having occurred, developed or come into effect or existence
any Law, governmental action or enquiry that, in the opinion of
Source, acting reasonably, materially adversely affects or may
materially adversely affect the financial condition, operations,
assets or affairs of Cableshare having regard to the nature of the
transactions contemplated hereby or to carry on the business of
Cableshare as currently carried on or as currently proposed to be
carried on;
(e) no act, action, suit or proceeding having been commenced or taken
before or by any domestic or foreign court or tribunal or governmental
agency (including the Director of Investigation and Research appointed
under the Competition Act (Canada)) or other regulatory authority or
administrative agency or commission or by any elected or appointed
public official or private Person (including any individual,
corporation, firm, group or other entity) in Canada or elsewhere and
no Law or policy shall have been proposed, enacted, promulgated or
applied to cease trade, enjoin, prohibit, unwind or impose material
limitations or conditions on the right of Source to own or exercise
full rights of ownership of the Cableshare New Common Shares after the
Effective Date;
(f) the receipt by Cableshare of all consents, waivers or approvals of
the National Research Council as may be necessary in connection with
the completion of the Arrangement;
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(g) all of the directors of Cableshare having tendered their resignations
as directors of Cableshare, which resignations shall be in form and
substance satisfactory to Source, acting reasonably, and each of which
shall be effective upon acceptance by Cableshare following the
Effective Time; and
(h) Cableshare having delivered to Source a certificate of a senior
officer certifying, with respect to the covenants, representations and
warranties made by it in favour of Source, the matters set forth in
subsections 9.1(a) and (b).
9.3 CONDITIONS IN FAVOUR OF CABLESHARE. The obligations of Cableshare to
complete the transactions contemplated hereby are also subject to Source having
delivered to Cableshare a certificate of a senior officer of Source certifying,
with respect to the covenants, representations and warranties made by Source in
favour of Cableshare, the matters set forth in subsections 9.1(a) and (b).
ARTICLE 10.
AMENDMENT AND TERMINATION
10.1 TERMINATION. This Agreement may be terminated only as follows:
(a) by agreement in writing by both parties;
(b) by either party upon written notice to the other party, provided that
there is no inaccuracy in or breach of any representation, warranty or
covenant made herein by the party giving such notice, if the Effective
Date has not occurred prior to the Termination Date;
(c) by either party upon written notice to the other party, provided that
there is no inaccuracy in or breach of any representation, warranty or
covenant made herein by the party giving such notice, if a condition
in favour of the party giving notice has not been satisfied by the
Effective Date (or has become at any time prior thereto impossible to
satisfy) and has not been waived by that party; or
(d) by Cableshare upon written notice to Source if Cableshare's board of
directors has withdrawn, suspended, modified or amended the
Recommendation or shall have resolved to do any of the foregoing.
10.2 EFFECT OF TERMINATION. If this Agreement is terminated in accordance with
section 10.1, then neither party shall have any further liability to perform its
obligations hereunder, except those set forth in sections 10.3 and 11.4, which
shall survive any termination of this Agreement, and provided that neither the
termination of this Agreement nor anything contained in this section 10.2 shall
relieve any party from any liability for any breach by it of this Agreement,
including from any inaccuracy in its representations and warranties and any
non-performance by it of it covenants made herein.
10.3 EXPENSES. Source shall reimburse Cableshare for all reasonable
out-of-pocket expenses incurred by Cableshare in connection with this Agreement
and the transactions contemplated hereby within 30 days of Cableshare submitting
evidence of its expenses, unless Source shall be entitled to terminate this
Agreement by reason of any inaccuracy in or breach of any representation,
warranty or covenant made herein by Cableshare. Except as specifically provided
herein, and in section 2.6, the costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid and borne
by the party incurring the same.
10.4 AMENDMENT. At any time prior to the commencement of the Cableshare
Shareholders' Meeting, or at any time thereafter if the Arrangement is not
approved by the requisite thresholds of votes cast thereat, this Agreement may
be amended by the parties hereto, but only by agreement in writing executed and
delivered by both of them. In other circumstances, this Agreement shall not be
amended in a manner prejudicial to holders of Class A Shares or Class B Shares
without an agreement in writing by both parties and the approval of the
Cableshare shareholders given in the same manner as required for the approval of
the Arrangement or as may be ordered by the Court.
10.5 WAIVER WITHOUT PREJUDICE. Any party may, by written instrument,
unilaterally waive performance or satisfaction of any covenant or condition in
its favour, in each case without further notice to or authorization
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on the part of the Cableshare shareholders or the Court except as required by
Law, and any such waiver shall be without prejudice to that party's other
rights. No failure to exercise or delay in exercising any right or remedy
hereunder or at Law on the part of either party shall impair such right or the
availability of such remedy of such party or shall be construed as a waiver of,
or acquiescence in, any breach of any representation, warranty or covenant
contained herein, nor shall any single or partial exercise of any such right or
remedy preclude any other or further exercise thereof or of any other right or
remedy. All rights and remedies existing under this Agreement are cumulative
with, and not exclusive of, each other and any rights or remedies otherwise
available.
ARTICLE 11.
GENERAL
11.1 NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be delivered in person or
transmitted by telecopy or similar means of recorded electronic communication as
follows:
(a) if to Source: Source Media, Inc.
8140 Walnut Hill Lane
Suite 1000
Dallas, Texas 75231
U.S.A.
Attention: Chairman and CEO
Telecopier: (214) 890-9132
(b) if to Cableshare: Cableshare Inc.
150 Dufferin Avenue
Suite 906
London, Ontario
Canada N6A 5N6
Attention: President
Telecopier: (519) 663-0339
Any such notice or other communication shall be deemed to have been given and
received on the day on which it was delivered or transmitted or, if such day is
not a Business Day, on the next following Business Day.
11.2 SURVIVAL. The respective representations, warranties and covenants of the
parties contained herein shall expire and be terminated and extinguished at the
Effective Time unless otherwise specified.
11.3 FURTHER ASSURANCES. Each party shall promptly furnish each other party
with such further documents and take or cause to be taken such further actions
as may be reasonably required in order to effectuate this Agreement and the
Arrangement. Each party hereto agrees to execute and deliver such instruments
and documents as are reasonably required in order to carry out the intent of
this Agreement.
11.4 PUBLIC ANNOUNCEMENTS. Subject to applicable Law and the policies of any
stock exchange on which securities of the applicable party are listed and, in
the case of Cableshare, to subsection 6.8(b), each party agrees not to make any
public announcement regarding this Agreement or the transactions contemplated
hereby without the prior consent of the other party, not to be unreasonably
withheld or delayed.
11.5 BINDING EFFECT AND ASSIGNMENT. This Agreement and all the provisions
hereof shall be binding upon and enure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights hereunder or under the Arrangement shall be assigned by any
party hereto without the prior written consent of the other party hereto, except
that Source may assign its rights hereunder to an "affiliate", as that term is
defined in the Act, provided that Source remains liable for all of its
obligations hereunder. Nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
11.6 WAIVER OF JURY TRIAL. Each party hereby irrevocably waives to the fullest
extent permitted by Law all rights to trial by jury in any action, proceeding or
counterclaim (whether based upon contract, tort or
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otherwise) arising out of or relating to this Agreement or any of the
transactions contemplated hereby. Each party (a) certifies that no
representative, agent or counsel of the other party has represented expressly or
otherwise that the other party would not, in the event of litigation, seek to
enforce the foregoing waiver, and (b) acknowledges that it and the other party
have been induced to enter into this Agreement by, among other things, the
mutual waivers and certifications contained in this section.
11.7 SEVERABILITY. If any provision of this Agreement, or the application
thereof, is determined for any reason and to any extent to be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other Persons and circumstances shall remain in full force and
effect provided that the legal or economic substance of the transactions
contemplated hereby is not thereby affected in a manner adverse to either party.
Upon a determination that any provision of this Agreement, or the application
hereof, is for any reason or to any extent invalid or unenforceable, the parties
shall negotiate in good faith to replace such invalid or unenforceable provision
with a valid and enforceable provision that will achieve, to the greatest extent
possible, the economic, legal, business and other purposes of the invalid or
unenforceable provision.
11.8 SPECIFIC PERFORMANCE. The parties hereto agree that, if any covenant
under this Agreement is not performed in accordance with its specific terms or
is otherwise breached, irreparable damages would result, no adequate remedy at
law, including the payment of damages, would exist, and damages would, in any
event, be difficult to determine, so that the party in favour of whom such
covenant is made shall be entitled to specific performance of the terms of this
Agreement in addition to any other remedy at law or in equity.
11.9 CONSTRUCTION. Each party acknowledges that its legal counsel has reviewed
and participated in settling the terms of this Agreement, and that any rule of
construction to the effect that any ambiguity is to be resolved against the
drafting party (such as the rule of construction of contra proferentem) shall
not be applicable in the interpretation of this Agreement.
11.10 TIME OF THE ESSENCE. Time shall be of the essence of this Agreement.
11.11 GOVERNING LAW. This Agreement shall be construed, interpreted and enforced
in accordance with, and the respective rights and obligations of the parties
shall be governed by, the laws of the Province of Ontario and the federal laws
of Canada applicable therein.
11.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall constitute an original and all of which when taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed on the date first
written above.
SOURCE MEDIA, INC.
by
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CABLESHARE INC.
by
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