Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
APPLIED CELLULAR TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1641533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Royal Palm Way, Suite 4
Palm Beach, Florida 33480
(561) 366-4800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Garrett A. Sullivan
400 Royal Palm Way, Suite 410
Palm Beach, Florida 33480
(561) 366-4800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all correspondence to:
Denis P. McCusker, Esq.
Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750
(314) 259-2000
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Approximate date of commencement of proposed sale to public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per aggregate offering registration fee
unit(1) price(1)
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share 412,574 shares $3.25 $1,304,866 $396
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</TABLE>
(1) Pursuant to Rule 457(c), the proposed offering price and registration fee
has been calculated on the basis of the average of the high and low trading
prices for the Common Stock on July 14, 1998 as reported on the Nasdaq
National Market.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
================================================================================
SUBJECT TO COMPLETION, DATED JULY 21, 1998
PRELIMINARY PROSPECTUS
412,574 Shares
Applied Cellular Technology
[LOGO OMITTED]
Common Stock
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This Prospectus relates to 412,574 shares (the "Shares") of common stock,
par value $0.001 per share (the "ACT Common Stock"), of Applied Cellular
Technology, Inc., a Missouri corporation ("ACT" or the "Company") to be issued
from time to time upon exchange or redemption of exchangeable shares (the
"Exchangeable Shares") of Commstar Ltd., an Ontario corporation ("Commstar")
which is a wholly-owned subsidiary of ACT. The Exchangeable Shares are to be
issued by Commstar as consideration for certain assets of Western Inbound
Network, Inc., a Canadian corporation ("Western Inbound"), pursuant to the terms
of a Memorandum of Agreement dated as of July 14, 1998, among Commstar, Western
Inbound and the Company (the "Acquisition Agreement"). See "Plan of
Distribution--The Acquisition" and "--Exchangeable Shares."
This Prospectus also relates to the resale from time to time of the Shares
after they have been issued in exchange for the Exchangeable Shares. After such
issuance, the Shares may be sold in one or more transactions (which may include
"block transactions") on the Nasdaq National Market, in the over-the-counter
market, in negotiated transactions or in a combination of such methods of sales,
at fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The selling shareholders may effect such transactions by selling the
Shares directly to purchasers, or may sell to or through agents, dealers or
underwriters designated from time to time, and such agents, dealers or
underwriters may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders and/or the purchaser(s) of Shares for
whom they may act as agent or to whom they may sell as principals, or both. Such
selling shareholders and the brokers and dealers through which the sales of the
Shares may be made may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and their commissions
and discounts and other compensation may be regarded as underwriters'
compensation. The Company will not receive any proceeds from any sale of Shares
and will bear all the expenses incurred in connection with registering this
offering of the Shares.
The ACT Common Stock of the Company is listed on the Nasdaq National Market
under the symbol "ACTC." On July 14, 1998, the last reported sale price of the
ACT Common Stock on the Nasdaq National Market was $3.25 per share. See "Price
Range of ACT Common Stock."
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 IN THE PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
ACT COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is __________, 1998.
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AVAILABLE INFORMATION
ACT is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy statements and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices located at
Northeast Regional Office, Seven World Trade Center, Suite 1300, New York, New
York 10048 and Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also
be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Analysis and Retrieval (EDGAR) System. This Web site can be
assessed at http://www.sec.gov. Quotations relating to the ACT Common Stock
appear on the Nasdaq National Market, and such reports, proxy statements and
other information concerning ACT can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
ACT has filed with the Commission a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act with respect to the shares of
ACT Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement or the exhibits thereto. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information contained or incorporated by reference in the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document filed or incorporated by reference as an exhibit to
the Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement. For further information, reference is
hereby made to the Registration Statement and exhibits thereto, copies of which
may be inspected at the offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or obtained from the Commission at the same address at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
1. the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (filed with the Commission on March 30, 1998);
2. the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (filed with the Commission on May 14, 1998);
3. the Company's Current Reports on Form 8-K and Form 8-K/A filed with
the Commission on June 26, 1998 and June 29, 1998, respectively
4. the Company's Current Report on Form 8-K filed with the Commission
on July 14, 1998.
All documents filed by ACT with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the termination of the offering shall hereby be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document incorporated or
deemed to be incorporated herein by reference, which statement is also
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
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This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Copies of these documents (excluding exhibits
unless such exhibits are specifically incorporated by reference into the
information incorporated herein) will be provided by first class mail without
charge to each person to whom this Prospectus is delivered, upon written or oral
request by such person to Applied Cellular Technology, Inc., James River
Professional Center, Highway 160 & CC, Suite 5, P.O. Box 2067, Nixa, Missouri
65714; Attention: Kay Langsford, Corporate Controller (telephone: (417)
725-9888).
No person has been authorized in connection with this offering to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by ACT,
Commstar or any other person. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, any securities other than those
to which it relates, nor does it constitute an offer to sell or a solicitation
of an offer to purchase by any person in any jurisdiction in which it is
unlawful for such person to make such an offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of ACT since such date.
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TABLE OF CONTENTS
Available Information..........................2
Incorporation Of Certain Documents By Reference2
Risk Factors...................................4
The Company....................................6
Use Of Proceeds................................7
Description Of ACT Capital Stock...............7
Plan Of Distribution...........................8
Canadian Tax Considerations...................10
United States Federal Tax Considerations......14
Legal Matters.................................18
Experts.......................................18
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RISK FACTORS
In addition to the other information contained herein, the following
factors should be considered carefully in evaluating ACT before investors
exchange their Exchangeable Shares for the shares of ACT Common Stock offered
hereby.
Taxability of the Exchange
The exchange of Exchangeable Shares for shares of ACT Common Stock is
generally a taxable event in Canada and the United States. A holder's tax
consequences can vary depending on a number of factors, including the residency
of the holder, the method of the exchange (redemption or exchange) and the
length of time that the Exchangeable Shares were held prior to exchange. See
"Canadian Tax Considerations" and "United States Federal Tax Considerations."
Differences in Canada and U.S. Trading Markets
The Exchangeable Shares will not be listed on any stock exchange in Canada
or the United States. ACT has agreed that the shares of ACT Common Stock
issuable from time to time in exchange for the Exchangeable Shares will be
listed on the Nasdaq National Market. There is no current intention to list the
ACT Common Stock on any other stock exchange in Canada or the United States. As
a result of the foregoing, ACT believes that the market price of the
Exchangeable Shares will reflect essentially the equivalent value of the ACT
Common Stock on the Nasdaq National Market. However, if a market for the
Exchangeable Shares should develop, there can be no assurances that the market
price of the Exchangeable Shares would correspond to that of the ACT Common
Stock.
Foreign Property
The Exchangeable Shares and the ACT Common Stock will be foreign property
under the Income Tax Act (Canada), as amended (the "Canadian Tax Act"), for
trusts governed by registered pension plans, registered retirement savings
plans, registered retirement income funds and deferred profit sharing plans or
for certain other tax-exempt persons. See "Canadian Tax Considerations."
Uncertainty of Future Financial Results
While the Company has been profitable for the last three fiscal years,
future financial results are uncertain. There can be no assurance that the
Company will continue to be operated in a profitable manner. Profitability
depends upon many factors, including the success of the Company's various
marketing programs, the maintenance or reduction of expense levels and the
ability of the Company to successfully coordinate the efforts of the different
segments of its business.
Future Sales of and Market for the Shares
As of July 14, 1998, there were 29,821,891 shares of ACT Common Stock
outstanding. In addition, 4,523,288 shares of ACT Common Stock are reserved for
issuance in exchange for the Exchangeable Shares of Commstar referred to herein
and in exchange for certain exchangeable shares to be issued by ACT-GFX Canada,
Inc., a wholly-owned subsidiary of ACT. Since January 1, 1998, the Company has
issued an aggregate of 9,149,468 shares of ACT Common Stock, of which 7,874,937
shares of ACT Common Stock were issued in acquisitions, 850,000 shares of ACT
Common Stock were issued upon the exercise of warrants, 250,000 shares of ACT
Common Stock were sold to certain directors and an officer of the Company, and
174,531 shares of ACT Common Stock were issued for services rendered, including
services under employment agreements and employee bonuses.
Management of the Company anticipates that the Company will continue to
effect acquisitions and contract for certain services primarily through the
issuance of ACT Common Stock or other equity securities of the Company. Such
issuances of additional securities may be viewed as being dilutive of the value
of the ACT Common Stock in certain circumstances and may have an adverse impact
on the market price of the ACT Common Stock.
Risks Associated with Acquisitions and Expansion
The Company has engaged in a continuing program of acquisitions of other
businesses which are considered to be complementary to the lines of business
carried on by the Company, and it is anticipated that such acquisitions will
continue to occur. As of March 31, 1998, the total assets of the Company were
approximately $73.1 million. As of December 31, 1997, the total assets of the
Company were approximately $61.3 million, compared to approximately $33.2
million at December 31, 1996 and approximately $4.1 million at the end of 1995.
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<PAGE>
Net operating revenues for the year ended December 31, 1997 were approximately
$103.2 million compared to approximately $19.9 million in 1996 and $2.3 million
in 1995. Managing these dramatic changes in the scope of the business of the
Company will present ongoing challenges to management, and there can be no
assurance that the Company's operations as currently structured, or as affected
by future acquisitions, will be successful. The businesses acquired by the
Company may require substantial additional capital, and there can be no
assurance as to the availability of such capital when needed, nor as to the
terms on which such capital might be made available to the Company. It is the
Company's policy to retain existing management of acquired companies and to
allow the new subsidiary to continue to operate in the manner which has resulted
in its success in the past, under the overall supervision of senior management
of the Company. Accordingly, the success of the operations of these subsidiaries
will depend, to a great extent, on the continued efforts of the management of
the acquired companies.
Competition
Each segment of the Company's business is highly competitive, and it is
expected that competitive pressures will continue. Many of the Company's
competitors have far greater financial and other resources than the Company. The
areas which the Company has identified for continued growth and expansion are
also target market segments for some of the largest and most strongly
capitalized companies in the United States. There can be no assurance that the
Company will have the financial, technical, marketing and other resources
required to compete successfully in this environment in the future.
Dependence on Key Individuals
The future success of the Company is highly dependent upon the Company's
ability to attract and retain qualified key employees. The Company is organized
with a small senior management team, with each of its separate operations under
the day-to-day control of local managers. If the Company were to lose the
services of any members of its central management team, the overall operations
of the Company could be adversely affected, and the operations of any of the
individual facilities of the Company could be adversely affected if the services
of the local managers should be unavailable.
Lack of Dividends on Common Stock; Issuance of Preferred Stock
The Company does not have a history of paying dividends on ACT Common
Stock, and there can be no assurance that such dividends will be paid in the
foreseeable future. The Company intends to use any earnings which may be
generated to finance the growth of the Company's businesses. The Board of
Directors has the right to authorize the issuance of preferred stock, without
further stockholder approval, the holders of which may have preferences as to
payment of dividends.
Potential Conflicts of Interests
Mr. Richard Sullivan, the Chief Executive Officer of the Company, is also
Chairman of Great Bay Technology, Inc. and Managing General Partner of the Bay
Group. Both these companies conduct business with the Company, and receive
compensation from the Company for various services, including assistance in
identifying potential acquisition candidates and in negotiating acquisition
transactions. The relationships among such companies, Mr. Sullivan and the
Company may involve conflicts of interest.
Possible Volatility of Stock Price
ACT Common Stock is quoted on the Nasdaq National Market, which stock
market has experienced and is likely to experience in the future significant
price and volume fluctuations which could adversely affect the market price of
ACT Common Stock without regard to the operating performance of the Company. In
addition, the Company believes that factors such as the significant changes to
the business of the Company resulting from continued acquisitions and
expansions, quarterly fluctuations in the financial results of the Company,
shortfalls in earnings or sales below analyst expectations, changes in the
performance of other companies in the same market sectors as the Company and the
performance of the overall economy and the financial markets could cause the
price of ACT Common Stock to fluctuate substantially. During the 12 months
preceding the date of this Prospectus, the price per share of ACT Common Stock
has ranged from a high of $9 3/4 to a low of $2 13/16.
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Forward-Looking Statements and Associated Risk
This Prospectus, including the information incorporated herein by
reference, contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements regarding, among
other items, (i) the Company's growth strategies, (ii) anticipated trends in the
Company's business and demographics and (iii) the Company's ability to
successfully integrate the business operations of recently acquired companies.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond the Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described in "Risk
Factors," including, among others, regulatory, competitive or other economic
influences. In light of these risks and uncertainties, there can be no assurance
that the forward-looking information contained in this Prospectus will be
accurate.
THE COMPANY
The Company is a builder of infrastructure services and solutions for the
communications industry. During the first quarter of 1998, the Company
reorganized its business into four groups:
ACT Communications Group
This group consists of companies that provide products and services
including telephone systems, computer telephony, interactive voice response
systems, flat rate extended area calling services, long distance and local
telephone services, digital satellite services, networking services and the
construction of microwave, cellular and digital towers.
ACT Software and Services Group
This group consists of companies that develop and market software products
and services for wireless-enabled applications, data acquisition, decision
support, point of sale and multi-function peripheral devices.
ACT Computer Group
This group consists of companies that provide leasing, re-marketing,
components, peripherals, parts-on-demand, consulting and business continuity
services for mainframe, midrange and PC systems for industrial, commercial and
retail organizations.
ACT Specialty Manufacturing Group
This group consists of companies that manufacture analog and digital
industrial temperature controls, analog and digital electrical products, factory
automation controls, environmental systems and satellite controllers, modems and
positioning systems for data broadcasting.
The largest part of the Company's current operations are the result of
acquisitions completed during the last two years. During 1995, the net operating
revenues of the Company were $2.3 million. For 1996, net operating revenues were
$19.9 million, of which almost $14 million was from the Company's then services
and solutions segment. In 1997, the Company completed 14 additional
acquisitions, of companies whose aggregate net revenues for 1997 were $62.4
million, or 60.5% of the Company's total revenues of $103.2 million in 1997.
Since January 1, 1998, the Company has completed 13 additional acquisitions of
companies whose aggregate net revenues for 1997 were approximately $[__]
million.
The principal office of the Company is located at 400 Royal Palm Way, Suite
410, Palm Beach, Florida, 33480. Each operating business is conducted through a
separate subsidiary company directed by its own management team, and each
subsidiary company has its own marketing and operations support personnel. Each
management team reports to a Group Vice President and ultimately to the
Company's President, who is responsible for overall corporate control and
coordination, as well as financial planning. The Chairman is responsible for the
overall business and strategic planning of the Company.
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USE OF PROCEEDS
Because Shares of ACT Common Stock will be issued upon exchange or
redemption of the Exchangeable Shares, ACT will receive no net cash proceeds
upon issuance.
DESCRIPTION OF ACT CAPITAL STOCK
The Company's Amended and Restated Articles of Incorporation, as amended
("ACT's Articles of Incorporation") authorizes the issuance of up to 80,000,000
shares of ACT Common Stock and up to 5,000,000 shares of preferred stock (the
"Preferred Stock"). The Preferred Stock may be issued from time to time and on
such terms as are specified by the Company's Board of Directors, without further
authorization from the stockholders of the Company.
As of July 14, 1998, there were outstanding 29,821,891 shares of ACT Common
Stock, 7,000 shares of Preferred Stock, par value $10 per share, redemption
value $100 per share, and one Special Preferred Share referred to below.
As of July 14, 1998, (i) there were outstanding warrants to purchase
2,510,000 shares of ACT Common Stock at a weighted average exercise price of
$2.71 per share, and (ii) options held by employees of the Company to purchase
7,012,100 shares of ACT Common Stock at a weighted average exercise price of
$2.98 per share. All of the warrants are currently exercisable. Of the
outstanding options, 1,205,000 are now exercisable at a weighted average
exercise price of $4.43 per share, and the rest become exercisable at various
times over the next three years.
ACT's Common Stock trades on the Nasdaq National Market under the symbol
"ACTC." The following table sets forth the high and low sale prices of ACT
Common Stock as reported by the Nasdaq National Market for each of the quarters
since the beginning of 1996.
High Low
---- ---
1996
First Quarter......... 6-7/8 2-3/4
Second Quarter........ 9-1/8 4
Third Quarter......... 7-7/8 3-3/4
Fourth Quarter........ 7-3/8 4-1/2
1997
First Quarter......... 5-7/8 4
Second Quarter........ 4-3/8 2-5/8
Third Quarter ........ 8-3/4 3-1/16
Fourth Quarter ....... 9-3/4 3-15/16
1998
First Quarter ........ 5-1/2 4-1/32
Second Quarter ....... 4-7/8 3-1/8
Third Quarter
(through July 14).. 3-7/16 2-29/32
Rights of Holders of ACT Common Stock
Subject to the prior rights of any shares of Preferred Stock that may from
time to time be outstanding, holders of ACT Common Stock are entitled to share
ratably in such dividends as may be lawfully declared by the Board of Directors
and paid by ACT and, in the event of liquidation, dissolution or winding up of
ACT, are entitled to share ratably in all assets available for distribution. ACT
is prohibited from declaring or paying dividends on the ACT Common Stock unless
Commstar is able to, and simultaneously does, declare or pay an equivalent
dividend on the Exchangeable Shares. In the event of liquidation, dissolution or
winding up of ACT, each outstanding Exchangeable Share (other than Exchangeable
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Shares held by ACT, Commstar or a single wholly-owned subsidiary of ACT) will be
purchased by ACT in exchange for ACT Common Stock as described below under "Plan
of Distribution-- Procedures for Issuance of ACT Common Stock-- Liquidation of
ACT."
The ACT Common Stock is entitled to one vote per share held of record on
each matter submitted to a vote of stockholders. Except as otherwise provided by
law or ACT's Articles of Incorporation, the ACT Common Stock and the Special
Preferred Share referred to below will vote together as a single class in the
election of directors and on all matters submitted to a vote of stockholders of
ACT. The holders of ACT Common Stock have no preemptive rights to purchase any
securities of ACT or cumulative voting rights. All outstanding shares of ACT
Common Stock are validly issued, fully paid and nonassessable. ACT is not
prohibited by ACT's Articles of Incorporation from repurchasing shares of the
ACT Common Stock. Any such repurchases would be subject to any limitations on
the amount available for such purpose under applicable corporate law, any
applicable restrictions under the terms of any outstanding Preferred Stock or
indebtedness and, in the case of market purchases, such restrictions on the
timing, manner and amount of such purchases as might apply in the circumstances
under applicable securities laws.
The transfer agent, registrar and dividend disbursing agent for the ACT
Common Stock is Florida Atlantic Stock Transfer, Inc.
ACT Special Voting Preferred Stock
The Board of Directors of ACT authorized the issuance of a single share of
ACT Special Voting Preferred Stock (the "Special Preferred Share"), to Montreal
Trust Company of Canada (the "Voting Trustee") under a Voting and Exchange Trust
Agreement (the "Voting and Exchange Trust Agreement") which was entered into
among ACT, Commstar and the Voting Trustee. Except as otherwise required by law
or ACT's Articles of Incorporation, the Special Preferred Share will be entitled
to a number of votes equal to the number of outstanding Exchangeable Shares not
owned by ACT or certain subsidiaries of ACT, and may be voted in the election of
directors and on all other matters submitted to a vote of stockholders of ACT.
The holders of the ACT Common Stock and the Voting Trustee, as holder of the
Special Preferred Share, will vote together as a single class on all matters,
except to the extent voting as a separate class is required by applicable law or
ACT's Articles of Incorporation. The Voting Trustee will exercise such voting
rights in respect of the Special Preferred Share on behalf of the holders of the
Exchangeable Shares, as provided in the Voting and Exchange Trust Agreement. The
Voting Trustee will not be entitled to receive any dividends or to participate
in any distribution of assets to the shareholders of ACT. When all Exchangeable
Shares have been exchanged or redeemed for shares of ACT Common Stock, the
Special Preferred Share will be cancelled.
PLAN OF DISTRIBUTION
The Acquisition
Pursuant to the Acquisition Agreement, effective as of July 14, 1998, among
Commstar, Western Inbound and ACT, Commstar will acquire certain assets of
Western Inbound (the "Acquisition") and, in consideration therefor, Commstar
will issue Exchangeable Shares of Commstar, which will be further exchangeable
into or redeemable for shares of ACT Common Stock as described below. Holders of
the Exchangeable Shares will have economic and voting rights which are, as
nearly as possible, equivalent to those of holders of ACT Common Stock.
Exchangeable Shares
The Exchangeable Shares will be issued by Commstar in consideration for the
transfer to Commstar of certain assets of Western Inbound. Thereafter, the
Exchangeable Shares may be exchanged for an equivalent number of shares of ACT
Common Stock as described below and pursuant to a plan of arrangement under
section 182 of the Business Corporations Act (Ontario) (the "Plan of
Arrangement"). No broker, dealer or underwriter has been engaged in connection
with the offering of the ACT Common Stock covered hereby.
The Exchangeable Shares are the same class of securities of Commstar as
were issued to the shareholders of Commstar pursuant to a Combination Agreement,
effective as of May 15, 1998, between ACT and Commstar, pursuant to which
Commstar became a wholly-owned subsidiary of ACT and the outstanding shares of
Commstar were exchanged for Exchangeable Shares. Any reference to the
Exchangeable Shares herein, except as the context otherwise indicates, includes
both the Exchangeable Shares issued to the shareholders of Commstar under such
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Combination Agreement and the Exchangeable Shares issued to the shareholders of
Western Inbound under the Acquisition Agreement.
The specific terms under which ACT Common Stock may be issued in exchange
for or on redemption of the Exchangeable Shares are set forth in the
Exchangeable Share provisions attached to the Plan of Arrangement and in the
Voting and Exchange Trust Agreement. The Plan of Arrangement and the Voting and
Exchange Trust Agreement are included as exhibits to the Registration Statement
of which this Prospectus constitutes a part, and the following description is
qualified in its entirety by reference to the Plan of Arrangement and the Voting
and Exchange Trust Agreement.
Procedures for Issuance of ACT Common Stock
Upon any exchange or redemption of Exchangeable Shares referred to below
(whether by Commstar or ACT), the holders will receive an equivalent number of
shares of ACT Common Stock, plus an amount, if any, equal to all declared and
unpaid dividends on the Exchangeable Shares. If only a part of the Exchangeable
Shares represented by any certificate is redeemed or exchanged, a new
certificate for the balance of such Exchangeable Shares will be issued to the
holder at Commstar's expense.
In lieu of any redemption of Exchangeable Shares referred to below, ACT may
elect to purchase such Exchangeable Shares. The ACT Common Stock (and additional
payment, if any, representing declared and unpaid dividends on the Exchangeable
Shares) to be received by the holders of the Exchangeable Shares will be
unaffected by such election.
Upon any exchange or redemption of Exchangeable Shares, the holder must
surrender the Exchangeable Share certificates representing such shares, duly
endorsed in blank and accompanied by such instruments of transfer as ACT or
Commstar may reasonably require.
Election by Holders to Exchange Exchangeable Shares. At any time on or
prior to June 29, 2001, holders of the Exchangeable Shares may retract (i.e.,
require Commstar to redeem) any or all of their Exchangeable Shares, by
presenting the certificates representing the shares to Commstar's transfer agent
together with a duly executed statement (the "Retraction Request") specifying
the number of Exchangeable Shares the holder wishes to retract and such other
documents and instruments as may be required to effect the retraction of the
Exchangeable Shares. The retraction will become effective at the close of
business on the sixth business day after the request is received by Commstar's
transfer agent (the "Retraction Date"). The Retraction Price for such
Exchangeable shares is to be satisfied by the issuance of Exchangeable Shares.
The Retraction Request shall be substantially in the form attached to this
Prospectus as Exhibit A or in such other form as may be acceptable to ACT or the
transfer agent for the Exchangeable Shares in their sole discretion. The initial
transfer agent is Montreal Trust Company of Canada.
Redemption of Exchangeable Shares. Commstar is required to redeem the
Exchangeable Shares (by exchanging ACT Common Stock as described above):
(i) on June 30, 2001;
(ii) on a date specified by Commstar if less than 5% of the
Exchangeable Shares originally issued under the Combination Agreement
referred to above remain outstanding (as such number may be adjusted as a
result of subdivision, consolidation, stock dividend or other events);
(iii) if there shall be a meeting or vote of the shareholders of
Commstar to consider any matter on which the holders of Exchangeable Shares
would be entitled to vote as shareholders of Commstar (but excluding any
meeting or vote described in (iv) below); or
(iv) if the holders of Exchangeable Shares fail to take necessary
action to the extent such action is required to approve or disapprove any
change to, or in the rights of the holders of, Exchangeable Shares required
to maintain the economic and legal equivalence of the Exchangeable Shares
and the ACT Common Stock.
Liquidation of Commstar. In the event of the liquidation, dissolution or
winding up of Commstar or any other proposed distribution of the assets of
Commstar among its shareholders for the purpose of winding up its affairs,
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holders of the Exchangeable Shares will be entitled to ACT Common Stock in
exchange for their Exchangeable Shares as described above before any
distribution to the holders of the common shares or any other shares of Commstar
ranking junior to the Exchangeable Shares. Upon the bankruptcy or insolvency of
Commstar, the trustee under the Voting and Exchange Trust Agreement may require
ACT to purchase the Exchangeable Shares in exchange for ACT Common Shares as
described above.
Liquidation of ACT. Upon the occurrence of an ACT Liquidation Event, ACT
will be required to purchase the Exchangeable Shares in exchange for ACT Common
Stock as described above. "ACT Liquidation Event" means (i) any determination by
ACT's Board of Directors to institute voluntary liquidation, dissolution or
winding-up proceedings with respect to ACT or to effect any other distribution
of assets of ACT among its stockholders for the purpose of winding up its
affairs or (ii) receipt by ACT of notice of, or ACT otherwise becoming aware of,
any threatened or instituted claim, suit, petition or other proceeding with
respect to the involuntary liquidation, dissolution or winding up of ACT or to
effect any other distribution of assets of ACT among its stockholders for the
purpose of winding up its affairs.
CANADIAN TAX CONSIDERATIONS
Canadian Federal Income Tax Considerations
In the opinion of Meighen Demers, who acted as counsel for Commstar in
connection with the Acquisition, the following is a summary of the principal
Canadian federal income tax considerations generally applicable to Commstar
shareholders, who, for the purposes of the Income Tax Act (Canada) (the
"Canadian Tax Act"), hold their Exchangeable Shares and will hold their ACT
Common Stock as capital property and will deal at arm's length with ACT and
Commstar. This summary does not apply to a holder with respect to whom ACT is a
foreign affiliate within the meaning of the Canadian Tax Act.
Certain provisions of the Canadian Tax Act (the "mark-to-market rules")
relating to financial institutions (including certain financial institutions,
registered securities dealers and corporations controlled by one or more of the
foregoing) will deem such financial institutions not to hold their Exchangeable
Shares and ACT Common Stock as capital property for purposes of the Canadian Tax
Act. Shareholders that are financial institutions should consult their own tax
advisors to determine the tax consequences to them of the application of the
mark-to-market rules. In addition, all shareholders should consult their own tax
advisors as to whether, as a matter of fact, they hold their Exchangeable Shares
and will hold their ACT Common Stock as capital property for purposes of the
Canadian Tax Act.
This summary is based on the current provisions of the Canadian Tax Act,
the regulations thereunder, the current provisions of the Canada-United States
Income Tax Convention, 1980 (the "Tax Treaty") and counsel's understanding of
the current administrative practices of Revenue Canada, Customs, Excise and
Taxation ("Revenue Canada"). This summary takes into account the amendments to
the Canadian Tax Act and regulations publicly announced by the Minister of
Finance prior to the date hereof (the "Proposed Amendments") and assumes that
all such Proposed Amendments will be enacted in their present form. However, no
assurances can be given that the Proposed Amendments will be enacted in the form
proposed, or at all.
Except for the Proposed Amendments, this summary does not take into account
or anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein.
WHILE THIS SUMMARY IS INTENDED TO ADDRESS ALL PRINCIPAL CANADIAN FEDERAL
INCOME TAX CONSIDERATIONS, IT IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY
PARTICULAR SHAREHOLDER. THEREFORE, SUCH HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. NO ADVANCE INCOME TAX
RULING HAS BEEN OBTAINED FROM REVENUE CANADA TO CONFIRM CONSEQUENCES OF ANY OF
THE TRANSACTIONS DESCRIBED HEREIN.
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For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of Applied Common Stock, including
dividends, adjusted cost base and proceeds of disposition must be determined in
Canadian dollars.
In computing a shareholder's liability for tax under the Canadian Tax Act,
(i) any cash amount received by the shareholder in U.S. dollars must be
converted into the product obtained by multiplying the U.S. dollar amount by the
noon spot exchange rate on such date for U.S. dollars expressed in Canadian
dollars as reported by the Bank of Canada and (ii) the amount of any non-cash
consideration received by the shareholder must be expressed in Canadian dollars,
generally determined at the time such consideration is received.
Shareholders Resident in Canada
The following portion of the summary is applicable to the shareholders who,
for purposes of the Canadian Tax Act, are resident or deemed to be resident in
Canada.
Dividends
In the case of a shareholder who is an individual, dividends received or
deemed to be received on the Exchangeable Shares will be included in computing
the shareholder's income, and will be subject to the gross-up and dividend tax
credit rules normally applicable to taxable dividends received from taxable
Canadian corporations.
The Exchangeable Shares will be "taxable preferred shares", "term preferred
shares" and "short-term preferred shares" for purposes of the Canadian Tax Act.
Accordingly, Commstar will be subject to a 66 2/3% tax under Part VI.1 of the
Canadian Tax Act on dividends paid or deemed to be paid on the Exchangeable
Shares. In certain circumstances, Commstar will be entitled to deductions under
Part I of the Canadian Tax Act which will substantially offset the impact of
Part VI.1 tax. Dividends received or deemed to be received on the Exchangeable
Shares will not be subject to the 10% tax under Part IV.1 of the Canadian Tax
Act applicable to certain corporations.
If ACT or any person with whom ACT does not deal at arm's length is a
"specified financial institution" under the Canadian Tax Act at a point in time
that a dividend is paid on an Exchangeable Share, then, subject to the exemption
described below, dividends received or deemed to be received by a shareholder
that is a corporation will not be deductible in computing taxable income but
will be fully includable in taxable income under Part I of the Canadian Tax Act.
Such dividend will not be subject to tax under Part IV of the Canadian Tax Act.
A corporation will generally be a specified financial institution for these
purposes if it is a bank, a trust company, a credit union, an insurance
corporation or a corporation whose principal business is the lending of money to
persons with whom the corporation is dealing at arm's length or the purchasing
of debt obligations issued by such persons or a combination thereof, and
corporations controlled by or related to such entities.
Subject to the foregoing, in the case of a shareholder that is a
corporation, other than a "specified financial institution" as defined in the
Canadian Tax Act, dividends received or deemed to be received on the
Exchangeable Shares will normally be deductible in computing its taxable income.
In the case of a shareholder that is a specified financial institution,
such a dividend will be deductible in computing its taxable income only if
either:
(a) the specified financial institution did not acquire the Exchangeable
Shares in the ordinary course of the business carried on by such
institution; or
(b) at the time of the receipt of the dividend by the specified financial
institution, the Exchangeable Shares are listed on a prescribed stock
exchange in Canada and the specified financial institution, either
alone or together with persons with whom it does not deal at arm's
length, does not receive (or is not deemed to receive) dividends in
respect of more than 10% of the issued and outstanding Exchangeable
Shares. Commstar does not expect to list the Exchangeable Shares on a
prescribed stock exchange.
A shareholder that is a "private corporation" (as defined in the Canadian
Tax Act) or any other corporation resident in Canada and controlled or deemed to
be controlled by or for the benefit of an individual or a related group of
individuals shall be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3% on dividends received or deemed to be received on the
Exchangeable Shares to the extent that such dividends are deductible in
computing the shareholder's taxable income.
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Redemption or Exchange of Exchangeable Shares
On the redemption (including a retraction) of an Exchangeable Share by
Commstar, the holder of an Exchangeable Share will be deemed to have received a
dividend equal to the amount, if any, by which the redemption proceeds (the fair
market value at the time of the redemption of the ACT Common Stock received by
the shareholder from Commstar on the redemption plus the amount, if any, of all
accrued but unpaid dividends on the Exchangeable Share) exceeds the paid-up
capital, at that time, of the Exchangeable Share so redeemed. The amount of any
such deemed dividend will be subject to the tax treatment accorded to dividends
described above. On the redemption, the holder of an Exchangeable Share will
also be considered to have disposed of the Exchangeable Share, but the amount of
such deemed dividend will be excluded in computing the shareholder's proceeds of
disposition for purposes of computing any capital gain or capital loss arising
on the disposition of the Exchangeable Share. In the case of a shareholder that
is a corporation, in some circumstances the amount of any such deemed dividend
may be treated as proceeds of disposition and not as a dividend under certain
rules contained in the Canadian Tax Act.
On the exchange of an Exchangeable Share by the holder thereof with ACT for
a share of ACT Common Stock, including pursuant to the retraction call right,
the holder will realize a capital gain (or a capital loss) equal to the amount
by which the proceeds of disposition of the Exchangeable Share, net of any
reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost
base to the holder of the Exchangeable Share. For these purposes, the proceeds
of disposition will be the fair market value of a share of ACT Common Stock at
the time of exchange plus the amount of all accrued but unpaid dividends on the
Exchangeable Share received by the holder as part of the exchange consideration.
Three-quarters of any such capital gain (the "taxable capital gain") will
be included in the shareholder's income for the year of disposition.
Three-quarters of any capital loss so realized (the "allowable capital loss")
may be deducted by the holder against taxable capital gains for the year of
disposition. Any excess of allowable capital losses over taxable capital gains
of the shareholder for the year of disposition may be carried back up to three
taxation years or forward indefinitely and deducted against net taxable capital
gains in those other years.
A shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year, which is defined to include an amount in
respect of taxable capital gains (but not dividends or deemed dividends
deductible in computing taxable income).
If the holder of an Exchangeable Share is a corporation, the amount of any
capital loss arising from a disposition or deemed disposition of an Exchangeable
Share may be reduced by the amount of dividends received or deemed to have been
received by it on such share or on the Commstar common shares previously owned
by such holder, to the extent and under circumstances prescribed by the Canadian
Tax Act. Similar rules may apply where a corporation is a member of a
partnership or a beneficiary of a trust that owns Exchangeable Shares or where a
trust or partnership of which a corporation is a beneficiary or a member is a
member of a partnership or a beneficiary of a trust that owns Exchangeable
Shares.
The cost base of a share of ACT Common Stock received on the retraction,
redemption or exchange of an Exchangeable Share will be equal to the fair market
value of a share of ACT Common Stock at the time of such event.
Because of the existence of the retraction call right, a holder exercising
the right of retraction in respect of an Exchangeable Share cannot control
whether such holder will receive a share of ACT Common Stock by way of
redemption of the Exchangeable Share by Commstar or by way of purchase of the
Exchangeable Share by ACT. As described above, the Canadian federal income tax
consequences of a redemption differ from those of a purchase.
In order to ensure a holder of Exchangeable Shares will receive capital
gains treatment rather than dividend treatment, ACT has convenanted to exercise
its retraction call right under the Voting and Exchange Trust Agreement.
Applied Common Stock. Dividends on ACT Common Stock will be included in the
recipient's income for the purposes of the Canadian Tax Act. Such dividends
received by an individual shareholder will not be subject to the gross-up and
dividend tax credit rules in the Canadian Tax Act. A corporation which is a
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shareholder will include such dividends in computing its income and generally
will not be entitled to deduct the amount of such dividends in computing its
taxable income. United States non-resident withholding tax on such dividends
will be eligible for foreign tax credit or deduction treatment where applicable
under the Canadian Tax Act.
Disposition of Applied Common Stock. A disposition or deemed disposition of
a share of ACT Common Stock by a holder will generally result in a capital gain
(or capital loss) equal to the amount by which the proceeds of disposition, net
of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted
cost base to the holder of the ACT Common Stock.
A shareholder that is a Canadian-controlled private corporation may be
liable to pay an additional refundable tax of 6 2/3% on dividends and taxable
capital gains.
Eligibility for Investment
Qualified Investments. Provided the ACT Common Stock is listed on a
prescribed stock exchange (which currently includes the Nasdaq National Market),
such securities will be qualified investments under the Canadian Tax Act for
trusts governed by registered retirement savings plans, registered retirement
income funds and deferred profit sharing plans (collectively, "Tax Deferred
Plans"). The voting rights and exchange rights will not be qualified investments
under the Canadian Tax Act. However, as indicated above, Commstar is of the view
that the fair market value of these rights is nominal. The Exchangeable Shares
will not be qualified investments for Tax Deferred Plans.
Where at the end of any month a Tax Deferred Plan holds property that is
not a qualified investment, a penalty tax is imposed by Part XI.1 of the
Canadian Tax Act.
Foreign Property. The ACT Common Stock and the Exchangeable Shares will be
foreign property under the Canadian Tax Act as will the voting rights and
exchange rights.
A penalty tax is imposed by Part XI of the Canadian Tax Act if the cost
amount of a taxpayer's investment in foreign property exceeds the statutory
limit.
Foreign Property Information Reporting. A holder of ACT Common Stock who is
a "specified Canadian entity" (as defined in the Tax Proposals) and whose cost
amount for such shares at any time in a year or fiscal period exceeds Canadian
$100,000 will be required to file an information return in respect of such
shares disclosing the holder's cost amount, any dividends received in the year
and any gains or losses realized in the year in respect of such shares. A
specified Canadian entity means a taxpayer resident in Canada in the year, other
than a corporation or a trust exempt from tax under Part I of the Canadian Tax
Act, a non-resident-owned investment corporation, a mutual fund corporation, a
mutual fund trust and certain other trusts and partnerships.
Shareholders Not Resident in Canada
The following portion of the summary is applicable to holders of the
Exchangeable Shares who, for purposes of the Canadian Tax Act, have not been and
will not be resident or deemed to be resident in Canada at any time while they
have held the Exchangeable Shares or will hold the ACT Common Stock and in the
case of a non-resident of Canada who carries on an insurance business in Canada
and elsewhere, the shares are not effectively connected with its Canadian
insurance business.
The Exchangeable Shares will be "taxable Canadian property" (as defined in
the Canadian Tax Act) to non-resident shareholders.
Generally, ACT Common Stock will not be taxable Canadian property to a
non-resident holder, provided that such shares are listed on a prescribed stock
exchange (which currently includes the Nasdaq National Market), the holder,
persons with whom such holder does not deal at arm's length, or the holder and
such persons, has not owned (or had under option) 25% or more of the issued
shares of any class or series of the capital stock of ACT at any time within
five years preceding the date in question, and certain conditions set out in the
Canadian Tax Act are not met. A capital gain realized on a redemption (including
a retraction) of an Exchangeable Share and a capital gain realized on a
disposition of ACT Common Stock which constitutes taxable Canadian property to a
shareholder will be taxable as discussed above, unless relief is available under
an applicable tax convention, such as the Tax Treaty. Such holders should
consult their own tax advisors to determine the tax consequences in their own
situation.
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Where a non-resident holder can claim the benefit of a tax-treaty and
exchanges the Exchangeable Shares for ACT Common Stock, the non-resident holder
may be deemed to have received a dividend subject to withholding tax (discussed
below) and realized a capital gain or loss (generally tax-free as discussed
above).
Unless the non-resident holder meets the requirements and complies with the
procedures contained in Division D of Part I of the Canadian Tax Act relating to
the payment of tax, Commstar or ACT, as the case may be, will be required to
withhold a portion of the Exchangeable Shares or ACT Common Stock otherwise
receivable by the holder.
Dividends paid on the Exchangeable Shares are subject to non-resident
withholding tax under the Canadian Tax Act at the rate of 25%, although such
rate may be reduced under the provisions of an applicable income tax treaty. For
example, under the Tax Treaty, the rate is generally reduced to 15% in respect
of dividends paid to a person who is the beneficial owner and who is resident in
the United States for purposes of the Tax Treaty.
A holder whose Exchangeable Shares are redeemed (either under Commstar's
redemption right or pursuant to the holder's retraction rights) will be deemed
to receive a dividend as described above, which deemed dividend will be subject
to withholding tax as described in the preceding paragraph.
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary of the principal United States federal income tax
considerations generally applicable to a United States Holder (as defined below)
of Exchangeable Shares arising from and relating to the receipt and ownership of
ACT Common Stock represents the opinion of Bryan Cave LLP, who acted as United
States counsel to ACT in connection with the Acquisition, insofar as it relates
to matters of United States federal income tax law and legal conclusions with
respect thereto.
This summary is limited to United States Holders who hold Exchangeable
Shares as capital assets. As used herein, a United States Holder is a holder of
Exchangeable Shares who is a "United States person," including: (i) an
individual who is a citizen or resident of the United States for federal income
tax purposes, (ii) a corporation or partnership created or organized in or under
the laws of the United States, or of any political subdivision thereof, (iii) an
estate, the income of which is subject to United States federal income taxation
regardless of source, or (iv) any trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have authority to control all substantial
decisions of the trust. This summary does not address all aspects of United
States federal income taxation that may be applicable to particular United
States holders subject to special provisions of United States federal income tax
law, such as tax-exempt organizations, financial institutions, insurance
companies, broker-dealers, persons having a "functional currency" other than the
United States dollar, holders who hold Exchangeable Shares as part of a
straddle, wash sale, hedging or conversion transaction (other than by virtue of
their participation in an exchange of Exchangeable Shares for ACT Common Stock
as contemplated herein) and holders who acquired their Exchangeable Shares
through the exercise of employee stock options or otherwise as compensation for
services.
This summary is based on United States federal income tax law in effect as
of the date of this Prospectus. No statutory, judicial or administrative
authority exists that directly addresses certain of the United States federal
income tax consequences of the ownership of instruments comparable to the
Exchangeable Shares. Consequently, some aspects of the United States federal
income tax treatment of the exchange of Exchangeable Shares for shares of ACT
Common Stock are not certain. No advance income tax ruling has been sought or
obtained from the United States Internal Revenue Service (the "IRS") regarding
the tax consequences of the transactions described herein.
This summary does not address aspects of United States taxation other than
United States federal income taxation under the United States Internal Revenue
Code of 1986, as amended (the "U.S. Code"), nor does it address all aspects of
United States federal income taxation that may be applicable to a particular
United States Holder in light of the United States Holder's particular
circumstances. In addition, this summary does not address the United States
state or local tax consequences or the foreign tax consequences of the receipt
and ownership of ACT Common Stock.
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UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES AND THE FOREIGN
TAX CONSEQUENCES OF THE RECEIPT AND OWNERSHIP OF ACT COMMON STOCK.
Exchange of Exchangeable Shares. A United States Holder that exercises such
holder's right to exchange its Exchangeable Shares for shares of ACT Common
Stock generally, subject to the discussion below, should recognize gain or loss
on such exchange, assuming such exchange does not constitute a reorganization.
Such gain or loss will be equal to the difference between the fair market
value of the shares of ACT Common Stock at the time of the exchange and the
United States Holder's tax basis in the Exchangeable Shares surrendered. The
gain or loss generally will be capital gain or loss, except that, with respect
to any declared but unpaid dividends on the Exchangeable Shares, ordinary income
may be recognized. Noncorporate taxpayers generally are taxed at a maximum rate
of 20 percent on net capital gains attributable to gains realized on the sale of
property held for more than eighteen months and a maximum rate of 28 percent of
net capital gains attributable to gain realized on the sale of property held for
more than one year and eighteen months or less. Pending legislation, if enacted,
will eliminate the eighteen month holding period, thereby applying the 20% rate
to the taxable sale of property held for more than one year, effective for
taxable years ending after December 31, 1997. A United States Holder generally,
subject to the discussion below, will have a tax basis in the shares of ACT
Common Stock received equal to the fair market value of such shares at the time
of the exchange. The holding period for such shares generally, subject to the
discussion below, will begin on the day after the exchange. The IRS could
assert, however, that the Exchangeable Shares and certain of the rights
associated therewith constitute "offsetting positions" for purposes of the
straddle rules set forth in Section 1092 of the U.S. Code. In such case, the
holding period of the Exchangeable Shares would not increase while held by a
United States Holder.
It is also possible that the exchange of Exchangeable Shares for shares of
ACT Common Stock could be treated as a reorganization in which no gain or loss
is recognized if the Exchangeable Shares were treated as stock of ACT for United
States federal income tax purposes. Given the lack of authority on the treatment
of shares having features and attendant rights similar to the Exchangeable
Shares, it is uncertain whether the Exchangeable Shares will be treated as
shares of ACT Common Stock for this purpose. Even if the Exchangeable Shares are
not treated as shares of ACT Common Stock, an exchange of Exchangeable Shares
for ACT Common Stock that otherwise would be taxable may be characterized as a
tax-free exchange depending upon facts and circumstances existing at the time of
the exchange, which cannot be accurately predicted as of the date hereof.
If the exchange of Exchangeable Shares for ACT Common Stock did qualify as
a tax-free exchange, a United States holder's tax basis in the shares of ACT
Common Stock received would be equal to such holder's tax basis in the
Exchangeable Shares exchanged therefor. The holding period of the shares of ACT
Common Stock received by such United States Holder would include the holding
period of the Exchangeable Shares exchanged therefor.
For United States federal income tax purposes, gain realized on the
exchange of Exchangeable Shares for shares of ACT Common Stock generally will be
treated as United States source gain, except that, under the terms of the Tax
Treaty, such gain may be treated as sourced in Canada. Any Canadian tax imposed
on the exchange may be available as a credit against United States federal
income taxes, subject to applicable limitations. A United States Holder that is
ineligible for a foreign tax credit with respect to any Canadian tax paid may be
entitled to a deduction therefor in computing United States taxable income.
Passive Foreign Investment Company Considerations. Commstar may be
classified as a passive foreign investment company ("PFIC") for United States
federal income tax purposes for any taxable year if either (i) 75 percent or
more of its gross income was passive income (as defined for United States
federal income tax purposes) or (ii) on average for such taxable year, 50
percent or more of its assets (as determined in accordance with Section 1297(f)
of the U.S. Code) produced or were held for the production of passive income.
For purposes of applying the foregoing tests, the assets and gross income with
respect to which Commstar owns at least 25 percent of the stock (by value) will
be attributed to Commstar.
While there can be no assurance with respect to the classification of
Commstar as a PFIC, Commstar believes that it did not constitute a PFIC during
its taxable years ending prior to consummation of the Acquisition. Moreover, in
connection with the transactions contemplated herein, no opinion will be
rendered regarding Commstar's status as a PFIC. Currently, Commstar and ACT
intend to endeavor to cause Commstar to avoid PFIC status in the future,
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although there can be no assurance that they will be able to do so or that their
intent will not change. After the Acquisition, Commstar will endeavor to notify
United States Holders of Exchangeable Shares if it believes that Commstar was a
PFIC for that taxable year.
If Commstar were to be classified as a PFIC, the consequences to a United
States Holder will depend in part on whether the United States Holder has made a
"Mark-to-Market Election" or a "QEF Election" with respect to Commstar. If
Commstar is a PFIC during a United States Holder's holding period and the United
States Holder does not make a Mark-to-Market Election or a QEF Election, the
United States Holder generally will be required to pay a special United States
tax, in lieu of the U.S. tax that would otherwise apply, if such United States
Holder (a) realizes a gain upon the sale or exchange of Exchangeable Shares or
(b) receives an "excess distribution" from Commstar on the Exchangeable Shares.
If a United States Holder makes a QEF Election or Mark-to-Market Election, it
generally will be required to include amounts in income, based upon Commstar's
income or the value of the Exchangeable Shares, even if Commstar does not make
actual distributions to holders of Exchangeable Shares.
The foregoing summary of the possible application of the PFIC rules to
Commstar and the United States Holders of Exchangeable Shares is only a summary
of certain material aspects of those rules. Because the United States federal
income tax consequences to United States Holders under the PFIC provisions are
significant and complex, United States Holders are urged to discuss those
consequences with their tax advisors.
Shareholders Not Resident in or Citizens of the United States.
The following summary is applicable to holders Exchangeable Shares or of
ACT Common Stock that are not United States Holders ("non-United States
Holders"). Dividends received by a non-United States Holder with respect to ACT
Common Stock that are not effectively connected with the conduct by such holder
of a trade or business in the United States generally will be subject to United
States withholding tax at a rate of 30 percent, which rate may be reduced by an
applicable income tax treaty in effect between the United States and the
non-United States Holder's country of residence (currently 15 percent,
generally, on dividends paid to residents of Canada under the Tax Treaty).
Under current United States Treasury regulations, dividends paid to an
address in a country outside the United States are presumed to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary) and under the current interpretation of
United States Treasury Regulations, for purposes of determining the
applicability of a tax treaty rate (the "address rule"). Thus, non-United States
Holders who receive dividends at addresses outside the United States generally
are not yet required to file tax forms to obtain the benefit of an applicable
treaty rate. Under recently issued Treasury regulations scheduled to take effect
January 1, 2000 (the "Final Regulations"), the address rule will no longer
apply, and a non-United States Holder who seeks to claim the benefit of an
applicable treaty rate would be required to satisfy certain certification and
other requirements. The Final Regulations also provide special rules regarding
whether, for purposes of determining the applicability of an income tax treaty,
dividends paid to a non-United States Holder that is an entity should be treated
as being paid to the entity itself or to the persons holding an interest in that
entity.
Subject to the discussion below, a non-United States Holder generally will
not be subject to United States federal income tax on gain (if any) recognized
on the exchange of the Exchangeable Shares for ACT Common Stock or on the sale
or exchange of shares of ACT Common Stock, unless (i) such gain is attributable
to an office or fixed place of business and is effectively connected with a
trade or business of the non-United States Holder in the United States or, if a
tax treaty applies, is attributable to a permanent establishment maintained by
the non-United States Holder in the United States, (ii) the non-United States
Holder is an individual who holds the Exchangeable Shares or ACT Common Stock,
as the case may be, as capital assets and is present in the United States for
183 days or more in the taxable year of disposition, and certain other
conditions are satisfied, or (iii) the non-United States Holder is subject to
tax pursuant to the U.S. Code provisions applicable to certain United States
expatriates. If an individual non-United States Holders falls under clause (i)
or (iii) above, he or she will be taxed on his or her net gain derived from the
sale under regular United States federal income tax rates. If the individual
non-United States Holder falls under clause (ii) above, he or she will be
subject to a flat 30 percent tax on the gain derived from the sale, which may be
offset by United States source capital losses (notwithstanding the fact that he
or she is not considered a resident of the United States).
-16-
<PAGE>
United States Real Property Holding Corporation. The discussion of the
United States taxation of non-United States Holders assumes that ACT is at no
time a United States real property holding corporation within the meaning of
Section 897(c) of the U.S. Code. Under present law, ACT would not be a United
States real property holding corporation so long as (a) the fair market value of
its United States real property interests is less than (b) 50 percent of the sum
of the fair market value of its United States real property interests, its
interests in real property located outside the United States, plus its other
assets that are used or held for use in a trade or business. ACT believes that
it is not a United States real property holding corporation and does not expect
to become such a corporation.
Federal Estate Tax. ACT Common Stock (or a previously triggered obligation
of ACT or any of its subsidiaries to deliver ACT Common Stock along with unpaid
dividends) held by a non-United States Holder at the time of death will be
included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding Tax
Dividends paid to non-United States Holders outside the United States that
are subject to the withholding described above generally will be exempt from
United States backup withholding (which generally is imposed at a rate of 31
percent on certain payments to persons that fail to furnish certain information
under United States information reporting requirements), but ACT must report
annually to the United States Internal Revenue Service and to each non-United
States Holder the amount of dividends paid to such holder and the tax withheld
from such dividend payments, regardless of whether withholding was required.
Backup withholding and information reporting generally will apply, however, to
dividends paid on shares of ACT Common Stock to a non-United States Holder at an
address in the United States, if such holder fails to establish an exemption or
to provide certain other information to the payor.
Generally, ACT may rely on the non-United States Holder's address outside
the United States (absent knowledge to the contrary) in determining that the
withholding tax discussed above applies, and consequently, that the backup
withholding provisions do not apply.
Under the currently effective Treasury Regulations ("Current Regulations"),
the payment of the proceeds of the sale of ACT Common Stock to or through the
United States office of a broker will be subject to information reporting and
possible backup withholding at a rate of 31 percent unless the owner certifies
its non-United States status under penalties of perjury or otherwise establishes
an exemption. The payment of the proceeds of the sale of ACT Common Stock to or
through the foreign office of a broker generally will not be subject to backup
withholding. In the case of the payment of proceeds from the disposition of ACT
Common Stock through a foreign office of a broker that is a United States person
or a "United States related person," the Current Regulations require information
reporting on the payment unless the broker has documentary evidence in its files
that the owner is a non-United States person and the broker has no actual
knowledge to the contrary or the holder otherwise establishes an exemption. For
this purpose, a "United States related person" is (i) a "controlled foreign
corporation" for United States federal income tax purposes or (ii) a foreign
person 50 percent or more of whose gross income for a specified period is
derived from activities that are effectively connected with the conduct of a
United States trade or business.
Under the Treasury Regulations effective for payments made after December
31, 1999, the payment of dividends or the payment of proceeds from the
disposition of ACT Common Stock to a non-United States Holder may be subject to
information reporting and backup withholding unless such recipient satisfies
applicable certification requirements or otherwise establishes an exemption. Any
amounts withheld under the backup withholding rules from a payment to a
non-United States Holder will be allowed as a refund or credit against such
non-United States Holder's United States federal income tax, provided that the
required information is furnished to the IRS.
LEGAL MATTERS
Certain legal matters with respect to the ACT Common Stock offered hereby
will be passed upon for the Company by Bryan Cave LLP, St. Louis, Missouri.
-17-
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997, have been audited by Rubin, Brown, Gornstein & Co. LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, and are incorporated herein by reference, in reliance upon
the authority of such firm as experts in accounting and auditing in giving said
reports.
-18-
<PAGE>
Exhibit A
NOTICE OF RETRACTION
TO: Commstar Ltd. (the "Corporation") and Applied Cellular Technology, Inc.
("Applied")
The undersigned hereby notifies the Corporation that, subject to the Retraction
Call Right referred to below, the undersigned desires to have the Corporation
redeem in accordance with Article 5 of the Share Provisions:
[__] all shares(s) represented by this certificate.
[__] or ________________ share(s) only.
The undersigned acknowledges the Retraction Call Right of Applied to purchase
all but not less than all the Retracted Shares from the undersigned and that
this notice shall be deemed to be an irrevocable offer (subject as hereinafter
provided) by the undersigned to sell the Retracted Shares to Applied in
accordance with the Retraction Call Right on the Retraction Date for the
Retraction Call Purchase Price and on the other terms and conditions set out in
Section 5.3 of the Plan of Arrangement. If Applied determines not to exercise
the Retraction Call Right, the Corporation will notify the undersigned of such
fact as soon as possible in which event, the offer contained in this notice may
be revoked by the undersigned by a further notice in writing addressed to the
Corporation and Applied specifically referencing this Notice of Retraction and
delivered to Montreal Trust Company of Canada (the "Transfer Agent").
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law or otherwise, the Corporation fails to redeem all Retracted
Shares, the undersigned will be deemed to have exercised the Exchange Right (as
defined in the Voting and Exchange Trust Agreement) so as to require Applied to
purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants that within the meaning
of the Tax Act the undersigned:
[__] is not a non-resident of Canada, or
[__] is a non-resident of Canada in which event the undersigned
acknowledges that mandatory withholdings may be required to be
made in connection with this request for retraction unless the
undersigned produces a certificate under Section 116 of the
Tax Act. The undersigned is urged to consult a tax advisor.
The undersigned hereby represents and warrants to the Corporation and Applied
that the undersigned has good title to, and owns, the share(s) represented by
this certificate to be acquired by the Corporation or Applied, as the case may
be, free and clear of all liens.
- ----------------- ------------------------------------ ------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for
pick-up by the shareholder at the principal transfer office of the
Transfer Agent in Toronto, failing which the securities and any
cheque(s) will be mailed to the last address of the shareholder as it
appears on the register of holders of Exchangeable Shares.
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Transfer Agent may require, must be
deposited with the Transfer Agent at its principal transfer office in
Toronto. The securities and any cheque(s) resulting from the retraction
or purchase of the Retracted Shares will be issued and registered in,
and made payable to, respectively, the name of the shareholder as it
appears on the register of the Corporation and the securities and
cheque(s) resulting from such retraction or purchase will be delivered
to such shareholder as indicated above, unless the form appearing
immediately below is duly completed.
- ---------------------------------------------- -----------------------------
Name of Person in Whose Name Securities or Date
Cheque(s) Are To Be Registered, Issued or
Delivered (please print)
- ---------------------------------------- -----------------------------------
Street Address or P.O. Box Signature of Shareholder
- --------------------------------------- -----------------------------------
City-Province Signature Guaranteed by
NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the
remaining shares of the Corporation will be issued and registered in
the name of the shareholder as it appears on the register of the
Corporation, unless the Share Transfer Power on the share certificate
is duly completed in respect of such shares.
-19-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than underwriting
discounts and commissions), which other than the SEC registration fee are
estimates, payable by the Company in connection with the sale and distribution
of the shares registered hereby**:
SEC Registration Fee ....................... $ 396
Accounting Fees and Expenses................ 2,500 *
Legal Fees and Expenses..................... 10,000 *
Miscellaneous Expenses...................... 1,104 *
-----------
Total .......................... $ 14,000 *
============
- -------------
* Estimated
** The Selling Shareholders will pay any sales commissions or underwriting
discount and fees incurred in connection with the sale of shares
registered hereunder.
Item 15. Indemnification of Directors and Officers.
Sections 351.355(1) and (2) of The General and Business Corporation Law
of the State of Missouri provide that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, except that, in the case of an action or suit by or in the right
of the corporation, the corporation may not indemnify such persons against
judgments and fines and no person shall be indemnified as to any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation,
unless and only to the extent that the court in which the action or suit was
brought determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3) provides that, to
the extent that a director, officer, employee or agent of the corporation has
been successful in the defense of any such action, suit or proceeding or any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred in connection with
such action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized by
the corporation's articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further that no person
shall thereby be indemnified against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct or which
involved an accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934.
The bylaws of the Company provide that the Company shall indemnify, to
the full extent permitted under Missouri law, any director, officer, employee or
II-1
<PAGE>
agent of the Company who has served as a director, officer, employee or agent of
the Company or, at the Company's request, has served as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to such provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
Item 16. Exhibits.
See Exhibit Index.
Item 17. Undertakings.
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or the most
recent post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Beach, State of Florida, on July 21, 1998.
APPLIED CELLULAR TECHNOLOGY, INC.
By: /S/ DAVID A. LOPPERT
------------------------
David A. Loppert, Vice President,
Treasurer and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Garrett A. Sullivan and David A. Loppert, and each of them (with full power to
each of them to act alone), the true and lawful attorney in fact and agent for
the undersigned, to act on behalf of and in the name of the undersigned in
connection with this Registration Statement, including the authority to sign any
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with exhibits and any and all other documents filed with
respect thereto, with the Securities and Exchange Commission (or any other
governmental or regulatory authority), and each such person ratifies and
confirms all that said attorneys in fact and agents may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
---------- ----------------- ---------
Chairman of the Board of Directors,
Chief Executive Officer and
Secretary(Principal Executive
/S/ RICHARD J. SULLIVAN Officer) July 20, 1998
- -------------------------
(Richard J. Sullivan)
President and Director (Principal
Operating Officer) July 21, 1998
/S/ GARRETT A. SULLIVAN
- -------------------------
(Garrett A. Sullivan)
Vice President, Treasurer and Chief
Financial Officer (Principal
Accounting Officer) July 20, 1998
/S/ DAVID A. LOPPERT
- -------------------------
(David A. Loppert)
Director July 20, 1998
/S/ ANGELA M. SULLIVAN
- -------------------------
(Angela M. Sullivan)
Director July 21, 1998
/S/ DANIEL E. PENNI
- -------------------------
(Daniel E. Penni.)
Director July 20, 1998
/S/ ARTHUR F. NOTERMAN
- -------------------------
(Arthur F. Noterman)
II-3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
4.1 Amended and Restated Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-3 (File No. 333-37713) filed with the Commission on November 19,
1997)
4.2 Amendment of Restated Articles of Incorporation of the Company
4.3 Resolution of the Board of Directors of the Company setting forth the terms
of the Special Voting Preferred Stock (incorporated herein by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-3 (File No.
333-57613) filed with the Commission on June 24, 1998)
4.4 Amended and Restated Bylaws of the Company dated March 31, 1998
(incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (File No. 333-51067) filed with the
Commission on April 27, 1998)
5.1 Opinion of Bryan Cave LLP regarding the validity of the Common Stock*
8.1 Opinion of Meighen Demers regarding tax matters*
8.2 Opinion of Bryan Cave LLP regarding tax matters*
23.1 Consent of Rubin, Brown, Gornstein & Co. LLP*
23.2 Consent of Bryan Cave LLP (included in Exhibit 5.1)*
24.1 Power of Attorney (included in Signature Page)
99.1 Form of Plan of Arrangement of Commstar Ltd. (incorporated herein by
reference to Exhibit 99.1 to the Company's Registration Statement on Form
S-3 (File No. 333-57613) filed with the Commission on June 24, 1998)
99.2 Form of Voting and Exchange Trust Agreement among Applied Cellular
Technology, Inc., Commstar Ltd. and Montreal Trust Company of Canada
(incorporated herein by reference to Exhibit 99.2 to the Company's
Registration Statement on Form S-3 (File No. 333-57613) filed with the
Commission on June 24, 1998)
99.3 Form of Support Agreement between Applied Cellular Technology, Inc. and
Commstar Ltd. (incorporated herein by reference to Exhibit 99.3 to the
Company's Registration Statement on Form S-3 (File No. 333-57613) filed
with the Commission on June 24, 1998)
99.4 Memorandum of Agreement among Applied Cellular Technology, Inc., Commstar
Ltd. and Western Inbound Network Inc.
- -------------
* To be filed by amendment
II-4
Exhibit 4.2
AMENDMENT OF RESTATED ARTICLES OF INCORPORATION
OF
APPLIED CELLULAR TECHNOLOGY, INC.
Pursuant to the provisions of The General and Business Corporation Law of
Missouri, the undersigned corporation certifies the following:
(1) The present name of the corporation is Applied Cellular Technology,
Inc.
(2) An amendment to the corporation's Articles of Incorporation was adopted
by the shareholders on June 13, 1998.
(3) Article Three is hereby amended in its entirety to read as follows:
ARTICLE THREE
The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is Eighty-Five Million
(85,000,000) shares, of which Five Million (5,000,000) shares shall be
preferred stock ("Preferred Stock") having a par value of $10.00 per share
and Eighty Million (80,000,000) shares shall be common stock ("Common
Stock") having a par value of $.001 per share. A statement of the
preferences, qualifications, limitations, restrictions, and the special or
relative rights, including convertible rights, in respect of the shares of
each class is as follows:
A. Preferred Stock.
Subject to the requirements of the laws of the State of Missouri,
authority is hereby vested in the Board of Directors from time to time to
issue 5,000,000 shares of Preferred Stock in one or more series and by
resolution or resolutions as to each series:
(a) to fix the distinctive serial designation of the shares of
such series;
(b) to fix the rate per annum at which the holders of the shares
of such series shall be entitled to receive dividends, the dates on
which said dividends shall be payable, and, if the directors determine
that the dividends with respect to said series shall be cumulative,
the date or dates from which such dividends shall be cumulative;
(c) to determine whether the shares of such series shall have
voting power, and, if so, the extent and definition of such voting
power;
(d) to fix the price or prices at which the shares of such series
may be redeemed, and to determine whether the shares of such series
may be redeemed in whole or in part or only as a whole;
(e) to fix the amounts payable on the shares of such series in
the event of liquidation, dissolution, or winding up of the
Corporation;
(f) to determine whether or not the shares of any such series
shall be made convertible into or exchangeable for shares of any other
class or classes of stock of the Corporation or of any other series of
Preferred Stock and the conversion price or prices, or the rate or
rates of exchange at which such conversion or exchange may be made;
(g) to determine the amount of the sinking fund, purchase fund,
or any analogous fund, if any, to be provided with respect to each
such series; and
(h) to fix preferences and relative, participating, optional, or
other special rights, and qualifications, limitations or restrictions
thereof, applicable to each such series.
B. Common Stock.
Each share of Common Stock shall be identical with each other share of
Common Stock, except as the holders thereof shall otherwise expressly agree
in writing. Subject to the prior rights of the Preferred Stock from time to
time issued and outstanding, as hereinbefore set forth, the holders of
<PAGE>
Common Stock shall be entitled to receive such sums as the Board of
Directors may from time to time declare as dividends thereon, or authorize
as distributions thereon, out of any sums available to be distributed as
dividends and to receive any balance remaining in case of the dissolution,
liquidation or winding up of the Corporation after satisfying the prior
rights of the Preferred Stock, if any be then outstanding. Each share of
Common Stock shall have one vote for all corporate purposes.
(4) Of the 25,939,413 shares outstanding as of the record date, 25,939,413
shares were entitled to vote on such amendment. The number of outstanding shares
entitled to vote thereon as a class was as follows:
Number of
Class Outstanding Shares
Common 25,939,413
(5) The number of shares voted for and against the amendment was as
follows:
Class No. Voted For No. Voted Against
Common 19,957,792 2,351,487
(6) If the amendment changed the number or par value of authorized shares
having a par value, the amount in dollars of authorized shares having a par
value as changed is $50,080,000.
IN WITNESS WHEREOF, the undersigned, Vice President has executed this
instrument and its Secretary has attested to said instrument as of the 25th day
of June, 1998.
APPLIED CELLULAR TECHNOLOGY, INC.
By: /S/ DAVID A. LOPPERT
David A. Loppert, Vice President,
Treasurer and Chief Financial Officer
MEMORANDUM OF AGREEMENT made the 14th day of July, 1998.
B E T W E E N :
WESTERN INBOUND NETWORK INC., a corporation incorporated under the laws of
Canada
(hereinafter referred to as the "Vendor"),
- and -
COMMSTAR LTD., a corporation incorporated under the laws of Ontario
(hereinafter referred to as the "Purchaser"),
APPLIED CELLULAR TECHNOLOGY, INC., a corporation incorporated under the
laws of the State of Missouri (hereinafter referred to as "ACT")
- and -
3189309 CANADA INC., a corporation incorporated under the laws of Canada,
3189287 CANADA INC., a corporation incorporated under the laws of Canada,
3189295 CANADA INC., a corporation incorporated under the laws of Canada,
3132455 CANADA INC. a corporation incorporated under the laws of Canada,
(hereinafter collectively referred to as the "Shareholders" and
individually as a "Shareholder")
<PAGE>
-2-
RECITALS:
WHEREAS the Vendor is in the business of, inter alia, providing telephone
answering, paging dispatch, and inbound and outbound marketing services in the
Province of British Columbia (the "Purchased Business");
AND WHEREAS the Purchaser wishes to purchase and the Vendor wishes to sell
to the Purchaser, as a going concern, all of the assets of the Purchased
Business (the "Purchased Assets");
THIS AGREEMENT WITNESSETH that for and in consideration of the mutual
covenants and agreements herein contained, it is agreed by and between the
parties hereto as follows:
1. Defined Terms
Where used herein or in any amendments hereto, the following terms shall
have the following meanings respectively:
1.1 "ACT Shares" means common shares of ACT listed for trading on
NASDAQ;
"Accounts Receivable" means the accounts receivable of the
Purchased Business as set forth on the Closing Financial Statements;
"Adjustment Conferences means the meetings between the Purchaser
and the Vendor held on August 20, 1998 (the "First Adjustment
Conference") and October 15, 1998 (the "Second Adjustment
Conference"), or as otherwise agreed to by the parties, for the
purpose of making the Adjustments;
"Adjustments" has the meaning ascribed thereto in Section 4.2
hereof;
"Agreement" means this Agreement and any written amendment or
alteration thereto and the expressions "herein", "hereto",
"hereunder", "hereof" and similar expressions refer to this Agreement;
"Average Trading Price" means the average trading price for the
last trade of the ACT Shares for the 19 days immediately preceding the
Conversion Date;
"Base Price" has the meaning ascribed thereto in Section 4.1
hereof;
"B.C. Tel Right of First Refusal" means the right of first
refusal of 403805 to purchase the Purchased Assets; such right was not
exercised by 403805 on or before June 13, 1998 as required and has
expired subject to the transaction of purchase and sale of the
<PAGE>
-3-
Purchase Assets contemplated herein being completed by no later than
August 12, 1998, failing which the right of first refusal revives;
"Branch Operations" means the locations described in Schedule B;
"Closing" means the closing of the transaction relating to the
purchase and sale of the Purchased Assets;
"Closing Date" means July 31, 1998 or such other date as the
Vendor and Purchaser may agree, provided that any such date shall be a
month end;
"Closing Financial Statements" means the unaudited financial
statements of the Purchased Business as at the Closing Date prepared
by the Vendor in accordance with generally accepted accounting
principles applied on a basis consistent with prior years;
"Commission" means the United States Securities and Exchange
Commission;
"Contracts" means the agreements set out in Schedule C;
"Conversion Date" means the second (2nd) day prior to the Closing
Date;
"Employee Commitments" has the meaning ascribed thereto in
Section 7.20;
"Environmental Law" means any statute, code, by-law, regulation,
published policy, permit, consent, approval, licence, judgment, order,
writ, judicial decision, common law rule (including without limitation
the common law respecting nuisance and tortious liability) decree,
agency interpretation, injunction, agreement or authorization or
requirement whether federal, provincial, territorial or municipal
related, but not limited to all hazardous substances, wastes,
pollutants, contaminates, or hazardous materials regulated by or
defined, designated or classified under any federal or provincial
statute as of the date of this Agreement;
"Equipment" means the equipment described in Schedule A;
"Exchangeable Shares" means those shares of the Purchaser having
the attributes set forth in Schedule M;
" Execution Date" means the date first written above;
"Financial Statements" means the unaudited financial statements
of the Purchased Business as at November 30, 1997 prepared by the
Vendor in accordance with generally accepted accounting principles
applied on a consistent basis with prior years, a copy of which are
annexed hereto as Schedule F;
<PAGE>
-4-
"Interim Period" means the period between the close of business
on the Execution Date and the Time of Closing on the Closing Date;
"June Financial Statements" means the unaudited financial
statements of the Purchased Business as at June 30, 1998 prepared in
accordance with generally accepted accounting principles applied on a
consistent a basis with prior years;
"Lease" means a real property leasehold interest in a Branch
Operation;
"NASDAQ" means The National Market of the National Association of
Securities Dealers Automated Quotation System;
"Purchase Price" has the meaning ascribed thereto in Section 4.1
hereof;
"Purchased Assets" has the meaning ascribed thereto in Section
3.1 hereof;
"Purchased Business" has the meaning given in the first recital;
"Registration Statement" has the meaning ascribed thereto in
Section 10.1 hereof;
"Securities Act" means The United States Securities Act of 1933,
as amended;
"Schedule E" means that Schedule of employees of the Vendor as at
the date hereof attached hereto, as amended and accepted by the
Purchaser at Closing.
"Shareholders" means the shareholders of the Vendor listed in
Schedule I;
"Statement of Adjustments" means a statement of the Adjustments
approved by the Vendor and the Purchaser, in writing, as at each of
the Adjustment Conferences;
"Time of Closing" means 2:00 p.m. (Eastern Daylight Time) on the
Closing Date;
"Vendor's Notice" has the meaning ascribed thereto in subsection
5.2 (a) hereof;
"403805" means 403805 B.C. Ltd., a subsidiary of B.C. Mobile Ltd.
1.2 All dollar amounts referred to in this Agreement are in Canadian funds.
<PAGE>
-5-
2. Schedules
The following are the Schedules attached to and incorporated in this
Agreement by reference and deemed to be part hereof.
Schedule A - Equipment
Schedule B - Branch Operations and related Leases
Schedule C - Contracts
Schedule D - Intellectual Property and Trade Names
Schedule E - Employees
Schedule F - Financial Statements
Schedule G - Environmental Matters
Schedule H - Employment Agreements and Collective Agreements
Schedule I - List of Shareholders of the Vendor
Schedule J - Consents
Schedule K - Outstanding Agreements
Schedule L - Litigation
Schedule M - Provisions attached to Exchangeable Shares
Schedule N - Non-Competition Agreement
3. Property and Assets to be Purchased and Sold
3.1 Subject to the terms and conditions hereof, the Vendor agrees to sell,
assign and transfer to the Purchaser and the Purchaser agrees to purchase from
the Vendor as a going concern, all of the assets (the "Purchased Assets") of the
Vendor used in or relating to the Purchased Business of every kind and
description and wheresoever located, including, without limiting the generality
of the foregoing:
(a) all telephone answering service equipment, computers, software,
call centre and paging dispatch equipment, furniture, fixtures and
miscellaneous office supplies used in the Purchased Business (the
"Equipment") all as more particularly set forth in Schedule A hereto;
(b) all Leases in respect of those Branch Operations and locations of
the Vendor as set forth in Schedule B hereto;
(c) all contracts (including subscriber contracts), leases, customer
lists, licenses, telephone numbers, books and records of or pertaining to
the Purchased Business as set out in Schedule C (the"Contracts");
(d) all Accounts Receivable and the full benefit of all securities for
such accounts, notes or debts;
<PAGE>
-6-
(e) the full benefit of all other contracts, engagements or
commitments to which the Vendor is entitled in connection with the
Purchased Business, whether written or oral, including the full benefit and
advantage of all forward commitments by the Vendor for supplies or
materials entered into in the ordinary course of the Purchased Business for
use in the Purchased Business whether or not there are any contracts with
respect thereto other than the Contracts;
(f) all the right, title, benefit and interest of the Vendor in and to
all registered or unregistered trade marks, trade or brand names, service
marks, copyrights, designs, inventions, patents, patent applications,
patent rights (including any patents issuing on such applications or
rights), licences, sub-licences, franchises, formulae, processes,
technology and other industrial property of or pertaining to the Purchased
Business or owned by the Vendor, including all restrictive agreements and
negative covenant agreements which the Vendor may have with its employees,
past or present as more particularly set forth on Schedule D hereto;
(g) prepaid expenses;
(h) the goodwill of the Purchased Business, together with the
exclusive right to the Purchaser to represent itself as carrying on the
Purchased Business in continuation of and in succession to the Vendor and
the right to use any words indicating that the Purchased Business is so
carried on, including the exclusive rights to use the Trade Names (a
complete list of which is set forth on Schedule D hereto) or any variation
thereof, as part of the name of or in connection with the Purchased
Business or any part thereof carried on or to be carried on by the
Purchaser; and
(i) all other property, assets and rights, real or personal, tangible
or intangible, owned by the Vendor or to which it is entitled in connection
with the Purchased Business save and except for cash on hand and in banks,
and an interest in Aval Communications Inc.
4. Purchase Price and Allocation Thereof
4.1 The total purchase price for the Purchased Assets (the "Purchase
Price") shall be equal to the sum of $2,000,000 (the "Base Price") adjusted in
accordance with the adjustments (the "Adjustments") set forth in section 4.2 and
shall be payable as provided in section 5.1.
4.2 (a) The Base Price shall be adjusted on the following basis:
(i) the following items shall be added to the Base Price:
(A) the Accounts Receivable as at the Closing Date, at the
stated book value thereof,; and
<PAGE>
-7-
(B) all prepaid expenses or deposits made by the Vendor as
at the Closing Date that would be to the benefit of the
Purchaser in its operation of the Purchased Business
after the Closing Date, including amounts due under the
Contracts, business taxes, utility rates, rent and
property taxes, at the stated book value thereof;
(C) the billable value of all unbilled work-in-progress of
the Purchased Business as at the Closing Date;
(ii) the following items shall be deducted from the Base Price:
(A) the deferred revenue of the Purchased Business as at
the Closing Date as set forth in the Closing Financial
Statements;
(B) vacation accruals with respect to those employees
listed on Schedule E as at the Closing Date as set
forth in the Closing Financial Statements;
(C) payroll accruals (including wages, benefits and other
statutory obligations) with respect to those employees
listed on Schedule E as at the Closing Date as set
forth in the Closing Financial Statements;
(D) the Vendor's pro rata share of quarterly bonuses
payable to employees listed on Schedule E;
(E) $80,000 in respect of the obligations of the Vendor for
severance liabilities, if any, which are to be assumed
by the Purchaser;
(iii)all calculations referred to in subparagraphs (i) and (ii)
shall be determined with reference to the Closing Financial
Statements;
(b) All Adjustments shall be determined and agreed to by the Vendor
and the Purchaser at the Adjustment Conferences and the Vendor and the
Purchaser shall use their best efforts to jointly prepare the Statements of
Adjustments as at such dates.
(c) The Purchaser and the Vendor agree as follows:
(i) the Accounts Receivable collected by the Purchaser shall be
first applied against amounts owing by the Vendor to the
Purchaser in respect of the items referred to in Subsections
4.2(a)(ii)(B), (C), (D) and (E) respectively. The balance of
the Accounts Receivable, as collected, shall be remitted to
the Vendor every two weeks;
<PAGE>
-8-
(ii) any Accounts Receivable reflected on the Statement of
Adjustments that remain uncollected as at the date of the
Second Adjustment Conference shall be assigned and
transferred to the Vendor and an equivalent amount shall be
deducted from amounts due to the Vendor pursuant to
Subsection 4.2(a)(i)(A).
4.3 (i) The Vendor and the Purchaser covenant and agree with each other
that the Base Price shall be allocated among the Purchased Assets on the
following basis:
(A) $1,200,000 to Equipment; and
(B) $800,000 as to goodwill.
(ii) In the event that the provisions of Section 5.2 apply, the
allocation referred to in subsection 4.3(i) shall be adjusted pro rata to
reflect the change in the Purchase Price.
4.4 The Purchaser shall be responsible for all goods and services taxes and
provincial sales taxes applicable to the sale of the Purchased Assets and shall
be solely responsible for and shall pay at Closing such sales taxes and any and
all other transfer fees and taxes properly payable upon and in connection with
the conveyance and transfer of the Purchased Assets from the Vendor to the
Purchaser as contemplated herein. The Purchaser shall provide the Vendor with a
copy of all forms filed in respect of the taxes and transfer fees payable
hereunder.
5. Payment of the Purchase Price
5.1 Subject to Section 5.2, the Purchase Price shall be paid and satisfied
as follows:
(a) (i) as to $2,000,000 by the issuance from treasury at Closing of that
number of Exchangeable Shares equal to the number derived by applying
the following formula:
$2,000,000
----------
Average Trading Price
(ii) the Average Trading Price shall be converted into Canadian
dollars at the "spot rate" set by The Toronto-Dominion Bank as at
the close of business on the business day prior to the Conversion
Date;
(iii)upon determination of the Average Trading Price and the number
of Exchangeable Shares to be delivered pursuant to subsection 5.1
(a)(i) herein, the Purchaser shall, by no later than 10 a.m.
(Eastern Daylight Time) on the Conversion Date, give written
notice of same to the Vendor (the "Exchangeable Shares Notice");
<PAGE>
-9-
(b) subject to subsection (c) and subject to Section 8.4(c) herein, as
to the balance of the Purchase Price as a result of the Adjustments, by
wire transfer, bank draft or certified cheque made payable to or to the
order of the Vendor. Any such payment to be made by the Purchaser shall be
made no later than two (2) business days following the Second Adjustment
Conference;
(c) in the event that after making the Adjustments the Purchase Price
is less than $2,000,000 the Vendor agrees to pay the amount of any such
deficiency to the Purchaser by wire transfer, bank draft or certified
cheque made payable to or to the order of the Purchaser. Any such payment
to be made by the Vendor shall be made no later than two (2) business days
following the Second Adjustment Conference.
5.2 (a) In the event that (i) on the Conversion Date the closing price for
the ACT Shares is less than $3.00 US per share or (ii) if the ACT Shares are
suspended from trading on or before the Closing Date, the Vendor may deliver
written notice to the Purchaser advising the Purchaser of same and the Vendor
may, at its sole option, give notice (the "Vendor's Notice") to the Purchaser at
any time up to 8 p.m. (Eastern Daylight Time) on the Conversion Date upon the
occurrence of the event referred to in (i) above, or at any time up to 28 hours
prior to Closing upon the occurrence of an event referred to in (ii) above that
the Purchase Price shall be satisfied in full by the payment of $1,800,000 (the
"Cash Consideration") by wire transfer, bank draft or certified cheque made
payable to or to the order of the Vendor.
(b) Upon receipt of the Vendor's Notice, the Purchaser may, in its
sole discretion, give written notice to the Vendor at any time up to 24
hours prior to Closing that either:
(i) the Purchaser does not wish to pay the Cash Consideration
(the "Purchaser's Notice"), in which event upon delivery of
the Purchaser's Notice, the transaction of the purchase and
sale of the Purchased Assets shall be deemed to be a
nullity, ab initio (but the concepts set forth in
Section 5.2(c) shall continue notwithstanding), and neither
party herein shall have any remedy against the other for
damages, costs, compensation or otherwise, or
(ii) the Purchaser wishes to pay the Cash Consideration (the
"Cash Notice"), in which event upon delivery of the Cash Notice the
Vendor shall be entitled to transfer the Purchased Assets to a newly
incorporated wholly owned subsidiary of the Vendor (the "Subsidiary")
pursuant to Section 85 of the Income Tax Act (Canada), in which event
Section 12.8 shall apply with the term "Purchaser" as used therein to
be read as "Subsidiary". In such event the Purchaser agrees to, and
the Vendor agrees to, enter into a share purchase agreement whereby
the Purchaser shall purchase and the Vendor shall sell all of the
<PAGE>
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issued and outstanding shares in the Subsidiary (the "Share Purchase
Agreement"). The Share Purchase Agreement shall incorporate this
Agreement by reference. The Purchaser and the Vendor agree that all
terms, conditions, covenants, representations, and warranties and
indemnities contained in this Agreement shall remain in full force and
effect, mutatis mutandis.
(c) Notwithstanding subsection 5.2 (b)(i) herein, in the event that
the transaction of purchase and sale referred to herein is not completed,
the Purchaser shall not, nor shall it permit its affiliates or associates
to, directly or indirectly, whether through a corporation or otherwise,
individually or in partnership, jointly or in conjunction with any person,
firm , association, syndicate, corporation or any other entity whether as
principal, agent, employee, employer, lender or shareholder at any time
from and after the Execution Date up to the 12th month anniversary of such
date, solicit, interfere with or endeavour to entice away from the
Purchased Business any employee or customer of the Purchased Business which
is not an employee or customer of the Purchaser or its affiliates as at the
Closing Date.
The Purchaser acknowledges that the Vendor will suffer irreparable
harm if there is a breach of the foregoing provisions of subsection (c) by
the Purchaser and that the amount of damages will be difficult to ascertain
and to prove. Accordingly, if the Purchaser shall breach the terms of this
subsection, then the Vendor will have, in addition to any other remedies
available to it, the right to injunctive relief (including interlocutory
and permanent injunctive relief) enjoining such action and the Purchaser
agrees that other remedies are inadequate to fully protect the Vendor's
rights hereunder.
6. Liabilities of the Purchased Business
6.1 In accordance with Article 13 hereof, the Vendor agrees to indemnify
and save harmless the Purchaser from and against any and all actions,
proceedings, claims, losses, expenses, demands, damages, liabilities and costs
suffered or incurred by the Purchaser arising in connection with the Purchased
Business on or before the Time of Closing.
6.2 In accordance with Article 13 hereof, the Purchaser agrees to indemnify
and save harmless the Vendor from and against any and all actions, proceedings,
claims, losses, expenses, demands, damages and costs suffered or incurred by the
Vendor for the ongoing obligations and covenants of the Vendor under the
Contracts, Leases, Collective Agreements and Employee Commitments, for the
period after the Time of Closing.
7. Covenants, Representations and Warranties of the Vendor
The Vendor and each of the Shareholders jointly and severally covenants and
agrees with and represents and warrants at the date hereof as follows to the
Purchaser and acknowledges and confirms that the Purchaser is relying on such
<PAGE>
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covenants, agreements, representations and warranties in connection with the
purchase by the Purchaser of the Purchased Assets:
7.1 Each of the Shareholders is a corporation duly incorporated and
organized and validly subsisting in good standing under the laws of Canada. Each
of the Shareholders has full corporate power and capacity to execute, deliver
and perform this Agreement. All requisite corporate and other action has been
taken by each of the Shareholders to authorize the execution, delivery and
performance of the Agreement and the consummation of the transaction
contemplated herein. This Agreement has been executed by duly authorized
officers of each of the Shareholders and constitutes a valid and binding
obligation of each of the Shareholders, enforceable against each of them in
accordance with its terms, subject to limitations with respect to enforcement
imposed by law in connection with bankruptcy or similar proceedings and to the
extent that equitable remedies such as specific enforcement and injunction are
in the discretion of the court when they are sought.
7.2 The Vendor is a corporation duly incorporated and organized and validly
subsisting in good standing under the laws of Canada; the Vendor has the
corporate power to own its property and to carry on the Purchased Business as
now being conducted by it, is duly qualified as a corporation to do business and
is in good standing in each jurisdiction in which the nature of the Purchased
Business or the Purchased Assets makes such qualification necessary.
7.3 The Vendor has full corporate power and capacity to execute, deliver
and perform this Agreement. All requisite corporate and other action has been
taken by the Vendor to authorize the execution, delivery and performance of this
Agreement and the consummation of the transaction contemplated herein. This
Agreement has been executed by duly authorized officers of the Vendor and
constitutes a valid and binding obligation of the
Vendor, enforceable against it in accordance with its terms, subject to
limitations with respect to enforcement imposed by law in connection with
bankruptcy or similar proceedings and to the extent that equitable remedies such
as specific enforcement and injunction are in the discretion of the court from
which they are sought.
7.4 The Purchased Assets are owned by the Vendor as the beneficial owner
thereof with a good and marketable title thereto, free and clear of all
mortgages, liens, charges, pledges, security interests, encumbrances or other
claims whatsoever.
7.5 No person, firm or corporation has any written or oral agreement,
option, understanding or commitment, or any right or privilege capable of
becoming an agreement, for the purchase from the Vendor of any of the Purchased
Assets, save and except for the B.C. Tel Right of First Refusal.
7.6 The Financial Statements and the June Financial Statements have been
prepared, and the Closing Financial Statements will be prepared, in accordance
with generally accepted accounting principles applied on a basis consistent with
those of previous fiscal periods and present fairly the assets, liabilities
(whether accrued, absolute, contingent or otherwise) and the financial condition
<PAGE>
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of the Purchased Business as at November 30, 1997, June 30, 1998 and the Closing
Date, respectively, and the sales and earnings of the Purchased Business during
the periods covered by such financial statements.
7.7 Since June 30, 1998, there has been no change in the affairs, business,
prospects, operations or condition of the Purchased Business, financial or
otherwise, whether arising as a result of any legislative or regulatory change,
revocation of any licence or right to do business, fire, explosion, accident,
casualty, labour trouble, flood, drought, riot, storm, condemnation, act of God,
public force or otherwise, except changes occurring in the ordinary course of
business, which disruption and changes have not adversely affected and will not
adversely affect the organization, business, properties, prospects or financial
condition of the Purchased Business.
7.8 The Purchased Business has been carried on in the ordinary and normal
course since June 30,1998 and will be carried on in the ordinary and normal
course after the date hereof and up to the Time of Closing.
7.9 No capital expenditures except in the ordinary course of business have
been made or authorized since June 30, 1998, by the Vendor and no capital
expenditures will be made or authorized after the date hereof and up to the Time
of Closing by the Vendor without the prior written consent of the Purchaser.
7.10 The Vendor has the Purchased Assets insured against loss or damage by
all insurable hazards or risks on a replacement cost basis and such insurance
coverage will be continued in full force and effect to and including the Closing
Date.
7.11 To the Vendor's knowledge, except as set forth in Schedule G, the
Purchased Business is and has been, and the condition of all properties and
assets, including the Purchased Assets, previously owned, occupied, managed,
controlled or used by the Vendor is and was during the period of ownership,
occupancy, management, control or use by the Vendor, in compliance, in all
respects, with all Environmental Law, and the operation of Purchased Business
currently carried on does not constitute a breach of any Environmental Laws and
no claim has been made against the Vendor based on any breach or alleged breach
of an Environmental Law.
7.12 The entering into of this agreement and the transactions contemplated
hereby will not result in the violation of any of the terms and provisions of
the constating documents or by-laws of the Vendor or of any indenture or other
agreement, written or oral, to which the Vendor may be a party or by which it is
bound.
7.13 No consent of any party to any agreement, contract, commitment or
arrangement to which the Vendor is a party or by which it or any of its property
or rights are bound or affected is required in order for the Vendor to execute,
deliver and perform this Agreement, except for consents of lessors, licensors
and other co-contractants of the Vendor to the assignment to the Purchaser of
the leases, licenses, contracts and other agreements referred to in the
Schedules hereto, as indicated, complete copies of which are attached hereto as
Schedules.
<PAGE>
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7.14 The Vendor is not a party to any real property lease or agreement in
the nature of a lease, other than as it relates to the Purchased Business,
whether as lessor or lessee, except those real property leases set forth and
described in Schedule B hereto (in which is specified the parties to each of
such leases, their dates of execution and expiry dates, the locations of the
leased lands and premises and the rental payable thereunder), and each of such
leases is in good standing and in full force and effect without amendment
thereto (save and except for extensions thereof) and to the Vendor's knowledge,
the Vendor is not in breach of any of the covenants, conditions or agreements
contained in each such lease.
7.15 Except as listed on Schedule H and Schedule K, the Vendor does not
have any outstanding agreement (including any employment agreement), contract or
commitment, whether written or oral, of any nature or kind whatsoever, except
(i) forward commitments by the Vendor for supplies or materials entered into in
the ordinary course of the Purchased Business for use in the Purchased Business,
which commitments have not more than two months to run, (ii) prepaid service
contracts on office equipment, (iii) the Leases described in Schedule B, and
(iv) the agreements and contracts described in Schedule C.
7.16 Except as set forth in Schedule L there are no actions, suits or
proceedings (whether or not purportedly on behalf of the Vendor), pending or
threatened against or affecting the Vendor at law or in equity or before or by
any federal, provincial, municipal or other governmental department, commission,
board, bureau, agency or instrumentality,
domestic or foreign. The Vendor is not now aware of any existing ground on which
any such action, suit or proceeding might be commenced with any reasonable
likelihood of success.
7.17 To the Vendor's knowledge it is not in default or breach of any
contracts, agreements, written or oral, indentures or other instruments to which
it is a party and which are referred to in this Agreement and there exists no
state of facts which after notice or lapse of time or both would constitute such
a default or breach and all such contracts, agreements, indentures or other
instruments are now in good standing and in full force and effect without
amendment thereto and the Vendor is entitled to all benefits thereunder.
7.18 To the Vendor's knowledge, neither the conduct of the Purchased
Business nor any of the Purchased Assets infringes upon the patents, trade
marks, trade names or copyrights, domestic or foreign, of any other person, firm
or corporation.
7.19 To the Vendor's knowledge, it is conducting the Purchased Business in
compliance with all applicable laws, rules and regulations of each jurisdiction
in which the Purchased Business is carried on, is not in breach of any such
laws, rules or regulations and is duly licensed, registered or qualified in each
jurisdiction in which the Vendor owns or leases property or carries on the
Purchased Business, to enable the Purchased Business to be carried on as now
conducted and its property and assets to be owned, leased and operated, and all
such licences, registrations and qualifications are valid and subsisting and in
good standing.
7.20 Except as set forth in Schedules E and H, and subject to federal and
provincial legislation, the Vendor is not a party to or bound by any collective
<PAGE>
-14-
bargaining agreement or written employment agreement, or any bonus, pension,
benefit, profit sharing, deferred compensation, stock purchase, stock option,
executive compensation, retirement, hospitalization, disability, insurance,
health, or medical plan or any similar program, policy or practice, formal or
informal (collectively, the "Employee Commitments"), with respect to any of its
employees engaged in the Purchased Business.
7.21 Except as referred to in Schedule H, there is no strike, work
stoppage, other material concerted action, or material dispute existing or
threatened against the Vendor nor is any union which holds bargaining rights for
employees of the Purchased Business in a legal strike position. Correct and
complete copies of all collective agreements, written employment contracts,
commitments, plans, and employment-related agreements have been provided to the
Purchaser or, where oral, correct and complete written summaries of the terms
thereof have been provided to the Purchaser, including all drafts and
preliminary agreements in the process of negotiation, and all procedures and
practices adopted but not yet reflected in written amendments. Correct and
complete copies of any collective bargaining proposals received by or provided
by the Vendor during current collective bargaining negotiations affecting the
Purchased Business and any items agreed to by the Vendor during such
negotiations are also set out in Schedule H.
7.22 Except as set forth in Schedule H, to the Vendor's knowledge:
(a) the Purchased Business and the Vendor are in compliance with all
relevant collective agreements and all applicable laws and regulations,
relating to employees of the Purchased Business, including those relating
to terms and conditions of employment, wages, hours, overtime, and any
payments due under the Employee Commitments;
(b) there are no union certifications granted with respect to any
employees of the Purchased Business, no pending applications for
certification with respect to any of the employees of the Purchased
Business, no voluntary recognition agreements signed with any union by the
Vendor with respect to the Purchased Business, nor, are any union
organizing campaigns currently in progress with respect to any employees of
the Purchased Business, nor is the Purchased Business and the Vendor with
respect to the Purchased Business engaged in any unfair labour practice;
(c) there are no outstanding actions or claims with respect to the
Employee Commitments except for payment of benefits in the ordinary course.
The Employee Commitments are in compliance in all material respects with
all applicable laws and regulations, have been administered according to
their terms, and are registered as required under any applicable law. No
events have occurred which would affect registration status, and no
<PAGE>
-15-
material changes have occurred which would affect the actuarial or
financial statements of the benefit plans.
(d) there are no complaints, applications, proceedings, interim
orders, or orders, involving the Purchased Business and the Vendor with
respect to the Purchased Business under any applicable labour relations
legislation, nor any liability arising out of any outstanding labour
relations board proceeding or order;
(e) there are no outstanding grievances, arbitration proceedings,
interest arbitration proceedings, pending arbitration awards or unsatisfied
arbitration awards;
(f) there are no outstanding complaints, claims, decisions, orders or
prosecutions under any applicable employment standards legislation;
(g) there are no claims or actual penalty assessments under the
Vendor's Workers' Compensation Board accounts and no outstanding
assessments as of the date of closing;
(h) there are no outstanding human rights complaints, investigations,
proceedings, decisions, or orders under any applicable human rights
legislation involving the Purchased Business and the Vendor with respect to
the Purchased Business nor has there been any discrimination or any kind
with respect to any employees working in the Purchased Business;
(i) there are no outstanding applications, complaints, investigations,
orders of Review Officers, tribunal proceedings, tribunal orders or
prosecutions under any applicable pay equity legislation involving the
Purchased Business and the Vendor with respect to the Purchased Business;
(j) there are no outstanding health and safety orders, instructions,
investigations, violations, or prosecutions under any applicable health and
safety legislation or regulations involving the Purchased Business or the
Vendor with respect to the Purchased Business and there have been no
accidents or fatalities of employees while engaged in work for the
Purchased Business within the last two years;
(k) the Vendor has complied with its obligations to make and remit all
appropriate source deductions for all employees of the Purchased Business.
7.23 All vacation pay, bonuses, commissions and other emoluments are
reflected and have been accrued in the books of account of the Vendor.
<PAGE>
-16-
7.24 Any and all pension plans with respect to the employees listed in
Schedule E shall, on the Closing Date, be fully funded and there shall exist no
unfunded liability thereunder.
7.25 The Equipment is in the condition required to operate the Purchased
Business, subject to normal wear and tear.
7.26 All Accounts Receivable, book debts and other debts due or accruing to
the Vendor in connection with the Purchased Business are bona fide and good and,
subject to an allowance for doubtful accounts taken in accordance with generally
accepted accounting principles applied on a basis consistent with prior years
are collectible without set-off or counterclaim.
7.27 The Vendor is resident in Canada within the meaning of the Income Tax
Act (Canada).
7.28 There are no outstanding work orders relating to the Purchased Assets
from or required by any police or fire department, sanitation, health or factory
authorities or from any
other federal, provincial or municipal authority or any matters under discussion
with any such departments or authorities relating to work orders.
7.29 The Vendor is not a party to or bound by any agreement of guarantee or
indemnification as it relates to the Purchased Business except pursuant to
purchase orders entered into in the ordinary course of the Purchased Business.
7.30 The Vendor shall deliver the June Financial Statements to the
Purchaser on or before July 15, 1998.
8. Covenants, Representations and Warranties of the Purchaser.
The Purchaser covenants and agrees with and represents and warrants as
follows to the Vendor and each of the Shareholders and acknowledges and confirms
that the Vendor and each of the Shareholders is relying on such covenants,
agreements, representations and warranties in connection with the sale by the
Vendor of the Purchased Assets:
8.1 The Purchaser is a corporation duly incorporated and organized and
validly subsisting in good standing under the laws of Ontario.
8.2 The Purchaser has full corporate power and capacity to execute, deliver
and perform this Agreement. All requisite corporate and other action has been
taken by the Board of Directors of the Purchaser to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transaction contemplated herein. This Agreement has been executed by duly
authorized officers of the Purchaser and constitutes a valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, subject to limitations with respect to enforcement imposed by law in
<PAGE>
-17-
connection with bankruptcy or similar proceedings and to the extent that
equitable remedies such as specific enforcement and injunction are in the
discretion of the court from which they are sought.
8.3 The Purchaser covenants and agrees that if the Vendor exercises the
rights attached to the Exchangeable Shares, whereby the Vendor elects to
exchange the Exchangeable Shares for ACT shares, the Purchaser shall forthwith
deliver to the Vendor , or cause ACT to deliver to the Vendor, such number of
shares of ACT's treasury stock as may be necessary to satisfy the requirements
of such exercise. The Purchaser represents and warrants that, other than the
filing of the Registration Statement in accordance with Section 10 hereof and
the filing of a Form 20 in each of Ontario and British Columbia, no consent of,
ruling by or filing with any securities regulatory authority will be required in
connection with the issue of the Exchangeable Shares nor in connection with the
conversion of the Exchangeable Shares into ACT shares and that such issue and
exchange and the issue of the ACT shares resulting from the exchange shall be in
compliance with all laws of Canada and the United States of America.
8.4 The Purchaser covenants and agrees as follows:
(a) that amounts collected by it in respect of the Account Receivables
will be applied to retire the oldest accounts receivable first;
(b) that it shall not, without the Vendor's consent, make any
accommodations in respect of past billings with customers of the Purchased
Business; and
(c) it shall apprise the Vendor of the status of the collection of the
Accounts Receivable and remit any monies owing every two (2) weeks.
8.5 The Purchaser covenants and agrees that it shall provide, or caused to
be provided, to the Vendor written notice, no later than 7 business days after
Closing, confirming that the Registration Statement has become effective.
9. Employment Covenants
(a) Effective immediately upon Closing, the Purchaser shall offer
employment to those employees listed on Schedule E at substantially
equivalent positions and responsibilities and at salaries and benefits no
less favourable than those listed on Schedule E. Effective immediately upon
Closing the Purchaser shall assume all liabilities, including without
limitation, severance and termination obligations (statutory or otherwise)
for those employees listed on Schedule E and shall further recognize each
such employee's prior years of service with the Vendor for the purposes of
calculating termination and severance obligations. In accordance with
Article 13 hereof, the Purchaser shall indemnify the Vendor for all
liabilities, claims and demands whatsoever made against the Vendor by those
employees listed on Schedule E after the Closing Date except that the
Vendor shall be fully responsible for all such claims made where such
claims arise in connection with any act or omission of the Vendor prior to
the Closing Date.
<PAGE>
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(b) The Purchaser and the Vendor acknowledge and agree that some or
all of the employees listed on Schedule E will be entitled to quarterly
bonuses payable in August, 1998. The Purchaser and the Vendor agree to pay
their respective pro rata share of such bonuses in conjunction with the
settlement of the Adjustments.
10. Covenants of ACT
10.1 ACT shall prepare and file with the Commission and use its best
efforts to cause to become effective within 30 days of the date of this
Agreement a shelf registration statement (as amended and in effect from time to
time, including the prospectus constituting a part thereof, the "Registration
Statement") on Form S-3 pursuant to Rule 415 under the Securities Act for the
resale of the ACT Shares, and shall use all reasonable efforts to maintain the
effectiveness of the Registration Statement for at least two years (or, if
earlier, until all of the ACT Shares have been sold pursuant to the Registration
Statement), subject to the limitations of Section 10.6 below. ACT shall also
prepare and file with the Commission such amendments and supplements to the
Registration
Statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of the ACT Shares as contemplated by this
Agreement.
10.2 ACT shall pay the legal and accounting fees and other expenses
incurred by ACT in connection with the Registration Statement, but the selling
shareholders shall be responsible for all brokers fees and expenses and similar
charges in connection with any sale of the ACT Shares, allocated among such
selling shareholders as may be mutually agreed by them.
10.3 (a) ACT agrees to indemnify and hold harmless the Vendor, each of
its officers and directors, and each person, if any, who controls the
Vendor within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities (or any actions
in respect thereof) including any of the foregoing incurred in connection
with settlement of any litigation, commenced or threatened arising out of
or based on any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or any violation
or alleged violation by ACT of the Securities Act or any other applicable
federal or state securities laws or rules or regulations promulgated
thereunder in connection with the sale of securities pursuant to the
Registration Statement, and will reimburse the Vendor and each such
officer, director or controlling person for any legal or other expenses
reasonably incurred in investigating, defending any such losses, claims,
damages, liabilities or actions; provided, however, that ACT will not be
liable in any such case to the extent that any such loss, claim, damage or
liability is caused by any such untrue statement or alleged untrue
statement or omission or alleged omission made therein based upon and in
conformity with information furnished in writing to ACT by the Vendor for
use in connection with the preparation thereof.
(b) The Vendor agrees to indemnify and hold harmless ACT, its
directors, its officers who sign the Registration Statement and any person
controlling ACT to the same extent as the foregoing indemnity from ACT to
<PAGE>
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the Vendor and its controlling persons, but only with reference to
information furnished in writing by or on behalf of the Vendor for use in
the Registration Statement.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to either paragraph (a) or (b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in
such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party
shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless
(i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii)
the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for
the fees and expenses of more than one separate firm (in addition to any
local counsel) for all such indemnified parties and that all such
reasonable fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by the Vendor in the case of parties
indemnified pursuant to paragraph (b) above and by ACT in the case of
parties indemnified pursuant to paragraph (a) above. The indemnifying party
shall not be liable for any settlement of any proceeding effected without
its written consent (which shall not be unreasonably withheld or delayed)
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability reasonably incurred by reason of
such settlement or judgment.
(d) If the indemnification provided for paragraphs (a) through (c) of
this Section 10.3 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages, liabilities, expenses or actions in respect thereof or referred to
therein, then each indemnifying party shall in lieu of indemnifying such
indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or actions in such proportion as appropriate to reflect the relative fault
of ACT and the Vendor, respectively, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities,
expenses or actions in respect thereof as well as any other relevant
equitable considerations, including the failure to give any notice under
paragraph (c). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact relates to information supplied by ACT, on the one hand, or
the Vendor, on the other, and to the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph were determined by pro rata
<PAGE>
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allocation or by any other method of allocation which did not take account
of the equitable considerations referred to above in this paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or actions in respect thereof, referred to
above in this paragraph, shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act), shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation.
10.4 The Vendor shall furnish to ACT such information regarding the Vendor,
the registrable securities held by it and the distribution proposed by it as ACT
may reasonably request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Article 10.
10.5 With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
registrable securities to the public without registration, ACT agrees to use its
best efforts to:
(a) Make public information available sufficient to satisfy the
conditions of paragraph (c) of Rule 144 under the Securities Act;
(b) File with the Commission in a timely manner all reports and other
documents required to be filed by ACT under the Securities Act and the
Securities Exchange Act of 1934, as amended;
(c) So long as the Vendor owns any of the ACT Shares, furnish to the
Vendor forthwith upon request a written statement by ACT as to its
compliance with the requirements of paragraph (a) and (b) above, a copy of
its most recent annual or quarterly report, and such other reports and
documents as shall have been filed with the Commission or otherwise made
available to its shareholders generally.
10.6 Notwithstanding the foregoing, the parties acknowledge that it may be
necessary for ACT to suspend or delay the effectiveness of the Registration
Statement or otherwise require that sales of ACT Shares under the Registration
Statement be suspended, because of material developments relating to the
business of ACT which have not yet been made public and which the board of
directors of ACT finds the announcement of which would be seriously detrimental
to ACT's ability to complete a pending acquisition or financing or would
otherwise materially and adversely affect a substantial financial or legal
interest of ACT. ACT agrees that, in such event, it will make all reasonable
efforts to effect the necessary public disclosure as promptly as is feasible in
light of its reasonable business interests, provided that ACT may not suspend or
delay the effectiveness of the Registration Statement more than once in any
twelve month period or for a period of longer than 45 days. If, on account of
the foregoing requirements of this Section 10, ACT would be required to effect,
or to maintain the effectiveness of, the Registration Statement at a time when
it determines that such action would not be in its best interests, it shall, in
lieu of effecting or maintaining such registration, offer to purchase the ACT
Shares which would otherwise be covered by such registration for a price,
payable in cash, equal to the closing price of such shares on the date they are
<PAGE>
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submitted to ACT for such purchase (duly endorsed for transfer or accompanied by
stock powers duly executed in blank, all in form reasonably satisfactory to
ACT). Such offer must remain in effect for a period of at least 30 days. If such
offer shall be made and if ACT shall be in compliance with its obligations
hereunder in respect of such offer, the obligations of ACT under this Section 10
shall be suspended for a period of 90 days following the date of commencement of
such offer.
11. Examination of Title
11.1 The Vendor shall forthwith make available to the Purchaser and its
directors, officers, auditors, counsel and other authorized representatives all
title documents, abstracts of title, deeds, leases, certificates of trade marks
and copyrights, contracts and agreements and other documents in its possession
or under its control relating to any of the Purchased Assets or the Purchased
Business, all of the foregoing to become the property of the Purchaser at the
Time of Closing, and the Vendor shall forthwith make available to the Purchaser
and its said authorized representatives for examination all books of account,
accounting records,documents, information and data relating to the Purchased
Business. The Vendor shall afford the Purchaser and its said authorized
representatives every reasonable opportunity to have access to and to inspect
the Purchased Assets, it being agreed that the exercise of any rights of access
or inspection by or on behalf of the Purchaser under this said section 11.1
shall not affect or mitigate the covenants, representations and warranties of
the Vendor hereunder which shall continue in full force and effect as provided
in Article 11 hereof, provided that if the Purchaser shall prior to the Time of
Closing ascertain or determine that any representation or warranty made by the
Vendor hereunder is inaccurate or incorrect, the Purchaser shall immediately
inform the Vendor in writing and shall either (a) waive such representation in
which case the sale and purchase contemplated hereby shall be closed and the
Purchaser shall have no claim against the Vendor whatsoever in respect of such
representation or (b) not close the transaction contemplated hereby in which
case all of the obligations of the parties hereto shall be at an end and neither
party shall have a claim against the other under any of the provisions hereof,
except that the provisions of paragraph 5.2(c) shall remain in full force and
effect.
11.2 At the Time of Closing on the Closing Date, the Vendor shall deliver
to the Purchaser all the documents referred to in Section 11.1, including all
books, records, books of account, lists of suppliers and customers of the Vendor
and all other documents, files, records and other data, financial or otherwise
relating to the Purchased Business, which documents, books and records shall
become the property of the Purchaser. The Purchaser agrees that it will preserve
the documents, books and records so delivered to it for a period of four years
from the Closing Date, or for such other period as is required by any applicable
law, and will permit the Vendor or its authorized representative(s) reasonable
access thereto in connection with the affairs of the Vendor relating to its tax
matters, but the Purchaser shall not be responsible or liable to the Vendor for
or as a result of any loss or destruction of or damage to any such documents,
books or records.
12. Closing Arrangements.
At or before the Time of Closing on the Closing Date the Vendor and
Purchaser, as the case may be, shall do the following:
<PAGE>
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12.1 The Vendor shall deliver to the Purchaser all necessary deeds,
conveyances, bills of sale, assurances, transfers, assignments and consents, any
other documents necessary or reasonably required effectively to transfer the
Purchased Assets to the Purchaser with a good and marketable title, free and
clear of all mortgages, liens, charges, pledges, claims, security interests or
encumbrances whatsoever.
12.2 The Vendor shall use its best efforts to obtain, prior to closing,
consents from the landlords under the Leases described in Schedule B hereto, if
such consents are so required under the Leases, in order to properly assign all
of the Vendor's interests thereunder to the Purchaser. In the event that the
Vendor is unable to obtain the consents from landlords for the assignment of the
Leases set forth in Schedule B on the Closing Date, the Vendor shall
obtain such consents forthwith after the Closing Date. In such event the Vendor
shall remain the tenant under any such Lease and the Purchaser shall be entitled
to occupy the subject premises of any such Lease.
12.3 The Vendor shall obtain consents from all contracting parties other
than the Vendor to all contracts, engagements or commitments referred to in
Schedule C, either oral or written, if such consents are so required under the
contracts in order to properly assign all of the Vendor's interests thereunder
to the Purchaser.
12.4 The Vendor shall deliver actual possession of the Purchased Assets to
the Purchaser.
12.5 The Vendor and the Purchaser shall execute an election as to the sale
of accounts receivable under Section 22 of the Income Tax Act (Canada).
12.6 The Vendor and the Purchaser shall jointly execute and file the
applicable election form pursuant to Section 167 of the Excise Tax Act, Canada
at or before the Closing Date.
12.7 The Vendor, each of the Shareholders, and, David Lough, Douglas
Moseley and David Rennie, shall deliver an executed copy of the Non-Competition
Agreement, in the form attached hereto as Schedule N, to the Purchaser.
12.8 The Vendor and the Purchaser shall jointly execute and file the
applicable election form pursuant to subsection 85(1) of the Income Tax Act
(Canada), and within the time prescribed within Section 85(6) of such Act, that
the proceeds of disposition to the Vendor, and the cost of acquisition to the
Purchaser, of the Purchased Assets will be equal to the following:
(a) in the case of depreciable assets, the undepreciated capital cost
(as such term is defined in the Income Tax Act (Canada)) of those Purchased
Assets to the Vendor, determined immediately prior to the Time of Closing;
and
(b) in the case of goodwill, an amount equal to 4/3 of the cumulative
eligible capital amount (as such term is defined by the Income Tax Act
(Canada)) to the Vendor, determined immediately prior to the Time of
Closing.
<PAGE>
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12.9 The Vendor shall take or cause to be taken all necessary or desirable
actions, steps and corporate proceedings to approve or authorize validly and
effectively the transfer of the Purchased Assets to the Purchaser and the
execution and delivery of this agreement and other agreements and documents
contemplated hereby.
12.10 The Vendor shall deliver to the Purchaser a favourable opinion of the
Vendor's counsel in form satisfactory to counsel for the Purchaser:
(a) that the Vendor is a corporation duly incorporated and organized
and validly subsisting in good standing under the laws of Canada; that it
has the corporate power to own its property and to carry on the Purchased
Business as now being conducted by it; that it is duly qualified as a
corporation to do business and is in good standing in each jurisdiction in
which the nature of the Purchased Business or the Purchased Assets makes
such qualification necessary;
(b) that all necessary corporate action and proceedings have been
taken to permit the due and valid transfer of the Purchased Assets at the
Time of Closing from the Vendor to the Purchaser;
(c) that, to the best of the knowledge of such counsel, the
consummation of the transaction of purchase and sale contemplated by this
agreement will not result in a breach of any term or provision of or
constitute a default under any agreement, instrument, licence, permit or
understanding to which the Vendor is a party or by which it is bound in
connection with the Purchased Business, including the leases described in
Schedule B hereto and the contracts, engagements or commitments referred to
in Section C and Schedule H hereto, nor will the consummation of such
transaction accelerate any commitment or obligation of the Vendor or result
in the creation of any mortgage, charge, lien, pledge, claim or security
interest or encumbrance upon any of the Purchased Assets;
(d) that the execution and delivery of this agreement by the Vendor
has not breached and the consummation of the transaction of purchase and
sale contemplated by this agreement will not be in breach of any federal or
provincial law or laws of any other jurisdiction in which the Purchased
Business is carried on;
(e) that the Vendor is not engaged in and, to the best of the
knowledge of such counsel, has not been threatened with, any legal action
or other proceedings, and has not been charged with, or to the best of the
knowledge of such counsel, incurred, any violation of any federal,
provincial or local law or administrative regulation, which could
materially adversely affect or impair the Purchased Business, Purchased
Assets or the financial position or prospects of the Purchased Business;
<PAGE>
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(f) that no consent, authorization, licence, franchise, permit,
approval or order of any court or governmental agency or body is required
for the acquisition by the Purchaser of the Purchased Assets; and
(g) as to such other matters incident to the matters herein
contemplated as the Purchaser and its counsel may reasonably request.
12.11 The Vendor shall deliver to the Purchaser a certificate made by the
President and the Secretary of the Vendor under its corporate seal certifying
that as of the Closing Date all of the matters set out in the sections of
Article 12 relating to the Vendor shall have been complied with.
12.12 The Vendor and each of the Shareholders shall furnish the Purchaser
with evidence satisfactory to the Purchaser that the facts with respect to each
of the matters dealt with in each of the section of Article 7 are as set out
therein, provided that the receipt of such evidence and the closing of the
transaction of purchase and sale herein provided for shall not be a waiver of
the covenants, representations and warranties contained in Article 7, which
representations and warranties shall continue in full force and effect as
provided in Article 13.
12.13 The Vendor shall continue to maintain in full force and effect all
policies of insurance now in effect or renewals thereof up until the time of
Closing.
12.14 The Vendor shall furnish the Purchaser with evidence satisfactory to
counsel for the Purchaser that the Vendor has given notice of the proposed
purchase and sale of the Purchased Assets herein to 403805, that 403805 has
chosen not to exercise the B.C. Tel Right of First Refusal and that 403805 has
no further right, interest or option of any kind whatsoever in respect of the
Purchased Assets except if the transaction of purchase and sale referred to
herein has not been completed before August 13, 1998.
12.15 The Vendor shall furnish the Purchaser with evidence (including a
statutory declaration of duly authorized officers of the Vendor) satisfactory to
counsel for the Purchaser that the Vendor is a resident of Canada within the
meaning of the Income Tax Act (Canada).
12.16 The purchase and sale of the Purchased Assets shall have been duly
authorized and approved by a resolution passed by the directors of the Vendor
and the Purchaser and a copy of such resolutions certified by an officer or
director of the Vendor and the Purchaser, as the case may be, shall have been
delivered to each of the Vendor and the Purchaser, as the case may be.
12.17 All documents or copies thereof required to be delivered to the
Purchaser shall have been so delivered, including the Scheduled agreements and
contracts described herein.
12.18 The Vendor shall use its best efforts to preserve intact the
Purchased Business and keep available to the Purchaser the services of the
present executives, employees and agents and will use its best efforts to
preserve for the Purchaser the goodwill of suppliers, customers and others
having business relations with the Vendor.
<PAGE>
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12.19 The Purchaser shall deliver to the Vendor either:
(a) share certificates for the such number of Exchangeable Shares as
is determined pursuant to Section 5.1; or
(b) the Cash Consideration.
12.20 The Purchaser shall take or cause to be taken all necessary or
desirable actions, steps and corporate proceedings to:
(a) approve or authorize, inter alia, the issuance of the Exchangeable
Shares and the execution and delivery of this Agreement and other
agreements and documents contemplated hereby;
(b) to deliver the Exchangeable Shares in compliance with the
Securities Act (Ontario).
12.21 The Purchaser shall deliver to the Vendor a certificate made by the
President of the Vendor under its corporate seal certifying that as of the
Closing Date all of the matters set out in Article 12 relating to the Purchaser
shall have been complied with and that the provisions relating to the
Exchangeable Shares as set out in Schedule M are validly existing as at the
Closing Date and that no steps have been taken to alter such provisions.
12.22 All documents or copies hereof required to be delivered to the Vendor
shall have been so delivered, including the Scheduled agreements and contracts
described herein.
12.23 The Purchaser shall deliver to the Vendor a favourable opinion of the
Purchaser's counsel in form satisfactory to counsel for the Vendor as to such
matters incident to the matters herein contemplated as the Vendor and its
counsel may reasonably request, including the form of all papers and documents
and the validity of all proceedings.
13. Survival of Covenants, Representation and Warranties and Indemnities
13.1 The covenants, representations and warranties of the Vendor, the
Shareholders and the Purchaser contained in this Agreement and contained in
certificates or documents submitted pursuant to or in connection with the
transactions herein provided for shall survive the closing of the purchase and
sale of the Purchased Assets for two (2) years from the Closing Date and,
notwithstanding such closing, and regardless of any investigation by or on
behalf of the Purchaser with respect thereto, shall continue in full force and
effect for the benefit of the Purchaser, the Vendor and the Shareholders, as the
case may be. On the second anniversary of the Closing Date, if no claim shall
have been made by the Purchaser or on the sixth anniversary of the Closing Date
if no claim has been made by a third party in respect of which the Purchaser
seeks indemnification from the Vendor, then the obligations of the Vendor under
this Agreement to indemnify the Purchaser shall cease; provided that the
foregoing provisions shall not apply in respect of any claim by the Purchaser
which is received by the Vendor on or before such dates.
<PAGE>
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13.2 (a) The Vendors and each of the Shareholders will jointly and
severally indemnify the Purchaser and hold it harmless from and against all
losses which are incurred or suffered by it:
(i) by reason of the breach of any of the representations or
warranties made by the Vendor or any of the Shareholders herein;
or
(ii) by reason of the failure by either the Vendor or any of the
Shareholders to conform or comply with any of the covenants or
agreements contained herein to be performed or complied with by
either the Vendor or the Shareholders.
Except as otherwise provided, any recovery by the Purchaser for
indemnification shall be limited as follows:
(A) the Purchaser will not be entitled to any recovery unless a
claim for indemnification is made in accordance with
paragraph (c)(i) of this Section 13.2.
(B) the Purchaser will not be entitled to recover any amount for
indemnification claims under subsection (i) of this Section
13.2(a) unless and until the amount which the Purchaser is
entitled to recover in respect of such claims exceeds, in
the aggregate $15,000, in which event the entire amount
which the Purchaser is entitled to recover in respect of
such claims will be payable.
(b) the Purchaser will indemnify the Vendor and the Shareholders and
hold each of them harmless from and against all losses which are incurred
or suffered by either of them:
(A) by reason of the breach of any of the representations or
warranties made by the Purchaser herein; or
(B) by reason of the failure by the Purchaser to perform or
comply with any of the covenants or agreements contained
herein to be performed or complied with by the Purchaser;
Except as otherwise provided, any recovery by the Vendor and the
Shareholders for indemnification shall be limited as follows;
(A) the Vendors and the Shareholders will not be entitled to any
recovery unless a claim for indemnification is made in
accordance with paragraph (c)(i) of this Section 13.2;
(B) neither the Vendors nor the Shareholders will not be
entitled to recover any amount for indemnification claims
<PAGE>
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undersubsection (i) of this Section 13.2 unless and
until the amount which the Vendors and the Shareholders and
their affiliates are entitled to recover in respect of such
claims exceeds, in the aggregate, $15,000 in which event the
entire amount which the Vendor and the Shareholders are
entitled to recover in respect of such claims shall be
payable.
(c) (i) If any party shall incur or suffer any loss in
respect of which indemnification may be sought by such
party pursuant to the provisions of this Section 13.2,
the party seeking to be indemnified hereunder (the
"Indemnitee") will assert a claim for indemnification
by written notice (a "Notice") to the party from whom
indemnification is sought (the "Indemnitor") stating
the nature and basis of such claim. In the case of
losses arising by reason of any third party claim, the
Notice will be given within 30 days of the filing or
other written assertion of any such claim against the
Indemnitee, but the failure of the Indemnitee to give
the Notice within such time period will not relieve the
Indemnitor of any liability that the Indemnitor may
have to Indemnitee except to the extent that the
Indemnitor is prejudiced thereby.
(ii) The Indemnitee will provide to the Indemnitor on request all
information and documentation reasonably necessary to
support and verify any losses which the Indemnitee believes
give rise to a claim for indemnification hereunder and will
give the Indemnitor reasonable access to all books, records
and personnel in the possession or under the control of the
Indemnitee which would have bearing on such claim.
(iii)In the case of third party claims for which
indemnification is sought, the Indemnitor will have the
option (a) to conduct any proceedings or negotiations in
connection therewith, (b) to take all other steps to settle
or defend any such claim (provided that the Indemnitor will
not settle any such claim without the consent of the
Indemnitee (which consent will not be unreasonably
withheld)) and (c) to employ counsel to contest any such
claim or liability in the name of the Indemnitee or
otherwise. In any event, the Indemnitee will be entitled to
participate at its own expense and by its own counsel in any
proceedings relating to any third party claim. The
Indemnitor will, within ten days of receipt of the Notice,
notify the Indemnitee of its intention to assume the defence
of such claim. Until the Indemnitee has received notice of
the Indemnitor's election whether to defend any claim, the
Indemnitee will take reasonable steps to defend (but may not
settle) such claim. If the Indemnitor declines to assume the
defense of any such claim, or fails to notify the Indemnitee
within fourteen (14) days after receipt of the Notice of the
Indemnitor's election to defend such claim, the Indemnitee
will defend against such claim (provided that the Indemnitee
will not settle such claim without the consent of the
Indemnitor (which consent will not be unreasonably
withheld)). The expenses of all proceedings, contests or
<PAGE>
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lawsuits in respect of such claims will be borne by the
Indemnitor but only if the Indemnitor is responsible
pursuant hereto to indemnify the Indemnitee in respect of
the third party claim, if applicable, only to the extent
required by Section 13.2(a).
Regardless of which party assumes the defense of the claim,
the parties agree to cooperate fully with one another in
connection therewith. In the case of a claim for
indemnification made under Sections 13.2 (a)(i) and 13.2
(b)(i),
A. if (and to the extent) the Indemnitor is responsible
pursuant hereto to indemnify the Indemnitee in respect
of the third party claim, then within ten days after
the occurrence of a final non- appealable determination
with respect to such third party claim, the Indemnitor
will pay the Indemnitee, in immediately available
funds, the amount of any losses (or such portion
thereof as the Indemnitor will be responsible for
pursuant to the provisions hereof, including, without
limitation, Sections 13.2(a)(ii)(B) and 13.2(b)(ii)(B),
and
B. in the event that any losses incurred by the Indemnitee
do not involve payment by the Indemnitee of a third
party claim, then, if (and to the extent) the
Indemnitor is responsible pursuant thereto to indemnify
the Indemnitee against such losses, the Indemnitor will
within ten days after agreement on the amount of losses
or the occurrence of a final non-appealable
determination of such amount pay to the Indemnitee, in
immediately available funds, the amount of such losses
(or such portion thereof as the Indemnitor shall be
responsible for pursuant to the provisions hereof,
including, without limitation, Sections 13.2(a)(ii)(B)
and 13.2(b)(ii)(B)).
(d) The provisions of paragraph (c) of this Section 13.2 shall apply
to all claims for indemnification hereunder, save and except for matters
referred to in Article 10 hereof.
14. Conditions of Closing in Favour of the Purchaser
The sale and purchase of the Purchased Assets is subject to the following
terms and conditions for the exclusive benefit of the Purchaser to be fulfilled
and/or performed at or prior to the Time of Closing:
14.1 The covenants, representations and warranties of the Vendor and each
of the Shareholders to the Purchaser contained in this agreement and Schedules
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hereto shall be true and correct at the Time of Closing on the Closing Date with
the same force and effect as if such covenants, representations and warranties
were made at and as of such time and the Vendor and the Shareholders shall each
deliver to the Purchaser at the Time of Closing on the Closing Date a
certificate to such effect, in the case of the Vendor under its corporate seal
duly executed by its President, provided that the receipt of such evidence and
the closing of the transaction of purchase and sale herein provided for shall
not be nor be deemed to be a waiver of the covenants, representations and
warranties contained in this Agreement and Schedules hereto, which covenants,
representations and warranties shall continue in full force and effect for the
benefit of the Purchaser as provided in Article 13 hereof.
14.2 All of the terms, covenants and conditions of this agreement to be
complied with or performed by the Vendor and the Shareholders at or before the
Closing Date shall have been complied with or performed.
14.3 As at the Time of Closing on the Closing Date, the Vendor shall
beneficially own, possess and have a good and marketable title to the Purchased
Assets, free and clear of any and all mortgages, pledges, liens, charges,
claims, rights, demands, restrictions, security interests or encumbrances of any
kind whatsoever.
14.4 There shall have been obtained from all appropriate federal,
provincial, municipal or other governmental or administrative bodies such
approvals or consents as are required to permit the change of ownership of the
Purchased Assets contemplated hereby.
14.5 No action or proceeding in Canada by law or in equity shall be pending
or threatened by any person, firm, company, government, governmental authority,
regulatory body or agency to enjoin, restrict or prohibit:
(a) the purchase and sale of the Purchased Assets contemplated hereby,
or
(b) the right of the Purchaser to conduct the Purchased Business.
14.6 The execution and delivery of this agreement shall have been duly
authorized by all necessary corporate action on behalf of the Vendor.
14.7 The sale of the Purchased Assets shall have been duly authorized and
approved by a resolution passed by the directors of the Vendor and confirmed,
without variation, by the shareholders of the Vendor and a copy of such
resolution certified by the Secretary of the Vendor shall have been delivered to
the Purchaser.
14.8 All documents or copies thereof required to be delivered to the
Purchaser shall have been so delivered, including the scheduled agreements and
contracts described in the schedules hereto.
14.9 No substantial damage by fire or other hazard to the Purchased Assets
shall have occurred from the date hereof to the Time of Closing.
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14.10 During the Interim Period the Vendor shall have carried on the
Purchased Business in the ordinary and normal course of business, except for the
restrictions imposed by this Agreement.
14.11 The Purchaser shall be satisfied that it will be entitled to carry on
the Purchased Business without being in breach of any applicable zoning or other
municipal or governmental restrictions.
14.12 The Call Notice of ACT dated the 30th day of June, 1998 to Montreal
Trust Company of Canada is in full force and effect at the Time of Closing.
In case any condition, obligation or covenant of the Vendor and each of the
Shareholders to be performed prior to the Time of Closing shall not have been
performed prior to the Time of Closing, the Purchaser may terminate this
agreement by notice in writing to the Vendor and in such event the Purchaser
shall be released from all obligations hereunder and the Vendor shall also be
released from all obligations hereunder; provided, however, that the Purchaser
shall be entitled to waive compliance with any of such conditions, obligations
or covenants in whole or in part if it sees fit to do so without prejudice to
any of its rights of termination in the event of non-performance of any other
condition, obligation or covenant in whole or in part.
15. Conditions of Closing in Favour of the Vendor and each of the Shareholders
The sale and purchase of the Purchased Assets is subject to the following
terms and conditions for the exclusive benefit of the Vendor and each of the
Shareholders to be fulfilled and/or performed at or prior to the Time of
Closing:
15.1 The covenants, representations and warranties of the Purchaser to the
Vendor and each of the Shareholders contained in this agreement and Schedules
hereto shall be true and correct at the Time of Closing on the Closing Date with
the same force and effect as if such covenants, representations and warranties
were made at and as of such time and the Purchaser shall deliver to the Vendor
and each of the Shareholders at the Time of Closing on the Closing Date its
certificate under its corporate seal duly executed by its President, to such
effect; provided that the receipt of such evidence and the closing of the
transaction of purchase and sale herein provided for shall not be nor be deemed
to be a waiver of the covenants, representations and warranties contained in
this Agreement and Schedules hereto, which covenants, representations and
warranties shall continue in full force and effect for the benefit of the Vendor
as provided in Article 13 hereof.
15.2 All of the terms, covenants and conditions of this agreement to be
complied with or performed by the Purchaser and ACT at or before the Closing
Date shall have been complied with or performed.
15.3 The Exchangeable Shares shall be convertible immediately into "free
trading" ACT Shares at the Time of Closing.
<PAGE>
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15.4 The ACT Shares have not been delisted or suspended from trading on
NASDAQ.
In case any condition, obligation or covenant of the Purchaser to be
performed prior to the Time of Closing shall not have been performed prior to
the Time of Closing, the Vendor may terminate this agreement by notice in
writing to the Purchaser and in such event the Vendor shall be released from all
obligations hereunder and the Purchaser shall also be released from all
obligations hereunder; provided, however, that the Vendor shall be entitled to
waive compliance with any of such conditions, obligations or covenants in whole
or in part if it sees fit to do so without prejudice to any of its rights of
termination in the event of non-performance of any other condition, obligation
or covenant in whole or in part.
16. Closing Date and Transfer of Possession
16.1 Subject to compliance with the terms and conditions hereof, the
transfer of possession of the Purchased Assets shall be deemed to take effect as
at the close of business on the Closing Date. During the Interim Period the
Purchased Assets shall be held and the Purchased Business shall be managed and
operated by the Vendor in the ordinary course of business.
16.2 The closing shall take place at the Time of Closing on the Closing
Date simultaneously at the offices of Meighen Demers, 200 King Street West,
Suite 1100, Toronto, Ontario M5H 3T4, and Mr. Carl J. Pines, Pines, McIntyre &
Shrieves, 1950-1177 West Hastings Street, Vancouver, British Columbia V6E 2K3
unless otherwise agreed to by the parties hereto.
16.3 From time to time subsequent to the Closing Date, the Vendor shall at
the request and expense of the Purchaser execute and deliver such additional
conveyances, transfers and other assurances as may, in the opinion of counsel
for the Purchaser, be reasonably required effectually to carry out the intent of
this agreement and to transfer the Purchased Assets to the Purchaser.
17. Risk of Loss
17.1 From the date hereof up to the Time of Closing, the Purchased Assets
shall be and remain at the risk of the Vendor. If, prior to the Time of Closing,
all or any part of the Purchased Assets are destroyed or damaged by fire or any
other casualty or shall be appropriated, expropriated or seized by governmental
or other lawful authority, the Purchaser shall have the option, exercisable by
notice in writing given within four business days of the Purchaser receiving
notice in writing from the Vendor of such destruction, damage, expropriation or
seizure:
(a) to reduce the Purchase Price by an amount equal to the cost of
repair, or, if destroyed or damaged beyond repair, by an amount equal to
the replacement cost of the assets forming part of the Purchased Assets so
damaged or destroyed and to complete the purchase; or
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(b) to complete the purchase without reduction of the Purchase Price,
in which event all proceeds of an insurance or compensation for
expropriation or seizure shall be payable to the Purchaser and all right
and claim of the Vendor to any such amounts not paid by the Closing Date
shall be assigned to the Purchaser; or
(c) of cancelling this agreement and not completing the purchase, in
which case all obligations of the Purchaser shall terminate forthwith upon
the Purchaser giving notice as required herein.
18. Notice
All notices, consents, requests, instructions, approvals and other
communications provided for herein and all legal process with respect thereto
shall be validly made, given or served, if in writing and delivered personally
or by facsimile service or by registered mail, postage prepaid to the parties at
the following addresses:
(a) in the case of the Vendor to:
Western Inbound Network Inc.
Suite 1750
1500 West Georgia Street
Vancouver BC V6G 2Z6
Fax: (604) 689-7667
Attention: David N. Rennie
with a copy to:
Mr. Carl J. Pines
Pines, McIntyre & Shrieves
1950-1177 West Hastings Street
Vancouver, British Columbia V6E 2K3
Fax: (604) 688-1409
Attention: Carl J. Pines
(b) in the case of the Purchaser to:
CommStar Ltd.
Suite 1108
555 Richmond Street West
Toronto, Ontario M5V 3B1
<PAGE>
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Fax: (416) 504-8884
Attention: Donald H. Swift
Chairman & CEO
with a copy to:
Meighen Demers
Barristers & Solicitors
Suite 1100, Box 11
Merrill Lynch Canada Tower
200 King Street West
Toronto, Ontario M5H 3T4
Fax (416) 977-5239
Attention: Richard S. Sutin
(c) in the case of ACT to:
400 Royal Palm Way
Suite 410
Palm Beach, Florida
33480
Fax: (561) 366-0002
Attention: Garrett A. Sullivan,
President
With a copy to:
Bryan Cave LL.P.
One Metropolitan Square
Suite 3600
St. Louis, MO 63102
Fax: (314) 259-2020
Attention: Llewelyn Sale III
or to such address as any party hereto may, from time to time, designate by
written notice, delivered in like manner. Any notice or communication if
given by personal delivery shall be deemed to have been received at the
time it is delivered, or if given by facsimile, shall be deemed to have
been made or delivered when dispatched and an appropriate verbal or written
confirmation of receipt is received. Notice given by mail as set out above
shall be deemed received on the fifth day following the date of mailing
<PAGE>
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thereof except in the event of a disruption in the postal services at the
date of mailing, in which case notice shall be effected by personal
delivery or a facsimile transmission as stated above. Notices, consents,
requests, instructions, approvals and other communications may be signed by
any officer of any party hereto or by their respective legal counsel.
19. Entire Agreement
This Agreement, the Schedules hereto and the documents to be delivered and
the contracts to be executed pursuant hereto constitute the entire agreement of
the parties and replaces all previous agreements entered into between them and
no party shall be liable or bound to the other party hereto in any manner except
as specifically set forth herein or in other contracts or agreements executed
pursuant hereto, and this Agreement may not be orally amended, modified or
altered.
20. Governing Law
This Agreement shall be construed in accordance with and governed by the
laws of the Province of Ontario.
21. Binding Effect
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, personal representatives,
successors and assigns.
22. Assignment
No party may assign this Agreement without the prior written consent of the
other parties hereto.
23. Descriptive Headings
The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
24. Enforceability of Provisions
If any provisions of this Agreement or the application thereof to any
person or circumstance shall be invalid or unenforceable, then the remaining
provisions of this Agreement or the application of such provisions to persons or
circumstances other than those as to whom or which it is held invalid or
unenforceable, shall not be affected thereby, and every provision hereof shall
be valid and enforceable to the fullest extent permitted by law.
<PAGE>
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25. Plural, Singular, Gender
When the context in which the words are used in this Agreement indicates
that such is the intent, words in the singular number shall include the plural
and vice-versa. References to any gender shall include any other gender as may
be applicable under the circumstances.
26. Joint Work Product
The parties agree that this Agreement is a joint work product. In the event
of any ambiguity in this Agreement, no inference will be drawn against any
party, including the party that drafted this Agreement in its final form.
27. Time of the Essence
Time shall be of the essence of this Agreement.
28. Commissions, etc.
It is understood and agreed that no broker, agent or other intermediary
acted for the Vendor in connection with the sale of the Purchased Assets and the
Vendor agrees to indemnify and save harmless the Purchaser from and against any
claims whatsoever for any commission or other remuneration payable to any
broker, agent or other intermediary who has acted for the Vendor.
29. Public Announcements
No public announcement or press release concerning the purchase and sale of
the Purchased Assets shall be made by the Vendor or the Purchaser without the
consent and joint approval of the Vendor and the Purchaser.
30. Successors and Assigns
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
31. Further Assurances
The Vendor and the Purchaser shall, from time to time after the Closing
Date, at the request and expense of the other, take or cause to be taken such
action and execute and deliver or cause to be executed and delivered to the
other such documents and further assurances as may be reasonable necessary to
give effect to this Agreement.
<PAGE>
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32. Counterparts
This Agreement may be executed in several counterparts, each of which so
executed shall be deemed to be an original, and such counterparts together shall
constitute but one and the same instrument.
33. Expenses
The Purchaser and the Vendor shall each bear its respective expenses
incurred in connection with the negotiation, preparation, and consummation of
the transaction contemplated herein.
IN WITNESS WHEREOF this agreement has been executed by the parties hereto
on the date first written above.
WESTERN INBOUND NETWORK INC.
Per:
Per: /s/ David N. Rennie
-------------------
COMMSTAR LTD.
Per: /s/ Donald H. Swift
-------------------
Per:
APPLIED CELLULAR TECHNOLOGY , INC.
Per: /s/ David A. Loppert
--------------------
David A. Loppert
Vice President, Chief Financial
Officer
Per:
<PAGE>
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3189309 CANADA INC.
Per:
Per: /s/ David N. Rennie
-------------------
3189287 CANADA INC.,
Per: /s/ Douglas Lough
-----------------
Per:
3189295 CANADA INC.,
Per: /s/ Douglas Moseley
-------------------
Per:
3132455 CANADA INC.
Per: /s/ Joan Lough
--------------
Per:
