Registration No. 333-57613
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
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 410
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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Amending the Prospectus, adding additional shares and adding exhibits
CALCULATION OF ADDITIONAL 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 (1) offering price per aggregate offering registration fee (3)
unit(2) price(2)
===================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share 3,417,580 shares 3.0625 $11,898,502 $3,510
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</TABLE>
(1) In the original filing, 3,273,518 shares were registered. By this
amendment, the registrant is adding 144,062 shares to the registration, for an
aggregate of 3,417,580 shares.
(2) Pursuant to Rule 457(b), 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 June 19, 1998 (in respect of the initial filing)
as reported on the Nasdaq National Market, and July 6, 1998 (in respect of the
shares added by this amendment) as reported on the Nasdaq National Market.
(3) An initial registration fee of $3,380 was paid at the time of the
original registration, and an additional $130 has been paid with respect to the
144,062 shares being added by this amendment, calculated as indicated in Note 2
above.
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 8, 1998
PRELIMINARY PROSPECTUS
3,417,580 Shares
Applied Cellular Technology
[LOGO OMITTED]
Common Stock
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This Prospectus relates to 3,417,580 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").
The Exchangeable Shares are to be issued by Commstar in exchange for common
shares of Commstar in connection with the combination of ACT and Commstar (the
"Combination"), as a result of which Commstar will become a wholly-owned
subsidiary of ACT. See "Plan of Distribution--The Combination" 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 set
forth in 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 June 19, 1998, the last reported sale price of the
ACT Common Stock on the Nasdaq National Market was $3.50 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.
<PAGE>
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); and
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.
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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<PAGE>
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
Risk Factors.............................4
The Company..............................6
Use Of Proceeds..........................6
Description Of ACT Capital Stock.........7
Plan Of Distribution.....................8
Canadian Tax Considerations.............10
United States Federal Tax Considerations14
Legal Matters...........................17
Experts.................................17
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<PAGE>
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 June 29, 1998, the Company had 28,755,387 shares of ACT Common Stock
outstanding. Since January 1, 1998, the Company has issued an aggregate of
8,082,964 shares of ACT Common Stock, of which 6,958,433 shares of ACT Common
Stock were issued in acquisitions, 850,000 shares of ACT Common Stock were
issued upon the exercise of warrants, 100,000 shares of ACT Common Stock were
sold to 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
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<PAGE>
million at December 31, 1996 and approximately $4.1 million at the end of 1995.
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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<PAGE>
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 seven additional acquisitions
of companies whose aggregate net revenues for 1997 were approximately $58.0
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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<PAGE>
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 ("ACT's
Articles of Incorporation") authorizes the issuance of up to 40,000,000 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. On June 13, 1998, the
stockholders of the Company approved an amendment to ACT's Articles of
Incorporation which when filed with the Missouri Secretary of State's office
will increase the number of shares of ACT Common Stock authorized for issuance
to 80,000,000.
As of June 29, 1998, there were outstanding 28,755,387 shares of ACT Common
Stock and 7,000 shares of Preferred Stock, par value $10 per share, redemption
value $100 per share.
As of June 29, 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, 1,145,000 are now exercisable at a weighted average
exercise price of $4.54 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
(through June 29, 1998) 4-7/8 3-1/8
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
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<PAGE>
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
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 has authorized the issuance of a single share
of ACT Special Voting Preferred Stock (the "Special Preferred Share"), which
will be issued to Montreal Trust Company of Canada (the "Voting Trustee") under
a Voting and Exchange Trust Agreement (the "Voting and Exchange Trust
Agreement") to be entered into among ACT, Commstar and the Voting Trustee in
connection with the Combination described below under "Plan of Distribution--The
Combination." 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 Combination
Pursuant to a Combination Agreement, effective as of May 15, 1998 (the
"Combination Agreement") between ACT and Commstar, ACT and Commstar will be
combined (the "Combination") and Commstar will become a wholly-owned subsidiary
of ACT. The outstanding common shares of Commstar will be exchanged for
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 a holder of ACT Common Stock.
The Combination has been approved by the holders of Commstar common shares
at a meeting held June 22, 1998, pursuant to a Notice of Meeting of Holders of
Common Shares and Management Information Circular dated May 18, 1998, (the
"Management Information Circular"), delivered to such holders pursuant to the
requirements of the Business Corporations Act (Ontario) (the "OBCA").
Exchangeable Shares
The Exchangeable Shares will be issued by Commstar in exchange for the
existing Commstar common shares pursuant to a plan of arrangement (the "Plan of
Arrangement") under section 182 of the OBCA, at the effective time of the
Combination. Thereafter, the Exchangeable Shares may be exchanged for an
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<PAGE>
equivalent number of shares of ACT Common Stock as described below and as
provided in 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 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 set out in the
Management Information Circular (a copy of the Retraction Request as included in
the Management Information Circular, and subsequently amended, is 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 the third anniversary of the Effective Date;
(ii) on a date specified by Commstar if less than 5% of the
Exchangeable Shares originally issued 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
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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,
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 Combination, 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.
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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
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
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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.
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 Combination, 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 Combination. 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,
although there can be no assurance that they will be able to do so or that their
intent will not change. After the Combination, Commstar will endeavor to notify
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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).
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
-16-
<PAGE>
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.
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.
-17-
<PAGE>
Exhibit A
NOTICE OF RETRACTION
TO: Commstar Ltd. (the "Corporation") and Applied Cellular Technology, Inc.
("Applied")
This notice is given pursuant to Article 5 of the provisions attaching to the
share(s) (the "Share Provisions") represented by this certificate and all
capitalized words and expressions used in this notice that are defined in the
Share Provisions have the meanings ascribed to such words and expressions in
such Share Provisions.
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) (
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.
-18-
<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 ........................... $ 3,510
Accounting Fees and Expenses.................... 2,500 *
Legal Fees and Expenses......................... 10,000 *
Miscellaneous Expenses.......................... 4,120 *
-----------
Total .............................. $ 20,130 *
===========
- -------------
* 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
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.
II-1
<PAGE>
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 Amendment to
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 2, 1998.
APPLIED CELLULAR TECHNOLOGY, INC.
By: /S/ DAVID A. LOPPERT
David A. Loppert, Vice President, Treasurer and
Chief Financial Officer
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
RICHARD J. SULLIVAN* Officer) July 2, 1998
- -------------------------
(Richard J. Sullivan)
President and Director (Principal
Operating Officer) July 1, 1998
GARRETT A. SULLIVAN*
- -------------------------
(Garrett A. Sullivan)
Vice President, Treasurer and Chief
Financial Officer (Principal
Accounting Officer) July 2, 1998
/S/ DAVID A. LOPPERT
- -------------------------
(David A. Loppert)
Director July 2, 1998
ANGELA M. SULLIVAN*
- -------------------------
(Angela M. Sullivan)
Director July 2, 1998
DANIEL E. PENNI*
- -------------------------
(Daniel E. Penni.)
Director July 2, 1998
ARTHUR F. NOTERMAN*
- -------------------------
(Arthur F. Noterman)
By: /S/ DAVID A. LOPPERT
---------------------
David A. Loppert
Attorney-in-Fact
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 Resolution of the Board of Directors of the Company setting forth the terms
of the Special Voting Preferred Stock.*
4.3 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.
99.2 Form of Voting and Exchange Trust Agreement among Applied Cellular
Technology, Inc., Commstar Ltd. and Montreal Trust Company of Canada
99.3 Form of Support Agreement between Applied Cellular Technology, Inc. and
Commstar Ltd.
_____________
* Previously filed.
II-4
MEIGHEN DEMERS LETTERHEAD
June 30, 1998
Commstar Ltd.
555 Richmond Street West
Suite 1108
Toronto, Ontario
M5J 3B1
Ladies and Gentlemen:
Registration Statement
We have acted as Canadian counsel to Commstar Ltd., a Canadian corporation
("Commstar"), in connection with the transaction contemplated in the Combination
Agreement, dated as of May 15, 1998 (the "Combination Agreement"), among
Commstar and Applied Cellular Technology, Inc. a Missouri corporation
("Applied"). Unless otherwise defined herein, capitalized terms used herein have
the respective meanings ascribed to those terms in the Combination Agreement.
In arriving at the opinion expressed below, we have examined and relied
upon the following documents:
(a) the Form S-3 Registration Statement as filed with the Securities and
Exchange Commission on June 24, 1998 (the "Registration Statement");
(b) the Combination Agreement, including the Exhibits thereto;
(c) the form of Voting and Exchange Trust Agreement between Applied,
Commstar and Montreal Trust Company of Canada;
(d) the form of Support Agreement between Applied and Commstar;
(e) the form of Plan of Arrangement of Commstar; and
(f) the form of Exchangeable Share Provisions.
<PAGE>
We have also read and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such records of Commstar and
Applied and such certificates and representations of officers and
representatives of Commstar and Applied, and we have made such investigations of
law, as we have deemed appropriate as a basis for the opinion expressed below.
In our examinations, we have assumed the authenticity of original documents, the
accuracy of copies and the genuineness of signatures. We understand and assume
that: (i) each agreement referred to in clauses (c) through (e) above will be
executed in the respective forms attached as an Exhibit to the Registration
Statement; (ii) each agreement referred to above or otherwise referred to in the
Registration Statement represents the valid and binding obligation of the
respective parties thereto, enforceable in accordance with its respective terms,
and the entire agreement between the parties with respect to the subject matter
thereof; (iii) the parties to each such agreement have complied, and will
comply, with all of their respective covenants, agreements and undertakings
contained therein; and (iv) the transactions provided for by each such agreement
or otherwise referred to in the Registration Statement were and will be carried
out in accordance with their terms.
Our opinion is based upon existing Canadian federal income tax laws,
regulations and judicial decisions and takes into account administrative
pronouncements and proposed amendments that have been publicly announced as at
the date hereof (the "Canadian Tax Laws"). No assurance can be provided that any
proposed amendments will be enacted in the manner proposed or at all. No
assurance can be provided as to the effect any legislative changes to the
Canadian Tax Laws might have on our opinion. We are solicitors qualified to
practice in the Province of Ontario, Canada and our opinion is limited to the
laws of such province and the laws of Canada (including the Canadian Tax Laws),
applicable therein. No advance income tax rulings have been sought or obtained
from Revenue Canada, Customs, Excise and Taxation ("Revenue Canada") and no
assurance can be given that Revenue Canada or any court of law would agree with
the opinion set forth herein.
We have advised Commstar in connection with the summary of Canadian federal
income tax consequences that appears in the Registration Statement under the
caption "Canadian Tax Considerations" and we confirm that, in our opinion, such
discussion describes the material Canadian federal income tax consequences of
the Arrangement and the ownership and disposition of Commstar Common Shares,
Exchangeable Shares and Applied Common Stock to a holder resident in Canada.
While such description discusses the material anticipated Canadian federal
income tax consequences applicable to certain holders resident in Canada and
holders not resident in Canada, it does not purport to discuss all Canadian
federal income tax consequences and our opinion is limited to those Canadian
federal income tax consequences specifically discussed therein.
We are furnishing this letter in our capacity as Canadian Counsel to
Commstar and this letter is solely for Commstar's benefit. This letter is not to
be used, circulated, quoted or otherwise referred to for any other purpose,
except as set forth below.
2
<PAGE>
We consent to the reference to our firm under the caption "Canadian Tax
Considerations" in the Registration Statement and we consent to the filing of
this opinion as an Exhibit to the Registration Statement. In giving this
consent, we do not thereby admit that we are within the category of person whose
consent is required to be filed with the Registration Statement under the
provisions of the United States Securities Act of 1933, as amended, or the rules
and regulations promulgated thereunder.
Yours truly,
/S/ Meighen Demers
MEIGHEN DEMERS
3
EXHIBIT 1
TO THE COMBINATION AGREEMENT
DATED THE 15th DAY OF MAY, 1998
BETWEEN APPLIED CELLULAR TECHNOLOGY, INC.
AND
COMMSTAR LTD.
PLAN OF ARRANGEMENT UNDER SECTION 182
OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
ARTICLE ONE
DEFINITIONS AND INTERPRETATION
Section 1.01 Definitions:
In this Plan of Arrangement, unless there is something in the subject
matter or context inconsistent therewith, the following capitalized words and
terms shall have the following meanings:
(a) "Applied" means Applied Cellular Technology, Inc.;
(b) "Applied Common Stock" means the common stock which Applied is
authorized to issue, as the same are constituted on the date hereof;
(c) "Arrangement" means the combination by way of arrangement of Applied
and Commstar pursuant to Section 182 of the OBCA on the terms and
conditions set forth in this Plan of Arrangement;
(d) "Combination Agreement" means the combination agreement dated the 15th
day of May, 1998 among Applied and Commstar to which this Plan of
Arrangement is attached as Exhibit 1;
(e) "Commstar" means Commstar Ltd.;
(f) "Commstar Common Shares" means the common shares which Commstar is
authorized to issue, as the same are constituted on the date hereof;
(g) "Court" means the Ontario Court of Justice (General Division):
<PAGE>
-2-
(h) "Depositary" means The Montreal Trust Company of Canada;
(i) "Effective Date" means the date set forth in the certificate of
arrangement issued by the Director to Commstar under the provisions of
the OBCA giving effect to the Arrangement;
(j) "Exchangeable Shares" means the exchangeable non-voting shares which
Commstar is authorized to issue from and after the Effective Date and
having the rights and privileges ascribed thereto as set forth in
Appendix "A" hereto;
(k) "Long Term Debt" at any particular time means long term debt of
Commstar as at such time, determined in accordance with Canadian
generally accepted accounting principles applied on a basis consistent
with the determination of long term debt for the purposes of preparing
the audited balance sheet of Commstar as at June 30, 1997, adjusted as
provided in clause 1.01(q);
(l) "New Common Shares" means the common shares which Commstar will be
authorized to issue from and after the Effective Date and having the
rights and privileges ascribed thereto as set forth in Appendix "A"
hereto;
(m) "NASDAQ" means the National Market of the National Association of
Securities Dealers Automated Quotation System;
(n) "OBCA" means the Business Corporations Act (Ontario), as amended;
(o) "Preferred Shares" means the preferred shares, issuable in series,
which Commstar will be authorized to issue from and after the
Effective Date and having the rights and privileges ascribed thereto
as set forth in Appendix "A" hereto;
(p) "Series A Preferred Share" means the one preferred share, series A
which Commstar will be authorized to issue from and after the
Effective Date and having the rights and privileges ascribed thereto
as set forth in Appendix "A" hereto; and
(q) "Working Capital" at any particular time means the current assets of
Commstar less the current liabilities of Commstar as at such time, all
determined in accordance with Canadian generally accepted accounting
principles applied on a basis consistent with the determination of
current assets and current liabilities for the purposes of preparing
the audited balance sheet of Commstar as at June 30, 1997; provided
that for such purposes all debenture receivables from Hutton (U.S.)
and ECI Industries shall be classified as current assets, the current
portion of any Long Term Debt shall be classified as long term debt
and not as current debt and any and all expenses incurred in
connection with the Arrangement shall be excluded from the
determination of Working Capital.
<PAGE>
-3-
Section 1.02 Interpretation Not Affected by Headings:
The division of this Plan of Arrangement into articles, sections,
subsections, paragraphs and subparagraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Plan of Arrangement. Unless otherwise specifically
indicated, the terms "this Plan of Arrangement", "hereof", "herein", "hereunder"
and similar expressions refer to this Plan of Arrangement as a whole and not to
any particular article, section, subsection, paragraph or subparagraph and
include any agreement or instrument supplementary or ancillary hereto.
Section 1.03 Number and Gender:
Unless the context otherwise requires, words importing the singular number only
shall include the plural and vice versa, words importing the use of either
gender shall include both genders and neuter and words importing persons shall
include firms and corporations.
Section 1.04 Meaning:
Words and phrases used herein and defined in the OBCA shall have the same
meaning herein as in the OBCA unless the context otherwise requires.
Words and phrases used herein and defined in the Exchangeable Share Provisions
attached as Appendix "A" hereto shall have the same meaning herein as in the
Exchangeable Share Provisions unless the context otherwise requires.
ARTICLE TWO
COMBINATION AGREEMENT
Section 2.01 Combination Agreement:
This Plan of Arrangement is made pursuant and subject to the provisions of
the Combination Agreement.
<PAGE>
-4-
ARTICLE THREE
AUTHORIZED CAPITAL
Section 3.01 Authorized Capital:
On and after the Effective Date Commstar shall be authorized to issue an
unlimited number of New Common Shares, an unlimited number of Exchangeable
Shares and Preferred Shares, issuable in series, including one Series A
Preferred Share. The attributes, rights and obligations of such shares are set
out in Appendix "A" hereto.
Section 3.02 Applied Liquidation Call Right
(a) Applied shall have the overriding right (the "Liquidation Call Right"), in
the event of and notwithstanding the proposed liquidation, dissolution or
winding-up of Commstar, to purchase from all but not less than all of the
holders (other than Applied) of Exchangeable Shares on the Liquidation Date
all but not less than all of the Exchangeable Shares held by each such
holder on payment by Applied of an amount, for each Exchangeable Share
held, equal to the Current Market Price of a share of Applied Common Stock
on the last Business Day prior to the Liquidation Date multiplied by the
Current Applied Common Stock Equivalent. The payment shall be satisfied in
full by causing to be delivered to such holder (a) such whole number of
shares of Applied Common Stock (rounded down to the nearest whole number)
as is equal to the amount obtained by multiplying the number of such
Exchangeable Shares to be transferred by the Current Applied Common Stock
Equivalent, plus (b) an additional amount in cash equivalent to the full
amount of all dividends declared and unpaid on such Exchangeable Shares
(collectively the "Liquidation Call Purchase Price") without interest. In
the event of the exercise of the Liquidation Call Right by Applied, each
holder of Exchangeable Shares shall be obligated to sell all the
Exchangeable Shares held by such holder to Applied on the Liquidation Date
on payment by Applied to such holder of the Liquidation Call Purchase
Price.
(b) To exercise the Liquidation Call Right, Applied must notify the Transfer
Agent in writing, as agent for the holders of Exchangeable Shares, and the
Corporation of Applied's intention to exercise such right at least 55 days
before the Liquidation Date in the case of a voluntary liquidation,
dissolution or winding up of the Corporation and at least five Business
Days before the Liquidation Date in the case of an involuntary liquidation,
dissolution or winding up of the Corporation. The Transfer Agent will
notify the holders of Exchangeable Shares as to whether or not Applied has
exercised the Liquidation Call Right forthwith after the expiry of the date
by which the same may be exercised by Applied. If Applied exercises the
Liquidation Call Right, on the Liquidation Date Applied will purchase and
the holders will sell all of the Exchangeable Shares then outstanding
(other than shares held by Applied) for a price equal to the Liquidation
Call Purchase Price.
<PAGE>
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(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, Applied shall deposit with the
Transfer Agent, on or before the Liquidation Date, certificates
representing the aggregate number of shares of Applied Common Stock
deliverable by Applied (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim) in payment of the total Liquidation
Call Purchase Price for all outstanding Exchangeable Shares and a cheque or
cheques in the amount of the remaining portion, if any, of the total
Liquidation Call Purchase Price for all outstanding Exchangeable Shares
without interest. Provided that the total Liquidation Call Purchase Price
for all outstanding Exchangeable Shares has been so deposited with the
Transfer Agent, on and after the Liquidation Date the rights of each holder
of Exchangeable Shares will be limited to receiving such holder's
proportionate part of the total Liquidation Call Purchase Price payable for
all outstanding Exchangeable Shares (other than shares held by Applied) by
Applied without interest upon presentation and surrender by the holder of
certificates representing all of the Exchangeable Shares held by such
holder and the holder shall on and after the Liquidation Date be considered
and deemed for all purposes to be the holder of the Applied Common Stock to
be delivered to it. Upon surrender to the Transfer Agent of a certificate
or certificates representing Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and the by-laws of the Corporation and
such additional documents and instruments as the Transfer Agent may
reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the
Transfer Agent on behalf of Applied shall deliver to such holder,
certificates representing the Applied Common Stock to which the holder is
entitled and a cheque or cheques of Applied payable at par and in Canadian
dollars at any branch of the bankers of Applied or of the Corporation in
Canada in payment of the remaining portion, if any, of the total
Liquidation Call Purchase Price for such holder's Exchangeable Shares. If
Applied does not exercise the Liquidation Call Right in the manner
described above, on the Liquidation Date the holders of the Exchangeable
Shares will be entitled to receive in exchange therefor the liquidation
price otherwise payable by the Corporation in connection with the
liquidation, dissolution or winding-up of the Corporation pursuant to
Article 4 of the Exchangeable Share Provisions.
Section 3.03 Applied Redemption Call Right
(a) Applied shall have the overriding right (the "Redemption Call Right"),
notwithstanding the proposed redemption of the Exchangeable Shares by the
Corporation pursuant to Article 6 of the Exchangeable Share Provisions, to
purchase from all but not less than all of the holders (other than Applied)
of Exchangeable Shares on the Automatic Redemption Date all but not less
than all of the Exchangeable Shares held by each such holder on payment by
Applied to the holder of an amount, for each Exchangeable Share held, equal
to the Current Market Price of a share of Applied Common Stock on the last
Business Day prior to the Automatic Redemption Date multiplied by the
Current Applied Common Stock Equivalent. The payment shall be satisfied in
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full by causing to be delivered to such holder (a)such whole number of
shares of Applied Common Stock (rounded down to the nearest whole number)
as is equal to the amount obtained by multiplying the number of such
Exchangeable Shares to be redeemed by the Current Applied Common Stock
Equivalent, plus (b) an additional amount in cash equivalent to the full
amount of all dividends declared and unpaid on such Exchangeable Shares
(collectively the "Redemption Call Purchase Price") without interest. In
the event of the exercise of the Redemption Call Right by Applied, each
holder of Exchangeable Shares shall be obligated to sell all the
Exchangeable Shares held by such holder to Applied on the Automatic
Redemption Date on payment by Applied to the holder of the Redemption Call
Purchase Price.
(b) To exercise the Redemption Call Right, Applied must notify the Transfer
Agent in writing, as agent for the holders of Exchangeable Shares, and the
Corporation of Applied's intention to exercise such right at least 125 days
before the Automatic Redemption Date. The Transfer Agent will notify the
holders of the Exchangeable Shares as to whether or not Applied has
exercised the Redemption Call Right forthwith after the date by which the
same may be exercised by Applied. If Applied exercises the Redemption Call
Right, on the Automatic Redemption Date Applied will purchase and the
holders will sell all of the Exchangeable Shares then outstanding (other
than shares held by Applied) for the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, Applied shall deposit with the
Transfer Agent, on or before the Automatic Redemption Date, certificates
representing the aggregate number of shares of Applied Common Stock
deliverable by Applied (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any liens) in payment of the
total Redemption Call Purchase Price for all outstanding Exchangeable
Shares and a cheque or cheques in the amount of the remaining portion, if
any, of the total Redemption Call Purchase Price for all outstanding
Exchangeable Shares. Provided that the total Redemption Call Purchase Price
for all outstanding Exchangeable Shares has been so deposited with the
Transfer Agent, on and after the Automatic Redemption Date the rights of
each holder of Exchangeable Shares will be limited to receiving such
holder's proportionate part of the total Redemption Call Purchase Price for
all outstanding Exchangeable Shares (other than shares held by Applied)
payable by Applied upon presentation and surrender by the holder of
certificates representing the Exchangeable Shares held by such holder and
the holder shall on and after the Automatic Redemption Date be considered
and deemed for all purposes to be the holder of the Applied Common Stock to
be delivered to such holder without interest. Upon surrender to the
Transfer Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the OBCA and the
by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of Applied shall deliver to such
holder, certificates representing the shares of Applied Common Stock to
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which the holder is entitled and a cheque or cheques of Applied payable at
par and in Canadian dollars at any branch of the bankers of Applied or of
the Corporation in payment of the remaining portion, if any, of the total
Redemption Call Purchase Price for such holders Exchangeable Shares. If
Applied does not exercise the Redemption Call Right in the manner described
above, on the Automatic Redemption Date the holders of the Exchangeable
Shares will be entitled to receive in exchange therefor the redemption
price otherwise payable by the Corporation in connection with the
redemption of the Exchangeable Shares pursuant to Article 6 of the
Exchangeable Share Provisions.
Section 3.04 Applied Retraction Call Right
(a) Applied shall have the overriding right (the "Retraction Call Right")
notwithstanding the proposed redemption of Retracted Shares by the
Corporation on the Retraction Date, to purchase from the holder of the
Retracted Shares on the Retraction Date all of the Retracted Shares upon
payment by Applied to the holder of a Retracted Share an amount for each
Retracted Share, equal to the Current Market Price multiplied by the
Current Applied Common Stock Equivalent, in each case determined on the
Retraction Date. The payment shall be satisfied in full in respect to such
Retracted Shares by causing to be delivered to the holder (a) such whole
number of shares of Applied Common Stock (rounded down to the nearest whole
number) as is equal to the amount obtained by multiplying the number of
Retracted Shares by the Current Applied Common Stock Equivalent, plus (b)
an additional amount in cash equivalent to the full amount of all dividends
declared and unpaid on such Retracted Shares (collectively, the "Retraction
Call Purchase Price") without interest. In the event of the exercise of the
Retraction Call Right by Applied, the holder of the Retracted Shares shall
be obligated to sell to Applied, and Applied shall be obligated to
purchase, the Retracted Shares on the Retraction Date upon payment by
Applied to such holder of the Retraction Call Purchase Price.
(b) In order to exercise the Retraction Call Right, Applied shall advise the
Transfer Agent in writing of its determination to do so (the "Applied Call
Notice") on or prior to the expiry of the fifth Business Day after the
receipt by the Transfer Agent of the Retraction Request. If Applied does
not so notify the Transfer Agent, the Transfer Agent will notify the holder
as soon as possible thereafter that Applied has waived the Retraction Call
Right. If Applied delivers the Applied Call Notice before the expiry of
such five Business Day period, the Retraction Request shall thereupon be
deemed only to be an offer by the holder to sell the Retracted Shares to
Applied. In such event, the Corporation shall not redeem the Retracted
Shares and Applied shall purchase from such holder and such holder shall
sell to Applied on the Retraction Date all of the Retracted Shares for the
Retraction Call Purchase Price.
(c) For the purposes of completing a purchase of the Retracted Shares pursuant
to the Retraction Call Right, Applied shall deposit with the Transfer
Agent, on or before the Retraction Date, certificates representing the
shares of Applied Common Stock to be delivered to each holder of the
Retracted Shares in payment of the total Retraction Call Purchase Price for
all of the Retracted Shares(or the portion thereof payable in Applied
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Common Stock, as the case may be) and a cheque in the amount of the
remaining portion, if any, of the total Retraction Call Purchase Price (or,
if any portion of the Retraction Call Purchase Price consists of dividends
payable in property, such property or property that is the same as or
economically equivalent to such property). Provided that such total
Retraction Call Purchase Price for all of the Retracted Shares has been so
deposited with the Transfer Agent, the closing of the purchase and sale of
the Retracted Shares pursuant to the Retraction Call Right shall be deemed
to have occurred as of the close of business on the Retraction Date and,
for greater certainty, no redemption by the Corporation of such Retracted
Shares shall take place on the Retraction Date. Applied shall cause the
Transfer Agent to deliver to the holder of the Retracted Shares, at the
address of such holder recorded in the securities register of the
Corporation for the Exchangeable Shares or at the address specified in the
holder's Retraction Request or by holding for pick-up by the holder at the
office of the Transfer Agent to which the Retraction Request was delivered,
in payment of such total Retraction Purchase Price for all of the Retracted
Shares, certificates representing the shares of Applied Common Stock to be
delivered in respect of such payment (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any liens)
registered in the name of the holder or in such other name as the holder
may request in payment of such and, if applicable, a cheque of Applied
payable at par and in Canadian dollars at any branch of the bankers of
Applied or the Corporation in Canada (or, if any part of the Retraction
Call Purchase Price consists of dividends payable in property, such
property or property that is the same as or economically equivalent to such
property), and such delivery of such certificates and cheque (and property,
if any) to the holder on behalf of Applied by the Transfer Agent shall be
deemed to be payment of and shall satisfy and discharge all liability for
the total Retraction Call Purchase Price for all of the Retracted Shares to
the extent that the same is represented by such share certificates and
cheque (and property, if any), unless such cheque is not paid on due
presentation. On and after the close of business on the Retraction Date,
the holder of the Retracted Shares shall cease to be a holder of such
Retracted Shares and shall not be entitled to exercise any of the rights of
a holder in respect thereof, other than the right to receive the Retraction
Call Purchase Price, unless upon presentation and surrender of certificates
in accordance with the foregoing provisions, payment of the total
Retraction Call Price shall not be made, in which case the rights of such
holder shall remain unaffected until the total Retraction Call Purchase
Price has been paid in the manner hereinbefore provided. On and after the
close of business on the Retraction Date, provided that presentation and
surrender of certificates and payment of the total Retraction Call Purchase
Price has been made in accordance with the foregoing provisions, the holder
of the Retracted Shares so purchased by Applied shall thereafter be
considered and deemed for all purposes to be a holder of the Applied Common
Stock delivered to such holder.
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ARTICLE FOUR
MANNER OF EXCHANGE OF SECURITIES
Section 4.01 Issue of Securities:
Contemporaneously on the Effective Date, the following transactions shall occur
or be deemed to have occurred:
(a) Commstar shall issue to Applied one Series A Preferred Share upon
payment of $0.01 therefor and Applied's name shall be added to the
list of holders of Series A Preferred Shares;
(b) Each issued and outstanding Commstar Common Share immediately prior to
the Effective Date shall be exchanged for Exchangeable Shares based on
the following formula:
A = B x C
-------
D x E
Where:
A = the number of Exchangeable Shares to which a holder of
Commstar Common Shares is entitled;
B = the number of Commstar Common Shares held by such holder;
C = $13,500,000 plus the amount, if any, by which $6,400,000
exceeds the Long Term Debt of Commstar as at May 31,
1998, less the amount, if any, by which $300,000 exceeds
the Working Capital of Commstar as at May 31, 1998.
D = the aggregate number of Commstar Common Shares outstanding
on the Effective Date; and
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E = the Canadian dollar equivalent of the weighted average
trading price of the Applied Common Shares for the 20
consecutive trading days on which NASDAQ is open for
business ending two days prior to the Effective Date.
For the purposes of this calculation, the Canadian dollar
equivalent is the product obtained by multiplying (a)
the U.S. dollar amount by (b) the noon spot exchange rate
on the Effective Date for U.S. dollars expressed in
Canadian dollars as reported by the Bank of Canada.
and the name of each holder shall be added to the register of holders of
Exchangeable Shares; and
(c) The Series A Preferred Share issued to Applied shall be converted into one
New Common Share and Applied's name shall be added to the list of holders
of New Common Shares.
Section 4.02 Stated Capital:
The stated capital attributable to the Exchangeable Shares shall be the lesser
of (a) the fair market value of the Exchangeable Shares as determined by the
Board of Directors of the Corporation; (b) the paid up capital of the Commstar
Common Shares for the purposes of the Income Tax Act (Canada) immediately prior
to the Effective Date. The stated capital attributable to the New Common Shares
will be equal to $0.01.
Section 4.03 Amendment to Exchange Formula
If there shall have been a material adverse change in Long-Term Debt or
Working Capital (defined as a change of $50,000 or more) as at the Effective
Date from that on May 31, 1998, without the prior consent of Applied or without
Applied agreeing to an amendment to the Exchange Formula, Applied shall have an
option to terminate the Arrangement or amend the Exchange Formula based on the
Long-Term Debt and Working Capital as at the Effective Date.
ARTICLE FIVE
SECURITY CERTIFICATES
Section 5.01 Security Certificates:
Following the Effective Date, certificates for the appropriate number of
Exchangeable Shares (rounded up or down to the nearest whole number) will be
issued to former holders of Commstar
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Common Shares in accordance with the provisions of Section 4.01 hereof
against surrender of the certificates representing the Commstar Common Shares to
the Depositary.
ARTICLE SIX
ARRANGEMENT AND EFFECT OF ARRANGEMENT
Section 6.01 Arrangement:
Applied and Commstar hereby agree to combine by way of Arrangement as of the
Effective Date pursuant to Section 182 of the OBCA on the terms set forth in
this Plan of Arrangement. The articles of Commstar shall be amended as of the
Effective Date to include the provisions of Appendix A hereto in order to set
forth the rights, privileges and conditions attaching to the classes of shares
of Commstar authorized pursuant to Article Three hereof.
Section 6.02 Effect of Arrangement:
As at and from 12:01 am. on the Effective Date the articles of arrangement shall
be deemed to be an amendment to the articles of incorporation of Commstar and
the certificate of arrangement shall be deemed to be a certificate of amendment
of the Corporation.
ARTICLE EIGHT
RIGHTS OF DISSENT
Section 7.01 Rights of Dissent:
Holders of Commstar Common Shares may exercise rights of dissent pursuant to and
in the manner set forth in Section 185 of the OBCA, a summary of which is
contained in the Management Information Circular of Commstar dated May 18, 1998.
<PAGE>
APPENDIX "A"
COMMSTAR LTD.
SHARE PROVISIONS
PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES
The Exchangeable Shares in the capital of Commstar Ltd. shall have the
following rights, privileges, restrictions and conditions.
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these share provisions:
"Affiliate" of any person means any other person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first-mentioned person; including, without
limitation, any partnership or joint venture in which the Corporation or
Applied, as the case may be, (either alone, or through or together with any
other subsidiary) has, directly or indirectly, an equity interest of 10 percent
or more;
"Applied" means Applied Cellular Technology, Inc., a corporation organized and
existing under the laws of the State of Missouri, and any successor corporation.
"Applied Call Notice" has the meaning ascribed thereto in the Plan of
Arrangement.
"Applied Common Stock Reorganization" has the meaning ascribed thereto in the
definition of "Current Applied Common Stock Equivalent" in Section 1.1 of these
share provisions.
"Applied Common Stock" means the common stock of Applied, with a par value of
U.S.$.001 per share and having one vote per share, and any other securities into
which such shares may be changed.
"Applied Dividend Declaration Date" means the date on which the Board of
Directors of Applied declares any dividend on the Applied Common Stock.
"Applied Special Share" means the one share of the Special Voting Preferred
Stock of Applied with a par value of U.S.$10.00 and having voting rights at
meetings of holders of shares of Applied Common Stock equal to the number of
Exchangeable Shares outstanding from time to time (other than Exchangeable
Shares held by Applied) to be issued to, and voted by, the Trustee pursuant to
the Voting and Exchange Trust Agreement.
"Automatic Redemption Date" means the date for the automatic redemption by the
Corporation of Exchangeable Shares pursuant to Article 6 of these share
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provisions, which date shall be the first to occur of (a) the 3rd anniversary of
the Effective Date of the Arrangement, (b) the date selected by the Board of
Directors at any time when less than 5% of the Exchangeable Shares issued on the
Effective Date are outstanding (other than Exchangeable Shares held by Applied
and its Affiliates) and as such number of shares may be adjusted as deemed
appropriate by the Board of Directors to give effect to any subdivision or
consolidation of or stock dividend on the Exchangeable Shares, any issuance or
distribution of rights to acquire Exchangeable Shares or securities exchangeable
for or convertible into or carrying rights to acquire Exchangeable Shares, any
issue or distribution of other securities or rights or evidences of indebtedness
or assets, or any other capital reorganization or other transactions involving
or affecting the Exchangeable Shares outstanding, (c) the Business Day prior to
the record date for any meeting or vote of the shareholders of the Corporation
to consider any matter on which the holders of Exchangeable Shares would be
entitled to vote as shareholders of the Corporation, but excluding any meeting
or vote as described in clause (d) below or (d) the Business Day following the
day on which the holders of Exchangeable Shares fail to take the necessary
action at a meeting or other vote of holders of Exchangeable Shares, if and to
the extent such action is required, to approve or disapprove, as applicable, any
change to, or in the rights of the holders of, Exchangeable Shares, if the
approval or disapproval, as applicable, of such change would be required to
maintain the economic and legal equivalence of the Exchangeable Shares and the
Applied Common Stock.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in one or both in Toronto, Ontario and St.
Louis, Missouri.
"Canadian Dollar Equivalent" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") at any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the noon spot
exchange rate on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event such spot exchange
rate is not available, such exchange rate on such date for such foreign currency
expressed in Canadian dollars as may be deemed by the Board of Directors to be
appropriate for such purpose.
"Capital Reorganization" has the meaning ascribed thereto in Section 10.2 of
these share provisions.
"Common Shares" means the common shares of the Corporation having the rights,
privileges, restrictions and conditions set forth herein.
"Corporation" means Commstar Ltd., a corporation incorporated under the OBCA.
"Current Applied Common Stock Equivalent" means, on any date, the equivalent as
at such date of one share of Applied Common Stock as at the Effective Date,
expressed to four decimal places, (the Current Applied Common Stock Equivalent
as of the Effective Date being 1.0000 subject to adjustment in accordance with
the Combination Agreement) determined by applying on a cumulative basis the
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following adjustments, to the extent applicable by reason of any transactions
occurring in respect of Applied Common Stock between the Effective Date and such
date:
(a) if Applied shall (A) subdivide, redivide, convert or otherwise amend its
then outstanding shares of Applied Common Stock into a greater number of shares
of Applied Common Stock, unless the Corporation is permitted under applicable
law without a vote of its shareholders to make, and shall simultaneously make,
the same or an economically equivalent change to the rights of the holders of
Exchangeable Shares, (B) combine, consolidate, convert or otherwise amend its
then outstanding shares of Applied Common Stock into a lesser number of shares
of Applied Common Stock, unless the Corporation is permitted under applicable
law without a vote of its shareholders to make, and shall simultaneously make,
the same or an economically equivalent change to the rights of the holders of
Exchangeable Shares, or (C) issue shares of Applied Common Stock (or securities
exchangeable or convertible into Applied Common Stock, but excluding any
securities issued in a Rights Offering or in a Special Distribution) to the
holders of all or substantially all of its then outstanding shares of Applied
Common Stock by way of stock dividend or other distribution (other than to
holders of Applied Common Stock who exercise an option to receive stock
dividends in lieu of receiving cash dividends), unless the Corporation is
permitted under applicable law without a vote of its shareholders to issue or
distribute, and shall simultaneously issue and distribute, equivalent numbers of
shares of Applied Common Stock or other securities (adjusted if necessary in
accordance with the Current Applied Common Stock Equivalent), or the economic
equivalent on a per share basis, to the holders of the Exchangeable Shares (any
of such events being herein called the "Applied Common Stock Reorganization"),
the Current Applied Common Stock Equivalent shall be adjusted effective
immediately after the record date at which the holders of Applied Common Stock
are determined for the purpose of the Applied Common Stock Reorganization by
multiplying the Current Applied Common Stock Equivalent in effect on such record
date by the quotient obtained when:
(A) the number of shares of Applied Common Stock outstanding after the
completion of such Applied Common Stock Reorganization (but before giving
effect to the issue or cancellation of any shares of Applied Common Stock
issued or cancelled after such record date otherwise than as part of such
Applied Common Stock Reorganization) including, in the case where
securities exchangeable or convertible into Applied Common Stock are
distributed, the number shares of Applied Common Stock that would have been
outstanding had such securities been exchanged for or converted into
Applied Common Stock on such record date,
is divided by
(B) the number of shares of Applied Common Stock outstanding on a fully diluted
basis on such record date before giving effect to the Applied Common Stock
Reorganization;
(i) if at any time Applied shall fix a record date for the issuance of rights,
options or warrants to the holders of all or substantially all of the shares of
Applied Common Stock entitling them to subscribe for or to purchase shares of
Applied Common Stock (or securities of Applied convertible into shares of
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Applied Common Stock) at a price per share of Applied Common Stock (or having a
conversion price per Applied Common Stock) of less than the Current Market Price
on such record date, unless the Corporation is permitted under applicable law
without a vote of its shareholders to issue, and shall simultaneously issue,
equivalent numbers of such rights, option or warrants, adjusted if necessary in
accordance with the Current Applied Common Stock Equivalent at such record date,
or the economic equivalent thereof on a per share basis, to the holders of
Exchangeable Shares (any such event being herein referred to as a "Rights
Offering"), then the Current Applied Common Stock Equivalent then in effect
shall be adjusted immediately after such record date by multiplying the Current
Applied Common Stock Equivalent in effect on such record date by the quotient
obtained when:
(A) the sum of the number of shares of Applied Common Stock outstanding on a
fully diluted basis on such record date and the number of additional shares
of Applied Common Stock offered for subscription or purchase under the
Rights Offering (or the number of shares of Applied Common Stock into which
the securities so offered are convertible)
is divided by
(B) the sum of the number of shares of Applied Common Stock outstanding on a
fully diluted basis on such record date and the number determined by
dividing the aggregate price of the total number of additional shares of
Applied Common Stock offered for subscription or purchase under the Rights
Offering (or the aggregate conversion price of the convertible securities
so offered) by the Current Market Price on such record date.
Any shares of Applied Common Stock owned by or held for the
account of Applied shall be deemed not to be outstanding for the
purpose of any such computation. If such rights, option or warrants
are not so issued or if, at the date of expiry of the rights, options
or warrants subject to the Rights Offering, less than all the rights,
options or warrants have been exercised, then the Current Applied
Common Stock Equivalent shall be readjusted effective immediately
after the date of expiry (or determination by the Board of Directors
of Applied that the issue will not take place) to the Current Applied
Common Stock Equivalent which would have been in effect if such record
date had not been fixed or to the Current Applied Common Stock
Equivalent which would then be in effect on the date of expiry if the
only rights, options or warrants issued had been those that were
exercised, as the case may be;
(ii) if Applied shall fix a record date for the making of a distribution
(including a distribution by way of stock dividend) to the holders of all or
substantially all its outstanding shares of Applied Common Stock of
(A) shares of Applied of any class other than Applied Common Stock (excluding
shares convertible into Applied Common Stock referred to in (i) (C) above),
(B) rights, option or warrants (excluding a Rights Offering),
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(C) evidences of its indebtedness (excluding indebtedness convertible into
Applied Common Stock referred to in (i) (C) above) or
(D) any other assets (other than any of the distributions referred to in (A),
(B) or (C), dividends paid in the ordinary course, a Rights Offering or a
Applied Common Stock Reorganization)
unless the Corporation is permitted under applicable law
without a vote of its shareholders to distribute, and shall
simultaneously distribute, the same number of shares, rights,
options or warrants, evidences of indebtedness or other assets,
as the case may be, adjusted if necessary in accordance with the
Current Applied Common Stock Equivalent, as at such record date,
or the economic equivalent thereof on a per share basis, to the
holders of Exchangeable Shares (any such event being herein
referred to as a "Special Distribution") then, in each such case,
the Current Applied Common Stock Equivalent shall be adjusted
effective immediately after the record date at which the holders
of Applied Common Stock are determined for the purposes of the
Special Distribution by multiplying the Current Applied Common
Stock Equivalent in effect on such record date by the quotient
obtained when:
(I) the product obtained when the number of shares of Applied Common Stock
outstanding on a fully diluted basis on the record date is multiplied by
the Current Market Price on such date,
is divided by
(II) the difference obtained when the amount by which the aggregate fair market
value (as determined by the Board of Directors, which determination shall
be conclusive) of the shares, rights, options, warrants, evidences of
indebtedness or assets, as the case may be, distributed in the Special
Distribution exceeds the fair market value (as determined by the Board of
Directors, which determination shall be conclusive) of the consideration,
if any, received therefore by Applied, is subtracted from the product
obtained when the number of shares of Applied Common Stock outstanding on
the record date is multiplied by the Current Market Price on such date,
provided that no such adjustment shall be made if the result of such
adjustment would be to decrease the Current Applied Common Stock Equivalent
in effect immediately before such record date. Any share of Applied Common
Stock owned by or held for the account of Applied shall be deemed not
to be outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed. To the
extent that such distribution is not so made, the Current Applied Common
Stock Equivalent shall be readjusted effective immediately to the Current
Applied Common Stock Equivalent which would then be in effect based
upon such shares or rights, options or warrants or evidences of
indebtedness or assets actually distributed.
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Notwithstanding any of the foregoing definition of "Current Applied Common Stock
Equivalent", in no event may any one distribution, issuance of securities or
other event be deemed to be more than one of a Applied Common Stock
Reorganization, Rights Offering or Special Distribution.
"Current Market Price" means, in respect of a share of Applied Common Stock on
any date the Canadian Dollar Equivalent of the closing sale price of a share of
Applied Common Stock on such date (or, if no trades of any Applied Common Stock
occurred on such date, on the last trading day prior thereto on which such
trades occurred) reported on Nasdaq, or, if shares of Applied Common Stock are
not then quoted on Nasdaq, on such other stock exchange or automated quotation
system on which shares of Applied Common Stock are listed or quoted, as the case
may be, as may be selected by the Board of Directors for such purpose; provided,
however, that if in the opinion of the Board of Directors the public
distribution or trading activity of Applied Common Stock during such period does
not create a market that reflects the fair market value of Applied Common Stock,
then the Current Market Price of a share of Applied Common Stock shall be
determined by the Board of Directors based upon the advice of such qualified
independent financial advisors as the Board of Directors may deem to be
appropriate, and provided further that any such selection, opinion or
determination by the Board of Directors shall be conclusive and binding.
"Effective Date" has the meaning ascribed thereto in the Plan of Arrangement.
"Exchangeable Shares" means the Exchangeable Non-Voting Shares of the
Corporation having the rights, privileges, restrictions and conditions set forth
herein.
"Liquidation Amount" has the meaning ascribed thereto in Section 4.1 of these
share provisions.
"Liquidation Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Liquidation Date" has the meaning ascribed thereto in Section 4.1 of these
share provisions.
"Nasdaq" means the National Market of the National Association of
Securities Dealers Automated Quotation System.
"OBCA" means the Business Corporations Act, (Ontario) as amended from time to
time.
"Plan of Arrangement" means the plan of arrangement relating to the arrangement
of the Corporation under section 182 of the OBCA, to which plan these share
provisions are attached.
"Redemption Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Redemption Price" has the meaning ascribed thereto in section 6.1 of these
share provisions.
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"Retracted Shares" has the meaning ascribed thereto in section 5.1 of these
share provisions.
"Retraction Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Retraction Date" has the meaning ascribed thereto in section 5.2 of these share
provisions.
"Retraction Period" means the period (and including the beginning and ending
dates) from the Effective Date until the date which is June 29, 2001.
"Retraction Price" has the meaning ascribed thereto in section 5.1 of these
share provisions.
"Retraction Request" has the meaning ascribed thereto in section 5.1 of these
share provisions.
"Rights Offering" has the meaning ascribed thereto in the definition of "Current
Applied Common Stock Equivalent" in Section 1.1 of these share provisions.
"Special Distribution" has the meaning ascribed thereto in the definition of
"Current Applied Common Stock Equivalent" in Section 1.1 of these share
provisions.
"Support Agreement" means the Support Agreement between Applied and the
Corporation, made as of June 30, 1998.
"Transfer Agent" means Montreal Trust Company of Canada or such other person as
may from time to time be the registrar and transfer agent for the Exchangeable
Shares.
"Trustee" means Montreal Trust Company of Canada, a corporation organized and
existing under the laws of Canada and any successor trustee appointed under the
Voting and Exchange Trust Agreement.
"Voting and Exchange Trust Agreement" means the Voting and Exchange Trust
Agreement between the Corporation, Applied and the Trustee, made as of June 30,
1998.
1.2 All amounts required to be paid, deposited or delivered hereunder shall
be paid, deposited or delivered after deduction of any amount required by
applicable law to be deducted or withheld on account of tax and the deduction of
such amounts and remittance to the applicable tax authorities shall, to the
extent thereof, satisfy such requirement to pay, deposit or deliver hereunder.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall rank senior to the Common Shares and any other
shares ranking junior to the Exchangeable Shares, with respect to the payment of
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dividends and the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or involuntary,
or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the Board
of Directors shall, subject to applicable law, declare a dividend on each
Exchangeable Share (a) in the case of a cash dividend declared on the Applied
Common Stock, in an amount in cash for each Exchangeable Share equal to the
Canadian Dollar Equivalent on the Applied Dividend Declaration Date of the cash
dividend declared on such number of shares of Applied Common Stock as is equal
to the Current Applied Common Stock Equivalent on the Applied Dividend
Declaration Date or (b) in the case of a stock dividend declared on the Applied
Common Stock to be paid in shares of Applied Common Stock, in such whole number
of Exchangeable Shares for the Exchangeable Shares held by each holder as is
equal to the number of whole shares of Applied Common Stock to be paid as a
dividend on the equivalent number of shares of Applied Common Stock divided by
the Current Applied Common Stock Equivalent on the Applied Dividend Declaration
Date or (c) in the case of a dividend declared on the shares of Applied Common
Stock to be paid in property other than cash or Applied Common Stock (including
without limitation other securities of Applied), in such type and amount of
property for each Exchangeable Share as is the same as or economically
equivalent (as determined by the Board of Directors in accordance with section
10.1) to the type and amount of property, to be paid as a dividend on such
number of shares of Applied Common Stock as is equal to the Current Applied
Common Stock Equivalent on the Applied Dividend Declaration Date. Such dividends
shall be paid out of money, assets or property of the Corporation properly
applicable to the payment of dividends, or out of authorized but unissued
Exchangeable Shares. To the extent that the Corporation complies with this
section 3.1, any Applied dividend contemplated by this section 3.1 shall in no
event be deemed to be a Applied Common Stock Reorganization, Rights Offering or
Special Distribution.
3.2 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
subsection 3.1(a) hereof or in respect of any cash amount payable in lieu of a
fractional Exchangeable Share in connection with any stock dividends
contemplated by subsection 3.1(b) hereof and the sending of such a cheque to
each holder of an Exchangeable Share shall satisfy the cash dividend represented
thereby unless the cheque is not paid on presentation. Certificates registered
in the name of the registered holder of Exchangeable Shares shall be issued or
transferred in respect of any stock dividends contemplated by subsection 3.1(b)
hereof and the sending of such a certificate to each holder of an Exchangeable
Share shall satisfy the stock dividend represented thereby. Such other type and
amount of property in respect of any dividends contemplated by subsection 3.1(c)
hereof shall be issued, distributed or transferred by the Corporation in such
manner as it shall determine and the issuance, distribution or transfer thereof
<PAGE>
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by the Corporation to each holder of an Exchangeable Share shall satisfy the
dividend represented thereby. No holder of an Exchangeable Share shall be
entitled to recover by action or other legal process against the Corporation any
dividend that is represented by a cheque that has not been duly presented to the
Corporation's bankers for payment or that otherwise remains unclaimed for a
period of six years from the date on which such dividend was payable.
3.3 The record date for the determination of the holders of Exchangeable Shares
entitled to receive payment of, and the payment date for, any dividend declared
on the Exchangeable Shares under section 3.1 hereof shall be the same dates as
the record date and payment date, respectively, for the corresponding dividend
declared on the shares of Applied Common Stock.
3.4 If on any payment date for any dividends declared on the Exchangeable Shares
under section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends.
3.5 So long as any of the Exchangeable Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Exchangeable Shares given as specified in section 9.2 of these
share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking junior
to the Exchangeable Shares, other than stock dividends payable in Common
Shares or any such other shares ranking junior to the Exchangeable Shares,
as the case may be;
(b) redeem or purchase or make any capital distribution in respect of Common
Shares or any other shares ranking junior to the Exchangeable Shares;
(c) redeem or purchase any other shares of the Corporation ranking equally with
the Exchangeable Shares with respect to the payment of dividends or on any
liquidation distribution;
(d) issue any Exchangeable Shares other than (i) by way of stock dividends to
the holders of such Exchangeable Shares, (ii) otherwise pro rata to the
holders of Exchangeable Shares, (iii) as contemplated by the Support
Agreement or (iv) pursuant to any agreements or rights in existence at the
Effective Date; or
(e) issue any other shares of the Corporation ranking equally with or senior to
the Exchangeable Shares;
provided that the restrictions in subsections 3.5(a), 3.5(b) and 3.5(c) shall
not apply if all dividends on the outstanding Exchangeable Shares corresponding
to dividends declared to date on the Applied Common Stock shall have been
declared on the Exchangeable Shares and, if paid to holders of Applied Common
Stock, paid in full.
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ARTICLE 4
DISTRIBUTION ON LIQUIDATION
4.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Exchangeable Share held by such holder on
the effective date (the "Liquidation Date") of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of the Corporation
among the holders of the Common Shares or any other shares ranking junior to the
Exchangeable Shares, an amount per share equal to (a) the Current Market Price
multiplied by the Current Applied Common Stock Equivalent, in each case
determined on the Liquidation Date, which shall be satisfied in full by the
Corporation causing to be delivered to such holder such number of shares of
Applied Common Stock as is equal to the Current Applied Common Stock Equivalent,
plus (b) an additional amount equal to the aggregate of all declared and unpaid
dividends on each such Exchangeable Share up to the Liquidation Date
(collectively the "Liquidation Amount") without interest.
4.2 On or promptly after the Liquidation Date, and subject to the exercise by
Applied of the Liquidation Call Right, the Corporation shall cause to be
delivered to the holders of the Exchangeable Shares the Liquidation Amount for
each such Exchangeable Share upon presentation and surrender of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the OBCA and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require, at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of the Exchangeable
Shares. Payment of the total Liquidation Amount for all of the Exchangeable
Shares held by a holder thereof shall be made by delivery to each such holder,
at the address of the holder recorded in the securities register of the
Corporation of the Exchangeable Shares or by holding for pick-up by the holder
at the registered office of the Corporation or at any office of the Transfer
Agent as may be specified by the Corporation by notice to the holders of
Exchangeable Shares, on behalf of the Corporation of certificates representing
the shares of Applied Common Stock to be delivered in payment thereof (which
shares shall be duly issued as fully paid and non-assessable and shall be free
and clear of any liens) and a cheque of the Corporation payable at any branch of
the bankers of the Corporation in respect of all declared and unpaid dividends
comprising part of the total Liquidation Amount for all outstanding Exchangeable
Shares without interest. On and after the Liquidation Date, the holders of the
Exchangeable Shares shall cease to be holders of such Exchangeable Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the total Liquidation Amount in respect
of their Exchangeable Shares, unless payment of the total Liquidation Amount for
such Exchangeable Shares shall not be made upon presentation and surrender of
share certificates in accordance with the foregoing provisions, in which case
the rights of the holders shall remain unaffected until the total Liquidation
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Amount for their Exchangeable Shares has been paid in the manner hereinbefore
provided. The Corporation shall have the right at any time on or after the
Liquidation Date to deposit or cause to be deposited the total Liquidation
Amount in respect of the Exchangeable Shares represented by certificates that
have not at the Liquidation Date been surrendered by the holders thereof in a
custodial account with any chartered bank or trust company in Canada. Upon such
deposit being made, the rights of the holders of such Exchangeable Shares after
such deposit shall be limited to receiving the total Liquidation Amount (without
interest) for such Exchangeable Shares so deposited, against presentation and
surrender of the said certificates held by them, respectively, in accordance
with the foregoing provisions.
4.3 After the Corporation has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share pursuant
to section 4.1 of these share provisions, such holders shall not be entitled to
share in any further distribution of the assets of the Corporation or have any
other rights as holders of Exchangeable Shares.
ARTICLE 5
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
5.1 A holder of Exchangeable Shares shall be entitled during any Retraction
Period, subject to the exercise by Applied of the Retraction Call Right and
otherwise upon compliance with the provisions of this Article 5, to require the
Corporation to redeem any or all of the Exchangeable Shares registered in the
name of such holder (the "Retracted Shares") for an amount for each Retracted
Share equal to (a) the Current Market Price multiplied by the Current Applied
Common Stock Equivalent, in each case determined on the Retraction Date, which
shall be satisfied in full in respect of a Retracted Share by the Corporation
causing to be delivered to such holder such number of shares of Applied Common
Stock as is equal to the Current Applied Common Stock Equivalent, plus (b) the
aggregate of all dividends declared and unpaid on each Retracted Share up to the
Retraction Date (collectively the "Retraction Price", provided that if the
record date for any such declared and unpaid dividend occurs on or after the
Retraction Date the Retraction Price shall not include such declared and unpaid
dividends) without interest. To effect such redemption, the holder shall present
and surrender at any office of the Transfer Agent the certificate or
certificates representing the Exchangeable Shares which the holder desires to
have the Corporation redeem, together with such other documents and instruments
as may be required to effect a transfer of Exchangeable Shares under the OBCA
and the by-laws of the Corporation and such additional documents and instruments
as the Transfer Agent may reasonably require, and together with a duly executed
statement (the "Retraction Request") in the form of Schedule A hereto or in such
other form as may be acceptable (in their sole discretion) to the Transfer Agent
and Applied:
(a) specifying that the holder desires to have the Retracted Shares represented
by such certificate or certificates redeemed by the Corporation; and
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(b) acknowledging the Retraction Call Right of Applied to purchase all but not
less than all the Retracted Shares directly from the holder and that the
Retraction Request shall be deemed to be an irrevocable offer by the holder
to sell the retracted Shares to Applied in accordance with the Retraction
Call Right.
5.2 Subject to the exercise by Applied of the Retraction Call Right, upon
receipt by the Transfer Agent in the manner specified in section 5.1 hereof of a
certificate or certificates representing the number of Exchangeable Shares which
the holder desires to have the Corporation redeem, together with such other
documents and instruments as may be required pursuant to section 5.1 and a
Retraction Request, the Corporation shall redeem the Retracted Shares effective
at the close of business on the sixth Business Day after the Retraction Request
is received (the "Retraction Date") and shall cause to be delivered to such
holder the total Retraction Price with respect of all such Retracted Shares. If
only a part of the Exchangeable Shares represented by any certificate are
redeemed (or purchased by Applied pursuant to the Retraction Call Right), a new
certificate for the balance of such Exchangeable Shares shall be issued to the
holder at the expense of the Corporation.
5.3 Upon receipt by the Transfer Agent of a Retraction Request, the Transfer
Agent shall forthwith notify Applied thereof. In order to exercise the
Retraction Call Right, Applied must deliver a Applied Call Notice to the
Transfer Agent prior to the expiry of the fifth Business Day after the receipt
by the Transfer Agent of the Retraction Request. If Applied does not so notify
the Transfer Agent, the Transfer Agent will notify the holder as soon as
possible thereafter that Applied will not exercise the Retraction Call Right. If
Applied delivers the Applied Call Notice before the end of such five Business
Day period, the Retraction Request shall thereupon be considered only to be an
offer by the holder to sell the Retracted Shares to Applied in accordance with
the Retraction Call Right. In such event, the Corporation shall not redeem the
Retracted Shares and Applied shall purchase from such holder and such holder
shall sell to Applied on the Retraction Date the Retracted Shares for a purchase
price (the "Purchase Price") per share equal to the Retraction Price.
5.4 If a Retraction Request is received by the Transfer Agent pursuant to
section 5.1 and Applied has not exercised the Retraction Call Right, the
Corporation shall cause the Transfer Agent to deliver to the holder of the
Retracted Shares, at the address of the holder recorded in the securities
register of the Corporation for the Exchangeable Shares or at the address
specified in the holder's Retraction Request or by holding for pick-up by the
holder at the office of the Transfer Agent to which the Retraction Request was
delivered, certificates representing the shares of Applied Common Stock to be
delivered to the holder in payment of the total Retraction Price or Purchase
Price for all of the Retracted Shares (or the portion thereof payable in Applied
Common Stock, as the case may be) (which shares shall be duly issued as fully
paid and non assessable and shall be free and clear of any liens) registered in
the name of the holder or in such other name as the holder may request and a
cheque of the Corporation payable at par at any branch of the bankers of the
Corporation in payment of the remaining portion, if any, of the total Retraction
Price or Purchase Price (or, if any part of the Retraction Price or Purchase
Price consists of dividends payable in property, such property or property that
is the same as or economically equivalent to such property), and such delivery
of such certificates and cheque (and property, if any) on behalf of the
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Corporation by the Transfer Agent shall be deemed to be payment of and shall
satisfy and discharge all liability for the total Retraction Price or Purchase
Price for all of the Retracted Shares, to the extent that the same is
represented by such share certificates and cheque (and property, if any), unless
such cheque is not paid on due presentation.
5.5 On and after the close of business on the Retraction Date, the holder of the
Retracted Shares shall cease to be a holder of such Retracted Shares and shall
not be entitled to exercise any of the rights of a holder in respect thereof,
other than the right to receive the total Retraction Price or total Purchase
Price for all of the Retracted Shares, unless upon presentation and surrender of
certificates in accordance with the foregoing provisions, payment of the total
Retraction Price or total Purchase Price for all of the Retracted Shares shall
not be made, in which case the rights of such holders shall remain unaffected
until the total Retraction Price or total Purchase Price has been paid in the
manner hereinbefore provided. On and after the close of business on the
Retraction Date, provided that presentation and surrender of certificates and
payment of the total Retraction Price or total Purchase Price for all of the
Retracted Shares has been made in accordance with the foregoing provisions, the
holder of the Retracted Shares so redeemed by the Corporation shall thereafter
be considered and deemed for all purposes to be a holder of the shares of
Applied Common Stock delivered to it.
5.6 Notwithstanding any other provision of this Article 5, the Corporation shall
not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to solvency requirements or other provisions of applicable law. If
the Corporation believes that on any Retraction Date it would not be permitted
by any of such provisions to redeem the Retracted Shares tendered for redemption
on such date, and provided that Applied shall not have exercised the Retraction
Call Right with respect to the Retracted Shares, the Corporation shall be
obligated to redeem Retracted Shares specified by holders in Retraction Requests
only to the extent of the maximum number that may be so redeemed (rounded down
to a whole number of shares) as would not be contrary to such provisions on a
pro rata basis and shall notify the relevant holders at least five Business Days
prior to the Retraction Date as to the number of Retracted Shares which will not
be redeemed by the Corporation and the Corporation shall issue to each holder of
Retracted Shares a new certificate, at the expense of the Corporation,
representing the Retracted Shares not redeemed by the Corporation pursuant to
section 5.2 hereof. The holder of any such Retracted Shares not redeemed by the
Corporation pursuant to section 5.2 of these share provisions as a result of
solvency requirements of applicable law shall be deemed by giving the Retraction
Request to require Applied to purchase such Retracted Shares from such holder
pursuant to the Exchange Right (as defined in the Voting and Exchange Trust
Agreement).
ARTICLE 6
REDEMPTION OF EXCHANGEABLE SHARES
6.1 Subject to applicable law and if Applied does not exercise the Redemption
Call Right, the Corporation shall on the Automatic Redemption Date redeem the
whole of the then outstanding Exchangeable Shares for an amount per share equal
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to (a) the Current Market Price multiplied by the Current Applied Common Stock
Equivalent, in each case determined on the Automatic Redemption Date, which
shall be satisfied in full in respect of an Exchangeable Share by the
Corporation causing to be delivered to such a holder such number of shares of
Applied Common Stock as is equal to the Current Applied Common Stock Equivalent,
plus (b) the aggregate of all declared and unpaid dividends thereon up to the
Automatic Redemption Date (collectively the "Redemption Price") (provided that
if the record date for any such declared and unpaid dividends occurs on or after
the Automatic Redemption Date, the Redemption Price shall not include such
declared and unpaid dividends) without interest.
6.2 On or after the Automatic Redemption Date and subject to the exercise by
Applied of the Redemption Call Right, the Corporation shall cause to be
delivered to the holders of the Exchangeable Shares the Redemption Price for
each such Exchangeable Share upon presentation and surrender at any office of
the Transfer Agent of the certificates representing such Exchangeable Shares,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the OBCA and the by-laws of the
Corporation and such additional documents and instruments as the Transfer Agent
may reasonably require. Payment of the total Redemption Price for all of the
Exchangeable Shares held by a holder shall be made by delivery to such holder,
at the address of the holder recorded in the securities register of the
Corporation or by holding for pick up by the holder at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation in such notice, on behalf of the Corporation of certificates
representing the shares of Applied Common Stock to be delivered to the holder in
payment of the Redemption Price for all of the Exchangeable Shares held by such
holder (or the portion thereof payable in Applied Common Stock, as the case may
be) (which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any liens) and a cheque of the Corporation payable at
any branch of the bankers of the Corporation in respect of all declared and
unpaid dividends comprising part of the total Redemption Price for all of the
Exchangeable Shares held by such holder (or, if any of such dividends are
payable in property, such property). On and after the Automatic Redemption Date,
the holders of the Exchangeable Shares called for redemption shall cease to be
holders of such Exchangeable Shares and shall not be entitled to exercise any of
the rights of holders in respect thereof, other than the right to receive the
total Redemption Price for their Exchangeable Shares, unless payment of the
total Redemption Price for such Exchangeable Shares shall not be made upon
presentation and surrender of certificates in accordance with the foregoing
provisions, in which case the rights of the holders shall remain unaffected
until the total Redemption Price for such shares has been paid in the manner
hereinafter provided. The Corporation shall have the right at any time to
deposit or cause to be deposited the total Redemption Price of the Exchangeable
Shares so called for redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such deposit been
surrendered by the holders thereof in connection with such redemption, in a
custodial account with any chartered bank or trust company in Canada named in
such notice. Upon the later of such deposit being made and the Automatic
Redemption Date, the Exchangeable Shares in respect whereof such deposit shall
have been made shall be redeemed and the rights of the holders thereof after
such deposit or Automatic Redemption Date, as the case may be, shall be limited
to receiving the total Redemption Price for such Exchangeable Shares, against
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presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of the
total Redemption Price, the holders of the Exchangeable Shares shall thereafter
be considered and deemed for all purposes to be holders of the Applied Common
Stock delivered to them.
ARTICLE 7
PURCHASE FOR CANCELLATION
7.1 Subject to applicable law and the articles of the Corporation, the
Corporation may at any time and from time to time purchase for cancellation all
or any part of the outstanding Exchangeable Shares at any price by tender to all
the holders of record of Exchangeable Shares then outstanding or through the
facilities of any stock exchange on which the Exchangeable Shares are listed or
quoted at any price per share together with an amount equal to all declared and
unpaid dividends thereon without interest. If in response to an invitation for
tenders under the provisions of this Section 7.1, more Exchangeable Shares are
tendered at a price or prices acceptable to the Corporation than the Corporation
is prepared to purchase, the Exchangeable Shares to be purchased by the
Corporation shall be purchased as nearly as may be pro rata according to the
number of shares tendered by each holder who submits a tender to the
Corporation, provided that when shares are tendered at different prices, the pro
rating shall be effected (disregarding fractions) only with respect to the
shares tendered at the price at which more shares were tendered than the
Corporation is prepared to purchase after the Corporation has purchased all the
shares tendered at lower prices. If part only of the Exchangeable Shares
represented by any certificate shall be purchased, a new certificate for the
balance of such shares shall be issued at the expense of the Corporation.
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law, and the provisions of section 3.5, 9.1
and 11.2, the holders of the Exchangeable Shares shall not be entitled as such
to receive notice of or to attend any meeting of the shareholders of the
Corporation or to vote at any such meeting.
ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Exchangeable Shares given as hereinafter
specified.
9.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
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holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 50% of the outstanding Exchangeable Shares at that time are present or
represented by proxy (excluding Exchangeable Shares beneficially owned by
Applied or its Affiliates). If at any such meeting the holders of at least 50%
of the outstanding Exchangeable Shares at that time are not present or
represented by proxy within one half hour after the time appointed for such
meeting then the meeting shall be adjourned to such date not less than 10 days
thereafter and to such time and place as may be designated by the Chairman of
such meeting. At such adjourned meeting the holders of Exchangeable Shares
present or represented by proxy thereat may transact the business for which the
meeting was originally called and a resolution passed thereat by the affirmative
vote of not less than two thirds of the votes cast on such resolution at such
meeting shall constitute the approval or consent of the holders of the
Exchangeable Shares.
ARTICLE 10
ECONOMIC EQUIVALENCE; CHANGES RELATING TO APPLIED
10.1 The Board of Directors shall determine, in good faith and in its sole
discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the Board of Directors may require)
economic equivalence for the purposes of any provision herein that requires such
a determination and each such determination shall be conclusive and binding on
Applied and the holders of Exchangeable Shares, where applicable.
10.2 If at any time there is a capital reorganization of Applied or a
consolidation, merger, arrangement or amalgamation (statutory or otherwise) of
Applied with or into another entity (any such event being called a "Capital
Reorganization") that is not provided for in the definitions of "Applied Common
Stock Reorganization", "Rights Offering" or "Special Distribution", any holder
of Exchangeable Shares whose Exchangeable Shares have not been exchanged for
shares of Applied Common Stock in accordance with the provisions hereof or the
provisions of the Plan of Arrangement or the Voting and Exchange Trust Agreement
prior to the record date for such Capital Reorganization shall be entitled to
receive and shall accept, upon any such exchange occurring pursuant to the
provisions hereof or thereof at any time after the record date for such Capital
Reorganization in lieu of the shares of Applied Common Stock that he would
otherwise have been entitled to receive pursuant to the provisions hereof, the
number of shares or other securities of Applied or of the body corporate
resulting, surviving or continuing from the Capital Reorganization, or other
property, that such holder would have been entitled to receive as a result of
such Capital Reorganization if, on the record date, he had been the registered
holder of the number of shares of Applied Common Stock to which he was then
entitled upon any exchange of his Exchangeable Shares into Applied Common Stock
in accordance with the provisions hereof, subject to adjustment thereafter in
the same manner, as nearly as may be possible, as is provided for in the
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definition of "Current Applied Common Stock Equivalent"; provided that no such
Capital Reorganization shall be carried into effect unless all necessary steps
shall have been taken so that each holder of Exchangeable Shares shall
thereafter be entitled to receive, upon any exchange of his Exchangeable Shares
pursuant to the provisions hereof, such number of shares or other securities of
Applied or of the body corporate resulting, surviving or continuing from the
Capital Reorganization, or other property.
10.3 In the case of a reclassification of, or other change in, the outstanding
shares of Applied Common Stock other than a Applied Common Stock Reorganization,
Rights Offering, Special Distribution or a Capital Reorganization, such changes
shall be made in the rights attaching to the Exchangeable Shares, without any
action on the part of the Corporation or the holders of the Exchangeable Shares
to the extent permitted by applicable law, effective immediately following the
record date for such reclassification or other change, to the extent necessary
to ensure that holders of Exchangeable Shares shall be entitled to receive, upon
the occurrence at any time after such record date of any event whereby they
would receive Applied Common Stock pursuant to the previous provisions hereof or
the provisions of the Plan of Arrangement or the Voting and Exchange Trust
Agreement, such shares, securities or rights as they would have received if
their Exchangeable Shares had been exchanged for Applied Common Stock pursuant
to the provisions hereof or thereof immediately prior to such record date,
subject to adjustment thereafter in the same manner, as nearly as may be
possible, as is provided for in the definition "Current Applied Common Stock
Equivalent".
10.4 No certificates or scrip representing fractional Applied Common Stock shall
be delivered to holders of Exchangeable Shares pursuant to the provisions
hereof.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
11.1 The Corporation will take all such actions and do all such things as shall
be necessary or advisable to perform and comply with and to ensure performance
and compliance by Applied with all provisions of the Support Agreement and the
Voting and Exchange Trust Agreement applicable to the Corporation and Applied,
respectively, in accordance with the terms thereof including, without
limitation, taking all such actions and doing all such things as shall be
necessary or advisable to enforce to the fullest extent possible for the direct
benefit of the Corporation and the holders of Exchangeable Shares all rights and
benefits in favour of the Corporation under or pursuant to such agreements.
11.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement and the Voting and Exchange Trust Agreement without the
approval of the holders of the Exchangeable Shares given in accordance with
section 9.2 of these share provisions other than such amendments, waivers and/or
forgiveness as may be necessary or advisable for the purposes of:
<PAGE>
-18-
(a) adding to the covenants of the other party or parties to such agreement for
the protection of the Corporation or the holders of Exchangeable Shares; or
(b) making such provisions or modifications not inconsistent with such
agreements as may be necessary or desirable with respect to matters or
questions arising thereunder which, in the opinion of the Board of
Directors, it may be expedient to make, provided that the Board of
Directors shall be of the opinion, after consultation with counsel, that
such provisions and modifications will not be prejudicial to the interests
of the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreements which, on the
advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error contained therein, provided
that the Board of Directors shall be of the opinion, after consultation
with counsel, that such changes or corrections will not be prejudicial to
the interests of the holders of the Exchangeable Shares.
ARTICLE 12
LEGEND
12.1 The certificates evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to: the Support Agreement; the provisions of the Plan of
Arrangement relating to the Retraction Call Right, the Liquidation Call Right
and the Redemption Call Right, and the Voting and Exchange Trust Agreement
(including the provisions with respect to the Voting Rights, Exchange Rights and
Automatic Exchange Rights thereunder).
ARTICLE 13
NOTICES
13.1 Any notice, request or other communication to be given to the Corporation
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage paid) or by telecopy or by delivery to the
registered office of the Corporation and addressed to the attention of the
President. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding up of the
Corporation or the retraction or redemption of Exchangeable Shares shall be made
by registered mail (postage prepaid) or by delivery to the registered office of
the Corporation or to such office of the Transfer Agent as may be specified by
<PAGE>
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the Corporation, in each case addressed to the attention of the President of the
Corporation. Any such presentation and surrender of certificates shall only be
deemed to have been made and to be effective upon actual receipt thereof by the
Corporation or the Transfer Agent, as the case may be. Any such presentation and
surrender of certificates made by registered mail shall be at the sole risk of
the holder mailing the same.
13.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed have been
given and received on the fifth Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received on the
date of delivery. Accidental failure or omission to give any notice, request or
other communication to one or more holders of Exchangeable Shares shall not
invalidate or otherwise alter or affect any action or proceeding to be taken by
the Corporation pursuant thereto.
PROVISIONS ATTACHING TO THE PREFERRED SHARES AS A CLASS
PREFERRED SHARES
The Preferred Shares, as a class, shall have attached thereto the following
rights, privileges, restrictions and conditions:
1 The Preferred Shares may from time to time be issued in one or more series and
subject to the following provisions, and subject to the sending of articles of
amendment in prescribed form, and the endorsement thereon of a certificate of
amendment in respect thereof, the directors may fix from time to time before
such issue the number of shares that is to comprise each series and the
designation, rights, privileges, restrictions and conditions attaching to each
series of Preferred Shares including, without limiting the generality of the
foregoing, the issue price per share of the shares of such series, the rate or
amount of any dividends or the method of calculating any dividends, the dates of
payment thereof, any redemption, purchase and/or conversion prices and terms and
conditions of any redemption, purchase and/or conversion, and any sinking fund
or other provisions;
2 The Preferred Shares of each series shall, with respect to the payment of any
dividends and any distribution of assets or return of capital in the event of
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other return of capital or distribution of the assets of the
Corporation among its shareholders for the purpose of winding-up its affairs,
rank on a parity with the Preferred Shares of every other series and be entitled
to preference over any other shares of the Corporation ranking junior to the
Preferred Shares. The Preferred Shares of any series may also be given such
other preferences, not inconsistent with these articles, over the Common Shares
<PAGE>
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and any other shares of the Corporation ranking junior to such Preferred Shares
as may be fixed in accordance with section 1 above;
3 If any cumulative dividends or amounts payable on the return of capital in
respect of a series of Preferred Shares are not paid in full, all series of
Preferred Shares shall participate rateably in respect of such dividends and
return of capital;
4 The Preferred Shares of any series may be made convertible into Common Shares;
5 Unless the directors otherwise determine in the articles of amendment
designating a series, and subject to the provisions of the OBCA and section 6
below, the Preferred Shares shall have no voting rights as a class; and
6 Any amendment to the articles of the Corporation to remove or vary any rights,
privileges, restrictions and conditions attaching to the Preferred Shares as a
class or to create any other class of shares ranking in priority to or on a
parity with the Preferred Shares, in addition to the authorization by special
resolution, must be given by at least two-thirds of the votes cast at a meeting
of the holders of Preferred Shares duly called for that purpose and at every
such meeting a holder of a Preference Share shall be entitled to one vote in
respect of each Preference Share held in addition to any other vote required by
the OBCA.
SERIES A PREFERRED SHARES
The first series of Preferred Shares shall consist of one share and shall be
designated as Series A Preferred Shares and in addition to the rights,
privileges, restrictions and conditions attaching to the Preferred Shares as a
class shall have attached thereto the following rights, privileges, restrictions
and conditions:
1 Ranking
The Series A Preferred Share shall rank junior to any other shares of the
Corporation with respect to the payment of dividends and repayment of capital.
2 Dividends
The holder of the Series A Preferred Share shall not be entitled to receive any
dividend declared by the directors of the Corporation.
3 Voting Rights
The holder of the Series A Preferred Share shall be entitled to receive notice
of and to attend and vote at meetings of the shareholders of the Corporation.
4 Rights on Dissolution
<PAGE>
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In the event of the liquidation, dissolution or winding-up of the Corporation
whether voluntary or involuntary, the holder of the Series A Preferred Share
shall be entitled to receive in respect of such share, before any distribution
of any part of the assets of the Corporation among the holders of any other
class of shares of the Corporation ranking junior to the Series A Preferred
Share, an amount equal to $.01 per Series A Preferred Share.
5 Conversion
(a) Upon and subject to the terms and conditions hereinafter set forth the
holder of the Series A Preferred Share shall have the right to convert the
Series A Preferred Share into one fully-paid and non-assessable Common
Share on the basis of one Common Share as presently constituted for the
Series A Preferred Share so converted;
(b) The conversion privilege herein provided for may be exercised by notice in
writing given to the Secretary of the Corporation at its registered office,
signed by such holder or his agent;
(c) Upon the conversion of the Series A Preferred Share, there shall be no
payment or adjustment by the Corporation or by the holder of the Series A
Preferred Share on account of any dividends either on the Series A
Preferred Share so converted or on the Common Share resulting from such
conversion;
(d) On the conversion of the Series A Preferred Share the share certificate for
the Common Share resulting therefrom shall be issued in the name of the
registered holder of the Series A Preferred Share so converted or in such
name or names as such registered holder may direct in writing (either in
the notice referred to in subparagraph (b) or otherwise), provided that
such registered holder shall pay any governmental or other tax imposed in
respect of such conversion;
(e) Subject as hereinafter provided in this subparagraph the right of a holder
of the Series A Preferred Share to convert the same into a Common Share
shall be deemed to have been exercised, and the registered holder of the
Series A Preferred Share to be converted (or any person or persons in whose
name or names any such registered holder of Series A Preferred Share shall
have directed the certificate representing the Common Share to be issued as
provided in subparagraph (d)) shall be deemed to have become the holder of
record of Common Shares, for all purposes on the date of actual receipt by
the Corporation of the notice in writing, notwithstanding any delay in the
delivery of the certificate representing the Common Share into which such
Series A Preferred Share has been converted; provided, however, that should
notice be given during a period when the registers of transfers of Common
Shares are properly closed, the registered holder of such share (or such
other person or persons as aforesaid) shall be deemed to become holders of
record of Common Shares immediately upon the re-opening of such registers
of transfers.
In the event of the Common Shares or the Series A Preferred Shares being, at any
time while any Series A Preferred Shares are outstanding, consolidated,
subdivided, reclassified or otherwise changed into a lesser or greater number of
<PAGE>
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shares of the same class or a lesser or greater or the same number of shares of
a different class or different classes of shares of the Corporation, appropriate
adjustments shall contemporaneously be made to the rights (including, without
limitation, the conversion right attached to the Series A Preferred Shares)
privileges, restrictions and conditions attaching to the Common Shares and the
Series A Preferred Shares, respectively, so as to preserve in all respects the
benefits conferred on the holders of the Series A Preferred Shares by these
provisions.
COMMON SHARES
1 Voting Rights
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of which notice must be given to the holders of the Common Shares, each
holder of Common Shares shall be entitled to one vote in respect of each Common
Share held by him or her.
2 Dividends
The holders of the Common Shares shall be entitled, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of the Corporation, to receive any dividend declared by the Corporation.
3 Rights on Dissolution
The holders of the Common Shares shall be entitled, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of the Corporation, to receive the remaining property of the Corporation on a
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary.
<PAGE>
SCHEDULE "A"
NOTICE OF RETRACTION
TO: Commstar Ltd. (the "Corporation") and Applied Cellular Technology, Inc.
("Applied")
This notice is given pursuant to Article 5 of the provisions (the "Share
Provisions") attaching to the share(s) represented by this certificate and all
capitalized words and expressions used in this notice that are defined in the
Share Provisions have the meanings ascribed to such words and expressions in
such Share Provisions.
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
* shares 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
the Share Provisions. 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 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 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)
<PAGE>
* 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 __________,
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 Date
Securities or 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.
SUPPORT AGREEMENT
THIS MEMORANDUM OF AGREEMENT made as of the 30th day of June, 1998.
B E T W E E N:
APPLIED CELLULAR TECHNOLOGY, INC., a Missouri corporation
(hereinafter called "Applied")
- and -
COMMSTAR LTD., an Ontario corporation
(hereinafter called the "Corporation")
AND WHEREAS pursuant to an arrangement (the "Arrangement") effected by
articles of arrangement to be filed pursuant to the Business Corporations Act
(Ontario) (the "OBCA"), all of the issued and outstanding common shares in the
capital of the Corporation are to be exchanged, for either common stock in the
capital of Applied or exchangeable non-voting shares in the capital of the
Corporation (the "Exchangeable Shares");
AND WHEREAS the aforesaid articles of arrangement set forth the rights,
privileges, restrictions and conditions (collectively the "Exchangeable Share
Provisions") attaching to the Exchangeable Shares;
AND WHEREAS the parties hereto desire to make appropriate provisions and to
establish a procedure whereby Applied will take certain actions and make certain
payments and deliveries necessary to ensure that the Corporation will be able to
make certain payments and to deliver or cause to be delivered shares of Applied
Common Stock in satisfaction of the obligations of the Corporation under the
Exchangeable Share Provisions with respect to the payment and satisfaction of
dividends, Liquidation Amounts, Retraction Prices and Redemption Prices all in
accordance with the Exchangeable Share Provisions;
NOW THEREFORE in consideration of the respective covenants in this
agreement and for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties agree as follows:
<PAGE>
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ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms. Each term denoted herein by initial capital letters and not
otherwise defined herein shall have the meaning ascribed thereto in the
Exchangeable Share Provisions, unless the context requires otherwise.
1.2 Interpretation not Affected by Headings, etc. The division of this agreement
into articles, sections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this agreement.
1.3 Number, Gender, etc. Words importing the singular number only shall include
the plural and vice versa. Words importing the use of any gender shall include
all genders.
1.4 Date for any Action. If any date on which any action is required to be taken
under this agreement is not a Business Day, such action shall be required to be
taken on the next succeeding Business Day.
ARTICLE II
COVENANTS OF APPLIED AND THE CORPORATION
2.1 Covenants of Applied Regarding Exchangeable Shares. So long as any
Exchangeable Shares are outstanding, Applied shall:
(a) not declare or pay any dividend on Applied Common Stock unless (i) the
Corporation shall have sufficient assets, funds and other property
(including, where applicable, shares of Applied Common Stock or other
securities of Applied) available to enable the due declaration and the
due and punctual payment in accordance with applicable law, of a
dividend on the Exchangeable Shares in accordance with the
Exchangeable Share Provisions and (ii) the Corporation shall
simultaneously declare or pay, as the case may be, a dividend on the
Exchangeable Shares in accordance with the Exchangeable Share
Provisions;
<PAGE>
-3-
(b) cause the Corporation to declare simultaneously with the declaration
of any dividend on shares of Applied Common Stock a dividend on the
Exchangeable Shares and, when such dividend is paid on Applied Common
Stock, cause the Corporation to pay simultaneously therewith such
dividend on the Exchangeable Shares, in each case in accordance with
the Exchangeable Share Provisions;
(c) advise the Corporation sufficiently in advance of the declaration by
Applied of any dividend on shares of Applied Common Stock and take all
such other actions as are necessary, in cooperation with the
Corporation, to ensure that the declaration date, record date and
payment date for any dividend on the Exchangeable Shares shall be the
same as the declaration date, record date, and payment date for the
corresponding dividend on shares of Applied Common Stock and such
dates in respect of dividends on the Exchangeable Shares shall be in
accordance with any requirement of the Exchangeable Share Provisions
and the stock exchange(s) on which the Exchangeable Shares may be
listed;
(d) ensure that the record date for any dividend declared on shares of
Applied Common Stock, Applied Common Stock Reorganization, Rights
Offering, Special Distribution or Capital Reorganization is not less
than 10 Business Days after the declaration date for such dividend or
effective date of such Applied Common Stock Reorganization, Rights
Offering, Special Distribution or Capital Reorganization;
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Liquidation Amount in respect of
each issued and outstanding Exchangeable Share upon the liquidation,
dissolution or winding-up of the Corporation, including without
limitation all such actions and all such things as are necessary or
desirable to enable and permit the Corporation to cause to be
delivered shares of Applied Common Stock to the holders of
Exchangeable Shares in satisfaction of the Liquidation Amount for each
such Exchangeable Share, in accordance with the provisions of Article
4 of the Exchangeable Share Provisions;
(f) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Retraction Price and the Redemption
Price, including without limitation all such actions and all such
things as are necessary or desirable to enable and permit the
<PAGE>
-4-
Corporation to cause to be delivered shares of Applied Common Stock to
the holders of Exchangeable Shares, upon the retraction or redemption
of the Exchangeable Shares in accordance with the provisions of
Article 5 or Article 6 of the Exchangeable Share Provisions, as the
case may be;
(g) not exercise its vote as a shareholder of the Corporation to initiate,
consent to or approve the voluntary liquidation, dissolution or
winding-up of the Corporation nor take any action or omit to take any
action that is designed to result in the liquidation, dissolution or
winding-up of the Corporation; and
(h) not exercise its vote as a shareholder of the Corporation to authorize
the continuance or other transfer of the corporate existence of the
Corporation to any jurisdiction outside Canada.
2.2 Segregation of Funds. Applied will cause the Corporation to deposit a
sufficient amount of funds in a separate account and segregate a sufficient
amount of such assets and other property as is necessary to enable the
Corporation to pay or otherwise satisfy the applicable dividends, Liquidation
Amount, Retraction Price or Redemption Price, in each case for the benefit of
holders from time to time of the Exchangeable Shares, and will cause the
Corporation to use such funds, assets and other property so segregated
exclusively for the payment of dividends and the payment or other satisfaction
of the Liquidation Amount, the Retraction Price or the Redemption Price, as
applicable, in each case in accordance with the Exchangeable Share Provisions.
2.3 Reservation of Shares of Applied Common Stock. Applied hereby represents
and warrants that it has irrevocably reserved for issuance out of its authorized
and unissued capital stock such number of shares of Applied Common Stock as is
equal to the number of Exchangeable Shares outstanding immediately following the
Effective Date and covenants that at all times in the future while any
Exchangeable Shares are outstanding it will keep reserved and available, free
from pre-emptive and other rights, out of its authorized and unissued capital
stock such number of shares of Applied Common Stock (or other shares or
securities into which Applied Common Stock may be reclassified or changed) as is
necessary to enable Applied and the Corporation to perform their respective
obligations pursuant to this agreement, the Exchangeable Share Provisions and
the Voting and Exchange Trust Agreement.
2.4 Notification of Certain Events. In order to assist Applied to comply with
its obligations hereunder, the Corporation will give, or cause the Transfer
Agent to give, Applied notice of each of the following events at the time set
forth below:
(a) in the event of any determination by the Board of Directors of the
Corporation to institute voluntary liquidation, dissolution or winding
<PAGE>
-5-
up proceedings with respect to the Corporation or to effect any other
distribution of the assets of the Corporation among its shareholders
for the purpose of winding up its affairs at least 60 days prior to
the proposed effective date of such liquidation dissolution, winding
up or other distribution;
(b) immediately, upon the earlier of (i) receipt by the Corporation of
notice of, and (ii) the Corporation otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other proceedings
with respect to the involuntary liquidation, dissolution or winding up
of the Corporation or to effect any other distribution of the assets
of the Corporation among its shareholders for the purpose of winding
up its affairs;
(c) immediately, upon receipt by the Transfer Agent of a Retraction
Request;
(d) at least 130 days prior to any accelerated automatic redemption date
determined by the Board of Directors of the Corporation in accordance
with the Exchangeable Share Provisions; and
(e) as soon as practicable upon the issuance by the Corporation of any
Exchangeable Shares or rights to acquire Exchangeable Shares.
2.5 Delivery of Applied Common Stock. In furtherance of its obligations under
subsections 2.1(e) and (f) hereof, upon notice of any event that requires the
Corporation to cause to be delivered Applied Common Stock to any holder of
Exchangeable Shares, Applied shall forthwith issue and deliver the requisite
shares of Applied Common Stock to or to the order of the former holder of the
surrendered Exchangeable Shares, as the Corporation shall direct. All such
shares of Applied Common Stock shall be duly issued as fully paid and
non-assessable and shall be free and clear of any liens. In consideration of the
issuance of each such shares of Applied Common Stock by Applied, the Corporation
shall issue to Applied, or as Applied shall direct, such number of common shares
of the Corporation as is equal to the fair value of such Applied Common Stock.
2.6 Qualification of Applied Common Stock. Applied shall use all reasonable
efforts to obtain and comply with all orders required from the applicable
Canadian securities authorities to permit the issuance of the Applied Common
Stock upon any such exchange of the Exchangeable Shares without registration or
qualification with or approval of or the filing of any document including any
prospectus or similar document or the taking of any proceeding with or the
obtaining of any order, ruling or consent from any governmental or regulatory
authority under any Canadian federal or provincial law or regulation or pursuant
to the rules and regulations of any regulatory authority or the fulfillment of
any other legal requirement before such Applied Common Stock may be issued by
Applied and delivered by the Corporation or Applied to the holder thereof or in
<PAGE>
-6-
order that such Applied Common Stock may be freely traded under the laws of
Canada and the United States thereafter (other than any restrictions on transfer
by reason of a holder being a "control person" of the Corporation or Applied for
purposes of Canadian federal or provincial securities law or an '"affiliate" for
purposes of United States Federal or state securities law).
2.7 Tender Offers, etc. In the event that a tender offer, share exchange offer,
issuer bid, take-over bid or similar transaction with respect to Applied Common
Stock (an "Offer") is proposed by Applied or is proposed to Applied or its
stockholders and is recommended by the Board of Directors of Applied, or is
otherwise effected or to be effected with the consent or approval of the Board
of Directors of Applied, Applied will use all commercially reasonable efforts
expeditiously and in good faith to take all such actions and do all such things
as are necessary or desirable to enable and permit holders of Exchangeable
Shares to participate in such Offer to the same extent and on an economically
equivalent basis as the holders of Applied Common Stock, without discrimination.
Without limiting the generality of the foregoing, Applied will use all
commercially reasonable efforts expeditiously and in good faith to ensure that
holders of Exchangeable Shares may participate in all such Offers without being
required to retract Exchangeable Shares as against the Corporation (or, if so
required, to ensure that any such retraction shall be effective only upon, and
shall be conditional upon, the closing of the Offer and only to the extent
necessary to tender or deposit to the Offer).
2.8 Ownership of Outstanding Shares. Applied covenants and agrees in favour of
the Corporation that, as long as any outstanding Exchangeable Shares are owned
by any person or entity other than Applied or any of its Affiliates, Applied
will be and remain the direct or indirect beneficial owner of all issued and
outstanding shares in the capital of the Corporation (other than Exchangeable
Shares) and all outstanding securities of the Corporation carrying or otherwise
entitled to voting rights in any circumstances (other than Exchangeable Shares),
unless Applied shall have obtained the prior approval of the Corporation and the
holders of the Exchangeable Shares given in accordance with section 9.2 of the
Exchangeable Share Provisions.
2.9 Applied Not To Vote Exchangeable Shares. Applied covenants and agrees that
it will appoint and cause to be appointed proxyholders with respect to all
Exchangeable Shares held by Applied and its Affiliates for the sole purpose of
attending each meeting of holders of Exchangeable Shares in order to be counted
as part of the quorum for each such meeting. Applied further covenants and
agrees that it will not, and will cause its Affiliates not to, exercise any
voting rights that may be exercisable by holders of Exchangeable Shares from
time to time pursuant to the Exchangeable Share Provisions or pursuant to the
provisions of the OBCA with respect to any Exchangeable Shares held by it or by
its Affiliates in respect of any matter considered at any meeting of holders of
Exchangeable Shares, including without limitation any approval to be given by
holders of Exchangeable Shares pursuant to section 9.2 of the Exchangeable Share
Provision.
<PAGE>
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2.10 Due Performance. On and after the Effective Date, Applied shall duly and
timely perform all of its obligations provided for in the Plan of Arrangement,
including any obligations that may arise upon the exercise of Applied's rights
under the Exchangeable Share Provisions.
2.11 Economic Equivalence. Applied hereby acknowledges that it will be bound by
any determination of economic equivalence made by the Board of Directors of the
Corporation pursuant to section 10.1 of the Exchangeable Share Provisions, where
applicable.
ARTICLE III
GENERAL
3.1 Term. This agreement shall come into force and be effective as of the date
hereof and shall terminate and be of no further force and effect at such time as
there are no Exchangeable Shares (or securities or rights convertible into or
exchangeable for or carrying rights to acquire Exchangeable Shares) held by any
party other than Applied and its Affiliates.
3.2 Changes in Capital of Applied and the Corporation. Notwithstanding the
provisions of section 3.4 hereof, at all times after the occurrence of any event
effected pursuant to section 2.7 hereof as a result of which either shares of
Applied Common Stock or the Exchangeable Shares or both are in any way changed,
this agreement shall forthwith be amended and modified as necessary in order
that it shall apply with full force and effect, mutatis mutandis, to all new
securities into which shares of Applied Common Stock or the Exchangeable Shares
or both are so changed and the parties hereto shall execute and deliver an
agreement in writing giving effect to and evidencing such necessary amendments
and modifications.
3.3 Severability. If any provision of this agreement is held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of the
remainder of this agreement shall not in any way be affected or impaired thereby
and this agreement shall be carried out as nearly as possible in accordance with
its original terms and conditions.
3.4 Amendments, Modifications, etc. This agreement may not be amended or
modified except by an agreement in writing executed by the Corporation and
Applied and approved by the holders of the Exchangeable Shares in accordance
with section 11.2 of the Exchangeable Share Provisions.
<PAGE>
-8-
3.5 Ministerial Amendments. Notwithstanding the provisions of section 3.4, the
parties to this agreement may without the approval of the holders of the
Exchangeable Shares, at any time and from time to time, amend or modify this
agreement in writing for the purposes of:
(a) adding to the covenants of either or both parties for the protection
of the holders of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the Board of Directors of each of
the Corporation and Applied, it may be expedient to make, provided
that each such board of directors shall be of the opinion that such
amendments or modifications will not be prejudicial to the interests
of the holders of the Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of counsel to
the Corporation and Applied, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error herein, provided that
the boards of directors of each of the Corporation and Applied shall
be of the opinion that such changes or corrections will not be
prejudicial to the interests of the holders of the Exchangeable
Shares.
3.6 Meeting to Consider Amendments. The Corporation, at the request of
Applied, shall call a meeting or meetings of the holders of the Exchangeable
Shares for the purpose of considering any proposed amendment or modification
requiring approval pursuant to section 3.4 hereof. Any such meeting or meetings
shall be called and held in accordance with the by-laws of the Corporation and
the Exchangeable Share Provisions and applicable law.
3.7 Waivers Only in Writing. No waiver of any of the provisions of this
agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by both of the parties hereto.
3.8 Enurement. This agreement shall be binding upon and enure to the benefit
of the parties hereto and their respective successors and permitted assigns.
3.9 Applied Successors. Applied shall not enter into any transaction (whether
by way of reconstruction, reorganization, consolidation, merger, transfer, sale,
lease or otherwise) whereby all or substantially all its undertaking, property
<PAGE>
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and assets would become the property of any other person or in the case of a
merger, of the continuing corporation resulting therefrom, unless:
(a) such other person or continuing corporation is a corporation (the
"Applied Successor") incorporated under the laws of any state of the
United States or the laws of Canada or any province thereof; and
(b) the Applied Successor, by operation of law, becomes, without more,
bound by the terms and provisions of this agreement or, if not so
bound, executes, prior to or contemporaneously with the consummation
of such transaction, an agreement to be bound by the provisions hereof
as if it were an original party hereto and to observe and perform all
of the covenants and obligations of Applied pursuant to this
agreement, in form satisfactory to the Corporation, acting reasonably.
Nothing herein shall be construed as preventing the amalgamation or merger of
any wholly-owned subsidiary of Applied with or into Applied.
3.10 Notices to Parties. All notices and other communications between the
parties shall be in writing and shall be deemed to have been given if delivered
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for either such party as shall be specified in like
notice):
(a) if to Applied at:
400 Palm Way, Suite 410
Palm Beach, Florida 33480 U.S.A.
Attention: Garrett A. Sullivan
Fax: (561) 366-0002
(b) if to the Corporation at:
555 Richmond Street West
Suite 1108
Toronto, Ontario M5V 3B1
Attention: Donald Swift
Fax: (416) 504-7308
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
<PAGE>
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3.11 Counterparts. This agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
3.12 Jurisdiction. This agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
3.13 Attornment. Applied agrees that any action or proceeding arising out of
or relating to this agreement may be instituted in the courts of Ontario, waives
any objection which it may have now or hereafter to the venue of any such action
or proceeding, irrevocably submits to the jurisdiction of the said courts in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints the
Corporation at its registered office as Applied's attorney for service of
process.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed as of the date first above written.
APPLIED CELLULAR TECHNOLOGY, INC.
By: /s/ Garrett A. Sullivan
--------------------------------------
COMMSTAR LTD.
By: /s/ DA Swift
--------------------------------------
VOTING AND EXCHANGE TRUST AGREEMENT
THIS MEMORANDUM OF AGREEMENT made as of the 30th day of June, 1998,
A M O N G:
APPLIED CELLULAR TECHNOLOGY, INC., a Missouri corporation
(hereinafter called "Applied")
- and -
COMMSTAR LTD., a Canadian corporation
(hereinafter called the "Corporation")
- and -
MONTREAL TRUST COMPANY OF CANADA, a trust company incorporated under the
laws of Canada
(hereinafter called the "Trustee").
AND WHEREAS pursuant to an arrangement (the "Arrangement") effected by
articles of arrangement to be filed pursuant to the Business Corporations Act
(Ontario) (the "OBCA"), all of the issued and outstanding common shares in the
capital of the Corporation are to be exchanged, for either common stock in the
capital of Applied or exchangeable non-voting shares in the capital of the
Corporation (the "Exchangeable Shares");
AND WHEREAS the aforesaid articles of arrangement set forth the rights,
privileges, restrictions and conditions (collectively the "Exchangeable Share
Provisions") attaching to the Exchangeable Shares;
AND WHEREAS Applied is to provide voting rights in Applied directly to each
holder (other than Applied) from time to time of Exchangeable Shares, such
voting rights per Exchangeable Share to be equivalent to the voting rights per
share of the common stock, par value U.S. $0.001 per share, of Applied (the
"Applied Common Stock");
AND WHEREAS Applied is to grant directly to and in favour of the holders
(other than Applied) from time to time of Exchangeable Shares the right, in the
circumstances set forth herein, to require Applied to purchase from each such
<PAGE>
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holder all or any part of the Exchangeable Shares held by the holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in Applied shall be exercisable by
holders (other than Applied) from time to time of Exchangeable Shares by and
through the Trustee, which will hold legal title to one share of Applied Voting
Preferred Stock, U.S. $10.00 par value (the "Applied Special Voting Stock"), to
which voting rights attach for the benefit of such holders and whereby the
rights to require Applied to purchase Exchangeable Shares from the holders
thereof shall be exercisable by such holders from time to time of Exchangeable
Shares by and through the Trustee, which will hold legal title to such rights
for the benefit of such holders;
AND WHEREAS these recitals and any statements of fact in this Agreement are
made by Applied and the Corporation and not by the Trustee;
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this Agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this Agreement the following terms shall have the following
meanings:
"Affiliate" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first-mentioned person; including, without limitation, any
partnership or joint venture in which Commstar Ltd. or Applied, as the case
may be, (either alone, or through or together with any other subsidiary)
has, directly or indirectly, an equity interest of 10 percent or more.
"Applied Common Stock" has the meaning ascribed thereto in the
recitals hereto.
"Applied Consent" has the meaning ascribed thereto in section 4.2 hereof.
"Applied Meeting" has the meaning ascribed thereto in section 4.2 hereof.
"Applied Special Voting Stock" has the meaning ascribed thereto in the
recitals hereto.
"Applied Successor" has the meaning ascribed thereto in subsection 10.1(a).
<PAGE>
-3-
"Arrangement" has the meaning ascribed thereto in the recitals hereto.
"Automatic Exchange Rights" means the benefit of the obligation of
Applied to effect the automatic exchange of shares of Applied Common
Stock for Exchangeable Shares pursuant to section 5.12 hereof.
"Authorized Persons" has the meaning ascribed thereto in section 6.20.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means a day other than a Saturday, a Sunday or a day when
banks are not open for business in one or both of Toronto, Ontario and
St. Louis, Missouri.
"Call Rights" means collectively the Liquidation Call Right, the
Redemption Call Right and the Retraction Call Right.
"Canadian Dollar Equivalent" means in respect of an amount expressed in
a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (a) the Foreign Currency Amount by (b)
the noon spot exchange rate on such date for such foreign currency
expressed in Canadian dollars as reported by the Bank of Canada or, in
the event such spot exchange rate is not available, such exchange rate
on such date for such foreign currency expressed in Canadian dollars as
may be deemed by the Board of Directors to be appropriate for such
purpose.
"Current Market Price" has the meaning ascribed thereto in the Exchangeable
Share Provisions.
"Current Applied Common Stock Equivalent" has the meaning ascribed thereto
in the Exchangeable Share Provisions.
"Default Event" means any failure, other than by reason of an
Insolvency Event, of the Corporation to perform any of its obligations
pursuant to the Exchangeable Share Provisions, including without
limitation its obligation to redeem any Retracted Shares.
"Exchange Right" has the meaning ascribed thereto in section 5.1 hereof.
"Exchangeable Share Provisions" has the meaning ascribed thereto in the
recitals hereto.
"Exchangeable Shares" has the meaning ascribed thereto in the recitals
hereto.
<PAGE>
-4-
"Holder Votes" has the meaning ascribed thereto in section 4.2 hereof.
"Holders" means the registered holders from time to time of
Exchangeable Shares, other than Applied.
"Insolvency Event" means the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved
or wound up, or the consent of the Corporation to the institution of
bankruptcy, insolvency, dissolution or winding up proceedings against
it, or the filing of a petition, answer or consent seeking dissolution
or winding up under any bankruptcy, insolvency or analogous laws,
including without limitation the Companies Creditors' Arrangement Act
(Canada) and the Bankruptcy and Insolvency Act (Canada), and the
failure by the Corporation to contest in good faith any such
proceedings commenced in respect of the Corporation within 15 days of
becoming aware thereof, or the consent by the Corporation to the filing
of any such petition or to the appointment of a receiver, or the making
by the Corporation of a general assignment for the benefit of
creditors, or the admission in writing by the Corporation of its
inability to pay its debts generally as they become due, or the
Corporation not being permitted, pursuant to solvency requirements of
applicable law, to redeem any Retracted Shares pursuant to section 5.1
of the Exchangeable Share Provisions.
"Liquidation Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Liquidation Event" has the meaning ascribed thereto in subsection 5.12(a)
hereof.
"Liquidation Event Effective Date" has the meaning ascribed thereto in
subsection 5.12(c) hereof.
"List" has the meaning ascribed thereto in section 4.6 hereof.
"OBCA" means the Business Corporations Act, (Ontario) as amended.
"Officer's Certificate" means, with respect to Applied or the
Corporation, as the case may be, a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, any
Vice-President or any other senior officer of Applied or the
Corporation, as the case may be.
"Person" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
<PAGE>
-5-
"Plan of Arrangement" means the plan of arrangement of the Corporation
providing for the Arrangement.
"Redemption Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Retracted Shares" has the meaning ascribed thereto in section 5.7
hereof.
"Retraction Call Right" has the meaning ascribed thereto in the Plan of
Arrangement.
"Support Agreement" means that certain support agreement made as of
even date herewith between the Corporation and Applied.
"Trust" means the trust created by this Agreement.
"Trust Estate" means the Voting Share, any other securities, the
Exchange Right, the Automatic Exchange Rights and any money or other
property that may be held by the Trustee from time to time pursuant to
this Agreement.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one share of Applied Special Voting Stock,
issued by Applied, for the benefit of the holders of Exchangeable
Shares, to be deposited with the Trustee, which entitles the holder of
record to a number of votes at meetings of holders of Applied Common
Stock as set forth in section 4.2 hereof.
1.2 Interpretation not Affected by Headings, etc. The division of this Agreement
into articles, sections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.3 Number, Gender, etc. Words importing the singular number only shall include
the plural and vice versa. Words importing the use of any gender shall include
all genders.
1.4 Date for any Action. If any date on which any action is required to be taken
under this Agreement is not a Business Day, such action shall be required to be
taken on the next succeeding Business Day.
1.5 Withholding of Tax. All amounts required to be paid, deposited or delivered
hereunder shall be paid, deposited or delivered after deduction of any amount
required by applicable law to be deducted or withheld on account of tax and the
deduction of such amounts and remittance to the applicable tax authorities
shall, to the extent thereof, satisfy such requirement to pay, deposit or
deliver hereunder.
<PAGE>
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ARTICLE II
PURPOSE OF AGREEMENT
2.1 Establishment of Trust. The purpose of this Agreement is to create the
Trust for the benefit of the Holders, as herein provided. The Trustee will hold
the Voting Share in order to enable the Trustee to exercise the Voting Rights
and will hold the Exchange Right and the Automatic Exchange Rights in order to
enable the Trustee to exercise such rights, in each case as trustee for and on
behalf of the Holders as provided in this Agreement.
ARTICLE III
VOTING SHARE
3.1 Issue and Ownership of the Voting Share. In consideration of the granting
and transfer of the Call Rights to Applied by the Holders, which grant and
transfer is hereby ratified and confirmed by the Trustee for and on behalf of
the Holders, Applied hereby issues to and deposits with the Trustee the Voting
Share to be hereafter held of record by the Trustee as trustee for and on behalf
of, and for the use and benefit of, the Holders and in accordance with the
provisions of this Agreement. Applied hereby acknowledges receipt from the
Trustee as trustee for and on behalf of the Holders of good and valuable
consideration (and the adequacy thereof) for the issuance of the Voting Share by
Applied to the Trustee. During the term of the Trust and subject to the terms
and conditions of this Agreement, the Trustee shall possess and be vested with
full legal ownership of the Voting Share and shall be entitled to exercise all
of the rights and powers of an owner with respect to the Voting Share, provided
that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely
for the use and benefit of the Holders in accordance with the
provisions of this Agreement; and
(b) except as specifically authorized by this Agreement, have no power or
authority to sell, transfer, vote or otherwise deal in or with the
Voting Share and the Voting Share shall not be used or disposed of by
the Trustee for any purpose other than the purposes for which this
Trust is created pursuant to this Agreement.
<PAGE>
-7-
3.2 Legended Share Certificates. The Corporation shall cause each certificate
representing Exchangeable Shares to bear an appropriate legend notifying the
Holders of their right to instruct the Trustee with respect to the exercise of
the Voting Rights with respect to the Exchangeable Shares held by Holders.
Applied will cause the certificate representing the Voting Share to bear a
legend stating that such Voting Share is non-transferrable except as set forth
herein.
3.3 Safe Keeping of Certificate. The certificate representing the Voting Share
shall at all times be held in safe keeping by the Trustee.
ARTICLE IV
VOTING RIGHTS
4.1 Voting Rights. The Trustee, as the holder of record of the Voting Share,
shall be entitled to all of the Voting Rights, including the right to consent to
or to vote in person or by proxy the Voting Share, on any matter, question or
proposition whatsoever that may properly come before the stockholders of Applied
for their vote at an Applied Meeting or in connection with an Applied Consent.
The Voting Rights shall be and remain vested in and exercised by the Trustee.
Subject to section 6.15 hereof, the Trustee shall exercise the Voting Rights
only on the basis of instructions received pursuant to this Article 4 from
Holders entitled to instruct the Trustee as to the voting thereof at the time at
which an Applied Consent is sought or an Applied Meeting is held. To the extent
that no instructions are received from a Holder with respect to the Voting
Rights to which such Holder is entitled to instruct the Trustee hereunder, the
Trustee shall not exercise or permit the exercise of such Voting Rights.
4.2 Number of Votes. With respect to all meetings of stockholders of Applied at
which holders of Applied Common Stock are entitled to vote (an "Applied
Meeting") and with respect to all written consents sought from the holders of
Applied Common Stock (an "Applied Consent"), each Holder shall be entitled to
instruct the Trustee to cast and exercise, in the manner instructed, such number
of votes comprised in the Voting Rights as is equal to the Current Applied
Common Stock Equivalent on the record date established by Applied or by
applicable law for such Applied Meeting or Applied Consent, as the case may be,
for each Exchangeable Share owned of record by such Holder on such record date
(the "Holder Votes") in respect of each matter, question or proposition to be
voted on at such Applied Meeting or to be consented to in connection with such
Applied Consent.
4.3 Mailings to Shareholders. With respect to each Applied Meeting and Applied
Consent, the Trustee shall mail or cause to be mailed (or otherwise communicate
in the same manner as Applied utilizes in communications to holders of Applied
Common Stock), to each of the Holders named in the List, on the same day as the
<PAGE>
-8-
initial mailing of notice (or other communication) with respect thereto is given
by Applied to its stockholders:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to stockholders of
Applied;
(b) a statement that such Holder is entitled to instruct the Trustee as to
the exercise of the Holder Votes with respect to such Applied Meeting
or Applied Consent, as the case may be, or, pursuant to section 4.7
hereof, to attend such Applied Meeting and to exercise personally the
Holder Votes thereat;
(c) a statement as to the manner in which such instructions may be given
to the Trustee, including an express indication that instructions may
be given to the Trustee to give:
(i) a proxy to such Holder or his designee to exercise personally the
Holder Votes; or
(ii) a proxy to a designated agent or other representative of the
management of Applied to exercise such Holder Votes;
(d) a statement that if no such instructions are received from the Holder,
the Holder Votes to which such Holder is entitled will not be
exercised;
(e) a form of direction whereby the Holder may so direct and instruct the
Trustee as contemplated herein; and
(f) a statement of (i) the time and date by which such instructions must
be received by the Trustee in order to be binding upon it, which in
the case of an Applied Meeting shall not be earlier than the close of
business on the second Business Day prior to such meeting, and (ii)
the method for revoking or amending such instructions.
For the purpose of determining Holder Votes to which a Holder is entitled in
respect of any such Applied Meeting or Applied Consent, the number of
Exchangeable Shares owned of record by the Holder shall be determined at the
close of business on the record date established by Applied or by applicable law
for purposes of determining stockholders entitled to vote at such Applied
Meeting or to give written consent in connection with such Applied Consent.
Applied shall notify the Trustee of any decision of the board of directors of
Applied with respect to the calling of any such Applied Meeting or the seeking
by Applied of any such Applied Consent and shall provide all necessary
<PAGE>
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information and materials to the Trustee in each case promptly and in any event
in sufficient time to enable the Trustee to perform its obligations contemplated
by this section 4.3.
4.4 Copies of Stockholder Information. Applied shall deliver to the Trustee
copies of all proxy materials (including notices of Applied Meetings but
excluding proxies to vote Applied Common Stock), information statements, reports
(including without limitation all interim and annual financial statements) and
other written communications that are to be distributed by Applied from time to
time to holders of Applied Common Stock in sufficient quantities and in
sufficient time so as to enable the Trustee to send those materials to each
Holder at the same time as such materials are first sent to holders of Applied
Common Stock. The Trustee shall mail or otherwise send to each Holder, at the
expense of Applied, copies of all such materials (and all materials specifically
directed to the Holders or to the Trustee for the benefit of the Holders by
Applied) received by the Trustee from Applied at the same time as such materials
are first sent to holders of Applied Common Stock. The Trustee shall make copies
of all such materials available for inspection by any Holder at the Trustee's
corporate trust office in Toronto, Ontario.
4.5 Other Materials. Immediately after receipt by Applied of any material sent
or given generally to the holders of Applied Common Stock by or on behalf of a
third party, including without limitation dissident proxy and information
circulars (and related information and material) and tender and exchange offer
circulars (and related information and material), Applied shall use all
commercially reasonable efforts to obtain and deliver to the Trustee copies
thereof in sufficient quantities so as to enable the Trustee to forward such
material (unless the same has been provided directly to Holders by such third
party) to each Holder as soon as possible thereafter. As soon as practicable
after receipt thereof, the Trustee shall mail or otherwise send to each Holder
at the expense of Applied, copies of all such materials received by the Trustee
from Applied. The Trustee shall also make copies of all such materials available
for inspection by any Holder at the Trustee's corporate trust office in Toronto,
Ontario.
4.6 List of Persons Entitled to Vote. The Corporation shall, (a) prior to each
annual, general and special Applied Meeting or the seeking of any Applied
Consent and (b) forthwith upon each request made at any time by the Trustee in
writing, prepare or cause to be prepared a list (a "List") of the names and
addresses of the Holders arranged in alphabetical order and showing the number
of Exchangeable Shares held of record by each such Holder, in each case at the
close of business on the date specified by the Trustee in such request or, in
the case of a List prepared in connection with an Applied Meeting or an Applied
Consent, at the close of business on the record date established by Applied or
pursuant to applicable law for determining the holders of Applied Common Stock
entitled to receive notice of and/or to vote at such Applied Meeting or to give
consent in connection with such Applied Consent. Each such List shall be
delivered to the Trustee promptly after receipt by the Corporation of such
request or the record date for such meeting or seeking of consent, as the case
may be, and in any event within sufficient time as to enable the Trustee to
<PAGE>
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perform its obligations under this Agreement. Applied agrees to give the
Corporation notice (with a copy to the Trustee) of the calling of any Applied
Meeting or the seeking of any Applied Consent, together with the record dates
therefor, sufficiently prior to the date of the calling of such meeting or
seeking of such consent so as to enable the Corporation to perform its
obligations under this section 4.6.
4.7 Entitlement to Direct Votes. Any Holder named in a List prepared in
connection with any Applied Meeting or an Applied Consent shall be entitled (a)
to instruct the Trustee in the manner described in section 4.3 hereof with
respect to the exercise of the Holder Votes to which such Holder is entitled or
(b) to attend such meeting and personally to exercise thereat or to exercise
(with respect to any written consent), as the proxy of the Trustee, the Holder
Votes to which such Holder is entitled pursuant to the procedure set forth in
section 4.8 hereof.
4.8 Voting by Trustee, and Attendance of Trustee Representative, at Meeting.
(a) In connection with each Applied Meeting and Applied Consent, the
Trustee shall exercise, either in person or by proxy, in accordance
with the instructions received from a Holder pursuant to section 4.3
hereof, the Holder Votes to which such Holder is entitled to direct
the vote (or any lesser number thereof as may be set forth in the
instructions); provided, however, that such written instructions are
received by the Trustee from the Holder prior to the time and date
fixed by it for receipt of such instructions in the notice given by
the Trustee to the Holder pursuant to section 4.3 hereof.
(b) The Trustee shall cause such representatives as are empowered by it to
sign and deliver, on behalf of the Trustee, proxies for Voting Rights
and to attend each Applied Meeting. Upon submission by a Holder (or
its designee) of identification satisfactory to the Trustee's
representatives, at the Holder's request, such Trustee representatives
shall sign and deliver to such Holder (or its designee) a proxy to
exercise personally the Holder Votes as to which such Holder is
otherwise entitled hereunder to direct the vote, if such Holder either
(i) has not previously given the Trustee instructions pursuant to
section 4.3 hereof in respect of such meeting, or (ii) submits to the
Trustee's representatives written revocation of any such previous
instructions. At such meeting to the extent permitted by the Missouri
U.S. Law, the Holder exercising such Holder Votes as provided in the
immediately preceding sentence shall have the same rights as the
Trustee to speak at the meeting in respect of any matter, question or
proposition, to vote by way of ballot at the meeting in respect of any
matter, question or proposition and to vote at such meeting by way of
a show of hands in respect of any matter, question or proposition.
<PAGE>
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4.9 Distribution of Written Materials. Any written materials to be distributed
by the Trustee to the Holders pursuant to this Agreement shall be delivered or
sent by mail (or otherwise communicated in the same manner as Applied utilizes
in communications to holders of Applied Common Stock) to each Holder at its
address as shown on the books of the Corporation or the transfer agent, as
applicable. The Corporation shall provide or cause to be provided to the Trustee
for this purpose on a timely basis and without charge or other expense:
(a) a List; and
(b) mailing labels to enable the Trustee to carry out its duties under
this Agreement.
4.10 Termination of Voting Rights. Except with respect to an Applied Meeting or
Applied Consent for which the record date has occurred, all of the rights of a
Holder with respect to the Holder Votes exercisable in respect of the
Exchangeable Shares held by such Holder, including the right to instruct the
Trustee as to the voting of or to vote personally such Holder Votes, shall be
deemed to be surrendered by the Holder to Applied and such Holder Votes and the
Voting Rights represented thereby shall cease immediately upon the delivery by
such Holder to the Trustee of the certificates representing such Exchangeable
Shares in connection with the exercise by the Holder of the Exchange Right or
the occurrence of the automatic exchange pursuant to the Automatic Exchange
Rights (unless in either case Applied shall not have delivered the requisite
Applied Common Stock issuable in exchange therefor to the Trustee for delivery
to the Holders), or upon the redemption of Exchangeable Shares pursuant to
Article 5 or Article 6 of the Exchangeable Share Provisions, or upon the
effective date of the liquidation, dissolution or winding-up of the Corporation
pursuant to Article 4 of the Exchangeable Share Provisions, or upon the purchase
of Exchangeable Shares from the Holder thereof by Applied pursuant to the
exercise by Applied of the Retraction Call Right, the Redemption Call Right or
the Liquidation Call Right.
4.11 Issue of Additional Shares. During the term of this Agreement, Applied
will not issue any shares of Applied Special Voting Stock, in addition to the
Voting Share.
ARTICLE V
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 Grant and Ownership of the Exchange Right. In consideration of the granting
and transfer of the Call Rights to Applied by the Holders, Applied hereby grants
to the Trustee as trustee for and on behalf of, and for the use and benefit of,
the Holders (a) the right (the "Exchange Right"), upon the occurrence and during
the continuance of an Insolvency Event or Default Event, to require Applied to
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purchase from each Holder all or any part of the Exchangeable Shares held by
such Holder and (b) the Automatic Exchange Rights, all in accordance with the
provisions of this Agreement. Applied hereby acknowledges receipt from the
Trustee as trustee for and on behalf of the Holders of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Right and
the Automatic Exchange Rights by Applied to the Trustee for the benefit of the
Holders. During the term of the Trust and subject to the terms and conditions of
this Agreement, the Trustee shall possess and be vested with full legal
ownership of the Exchange Right and the Automatic Exchange Rights and shall be
entitled to exercise all of the rights and powers of an owner with respect to
the Exchange Right and the Automatic Exchange Rights, provided that the Trustee
shall:
(a) hold the Exchange Right and the Automatic Exchange Rights and the
legal title thereto as trustee solely for the use and benefit of the
Holders in accordance with the provisions of this Agreement; and
(b) except as specifically authorized by this Agreement, have no power or
authority to exercise or otherwise deal in or with the Exchange Right
or the Automatic Exchange Rights, and the Trustee shall not exercise
any such rights for any purpose other than the purposes for which this
Trust is created pursuant to this Agreement.
5.2 Legended Share Certificates. The Corporation shall cause each certificate
for Exchangeable Shares to bear an appropriate legend notifying the Holders of:
(a) their right to instruct the Trustee with respect to the exercise of
the Exchange Right in respect of the Exchangeable Shares held by a
Holder; and
(b) the Automatic Exchange Rights.
5.3 General Exercise of Exchange Right. The Exchange Right shall be and remain
vested in and exercisable by the Trustee. Subject to section 6.15 hereof, the
Trustee shall exercise the Exchange Right only on the basis of instructions
received pursuant to this Article 5 from Holders entitled to instruct the
Trustee as to the exercise thereof. To the extent that no instructions are
received from a Holder with respect to the Exchange Right, the Trustee shall not
exercise or permit the exercise of the Exchange Right.
5.4 Purchase Price The purchase price payable by Applied for each Exchangeable
Share to be purchased by Applied under the Exchange Right shall be an amount per
share equal to (a) the Current Market Price multiplied by the Current Applied
Common Stock Equivalent, in each case determined on the day of closing of the
purchase and sale of such Exchangeable Share under the Exchange Right, which
<PAGE>
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shall be satisfied in full in respect of the Exchangeable Shares in regard to
which a Holder has exercised the Exchange Right by causing to be delivered to
such Holder such whole number of shares of Applied Common Stock as is equal to
the product obtained by multiplying the number of such Exchangeable Shares by
the Current Applied Common Stock Equivalent, rounded down to the nearest whole
number, plus (b) the aggregate of all dividends declared and unpaid on each such
Exchangeable Share (provided that if the record date for any such declared and
unpaid dividends occurs on or after the day of closing of such purchase and sale
the purchase price shall not include such declared and unpaid dividends).
5.5 Exercise Instructions. Subject to the terms and conditions herein set forth,
a Holder shall be entitled, upon the occurrence and during the continuance of an
Insolvency Event or a Default Event, to instruct the Trustee to exercise the
Exchange Right with respect to all or any part of the Exchangeable Shares
registered in the name of such Holder on the books of the Corporation or the
transfer agent, as applicable. To cause the exercise of the Exchange Right by
the Trustee, the Holder shall deliver to the Trustee, in person or by certified
or registered mail, at its corporate trust office in Toronto, Ontario or at such
other place as the Trustee may from time to time designate by written notice to
the Holders, the certificates representing the Exchangeable Shares that such
Holder desires Applied to purchase, duly endorsed in blank, and accompanied by
such other documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and the by-laws of the Corporation and such
additional documents and instruments as the Trustee may reasonably require
together with (a) a duly completed form of notice of exercise of the Exchange
Right, in the form attached hereto as Schedule A, or attached to the
Exchangeable Share certificates, stating (i) that the Holder thereby instructs
the Trustee to exercise the Exchange Right so as to require Applied to purchase
from the Holder the number of Exchangeable Shares specified therein, (ii) that
such Holder has good title to and owns all such Exchangeable Shares to be
acquired by Applied free and clear of all liens, (iii) the names in which the
certificates representing Applied Common Stock issuable in connection with the
exercise of the Exchange Right are to be issued and (iv) the names and addresses
of the persons to whom such new certificates should be delivered and (b) payment
(or evidence satisfactory to the Trustee, the Corporation and Applied of
payment) of the taxes (if any) payable as contemplated by section 5.8 of this
Agreement. If only a part of the Exchangeable Shares represented by any
certificate or certificates delivered to the Trustee are to be purchased by
Applied under the Exchange Right, a new certificate for the balance of such
Exchangeable Shares shall be issued to the holder at the expense of the
Corporation.
5.6 Delivery of Applied Common Stock: Effect of Exercise. Promptly after receipt
of the certificates representing the Exchangeable Shares that the Holder desires
Applied to purchase under the Exchange Right (together with such documents and
instruments of transfer and a duly completed form of notice of exercise of the
Exchange Right (and payment of taxes, if any, or evidence thereof in accordance
with section 5.8)), duly endorsed for transfer to Applied, the Trustee shall
<PAGE>
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notify Applied of its receipt of the same, by notice in the form of Schedule B
hereto, which notice to Applied shall constitute exercise of the Exchange Right
by the Trustee on behalf of the holder of such Exchangeable Shares and Applied
shall immediately thereafter deliver or cause to be delivered to the Trustee,
for delivery to the Holder of such Exchangeable Shares (or to such other
persons, if any, properly designated by such Holder), the certificates for the
number of shares of Applied Common Stock issuable in connection with the
exercise of the Exchange Right, which shares shall be duly issued as fully paid
and non-assessable and shall be free and clear of any liens, and cheques for the
balance, if any, of the total purchase price therefor (or, if part of the
purchase price consists of dividends payable in property, such property or
property the same as or economically equivalent to such property). Immediately
upon the giving of notice by the Trustee to Applied of the exercise of the
Exchange Right, as provided in this section 5.6, the closing of the transaction
of purchase and sale contemplated by the Exchange Right shall be deemed to have
occurred, and the Holder of such Exchangeable Shares shall be deemed to have
transferred to Applied all of its right, title and interest in and to such
Exchangeable Shares and in the related interest in the Trust Estate and shall
cease to be a holder of such Exchangeable Shares and shall not be entitled to
exercise any of the rights of a holder in respect thereof, other than the right
to receive the purchase price therefor, unless the requisite number of shares of
Applied Common Stock (together with a cheque for the balance, if any, of the
purchase price therefor or, if part of the purchase price consists of dividends
payable in property, such property or property the same as or economically
equivalent to such property) is not allotted, issued and delivered by Applied to
the Trustee for delivery to such Holder (or to other persons, if any, properly
designated by such Holder) within five Business Days of the date of the giving
of such notice by the Trustee, in which case the rights of the Holder shall
remain unaffected until such shares of Applied Common Stock are so allotted,
issued and delivered by Applied and any such cheque or property is so delivered
and paid. Concurrently with such Holder ceasing to be a holder of Exchangeable
Shares, the Holder shall be considered and deemed for all purposes to be the
holder of the shares of Applied Common Stock delivered to it pursuant to the
Exchange Right. The Trustee shall deliver to the Corporation's transfer agent
and registrar the certificates for the Exchangeable Shares so transferred to be
cancelled and new certificates in the name of Applied issued in respect thereof
and shall deliver or cause to be delivered such Exchangeable Shares to Applied.
The Trustee shall not be responsible or liable in any manner whatsoever
for the sufficiency, correctness, genuineness or validity of any security
deposited with it. The Trustee shall incur no liability with respect to the
delivery or non-delivery of any certificate or certificates whether delivered by
hand, mail or any other means.
5.7 Exercise of Exchange Right Subsequent to Retraction. In the event that a
Holder has exercised its right under Article 5 of the Exchangeable Share
Provisions to require the Corporation to redeem any or all of the Exchangeable
Shares held by the Holder (the "Retracted Shares") and is notified by the
<PAGE>
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Corporation pursuant to section 5.6 of the Exchangeable Share Provisions that
the Corporation is not permitted as a result of solvency requirements of
applicable law to redeem all of such Retracted Shares, and provided that Applied
shall not have exercised the Retraction Call Right with respect to the Retracted
Shares, the retraction request shall constitute and shall be deemed to
constitute notice from the Holder to the Trustee instructing the Trustee to
exercise the Exchange Right with respect to those Retracted Shares that the
Corporation is unable to redeem. In any such event, the Corporation hereby
agrees with the Trustee and in favour of the Holder immediately to notify the
Trustee of such prohibition against the Corporation redeeming all of the
Retracted Shares and immediately to forward or cause to be forwarded to the
Trustee all relevant materials delivered by the Holder to the Corporation or to
the transfer agent of the Exchangeable Shares (including without limitation a
copy of the retraction request delivered pursuant to section 5.1 of the
Exchangeable Share Provisions) in connection with such proposed redemption of
the Retracted Shares and the Trustee shall thereupon exercise the Exchange Right
with respect to the Retracted Shares that the Corporation is not permitted to
redeem and will require Applied to purchase such shares in accordance with the
provisions of this Article. The Trustee shall deliver to the Corporation's
transfer agent and registrar the certificates for the Exchangeable Shares so
transferred to be cancelled and new certificates in the name of Applied issued
in respect thereof and shall deliver or cause to be delivered such Exchangeable
Shares to Applied.
5.8 Stamp or Other Transfer Taxes. Upon any sale of Exchangeable Shares to
Applied pursuant to the Exchange Right or the Automatic Exchange Rights, the
share certificate or certificates representing Applied Common Stock to be
delivered in connection with the payment of the purchase price therefor shall be
issued in the name of the Holder of the Exchangeable Shares so sold or in such
names as such Holder may otherwise direct in writing without charge to the
holder of the Exchangeable Shares so sold, provided, however, that such Holder
(a) shall pay (and neither Applied, the Corporation nor the Trustee shall be
required to pay) any documentary, stamp, transfer or other similar taxes that
may be payable in respect of any transfer involved in the issuance or delivery
of such shares to a person other than such Holder and (b) shall establish to the
satisfaction of the Trustee, Applied and the Corporation that such taxes, if
any, have been paid.
5.9 Notice of Insolvency Event or Default Event. Immediately upon the occurrence
of an Insolvency Event or Default Event or any event that with the giving of
notice or the passage of time or both would be an Insolvency Event or Default
Event, the Corporation and Applied shall give written notice thereof to the
Trustee. As soon as practicable after receiving notice from the Corporation and
Applied or from any other person of the occurrence of an Insolvency Event or
Default Event, the Trustee shall mail to each Holder, at the expense of Applied,
a notice of such Insolvency Event or Default Event, which notice shall contain a
brief statement of the right of the Holders with respect to the Exchange Right.
<PAGE>
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5.10 Qualification of Applied Common Stock. Applied shall use all reasonable
efforts to obtain all orders required from the applicable Canadian securities
authorities to permit the issuance of the shares of Applied Common Stock upon
any such exchange of the Exchangeable Shares without registration or
qualification with or approval of or the filing of any document including any
prospectus or similar document or the taking of any proceeding with or the
obtaining of any order, ruling or consent from any governmental or regulatory
authority under any Canadian federal or provincial law or regulation or pursuant
to the rules and regulations of any regulatory authority or the fulfillment of
any other legal requirement before such shares of Applied Common Stock may be
issued by Applied and delivered by the Corporation or Applied to the holder
thereof or in order that such Applied Common Stock may be freely traded under
the laws of Canada and the United States thereafter (other than any restrictions
on transfer by reason of a holder being a "control person" of the Corporation or
Applied for purposes of Canadian federal or provincial securities law or an
"affiliate" for purposes of the United States Federal or state securities law).
5.11 Reservation of Applied Common Stock. Applied hereby represents and warrants
that it has irrevocably reserved for issuance out of its authorized and unissued
capital stock such number of shares of Applied Common Stock as is equal to the
number of Exchangeable Shares outstanding at the date hereof and covenants that
it will at all times keep available, free from pre-emptive and other rights, out
of its authorized and unissued capital stock such number of shares of Applied
Common Stock (or other shares or securities into which Applied Common Stock may
be reclassified or changed) as is necessary to enable Applied and the
Corporation to perform their respective obligations pursuant to this Agreement,
the Exchangeable Share Provisions and the Support Agreement.
5.12 Automatic Exchange on Liquidation of Applied.
(a) Applied shall give the Trustee written notice of each of the following
events (a "Liquidation Event") at the time set forth below:
(i) in the event of any determination by the Board of Directors of
Applied to institute voluntary liquidation, dissolution or
winding-up proceedings with respect to Applied or to effect any
other distribution of assets of Applied among its stockholders
for the purpose of winding up its affairs, at least 60 days prior
to the proposed effective date of such liquidation, dissolution,
winding-up or other distribution; and
(ii) immediately, upon the earlier of (A) receipt by Applied of notice
of and (B) Applied otherwise becoming aware of, any threatened or
instituted claim, suit, petition or other proceedings with
<PAGE>
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respect to the involuntary liquidation, dissolution or winding up
of Applied or to effect any other distribution of assets of
Applied among its stockholders for the purpose of winding up its
affairs, provided, however, that if, in the reasonable
determination of the Board of Directors of Applied there is no
valid basis for such proceedings, Applied need not provide such
notice if the proceedings are dismissed, withdrawn or otherwise
terminated within 30 days of Applied becoming aware thereof.
(b) Immediately following receipt by the Trustee from Applied of notice of
any Liquidation Event, the Trustee shall give notice thereof to the
Holders. Such notice shall include a brief description of the
automatic exchange of Exchangeable Shares for Applied Common Stock
provided for in subsection 5.12(c) below.
(c) In order that the Holders will be able to participate on a pro rata
basis with the holders of Applied Common Stock in the distribution of
assets of Applied in connection with a Liquidation Event, on the fifth
Business Day prior to the effective date of any liquidation, winding
up or dissolution giving rise to a Liquidation Event (the "Liquidation
Event Effective Date") all of the then outstanding Exchangeable Shares
shall be automatically exchanged by the Holders directly with Applied
for Applied Common Stock. To effect such automatic exchange, Applied
shall purchase each Exchangeable Share outstanding on the fifth
Business Day prior to the Liquidation Event Effective Date and held by
Holders, and each Holder shall sell to Applied the Exchangeable Shares
held by it at such time, for a purchase price per share equal to (a)
the Current Market Price multiplied by the Current Applied Common
Share Equivalent on such fifth Business Day prior to the Liquidation
Event Effective Date, which shall be satisfied in full in respect of
the Exchangeable Shares held by each Holder by Applied issuing to such
Holder such whole number of shares of Applied Common Stock as is equal
to the product obtained by multiplying the number of such Exchangeable
Shares by the Current Applied Common Share Equivalent, plus (b) an
additional amount equal to the aggregate of all dividends declared and
unpaid on each such Exchangeable Share (provided that if the record
date for any such declared and unpaid dividends occurs on or after the
day of closing of such purchase and sale, the purchase price shall not
include such additional amount equal to such declared and unpaid
dividends). No certificates or scrip representing fractional Applied
Common Stock shall be delivered to holders of Exchangeable Shares
pursuant to the provisions hereof.
(d) On the fifth Business Day prior to the Liquidation Event Effective
Date, the closing of the transaction of purchase and sale contemplated
by the automatic exchange of Exchangeable Shares for shares of Applied
<PAGE>
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Common Stock shall be deemed to have occurred, and each Holder of
Exchangeable Shares shall be deemed to have transferred to Applied all
of the Holder's right, title and interest in and to such Exchangeable
Shares and the related interest in the Trust Estate and shall cease to
be a Holder of such Exchangeable Shares and Applied shall issue to the
Holder the Applied Common Stock issuable upon the automatic exchange
of Exchangeable Shares for Applied Common Stock and shall deliver to
the Trustee for delivery to the Holder a cheque for the balance, if
any, of the purchase price for such Exchangeable Shares (or, if any
part of the purchase price consists of dividends payable in property,
such property or property that is the same as or economically
equivalent to such property). Concurrently with such Holder ceasing to
be a holder of Exchangeable Shares, the Holder shall be considered and
deemed for all purposes to be the holder of the Applied Common Stock
issued to it pursuant to the automatic exchange of Exchangeable Shares
for Applied Common Stock and the certificates held by the Holder
previously representing the Exchangeable Shares exchanged by the
Holder with Applied pursuant to such automatic exchange shall
thereafter be deemed to represent the Applied Common Stock issued to
the Holder by Applied pursuant to such automatic exchange. Upon the
request of a Holder and the surrender by the Holder of Exchangeable
Share certificates deemed to represent Applied Common Stock, duly
endorsed in blank and accompanied by such instruments of transfer as
Applied may reasonably require, Applied shall deliver or cause to be
delivered to the Holder certificates representing the Applied Common
Stock of which the Holder is the holder. The Trustee shall cause the
certificates for the Exchangeable Shares so transferred to be
cancelled and new certificates in the name of Applied issued in
respect thereof.
5.13 Withholding Rights. Applied and the Trustee shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of Exchangeable Shares such amounts as Applied or the Trustee is
required or permitted to deduct and withhold with respect to the making of such
payment under the United States Internal Revenue Code of 1986, as amended, the
Income Tax Act (Canada) or any provision of state, local or provincial tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the Exchangeable Shares in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted to the
appropriate taxing authority. To the extent that the amount so required or
permitted to be deducted or withheld from any payment to a holder exceeds the
cash portion of the consideration otherwise payable to the holder, Applied or
the Trustee is hereby authorized to sell or otherwise dispose of at fair market
value such portion of the consideration as is necessary to provide sufficient
<PAGE>
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funds to Applied or the Trustee, as the case may be, in order to enable it to
comply with such deduction or withholding requirement and shall account to the
relevant Holder for any balance of any such sale proceeds.
If upon the occurrence of an Insolvency Event, a non-Canadian resident
Holder instructs the Trustee to exercise the Exchange Right, Applied shall
provide the Trustee, by certified cheque money order or bank draft, with
sufficient funds to satisfy any withholding taxes applicable in connection with
the sale of such Holder's Exchangeable Shares to Applied, otherwise such
exchange shall not have occurred or be deemed to have occurred. The "fair market
value" of a share of Applied Common Stock at a particular date shall, for the
purposes of calculating any applicable withholding taxes, be the Current Market
Price or shall be determined by such other method of valuation which has been
recommended or suggested by Revenue Canada as providing a satisfactory
assessment of such fair market value. Any determination of Current Market Price
or other fair market value assessment shall be made by Applied, who shall
provide the Trustee and Holders of Exchangeable Shares with written notice of
the same. Such determination shall be binding on the Trustee and Holders, who
shall be able to rely on such determination without further verification of the
same. Prior to making any distribution to Holders of Exchangeable Shares,
Applied or the Corporation, as the case may be, shall ensure that the Trustee
has access to sufficient funds (by directly providing, if necessary, such funds
to the Trustee) to enable the Trustee to comply with any applicable withholding
taxes in connection with such distribution.
ARTICLE VI
CONCERNING THE TRUSTEE
6.1 Powers and Duties of the Trustee. The rights, powers and authorities of the
Trustee under this Agreement, in its capacity as trustee of the Trust, shall
include:
(a) receipt and depositing of the Voting Share from Applied as trustee for
and on behalf of the Holders in accordance with the provisions of this
Agreement;
(b) granting proxies and distributing materials to Holders as provided in
this Agreement;
(c) voting the Holder Votes in accordance with the provisions of this
Agreement;
(d) receiving the grant of the Exchange Right and the Automatic Exchange
Rights from Applied as trustee for and on behalf of the Holders in
accordance with the provisions of this Agreement;
<PAGE>
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(e) exercising the Exchange Right and enforcing the benefit of the
Automatic Exchange Rights, in each case in accordance with the
provisions of this Agreement and in connection therewith receiving
from Holders Exchangeable Shares and other requisite documents and
distributing to such Holders the Applied Common Stock and cheques, if
any, to which such Holders are entitled upon the exercise of the
Exchange Right or pursuant to the Automatic Exchange Rights, as the
case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the Trust
Estate as provided in this Agreement;
(h) taking action on its own initiative or at the direction of a Holder or
Holders to enforce the obligations of Applied under this Agreement;
and
(i) taking such other actions and doing such other things as are
specifically provided in this Agreement.
In the exercise of such rights, powers and authorities the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this Agreement as the
Trustee, acting in good faith and in the reasonable exercise of its discretion,
may deem necessary, appropriate or desirable to effect the purpose of the Trust.
Any exercise of such discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in this
Agreement.
The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best interests
of the Holders and shall exercise the care, diligence and skill that a
reasonably prudent trustee would exercise in comparable circumstances.
Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall obligate the Trustee to have knowledge of, comply with or
otherwise act in accordance with laws or regulations of a jurisdiction other
than the Province of Ontario and the laws of Canada applicable therein.
<PAGE>
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6.2 No Conflict of Interest. The Trustee represents to the Corporation and
Applied that at the date of execution and delivery of this Agreement there
exists no material conflict of interest in the role of the Trustee as a
fiduciary hereunder and the role of the Trustee in any other capacity. The
Trustee shall, within 30 days after it becomes aware that such a material
conflict of interest exists, either eliminate such material conflict of interest
or resign in the manner and with the effect specified in Article 9 hereof. If,
notwithstanding the foregoing provisions of this section 6.2, the Trustee has
such a material conflict of interest, the validity and enforceability of this
Agreement shall not be affected in any manner whatsoever by reason only of the
existence of such material conflict of interest. If the Trustee contravenes the
foregoing provisions of this section 6.2, any interested party may apply to the
Ontario Court (General Division) for an order that the Trustee be replaced as
trustee hereunder.
6.3 Dealings with Transfer Agents, Registrars, etc. The Corporation and Applied
irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective registrars
and transfer agents, and with any such subsequent registrar or
transfer agent, of the Exchangeable Shares and Applied Common Stock;
and
(b) requisition, from time to time, (i) from any such registrar or
transfer agent any information readily available from the records
maintained by it which the Trustee may reasonably require for the
discharge of its duties and responsibilities under this Agreement and
(ii) from the transfer agent of Applied Common Stock, and any
subsequent transfer agent of such shares, the share certificates
issuable upon the exercise from time to time of the Exchange Right and
pursuant to the Automatic Exchange Rights in the manner specified in
Article 5 hereof.
The Corporation and Applied irrevocably authorize their respective registrars
and transfer agents to comply with all such requests. Applied covenants that it
will supply its transfer agent with duly executed share certificates for the
purpose of completing the exercise from time to time of the Exchange Right and
the Automatic Exchange Rights, in each case pursuant to Article 5 hereof.
6.4 Books and Records. The Trustee shall keep available for inspection by
Applied and the Corporation, at the Trustee's corporate trust office in Toronto,
Ontario, correct and complete books and records of account relating to the
Trustee's actions under this Agreement, including without limitation all
information relating to mailings and instructions to and from Holders and all
transactions pursuant to the Voting Rights, the Exchange Right and the Automatic
Exchange Rights for the term of this Agreement. On or before October 31, 1998
and on or before October 31 in every year thereafter, so long as the Voting
Share is on deposit with the Trustee, the Trustee shall transmit to Applied and
the Corporation a brief report, dated as of the preceding October 31, with
respect to:
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(a) the property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the Trustee on
behalf of Holders in consideration of the issue and delivery by
Applied of Applied Common Stock in connection with the Exchange Right,
during the calendar year ended on such date; and
(c) all other actions taken by the Trustee in the performance of its
duties under this Agreement that it had not previously reported.
6.5 Income Tax Returns and Reports. The Trustee shall, to the extent necessary,
prepare and file on behalf of the Trust applicable United States and Canadian
income tax returns, if any, and any other returns or reports as may be required
by applicable law or pursuant to the rules and regulations of any securities
exchange or other trading system through which the Exchangeable Shares are
traded and, in connection therewith, may obtain the advice and assistance of
such experts as the Trustee may consider necessary or desirable. If requested by
the Trustee, Applied shall retain such experts for purposes of providing such
advice and assistance.
6.6 Indemnification Prior to Certain Actions by Trustee. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested in it by
this Agreement at the request, order or direction of any Holder upon such Holder
furnishing to the Trustee reasonable funding, security and indemnity against the
costs, expenses and liabilities that may be incurred by the Trustee therein or
thereby, provided that no Holder shall be obligated to furnish to the Trustee
any such funding, security or indemnity in connection with the exercise by the
Trustee of any of its rights, duties, powers and authorities with respect to (i)
the Voting Share pursuant to Article 4 hereof, subject to section 6.15 hereof,
(ii) the Exchange Right pursuant to Article 5 hereof, subject to section 6.15
hereof, and (iii) the Automatic Exchange Rights pursuant to Article 5 hereof.
None of the provisions contained in this Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur financial liability
in the exercise of any of its rights, powers, duties or authorities unless
funded and given security and indemnity as aforesaid.
6.7 Actions by Holders. No Holder shall have the right to institute any action,
suit or proceeding or to exercise any other remedy authorized by this Agreement
for the purpose of enforcing any of its rights or for the execution of any trust
or power hereunder unless the Holder has requested the Trustee to take or
<PAGE>
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institute such action, suit or proceeding and furnished the Trustee with the
funding, security and indemnity referred to in section 6.6 hereof and the
Trustee shall have failed to act within a reasonable time thereafter. In such
case, but not otherwise, the Holder shall be entitled to take proceedings in any
court of competent jurisdiction such as the Trustee might have taken, it being
understood and intended that no one or more Holders shall have any right in any
manner whatsoever to affect, disturb or prejudice the rights hereby created by
any such action, or to enforce any right hereunder or under the Voting Rights,
the Exchange Right or the Automatic Exchange Rights except subject to the
conditions and in the manner herein provided, and that all powers and trusts
hereunder shall be exercised and all proceedings at law shall be instituted, had
and maintained by the Trustee, except only as herein provided, and in any event
for the benefit of all Holders.
6.8 Reliance upon Declarations. The Trustee shall not be considered to be in
contravention of any of its rights, powers, duties and authorities hereunder if,
when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other papers
or documents furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder and such lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
comply with the provisions of section 6.8 hereof, if applicable, and with any
other applicable provisions of this Agreement.
6.9 Evidence and Authority to Trustee. The Corporation and/or Applied shall
furnish to the Trustee evidence of compliance with the conditions provided for
in this Agreement relating to any action or step required or permitted to be
taken by the Corporation and/or Applied or the Trustee under this Agreement or
as a result of any obligation imposed under this Agreement, including, without
limitation, in respect of the Voting Rights, the Exchange Right or the Automatic
Exchange Rights and the taking of any other action to be taken by the Trustee at
the request of or on the application of the Corporation and/or Applied forthwith
if and when:
(a) such evidence is required by any other section of this Agreement to be
furnished to the Trustee in accordance with the terms of this section
6.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this Agreement, gives the Corporation and/or Applied
written notice requiring it to furnish such evidence in relation to
any particular action or obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of the Corporation
and/or Applied or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such condition has
been complied with in accordance with the terms of this Agreement.
<PAGE>
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Whenever such evidence relates to a matter other than the Voting Rights,
the Exchange Right or the Automatic Exchange Rights, and except as otherwise
specifically provided herein, such evidence may consist of a report or opinion
of any solicitor, auditor, accountant, appraiser, valuer, engineer or other
expert or any other person whose qualifications give authority to a statement
made by him, provided that if such report or opinion is furnished by a director,
officer or employee of the Corporation and/or Applied it shall be in the form of
an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the
Trustee as evidence of compliance with a condition provided for in this
Agreement shall include a statement by the person giving the evidence:
(a) declaring that he has read and understands the provisions of this
Agreement relating to the condition in question;
(b) describing the nature and scope of the examination or investigation
upon which he based the statutory declaration, certificate, statement
or opinion; and
(c) declaring that he has made such examination or investigation as he
believes is necessary to enable him to make the statements or give the
opinions contained or expressed therein.
6.10 Experts, Advisers and Agents.
The Trustee may:
(a) in relation to this Agreement act and rely on the opinion or advice of
or information obtained from any solicitor, auditor, accountant,
appraiser, valuer, engineer or other expert, whether retained by the
Trustee or by the Corporation and/or Applied or otherwise, and may
employ such assistants as may be necessary to the proper discharge of
its powers and duties and determination of its rights hereunder and
may pay proper and reasonable compensation for all such legal and
other advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably require
for the proper discharge of its powers and duties hereunder, and may
pay reasonable remuneration for all services performed for it in the
discharge of the trusts hereof and compensation for all disbursements,
<PAGE>
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costs and expenses made or incurred by it in the discharge of its
duties hereunder and in the management of the Trust.
6.11 Investment of Moneys Held By Trustee. Unless otherwise provided in this
Agreement, any moneys held by or on behalf of the Trustee that under the terms
of this Agreement may or ought to be invested or which may be on deposit with
the Trustee or that may be in the hands of the Trustee may be invested and
reinvested in the name or under the control of the Trustee in securities in
which, under the laws of Canada, trustees are authorized to invest trust moneys,
provided that such securities are stated to mature within two years after their
purchase by the Trustee, and are invested in such specific securities as
directed in writing by the Corporation and Applied. Pending the receipt of any
direction and investment of any moneys as hereinbefore provided, such moneys may
be deposited in the name of the Trustee in an interest-bearing trust account of
the Trustee.
6.12 Trustee Not Required to Give Security. The Trustee shall not be required
to give any bond or security in respect of the execution of the trusts, rights,
duties, powers and authorities of this Agreement.
6.13 Trustee Not Bound to Act on Corporation's or Applied's Request. Except as
in this Agreement otherwise specifically provided, the Trustee shall not be
bound to act in accordance with any direction or request of the Corporation
and/or Applied or of the directors thereof until a duly authenticated copy of
the instrument or resolution containing such direction or request shall have
been delivered to the Trustee, and the Trustee shall be empowered to act and
rely upon any such copy purporting to be authenticated and believed by the
Trustee in good faith to be genuine.
6.14 Authority to Carry on Business. The Trustee represents to the Corporation
and Applied that at the date of execution and delivery by it of this Agreement
it is authorized to perform its obligations pursuant to this Agreement under all
applicable laws but if, notwithstanding the provisions of this section 6.14, it
ceases to be so authorized, the validity and enforceability of this Agreement
and the Voting Rights, the Exchange Right and the Automatic Exchange Rights
shall not be affected in any manner whatsoever by reason only of such event but
the Trustee shall, within 30 days after ceasing to be so authorized, either
become so authorized or resign in the manner and with the effect specified in
Article 9 hereof.
6.15 Conflicting Claims. If conflicting claims or demands are made or asserted
with respect to any interest of any Holder in any Exchangeable Shares, including
any disagreement between the heirs, representatives, successors or assigns
succeeding to all or any part of the interest of any Holder in any Exchangeable
Shares resulting in conflicting claims or demands being made in connection with
such interest, then the Trustee shall be entitled, at its sole discretion, to
<PAGE>
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refuse to recognize or to comply with any such claim or demand. In so refusing,
the Trustee may elect not to exercise any Voting Rights, Exchange Rights or
Automatic Exchange Rights subject to such conflicting claims or demands and, in
so doing, the Trustee shall not be or become liable to any person on account of
such election or its failure or refusal to comply with any such conflicting
claims or demands. The Trustee shall be entitled to continue to refrain from
acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting Rights,
Exchange Rights or Automatic Exchange Rights subject to such
conflicting claims or demands have been adjudicated by a final
judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Right or
Automatic Exchange Rights subject to such conflicting claims or
demands have been conclusively settled by a valid written agreement
binding on all such adverse claimants, and the Trustee shall have been
furnished with an executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by
any such adverse claimant, it may in its discretion require such claimant to
furnish such surety bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
6.16 Acceptance of Trust. The Trustee hereby accepts the Trust created and
provided for by and in this Agreement and agrees to perform the same upon the
terms and conditions herein set forth and to hold all rights, privileges and
benefits conferred hereby and by law in trust for the various persons who shall
from time to time be Holders, subject to all the terms and conditions herein set
forth.
6.17 Notice to Trustee. The Trustee shall not be bound to give any notice or do
or take any act, action or proceeding by virtue of the powers conferred on it
hereby unless and until it shall have been required to do so under the terms of
this Agreement; nor shall the Trustee be required to take notice of, be deemed
to have actual or constructive notice or knowledge of any matter under this
Agreement, or take any action in connection with any notice of any Applied
Meeting or the seeking of any Applied Consent or any prohibition of the
Corporation against redeeming any Retracted Shares as set out in section 5.6 of
the Exchangeable Share Provisions or of any Insolvency Event, Default Event or
Liquidation Event as set out in Article 5 of this Agreement, respectively
(collectively, a "Notice Event"), unless and until notified in writing of such
Notice Event in accordance with this Agreement, which notice shall distinctly
specify the Notice Event desired to be brought to the attention of the Trustee
and in the absence of any such notice the Trustee may for all purposes of this
Agreement conclusively assume that no such Notice Event has occurred.
<PAGE>
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6.18 Merger or Consolidation of Trustee. Any corporation into or which the
Trustee may be merged or consolidated or amalgamated, or any corporation
resulting therefrom to which the Trustee may be a party, or any corporation
succeeding to the trust business of the Trustee shall be the successor to the
Trustee under this Agreement without any further act on its part or any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor trustee under the provisions of this Agreement.
6.19 No Personal Liability. In the exercise of the powers, authorities or
discretion conferred upon the Trustee under this Agreement, the Trustee is and
shall be conclusively deemed to be acting as trustee of the Trust and shall not
be subject to any personal liability for any of the liabilities, obligations,
claims, demands, judgments, costs or expenses against or with respect to the
Trust.
6.20 Incumbency Certificate. Each of the Corporation and Applied shall file
with the Trustee a certificate of incumbency setting forth the names of the
individuals authorized to give instructions, directions or other instruments to
the Trustee ("Authorized Persons"), together with specimen signatures of such
persons, and the Trustee shall be entitled to rely on the latest certificate of
incumbency filed with it unless it receives notice, in accordance with Section
13.3, of a change in Authorized Persons with updated specimen signatures.
ARTICLE VII
COMPENSATION
7.1 Fees and Expenses of the Trustee. Applied and the Corporation jointly and
severally agree to pay to the Trustee reasonable compensation for all of the
services rendered by it under this Agreement and will reimburse the Trustee for
all reasonable expenses and disbursements, including fees and expenses for
attendance at any meeting of shareholders, if so requested by Applied or the
Corporation, fees and expenses of experts, advisors and agents retained pursuant
to Section 6.10, the cost and expense of any suit or litigation of any character
and any proceedings before any governmental agency reasonably incurred by the
Trustee in connection with its rights and duties under this Agreement; provided
that Applied and the Corporation shall have no obligation to reimburse the
Trustee for any expenses or disbursements paid, incurred or suffered by the
Trustee in any suit or litigation in which the Trustee is determined to have
acted fraudulently, in bad faith or with gross negligence or wilful misconduct.
<PAGE>
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ARTICLE VIII
INDEMNIFICATION AND LIMITATION OF LIABILITY
8.1 Indemnification of the Trustee. Applied and the Corporation jointly and
severally agree to indemnify and hold harmless the Trustee and each of its
directors, officers, employees and agents appointed and acting in accordance
with this Agreement (collectively the "Indemnified Parties") against all claims,
losses, damages, costs, penalties, fines and reasonable expenses (including
reasonable expenses of the Trustee's legal counsel) which, without fraud, gross
negligence, willful misconduct or bad faith on the part of such Indemnified
Party, may be paid, incurred or suffered by the Indemnified Party by reason of
or as a result of the Trustee's acceptance or administration of the Trust, its
compliance with its duties set forth in this Agreement, or any written or oral
instructions delivered to the Trustee by Applied or the Corporation pursuant
hereto. In no case shall Applied or the Corporation be liable under this
indemnity for any claim against any of the Indemnified Parties unless Applied
and the Corporation shall be notified by the Trustee of the written assertion of
a claim or of any action commenced against the Indemnified Parties, promptly
after any of the Indemnified Parties shall have received any such written
assertion of a claim or shall have been served with a summons or other first
legal process giving information as to the nature and basis of the claim.
Subject to (ii), below, Applied and the Corporation shall be entitled to
participate at their own expense in the defense and, if Applied or the
Corporation so elect at any time after receipt of such notice, either of them
may assume the defense of any suit brought to enforce any such claim. The
Trustee shall have the right to employ separate counsel in any such suit and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of the Trustee unless: (i) the employment of such
counsel has been authorized by Applied or the Corporation or (ii) the named
parties to any such suit include both the Trustee and Applied or the Corporation
and the Trustee shall have been advised by counsel acceptable to Applied or the
Corporation that there may be one or more legal defenses available to the
Trustee that are different from or in addition to those available to Applied or
the Corporation and that an actual or potential conflict of interest exists (in
which case Applied and the Corporation shall not have the right to assume the
defense of such suit on behalf of the Trustee but shall be liable to pay the
reasonable fees and expenses of counsel for the Trustee),or (iii) Applied and/or
the Corporation shall not have retained legal counsel on behalf of the Trustee
within a reasonable time after it has given them notice of a written assertion
of a claim or action against any Indemnified Party.
8.2 Limitation of Liability. The Trustee shall not be held liable for any
loss that may occur by reason of depreciation of the value of any part of the
Trust Estate or any loss incurred on any investment of funds pursuant to this
Agreement, except to the extent that such loss is attributable to fraud, gross
negligence, willful misconduct or bad faith on the part of the Trustee.
<PAGE>
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ARTICLE IX
CHANGE OF TRUSTEE
9.1 Resignation. The Trustee, or any trustee hereafter appointed, may at any
time resign by giving written notice of such resignation to Applied and the
Corporation specifying the date on which it desires to resign, provided that
such notice shall never be given less than 60 days before such desired
resignation date unless Applied and the Corporation otherwise agree and provided
further that such resignation shall not take effect until the date of the
appointment of a successor trustee and the acceptance of such appointment by the
successor trustee. Upon receiving such notice of resignation, Applied and the
Corporation shall promptly appoint a successor trustee by written instrument in
duplicate, one copy of which shall be delivered to the resigning trustee and one
copy to the successor trustee. Failing acceptance by a successor trustee, a
successor trustee may be appointed by an order of the Ontario Court (General
Division) upon application of one or more of the parties hereto.
9.2 Removal. The Trustee, or any trustee hereafter appointed, may be removed
with or without cause, at any time on 60 days' prior notice by written
instrument executed by Applied and the Corporation, in duplicate, one copy of
which shall be delivered to the trustee so removed and one copy to the successor
trustee.
9.3 Successor Trustee. Any successor trustee appointed as provided under this
Agreement shall execute, acknowledge and deliver to Applied and the Corporation
and to its predecessor trustee an instrument accepting such appointment.
Thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor under this Agreement, with like effect as if
originally named as trustee in this Agreement. However, on the written request
of Applied and the Corporation or of the successor trustee, the trustee ceasing
to act shall, upon payment of any amounts then due it pursuant to the provisions
of this Agreement, execute and deliver an instrument transferring to such
successor trustee all the rights and powers of the trustee so ceasing to act.
Upon the request of any such successor trustee, Applied, the Corporation and
such predecessor trustee shall execute any and all instruments in writing for
more fully and certainly vesting in and confirming to such successor trustee all
such rights and powers.
9.4 Notice of Successor Trustee. Upon acceptance of appointment by a successor
trustee as provided herein, Applied and the Corporation shall cause to be mailed
notice of the succession of such trustee hereunder to each Holder specified in a
List. If Applied or the Corporation shall fail to cause such notice to be mailed
within 10 days after acceptance of appointment by the successor trustee, the
<PAGE>
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successor trustee shall cause such notice to be mailed at the expense of Applied
and the Corporation.
ARTICLE X
APPLIED SUCCESSORS
10.1 Certain Requirements in Respect of Combination, etc. Applied shall not
enter into any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or
substantially all of its undertaking, property and assets would become the
property of any other person or, in the case of a merger, of the continuing
corporation resulting therefrom, unless:
(a) such other person or continuing corporation is a corporation (herein
called the "Applied Successor") incorporated under the laws of any
state of the United States or the laws of Canada or any province
thereof; and
(b) Applied Successor, by operation of law, becomes, bound by the terms
and provisions of this Agreement or, if not so bound, executes, prior
to or contemporaneously with the consummation of such transaction an
agreement supplemental hereto and such other instruments (if any) as
are satisfactory to the Trustee acting reasonably to evidence the
assumption by Applied Successor of liability for all moneys payable
and property deliverable hereunder and the covenant of such Applied
Successor to pay and deliver or cause to be delivered the same and its
agreement to observe and perform all the covenants and obligations of
Applied under this Agreement.
10.2 Vesting of Powers in Successor. Whenever the conditions of section 10.1
hereof have been duly observed and performed, the Trustee, if required, by
section 10.1 hereof, Applied Successor and the Corporation shall execute and
deliver the supplemental agreement provided for in Article 11 hereof and
thereupon Applied Successor shall possess and from time to time may exercise
each and every right and power of Applied under this Agreement in the name of
Applied or otherwise and any act or proceeding by any provision of this
Agreement required to be done or performed by the board of directors of Applied
or any officers of Applied may be done and performed with like force and effect
by the directors or officers of such Applied Successor.
10.3 Wholly-Owned Subsidiaries. Nothing herein shall be construed as preventing
the amalgamation or merger of any wholly-owned subsidiary of Applied with or
into Applied.
<PAGE>
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ARTICLE XI
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
11.1 Amendments, Modifications, etc. This Agreement may not be amended or
modified except by an agreement in writing executed by the Corporation, Applied
and the Trustee and approved by the Holders in accordance with section 11.2 of
the Exchangeable Share Provisions.
11.2 Ministerial Amendments. Notwithstanding the provisions of section 11.1
hereof, the parties to this Agreement may in writing, at any time and from time
to time, without the approval of the Holders, amend or modify this Agreement for
the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the
protection of the Holders hereunder;
(b) making such amendments or modifications not inconsistent with this
Agreement as may be necessary or desirable with respect to matters or
questions that, in the opinion of the Board of Directors of each of
Applied and the Corporation and in the opinion of the Trustee, on the
advice of counsel having in mind the best interests of the Holders as
a whole, such amendments and modifications will not be prejudicial to
the interests of the Holders as a whole; or
(c) making such changes or corrections required for the purpose of curing
or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error, provided that the
Trustee and the Board of Directors of each of the Corporation and
Applied shall be of the opinion, on the advice of counsel, that such
changes or corrections will not be prejudicial to the interests of the
Holders as a whole.
11.3 Meeting to Consider Amendments. The Corporation, at the request of Applied,
shall call a meeting or meetings of the Holders for the purpose of considering
any proposed amendment or modification requiring approval pursuant hereto. Any
such meeting or meetings shall be called and held in accordance with the by-laws
of the Corporation, the Exchangeable Share Provisions and all applicable laws.
11.4 Changes in Capital of Applied and the Corporation. Notwithstanding section
11.1, at all times after the occurrence of any Applied Common Stock
Reorganization or Capital Reorganization (as such terms are respectively defined
in the Exchangeable Share Provisions) or other change in either the Applied
Common Stock or the Exchangeable Shares or both, this Agreement shall forthwith
be amended and modified as necessary in order that it shall apply with full
<PAGE>
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force and effect, mutatis mutandis, to all new securities into which Applied
Common Stock or the Exchangeable Shares or both are so changed and the parties
hereto shall execute and deliver a supplemental agreement giving effect to and
evidencing such necessary amendments and modifications.
11.5 Execution of Supplemental Trust Agreements. Notwithstanding section 11.1,
from time to time the Corporation (when authorized by a resolution of the Board
of Directors), Applied (when authorized by a resolution of its board of
directors) and the Trustee may, subject to the provisions hereof, and they
shall, when so directed by these presents, execute and deliver by their proper
officers, agreements or other instruments supplemental hereto, which thereafter
shall form part hereof, for any one or more of the following purposes:
(a) evidencing the succession of Applied Successors to Applied and the
covenants of and obligations assumed by each such Applied Successor in
accordance with the provisions of Article 10 and the succession of any
successor trustee in accordance with the provisions of Article 9;
(b) making any additions to, deletions from or alterations of the
provisions of this Agreement or the Voting Rights, the Exchange Right
or the Automatic Exchange Rights that, in the opinion of counsel to
the Trustee are necessary or advisable in order to incorporate,
reflect or comply with any legislation the provisions of which apply
to Applied, the Corporation, the Trustee or this Agreement; and
(c) for any other purposes not inconsistent with the provisions of this
Agreement including, without limitation, to make or evidence any
amendment or modification to this Agreement as contemplated hereby,
provided that, in the opinion of the Trustee, on the advice of
counsel, the rights of the Trustee and the Holders as a whole will not
be prejudiced thereby.
ARTICLE XII
TERMINATION
12.1 Term. The Trust created by this Agreement shall continue until the
earliest to occur of the following events:
(a) no outstanding Exchangeable Shares are held by any Holder;
<PAGE>
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(b) each of the Corporation and Applied elects in writing to terminate the
Trust and such termination is approved by the Holders of the
Exchangeable Shares in accordance with Section 11.2 of the
Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of
His Majesty King George VI of the United Kingdom of Great Britain and
Northern Ireland living on the date of the creation of the Trust.
12.2 Survival. The provisions of Article 7 and 8 hereof shall survive any
termination of the Trust pursuant to section 12.1 or the resignation or removal
of the Trustee pursuant to Article IX.
ARTICLE XIII
GENERAL
13.1 Severability. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of the
remainder of this Agreement shall not in any way be affected or impaired thereby
and this Agreement shall be carried out as nearly as possible in accordance with
its original terms and conditions; provided, however, that if the provision or
provisions so held to be invalid, in the reasonable judgment of the parties, is
or are so fundamental to the intent of the parties and the operation of this
Agreement that the enforcement of the other provisions hereof, in the absence of
such invalid provision or provisions, would damage irreparably the intent of the
parties in entering into this Agreement, the parties shall agree (i) to
terminate this Agreement, or (ii) to amend or otherwise modify this Agreement so
as to carry out the intent and purposes hereof and the transactions contemplated
hereby.
13.2 Enurement. This Agreement shall be binding upon and enure to the benefit
of the parties hereto and their respective successors and permitted assigns and
to the benefit of the Holders.
13.3 Notices to Parties. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in like
notice):
(a) if to Applied at:
400 Palm Way, Suite 410
Palm Beach, Florida 33480
Attention: Garrett A. Sullivan
Fax: (561) 366-0002
<PAGE>
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(b) if to the Corporation at:
555 Richmond Street West
Suite 1108
Toronto, Ontario M5J 3B1
Attention: Donald Swift
Fax: (416) 504-7308
(c) if to the Trustee at:
151 Front Street West
Suite 605,
Toronto, Ontario M5J 2N1
Attention: Manager, Client Services
Fax: (416) 981-9777
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
13.4 Notice to Holders. Any and all notices to be given and any documents to
be sent to any Holders may be given or sent to the address of such Holder shown
on the register of Holders in any manner permitted by the by-laws of the
Corporation from time to time in force in respect of notices to shareholders and
shall be deemed to be received (if given or sent in such manner) at the time
specified in such by-laws, the provisions of which by-laws shall apply mutatis
mutandis to notices or documents as aforesaid sent to such Holders.
13.5 Risk of Payments by Post. Whenever payments are to be made or documents
are to be sent to any Holder by the Trustee or by the Corporation, or by such
Holder to the Trustee or to Applied or the Corporation, the making of such
payment or sending of such document sent through the post shall be at the risk
of the Corporation, in the case of payments made or documents sent by the
Trustee or the Corporation, and the Holder, in the case of payments made or
documents sent by the Holder.
<PAGE>
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13.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
13.7 Jurisdiction. This Agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
13.8 Attornment. Applied agrees that any action or proceeding arising out of
or relating to this Agreement may be instituted in the courts of Ontario, waives
any objection which it may have now or hereafter to the venue of any such action
or proceeding, irrevocably submits to the jurisdiction of the said court in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and agrees not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints the
Corporation at its registered office in the Province of Ontario as Applied's
attorney for service of process.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
APPLIED CELLULAR TECHNOLOGY, INC.
Per: /s/ Garrett A. Sullivan
-----------------------------------
COMMSTAR LTD.
Per: /s/ DA Swift
-----------------------------------
MONTREAL TRUST COMPANY OF CANADA
Per: /s/ R Wyse
-----------------------------------
Per: /s/ Sandy Stephens
-----------------------------------
<PAGE>
SCHEDULE "A"
NOTICE OF EXERCISE OF EXCHANGE RIGHT
TO: Montreal Trust Company of Canada
RE: Voting and Exchange Trust Agreement between Applied Cellular Technology,
Inc.("Applied"), Commstar Ltd.(the "Corporation"), and Montreal Trust
Company of Canada as Trustee (the "Trust Agreement").
The undersigned holder of Exchangeable Shares instructs Montreal Trust
Company of Canada (the "Trustee") to exercise the Exchange Right in accordance
with Section 5.5 of the Trust Agreement so as to require Applied to purchase
from the undersigned Exchangeable Shares and to issue and deliver certificates
representing shares of Applied Common Stock as follows:
Name in full:
(Please state full names in which certificates are to be issued)
Address in full:
------------------------------------------------------------
Number of
Exchangeable Shares:
-------------------------------------------------------
The undersigned hereby represents and warrants as follows:
(i) the undersigned has good title to and owns all such Exchangeable Shares
to be acquired by Applied free and clear of all liens.
(ii) the undersigned shall pay any documentary, stamp, transfer or other
taxes that may be payable in respect of any transfer involved in the
issuance or delivery of shares.
All capitalized terms not defined herein shall have the meanings ascribed to
them in the Voting and Exchange Trust Agreement.
DATED this day of , 19 .
--------------------------------------
Name
--------------------------------------
Signature
<PAGE>
SCHEDULE "B"
NOTICE OF EXERCISE OF EXCHANGE RIGHT
TO: Applied Cellular Technology, Inc. ("Applied")
This notice is given pursuant to Section 5.6 of the Voting and Exchange
Trust Agreement (the "Trust Agreement") between Applied Cellular Technology,
Inc. ("Applied"), Commstar Ltd. and Montreal Trust Company of Canada as Trustee
(the "Trust Agreement"). All capitalized words and expressions used in this
notice that are defined in the Trust Agreement have the meanings ascribed to
such words and expressions in such Trust Agreement.
The Trustee hereby notifies Applied that it is exercising the Exchange
Right on behalf of the Holder of the Exchangeable Shares referred to in the
notice received from such Holder, a copy of which is attached hereto (the
"Holder Notice"). Please issue the Applied Common Stock issuable in connection
with the exercise of the Exchange Right in accordance with the instructions set
forth in the attached Holder Notice.
By:
-----------------------------------
Name:
Title:
Date:
----------------------
