Registration No. 333-64605
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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 and adding Exhibits
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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[OBJECT OMITTED]
SUBJECT TO COMPLETION, DATED DECEMBER 4, 1998
PRELIMINARY PROSPECTUS
1,105,708 Shares
[GRAPHIC OMITTED]
Common Stock
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This Prospectus relates to 1,105,708 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 Class A exchangeable shares
("Class A Exchangeable Shares") and Class B exchangeable shares ("Class B
Exchangeable Shares, and together with the Class A Exchangeable Shares, the
"Exchangeable Shares") of ACT-GFX Canada, Inc., an Ontario corporation ("ACT
Sub"), which is a subsidiary of ACT. Pursuant to a reorganization agreement (the
"Reorganization Agreement") among ACT, ACT Sub, Drummer Enterprises Ltd., an
Ontario corporation ("Drummer"), Morstar Holdings Ltd., a Manitoba corporation
("Morstar"), Scozul Enterprises Ltd., an Ontario corporation ("Scozul"), James
D. Scott and Ground Effects Ltd., an Ontario corporation ("Ground Effects"),
certain of the issued and outstanding shares in the capital of Ground Effects
and certain debt owed by Ground Effects were acquired by ACT Sub for a purchase
price which was satisfied by the issuance of Class A Exchangeable Shares and
Class B Exchangeable Shares. As a result, Ground Effects became a subsidiary of
ACT Sub (the "Reorganization"). See "Plan of Distribution--The Reorganization"
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. The
selling shareholders may also pledge certain of the Shares from time to time,
and this Prospectus also relates to any sale of Shares that might take place
following any foreclosure of such a pledge. Such selling shareholders and the
brokers and dealers through which the sales of the Shares may be made may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and their commissions and discounts and other
compensation may be regarded as underwriters' compensation. The Company will not
receive any proceeds from any sale of Shares and will bear all the expenses
incurred in connection with registering this offering of the Shares.
The ACT Common Stock of the Company is listed on the Nasdaq National Market
under the symbol "ACTC." On December 2, 1998, the last reported sale price of
the ACT Common Stock on the Nasdaq National Market was $3 3/16 per share. See
"Price Range of ACT Common Stock."
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 IN THE PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
ACT COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is _________, 1998.
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AVAILABLE INFORMATION
ACT is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy statements and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices located at
Northeast Regional Office, Seven World Trade Center, Suite 1300, New York, New
York 10048 and Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also
be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Analysis and Retrieval (EDGAR) System. This Web site can be
assessed at http://www.sec.gov. Quotations relating to the ACT Common Stock
appear on the Nasdaq National Market, and such reports, proxy statements and
other information concerning ACT can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
ACT has filed with the Commission a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act with respect to the shares of
ACT Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement or the exhibits thereto. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information contained or incorporated by reference in the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document filed or incorporated by reference as an exhibit to
the Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement. For further information, reference is
hereby made to the Registration Statement and exhibits thereto, copies of which
may be inspected at the offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or obtained from the Commission at the same address at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
1. the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (filed with the Commission on March 30, 1998);
2. the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (filed with the Commission on May 14, 1998);
3. the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 (filed with the Commission on August 14, 1998);
4. the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 (filed with the Commission on November 16, 1998);
5. the Company's Current Reports on Form 8-K and 8-K/A filed with the
Commission on June 26, 1998, June 29, 1998 and September 23, 1998;
6. the Company's Current Reports on Form 8-K and 8-K/A filed with the
Commission on July 15, 1998, and September 23, 1998; and
7. the Company's Current Report on Form 8-K filed with the Commission
on November 4, 1998.
All documents filed by ACT with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the termination of the offering shall hereby be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
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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.
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, 1866 N. Deffer Drive, 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, ACT Sub
or any other person. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, any securities other than those to which
it relates, nor does it constitute an offer to sell or a solicitation of an
offer to purchase by any person in any jurisdiction in which it is unlawful for
such person to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof or that there has been no change in the affairs of
ACT since such date.
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TABLE OF CONTENTS
Available Information..................................2
Incorporation Of Certain Documents By Reference........2
Risk Factors...........................................4
The Company............................................6
Use Of Proceeds........................................7
Description Of ACT Capital Stock.......................7
Plan Of Distribution...................................8
Canadian Tax Considerations...........................10
United States Federal Tax Considerations..............14
Legal Matters.........................................18
Experts...............................................18
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RISK FACTORS
In addition to the other information contained herein, the following
factors should be considered carefully in evaluating ACT before investors
exchange their Exchangeable Shares for the shares of ACT Common Stock offered
hereby.
Taxability of the Exchange
The exchange of Exchangeable Shares for shares of ACT Common Stock is
generally a taxable event in Canada and the United States. A holder's tax
consequences can vary depending on a number of factors, including the residency
of the holder, the method of the exchange (redemption or exchange) and the
length of time that the Exchangeable Shares were held prior to exchange. See
"Canadian Tax Considerations" and "United States Federal Tax Considerations."
Differences in Canada and U.S. Trading Markets
The Exchangeable Shares will not be listed on any stock exchange in Canada
or the United States. ACT has agreed that the shares of ACT Common Stock
issuable from time to time in exchange for the Exchangeable Shares will be
listed on the Nasdaq National Market. There is no current intention to list the
ACT Common Stock on any other stock exchange in Canada or the United States. As
a result of the foregoing, ACT believes that the market price of the
Exchangeable Shares will reflect essentially the equivalent value of the ACT
Common Stock on the Nasdaq National Market. However, if a market for the
Exchangeable Shares should develop, there can be no assurances that the market
price of the Exchangeable Shares would correspond to that of the ACT Common
Stock.
Foreign Property
The Exchangeable Shares and the ACT Common Stock will be foreign property
under the Income Tax Act (Canada), as amended (the "Canadian Tax Act"), for
trusts governed by registered pension plans, registered retirement savings
plans, registered retirement income funds and deferred profit sharing plans or
for certain other tax-exempt persons. See "Canadian Tax Considerations."
Uncertainty of Future Financial Results
While the Company has been profitable for the last three fiscal years,
future financial results are uncertain. There can be no assurance that the
Company will continue to be operated in a profitable manner. Profitability
depends upon many factors, including the success of the Company's various
marketing programs, the maintenance or reduction of expense levels and the
ability of the Company to successfully coordinate the efforts of the different
segments of its business.
Future Sales of and Market for the Shares
As of November 17, 1998, there were 33,771,952 shares of ACT Common Stock
outstanding. In addition, 3,753,472 shares of ACT Common Stock are reserved for
issuance in exchange for the Exchangeable Shares of ACT-GFX Canada, Inc.
referred to herein and in exchange for certain exchangeable shares issued by
Commstar, Ltd., a wholly owned subsidiary of ACT. Since January 1, 1998, the
Company has issued an aggregate of 13,378,546 shares of ACT Common Stock, of
which 11,953,749 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 certain directors and an officer of the
Company, and 474,797 shares of ACT Common Stock were issued for services
rendered, including services under employment agreements and employee bonuses.
Although the Company has recently announced that it intends to limit the
use of stock in future acquisitions, and to focus on cash transactions, the
Company may effect acquisitions or contract for certain services through the
issuance of ACT Common Stock or other equity securities of the Company, as it
has typically done in the past. 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
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continue to occur. As of September 30, 1998, the total assets of the Company
were approximately $122.2 million. As of December 31, 1997, the total assets of
the Company were approximately $61.3 million, compared to approximately $33.2
million at December 31, 1996 and approximately $4.1 million at the end of 1995.
Net operating revenues for the nine months ended September 30, 1998 were
approximately $151.5 million. 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. In July of 1998, the Company
announced that it had formed an executive search committee to locate and
interview candidates for the new position of President and Chief Operating
Officer.
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.
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
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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 $7 1/16 to a low of $1 17/32.
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, (a) the Company's growth strategies, (b) anticipated trends in the
Company's business and demographics and (c) 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
ACT is a diversified communications technology company. The Company
operates its business in 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, call centers, networking
services, fiber optic cabling, power distribution services and communication
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, field support,
decision support, point of sale and multi-function peripheral devices.
ACT Computer Group
This group consists of companies that provide computer systems,
peripherals, components, specialty systems, cabling, consulting, rental
services, system integration, transportation and de-installation services.
ACT Specialty Manufacturing Group
This group consists of companies that manufacture and market electrical
components, control panels, global positioning systems, satellite modems,
transceivers, controllers, communication devices, orbit modeling applications,
as well as provide design and manufacturing engineering services.
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 14 additional acquisitions of
companies whose aggregate net revenues for 1997 were $109.4 million.
The principal office of the Company is located at 400 Royal Palm Way, Suite
410, Palm Beach, Florida, 33480. Each operating business is conducted through a
separate subsidiary company directed by its own management team, and each
subsidiary company has its own marketing and operations support personnel. Each
management team reports to a Group Vice President and ultimately to the
Company's President, who is responsible for overall corporate control and
coordination, as well as financial planning. The Chairman is responsible for the
overall business and strategic planning of the Company.
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USE OF PROCEEDS
Because Shares of ACT Common Stock will be issued upon exchange or
redemption of the Exchangeable Shares, ACT will receive no net cash proceeds
upon issuance.
DESCRIPTION OF ACT CAPITAL STOCK
The Company's Amended and Restated Articles of Incorporation, as amended
("ACT's Articles of Incorporation") authorizes the issuance of up to 80,000,000
shares of ACT Common Stock and up to 5,000,000 shares of preferred stock (the
"Preferred Stock"). The Preferred Stock may be issued from time to time and on
such terms as are specified by the Company's Board of Directors, without further
authorization from the stockholders of the Company.
As of November 17, 1998, there were outstanding 33,771,952 shares of ACT
Common Stock and two Special Preferred Shares, par value $10 per share. In
addition, 3,753,472 shares of ACT Common Stock are reserved for issuance in
exchange for the Exchangeable Shares of ACT-GFX Canada, Inc. referred to herein
and in exchange for certain exchangeable shares of Commstar, Ltd., a wholly
owned subsidiary of ACT.
As of November 17, 1998, (a) there were outstanding warrants to purchase
1,910,000 shares of ACT Common Stock at a weighted average exercise price of
$2.93 per share, and (b) options held by employees of the Company to purchase
7,307,100 shares of ACT Common Stock at a weighted average exercise price of
$3.66 per share. All of the warrants are currently exercisable. Of the
outstanding options, 1,205,000 are now exercisable at a weighted average
exercise price of $4.43 per share, and the rest become exercisable at various
times over the next three years.
ACT's Common Stock trades on the Nasdaq National Market under the symbol
"ACTC." The following table sets forth the high and low sale prices of ACT
Common Stock as reported by the Nasdaq National Market for each of the quarters
since the beginning of 1996.
High Low
---- ---
1996
First Quarter......... 6-7/8 2-3/4
Second Quarter........ 9-1/8 4
Third Quarter......... 7-7/8 3-3/4
Fourth Quarter........ 7-3/8 4-1/2
1997
First Quarter......... 5-7/8 4
Second Quarter........ 4-3/8 2-5/8
Third Quarter ........ 8-3/4 3-1/16
Fourth Quarter ....... 9-3/4 3-15/16
1998
First Quarter ........ 5-1/2 4-1/32
Second Quarter ....... 4-7/8 3-1/8
Third Quarter ........ 3-1/2 1-9/16
Fourth Quarter
(through December 2, 1998) 3-3/16 1-17/32
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Rights of Holders of ACT Common Stock
Subject to the prior rights of any shares of Preferred Stock that may from
time to time be outstanding, holders of ACT Common Stock are entitled to share
ratably in such dividends as may be lawfully declared by the Board of Directors
and paid by ACT and, in the event of liquidation, dissolution or winding up of
ACT, are entitled to share ratably in all assets available for distribution. ACT
is prohibited from declaring or paying dividends on the ACT Common Stock unless
ACT Sub 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 or a single wholly-owned subsidiary of ACT) will be purchased
by ACT in exchange for ACT Common Stock as described below under "Plan of
Distribution-- Procedures for Issuance of ACT Common Stock-- Liquidation of
ACT."
The ACT Common Stock is entitled to one vote per share held of record on
each matter submitted to a vote of stockholders. Except as otherwise provided by
law or ACT's Articles of Incorporation, the ACT Common Stock and the Special
Preferred Share referred to below will vote together as a single class in the
election of directors and on all matters submitted to a vote of stockholders of
ACT. The holders of ACT Common Stock have no preemptive rights to purchase any
securities of ACT or cumulative voting rights. All outstanding shares of ACT
Common Stock are validly issued, fully paid and nonassessable. ACT is not
prohibited by ACT's Articles of Incorporation from repurchasing shares of the
ACT Common Stock. Any such repurchases would be subject to any limitations on
the amount available for such purpose under applicable corporate law, any
applicable restrictions under the terms of any outstanding Preferred Stock or
indebtedness and, in the case of market purchases, such restrictions on the
timing, manner and amount of such purchases as might apply in the circumstances
under applicable securities laws.
The transfer agent, registrar and dividend disbursing agent for the ACT
Common Stock is Florida Atlantic Stock Transfer, Inc.
ACT Special Voting Preferred Stock
The Board of Directors of ACT authorized the issuance of a single share of
ACT Special Voting Preferred Stock (the "Special Preferred Share"), to Montreal
Trust Company of Canada (the "Voting Trustee") under a Voting and Exchange Trust
Agreement (the "Voting and Exchange Trust Agreement") which was entered into
among ACT, ACT Sub, Drummer, Morstar, Scozul and the Voting Trustee. Except as
otherwise required by law or ACT's Articles of Incorporation, the Special
Preferred Share will be entitled to a number of votes equal to the number of
outstanding Exchangeable Shares not owned by ACT or certain subsidiaries of ACT,
and may be voted in the election of directors and on all other matters submitted
to a vote of stockholders of ACT. The holders of the ACT Common Stock and the
Voting Trustee, as holder of the Special Preferred Share, will vote together as
a single class on all matters, except to the extent voting as a separate class
is required by applicable law or ACT's Articles of Incorporation. The Voting
Trustee will exercise such voting rights in respect of the Special Preferred
Share on behalf of the holders of the Exchangeable Shares, as provided in the
Voting and Exchange Trust Agreement. The Voting Trustee will not be entitled to
receive any dividends or to participate in any distribution of assets to the
shareholders of ACT. When all Exchangeable Shares have been exchanged or
redeemed for shares of ACT Common Stock, the Special Preferred Share will be
cancelled.
PLAN OF DISTRIBUTION
The Reorganization
Pursuant to the Reorganization Agreement, effective as of June 30, 1998
(the "Effective Date"), among ACT, ACT Sub, Drummer, Morstar, Scozul, James D.
Scott and Ground Effects, certain of the issued and outstanding shares in the
capital of Ground Effects and certain debt owed by Ground Effects were acquired
by ACT Sub for a purchase price which was satisfied by the issuance of Class A
Exchangeable Shares and Class B Exchangeable Shares, and as a result, Ground
Effects became a subsidiary of ACT Sub. The Exchangeable Shares will be further
exchangeable into or redeemable for shares of ACT Common Stock as described
below. Holders of the Exchangeable Shares will have economic and voting rights
which are, as nearly as possible, equivalent to those of holders of ACT Common
Stock.
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Exchangeable Shares
The Exchangeable Shares were issued in consideration for certain of the
issued and outstanding shares in the capital of Ground Effects and certain debt
owed by Ground Effects. Thereafter, the Exchangeable Shares may be exchanged for
an equivalent number of shares of ACT Common Stock as described below. 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 ACT Sub's Articles of Incorporation, a
certain call agreement entered into among ACT, ACT Sub, Drummer, Morstar, Scozul
and James D. Scott (the "Call Agreement") and in the Voting and Exchange Trust
Agreement. The Exchangeable Share provisions, the Call Agreement 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 Exchangeable Share
provisions, the Call Agreement 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 ACT Sub 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 ACT Sub'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 ACT
Sub may reasonably require.
Election by Holders to Exchange Exchangeable Shares. At any time on or
prior to the Automatic Redemption Date (as defined below), holders of the
Exchangeable Shares may retract (i.e., require ACT Sub to redeem) any or all of
their Exchangeable Shares, by presenting the certificates representing the
shares at the office of ACT Sub 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 ACT Sub (the "Retraction Date"). The Retraction Price for such
Exchangeable Shares is to be satisfied by the issuance of ACT Common Stock.
The Retraction Request shall be substantially in the form attached to this
Prospectus as Exhibit A or in such other form as may be acceptable to ACT or ACT
Sub for the Exchangeable Shares in their sole discretion.
Redemption of Exchangeable Shares. ACT Sub is required to redeem the
Exchangeable Shares (by exchanging ACT Common Stock as described above) as
follows:
(a) with respect to the Class A Exchangeable Shares:
(i) on the seventh anniversary of the Effective Date; or
(ii) on a date specified by ACT Sub if less than 5% of the Class A
Exchangeable Shares originally issued remain outstanding (as
such number may be adjusted as a result of subdivision,
consolidation, stock dividend or other events); and
(b) with respect to the Class B Exchangeable Shares:
(i) on the seventh anniversary of the Effective Date; or
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(ii) on a date specified by ACT Sub if less than 5% of the Class B
Exchangeable Shares originally issued remain outstanding (as
such number may be adjusted as a result of subdivision,
consolidation, stock dividend or other events).
The earlier of either date to occur with respect to each class of
Exchangeable Shares is referred to as the "Automatic Redemption Date."
Liquidation of ACT Sub. In the event of the liquidation, dissolution or
winding up of ACT Sub or any other proposed distribution of the assets of ACT
Sub among its shareholders for the purpose of winding up its affairs, (a)
holders of the Class B Exchangeable Shares will be entitled to ACT Common Stock
in exchange for their Class B Exchangeable Shares as described above before any
distribution to the holders of the Class A Exchangeable Shares, the common
shares or any other shares of ACT Sub ranking junior to the Class B Exchangeable
Shares; and (b) holders of the Class A Exchangeable Shares will be entitled to
ACT Common Stock in exchange for their Class A Exchangeable Shares as described
above before any distribution to the holders of the common shares or any other
shares of ACT Sub ranking junior to the Class A Exchangeable Shares. Upon the
bankruptcy or insolvency of ACT Sub, the trustee under the Voting and Exchange
Trust Agreement may require ACT to purchase the Exchangeable Shares in exchange
for ACT Common Stock 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 (a) 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 (b) 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 Cassels Brock & Blackwell, who acted as counsel for ACT
Sub in connection with the Reorganization, the following is a summary of the
principal Canadian federal income tax considerations generally applicable to ACT
Sub 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 deal at arm's length with ACT and ACT Sub.
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. This summary does not apply to financial institutions to whom the
mark-to-market rules apply. 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,
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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 THE CONSEQUENCES OF ANY
OF THE TRANSACTIONS DESCRIBED HEREIN.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of ACT 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,
(a) 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 (b) 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 holders of
Exchangeable Shares 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, ACT Sub 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, ACT Sub will be entitled to a deduction 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 or deemed to be paid on an Exchangeable Share, then,
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 and
in addition to the foregoing requirements, 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
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(b) at the time of the receipt or deemed receipt of the dividend by the
specified financial institution, the Exchangeable Shares on which the
dividend has been paid 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 on which the
dividend has been paid. ACT Sub does not expect to list the
Exchangeable Shares on a prescribed stock exchange in Canada.
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 may 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.
Redemption or Exchange of Exchangeable Shares
On the redemption (including a retraction) of an Exchangeable Share by ACT
Sub, 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 ACT Sub 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.
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 Ground Effects common shares or Ground
Effects Class B preference 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.
Due to 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 ACT Sub 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.
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Dividends on ACT Common Stock. Dividends received 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 ACT 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. See above under "Redemption or
Exchange of Exchangeable Shares" for a discussion of the treatment of capital
gains.
A shareholder that is a "Canadian-controlled private corporation" (as
defined in the Canadian Tax Act) may be liable to pay an additional refundable
tax of 6 2/3% on dividends from Exchangeable Shares or shares of ACT Common
Stock that are not deductible in computing taxable income and on 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, ACT 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 Canadian Tax Act) 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 shares of 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. A capital gain realized on an
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exchange (including on a redemption or 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, for shareholders resident in Canada, unless relief is available
under an applicable tax convention, such as the Tax Treaty. Such holders should
consult their own tax advisors to determine the tax consequences in their own
situation.
Unless the non-resident holder complies with the procedures contained in
Division D of Part I of the Canadian Tax Act relating to the payment of tax, ACT
Sub or ACT, as the case may be, will be required to withhold a portion of the
ACT Common Stock otherwise payable to the holder.
Dividends paid or deemed to be 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 ACT Sub's
redemption right or pursuant to the holder's retraction rights) will be deemed
to receive a dividend as described above, for shareholders resident in Canada,
which deemed dividend will be subject to withholding tax as described in the
preceding paragraph. ACT Sub will satisfy its withholding and remittance
obligations on behalf of the holder by disposing of ACT Common Stock otherwise
payable to the holder.
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 with the respect to the ACT Common Stock to be issued in
exchange for the Exchangeable Shares, 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: (a) an
individual who is a citizen or resident of the United States for federal income
tax purposes, (b) a corporation or partnership created or organized in or under
the laws of the United States, or of any political subdivision thereof, (c) an
estate, the income of which is subject to United States federal income taxation
regardless of source, or (d) 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, United States 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 United States 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
Holder's 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 one year. 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 tax-free exchange 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 would not recognize gain or loss.
The 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. ACT Sub may be
classified as a passive foreign investment company ("PFIC") for United States
federal income tax purposes for any taxable year if either (a) 75 percent or
more of its gross income was passive income (as defined for United States
federal income tax purposes) or (b) 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 ACT Sub owns at least 25 percent of the stock (by value) will
be attributed to ACT Sub.
There can be no assurance with respect to the classification of ACT Sub as
a PFIC. Moreover, in connection with the transactions contemplated herein, no
opinion will be rendered regarding ACT Sub's status as a PFIC. Currently, ACT
Sub and ACT intend to endeavor to cause ACT Sub 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. For each year, ACT Sub will endeavor to
notify United States Holders of Exchangeable Shares if it believes that ACT Sub
was a PFIC for that taxable year.
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If ACT Sub 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 ACT Sub. If ACT
Sub 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 United States 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 ACT Sub on the Exchangeable
Shares. If a United States Holder makes a Mark-to-Market Election or a QEF
Election, it generally will be required to include amounts in income, based upon
ACT Sub's income or the value of the Exchangeable Shares, even if ACT Sub does
not make actual distributions to Holders of Exchangeable Shares.
The foregoing summary of the possible application of the PFIC rules to ACT
Sub 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 of Exchangeable Shares or of
ACT Common Stock that are not United States Holders ("non-United States
Holders"). 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 (a) 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, (b) 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 (c) 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 Holder falls under clause
(a) or (c) 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 (b) 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). 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.
United States Real Property Holding Corporation. The discussion of the
United States taxation of non-United States Holders assumes that ACT is at no
time a United States real property holding corporation within the meaning of
Section 897(c) of the U.S. Code. Under present law, ACT would not be a United
States real property holding corporation so long as (a) the fair market value of
its United States real property interests is less than (b) 50 percent of the sum
of the fair market value of its United States real property interests, its
interests in real property located outside the United States, plus its other
16
<PAGE>
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 (a) a "controlled foreign
corporation" for United States federal income tax purposes or (b) 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.
17
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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.
18
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Exhibit A
NOTICE OF RETRACTION
TO: ACT
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 ACT 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 ACT 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 Call
Agreement. If ACT determines not to exercise the Retraction Call Right, the
Corporation will notify the undersigned of such fact as soon as possible. The
offer contained in this notice may be revoked by the undersigned by a further
notice in writing addressed to the Corporation and ACT specifically referencing
this Notice of Retraction and delivered to the Corporation at any time prior to
the Retraction Date.
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 ACT that
the undersigned has good title to, and owns, the share(s) represented by this
certificate to be acquired by the Corporation or ACT, as the case may be, free
and clear of all Liens.
- ------------------- ------------------------------ -------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Corporation may require, must be deposited
with the Corporation at its principal transfer office in Windsor,
Ontario. The securities 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 resulting from such
retraction or purchase will be delivered to such shareholder as
indicated above, unless the form appearing immediately below is duly
completed.
- ---------------------------------------------- -----------------------------
Name of Person in Whose Name Securities or Date
Cheque(s) Are To Be Registered, Issued or
Delivered (please print)
- ---------------------------------------------- -----------------------------
Street Address or P.O. Box Signature of Shareholder
- ---------------------------------------------- -----------------------------
City-Province Signature Guaranteed by
NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the
remaining shares of the Corporation will be issued and registered in
the name of the shareholder as it appears on the register of the
Corporation, unless the Share Transfer Power on the share certificate
is duly completed in respect of such shares.
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than underwriting
discounts and commissions), which other than the SEC registration fee are
estimates, payable by the Company in connection with the sale and distribution
of the shares registered hereby**:
SEC Registration Fee .................................... $ 815
Accounting Fees and Expenses............................. 2,500 *
Legal Fees and Expenses.................................. 10,000 *
Miscellaneous Expenses................................... 1,685 *
-------
Total ....................................... $ 15,000 *
=======
- -------------
* Estimated
** The Selling Shareholders will pay any sales commissions or underwriting
discount and fees incurred in connection with the sale of shares
registered hereunder.
Item 15. Indemnification of Directors and Officers.
Sections 351.355(1) and (2) of The General and Business Corporation Law
of the State of Missouri provide that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, except that, in the case of an action or suit by or in the right
of the corporation, the corporation may not indemnify such persons against
judgments and fines and no person shall be indemnified as to any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation,
unless and only to the extent that the court in which the action or suit was
brought determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3) provides that, to
the extent that a director, officer, employee or agent of the corporation has
been successful in the defense of any such action, suit or proceeding or any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred in connection with
such action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized by
the corporation's articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further that no person
shall thereby be indemnified against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct or which
involved an accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934.
The bylaws of the Company provide that the Company shall indemnify, to
the full extent permitted under Missouri law, any director, officer, employee or
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
II-1
<PAGE>
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
Item 16. Exhibits.
See Exhibit Index.
Item 17. Undertakings.
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or the most
recent post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this 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 December 4,
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
/S/ RICHARD J. SULLIVAN* Secretary(Principal Executive
- ------------------------- Officer) December 4, 1998
(Richard J. Sullivan)
/S/ GARRETT A. SULLIVAN* President and Director (Principal
- ------------------------- Operating Officer) December 4, 1998
(Garrett A. Sullivan)
/S/ DAVID A. LOPPERT Vice President, Treasurer and Chief
- ------------------------- Financial Officer (Principal
(David A. Loppert) Accounting Officer) December 4, 1998
/S/ ANGELA M. SULLIVAN* Director December 4, 1998
- -------------------------
(Angela M. Sullivan)
/S/ DANIEL E. PENNI* Director December 4, 1998
- -------------------------
(Daniel E. Penni)
/S/ARTHUR F. NOTERMAN* Director December 4, 1998
- -------------------------
(Arthur F. Noterman)
/S/CONSTANCE K. WEAVER* Director December 4, 1998
- -------------------------
(Constance K. Weaver)
*By: /s/ DAVID A. LOPPERT
-----------------------------------------
David A. Loppert, Attorney-in-Fact
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
4.1 Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (File No.
333-37713) filed with the Commission on November 19, 1997)
4.2 Amendment of Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-3 (File No.
333-59523) filed with the Commission on July 21, 1998)
4.3 Resolution of the Board of Directors of the Company setting
forth the terms of the Special Voting Preferred Stock
4.4 Amended and Restated Bylaws of the Company dated March 31, 1998
(incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (File No.
333-51067) filed with the Commission on April 27, 1998)
5.1 Opinion of Bryan Cave LLP regarding the validity of the Common
Stock
8.1 Opinion of Cassells Brock & Blackwell regarding Canadian 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 Exchangeable Share Provisions
99.2 Form of Reorganization Agreement among Applied Cellular
Technology, Inc., ACT-GFX Canada, Inc., Drummer Enterprises
Ltd., Morstar Holdings Ltd., Scozul Enterprises Ltd, James D.
Scott and Ground Effects Ltd.
99.3 Form of Voting and Exchange Trust Agreement among Applied
Cellular Technology, Inc., ACT-GFX Canada, Inc., Drummer
Enterprises Ltd., Morstar Holdings Ltd., Scozul Enterprises Ltd,
and Montreal Trust Company of Canada.
99.4 Form of Support Agreement between Applied Cellular Technology,
Inc. and ACT-GFX Canada, Inc.
99.5 Form of Call Agreement among Applied Cellular Technology, Inc.,
ACT-GFX Canada, Inc., Drummer Enterprises Ltd., Morstar Holdings
Ltd., Scozul Enterprises Ltd, and James D. Scott.
99.6 Form of Shareholders Agreement among Applied Cellular
Technology, Inc., ACT-GFX Canada, Inc., Scozul Enterprises Ltd,
James D. Scott and Ground Effects Ltd.
II-4
Exhibit 4.3
CONSENT TO ACTION TAKEN IN LIEU OF A
SPECIAL MEETING OF THE BOARD OF DIRECTORS OF
APPLIED CELLULAR TECHNOLOGY, INC.
The undersigned, constituting all of the directors of Applied Cellular
Technology, Inc., a Missouri corporation (the "Corporation"), do hereby waive
notice and call by a majority of the directors of the Corporation for a special
meeting of the directors and do hereby consent to the adoption of the following
resolutions, when they shall have signed this Consent, or identical counterparts
hereof, which resolutions shall be deemed to be adopted as of the date hereof to
the same extent and to have the same force and effect as if such resolutions
were adopted by a unanimous vote of the directors at a duly convened meeting
held for such purpose, all in accordance with Section 351.340.2 of the General
Business Corporations Law of the State of Missouri:
WHEREAS, it is proposed that a newly-formed subsidiary of the Corporation
acquire Ground Effects Ltd. (the "Acquisition"), a corporation organized under
the laws of Ontario, Canada ("Ground Effects"), pursuant to the terms of a
certain Reorganization Agreement to be entered into among the Corporation,
ACT-GFX Canada, Inc., an Ontario corporation and the newly-formed subsidiary of
the Corporation ("ACT Sub"), Drummer Enterprises Ltd., an Ontario corporation
("Drummer"), Morstar Holdings Ltd., a Manitoba corporation ("Morstar"), Scozul
Enterprises Ltd., an Ontario corporation (`Scozul"), James D. Scott, an
individual ("Scott"), and Ground Effects (the "Reorganization Agreement"); and
WHEREAS, under the terms of the Reorganization Agreement, the Corporation
shall cause the formation of ACT Sub and authorize ACT Sub to issue an unlimited
number of common shares, an unlimited number of Class A Exchangeable Shares and
an unlimited number of Class B Exchangeable Shares with certain rights,
privileges, restrictions and conditions as set forth in the ACT Sub Share
Provisions (the "Share Provisions"); and
WHEREAS, further, under the terms of the Reorganization Agreement, the
equity holders of Ground Effects will either (i) exchange all Ground Effects
Common Shares for a new class of stock of ACT Sub (the "Class A Exchangeable
Shares") or (ii) exchange all shares of Ground Effects' Class B stock for a new
class of stock of ACT Sub (the "Class B Exchangeable Shares", and together with
the Class A Exchangeable Shares, the "Exchangeable Shares") both of which will
entitle the holders thereof to dividends and other rights equivalent to those of
the common stockholders of the Corporation, and through a voting trust, the
right to vote at meetings of the Corporation's common stockholders as set forth
in the Voting and Exchange Trust Agreement (the "Voting and Exchange Trust
Agreement") to be entered into among the Corporation, ACT Sub, Drummer, Morstar,
Scozul and Montreal Trust Company of Canada (the "Trustee"); and
WHEREAS, pursuant to the terms of the Voting and Exchange Trust Agreement,
it is contemplated that the Corporation will issue one share of the
Corporation's Class B Special Voting Preferred Stock to the Trustee; and
<PAGE>
WHEREAS, the holders of the Exchangeable Shares will be entitled to require
ACT Sub to exchange such Exchangeable Shares for an equivalent number of shares
of the Corporation's common stock, par value $.001 (the "Corporation's Common
Stock"), and on the seventh anniversary of the consummation of the
Reorganization Agreement, there shall be an automatic exchange of all
then-outstanding Exchangeable Shares for an equivalent number of the
Corporation's Common Stock; and
WHEREAS, it is proposed that the Corporation enter into a certain support
agreement with ACT Sub, pursuant to which the Corporation covenants, among other
things, that holders of the Exchangeable Shares will be entitled to all
dividends paid on the Corporation's Common Stock and that it will take all
action necessary to enable the exchange of Exchangeable Shares for the
Corporation's Common Stock (the "Support Agreement"); and
WHEREAS, it is proposed that the Corporation enter into a certain call
agreement with ACT Sub, Drummer, Morstar, Scozul and Scott, pursuant to which
the holders of the Exchangeable Shares grant to the Corporation certain call
rights with respect to the Exchangeable Shares (the "Call Agreement"); and
WHEREAS, it is proposed that the Corporation enter into a certain
shareholders agreement with ACT Sub, Scozul, Scott and Ground Effects, pursuant
to which Scott is granted a right to put his shares in Ground Effects to ACT Sub
and the parties agree to the terms and conditions for the disposal of Scozul's
and Scott's shares in Ground Effects (the "Shareholders Agreement"); and
WHEREAS, following the consummation of the Acquisition, it is proposed that
the Corporation continue Ground Effect's employment relationship with Scott; and
WHEREAS, each member of the Board of Directors has received and had the
opportunity to review a recent draft of the Reorganization Agreement, the Share
Provisions, the Voting and Exchange Trust Agreement, the Support Agreement, the
Call Agreement and the Shareholders Agreement (collectively referred to as the
"Transaction Agreements"); and
WHEREAS, the Board of Directors deems it to be in the best interest of the
shareholders of the Corporation to (i) enter into the Transaction Agreements and
to consummate the transactions contemplated thereby, (ii) authorize the issuance
of and designate one share of the Corporation's Preferred Stock, par value
$10.00 (the "Corporation's Preferred Stock"), as the Class B Special Voting
Preferred Stock, (iii) continue Ground Effect's employment relationship with
Scott, and (iv) authorize the reservation and registration of shares of the
Corporation's Common Stock to be issued on the exercise of the Exchangeable
Shares.
The Acquisition
NOW, THEREFORE, BE IT RESOLVED, that the form of the Transaction Agreements
and all related schedules, agreements and other instruments contemplated thereby
and the transactions contemplated therein are approved, and that the Chief
Executive Officer, the President and Chief Operating Officer, the Vice
2
<PAGE>
President, Treasurer and Chief Financial Officer, any Vice President and the
Secretary of the Corporation or any of them acting alone (the "Authorized
Officers") are authorized and directed to execute and deliver, for and on behalf
of the Corporation, the Transaction Agreements, with such modifications as any
Authorized Officer shall deem necessary or appropriate and proper to carry out
the intent expressed in this resolution; and
FURTHER RESOLVED, that the continuation of Ground Effects' employment
relationship with Scott is approved, and that any Authorized Officer is
authorized and directed to take all necessary and advisable steps to enter into
an employment contract with Scott on the terms and conditions as such Authorized
Officer shall deem necessary or appropriate and in the best interests of the
Corporation; and
FURTHER RESOLVED, that of the 5,000,000 shares of the Corporation's
Preferred Stock, the Corporation shall be authorized to issue one share which is
hereby designated as the Corporation's Class B Special Voting Preferred Stock
(the "Class B Special Preferred Stock"), with the rights and preferences set
forth in the Certificate of Designation attached hereto as Schedule A (the
"Certificate of Designation"); and
FURTHER RESOLVED, that the form of the Certificate of Designation and all
transactions contemplated by the Certificate of Designation are approved, and
that any Authorized Officer is authorized and directed to execute and to file
with the Missouri Secretary of State's Office, for and on behalf of the
Corporation, the Certificate of Designation, substantially in the form presented
to the Board of Directors with such modifications as any Authorized Officer
shall deem necessary or appropriate and proper to carry out the intent expressed
in the foregoing resolutions; and
FURTHER RESOLVED, that the issuance of the Class B Special Preferred Stock
to the Trustee to be held in accordance with the terms of the Voting and
Exchange Trust Agreement is approved; and
FURTHER RESOLVED, that the form of stock certificate attached hereto as
Schedule B (the "Class B Special Preferred Stock Certificate") is approved as
the certificate evidencing ownership of the Corporation's Class B Special
Preferred Stock, $10.00 par value, and that any Authorized Officer is authorized
and directed to execute and deliver, for and on behalf of the Corporation, the
Class B Special Preferred Stock Certificate to the Trustee in accordance with
the terms of the Voting and Exchange Trust Agreement; and
Registration Statement
FURTHER RESOLVED, that 1,105,708 shares of the Corporation's Common Stock
(the "Reserved Shares") shall be reserved at all times for issuance on the
exercise of the Exchangeable Shares; and
FURTHER RESOLVED, that the registration by the Corporation of the Reserved
Shares under the United States Securities Act of 1933, as amended, and the rules
and regulations thereunder (the "1933 Act") is approved, and that any Authorized
3
<PAGE>
Officer is authorized and directed to take all necessary and advisable steps to
effect such Registration; and
FURTHER RESOLVED, that the Reserved Shares issued by the Corporation upon
the exercise of Exchangeable Shares shall be validly issued, fully paid and
nonassessable upon the delivery thereof; and
FURTHER RESOLVED, that any Authorized Officer is authorized and directed to
(i) prepare a registration statement on Form S-3 (including the prospectus,
exhibits and other documents related thereto) covering the registration of the
Reserved Shares (the "Registration Statement") which shall be presented to the
Board of Directors for approval; and (ii) upon approval of the Registration
Statement by the Board of Directors, procure all other necessary signatures and
to file with the Securities and Exchange Commission (the "Commission"), the
Registration Statement; and
FURTHER RESOLVED, that upon approval of the Registration Statement by the
Board of Directors, the Board of Directors and any Authorized Officer are
authorized and directed, for and on behalf of the Corporation, to (i) cause to
be prepared and executed any and all amendments and supplements (including, but
not limited to, post-effective amendments) to the Registration Statement as they
may deem necessary or appropriate and proper, (ii) cause such amendments or
supplements when duly executed to be filed with the Commission, and (iii) do
such other acts or things and execute such other documents as they may deem
necessary or appropriate and proper to cause the Registration Statement, as
amended or supplemented, to comply with, and become effective under, the 1933
Act at the earliest practicable time and to otherwise effect and carry out the
transactions contemplated by the Reorganization Agreement; and
FURTHER RESOLVED, that Richard J. Sullivan is appointed agent of the
Corporation for service of process and to receive notices and communications in
connection with the Registration Statement, with all the power incident to such
appointment, including the powers set forth in Rule 478 of the General Rules and
Regulations of the Commission under the 1933 Act; and
FURTHER RESOLVED, that it is desirable and in the best interest of the
Corporation that its securities be registered or qualified (or exempt from
registration or qualification) for sale in various states within the United
States and foreign countries or provinces outside the United States; that any
Authorized Officer is authorized and directed, for and on behalf of the
Corporation, to take any and all action which any Authorized Officer may deem
necessary or appropriate and proper in order to effect the registration,
qualification or exemption from registration of all or any part of the Reserved
Shares for offer, sale or trade under the "Blue Sky" or securities laws of any
states or other jurisdiction of the United States or any foreign country or
province or other jurisdiction outside the United States, and to prepare,
execute, certify, acknowledge, verify, deliver, file or cause to be published
any applications, reports, consents to service of process, appointments of
attorneys to receive service of process and all other documents or instruments
which may be required under such laws, and to take any and all such further
action as any Authorized Officer may deem necessary or appropriate and proper in
order to maintain such registration, qualification or exemption for so long as
any Authorized Officer shall deem necessary or as required by law; and that the
4
<PAGE>
Board of Directors hereby adopts the form of any and all resolutions required by
any such state or other jurisdiction to be filed in connection with any such
application, report, consent to service of process, appointment of attorneys to
receive service of process or other document or instrument if (i) in the opinion
of the Authorized Officer, the adoption of such resolution is necessary or
appropriate and proper and (ii) the Secretary of the Corporation evidences such
adoption by filing with this Consent copies of such resolutions, which shall
thereupon be deemed to be adopted by this Board of Directors and incorporated in
this Consent as part of this resolution with the same force and effect as if
presented in the terms to this Board of Directors; and
FURTHER RESOLVED, that any Authorized Officer is authorized and
directed, for and on behalf of the Corporation, to execute and deliver all
applications and documents in such form as may be approved by the Authorized
Officer, and to take all other action, required by the either the Nasdaq
National Market System or the Nasdaq Small-Cap Market System, as the case may
be, to include the Reserved Shares on either the Nasdaq National Market or the
Nasdaq Small-Cap Market, as the case may be, including payment of fees
associated with such inclusion; and
FURTHER RESOLVED, that any Authorized Officer is authorized and directed,
for and on behalf of the Corporation, to file with Florida Atlantic Stock
Transfer, Inc., the Corporation's Transfer Agent, all written directions with
respect to the original issue of the Reserved Shares, and any other documents
required by said Transfer Agent with respect to the transactions contemplated by
these resolutions with respect to the Corporation's Common Stock to be issued;
and
General
FURTHER RESOLVED, that any Authorized Officer of the Corporation is
authorized and directed to take or cause to be taken all such further action and
to execute and deliver all such further documents, certificates and instruments,
for and on behalf of the Corporation, as any such officer shall deem necessary
or appropriate and proper to carry out the intent expressed in the foregoing
resolutions.
5
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Consent as of
the 30th day of June, 1998.
/S/ RICHARD J. SULLIVAN
-----------------------------------
Richard J. Sullivan
/S/ GARRETT A. SULLIVAN
-----------------------------------
Garrett A. Sullivan
/S/ DANIEL E. PENNI
-----------------------------------
Daniel E. Penni
/S/ ANGELA M. SULLIVAN
-----------------------------------
Angela M. Sullivan
/S/ ARTHUR F. NOTERMAN
-----------------------------------
Arthur F. Noterman
Being all of the directors of said
Corporation
6
<PAGE>
SCHEDULE A
<PAGE>
CERTIFICATE OF DESIGNATION
OF
CLASS B SPECIAL VOTING PREFERRED STOCK
OF
APPLIED CELLULAR TECHNOLOGY, INC.
(Pursuant to Section 351.180 of The General
and Business Corporation Law of Missouri)
--------------------------------------------------
Applied Cellular Technology, Inc., a corporation organized and existing
under The General and Business Corporation Law of Missouri (the "Corporation"),
hereby certifies that, pursuant to authority vested in the Board of Directors of
the Corporation by Article Three of the Corporation's Restated Articles of
Incorporation, as amended, the following resolution was adopted by the Board of
Directors of the Corporation pursuant to Section 351.180 of The General and
Business Corporation Law of Missouri:
That of the 5,000,000 shares of the Corporation's Preferred Stock (par
value $10.00 per share), the Corporation is authorized to issue, one share which
is hereby designated as the Corporation's Class B Special Voting Preferred Stock
(the "Class B Special Preferred Stock"), with the rights and preferences set
forth below.
1. Dividends.
The holder of the Class B Special Preferred Stock shall not be entitled to
receive any dividends.
2. Voting Rights.
Pursuant to the terms of a certain Reorganization Agreement effective as of
June 30, 1998 (the "Reorganization Agreement"), among the Corporation, ACT-GFX
Canada, Inc., an Ontario corporation and subsidiary of the Corporation ("ACT
Sub"), Drummer Enterprises Ltd., an Ontario corporation, Morstar Holdings Ltd.,
a Manitoba corporation, Scozul Enterprises Ltd., an Ontario corporation, James
D. Scott and Ground Effects Ltd., an Ontario corporation ("Ground Effects"), ACT
Sub acquired certain of the issued and outstanding shares in the capital Ground
Effects and certain debt owed by Ground Effects, and as a result, Ground Effects
became a subsidiary of ACT Sub. The purchase price was satisfied by the issuance
of Class A Exchangeable Shares and Class B Exchangeable Shares of ACT Sub (the
Class A Exchangeable Shares and the Class B Exchangeable Shares are hereafter
collectively referred to as the "Exchangeable Shares"). The Exchangeable Shares
<PAGE>
entitle the holders thereof to dividends and other rights equivalent to those of
the holders of the Corporation's Common Stock, and through a voting trust, the
right to vote at meetings of the holders of the Corporation's Common Stock in
accordance with the terms of a Voting and Exchange Trust Agreement (the "Voting
and Exchange Trust Agreement") entered into among the Corporation, ACT Sub,
Drummer, Morstar, Scozul and the Montreal Trust Company of Canada (the
"Trustee"). In addition, the Reorganization Agreement contemplates that one
share of the Corporation's Class B Special Preferred Stock will be issued to the
Trustee under the terms of the Voting and Exchange Trust Agreement.
Except as otherwise provided by law, the Class B Special Preferred Stock
shall have the number of votes equal to the number of outstanding Exchangeable
Shares from time to time, which are not owned by the Corporation, any of its
subsidiaries or any person directly or indirectly controlled by or under common
control with the Corporation, for all corporate purposes. For the purposes
herein, "control" (including the correlative terms "controlled by" and "under
common control with") as applied to any person, means the possession, directly
or indirectly, of the power to direct or cause direction of the management and
policies of that person through the ownership of voting securities, by control
or otherwise. In respect of all matters concerning the voting of shares, the
holders of the Common Stock and the Class B Special Preferred Stock shall vote
as a single class and such voting rights shall be identical in all respects
except as otherwise provided herein.
3. Redemption.
The share of Class B Special Preferred Stock shall not be redeemable.
4. Liquidation.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holder of the share of Class B Special
Preferred Stock shall not be entitled to receive any of the assets of the
Corporation available for distribution to its stockholders.
5. Cancellation.
At such time as there are no Exchangeable Shares outstanding which are not
owned by the Corporation or any of its subsidiaries or any person directly or
indirectly controlled by or under common control with the Corporation and there
are no shares of stock, debt, options or other agreements of ACT Sub which could
give rise to the issuance of any Exchangeable Shares of ACT Sub to any person
(other than the Corporation or any of its subsidiaries or any person directly or
indirectly controlled by or under common control with the Corporation), the
Class B Special Preferred Stock will be canceled without any further action by
the holder thereof or by the Corporation.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation by its President and attested to by its Assistant Secretary
this ____ day of _____________, 1998.
--------------------------------
Garrett A. Sullivan, President
Attest:
- -------------------------------------
David A. Loppert, Assistant Secretary
<PAGE>
SCHEDULE B
[FORM OF PREFERRED STOCK CERTIFICATE]
Exhibit 5.1
BRYAN CAVE LLP
ONE METROPOLITAN SQUARE
211 N. BROADWAY, SUITE 3600
ST. LOUIS, MISSOURI 63102-2750
(314) 259-2000
FACSIMILE: (314) 259-2020
December 4, 1998
Board of Directors
Applied Cellular Technology, Inc.
400 Royal Palm Way, Suite 410
Palm Beach, Florida 33480
Ladies and Gentlemen:
We are acting as counsel for Applied Cellular Technology, Inc., a Missouri
corporation (the "Company"), in connection with the preparation and filing of a
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-3 (the
"Registration Statement") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended. The Registration Statement relates to
1,105,708 shares of the Company's common stock, $.001 par value per share.
In connection herewith, we have examined and relied without independent
investigation as to matters of fact upon such certificates of public officials,
such statements and certificates of officers of the Company and originals or
copies certified to our satisfaction of the Registration Statement, the Articles
of Incorporation and By-laws of the Company as amended and now in effect,
proceedings of the Board of Directors of the Company and such other corporate
records, documents, certificates and instruments as we have deemed necessary or
appropriate in order to enable us to render this opinion. In rendering this
opinion, we have assumed the genuineness of all signatures on all documents
examined by us, the due authority of the parties signing such documents, the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based upon and subject to the foregoing, it is our opinion that the
issuance of the Shares has been duly authorized by all requisite corporate
action of the Company, and that the Shares, when issued in accordance with such
authorization, will be legally issued and fully paid and non-assessable shares
of Common Stock of the Company.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
BRYAN CAVE LLP
Exhibit 8.1
CASSELS BROCK & BLACKWELL
BARRISTERS & SOLICITORS
TRADE MARK AGENTS
SCOTIA PLAZA, SUITE 2100
40 KING STREET WEST
TORONTO, CANADA M5H3C2
TELEPHONE (416) 869-5300
FACSIMILE (416) 360-8877
December 2, 1998
ACT-GFX Canada, Inc.
Gentlemen:
Re: New Exchangeable Shares
We have acted as counsel to ACT-GFX Canada, Inc. (the "Company") in connection
with the Registration Statement on Form S-3 dated on or about December 2, 1998,
as amended (the "Registration Statement"), relating to the shares of Common
Stock issuable to the holders of the Exchangeable Shares pursuant to the terms
of the Exchangeable Shares. Unless otherwise indicated, capitalized terms used
herein shall have the meaning ascribed to them in the prospectus included in the
Registration Statement (the "Prospectus"). We hereby confirm that, assuming that
shares of Common Stock are issued to holders of Exchangeable Shares pursuant to
the terms of the Exchangeable Shares as described in the Prospectus, the
discussion under the caption "CANADIAN TAX CONSIDERATIONS" in the Prospectus
expresses our opinion regarding the material Canadian tax considerations
generally applicable to holders of Exchangeable Shares that receive Common Stock
in exchange for such Exchangeable Shares pursuant to their terms, and the
ownership and disposition of Common Stock acquired in the exchange.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "CANADIAN
TAX CONSIDERATIONS" in the Prospectus. In giving this consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very yours,
CASSELS BROCK & BLACKWELL
Exhibit 8.2
Bryan Cave LLP
One Metropolitan Square
211 N. Broadway, Suite 3600
St. Louis, Missouri 63102-2750
(314) 259-2000
Facsimile (314) 259-2020
December 4, 1998
Applied Cellular Technology, Inc.
James River Professional Center
Highway 160 & CC, Suite 5
P.O. Box 2067
Nixa, Missouri 65714
Gentlemen:
We have acted as counsel to Applied Cellular Technology, Inc., a Missouri
corporation ("ACT") in connection with the preparation and filing of the
Registration Statement on Form S-3, as amended (the "Registration Statement")
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act") on December 4, 1998
for the purpose of registering 1,105,708 shares of ACT Common Stock to be
issuable for the Exchangeable Shares of ACT-GFX Canada, Inc., an Ontario
corporation. Unless otherwise indicated, capitalized terms used herein shall
have the meaning ascribed to them in the Registration Statement.
In connection with this opinion, we have examined the Registration
Statement and such other documents and corporate records as we have deemed
necessary or appropriate in order to enable us to render the opinion below. For
purposes of this opinion, we have assumed (i) the validity and accuracy of the
documents and corporate records that we have examined and the facts and
representations concerning the registration of shares of ACT Common Stock that
have come to our attention during our engagement and (ii) that the issuance of
shares of ACT Common Stock pursuant to the Registration Statement will be
consummated in the manner described in the Registration Statement.
Subject to the assumptions set forth above, the assumptions
and qualifications set forth in the Registration Statement under the heading
"UNITED STATES FEDERAL TAX CONSIDERATIONS" (the "Discussion") and the fact that
the Discussion is a summary and does not purport to discuss all possible United
States federal income tax consequences of exchanging Exchangeable Shares, we are
of the opinion that the Discussion states the material United States federal
income tax consequences generally applicable to United States Holders of
<PAGE>
December 4, 1998
Page 2
Exchangeable Shares with respect to the exchange of Exchangeable Shares for
shares of ACT Common Stock. In addition, we express no opinion as to the United
States federal, state, local, foreign or other tax consequences, other than as
set forth in the Discussion. Further, there can be no assurances that the
opinion expressed herein will be accepted by the Internal Revenue Service (the
"IRS") or, if challenged, by a court. We also note that the Registration
Statement does not relate to a specific exchange of Exchangeable Shares for
shares of ACT Common Stock. Accordingly, the above-referenced description of
United States federal income tax considerations may, under certain
circumstances, require modification in the context of an actual exchange of
Exchangeable Shares for shares of ACT Common Stock after the date hereof.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended, Treasury Department regulations
promulgated thereunder, pertinent judicial authorities, interpretive rulings of
the IRS and such other authorities as we have considered relevant. It should be
noted that statutes, regulations, judicial decisions and administrative
interpretations are subject to change at any time (possibly with retroactive
effect). A change in the authorities or the accuracy or completeness of any of
the information, documents, corporate records, covenants, statements,
representations or assumptions on which our opinion is based could affect our
conclusions. This opinion is expressed as of the date hereof, and we are under
no obligation to supplement or revise our opinion to reflect any changes
(including changes that have retroactive effect) (i) in applicable law or (ii)
in any information, document, corporate record, covenant, statement,
representation or assumption stated herein which becomes untrue or incorrect.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the caption
"UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS" in the Registration Statement.
In giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission thereunder.
Very truly yours,
BRYAN CAVE LLP
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in Amendment No. 1 to the
Registration Statement (Form S-3 No. 333-64605) of Applied Cellular Technology,
Inc. of our report, dated February 24, 1998, on Applied Cellular Technology,
Inc. and Subsidiaries, included in Applied Cellular Technology, Inc.'s Form 10-K
for the year ended December 31, 1997, and to the reference to us under the
heading "Experts" in the Prospectus which is a part of this Registration
Statement.
RUBIN, BROWN, GORNSTEIN & CO. LLP
St. Louis, Missouri
December 2, 1998
Exhibit 99.1
ACT-GFX CANADA, INC.
SHARE PROVISIONS
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these share provisions:
"ACT" means Applied Cellular Technology, Inc. a corporation incorporated
pursuant to the laws of the State of Missouri.
"ACT Call Notice" has the meaning ascribed thereto in the Call Agreement.
"ACT Common Stock Reorganization" has the meaning ascribed thereto in the
definition of "Current ACT Common Stock Equivalent" in Section 1.1 of these
Class A Exchangeable share provisions.
"ACT Common Stock" means the Class A common stock of ACT, with a par value
of (U.S. Dollars) $.001 per share and having one vote per share, and any other
securities into which such shares may be changed.
"ACT Dividend Declaration Date" means the date on which the Board of
Directors of ACT declares any dividend on the ACT Common Stock.
"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 the Corporation, (either alone, or through or together with any
other subsidiary) has, directly or indirectly, an equity interest of 10 percent
(10%) or more.
"Automatic Redemption Date" means in respect of the Class Exchangeable
shares, the date for the automatic redemption by the Corporation of Class A
Exchangeable Shares pursuant to Section 2.5 of the Class A Exchangeable share
provisions, which date shall be the first to occur of (a) the 7th anniversary of
the Closing Date and (b) the date selected by the Board of Directors at any time
when less than 5% of the Class A Exchangeable Shares issued on the Closing Date
are outstanding, 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 Class A 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
Class A Exchangeable Shares outstanding, and in respect of the Class B
Exchangeable Shares, the date for automatic redemption by the Corporation of
<PAGE>
Class B Exchangeable Shares pursuant to Section 3.5 of the Class B Exchangeable
Share provisions, which date shall be the first to occur of (a) the 7th
anniversary of the Closing Date and (b) the date selected by the Board of
Directors at any time when less than 5% of the Class B Exchangeable Shares
issued on the Closing Date are outstanding, 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 Class B Exchangeable
Shares.
"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 Toronto, Ontario.
"Call Agreement" means the Call Agreement by and among ACT, the
Corporation, Drummer Enterprises Ltd., Morstar Holdings Ltd., Scozul Enterprises
Ltd. and James D. Scott entered into the 30th day of June, 1998.
"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 9.2 of
these share provisions.
"Class A Exchangeable Shares" means the Class A Exchangeable Shares of the
Corporation having the rights, privileges, restrictions and conditions set forth
herein.
"Class B Exchangeable Shares" means the Class B exchangeable shares of the
Corporation having the rights, privileges, restrictions and conditions set forth
herein.
"Closing Date" has the meaning ascribed thereto in the Reorganization
Agreement.
"Closing Price" means the closing price of ACT Common Stock, as published
in the Wall Street Journal on the date which is 48 hours prior to the Closing
Date, confirmed by the parties to the Reorganization Agreement in a certificate
delivered on the Closing Date.
"Common Shares" means the common shares of the Corporation having the
rights, privileges, restrictions and conditions set forth herein.
"Corporation" means ACT-GFX Canada, Inc., a corporation incorporated under
the OBCA.
2
<PAGE>
"Current Market Price" means, in respect of a share of ACT Common Stock on
any date, in the discretion of the Board of Directors either (i) the Canadian
Dollar Equivalent of the closing sale price of a share of ACT Common Stock on
such date (or, if no trades of any ACT Common Stock occurred on such date, on
the last trading day prior thereto on which such trades occurred) reported on
Nasdaq, or, (ii) if the ACT Common Stock are not then quoted on Nasdaq on such
other stock exchange or automated quotation system on which the ACT 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 ACT Common
Stock during such period does not create a market that reflects the fair market
value of ACT Common Stock, then the Current Market Price of a share of ACT
Common Stock shall be determined by the Board of Directors in consultation with
holders of Exchangeable Shares 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.
"Current ACT Common Stock Equivalent" means, on any date, the equivalent as
at such date of one share of ACT Common Stock as at the Closing Date, expressed
to four decimal places, (the Current ACT Common Stock Equivalent as of the
Closing Date being 1.0000) determined by applying on a cumulative basis the
following adjustments, to the extent applicable by reason of any transactions
occurring in respect of ACT Common Stock between the Closing Date and such date:
(i) if ACT shall (A) subdivide, redivide, convert or otherwise amend its
then outstanding shares of ACT Common Stock into a greater number of
shares of ACT 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 Class A Exchangeable Shares and to
holders of Class B Exchangeable Shares, (B) combine, consolidate
convert or otherwise amend its then outstanding shares of ACT Common
Stock into a lesser number of shares of ACT 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 ACT Common Stock (or
securities exchangeable or convertible into ACT 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 ACT Common Stock by way of stock dividend or
other distribution (other than to holders of ACT 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 ACT
Common Stock or other securities (adjusted if necessary in accordance
with the Current ACT Common Stock Equivalent), or the economic
equivalent on a per share basis, to the holders of the Class A
Exchangeable Shares and to the holders of Class B Exchangeable Shares
3
<PAGE>
(any of such events being herein called the "ACT Common Stock
Reorganization"), the Current ACT Common Stock Equivalent shall be
adjusted effective immediately after the record date at which the
holders of ACT Common Stock are determined for the purpose of the ACT
Common Stock Reorganization by multiplying the Current ACT Common
Stock Equivalent in effect on such record date by the quotient
obtained when:
(A) the number of shares of ACT Common Stock outstanding after the
completion of such ACT Common Stock Reorganization (but before
giving effect to the issue or cancellation of any shares of ACT
Common Stock issued or cancelled after such record date otherwise
than as part of such ACT Common Stock Reorganization) including,
in the case where securities exchangeable or convertible into ACT
Common Stock are distributed, the number shares of ACT Common
Stock that would have been outstanding had such securities been
exchanged for or converted into ACT Common Stock on such record
date,
is divided by
(B) the number of shares of ACT Common Stock outstanding on such
record date before giving effect to the ACT Common Stock
Reorganization;
(ii) if at any time ACT 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 ACT Common Stock entitling them to subscribe for or to
purchase shares of ACT Common Stock (or securities of ACT convertible
into ACT Common Stock) at a price per share of ACT Common Stock (or
having a conversion price per ACT 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 ACT Common Stock Equivalent at such record date, or the
economic equivalent thereof on a per share basis, to the holders of
Class A Exchangeable Shares and the holders of Class B Exchangeable
Shares (any such event being herein referred to as a "Rights
Offering"), then the Current ACT Common Stock Equivalent then in
effect shall be adjusted immediately after such record date by
multiplying the Current ACT Common Stock Equivalent in effect on such
record date by the quotient obtained when:
(A) the sum of the number of shares of ACT Common Stock outstanding
on such record date and the number of additional shares of ACT
Common Stock offered for subscription or purchase under the
Rights Offering (or the number of ACT Common Stock into which the
securities so offered are convertible)
is divided by
4
<PAGE>
(B) the sum of the number of ACT Common Stock outstanding on such
record date and the number determined by dividing the aggregate
price of the total number of additional shares of ACT 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 ACT Common Stock owned by or held for the account of ACT
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 ACT Common Stock Equivalent
shall be readjusted effective immediately after the date of expiry (or
determination by the Board of Directors of ACT that the issue will not
take place) to the Current ACT Common Stock Equivalent which would
have been in effect if such record date had not been fixed or to the
Current ACT 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;
(iii)if ACT 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 ACT Common Stock of
(A) shares of ACT of any class other than ACT Common Stock (excluding
shares convertible into ACT Common Stock referred to in (i) (C)
above),
(B) rights, option or warrants (excluding a Rights Offering),
(C) evidences of its indebtedness (excluding indebtedness convertible
into ACT 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 ACT 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 ACT Common Stock
Equivalent, as at such record date, or the economic equivalent thereof
on a per share basis, to the holders of Class A Exchangeable Shares
and to the holders of Class B Exchangeable Shares (any such event
being herein referred to as a "Special Distribution") then, in each
such case, the Current ACT Common Stock Equivalent shall be adjusted
effective immediately after the record date at which the holders of
5
<PAGE>
ACT Common Stock are determined for the purposes of the Special
Distribution by multiplying the Current ACT Common Stock Equivalent in
effect on such record date by the quotient obtained when:
(I) the product obtained when the number of shares of ACT Common
Stock outstanding 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 ACT, is subtracted from the product obtained when the
number of shares of ACT 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 ACT Common Stock
Equivalent in effect immediately before such record date. Any
share of ACT Common Stock owned by or held for the account of ACT
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 ACT Common Stock Equivalent shall be
readjusted effective immediately to the Current ACT 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; and
(iv) if the Registration Closing Price is less than the Closing Price,
the Current ACT Common Stock Equivalent shall be adjusted
immediately after the effective date of the Registration
Statement by multiplying the Current ACT Common Stock Equivalent
in effect on such effective date by the quotient obtained when
the Closing Price is divided by the Registration Closing Price.
Notwithstanding any of the foregoing definition of "Current ACT Common
Stock Equivalent", in no event may any one distribution, issuance of securities
or other event be deemed to be more than one ACT Common Stock Reorganization,
Rights Offering or Special Distribution.
6
<PAGE>
"Exchangeable Shares" means the Class A Exchangeable Shares and the Class B
Exchangeable Shares.
"holder" means in respect of Class A Exchangeable Shares a registered
holder of a Class A Exchangeable Share from time to time, in respect of Class B
Exchangeable Shares, a registered holder of a Class B Exchangeable Share, from
time to time and, in respect of the common shares, a registered holder of a
common share from time to time.
"Lien" has the meaning ascribed thereto in the Reorganization Agreement.
"Liquidation Amount," in respect of the Class A Exchangeable Shares, has
the meaning ascribed thereto in Section 2.3.1 of the Class A Exchangeable share
provisions and in respect of the Class B Exchangeable Shares has the meaning
ascribed thereto in Section 3.3.1 of the Class B Exchangeable share provisions.
"Liquidation Call Right" has the meaning ascribed thereto in the Call
Agreement.
"Liquidation Date" in respect of the Class A Exchangeable Shares has the
meaning, ascribed thereto in Section 2.3.1 of the Class A Exchangeable Share
provisions and in respect of the Class B Exchangeable Shares has the meaning
ascribed thereto in Section 3.3.1 of the Class B Exchangeable share provisions.
"Nasdaq" means the National Market System.
"OBCA" means the Business Corporations Act (Ontario), as amended from time
to time.
"Redemption Call Right" has the meaning ascribed thereto in the Call
Agreement.
"Redemption Price" in respect of the Class A Exchangeable Shares has the
meaning ascribed thereto in Section 2.5.1 of the Class A Exchangeable share
provisions and in respect of the Class B Exchangeable Shares has the meaning
ascribed thereto in Section 3.5.1 of the Class B Exchangeable Share provisions.
"Registered Closing Price" means the closing price of ACT Common Stock as
published in the Wall Street Journal on the effective date of the Registration
Statement.
"Registration Statement" means the registration statement of ACT filed in
connection with the ACT Common Stock allotted for issuance pursuant to the
exchange of the Exchangeable Shares.
"Retracted Shares" in respect of the Class A Exchangeable Shares has the
meaning ascribed thereto in Section 2.4.1 of the Class A Exchangeable share
provisions and in respect of the Class B Exchangeable Shares has the meaning
ascribed thereto in Section 3.4.1 of the Class B Exchangeable Share provisions.
7
<PAGE>
"Retraction Call Right" has the meaning ascribed thereto in the Call
Agreement.
"Retraction Date" in respect of the Class A Exchangeable Shares has the
meaning ascribed thereto in Section 2.4.2 of the Class A Exchangeable share
provisions and in respect of the Class B Exchangeable Shares has the meaning
ascribed thereto in Section 3.4.2 of the Class B Exchangeable share provisions.
"Retraction Period" means the period from the Closing Date until the
Automatic Redemption Date.
"Retraction Price" in respect of the Class A Exchangeable Shares has the
meaning ascribed thereto in Section 2.4.1 of the Class A Exchangeable share
provisions and in respect of the Class B Exchangeable Shares has the meaning
ascribed thereto in Section 3.4.1 of the Class B Exchangeable share provisions.
"Retraction Request" in respect of the Class A Exchangeable Shares has the
meaning ascribed thereto in Section 2.4.1 of the Class A Exchangeable share
provisions and in respect of the Class B Exchangeable Shares has the meaning
ascribed thereto in Section 3.4.1 of the Class B Exchangeable share provisions.
"Rights Offering" has the meaning ascribed thereto in the definition of
"Current ACT Common Stock Equivalent" in Section 1.1 of these share provisions.
"Special Distribution" has the meaning ascribed thereto in the definition
of "Current ACT Common Stock Equivalent" in Section 1.1 of these share
provisions.
"Support Agreement" means the Support Agreement by and between ACT and the
Corporation entered into the 30th day of June, 1998.
"Voting and Exchange Trust Agreement" means the Voting and Exchange Trust
Agreement between the Corporation, ACT, Drummer Enterprises Ltd., Morstar
Holdings Ltd., Scozul Enterprises Ltd., Ground Effects Ltd. and Montreal Trust
Company of Canada entered into the 30th day of June, 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
PROVISIONS ATTACHING TO THE CLASS A EXCHANGEABLE SHARES
The Class A Exchangeable Shares in the capital of the Corporation shall
have the following rights, privileges, restrictions and conditions:
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2.1 Ranking Of Class A Exchangeable Shares
2.1.1 The Class A Exchangeable Shares shall rank senior to the Common Shares,
and any other shares ranking junior to the Class A Exchangeable Shares, with
respect to 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.
2.2 Dividends
2.2.1 A holder of a Class A 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 ACT
Common Stock, in an amount in cash for each Exchangeable Share equal to the
Canadian Dollar Equivalent on the ACT Dividend Declaration Date of the cash
dividend declared on such number of shares of ACT Common Stock as is equal to
the Current ACT Common Stock Equivalent on the ACT Dividend Declaration Date or
(b) in the case of a stock dividend declared on the ACT Common Stock to be paid
in shares of ACT 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 ACT Common Stock to be paid as a dividend on the equivalent number of
shares of ACT Common Stock Dividend by the Current ACT Common Stock Equivalent
on the ACT Declaration Date or (c) in the case of a dividend declared on the
shares of ACT Common Stock to be paid in property other than cash or ACT Common
Stock (including without limitation other securities of ACT), 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
4.1) to the type and amount of property, to be paid as a dividend on such number
of shares of ACT Common Stock as is equal to the Current ACT Common Stock
Equivalent on the ACT 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 2.2.1, any ACT
dividend contemplated by this Section 2.2.1 shall in no event be deemed to be a
ACT Common Stock Reorganization, Rights Offering or Special Distribution.
2.2.2 Cheques of the Corporation shall be issued in respect of any cash
dividends contemplated by subsection 2.2.1(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 2.2.1(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 2.2.1(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 2.2.1(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 by the Corporation
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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 (6)
years from the date on which such dividend was payable.
2.2.3 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 2.2.1 hereof shall be the same
dates as the record date and payment date, respectively, for the corresponding
dividend declared on the shares of ACT Common Stock.
2.2.4 If on any payment date for any dividends declared on the Exchangeable
Shares under Section 2.2.1 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 money, assets or property
properly applicable to the payment of such dividends.
2.2.5 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 2.7.2 of these
Class A Exchangeable 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 2.2.5(a), 2.2.5(b) and
2.2.5(c) shall not apply if all dividends on the outstanding Exchangeable
Shares corresponding to dividends declared to date on the ACT Common Stock
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shall have been declared on the Exchangeable Shares and, if paid to holders
of ACT Common Stock, paid in full.
2.3 Distribution on Liquidation
2.3.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, a holder of Class A
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 Class A Exchangeable Shares, an amount per share equal (a)
to the Current Market Price multiplied by the Current ACT 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
whole number of shares of ACT Common Stock as is equal to the Current ACT Common
Stock Equivalent, plus (b) an additional amount equal to the aggregate of all
declared and unpaid dividends on each such Exchangeable Shares up to the
Liquidation Date (collectively, the "Liquidation Amount") without interest.
2.3.2 On or promptly after the Liquidation Date, and subject to the exercise by
ACT of the Liquidation Call Right, the Corporation shall cause to be delivered
to the holders of the Class A Exchangeable Shares the Liquidation Amount for
each such Exchangeable Share upon presentation and surrender of the certificates
representing such Class A Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of Class A
Exchangeable Shares under the OBCA and the by-laws of the Corporation and such
additional documents and instruments as the Corporation may reasonably require,
at the registered office of the Corporation. Payment of the total Liquidation
Amount for all of the Class A 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 Class A Exchangeable Shares
or by holding for pick-up by the holder at the registered of office of the
Corporation on behalf of the Corporation of certificates representing the shares
of ACT 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 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 Class A Exchangeable Shares shall cease to be holders of such
Class A 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 Class A Exchangeable Shares, unless
payment of the total Liquidation Amount for such Class A 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 Amount for their
Class A 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 Class A Exchangeable Shares represented by certificates that have
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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 Class A Exchangeable
Shares after such deposit shall be limited to receiving the total Liquidation
Amount for such Class A Exchangeable Shares so deposited, against presentation
and surrender of the said certificates held by them, respectively, in accordance
with the foregoing provisions.
2.3.3 After the Corporation has satisfied its obligations to pay the holders of
the Class A Exchangeable Shares the Liquidation Amount per Exchangeable Share
pursuant to section 2.3.1 of these Class A Exchangeable 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 Class A Exchangeable
Shares.
2.4 Retraction Of Class A Exchangeable Shares By Holder
2.4.1 A holder of Class A Exchangeable Shares shall be entitled during the
Retraction Period, subject to the exercise by ACT of the Retraction Call Right
and otherwise upon compliance with the provisions of this Section 2.4, to
require the Corporation to redeem any or all of the Class A 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 ACT 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 whole number of shares
of ACT Common Stock as is equal to the Current ACT 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") without
interest, 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 dividend. To effect such redemption, the holder
shall present and surrender at the office of the Corporation the certificate or
certificates representing the Class A 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 Class A Exchangeable
Shares under the OBCA and the by-laws of the Corporation and such additional
documents and instruments as the Corporation 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 Corporation and ACT:
(a) specifying that the holder desires to have the Retracted Shares
represented by such certificate or certificates redeemed by the
Corporation; and
(b) acknowledging the Retraction Call Right of ACT 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 ACT in accordance with the
Retraction Call Right.
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If any Retraction Request is received on a date that is not within the
Retraction Period, such Retraction Request shall be of no force or effect and
the Corporation and ACT shall have no obligations as a result of the delivery of
such Retraction Request.
2.4.2 Subject to the exercise by ACT of the Retraction Call Right, upon receipt
by the Corporation in the manner specified in Section 2.4.1 hereof of a
certificate or certificates representing the number of Class A 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
2.4.1 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 Class A Exchangeable Shares represented
by any certificate are redeemed (or purchased by ACT pursuant to the Retraction
Call Right), a new certificate for the balance of such Class A Exchangeable
Shares shall be issued to the holder at the expense of the Corporation.
2.4.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall forthwith notify ACT thereof. In order to exercise the Retraction Call
Right, ACT must deliver an ACT Call Notice to the Corporation prior to the
expiry of the third (3rd) Business Day after the receipt by the Corporation of
the Retraction Request. If ACT does not so notify the Corporation, the
Corporation will notify the holder as soon as possible thereafter that ACT will
not exercise the Retraction Call Right. If ACT delivers the ACT Call Notice
before the end of such third (3rd) Business Day period, the Retraction Request
shall thereupon be considered only to be an offer by the holder to sell the
Retracted Shares to ACT in accordance with the Retraction Call Right. In such
event, the Corporation shall not redeem the Retracted Shares and ACT shall
purchase from such holder and such holder shall sell to ACT on the Retraction
Date the Retracted Shares pursuant to the Retraction Call Right.
2.4.4 If a Retraction Request is received by the Corporation pursuant to Section
2.4.1 and ACT has not exercised the Retraction Call Right, the Corporation shall
deliver to the holder of the Retracted Shares, at the address of the holder
recorded in the securities register of the Corporation for the Class A
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 Corporation
to which the Retraction Request was delivered, certificates representing the
shares of ACT Common Stock to be delivered to the holder in payment of the total
Retraction Price for all of the Retracted Shares (or the portion thereof payable
in ACT 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 in payment of the remaining portion, if
any, of the total Retraction Price (or if any part of the Retraction 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 Corporation
shall be deemed to be payment of and shall satisfy and discharge all liability
for the total Retraction 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.
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2.4.5 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 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
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 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 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 ACT Common Stock
delivered to it.
2.4.6 Notwithstanding any other provision of this Section 2.4, 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 ACT 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 (5) 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 2.4.2 hereof. The holder of any such Retracted Shares not redeemed by
the Corporation pursuant to Section 2.4.2 of these share provisions as a result
of solvency requirements of applicable law shall be deemed by giving the
Retraction Request to require ACT to purchase such Retracted Shares from such
holder pursuant to the Exchange Right (as defined in the Exchange Agreement).
2.4.7 Any offer obtained and any notice of retraction issued by a holder may be
revoked by the holder by a further notice in writing addressed to the
Corporation and ACT specifically referencing the notice of retraction, and by
delivering such notice to the Corporation at any time prior to the Retraction
Date.
2.5 Redemption of Class A Exchangeable Shares
2.5.1 Subject to applicable law and if ACT does not exercise the Redemption Call
Right, the Corporation shall on the Automatic Redemption Date redeem the whole
of the then outstanding Class A Exchangeable Shares for an amount per share
equal to (a) the Current Market Price multiplied by the Current ACT 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
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ACT Common Stock as is equal to the Current ACT 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).
2.5.2 On or after the Automatic Redemption Date and subject to the exercise by
ACT of the Redemption Call Right, the Corporation shall cause to be delivered to
the holders of the Class A Exchangeable Shares the Redemption Price for each
such Exchangeable Share upon presentation and surrender at any office of the
Corporation of the certificates representing such Class A Exchangeable Shares,
together with such other documents and instruments as may be required to effect
a transfer of Class A Exchangeable Shares under the OBCA and the by-laws of the
Corporation and such additional documents and instruments as the Corporation may
reasonably require. Payment of the total Redemption Price for all of the Class A
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 on behalf of the Corporation of certificates representing the
shares of ACT Common Stock to be delivered to the holder in payment of the
Redemption Price for all of the Class A Exchangeable Shares held by such holder
(or the portion thereof payable in ACT 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 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 Class A Exchangeable Shares called for redemption shall
cease to be holders of such Class A 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 Class A Exchangeable
Shares, unless payment of the total Redemption Price for such Class A
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 Class A Exchangeable Shares so called for
redemption, or of such of the said Class A 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 Class A
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 Class A Exchangeable Shares, against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of the
total Redemption Price, the holders of the Class A Exchangeable Shares shall
thereafter be considered and deemed for all purposes to be holders of the ACT
Common Stock delivered to them.
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2.6 Voting Rights
2.6.1 Except as required by applicable law, and the provisions of Section 2.7.1,
the holders of the Class A 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.
2.7 Amendment and Approval
2.7 .1 The rights, privileges, restrictions and conditions attaching to the
Class A Exchangeable Shares may be added to, changed or removed but only with
the approval of the holders of the Class A Exchangeable Shares given as
hereinafter specified.
2.7.2 Any approval given by the holders of the Class A Exchangeable Shares to
add to, change or remove any right, privilege, restriction or condition
attaching to the Class A Exchangeable Shares or any other matter requiring the
approval or consent of the holders of the Class A 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 Class A Exchangeable Shares duly
called and held at which the holders of at least fifty percent (50%) of the
outstanding Class A Exchangeable Shares at that time are present or represented
by proxy (excluding Class A Exchangeable Shares beneficially owned by ACT or its
Affiliates). If at any such meeting the holders of at least fifty percent (50%)
of the outstanding Class A 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 ten (10)
days thereafter and to such time and place as may be designated by the Chairman
of such meeting. At such adjourned meeting the holders of Class A 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 Class A Exchangeable Shares.
ARTICLE 3
PROVISIONS ATTACHING TO THE CLASS B EXCHANGEABLE SHARES
The Class B Exchangeable Shares in the capital of the Corporation shall
have the following rights, privileges, restrictions and conditions:
3.1 Ranking of Class B Exchangeable Shares
3.1.1 The Class B Exchangeable Shares shall rank senior to the Class A
Exchangeable Shares, the Common Shares, and any other shares ranking junior to
the Class B Exchangeable Shares, with respect to 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
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Corporation among its shareholders for the purpose of winding-up its affairs.
3.2 Dividends
3.2.1 A holder of a Class B 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 ACT
Common Stock, in an amount in cash for each Exchangeable Share equal to the
Canadian Dollar Equivalent on the ACT Dividend Declaration Date of the cash
dividend declared on such number of shares of ACT Common Stock as is equal to
the Current ACT Common Stock Equivalent on the ACT Dividend Declaration Date or
(b) in the case of a stock dividend declared on the ACT Common Stock to be paid
in shares of ACT 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 ACT Common Stock to be paid as a dividend on the equivalent number of
shares of ACT Common Stock Dividend by the Current ACT Common Stock Equivalent
on the ACT Declaration Date or (c) in the case of a dividend declared on the
shares of ACT Common Stock to be paid in property other than cash or ACT Common
Stock (including without limitation other securities of ACT), 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
9.1) to the type and amount of property, to be paid as a dividend on such number
of shares of ACT Common Stock as is equal to the Current ACT Common Stock
Equivalent on the ACT 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 3.2.1, any ACT
dividend contemplated by this Section 3.2.1 shall in no event be deemed to be a
ACT Common Stock Reorganization, Rights Offering or Special Distribution.
3.2.2 Cheques of the Corporation shall be issued in respect of any cash
dividends contemplated by subsection 3.2.1(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 3.2.1(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 3.2.1(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 3.2.1(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 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 (6)
years from the date on which such dividend was payable.
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3.2.3 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 3.2.1 hereof shall be the same
dates as the record date and payment date, respectively, for the corresponding
dividend declared on the shares of ACT Common Stock.
3.2.4 If on any payment date for any dividends declared on the Exchangeable
Shares under Section 3.2.1 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 money, assets or property
properly applicable to the payment of such dividends.
3.2.5 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 3.7.2 of these
Class B Exchangeable 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 3.2.5(a), 3.2.5(b) and
3.2.5(c) shall not apply if all dividends on the outstanding Exchangeable
Shares corresponding to dividends declared to date on the ACT Common Stock
shall have been declared on the Exchangeable Shares and, if paid to holders
of ACT Common Stock, paid in full.
3.3 Distribution on Liquidation
3.3.1 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
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shareholders for the purpose of winding up its affairs, a holder of Class B
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, the Class A Exchangeable
Shares or any other shares ranking junior to the Class B Exchangeable Shares, an
amount per share equal (a) to the Current Market Price multiplied by the Current
ACT 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 whole number of shares of ACT Common Stock as is equal to the
Current ACT Common Stock Equivalent, plus (b) an additional amount equal to the
aggregate of all declared and unpaid dividends on each such Exchangeable Shares
up to the Liquidation Date (collectively, the "Liquidation Amount") without
interest.
3.3.2 On or promptly after the Liquidation Date, and subject to the exercise by
ACT of the Liquidation Call Right, the Corporation shall cause to be delivered
to the holders of the Class B Exchangeable Shares the Liquidation Amount for
each such Exchangeable Share upon presentation and surrender of the certificates
representing such Class B Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of Class B
Exchangeable Shares under the OBCA and the by-laws of the Corporation and such
additional documents and instruments as the Corporation may reasonably require,
at the registered office of the Corporation. Payment of the total Liquidation
Amount for all of the Class B 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 Class B Exchangeable Shares
or by holding for pick-up by the holder at the registered of office of the
Corporation on behalf of the Corporation of certificates representing the shares
of ACT 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 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 Class B Exchangeable Shares shall cease to be holders of such
Class B 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 Class B Exchangeable Shares, unless
payment of the total Liquidation Amount for such Class B 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 Amount for their
Class B 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 Class B 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 Class B Exchangeable
Shares after such deposit shall be limited to receiving the total Liquidation
Amount for such Class B Exchangeable Shares so deposited, against presentation
and surrender of the said certificates held by them, respectively, in accordance
with the foregoing provisions.
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3.3.3 After the Corporation has satisfied its obligations to pay the holders of
the Class B Exchangeable Shares the Liquidation Amount per Exchangeable Share
pursuant to section 3.3.1 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 Class B Exchangeable Shares.
3.4 Retraction of Class B Exchangeable Shares by Holder
3.4.1 A holder of Class B Exchangeable Shares shall be entitled during the
Retraction Period, subject to the exercise by ACT of the Retraction Call Right
and otherwise upon compliance with the provisions of this Section 3.4, to
require the Corporation to redeem any or all of the Class B 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 ACT 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 whole number of shares
of ACT Common Stock as is equal to the Current ACT 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") without
interest, 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 dividend. To effect such redemption, the holder
shall present and surrender at the office of the Corporation the certificate or
certificates representing the Class B 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 Class B Exchangeable
Shares under the OBCA and the by-laws of the Corporation and such additional
documents and instruments as the Corporation 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 Corporation and ACT:
(a) specifying that the holder desires to have the Retracted Shares
represented by such certificate or certificates redeemed by the
Corporation; and
(b) acknowledging the Retraction Call Right of ACT 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 ACT in accordance with the
Retraction Call Right.
If any Retraction Request is received on a date that is not within the
Retraction Period, such Retraction Request shall be of no force or effect and
the Corporation and ACT shall have no obligations as a result of the delivery of
such Retraction Request.
3.4.2 Subject to the exercise by ACT of the Retraction Call Right, upon receipt
by the Corporation in the manner specified in Section 3.4.1 hereof of a
certificate or certificates representing the number of Class B 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
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3.4.1 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 Class B Exchangeable Shares represented
by any certificate are redeemed (or purchased by ACT pursuant to the Retraction
Call Right), a new certificate for the balance of such Class B Exchangeable
Shares shall be issued to the holder at the expense of the Corporation.
3.4.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall forthwith notify ACT thereof. In order to exercise the Retraction Call
Right, ACT must deliver an ACT Call Notice to the Corporation prior to the
expiry of the third (3rd) Business Day after the receipt by the Corporation of
the Retraction Request. If ACT does not so notify the Corporation, the
Corporation will notify the holder as soon as possible thereafter that ACT will
not exercise the Retraction Call Right. If ACT delivers the ACT Call Notice
before the end of such third (3rd) Business Day period, the Retraction Request
shall thereupon be considered only to be an offer by the holder to sell the
Retracted Shares to ACT in accordance with the Retraction Call Right. In such
event, the Corporation shall not redeem the Retracted Shares and ACT shall
purchase from such holder and such holder shall sell to ACT on the Retraction
Date the Retracted Shares pursuant to the Retraction Call Right.
3.4.4 If a Retraction Request is received by the Corporation pursuant to Section
3.4.1 and ACT has not exercised the Retraction Call Right, the Corporation shall
deliver to the holder of the Retracted Shares, at the address of the holder
recorded in the securities register of the Corporation for the Class B
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 Corporation
to which the Retraction Request was delivered, certificates representing the
shares of ACT Common Stock to be delivered to the holder in payment of the total
Retraction Price for all of the Retracted Shares (or the portion thereof payable
in ACT 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 in payment of the remaining portion, if
any, of the total Retraction Price (or if any part of the Retraction 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 Corporation
shall be deemed to be payment of and shall satisfy and discharge all liability
for the total Retraction 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.
3.4.5 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 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
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 has been
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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 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 ACT Common Stock
delivered to it.
3.4.6 Notwithstanding any other provision of this Section 3.4, 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 ACT 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 (5) 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 3.4.2 hereof. The holder of any such Retracted Shares not redeemed by
the Corporation pursuant to Section 3.4.2 of these share provisions as a result
of solvency requirements of applicable law shall be deemed by giving the
Retraction Request to require ACT to purchase such Retracted Shares from such
holder pursuant to the Exchange Right (as defined in the Exchange Agreement).
3.4.7 Any offer obtained and any notice of retraction issued by a holder may be
revoked by the holder by a further notice in writing addressed to the
Corporation and ACT specifically referencing the notice of retraction, and by
delivering such notice to the Corporation, at any time prior to the Retraction
Date.
3.5 Redemption of Class B Exchangeable Shares
3.5.1 Subject to applicable law and if ACT does not exercise the Redemption Call
Right, the Corporation shall on the Automatic Redemption Date redeem the whole
of the then outstanding Class B Exchangeable Shares for an amount per share
equal to (a) the Current Market Price multiplied by the Current ACT 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
ACT Common Stock as is equal to the Current ACT 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).
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3.5.2 On or after the Automatic Redemption Date and subject to the exercise by
ACT of the Redemption Call Right, the Corporation shall cause to be delivered to
the holders of the Class B Exchangeable Shares the Redemption Price for each
such Exchangeable Share upon presentation and surrender at any office of the
Corporation of the certificates representing such Class B Exchangeable Shares,
together with such other documents and instruments as may be required to effect
a transfer of Class B Exchangeable Shares under the OBCA and the by-laws of the
Corporation and such additional documents and instruments as the Corporation may
reasonably require. Payment of the total Redemption Price for all of the Class B
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 on behalf of the Corporation of certificates representing the
shares of ACT Common Stock to be delivered to the holder in payment of the
Redemption Price for all of the Class B Exchangeable Shares held by such holder
(or the portion thereof payable in ACT 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 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 Class B Exchangeable Shares called for redemption shall
cease to be holders of such Class B 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 Class B Exchangeable
Shares, unless payment of the total Redemption Price for such Class B
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 Class B Exchangeable Shares so called for
redemption, or of such of the said Class B 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 Class B
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 Class B Exchangeable Shares, against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of the
total Redemption Price, the holders of the Class B Exchangeable Shares shall
thereafter be considered and deemed for all purposes to be holders of the ACT
Common Stock delivered to them.
3.6 Voting Rights
3.6.1 Except as required by applicable law, and the provisions of Section 3.7.1,
the holders of the Class B 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.
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3.7 Amendment and Approval
3.7.1 The rights, privileges, restrictions and conditions attaching to the Class
B Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Class B Exchangeable Shares given as hereinafter
specified.
3.7.2 Any approval given by the holders of the Class B Exchangeable Shares to
add to, change or remove any right, privilege, restriction or condition
attaching to the Class B Exchangeable Shares or any other matter requiring the
approval or consent of the holders of the Class B 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 Class B Exchangeable Shares duly
called and held at which the holders of at least fifty percent (50%) of the
outstanding Class B Exchangeable Shares at that time are present or represented
by proxy (excluding Class B Exchangeable Shares beneficially owned by ACT or its
Affiliates). If at any such meeting the holders of at least fifty percent (50%)
of the outstanding Class B 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 ten (10)
days thereafter and to such time and place as may be designated by the Chairman
of such meeting. At such adjourned meeting the holders of Class B 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 Class B Exchangeable Shares.
ARTICLE 4
ECONOMIC EQUIVALENCE: CHANGES RELATING TO ACT
4.1 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)
and in consultation with holders of Exchangeable Shares, economic equivalence
for the purposes of any provision herein that requires such a determination and
each such determination shall be conclusive and binding on ACT and the holders
of Class A Exchangeable Shares and the holders of Class B Exchangeable Shares,
where applicable.
4.2 If at any time there is a capital reorganization of ACT or a consolidation,
merger or arrangement of ACT with or into another entity (any such event being
called a "Capital Reorganization") that is not provided for in the definitions
of "ACT Common Stock Reorganization", "Rights Offering" or "Special
Distribution", any holder of Class A Exchangeable Shares whose Class A
Exchangeable Shares or Class B Exchangeable Shares have not been exchanged for
shares of ACT Common Stock in accordance with the provisions hereof 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
at any time after the record date for such Capital Reorganization in lieu of the
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shares of ACT Common Stock that he would otherwise have been entitled to receive
pursuant to the provisions hereof, the number of shares or other securities of
ACT 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 ACT Common Stock to
which he was then entitled upon any exchange of his Class A Exchangeable Shares
or Class B Exchangeable Shares into ACT 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 definition of "Current ACT
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 Class A Exchangeable Shares and each holder of Class B
Exchangeable Shares shall thereafter be entitled to receive, upon any exchange
of his Class A Exchangeable Shares or Class B Exchangeable Shares pursuant to
the provisions hereof, such number of shares or other securities of ACT or of
the body corporate resulting, surviving or continuing from the Capital
Reorganization, or other property.
4.3 In the case of a reclassification of, or other change in, the outstanding
shares of ACT Common Stock other than an ACT Common Stock Reorganization, Rights
Offering, Special Distribution or a Capital Reorganization, such changes shall
be made in the rights attaching to the Class A Exchangeable Shares or the Class
B Exchangeable Shares, without any action on the part of the Corporation or the
holders of the Class A Exchangeable Shares or Class B 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 Class A Exchangeable Shares and holders of Class B
Exchangeable Shares shall be entitled to receive, upon the occurrence at any
time after such record date of any event whereby they would receive ACT Common
Stock pursuant to the previous provisions hereof, such shares, securities or
rights as they would have received if their Class A Exchangeable Shares or Class
B Exchangeable Shares had been exchanged for ACT Common Stock pursuant to the
provisions hereof 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 ACT Common Stock Equivalent".
4.4 No certificates or scrip representing fractional ACT Common Stock shall be
delivered to holders of Class A Exchangeable Shares or Class B Exchangeable
Shares pursuant to the provisions hereof.
ARTICLE 5
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
5.1 The Corporation will take all such actions and do all such things as shall
be necessary or advisable to perform and comply with and to ensure performance
and compliance by ACT with all provisions of the Support Agreement applicable to
the Corporation and ACT, 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
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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.
5.2 The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement without the approval of the holders of the Class A
Exchangeable Shares given in accordance with section 2.7.2 and the holders of
Class B Exchangeable Shares given in accordance with section 3.7.2 of these
share provisions other than such amendments, waivers and/or forgiveness as may
be necessary or advisable for the purpose of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
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 correction 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 holders of the Exchangeable Shares.
ARTICLE 6
COMMON SHARES
6.1 Voting Rights
6.1.1 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.
6.2 Dividends
6.2.1 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.
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6.3 Rights on Dissolution
6.3.1 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.
ARTICLE 7
LEGEND
7.1 The certificates evidencing the Class A Exchangeable Shares and the
certificates evidencing Class B 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 Call Agreement and the
Voting and Exchange Trust Agreement (including the provisions with respect to
the Exchange Rights and Automatic Exchange Rights thereunder).
ARTICLE 8
NOTICES
8.1 Any notice, request or other communication to be given to the Corporation by
a holder of Class A Exchangeable Shares or a holder of Class B 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.
8.2 Any presentation and surrender by a holder of Class A Exchangeable Shares or
Class B Exchangeable Shares to the Corporation of certificates representing
Class A Exchangeable Shares or Class B Exchangeable Shares in connection with
the liquidation, dissolution or winding up of the Corporation or the retraction
or redemption of Class A Exchangeable Shares or Class B Exchangeable Shares
shall be made by registered mail (postage prepaid) or by delivery to the
registered office of the Corporation 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. Any such presentation and surrender of certificates made by
registered mail shall be at the sole risk of the holder mailing the same.
8.3 Any notice, request or other communication to be given to a holder of Class
A Exchangeable Shares or Class B 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 to have been given and received on the fifth Business Day following
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the date of mailing and, if given by delivery, shall be deemed to have been
given and received on the date of delivery. Accidental failure or omission to
give any notice, request or other communication to one or more holders of Class
A Exchangeable Shares or Class B Exchangeable Shares shall not invalidate or
otherwise alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
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SCHEDULE "A"
NOTICE OF RETRACTION
TO: ACT
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:
[GRAPHIC OMITTED] all shares(s) represented by this certificate; or
[GRAPHIC OMITTED] --------------------------- shares only.
The undersigned acknowledges the Retraction Call Right of ACT 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 ACT 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 Call
Agreement. If ACT determines not to exercise the Retraction Call Right, the
Corporation will notify the undersigned of such fact as soon as possible. The
offer contained in this notice may be revoked by the undersigned by a further
notice in writing addressed to the Corporation and ACT specifically referencing
this Notice of Retraction and delivered to the Corporation at any time prior to
the Retraction Date.
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 Exchange Agreement) so as to require ACT to purchase the
unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation and ACT
that the undersigned has good title to, and owns, the share(s) represented by
this certificate to be acquired by the Corporation or ACT, as the case may be,
free and clear of all Liens.
- ---------------- -------------------------- ----------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
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NOTE:This panel must be completed and this certificate, together with such
additional documents as the Corporation may require, must be deposited
with the Corporation at its principal office in Windsor, Ontario. The
securities 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 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.
Exhibit 99.2
REORGANIZATION AGREEMENT
THIS AGREEMENT is entered into this 30th day of June, 1998 by and among Applied
Cellular Technology, Inc. ("ACT"), a Missouri corporation, ACT-GFX Canada, Inc.
("ACTsub") an Ontario corporation, Drummer Enterprises Ltd. ("Drummer"), an
Ontario corporation, Morstar Holdings Ltd. ("Morstar"), a Manitoba corporation,
Scozul Enterprises Ltd. ("Scozul"), an Ontario corporation, (Drummer, Morstar
and Scozul are hereinafter collectively referred to as "Sellers"), James D.
Scott (the "Principal") and Ground Effects Ltd. (the "Acquiree"), an Ontario
corporation.
RECITALS
A. The Principal has entered into an option agreement (the "Option Agreement")
with the Acquiree wherein in recognition of his service to the Acquiree the
Principal may subscribe, for a subscription price in the aggregate of Ten
Thousand Dollars ($10,000), for sufficient common shares in the capital of the
Acquiree so that after the exercise of the Option, Scozul and the Principal
collectively would have, in the aggregate, 40% of the fair value of all
shareholder indebtedness, Class B preference shares and common shares in the
capital of the Acquiree;
B. Immediately prior to the Closing Date the Acquiree borrowed the sum of
$708,307.91 to pay to Innovation Ontario Corporation ("Innovation Ontario") the
sum of $708,307.91, being the balance owing under a promissory note in the
principal amount of Eight Hundred Thousand Dollars ($800,000) dated October 8,
1997, made by the Acquiree in favour of Innovation Ontario, to effect the
purchase of all of the Class A preference shares issued by the Acquiree in
favour of Innovation Ontario with ACT as guarantor of such loan;
C. The Acquiree is authorized to issue an unlimited number of Class A Preference
Shares, an unlimited number of Class B Preference Shares and an unlimited number
of common shares;
D. As at the date hereof the holders of all of the issued and outstanding shares
in the capital of the Acquiree together with the number and class of shares
issued to such holders are set out below:
Holder Acquiree Shares
------ ---------------
Drummer 10 Common
150,000 Class B preference
Morstar 10 Common
195,000 Class B preference
Scozul 10 Common
138,000 Class B preference
E. As at the date hereof the Acquiree is indebted to the Sellers as follows:
<PAGE>
Seller Debt
------ ----
Drummer $75,000
Morstar $120,000
F. Subject to the conditions set forth in this Agreement, the Sellers have
agreed to cause the Acquiree to declare on the Closing Date a twenty percent
(20%) stock dividend to the common shareholders in the form of two (2) new
common shares to each of the Sellers such that after the declaration of such
dividend the total number of common shares issued to each of Drummer, Morstar,
and Scozul shall be twelve (12).
G. The Sellers will cause articles of amendment to be filed in respect of the
Acquiree on the Closing Date to cause a stock split of one hundred thousand
(100,000) common shares to be issued for each one (1) common share such that
after the articles of amendment are filed each of Drummer, Morstar and Scozul
will be the registered owner of one million two hundred thousand (1,200,000)
common shares.
H. ACTsub is authorized to issue an unlimited number of common shares, an
unlimited number of class A exchangeable shares and class B exchangeable shares
each of which exchangeable shares are exchangeable for common shares of ACT with
demand registration rights as provided herein (the "ACT Shares"). The class A
exchangeable shares and the class B exchangeable shares hereinafter referred to
as the "Class A Exchangeable Shares" and the "Class B Exchangeable Shares".
I. On the Closing Date, ACTsub shall purchase from the Sellers all of the issued
and outstanding shares in the capital of the Acquiree owned by Drummer and
Morstar, all of the debt owed by the Acquiree to Drummer and Morstar and 2,400
Class B shares and 924,632 common shares in the capital of the Acquiree owned by
Scozul and shall satisfy the purchase price by issuing Class A Exchangeable
Shares for the common shares purchased and Class B Exchangeable Shares for the
Class B shares and debt purchased.
J. ACT has agreed with ACTsub, the Sellers and the Acquiree to enter into a
Exchange and Voting Trust Agreement whereby, inter alia, ACT agrees to cause ACT
Shares to be issued upon the redemption of the Exchangeable Shares;
K. The Sellers have agreed to grant to ACT certain call rights in the
Exchangeable Shares pursuant to a call agreement.
NOW, THEREFORE, for the mutual consideration set out herein, the parties
agree as follows:
ARTICLE I
REORGANIZATION AND SHARE PURCHASE
1.1 Reorganization and Share Purchase. On the Closing Date, as defined
hereinafter in Section 4.1, the Sellers, the Principal, ACTsub and ACT shall
cause the following steps to occur to effect the acquisition by ACTsub of
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certain of the issued and outstanding shares in the capital of the Acquiree and
certain debt owed by the Acquiree to Drummer and Morstar:
1.1.1 The Acquiree shall cause a common share stock dividend to be declared and
paid to each of Drummer, Morstar and Scozul in the form of two (2) common shares
such that after the declaration of such dividend twelve (12) common shares will
be issued and outstanding in favour of each shareholder. The Acquiree shall
cause its directors to declare that the amount of the dividend (for purposes of
the Income Tax Act (Canada) (the "ITA") shall be Eight Hundred Sixteen Thousand
Dollars ($816,000), and shall add such amount to the stated capital account of
the common shares of Acquiree in respect of the issuance of the six (6) common
shares of Acquiree.
1.1.2 Articles of amendment in respect of the Acquiree shall be filed causing
each one common share in the capital of the Acquiree to be converted into
100,000 common shares such that following the filing of the articles of
amendment, one million, two hundred thousand (1,200,000) common shares in the
capital of the Acquiree will be issued and outstanding in favour of each of
Drummer, Morstar and Scozul.
1.1.3 Each of the Sellers shall sell and ACTsub shall purchase the following
shares (the "Sellers' Shares") in the capital of the Acquiree and the following
debt (the "Debt") owed to each of Morstar and Drummer by the Acquiree:
Name Common Class B Debt
Shares Preference
Shares
Drummer 1,200,000 150,000 $ 75,000
Morstar 1,200,000 195,000 $120,000
Scozul 924,632 2,400
An aggregate purchase price of Five Million, Two Hundred Eighty Thousand Dollars
($5,280,000) shall be attributed as to One Dollar ($1) for each Class B shares
and $1.425 per common share and One Dollar ($1) for each One Dollar ($1) of debt
purchased. The purchase price shall be satisfied by the issuance to Drummer of
Thirty-one Thousand Four Hundred and Twelve (31,412) Class B Exchangeable Shares
for One Hundred Fifty Thousand (150,000) Class B shares, Nineteen Thousand,
Seven Hundred and Six (19,706) Class B Exchangeable Shares for One Hundred Fifty
Thousand Dollars ($150,000) of Debt and Three Hundred Fifty-eight Thousand and
Ninety-eight (358,098) Class A Exchangable Shares for One Million, Two Hundred
Thousand (1,200,000) common shares, the issuance to Morstar of Forty Thousand,
Eight Hundred and Thirty-six (40,836) Class B Exchangeable Shares for One
Hundred Ninety-five Thousand (195,000) Class B Shares, Twenty-five Thousand, One
Hundred Thirty (25,130) Class B Exchangeable Shares for One Hundred Ninety-five
Thousand Dollars ($195,000) of Debt and Three Hundred Fifty-eight Thousand,
Ninety-eight (358,098) Class A Exchangeable Shares for One Million, Two Hundred
Thousand (1,200,000) common shares and the issuance to Scozul of Five Hundred
and Three (503) Class B Exchangeable Shares for Two Thousand, Four Hundred
(2,400) Class B Shares and Two Hundred Seventy-five Thousand, Nine Hundred
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Twenty-five (275,925) Class A Exchangeable Shares for Nine Hundred Twenty-four
Thousand, Six Hundred Thirty-two (924,632) common shares.
Each of the Sellers shall elect jointly with ACTsub pursuant to the provisions
of section 85 of the ITA, by completing and filing Form T2057 as prescribed
under the ITA, that for tax purposes only, the proceeds of disposition received
by the Seller and the cost to the Purchaser of the shares and Debt of the
Acquiree so purchased shall be an amount determined by each Seller provided such
amount does not exceed the fair market value of the shares and Debt of the
Acquiree so purchased as at the Effective Time. Each of the Sellers and ACTsub
shall, on the Closing Date, execute Form T2057 substantially in the form set
forth in Schedule 1.1.4 annexed hereto. ACTsub shall file such form T2057 in
respect of each Seller forthwith after the Closing Date and shall provide proof
of delivery to Sellers. ACTsub shall cause its directors to add to the stated
capital account of the Class A Exchangeable Shares the sum of One Million One
Hundred Thirty Eight Thousand Four Hundred Eighty-one Dollars ($1,138,481) in
respect of the issuance of the Nine Hundred Ninety-two Thousand, One Hundred
Twenty-one (992,121) Class A Exchangeable Shares, and shall cause its directors
to add to the stated capital account of the Class B Exchangeable Shares the sum
of five hundred forty two thousand four hundred dollars ($542,400) in respect of
the issuance of the Seventy-two Thousand, Seven Hundred Fifty-two (72,752) Class
B Exchangeable Shares.
1.1.4 ACTsub shall subscribe for 195,000 Class B Shares in the capital of the
Acquiree and shall satisfy the subscription price for such shares by offsetting
against the subscription price $195,000 of the debt purchased by ACTsub pursuant
to Section 1.1.4 above.
1.1.5 The Principal shall exchange the Option Agreement for a new option
agreement with the Acquiree (the "New Option Agreement") in the form set forth
as Schedule 1.1.6 annexed hereto.
1.2 Voting and Exchange Trust Agreement. On the Closing Date, ACT, ACTsub and
the Acquiree, the Sellers, the Principal and Montreal Trust Company of Canada
shall execute and deliver a voting and exchange trust agreement (the "Exchange
Agreement") in substantially the form set forth as Schedule 1.2 annexed hereto.
1.3 Support Agreement. On the Closing Date, ACT and ACTsub shall execute and
deliver the support agreement (the "Support Agreement") substantially in the
form set forth as Schedule 1.3 annexed hereto.
1.4 Call Option. On the Closing Date, each of the Sellers, ACT and ACTsub shall
enter into a call agreement (the "Call Agreement") substantially in the form set
forth as Schedule 1.4 annexed hereto.
1.5 Shareholders' Agreement. Scozul, the Principal, ACT, ACTsub and the Acquiree
shall, on the Closing Date, enter into a shareholders' agreement (the
"Shareholders' Agreement") substantially in the form set forth as Schedule 1.5
annexed hereto.
1.6 Consents and Approvals. The Acquiree, the Sellers, ACT, ACTsub and the
Principal shall each use all reasonable efforts to obtain all approvals and
shall make all filings required in connection with the authorization, execution
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and delivery of this Agreement and the consummation of the transactions
contemplated herein.
ARTICLE II
REPRESENTATIONS OF SELLERS, ACQUIREE AND PRINCIPAL
The Sellers, the Acquiree and the Principal hereby represent and warrant,
jointly and severally, to ACT and ACTsub that, effective this date and the
Closing Date, the representations listed below are true and correct:
2.1 Title to Acquiree Shares and Debt. Each Seller is the beneficial and owner
of record of the issued and outstanding shares in the capital of the Acquiree
and the Debt set forth opposite such Seller's name in Section 1.1.4. All such
Sellers' Shares and the Debt are free from claims, liens or other encumbrances
("Liens") and each Seller has the unqualified right to transfer and dispose of
such shares and Debt. The Sellers' Shares are not subject to any voting trust
agreement, contract agreement, commitment or understanding restricting or
otherwise relating to voting, dividend rights or the disposition of the Sellers'
Shares except as provided for in the Exchange Agreement.
2.2 Financial Statements. Acquiree has previously furnished to ACT unaudited
financial statements for the fiscal years dated September 30, 1995, 1996, 1997
and for the interim period ended March 31, 1998, all attached hereto as Schedule
2.2 (collectively the "Financial Statements"). The Financial Statements are
correct and complete and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. The Financial
Statements present fairly the operations of Acquiree for the respective periods
indicated in said statements of income and retained earnings and, in the case of
each such interim statement, is subject to year-end adjustments consistent with
past practice.
2.3 Litigation. There are no actions, suits, proceedings or investigations
(whether or not purportedly on behalf of Acquiree) pending or threatened against
or affecting Acquiree, at law, or in equity or admiralty, or before or by any
federal, state, provincial, municipal or other governmental department,
commission, board, bureau agency or instrumentality, domestic or foreign, in
excess of Five Thousand Dollars ($5,000.00) in any one case, or Ten Thousand
Dollars ($10,000.00) in the aggregate, or which may result in any material
adverse change aside from the monetary adverse judgment or liability in the
business, operations, properties or assets or in the condition, financial or
otherwise, of Acquiree. To the best of Sellers' knowledge, Acquiree is not in
default with respect to any order, writ, injunction or decree of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
2.4 Compliance with Laws. Acquiree has complied in all material respects with
all laws, regulations and judicial or administrative tribunal orders applicable
to its business except as set out in Schedule 2.4 annexed hereto.
2.5 Taxes. The Acquiree has duly filed within the times and within the manner
prescribed by law, all federal, provincial, local and foreign tax returns and
tax reports which are required to be filed by, or with respect to, such
Acquiree. Such returns and reports reflect accurately all liability for taxes
for the Acquiree for the periods covered thereby. All federal, provincial, local
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and foreign income, profits, franchise, sales, use, occupancy, excise and other
taxes, assessments and re-assessments (including interest, dues, fines, and
penalties) payable by, or due from, the Acquiree have been fully paid or
adequately disclosed and fully provided for in the books and financial
statements of the Acquiree. To the best knowledge, information and belief of the
Sellers and the Principal, no audit of any tax return of the Acquiree is
currently in progress. There are no outstanding agreements or waivers extending
the statutory period providing for an extension of time with respect to the
assessment or re-assessment of income tax or the filing of any tax return by, or
any payment of any tax by, or levying of any government charge against, the
Acquiree. To the best knowledge, information and belief of the Sellers and the
Principal, there are no actions, audits, assessments, re-assessments, suits,
proceedings, investigations or claims now threatened or pending against the
Acquiree in respect of taxes or governmental charges or any matters under
discussion with any governmental authority relating to taxes or governmental
charges asserted by any such authority. The Acquiree has withheld for each
payment made by it the amount of all taxes and other deductions required to be
withheld therefrom and has paid the same to the proper taxing or other authority
within the time prescribed under any applicable legislation or regulation
2.6 Absence of Changes of Events. Since the date of the balance sheet, September
30, 1997 (the "Balance Sheet Date") there has not occurred:
(a) any material and adverse change in the financial condition or
operations of Acquiree;
(b) any damage, destruction or loss to or of any of the material assets or
properties owned or leased by Acquiree;
(c) the creation or attachment of any lien against any of the currently
issued and distributed stock of Acquiree;
(d) any waiver, release, discharge, transfer or cancellation by Acquiree
of any rights or claims of material value;
(e) any issuance by Acquiree of any securities (including all debt or
equity securities) or any merger or consolidation of Acquiree with any
other person or any acquisition by Acquiree of the business of any
other person;
(f) any incurrence, assumption or guarantee by Acquiree of any
indebtedness or liability other than in the ordinary course of
business except with regard to the borrowing (the "IOC Borrowing") in
connection with the redemption of the Class A preference shares in the
capital of the Acquiree issued in favour of IOC, as contemplated by
Recital B;
(g) any declaration, setting aside or payment by Acquiree of any dividends
on, or any other distribution with respect to, any capital stock of
Acquiree or any repurchase, redemption or other acquisition of any
capital stock of Acquiree other than the IOC Borrowing and the stock
dividend contemplated by Section 1.1.1; or
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(h) Except for those given in the ordinary course of the business of
Acquiree (i) any payment of any bonus, profit sharing, pension or
similar payment or arrangement or special compensation to any employee
of Acquiree, or (ii) any increase in the compensation payable or to
become payable to any employee of Acquiree.
2.7 No Violation. Except as set forth in the documents listed, referred to in
Schedules hereto, the execution and carrying out of this Agreement will not
conflict with, or result in any breach of any of the terms, or create a charge
or encumbrance upon any of the properties or assets, or outstanding stock of
Acquiree pursuant to any corporate charter, bylaw, indenture, mortgage or lease
to which Acquiree or any of its stockholders is a party or by which it's bound.
To the best knowledge of the Sellers, the Principal and Acquiree, the execution
and carrying out of this Agreement will not violate any provision of Canadian
law.
2.8 Accuracy of Information. To the best knowledge of either of the Sellers, the
Principal and the Acquiree, none of the written information and documents which
have been or will be furnished by Acquiree or by any representatives of Acquiree
to ACT or any of the representatives of ACT in connection with the transactions
contemplated by this Agreement contains or will contain, as the case may be, any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary in order to make the statements therein not misleading in light
of the circumstances in which made. To the best of its knowledge, Acquiree has
disclosed to ACT all material information relating to Acquiree and its
activities as currently conducted.
2.9 Capital Stock. The Acquiree is authorized to issue an unlimited number of
Class A Preference Shares, an unlimited number of Class B Preference Shares and
an unlimited number of common shares immediately following the declaration of
the stock dividend and stock split referred to in Sections 1.1.2 and 1.1.3
hereof of which three million six hundred thousand (3,600,000) common shares and
four hundred eighty three thousand (483,000) Class B Preference Shares are
issued and outstanding. All outstanding shares have been duly authorized,
validly issued and are fully paid and non-assessable with no personal liability
attaching to the ownership thereof. Other than as contemplated by this
Agreement, there are no outstanding convertible securities, warrants, options or
commitments of any nature that may cause authorized but unissued shares to be
issued to any person.
2.10 Organization and Good Standing. Acquiree and each of the Sellers is a
corporation duly organized, validly existing under the laws of its jurisdiction
of incorporation, with all requisite power and authority to own its properties
and to carry on its business as now conducted. Each jurisdiction in which the
Acquiree and each Seller carries on business is set forth in Schedule 2.10.
2.11 Enforceable Agreement. Each of the Sellers and the Acquiree have the power
and capacity to execute and deliver this Agreement, to perform each of their
obligations and to consummate the transactions contemplated hereby. Each of the
Sellers and the Principal agree that this Agreement constitutes a valid and
binding obligation enforceable against him or it, as applicable, in accordance
with its terms.
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2.12 Officers and Directors. The present officers and directors of Acquiree are
as follows:
Officers: President - James D. Scott
Secretary/Treasurer - J. Arthur Jobin
Directors: James D. Scott
O. Bruce Harris
J. Arthur Jobin
2.13 Other Agreements. Acquiree is not a party to any material agreement
(written or verbal) except (1) as disclosed in this Agreement, (2) orders in
normal quantities for use in Acquiree's business, and (3) as set forth in
Schedule 2.13. All such agreements are in full force and effect and not in
default.
2.14 Insurance Policies. Acquiree has delivered to ACT true, correct and
complete copies of all policies of fire, liability and other forms of insurance
now in force with respect to Acquiree and its assets, as listed in Schedule
2.14. All premiums have been paid and all such policies are in effect and will
remain in effect through the Closing Date. Acquiree shall amend such policies to
add ACT as an additional insured.
2.15 Relationship with Competitors. None of the Sellers nor the Principal owns
or has a material beneficial interest and has not owned or had a beneficial
interest within the past three (3) years, directly or indirectly, in any
corporation, firm, association, partnership or proprietorship that (1) is
similar to or a competitor of Acquiree, (2) is a customer or supplier of
Acquiree, or (3) has any existing contractual relationship with Acquiree other
than Harris Chevrolet Oldsmobile which is a customer of the Acquiree and
International Seating and Decor Ltd. Each of Harris Chevrolet Oldsmobile and
International Seating and Decor Ltd. deal with the Acquiree on terms which are
comparable to the terms upon which arm's length parties deal with the Acquiree.
2.16 Employee Benefit Matters. Schedule 2.16 sets forth a complete and correct
list of employees of the Acquiree, their respective salaries, date of
commencement of employment, vacation entitlement, level of pension contributions
and company car entitlement, if any. Complete and correct copies of all
employment, consulting, engagement or retainer agreements, if any, for the
provision of services to the Acquiree have been made available to ACT in
addition to all documents describing the amount, entitlement to and rules
governing any insurance, pension plan, sick pay, maternity leave and company car
policy of the Acquiree. There are no defined benefit pension plans, bonus plans,
profit sharing or retirement or other benefit plans operated by the Acquiree.
There are no negotiations, demands or proposals which are pending or threatened
or which have been made since the Balance Sheet Date which concern matters now
covered, or that would be covered, by the foregoing types of agreement,
arrangement, plan or policy. Except as described in Schedule 2.16 the Acquiree
has not made any contracts with any labour union or employee association nor
made commitments to or conducted negotiations with any labour union or employee
association with respect to any future agreements and, except as set out in
Schedule 2.16 none of the Sellers, the Principal nor the Acquiree is aware of
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any current attempts to organize or establish any labour union or employee
association with respect to any employees of the Acquiree, nor is there any
certification of any such union with regard to a bargaining unit.
2.17 Brokers, Finders. No finder, broker, agent or other intermediary, acting on
behalf of any of the Sellers or the Acquiree, is entitled to a commission, fee
or other compensation.
2.18 Environmental Issues.
(a) Except as described in Schedule 2.18, the Acquiree has been and is in
compliance with all applicable federal, provincial, state, municipal
and local laws, statutes, ordinances, by-laws and regulations and
orders, directives and decisions rendered by any ministry, department
or administrative or regulatory agency ("Environmental Laws") relating
to the protection of the environment, occupational health and safety
or the manufacture, processing, distribution, use, treatment, storage,
disposal, discharge, transport or handling of any pollutants,
contaminants, chemicals or industrial, toxic or hazardous wastes or
substances ("Hazardous Substances");
(b) The Acquiree has obtained all licenses, permits, approvals, consents,
certificates, registrations and other authorizations under
Environmental Laws (the "Environmental Permits") required for the
operation of the business, all of which are described in Schedule
2.18. Each Environmental Permit is valid, subsisting and in good
standing and the Acquiree is not in default or breach of any
Environmental Permit and no proceeding is pending or threatened, to
revoke or limit any Environmental Permit;
(c) The Acquiree has not used or permitted to be used, except in
compliance with all Environmental Laws, any of its property (including
leased property) or facilities or any property or factuality that is
previously owned or leased, to generate, manufacture, process,
distribute, use, treat, store, dispose of, transport or handle any
Hazardous Substance;
(d) The Acquiree has never received any notice of, nor been prosecuted for
an offense alleging, non-compliance with any Environmental Laws, and
none of the Sellers, the Principal nor the Acquiree has settled any
allegations on non-compliance short of prosecution. There are no
orders or directions relating to environmental matters requiring any
work, repairs, construction or capital expenditures with respect to
the business or any property of the Acquiree, nor has the Acquiree
received notice of any of the same;
(e) Except as disclosed in Schedule 2.18, there are no pending or proposed
changes to Environmental Laws that would render illegal or restrict
the manufacture or sale of any product manufactured or sold or service
provided by the Acquiree;
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(f) The Acquiree has not caused or permitted, nor does it have any
knowledge of, the release, in any manner whatsoever, of any Hazardous
Substance on or from any of its properties (including any of the
leased property) or assets or any property or facility that it
previously owned or leased, or any such release on or from a facility
owned or operated by third parties but with respect to which the
Acquiree is or may reasonably be alleged to have liability. All
Hazardous Substances and all other wastes and other material and
substances used in whole or in part by the Acquiree or resulting from
its business have been disposed of, treated and stored in compliance
with all Environmental Laws. Schedule 2.18 identifies all of the
locations where Hazardous Substances used in whole or in part by the
Acquiree have been or are being stored or disposed of;
(g) the Acquiree has not received any notice that it is potentially
responsible for a federal, provincial, municipal or local clean-up
site or corrective action under any Environmental Laws. The Acquiree
has not received any request for information in connection with any
federal, provincial, municipal or local inquires at to disposal sites;
and
(h) The Acquiree has delivered to ACT a true and complete copy of all
environmental audits, evaluations, assessments, studies or tests
relating to the Acquiree of which it is aware.
2.19 Liabilities. The Acquiree does not have any outstanding liabilities,
contingent or otherwise, other than liabilities disclosed in the Financial
Statements for the last completed fiscal year and trade or business obligations
subsequently incurred in the ordinary course of business none of which has been
materially adverse to the nature, results of operations, assets or financial
condition of, or manner of conducting the business of the Acquiree.
2.20 Customer Relations. During the three (3) years ending on the date of this
Agreement, there has been no material adverse change in the basis or terms
(apart from normal price changes) upon which any person or entity is prepared to
enter into contracts or do business with the Acquiree and no such change is
anticipated. There has not been, and to the best knowledge, information and
belief of the Sellers and the Principal there will not be, any adverse change in
relations with customers as a result of any announcement of the transactions
contemplated by this Agreement. Attached hereto as Schedule 2.20 is a list by
dollar amount of sales of the ten (10) largest customers of the Acquiree for the
three (3) preceding financial years.
2.21 Intellectual Property. Attached hereto as Schedule 2.21 is a complete and
accurate list of all trade marks, trade names, business names, patents,
inventions, know-how, copyrights, service marks, brand names, industrial designs
and all other industrial or intellectual property owned or used by the Acquiree
in carrying on its business and all applications therefor and all goodwill
connected therewith, including, without limitation, all licenses, registered
user agreements and all like rights used by or granted to the Acquiree and all
right to register or otherwise apply for the protection of any of the forgoing
(collectively, the "Intellectual Property"). Schedule 2.21 also includes
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complete and accurate particulars of all registrations or applications for
registration of the Intellectual Property. The Intellectual Property comprises
all trade marks, trade names, business names, patents, inventions, know-how,
copyrights, service marks, brand marks, industrial designs and all other
industrial or intellectual property necessary to conduct the business of the
Acquiree. The Acquiree is the beneficial owner of the Intellectual Property,
free and clear of all Liens and is not a party to or bound by any contract or
other obligations whatsoever that limits or impairs its ability to sell,
transfer, assign or convey, or that otherwise affects, the Intellectual
Property. No person has been granted any interest in or right to use all or any
portion of the Intellectual Property. None of the Sellers nor the Principal is
aware of a claim of any infringement or breach of any industrial or intellectual
property rights of any other person, and none of the Sellers, the Principal nor
the Acquiree, after due inquiry, has any knowledge of any infringement or
violation of any of their rights or the rights of the Acquiree in the
Intellectual Property. The conduct of the business of the Acquiree does not
infringe upon the patents, trade marks, licenses, trade names, business names,
copyright or other industrial or intellectual property rights, domestic or
foreign, of any other person. None of the Sellers, the Principal nor the
Acquiree is aware of any state of facts that casts doubt on the validity or
enforceability of any of the Intellectual Property.
2.22 Title to Personal and Other Property. Except as disclosed in Schedule 2.22
attached hereto, at the Closing the Acquiree shall own, possess and have a good
and marketable title, free and clear of all liens to all its properties and
assets used in connection with its business, including without limitation the
assets reflected on the balance sheet forming part of the Financial Statements
for the last completed fiscal year. The uses to which the properties held by the
Acquiree have been put are not in breach of any statute, by-law, ordinances,
regulations, governmental restriction or official plan, municipal or otherwise.
2.23 Real Property. The Acquiree is not the owner of or under any agreement to
own real property other than the real property listed on Schedule 2.23 hereof
(the "Real Property"). The Acquiree has the exclusive right to possess, use and
occupy, and has good and marketable title in fee simple to, all the Real
Property, free and clear of all Liens, easements or other restrictions of any
kind other than Permitted Liens as set out in Schedule 2.23 hereof. All
buildings, structures, improvements and appurtenances situated on the Real
Property are in good operating condition and in a state of good maintenance and
repair, are adequate and suitable for the purposes for which they are currently
being used and the Acquiree has adequate rights of ingress and egress for the
operation of the business of the Acquiree in the ordinary course. None of such
buildings, structures, improvements or appurtenances (or any equipment therein),
nor the operation or maintenance thereof, violates any restrictive covenant or
any provision of any federal, provincial or municipal law, ordinance, rule or
regulation, or encroaches on or any property owned by others. Without limitation
the generality of the foregoing:
(a) save and except for the fact that the employee parking lot at plant #1
is not paved as required by City of Windsor by-laws, the Real
Property, the current uses thereof and the conduct of the business of
the Acquiree comply with all regulations, statutes, enactments, laws
and by-laws including, without limitation, those dealing with zoning,
parking, access, loading facilities, landscaped areas, building
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construction, fire and public health and safety and environmental
laws;
(b) no alteration, repair, improvement or other work has been ordered,
directed or requested in writing to be done or performed to or in
respect of the Real Property, or to any of the plumbing, heating,
elevating, water, drainage or electrical systems, fixtures or works by
any municipal, provincial or other competent authority, which
alteration, repair, improvement or other work has not been completed,
and the Acquiree knows of no written notification having been given to
it of any such outstanding work being ordered, directed or requested,
other than those that have been complied with;
(c) all accounts for work and services performed and materials placed or
furnished upon or in respect of the Real Property at the request of
the Acquiree have been fully paid and satisfied, and no person is
entitled to claim a Lien under the Construction Lien Act (Ontario)
against the Real Property, or any part thereof, other than current
accounts in respect of which the payment due date has not yet passed;
(d) there is nothing owing in respect of the Real Property by the Acquiree
to any municipal corporation or to any other corporation or commission
owning or operating a public utility for water, gas, electrical power
or energy, steam or hot water, or for the use thereof, other than
current accounts in respect of which the payment due date has not yet
passed;
(e) no part of the Real Property has been taken or expropriated by any
federal, provincial, municipal or other competent authority nor has
any notice or proceeding in respect thereof been given or commenced;
(f) the Permitted Liens constitute all of the Liens, agreements,
indentures and other matters that affect the Real Property;
(g) the Real Property (including all buildings, improvements and fixtures)
is fit for its present use, and there are no material or structural
repairs or replacements that are necessary or advisable and, without
limiting the foregoing, there are no repairs to, or replacements of,
the roof or the mechanical, electrical, heating, ventilating,
air-conditioning, plumbing or drainage equipment or systems that are
necessary or advisable, and none of the Real Property is currently
undergoing any alteration or renovation nor is any such alteration or
renovation contemplated; and
(h) the Real Property is fully serviced and has suitable access to public
roads, and there are no outstanding levies, charges or fees assessed
against the Real Property by any public authority (including
development or improvement levies, charges or fees).
2.24 Residency. None of the Sellers is a "non-resident" of Canada within the
meaning of the Income Tax Act (Canada).
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2.25 Year 2000 Compliance. The Acquiree and the Principal have reviewed,
together with consultants with expertise in the field, all internal hardware and
software configurations and external third party, customer and vendor software
and interfaces to assess the risks related to such hardware and software in
respect of Year 2000 Compliance. The Acquiree and the Principal have established
Year 2000 Compliance as a business priority, have established a budget and
allocated sufficient human and financial resources to implement the
recommendation of such consultants as well and their internal reviews to achieve
Year 2000 Compliance. The Principal and the Sellers have no reason to believe
that the Acquiree will not be Year 2000 Compliant by June of 1999. For the
purposes of this Section, "Year 2000 Compliance" means the successful operation
prior to, during and after calendar year 2000 A.D. without error relating to
date data, the successful management and manipulation of data involving dates,
including single century formulas and multi-century formulas, and the obtaining
of correct results for date calculations that are both chronologically earlier
and later than June 30, 1999, in date calculations that involve more than one
century and in date calculations using the date September 9, 1999 (i.e. 9/9/99),
of the computer hardware and software discussed in this Section 2.25 provided,
that all date data imputed for use with such computer software and hardware is
accurate and in appropriate format.
2.26 No Loans to Directors. Other than as described on the balance sheet of the
Acquiree dated March 31, 1998, the Acquiree has no loan or indebtedness
outstanding (other than the normal salaries, bonuses, fringe benefits and
obligation to reimburse for expenses incurred on behalf of the Acquiree in the
normal course of employment) which has been made to or incurred by any director,
officer, shareholder or employee, to any former director, officer, shareholder
or employee of the Acquiree or to any Person not dealing at arms length (as such
term is construed under the Income Tax Act (Canada) with any of the foregoing.
2.27 ACT's Right to Rescind. ACT shall have the right to rescind this Agreement
by notice to the Sellers if prior to the Closing Date it appears that any of the
representations and warranties set out in this Section 2 or elsewhere in this
Agreement (the "Warranties") is not or was not true and accurate in all material
respects or if any act or event occurs which, had it occurred on or before the
date of this Agreement, would have constituted a breach of any of the Warranties
or if there is any material breach or non fulfillment of any of the Warranties
which (being capable of remedy) is not remedied prior to the Closing Date. Any
right of ACT to rescind this Agreement pursuant to the specific provisions of
this Section 2.27 shall be without prejudice to any other rights or claims which
ACT might have against any other party for breach of this Agreement.
2.28 True and Correct. Each Schedule and each document attached to or listed in
the Schedules is true, correct and complete. No representation or warranty by
Sellers or the Principal in this Agreement or any Schedule or any agreement or
certificate referred to in this Agreement contains any untrue statement of a
material fact or any omission of a material fact necessary to make the
respective statements contained herein or therein, in light of the circumstances
under which the statements were made, not misleading.
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ARTICLE III
REPRESENTATIONS OF ACT AND ACTSUB
ACT and ACTsub hereby represent and warrant, jointly and severally to the
Sellers and the Principal that, effective this date and the Closing Date, the
representations listed below are true and correct.
3.1 Organization, Good Standing. ACT is duly organized, validly existing and in
good standing under the State of Missouri and under the laws of each
jurisdiction where qualification is required, except for jurisdictions where
such failure to so qualify or be in good standing would have no material adverse
effect. ACTsub is duly organized and validly subsisting under the laws of the
Province of Ontario and under the laws of each jurisdiction where qualification
is required, except for jurisdictions where such failure to so qualify or be in
good standing would have no material adverse effect.
3.2 Execution, Delivery and Performance of Agreement; No Conflict;
Authorization. Each of ACT and ACTsub has full power and authority to carry out
the transactions contemplated by this Agreement and the execution, delivery and
performance of this Agreement has been duly authorized by the Board of Directors
of each of ACT and ACTsub by all necessary corporate action and will not result
in any breach of or violate or constitute a default under its Certificate of
Incorporation or Bylaws and other governing documents of ACT or ACTsub, or any
statutes, laws or regulations or indenture, mortgage or other agreement or
instrument, or any order, judgment or decree to which they are a party, or may
be subject.
3.3 Title to ACT Shares. ACT Shares, deliverable pursuant to the redemption of
the Exchangeable Shares, shall be validly issued and outstanding as fully paid
and non assessable free and clear of all liens and encumbrances resulting from
any action or inaction of ACT.
3.4 Capital Stock. ACT is authorized to issue forty-five million (45,000,000)
shares consisting of (a) forty million shares (40,000,000) designated as common
stock, $.001 par value, of which are twenty-eight million, seven hundred
fifty-five thousand, three hundred eighty-seven (28,755,387) as at June 29, 1998
are validly issued and outstanding and (b) five million (5,000,000) designated
as preferred stock, of which seven thousand and one shares (7,001) are validly
issued and outstanding. ACTsub is authorized to issue an unlimited number of
common shares, an unlimited number of Class A Exchangeable Shares and an
unlimited number of Class B Exchangeable Shares of which 1,000 common shares are
issued and outstanding as fully paid and non-assessable.
3.5 Financial Statements. Annexed hereto as Schedule 3.5 are the audited
financial statements of ACT dated December 31, 1997. The financial statements in
Schedule 3.5 have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The financial statements present
fairly the consolidated financial position of ACT as of the respective dates of
said balance sheets and the consolidated results of its operations for the
respective periods indicated in said consolidated statements of income and
retained earnings and cash flow.
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3.6 Litigation. Other than as set out as Schedule 3.6, there are no actions,
suits, proceedings or investigations (whether or not purportedly on behalf of
ACT of ACTsub) or, to the best of ACT's knowledge, pending or threatened,
against or affecting ACT or ACTsub at law or in equity, or admiralty, or before
or by any federal, state, municipal or other governmental department,
commission, board, bureau agency or instrumentality, domestic or foreign, which
involve the likelihood of any adverse judgment of liability, not fully covered
by insurance, in excess of Five Thousand Dollars ($5,000.00) in any one case or
Ten Thousand Dollars ($10,000.00) in the aggregate, or which may result in any
material adverse change aside from the monetary adverse judgment or liability,
in the business, operations, properties or assets or in the condition, financial
or otherwise, of ACT or ACTsub. To the best of ACT's knowledge and to the best
of ACTsub's knowledge, neither, ACT nor ACTsub is not in default with respect to
any order, writ, injunction or decree of any court of federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
3.7 Compliance with Laws. Each of ACT and ACTsub has complied in all material
respects with all laws, regulations and judicial or administrative tribunal
orders applicable to its business of which they are aware.
3.8 Taxes. All state and local tax returns required to be filed by ACT have been
duly filed. Federal income tax returns have been submitted to the IRS for all
past fiscal years through the fiscal year ended in 1996. Extensions for state
and federal returns for 1997 have been filed on a timely basis.
3.9 No Violation. The execution and carrying out of this Agreement will not
conflict with, or result in any breach of any of the terms, or create a charge
or encumbrance upon any of the properties or assets, or outstanding stock of ACT
or ACTsub pursuant to any corporate charter, bylaw, indenture, mortgage or lease
to which ACT or ACTsub or any of its stockholders is a party or by which it is
bound. The execution and carrying out of this Agreement will not violate any
provision of law.
3.10 Accuracy of Information. None of the written information and documents
which have been or will be furnished by ACT or any representatives of ACT to
Sellers or Principal or any of their representatives in connection with the
transactions contemplated by this Agreement contains or will contain, as the
case may be, any untrue statement of a material fact, or omits or will omit to
state a material fact necessary in order to make the statements therein not
misleading in light of the circumstances in which made.
3.11 Disclosure of Information. Each of ACT and ACTsub is fully aware of the
condition and prospects, financial and otherwise, of the Acquiree, having been
supplied with such financial and other data relating to the Acquiree as ACT and
ACTsub considered necessary and advisable to enable it to form a decision
concerning the purchase herein provided.
3.12 SECURITIES AND EXCHANGE COMMISSION.
3.12.1 ACT Documents. ACT has heretofore furnished, or made available, to
Sellers a true and complete copy of all documents which it has filed with the
Securities and Exchange Commission (the "Commission") for the past one (1) year
period, including year ending December 31, 1997, together with any amendments or
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supplements thereto ("ACT Documents"). Except as disclosed in ACT Documents, no
event has occurred or arisen prior to the date hereof that will require the
filing of (i) a Current Report on Form 8-K after the date hereof, or (ii) any
material amendment or supplement to any ACT Document. As of their respective
dates, ACT Documents did not contain any untrue statements of material facts or
omit to state material facts required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, ACT Documents complied in
all material respects with the applicable requirements of the Securities Act of
1993, as amended (the "Act"), as amended, and the Securities Exchange Act of
1934, (the "Exchange Act") as amended, and the rules and regulations promulgated
under such statutes. The financial statements contained in ACT Documents,
together with the notes thereto, have been prepared in accordance with generally
accepted accounting principles consistently followed through the periods
indicated (except as may be indicated in the notes thereto, or, in the case of
the unaudited financial statements, as permitted by Form 10-Q), reflect all
known liabilities of ACT required to be stated therein, including all known
contingent liabilities as of the end of each period reflected therein, and
present fairly the financial condition of ACT at said dates and the consolidated
results of operations and cash flows of ACT for the periods then ended. As at
the date hereof, there has been no material change in the information set forth
in the ACT Documents other than as set out therein.
3.13 True and Correct. The representations and warranties made herein above in
this Section 3 will be correct in all material respects on and as of the Closing
Date with the same force and effect as though such representations and
warranties had been made on the Closing Date.
3.14 No Broker. No Broker has been retained by ACT and there are no fees
("Broker's Fees") due and/or payable as a result of this Agreement.
ARTICLE IV
CLOSING DATE
4.1 Closing Date. The Closing Date herein referred to shall be such two (2) day
period as the parties hereto may mutually agree upon but is expected to be
during June 1998. All documents tendered shall remain in escrow.
ARTICLE V
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF SELLERS AND THE PRINCIPAL
All obligations of the Sellers and the Principal under this Agreement are
subject to the fulfillment, prior to or as of the Closing Date, of each of the
following conditions:
5.1 Representations and Warranties. The representations and warranties by ACT
and ACTsub contained in this Agreement or in any certificate or document
delivered to Sellers and the Principal pursuant to the provisions hereof shall
be true in all material respects at and as of the time of Closing as though such
representations and warranties were made at and as of such time.
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5.2 Performance of Agreement. ACT shall have performed and complied with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing in accordance with the terms
hereof.
5.3 Instruments and Documents. All instruments and documents delivered to
Sellers and the Principal pursuant to the provisions hereof shall be reasonably
satisfactory to legal counsel for Sellers and the Principal.
5.4 No Adverse Proceeding. No action shall have been instituted and remain
pending before a court or other government
entity:
(a) for the purpose of enjoining or preventing the consummation of this
Agreement or any of the transactions contemplated hereby; or
(b) which claims that this Agreement, such transactions or their
consummation, is illegal.
5.5 Personal Guarantees. The personal guarantees of the Principal, Bruce Harris
and Art Jobin of the obligations of the Acquiree made in favour of the banker of
the Acquiree and General Motors Acceptance Corporation Canada, Limited shall
have been released provided that in respect of the guarantees given to General
Motors Acceptance Corporation Canada, Limited (the "GMAC Guarantees"), if such
release is not obtained as of the Closing Date, ACT and ACTsub shall indemnify
the Principal, Bruce Harris and Art Jobin, in accordance with the provisions of
Section 9.3 hereof and will use reasonable commercial efforts to obtain such
release as soon as possible after the Closing Date.
5.6 Opinions. An opinion of counsel to ACT and ACTsub shall have been delivered
in a form satisfactory to counsel for Sellers and the Principal acting
reasonably.
5.7 Guarantee of Lease. ACT and ACTsub shall have delivered to the Principal an
indemnity agreement in the form set forth as Schedule 5.8 hereto in respect of
the guarantee of the Principal relating to the obligations of the Acquiree
pursuant to certain leases set out in Schedule 2.13.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACT
All obligations of ACT under this Agreement are subject to the fulfillment,
prior to, or as of the Closing Date, of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties by
Sellers, the Principal and ACT contained in this Agreement or in any certificate
or document delivered to ACT pursuant to the provisions hereof shall be true at
and as of the time of Closing as though such representations and warranties were
made at and as of such time.
6.2 Resignations. ACT has received the resignations of all of the present
officers and directors of Acquiree other than James Scott, subject however, to
the requirement that the resignations of such present officers and directors,
shall take effect only at such time following the Closing.
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6.3 No Adverse Legislation. No legislation (whether by statute, regulation,
by-law or otherwise) shall have been enacted or introduced which, in the
reasonable opinion of ACT, adversely affects or may adversely affect the
operations and business of the Corporation.
6.4 Performance of Agreement. Acquiree, Sellers and the Principal shall have
performed and complied with all other covenants, agreements and conditions
required by this Agreement to be performed or complied with by them prior to or
at the Closing.
6.5 Closing Documents and Proceedings. All documents relating to the due
authorization and completion of the transaction contemplated hereby and all
actions and proceedings taken on or prior to the Closing in connection with the
performance by the Sellers and the Principal of their obligations under this
Agreement shall be satisfactory to ACT and its counsel and ACT shall have
received copies of all such documents or other evidence as it may reasonably
request in form and substance satisfactory to ACT and its counsel.
6.6 Refinancing. Acquiree shall have, prior to Closing either (a) executed and
delivered any and all the necessary documentation, votes or other record filings
which may be required to close on the refinancing of its current outstanding
debt so as to remove any impediments to the transaction contemplated hereunder
or (b) obtained the prior written consent of the Acquiree's current Lender to
the transaction contemplated hereunder.
6.7 Consents to Assignment. All consents or approvals from or notifications to
any landlord, lessor or third person required under the terms of any agreement,
lease or other commitment entered into by the Acquiree shall have been duly
obtained or given, as the case may be, before the Closing Date.
6.8 Governmental and Administrative Approvals. All governmental administrative
consents and approvals, if any, necessary to permit the consummation of the
transactions contemplated by the Agreement shall have been received.
6.9 Employee Arrangements. The Acquiree shall have made employment arrangements
satisfactory to ACT with key management of the Acquiree designated by ACT and
shall have entered into a performance bonus arrangement with James Scott.
6.10 Management Fees. Acquiree and Sellers agree that Acquiree shall pay to ACT
a management fee on a yearly basis of one percent (1%) of Acquiree's gross sales
revenue. Such management fee shall be payable by Acquiree in twelve (12) monthly
payments of equal amounts based upon the then previous year's gross sales
revenues, (for example, 1998 management fees will be based upon 1997 sales
revenues). Notwithstanding the foregoing, the management fee in respect of 1998
shall be one half of one percent (.5%) of the Acquiree's gross sales revenue and
shall be pro rated for the period from the Closing Date to December 31, 1998.
6.11 Opinion. An opinion of counsel to Sellers and Principal shall have been
delivered in a form satisfactory to counsel for ACT and ACTsub acting
reasonably.
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ARTICLE VII
DOCUMENTS AT CLOSING
7.1 Further Assurances. Sellers, the Principal and the Acquiree will deliver or
cause to be delivered to ACT and ACTsub such instruments and documents as are
required to be delivered pursuant to the provisions of this Agreement or which
may be reasonably requested in furtherance of the provisions of this Agreement.
ACT and ACTsub will deliver or cause to be delivered to Seller, the Principal
and the Acquiree such instruments and documents as are required to be delivered
pursuant to the provisions of this Agreement or which may be reasonably
requested in furtherance of the provisions of this Agreement.
ARTICLE VIII
REGISTRATION RIGHTS
8.1 Registration Statement. ACT agrees that it will prepare and file with the
Commission, a registration statement ("Registration Statement"), with respect to
the restricted common stock to be issued pursuant to the Support Agreement, the
Call Agreement or the Shareholders' Agreement ("Registerable Securities"). ACT
shall use its best efforts to cause the Registration Statement to become
effective as soon as possible and in any event not later than nine (9) months
after the Closing Date only for the o ACT Shares issued in payment of the
Purchase Price which Sellers will receive upon exchange of Class A and Class B
Exchangeable Shares. ACT will give prompt notice (in any event, within three (3)
business days of the receipt of notice of any exercise of demand registration
rights from any person) to the Sellers of its intention to effect such a
registration and will include in such registration all the Registerable
Securities with respect to which ACT receives a written request for inclusion,
if such request is received within fifteen (15) days after receipt of ACT's
notice. ACT shall prepare and file with the Commission such amendments and
supplements to the Registration Statement, including post-effective amendments
and the prospectus used in connection therewith, that may be necessary to keep
such Registration Statement effective for a period of not less than nine (9)
months and to comply with the provisions of the Act.
8.1.1 ACT shall use its best efforts to cause all securities registered pursuant
to the Registration Statement to be listed on the Nasdaq National Market System
or alternatively on the Nasdaq Small Cap Market.
8.1.2 In the event of the issuance of any stop order suspending the
effectiveness of the Registration Statement, or any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in the Registration Statement, ACT will use its best
efforts to promptly obtain the withdrawal of such order.
8.1.3 ACT shall bear all costs, fees and expenses involved in the preparation
and filing of the Registration Statement, including, without limitation,
accounting and auditing fees and expenses, and expenses in connection with state
qualifications, filing fees, legal counsel fees and expenses and printing
expenses. Sellers, however, shall pay all applicable transfer taxes and
brokerage commissions as a result of any sale by the Sellers.
8.1.4 In the event that any of the Registerable Securities are sold by means of
the Registration Statement, ACT agrees to indemnify and hold harmless the
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Sellers and their assigns (an "Indemnified Person") from and against any and all
claims, demands, actions, causes of action, losses, costs, damages, liabilities
and expenses, including, without limitation, reasonable legal fees (hereinafter
referred to in the singular as a "Claim" and in the plural as "Claims") based
upon, arising out of, or resulting from any untrue statement of a material fact
contained in the Registration Statement or any failure to state therein a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading except to the
extent that such Claim is based upon, arises out of, or results from information
furnished to ACT in writing by Sellers for use in connection with the
Registration Statement. Also, in that connection, Sellers agree to defend and
indemnify and hold harmless ACT, its officers and directors (ACT, its officers
and directors and any such other persons being referred to collectively as
"Indemnified Person") from and against any and all Claims based upon, arising
out of, or resulting from any untrue statement of a material fact contained in
the Registration Statement or any failure to state therein a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading to the extent that such
Claim is based upon, arises out of, or results from information furnished to ACT
in writing by Sellers for use in connection with the Registration Statement. The
indemnification set forth herein shall be in addition to any liability which ACT
or Sellers, respectively, may otherwise have to the Indemnified Person.
8.1.5 Within five (5) days after receiving written notice of any Claim in
respect of which an Indemnified Person may seek indemnification under subsection
8.1.4 above, such Indemnified Person shall submit notice thereof to ACT or
Sellers, as the case may be (sometimes referred to as an "Indemnifying Person").
The failure of the Indemnified Person to so notify the Indemnifying Person of
any such Claim shall not relieve the Indemnifying Person from any liability it
may have hereunder except to the extent that (i) such liability was caused or
increased by such omission, or (ii) the ability of the Indemnifying Person to
reduce such liability was adversely affected by such failure. The Indemnified
Person and the Indemnifying Person shall cooperate with, and assist, one another
in the defense of any Claim and any action, suit or proceeding arising in
connection therewith; provided, however, that the Indemnifying Person shall have
the right to investigate and defend any Claim and the Indemnified Person shall
have the right to employ separate counsel and to participate in the defense of
any Claim, but the fees and expenses of such counsel shall not be at the expense
of the Indemnifying Person. No settlement of any Claim for indemnification under
this Section shall be made without the consent of the Indemnifying Person.
8.2 Primary Registration. If the Registration Statement described in Section 8.1
is an underwritten primary registration on behalf of ACT, and the managing
underwriters advise ACT in writing that, in their opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
that is acceptable to ACT, ACT will include in such registration (a) first, the
securities ACT proposes to sell and, (b) secondly, the Registerable Securities
requested to be included in such registration, and the other securities
requested to be included in such registration, on a pro rata basis.
8.3 Secondary Registration. If the Registration Statement described in Section
8.1 is an underwritten secondary registration on behalf of holders of ACT's
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securities and the managing underwriters advise ACT in writing that, in their
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the holders initially requesting such
registration, ACT will include in such registration (a) first, on a pro rata
basis, the securities requested to be included therein by the holders requesting
such registration and the Registerable Securities requested to be included in
such registration, and (b) second, other securities requested to be included in
such registration.
8.4 Rule 144 Requirements. With a view to making available to the Sellers the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the Commission that may, at any time, permit Sellers to sell
securities of ACT to the public without registration, ACT agrees to use its best
efforts to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under ACT;
(b) use its best efforts to file with the Commission, in a timely manner,
all reports and other documents required of ACT under ACT and the
Securities Exchange Act of 1934 (the "Exchange Act") (at any time
after it has become subject to such reporting requirements); and
(c) furnish to the Sellers, upon request, a written statement by ACT as to
its compliance with the reporting requirements of said Rule 144 (at
any time after ninety [90] days after the closing of the first sale of
securities by ACT pursuant to a Registration Statement), and of ACT
and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of ACT, and such other reports and documents of ACT as such
holders may reasonably request to avail itself of said Rule 144 or any
similar rule or regulation of the Commission allowing it to sell any
such securities without registration.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification of ACT and ACTsub by Sellers and Principal. The Sellers and
the Principal hereby jointly and severally agree to indemnify and save harmless
ACT and ACTsub of and from any loss, liability, cost, damage or expense
whatsoever (including reasonable legal fees on a solicitor and their own client
basis) (a "Loss") arising out of or resulting from, under or pursuant to:
(a) all debts, liabilities, contingent or otherwise, contracts or
engagements whatsoever including, without limitation, liabilities for
federal, provincial, sales, excise, income, capital, land transfer,
goods and services or other taxes of the Acquiree or any re-assessment
therefor, interest thereon or penalties with respect thereto existing
at the Closing and not disclosed on or included in the balance sheet
dated September 30, 1997 forming part of the Financial Statements for
the last completed fiscal year, save and except those liabilities
21
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incurred subsequent to September 30, 1997 in the ordinary course of
business none of which has been materially adverse to the nature,
results of operations, assets or financial condition of, or manner of
conducting, the business of the Corporation;
(b) the inaccuracy of any representation or warranty or the breach of any
covenant made by the Sellers or the Principal herein or in any
instrument or certificate delivered by the Sellers or the Principal
pursuant hereto except as contemplated by this Agreement; and
(c) all claims, actions, suits, proceedings, demands, costs and expenses
in respect of or incidental to any of the foregoing.
9.2 Indemnification of Sellers and Principal. ACT and ACTsub jointly and
severally hereby agree to indemnify and hold the Sellers and Principal harmless
from and against any Loss which may be sustained or suffered by such Sellers and
a Principal, as the case may be, based upon a breach of any representation,
warranty or covenant made by ACT in this Agreement, or in any Schedule or
document or instrument prepared or given by ACT in connection with this
Agreement, or by reason of any claim, action or proceeding asserted or
instituted growing out of any matter or thing covered by such representations,
warranties or covenants.
9.3 Indemnification re GMAC Guarantees. In the event that a release has not been
obtained of the GMAC Guarantees, prior to the Closing Date, ACT and ACTsub
jointly and severally hereby agree to indemnity and hold harmless each of the
Principal, Art Jobin and Bruce Harris ("Indemnitees"), from and against any Loss
which may be sustained by or suffered by such Indemnitees, as the case may be,
under such Indemnitee's GMAC Guarantee, as such Loss relates to the period from
and after the Closing Date. This indemnity will be of no further force and
effect with regard to any Indemnitee, as ACT and ACTsub receive a release of the
GMAC Guarantee of such Indemnitee, following the Closing Date, from GMAC.
9.4 Procedure.
(a) Each party claiming indemnification under this Agreement shall give
written notice to the other of the indemnification claims hereunder,
specifying the amount and nature of the claim and giving the other
party the right to contest any such claim. If any third party claim is
made to which indemnification is claimed, such indemnified party will,
if a claim is to be made against an indemnifying party hereunder, give
notice to the indemnifying party of the commencement of such claim,
but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is materially and
adversely affected by the indemnifying party's failure to give such
notice.
(b) If any proceeding is brought against an indemnified party and it gives
notice to the indemnifying party of the commencement of such
proceeding, the indemnifying party will, unless the claim involves the
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tax liability of any Seller, be entitled to participate in such
proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such proceeding and the
indemnified party determines, in good faith, that joint representation
would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial
capacity to defend such proceeding and provide indemnification with
respect to such proceeding), to assume the defense of such proceeding
with counsel satisfactory to the indemnified party and, after notice
from the indemnifying party to the indemnified party of its election
to assume the defense of such proceeding, the indemnifying party will
not, as long as it diligently conducts such defense, be liable to the
indemnified party for any fees of other counsel or any other expenses
with respect to the defense of such proceeding, subsequently incurred
by the indemnified party in connection with the defense of such
proceeding, other than reasonable costs of investigation if the
indemnifying party assumes the defense of such proceeding (i) it will
be conclusively established for purposes of this Agreement that the
claims made in that proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's
consent, unless the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified
party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is
given to an indemnifying party of the commencement of any proceeding
and the indemnifying party does not, within thirty (30) days after the
indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense of such proceeding, the
indemnifying party will be bound by any determination made in such
proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a proceeding
may adversely affect it, or its affiliates, other than as a result of
monetary damages for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to the
indemnifying party, assume the exclusive right to defend, compromise
or settle such proceeding, but the indemnifying party will not be
bound by any determination of a proceeding so defended or any
compromise or settlement effected without its consent (which may not
be unreasonably withheld).
(d) The indemnified party shall make available to the indemnifying party
and its attorneys and accountants all books and records of the
indemnified party relating to such proceedings or litigation and the
parties hereto agree to render to each other such assistance as they
may reasonably require of each other in order to ensure the proper and
adequate defense of any such action, suit or proceeding.
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(e) Any indefinable liability or reimbursement under this Section shall be
limited to the amount of damages (of any nature) actually sustained by
a party hereto, net of any applicable insurance payments actually
received, other reimbursement or tax benefit actually realized by such
party.
9.5 Threshold. Sellers, the Acquiree, and the Principal shall not be liable for
the payment of any Loss suffered, sustained, incurred or required to be paid by
ACT or ACTsub except to the extent such Losses, in the aggregate, total more
than Five Thousand ($5,000.00), in which case Sellers, the Acquiree and the
Principal shall only be liable to pay the amount of the Losses in excess of Five
Thousand Dollars ($5,000.00).
ARTICLE X
MISCELLANEOUS
10.1 Survival of Representations and Warranties. The covenants, representations
and warranties of the parties contained in this Agreement shall not merge in, be
superseded or prejudiced by and shall survive the Closing and continue in full
force and effect for the benefit of the respective party provided, however,
that:
(a) the covenants, representations and warranties of the parties, except
those relating to tax liability, shall terminate at the expiration of
one (1) year following the Closing; and
(b) representations and warranties in respect of tax matters and in
respect of which any taxation authority of competent jurisdiction,
administering any taxation legislation pursuant to which the
Corporation or a Subsidiary is subject, has the right to assess,
reassess or make additional assessments pursuant to the taxation
legislation of such jurisdiction, shall survive until the day
following the day that the rights of assessment or reassessment
referred to in this sentence cease (such time hereinafter called the
"Tax Warranty Expiry Time"). If no Claim has been made by a Party
hereto with respect to any incorrectness or misrepresentation in any
such representation or warranty within thirty (30) days of the expiry
of the Tax Warranty Expiry Time, such Party shall have no further
liability hereunder with respect to such representation or warranty.
10.2 Further Assurances. At any time, and from time to time, after the Closing
Date, each party will execute such additional instruments and take such action
as may be reasonably requested by the other party to confirm or perfect title to
any property transferred hereunder or otherwise to carry out the intent and
purposes of this Agreement.
10.3 Tax Filings. Sellers covenant that following the Closing Date they shall
cause to be prepared and filed all tax returns of the Acquiree relating to the
period on or prior to the Closing Date within the times prescribed by the
applicable legislation.
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10.4 Waiver. Any failure on the part of any party hereto to comply with any of
its obligations, agreements or conditions hereunder may be waived in writing by
the party to whom such compliance is owed.
10.5 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given if delivered in person or if sent by
prepaid first class registered or certified mail, return receipt requested, fax
or recognized courier then upon receipt thereof to the following addresses:
To Sellers: Drummer Enterprises Ltd.
c/o Del Industrial Metals Inc.
43 Bethridge Road
Rexdale, Ontario M9W 1M6
Attention: Mr. J. Arthur Jobin
Morstar Holdings Ltd.
c/o Harris Chevrolet Oldsmobile
230 Main Street
Selkirk, Manitoba R1A 1R9
Attention: Mr. Bruce Harris
Scozul Enterprises Ltd.
and James Scott
4710 St. Clair Road
Stoney Point, Ontario N0R 1N0
Attention: Mr. James Scott
To Acquiree: Ground Effects Ltd.
2875 St. Etienne Blvd.
Windsor, Ontario N8W 5B1
Attention: The President
with copies to: Miriam Kavanagh
Nobbs, Woods & Clark
70 University Avenue
Suite 250
Toronto, Ontario M5J 2M4
Fax No.(416) 977-2895
To ACT and: Applied Cellular Technology, Inc.
ACTsub 400 Royal Palm Way
Suite 410
Palm Beach, FL
33480, U.S.A.
Fax No. (561) 366-0002
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with copies to: Ann Watterworth
Cassels Brock & Blackwell
Suite 2100
40 King Street West
Toronto, Canada
M5H 3C2
Fax No. (416) 360-8877
with copies to: Paul D. Creme, Esq.
Merra, Kanakis, Creme & Mellor, P.C.
60 Main Street
Nashua, NH 03060
Fax No. (603) 883-0750
10.6 Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses.
10.7 Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 Governing Law. This Agreement shall be governed by the laws of the Province
of Ontario.
10.10 Binding Effect. This Agreement shall be binding upon the parties hereto
and inure to the benefit of the parties, their respective heirs, administrators,
executors, successors and assigns.
10.11 Entire Agreement. This Agreement is the entire agreement of the parties
covering everything agreed upon or understood in the transaction. There are no
oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof.
10.12 Severability. If any part of this Agreement is deemed to be unenforceable
the balance of this Agreement shall remain in full force and effect.
10.13 Currency. Unless otherwise indicated, all dollar amounts referred to in
this Agreement are in Canadian funds.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
APPLIED CELLULAR TECHNOLOGY, INC.
Per: ---------------------------------
Garrett A. Sullivan
Its duly authorized President
DRUMMER ENTERPRISES LTD.
Per: ---------------------------------
c/s
Per: ---------------------------------
MORSTAR HOLDINGS LTD.
Per: ---------------------------------
c/s
Per: ---------------------------------
GROUND EFFECTS LTD.
Per: ---------------------------------
c/s
Per: ---------------------------------
SCOZUL ENTERPRISES LTD.
Per:----------------------------------
c/s
Per: ---------------------------------
ACT-GFX CANADA, INC.
Per: ---------------------------------
c/s
Per: ---------------------------------
27
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SIGNED, SEALED AND DELIVERED )
in the presence of: )
)
- ---------------------------- ) --------------------------------------
Witness ) James D. Scott
28
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SCHEDULE 6.5
Applied Cellular Technology, Inc.
Audited Consolidated Financial Statements
for the year ending December 31, 1997
29
Exhibit 99.3
VOTING AND EXCHANGE TRUST AGREEMENT
THIS AGREEMENT is entered into this 30th day of June, 1998 by and among Applied
Cellular Technology, Inc. ("ACT"), a Missouri corporation, Drummer Enterprises
Ltd. ("Drummer"), an Ontario corporation, Morstar Holdings Ltd. ("Morstar"), a
Manitoba corporation, Scozul Enterprises Ltd. ("Scozul"), an Ontario
corporation, (Drummer, Morstar and Scozul are hereinafter collectively referred
to as "Sellers"), ACT-GFX Canada, Inc. ("ACTsub"), an Ontario corporation, and
Montreal Trust Company of Canada a corporation incorporated under the laws of
Canada (the "Trustee").
RECITALS
WHEREAS ACT, ACTsub, Drummer, Morstar, Scozul, James D. Scott and Ground
Effects Ltd. (the "Acquiree"), have entered into a Reorganization Agreement
dated the 30th day of June, 1998;
AND WHEREAS, pursuant to such Reorganization Agreement, the Sellers were
issued Class A Exchangeable Shares in satisfaction of the purchase price for
common shares of the Acquiree and Class B Exchangeable Shares in satisfaction of
the purchase price for Class B Preference Shares and certain debt of the
Acquiree;
AND WHEREAS, in connection with such Exchangeable Shares, it is desirable
that certain rights of exchange be granted to the Sellers by ACT;
AND WHEREAS ACT is to provide voting rights in ACT directly to each holder
(other than ACT) from time to time of Exchangeable Shares, such voting rights
per Exchangeable Share to be equivalent to the voting rights per share of ACT
Common Stock;
AND WHEREAS ACT is to grant directly to and in favour of the holders from
time to time of Exchangeable Shares the right, in the circumstances set forth
herein, to require ACT to purchase from each such holder all or any part of the
Exchangeable Shares held by each holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in ACT shall be exercisable by
holders from time to time of Exchangeable Shares by and through the Trustee,
which will hold legal title to one share of ACT Special Voting Preferred Stock
(the "ACT Special Voting Stock"), to which voting rights attach for the benefit
of such holders and whereby the rights to require ACT to purchase Exchangeable
Shares from the holders 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;
<PAGE>
AND WHEREAS in order to implement such voting rights and to issue the ACT
Special Voting Stock to the Trustee an exemption order is required pursuant to
the Security Act (Ontario).
AND WHEREAS these recitals and any statements of fact in this Agreement are
made by ACT, ACTsub, Drummer, Morstar, Scozul and the Principal 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 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this Agreement the following terms shall have the following
meanings:
"ACT Common Stock" means the common shares in the capital of ACT.
"ACT Consent" has the meaning ascribed thereto in Section 4.2 hereof.
"ACT Meeting" has the meaning ascribed thereto in Section 4.2 hereof.
"ACT Special Voting Stock" has the meaning ascribed thereto in the recitals
hereto.
"ACT Successor" has the meaning ascribed thereto in subsection 10.1(a).
"Automatic Exchange Rights" means the benefit of the obligation of ACT to effect
the automatic exchange of shares of ACT Common Stock for Exchangeable Shares
pursuant to Section 5.1 hereof.
"Board of Directors" means the Board of Directors of ACTsub.
"Business Day" means a day other than a Saturday, a Sunday or a day when banks
are not open for business in Toronto.
"Call Rights" means collectively the Liquidation Call Right, the Redemption Call
Right and the Retraction Call Right.
"Class A Exchangeable Shares" means the Class A Exchangeable Shares in the
capital of ACTsub.
2
<PAGE>
"Class B Exchangeable Shares" means the Class B Exchangeable Shares in the
capital of ACTsub.
"Current Market Price" has the meaning ascribed thereto in the Class A and Class
B Exchangeable Share Provisions.
"Current ACT Common Stock Equivalent" has the meaning ascribed thereto in the
Exchange Share Provisions.
"Default Event" means any failure, other than by reason of an Insolvency Event,
of ACTsub 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" means the rights, privileges, restrictions and
conditions attaching to the Class A and Class B Exchangeable Shares as set forth
in articles of incorporation of ACTsub.
"Exchangeable Shares" means the Class A Exchangeable Shares and the Class B
Exchangeable Shares.
"Holders" means such of the holders who are the registered holders from time to
time of Exchangeable Shares.
"Insolvency Event" means the institution by ACTsub of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound up, or the
consent of ACTsub to the institution of bankruptcy, insolvency, 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 ACTsub to contest in good faith
any such proceedings commenced in respect of ACTsub within 15 days of becoming
aware thereof, or the consent by ACTsub to the filing of any such petition or to
the appointment of a receiver, or the making by ACTsub of a general assignment
for the benefit of creditors, or the admission in writing by ACTsub of its
inability to pay its debts generally as they become due, or ACTsub not being
permitted, pursuant to solvency requirements of applicable law, to redeem any
Retracted Shares pursuant to Section 5.6 of the Exchangeable Share Provisions.
"Lien" has the meaning ascribed thereto in the Reorganization Agreement.
"Liquidation Call Right" has the meaning ascribed thereto in the Call Agreement.
"Liquidation Event" has the meaning ascribed thereto in Section 5.11 hereof.
3
<PAGE>
"Liquidation Event Effective Date" has the meaning ascribed thereto in
subsection 5.11(c) hereof.
"OBCA" means the Business Corporations Act (Ontario).
"Redemption Call Right" has the meaning ascribed thereto in the Call Agreement.
"Retracted Shares" has the meaning ascribed thereto in Section 5.7 hereof.
"Retraction Call Right" has the meaning ascribed thereto in the Call Agreement.
"Support Agreement" means that certain support agreement made as of even date
herewith between ACT and ACTsub.
"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 ACT Special Voting Stock, issued by ACT,
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 ACT 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.
4
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ARTICLE 2
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.
The obligations of the Trustee pursuant to the Voting Share and Articles 3 and 4
hereof shall not be effective until the delivery by ACT of the Voting Share to
the Trustee pursuant to an exemption order under the Securities Act (Ontario).
ARTICLE 3
VOTING SHARE
3.1 Issue and Ownership of the Voting Share. In consideration of the granting
and transfer of the Call Rights to ACT by the Holders, ACT will, upon receipt of
an applicable exemption order pursuant to the Securities Act (Ontario) issue to
and deposit 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. ACT 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 ACT 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.
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3.2 Legended Share Certificates. The ACTsub 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. ACT
will cause the certificate representing the Voting Share to bear a legend
stating that such Voting Share is non-transferable 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 4
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 ACT for
their vote at an ACT Meeting or in connection with an ACT 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 ACT
Consent is sought or an ACT 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 ACT at
which Holders of ACT Common Stock are entitled to vote (an "ACT Meeting") and
with respect to all written consents sought from the Holders of ACT Common Stock
(an "ACT 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 ACT Common Stock Equivalent on the
record date established by ACT or by applicable law for such ACT Meeting or ACT
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 ACT Meeting or to be consented to
in connection with such ACT Consent. As at the date hereof the Current ACT
Common Stock Equivalent is 1. Upon each change to the Current ACT Common Stock
Equivalent ACT and the Holders jointly shall deliver to Trustee a certificate
setting out the new Current ACT Common Stock Equivalent. For the purposes of
this Agreement Trustee shall be entitled to rely on the most recent of such
certificates for the purpose of determining the Current ACT Common Stock to be
employed at any time.
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4.3 Mailings to Shareholders. With respect to each ACT Meeting and ACT Consent,
the Trustee shall mail or cause to be mailed (or otherwise communicate in the
same manner as ACT utilizes in communications to Holders of ACT Common Stock),
to each of the Holders named in the List, on the same day as the initial mailing
of notice (or other communication) with respect thereto is given by ACT 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 ACT;
(b) a statement that such Holder is entitled to instruct the Trustee as to
the exercise of the Holder Votes with respect to such ACT Meeting or
ACT Consent, as the case may be, or, pursuant to Section 4.7 hereof,
to attend such ACT Meeting and to exercise personally the Holder Votes
thereat;
(c) a statement as to 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 ACT 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 ACT 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 the Holder Votes to which a Holder is entitled in
respect of any such ACT Meeting or ACT 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 ACT or by applicable law for purposes
of determining stockholders entitled to vote at such ACT Meeting or to give
written consent in connection with such ACT Consent. ACT shall notify the
Trustee of any decision of the board of directors of ACT with respect to the
7
<PAGE>
calling of any such ACT Meeting or the seeking by ACT of any such ACT Consent
and shall provide all necessary 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. ACT shall deliver to the Trustee copies
of all proxy materials (including notices of ACT Meetings but excluding proxies
to vote ACT Common Stock), information statements, reports (including without
limitation all interim and annual financial statements) and other written
communications that are to be distributed by ACT from time to time to Holders of
ACT Common Stock in sufficient quantities and in sufficient time 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 ACT Common Stock. The Trustee shall mail
or otherwise send to each Holder, at the expense of ACT, copies of all such
materials (and all materials specifically directed to the Holders or to the
Trustee for the benefit of the Holders by ACT) received by the Trustee from ACT
at the same time as such materials are first sent to Holders of ACT 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.
4.5 Other Materials. Immediately after receipt by ACT of any material sent or
given generally to the Holders of ACT 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), ACT 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 ACT, copies of all such materials received by the Trustee from ACT. 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.
4.6 List of Persons Entitled to Vote. ACTsub shall, (a) prior to each annual,
general and special ACT Meeting or the seeking of any ACT 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 ACT Meeting or an ACT Consent, at the close of
business on the record date established by ACT or pursuant to applicable law for
determining the Holders of ACT Common Stock entitled to receive notice of and/or
to vote at such ACT Meeting or to give consent in connection with such ACT
Consent. Each such List shall be delivered to the Trustee promptly after receipt
by the ACTsub of such request or the record date for such meeting or seeking of
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consent, as the case may be, and in any event within sufficient time as to
enable the Trustee to perform its obligations under this Agreement. ACT agrees
to give ACTsub notice (with a copy to the Trustee) of the calling of any ACT
Meeting or the seeking of any ACT 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 ACTsub 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 ACT Meeting or an ACT 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 ACT Meeting and ACT 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 as 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 representatives as are empowered by it to sign
and deliver, on behalf of the Trustee, proxies for Voting Rights to
attend each ACT 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 General
Corporation 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
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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.
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 ACT utilizes in
communications to Holders of ACT Common Stock) to each Holder at its address as
shown on the books of ACTsub or the transfer agent, as applicable. The ACTsub
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 ACT Meeting or ACT
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 surrendered by
the Holder to ACT 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 ACT
shall not have delivered the requisite ACT Common Stock issuable in exchange
therefor to the Trustee for delivery to the Holders), or upon the redemption of
Exchangeable Shares pursuant to Article 4 or Article 5 of the Exchangeable Share
Provisions, or upon the effective date of the liquidation, dissolution or
winding-up of ACTsub pursuant to Article 6 of the Exchangeable Share Provisions,
or upon the purchase of Exchangeable Shares from the Holder thereof by ACT
pursuant to the exercise by ACT 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, ACT will not
issue any shares of ACT Special Voting Stock, in addition to the Voting Share.
ARTICLE 5
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 ACT by the Holders, ACT hereby grants to
Trustee as trustee for and behalf of and for the benefit and use of the Holders
of (a) the right (the "Exchange Right"), upon the occurrence and during the
continuance of an Insolvency Event or Default Event, to require ACT to purchase
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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.
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. ACTsub 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 SectionE6.15 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 ACT for each Exchangeable
Share to be purchased by ACT under the Exchange Right shall be an amount per
share equal to (a) the Current Market Price multiplied by the Current ACT Common
Stock Equivalent determined on the day of Closing of the purchase and sale of
such Exchangeable Share under the Exchange Right, which shall be satisfied in
full in respect of the Exchangeable Shares in respect to which a Holder has
exercised the Exchange Right by causing to be delivered to such Holder such
whole number of shares of ACT Common Stock as is equal to the product obtained
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by multiplying the number of such Exchangeable Shares by the Current ACT Common
Stock Equivalent, rounded down to the nearest whole number, 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 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 ACTsub. To cause the
exercise of the Exchange Right by the Trustee, Holder shall deliver to the
Trustee, in person or by certified or registered mail, at its corporate trust
office in Toronto 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 ACT 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 ACTsub and such additional documents and instruments as the Trustee
may reasonably require together with (a) a duly completed Form of Notice of
exercise of Exchange Right, in the form attached hereto as Schedule "A" or
attached to the Exchangeable Share Certificate stating (a) that the Holder
thereby instructs the Trustee to exercise the Exchange Right so as to require
ACT to purchase from the Holder the number of Exchangeable Shares specified
therein, (b) that such Holder has good title to and owns all such Exchangeable
Shares to be acquired by ACT free and clear of all Liens, (c) the names in which
the certificates representing ACT Common Stock issuable in connection with the
exercise of the Exchange Right are to be issued, (d) the names and addresses of
the persons to whom such new certificates should be delivered, and (e) payment
(or evidence satisfactory to Trustee, ACTsub and ACT 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 ACT under the Exchange Right, a
new certificate for the balance of such Exchangeable Shares shall be issued to
the Holder at the expense of ACTsub.
5.6 Delivery of ACT Common Stock: Effect of Exercise. Promptly after receipt of
the certificates representing the Exchangeable Shares that the Holder desires
ACT 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 ACT, the Trustee shall notify
ACT of its receipt of the same, by notice in the form of Schedule B hereto,
which notice to ACT shall constitute exercise of the Exchange Right by the
Trustee on behalf of the holder of such Exchangeable Shares and ACT shall
immediately thereafter deliver or cause to be delivered to the Trustee, for
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delivery to the Holder of such Exchangeable Share (or to such other persons, if
any, properly designated by such Holder), the certificates for the number of
shares of ACT 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 Act 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 ACT 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
ACT 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 ACT 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 ACT Common Stock are so allotted, issued
and delivered by ACT 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 ACT Common Stock delivered to it pursuant to the Exchange Right. The
Trustee shall deliver to ACTsub the certificates for the Exchangeable Shares so
transferred to be cancelled and new certificates in the name of ACT issued in
respect thereof and shall deliver or cause to be delivered such Exchangeable
Shares to ACT.
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 ACTsub to redeem any or all of the Exchangeable Shares
held by the Holder (the "Retracted Shares") and is notified by ACTsub pursuant
to Section 5.6 of the Exchangeable Share Provisions that ACTsub is not permitted
as a result of solvency requirements of applicable law to redeem all of such
Retracted Shares, and provided that ACT 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 which ACTsub is unable to redeem. In such event, ACTsub
hereby agrees with the Trustee and in favour of the Holder to immediately notify
the Trustee of such prohibition against ACTsub 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 ACTsub (including without
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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 ACTsub is not permitted to
redeem and will require ACT to purchase such shares in accordance with the
provisions of this Article. The Trustee shall cause the Certificates for the
Exchangeable Shares so transferred to be cancelled and new Certificates in the
name of ACT issued in respect thereof and shall deliver or cause to be delivered
such Exchangeable Shares to ACT. 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.
5.8 Stamp or Other Transfer Taxes. Upon any sale of Exchangeable Shares to ACT
pursuant to the Exchange Right or the Automatic Exchange Rights, the share
certificate or certificates representing ACT 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 ACT, ACTsub 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
ACT, ACTsub and the Trustee 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, ACTsub and ACT shall give written notice thereof to the Trustee. As soon
as practicable after receiving notice from the ACTsub and ACT 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 ACT, 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.
5.10 Reservation of ACT Common Stock. ACT hereby represents and warrants that it
has irrevocably reserved for issuance out of its authorized and unissued capital
stock such number of shares of ACT 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 ACT Common Stock
(or other shares or securities into which ACT Common Stock may be reclassified
or changed) as is necessary to enable ACT and ACTsub to perform their respective
obligations pursuant to this Agreement, the Exchangeable Share Provisions and
the Support Agreement.
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5.11 Automatic Exchange on Liquidation of ACT.
(a) ACT 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
ACT 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, at least sixty (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 ACT of notice of
and (B) ACT 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 ACT or to effect any other distribution of assets of ACT among
its stockholders for the purpose of winding up its affairs.
(b) Immediately following receipt by the Trustee from ACT of notice of any
Liquidation Event, the Trustee shall give notice thereof to the
Holders.
(c) In order that the Holders will be able to participate on a pro rata
basis with the Holders of ACT Common Stock in the distribution of
assets of ACT in connection with a Liquidation Event, on the fifth
Business Day prior to the effective date of a Liquidation Event (the
"Liquidation Event Effective Date") all of the then outstanding
Exchangeable Shares shall be automatically exchanged by the Holders
directly with ACT for ACT Common Stock. To effect such automatic
exchange, ACT 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 ACT 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
ACT 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 ACT issuing
to such Holder such whole number of shares of ACT Common Stock as is
equal to the product obtained by multiplying the number of such
Exchangeable Shares by the Current ACT Common Stock 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
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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 ACT 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 ACT
Common Stock shall be deemed to have occurred, and each Holder of
Exchangeable Shares shall be deemed to have transferred to ACT 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 ACT shall issue to the
Holder the ACT Common Stock issuable upon the automatic exchange of
Exchangeable Shares for ACT 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 ACT Common Stock issued to it
pursuant to the automatic exchange of Exchangeable Shares for ACT
Common Stock and the certificates held by the Holder previously
representing the Exchangeable Shares exchanged by the Holder with ACT
pursuant to such automatic exchange shall thereafter be deemed to
represent the ACT Common Stock issued to the Holder by ACT pursuant to
such automatic exchange. Upon the request of a Holder and the
surrender by the Holder of Exchangeable Share certificates deemed to
represent ACT Common Stock, duly endorsed in blank and accompanied by
such instruments of transfer as ACT may reasonably require, ACT shall
deliver or cause to be delivered to the Holder certificates
representing the ACT 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 ACT
to be issued in respect thereof
5.12 Withholding Rights. ACT shall deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any Holder of Exchangeable
Shares such amounts as ACT 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
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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, ACT is hereby authorized to sell or otherwise dispose of at fair market
value such portion of the consideration as is necessary to provide sufficient
funds to ACT 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.
ARTICLE 6
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 the Voting Share from ACT 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 ACT as trustee for and on behalf of the Holders in
accordance with the provisions of this Agreement;
(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 ACT 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;
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(h) taking action on its own initiative or at the direction of a Holder or
Holders to enforce the obligations of ACT 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 reasonable
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 Canada.
6.2 No Conflict of Interest. The Trustee represents to ACTsub and ACT 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 thirty (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. ACTsub and ACT irrevocably
authorizes 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 ACT Common Stock; and
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(b) requisition, from time to time from the transfer agent of ACT 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 this Article 6.
ACT irrevocably authorizes its registrars and transfer agents to comply with all
such requests. ACT 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 this Article 5.
6.4 Books and Records. The Trustee shall keep available for inspection by ACT
and ACTsub, at the Trustee's corporate trust office in Toronto, 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 March 31, 1999, and on or before March 31
in every year thereafter, so long as the Voting Share is on deposit with the
Trustee, the Trustee shall transmit to ACT and ACTsub a brief report, dated as
of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the Trustee on
behalf of Holders in consideration of the issue and delivery by ACT of
ACT 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 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,
ACT 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
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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 SectionE6.15 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 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
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 and 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 this Section 6.8, if applicable, and with any
other applicable provisions of this Agreement.
6.9 Evidence and Authority to Trustee. ACTsub and/or ACT 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
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ACTsub and/or ACT 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 ACTsub and/or ACT 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 ACTsub and/or ACT 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 ACTsub and/or ACT
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.
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 ACTsub and/or ACT 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
opinion 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,
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appraiser, valuer, engineer or other expert, whether retained by the
Trustee or by ACTsub and/or ACT 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,
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 (2) years after
their purchase by the Trustee, and are invested in such specific securities as
directed in writing by ACTsub and ACT. 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 in the deposit
department of the Trustee at the rate of interest then current on similar
deposits.
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 ACTsub's or ACT'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 ACTsub and/or ACT 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 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 ACTsub and ACT
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
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shall not be affected in any manner whatsoever by reason only of such event but
the Trustee shall, within thirty (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
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 cairns 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
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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 ACT Meeting
or the seeking of any ACT Consent or any prohibition of ACTsub against redeeming
any Retracted Shares as set out in Sections 2.4.6 and 3.4.6 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.
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 ACTsub and ACT 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 13.4, of a
change in Authorized Persons with updated specimen signatures.
ARTICLE 7
COMPENSATION
7.1 Fees and Expenses of the Trustee. ACT and ACTsub 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 ACT or ACTsub, 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 ACT and ACTsub shall
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<PAGE>
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.
ARTICLE 8
INDEMNIFICATION AND LIMITATION OF LIABILITY
8.1 Indemnification of the Trustee. ACT and ACTsub 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 ACT or ACTsub pursuant hereto. In no case shall ACT
or ACTsub be liable under this indemnity for any claim against any of the
Indemnified Parties unless ACT and ACTsub 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, ACT and ACTsub shall be entitled to
participate at their own expense in the defense and, if ACT or ACTsub 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 ACT or
ACTsub or (ii) the named parties to any such suit include both the Trustee and
ACT or ACTsub and the Trustee shall have been advised by counsel acceptable to
ACT or ACTsub that there may be one or more legal defenses available to the
Trustee that are different from or in addition to those available to ACT or
ACTsub and that an actual or potential conflict of interest exists (in which
case ACT and ACTsub 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) ACT and/or ACTsub 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
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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, wilful misconduct or bad faith on the part of the Trustee.
ARTICLE 9
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 ACT and ACTsub
specifying the date on which it desires to resign, provided that such notice
shall never be given less than sixty (60) days before such desired resignation
date unless ACT and ACTsub 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, ACT and ACTsub 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 sixty (60) days' prior notice by written
instrument executed by ACT and ACTsub, 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 or trustee appointed as provided under this
Agreement shall execute, acknowledge and deliver to ACT and the ACTsub 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 ACT and ACTsub 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, ACT, ACTsub 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, ACT and ACTsub shall cause to be mailed notice of
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the succession of such trustee hereunder to each Holder specified in a List. If
ACT or ACTsub shall fail to cause such notice to be mailed within ten (10) days
after acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be mailed at the expense of ACT and ACTsub.
ARTICLE 10
ACT SUCCESSORS
10.1 Certain Requirements in Respect of Combination, etc. ACT 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 "ACT Successor") incorporated under the laws of any state
of the United States or the laws of Canada or any province thereof;
and
(b) ACT 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 supplemental hereto and such other instruments (if any) as are
satisfactory to the Trustee acting reasonably to evidence the assumption by
ACT Successor of liability for all moneys payable and property deliverable
hereunder and the covenant of such ACT 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 ACT 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, ACT Successor and the ACTsub shall execute and deliver the
supplemental agreement provided for in Article 11 hereof and thereupon ACT
Successor shall possess and from time to time may exercise each and every right
and power of ACT under this Agreement in the name of ACT 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 ACT or any officers of ACT may be done
and performed with like force and effect by the directors or officers of such
ACT Successor.
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10.3 Wholly-Owned Subsidiaries. Nothing herein shall be construed as preventing
the amalgamation or merger of any wholly-owned subsidiary of ACT with or into
ACT.
ARTICLE 11
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 ACTsub, ACT and the
Trustee and approved by the Holders in accordance with Section 8.2 of the
Exchangeable Share Provisions.
11.2 Ministerial Amendments. Notwithstanding the provisions of SectionE11.1
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
ACT and the ACTsub 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 ACTsub and ACT 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. ACTsub, at the request of ACT, 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 ACTsub,
the Exchangeable Share Provisions and all applicable laws.
11.4 Changes in Capital of ACT and the ACTsub. Notwithstanding Section 11.1, at
all times after the occurrence of any ACT Common Stock Reorganization or Capital
Reorganization (as such terms are respectively defined in the Exchangeable Share
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Provisions) or other change in either the ACT 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 force and effect, mutatis
mutandis, to all new securities into which ACT 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 ACTsub (when authorized by a resolution of the Board of
Directors), ACT (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 ACT Successors to ACT and the covenants
of and obligations assumed by each such ACT 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 ACT, the ACTsub, 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 12
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;
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(b) each of ACTsub and ACT elects in writing to terminate the Trust and
such termination is approved by the Holders of the Exchangeable Shares
in accordance with Sections 2.7.2 and 3.7.2 of the Exchangeable Share
Provisions; and
(c) twenty-one (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 9.
ARTICLE 13
GENERAL
13.1 Survival of Representations and Warranties. The respective representations
of Sellers and ACT contained herein or in any certificates delivered prior to or
at the closing of any purchase and sale set out herein shall survive for a
period of twenty-four (24) months from the closing date, except as may be
required by their terms.
13.2 Further Assurances. At any time, and from time to time, after the closing
date, each party will execute such additional instruments and take such action
as may be reasonably requested by the other party to confirm or perfect title to
any property transferred hereunder or otherwise to carry out the intent and
purposes of this Agreement.
13.3 Waiver. Any failure on the part of any party hereto to comply with any of
its obligations, agreements or conditions hereunder may be waived in writing by
the party to whom such compliance is owed.
13.4 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given if delivered in person or if sent by
prepaid first class registered or certified mail, return receipt requested, fax
or recognized courier then upon receipt thereof to the following addresses:
To Sellers: Drummer Enterprises Ltd.
c/o Del Industrial Metals Inc.
43 Bethridge Road
Rexdale, Ontario M9W 1M6
Attention: Mr. J. Arthur Jobin
Fax No. (416) 741-0250
30
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Morstar Holdings Ltd.
c/o Harris Chevrolet Oldsmobile
230 Main Street
Selkirk, Manitoba R1A 1R9
Attention: Mr. Bruce Harris
Fax No. (204) 785-2076
Scozul Enterprises Ltd.
4710 St. Clair Road
Stoney Point, Ontario N0R 1N0
Attention: Mr. James Scott
Fax No. (519) 944-9928
To Acquiree: Ground Effects Ltd.
2875 St. Etienne Blvd.
Windsor, Ontario N8W 5B1
Attention: The President
Fax No. (519) 944-9926
with copies to: Miriam Kavanagh
Nobbs, Woods & Clark
70 University Avenue
Suite 250
Toronto, Ontario M5J 2M4
Fax No.(416) 977-2895
To ACT: Applied Cellular Technology, Inc.
400 Royal Palm Way
Suite 410
Palm Beach, FL
33480, U.S.A.
Fax No. (561) 366-0002
with copies to: Ann Watterworth
Cassels Brock & Blackwell
Suite 2100
40 King Street West
Toronto, Canada
M5H 3C2
Fax No. (416) 360-8877
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and to: Paul D. Creme, Esq.
Merra, Kanakis, Creme & Mellor, P.C.
60 Main Street
Nashua, NH 03060
Fax No. (603) 883-0750
To Trustee: Montreal Trust Company of Canada
151 Front Street West
Suite 605
Toronto, ON
M5J 2N1
Attention: Manager, Client Services
Corporate Trust Services
Fax No. (416) 981-9777
13.5 Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses.
13.6 Headings. The Section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.7 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.8 Governing Law. This Agreement shall be governed by the laws of the Province
of Ontario.
13.9 Binding Effect. This Agreement shall be binding upon the parties hereto and
inure to the benefit of the parties, their respective heirs, administrators,
executors, successors and assigns.
13.10 Entire Agreement. This Agreement is the entire agreement of the parties
covering everything agreed upon or understood in the transaction. There are no
oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof.
13.11 Severability. If any part of this Agreement is deemed to be unenforceable
the balance of this Agreement shall remain in full force and effect.
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13.12 Attornment. ACT 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
Acquiree at its registered office as ACT's attorney for service of process.
13.13 Beneficiaries. The parties acknowledge that Drummer, Morstar and Scozul
are executing this Agreement as beneficiaries of the Trust hereby created only.
Each of Drummer, Morstar and Scozul hereby agree to be bound by the terms of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
APPLIED CELLULAR TECHNOLOGY, INC.
Per:
Garrett A. Sullivan
Its duly authorized President
DRUMMER ENTERPRISES LTD.
Per:
c/s
Per:
MORSTAR HOLDINGS LTD.
Per:
c/s
Per:
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SCOZUL ENTERPRISES LTD.
Per:
c/s
Per:
ACT-GFX CANADA, INC.
Per:
c/s
Per:
MONTREAL TRUST COMPANY OF
CANADA
Per:
c/s
Per:
34
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SCHEDULE A
NOTICE OF EXERCISE OF EXCHANGE RIGHT
TO: Montreal Trust Company of Canada
RE: Voting and Exchange Trust Agreement (the "Trust Agreement") between Applied
Cellular Technology, Inc. ("ACT"), a Missouri corporation, ACT-GFX Canada,
Inc., an Ontario corporation, Drummer Enterprises Ltd. ("Drummer"), an
Ontario corporation, Morstar Holdings Ltd. ("Morstar"), a Manitoba
corporation, Scozul Enterprises Ltd. ("Scozul"), an Ontario corporation,
(Drummer, Morstar and Scozul are hereinafter collectively referred to as
"Sellers"), Ground Effects Ltd. (the "Acquiree") and Montreal Trust Company
of Canada (the "Trustee")
The undersigned Holder of the Exchangeable Shares instructs the Trustee to
exercise the Exchange Right in accordance with Section 5.5 of the Trust
Agreement so as to require ACTsub to purchase from the undersigned Exchangeable
Shares and to issue and deliver certificates representing shares of ACT Common
Stock as follows:
Name in full:
Name in full: ---------------------------------------------
(Please state full names in which certificates are to be issued)
Address in full: ---------------------------------------------
---------------------------------------------
---------------------------------------------
Number and Class 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 ACTsub free and clear of all liens, claims and encumbrances.
(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.
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All capitalized terms not defined herein shall have the meanings ascribed to
them in the Exchange Agreement.
DATED this30th day of June, 1998.
-----------------------------------
Name
-----------------------------------
Signature
36
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SCHEDULE B
NOTICE OF EXERCISE OF EXCHANGE RIGHT
------------------------------------
TO: ACT-GFX CANADA, INC. ("ACTsub")
This notice is given pursuant to Section 5.6 of the Voting and
Exchange Trust Agreement (the "Trust Agreement") between Applied Cellular
Technology, Inc. ("ACT"), Drummer Enterprises Ltd., Morstar Holdings Ltd.,
Scozul Enterprises Ltd., ACT-GFX Canada, Inc. and Montreal Trust Company of
Canada (the "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 notifies ACTsub 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 ACT 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: ---------------------------
Exhibit 99.4
SUPPORT AGREEMENT
THIS AGREEMENT is entered into this 30th day of June, 1998 by and between
Applied Cellular Technology, Inc. ("ACT"), a Missouri corporation and ACT-GFX
Canada, Inc., ("ACTsub") an Ontario Corporation.
RECITALS
WHEREAS pursuant to a reorganization agreement entered into the 30th day of
June, 1998 (the "Reorganization Agreement") by and between ACT, ACTsub, Drummer
Enterprises Ltd., Morstar Holdings Ltd., Scozul Enterprises Ltd., James D. Scott
and Ground Effects Ltd. (the "Acquiree"), the parties agreed that on the Closing
Date (as defined in the Reorganization Agreement), ACT and ACTsub would execute
and deliver a Support Agreement in substantially the form set forth in Exhibit
1.3 to the Reorganization Agreement together with such other terms and
conditions as may be agreed to by the parties to the Reorganization Agreement
acting reasonably;
AND WHEREAS pursuant to the Reorganization Agreement certain of the issued
and outstanding shares in the capital of the Acquiree and certain debt owed by
the Acquiree were acquired by ACTsub for a purchase price which was satisfied by
the issuance of Class A and Class B exchangeable shares in the capital of ACTsub
(collectively, the "Exchangeable Shares");
AND WHEREAS the articles of incorporation of ACTsub 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 ACT will take certain actions and make certain
payments and deliveries necessary to ensure that the ACTsub will be able to
deliver or cause to be delivered shares of ACT Common Stock in satisfaction of
the obligations of ACTsub under the Exchangeable Share Provisions and with
respect to the payment and satisfaction of 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:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms. Each term denoted herein by initial capital letters and not
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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 2
COVENANTS OF ACT AND ACTSUB
2.1 Covenants of ACT Regarding Exchangeable Shares. So long as any Exchangeable
Shares are outstanding, ACT shall:
(a) not declare or pay any dividend on ACT Common Stock unless (i) ACTsub
shall have sufficient assets, funds and other property (including, where
applicable, shares of ACT Common Stock or other securities of ACT) 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) ACTsub shall simultaneously declare or
pay, as the case may be, a dividend on the Exchangeable Shares in accordance
with the Exchangeable Share Provisions;
(b) cause ACTsub to declare simultaneously with the declaration of any
dividend on shares of ACT Common Stock a dividend on the Exchangeable Shares
and, when such dividend is paid on ACT Common Stock, cause ACTsub to pay
simultaneously therewith such dividend on the Exchangeable Shares, in each case
in accordance with the Exchangeable Share Provisions;
(c) advise ACTsub sufficiently in advance of the declaration by ACT of any
dividend on shares of ACT Common Stock and take all such other actions as are
necessary, in cooperation with ACTsub, 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 ACT 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;
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(d) ensure that the record date for any dividend declared on shares of ACT
Common Stock, ACT Common Stock Reorganization, Rights Offering, Special
Distribution or Capital Reorganization is not less than ten (10) Business Days
after the declaration date for such dividend or effective date of such ACT
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 ACTsub, 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 ACTsub, including without
limitation all such actions and all such things as are necessary or desirable to
enable and permit ACTsub to cause to be delivered shares of ACT 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 ACTsub, 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
ACTsub to cause to be delivered shares of ACT 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 ACTsub to initiate, consent
to or approve the voluntary liquidation, dissolution or winding-up of ACTsub nor
take any action or omit to take any action that is designed to result in the
liquidation, dissolution or winding-up of ACTsub; and
(h) not exercise its vote as a shareholder of ACTsub to authorize the
continuance or other transfer of the corporate existence of ACTsub to any
jurisdiction outside Canada.
2.2 Segregation of Funds. ACT will cause ACTsub 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 ACTsub 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 ACTsub 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.
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2.3 Reservation of Shares of ACT Common Stock. ACT hereby represents and
warrants that it has irrevocably reserved for issuance out of its authorized and
unissued capital stock such number of shares of ACT Common Stock as is equal to
the number of Exchangeable Shares outstanding immediately following the Closing
Date and covenants that at all times in the future while any Exchangeable Shares
are outstanding it will keep available, free from pre-emptive and other rights,
out of its authorized and unissued capital stock such number of shares of ACT
Common Stock (or other shares or securities into which ACT Common Stock may be
reclassified or changed) as is necessary to enable shares of ACT and ACTsub to
perform their respective obligations pursuant to this agreement, the
Exchangeable Share Provisions and the Exchange Agreement.
2.4 Notification of Certain Events. In order to assist ACT to comply with its
obligations hereunder, ACTsub will give ACT 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 ACTsub
to institute voluntary liquidation, dissolution or winding up proceedings with
respect to ACTsub or to effect any other distribution of the assets of ACTsub
among its shareholders for the purpose of winding up its affairs at least sixty
(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 ACTsub of notice of,
and (ii) ACTsub 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 ACTsub or to effect any other distribution of the
assets of ACTsub among its shareholders for the purpose of winding up its
affairs;
(c) immediately, upon receipt by ACTsub of a Retraction Request; and
(d) at least one hundred thirty (130) days prior to any accelerated
automatic redemption date determined by the Board of Directors of ACTsub in
accordance with the Exchangeable Share Provisions.
2.5 Delivery of ACT Common Stock. In furtherance of its obligations under
subsections 2.1(a) and (b) hereof, upon notice of any event that requires ACTsub
to cause to be delivered ACT Common Stock to any holder of Exchangeable Shares,
ACT shall forthwith issue and deliver the requisite shares of ACT Common Stock
to or to the order of the former holder of the surrendered Exchangeable Shares,
as ACTsub shall direct. All such shares of ACT Common Stock shall be duly issued
as fully paid and non-assessable and shall be free and clear of any Liens as
that term is defined in the Reorganization Agreement. In consideration of the
issuance of each of such shares of ACT Common Stock by ACT, ACTsub shall issue
to ACT, or as ACT shall direct, such number of common shares of ACTsub as is
equal to the fair market value of such ACT Common Stock.
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2.6 Tender Offers, Etc. In the event that a tender offer, share exchange offer,
issuer bid, take-over bid or similar transaction with respect to ACT Common
Stock (an "Offer") is proposed by ACT or is proposed to ACT or its stockholders
and is recommended by the Board of Directors of ACT or is otherwise effected or
to be effected with the consent or approval of the Board of Directors of ACT,
ACT 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 ACT
Common Stock, without discrimination. Without limiting the generality of the
foregoing, ACT 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
ACTsub (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).
2.7 Ownership of Outstanding Shares. ACT covenants and agrees in favour of
ACTsub that, as long as any outstanding Exchangeable Shares are owned by any
person or entity other than ACT or any of it Affiliates, ACT will be and remain
the direct or indirect beneficial owner of all issued and outstanding shares in
the capital of ACTsub (other than Exchangeable Shares) and all outstanding
securities of ACTsub carrying or otherwise entitled to voting rights in any
circumstances (other than Exchangeable Shares), unless ACT shall have obtained
the prior approval of ACTsub and the holders of the Exchangeable Shares given in
accordance with Sections 2.7.2 and 3.7.2 of the Exchangeable Share Provisions.
2.8 ACT Not To Vote Exchangeable Shares. ACT covenants and agrees that it will
appoint and cause to be appointed proxyholders with respect to all Exchangeable
Shares held by ACT 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. ACT 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 Sections 2.7.2 and 3.7.2 of the Exchangeable Share
Provisions.
2.9 Economic Equivalence. ACT hereby acknowledges that it will be bound by any
determination of economic equivalence made by the Board of Directors of the
ACTsub pursuant to Article 4 of the Exchangeable Share Provisions.
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ARTICLE 3
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.
3.2 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.
3.3 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.
3.4 Enurement. This Agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and permitted assigns.
3.5 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):
To ACT and Applied Cellular Technology, Inc.
ACTsub 400 Royal Palm Way
Suite 410
Palm Beach, FL
33480, U.S.A.
Fax No. (561) 366-0002
with copies to: Ann Watterworth
Cassels Brock & Blackwell
Suite 2100
40 King Street West
Toronto, Canada
M5H 3C2
Fax No. (416) 869-5484
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to: Miriam Kavanagh
Nobbs, Woods & Clark
70 University Avenue
Suite 250
Toronto, Ontario M5J 2M4
Fax No.(416) 977-2895
and to: Paul D. Creme, Esq.
Merra, Kanakis, Creme & Mellor, P.C.
60 Main Street
Nashua, NH 03060
Fax No. (603) 883-0750
3.6 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.
3.7 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.
3.8 Attornment. ACT 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
Acquiree at its registered office as ACT'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.
Per: ------------------------------
Garrett A. Sullivan
Its duly authorized President
ACT-GFX CANADA, INC.
Per: ------------------------------
Per: ------------------------------ c/s
Exhibit 99.5
CALL AGREEMENT
THIS AGREEMENT is entered into this 30th day of June, 1998 by and among Applied
Cellular Technology, Inc. ("ACT"), a Missouri corporation, ACT-GFX Canada, Inc.
("ACTsub"), an Ontario corporation, Drummer Enterprises Ltd. ("Drummer"), an
Ontario corporation, Morstar Holdings Ltd. ("Morstar"), a Manitoba corporation,
Scozul Enterprises Ltd. ("Scozul"), an Ontario corporation, (Drummer, Morstar
and Scozul are hereinafter collectively referred to as "Sellers") and James D.
Scott (the "Principal").
RECITALS
WHEREAS the parties hereto together with Ground Effects Ltd. (the
"Acquiree") have entered into a Reorganization Agreement dated the date hereof,
whereby, among other things, certain of the issued and outstanding shares and
debt of the Acquiree shall be acquired by ACTsub for a purchase price which
shall be satisfied by the issuance to the Sellers of Class A and Class B
Exchangeable Shares in the capital of ACTsub (the "Exchangeable Shares");
AND WHEREAS, in connection with the exchange of such Exchangeable Shares
into common shares in the capital of ACT, it is desirable that the holders of
Exchangeable Shares offer to ACT a call right with respect of such Exchangeable
Shares as set out herein;
AND WHEREAS, it was a condition of the entering into of the Reorganization
Agreement that this Agreement be entered into;
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this Agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. All capitalized terms unless otherwise defined herein, shall
have the meanings ascribed thereto in the Reorganization Agreement and the
Exchangeable Share Provisions.
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ARTICLE 2
ACT TO ACQUIRE EXCHANGEABLE SHARES
2.1 ACT Liquidation Call Right
(a) ACT shall have the overriding right (the "Liquidation Call Right"), in
the event of and notwithstanding the proposed liquidation, dissolution or
winding-up of ACTsub, to purchase from all but not less than all of the holders
(other than ACT) 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 ACT
of an amount, for each Exchangeable Share held, equal to the Current Market
Price of a share of ACT Common Stock on the last Business day prior to the
Liquidation Date multiplied by the Current ACT 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 ACT 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 ACT 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 ACT, each holder of Exchangeable
Shares shall be obligated to sell all the Exchangeable Shares held by such
holder to ACT on the Liquidation Date on payment by ACT to such holder of the
Liquidation Call Purchase Price.
(b) To exercise the Liquidation Call Right, ACT must notify in writing the
holders of the Exchangeable Shares of ACTOs intention to exercise such right at
least five (5) days before the Liquidation Date. If ACT exercises the
Liquidation Call Right, on the Liquidation Date ACT will purchase and the
holders will sell all of the Exchangeable Shares then outstanding for a price
equal to the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, ACT shall on the Business Day
immediately preceding the Liquidation Date, deliver to the holders of
Exchangeable Shares their proportionate part of the Liquidation Call Purchase
Price all of 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 exchange for the delivery by the holders 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 ACTsub and such additional
documents and instruments as the Acquiree may reasonably require. If ACT 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 ACTsub
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in connection with the liquidation, dissolution or windingup price otherwise
payable by ACTsub in connection with the liquidation, dissolution or winding up
of ACTsub pursuant to Article 4 of the Exchangeable Share Provisions.
2.2 ACT Redemption Call Right
(a) ACT shall have the overriding right (the "Redemption Call Right"),
notwithstanding the proposed redemption of the Exchangeable Shares by ACTsub
pursuant to either of Section 2.5 or Section 3.5 of the Exchangeable Share
Provisions, to purchase from all but not less than all of the holders of
Exchangeable Shares (other than ACT) on the Automatic Redemption Date all but
not less than all of the Exchangeable Shares held by each such holder on payment
by ACT to the holder of an amount, for each Exchangeable Share held, equal to
the Current Market Price of a shares of ACT Common Stock on the last Business
Day prior to the Automatic Redemption Date multiplied by the Current ACT 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 ACT 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
ACT Common Stock Equivalent, and (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 ACT, each holder of
Exchangeable Shares shall be obligated to sell all the Exchangeable Shares held
by such holder to ACT on the Automatic Redemption Date on payment by ACT to the
holder of the Redemption Call Purchase Price.
(b) To exercise the Redemption Call Right, ACT must notify in writing, the
holders of Exchangeable Shares, and ACTsub of ACTOs intention to exercise such
right at least thirty (30) days before the Automatic Redemption Date. If ACT
exercises the Redemption Call Right, on the Automatic Redemption Date ACT will
purchase and the holders will sell all of the Exchangeable Shares then
outstanding (other than shares held by ACT) for the Redemption Call Purchase
Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, ACT shall on the Business Day immediately
preceding the Automatic Redemption Date, deliver to the holders of Exchangeable
Shares their proportionate part of the Redemption Call Purchase Price all of
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 exchange for the delivery by the holders 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 ACTsub and such additional
documents and instruments as the Acquiree may reasonably require. If ACT does
not exercise the Redemption Call Right in the manner described above, on the
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Automatic Redemption Date the holders of the Exchangeable Shares will be
entitled to receive in exchange therefor the redemption price otherwise payable
by the Acquiree in connection with the redemption of the Exchangeable Shares
pursuant to Section 2.5 and/or Section 3.5 of the Exchangeable Share Provisions.
2.3 ACT Retraction Call Right
(a) ACT shall have the overriding right (the "Retraction Call Right")
notwithstanding the proposed redemption of Retracted Shares by ACTsub on the
Retraction Date, to purchase from the holder of the Retracted Shares on the
Retraction Date the Retracted Shares upon payment by ACT to the holder of a
Retracted Share an amount for each Retracted Share, equal to the Current Market
price multiplied by the Current ACT Common Stock Equivalent, in each case
determined on the Retraction Date. The payment shall be satisfied in full in
respect of such Retracted Shares by causing to be delivered to the holder (a)
such whole number of shares of ACT 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 ACT 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 ACT, the holder of the Retracted Shares shall be
obligated to sell to ACT, and ACT shall be obligated to purchase, the Retracted
Shares on the Retraction Date upon payment by ACT to such holder of the
Retraction Call Purchase Price.
(b) In order to exercise the Retraction Call Right, ACT shall advise in
writing the holders of the Exchangeable Shares its determination to do so (the
"ACT Call Notice") on or prior to the expiry of the third (3rd) Business Day
after the receipt by the Acquiree on the Retraction Request. If ACT delivers the
ACT Call Notice before the expiry of such three (3) Business Day period, the
Retraction Request shall thereupon be deemed only to be an offer by the holder
to sell the Retracted Shares to ACT. In such event, ACTsub shall not redeem the
Retracted Shares and ACT shall purchase from such holder and such holder shall
sell to ACT on the Retraction Date the Retracted Shares for the Retraction Call
Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Retraction Call Right, ACT shall on the Business Day immediately
preceding the Retraction Date, deliver to the holders of Exchangeable Shares
their proportionate part of the Retraction Call Purchase Price all of 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
exchange for the delivery by the holders 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 ACTsub and such additional documents and instruments
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as ACTsub may reasonably require. If ACT does not exercise the Retraction Call
Right in the manner described above, on the Retraction Date the holders of the
Exchangeable Shares will be entitled to receive in exchange therefor the
Retraction Price otherwise payable by ACTsub in connection with the Retraction
of the Exchangeable Shares pursuant to Article 5 of the Exchangeable Share
Provisions.
2.4 Consideration For Call Rights of ACT. The Retraction Call Right, the
Liquidation Call Right and the Redemption Call Right are granted to ACT by the
holders of Exchangeable Shares in consideration of the grant to such holders by
ACT of the Exchange Rights.
2.5 Economic Equivalence. The Board of Directors of ACTsub shall determine, in
good faith and in consultation with the Sellers (with the assistance of such
reputable and qualified independent financial advisors and/or other experts as
the Board 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 ACT and the holders of Exchangeable Shares, where
applicable.
2.6 Capital Reorganization of ACT. If at any time there is a Capital
Reorganization that is not an ACT Common Stock Reorganization, Right Offering or
a Special Distribution (as such terms are defined in the Exchangeable Share
Provisions), any holder of Exchangeable Shares whose Exchangeable Shares have
not been exchanged for ACT Common Stock in accordance with the provisions hereof
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 the provisions of the Exchange Agreement at any time after
the record date for such Capital Reorganization, in lieu of the ACT Common Stock
that they would otherwise have been entitled to receive pursuant to the
provisions hereof or thereof, the number of shares or other securities of ACT 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, they
had been the registered holder of the number of shares of ACT Common Stock to
which they were then entitled upon any exchange of their Exchangeable Shares
into shares of ACT 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 definition of Current ACT 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 their Exchangeable Shares pursuant to the provisions hereof, such number of
shares or other securities of ACT or of the body corporate resulting, surviving
or continuing from the Capital Reorganization, or other property.
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2.7 Restriction on Transfer. No transfer of Exchangeable Shares shall be
effective or shall be registered on the books of ACTsub without the transferee
of such shares becoming a party to this Agreement, which shall be effected by
such transferee executing a counterpart hereto.
2.8 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
2.9 Governing Law. This Agreement shall be governed by the laws of the Province
of Ontario.
2.10 Binding Effect. This Agreement shall be binding upon the parties hereto and
inure to the benefit of the parties, their respective heirs, administrators,
executors, successors and assigns.
2.11 Entire Agreement. This Agreement is the entire agreement of the parties
covering everything agreed upon or understood in the transaction. There are no
oral promises, conditions, representations, understandings, interpretations or
terms of any kind as conditions or inducements to the execution hereof.
2.12 Severability. If any part of this Agreement is deemed to be unenforceable
the balance of this Agreement shall remain in full force and effect.
2.13 Further Assurances. At any time, and from time to time, after the closing
date, each party will execute such additional instruments and take such action
as may be reasonably requested by the other party to confirm or perfect title to
any property transferred hereunder or otherwise to carry out the intent and
purposes of this Agreement.
2.14 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):
To ACT and Applied Cellular Technology, Inc.
ACTsub 400 Royal Palm Way
Suite 410
Palm Beach, FL
33480, U.S.A.
Fax No. (561) 366-0002
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To Drummer: Drummer Enterprises Ltd.
c/o Del Industrial Metals Inc.
43 Bethridge Road
Rexdale, Ontario M9W 1M6
Attention: Mr. J. Arthur Jobin
Fax No. (416) 741-0250
To Morstar: Morstar Holdings Ltd.
c/o Harris Chevrolet Oldsmobile
230 Main Street
Selkirk, Manitoba R1A 1R9
Attention: Mr. Bruce Harris
Fax No. (204) 785-2076
To Scozul and/or Scott: Scozul Enterprises Ltd.
and James Scott
4710 St. Clair Road
Stoney Point, Ontario N0R 1N0
Attention: Mr. James Scott
Fax No. (519) 944-9928
with copies to: Miriam Kavanagh
Nobbs, Woods & Clark
70 University Avenue
Suite 250
Toronto, Ontario M5J 2M4
Fax No.(416) 977-2895
with copies to: Ann Watterworth
Cassels Brock & Blackwell
Suite 2100
40 King Street West
Toronto, Canada
M5H 3C2
Fax No. (416) 360-8877
and to: Paul D. Creme, Esq.
Merra, Kanakis, Creme & Mellor, P.C.
60 Main Street
Nashua, NH 03060
Fax No. (603) 883-0750
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
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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.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
APPLIED CELLULAR TECHNOLOGY, INC.
Per: --------------------------------
Garrett A. Sullivan
Its duly authorized President
DRUMMER ENTERPRISES LTD.
Per: --------------------------------
c/s
Per: --------------------------------
MORSTAR HOLDINGS LTD.
Per: --------------------------------
c/s
Per: --------------------------------
SCOZUL ENTERPRISES LTD.
Per: --------------------------------
c/s
Per: --------------------------------
ACT-GFX CANADA, INC.
Per: --------------------------------
c/s
Per: --------------------------------
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SIGNED, SEALED AND DELIVERED )
in the presence of: )
)
- ----------------------------- ) --------------------------------------
Witness ) James D. Scott
Exhibit 99.6
SHAREHOLDERS AGREEMENT
THIS AGREEMENT is entered into this 30th day of June 1998 by and among
Applied Cellular Technology, Inc. ("ACT"), a Missouri corporation, ACT-GFX
Canada, Inc. ("ACTsub"), an Ontario corporation, Scozul Enterprises Ltd.
("Scozul"), an Ontario Corporation, James D. Scott ("Scott") and Ground
Effects Ltd. (the "Corporation").
RECITALS
WHEREAS ACTsub is the registered holder of a majority of the issued and
outstanding shares in the capital of the "Corporation;
AND WHEREAS Scozul is the registered holder of certain of the issued and
outstanding shares in the capital of the Corporation (the "Scozul Shares");
AND WHEREAS pursuant to an option agreement dated the date hereof between
the Corporation and Scott (the "Option Agreement"), Scott has an option (the
"Option") to acquire certain of the issued and outstanding shares in the capital
of the Corporation (the "Optioned Shares");
AND WHEREAS if the Optioned Shares were issued to Scott, the Optioned
Shares together with the Scozul Shares would represent twenty percent (20%) of
the issued and outstanding shares in the capital of the Corporation;
AND WHEREAS the parties desire to enter into an agreement whereby Scott
will have certain rights to put his shares in the Corporation to ACTsub;
AND WHEREAS the parties desire to enter into a shareholders agreement to
address the terms and conditions pursuant to which Scott and Scozul may elect,
or may be required, to dispose of their shares in the capital of Corporation
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>
ARTICLE 1
PUT
1.1 At any time following December 31, 2002, Scozul, or if Scott has exercised
his Option pursuant to the Option Agreement, Scott and Scozul jointly, (Scozul,
or Scott and Scozul jointly, as applicable are in this Article 1 referred to as
the "Seller") shall be entitled to send a notice in writing (the "Notice") to
each of ACT and ACTsub requiring ACTsub or ACT, as Seller may elect, (ACTsub or
ACT as applicable are referred to in this Article 1 as the "Buyer") to purchase
all, but not less than all, of the shares in the capital of the Corporation
owned by Seller (the "Purchased Shares") and upon receipt of such notice Seller
shall sell and Buyer shall purchase from Seller the Purchased Shares upon the
terms and conditions hereinafter set forth.
1.2 The purchase price for the Purchased Shares (the "Purchase Price") shall be
equal to the greater of (i) One Million Three Hundred Twenty Thousand Dollars
($1,320,000) and (ii) the average of four (4) times twenty percent (20%) of the
audited EBIT for the Corporation for each of the two (2) consecutive calendar
years prior to the year the Notice is sent.
For the purposes of this agreement, "EBIT" for any financial year of the
Corporation shall mean the net income (excluding extraordinary gains or losses)
of the Corporation before federal or provincial income taxes, depreciation and
management fees as defined in the Reorganization Agreement, all as determined in
accordance with Canadian accepted accounting principles, consistently applied.
1.3 The Purchase Price shall be paid in full by the Buyer by delivery of ACT
shares with the price per ACT Share being the closing price of ACT Shares as
listed in the Wall Street Journal on the day on which the Notice by Seller is
delivered by the Seller.
1.4 The closing of the transaction of purchase and sale contemplated hereby
shall take place at the office of the Corporation at 10:00 a.m. (the "Time of
Closing") on the date which is thirty (30) days after receipt by the Buyer of
the Notice (the "Closing Date").
1.5 The closing of the transaction set out herein shall be conditional upon the
following:
(i) all loans made by the Corporation in favour of Seller shall be
satisfied on the Closing Date and any amounts due and owing to Seller
as part of the Purchase Price hereunder shall be applied first in
payment and satisfaction of any such loans; and
(ii) any options to purchase shares in the capital of the Corporation
outstanding to Seller at the time of Closing shall be cancelled and
Seller shall deliver to the Corporation an acknowledgment and release
of any such options.
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In the event of a termination for cause of Scott pursuant to the employment
agreement entered into between Scott and the Corporation dated the date hereof
(the "Employment Agreement"), Scozul, or Scozul and the Employee jointly, as
applicable, shall be deemed to have exercised the put set out above in such an
event. For the purposes of determining the purchase price in such event, the
applicable period shall be the period from the date hereof to the date of
Scott's termination, in the event that such termination for cause occurs at a
date within five (5) years of the date hereof.
In the event of the termination of Scott's employment pursuant to the Employment
Agreement, Scozul, or Scozul and Scott jointly, as applicable shall be entitled
at their option to exercise the put set out in this Article 1 immediately upon
such termination or at any time thereafter, whether or not they would otherwise
be entitled to exercise such put. For the purposes of calculating the purchase
price pursuant to the put, the period to be considered, if such put is exercised
prior to the expiry of five (5) years from the date hereof, shall be such period
from the date hereof to the date of the exercise of the put. All other
provisions of the put shall remain in full force and effect.
ARTICLE TWO
RIGHT OF FIRST REFUSAL
2.1 Neither of ACTsub, Scozul, nor Scott (in this Article 2 referred to as a
"Shareholder") shall entertain offers for the purchase of any of their shares in
the capital of the Corporation nor make agreements for the sale, transfer or
assignment or such Shares except upon compliance with this Article Two and
subject to the terms and conditions hereinafter set forth:
(i) no sale, transfer or assignment of Shares shall be considered by a
Shareholder (the "Selling Shareholder") unless he or it shall have
first received a bona fide offer (the "Third Party Offer") in writing
from a third party (the "Third Party") dealing at arm's length with
the Selling Shareholder, which Third Party shall be a responsible
purchaser of good business reputation, to purchase all of the Shares
of the Selling Shareholder;
(ii) if the conditions of paragraph 2.1(i) are satisfied and the Selling
Shareholder is prepared to accept the Third Party Offer, the Selling
Shareholder shall, within ten (10) days of the receipt of such offer,
deliver a copy of the Third Party Offer, together with the Selling
Shareholder's offer (the "Selling Shareholder's Offer") to sell all of
the Shares of the Selling Shareholder to the other Shareholder (for
the purposes of this agreement, Scozul and Scott are considered as one
Shareholder) upon the same terms and conditions as are contained in
the Third Party Offer;
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(iii)the Shareholder receiving the Selling Shareholder's Offer shall have
the first right and option to purchase the Shares to be sold by the
Selling Shareholder for a period of thirty (30) days from the date of
receipt of the Selling Shareholder's Offer such right and option to be
exercised before the expiration of such thirty (30) days by notice in
writing;
(iv) if the other Shareholder accepts the Selling Shareholder's Offer
within the time stipulated, he or it shall purchase all of the Shares
owned by the Selling Shareholder upon the same terms and conditions as
are contained in the Third Party Offer;
(v) if the other Shareholders do not accept the Selling Shareholder Offer
within the time stipulated in paragraph 2.1(iii) hereof or the Selling
Shareholder shall accept the offer of, and complete the transaction
with, the Third Party in accordance with the Third Party Offer.
2.2 If the completion of any sale of Shares to a Third Party in accordance with
this Article Two would result in the said Third Party acquiring more than twenty
per cent (20%) of the Shares, each of the Shareholders receiving the offer of
the Selling Shareholder (hereinafter referred to as the "Offeree") shall have
the further right, to be exercised by notice in writing to the Selling
Shareholder within the time limited for the acceptance of the Selling
Shareholder's Offer, to require the Selling Shareholder to sell to the Third
Party all but not less than all of the Shares owned or controlled by the Offeree
upon the same terms and conditions as are contained in the Third Party Offer. If
the Offeree exercises such right, the Selling Shareholder shall not complete the
sale of its Shares unless all of the Shares of the Offeree who shall have so
exercised such right are also sold to the Third Party on the same terms and
conditions as are contained in the Third Party Offer.
2.3 Notwithstanding the provisions of Section 2.1, ACTsub shall be entitled to
sell, transfer or assign its shares in the capital of the Corporation to any
other member of the ACT group of companies provided such transferee becomes a
party to this Shareholders Agreement by signing a counterpart hereof (a copy of
each signed counterpart shall be delivered to each party hereto).
ARTICLE 3
PUT/CALL UPON DEATH OF SCOTT
3.1 Upon the death of Scott, the estate of Scott collectively with Scozul shall
be entitled immediately to exercise the put option contained in Article 1
hereof, upon the same terms and conditions set out therein.
3.2 If the estate of Scott has not exercised the put option set out in Section
3.1 above within sixty (60) days of the death of Scott, ACT or ACTsub as they
may elect (in this Article 3 called the "Buyer") shall be entitled to send a
notice in writing to the estate of Scott and Scozul (in this Article 3 Scozul
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and the estate of Scott are collectively called the "Seller") requiring the
Seller to sell to the Buyer all of the shares in the capital of the Corporation
owned by the Seller (hereinafter in this Article called the "Purchased Shares");
and upon receipt of such notice the Seller shall sell to the Buyer and the Buyer
shall purchase from the Seller the Purchased Shares upon the terms and
conditions hereinafter set forth in Sections 1.2 through 1.4.
3.3 In the event of the exercise of the call right set out in this Section 3.2
by the Buyer, the closing of the purchase and sale shall be conditional upon:
(a) all loans made by the Corporation in favour of the Seller or Scott,
being satisfied on the Closing Date and the amounts due and owing to
Scott or Scozul or Scott's estate as part of the Purchase Price shall
be applied first to payment and satisfaction of any such loans in
favour of Scott or Scozul; and
(b) any options to purchase shares in the capital of the Corporation in
favour of Scott which have not been exercised as at the death of
Scott, shall be cancelled and the estate of Scott shall deliver to the
Corporation an acknowledgment and release of any such options.
ARTICLE 4
NO CAPITALIZATION
4.1 During the period that Scozul, and, if applicable Scott remains a
shareholder of the Corporation, ACT and ACTsub hereby agree that neither of them
shall take any action or cause any action to be taken which would result in the
issuance of any shares, agreements, options or rights or privileges, capable to
becoming an agreement, including convertible securities, warrants or convertible
obligations of any nature for the purchase description, allotment or issuance of
any unissued shares or other securities of the Corporation which would cause the
aggregate of shares in the capital of the Corporation issued to Scozul and
shares under option to Scott to be less than twenty percent (20%) of the issued
and outstanding shares in the capital of the Corporation.
ARTICLE 5
DRAG ALONG RIGHTS
5.1 In the event that ACTsub or its successor in interest receives an offer in
writing by a third party dealing at arm's length with ACTsub, and provided that
Scozul or, as applicable, Scozul and Scott have not exercised their right of
first refusal pursuant to Article 2 hereof, ACTsub may, by notice in writing
require Scozul or Scozul and Scott, as applicable, to sell all but not less than
all of their shares in the capital of the Corporation to such third party
purchasers upon the same terms and conditions as such sale shall take place with
ACTsub. If Scott has not exercised the Option, at the time of such sale, such
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option shall be automatically exercised such that at the time of such third
party sale, Scozul and Scott collectively shall own 20% of the issued and
outstanding shares of each class in the capital of the Corporation.
ARTICLE 6
ENCUMBRANCES
6.1 Scott hereby represents and warrants to ACT and ACTsub and acknowledges that
ACT and ACTsub are relying upon such representation and warranty, that all of
the registered and beneficial shareholders in the capital of Scozul are as
follows: [Set out shareholders]. Scott hereby agrees that the voting control of
Scozul shall not be changed, directly or indirectly whether by operation of law
or otherwise from that as set out in this Section 6.1, without the prior written
consent of ACT. If such prior consent is not contained and the control of Scozul
changes as aforesaid, the call option granted to ACT and ACTsub upon the death
of Scott as set forth in Article 3 hereof shall immediately apply mutatis
mutandis.
6.2 Scott and Scozul hereby represent and warrant to ACT and ACTsub and
acknowledge that ACT and ACTsub are relying upon such representation and
warranty, that all of the issued and outstanding shares in the capital of the
Corporation of which Scozul is the registered holder and option agreement and
the option rights pursuant thereto which are held by Scott are free and clear of
all mortgages, charges, pledges or other encumbrances and Scott and Scozul
covenant and agree that all shares in the capital of the Corporation owned by
Scozul and owned by Scott any time in the future, and the option agreement and
the option rights represented thereby shall continue to be owned beneficially by
Scott and Scozul as applicable and not as a nominee of any other party, free and
clear of all mortgages, charges, pledges or other encumbrances during the term
of this agreement.
ARTICLE 7
GENERAL
7.1 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given if delivered in person or if sent by
prepaid first class registered or certified mail, return receipt requested, fax
or recognized courier then upon receipt thereof to the following addresses:
To ACT and: Applied Cellular Technology, Inc.
ACTsub 400 Royal Palm Way
Suite 410
Palm Beach, FL
33480, U.S.A.
Fax No. (561) 366-0002
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To Scozul and Scozul Enterprises Ltd.
to Scott: and James Scott
4710 St. Clair Road
Stoney Point, Ontario N0R 1N0
Attention: Mr. James Scott
To the Corporation: Ground Effects Ltd.
2875 St. Etienne Blvd.
Windsor, Ontario N8W 5B1
Attention: The President
with copies to: Ann Watterworth
Cassels Brock & Blackwell
Suite 2100
40 King Street West
Toronto, Canada
M5H 3C2
Fax No. (416) 360-8877
with copies to: Paul D. Creme, Esq.
Merra, Kanakis, Creme & Mellor, P.C.
60 Main Street
Nashua, NH 03060
Fax No. (603) 883-0750
7.2 For the purpose of this Agreement, Scott and Scozul shall be treated as one
shareholder.
7.3 Time shall be of the essence of this Agreement.
7.4 This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Province of Ontario, and the laws of Canada
applicable therein.
7.5 This Agreement and the rights and obligations hereunder shall enure to the
benefit of and be binding upon the parties hereto and their respective
successors. Except as contemplated herein, neither this Agreement, nor the
rights of the parties hereunder shall be assignable, except with the written
consent of the parties hereto.
7.6 This Agreement constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof and supersedes prior agreements relating
thereto.
7.7 Each Party hereto hereby agrees that upon the written request of any other
Party hereto, it will do all such acts and execute all such further documents,
conveyances, deeds, assignments, transfers and the like, and will cause the
doing of all such acts and will cause the execution of all such further
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documents as are within its power to cause the doing or execution of, as any
other Party hereby may from time to time reasonably request be done and/or
executed as may be required to consummate the transactions contemplated hereby
or as may be necessary or desirable to effect the purpose of this Agreement or
any document, agreement or instrument delivered pursuant hereto and to carry out
their provisions or to better or more properly or fully evidence or give effect
to the transactions contemplated hereby, whether before or after the Closing.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
APPLIED CELLULAR TECHNOLOGY, INC.
Per: -----------------------------
Garrett A. Sullivan
Its duly authorized President
ACT-GFX CANADA, INC.
Per: -----------------------------
c/s
Per: -----------------------------
SCOZUL ENTERPRISES LTD.
Per: -----------------------------
c/s
Per: -----------------------------
GROUND EFFECTS LTD.
Per: -----------------------------
c/s
Per: -----------------------------
SIGNED, SEALED AND DELIVERED )
in the presence of: )
)
- ---------------------------- ) -----------------------------------
Witness ) James D. Scott
