<PAGE>
As filed with the Securities and Exchange Commission on December 24, 1998
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PRI AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2495703
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
805 MIDDLESEX TURNPIKE
BILLERICA, MASSACHUSETTS 01821-3986
(978) 670-4270
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
MITCHELL G. TYSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRI AUTOMATION, INC.
805 MIDDLESEX TURNPIKE
BILLERICA, MASSACHUSETTS 01821-3986
(978) 670-4270
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
COPIES TO:
ROBERT L. BIRNBAUM, ESQUIRE
WILLIAM R. KOLB, ESQUIRE
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 832-1000
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. //
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. //
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. //
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. //
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Amount Maximum Maximum
Title of Each Class of to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share(1) Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,490,516 shares $22.32 $55,588,318 $15,454
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</TABLE>
(1) Estimated solely for the purpose of determining the registration fee. In
accordance with Rule 457(c) under the Securities Act of 1933, the above
calculation is based on the average of the high and low sale prices
reported in the consolidated reporting system of the Nasdaq National Market
on December 17, 1998.
-------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting any offer to buy these
Securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1998
PROSPECTUS
PRI AUTOMATION, INC.
2,490,516 SHARES OF COMMON STOCK
--------------------
This is an offering of shares of Common Stock of PRI Automation, Inc. We
are offering up to 2,490,516 shares of Common Stock to the holders of
Exchangeable Shares of Promis Systems Corporation Ltd., a Canadian
corporation, and to the holder of a warrant to purchase shares of Common
Stock. Promis will issue the Exchangeable Shares in exchange for outstanding
Promis Common Shares in connection with the proposed combination of PRI and
Promis. Holders of Exchangeable Shares may then exchange one Exchangeable
Share for one share of Common Stock, and in some cases we may redeem each
Exchangeable Share for one share of Common Stock. We describe the process by
which Exchangeable Shares may be exchanged for Common Stock on page 24 of
this Prospectus under the heading "Plan of Distribution."
Holders of Exchangeable Shares may exchange their Exchangeable Shares for
shares of our Common Stock immediately upon the completion of the combination of
PRI and Promis or at a later time. We are offering the shares of our Common
Stock on a continuous basis pursuant to Rule 415 under the Securities Act of
1933 only during the period when the registration statement relating to this
Prospectus is effective. We will bear the registration costs incurred in
connection with this offering.
Our Common Stock is traded on the Nasdaq National Market under the
symbol "PRIA." On December 22, 1998, the closing price of our Common Stock,
as reported on the Nasdaq National Market, was $24.44 per share.
--------------------
INVESTING IN THE SHARES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is January __, 1999.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, current reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). You may read and copy any of our SEC filings at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
call the SEC at 1-800-SEC-0330 for further information about the Public
Reference Room. Our SEC filings are also available to the public on the SEC's
website at http://web.sec.gov.
The SEC allows us to "incorporate by reference" information from certain
of our other SEC filings. This means that we can disclose information to you
by referring you to those other filings, and the information incorporated by
reference is considered to be part of this prospectus. In addition, certain
information that we file with the SEC after the date of this prospectus will
automatically update, and in some cases supersede, the information contained
or otherwise incorporated by reference in this prospectus. We are
incorporating by reference the information contained in the following SEC
filings:
- our Annual Report on Form 10-K for the fiscal year ended September 30,
1998;
- the description of our Common Stock contained in the Registration
Statement on Form 8-A (as filed on October 12, 1994), including any
amendment or report filed for the purpose of updating such description;
and
- any filings that we make with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 (1) subsequent to the
initial filing of this prospectus and prior to the date it is declared
effective and (2) subsequent to the date of this prospectus and prior
to the date of termination of this offering. Information in these
filings will be incorporated as of the filing date.
You may request copies of the filings, at no cost, by writing to or
telephoning our Chief Financial Officer as follows:
PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, Massachusetts 01730
Telephone: (978) 670-4270
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC under the Securities Act of 1933. This prospectus does not
contain all of the information contained in the registration statement. For
further information about us and our Common Stock, you should read the
registration statement and the exhibits filed with the registration statement.
2
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and in the documents incorporated by
reference into this Prospectus constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Further, any statements contained in or incorporated into this Prospectus
that are not statements of historical fact may be deemed to be forward-looking
statements. In particular, statements in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" relating to the Company's
shipment level and profitability, and the sufficiency of capital to meet working
capital and capital expenditures requirements, may be forward-looking
statements. Without limiting the foregoing, the words "expect," "anticipate,"
"plan," "believe," "seek," "estimate," "internal," "backlog" and similar
expressions are intended to identify such forward-looking statements. Such
statements are not guarantees of future performance, and involve certain risks,
uncertainties and assumptions that could cause the Company's future results to
differ materially from those expressed in any forward-looking statements made by
or on behalf of the Company. Many of such factors are beyond the Company's
ability to control or predict. Readers are accordingly cautioned not to place
undue reliance on forward-looking statements. The Company disclaims any intent
or obligation to update publicly any forward-looking statements whether in
response to new information, future events or otherwise. Important factors that
may cause the Company's actual results to differ from such forward-looking
statements include, but are not limited to, the risk factors discussed below.
RISK FACTORS
Investing in shares of our Common Stock involves significant risks. Because
you could lose the entire value of your investment, you should carefully
consider the following risks before deciding to invest in our Common Stock. We
are uncertain about the future of our business and, in preparing this document,
have made certain assumptions and projections. We generally use words like
"expect," "believe" and "intend" to indicate these assumptions and projections.
Our assumptions and projections could be wrong for many reasons, including the
reasons discussed in this section. We do not promise to notify you if we learn
that our assumptions or projections in this Prospectus are wrong.
TAXABILITY OF THE EXCHANGE If you exchange your Exchangeable Shares for
shares of our Common Stock, you may be required
to pay tax on any gain you have under the laws
of Canada and the United States. Your tax
consequences can vary depending on:
- where you are a resident for tax purposes
- whether you exchange your Exchangeable Shares
by way of redemption or exchange
- the holding period for your Exchangeable Shares
- the percentage of the total number of
outstanding Exchangeable Shares held by Subco
immediately after the exchange
CANADIAN TAX CONSIDERATIONS. If you are a
Canadian resident holding Exchangeable Shares as
capital property and deal at arm's length with
and are not otherwise affiliated with us, and
Exchangeable Shares are redeemed or retracted,
you will generally be deemed to have received a
dividend equal to the amount paid on the
redemption or retraction less the paid-up capital
of the Exchangeable Shares. You will also
generally be deemed to have realized a capital
gain (or capital loss) to the extent that your
proceeds of disposition (net of reasonable costs
of disposition) exceed (or are less than) your
adjusted cost base for your shares. If you
otherwise exchange your Exchangeable Shares for
shares of our Common Stock, you will generally be
considered to have realized a capital gain (or
capital loss) equal to the amount, if any, by
which the proceeds of disposition (net of
reasonable costs of disposition) exceed (or are
less than) your adjusted cost base for the
Exchangeable Shares exchanged.
3
<PAGE>
U.S.TAX CONSIDERATIONS. Except in limited
circumstances, if you are a "United States
person" for United States federal income tax
purposes, you will generally recognize a gain or
loss when you exchange your Exchangeable Shares
for shares of our Common Stock. Your gain or loss
will be equal to the difference between the fair
market value of the shares of Common Stock you
receive in the exchange and your basis in the
Exchangeable Shares exchanged. The gain or loss
will generally be a capital gain or loss, except
that, with respect to any declared but unpaid
dividends on the Exchangeable Shares, you may
recognize ordinary income. A capital gain or loss
will be a long-term capital gain or loss if your
holding period for the Exchangeable Shares is
more than one year at the time of the exchange.
Under certain limited circumstances, the exchange
of Exchangeable Shares for shares of our Common
Stock may be characterized as a tax-free
exchange. In particular, if you exchange your
Exchangeable Shares for shares of our Common
Stock pursuant to the Redemption Call Right or
Liquidation Call Right (each as defined below),
or at a time when our wholly owned subsidiary,
1235949 Ontario, Inc., an Ontario corporation (or
Subco), owns at least 80 percent of the issued
and outstanding Exchangeable Shares, the exchange
may be tax-free.
HOLDING AND DISPOSITION
OF COMMON STOCK CANADIAN TAX CONSIDERATIONS. If you are a Canadian
resident, dividends that you receive (or are
deemed to receive) on shares of our Common Stock
must be included in your income. If you are an
individual, the dividends will not be subject to
the gross-up and dividend tax credit rules that
normally apply to taxable dividends received from
taxable Canadian corporations. If you are a
corporation, the dividends will not be deductible
in computing your taxable income. In certain
circumstances you may be entitled to a foreign
tax credit for any U.S. withholding tax paid on
the dividends, subject to detailed rules in the
Canadian Tax Act, including recently proposed
amendments. Your cost amount for shares of our
Common Stock that you receive on retraction,
redemption or exchange of an Exchangeable Share
will in general be equal to the fair market value
of the shares of our Common Stock at the time of
such event. When you dispose of shares of our
Common Stock held by you as capital property, you
will generally recognize a capital gain (or
capital loss) equal to the amount, if any, by
which the proceeds of disposition (net of
reasonable costs of disposition) exceed (or are
less than) your adjusted cost base of the shares
of our Common Stock.
UNITED STATES TAX CONSIDERATIONS. If you are a
Non-U.S. Holder, dividends that you receive with
respect to shares of our Common Stock generally
will be subject to United States withholding tax
at a rate of 30 percent. This rate of withholding
tax may be reduced if you are eligible for the
benefits of an income tax treaty (generally 15
percent on dividends paid to residents of Canada
under the Tax Treaty). If you are a Non-U.S.
Holder, you will generally not be subject to
United States federal income tax on any gain that
you recognize when you sell or exchange shares of
our Common Stock, unless such gain is effectively
connected with your conduct of a United States
trade or business or, if you are an individual,
you are present in the United States for 183 days
or more and certain other conditions are
satisfied.
WE STRONGLY URGE YOU TO CONSULT WITH YOUR TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF
THE EXCHANGE OF YOUR EXCHANGEABLE SHARES FOR
SHARES OF OUR COMMON STOCK. See "Plan of
Distribution--Income Tax Considerations."
FOREIGN PROPERTY/QUALIFIED
INVESTMENT ISSUES FOR
CANADIAN SHAREHOLDERS If you hold your Exchangeable Shares through a
trust governed by a registered retirement savings
plan, a registered retirement income fund or a
deferred profit sharing plan, you should know
that the Exchangeable Shares will be "qualified
investments" under the Canadian Tax Act as long
as the Exchangeable Shares are listed on a
prescribed stock exchange (which currently
includes the Toronto Stock Exchange). If you are
such a holder, your shares of our Common Stock
will also be "qualified investments" under the
Canadian Tax Act, as long as those shares are
listed on a prescribed stock exchange (which
currently includes Nasdaq). The Exchangeable
Shares will not be "foreign property" under the
Canadian Tax Act, as long as those shares are
listed on a prescribed stock exchange in Canada.
Our Common Stock will always be "foreign
property" under the Canadian Tax Act.
Accordingly, if you are
4
<PAGE>
such a holder, you should consult your own
tax advisors prior to exchanging the trust's
Exchangeable Shares for shares of our Common
Stock. Investing in our Common Stock may
not be an acceptable investment for such
entities or may subject such entities to
additional taxes, fees or expenses.
DIFFERENCES IN CANADIAN
AND U.S. TRADING MARKETS The Exchangeable Shares are listed only on the
Toronto Stock Exchange, and our Common Stock is
traded only on the Nasdaq National Market. We
do not intend to list either the Exchangeable
Shares or our Common Stock on any other stock
exchange or market in the United States or
Canada. Accordingly, the trading price of the
Exchangeable Shares will be based upon the
market for that stock on the Toronto Stock
Exchange, and the trading price for our Common
Stock will be based upon the market for that
stock on the Nasdaq National Market. We cannot
assure you that the market price for our Common
Stock will be the same as, or even similar to,
the market price for the Exchangeable Shares.
CYCLICALITY OF
SEMICONDUCTOR INDUSTRY Our business depends heavily upon capital
expenditures by semiconductor manufacturers,
particularly manufacturers that are opening or
expanding semiconductor fabrication facilities,
or "fabs." Whether these manufacturers undertake
capital expenditures in turn depends upon market
demand for their products and products that
contain semiconductors. Historically, the
semiconductor industry has been highly cyclical
and there have been periods of oversupply in the
market for semiconductors. Oversupply has caused
significantly reduced demand for capital
equipment, including systems such as ours. We
believe that the markets for newer generations
of semiconductors will experience similar
fluctuations, and that the recent high rate of
technical innovation and resulting improvements
in the performance and price of semiconductor
devices, which have driven much of the demand
for our products, could slow or encounter
limits.
In the last year, the semiconductor industry has
experienced a significant downturn, which has
seriously harmed our ability to sell our
systems. Several of our customers have
announced reductions in their planned capital
expenditures, including expenditures for the
construction or expansion of fabs. The recent
downturn in the Asian markets has also affected
demand for semiconductor manufacturing
equipment, including our systems. These and
other factors have significantly reduced our
revenues and profitability in fiscal 1998. Our
total revenues for fiscal 1998 were $178.2
million, compared with total revenues of $213.6
million in fiscal 1997. In fiscal 1998, we
incurred a net loss of $23.9 million, compared
with net income of $26.6 million in fiscal 1997.
In July 1998, we announced a restructuring and
cost reduction plan and reduced our workforce by
approximately 15%. In fiscal 1998, we recorded a
pre-tax restructuring charge against earnings of
$5.6 million, including severance costs, costs
related to reduction in facilities and other
restructuring
5
<PAGE>
costs. In fiscal 1998, we also recorded a pre-tax
charge against earnings of $14.0 million for the
write-down of inventories to their net realizable
value and increases in the provision for warranty.
Any lengthy extension of the reduced demand for
semiconductor automation equipment would seriously
harm sales of our systems. If we take additional
cost-cutting measures in response to the downturn in
the semiconductor industry, we may be unable to
continue to invest in marketing, research,
development and engineering at the levels we think
necessary to maintain our competitive position. For
more information, see "--Management of Growth in
Light of Fluctuating Demand."
LENGTHY SALES CYCLE Our systems often have a lengthy sales cycle. Before
buying one of our systems, a prospective customer
must generally decide to upgrade or expand existing
facilities or to construct new facilities. These
undertakings are major decisions for most
prospective customers and typically involve
significant capital commitments and lengthy
evaluation and approval processes. In addition,
downturns in the semiconductor industry may cause
prospective customers to postpone decisions
regarding major capital expenditures, including
purchases of our systems. As a result of the length
of our typical sales cycle, we have difficulty
anticipating the timing and amount of specific
sales. Furthermore, we may spend significant amounts
of money and effort with no assurance that we will
make a sale.
SIGNIFICANT FLUCTUATIONS
IN OPERATING RESULTS Many factors may cause our operating results to
fluctuate significantly. Some of these factors are:
- the timing of significant orders
- the gain or loss of any significant customer
- new product announcements and releases by us
or our competitors
- order cancellations and shipment rescheduling or
delays
- patterns of capital spending by our customers
- market acceptance of new and enhanced versions
of our products
- changes in the pricing and the mix of products
we sell
- cyclicality in the semiconductor industry and
the markets served by our customers
- the timing of any acquisitions and related costs
In addition, the downturn in the Asian markets,
particularly in Korea, and uncertainties in demand
for automation equipment as the semiconductor
industry moves from 200mm to 300mm wafer processing
equipment have caused and may cause customers to
delay or cancel orders. For more information, see
"--Risks Associated With Asian Markets" and "--Delay
in Transition to 300mm Wafer Technology."
We derive a substantial portion of our revenues from
the sale of a relatively small number of our
systems. The purchase price of our systems generally
ranges from $3,000,000 to $15,000,000, and we
usually take more than one or two fiscal quarters to
deliver our systems. As a result, any delay in the
recognition of revenue for a single system could
harm our results for a given
6
<PAGE>
accounting period. If we delay a shipment near the
end of a fiscal period because, for example, the
customer reschedules or cancels its order or because
we encounter unexpected manufacturing difficulties,
our sales in that fiscal period could fall
significantly below our expectations. This could
seriously harm our business.
Our operating results also fluctuate because our
gross margins vary. Our gross margins vary for a
number of reasons, including:
- the mix of products we sell
- the average selling prices of products we sell
- the costs to manufacture, market, service and
support our new products and enhancements
- the costs to customize our systems
- our efforts to enter new markets
We typically charge a fixed price for our systems.
As a result, if the costs we incur in performing a
contract exceed our expectations, we generally
cannot pass those costs on to our customer. In
addition, we continue to invest in research and
development, capital equipment and extensive ongoing
customer service and support capability worldwide.
These investments create significant fixed costs
that we may be unable to reduce rapidly if we do not
meet our sales goals. Moreover, if we lack a
significant backlog of orders for an extended period
of time, we may have difficulty planning our future
production and inventory levels, which could also
cause fluctuations in our operating results.
As a result of these factors, we believe that
period-to-period comparisons of our revenues and
results of operations are not necessarily
meaningful. You should not rely on these comparisons
as indicators of our future performance.
CUSTOMER CONCENTRATION Historically, we have derived a significant portion
of our revenues from sales to a limited number of
customers. We expect this trend to continue for the
foreseeable future. In fiscal 1996, 1997 and 1998,
sales to our three largest customers accounted for
40%, 47% and 41% of our total sales,
respectively. In those years, one customer, Intel
Corporation, accounted for 29%, 36% and 22% of
our net revenue, respectively. Our largest
customers can change from year to year, as customers
complete large fabs and initiate new projects.
None of our customers has any long-term obligation
to continue to purchase our products or services,
and any customer could reduce or cease ordering our
products or services. We believe that sales to some
of our customers will decrease in the near future as
they complete their current purchases for new or
expanded fabs. When a customer cancels an order, our
sales contract generally allows us to recover our
out-of-pocket expenses and a portion of our
anticipated profits from the sale. Because of the
long sales cycle for our products, we may have
difficulty in quickly replacing orders that our
customers cancel or reduce. Our failure to obtain
large orders from new or existing customers could
seriously harm our business. In the past, our
customers have sometimes failed to place orders we
expected or have delayed or canceled
7
<PAGE>
delivery schedules as a result of changes in their
requirements. Order deferrals or cancellations can
seriously harm our business.
RISKS ASSOCIATED WITH
ASIAN MARKETS The current economic downturn in certain Asian
countries has adversely affected, and could continue
to adversely affect, the worldwide semiconductor
industry and our business. According to industry
analysts, as a result of the recession in Japan, as
well as currency fluctuations and other problems in
other Asian countries, Asian consumers have slowed
purchases of personal computers, cellular phones and
other products that use semiconductors. The
reduction in demand for semiconductors has led and
could continue to lead semiconductor manufacturers,
both in Asia and the United States, to build fewer
new fabs and undertake fewer capital improvement
projects in their existing fabs. As a result, we
have experienced, and could continue to experience,
delays or cancellations of orders from our
customers. Such delays or cancellations could
seriously harm our business.
Despite the financial uncertainty in these Asian
countries, we believe that our continued presence in
Asian markets will be important to our long-term
future financial performance. Accordingly, we expect
to invest significant resources in increasing our
presence in Asia. These markets, which include
Korea, Taiwan, Singapore, China and, most
significantly, Japan, represent a substantial
percentage of the worldwide semiconductor
manufacturing capacity. In the Japanese market
(including fabs operated outside Japan by Japanese
semiconductor manufacturers), we may suffer from
more disadvantages than our Japanese competitors,
many of whom have longstanding collaborative
relationships with Japanese and other Asian
semiconductor manufacturers. Accordingly, we may be
unable to increase sales in the Asian semiconductor
markets. For more information, see "--International
Operations" and "--Competition."
DELAY IN TRANSITION TO
300MM WAFER TECHNOLOGY Currently, the most widely used semiconductor
manufacturing process handles 200mm semiconductor
wafers. Industry analysts expect that, in order to
increase manufacturing efficiencies and reduce
costs, semiconductor manufacturers will begin using
300mm wafers. We believe that the expected
transition to 300mm manufacturing technology
represents an important opportunity for us because
customers will need to build entirely new fabs and
develop entirely new process tools and automation
systems to process 300mm wafers. In addition, we
believe that ergonomic, safety and cost factors will
make increased levels of factory-wide automation a
practical necessity in new 300mm fabs.
For this reason, we have invested, and are
continuing to invest, substantial resources to
develop new systems and technologies to automate the
processing of 300mm wafers. However, the industry
transition from 200mm to 300mm manufacturing
technology is occurring more slowly than we
expected, partly as a result of the recent reduction
in demand for semiconductors. Although pilot
projects are underway, no new 300mm fab is yet under
construction. Any
8
<PAGE>
significant delay in the adoption of 300mm
manufacturing technology, or the failure of such
adoption to occur, could significantly reduce our
results of operations. Moreover, any delay in the
transition to 300mm technology could permit our
competitors to introduce 300mm products competitive
with or superior to our systems.
MANAGEMENT OF GROWTH IN
LIGHT OF FLUCTUATING
DEMAND Our business is requiring us to hire substantial
numbers of new employees, particularly employees
with technical backgrounds for our engineering and
technical support staffs. The market for these
employees is becoming increasingly competitive, and
we have occasionally experienced delays in meeting
our staffing requirements. Our failure or inability
to recruit, retain and train adequate numbers of
qualified personnel on a timely basis would
adversely affect our ability to develop,
manufacture, install and support our systems.
If the semiconductor industry resumes its growth, we
may have to design and manufacture our systems in
larger volumes than we do now. If demand for our
products increases rapidly, we may have difficulty
increasing our production capacity while maintaining
our standards of quality and reliability, and
delivery times for our systems may increase. If we
fail to meet a customer's delivery or performance
criteria, we could lose business from that customer,
cause long-term damage to our reputation and have
higher warranty and service costs. Any of these
results could seriously harm our business. Further,
if we are unable to expand our existing
manufacturing capacity to meet demand, a customer's
placement of a large order requiring the development
and delivery of flexible factory automation systems
during a particular period might deter other
semiconductor manufacturers from placing similar
orders with us for the same period. For more
information, see "--Significant Fluctuations in
Operating Results."
Our systems, procedures, controls and staffing may
not be adequate to support any rapid growth in our
operations, if any. Our failure to respond
effectively to fluctuating demand for our products
and to manage our future growth, if any, could
seriously harm our business.
EFFECTS OF RECENT
ACQUISITION ACTIVITY We are continuing to integrate the operations of
Equipe Technologies, Inc. and its European
distributor, Chiptronix Handling Systems GmbH, which
we acquired in January 1998 and May 1998,
respectively. Equipe develops, manufactures and
supplies atmospheric wafer and substrate handling
robots, pre-aligners and controllers.
In February 1999, we expect to acquire Promis
Systems Corporation Ltd., a Canadian corporation.
Promis is based in Toronto, Ontario and develops,
markets and maintains software products used by
large-scale manufacturers, such as semiconductor
manufacturers and precision electronics
manufacturers, to optimize their manufacturing
processes and ensure compliance with
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<PAGE>
mandatory specifications. We are only now beginning
to take steps to integrate our operations with
those of Promis.
We may not be able to absorb and effectively manage
the acquisitions of Equipe, Chiptronix and Promis or
successfully develop, market and sell the products
of Equipe and Promis. These acquisitions and any
future acquisitions also pose additional risks,
including:
- diversion of our management's attention
- loss of key employees of the acquired company
- interruptions in the sales efforts of the
acquired company
- failure to integrate financial and accounting
systems successfully
- significant acquisition and integration expenses
- assumption of legal and other liabilities and
risks
- entry into markets in which we have little or no
prior experience
Any of these factors could seriously harm our
business. Moreover, an acquisition may not produce
the revenues, earnings or business synergies that we
anticipated, and an acquired product, service or
technology might not perform as we expected. Any
such poor performance could cause customer
dissatisfaction and damage our reputation.
To pay for an acquisition, we might use capital
stock or cash, or incur long-term indebtedness. If
we use capital stock, our existing stockholders
might experience dilution of their ownership
interests. If we use our cash reserves or
significant debt financing, our liquidity will be
reduced.
INTERNATIONAL OPERATIONS In the last three fiscal years, we have
derived a substantial percentage of our revenues
from customers outside the United States. In fiscal
1996, 1997 and 1998, international sales accounted
for 15%, 46% and 33% of our total revenues,
respectively. We intend to maintain our presence in
European markets and to expand our presence in Asian
markets. Accordingly, we anticipate that
international sales will account for a significant
portion of our net sales in the foreseeable future.
We will need to devote significant management
attention and financial resources to our
international expansion plans.
Our international operations are subject to
additional risks, such as the following:
- unexpected changes in trading policies,
regulatory requirements, exchange rates, tariffs
and other barriers
- unstable political and economic environments
- greater difficulties in collecting accounts
receivable
- difficulties in managing distributors or
representatives
- restrictions on exporting and importing
technology
- fewer protections for our intellectual property
- longer sales cycles than with domestic customers
- difficulties in staffing and managing foreign
operations
- restrictions on the repatriation of earnings
- potentially adverse tax consequences
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Although our international sales are primarily
denominated in U.S. dollars, currency exchange
fluctuations could nonetheless make us less
price-competitive than foreign manufacturers. If our
international sales increase as a percentage of our
total revenues, these factors could have a more
pronounced effect on our results of operations. In
any event, any of these factors could cause serious
harm to our business. For more information, see
"--Risks Associated With Asian Markets" and
"--Limited Intellectual Property Protection."
COMPETITION We compete intensely with one principal competitor,
the clean automation division of Daifuku Co., Ltd.,
a large Japanese manufacturer of factory automation
systems. We also compete with Shinko Electronics
Company, Murata Machinery Ltd. and a number
of foreign and domestic manufacturers of
equipment used to automate the process of
semiconductor manufacturing. Our Equipe division
competes with a number of wafer-handling robotics
companies including in-house organizations of
process tool manufacturers that develop their own
automation, as well as other smaller robotics
companies. Our software division competes with a
number of suppliers of automated scheduling and
planning software. We believe that competition in
our industry is likely to intensify. Our competitors
could develop new products with superior performance
features or a better price, and new competitors
could enter our markets and develop such products.
We also believe that, once a semiconductor
manufacturer selects a particular vendor's
equipment, the manufacturer will generally
rely upon that equipment for the specific production
line application and will frequently attempt to
fulfill its other capital equipment needs from the
same vendor. Accordingly, we expect to have
difficulty selling to potential customers that have
selected a competitor's equipment, and we expect
that difficulty to last for a significant period of
time. In addition, the expected transition to 300mm
technology may cause new competitors to enter our
markets and may diminish our competitive advantage
with customers for whom we are the incumbent
supplier of automation equipment. In the face of
increased competition, we may need to lower our
prices, which could seriously harm our business.
RAPID TECHNOLOGICAL CHANGE Technology changes rapidly in the semiconductor
manufacturing industry, and our competitors
frequently introduce more advanced products or
product enhancements. Our ability to compete in our
markets will depend, in part, on our ability to
develop and introduce more advanced systems at
competitive prices and on a cost-effective basis so
as to enable our customers to integrate them into
their operations either before or as they begin
volume product manufacturing. If our competitors
introduce new products or product enhancements, our
sales could decline and our existing products could
lose market acceptance. Our success in developing,
introducing, selling and supporting more advanced
systems depends upon many factors, including:
- component selection
- timely and efficient completion of product design
and development
- timely and efficient implementation of
manufacturing and assembly processes
- software development
- product performance in the field
- effective sales, marketing, service and project
management
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Because we must commit resources to product
development well in advance of sales, our product
development decisions must anticipate technological
advances in semiconductor manufacturing by leading
semiconductor manufacturers. We may not be
successful in that effort. Our inability to select,
develop, manufacture and market new systems or
enhance our existing systems could cause us to lose
our competitive position and could seriously harm
our business.
PRODUCT DEVELOPMENT DELAY Because our systems are complex and have a large
number of components, we can experience significant
delays between our initial introduction of a system
and our volume production of that system. We have
occasionally experienced delays in the introduction
of certain of our systems and enhancements, as well
as certain technical and manufacturing difficulties
with those systems and enhancements. We could
experience similar delays and difficulties in the
future. In addition, we must customize some of our
systems to meet the customer's site or operating
requirements. Our inability to complete the
development or meet the technical specifications of
any of our new systems or enhancements or to
manufacture and ship these systems or enhancements
in volume in a timely manner could impair our
relationships with our customers and seriously harm
our business. In addition, we may incur substantial
unanticipated costs to ensure that our new products
function properly and reliably early in their life
cycle. These costs could be, for example, greater
than expected installation and support costs or
increased materials costs as a result of expedited
charges. We may not be able to pass these costs on
to our customers. Any of these events could
seriously harm our business.
SOLE OR LIMITED SOURCES
OF SUPPLY For certain components or specialized processes
(such as painting of system cabinets and enclosures)
that we use in our products, we depend on or have
available only one or a few suppliers. We have not
experienced any significant disruption or delay in
obtaining components we need for our products, and
we believe in most instances we could develop other
sources of supply or qualify other vendors for these
components or processes. Nonetheless, we could
experience such disruption or delay and may not be
able to develop alternatives in a timely manner. If
we are unable to obtain adequate deliveries of
components for our products for an extended period
of time, we may have to pay more for inventory,
parts and other supplies, seek alternative sources
of supply or delay shipping products to our
customers. We could also damage our relationships
with customers. Any such increased costs, delays in
shipping or damage to customer relationships could
seriously harm our business.
LIMITED INTELLECTUAL
PROPERTY PROTECTION Our success depends to a significant degree upon our
proprietary technologies. To protect our proprietary
technologies, we rely primarily upon employee and
third-party non-disclosure agreements, trade secret,
copyright and trademark laws, and license
agreements. Wherever appropriate, we also seek to
patent our technologies. We hold several patents and
patent applications, including a patent relating to
certain key elements of our AeroTrak monorail
system, which forms an important component of our
interbay automation systems. We
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attempt to protect the source code versions of our
software as trade secrets and as unpublished
copyrighted works. We believe, however, that our
financial performance will depend more upon our
innovation and technological expertise and the
capabilities of our employees than upon the
protection of our intellectual property rights.
The steps we have taken to protect our proprietary
technology may be inadequate. Existing trade secret,
copyright and trademark laws offer only limited
protection. Our patents could be challenged,
invalidated or circumvented, and the rights we have
under our patents could provide no competitive
advantages. Other companies could independently
develop similar or superior technology without
violating our proprietary rights. Any
misappropriation of our technology or the
development of competitive technology could
seriously harm our business. If we have to resort to
legal proceedings to enforce our intellectual
property rights, the proceedings could be burdensome
and expensive and could involve a high degree of
risk. In addition, the laws of some foreign
countries do not protect our proprietary
technologies to the same extent as the laws of the
United States.
Third parties could claim that our products or
technology infringe their patents or other
proprietary rights. Any such claim could cause us to
incur substantial costs defending against the claim,
even if the claim is invalid, and could distract our
management from our business. Furthermore, a party
making such a claim could secure a judgment that
requires us to pay substantial damages. A judgment
could also include an injunction or other court
order that could prevent us from selling our
products. Any of these events could seriously harm
our business.
If anyone asserts a claim against us relating to
proprietary technology or information, we might seek
to license their intellectual property or to develop
non-infringing technology. We might not be able to
obtain a license on commercially reasonable terms or
on any terms. Alternatively, our efforts to develop
non-infringing technology could be unsuccessful. Our
failure to obtain the necessary licenses or other
rights or to develop non-infringing technology could
prevent us from selling our products and, therefore,
could seriously harm our business.
ENVIRONMENTAL REGULATIONS We are subject to a variety of governmental
regulations relating to the use, storage, handling,
manufacture and disposal of toxic or other hazardous
substances we use to manufacture our products. We
use small quantities of lubricants, adhesives,
solvents and cleaners in connection with our
manufacturing and assembly operations. We believe
that our storage, use and disposal of these
materials complies in all material respects with
applicable governmental regulations, and that we
have obtained all necessary environmental permits to
conduct our business. Our failure to control the
use, disposal or storage of, or to adequately
restrict the discharge of, hazardous or toxic
substances could subject us to significant
liabilities. Any such liability could materially
harm our business.
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DEPENDENCE ON KEY
PERSONNEL Our future success depends significantly on the
skills, experience and efforts of our key executive
officers and employees. We depend heavily upon the
continued contributions of our founder, Chairman of
the Board and Treasurer, Mordechai Wiesler, our
President and Chief Executive Officer, Mitchell G.
Tyson, and other officers and key personnel. Many of
these individuals would be difficult to replace.
Although we maintain key person life insurance on
Messrs. Wiesler and Tyson, the loss of Mr. Wiesler,
Mr. Tyson or any other key person could seriously
harm our business. In addition, our future financial
performance will depend in part upon our ability to
attract and retain other qualified management,
engineering, financial, technical, marketing and
sales, and support personnel for our operations.
Competition for these employees is intense and we
may be unable to attract or retain them. Our failure
to attract or retain these employees could seriously
harm our business.
YEAR 2000 Many existing computer systems and software products
do not properly recognize dates after December 31,
1999. This "Year 2000" problem could result in
miscalculations, data corruption, system failures or
disruptions of operations. These disruptions could
include an inability to process transactions, send
invoices or engage in normal business activities.
The Year 2000 problem could also affect embedded
systems such as building security systems, machine
controllers, telephone switches and other equipment.
As a result, many companies may need to upgrade or
replace their computer systems, software and other
equipment.
We have established a centrally coordinated project
team, including representatives from each of our
divisions, to determine the Year 2000 readiness of
our products, business processes and systems and
products of our suppliers and other third parties.
We have reviewed all equipment and software that we
are currently marketing or that is already installed
at customer sites for Year 2000 readiness. We expect
to complete all internal and field testing and
upgrades of current and installed products by early
1999. We cannot presently estimate the total cost
of this testing and upgrade process but we do not
expect it to be material. We are also assessing our
internal information technology, or IT, systems,
including business information systems, systems we
use in our manufacturing and service operations, and
systems that provide electronic interfaces with our
business associates and customers, and internal
non-IT systems, including telecommunications
systems, security systems and utilities, to ensure
that our operations are not interrupted by Year 2000
issues. We expect to have addressed all internal
Year 2000 issues identified in this process by the
end of June 1999.
We also rely on third-party vendors for certain
equipment and software that may not be Year 2000
compliant. We are working closely with these
third-party vendors to determine the extent of their
Year 2000 compliance. The failure of the equipment
and software of these vendors to be Year 2000
compliant could substantially disrupt our normal
operations. Any such disruption, or the costs of
updating or replacing any of our equipment and
software, could seriously harm our business. The
failure of systems maintained by our vendors to be
Year 2000 compliant could cause us to incur
significant expenses to remedy any problems or could
otherwise seriously harm our business.
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Based on our investigations to date, we do not
expect the total cost of our Year 2000 assessment
and remediation program to be significant. However,
we might discover unanticipated Year 2000 errors or
defects in our products, internal computer systems,
software and other equipment. We could also fail to
complete our Year 2000 assessment and remediation
programs on a timely basis and the costs of such
programs may be greater than expected. The resulting
disruption of our operations and additional costs
could seriously harm our business.
VOLATILITY OF STOCK PRICE The market price of our Common Stock has fluctuated
widely and may continue to do so. Many factors could
cause the market price of our Common Stock to rise
and fall. Some of these factors are:
- variations in our quarterly results of operations
- announcements of technological innovations
- introduction of new products or new pricing
policies by us or our competitors
- trends in the semiconductor manufacturing
industry
- acquisitions or strategic alliances by us or
others in our industry
- the hiring or departure of key personnel
- changes in accounting principles
- changes in estimates of our performance or
recommendations by financial analysts
- market conditions in the industry and the economy
as a whole
In addition, the stock market has recently
experienced extreme price and volume fluctuations.
These fluctuations have particularly affected the
market prices of the securities of many high
technology companies. These broad market
fluctuations could adversely affect the market price
of our Common Stock. When the market price of a
stock has been volatile, holders of that stock have
often instituted securities class action litigation
against the company that issued the stock. If any of
our stockholders brought such a lawsuit against us,
we could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and
attention of our management. Any of these events
could seriously harm our business.
When we acquired Equipe, Chiptronix and two related
companies, we issued 4,469,016 shares of our Common
Stock to the former stockholders of those companies.
Immediately after they were issued, these shares
were "restricted securities" for purposes of Rule
144 under the Securities Act, and will be eligible
for sale in the public market pursuant to Rule 144
commencing in January 1999. We have already
registered approximately 31% of these shares for
sale in the public market. We may be required to
register the remaining shares for sale in the public
market. The sale of substantial amounts of these
shares in the public market could adversely affect
the market price of our Common Stock.
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ANTI-TAKEOVER EFFECT OF
CHARTER PROVISIONS, BY-LAWS
STOCKHOLDER RIGHTS PLAN
AND MASSACHUSETTS LAW Our basic corporate documents, our Stockholder
Rights Plan and Massachusetts law contain provisions
that might enable our management to resist an
attempt to take over our company. For example, the
Board of Directors of PRI (the "Board of Directors"
or the "Board") can issue shares of Common Stock and
Preferred Stock without stockholder approval, and
the Board could issue stock to dilute and adversely
affect various rights of a potential acquiror. The
Board could use other provisions to discourage,
delay or prevent a change in the control of our
company or a change in our management. These
provisions might also discourage, delay or prevent
an acquisition of our company at a price that you
may find attractive. These provisions could also
make it more difficult for you and our other
stockholders to elect directors and take other
corporate actions. These provisions could limit the
price that investors might be willing to pay for
shares of our Common Stock.
THE COMPANY
We are a leading supplier of factory automation systems for semiconductor
manufacturers and OEM equipment suppliers. We combine advanced robotics
technology with material handling systems and a broad array of integrated
software to automate the manufacturing of integrated circuits. Our mission is to
provide integrated solutions of hardware, software and services that optimize
the flow of silicon wafers throughout the semiconductor fabrication facility, or
fab, improving the productivity of semiconductor manufacturing. Our products
consist of overhead monorail wafer transportation systems; work-in-process wafer
stockers and reticle stockers; tool automation systems; material control
software and scheduling and planning software; and factory simulation and other
services, including project management and on-site support. Our automated
material handling solutions increase process tool utilization and throughput by
optimizing the flow of wafers to and from process tools throughout the fab.
In North America, we sell our products through a direct sales force
operating out of our headquarters in Billerica, Massachusetts and our regional
offices in California, Texas and Oregon. Outside North America, we sell and
support our products through our direct sales and technical support organization
with offices in the United Kingdom, France, the Netherlands, Germany, Ireland,
Israel, Italy, Switzerland, Taiwan, South Korea, Singapore, and Japan.
Our principal executive offices are located at 805 Middlesex Turnpike,
Billerica, Massachusetts 01821-3986, and our telephone number is (978) 670-4270.
Our company was incorporated in Massachusetts in 1972 under another name and we
began our present business in 1982.
RECENT EVENTS
On November 24, 1998, PRI agreed to acquire Promis pursuant to the terms
of a Combination Agreement (the "Combination Agreement") among PRI, Promis
and Subco. The acquisition, which is intended to be accounted for as a
pooling of interests, is expected to be completed during the first quarter of
1999, subject to, among other things, regulatory approvals and approval of
the shareholders of Promis.
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Promis develops, markets and maintains software products used by
large-scale manufacturers, such as semiconductor and precision electronics
manufacturers, to optimize their manufacturing processes and ensure
compliance with mandatory specifications. Promis' software is "mission
critical" in that large-scale manufacturers would be unable to effectively
operate their facilities without its use or the use of similar software.
Promis' software offerings operate in real-time and are designed for use by
manufacturers whose raw materials or components are processed in distinct units,
permitting work-in-progress and finished goods to be tracked by lots. Promis'
software products are designed to assist in the planning, execution and control
of manufacturing operations and thereby enhance the competitiveness of such
manufacturing users, by allowing them to achieve higher product quality, faster
output and lower productions costs.
USE OF PROCEEDS
Because the shares of Common Stock offered hereby will be issued upon
exchange or redemption of the Exchangeable Shares, the Company will receive no
net cash proceeds upon such issuance.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock and 400,000 shares of Preferred Stock, par value $.01
per share (the "Preferred Stock"), of which 250,000 shares have been
designated as Series A Participating Cumulative Preferred Stock, par value
$.01 per share (the "Series A Preferred Stock"). In connection with the
combination of PRI and Promis, one share of undesignated Preferred Stock of
the Company will be designated as Special Voting Preferred Stock, par value
$.01 per share (the "Voting Share").
COMMON STOCK
As of December 18, 1998, there were 19,946,524 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote per share held of
record on all matters to be voted upon by the stockholders of the Company.
Subject to preferences that may be applicable to the holders of outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
receive such lawful dividends as may be declared by the Board of Directors. In
the event of the liquidation, dissolution or winding up of the Company, and
subject to the rights of the holders of outstanding shares of Preferred Stock,
if any, the holders of shares of Common Stock are entitled to receive pro rata
all of the remaining assets of the Company available for distribution to its
stockholders.
PREFERRED STOCK
As of December 18, 1998, there were no shares of Preferred Stock
outstanding. The Board of Directors is authorized, subject to limitations
prescribed by Massachusetts law, to provide for the issuance of Preferred Stock
in one or more series, to establish from time to time the number of shares to be
included in each such series, to fix or alter the rights, preferences and
privileges of the shares of each wholly unissued series and any restrictions
thereon, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding) without any
further vote or action by the stockholders. The issuance of Preferred Stock or
of rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal.
STOCKHOLDER RIGHTS PLAN
On December 7, 1998, the Board of Directors declared a distribution of one
right (a "Right") on each outstanding share of Common Stock of the Company. The
Rights were issued to the holders of record of Common Stock outstanding on
December 9, 1998, and will be issued, except as described below, with respect to
shares of
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Common Stock issued before the Distribution Date (as defined below) and, in
certain circumstances, with respect to shares of Common Stock issued after the
Distribution Date. Each Right, when it becomes exercisable as described below,
will entitle the registered holder to purchase from the Company one
one-hundredth (1/100) of a share of Series A Preferred Stock at a price of $140
(the "Purchase Price"). The description and terms of the Rights are set forth in
a Rights Agreement dated as of December 9, 1998 (the "Rights Agreement") between
the Company and State Street Bank and Trust Company, as Rights Agent (the
"Rights Agent").
Until the earlier of (i) the date on which the Company first publicly
announces that a person or group (including any affiliate or associate of such
person or group) has acquired, or has obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding Common Stock of the Company,
including Common Stock issuable upon the exchange or redemption of Exchangeable
Shares, (such person or group being called an "Acquiring Person") or (ii) the
date, if any, as may be designated by the Board of Directors following the
commencement of, or first public disclosure of an intent to commence, a tender
or exchange offer for outstanding Common Stock of the Company which could result
in the offeror becoming the beneficial owner of 20% or more of the outstanding
Common Stock of the Company, including Common Stock issuable upon the exchange
or redemption of Exchangeable Shares, (the earlier of such dates being called
the "Distribution Date"), the Rights will be evidenced by the certificates for
Common Stock registered in the names of the holders thereof (which certificates
for Common Stock will also be deemed to be Right Certificates, as defined below)
and not by separate Right Certificates. Accordingly, until the Distribution
Date, the Rights will be transferred with and only with the Common Stock.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Stock
originally issued after the Distribution Date), and such separate Right
Certificates alone will thereafter evidence the Rights. The Rights are not
exercisable until the Distribution Date and will expire on December 9, 2008 (the
"Expiration Date"), unless earlier redeemed by the Company as described below.
To preserve the actual or potential economic value of the Rights, the
number of shares of Series A Preferred Stock or other securities issuable upon
exercise of a Right, the Purchase Price and Redemption Price and the number of
Rights associated with each outstanding share of Common Stock are all subject to
adjustment by the Board of Directors as provided in the Rights Agreement in the
event of any change in the Company's Common Stock or Series A Preferred Stock,
whether by reason of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of securities, split-ups, split-offs,
spin-offs, liquidations or any other similar changes in capitalization, any
distribution or issuance of cash, assets, evidences of indebtedness or
subscription rights, options or warrants to holders of Common Stock or Series A
Preferred Stock, as the case may be (other than distribution of the Rights or
regular quarterly cash dividends), or otherwise.
The shares of Series A Preferred Stock are authorized to be issued in
fractions which are an integral multiple of one one-hundredth (1/100) of a share
of Series A Preferred Stock. The Company may, but is not required to, issue
fractions of shares upon the exercise of the Rights, and, in lieu of fractional
shares, the Company may issue certificates or utilize a depository arrangement
as provided by the terms of the Series A Preferred Stock and, in the case of
fractions other than one one-hundredth (1/100) of a share of Series A Preferred
Stock or integral multiples thereof, may make a cash payment based on the market
price of such shares.
Upon a person or a group becoming an Acquiring Person, the Rights will
entitle each holder of a Right to purchase, for the Purchase Price, that number
of one one-hundredths (1/100) of a share of Series A Preferred Stock equivalent
to the number of shares of Common Stock which at the time of the transaction
would have a market value of twice the Purchase Price.
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If the Company is acquired in a merger or other business combination of 50%
or more of its assets or assets representing 50% or more of its earning power
are sold, leased, exchanged or otherwise transferred (in one or more
transactions) to a publicly traded corporation, each Right will entitle its
holder to purchase, for the Purchase Price, that number of common shares of such
corporation which at the time of the transaction would have a market value of
twice the Purchase Price. If the Company is acquired in a merger or other
business combination of 50% or more of its assets or assets representing 50% or
more of the earning power of the Company are sold, leased, exchanged or
otherwise transferred (in one or more transactions) to an entity that is not a
publicly traded corporation, each Right will entitle its holder to purchase, for
the Purchase Price, at such holder's option, (i) the number of shares of such
entity (or, at such holder's option, of the surviving corporation in such
acquisition, which could be the Company) which at the time of the transaction
would have a book value of twice the Purchase Price or (ii) if such entity has
an affiliate which has publicly traded common shares, that number of common
shares of such affiliate which at the time of the transaction would have a
market value of twice the Purchase Price.
Any Rights that are at any time beneficially owned by an Acquiring Person
(or any affiliate or associate of an Acquiring Person) will be null and void and
nontransferable. Any holder of any such Right (including any purported
transferee or subsequent holder) will not have any right to exercise or transfer
any such Right.
At any time after a person or a group becomes an Acquiring Person, the
Board of Directors may exchange all or part of the then-outstanding Rights
(other than Rights that have become null and void and nontransferable as
described above) for consideration per Right consisting of one-half of the
securities that otherwise would have been issuable to the holder of each Right
upon exercise of the Right. The Board of Directors may also issue, in
substitution for shares of Series A Preferred Stock, shares of Common Stock
having an equivalent market value to the shares of Series A Preferred Stock if,
at such time, the Company has a sufficient number of shares of Common Stock
issued but not outstanding or authorized but unissued.
At any time prior to the earlier of the Expiration Date or the first public
announcement by the Company that a person has become an Acquiring Person, the
Board of Directors may redeem all, but not less than all, of the Rights at a
price (in cash or shares of Common Stock or other securities of the Company
deemed by the Board of Directors to be at least equivalent in value) of $.001
per Right (the "PRI Right Redemption Price").
If the Board of Directors elects to redeem the Rights, the Company will
announce the redemption, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the PRI Right
Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
At any time prior to the Distribution Date, the Company may, without the
approval of any holder of the Rights, supplement or amend any provision of
the Rights Agreement (including the date on which the Distribution Date will
occur, the time during which the Rights may be redeemed or the terms of the
Series A Preferred Stock), except that the Company may not supplement or
amend the Rights Agreement to reduce the PRI Right Redemption Price or
provide for an earlier Expiration Date.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on substantially all the Rights being acquired.
The Rights will not interfere with any merger or other business combination with
a third party approved by the Board of Directors because the Board of Directors
may, at its option, at any time prior to any person becoming an Acquiring
Person, redeem the then-outstanding Rights at the Redemption Price.
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SERIES A PREFERRED STOCK
As of December 18, 1998, there were no shares of Series A Preferred Stock
outstanding.
The holders of Series A Preferred Stock, if any, will be entitled to
receive (a) quarterly cumulative dividends payable in cash in an amount equal to
$1.00 per whole share, less the amount of cash dividends received pursuant to
the following clause (b) (but not less than zero) and (b) cash and in-kind
dividends on each payment date for similar dividends on the Common Stock in an
amount per whole share of Series A Preferred Stock equal to 100 (which number is
subject to adjustment to reflect stock dividends, subdivisions or combinations
of the outstanding Common Stock) times the per share amount of all cash
dividends then to be paid on each share of Common Stock.
The holders of Series A Preferred Stock, if any, will be entitled to vote
on each matter on which holders of Common Stock are entitled to vote, and will
have 100 votes (subject to adjustment as described above) for each whole share
of Series A Preferred Stock held. Holders of any fraction of a share of Series A
Preferred Stock that is not smaller than one one-hundredth (1/100) of a share
will be entitled to vote such fraction. Holders of Series A Preferred Stock will
have certain special voting rights in the election of directors when the
equivalent of six quarterly dividends are in default.
Whenever quarterly dividends or distributions on outstanding shares of
Series A Preferred Stock are in arrears, the Company's right to declare or pay
dividends or other distributions on, redeem or purchase any shares of stock
ranking junior to or on a parity with the Series A Preferred Stock will be
subject to certain restrictions.
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of Series A Preferred Stock will be
entitled to receive, before any distribution is made to holders of stock ranking
junior to the Series A Preferred Stock or any distribution (other than a ratable
distribution) is made to the holders of stock ranking on a parity with the
Series A Preferred Stock, an amount equal to the accrued dividends thereon plus
the greater of (a) $1.00 per share or (b) an amount per share equal to 100
(subject to adjustment as described above) times the amount per share to be
distributed to holders of Common Stock.
The shares of Series A Preferred Stock will not be redeemable. However, the
Company may purchase shares of Series A Preferred Stock in the open market or
pursuant to an offer to any holder.
In the event of a consolidation, merger or other transaction in which the
shares of Common Stock are exchanged for or converted into other securities,
cash or any other property, the shares of Series A Preferred Stock will be
similarly exchanged or converted.
Shares of Series A Preferred Stock are issuable in whole shares or in any
fraction of a share that is not smaller than one one-hundredth (1/100) of a
share or any integral multiple of such fraction, subject to certain adjustments.
In lieu of issuing fractional shares, the Company may issue certificates or
depositary receipts evidencing such authorized fractions of shares or, in the
case of fractions other than one one-hundredth (1/100) of a share and integral
multiples thereof, pay registered holders cash equal to the same fraction of the
current market value of a share of Series A Preferred Stock (if any are
outstanding) or the equivalent number of shares of Common Stock.
VOTING SHARE
The Voting Share will be authorized for issuance in accordance with the
Voting and Exchange Trust Agreement (the "Voting and Exchange Trust
Agreement"), to be entered into between the Company, Subco, Promis and
Montreal Trust Company of Canada (the "Trustee"). Except as otherwise
required by law or the Company's Articles of Organization, the Voting Share
will be issued by the Company to and deposited with the Trustee, to be held
in trust for the benefit of the registered holders of Exchangeable Shares.
The Voting Share will entitle the holder of record to a number of votes at
meetings of holders of Common Stock equal to the product of (a) the number of
Exchangeable Shares then issued and outstanding and held by registered
holders of Exchangeable Shares other than the Company and its
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subsidiaries, multiplied by (b) the number of votes to which a
holder of one share of Common Stock is entitled with respect to any matter,
proposition or question on which holders of Common Stock are entitled to vote,
consent or otherwise act. Except as required by law or by the Company's Articles
of Organization, the holder of the Voting Share and the holders of Common Stock
will vote together as a single class in the election of directors and in all
matters submitted to a vote of the stockholders of the Company. The holder of
the Voting Share will not be entitled to receive dividends. In the event of any
dissolution, liquidation or winding up of the affairs of the Company, whether
voluntary or involuntary, the holder of the Voting Share will be entitled to be
paid out of the net assets of the Company available for distribution, before any
distribution or payment is made upon any stock of the Company ranking on
liquidation junior to the Special Voting Preferred Stock, an amount equal to
$1.00, subject to equitable adjustment in the event of stock splits, stock
dividends, combinations and the like involving the Special Voting Preferred
Stock. When the Voting Share has no votes attached to it because there are no
Exchangeable Shares outstanding not owned by the Company or any of its
subsidiaries, the Voting Share will be redeemed by the Company and be
automatically restored to the status of an authorized but unissued share of
Preferred Stock.
MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF THE COMPANY'S AMENDED AND
RESTATED ARTICLES OF ORGANIZATION AND THE COMPANY'S AMENDED AND RESTATED
BY-LAWS
The Company is subject to Chapter 110F of the Massachusetts General Laws,
an anti-takeover law. In general, Chapter 110F prohibits any Massachusetts
corporation with 200 or more stockholders of record and sufficient ties to
Massachusetts from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date on which the person
becomes an interested stockholder, unless (i) before that date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the person becoming an interested stockholder, (ii)
upon consummation of the transaction that resulted in the person becoming an
interested stockholder, the interested stockholder owned at least 90% of the
voting stock outstanding at the time the transaction commenced (excluding shares
held by directors, officers and certain other affiliates of the corporation), or
(iii) on or after that date, the business combination is approved by the board
of directors and authorized at a meeting of stockholders (and not by written
consent) by the affirmative vote of two-thirds of the outstanding voting stock
that is not owned by the interested stockholder. In general, a "business
combination" includes any merger or consolidation involving the corporation or
any of its majority-owned subsidiaries, any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of a specified percentage of the assets of
the corporation or any of its majority-owned subsidiaries, and certain other
transactions resulting in a financial benefit to the interested stockholder. In
general, an "interested stockholder" is a person that, individually or with or
through any of its affiliates or associates, beneficially owns 5% or more of the
voting stock of the corporation, or a person that is an affiliate or associate
of the corporation and beneficially owned 5% or more of the voting stock of the
corporation at any time within the previous three years, and the affiliates or
associates of that person. If the person is eligible to file Schedule 13G under
the rules of the Securities and Exchange Commission with respect to the
securities of the corporation, the applicable percentage is 15%. A corporation
subject to Chapter 110F may opt out of its coverage by action of its
stockholders to adopt an amendment to its articles of organization or by-laws
that, in addition to any other vote required by law, is approved by the
affirmative vote of a majority of the shares entitled to vote. Such an election
to opt out of the coverage of Chapter 110F will not be effective until twelve
months after the adoption of the foregoing amendment and will not apply to any
business combination between the corporation and any person that became an
interested stockholder before the adoption of the amendment. The Company has
more than 200 stockholders of record and has not elected to opt out of the
coverage of Chapter 110F.
The Company is not subject to Chapter 110D of Massachusetts General Laws,
entitled "Regulation of Control Share Acquisitions." In general, this statute
provides that any stockholder of a corporation subject to this statute that
acquires beneficial ownership of 20% or more of the outstanding voting stock of
a corporation may not vote that stock unless the stockholders of the corporation
so authorize. (For purposes of the statute, a person is not deemed to be a
beneficial owner of shares as to which the person may exercise voting power
solely by virtue of
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a revocable proxy conferring the right to vote.) The Board of Directors may
amend the Company's By-Laws at any time to subject the Company to this statute
prospectively.
The Company is not subject to Section 50A of the Massachusetts Business
Corporation Law, which generally requires that the board of directors of a
publicly held Massachusetts corporation be classified, with respect to the time
for which they severally hold office, into three classes as nearly equal in size
as possible. A corporation may opt out of the statute's coverage by a vote of
the board of directors or a vote of two-thirds of each class of stock
outstanding and entitled to vote at a meeting called for the purpose of such
vote. If a corporation opts out of the statute's coverage by vote of the board
of directors, the corporation may at any time thereafter adopt a vote of its
board of directors electing to be subject to the statute's coverage. Directors
who are classified under this statute may be removed only for cause by the
affirmative vote of a majority of the shares outstanding and entitled to vote in
the election of directors. The Company has elected by vote of its Board of
Directors to opt out of these classified board provisions.
The Company's By-Laws provide that at a meeting of the stockholders called
for the purpose any director may be removed from office with or without cause by
the vote of a majority of the shares issued, outstanding and entitled to vote in
the election of directors. The Company By-Laws further provide that at any
meeting of the Board of Directors any director may, after reasonable notice and
an opportunity to be heard, be removed from office for cause by vote of a
majority of the directors then in office.
The Company's By-Laws provide that any vacancy in the Board of Directors
may be filled by a vote of the majority of the directors then in office or, in
the absence of such election by the directors, by the stockholders at a meeting
called for the purpose, provided that, subject to the provisions of the
Company's By-Laws regarding nominations of directors, any vacancy resulting from
action by the stockholders may be filled by the stockholders at the same meeting
at which the action was taken. The Company's By-Laws require that stockholder
nominations for the Board of Directors comply with certain notice procedures. To
nominate a director, a stockholder must give the Company written notice of the
planned nomination at least 60 days before a scheduled meeting. If the Company
gives less than 70 days' notice of the date of the meeting, a stockholder will
have ten days within which to give such notice. The stockholder's notice of
nomination must include particular information about the stockholder, the
nominee and any beneficial owner on whose behalf the nomination is made. The
Company may require any proposed nominee to provide such additional information
as the Company may reasonably require to determine the eligibility of the
proposed nominee.
The Company's By-Laws require that a stockholder seeking to have any
business conducted at a meeting of stockholders give written notice to the
Company at least 60 days before the scheduled meeting. In certain circumstances,
a stockholder will have ten days within which to give such notice. The
stockholder's notice must describe the proposed business to be brought before
the meeting and include information about the stockholder making the proposal,
any beneficial owner on whose behalf the proposal is made, and any other
stockholder known to support the proposal.
The Massachusetts Business Corporation Law provides that special meetings
of stockholders of a corporation with a class of voting stock registered under
the Exchange Act may be called by the president or the directors of the
corporation, and unless otherwise provided in the corporation's charter or
by-laws, must be called by the clerk or another officer upon the written
application of the holders of at least 40% in interest of the corporation's
capital stock entitled to vote at a special meeting. The Company's By-Laws
mirror these provisions of the Massachusetts Business Corporation Law by
requiring the Company to call a special meeting of stockholders upon the written
application of the holders of at least 40% in interest of the Company's capital
stock entitled to vote at a special meeting.
Article 6D of the Company's Articles of Organization expressly authorizes
the Board of Directors and the stockholders of the Company to make, alter, amend
and repeal the Company's By-Laws, except with respect to any
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provision which by law, the Company's Articles of Organization or the Company's
By-Laws require action by the stockholders. The Company's Articles of
Organization also provide that certain Articles of the Company's By-Laws
(relating generally to meetings of stockholders, meetings and elections of
directors, resignations, removals and vacancies of directors and officers, and
amendments to the Company's By-Laws) and Article 6D of the Company's Articles of
Organization may not be altered, amended or repealed by the stockholders, and no
provision inconsistent therewith may be adopted by them, without the affirmative
vote of the holders of at least eighty percent of the voting power of all shares
of the Company entitled to vote generally in the election of directors.
The Company's Articles of Organization eliminate the personal liability of
the directors of the Company to the Company and its stockholders for monetary
damages for breach of fiduciary duty as a director to the maximum extent
permitted by the Massachusetts Business Corporation Law. The Company's Articles
of Organization generally provide that the Company will indemnify each person
who was or is made a party or is threatened to be made a party to or is
otherwise involved in any proceeding by reason of the fact that he or she is or
was a director or officer of the Company or serving at the Company's request as
a director, officer, employee or agent of another organization, including
service with respect to an employee benefit plan, to the fullest extent
authorized by the Massachusetts Business Corporation Law against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith. The right to indemnification under the Company's Articles of
Organization includes the right to be paid by the Company the expenses incurred
in defending any proceeding in advance of its final disposition, subject to the
delivery of any undertaking required by the Massachusetts Business Corporation
Law. The Company's Articles of Organization grant the Board of Directors the
authority to grant rights to indemnification and advancement of expenses to any
employee or agent of the Company to the fullest extent permitted by the
Company's Articles of Organization.
The Company's Articles of Organization provide that the Company may
authorize, by a vote of a majority of the shares of each class of stock
outstanding and entitled to vote thereon, (a) the sale, lease or exchange of all
or substantially all of its property and assets upon such terms and conditions
as it deems expedient, and (b) the merger or consolidation of the Company into
any other corporation, provided, however, that the sale, lease, exchange, merger
or consolidation is approved by a majority of the members of the Board of
Directors.
Certain provisions of the Company's Articles of Organization and the
Company's By-Laws discussed above would make more difficult or discourage a
proxy contest or the assumption of control by a holder of a substantial block of
the Company's stock. These provisions could also have the effect of discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders. In addition, because the Company's Articles of
Organization and the Company's By-Laws are designed to discourage accumulations
of large blocks of the Company's stock by purchasers whose objective is to have
such stock repurchased by the Company at a premium, these provisions could
reduce the temporary fluctuations in the market price of the Company's stock
that could otherwise be caused by such accumulations. Accordingly, the Company's
stockholders could be deprived of opportunities to sell their stock at
temporarily higher market prices.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is State Street Bank
and Trust Company.
PLAN OF DISTRIBUTION
Holders of Exchangeable Shares should consult their own tax advisors with
respect to the United States, Canadian and other tax consequences of exchanging
their Exchangeable Shares for shares of Common Stock as
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described below. See "Risk Factors--Taxability of the Exchange." No broker,
dealer or underwriter has been engaged in connection with the offering of the
Common Stock covered hereby.
The Company has filed with the SEC a Registration Statement on Form S-3,
of which this Prospectus forms a part, with respect to the Common Stock being
offered hereunder. The Company has agreed to use its reasonable best efforts
to keep such Registration Statement effective until no Exchangeable Shares
remain outstanding.
EXCHANGEABLE SHARES
Pursuant to the terms of a plan of arrangement (the "Plan of Arrangement")
under section 192 of the Canada Business Corporations Act (the "CBCA"), Promis
will undergo a reorganization of capital (the "Arrangement") whereby, among
other things, Promis will issue Exchangeable Shares in exchange for outstanding
Promis Common Shares (other than Promis Common Shares held by PRI and its
subsidiaries) at the effective time (the "Effective Time") of the combination of
PRI and Promis. Each holder of Promis Common Shares will receive 0.1691
Exchangeable Shares for each Promis Common Share, such exchange ratio being
subject to adjustment as provided for in the Combination Agreement.
Common Stock may be issued to holders of Exchangeable Shares as follows:
(i) holders of Exchangeable Shares may require at any time that such shares be
exchanged or redeemed for an equivalent number of shares of Common Stock (see
"--Election by Holders to Exchange or Redeem"); (ii) such Exchangeable Shares
will be automatically redeemed upon the occurrence of certain events (see
"--Automatic Redemption"); and (iii) upon liquidation of the Company or Promis,
holders of Exchangeable Shares may be required to, or may elect to, exchange
such Exchangeable Shares for shares of Common Stock (see "--Exchanges Upon
Liquidation of Promis or PRI").
The Company will bear all of the expenses of this distribution. The Company
estimates that such expenses will total approximately $125,000.
ELECTION BY HOLDERS TO EXCHANGE OR REDEEM
EXCHANGE PUT RIGHT. Holders of the Exchangeable Shares will be entitled
at any time at or following the Effective Time to require Subco to purchase
all or any part of the Exchangeable Shares owned by such holders and to
deliver in exchange for such Exchangeable Shares an equivalent number of
shares of Common Stock plus declared and unpaid and undeclared but payable
dividends on each such Exchangeable Shares (the "Dividend Amount"), if any
(the "Exchange Put Right"). The Exchange Put Right may be exercised at any
time by notice in writing, which may be in the form of the exchange put right
request contained in any letter of transmittal distributed or made available
to Promis shareholders or in such other form satisfactory to the Trustee.
Such notice must be given by the holder to and received by the Trustee, and
accompanied by: (i) presentation and surrender of the certificates
representing such Exchangeable Shares and (ii) such other documents that may
be required to effect a transfer of Exchangeable Shares by the CBCA, Promis'
by-laws and the Trustee. The required materials must be sent to the Trustee's
principal transfer office in Toronto, Ontario or such other place in Canada
as may be determined from time to time. An exchange pursuant to this right
will be completed not later than the close of business on the third business
day following receipt by the Trustee of the notice, the certificates and such
other required documents.
RETRACTION RIGHTS. Holders of the Exchangeable Shares will be entitled at
any time following the Effective Time to require Promis to retract (i.e.,
require Promis to redeem) any or all such Exchangeable Shares owned by such
holders and to deliver in exchange for such Exchangeable Shares an equivalent
number of shares of Common Stock plus the Dividend Amount, if any (the
"Retraction Price"), subject to Subco's Retraction Call Right as described
below. Holders of the Exchangeable Shares may effect such retraction by
presenting the appropriate share certificates to Promis or the Trustee
representing the number of Exchangeable Shares the holder desires Promis to
retract together with a duly executed retraction request (a "Retraction
Request") in the form contained
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in Schedule A to the rights, privileges, restrictions and conditions attaching
to the Exchangeable Shares set forth in Appendix A to the Plan of Arrangement
(the "Exchangeable Share Provisions") or in such other form as may be acceptable
to Promis specifying the number of Exchangeable Shares the holder wishes Promis
to retract and the retraction date upon which the holder wishes to receive the
Retraction Price (the "Retraction Date"). The Retraction Date will be a business
day not less than five nor more than ten business days after the date on which
Promis receives the Retraction Request from the holder, together with such other
documents as may be required to effect the retraction of the Exchangeable Shares
by the CBCA, Promis' by-laws and the Trustee.
Upon receipt of the Exchangeable Shares, the Retraction Request and other
required documentation from the holder thereof, Promis must immediately notify
the Company and Subco of such Retraction Request. Subco will thereafter have two
business days in which to exercise its Retraction Call Right as discussed below
under "Call Rights" (the "Retraction Call Right"). In the event Subco determines
not to exercise its Retraction Call Right and provided that the Retraction
Request is not revoked by the holder in accordance with the Exchangeable Share
Provisions, Promis is obligated to deliver to the holder not later than the
Retraction Date the number of shares of Common Stock equal to the number of
Exchangeable Shares submitted by the holder for retraction, plus the Dividend
Amount, if any. The Company and Subco will be obligated to provide such shares
of Common Stock to Promis to enable Promis to comply with the Retraction
Request.
AUTOMATIC REDEMPTION
Subject to applicable law and the Redemption Call Right of Subco described
below under "Call Rights" (the "Redemption Call Right"), on an Automatic
Redemption Date (defined below), Promis will redeem all but not less than all of
the then outstanding Exchangeable Shares in exchange for an equal number of
shares of Common Stock, plus the Dividend Amount, if any. An "Automatic
Redemption Date" is the first to occur of (a) the seventh anniversary of the
effective date (the "Effective Date") of the Arrangement, (b) the date selected
by the Promis board of directors at a time when less than 15% of the
Exchangeable Shares issuable on the Effective Date (other than shares held by
the Company and its subsidiaries and as such number of shares may be adjusted as
deemed appropriate by the Promis board of directors to give effect to any
subdivision or consolidation of or stock dividend on the Exchangeable Shares,
any issuance or distribution of rights to acquire Exchangeable Shares or
securities exchangeable for or convertible into or carrying rights to acquire
Exchangeable Shares, any issuance or distribution of other securities or rights
or evidences of indebtedness or assets, or any other capital reorganization or
other transaction involving or affecting the Exchangeable Shares) are
outstanding, (c) the business day prior to the record date for any meeting or
vote of the shareholders of Promis to consider any matter on which the holders
of Exchangeable Shares would be entitled to vote as shareholders of Promis, but
excluding any meeting or vote as described in clause (d) below (an "Exchangeable
Share Voting Event"), (d) the business day following the day on which the
holders of Exchangeable Shares fail to take the necessary action at a meeting or
other vote of the holders of Exchangeable Shares, if and to the extent such
action is required, to approve or disapprove, as applicable, any change to, or
in the rights of the holders of, Exchangeable Shares, if the approval or
disapproval, as applicable, of such change would be required to maintain the
economic and legal equivalence of the Exchangeable Shares and Common Stock (an
"Exchangeable Share Equivalence Voting Event"), or (e) a merger, amalgamation,
tender offer, material sale or capital distribution of shares or assets or
rights or interests therein or any similar transaction involving the Company, or
any proposal to do so (a "PRI Control Transaction") or a sale of a majority of
the outstanding shares of Promis by Subco, PRI or any affiliate of PRI to an
arm's length third party, or any proposal to do so (a "Promis Control
Transaction") occurs, in which case, provided the board of directors of Promis
determines, in good faith and in its sole discretion, that it is not reasonably
practicable in the circumstances of such PRI Control Transaction or Promis
Control Transaction to substantially replicate the terms and conditions of the
Exchangeable Shares in connection with such PRI Control Transaction or Promis
Control Transaction in accordance with its terms, the board of directors of
Promis may accelerate such redemption date to such date prior to the seventh
anniversary of the Effective Date as they may determine, upon such number of
days' prior written notice to the registered holders of the Exchangeable Shares
as the board of directors of Promis may determine to be reasonably practicable
in the circumstances.
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At least 45 days before the relevant Automatic Redemption Date, or such
number of days as the board of directors of Promis may determine to be
reasonably practicable under the circumstances in respect of a possible
Automatic Redemption Date arising in connection with a PRI Control
Transaction, a Promis Control Transaction, an Exchangeable Share Voting Event
or an Exchangeable Share Equivalence Voting Event, Promis shall provide the
registered holders of Exchangeable Shares with written notice of the proposed
redemption of the Exchangeable Shares by Promis. In the case of any notice
given in connection with a possible Automatic Redemption Date, such notice
will be given contingently and will be withdrawn if the contingency does not
occur.
EXCHANGES UPON LIQUIDATION OF PROMIS OR PRI
PROMIS. Subject to Subco's Liquidation Call Right described below under
"Call Rights" (the "Liquidation Call Right"), in the event of the liquidation,
dissolution or winding up of Promis or any other distribution of its assets
among its shareholders for the purposes of winding up its affairs, a holder of
the Exchangeable Shares will have, subject to applicable law, preferential
rights to receive from Promis, for each Exchangeable Share, one share of Common
Stock, plus the Dividend Amount, if any.
In addition, upon the occurrence and during the continuance of certain
events relating to Promis' insolvency described below (each, a "Promis
Insolvency Event"), a holder of Exchangeable Shares will be entitled to instruct
the Trustee to exercise the exchange right (the "Exchange Right") with respect
to any or all of the Exchangeable Shares held by such holder, thereby requiring
Subco to purchase such Exchangeable Shares from the holder. As soon as
practicable following the occurrence of a Promis Insolvency Event or any event
which may, with the passage of time and/or the giving of notice, become a Promis
Insolvency Event, Promis and Subco will give written notice thereof to the
Trustee. As soon as practicable thereafter, the Trustee will notify each holder
of Exchangeable Shares of such event or potential event and will advise the
holder of its rights with respect to the Exchange Right. The consideration for
each Exchangeable Share to be acquired under the Exchange Right will be one
share of Common Stock, plus the Dividend Amount, if any. "Promis Insolvency
Event" means the institution by Promis of any proceeding to be adjudicated a
bankrupt or insolvent or to be dissolved or wound-up, or the consent of Promis
to the institution of bankruptcy, insolvency, dissolution or winding-up
proceedings against it, or the filing of a petition, answer or consent seeking
dissolution or winding-up under any bankruptcy, insolvency or analogous laws,
including without limitation the Companies Creditors' Arrangement Act (Canada)
and the Bankruptcy and Insolvency Act (Canada), and the failure by Promis to
contest in good faith any such proceedings commenced in respect of Promis within
30 days of becoming aware thereof, or the consent by Promis to the filing of any
such petition or to the appointment of a receiver, or the making by Promis of a
general assignment for the benefit of creditors, or the admission in writing by
Promis of its inability to pay its debts generally as they become due. Moreover,
if as a result of liquidity or solvency requirements of applicable law, Promis
is unable to redeem all of the Exchangeable Shares tendered for retraction by a
holder in accordance with the Exchangeable Share Provisions as described under
"Retraction Rights" above, the holder will be deemed to have exercised the
Exchange Right with respect to the unredeemed Exchangeable Shares, and Subco
will be required to purchase such shares from the holder in the manner set forth
above.
PRI. In order for holders of the Exchangeable Shares to participate on a
pro rata basis with the holders of Common Stock, immediately prior to the
effective time of a PRI Liquidation Event (as defined below), each Exchangeable
Share will be automatically exchanged for an equivalent number of shares of
Common Stock, plus the Dividend Amount, if any. Upon a holder's request and
surrender of Exchangeable Share certificates, duly endorsed in blank and
accompanied by such instruments of transfer as the Company or Subco, as
applicable, may reasonably require, the Company or Subco (if so determined by
the Company) will deliver to such holder certificates representing an equivalent
number of shares of Common Stock, plus the Dividend amount, if any. A "PRI
Liquidation Event" means: (a) any determination by the Board of Directors to
institute voluntary liquidation, dissolution or winding-up proceedings with
respect to the Company or to effect any other distribution of assets of the
Company among its stockholders for the purpose of winding-up its affairs, or (b)
the earlier of (i) receipt by the Company of notice of and (ii) the Company's
otherwise becoming aware of any threatened or instituted claim,
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suit, petition or other proceedings with respect to the involuntary liquidation,
dissolution or winding-up of the Company or to effect any other distribution of
assets of the Company among its stockholders for the purposes of winding up its
affairs, in each case where the Company has failed in good faith to contest in
good faith any such proceeding commenced in respect of the Company within 30
days of becoming aware thereof.
CALL RIGHTS
In the circumstances described below, Subco will have certain overriding
rights (the "Call Rights") to acquire Exchangeable Shares from holders thereof
by delivering one share of Common Stock, plus the Dividend Amount, if any, for
each Exchangeable Share acquired.
RETRACTION CALL RIGHT. Pursuant to the Exchangeable Share Provisions, a
holder requesting Promis to redeem the Exchangeable Shares will be deemed to
offer such shares to Subco, and Subco will have an overriding Retraction Call
Right to acquire all but not less than all of the Exchangeable Shares that the
holder has requested Promis to redeem in exchange for one share of Common Stock,
plus the Dividend Amount, if any, for each Exchangeable Share, and, upon the
exercise by Subco of the Retraction Call Right, the holders of the
Exchangeable Shares will be obligated to transfer such shares to Subco.
LIQUIDATION CALL RIGHT. Pursuant to the Plan of Arrangement, Subco will
have an overriding Liquidation Call Right (the "Liquidation Call Right"), in the
event of and notwithstanding a proposed liquidation, dissolution or winding-up
of Promis or any other distribution of the assets of Promis among its
shareholders for the purpose of winding-up its affairs, to acquire all but not
less than all of the Exchangeable Shares then outstanding in exchange for one
share of Common Stock, plus the Dividend Amount, if any, for each Exchangeable
Share. Upon the exercise by Subco of the Liquidation Call Right, the holders of
Exchangeable Shares will be obligated to transfer such shares to Subco. The
acquisition by Subco of all of the outstanding Exchangeable Shares upon the
exercise of the Liquidation Call Right will occur on the effective date of the
voluntary or involuntary liquidation, dissolution or winding-up of Promis.
REDEMPTION CALL RIGHT. Pursuant to the Plan of Arrangement, Subco will have
an overriding Redemption Call Right, notwithstanding the proposed automatic
redemption of the Exchangeable Shares by Promis pursuant to the Exchangeable
Share Provisions, to acquire on an Automatic Redemption Date all but not less
than all of the Exchangeable Shares then outstanding in exchange for one share
of Common Stock, plus the Dividend Amount, if any, for each Exchangeable Share,
and, upon the exercise by Subco of the Redemption Call Right, the holders of the
Exchangeable Shares will be obligated to transfer such shares to Subco.
EFFECT OF CALL RIGHT EXERCISE. If Subco exercises one or more of its Call
Rights, it will directly deliver Common Stock to holders of Exchangeable Shares
and will become the holder of such Exchangeable Shares. Subco will not be
entitled to exercise any voting rights attached to the Exchangeable Shares it
acquires upon exercise of one or more of its Call Rights. If Subco declines to
exercise its Call Rights when applicable, the Company and Subco will be
required, pursuant to the Support Agreement to be entered between the Company,
Subco and Promis, to issue or deliver, as the case may be, Common Stock as
Promis directs, including to Promis, which will, in turn, transfer and/or
deliver such stock to the holders of Exchangeable Shares in consideration for
the return and cancellation of such Exchangeable Shares. the Company anticipates
that Subco will exercise its Call Rights, when available, and currently foresees
no circumstances under which Subco would not exercise its Call Rights. In
addition, the Company does not anticipate any restriction or limitation on the
number of Exchangeable Shares Subco would acquire upon exercise of its Call
Rights.
LSI WARRANT
On May 1, 1996, Promis granted a warrant to purchase up to 100,000
Promis Common Shares (the "LSI Warrant") to LSI Logic Corporation, a Delaware
corporation ("LSI"). The LSI Warrant may be exercised at any time but not
later than 5:00 p.m., Toronto time, on April 30, 2000. At the Effective Time,
in accordance with the Plan of Arrangement, the LSI Warrant will be
converted, without any further action on the part of LSI, into a warrant to
purchase the number of shares of PRI Common Stock (the "Warrant Shares")
equal to the product of the Exchange Ratio and the number of Promis Common
Shares subject to issuance under the LSI Warrant (the "Replacement Warrant").
The Warrant Shares are included in the shares of Common Stock being offered
hereunder. The Replacement Warrant will have an exercise price equal to the
exercise price per share of the LSI Warrant immediately prior to the
Effective Time divided by the Exchange Ratio and converted from Canadian
dollars to United States dollars at the noon spot exchange rate announced by
the Bank of Canada on the third business day immediately preceding the
Effective Date. If the foregoing calculation results in the Replacement
Warrant being exercisable for a fraction of a share of PRI Common Stock, then
the number of shares of PRI Common Stock subject to the Replacement Warrant
will be rounded down to the nearest whole number of shares and the total
exercise price for the Replacement Warrant will be reduced by the exercise
price of the fractional share of PRI Common Stock. All other terms of the LSI
Warrant will remain unchanged upon the conversion into the Replacement
Warrant.
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INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATION TO HOLDERS OF EXCHANGEABLE SHARES
The Company has been advised by Blake, Cassels & Graydon, Canadian
counsel for the Company, that the following is an accurate summary of the
principal Canadian federal income tax considerations generally applicable to
holders of Exchangeable Shares that, for purposes of the Income Tax Act
(Canada) (the "Canadian Tax Act"), hold their Exchangeable Shares and the
voting rights attached thereto, the Exchange Right and the Exchange Put Right
(such rights being referred to collectively as the "Holder Rights") as
capital property, deal at arm's length with Promis, the Company and Subco and
are not affiliated with Promis, the Company or Subco. This summary does not
apply to a holder with respect to whom the Company is or will be a foreign
affiliate within the meaning of the Canadian Tax Act. This summary assumes
that the Exchangeable Shares will at all times be listed on the TSE or
another prescribed stock exchange. This summary does not address the tax
consequences of the transactions, including the Arrangement, in which the
Exchangeable Shares will be acquired, or the exercise of the LSI Warrant.
Exchangeable Shares will generally be considered to be capital property
to a holder unless held in the course of carrying on a business, in an
adventure in the nature of trade or as "mark-to-market property" for purposes
of the Canadian Tax Act. Shareholders resident in Canada for the purposes of
the Canadian Tax Act whose Exchangeable Shares might not otherwise qualify as
capital property may be entitled to obtain such qualification by making the
irrevocable election provided by subsection 39(4) of the Canadian Tax Act.
Shareholders who do not hold their shares as capital property should consult
their own advisers regarding their particular circumstances and, in the case
of certain "financial institutions" (as defined in Section 142.2 of the
Canadian Tax Act), the potential application to them of the "mark-to-market"
rules in the Canadian Tax Act, as the following summary does not apply to
such shareholders.
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), as amended ("Tax Treaty") and counsel's
understanding of the current administrative practices of Revenue Canada,
Customs, Excise and Taxation ("Revenue Canada"). This summary takes into
account the amendments to the Canadian Tax Act and Regulations publicly
announced by the Minister of Finance prior to the date hereof (the "Proposed
Amendments") and assumes that all such Proposed Amendments will be enacted in
their present form. However, no assurances can be given that the Proposed
Amendments will be enacted in the form proposed, or at all.
Except for the Proposed Amendments, this summary does not take into account
or anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein. No
advance tax ruling has been sought or obtained from Revenue Canada to confirm
the tax consequences of any of the transactions described herein.
WHILE THIS SUMMARY IS INTENDED TO ADDRESS THE 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 AND PROSPECTIVE HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
For purposes of the Canadian Tax Act, all amounts must be expressed in
Canadian dollars, including dividends, adjusted cost base and proceeds of
disposition; amounts denominated in United States dollars must be converted into
Canadian dollars based on the prevailing United States dollar exchange rate
generally prevailing at the time such amounts arise.
SHAREHOLDERS RESIDENT IN CANADA
The following portion of the summary is applicable to holders of
Exchangeable Shares ("Holders") who, for purposes of the Canadian Tax Act, are
resident or deemed to be resident in Canada ("Canadian Holders").
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DIVIDENDS
EXCHANGEABLE SHARES. In the case of a Canadian Holder who is an
individual, dividends received or deemed to be received on the Exchangeable
Shares will be included in computing the Canadian Holder's income, and will
generally be subject to the gross-up and dividend tax credit rules normally
applicable to taxable dividends received from taxable Canadian corporations.
In the case of a Canadian Holder that is a corporation, dividends received or
deemed to be received on the Exchangeable Shares will be included in
computing the Canadian Holder's income.
Subject to the discussion set out below, in the case of a Canadian
Holder 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 be included in computing the
corporation's income and will normally be deductible in computing its taxable
income.
In the case of a Canadian Holder that is a specified financial
institution, a dividend which is otherwise deductible in accordance with the
foregoing will be deductible in computing its taxable income only if either:
(i) the specified financial institution did not acquire the
Exchangeable Shares in the ordinary course of the business carried
on by such institution; or
(ii) at the time of the receipt of the dividend by the specified
financial institution, the Exchangeable Shares are listed on a
prescribed stock exchange in Canada (which currently includes the
TSE) and the specified financial institution, either alone or
together with persons not dealing at arm's length with the
Canadian Holder for purposes of the Canadian Tax Act does not
receive (and is not deemed to receive) dividends in respect of
more than 10 percent of the issued and outstanding Exchangeable
Shares.
A Canadian Holder 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 (other than
a trust) or a related group of individuals (other than trusts) may be liable
under Part IV of the Canadian Tax Act to pay a refundable tax of 33-1/3
percent on dividends received or deemed to be received on the Exchangeable
Shares to the extent that such dividends are deductible in computing the
Canadian Holder's taxable income. A Canadian Holder 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 percent on
dividends or deemed dividends that are not deductible in computing taxable
income.
The Exchangeable Shares will be "taxable preferred shares" and
"short-term preferred shares" and, subject to the discussion above, "term
preferred shares" for purposes of the Canadian Tax Act. Accordingly, Promis
will be subject to a 66-2/3 percent tax under Part VI. 1 of the Canadian Tax
Act on dividends (other than excluded dividends) paid or deemed to be paid on
the Exchangeable Shares. In certain circumstances, Promis may be entitled to
deductions under Part I of the Canadian Tax Act which will substantially
offset the impact of the Part VI. 1 tax. Dividends received or deemed to be
received on the Exchangeable Shares by a Canadian Holder that is a
corporation will not be subject to the 10 percent tax under Part IV. 1 of the
Canadian Tax Act applicable to certain corporations.
If the Company or any person with whom the Company does not deal at
arm's length is a specified financial institution under the Canadian Tax Act
at the time a dividend is paid on an Exchangeable Share, then, subject to the
exemption described below, dividends received or deemed to be received by a
Canadian Holder that is a corporation will not be deductible in computing
taxable income but, as discussed above, will in any event be fully includable
in computing income under Part I 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, or a corporation
controlled by or related to any such entity or a prescribed corporation.
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The foregoing denial of the dividend deduction for a corporate Canadian
Holder will not in any event apply if at the time a dividend is received or
deemed to be received, the Exchangeable Shares are listed on a prescribed
stock exchange (which currently includes the TSE), the Company controls
Promis, and the recipient (together with persons with whom the recipient does
not deal at arm's length or any partnership or trust of which the recipient
or person is a member or beneficiary, respectively) does not receive
dividends on more than 10 percent of the issued and outstanding Exchangeable
Shares.
REDEMPTION OR EXCHANGE OF EXCHANGEABLE SHARES
On the redemption (including a retraction) of an Exchangeable Share by
Promis, the Canadian Holder will be deemed to have received a dividend equal
to the amount, if any, by which the redemption proceeds (the fair market
value at that time of the consideration received by the Canadian Holder as
part of the exchange) exceeds the aggregate of the paid-up capital (for
purposes of the Canadian Tax Act) at the time of the redemption of the
Exchangeable Share, and any amount allocated to the cancellation of the
Holder Rights attached to such shares. The amount of any such deemed dividend
will generally be subject to the tax treatment described above under
"Dividends -- Exchangeable Shares". On the redemption, the Canadian Holder
will also be considered to have disposed of the Exchangeable Share for
proceeds of disposition equal to the redemption proceeds less the amount of
such deemed dividend and any amount allocated to the cancellation of the
Holder Rights attached to such share and will also dispose of the Holder
Rights attached to such share for proceeds of disposition equal to the amount
allocated to the cancellation of the Holder Rights attached to such share.
PRI is of the view that the fair market value of such rights is nominal.
However, counsel can provide no opinion on matters of factual determination
such as this. A Canadian Holder will in general realize a capital gain (or a
capital loss) equal to the amount by which the adjusted cost base to the
Canadian Holder is less than (or exceeds) the proceeds of disposition of the
Exchangeable Share (net of reasonable costs of disposition) (see "Taxation of
Capital Gain or Capital Loss" below). In the case of a Canadian Holder that
is a corporation, in some circumstances the amount of any such deemed
dividend may be treated as proceeds of disposition and not as a dividend
pursuant to subsection 55(2) of the Canadian Tax Act.
On the exchange of an Exchangeable Share by the Canadian Holder thereof
with Subco for shares of Common Stock (including any related Rights), other
than on the redemption or retraction of an Exchangeable Share, the Canadian
Holder will in general realize a capital gain (or a capital loss) to the
extent the proceeds of disposition of the Exchangeable Share, net of any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to the Canadian Holder. For these purposes, the proceeds of disposition
will be the aggregate fair market value, at the time of the exchange, of the
consideration received by the Canadian Holder as part of the exchange (less
any amount allocated to the cancellation of the Holder Rights attached
thereto) (see "--Taxation of Capital Gain or Capital Loss" below).
Because of the existence of the Call Rights and the Exchange Right, a
Canadian Holder cannot control whether such Holder will receive shares of
Common Stock by way of redemption of the Exchangeable Shares by Promis or by
way of purchase of Exchangeable Shares by Subco, except to the extent that
the Canadian Holder may exercise the Exchange Put Right. As described above,
the Canadian federal income tax consequences of a redemption differ from
those of an exchange.
TAXATION OF CAPITAL GAIN OR CAPITAL LOSS
Three-quarters of any capital gain (the "taxable capital gain") realized
by a Canadian Holder will be included in the Canadian Holder's income for the
year of disposition. Three-quarters of any capital loss so realized (the
"allowable capital loss") may be deducted by the Canadian Holder against
taxable capital gains for the year of disposition. Any excess of allowable
capital losses over taxable capital gains of the Canadian Holder 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 to the extent and in the circumstances prescribed in the Canadian Tax
Act.
Capital gains realized by an individual or trust, other than certain
trusts, may give rise to alternative minimum tax under the Canadian Tax Act.
A Canadian Holder that is a Canadian-controlled private corporation may be
liable to pay an additional refundable tax of 6-2/3 percent on taxable capital
gains.
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If the Canadian Holder is a corporation, the amount of any capital loss
arising on a disposition or deemed disposition of any such share may be
reduced by the amount of dividends received or deemed to have been received
by it on such share to the extent and under the 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 any
such shares.
TAXATION OF PRI COMMON STOCK
ACQUISITION AND DISPOSITION OF SHARES OF PRI COMMON STOCK. The cost
amount of shares of PRI Common Stock received on the retraction, redemption
or exchange of Exchangeable Shares will in general be equal to the fair
market value of such shares of PRI Common Stock at the time of such event.
A disposition or deemed disposition of shares of PRI Common Stock by a
Canadian Holder will generally result in a capital gain (or capital loss) to
the extent that the proceeds of disposition, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base to the holder
of shares of PRI Common Stock immediately before the disposition. In
computing the adjusted cost base of a share of PRI Common Stock, the cost
thereof must be averaged with the adjusted cost base of any other shares of
PRI Common Stock held at that time by the Canadian Holder as capital property.
DIVIDENDS ON SHARES OF PRI COMMON STOCK. Dividends received or deemed to
be received by a Canadian Holder on shares of PRI Common Stock must be
included in computing the income of the Canadian Holder for purposes of the
Canadian Tax Act, and, in the case of a Canadian Holder that is an
individual, such dividends will not be subject to the gross-up and dividend
tax credit rules normally applicable to taxable dividends received from
taxable Canadian corporations and, in the case of a Canadian Holder that is a
corporation, such dividends will not be deductible in computing the
corporation's taxable income for purposes of the Canadian Tax Act. Canadian
Holders may in certain circumstances be entitled to a foreign tax credit in
respect of any U.S. withholding tax payable in connection with such
dividends, subject to the detailed rules in the Canadian Tax Act with respect
to foreign tax credits, including in particular the proposed amendments to
such rules set out in the Notice of Ways and Means Motion tabled in the House
of Commons on December 10, 1998.
FOREIGN PROPERTY INFORMATION REPORTING. A holder of shares of PRI Common
Stock who is a "specified Canadian entity" for a taxation year or a fiscal
period and whose total cost amounts of "specified foreign property,"
including such shares, at any time in the year or fiscal period exceeds Cdn.
$100,000 will be required to file an information return for the year or
period disclosing prescribed information, including the holder's cost amount,
any dividends received in the year, and any gains or losses realized in the
year, in respect of such property. With some exceptions, generally, a
taxpayer resident in Canada in the year will be a specified Canadian entity.
A holder of shares of PRI Common Stock should consult its own advisors about
whether it must comply with these rules.
ELIGIBILITY FOR INVESTMENT IN CANADA
QUALIFIED INVESTMENTS. The Exchangeable Shares if issued on the date
hereof, and the shares of Common Stock if issued on the date hereof, and listed
on a prescribed stock exchange (which currently includes the TSE and the
Nasdaq), would 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. The Holder Rights attached to the
Exchangeable Shares will generally not be qualified investments under the
Canadian Tax Act. However, as indicated above, PRI is of the view that the
fair market value of these rights is nominal.
FOREIGN PROPERTY. Based in part on a certificate of an officer of
Promis, the Exchangeable Shares if issued on the date hereof and listed on a
prescribed stock exchange in Canada (which currently includes the TSE) would
not be foreign property under 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. For the foregoing taxpayers, a penalty tax is
imposed by Part XI of the Canadian Tax Act if the cost amount of their
investment in the foreign property exceeds the statutory limit. The Holder
Rights attached to the Exchangeable Shares will be foreign property under the
Canadian Tax Act.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the summary is applicable to Holders 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 held Promis Common Shares
or will hold Exchangeable Shares or shares of Common Stock and to whom such
shares are not taxable Canadian property 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 and are not
designated insurance property ("Non-Canadian Holders").
Exchangeable Shares will generally not be taxable Canadian property to a
Non-Canadian Holder provided that such shares are listed on a prescribed
stock exchange (which currently includes the TSE and Nasdaq), the
Non-Canadian Holder does not use or hold, and is not deemed to use or hold,
the Exchangeable Shares, in carrying on a business in Canada and the
Non-Canadian Holder, persons with whom the Non-Canadian Holder does not deal
at arm's length, or the Non-Canadian Holder and such persons, has not
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owned (or had rights to acquire) 25 percent or more of the issued shares of
any class or series of the capital stock of Promis at any time within five
years preceding the date of disposition, and has not acquired the
Exchangeable Shares in a transaction where the Exchangeable Shares are deemed
to be taxable Canadian property, such as where the Non-Canadian Holder
disposed of taxable Canadian property and the resulting gain was deferred
under the Canadian Tax Act.
Even if an Exchangeable Share is considered to be taxable Canadian
property, there may be relief available under an applicable tax convention,
such as the Tax Treaty. Such Non-Canadian Holders should consult their own
tax advisors to determine the tax consequences in their own situation.
A Non-Canadian Holder will not in general be subject to any Canadian tax
on a capital gain realized or deemed to have been realized on the disposition
of an Exchangeable Share.
When a Non-Canadian Holder exchanges the Exchangeable Shares for Common
Stock, the Non-Canadian Holder may be deemed to have received a dividend
subject to withholding tax (discussed below) and realized a capital gain or
loss (generally tax-free as discussed above).
Dividends paid on the Exchangeable Shares are subject to non-resident
withholding tax under the Canadian Tax Act at the rate of 25 percent of the
gross amount of the dividend, 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 percent 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 Non-Canadian Holder whose Exchangeable Shares are redeemed (either
under Promis's redemption right or pursuant to the Non-Canadian Holder's
retraction rights) will be deemed to receive a dividend as and to the extent
described above under the heading "Shareholders Resident in Canada", which
deemed dividend will be subject to withholding tax as described in the
preceding paragraph.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO HOLDERS OF EXCHANGEABLE
SHARES
The Company has been advised by Foley, Hoag & Eliot LLP that the
following discussion is an accurate summary of the anticipated material
United States federal income tax considerations generally applicable to
holders of Exchangeable Shares under the United States Internal Revenue Code
of 1986, as amended. This discussion does not address all the federal income
tax considerations that may be relevant to particular holders of Exchangeable
Shares in light of their particular circumstances, such as stockholders who
are dealers in securities. In addition, the following discussion does not
address the tax consequences of transactions, including the Arrangement, in
which the Exchangeable Shares will be acquired, or the exercise of the LSI
Warrant. Furthermore, no foreign, state, or local tax considerations are
addressed in this discussion.
HOLDERS OF EXCHANGEABLE SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSIDERATIONS, INCLUDING THE FEDERAL, STATE, LOCAL, AND
FOREIGN TAX CONSIDERATIONS, APPLICABLE TO HOLDERS OF EXCHANGEABLE SHARES.
The following discussion is based on the Code, applicable United States
Treasury regulations, judicial authority, and administrative rulings and
practice, all as of the date of this Registration Statement, and is for general
information only. No statutory, judicial, or administrative authority exists
that directly addresses certain of the United States federal income tax
consequences of the ownership of instruments and rights comparable to the
Exchangeable Shares, the voting rights attached thereto, the Exchange Put
Rights, and the Call Rights.
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Consequently, some aspects of the United States federal income tax treatment of
the Arrangement, including the exchange of Exchangeable Shares for shares of
Common Stock, are not certain. No advance income tax ruling has been sought or
obtained from the United States Internal Revenue Service ("IRS") regarding the
tax consequences of any of the transactions described herein.
TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS
The following is a summary of the material United States federal income tax
considerations generally applicable to individual citizens or residents of the
United States for U.S. federal income tax purposes, corporations or partnerships
created in the United States or under the laws of the United States or of any
state, and estates or trusts other than foreign estates or trusts ("U.S.
Holders") who hold Exchangeable Shares as capital assets.
EXCHANGE OF EXCHANGEABLE SHARES. It is anticipated that (subject to certain
exceptions described below) a U.S. Holder that exercises such holder's right to
exchange the Exchangeable Shares for shares of Common Stock (including an
exchange upon the occurrence of an Automatic Redemption Date) generally will
recognize gain or loss on the receipt of the shares of Common Stock in exchange
for such Exchangeable Shares. Such gain or loss will be equal to the difference
between the fair market value of the shares of Common Stock at the time of the
exchange and the U.S. Holder's tax basis in the Exchangeable Shares exchanged
therefor. The gain or loss 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 by the holder thereof. Capital gain or loss
will be long-term capital gain or loss if the U.S. Holder's holding period in
the Exchangeable Shares is more than one year at the time of the exchange. The
U.S. Holder will take as such holder's tax basis in the shares of Common Stock
the fair market value of the shares of Common Stock received by the U.S. Holder
at the time of the exchange. The holding period of the shares of Common Stock
received by the U.S. Holder in the exchange will begin on the day after such
exchange.
In view of the likelihood of the recognition of gain or loss upon the
exchange of Exchangeable Shares for shares of Common Stock, U.S. Holders may
wish to consider delaying such exchange until such time as they intend to
dispose of the shares of Common Stock receivable in exchange for their
Exchangeable Shares, until such time that Subco owns at least 80 percent of all
the then issued and outstanding Exchangeable Shares, or until Subco exercises
its Redemption Call Right or Liquidation Call Right.
Under certain limited circumstances, the exchange by a U.S. Holder for
shares of Common Stock may be characterized as a tax-free exchange. First, an
exchange of Exchangeable Shares for shares of Common Stock may be characterized
as a tax-free exchange if, at the time of such exchange, (i) at least 80 percent
of the then outstanding Exchangeable Shares are held by Subco and (ii) in such
exchange, Subco, rather than Promis, acquires the Exchangeable Shares in
exchange for shares of Common Stock pursuant to the exercise of its Call Rights.
Second, an exchange of Exchangeable Shares for shares of Common Stock may be
characterized as a tax-free exchange if the U.S. Holder receives shares of
Common Stock from Subco upon the exercise by Subco of the Redemption Call Right
or the Liquidation Call Right. In either case, the exchange would not be
tax-free unless certain other requirements, which will depend upon the facts and
circumstances existing at the time of the exchange and cannot be accurately
predicted as of the date hereof, are satisfied.
If such exchange did qualify as a tax-free exchange, a U.S. Holder would
recognize no gain or loss on an exchange of Exchangeable Shares for Common
Stock. An exchanging U.S. Holder would take as such holder's tax basis in the
shares of Common Stock such holder's tax basis in the Exchangeable Shares
exchanged therefor. The holding period of the shares of Common Stock received by
a U.S. Holder should include the holding period of the Exchangeable Shares
exchanged therefor, provided that such Promis Common Shares and Exchangeable
Shares have been held as capital assets immediately prior to the Arrangement and
the subsequent exchange, respectively. For United States federal income tax
purposes, gain realized on the exchange of Exchangeable Shares for shares of
Common Stock generally will be treated as United States source gain, except
that, under the
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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 U.S. 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.
DISTRIBUTIONS ON THE EXCHANGEABLE SHARES. Although such treatment is not
free from doubt, the Company and Promis intend to treat distributions, if any,
with respect to the Exchangeable Shares as distributions from Promis, rather
than from the Company. Assuming such treatment is proper, a U.S. Holder
generally will be required to include in gross income, as ordinary income,
dividends paid on the Exchangeable Shares to the extent paid out of the earnings
and profits of Promis, as determined under United States federal income tax
principles. Such dividends generally will be treated as foreign source passive
income for foreign tax credit limitation purposes. Subject to certain
limitations of United States federal income tax law, a U.S. Holder should
generally be entitled to either a credit against such Holder's United States
federal income tax liability or a deduction in computing United States taxable
income for Canadian income taxes withheld from distributions with respect to the
Exchangeable Shares.
TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
The following summary is applicable to holders of Exchangeable Shares that
are not U.S. Holders ("Non-U.S. Holders").
EXCHANGE OF EXCHANGEABLE SHARES. A Non-U.S. Holder generally will not be
subject to United States federal income tax on gain (if any) recognized on the
sale or exchange of the Exchangeable Shares, or on the receipt or sale of shares
of Common Stock unless such gain is effectively connected with a United States
trade or business.
DISTRIBUTIONS ON THE EXCHANGEABLE SHARES. Dividends received by a Non-U.S.
Holder with respect to the Exchangeable Shares should not be subject to United
States withholding tax. Therefore, Promis and the Company do not intend to
withhold any amounts in respect of such tax from such dividends. The IRS,
however, may assert that United States withholding tax is payable with respect
to dividends paid on the Exchangeable Shares to Non-U.S. Holders. As a result,
Non-U.S. Holders could be subject to United States withholding tax at a rate of
30 percent. The withholding rate may be reduced by an applicable treaty in
effect between the United States and the Non-U.S. Holder's country of residence.
Under the Tax Treaty, a maximum rate of 15 percent applies to dividends paid to
residents of Canada.
DISTRIBUTIONS ON SHARES OF PRI COMMON STOCK. Dividends received by a
Non-U.S. Holder with respect to the PRI Common Stock generally will be
subject to United States withholding tax at a rate of 30 percent, which rate
may be subject to reduction by an applicable income tax treaty (generally 15
percent on dividends paid to residents of Canada under the Tax Treaty).
GAIN ON SALE OR EXCHANGE OF PRI COMMON STOCK. A Non-U.S. Holder
generally will not be subject to United States federal income tax on gain
recognized on the sale or exchange of shares of PRI Common Stock unless such
gain is effectively connected with a United States trade or business or, in
the case of gain recognized by an individual, such individual is present in
the United States for 183 days or more and certain other conditions are
satisfied. (If PRI is at any time a "United States real property holding
corporation" (a "USRPHC"), certain additional United States federal income
tax rules, including withholding of United States tax on gross proceeds of
the sale of shares of PRI Common Stock, may apply. PRI believes that it is
not a USRPHC. Although PRI considers it unlikely that it will become a
USRPHC, there can be no assurances as to this issue.)
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LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Foley, Hoag & Eliot LLP, Boston, Massachusetts. A member
of that firm beneficially owns 8,500 shares of Common Stock.
EXPERTS
The consolidated balance sheets of the Company as of September 30, 1998
and 1997 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
September 30, 1998, incorporated by reference herein, except as they relate
to Equipe Technologies, Inc., E-Machine, Inc., and Equipe Japan Corporation
(the "Equipe Combined Companies") for the year ended December 31, 1996, have
been incorporated herein in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of that firm as experts
in accounting and auditing, and insofar as such financial statements relate
to the Equipe Combined Companies for the year ended December 31, 1996, have
been incorporated herein in reliance on the report of Ernst & Young LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets of Promis as at December 31, 1997 and
1996 and the related consolidated statements of income, retained earnings and
changes in financial position for each of the three years in the period ended
December 31, 1997, have been included herein in reliance on the report of
Ernst & Young LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
36
<PAGE>
We have not authorized any dealer, sales representative or other person to
give you any information or to make any representations other than the
statements in this Prospectus. If anyone gives you any other information or
makes any other representation, you should not rely on it. After the date of
this Prospectus, you should not assume that the information in this Prospectus
continues to be accurate, even if this Prospectus is delivered to you after that
date or if you acquire Common Stock after that date. This Prospectus is neither
an offer to sell nor the solicitation of an offer to buy any securities other
than the Common Stock. This Prospectus is neither an offer to sell nor the
solicitation of an offer to buy Common Stock if: (1) you are in a jurisdiction
that does not permit such offer or solicitation; (2) the person making the offer
or solicitation is not qualified to do so; or (3) it is unlawful to make such
offer or solicitation to you.
2,490,516 SHARES
PRI AUTOMATION, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Third Quarter Consolidated Financial Statements of Promis Systems
Corporation Ltd.
Consolidated Balance Sheets as at September 30, 1998 and 1997........................ F-1
Consolidated Statements of Income for the three and nine months ended September 30,
1998 and 1997...................................................................... F-2
Consolidated Statements of Changes in Financial Position for the three and nine
months ended September 30, 1998 and 1997........................................... F-3
Notes to Consolidated Financial Statements........................................... F-4
1997 Consolidated Financial Statements of Promis Systems Corporation Ltd.
Auditors' Report..................................................................... F-9
Consolidated Balance Sheets as at December 31, 1997 and 1996......................... F-10
Consolidated Statements of Income (Loss) and Retained Earnings (Deficit)
for the years ended december 31, 1997, 1996 and 1995............................... F-11
Consolidated Statements of Changes in Financial Position
for the years ended December 31, 1997, 1996 and 1995............................... F-12
Notes to Consolidated Financial Statements........................................... F-13
Unaudited Pro Forma Combined Consolidated Financial Statements of
PRI Automation, Inc. and Promis Systems Corporation Ltd.
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 1998........ F-27
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended September 30, 1998...................................................... F-28
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended September 30, 1997...................................................... F-29
Notes to Unaudited Pro Forma Condensed Combined Financial Statements................. F-30
</TABLE>
<PAGE>
Promis Systems Corporation Ltd.
Consolidated Balance Sheets
As at September 30
[U.S. dollars, in thousands]
<TABLE>
<CAPTION>
1998 1997
$ $
- --------------------------------------------------------------------------------
[unaudited]
ASSETS
<S> <C> <C>
Current
Cash and short term deposits 8,839 7,318
Accounts receivable 5,777 5,501
Unbilled receivables 3,879 4,119
Income taxes recoverable 58 52
Prepaid expenses 280 404
- --------------------------------------------------------------------------------
Total current assets 18,833 17,394
- --------------------------------------------------------------------------------
Other
Capital assets, net 3,184 2,542
Deferred income taxes 1,481 1,481
Intellectual property, net 892 --
Goodwill, net 2,060 2,263
- --------------------------------------------------------------------------------
Total other assets 7,617 6,286
- --------------------------------------------------------------------------------
26,450 23,680
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 1,884 1,275
Unearned revenue 2,855 2,673
Current portion of capital lease 688 397
- --------------------------------------------------------------------------------
Total current liabilities 5,427 4,345
- --------------------------------------------------------------------------------
Long term
Capital lease obligation 659 517
Deferred tenant inducement 965 919
- --------------------------------------------------------------------------------
Total long term liabilities 1,624 1,436
- --------------------------------------------------------------------------------
Total liabilities 7,051 5,781
- --------------------------------------------------------------------------------
Shareholders' equity
Share capital 14,794 15,458
Contributed surplus 362 476
Retained earnings 4,243 1,965
- --------------------------------------------------------------------------------
Total shareholders' equity 19,399 17,899
- --------------------------------------------------------------------------------
26,450 23,680
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-1
<PAGE>
Promis Systems Corporation Ltd.
Consolidated Statements of Income
For the period ended September 30
[U.S. dollars, in thousands except per share amounts]
<TABLE>
<CAPTION>
Quarter Year to date
---------------------------------
1998 1997 1998 1997
$ $ $ $
- --------------------------------------------------------------------------------
[unaudited]
<S> <C> <C> <C> <C>
Revenue 6,022 6,051 19,383 17,045
Cost of sales 341 244 1,101 447
- --------------------------------------------------------------------------------
Gross profit 5,681 5,807 18,282 16,598
- --------------------------------------------------------------------------------
Expenses
Research and development 1,606 1,612 5,576 5,188
less: related investment tax credits (100) -- (300) --
Selling and marketing 2,263 2,213 6,968 6,270
Customer integration services 411 616 1,379 1,637
General and administrative 896 761 2,506 2,369
- --------------------------------------------------------------------------------
5,076 5,202 16,129 15,464
- --------------------------------------------------------------------------------
Income before income taxes 605 605 2,153 1,134
Provision for (recovery of) income taxes 100 -- 300 (60)
- --------------------------------------------------------------------------------
Net income for the period 505 605 1,853 1,194
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Earnings per share (US$)
Basic 0.05 0.06 0.18 0.13
Fully diluted 0.04 0.05 0.16 0.11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Weighted average number of share (000's)
Basic 10,237 10,077 10,218 8,925
Fully diluted 12,151 11,788 12,132 10,636
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-2
<PAGE>
Promis Systems Corporation Ltd.
Statements of Changes in Financial Position
For the period ended September 30
[U.S. dollars, in thousands]
<TABLE>
<CAPTION>
Quarter Year to date
1998 1997 1998 1997
$ $ $ $
- ---------------------------------------------------------------------------------------------
[unaudited]
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the period 505 605 1,853 1,194
Add (deduct) items not requiring a current
outlay of cash
Amortization of capital assets 368 236 1,114 805
Amortization of deferred tenant inducement (34) -- (88) (120)
- ---------------------------------------------------------------------------------------------
839 841 2,879 1,879
Net change in non-cash working capital
balances related to operations 523 (2,907) 632 (3,719)
- ---------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 1,362 (2,066) 3,511 (1,840)
- ---------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (326) (176) (1,150) (616)
- ---------------------------------------------------------------------------------------------
Cash used in investing activities (326) (176) (1,150) (616)
- ---------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Obligation under capital lease (15) (117) 246 (67)
Deferred tenant inducement 67 -- 129 736
Issuance of share capital, net 9 (29) 36 5,911
Reduction of share capital -- -- (1,301) --
Contributed surplus -- -- -- 114
- ---------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 61 (146) (890) 6,694
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash during the period 1,097 (2,388) 1,471 4,238
Cash position, beginning of period 7,742 9,706 7,368 3,080
- ---------------------------------------------------------------------------------------------
Cash position, end of period 8,839 7,318 8,839 7,318
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE>
Note to the unaudited financial statements
RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN CANADA AND IN THE
UNITED STATES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") which, in
the case of the Company, conform in all material respects with those in the
United States ("US GAAP"), except as follows:
a) The Company's revenue recognition policy under Canadian GAAP has been
substantially in accordance with AICPA Statement of Position ("SOP") 91-1,
"Software Revenue Recognition". Under US GAAP, for years ended after
December 15, 1997, SOP 97-2, "Software Revenue Recognition", further
codifies revenue recognition for software sales. Under SOP 97-2, a
contract signed by both parties is the only acceptable evidence of an
arrangement while Canadian GAAP and SOP 91-1 permitted other persuasive
evidence of an arrangement. As a result, sales of $2,558 and expenses of
$263 have not been recognized under US GAAP.
b) Under US GAAP basic earnings per share are based on the weighted average
number of common shares excluding contingent shares issued and shares
issued pursuant to share purchase loans. Diluted earnings per share are
calculated in accordance with the treasury stock method and are based on
the weighted average number of common shares and dilutive common share
equivalents outstanding.
c) For reconciliation purposes to U.S. GAAP, the Company has applied the
provisions of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109) effective August 31, 1993. Under
SFAS 109, the liability method is used in accounting for income taxes.
SFAS 109 requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in
the financial statements or returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using enacted
tax rates that will be in effect for the year in which the differences are
expected to reverse. In addition this method provides for a valuation
allowance against deferred tax assets where it is more likely than not
that some portion or all of a deferred tax asset will not be realized.
Under US GAAP, Research and Development investment tax credits would be
credited to the income tax provision rather than as a net to research and
development expenses. $300 was credited to research and development for
the period ended September 30, 1998 under Canadian GAAP.
The significant components of the Company's deferred tax assets, under US
GAAP, are as follows:
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 1997
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
R&D and Capital assets - tax base in excess of book value 9,572 8,425
Losses carried forward 639 --
Investment tax credits 2,600 2,233
Other 857 701
Less Valuation Allowance (13,668) (11,359)
- --------------------------------------------------------------------------------
Future Income Tax Assets 0 0
- --------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE>
d) Under Canadian GAAP, unrealized foreign exchange gains and losses relating
to non-current monetary items are deferred and amortized to income over
the remaining life of the underlying non-current monetary item. Under US
GAAP these unrealized foreign exchange gains and losses are recognized in
income immediately. The amounts recognized each year for Canadian GAAP
purposes, approximates the amounts which would have been recognized for US
GAAP.
e) Under US GAAP, gains and losses related to hedges of anticipated
transactions may not be deferred unless a firm commitment exists while
under Canadian GAAP, it is only necessary to have reasonable assurance
that the anticipated transactions will occur. The liability at September
30, 1998, measured at the current exchange rate, relating to future
purchase contracts outstanding which are not hedges of firm commitments is
approximately $300.
f) Under Canadian GAAP, for purposes of the statements of cash flows, cash
position includes all short-term investments less bank indebtedness. Under
US GAAP, cash position includes highly liquid investments with original
maturities of less than three months. Bank indebtedness is presented as a
financing activity for purposes of US GAAP.
g) Under Canadian GAAP, the forgiveness of a share purchase loan in 1997 was
recognized as an increase of $454 to the Company's deficit. Under US GAAP,
the share purchase loans are viewed as part of a variable compensation
arrangement with changes in the value of the underlying shares recorded as
adjustments to income in the year in which they occurred in periods prior
to 1995. The resulting share purchase loan balance of $321 was charged to
expense when the Company's Board of Directors approved the forgiveness in
1995.
h) Under Canadian GAAP, a reduction of the stated capital of outstanding
common shares is allowed with a corresponding offset to deficit. This
reclassification, which the Company made in 1997 to eliminate the deficit
which existed at December 31, 1995, is not permitted by US GAAP and would
result in an increase to share capital and corresponding decrease in
retained earnings of $17,797.
i) Under Canadian GAAP, stock options are accounted for at the date of
exercise when the purchase is recorded as an increase to capital stock.
For reconciliation purposes to US GAAP, the Company has chosen to follow
APB 25 in accounting for stock options granted to directors, officers and
employees. Since the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of the
grant no compensation expense has been recognized.
j) The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130 "Comprehensive Income" ("SFAS 130"). SFAS 130
requires companies to report comprehensive income which includes all
changes in stockholders' equity during a period except those resulting
from investments by owners and distributions to owners. For purposes of
reconciliation to US GAAP, the Company's comprehensive income would equal
its net income for the periods presented.
F-5
<PAGE>
The following table reconciles the net income as reported on the consolidated
statements of earnings (loss) to that which would have been reported had the
financial statements been prepared in accordance with US GAAP and the
requirements of the SEC.
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 1997
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Net earnings under Canadian GAAP 1,853 1,194
Adjustments:
Revenue recognition under SOP 97-2 (2,295) --
Unrealized loss on currency hedge
of anticipated transactions (300) --
- --------------------------------------------------------------------------------
Net earning (loss) under US GAAP (742) 1,194
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The following table sets forth the computation of basic and diluted earnings per
share under US GAAP
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 1997
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net income (loss) (742) 1,194
- --------------------------------------------------------------------------------
Numerator for basic earnings per share (742) 1,194
Income effect of dilutive securities: -- --
- --------------------------------------------------------------------------------
Numerator for diluted earnings per share (742) 1,194
- --------------------------------------------------------------------------------
Denominator:
Weighted average number of common shares 10,218,685 8,924,547
Effect of dilutive securities:
Stock options -- 669,927
Warrants -- 48,947
- --------------------------------------------------------------------------------
Adjusted weighted average number of common
shares and assumed conversions 10,218,685 9,643,421
- --------------------------------------------------------------------------------
Basic earnings per share ($ 0.07) $ 0.13
Diluted earnings per share ($ 0.07) $ 0.12
</TABLE>
2,046,575 stock options and warrants were outstanding in 1998 but were not
included in the computation of diluted earnings per share as the effects of
these items would be antidilutive.
F-6
<PAGE>
Cashflow information presented in conformity with US GAAP, is as follows:
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 1997
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Operating activities, Canadian GAAP 3,511 (1,840)
Exchange rate effect on foreign currency balances 53 --
- --------------------------------------------------------------------------------
Operating activities, US GAAP 3,564 (1,840)
- --------------------------------------------------------------------------------
Investing activities, Canadian GAAP (1,150) (616)
- --------------------------------------------------------------------------------
Investing activities, US GAAP (1,150) (616)
- --------------------------------------------------------------------------------
Financing activities, Canadian GAAP (890) 6,694
Decrease in bank indebtedness -- (802)
- --------------------------------------------------------------------------------
Financing activities, US GAAP (890) 5,892
- --------------------------------------------------------------------------------
Increase (decrease) in cash, US GAAP 1,524 3,436
Cash position, beginning of year, US GAAP 7,368 3,882
Exchange rate effect on foreign currency balances (53) --
- --------------------------------------------------------------------------------
Cash position, end of period, US GAAP 8,839 7,318
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash interest paid 67 66
- --------------------------------------------------------------------------------
Cash taxes paid 231 143
- --------------------------------------------------------------------------------
</TABLE>
Balance sheet items in conformity with U.S. GAAP which differ from those
presented for Canadian GAAP are as follows:
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 1997
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Unbilled receivables - Canadian GAAP 3,879 4,119
Revenue recognition under SOP 97-2 (2,558) --
- --------------------------------------------------------------------------------
Unbilled receivables - US GAAP 1,321 4,119
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Deferred income taxes - Canadian GAAP 1,481 1,481
Adjustment for income taxes under SFAS 109 (1,481) (1,481)
- --------------------------------------------------------------------------------
Deferred income taxes - US GAAP nil nil
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accounts payable - Canadian GAAP 1,884 1,275
Costs related to revenue recognition under SOP 97-2 (263) --
- --------------------------------------------------------------------------------
Accounts payable - US GAAP 1,621 1,275
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Unrealized loss on
foreign currency hedge - US GAAP 300 --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C>
Share capital -- Canadian GAAP 14,794 15,458
Forgiveness of share purchase loan -- 454
Deficit reduction 17,797 17,797
- --------------------------------------------------------------------------------
Share capital -- US GAAP 32,591 33,709
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Retained earnings -- Canadian GAAP 4,243 1,965
Forgiveness of share purchase loan -- (454)
Unrealized loss on currency hedge
of anticipated transactions (300) --
Revenue recognition under SOP 97-2, net (2,295) --
Deficit reduction (17,797) (17,797)
Adjustment for income taxes under SFAS 109 (1,481) (1,481)
- --------------------------------------------------------------------------------
Deficit -- US GAAP (17,630) (17,767)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
AUDITORS' REPORT
To the Directors of
Promis Systems Corporation Ltd.
We have audited the consolidated balance sheets of Promis Systems Corporation
Ltd. as at December 31, 1997 and 1996 and the consolidated statements of income
(loss) and retained earnings (deficit) and changes in financial position for
each of the years in the three-year period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended December 31, 1997
in accordance with generally accepted accounting principles.
Toronto, Canada, (Signed) Ernst & Young LLP
February 27, 1998. Chartered Accountants
F-9
<PAGE>
Promis Systems Corporation Ltd.
CONSOLIDATED BALANCE SHEETS
[expressed in thousands of U.S. dollars]
<TABLE>
<CAPTION>
As at December 31
1997 1996
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash and short-term deposits 7,368 3,882
Accounts receivable 8,040 6,352
Unbilled receivables 2,780 2,325
Income taxes recoverable 54 56
Prepaid expenses 388 376
- --------------------------------------------------------------------------------
Total current assets 18,630 12,991
- --------------------------------------------------------------------------------
Other
Capital assets, net [note 2] 3,887 2,543
Deferred income taxes 1,481 1,481
Goodwill, net of accumulated amortization of
$1,840 [1996 - $1,638] 2,212 2,414
- --------------------------------------------------------------------------------
Total other assets 7,580 6,438
- --------------------------------------------------------------------------------
26,210 19,429
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness [note 4] -- 802
Accounts payable and accrued liabilities 1,773 3,079
Unearned revenue 3,601 3,584
Current portion of obligations under capital leases [note 5] 482 324
- --------------------------------------------------------------------------------
Total current liabilities 5,856 7,789
- --------------------------------------------------------------------------------
Long-term
Obligations under capital leases [note 5] 619 657
Deferred tenant inducement [note 6] 924 303
- --------------------------------------------------------------------------------
Total long-term liabilities 1,543 960
- --------------------------------------------------------------------------------
Total liabilities 7,399 8,749
- --------------------------------------------------------------------------------
Shareholders' equity
Share capital [note 7] 16,059 27,344
Contributed surplus 362 362
Retained earnings (deficit) 2,390 (17,026)
- --------------------------------------------------------------------------------
Total shareholders' equity 18,811 10,680
- --------------------------------------------------------------------------------
26,210 19,429
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes
On behalf of the Board:
/s/ Ian McKinnon /s/ Wanda Dorosz
Director Director
F-10
<PAGE>
Promis Systems Corporation Ltd.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS (DEFICIT)
[expressed in thousands of U.S. dollars, except per share information]
Years ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue 23,967 19,703 16,073
Cost of sales 626 786 2,158
- -----------------------------------------------------------------------------------
Gross profit 23,341 18,917 13,915
- -----------------------------------------------------------------------------------
Expenses
Selling and marketing 8,706 7,081 6,443
Research and development [note 8] 5,484 6,815 6,067
Customer integration services 2,090 698 --
General and administrative 3,428 3,640 4,026
Goodwill and intellectual property write-offs [note 9] -- -- 7,025
Provision for restructuring charges [note 10] -- -- 1,750
- -----------------------------------------------------------------------------------
19,708 18,234 25,311
- -----------------------------------------------------------------------------------
Income (loss) before income taxes 3,633 683 (11,396)
Provision for (recovery of) income taxes [note 8] 1,560 (88) 42
- -----------------------------------------------------------------------------------
Net income (loss) for the year 2,073 771 (11,438)
Deficit, beginning of year (17,026) (17,797) (6,359)
Forgiveness of share purchase loan [note 7] (454) -- --
Reduction of stated share capital [note 7] 17,797 -- --
- -----------------------------------------------------------------------------------
Retained earnings (deficit), end of year 2,390 (17,026) (17,797)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Income (loss) per share $0.22 $0.12 $(2.28)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Fully diluted income per share $0.20 $0.10 NA
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-11
<PAGE>
Promis Systems Corporation Ltd.
CONSOLIDATED STATEMENTS OF CHANGES
IN FINANCIAL POSITION
[expressed in thousands of U.S. dollars]
Years ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the year 2,073 771 (11,438)
Add (deduct) items not requiring a current outlay of cash
Amortization 1,145 796 1,169
Amortization of deferred development costs 37 51 50
Amortization of deferred tenant inducement (103) (120) (105)
Goodwill and intellectual property write-offs [note 9] -- -- 7,025
Deferred income taxes -- (694) --
Loss on write-off of capital assets 125 3 152
- --------------------------------------------------------------------------------------
3,277 807 (3,147)
Net change in non-cash working capital balances related
to operations [note 11] (3,309) 124 833
- --------------------------------------------------------------------------------------
Cash provided by (used in) operating activities (32) 931 (2,314)
- --------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (1,049) (1,993) (91)
Acquisition of MASE Systems, Inc. [note 3] (1,533) -- --
- --------------------------------------------------------------------------------------
Cash used in investing activities (2,582) (1,993) (91)
- --------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term loan -- (1,106) 1,106
Obligations under capital leases 120 837 (107)
Deferred tenant inducement 724 -- --
Issuance of share capital, net 6,058 5,373 --
Redemption of share capital, net [note 7] -- (95) (149)
Contributed surplus -- 26 149
- --------------------------------------------------------------------------------------
Cash provided by financing activities 6,902 5,035 999
- --------------------------------------------------------------------------------------
Net increase (decrease) in each during the year 4,288 3,973 (1,406)
Cash position, beginning of year 3,080 (893) 513
- --------------------------------------------------------------------------------------
Cash position, end of year 7,368 3,080 (893)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Represented by
Cash and short-term deposits 7,368 3,882 1,251
Bank indebtedness -- (802) (2,144)
- --------------------------------------------------------------------------------------
7,368 3,080 (893)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-12
<PAGE>
Promis Systems Corporation Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars, tabular amounts in thousands except per share information]
1. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in Canada. The more
significant accounting policies are as follows:
Basis of consolidation
These consolidated financial statements include the accounts of Promis Systems
Corporation Ltd. [the "Company"] and its wholly-owned subsidiaries: Promis
Systems Corporation, incorporated under the laws of Delaware, United States of
America; Promis Systems Corporation (U.K.) Limited, incorporated under the laws
of England and Wales; Promis Systems Corporation Limited, incorporated under the
laws of Hong Kong; MSISUB Inc., incorporated under the laws of Delaware, United
States of America; Promis Systems Corporation Singapore Pte Ltd., incorporated
under the laws of Singapore; and Promis Systems Corporation GmbH, incorporated
under the laws of the Federal Republic of Germany. These consolidated financial
statements are expressed in United States dollars, the operating currency of the
Company.
Capital assets
Capital assets are recorded at cost less accumulated amortization. Amortization
is provided using the following annual rates and bases which are expected to
amortize the cost of the capital assets over their estimated useful lives:
Computers, software and communications
equipment 33 1/3% declining balance
Furniture and equipment 20% declining balance
Leasehold improvements straight-line over the lease term
Intellectual property, which represents the value of software rights purchased,
is amortized to income on a straight-line basis over three years.
Investment tax credits
Investment tax credits are accrued when qualifying expenditures are made and
there is reasonable assurance that the credits will be realized. The Company
accounts for investment tax credits using the cost reduction method.
F-13
<PAGE>
Income taxes
The Company follows the deferral method of income tax allocation. Deferred
income taxes result from claiming deductions for income tax purposes in amounts
which differ from those charged in the accounts.
Research and development expenditures
Research costs are expensed in the year incurred. Development costs are expensed
in the year incurred unless a development project meets the criteria under
generally accepted accounting principles for deferral and amortization. One of
the criteria of generally accepted accounting principles requires that
development costs should be deferred when the product is considered to be
technically feasible. The Company considers technical feasibility to be
established when the product reaches the "BETA Release" stage in development.
Capitalized development costs are amortized to income on a straight-line basis
over the estimated life of the product, commencing with the market introduction
of the related product. The average period of amortization is three years. These
expenditures are also reduced by related investment tax credits.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired and is amortized to income on a straight-line basis over 20
years. Goodwill is written down to reflect any other than temporary impairment
in ongoing value which is believed to have occurred. The Company assesses
whether permanent impairment in value has occurred based on its estimate of the
fair value of the related business operations.
Revenue recognition
Revenue from software sales is recognized on delivery of the software and an
irrevocable commitment to purchase made by the customer.
Revenue from software service agreements and other contracts is recognized on a
straight-line basis over the term of the contract.
Revenue from consulting and training services is recognized when the services
are performed.
Unearned revenue arises when billings are made in advance of revenue
recognition.
Financial instruments
The fair values of financial instruments approximate their carrying values
except as otherwise disclosed in these consolidated financial statements.
Foreign currency translation
The Company's subsidiaries are considered to be integrated operations.
Accordingly, monetary assets and liabilities denominated in foreign currencies
are translated into United States dollars at the rate of exchange prevailing at
the year end while other consolidated balance sheet items are translated at
historic rates. Revenue and expenses are translated at the rate of exchange in
effect on the transaction dates. Realized and unrealized foreign exchange gains
and losses are included in income in the year in which they occur, except where
they arise from translation of non-current monetary items. Such gains and losses
are deferred and amortized to income on a straight-line basis over the remaining
life of the underlying non-current monetary items.
F-14
<PAGE>
Short-term deposits
Short-term deposits include such items as short-term guaranteed investment
certificates are carried at cost which approximates market value and mature in
January 1998.
Capital leases
A lease which transfers substantially all of the benefits and risks incidental
to the ownership of property is accounted for as if it were an acquisition of an
asset and the incurrence of an obligation at the inception of the lease. Assets
recorded under capital leases are amortized over the initial non-cancellable
term of the lease on a basis consistent with accounting for capital assets.
2. CAPITAL ASSETS
Capital assets consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Accumulated Accumulated
Cost amortization Cost amortization
$ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computers, software and
communications equipment 2,491 1,952 2,599 1,779
Assets under capital lease 1,786 591 1,168 233
Furniture and equipment 901 468 752 377
Leasehold improvements 1,145 651 951 538
Intellectual property 1,337 111 -- --
- --------------------------------------------------------------------------------
7,660 3,773 5,470 2,927
Less accumulated amortization 3,773 2,927
- --------------------------------------------------------------------------------
Net book value 3,887 2,543
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
3. BUSINESS ACQUISITION
Effective October 2,1997, the Company purchased certain business assets and
assumed selected liabilities of MASE Systems, Inc. of San Jose, California for
$1.5 million in cash. The business acquisition has been accounted for by the
purchase method. The following net assets were acquired:
<TABLE>
<CAPTION>
$
- --------------------------------------------------------------------------------
<S> <C>
Net non-cash working capital 170
Capital assets 26
Intellectual property 1,337
- --------------------------------------------------------------------------------
Total consideration 1,533
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
4. OPERATING LINE OF CREDIT
The Company has a demand operating line of credit of approximately $2.9 million
[Cdn. $4.0 million] and a foreign exchange forward contact facility of
approximately $700 thousand [Cdn. $1.0 million], both of which are
collateralized by a general security agreement and a general assignment of book
debts of the Company. The Company must maintain various margin and covenant
requirements. Interest is payable on the operating line of credit at the bank's
prime rate plus 0.25% [1996 - prime rate plus 1.5%]. As at December 31, 1997,
the effective rate was 6% [1996 - 6.25%].
5. OBLIGATIONS UNDER CAPITAL LEASES
Future minimum annual lease payments under capital leases expiring at various
dates to December 2000 are as follows:
<TABLE>
<CAPTION>
$
- --------------------------------------------------------------------------------
<S> <C>
1998 544
1999 521
2000 130
- --------------------------------------------------------------------------------
Total minimum lease payments 1,195
Less amount representing interest at 9% 94
- --------------------------------------------------------------------------------
Balance of obligations 1,101
Less current portion 482
- --------------------------------------------------------------------------------
619
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
6. DEFERRED TENANT INDUCEMENT
The deferred tenant inducement relates to the 10-year lease of the Company's
Toronto office premises effective January 1, 1997. Generally accepted accounting
principles require that the total lease payments over the lease term be
aggregated and charged as rent expense evenly over the term of the lease. The
cumulative difference between the rent expense charged to income and the lease
payments made is recorded as a deferred tenant inducement on the consolidated
balance sheets.
7. SHARE CAPITAL
The Company's authorized share capital consists of the following:
- - Unlimited common shares
- - Unlimited preference shares, the designation, rights, privileges,
restrictions and conditions attaching thereto are to be determined by the
Board of Directors prior to issue
F-16
<PAGE>
The Company's issued share capital is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
# $ # $ # $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common shares
Balance, beginning of year 8,156,019 27,798 5,220,186 22,596 5,220,186 22,596
Reduction of stated share capital -- (17,797) -- -- -- --
Shares issued during the year 2,048,950 6,058 2,963,654 5,297 -- --
Shares cancelled during the year -- -- (27,821) (95) -- --
- ----------------------------------------------------------------------------------------------------
Balance, end of year 10,204,969 16,059 8,156,019 27,798 5,220,186 22,596
- ----------------------------------------------------------------------------------------------------
Share purchase loan -- -- (166,763) (454) (194,584) (530)
- ----------------------------------------------------------------------------------------------------
16,059 27,344 22,066
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
During 1997:
- - On June 24, 1997 the shareholders approved a resolution to reduce the
stated capital of the shares of approximately $17.8 million to eliminate
the deficit as at December 31, 1995.
- - Pursuant to an agency agreement dated February 26, 1996, the Company
issued and sold 2,000,000 special warrants priced at Cdn.$4.50 per special
warrant for aggregate gross proceeds of approximately $6.6 million
[Cdn.$9.0 million]. Each special warrant was convertible into one common
share. The associated costs of the special warrants offering were
approximately $594 thousand [Cdn.$813 thousand]. On June 16, 1997, the
2,000,000 special warrants were converted into 2,000,000 common shares.
- - The Company issued 48,950 common shares upon the exercise of certain stock
options for cash consideration of approximately $67 thousand.
During 1996:
- - On January 19, 1996, the Company issued to eligible holders of its common
shares of record, rights to subscribe for common shares. Each holder of
the common shares was issued one right for each common share held. Four
rights entitled the holder to purchase one common share at a price of
Cdn.$2 per common share and expired on February 9, 1996. All of the rights
were exercised for 1,305,046 common shares for gross proceeds of
approximately $1.9 million [Cdn.$2.6 million]. The associated costs of the
rights offering were approximately $190 thousand [Cdn.$260 thousand].
Approximately $775 thousand [Cdn.$1.1 million] of a short-term loan
outstanding was satisfied by the issue of 525,500 common shares pursuant
to the Company's previously announced rights offering. The balance of the
loan outstanding, including interest to February 15, 1996, was repaid from
the proceeds of the rights offering. The portion of the loan proceeds
attributable to the right to convert to common shares was not material.
- - Pursuant to an agency agreement dated August 21, 1996, the Company issued
and sold 1,625,324 special warrants priced at Cdn.$3.40 per special
warrant for aggregate gross proceeds of approximately $4.0 million
[Cdn.$5.5 million]. Each special warrant was convertible into one common
share. The associated costs of the special warrants offering were
approximately $467 thousand [Cdn.$636 thousand]. On November 20, 1997, the
1,625,324 special warrants were converted into 1,625,324 common shares.
F-17
<PAGE>
- - The Company issued 33,284 common shares upon the exercise of certain stock
options for cash consideration of approximately $34 thousand.
- - The Company cancelled 27,821 common shares surrendered by shareholders in
repayment of loans payable of approximately $95 thousand. As a result of
the redemption and cancellation by the Company of its common shares,
contributed surplus increased by approximately $26 thousand.
- - The Company issued 100,000 warrants for nil consideration.
During 1995:
- - Contributed surplus increased $149 thousand as 105,000 warrants expired on
November 1, 1996.
0ptions:
<TABLE>
<CAPTION>
Number of options outstanding
at December 31, 1997 Exercise price Expiry date
(Cdn.$)
- --------------------------------------------------------------------------------
<S> <C> <C>
200,000 $1.25 June 28, 2005
464,800 $1.50 to $3.50 August 11, 2005
161,000 $1.80 November 2, 2005
15,000 $2.80 March 15, 2006
296,200 $3.00 May 4, 2006
30,000 $3.95 June 25, 2006
33,500 $2.75 October 28, 2006
100,000 $4.10 December 17, 2006
22,000 $5.00 March 4, 2007
354,800 $4.10 April 18, 2007
13,950 $4.20 May 23, 2007
80,000 $4.75 October 3, 2007
17,500 $5.00 October 28, 2007
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The Company has reserved 2,150,000 common shares for future issue pursuant to
stock option plans as described above.
Warrants
<TABLE>
<CAPTION>
Number of warrants outstanding
at December 31, 1997 Exercise price Expiry date
[Cdn.$]
- --------------------------------------------------------------------------------
<S> <C> <C>
75,000 $2.40 April 30, 2000
25,000 $2.50 April 30, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Forgiveness of share purchase loan
As at December 31, 1995, a share purchase loan of approximately $530 thousand
[Cdn.$567 thousand] was outstanding. During 1996, approximately $76 thousand
[Cdn.$131 thousand) of the loan was settled by surrender of 27,821 shares held.
The share purchase loan has been presented as a reduction of share capital.
F-18
<PAGE>
The Board of Directors approved the forgiveness of the remaining balance of the
share purchase loan of $454 thousand effective January 1, 1997. The forgiveness
of the loan did not require the surrender of shares held and accordingly, the
amount of the loan has been charged to retained earnings.
8. INCOME TAXES
The Company's effective income tax rate has been determined as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- ---------------
$ % $ % $ %
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes 3,633 100.0 683 100.0 (11,396) 100.0
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Combined basic Canadian federal and
provincial income tax rate 1,620 44.6 305 44.6 (5,083) (44.6)
Increase (decrease) in income taxes
resulting from
Foreign income tax rate differential (67) (1.8) (84) (12.3) 21 0.2
Benefit of future timing differences
not recorded in accounts 527 14.5 -- -- 5,083 44.6
Unrecorded losses utilized during
the year (543) (14.9) (187) (27.4) -- --
Ontario superallowance (241) (6.6) (122) (17.8) -- --
Other 264 7.1 -- -- 21 0.2
- --------------------------------------------------------------------------------------
1,560 42.9 (88) (12.9) 42 0.4
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
The Company has scientific research deductions available for carryforward to
apply against taxable income in future years of approximately $11.9 million
federally and $12.3 million provincially.
As the Company is a public company for Canadian tax purposes, it is eligible for
investment tax credits of 20% on its qualifying current and capital research and
development expenditures incurred in each year. These credits are available to
reduce up to 100% of Canadian federal income taxes payable. The potential income
tax benefits of investment tax credits with respect to expenditures made in 1997
have not been recorded in the accounts.
Research and development expenditures incurred in the year have been reduced by
$1.5 million of previously unrecognized investment tax credits that were earned
in previous years [1996 - nil, 1995 - nil].
In addition, the Company has investment tax credits available of approximately
$2.0 million as at December 31, 1997 to reduce future years' income taxes. The
benefit of these investment tax credits has not been reflected in the
consolidated financial statements. These investment tax credits will begin to
expire in 2005.
F-19
<PAGE>
9. GOODWILL AND INTELLECTUAL PROPERTY WRITE-OFFS
During 1995, the Company decided to restructure and focus on its strengths and
capabilities in the semi-conductor market. Accordingly, the Palette business was
discontinued. As a result, a permanent impairment of goodwill and intellectual
property occurred. The following amounts related to Pallette goodwill and
intellectual property were written off during 1995:
<TABLE>
<CAPTION>
$
- --------------------------------------------------------------------------------
<S> <C>
Pallette goodwill 6,424
Palette intellectual property 309
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The Company also made a strategic decision to sell the MADEMA software
exclusively as a module integrated with the PROMIS software, in order to enhance
the marketability of the PROMIS product suite.
It is anticipated that the incremental development and maintenance costs to
integrate the MADEMA software to PROMIS will not be recovered through future
sales of MADEMA. Based upon this decision and the resulting estimated net
recoverable amount, the intellectual property value of MADEMA has been
permanently impaired. Accordingly, the intellectual property value of MADEMA in
the amount of $292 thousand was written off in 1995.
10. PROVISION FOR RESTRUCTURING CHARGES
During the third quarter of 1995, the Company implemented a formal restructuring
plan to focus on its strengths and capabilities in the semiconductor market. As
part of the plan, the Company reduced its work force and closed certain offices.
A provision for exit costs from these operations including the Palette business
[note 9] was accrued. The provision includes special termination benefits of
$1.0 million and costs of leased property no longer of use to the Company of
$280 thousand. Approximately $500 thousand of the termination benefit has been
collateralized by an assignment of book debts of the Company, subordinate to the
operating line of credit. As at December 31, 1997, $1.55 million [December 31,
1996, $1.1 million] of the exit costs accrued have been paid. It is anticipated
that the remaining balance of the accrual will be paid in 1999.
11. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
The net change in non-cash working capital balances related to operations
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable (1,412) 289 (1,415)
Unbilled receivables (455) (1,891) 1,411
Income taxes recoverable 2 397 (453)
Prepaid expenses (49) (15) (102)
Investment tax credits recoverable -- 591 219
Accounts payable and accrued liabilities (1,412) (206) 1,013
Unearned revenue 17 959 160
- --------------------------------------------------------------------------------
(3,309) 124 833
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
12. LEASE COMMITMENTS
Future minimum annual lease payments under operating leases are approximately as
follows:
<TABLE>
<CAPTION>
$
- --------------------------------------------------------------------------------
<S> <C>
1998 1,046
1999 778
2000 604
2001 622
2002 632
Thereafter 1,013
- --------------------------------------------------------------------------------
4,695
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
13. GEOGRAPHIC SEGMENTED FINANCIAL INFORMATION
The Company operates in the computer software development business.
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
North America 10,705 8,926 10,436
Asia - Pacific 10,317 7,635 3,826
Europe 2,945 3,142 1,811
- --------------------------------------------------------------------------------
Consolidated revenue 23,967 19,703 16,073
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operating income before research and development
North America 4,590 3,254 (5,944)
Asia - Pacific 3,510 2,626 711
Europe 1,017 1,618 (96)
- --------------------------------------------------------------------------------
Consolidated operating income before
research and development 9,117 7,498 (5,329)
Research and development expenditures 5,484 6,815 6,067
- --------------------------------------------------------------------------------
Income before income taxes 3,633 683 (11,396)
Provision for (recovery of) income taxes 1,560 (88) 42
- --------------------------------------------------------------------------------
Consolidated net income 2,073 771 (11,438)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Identifiable assets
North America 20,899 15,114 10,517
Asia - Pacific 249 134 113
Europe 143 249 210
- --------------------------------------------------------------------------------
Consolidated identifiable assets 21,291 15,497 10,840
Deferred income taxes 1,481 1,481 787
Deferred development costs -- 37 88
Intellectual property 1,226 -- --
Goodwill 2,212 2,414 2,617
- --------------------------------------------------------------------------------
Total consolidated assets 26,210 19,429 14,332
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
14. CONTINGENT LIABILITY
In 1993, the Company purchased the business assets and assumed selected
liabilities of Palette Systems Inc. The purchase price of approximately $9.9
million consisted of approximately $5.5 million in cash and 442,638 common
shares of the Company, valued at $10 per common share. At that time the Company
agreed that on April 7, 1998 it would pay additional cash consideration to the
vendors of an amount equal to the amount by which approximately $4 million
exceeded market value of the common shares owned by the vendors on April 7,
1998.
On March 29, 1996, the Company made a formal claim against the vendors pursuant
to the dispute resolution provisions of the original purchase and sale
agreements and the vendors filed certain counterclaims against the Company.
In 1997, the Company and the vendors reached a settlement of the dispute. The
settlement provides that commencing on April 7, 1998 the Company would pay
additional cash to the vendors of an amount equal to the amount by which 442,638
common shares are less than the market value, on each of the payment dates
described hereunder, of $10 per common share. As part of the settlement, the
additional cash consideration, if any, will be payable as to 50% on April 7,
1998 and the balance as to 2.5% on a quarterly basis commencing on July 7, 1998,
up to and including April 7, 2003. Under the terms of the settlement agreement,
the vendors are restricted as to the number of shares which can be sold in any
given quarter to April 7, 2003.
Since the payment of additional consideration is dependent on the Company's
share price at various future dates, any additional consideration will be
recorded as a reduction in share capital of the Company as the amounts become
determinable.
The Company's contingent liability calculated based on the market value of the
common shares at February 27, 1998, is approximately $1.4 million.
15. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified from
statements previously presented to conform to the presentation of the 1997
consolidated financial statements.
16. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND IN
THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ["Canadian GAAP"] which, in
the case of the Company, conform in all material respects with those in the
United States ["US GAAP"], except as follows:
[a] Under US GAAP basic earnings per share are based on the weighted average
number of common shares excluding contingent shares issued and shares
issued pursuant to share purchase loans. Diluted earnings per share are
calculated in accordance with the treasury stock method and are based on
the weighted average number of common shares and dilutive common share
equivalents outstanding.
[b] For reconciliation purposes to U.S. GAAP, the Company has applied the
provisions of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" [SFAS 109] effective August 31, 1993. Under
SFAS 109, the liability method is used in accounting for income taxes.
SFAS 109 requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in
the financial statements or returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using enacted
F-22
<PAGE>
tax rates that will be in effect for the year in which the differences are
expected to reverse. In addition this method provides for a valuation
allowance against deferred tax assets where it is more likely than not
that some portion or all of a deferred tax asset will not be realized.
Under US GAAP, Research and Development investment tax credits would be
credited to the income tax provision rather than as a net to research and
development expenses. The amounts credited to research and development
expenses were $1,500 in 1997, nil in 1996 and nil in 1995.
The significant components of the Company's deferred tax assets, under US
GAAP, as at December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
R&D and capital assets - tax base in
excess of book value 8,389 8,535 6,800
Losses carried forward 148
Investment tax credits 2,000 3,013 2,691
Other 820 344 415
Less valuation allowance (11,209) (11,892) (10,054)
- --------------------------------------------------------------------------------
Future income tax assets -- -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
[c] Under Canadian GAAP, unrealized foreign exchange gains and losses relating
to non-current monetary items are deferred and amortized to income over
the remaining life of the underlying non-current monetary item. Under US
GAAP these unrealized foreign exchange gains and losses are recognized in
income immediately. The amounts recognized each year for Canadian GAAP
purposes approximates the amounts which would have been recognized for US
GAAP.
[d] Under Canadian GAAP, for purposes of the statements of cash flows, cash
position includes all short-term investments less bank indebtedness. Under
US GAAP, cash position includes highly liquid investments with original
maturities of less than three months. Bank indebtedness is presented as a
financing activity for purposes of US GAAP.
[e] Under Canadian GAAP, the forgiveness of a share purchase loan in 1997 was
recognized as an increase of $454 to the Company's deficit. Under US GAAP,
the share purchase loans are viewed as part of a variable compensation
arrangement with changes in the value of the underlying shares recorded as
adjustments to income in the year in which they occurred in periods prior
to 1995. The resulting share purchase loan balance of $321 was charged to
expense when the Company's Board of Directors approved the forgiveness in
1995.
[f] Under Canadian GAAP, a reduction of the stated capital of outstanding
common shares is allowed with a corresponding offset to deficit. This
reclassification, which the Company made in 1997 to eliminate the deficit
which existed at December 31, 1995, is not permitted by US GAAP and would
result in an increase to share capital and corresponding decrease in the
retained earnings of $17,797.
[g] Under Canadian GAAP, stock options are accounted for at the date of
exercise when the purchase is recorded as an increase to capital stock.
For reconciliation purposes to US GAAP, the Company has chosen to follow
APB 25 in accounting for stock options granted to directors, officers and
employees. Since the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of the
grant, no compensation expense has been recognized.
F-23
<PAGE>
[h] The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130 "Comprehensive Income" ['SFAS 130']. SFAS 130
requires companies to report comprehensive income which includes all
changes in stockholders' equity during a period except those resulting
from investments by owners and distributions to owners. For purposes of
reconciliation to US GAAP, the Company's comprehensive income would equal
its net income for the periods presented.
The following table reconciles the net income as reported on the consolidated
statements of earnings (loss) to that which would have been reported had the
financial statements been prepared in accordance with US GAAP and the
requirements of the SEC:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) under Canadian GAAP 2,073 771 (11,438)
Adjustments
Forgiveness of share purchase loan -- -- (321)
Income taxes -- (103)
- --------------------------------------------------------------------------------
Net earnings (loss) under US GAAP 2,073 668 (11,759)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The following table sets forth the computation of basic and diluted earnings per
share under US GAAP:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator
Net income (loss) 2,073 668 (11,759)
-------------------------------------------------------------------------------
Numerator for basic earnings (loss) per share 2,073 668 (11,759)
Income effect of dilutive securities -- -- --
-------------------------------------------------------------------------------
Numerator for diluted earnings (loss) per share 2,073 668 (11,759)
- --------------------------------------------------------------------------------
Denominator
Weighted average number of common shares 9,246,063 6,502,826 5,025,602
Effect of dilutive securities
Stock options 690,200 319,637 --
Warrants 51,500 13,512 --
- --------------------------------------------------------------------------------
Adjusted weighted average number of common
shares and assumed conversions 9,987,763 6,835,975 5,025,602
- --------------------------------------------------------------------------------
Basic earnings (loss) per share $0.22 $0.10 $(2.34)
Diluted earnings per share $0.21 $0.10 $(2.34)
</TABLE>
An additional 39,500 stock options were outstanding in 1997, however, were
neither dilutive or anti-dilutive.
An additional 367,117 stock options were outstanding and 681,818 shares were
issuable on conversion of outstanding in debt in 1996 but were not included in
computation of diluted earnings as the effects of these items would have been
anti-dilutive.
F-24
<PAGE>
1,547,400 stock options were outstanding and 681,818 shares were issuable on
conversion of outstanding debt in 1995 but were not included in the computation
of diluted earnings per share in light of the net loss for the year.
Cashflow information presented in conformity with US GAAP, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities, Canadian GAAP (32) 931 (2,314)
Exchange rate effect on foreign currency balances 45 (21) 32
- --------------------------------------------------------------------------------
Operating activities, US GAAP 13 910 (2,282)
- --------------------------------------------------------------------------------
Investing activities, Canadian GAAP (2,582) (1,993) (91)
- --------------------------------------------------------------------------------
Investing activities, US GAAP (2,582) (1,993) (91)
- --------------------------------------------------------------------------------
Financing activities, Canadian GAAP 6,902 5,035 999
Increase (decrease) in bank indebtedness (802) (1,342) 2,144
- --------------------------------------------------------------------------------
Financing activities, US GAAP 6,100 3,693 3,143
- --------------------------------------------------------------------------------
Increase in cash, US GAAP 3,531 2,610 770
Cash position, beginning of year, US GAAP 3,882 1,251 513
Exchange rate effect on foreign currency balances (45) 21 (32)
- --------------------------------------------------------------------------------
Cash position, end of year, US GAAP 7,368 3,882 1,251
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash interest paid 89 184 130
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash taxes paid 143 36 682
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Balance sheet items in conformity with US GAAP which differ from those presented
for Canadian GAAP are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment tax credits recoverable - Canadian GAAP -- -- 591
Adjustment for income taxes under SFAS 109 -- -- (591)
- --------------------------------------------------------------------------------
Investment tax credits recoverable - US GAAP -- -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Deferred income taxes - Canadian GAAP 1,481 1,481 787
Adjustment for income taxes under SFAS 109 (1,481) (1,481) (787)
- --------------------------------------------------------------------------------
Deferred income taxes - US GAAP -- -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Share capital - Canadian GAAP 16,059 27,344 22,066
Forgiveness of share purchase loan -- 454 454
Deficit reduction 17,797 -- --
- --------------------------------------------------------------------------------
Share Capital - US GAAP 33,856 27,798 22,520
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Retained earnings (deficit) - Canadian GAAP 2,390 (17,026) (17,797)
Forgiveness of share purchase loan -- (454) (454)
Deficit reduction (17,797) -- --
Adjustment for income taxes under SFAS 109 (1,481) (1,481) (1,378)
- --------------------------------------------------------------------------------
Retained deficit - US GAAP (16,888) (18,961) (19,629)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statements of operations
combine PRI's audited consolidated results of operations for each of the two
years in the period ended September 30, 1998 with Promis' unaudited
consolidated results of operations for the twelve-month period ended
September 30, 1998 and audited consolidated results of operations for the
year ended December 31, 1997, respectively, giving effect to the Transaction
as if it had occurred at the beginning of each period presented on a
pooling-of-interests basis. The unaudited pro forma condensed combined
balance sheet data combines PRI's audited consolidated balance sheet data as
of September 30, 1998 with Promis' unaudited consolidated balance sheet data
as of that date, giving effect to the Transaction as if it had occurred on
September 30, 1998. The historical financial information of PRI has been
derived from its audited consolidated financial statements for each of the
two years in the period ended September 30, 1998, which have been
incorporated by reference. The historical financial information of Promis has
been derived from its accounting records for the twelve-month period ended
September 30, 1998 and its audited consolidated financial statements for the
year ended December 31, 1997 on the basis of U.S. GAAP and should be read in
conjunction with the unaudited interim consolidated financial statements for
the nine-month period ended September 30, 1998 and the audited financial
statements for the year ended December 31, 1997 and the notes thereto, which
have been included herein. In the opinion of the management of Promis, the
above-mentioned unaudited interim financial data of Promis includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the unaudited twelve-month interim
period that combines the nine-month period ended September 30, 1998 and the
three-month period ended December 31, 1997. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the consolidated results of operations or financial position that would have
occurred had the Transaction been consummated at the beginning of the periods
presented, nor is it necessarily indicative of future results of operations
or financial position.
F-26
<PAGE>
PRI AUTOMATION, INC. AND PROMIS SYSTEMS CORPORATION LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
at September 30, 1998
(amounts in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ ----------------------
PRI Promis Adjustments Combined
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 48,208 $ 8,839 $ 57,047
Contracts in progress ................................... 9,017 -- 9,017
Accounts receivable, net ................................ 24,887 7,098 31,985
Inventories ............................................. 27,494 -- 27,494
Deferred income taxes ................................... 7,832 58 7,890
Other current assets .................................... 6,892 280 7,172
-------- -------- --------- ---------
Total current assets .................................. 124,330 16,275 140,605
Goodwill, net of accumulated amortization ................ -- 2,060 2,060
Property, equipment and improvements, net ................ 17,122 4,076 21,198
Intellectual property, net of accumulated amortization ... -- -- --
Other assets ............................................. 2,566 -- 2,566
Deferred income taxes .................................... 559 -- 559
-------- -------- --------- ---------
Total assets .......................................... $144,577 $ 22,411 $ $ 166,988
-------- -------- --------- ---------
-------- -------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable/accrued liabilities .................... $ 25,160 $ 1,621 $ 5,500 $ 32,281
Unrealized loss on foreign currency hedge ............... 300 300
Deferred revenue ........................................ 9,214 2,855 12,069
Capital lease obligations, current portion .............. 110 688 798
Line of credit .......................................... 11 -- 11
-------- -------- --------- ---------
Total current liabilities ............................. 34,495 5,464 5,500 45,459
Obligations under capital lease .......................... 75 659 734
Other long-term assets ................................... -- 965 965
-------- -------- --------- ---------
Total liabilities ..................................... 34,570 7,088 5,500 47,158
Stockholders' equity:
Common stock ............................................. 198 32,591 32,789
Additional paid-in capital ............................... 96,096 362 96,458
Retained earnings ........................................ 13,713 (17,630) (5,500) (9,417)
-------- -------- --------- ---------
Total stockholders' equity ............................ $110,007 $ 15,323 $ (5,500) $ 119,830
-------- -------- --------- ---------
-------- -------- --------- ---------
Total liabilities and stockholders' equity ............ $144,577 $ 22,411 $ -- $ 166,988
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements
F-27
<PAGE>
PRI AUTOMATION, INC. AND PROMIS SYSTEMS CORPORATION LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
for the year ended September 30, 1998
(amounts in thousands of U.S. dollars except for per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Historical ----------------------
PRI Promis(1) Adjustments Combined
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue .................................... $ 178,193 $23,747 $1,704 $ 203,644
Cost of revenue ................................ 121,727 2,933 124,660
Operating expenses:
Research and development ...................... 37,137 7,372 44,509
Selling, general and administrative ........... 33,698 13,185 46,883
Merger costs and special charges .............. 10,091 -- 10,091
Acquired in-process research and development .. 8,417 -- 8,417
--------- ------- ------ ---------
Operating (loss) profit ........................ (32,877) 257 1,704 (30,916)
Other income, net .............................. 1,049 -- 1,049
(Loss) income before income taxes .............. (31,828) 257 1,704 (29,867)
(Benefit from)/Provision for income taxes ...... (7,886) 120 (7,766)
--------- ------- ------ ---------
Net (loss) income ............................. $ (23,942) $ 137 $1,704 $ (22,101)
--------- ------- ------ ---------
--------- ------- ------ ---------
Per share information:
Diluted net (loss) income per common share ... $ (1.22) $ 0.01 $ (1.04)
Shares used in per share computations(2) ..... 19,607 11,058 21,335
</TABLE>
- ----------
(1) The historical Promis statement of operations data have been calculated
using date for the twelve-month period ended September 30, 1998 and have
been prepared in accordance with U.S. GAAP.
(2) The number of shares used in the historical Promis per common share
computation was derived from Promis' dilutive outstanding shares and share
equivalents as of September 30, 1998. The number of shares used for the
Pro Forma combined diluted net loss per common share was derived from
Promis' basic outstanding shares as of September 30, 1998, multiplied by
the assumed exchange ratio of 0.1691, plus PRI's historical basic shares
outstanding as of September 30, 1998. Under U.S. GAAP, the computation of
diluted net (loss) income per common share does not assume the issuance of
common shares that have an anti-dilutive effect.
See accompanying notes to unaudited pro forma
condensed combined financial statements
F-28
<PAGE>
PRI AUTOMATION, INC. AND PROMIS SYSTEMS CORPORATION LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
for the year ended September 30, 1997
(amounts in thousands of U.S. dollars except for per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Historical ----------------------
PRI Promis(1) Adjustments Combined
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue .................................... $213,159 $23,967 $ (1,026) $236,100
Cost of revenue ................................ 118,263 2,716 (7) 120,972
Operating expenses:
Research and development ..................... 29,214 6,984 36,198
Selling, general and administrative .......... 31,332 12,134 (72) 43,394
Merger costs and special charges ............. -- -- --
Acquired in-process research and development . -- -- --
-------- ------- -------- --------
Operating profit ............................... 34,350 2,133 (947) 35,536
Other income, net .............................. 1,204 -- 1,204
-------- ------- -------- --------
Income before income taxes ..................... 35,554 2,133 (947) 36,740
Provision for income taxes ..................... 8,982 60 9,042
-------- ------- -------- --------
Net income ................................... $ 26,572 $ 2,073 $ (947) $ 27,698
-------- ------- -------- --------
-------- ------- -------- --------
Per share information:
Diluted net income per common share .......... $ 1.32 $ 0.21 $ 1.27
Shares used in per share computations(2) ..... 20,137 9,988 21,826
</TABLE>
- ----------
(1) The historical Promis statement of operations data have been calculated
using data for the twelve-month period ended December 31, 1997 and have
been prepared in accordance with U.S. GAAP.
(2) The number of shares used for the Pro Forma Combined dilutive net income
per common share was derived from Promis' dilutive outstanding shares and
share equivalents as of December 31, 1997, multiplied by the assumed
exchange ratio of 0.1691, plus PRI's historical dilutive outstanding
shares and share equivalents as of September 30, 1997.
See accompanying notes to unaudited pro forma
condensed combined financial statements
F-29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
1. Certain financial statement balances of Promis have been reclassified to
conform with PRI financial statement presentation.
2. The adjustments to the unaudited pro forma condensed combined balance
sheet give effect to the issuance of 1,725,660 shares of PRI Common Stock
based on an assumed exchange ratio of 0.1691 as if the Transaction had
been consummated as of September 30, 1998 and an anticipated charge for
Transaction-related expenses totaling approximately $5.5 million, less
anticipated income tax benefits. Such expenses include investment advisory
fees, legal and accounting expenses and other transaction costs ($2.8
million), other direct costs associated with the Transaction ($0.8
million) and incremental operating costs associated with anticipated
employee termination benefits and elimination of redundant facilities
($1.9 million). The unaudited pro forma condensed combined statements of
operations do not reflect these non-recurring charges, which PRI
anticipates will be recorded during the twelve-month period following
consummation of the Transaction.
3. The unaudited pro forma condensed combined financial statements do not
include all adjustments to conform the accounting policies of Promis to
those followed by PRI. The nature and extent of adjustments in addition to
those discussed herein, if any, will be based upon further study and
analysis and are not expected to be significant in relationship to the
consolidated financial statements of PRI. The unaudited pro forma
condensed combined statements of operations data include certain
adjustments to Promis' accounting policies to conform them with PRI's
accounting policies on revenue recognition. The unaudited pro forma
condensed combined balance sheet includes an adjustment for an anticipated
charge for Transaction-related expenses described in Note 2.
F-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered. All amounts shown are estimates except for amounts of filing and
listing fees.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee..........$ 15,454
------
Nasdaq National Market listing fee .......................... 17,500
------
Legal fees and expenses...................................... 50,000
------
Accounting fees and expenses ................................ 25,000
------
Printing, EDGAR formatting and mailing expenses.............. 5,000
------
Miscellaneous................................................ 12,046
------
Total.............................................$125,000
------
------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 6C of the Company's Restated Articles of Organization provides that
the Company (with certain exceptions) will indemnify and hold harmless to the
fullest extent authorized by the Massachusetts Business Corporation Law each
person who was or is made a party or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise (hereinafter a "Proceeding"), by
reason of the fact that he or she is or was (a) a director of the Company, (b)
an officer of the Company elected or appointed by the stockholders or the Board
of Directors, or (c) serving, at the request of the Company as evidenced by a
vote of the Board of Directors prior to the occurrence of the event to which the
indemnification relates, as a director, officer, employee or other agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan (such
persons described in (a), (b) and (c) are sometimes hereinafter referred to as
an "Indemnitee") against all expense, liability, and loss reasonably incurred by
any such Indemnitee in connection therewith. The Company may also, to the extent
authorized by the Board of Directors, grant rights to indemnification, and to an
advancement of expenses, to any employee or agent of the Company.
Notwithstanding the foregoing, if Massachusetts Business Corporation Law
requires, an advancement of expenses incurred by an Indemnitee will be made only
upon delivery to the Company of an undertaking, by or on behalf of such
Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is not further right to
appeal that such Indemnitee is not entitled to be indemnified for such expenses.
The rights under Article 6C may not be amended or terminated so as to
adversely affect an individual's rights with respect to the period prior to such
amendment without the consent of the person entitled to the indemnification
(unless otherwise required by the Massachusetts Business Corporation Law).
Section 67 of Chapter 156B of the Massachusetts Business Corporation Law
authorizes a corporation to indemnify its directors, officers, employees and
other agents unless such person shall have been adjudicated in any proceeding
not to have acted in good faith in the reasonable belief that his action was in
the best interests of the Corporation or to the extent that such matter relates
to service with respect to an employee benefit plan, in the best interests of
the participants of such employee benefit plan.
The effect of these provisions would be to authorize such indemnification
by the Company for liabilities arising out of the Securities Act of 1933.
II-1
<PAGE>
ITEM 16. EXHIBITS
2.1 Combination Agreement dated as of November 24, 1998 between PRI
Automation, Inc., 1325949 Ontario Inc. and Promis Systems Corporation
Ltd.
4.1 Restated Articles of Organization (filed as Exhibit 3.5 to the
Company's registration statement on Form S-1, File No. 33-81836, and
incorporated herein by reference).
4.2 Articles of Amendment to Restated Articles of Organization (filed as
Exhibit 3.6 to the Company's quarterly report on Form 10-Q, for the
quarterly period ended March 30, 1997, File No. 000-24934, and
incorporated herein by reference).
4.3 Articles of Amendment to Restated Articles of Organization (filed as
Exhibit 3.7 to the Company's quarterly report on Form 10-Q, for the
quarterly period ended December 28, 1997, File No. 000-24934, and
incorporated herein by reference).
4.4 Certificate of Designation of Series A Participating Cumulative
Preferred Stock, as amended.
4.5 Amended and Restated By-Laws of the Company (filed as Exhibit 3.4 to
the Company's registration statement on Form S-1, File No. 33-81836,
and incorporated herein by reference).
4.6 Rights Agreement dated as of December 9, 1998, between the Company and
State Street Bank and Trust Company, as Rights Agent (filed as Exhibit
4.1 to the Company's current report on Form 8-K, dated December 7,
1998, File No. 000-24934, and incorporated herein by reference).
4.7 Form of Rights Certificate (attached as Exhibit B to the Rights
Agreement filed as Exhibit 4.1 to the Company's current report on Form
8-K, dated December 7, 1998, File No. 000-24934, and incorporated
herein by reference).
5.1 Opinion of Foley, Hoag & Eliot LLP.
8.1 Opinion of Blake, Cassels & Graydon regarding tax matters.
8.2 Opinion of Foley, Hoag & Eliot LLP regarding tax matters.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of Ernst & Young LLP, independent auditors.
23.4 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1).
23.5 Consent of Blake, Cassels & Graydon (included in Exhibit 8.1).
23.6 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 8.2).
24.1 Power of Attorney (contained on the signature page).
II-2
<PAGE>
99.1 Form of Plan of Arrangement under Section 192 of the Canada Business
Corporations Act of Promis Systems Corporation Ltd.
99.2 Form of Voting and Exchange Trust Agreement among the Company, 1325949
Ontario Inc., Promis Systems Corporation Ltd. and Montreal Trust
Company of Canada, as trustee.
99.3 Form of Support Agreement among the Company, 1325949 Ontario Inc. and
Promis Systems Corporation Ltd.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of a
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(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 with or furnished to the
Commission by the registrant pursuant to Section 13 or 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 of 1933, 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) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-3
<PAGE>
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person 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 registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Billerica, Massachusetts on this
23rd day of December, 1998.
PRI AUTOMATION, INC.
By: /s/ Mitchell G. Tyson
-------------------------------------
Mitchell G. Tyson
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below hereby constitutes and appoints Mordechai Wiesler, Mitchell G.
Tyson, Stephen D. Allison and William R. Kolb, and each of them, his true and
lawful attorneys-in-fact and agents with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing which they, or either of them, may deem
necessary or advisable to be done in connection with this Registration
Statement, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or any substitute or substitutes for any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Mordechai Wiesler
- -------------------------- Chairman of the Board, December 23, 1998
Mordechai Wiesler Treasurer and Director
/s/ Mitchell G. Tyson
- -------------------------- President, Chief Executive December 23, 1998
Mitchell G. Tyson Officer and Director
(Principal Executive Officer)
/s/ Stephen D. Allison
- -------------------------- Chief Financial Officer December 23, 1998
Stephen D. Allison (Principal Financial
and Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Alexander V. d'Arbeloff
- ------------------------------- Director December 23, 1998
Alexander V. d'Arbeloff
/s/ Boruch B. Frusztajer
- ------------------------------- Director December 23, 1998
Boruch B. Frusztajer
/s/ Amram Rasiel
- ------------------------------- Director December 23, 1998
Amram Rasiel
/s/ Paul F. Rogan
- ------------------------------- Director December 23, 1998
Paul F. Rogan
/s/ Kenneth M. Thompson
- ------------------------------- Director December 23, 1998
Kenneth M. Thompson
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C> <C>
2.1 Combination Agreement dated as of November 24, 1998 between PRI
Automation, Inc., 1325949 Ontario Inc. and Promis Systems Corporation
Ltd.
4.4 Certificate of Designation of Series A Participating Cumulative
Preferred Stock, as amended
5.1 Opinion of Foley, Hoag & Eliot LLP.
8.1 Opinion of Blake, Cassels & Graydon regarding tax matters.
8.2 Opinion of Foley, Hoag & Eliot LLP regarding tax matters.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of Ernst & Young LLP, independent auditors.
23.4 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1).
23.5 Consent of Blake, Cassels & Graydon (included in Exhibit 8.1).
23.6 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 8.2).
99.1 Form of Plan of Arrangement under Section 192 of the Canada Business
Corporations Act of Promis Systems Corporation Ltd.
99.2 Form of Voting and Exchange Trust Agreement among the Company, 1325949
Ontario Inc., Promis Systems Corporation Ltd. and Montreal Trust
Company of Canada, as trustee.
99.3 Form of Support Agreement among the Company, 1325949 Ontario Inc. and
Promis Systems Corporation Ltd.
</TABLE>
<PAGE>
EXHIBIT 2.1
COMBINATION AGREEMENT
BY AND BETWEEN
PRI AUTOMATION, INC.
1325949 ONTARIO INC.
AND
PROMIS SYSTEMS CORPORATION LTD.
DATED AS OF NOVEMBER 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
RECITALS........................................................................................................ B-8
ARTICLE 1 CERTAIN DEFINITIONS................................................................................... B-8
ARTICLE 2 GENERAL............................................................................................... B-12
2.1. Plan of Arrangement.................................................................................... B-12
2.2. Exchange Ratio......................................................................................... B-12
2.2.1. Initial Exchange Ratio........................................................................... B-12
2.2.2. Adjustment for Alterations of Equity Capital..................................................... B-12
2.2.3. Adjustment for Fluctuations in Market Price...................................................... B-12
2.2.4. Calculation of Adjustments....................................................................... B-13
2.3. Dissenting Shares...................................................................................... B-13
2.4. Other Effects of the Arrangement....................................................................... B-13
2.5. Voting and Exchange Trust Agreement.................................................................... B-13
2.6. Support Agreement...................................................................................... B-13
2.7. Certificate of Designation............................................................................. B-13
2.8. Company Shareholder Meeting............................................................................ B-13
2.9. Information Circular and Registration Statement........................................................ B-13
2.9.1. Information Circular............................................................................. B-13
2.9.2. Registration Statement........................................................................... B-14
2.9.3. Approval of Canadian Authorities................................................................. B-14
2.9.4. Provision of Information......................................................................... B-14
2.9.5. Blue Sky Laws.................................................................................... B-14
2.10. Listings.............................................................................................. B-15
2.11. Closing............................................................................................... B-15
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................................... B-15
3.1. Corporate Status of the Company and its Subsidiaries................................................... B-15
3.2. Articles of Incorporation, By-Laws, Directors and Officers............................................. B-15
3.3. Authority for Agreement; Noncontravention.............................................................. B-15
3.3.1. Authority........................................................................................ B-15
3.3.2. No Conflict...................................................................................... B-16
3.4. Governmental Consents.................................................................................. B-16
3.5. Capitalization......................................................................................... B-17
3.5.1. Authorized Share Capital of the Company.......................................................... B-17
3.5.2. Options and Convertible Securities of the Company................................................ B-17
3.5.3. Subsidiaries..................................................................................... B-17
3.5.4. Rights Agreement................................................................................. B-18
3.6. Securities Reports; Financial Statements............................................................... B-18
3.7. Absence of Material Adverse Changes and Undisclosed Liabilities........................................ B-18
3.7.1. Changes.......................................................................................... B-18
3.7.2. Liabilities...................................................................................... B-19
3.8. Litigation and Audits.................................................................................. B-19
3.9. Compliance with Applicable Law, Articles of Incorporation and By-Laws.................................. B-19
3.10. Books and Records; Accounting Matters................................................................. B-20
3.11. Tax Matters........................................................................................... B-20
3.11.1. Filing of Returns............................................................................... B-20
3.11.2. Payment of Taxes................................................................................ B-20
3.11.3. Withholding..................................................................................... B-20
3.11.4. Assessments..................................................................................... B-20
3.11.5. Elections and Consents.......................................................................... B-21
3.11.6. Access to Returns............................................................................... B-21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
3.12. Employee Benefit Plans................................................................................ B-21
3.12.1. List of Plans................................................................................... B-21
3.12.2. ERISA Compliance................................................................................ B-21
3.12.3. Plan Determinations............................................................................. B-22
3.12.4. Claims.......................................................................................... B-22
3.12.5. Contributions................................................................................... B-22
3.12.6. Welfare Plans................................................................................... B-22
3.12.7. Canadian Benefit Plans.......................................................................... B-22
3.13. Employment-Related Matters............................................................................ B-23
3.14. Environmental......................................................................................... B-23
3.14.1. Environmental Laws.............................................................................. B-23
3.14.2. Environmental Claims............................................................................ B-24
3.14.3. No Basis for Claims............................................................................. B-24
3.15. Assets Other Than Real Property....................................................................... B-24
3.15.1. Title........................................................................................... B-24
3.15.2. Inventory....................................................................................... B-24
3.15.3. Condition....................................................................................... B-24
3.16. Real Property......................................................................................... B-24
3.16.1. Company Real Property........................................................................... B-24
3.16.2. Company Leases.................................................................................. B-24
3.16.3. Condition....................................................................................... B-25
3.17. Intellectual Property................................................................................. B-25
3.17.1. Right to Intellectual Property.................................................................. B-25
3.17.2. List of Company Proprietary Rights.............................................................. B-25
3.17.3. Royalties....................................................................................... B-25
3.17.4. Licenses........................................................................................ B-25
3.17.5. Status of Registrations......................................................................... B-26
3.17.6. No Conflict..................................................................................... B-26
3.17.7. Employee Agreements............................................................................. B-26
3.17.8. Year 2000 Readiness............................................................................. B-26
3.18. Agreements, Contracts and Commitments................................................................. B-27
3.18.1. Company Agreements.............................................................................. B-27
3.18.2. Validity, Violation and Consent................................................................. B-28
3.19. Insurance Contracts................................................................................... B-29
3.20. Banking Relationships................................................................................. B-29
3.21. Suppliers, Distributors and Customers................................................................. B-29
3.22. Product Warranty...................................................................................... B-29
3.23. Investment Canada..................................................................................... B-29
3.24. Acquired Business..................................................................................... B-29
3.25. Director Approval..................................................................................... B-30
3.26. Vote Required......................................................................................... B-30
3.27. No Broker's or Finder's Fees.......................................................................... B-30
3.28. Pooling Matters....................................................................................... B-30
3.29. Fairness Opinion...................................................................................... B-30
3.30. Full Disclosure....................................................................................... B-30
</TABLE>
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBCO.................................................... B-30
4.1. Corporate Status of Parent and Subco................................................................... B-31
4.2. Articles and By-Laws................................................................................... B-31
4.3. Authority for Agreement; Noncontravention.............................................................. B-31
4.3.1. Authority........................................................................................ B-31
4.3.2. No Conflict...................................................................................... B-31
4.4. Governmental Consents.................................................................................. B-31
4.5. Capitalization......................................................................................... B-32
4.5.1. Authorized Capital Stock of Parent............................................................... B-32
4.5.2. Options and Convertible Securities of Parent..................................................... B-32
4.5.3. Authorized Share Capital of Subco................................................................ B-33
4.5.4. Options and Convertible Securities of Subco...................................................... B-33
4.6. Securities Reports; Financial Statements............................................................... B-33
4.7. Absence of Material Adverse Changes and Undisclosed Liabilities........................................ B-33
4.7.1. Changes.......................................................................................... B-33
4.7.2. Liabilities...................................................................................... B-33
4.8. Litigation and Audits.................................................................................. B-33
4.9. No Broker's or Finder's Fees........................................................................... B-34
4.10. Pooling Matters....................................................................................... B-34
4.11. Fairness Opinion...................................................................................... B-34
4.12. Subco................................................................................................. B-34
ARTICLE 5 COVENANTS OF THE COMPANY AS TO CONDUCT OF BUSINESS.................................................... B-34
5.1. Ordinary Course........................................................................................ B-34
5.2. Corporate Organization................................................................................. B-34
5.3. Capital Structure...................................................................................... B-34
5.4. Options and Warrants................................................................................... B-34
5.5. Compliance with Applicable Laws........................................................................ B-35
5.6. Investments and Acquisitions........................................................................... B-35
5.7. Capital Expenditures................................................................................... B-35
5.8. Indebtedness........................................................................................... B-35
5.9. Litigation............................................................................................. B-35
5.10. Properties............................................................................................ B-35
5.11. Contracts............................................................................................. B-35
5.12. Books and Records..................................................................................... B-35
5.13. Taxes................................................................................................. B-36
5.14. Company Benefit Plans................................................................................. B-36
5.15. Insurance............................................................................................. B-36
5.16. Employee Matters...................................................................................... B-36
5.17. Proprietary Rights.................................................................................... B-36
5.18. Confirmatory License Agreements....................................................................... B-36
5.19. Pooling Matters....................................................................................... B-36
5.20. General............................................................................................... B-36
ARTICLE 6 COVENANTS OF PARENT AS TO CONDUCT OF BUSINESS......................................................... B-36
6.1. Ordinary Course........................................................................................ B-36
6.2. Corporate Organization................................................................................. B-37
6.3. Capital Structure...................................................................................... B-37
6.4. Compliance with Applicable Laws........................................................................ B-37
6.5. Investments and Acquisitions........................................................................... B-37
6.6. Pooling Matters........................................................................................ B-37
6.7. General................................................................................................ B-37
</TABLE>
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ARTICLE 7 ADDITIONAL COVENANTS.................................................................................. B-37
7.1. Further Assurances; Consents........................................................................... B-37
7.2. Consultation........................................................................................... B-38
7.3. Access to Information.................................................................................. B-38
7.4. Confidentiality........................................................................................ B-38
7.4.1. Confidential Information......................................................................... B-38
7.4.2. Actions of Representatives....................................................................... B-38
7.4.3. Survival......................................................................................... B-39
7.5. Public Disclosure...................................................................................... B-39
7.6. Takeover and Other Laws................................................................................ B-39
7.7. Pooling Accounting..................................................................................... B-39
7.8. Comfort Letters........................................................................................ B-39
7.8.1. Company.......................................................................................... B-39
7.8.2. Parent........................................................................................... B-39
7.9. Notice of Certain Matters.............................................................................. B-39
7.10. Stock Options and Warrants............................................................................ B-40
7.10.1. Exchange of Stock Options....................................................................... B-40
7.10.2. Exchange of Warrants............................................................................ B-40
7.10.3. Notice to Holders............................................................................... B-40
7.10.4. Reservation and Registration of Parent Common Stock............................................. B-40
7.10.5. Cooperation of the Company...................................................................... B-40
7.11. Continuation of Indemnification and Insurance......................................................... B-40
7.11.1. Indemnification................................................................................. B-40
7.11.2. Insurance....................................................................................... B-40
7.11.3. Third-Party Beneficiaries....................................................................... B-40
7.12. Employee Benefit Matters.............................................................................. B-41
7.13. Obligations of Subco.................................................................................. B-41
7.14. Company Option........................................................................................ B-41
7.15. Affiliate Agreements.................................................................................. B-41
7.16. Shareholder Agreements................................................................................ B-41
7.17. Employment Agreements................................................................................. B-42
7.18. Election of Officer................................................................................... B-42
7.19. Covenants Regarding Non-Solicitation.................................................................. B-42
7.19.1. Non-Solicitation................................................................................ B-42
7.19.2. Compliance with Fiduciary Obligations........................................................... B-42
7.19.3. Notice to Parent of Acquisition Proposals....................................................... B-42
7.19.4. Procedures...................................................................................... B-43
7.19.5. Actions of Representatives...................................................................... B-43
7.20. Procedures following Superior Proposal Determination.................................................. B-43
7.20.1. Notice of Superior Proposal Determination....................................................... B-43
7.20.2. Opportunity to Bid.............................................................................. B-43
7.21. Mutual Standstill and Non-Solicitation Agreement...................................................... B-43
7.22. Expenses.............................................................................................. B-44
7.22.1. General......................................................................................... B-44
7.22.2. Reimbursement................................................................................... B-44
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ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS................................................................... B-44
8.1. Conditions Precedent to Obligations of Each Party...................................................... B-44
8.1.1. Securityholder Approval.......................................................................... B-44
8.1.2. No Legal Action.................................................................................. B-44
8.1.3. Court Approval................................................................................... B-45
8.1.4. Expiration of Waiting Periods and Related Matters................................................ B-45
8.1.5. Securities Matters............................................................................... B-45
8.1.6. Listings......................................................................................... B-45
8.1.7. Tax Opinions..................................................................................... B-45
8.1.8. Voting and Exchange Trust Agreement.............................................................. B-45
8.1.9. Support Agreement................................................................................ B-45
8.2. Conditions Precedent to Obligations of the Company..................................................... B-45
8.2.1. Representations and Warranties................................................................... B-45
8.2.2. Covenants and Agreements......................................................................... B-46
8.2.3. No Material Adverse Change....................................................................... B-46
8.2.4. Certificate...................................................................................... B-46
8.2.5. Opinion of Parent Counsel........................................................................ B-46
8.2.6. Fairness Opinion................................................................................. B-46
8.2.7. Comfort Letter................................................................................... B-46
8.2.8. Affiliates Agreements............................................................................ B-46
8.2.9. Certificate of Designation....................................................................... B-46
8.2.10. Certificates and Resolutions.................................................................... B-46
8.3. Conditions Precedent to Obligations of Parent and Subco................................................ B-46
8.3.1. Representations and Warranties................................................................... B-46
8.3.2. Covenants and Agreements......................................................................... B-46
8.3.3. No Material Adverse Change....................................................................... B-46
8.3.4. Redemption of Rights............................................................................. B-46
8.3.5. Dissent Rights................................................................................... B-47
8.3.6. Consents of Third Parties........................................................................ B-47
8.3.7. Certificate...................................................................................... B-47
8.3.8. Customer and Product List........................................................................ B-47
8.3.9. Opinion of Company Counsel....................................................................... B-47
8.3.10. Fairness Opinion................................................................................ B-47
8.3.11. Pooling Matters................................................................................. B-47
8.3.12. Comfort Letter.................................................................................. B-47
8.3.13. Affiliates Agreements........................................................................... B-47
8.3.14. Employment Agreements........................................................................... B-47
8.3.15. Certificates and Resolutions.................................................................... B-47
ARTICLE 9 TERMINATION........................................................................................... B-48
9.1. Termination............................................................................................ B-48
9.2. Notice of Termination.................................................................................. B-49
9.3. Effect of Termination.................................................................................. B-49
9.4. Termination Fee........................................................................................ B-49
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ARTICLE 10 MISCELLANEOUS........................................................................................ B-50
10.1. Non-Survival of Representations and Warranties........................................................ B-50
10.2. Amendments and Supplements............................................................................ B-50
10.3. Waiver................................................................................................ B-50
10.4. Governing Law......................................................................................... B-50
10.5. Notice................................................................................................ B-50
10.6. Entire Agreement...................................................................................... B-51
10.7. Binding Effect; Assignability......................................................................... B-51
10.8. Interpretation........................................................................................ B-51
10.9. Validity.............................................................................................. B-51
10.10. Counterparts......................................................................................... B-51
</TABLE>
EXHIBITS
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Exhibit A Plan of Arrangement (See Exhibit 99.1 of this Registration Statement)
Exhibit B Voting and Exchange Trust Agreement (See Exhibit 99.2 of this Registration Statement)
Exhibit C Support Agreement (See Exhibit 99.3 of this Registration Statement)
Exhibit D Certificate of Designation
Exhibit E Company Option (Omitted)
Exhibit F Parent Affiliate Agreement (Omitted)
Exhibit G Company Affiliate Agreement
Exhibit H Shareholder Agreement (Omitted)
Exhibit I Employment Agreement (Omitted)
</TABLE>
SCHEDULES
Company Disclosure Schedule (Omitted)
Parent Disclosure Schedule (Omitted)
Certain exhibits and schedules have been omitted in accordance with
Item 601(b)(2) of Regulation S-K. PRI will furnish supplementally a copy of
any omitted exhibit or schedule to the Securities and Exchange Commission upon
request.
<PAGE>
COMBINATION AGREEMENT
This Combination Agreement (the "Agreement") is entered into as of November
24, 1998, by and between PRI Automation, Inc., a Massachusetts corporation
("Parent"), 1325949 Ontario Inc., an Ontario corporation and a wholly owned
subsidiary of Parent ("Subco"), and Promis Systems Corporation Ltd., a Canadian
corporation (the "Company").
RECITALS
WHEREAS, each of the Boards of Directors of Parent, Subco and the Company
have deemed it advisable and in the best interests of their respective
securityholders to combine their respective businesses through an acquisition by
Subco of shares of the capital stock of the Company pursuant to this Agreement
and the Plan of Arrangement (as hereinafter defined);
WHEREAS, in furtherance of such acquisition, the respective Boards of
Directors of Parent, Subco and the Company have approved the transactions
contemplated hereby and the Board of Directors of the Company has agreed to
submit the Plan of Arrangement and the other transactions contemplated hereby to
its shareholders and the Ontario Court of Justice (General Division) (the
"Court") for approval;
WHEREAS, the respective Boards of Directors of Parent, Subco and the Company
have approved and adopted this Agreement and the Plan of Arrangement as a plan
of reorganization under Section 368(a) of the United States Internal Revenue
Code of 1986, as amended (the "Code"), and as a reorganization of capital of the
Company under Section 86 of the Income Tax Act (Canada) (the "ITA") for those
Company shareholders who hold Company Common Shares (as hereinafter defined) on
capital account;
WHEREAS, it is intended that the transactions contemplated hereby will be
treated as a pooling of interests for accounting purposes; and
WHEREAS, to induce Parent to enter into this Agreement, contemporaneously
herewith certain shareholders of the Company and each of the Company's
directors, officers and their investment affiliates have entered into
Shareholder Agreements (as hereinafter defined) pursuant to which they have
agreed to support the Plan of Arrangement and the other transactions
contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto, intending to be legally bound, agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings unless otherwise specified:
AFFILIATE shall mean with respect to any Person, any Person which, directly
or indirectly, Controls, is Controlled by, or is under common Control with, such
Person.
ACQUISITION PROPOSAL shall mean any reorganization, recapitalization,
reclassification, combination, merger, consolidation, amalgamation, plan of
arrangement, take-over bid, sale of material assets (or any lease, long-term
supply agreement or other arrangement having the same economic effect as a
sale), any material sale of shares or rights or interests therein or thereto or
similar transactions involving the Company or any of its Subsidiaries, or a
proposal to do so, excluding the Arrangement.
BANKRUPTCY LAWS shall mean (i) all bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other Laws of general application
affecting the rights and remedies of creditors and (ii) general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
BUSINESS DAY shall mean any day on which commercial banks are open for
business in Boston, Massachusetts and Toronto, Ontario other than a Saturday,
Sunday or a day observed as a holiday in Boston, Massachusetts under the Laws of
the City of Boston, the Commonwealth of Massachusetts or the United States
<PAGE>
or in Toronto, Ontario under the Laws of the City of Toronto, the Province of
Ontario or the federal Laws of Canada.
CBCA shall mean the Canada Business Corporations Act.
COMMERCIAL SOFTWARE shall mean packaged commercial software programs
generally available to the public through retail computer software dealers or
directly from the manufacturer which have been licensed to the Company or any of
its Subsidiaries pursuant to End-User Licenses and which are used in the
business of the Company and its Subsidiaries but are in no way a component of or
incorporated in or specifically required to develop or support any of the
products and related trademarks, technology and know-how of the Company and its
Subsidiaries.
COMPANY BENEFIT PLANS shall mean all employee benefit plans of any Company
Entity, including employee benefit plans within the meaning of Section 3(3) of
ERISA, and any related or separate contracts, plans, trusts, programs, policies,
arrangements, practices, customs and understandings, in each case whether formal
or informal, written or oral, and whether maintained by or binding upon any
Company Entity, that provide rights or benefits of economic value to any current
or former employee of any Company Entity or current or former beneficiary,
dependent or assignee of any such employee or former employee.
COMPANY END-USER LICENSES shall mean End-User Licenses, substantially in the
form of the Company's standard Master Software License Agreement previously
provided to Parent (or any another software license agreement not materially
different from such Master Software License Agreement), under which the Company
or one of its Subsidiaries is the licensor and which provides for payments to
the Company or any of its Subsidiaries of less than $250,000.
COMPANY ENTITY shall include any corporation that is a member of any
controlled group of corporations (as defined in Section 414(b) of the Code) that
includes the Company, any trade or business (whether or not incorporated) that
is under common control (as defined in Section 414(c) of the Code) with either
the Company, any organization (whether or not incorporated) that is a member of
an affiliated service group (as defined in Section 414(m) of the Code) that
includes the Company and any other entity required to be aggregated with the
Company pursuant to the regulations issued under Section 414(o) of the Code.
COMPANY LEASES shall mean each lease, sublease, license or other agreement
under which the Company or any of its Subsidiaries uses, occupies or has the
right to occupy any real property or interest therein that (a) provides for
future minimum payments of $10,000 or more (ignoring any right of cancellation
or termination) or (b) the cancellation or termination of which would have a
Company Material Adverse Effect.
COMPANY MATERIAL ADVERSE EFFECT shall mean any event, change or effect that
is or is reasonably expected to be materially adverse to (a) the financial
condition, business, operations, assets, properties, personnel, or results of
operations of the Company and its Subsidiaries, taken as a whole or (b) the
ability of the Company to perform its obligations under this Agreement or to
consummate the Arrangement or any of the other transactions contemplated hereby;
PROVIDED, that a Company Material Adverse Effect shall not include any adverse
effect resulting from changes in general economic conditions or conditions
generally affecting the industry in which the Company operates.
CONTRACT shall mean any written or oral agreement, contract, instrument,
guarantee or commitment to which a Person or any of its Subsidiaries is a party
or by which it, any of its Subsidiaries or any of its or their material assets
or properties is bound or which is applicable to it, any of its Subsidiaries or
any of its or their material assets or properties.
CONTROL (INCLUDING WITH CORRELATIVE MEANING, CONTROLLED BY AND UNDER COMMON
CONTROL WITH) shall mean, with respect to any Person, the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
DOLLAR or "$" shall mean United States dollars.
ENCUMBRANCE shall mean any mortgage, pledge, lien, claim, charge, security
interest, lease, conditional sale or other title retention agreement, easement,
servitude, refusal, claim of infringement, condition or other
<PAGE>
restriction or encumbrance of any kind, including any restriction on use, voting
(in the case of any security), transfer, receipt of income or exercise of any
other attribute of ownership on assets.
END-USER LICENSES shall mean any object code end-user licenses, providing
for payments to the licensor of less than $25,000, granted to end-users in the
ordinary course of business that permit use of software products without a right
to modify, distribute or sublicense the same. The term "End-User Licenses" shall
not include any Company End-User Licenses.
ENVIRONMENTAL CLAIM shall mean any notice alleging potential liability
(including potential liability for investigatory costs, cleanup costs, response
or remediation costs, natural resources damages, property damages, personal
injuries, fines or penalties) arising out of, based on or resulting from (a) the
presence or release of any Material of Environmental Concern, whether or not the
Material of Environmental Concern is present on or has been released from
property owned by that party or any of its Affiliates or (b) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law.
ENVIRONMENTAL LAWS shall mean any and all Laws relating to the protection of
public health, safety or the environment.
ERISA shall mean the United States Employee Retirement Income Security Act
of 1974, as amended.
EXCHANGE ACT shall mean the United States Securities Exchange Act of 1934,
as amended.
EXCHANGEABLE SHARES shall have the meaning given to such term in the Plan of
Arrangement.
GOVERNMENTAL ENTITY shall mean (a) any United States, Canadian,
multinational, foreign, federal, provincial, state, regional, territorial,
municipal, local or other government, governmental or public department, central
bank, court, tribunal, arbitral body, commission, board, bureau or agency, (b)
any subdivision, agent, commission, board, authority or instrumentality of any
of the foregoing or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of any of
the foregoing. The term "Governmental Entity" shall include the SEC, the OSC,
the Nasdaq and the TSE.
HSR ACT shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
INDEBTEDNESS shall mean (a) all items (except items of capital stock,
stockholders' equity, surplus or retained earnings, and general contingency
reserves) that in accordance with generally accepted accounting principles would
be included in determining total liabilities of the Company and its Subsidiaries
as of the date as of which Indebtedness is to be determined, (b) indebtedness
secured by any Encumbrance to which any property or asset owned or held by
Company or any of its Subsidiaries is subject, whether or not the indebtedness
secured thereby shall have been assumed, and (c) indebtedness of others which
the Company or any of its Subsidiaries has directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business), sold or discounted with recourse or (contingently or otherwise) to
purchase or repurchase or otherwise acquire, or in respect of which Company or
any of its Subsidiaries has agreed to supply or advance funds (whether by way of
loan, stock purchase, capital contribution or otherwise) or otherwise become
directly or indirectly liable.
LAWS shall mean all laws, statutes, ordinances, regulations, rules,
published policies and guidelines of any Governmental Entity, and the terms and
conditions of any Permit, judgment, order or decree of any Governmental Entity.
APPLICABLE LAWS shall mean, with respect to any Person, all Laws by which such
Person, any of its Subsidiaries or any of its or their securities or material
assets or properties is bound or which is applicable to it, any of its
Subsidiaries or any of its or their securities or material assets or properties.
MATERIALS OF ENVIRONMENTAL CONCERN shall mean petroleum and its by-products,
all hazardous substances and all substances or constituents that are regulated
by, or form the basis of liability under, any Environmental Law.
NASDAQ shall mean The Nasdaq Stock Market, Inc.
OSC shall mean the Ontario Securities Commission.
PARENT MATERIAL ADVERSE EFFECT shall mean any event, change or effect that
is or is reasonably expected to be materially adverse to (a) the financial
condition, business, operations, assets, properties, personnel, or results of
operations of Parent and its Subsidiaries, taken as a whole or (b) the ability
of Parent and Subco to perform their
<PAGE>
obligations under this Agreement or to consummate the Arrangement or any of the
other transactions contemplated hereby; PROVIDED, that a Parent Material Adverse
Effect shall not include any adverse effect resulting from changes in general
economic conditions or conditions generally affecting the industry in which
Parent operates.
PERMIT shall mean any permit, concession, approval, permission,
authorization, certificate or license from any Governmental Entity.
PERMITTED ENCUMBRANCES shall mean (a) liens for current taxes and other
statutory liens and trusts not yet due and payable or that are being contested
in good faith, (b) liens that were incurred in the ordinary course of business,
such as carriers', warehousemen's, landlords' and mechanics' liens and other
similar liens arising in the ordinary course of business, (c) liens on personal
property leased under operating leases, (d) liens, pledges or deposits incurred
or made in connection with workmen's compensation, unemployment insurance and
other social insurance and social security benefits, or securing the performance
of bids, tenders, leases, contracts (other than for the repayment of borrowed
money), statutory obligations, progress payments, surety and appeal bonds and
other obligations of like nature, in each case incurred in the ordinary course
of business, (e) pledges of or liens on manufactured products as security for
any drafts or bills of exchange drawn in connection with the importation of such
manufactured products in the ordinary course of business, (f) liens under
Article 2 of the Uniform Commercial Code or under applicable Canadian provincial
personal property security Laws that are special property interests in goods
identified as goods to which a contract refers, and (g) liens under Article 9 of
the Uniform Commercial Code or under applicable Canadian provincial personal
property security Laws that are purchase money security interests, none of which
are material in the aggregate or individually.
PERSON shall mean any individual, corporation, association, partnership,
limited liability company, estate, trust or other entity or organization.
SEC shall mean the United States Securities and Exchange Commission.
SECURITIES ACT shall mean the United States Securities Act of 1933, as
amended.
SPECIAL VOTING SHARE shall mean the share of Special Voting Stock of Parent
having the rights, privileges, restrictions and conditions described in the
Certificate of Designation.
SUBSIDIARY shall mean any corporation, association, or other business entity
a majority (by number of votes on the election of directors or persons holding
positions with similar responsibilities) of the shares of capital stock (or
other voting interests) of which is owned by Parent, the Company or their
respective Subsidiaries, as the case may be.
TAX shall mean any Canadian, United States, multinational, foreign, federal,
provincial, state, regional, territorial, municipal and local capital, capital
stock, disability, customs duties, employment, environmental (including taxes
under Section 59A of the Code), estimated, excise, franchise, capital gains,
employer health, income, license, alternative or add-on minimum, occupation,
payroll, premium, profits, windfall profits, personal property, real property,
gross receipts, registration, gross revenue, sales, goods and services,
severance, social security (or similar), stamp, transfer, turnover,
unemployment, use, value added, withholding, net worth, or other tax of any kind
whatsoever, including employment insurance and Canada Pension Plan premiums, as
well as any interest or penalty in respect thereof and any addition thereto,
whether disputed or not.
TAX RETURN shall mean any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto and any amendment thereof.
TRUSTEE shall mean a Canadian trust company to be reasonably selected by
Parent and the Company to act as trustee under the Voting and Exchange Trust
Agreement.
TSE shall mean The Toronto Stock Exchange.
VIOLATION shall mean, with respect to any provision, with or without the
giving of notice or the lapse of time, or both, (a) any conflict with, violation
or breach of, or default under, such provision, (b) the arising of any right of
termination, amendment, cancellation or acceleration of any obligation contained
in, or the loss of any material benefit under, such provision or (c) the arising
of any Encumbrance upon any of the properties or assets of the Person subject to
the provision or any of its Subsidiaries.
<PAGE>
ARTICLE 2
GENERAL
2.1. PLAN OF ARRANGEMENT.
2.1.1. As promptly as practicable, the Company shall apply to the Court
pursuant to Section 192 of the CBCA for an interim order in form and
substance reasonably satisfactory to Parent (the "Interim Order") providing
for, among other things, the calling and holding of a special meeting of the
shareholders of the Company (the "Company Shareholder Meeting") for the
purpose of considering and, if deemed advisable, approving the arrangement
(the "Arrangement") under Section 192 of the CBCA and pursuant to this
Agreement and the Plan of Arrangement substantially in the form of EXHIBIT
A, with such changes, modifications and additions thereto as the parties may
reasonably agree upon (the "Plan of Arrangement"). The notice of motion for
the application for the Interim Order shall request that the Interim Order
provide (a) for the class of Persons to whom notice shall be provided in
respect of the Arrangement and the Company Shareholder Meeting and for the
manner in which such notice shall be provided, (b) that the requisite
shareholder approval for the special resolution approving the Arrangement
shall be 66 2/3% of the votes cast on such special resolution by holders of
Company Common Shares present in person or by proxy at the Company
Shareholder Meeting, (c) that, in all other respects, the terms,
restrictions and conditions of the Articles of Incorporation and By-Laws of
the Company, including quorum requirements and all other matters, shall
apply in respect of the Company Shareholder Meeting: and (d) for the grant
of the rights of dissent in respect of the Arrangement described in Section
3.1 of the Plan of Arrangement.
2.1.2. If the shareholders of the Company shall approve the Arrangement
in accordance with the Interim Order, and subject to the satisfaction or
waiver of the other conditions set forth in Article 8, the Company shall as
promptly as practicable (a) take all necessary steps to submit the
Arrangement to the Court and apply for a final order of the Court approving
the Arrangement in such fashion as the Court may direct (the "Final Order"),
and (b) send to the Director appointed under Section 260 of the CBCA (the
"CBCA Director") for endorsement and filing by the CBCA Director, the
Articles of Arrangement and such other documents as may be required in
connection therewith under the CBCA to give effect to the Arrangement. At
12:01 a.m. (the "Effective Time") on the date (the "Effective Date") shown
on the Certificate of Arrangement issued by the Director giving effect to
the Arrangement, the reorganization of capital and other transactions set
out in clauses (a) through (k), inclusive, of Section 2.1 of the Plan of
Arrangement shall occur and shall be deemed to occur in the order set forth
in such Section 2.1 without any further act or formality.
2.2. EXCHANGE RATIO.
2.2.1. INITIAL EXCHANGE RATIO. For purposes of the Plan of
Arrangement, the "Exchange Ratio" shall be 0.1691 Exchangeable Shares for
each Company Common Share, subject to adjustment in accordance with this
Section 2.2.
2.2.2. ADJUSTMENT FOR ALTERATIONS OF EQUITY CAPITAL. The Exchange
Ratio shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company Common Shares),
reorganization, recapitalization or other like change with respect to Parent
Common Stock or Company Common Shares occurring after the date hereof and
prior to the Effective Time.
2.2.3. ADJUSTMENT FOR FLUCTUATIONS IN MARKET PRICE. The Exchange Ratio
shall also be adjusted pursuant to the following:
(a) if the average of the per share closing prices on the Nasdaq National
Market of shares of Parent Common Stock during the 20 consecutive
trading days before the second Business Day before the Closing Date
(as hereinafter defined) (the "Pre-Closing Average Price") shall be
less than $25.375 per share, the Exchange Ratio shall be adjusted to
equal the product of 0.1691 and a fraction, the numerator of which is
$25.375 and the denominator of which is the greater of (i) $20.93 and
(ii) the Pre-Closing Average Price; and
<PAGE>
(b) if the Pre-Closing Average Price shall be greater than $25.375 per
share, the Exchange Ratio shall be adjusted to equal the product of
0.1691 and a fraction, the numerator of which is $25.375 and the
denominator of which is the lesser of (i) $31.72 and (ii) the
Pre-Closing Average Price.
2.2.4. CALCULATION OF ADJUSTMENTS. Any adjustment of the Exchange
Ratio pursuant to this Section 2.2 shall be rounded to four decimal places.
2.3. DISSENTING SHARES. Holders of Company Common Shares may exercise
rights of dissent with respect to such shares in connection with the Arrangement
pursuant to and in the manner set forth in Section 190 of the CBCA and Section
3.1 of the Plan of Arrangement. The Company shall give Parent (a) prompt oral
and written notice of any written demands of a right of dissent, withdrawals of
such demands, and any other instruments served pursuant to the CBCA or otherwise
and received by the Company and (b) the opportunity to participate in all
negotiations and proceedings with respect to such rights. Without the prior
written consent of Parent, except as required by Applicable Laws, the Company
shall not make any payment with respect to any such rights or offer to settle or
settle any such rights.
2.4. OTHER EFFECTS OF THE ARRANGEMENT. At the Effective Time: (a) the
directors of the Company shall be such persons as Parent shall designate by
written notice to the Company prior to the Effective Time); (b) the officers of
the Company shall be as designated by the Board of Directors of the Company
prior to the Effective Time, subject to later removal and appointment of other
officers; (c) each Company Common Share and each Company Option outstanding
immediately prior to the Effective Time shall be exchanged as provided in the
Plan of Arrangement; and (d) the Arrangement shall, from and after the Effective
Time, have all of the effects provided by Applicable Laws, including the CBCA.
2.5. VOTING AND EXCHANGE TRUST AGREEMENT. On or before the Effective Date,
Parent, Subco, the Company and the Trustee shall authorize, execute and deliver
a Voting and Exchange Trust Agreement in substantially the form of EXHIBIT B
hereto, with such changes, modifications and additions thereto as may reasonably
be requested by the Trustee together with such other changes, modifications and
additions thereto as the parties may reasonably agree upon (the "Voting and
Exchange Trust Agreement"). On or before the Effective Date, Parent shall issue
and deposit with the Trustee, for the benefit of the holders of Exchangeable
Shares, the Special Voting Share to be held in accordance with the Voting and
Exchange Trust Agreement.
2.6. SUPPORT AGREEMENT. On or before the Effective Date, Parent, Subco and
the Company shall authorize, execute and deliver a Support Agreement in
substantially the form of EXHIBIT C hereto, with such changes, modifications and
additions thereto as the parties may reasonably agree upon (the "Support
Agreement").
2.7. CERTIFICATE OF DESIGNATION. On or before the Effective Date, Parent
shall file a Certificate of Vote of Directors Establishing a Class or Series of
Stock with the Secretary of State of the Commonwealth of Massachusetts in
substantially the form of EXHIBIT D hereto, with such changes, modifications and
additions thereto as the parties may reasonably agree upon (the "Certificate of
Designation").
2.8. COMPANY SHAREHOLDER MEETING. As promptly as practicable, the Company
shall take all action necessary in accordance with Applicable Laws and its
Articles of Incorporation and By-Laws to call and hold the Company Shareholder
Meeting as promptly as practicable for the purpose of voting upon the
Arrangement and such other matters as shall require approval of the shareholders
of the Company in order to consummate the Arrangement and the other transactions
contemplated hereby. Unless the Company shall have complied with Sections 7.19
and 7.20, the Board of Directors of the Company shall give its unqualified
recommendation to the shareholders of the Company that they approve the
Arrangement and such other matters, and the Company shall use its reasonable
best efforts to obtain such approval.
2.9. INFORMATION CIRCULAR AND REGISTRATION STATEMENT.
2.9.1. INFORMATION CIRCULAR. As promptly as practicable and in any
event within 30 days following the execution of this Agreement, Parent and
the Company shall prepare a notice and management information circular of
the Company with respect to the Company Shareholder Meeting (as amended from
time to time, the "Information Circular"), together with any other documents
required by Applicable Laws in connection with the Arrangement and the other
transactions contemplated hereby, and the Company shall cause the
<PAGE>
Information Circular and such other required documents to be sent to each
shareholder of the Company entitled to vote at the Company Stockholder
Meeting and filed as required by the Interim Order and Applicable Laws. The
Company shall ensure that the Information Circular provides its shareholders
entitled to vote with information in sufficient detail to permit them to
form a reasoned judgment concerning the matters to be placed before them at
the Company Shareholder Meeting and that the Information Circular is
accurate and complete in all material respects.
2.9.2. REGISTRATION STATEMENT. As promptly as practicable and in any
event within 30 days following the execution of this Agreement, Parent shall
file with the SEC a registration statement (the "Registration Statement") to
register the Parent Common Stock to be issued from time to time after the
Effective Time upon exchange of the Exchangeable Shares, and Parent and the
Company shall use their reasonable best efforts to cause the Registration
Statement to become effective and to maintain the effectiveness of such
Registration Statement for the period that such Exchangeable Shares shall
remain outstanding. Parent, Subco and the Company agree not to knowingly
take any action that would render unavailable the exemption provided by
Section 3(a)(10) of the Securities Act with respect to the issuance of the
Exchangeable Shares under the terms of the Plan of Arrangement.
2.9.3. APPROVAL OF CANADIAN AUTHORITIES. Parent and the Company shall
use their reasonable best efforts to obtain all orders required from the
applicable Canadian securities authorities to permit the issuance and first
resale of (a) the Exchangeable Shares to be issued pursuant to the
Arrangement, (b) the shares of Parent Common Stock issuable upon exchange of
the Exchangeable Shares from time to time, and (c) the shares of Parent
Common Stock issuable from time to time upon the exercise of the Company
Options and the Company Warrants, in each case without qualification with or
approval of or the filing of any document, including any prospectus or
similar document, or the taking of any proceeding with, or the obtaining of
any further order, ruling or consent from, any Governmental Entity under
Applicable Laws, or the fulfilment of any other legal requirement in any
such jurisdiction (other than, with respect to such first resales, any
restrictions on transfer by reason of, among other things, a holder being a
"control person" of Parent or the Company for purposes of Canadian federal,
provincial or territorial securities Laws).
2.9.4. PROVISION OF INFORMATION. Each party shall promptly furnish to
the other party all information concerning such party and its
securityholders as may be reasonably required in connection with any action
contemplated by this Section 2.9. The Information Circular, the Registration
Statement and the other documents required by Applicable Laws in connection
with the Arrangement and the other transactions contemplated hereby shall
comply in all material respects with the requirements of Applicable Laws. No
information provided by Parent or the Company for inclusion in the
Information Circular, the Registration Statement or any other documents to
be filed with the SEC, the OSC (or other applicable Canadian provincial
securities regulators (together with the OSC, the "Commissions")) or the TSE
or to be mailed to the securityholders of the Company in connection with the
Arrangement and the other transactions contemplated hereby shall contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Each of Parent and the Company shall notify the other promptly of the
receipt of any comments from the SEC, the Commissions or the TSE and of any
request by the SEC, the Commissions or the TSE for amendments or supplements
to the Information Circular or the Registration Statement or for additional
information, and shall supply the other with copies of all correspondence
with the SEC, the Commissions and the TSE with respect to the Information
Circular and the Registration Statement. Whenever any event shall occur that
should be set forth in an amendment or supplement to the Information
Circular or the Registration Statement, Parent or the Company, as the case
may be, shall promptly inform the other of such occurrence and cooperate in
filing with the SEC, the Commissions and/or the TSE, and/or mailing to
securityholders of the Company entitled to vote, such amendment or
supplement.
2.9.5. BLUE SKY LAWS. Parent and the Company shall promptly take all
action required to be taken under any Applicable state or provincial
securities Laws (including "blue sky" Laws) in connection with the
Arrangement and the issuance of the Exchangeable Shares and shares of Parent
Common Stock thereunder; PROVIDED, HOWEVER, that with respect to Canadian
provincial qualifications, neither Parent nor
<PAGE>
the Company shall be required to register or qualify as a foreign
corporation or reporting issuer where either such corporation is not now so
registered or qualified.
2.10. LISTINGS. Parent shall take such action as shall be necessary to
authorize for listing on the Nasdaq National Market the shares of Parent Common
Stock issuable upon exchange of the Exchangeable Shares and the shares of Parent
Common Stock otherwise reserved for issuance in connection with the Arrangement.
Parent and the Company shall take such action as shall be necessary to authorize
for listing on the TSE the Exchangeable Shares as of and from the Effective
Time.
2.11. CLOSING. The closing of the Arrangement and the other transactions
contemplated hereby (the "Closing") shall take place at the offices of Cassels,
Brock & Blackwell in Toronto, Ontario, Canada, at a time and on a date (the
"Closing Date") to be specified by Parent and the Company, which date shall not
be later than two Business Days after the later of (a) the issuance of the Final
Order and (b) the satisfaction or waiver of the conditions set forth in Article
8. Concurrently with the Closing, the parties shall cause to be filed with the
CBCA Director the Articles of Arrangement and such other documents as may be
required in connection therewith under the CBCA to give effect to the
Arrangement and the other transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Subco that the statements
in this Article 3 are true and correct, except as set forth in the disclosure
schedule delivered by the Company to Parent on the date hereof (the "Company
Disclosure Schedule"). The Company Disclosure Schedule shall be arranged in
sections and paragraphs corresponding to the numbered and lettered sections and
paragraphs in this Article 3. The disclosure in any section or paragraph of the
Company Disclosure Schedule shall qualify other sections and paragraphs in this
Article 3 only to the extent that it is reasonably apparent from a reading of
such disclosure that it also qualifies or applies to such other sections or
paragraphs.
3.1. CORPORATE STATUS OF THE COMPANY AND ITS SUBSIDIARIES. Each of the
Company and its Subsidiaries is a corporation or other organization duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation or organization, with the requisite corporate
or organizational power and authority to carry on its business as currently
being conducted and to own, lease and operate the properties currently owned,
leased and operated by it. Each of the Company and its Subsidiaries is duly
qualified or licensed to do business and is in good standing as an
extra-provincial or foreign corporation or organization authorized to do
business in all jurisdictions in which the character of the properties owned or
held under lease by it or the nature of the business transacted by it makes such
qualification or licensing necessary, except in jurisdictions in which the
failure to be so qualified or licensed would not result in a Company Material
Adverse Effect. Section 3.1 of the Company Disclosure Schedule sets forth a
complete list of the Company's Subsidiaries, their jurisdictions of
incorporation or organization, and a complete list of each jurisdiction in which
each of the Company and its Subsidiaries is duly qualified and in good standing
to do business.
3.2. ARTICLES OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS. The
Company has delivered to Parent true and complete copies of the Articles of
Incorporation and by-laws of the Company, including all amendments thereto, as
in effect on the date hereof (the "Articles of Incorporation" and the "By-Laws,"
respectively). Each of the minute books of the Company and its Subsidiaries made
available to Parent and/or its agents contains accurate records of all meetings
and consents in lieu of meetings of the Board of Directors (or similar governing
body) of the Company or the Subsidiary, as the case may be, (and any committees
thereof, whether permanent or temporary) and of its securityholders (or other
equity holders having rights to vote or consent) since the date of its
incorporation or organization, and such records accurately reflect all
transactions referred to in such minutes and consents. Section 3.2 of the
Company Disclosure Schedule sets forth a list of the directors and officers of
the Company and the respective offices held by them.
3.3. AUTHORITY FOR AGREEMENT; NONCONTRAVENTION.
3.3.1. AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and the other agreements contemplated
hereby to be signed by it and, subject to approval of the Company's
shareholders and the Court as provided in this Agreement, to consummate the
Arrangement
<PAGE>
and the other transactions contemplated hereby and by the other agreements
contemplated hereby. The execution and delivery by the Company of this
Agreement and such other agreements and the consummation by the Company of
the Plan of Arrangement and the other transactions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors of
the Company. Except for the approval of the Company's shareholders as
provided in this Agreement, no other corporate proceedings on the part of
the Company are necessary to authorize the execution and delivery by the
Company of this Agreement and such other agreements and the consummation by
the Company of the Plan of Arrangement and the other transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by the Company and constitutes valid and binding obligations of
the Company, enforceable against the Company in accordance with its terms,
subject to the qualifications that (a) enforcement of the rights and
remedies created hereby are subject to Bankruptcy Laws and (b) the
consummation of the Arrangement is subject to the approval of the Company's
shareholders and the Court as provided in this Agreement. On or before the
Effective Date, the other agreements contemplated hereby to be executed and
delivered by the Company on or before the Effective Date will have been
executed and delivered by the Company, and, upon such execution and
delivery, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
subject to the qualifications that (a) enforcement of the rights and
remedies created thereby will be subject Bankruptcy Laws and (b) the
consummation of the Arrangement is subject to the approval of the Company's
shareholders and the Court as provided in this Agreement.
3.3.2. NO CONFLICT. None of the execution and delivery by the Company
of this Agreement, the Plan of Arrangement and the other agreements
contemplated hereby, the performance by the Company of its obligations
hereunder and thereunder, and the consummation by the Company of the
transactions contem-plated hereby and thereby will cause a Violation of any
term, condition or provision of the Articles of Incorporation or By-Laws of
the Company or any other organizational document of the Company or any
Subsidiary, or any credit agreement, indenture, bond, debenture, note,
mortgage, lease, instrument or other agreement, permit, concession, grant,
franchise, license, judgment, order or decree to which the Company or any of
its Subsidiaries is a party or by which it, any of its Subsidiaries or any
of its or their material assets or properties is bound or which is
applicable to it, any of its Subsidiaries or any of its or their material
assets or properties, or, to the knowledge of the Company, any Applicable
Laws, other than such Violations which, individually or in the aggregate,
would not result in a Company Material Adverse Effect.
3.4. GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration or filing with, or declaration or notice to, any
Governmental Entity, is required to be obtained by the Company or any of its
Subsidiaries in connection with the execution and delivery by the Company of
this Agreement or the other agreements contemplated hereby, the performance by
the Company of its obligations hereunder and thereunder, or the consummation by
the Company of the Plan of Arrangement and the other transactions contemplated
hereby or thereby, except (a) the filing with the Commissions and the Court and
the mailing to shareholders of the Company of the Information Circular relating
to the Company Shareholder Meeting, (b) the filing with the SEC of such
registration statements, reports and information under the Securities Act and
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder, as may be required in connection with this Agreement and the
transactions contemplated hereby; (c) approval by the Court of the Arrangement
and the filing of the Articles of Arrangement and other arrangement or other
documents as required by the CBCA; (d) such filings, authorizations, orders and
approvals as may be required under state or provincial "control share
acquisition," "anti-takeover" or other similar statutes, and any other approvals
required under applicable federal, provincial or state securities Laws and the
rules of the Nasdaq and the TSE (including those referred to in Section 2.9.3);
(e) such filings and notices as may be necessary under the HSR Act; (f) such
filings and notices as may be necessary under the Investment Canada Act and
under the Competition Act (Canada); and (g) where the failure to obtain or make
such consents, approvals, orders, authorizations, registrations, filings,
declarations or notices would not prevent or delay the consummation of the
Arrangement or the other transactions contemplated hereby or otherwise prevent
the Company from performing its obligations under this Agreement, the Plan of
Arrangement or the other agreements contemplated hereby and would not result in
a Company Material Adverse Effect.
<PAGE>
3.5. CAPITALIZATION.
3.5.1. AUTHORIZED SHARE CAPITAL OF THE COMPANY. On the date hereof,
the authorized share capital of the Company consists of an unlimited number
of common shares of the Company ("Company Common Shares," which term shall
include for all purposes of this Agreement the related Company Common Share
purchase rights issued or issuable under that certain Shareholder Rights
Plan Agreement dated as of January 27, 1997 (the "Rights Agreement"),
between the Company and Montreal Trust Company of Canada, as Rights Agent)
and an unlimited number of preference shares of the Company ("Company
Preference Shares"). As of November 24, 1998, there were 10,257,194 Company
Common Shares issued and outstanding. As of that date, there were no Company
Preference Shares issued and outstanding. All of the issued Company Common
Shares have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has reserved for issuance under the Rights
Agreement the number of Company Common Shares required to be issued upon the
exercise of the rights provided by the Rights Agreement in accordance with
the terms and conditions thereof. None of the issued Company Common Shares
was issued in violation of the terms of any agreement or other understanding
binding upon the Company, and all of the issued Company Common Shares were
issued in compliance with all applicable charter documents of the Company
and all Applicable securities Laws. There are, and have been, no preemptive
rights with respect to the issuance of the Company Common Shares or any
other capital stock of the Company.
3.5.2. OPTIONS AND CONVERTIBLE SECURITIES OF THE COMPANY. Section
3.5.2 of the Company Disclosure Schedule sets forth a complete list of (a)
each stock option plan, stock purchase plan and each other plan, arrangement
or agreement under which the Company or any of its Subsidiaries has reserved
shares of capital stock, or any securities or obligations convertible into,
or exercisable or exchangeable for, any shares of capital stock, to any
employee, director, consultant, service provider or other Person
(collectively, the "Company Plans") and (b) the number of shares, securities
or obligations reserved for issuance under such plan, arrangement or
agreement. All such plans, arrangements and agreements are in compliance
with all Applicable Laws and have been approved by the TSE. Except as set
forth in Section 3.5.2 of the Company Disclosure Schedule, there are no
outstanding subscriptions, options, warrants or conversion rights or other
rights, securities, agreements, calls or commitments (contingent or
otherwise) that obligate the Company to issue, sell, deliver or otherwise
dispose of shares of its capital stock, or any securities or obligations
convertible into, or exercisable or exchangeable for, any shares of its
capital stock. None of the execution and delivery by the Company of this
Agreement and the other agreements contemplated hereby, the performance by
the Company of its obligations hereunder and thereunder, and the
consummation by the Company of the Plan of Arrangement and the other
transactions contemplated hereby and thereby, and any other event that
occurred on or prior to the date hereof, will accelerate the vesting under
any item set forth in Section 3.5.2 of the Company Disclosure Schedule.
There are no voting trusts or other agreements or understandings to which
the Company or, to the knowledge of the Company, any securityholder of the
Company is a party with respect to the voting of the Company Common Shares.
Except as set forth in Section 3.5.2 of the Company Disclosure Schedule, the
Company is not a party to or bound by any outstanding restrictions, puts,
options or other obligations, agreements or commitments to repurchase,
redeem or otherwise acquire any outstanding Company Common Shares or other
equity securities of the Company.
3.5.3. SUBSIDIARIES. Section 3.5.3 of the Company Disclosure Schedule
sets forth the capitalization of each of the Company's Subsidiaries,
including the number of securities authorized, issued, outstanding and held
in treasury. All of the issued shares of capital stock of each of the
Company's Subsidiaries have been duly authorized and validly issued and are
fully paid and nonassessable. None of the issued securities of any of the
Company's Subsidiaries was issued in violation of the terms of any agreement
or other understanding binding upon the issuing Subsidiary, and all of such
issued securities were issued in compliance with all applicable charter
documents of the issuing Subsidiary and all Applicable securities Laws.
There are no outstanding subscriptions, options, warrants or conversion
rights or other rights, securities, agreements, calls or commitments
(contingent or otherwise) that obligate any of the Company's Subsidiaries to
issue, sell, deliver or otherwise dispose of shares of its capital stock, or
any securities or obligations convertible into, or exercisable or
exchangeable for, any shares of its capital stock. There are, and have been,
no
<PAGE>
preemptive rights with respect to the issuance of any securities of any of
the Company's Subsidiaries. The Company owns beneficially and of record all
of the outstanding securities of each of its Subsidiaries, free and clear of
all Encumbrances. Other than the Company's Subsidiaries, the Company does
not own, directly or indirectly, any shares or other equity interest or
securities in any Person.
3.5.4. RIGHTS AGREEMENT. The Company has waived the application of the
Rights Agreement with respect to this Agreement, the Plan of Arrangement and
the other transactions contemplated hereby, and, except in connection with
the acceptance of a Superior Proposal pursuant to Sections 7.19 and 7.20,
the Company will not waive, terminate or otherwise render the Rights
Agreement inoperative or inapplicable with respect to any other Acquisition
Proposal. At the Effective Time, the Rights Agreement will have been
terminated, all rights will be canceled or redeemed pursuant to the Rights
Agreement, and no Person shall have any rights thereunder.
3.6. SECURITIES REPORTS; FINANCIAL STATEMENTS. The Company has timely
filed all forms, reports and documents (including prospectuses, offering
memoranda and TSE filing statements) with the Commissions, the TSE and the SEC
required to be filed by it pursuant to Applicable Laws (collectively, the
"Company Securities Reports"). The Company has delivered or made available to
Parent true and complete copies of (a) its Annual Information Forms for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997, (b) all Proxy
Circulars relating to meetings of the Company's shareholders (whether annual or
special) held since January 1, 1993, (c) all other Shareholders' Reports and
other documents filed by it with the TSE or the Commissions since January 1,
1993, and (d) all amendments and supplements to all such forms, reports and
documents filed by the Company with the TSE or the Commissions. As of their
respective dates, the Company Securities Reports complied in all material
respects with Applicable Laws, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements (including any
related notes) of the Company included in the Company Securities Reports
complied in all material respects with applicable accounting requirements and
with Applicable Laws, were prepared in conformity with Canadian generally
accepted accounting principles applied on a consistent basis (except as
otherwise stated in the financial statements), and present fairly the
consolidated financial position, results of operations, stockholders' equity,
liabilities (contingent or otherwise) and cash flows, as the case may be, of the
Company and its consolidated Subsidiaries as of the dates and for the periods
indicated, subject, in the case of unaudited interim consolidated financial
statements, to (i) the absence of certain notes thereto and (ii) normal year-end
audit adjustments. The information to be contained in the Information Circular
(including any information referred to therein or incorporated therein by
reference) relating to the Company will be accurate and complete in all material
respects as of the date thereof and will not contain a misrepresentation (as
defined in the Securities Act (Ontario)) as of such date.
3.7. ABSENCE OF MATERIAL ADVERSE CHANGES AND UNDISCLOSED LIABILITIES.
3.7.1. CHANGES. Since the date of the most recent consolidated balance
sheet filed by the Company with the Commissions (the "Company Balance
Sheet"), the Company has not experienced a Company Material Adverse Effect.
Without limiting the generality of the foregoing, except as set forth in
Section 3.7.1 of the Company Disclosure Schedule, since the date of the
Company Balance Sheet, neither the Company nor any of its Subsidiaries has:
(a) sold, leased, transferred or assigned any of its assets, tangible or
intangible, other than in the ordinary course of business;
(b) accelerated, terminated, modified, or canceled any contract, lease,
sublease, license, or sublicense (or series of related contracts,
leases, subleases, licenses, and sublicenses) involving more than
$25,000 to which the Company or such Subsidiary is a party;
(c) canceled, compromised, waived, or released any right or claim (or
series of related rights and claims) either involving more than
$25,000 or outside the ordinary course of business;
(d) granted any license or sublicense of any rights under or with respect
to any Company Proprietary Rights other than (i) pursuant to Company
End-User Licenses and (ii) to the Company's
<PAGE>
distributors, resellers and other licensees under agreements
disclosed in Section 3.17.4 of the Company Disclosure Schedule;
(e) experienced material damage, destruction, or loss (whether or not
covered by insurance) to its material property (other than ordinary
wear and tear not caused by neglect);
(f) created or suffered to exist any Encumbrance (other than Permitted
Encumbrances) upon any of the assets, tangible or intangible, of the
Company or any Subsidiary;
(g) issued, sold, delivered or otherwise disposed of any capital stock,
or any securities or obligations convertible into, or exercisable or
exchangeable for, any shares of capital stock of the Company or any
of its Subsidiaries, or undergone any reorganization,
recapitalization, reclassification, stock split or reverse stock
split;
(h) accelerated, amended, repriced or changed the period of
exercisability of any outstanding Company Option or Company Warrant
or authorized cash payments in exchange for any options granted under
any of the Company Plans;
(i) declared, set aside, or paid any dividend or distribution with
respect to its capital stock (whether in cash or in kind) or directly
or indirectly redeemed, purchased, or otherwise acquired any of its
capital stock;
(j) entered into financial arrangements for the benefit of any of
director, officer or securityholder of the Company, other than in
connection with such Person's employment by the Company in the
ordinary course of its business and consistent with past practice;
(k) made or committed to make any capital expenditures or entered into
any other material transaction outside the ordinary course of
business or involving an expenditure in excess of $100,000;
(l) amended or modified in any respect any employment contract or
arrangement or any profit sharing, bonus, incentive compensation,
severance, employee benefit or multi-employer plans;
(m) entered into any employment agreement or collective bargaining
agreement or increased the compensation of any of its employees other
than in the ordinary course of its business and consistent with past
practice; or
(n) committed (orally or in writing) to do any of the foregoing.
3.7.2. LIABILITIES. Neither the Company nor any of its Subsidiaries
has any liabilities or obligations, fixed, accrued, contingent or otherwise
(collectively, "Liabilities"), that are not fully reflected or provided for
on, or disclosed in the notes to, the Company Balance Sheet, nor has any
knowledge of any potential material Liabilities, except Liabilities incurred
since the date of the Company Balance Sheet in the ordinary course of its
business and consistent with past practice, none of which Liabilities,
individually or in the aggregate, has resulted in a Company Material Adverse
Effect.
3.8. LITIGATION AND AUDITS. Except as set forth in Section 3.8 of the
Company Disclosure Schedule, there is no investigation or inquiry by any
Governmental Entity with respect to the Company or any of its Subsidiaries
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened, nor has any Governmental Entity indicated to the Company or any of
its Subsidiaries an intention to conduct the same. Except as set forth in
Section 3.8 of the Company Disclosure Schedule, there is no claim, action, suit,
arbitration or proceeding pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened against or involving the Company, any of its
Subsidiaries, or any of its or their assets or properties, at law or in equity,
or before any arbitrator or Governmental Entity, which, if determined adversely
to the Company or such Subsidiary, could result in a Company Material Adverse
Effect. There are no judgments, decrees, injunctions, orders or rulings of any
Governmental Entity or arbitrator outstanding against the Company or any of its
Subsidiaries.
3.9. COMPLIANCE WITH APPLICABLE LAW, ARTICLES OF INCORPORATION AND
BY-LAWS. Each of the Company and its Subsidiaries has all requisite Permits
necessary to carry on its business as currently being conducted and to own,
lease and operate the properties currently owned, leased and operated by it in
the manner currently owned,
<PAGE>
leased and operated, except where the failure to have such Permits would not
result in a Company Material Adverse Effect. There are no proceedings pending
or, to the knowledge of the Company or any of its Subsidiaries, threatened,
which may result in the revocation, cancellation, suspension, or adverse
modification of any such Permit. The business of the Company and its
Subsidiaries has not been conducted in Violation of Applicable Laws, except for
Violations which, individually or in the aggregate, would not result in a
Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is in Violation of, nor has any event occurred that has resulted or will result
any Violation of any term, condition or provision of the Articles of
Incorporation or By-Laws of the Company or any other organizational document of
the Company or any Subsidiary.
3.10. BOOKS AND RECORDS; ACCOUNTING MATTERS. The books, records and
accounts of the Company and its Subsidiaries (a) have been maintained in
accordance with good business practices on a basis consistent with prior years,
(b) are stated in reasonable detail and accurately and fairly reflect in all
material respects the transactions and dispositions of the assets of the Company
and its Subsidiaries and (c) accurately and fairly reflect in all material
respects the basis for the Company's consolidated financial statements. The
Company has devised and maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (d) transactions are executed
in accordance with management's general or specific authorizations; (e)
transactions are recorded as necessary (i) to permit preparation of accurate
financial statements in conformity with Canadian and United States generally
accepted accounting principles or any other criteria applicable to such
statements and (ii) to maintain accountability for assets; (f) access to assets
is permitted only in accordance with management's general or specific
authorization; and (g) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. There has been no change in the Company's accounting
policies or the methods of making accounting estimates or changes in estimates
that are material to the Company's financial statements, except as described in
the notes thereto.
3.11. TAX MATTERS.
3.11.1. FILING OF RETURNS. Each of the Company and its Subsidiaries
has prepared and timely filed with all appropriate Governmental Entities all
Tax Returns that it was required to file. All such Tax Returns were correct
and complete in all respects. Neither the Company nor any of its
Subsidiaries currently is the beneficiary of any extension of time within
which to file any Tax Return, other than extensions for which the Company or
any of its Subsidiaries has filed a request, which request has resulted in
the automatic granting of such extension. No Governmental Entity in any
jurisdiction in which any of the Company and its Subsidiaries does not file
Tax Returns has ever claimed that the Company or any of its Subsidiaries is
or may be subject to taxation by that jurisdiction.
3.11.2. PAYMENT OF TAXES. All Taxes payable or owed by the Company and
its Subsidiaries (whether or not shown on any Tax Return) have been paid
when due, and all Taxes due on or before the Effective Date will be paid
when due. In the case of Taxes accruing on or before the date hereof that
are not due on or before date hereof, the Company has made adequate
provision in its books and records and financial statements for such
payment. There are no security interests on any of the assets of any of the
Company and its Subsidiaries that arose in connection with any failure (or
alleged failure) to pay any Tax.
3.11.3. WITHHOLDING. Each of the Company and its Subsidiaries has
withheld from each payment made to any of its present or former employees,
officers, directors, stockholders, non-residents and other Persons all
amounts required by Law to be withheld and has, where required, remitted
such amounts within the applicable periods to the appropriate Governmental
Entity.
3.11.4. ASSESSMENTS. Neither the Company nor any of its Subsidiaries
expects any authority to assess any additional Taxes in excess of tax
reserves provided for in the Company's financial statements against the
Company or any of its Subsidiaries for any period for which Tax Returns have
been filed. No Tax Return of the Company or any of its Subsidiaries has been
audited or currently is the subject of audit. No Governmental Authority has
raised any dispute or claim concerning any Tax liability of any of the
Company and its Subsidiaries. Neither the Company nor any of its
Subsidiaries has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
<PAGE>
3.11.5. ELECTIONS AND CONSENTS. Neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Section 341(f) of the Code
relating to collapsible corporations, nor has the Company or any of its
Subsidiaries agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code). Neither the Company nor any of its Subsidiaries has
made any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Section 280G of the Code. Neither
the Company nor any of its Subsidiaries has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code. Each of the Company and its Subsidiaries has disclosed on its
United States income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Code. Neither the Company nor any of its
Subsidiaries is a party to any Tax allocation or Tax sharing agreement. None
of the Company and its Subsidiaries has been a member of an affiliated group
filing a consolidated United States income Tax Return. Neither the Company
nor any of its Subsidiaries has any material liability for the Taxes of any
Person (other than the Company and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of any other
Applicable Law), as a transferee or successor, by contract, or otherwise.
3.11.6. ACCESS TO RETURNS. The Company has provided Parent with a copy
of or access to all Canadian, United States and other federal, provincial,
state, and local income and capital Tax returns filed by the Company and its
Subsidiaries after January 1, 1994. The Company has provided Parent with a
copy of or access to all assessments, extensions and waivers resulting from
any examinations or audits of the Company or any of its Subsidiaries by a
Governmental Entity in respect of Taxes, and all such assessments and
related penalties and interest have been paid in full unless being contested
in good faith by the Company or any of its Subsidiaries and described in
Section 3.11 of the Company Disclosure Schedule.
3.12. EMPLOYEE BENEFIT PLANS.
3.12.1. LIST OF PLANS. Section 3.12 of the Company Disclosure Schedule
sets forth a complete list of all Company Benefit Plans sponsored or
maintained by any Company Entity or under which any Company Entity is
obligated. The Company has delivered to Parent (a) accurate and complete
copies of all Company Benefit Plan documents and all other material
documents relating thereto, including (if applicable) all summary plan
descriptions, summary annual reports and insurance contracts, (b) accurate
and complete detailed summaries of all unwritten Company Benefit Plans, (c)
accurate and complete copies of the most recent financial statements and
actuarial reports with respect to all Company Benefit Plans for which
financial statements or actuarial reports are required or have been
prepared, and (d) accurate and complete copies of all information returns
and annual reports for all Company Benefit Plans (for which information
returns or annual reports are required) prepared within the last three
years, (e) all material professional opinions relating to the Company
Benefit Plans and (f) accurate and complete copies of material
correspondence with all regulatory authorities. No material changes have
occurred or are expected to occur which would affect the actuarial reports
or financial statements delivered to Parent pursuant to this Section 3.12.1.
No Company Entity sponsors a defined benefit plan subject to Title IV of
ERISA, nor does any Company Entity have a current or contingent obligation
to contribute to any multiemployer plan (as defined in Section 3(37) of
ERISA). No Company Entity has any liability with respect to any employee
benefit plan (as defined in Section 3(3) of ERISA) other than with respect
to the Company Benefit Plans.
3.12.2. ERISA COMPLIANCE. All Company Benefit Plans conform (and at
all times have conformed) in all material respects to, and are being
administered and operated (and have at all time been administered and
operated) in material compliance with, the requirements of ERISA, the Code
and all other Applicable Laws. All returns, reports and disclosure
statements required to be made under ERISA and the Code with respect to all
Company Benefit Plans have been timely filed or delivered. There have not
been any "prohibited transactions," as such term is defined in Section 4975
of the Code or Section 406 of ERISA, involving any of the Company Benefit
Plans that could subject any Company Entity to any material penalty or tax
imposed under ERISA or the Code.
<PAGE>
3.12.3. PLAN DETERMINATIONS. Any Company Benefit Plan that was or is
intended to be qualified under Section 401(a) of the Code and exempt from
tax under Section 501(a) of the Code has been determined by the Internal
Revenue Service to be so qualified or an application for such determination
is pending. Any such determination that has been obtained remains in effect
and has not been revoked, and with respect to any application that is
pending, no Company Entity has any reason to suspect that such application
for determination will be denied. Nothing has occurred since the date of any
such determination that is reasonably likely to affect adversely such
qualification or exemption, or result in the imposition of excise taxes or
income taxes on unrelated business income under ERISA or the Code with
respect to any Company Benefit Plan.
3.12.4. CLAIMS. There are no pending or, to the knowledge of any
Company Entity, threatened claims by or on behalf of any Company Benefit
Plans, or by or on behalf of any individual participants or beneficiaries of
any Company Benefit Plans, alleging any breach of fiduciary duty on the part
of any Company Entity or any of its officers, directors or employees under
ERISA or any other applicable regulations, or claiming benefit payments
(other than those made in the ordinary operation of such plans), nor is
there, to the knowledge of any Company Entity, any basis for such claim. The
Company Benefit Plans are not the subject of any pending, or, to the
knowledge of any Company Entity, threatened investigation or audit by the
Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation ("PBGC").
3.12.5. CONTRIBUTIONS. Each Company Entity has timely made all
required contributions under the Company Benefit Plans, including the
payment of any premiums payable to the PBGC and other insurance premiums.
3.12.6. WELFARE PLANS. With respect to any Company Benefit Plan that
is an employee welfare benefit plan (within the meaning of Section 3(1) of
ERISA) (a "Welfare Plan") (a) each Welfare Plan for which contributions are
claimed by any Company Entity as deductions under any provision of the Code
is in material compliance with all applicable requirements pertaining to
such deduction, (b) with respect to any welfare benefit fund (within the
meaning of Section 419 of the Code) related to a Welfare Plan, there is no
disqualified benefit (within the meaning of Section 4976(b) of the Code)
that would result in the imposition of a tax under Section 4976(a) of the
Code, (c) any Company Benefit Plan that is a group health plan (within the
meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the applicable material requirements of
Section 4980B of the Code, ERISA, Title XXII of the Public Health Service
Act and the Social Security Act, and (d) all Welfare Plans may be amended or
terminated at any time on or after the Effective Date. No Company Benefit
Plan provides any health, life or other welfare coverage to employees of any
Company Entity beyond termination of their employment with the Company or
any of its Subsidiaries by reason or retirement or otherwise, other than
coverage as may be required under Section 4980B of the Code or Part 6 of
ERISA, or under the continuation of coverage provisions of the Laws of any
state, province, territory or locality.
3.12.7. CANADIAN BENEFIT PLANS. All of the Company Benefit Plans in
which Canadian employees of the Company Entities participate or are eligible
to participate (the "Canadian Plans") are and have been established,
registered, qualified, invested and administered in all respects in
accordance with all laws, regulations, orders or other legislative,
administrative or judicial promulgations applicable to the Canadian Plans.
No fact or circumstance exists that could adversely affect the tax-exempt
status of a Canadian Plan. All obligations regarding the Canadian Plans have
been satisfied and there are no actions, outstanding defaults or violations
by any party to any Canadian Plan that could subject any Company Entity
(including any Canadian Plan or fund held in connection therewith) to any
material penalty or Tax, and no Tax, penalty or fee is owing or exigible
under or in respect of any Canadian Plan. A Company Entity may unilaterally
amend, modify, vary revoke or terminate, in whole or in part, any Canadian
Plan maintained by it and take contribution holidays under or withdraw
surplus from such Canadian Plans, subject only to approvals required by
Applicable Laws. Subject to Applicable Laws, a Company Entity may amend,
revise or merge any Canadian Plan or transfer or merge the assets or
liabilities of any Canadian Plan with any other arrangement, plan or fund.
No Canadian Plan, nor any related trust or other funding medium thereunder,
is subject to any pending investigation, examination or other proceeding,
action or claim initiated by any Governmental Entity, or by any other party
(other than routine claims for benefits), and there exists no
<PAGE>
state of facts which after notice or lapse of time or both could reasonably
be expected to give rise to any such investigation, examination or other
proceeding, action or claim or to affect the registration of any Canadian
Plan required to be registered. All contributions or premiums required to be
made by a Company Entity under the terms of a Canadian Plan or by Applicable
Laws have been made in a timely fashion in accordance with Applicable Laws
and the terms of the Canadian Plan, and no Company Entity has, and as of the
Effective Time will not have, any liability (other than liabilities accruing
after the Effective Time) with respect to any of the Canadian Plans.
Contributions or premiums will be paid by the applicable Company Entity on
an accrual basis for the period up to the Effective Time even though not
otherwise required to be made until a later date. No amendments have been
made to any Canadian Plan and no improvements to any Canadian Plan have been
promised and no amendments or improvements to any Canadian Plan will be made
or promised by a Company Entity before the Effective Time. There have been
no improper withdrawals, applications or transfers of assets from any
Canadian Plan or the trusts or other funding media relating thereto, and no
Company Entity or any agent of a Company Entity has been in breach of any
fiduciary obligation with respect to the administration of the Canadian
Plans or the trusts or other funding media relating thereto. Each Canadian
Plan is fully funded or fully insured on both an ongoing and solvency basis.
No Canadian Plan enjoys any special tax status under Applicable Laws, nor
have any advance tax rulings or interpretations been sought or received in
respect of the Canadian Plans. All employee data necessary to administer
each Canadian Plan has been provided to the Parent and is true and correct.
No insurance policy or other contract or agreement affecting any Canadian
Plan requires or permits a retroactive increase in premiums or payments due
thereunder. The level of insurance reserves under each insured Canadian Plan
is reasonable and sufficient to provide for all incurred claims. No Canadian
Plan provides benefits to retired employees or to the beneficiaries or
dependents of retired employees. No Canadian Plan is a plan or arrangement
to which more than one employer that is not a Company Entity is required or
permitted to contribute and no Canadian Plan is a multi-employer plan.
3.13. EMPLOYMENT-RELATED MATTERS. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other contract
or agreement with any labor organization or other representative of any of the
employees of the Company or any of its Subsidiaries, nor are any of such
contracts or agreements pending or contemplated. There is no labor strike,
dispute, slowdown, work stoppage or lockout that is pending or, to the knowledge
of the Company or any of its Subsidiaries, threatened against or otherwise
affecting the Company or any of its Subsidiaries, and neither the Company nor
any of its Subsidiaries has experienced the same since January 1, 1992. Except
as set forth in Section 3.13 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries has closed any plant or facility,
effectuated any layoffs of employees or implemented any early retirement or
separation program at any time from or after January 1, 1992, nor has the
Company or any of its Subsidiaries planned or announced any such action or
program for the future with respect to which the Company or any of its
Subsidiaries may have any liability. All salaries, wages, vacation pay, bonuses,
commissions and other compensation payable by the Company or any of its
Subsidiaries to the employees of the Company or any of its Subsidiaries before
the date hereof have been paid in all material respects as of the date hereof.
No Person has asserted any claim, or, to the knowledge of the Company or any of
its Subsidiaries, has any reasonable basis to assert any valid claim, against
the Company or any of its Subsidiaries that either the continued employment by,
or association with, the Company or any of its Subsidiaries of any of the
present officers or employees of, or consultants to, the Company or any of its
Subsidiaries contravenes any agreements or Laws applicable to unfair
competition, trade secrets or proprietary information.
3.14. ENVIRONMENTAL.
3.14.1. ENVIRONMENTAL LAWS. The Company and its Subsidiaries are in
compliance in all material respects with all applicable Environmental Laws.
Neither the Company nor any of its Subsidiaries has received any
communication that alleged that the Company or any of its Subsidiaries was
or is not in compliance in all respects with or has any liability under any
applicable Environmental Law. To the knowledge of the Company or any of its
Subsidiaries, there are no circumstances that may prevent or interfere with
compliance in the future with all applicable Environmental Laws. All Permits
currently held by the Company or any of its Subsidiaries pursuant to
Environmental Laws are in full force and effect. The Company and its
Subsidiaries are in compliance in all material respects with all of the
terms of such Permits, and, to the knowledge of the Company or any of its
Subsidiaries, no other Permits are required by
<PAGE>
the Company or any of its Subsidiaries for the conduct of its or their
business. The management, handling, storage, transportation, treatment, and
disposal by the Company and its Subsidiaries of all Materials of
Environmental Concern have been in compliance in all material respects with
all applicable Environmental Laws.
3.14.2. ENVIRONMENTAL CLAIMS. There is no Environmental Claim pending
or, to the knowledge of the Company or any of its Subsidiaries, threatened
against or involving the Company or any of its Subsidiaries or against any
Person whose liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
3.14.3. NO BASIS FOR CLAIMS. To the knowledge of the Company or any of
its Subsidiaries, there are no past or present actions or activities by the
Company or any of its Subsidiaries, or any circumstances, conditions, events
or incidents, including the storage, treatment, release, emission,
discharge, disposal or arrangement for disposal of any Material of
Environmental Concern, that could reasonably form the basis of any
Environmental Claim against the Company or any of its Subsidiaries or
against any Person whose liability for any Environmental Claim the Company
or any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law.
3.15. ASSETS OTHER THAN REAL PROPERTY.
3.15.1. TITLE. The Company and its Subsidiaries have good and
marketable title to all of the tangible assets shown on the Company Balance
Sheet, in each case, free and clear of any Encumbrances, except for (a)
assets disposed of since the date of the Company Balance Sheet in the
ordinary course of business and in a manner consistent with past practices
and not material in amount, (b) liabilities, obligations and Encumbrances
reflected in the Company Balance Sheet or otherwise in the most recent
consolidated financial statements filed by the Company with the Commissions,
(c) Permitted Encumbrances, and (d) liabilities, obligations and
Encumbrances set forth in Section 3.15 of the Company Disclosure Schedule,
none of which, individually or in the aggregate, would result in a Company
Material Adverse Effect.
3.15.2. INVENTORY. The inventory of the Company and its Subsidiaries
contains no material amount of slow-moving or obsolete items that have not
been reserved for. The values at which such inventories are carried on the
books of the Company and its Subsidiaries reflect the normal inventory
valuation policies of the Company.
3.15.3. CONDITION. Except as set forth in Section 3.15.3 of the
Company Disclosure Schedule, all receivables shown on the Company Balance
Sheet and all receivables accrued by the Company and its Subsidiaries since
the date of the Company Balance Sheet have been collected or are collectible
in the aggregate amount shown. All material plant, equipment and personal
property owned by the Company and its Subsidiaries and regularly used in its
or their business are in good operating condition and repair, ordinary wear
and tear excepted.
3.16. REAL PROPERTY.
3.16.1. COMPANY REAL PROPERTY. The Company does not own any real
property.
3.16.2. COMPANY LEASES. Section 3.16.2 of the Company Disclosure
Schedule lists all of the Company Leases. The Company has delivered to
Parent complete copies of the Company Leases and all material amendments
thereto (which are identified in Section 3.16.2 of the Company Disclosure
Schedule). The Company Leases grant to the Company or to one of its
Subsidiaries leasehold estates free and clear of all Encumbrances, except
Permitted Encumbrances. The Company Leases are in full force and effect and
are binding and enforceable against each of the parties thereto in
accordance with their respective terms. Neither the Company nor any of its
Subsidiaries nor, to the knowledge of the Company or any of its
Subsidiaries, any other party to a Company Lease, is in material Violation
of any Company Lease, nor are there any facts or circumstances that would
reasonably indicate that the Company or any of its Subsidiaries is likely to
be in material Violation of any Company Lease. Section 3.16.2 of the Company
Disclosure Schedule correctly identifies each Company Lease that requires
the consent of any Person in connection with the transactions contemplated
hereby. No material construction, alteration or other leasehold improvement
work with respect to the real property covered by any of the Company Leases
remains to be paid for or to be performed by the Company or any of its
Subsidiaries.
<PAGE>
3.16.3. CONDITION. All buildings, structures and fixtures, or parts
thereof, used by the Company or any of its Subsidiaries in the conduct of
its or their business are in good operating condition and repair, ordinary
wear and tear excepted, and are insured with all coverages that are usual
and customary for similar properties and similar businesses and that are
required, pursuant to the terms of the Company Leases, to be insured by
third parties.
3.17. INTELLECTUAL PROPERTY.
3.17.1. RIGHT TO INTELLECTUAL PROPERTY. Except as set forth in Section
3.17.1 of the Company Disclosure Schedule, the Company and its Subsidiaries
own, or have perpetual, fully paid, worldwide rights to use, all patents,
industrial designs, trademarks, trade names, service marks, copyrights, and
any applications therefor, maskworks, net lists, schematics, technology,
inventions, know-how, trade secrets, algorithms, computer software programs
or applications (in both source code and object code form), and tangible or
intangible proprietary information or material that are used in the business
of the Company and its Subsidiaries as currently conducted by the Company
and its Subsidiaries (the "Company Proprietary Rights"), free and clear of
any and all Encumbrances. To the knowledge of the Company or any of its
Subsidiaries, there is no reason why the Company and its Subsidiaries will
not be able to continue to own or have perpetual, fully paid, worldwide
rights to use all Company Proprietary Rights necessary for the lawful
conduct of its or their business as currently conducted and as currently
proposed to be conducted, without any infringement or conflict with the
rights of others. Except as set forth in Section 3.17.1 of the Company
Disclosure Schedule, all of the rights of the Company and its Subsidiaries
in and to the Company Proprietary Rights are freely assignable in the name
of the Company or one of its Subsidiaries, including the right to create
derivatives, and the Company and its Subsidiaries are under no obligation to
obtain any approval or consent for use of any of the Company Proprietary
Rights.
3.17.2. LIST OF COMPANY PROPRIETARY RIGHTS. Section 3.17.2 of the
Company Disclosure Schedule sets forth a complete list of all patents,
industrial designs, trademarks, trade names, service marks, registered
copyrights, and any applications therefor and registrations thereof, and
computer software programs or applications (excluding Commercial Software)
included in the Company Proprietary Rights, specifying, where applicable,
the jurisdictions in which each such Company Proprietary Right has been
issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers and the names of all registered owners and inventors, as
applicable. None of the products of the Company and its Subsidiaries that
the Company and its Subsidiaries currently market or support has been
registered for patent protection with the United States Commissioner of
Patents or any foreign offices or for copyright protection with the United
States Register of Copyrights or any foreign offices, nor has the Company or
any of its Subsidiaries been requested to make any such registration.
3.17.3. ROYALTIES. Except as set forth in Section 3.17.3 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is obligated to pay any royalties or other compensation to any Person in
respect of its ownership, use or license of any of the Company Proprietary
Rights.
3.17.4. LICENSES. Section 3.17.4 of the Company Disclosure Schedule
sets forth a complete list of all material licenses, sublicenses and other
agreements to which the Company or any of its Subsidiaries is a party and
pursuant to which the Company or any of its Subsidiaries is authorized to
use any Company Proprietary Right (excluding End-User Licenses). The Company
Proprietary Rights include all trademarks, trade names, service marks, trade
secrets and software and all patent rights and industrial design rights that
are necessary for the Company and its Subsidiaries to satisfy and perform
such licenses, sublicenses and agreements. None of the Company, any of its
Subsidiaries and the other contracting parties is in violation of any
license, sublicense or agreement included in such list, except for
violations that do not materially impair the rights of the Company or any of
its Subsidiaries under such license, sublicense or agreement. Such licenses,
sublicenses and agreements are in full force and effect and are binding and
enforceable against each of the parties thereto in accordance with their
respective terms. The execution and delivery by the Company of this
Agreement, the Plan of Arrangement and the other agreements contemplated
hereby, the performance by the Company of its obligations hereunder and
thereunder, and the consummation by the Company of the transactions
contemplated hereby and thereby will not cause the Company or any of its
<PAGE>
Subsidiaries to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement.
3.17.5. STATUS OF REGISTRATIONS. All of the Company Proprietary Rights
set forth in Section 3.17.2 of the Company Disclosure Schedule as having
been issued by, registered with or filed with the United States Patent and
Trademark Office or Register of Copyrights or the corresponding offices of
other countries listed in Section 3.17.2 of the Company Disclosure Schedule
have been duly so issued, registered or filed, as the case may be, and have
been properly maintained and renewed in accordance with all Applicable Laws
in the United States and each such other country. The Company and its
Subsidiaries have diligently protected their rights in the Company
Proprietary Rights in such countries and have diligently maintained the
confidentiality of their trade secrets, know-how and other confidential
Company Proprietary Rights, and, to the knowledge of the Company or any of
its Subsidiaries, there have been no acts or omissions by the Company or any
of its Subsidiaries, the result of which has been or would be to compromise
the rights of the Company or any of its Subsidiaries to apply for or enforce
appropriate legal protection of such Company Proprietary Rights. Without
limiting the generality of the foregoing, the products, packaging and
documentation of the Company and its Subsidiaries contain copyright notices
sufficient to maintain copyright protection on the copyrighted portions of
the Company Proprietary Rights.
3.17.6. NO CONFLICT. Except as set forth in Section 3.17.6 of the
Company Disclosure Schedule, no claims with respect to the Company
Proprietary Rights are pending, have been asserted or, to the knowledge of
the Company or any of its Subsidiaries, are threatened by any Person nor, to
the knowledge of the Company or any of its Subsidiaries, are there any valid
grounds for any BONA FIDE claims (a) to the effect that the development,
sale, licensing or use of any of the products of the Company and its
Subsidiaries as now developed, sold, licensed or used or proposed for
development, sale, licensing or use by the Company and its Subsidiaries
infringes on any patent, industrial design, trademark, trade name, service
mark, copyright, trade secret or other proprietary right of any Person, (b)
against the use by the Company or any of its Subsidiaries of any patents,
industrial designs, trademarks, trade names, service marks, copyrights, and
any applications therefor, maskworks, net lists, schematics, technology,
know-how, trade secrets, algorithms, computer software programs or
applications, and tangible or intangible proprietary information or material
used in the business of the Company and its Subsidiaries as currently
conducted or as proposed to be conducted by the Company and its
Subsidiaries, or (c) challenging the ownership by the Company or any of its
Subsidiaries of, the validity of any registration for, any application
relating to, or the effectiveness any of the Company Proprietary Rights. To
the knowledge of the Company or any of its Subsidiaries, there is no
unauthorized use, infringement or misappropriation of any of the Company
Proprietary Rights by any third party, including any employee or former
employee of the Company or any of its Subsidiaries. No Company Proprietary
Right or product of the Company or any of its Subsidiaries is subject to any
outstanding decree, order, judgment, or stipulation restricting in any
manner the use or licensing thereof by the Company or any of its
Subsidiaries.
3.17.7. EMPLOYEE AGREEMENTS. Each present and former employee, officer
and consultant of the Company and its Subsidiaries has executed and
delivered a confidentiality agreement in substantially the form attached
hereto as Section 3.17.7 of the Company Disclosure Schedule. The
confidentiality agreements executed and delivered by such employees,
officers and consultants and Applicable Laws provide the Company and its
Subsidiaries with title and ownership to the Company Proprietary Rights
developed by such employees, officers and consultants, including the waiver
of their moral rights in favor of the Company or its Subsidiaries and their
respective successors and assigns, and obligate such employees, officers and
consultants to maintain the confidentiality of the Company Proprietary
Rights and the other confidential information of the Company and its
Subsidiaries. To the knowledge of the Company or any of its Subsidiaries, no
employee, officer or consultant of the Company or any of its Subsidiaries is
in violation of any term of any employment or consulting contract,
proprietary information and inventions agreement, non-competition agreement,
or any other contract or agreement relating to the relationship of any such
employee, officer or consultant with the Company, any of its Subsidiaries or
any previous employer.
3.17.8. YEAR 2000 READINESS. Section 3.17.8 of the Company Disclosure
Schedule identifies each "year 2000" audit, report or investigation that has
been performed by or on behalf of the Company or any
<PAGE>
of its Subsidiaries with respect to its business and operations, and the
Company has provided to Parent true and correct copies of all such audits,
reports or investigations. Except as set forth in such audits, reports and
investigations or in Section 3.17.8 of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries is aware of any failure to
be Year 2000 Compliant of (a) any software products sold or licensed by the
Company or any of its Subsidiaries or (b) any computer software or hardware
products used by or licensed to the Company or its Subsidiaries from third
parties for internal use by the Company or its Subsidiaries. For purposes of
this Agreement, "Year 2000 Compliant" means, with respect to each product
referred to in the prior sentence, that such product (c) will accurately
receive, record, store, provide, recognize and process all date and time
data from, during, into and between the twentieth and twenty-first
centuries; (d) will accurately perform all date-dependent calculations and
operations (including mathematical operations, sorting, comparing and
reporting) from, during, into and between the twentieth and twenty-first
centuries; and (e) will not malfunction, cease to function or provide
invalid or incorrect results as a result of (i) the change of century, (ii)
date data, including date data which represents or references different
centuries or more than one century or (iii) the occurrence of any particular
date; in each case without human intervention, other than original data
entry; PROVIDED, in each case, that all applications, hardware and other
systems used in conjunction with such system which are not owned or licensed
by the Company or any of its Subsidiaries correctly exchange date data with
or provide data to such system. Except as set forth in Section 3.17.8 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
has provided any guarantee or warranty for any product sold or licensed, or
services provided, by the Company or any of its Subsidiaries to the effect
that such product or service (f) complies with or accounts for the fact of
the arrival of the year 2000 or (g) will not be adversely affected with
respect to functional interoperability, performance or volume capacity
(including the processing and reporting of data) by virtue of the arrival of
the year 2000.
3.18. AGREEMENTS, CONTRACTS AND COMMITMENTS.
3.18.1. COMPANY AGREEMENTS. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is a party to or has:
(a) any pension, profit sharing, retirement, deferred compensation,
welfare, legal services, medical, dental or other employee benefit or
health insurance plans, life insurance or other death benefit plans,
disability, stock option, stock purchase, stock compensation, bonus,
vacation pay, severance pay or other similar plans, programs or
agreements, or material personnel policy;
(b) any employment agreement with any present employee, officer, director
or consultant (or former employees, officers, directors or
consultants to the extent there remain at the date hereof obligations
to be performed by the Company or any of its Subsidiaries);
(c) any agreement for personal services or employment with a term of
service or employment specified in the agreement or any agreement for
personal services or employment in which the Company or any of its
Subsidiaries has agreed to make, upon the termination of such
agreement, any payments greater than those that would otherwise be
imposed by law;
(d) any agreement of guarantee or indemnification;
(e) any agreement or commitment containing a covenant limiting or
purporting to limit the freedom of the Company or any of its
Subsidiaries (i) to compete with any Person in any geographic area,
(ii) to engage in any line of business, or (iii) to hire or solicit
any individual for employment or consulting services;
(f) any lease, other than the Company Leases, under which the Company or
any of its Subsidiaries is a lessee or lessor that involves payments
of $25,000 or more per annum or is material to the conduct of the
business of the Company or any of its Subsidiaries;
(g) any joint venture or profit-sharing agreement;
(h) except for trade indebtedness incurred in the ordinary course of
business and reflected on the Company Balance Sheet, any loan or
credit agreements providing for the extension of credit to the
Company or any instrument evidencing or related in any way to
indebtedness incurred in the
<PAGE>
acquisition of companies or other entities or indebtedness for
borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, lease, guarantee, or
otherwise that individually is in the amount of $25,000 or more;
(i) any license or royalty agreement (other than (A) those disclosed in
Section 3.17 of the Company Disclosure Schedule, (B) with respect to
Commercial Software or (C) Company End-User Licenses);
(j) any distribution, VAR or OEM agreement (identifying any that contain
exclusivity provisions);
(k) any agreement or arrangement with any third party to develop any
intellectual property or other asset expected to be used or currently
used or useful in the business of the Company or any of its
Subsidiaries;
(l) any agreement or arrangement for the Company or any of its
Subsidiaries to develop any intellectual property or other asset for
any third party;
(m) any agreement or arrangement providing for the payment of any
commission based on sales other than in the ordinary course of
business and consistent with past practice;
(n) any agreement for the sale or license by or to the Company or any of
its Subsidiaries of materials, products, services or supplies that
involves future payments to the Company or any of its Subsidiaries of
more than $25,000;
(o) any agreement for the purchase by the Company or any of its
Subsidiaries of any materials, equipment, services, or supplies, that
either (i) involves a binding commitment by the Company or such
Subsidiary to make future payments in excess of $25,000 and cannot be
terminated by the Company or such Subsidiary without penalty upon
less than three months' notice or (ii) was not entered into in the
ordinary course of business;
(p) any agreement or commitment for the acquisition, construction or sale
of fixed assets owned or to be owned by the Company or any of its
Subsidiaries that involves future payments by it of more than
$25,000;
(q) any agreement or commitment to which present or former directors or
officers (or their Affiliates or members of their immediate families)
or Affiliates (or directors or officers of an Affiliate) are also
parties;
(r) any agreement not described above (ignoring, solely for this purpose,
any dollar amount thresholds in those descriptions) involving the
payment or receipt by the Company or any of its Subsidiaries of more
than $100,000, other than the Company Leases; or
(s) any agreement not described above that was not made in the ordinary
course of business and that is material to the financial condition,
business, operations, assets, results of operations or prospects of
the Company or any of its Subsidiaries.
3.18.2. VALIDITY, VIOLATION AND CONSENT. The contracts, leases,
instruments, licenses and other agreements or documents listed in the
Company Disclosure Schedule (the "Company Documents"), including those
listed in Section 3.18 of the Company Disclosure Schedule, are valid and in
full force and effect. Neither the Company nor any of its Subsidiaries is in
Violation of any term, condition or provision of any Company Document or any
other credit agreement, indenture, bond, debenture, note, mortgage, lease,
instrument or other agreement, permit, concession, grant, franchise, or
license to which the Company or any of its Subsidiaries is a party or by
which it, any of its Subsidiaries or any of its or their material assets or
properties is bound or which is applicable to it, any of its Subsidiaries or
any of its or their material assets or properties, except for such
Violations which, individually or in the aggregate, would not result in a
Company Material Adverse Effect. Section 3.18.2 of the Company Disclosure
Schedule identifies each Company Document that requires the consent of a
third party in connection with the transactions contemplated hereby.
<PAGE>
3.19. INSURANCE CONTRACTS. Section 3.19 of the Company Disclosure Schedule
lists all material contracts of insurance and indemnity (other than those
identified as such in other sections of the Company Disclosure Schedule) in
force at the date hereof with respect to the Company or any of its Subsidiaries.
Such contracts of insurance and indemnity and those identified as such in other
sections of the Company Disclosure Schedule (collectively, the "Company
Insurance Contracts") insure against such risks, and are in such amounts, as are
reasonable and appropriate considering the Company and its Subsidiaries and
their property, business and operations. Except as set forth in Section 3.19 of
the Company Disclosure Schedule, all of the Company Insurance Contracts are in
full force and effect, with no default thereunder by the Company or any of its
Subsidiaries which could permit the insurer to deny payment of claims
thereunder. The execution and delivery by the Company of this Agreement and the
other agreements contemplated hereby, the performance by the Company of its
obligations hereunder and thereunder, and the consummation by the Company of the
Plan of Arrangement and the other transactions contemplated hereby and thereby
will not cause the Company or any of its Subsidiaries to be in Violation of any
Company Insurance Contracts, nor entitle any other party thereto to terminate or
modify a Company Insurance Contract. Neither the Company nor any of its
Subsidiaries has received notice from any of their insurance carriers that any
insurance premiums will be materially increased in the future or that any
insurance coverage provided under the Company Insurance Contracts will not be
available in the future on substantially the same terms as now in effect.
Neither the Company nor any of its Subsidiaries has received or given a notice
of cancellation with respect to any of the Company Insurance Contracts.
3.20. BANKING RELATIONSHIPS. Section 3.20 of the Company Disclosure
Schedule sets forth the names and locations of all banks and trust companies in
which the Company or any of its Subsidiaries has accounts, lines of credit or
safety deposit boxes.
3.21. SUPPLIERS, DISTRIBUTORS AND CUSTOMERS. The relationships of the
Company and its Subsidiaries with their suppliers, distributors and customers
are satisfactory commercial working relationships. Except as set forth in
Section 3.21 of the Company Disclosure Schedule, since the date of the Company
Balance Sheet, no material supplier, distributor or customer of the Company or
any of its Subsidiaries has canceled or otherwise adversely modified its
relationship with the Company or any of its Subsidiaries and, to the knowledge
of the Company or any of its Subsidiaries, no supplier, distributor or customer
of the Company or any of its Subsidiaries has any intention to do so, and, to
the knowledge of the Company or any of its Subsidiaries, none of the execution
and delivery by the Company of this Agreement and the other agreements
contemplated hereby, the performance by the Company of its obligations hereunder
and thereunder, and the consummation by the Company of the Plan of Arrangement
and the other transactions contemplated hereby and thereby will materially
adversely affect any such relationship.
3.22. PRODUCT WARRANTY. Each product sold, leased, licensed or delivered
by the Company or any of its Subsidiaries has been in material conformity with
all applicable contractual commitments and all express and implied warranties,
and neither the Company nor any of its Subsidiaries has any Liability,
individually or in the aggregate (and, to the knowledge of the Company or any of
its Subsidiaries, there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand giving
rise to any Liability, individually or in the aggregate, that could reasonably
be expected to result in a Company Material Adverse Effect) for replacement or
repair thereof or other damages in connection therewith that could result in a
Company Material Adverse Effect. Section 3.22 of the Company Disclosure Schedule
includes copies of the standard terms and conditions of license and sale for the
Company and its Subsidiaries (containing applicable warranty and indemnity
provisions). No product sold, leased, licensed or delivered by the Company or
any of its Subsidiaries is subject to any guaranty, warranty, or other indemnity
that is materially different than the applicable standard terms and conditions
of license and sale and such other indemnities and warranties disclosed in
Section 3.22 of the Company Disclosure Schedule.
3.23. INVESTMENT CANADA. The Company and its Subsidiaries do not carry on
a business of the publication, distribution or sale of books, magazines or
periodicals in print or machine readable form. The Company and its Subsidiaries
produce and distribute the books and manuals listed in Section 3.23 of the
Company Disclosure Schedule in connection with or relating to their software and
other products.
3.24. ACQUIRED BUSINESS. Upon consummation of the Plan of Arrangement,
Subco will, through the Plan of Arrangement, acquire the entire business of the
Company and its Subsidiaries as heretofore conducted and as
<PAGE>
proposed to be conducted, and Parent will then own and have the right to use all
tangible and intangible assets and properties heretofore used or necessary for
the normal continued conduct of the business of the Company and its Subsidiaries
as now conducted and as proposed to be conducted.
3.25. DIRECTOR APPROVAL. The Board of Directors of the Company has (a)
determined unanimously that the Arrangement is fair to the holders of Company
Common Shares and is in the best interests of the Company, (b) determined to
recommend that the holders of Company Common Shares vote in favor of the
Arrangement and (c) advised the Company that the members of the Board of
Directors will vote the Company Common Shares held by them in favor of the
Arrangement and will so represent in the Information Circular.
3.26. VOTE REQUIRED. Except as may be provided in the Interim Order, at
the Company Shareholder Meeting at which a quorum is present, the affirmative
vote of two-thirds of the votes actually cast by all Company shareholders
present is required to approve this Agreement, the Arrangement and the
consummation of the transactions contemplated hereby and thereby. For these
purposes, each Company Common Share carries one vote.
3.27. NO BROKER'S OR FINDER'S FEES. Except for SG Cowen & Co. and
Griffiths McBurney & Partners, none of the Company, any of its Subsidiaries and
its and their directors, officers, employees and agents has employed any broker,
finder, financial advisor or intermediary or has paid or incurred any liability
for any fee or commission to any broker, finder, financial advisor or
intermediary in connection with this Agreement, the Arrangement or any other
transaction contemplated hereby. Section 3.27 of the Company Disclosure Schedule
sets forth a complete and correct copy of any engagement letter or other
agreement or arrangement between SG Cowen & Co. or Griffiths McBurney &
Partners, on the one hand, and the Company or any of its Subsidiaries and its
and their directors, officers, employees and agents, on the other hand.
3.28. POOLING MATTERS. Neither the Company nor any of its Affiliates has
knowingly taken or agreed to take any action that, without giving effect to any
action taken or agreed to be taken by Parent or any of its Affiliates, would
prevent Parent from accounting for the business combination to be effected by
the Arrangement as a pooling of interests. The Company's Board of Directors has
received a letter from Ernst & Young LLP to the effect that, based on its
evaluation of the information provided by the Company with respect to the
business combination to be effected by the Arrangement, Ernst & Young LLP
expects to be able to deliver on the Effective Date a written report (the
"Company Pooling Opinion") generally to the effect that Ernst & Young LLP
concurs with management's conclusions that no condition exists that would
preclude the Company from being a party to a business combination for which the
pooling of interests method of accounting would be available.
3.29. FAIRNESS OPINION. The Company's Board of Directors has received the
written opinion of Griffiths McBurney & Partners (the "Company Fairness
Opinion") to the effect that the Exchange Ratio is fair from a financial point
of view to the securityholders of the Company. The Company has delivered a copy
of the Company Fairness Opinion to Parent.
3.30. FULL DISCLOSURE. This Agreement, read together with the Company
Disclosure Schedule, does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained herein
and therein not false or misleading. To the knowledge of the Company or any of
its Subsidiaries, there is no fact existing on the date hereof that the Company
has not disclosed to Parent in writing that could result in a Company Material
Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBCO
Parent and Subco, jointly and severally, represent and warrant to the
Company that the statements in this Article 4 are true and correct, except as
set forth in the disclosure schedule delivered by Parent to the Company on the
date hereof (the "Parent Disclosure Schedule"). The Parent Disclosure Schedule
shall be arranged in sections and paragraphs corresponding to the numbered and
lettered sections and paragraphs in this Article 4. The disclosure in any
section or paragraph of the Parent Disclosure Schedule shall qualify other
sections and paragraphs in this Article 4 only to the extent that it is
reasonably apparent from a reading of such disclosure that it also qualifies or
applies to such other sections or paragraphs.
<PAGE>
4.1. CORPORATE STATUS OF PARENT AND SUBCO. Parent is a corporation duly
organized, validly existing and in good standing under the Laws of the
Commonwealth of Massachusetts, with the requisite corporate power to carry on
its business as currently being conducted and to own, lease and operate the
properties currently owned, leased and operated by it. Subco is a corporation
duly organized, validly existing and in good standing under the Laws of the
Province of Ontario, with the requisite corporate power to carry on its business
as currently being conducted and to own, lease and operate the properties
currently owned, leased and operated by it. Each of Parent and Subco is duly
qualified or licensed to do business and is in good standing as an
extra-provincial or foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or held under lease
by it or the nature of the business transacted by it makes qualification or
licensing necessary, except in jurisdictions in which the failure to be so
qualified or licensed would not result in a Parent Material Adverse Effect.
4.2. ARTICLES AND BY-LAWS. Parent has delivered or made available to the
Company true and complete copies of the Articles and by-laws of Parent and
Subco, including all amendments thereto, as in effect on the date hereof.
4.3. AUTHORITY FOR AGREEMENT; NONCONTRAVENTION.
4.3.1. AUTHORITY. Each of Parent and Subco has all requisite corporate
power and authority to enter into this Agreement and the other agreements
contemplated hereby to be signed by Parent or Subco and, subject to approval
of the Court as provided in this Agreement, to consummate the Arrangement
and the transactions contemplated by this Agreement and the other agreements
contemplated hereby. The execution and delivery by Parent and Subco of this
Agreement and such other agreements and the consummation by Parent and Subco
of the Plan of Arrangement and the other transactions contemplated hereby
and thereby have been duly and validly authorized by the Boards of Directors
of Parent and Subco. No other corporate proceedings on the part of Parent or
Subco are necessary to authorize the execution and delivery by Parent and
Subco of this Agreement and such other agreements and the consummation by
Parent and Subco of the Plan of Arrangement and the other transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by Parent and Subco and constitutes valid and binding obligations
of Parent and Subco, enforceable against Parent and Subco in accordance with
its terms, subject to the qualifications that (a) enforcement of the rights
and remedies created hereby are subject to Bankruptcy Laws and (b) the
consummation of the Arrangement is subject to the approval of the Court as
provided in this Agreement. On or before the Effective Date, the other
agreements contemplated hereby to be executed and delivered by Parent and
Subco on or before the Effective Date will have been executed and delivered
by Parent and Subco and, upon such execution and delivery, will constitute
valid and binding obligations of Parent and Subco, enforceable against
Parent and Subco in accordance with their respective terms, subject to the
qualifications that (a) enforcement of the rights and remedies created
thereby will be subject to Bankruptcy Laws and (b) the consummation of the
Arrangement is subject to the approval of the Court as provided in this
Agreement.
4.3.2. NO CONFLICT. None of the execution and delivery by Parent and
Subco of this Agreement and the other agreements contemplated hereby, the
performance by Parent and Subco of their respective obligations hereunder
and thereunder, and the consummation by Parent and Subco of the Plan of
Arrangement and the other transactions contemplated hereby and thereby will
cause a Violation of any term, condition or provision of the Articles of
Organization or By-Laws of Parent or the Articles and By-Laws of Subco, or
any credit agreement, indenture, bond, debenture, note, mortgage, lease,
instrument or other agreement, permit, concession, grant, franchise,
license, judgment, order or decree to which Parent or Subco is a party or by
which either of them or any of their material assets or properties is bound
or which is applicable to either of them or any of their material assets or
properties, or, to the knowledge of Parent or Subco, any Applicable Law,
other than such Violations which, individually or in the aggregate, would
not result in a Parent Material Adverse Effect.
4.4. GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration or filing with, or declaration or notice to, any
Governmental Entity is required to be obtained by Parent or Subco in connection
with the execution and delivery by Parent and Subco of this Agreement or the
other agreements contemplated hereby, the performance by Parent and Subco of
their obligations hereunder and thereunder, or
<PAGE>
the consummation by Parent and Subco of the Plan of Arrangement and the other
transactions contemplated hereby or thereby, except (a) the filing with the
Commissions and the Court of the Information Circular relating to the Company
Shareholder Meeting, (b) the filing with the SEC of such registration
statements, reports and information under the Securities Act and the Exchange
Act and the rules and regulations promulgated by the SEC thereunder, as may be
required in connection with this Agreement and the transactions contemplated
hereby; (iii) approval by the Court of the Arrangement and the filing of the
Articles of Arrangement and other arrangement or other documents as required by
the CBCA; (iv) such filings, authorizations, orders and approvals as may be
required under state or provincial "control share acquisition," "anti-takeover"
or other similar statutes, and any other approvals required under applicable
federal, provincial or state securities Laws and the rules of Nasdaq or the TSE
(including those referred to in Section 2.9.3); (v) such filings and notices as
may be necessary under the HSR Act; (vi) such filings and notices as may be
necessary under the Investment Canada Act and under the Competition Act
(Canada); and (vii) where the failure to obtain or make such consents,
approvals, orders, authorizations, registrations, filings, declarations or
notices would not prevent or delay the consummation of the Arrangement or the
other transactions contemplated hereby or otherwise prevent Parent or Subco from
performing their respective obligations under this Agreement, the Plan of
Arrangement or the other agreements contemplated hereby and would not reasonably
be expected to result in a Parent Material Adverse Effect.
4.5. CAPITALIZATION.
4.5.1. AUTHORIZED CAPITAL STOCK OF PARENT. On the date hereof, the
authorized capital stock of Parent consists of 50,000,000 shares of common
stock, par value $.01 per share ("Parent Common Stock"), and 400,000 shares
of Preferred Stock, par value $.01 per share ("Parent Preferred Stock"). As
of November 23, 1998, there were 19,875,246 shares of Parent Common Stock
issued and outstanding and no shares held by Parent in its treasury. As of
that date, there were no shares of Parent Preferred Stock issued and
outstanding or held by Parent in its treasury. All of the issued shares of
Parent Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. None of the issued shares of Parent Common
Stock were issued in violation of the terms of any agreement or other
understanding binding upon Parent, and all of the issued shares of Parent
Common Stock were issued in compliance with all applicable charter documents
of Parent and all Applicable securities Laws. There are, and have been, no
preemptive rights with respect to the issuance of the shares of Parent
Common Stock or any other capital stock of Parent. Each share of Parent
Common Stock to be issued pursuant to the Arrangement will, upon the
surrender for exchange of an Exchangeable Share pursuant to the terms of the
Arrangement, be validly issued, fully paid and nonassessable.
4.5.2. OPTIONS AND CONVERTIBLE SECURITIES OF PARENT. Section 4.5.2 of
the Parent Disclosure Schedule sets forth a complete list of (a) each stock
option plan, stock purchase plan and each other plan, arrangement or
agreement under which Parent has reserved shares of capital stock, or any
securities or obligations convertible into, or exercisable or exchangeable
for, any shares of capital stock, to any employee, director, consultant,
service provider or other Person and (b) the number of shares, securities or
obligations reserved for issuance under such plan, arrangement or agreement.
Except as set forth in Section 4.5.2 of the Parent Disclosure Schedule,
there are no outstanding subscriptions, options, warrants or conversion
rights or other rights, securities, agreements, calls or commitments
(contingent or otherwise) that obligate Parent to issue, sell, deliver or
otherwise dispose of shares of its capital stock, or any securities or
obligations convertible into, or exercisable or exchangeable for, any shares
of its capital stock. None of the execution and delivery by Parent of this
Agreement, the Plan of Arrangement and the other agreements contemplated
hereby, the performance by Parent of its obligations hereunder and
thereunder, and the consummation by Parent of the transactions contemplated
hereby and thereby, and any other event that occurred on or prior to the
date hereof, will accelerate the vesting under any item set forth in Section
4.5.2 of the Parent Disclosure Schedule. There are no voting trusts or other
agreements or understandings to which Parent or, to the knowledge of Parent,
any securityholder of Parent is a party with respect to the voting of the
shares of Parent Common Stock. Parent is not a party to or bound by any
outstanding restrictions, puts, options or other obligations, agreements or
commitments to repurchase, redeem or otherwise acquire any outstanding
shares of Parent Common Stock or other equity securities of Parent.
<PAGE>
4.5.3. AUTHORIZED SHARE CAPITAL OF SUBCO. On the date hereof, the
authorized share capital of Subco consists of an unlimited number of common
shares of Subco ("Subco Common Shares"). As of November 24, 1998, there was
one Subco Common Share issued and outstanding. All of the issued Subco
Common Shares have been duly authorized and validly issued and are fully
paid and nonassessable. None of the issued Subco Common Shares were issued
in violation of the terms of any agreement or other understanding binding
upon Subco, and all of the issued Subco Common Shares were issued in
compliance with all applicable charter documents of Subco and all Applicable
securities Laws. There are, and have been, no preemptive rights with respect
to the issuance of Subco Common Shares or any other capital stock of Subco.
Parent is the record and beneficial owner of all of the issued and
outstanding Subco Common Shares.
4.5.4. OPTIONS AND CONVERTIBLE SECURITIES OF SUBCO. Subco has no stock
option plan, stock purchase plan or any other plan, arrangement or agreement
under which Subco has reserved shares of capital stock, or any securities or
obligations convertible into, or exercisable or exchangeable for, any shares
of capital stock, to any employee, director, consultant, service provider or
other Person. There are no outstanding subscriptions, options, warrants or
conversion rights or other rights, securities, agreements, calls or
commitments (contingent or otherwise) that obligate Subco to issue, sell,
deliver or otherwise dispose of shares of its capital stock, or any
securities or obligations convertible into, or exercisable or exchangeable
for, any shares of its capital stock. There are no voting trusts or other
agreements or understandings to which Subco or Parent is a party with
respect to the voting of the Subco Common Shares. Subco is not a party to or
bound by any outstanding restrictions, puts, options or other obligations,
agreements or commitments to repurchase, redeem or otherwise acquire any
outstanding Subco Common Shares or other equity securities of Subco.
4.6. SECURITIES REPORTS; FINANCIAL STATEMENTS. Parent has timely filed all
forms, reports and documents with the SEC required to be filed by it pursuant to
Applicable Laws (collectively, the "Parent Securities Reports"). Parent has
delivered or made available to the Company true and complete copies of (a) its
Annual Reports on Form 10-K for the fiscal years ended September 30, 1995, 1996
and 1997, (b) all proxy statements relating to Parent's meetings of stockholders
(whether annual or special) held since October 13, 1994, (c) all other Forms
10-K and 10-Q filed by it with the SEC since October 13, 1994, and (d) all
amendments and supplements to all such forms, reports and documents filed by
Parent with the SEC. As of their respective dates, the Parent Securities Reports
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements (including any related notes) of Parent
included in the Parent Securities Reports complied in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, were prepared in conformity with United States
generally accepted accounting principles applied on a consistent basis (except
as otherwise stated in the financial statements), and present fairly the
consolidated financial position, results of operations, stockholders' equity,
liabilities (contingent or otherwise) and cash flows, as the case may be, of
Parent and its consolidated Subsidiaries as of the dates and for the periods
indicated, subject, in the case of unaudited interim consolidated financial
statements, to (i) the absence of certain notes thereto and (ii) normal year-end
audit adjustments.
4.7. ABSENCE OF MATERIAL ADVERSE CHANGES AND UNDISCLOSED LIABILITIES.
4.7.1. CHANGES. Since the date of the most recent consolidated balance
sheet filed by Parent with the SEC (the "Parent Balance Sheet"), Parent has
not experienced a Parent Material Adverse Effect.
4.7.2. LIABILITIES. Neither Parent nor any of its Subsidiaries has any
Liabilities that are not fully reflected or provided for on, or disclosed in
the notes to, the Parent Balance Sheet, nor has any knowledge of any
potential material Liabilities, except Liabilities incurred since the date
of the Parent Balance Sheet in the ordinary course of its business and
consistent with past practice, none of which Liabilities, individually or in
the aggregate, has resulted in a Parent Material Adverse Effect.
4.8. LITIGATION AND AUDITS. There is no investigation or inquiry by any
Governmental Entity with respect to Parent or Subco pending or, to the knowledge
of Parent or Subco, threatened, nor has any Governmental Entity
<PAGE>
indicated to Parent or Subco an intention to conduct the same. There is no
claim, action, suit, arbitration or proceeding pending or, to the knowledge of
Parent or Subco, threatened against or involving Parent or Subco, or any of
their assets or properties, at law or in equity, or before any arbitrator or
Governmental Entity, which, if determined adversely to Parent or Subco, could
result in a Parent Material Adverse Effect. There are no judgments, decrees,
injunctions, orders or rulings of any Governmental Entity or arbitrator
outstanding against Parent or Subco.
4.9. NO BROKER'S OR FINDER'S FEES. Except for Lehman Brothers, none of
Parent, Subco and their directors, officers, employees and agents has employed
any broker, finder, financial advisor or intermediary or has paid or incurred
any liability for any fee or commission to any broker, finder, financial advisor
or intermediary in connection with this Agreement, the Arrangement or any other
transaction contemplated hereby.
4.10. POOLING MATTERS. Neither Parent nor any of its Affiliates has taken
or agreed to take any action that, without giving effect to any action taken or
agreed to be taken by the Company or any of its Affiliates, would prevent Parent
from accounting for the business combination to be effected by the Arrangement
as a pooling of interests. Parent's Board of Directors has received a letter
from PricewaterhouseCoopers LLP to the effect that PricewaterhouseCoopers LLP is
prepared to issue on the Effective Date, upon receipt of an unqualified opinion
from Ernst & Young LLP with respect to the business combination to be effected
by the Arrangement, a letter (the "Parent Pooling Opinion") generally to the
effect that PricewaterhouseCoopers LLP concurs with management's conclusions
that no condition exists that would preclude Parent from accounting for the
business combination to be effected by the Arrangement as a pooling of
interests.
4.11. FAIRNESS OPINION. Parent's Board of Directors has received the
written opinion of Lehman Brothers (the "Parent Fairness Opinion") to the effect
that the Exchange Ratio is fair from a financial point of view to the
stockholders of Parent.
4.12. SUBCO. Subco has been formed solely for purposes of the Arrangement.
Subco does not have, and until immediately before the Effective Time of the
Arrangement will not have, any material Liabilities, nor will Subco agree before
the Effective Time to assume any material Liabilities other than as contemplated
hereby and by the Arrangement.
ARTICLE 5
COVENANTS OF THE COMPANY AS TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until the
Closing, the Company agrees that, except as expressly contemplated hereby or as
consented to by Parent in writing:
5.1. ORDINARY COURSE. The Company and its Subsidiaries shall carry on
their business in the ordinary course consistent with prior practice, including
the payment of all debts and taxes owed by them, in substantially the same
manner as heretofore, and shall use all reasonable efforts to preserve intact
their present business organization and keep available the services of their
directors, officers, employees, consultants and others having business dealings
with them to the end that their goodwill and business shall be maintained.
5.2. CORPORATE ORGANIZATION. The Company shall not cause, permit or
propose any amendment to its Articles of Incorporation or By-Laws or merge,
consolidate, amalgamate or otherwise combine with any Person.
5.3. CAPITAL STRUCTURE. The Company shall not (a) declare or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, (b) issue, deliver or
sell, or authorize the issuance, delivery or sale of, any shares of capital
stock of any class (except upon the exercise of the Company Options and Company
Warrants), or any options, warrants, calls, rights or agreements that obligate
the Company to issue, deliver or sell any shares of capital stock of any class
or to grant, extend or enter into any such option, warrant, call, right or
agreement, (c) split, combine or reclassify any shares of its capital stock, or
(d) purchase, redeem or otherwise acquire, directly or indirectly, any shares of
its capital stock.
5.4. OPTIONS AND WARRANTS. Neither the Company nor any of its Subsidiaries
shall accelerate, amend, reprice or change the period of exercisability of any
outstanding Company Options or Company Warrants or authorize cash payments in
exchange for any options granted under any of the Company Plans.
<PAGE>
5.5. COMPLIANCE WITH APPLICABLE LAWS. The Company and its Subsidiaries
shall duly comply in all material respects with all Applicable Laws.
5.6. INVESTMENTS AND ACQUISITIONS. Neither the Company nor any of its
Subsidiaries shall (a) acquire any equity interest in or make any investment in
the equity capital of any Person, (b) acquire by merging or consolidating with,
by purchasing a substantial portion of the assets of, or by any other manner,
any Person, (c) otherwise acquire or license any assets that are material,
individually or in the aggregate, to the Company except in the ordinary course
of business consistent with prior practice or (d) enter into any partnership,
joint venture, joint development, strategic alliance, voluntary association,
cooperative or business trust agreement or arrangement.
5.7. CAPITAL EXPENDITURES. Neither the Company nor any of its Subsidiaries
shall make or enter any commitments or agreements with respect to capital
expenditures in excess of $100,000 (in the aggregate).
5.8. INDEBTEDNESS. Neither the Company nor any of its Subsidiaries shall,
or shall propose to, incur any Indebtedness for borrowed money, incur any other
Indebtedness except in the ordinary course of business, or guarantee any
Indebtedness of others. Neither the Company nor any of its Subsidiaries shall
pay, discharge or satisfy, in an amount in excess of $50,000 (in the aggregate),
any claims, liabilities or obligations reflected or reserved against in the
Company Balance Sheet except in the ordinary course of business consistent with
past practice or except with the prior written approval of Parent, which
approval shall not be unreasonably withheld or delayed.
5.9. LITIGATION. Neither the Company nor any of its Subsidiaries shall
commence any litigation other than for the routine collection of bills. The
Company and its Subsidiaries shall cooperate and consult with Parent with
respect to all matters regarding any proceeding set forth in the Company
Disclosure Schedule, including any settlement proposed by any Person (including
Parent), and neither the Company nor any of its Subsidiaries shall take any
significant actions with respect to such proceedings (including the entering
into of any such settlement) without the prior written approval of Parent, which
approval shall not be unreasonably withheld or delayed.
5.10. PROPERTIES. The Company and its Subsidiaries shall maintain all of
their properties and assets in customary repair, order and condition, reasonable
wear and tear excepted. Neither the Company nor any of its Subsidiaries shall
sell, lease, license, encumber or otherwise dispose of any of its property or
assets, except in the ordinary course of business consistent with prior
practice.
5.11. CONTRACTS. Neither the Company nor any of its Subsidiaries shall (a)
enter into any Contract or engage in any transaction not in the ordinary course
of business consistent with past practice, (b) amend or otherwise modify any
Contract pursuant to which any other party is granted marketing, distribution or
similar rights of any type or scope with respect to any products of the Company
or any of its Subsidiaries, (c) amend or otherwise modify any Contract except in
the ordinary course of business consistent with past practice, or (d) do or omit
to do any act or permit any act or omission to act, which act or omission shall
result in a Violation of any material provision of any material Contract.
5.12. BOOKS AND RECORDS. The Company and its Subsidiaries shall maintain
their books and records in the usual course of business consistent with past
practice and shall prepare its financial statements in accordance with generally
accepted accounting principles applied on a consistent basis. The Company and
its Subsidiaries shall not revalue any of their assets, including writing down
the value of inventory or writing off notes or accounts receivable, except in
the ordinary course of business consistent with past practice.
<PAGE>
5.13. TAXES. Neither the Company nor any of its Subsidiaries shall make or
change any material election in respect of Taxes, file any material Tax Return
or any amendment to a material Tax Return, adopt or change any accounting method
in respect of Taxes, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes,
except with the prior written approval of Parent, which approval shall not be
unreasonably withheld or delayed.
5.14. COMPANY BENEFIT PLANS. Neither the Company nor any of its
Subsidiaries shall adopt any Company Benefit Plan or amend any Company Benefit
Plan.
5.15. INSURANCE. The Company and its Subsidiaries shall maintain insurance
of the types, in the amounts and with deductibles and exclusions consistent with
past practice.
5.16. EMPLOYEE MATTERS. Neither the Company nor any of its Subsidiaries
shall (a) adopt any collective bargaining agreement, (b) grant any severance or
termination pay to any director, officer or other employee of the Company or any
of its Subsidiaries, (c) grant any general or uniform increase in the rates of
pay of employees of the Company or any of its Subsidiaries or in the benefits
under any bonus plan or other compensation arrangements, (d) increase the
compensation payable or to become payable to any officer or key salaried
employee or (e) enter into or amend any employment agreement.
5.17. PROPRIETARY RIGHTS. Neither the Company nor any of its Subsidiaries
shall transfer or license to any Person, or otherwise extend, amend or modify
any rights to the Company Proprietary Rights or enter into grants to future
patent rights, except for Company End-User Licenses. For purposes of this
Section 5.17 only, the term "Company End-User Licenses" shall be determined
without reference to the amount of any payment thereunder.
5.18. CONFIRMATORY LICENSE AGREEMENTS. The Company shall use its
reasonable best efforts to obtain at least ten Business Days before the
Effective Date confirmatory license agreements executed by each of the Company's
customers covering all software programs and/or modules, and accompanying
documentation, sold or licensed by the Company to, or used by, such customers
(exclusive of any specifically customized software and third-party software), in
form and substance reasonably satisfactory to Parent. On or before December 31,
1998, the Company shall provide Parent a list of all customers that shall not
have signed confirmatory license agreements prior to that date. The Company
shall update such list not less than once every five Business Days and shall
describe in reasonable detail in an accompanying memorandum the Company's
efforts to date to obtain each such confirmatory license agreement.
5.19. POOLING MATTERS. Neither the Company nor any of its Subsidiaries
shall take any action, including the acceleration of vesting of any options,
warrants, restricted stock or other rights to acquire any shares of capital
stock, that would be likely to interfere with Parent's ability to account for
the Arrangement as a pooling of interests.
5.20. GENERAL. Neither the Company nor any of its Subsidiaries shall take,
propose to take, or agree in writing or otherwise to take any of the actions
that it or they agreed in this Article not to take, nor shall the Company or any
of its Subsidiaries fail to take, propose not to take, or agree in writing or
otherwise not to take any of the actions it or they agreed in this Article to
take, nor shall the Company or any of its Subsidiaries take or fail to take any
other action that would prevent the Company or any of its Subsidiaries from
performing, or cause the Company or any of its Subsidiaries not to perform, its
or their covenants and other obligations in this Agreement, the Arrangement or
any other agreement contemplated hereby.
ARTICLE 6
COVENANTS OF PARENT AS TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until the
Closing, Parent agrees that, except as expressly contemplated hereby or as
consented to by the Company in writing:
6.1. ORDINARY COURSE. Parent and its Subsidiaries shall carry on their
business in the ordinary course consistent with prior practice, including the
payment of all debts and taxes owed by them, in substantially the same manner as
heretofore, and shall use all reasonable efforts to preserve intact their
present business
<PAGE>
organization and keep available the services of their directors, officers,
employees, consultants and others having business dealings with them to the end
that their goodwill and business shall be maintained.
6.2. CORPORATE ORGANIZATION. Parent shall not cause, permit or propose any
amendment to its articles of organization or its by-laws or merge, consolidate,
amalgamate or otherwise combine with any other Person; PROVIDED, HOWEVER, that
Parent may amend its articles of organization to increase the number of shares
of Parent Common Stock that Parent is authorized to issue and to file the
Certificate of Designation.
6.3. CAPITAL STRUCTURE. Parent shall not (a) declare or pay any dividend
or other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, (b) issue, deliver or sell, or
authorize the issuance, delivery or sale of, any shares of capital stock of any
class, or any options, warrants, calls, rights or agreements that obligate
Parent to issue, deliver or sell additional shares of capital stock, or to
grant, extend or enter into any such option, warrant, call, right or agreement,
other than in the ordinary course of Parent's business pursuant to any of the
plans, arrangements or agreements set forth in Section 4.5.2 of the Parent
Disclosure Schedule, (c) split, combine or reclassify any of its capital stock
or (d) purchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock.
6.4. COMPLIANCE WITH APPLICABLE LAWS. Parent and its Subsidiaries shall
duly comply in all material respects with all Applicable Laws.
6.5. INVESTMENTS AND ACQUISITIONS. Parent shall not engage in any
acquisition of the equity capital or assets of any Person in a transaction
requiring the approval of the stockholders of Parent.
6.6. POOLING MATTERS. Neither Parent nor any of its Subsidiaries shall
take any action, including the acceleration of vesting of any options, warrants,
restricted stock or other rights to acquire any shares of capital stock, that
would be likely to interfere with Parent's ability to account for the
Arrangement as a pooling of interests.
6.7. GENERAL. Neither Parent nor Subco shall take, propose to take, or
agree in writing or otherwise to take any of the actions that they agreed in
this Article not to take, nor shall Parent or Subco fail to take, propose not to
take, or agree in writing or otherwise not to take any of the actions they
agreed in this Article to take, nor shall Parent or Subco take or fail to take
any other action that would prevent Parent or Subco from performing, or cause
Parent or Subco not to perform, their covenants and other obligations in this
Agreement, the Arrangement or any other agreement contemplated hereby.
ARTICLE 7
ADDITIONAL COVENANTS
7.1. FURTHER ASSURANCES; CONSENTS. During the term of this Agreement, each
of Parent, Subco and the Company shall use its reasonable best efforts to
satisfy or cause to be satisfied all the conditions precedent that are set forth
in Article 8 hereof, and each of Parent, Subco and the Company shall use its
reasonable best efforts to cause the Arrangement and the other transactions
contemplated hereby to be consummated. The parties shall cooperate with each
other to provide such information, to execute and deliver such other documents,
instruments of transfer or assignment, files, books and records, and to do all
such further acts and things, as may be reasonably required to carry out the
transactions contemplated hereby. The parties shall use all reasonable efforts
to comply promptly with all legal requirements that may be imposed on them with
respect to the consummation of the Arrangement and the other transactions
contemplated hereby and to obtain any consent, authorization, order or approval
of, or any exemption by, and to make any registration, declaration or filing
with, any Governmental Entity or other third party, required to be obtained or
made by such party in connection with the taking of any action contemplated
hereby. Without limiting the generality of the foregoing, as promptly as
practicable after the execution of this Agreement, each party shall make all
required filings, and provide such other information as may be required, under
the HSR Act, the Investment Canada Act and the Competition Act (Canada). No
party shall take or fail to take any action that would, or would be reasonably
likely to, result in any of its representations and warranties set forth in this
Agreement being untrue. The parties covenant and agree to proceed diligently, in
a coordinated fashion, to apply for and obtain all necessary approvals.
<PAGE>
7.2. CONSULTATION. The Company and its Subsidiaries shall consult on an
ongoing basis with senior officers of Parent in order that Parent shall become
more familiar with the philosophy and techniques of the Company and its
Subsidiaries, as well as with their business and financial affairs and in order
to provide experience as a basis for ongoing relationships in connection with
the business combination contemplated hereby. These consultations shall include
discussions of any commitments, arrangements or transactions proposed to be
entered into by the Company or any of its Subsidiaries that could give rise to a
material liability or commitment of any kind where such liability or commitment
is unusual or inconsistent with the past practice of the Company and its
Subsidiaries. Parent and the Company shall develop procedures such that these
consultations will be carried out quickly and effectively without materially
impairing the ability of the Company and its Subsidiaries to arrive at decisions
in a timely manner.
7.3. ACCESS TO INFORMATION. The Company shall afford to Parent, and Parent
and Subco shall afford to the Company, and each shall cause its independent
accountants to afford to the other party and the officers, directors, employees,
financial advisors, counsel, accountants, agents and other representatives of
such party and such party's Subsidiaries (each, a "Representative"), reasonable
access during normal business hours during the period prior to the Closing to
all of such party's and its Subsidiaries' properties, books, contracts,
commitments and records. During such period, each party shall use reasonable
efforts to furnish promptly to the other party all other information concerning
the business, properties and personnel of such party and its Subsidiaries as the
other party may reasonably request, including such information as may be
necessary to verify the representations and warranties of the other party or
parties.
7.4. CONFIDENTIALITY.
7.4.1. CONFIDENTIAL INFORMATION. For purposes of this Section 7.4, a
"party" shall refers to (i) collectively, the Company and its Subsidiaries
and (ii) collectively, Parent and its Subsidiaries. Each party shall treat
as confidential, and shall cause its Representatives to treat as
confidential, all documents and information concerning the other party
furnished by the other party or its Representatives to such party or its
Representatives (including documents and information furnished prior to the
date hereof) in connection with the transactions contemplated hereby, except
to the extent that such document or information: (a) at the time of its
disclosure to the receiving party or its Representatives by the disclosing
party or its Representatives is already known or available to the receiving
party or its Representatives (but this Agreement shall not relieve the
receiving party from any obligations of confidentiality owed to third
parties with respect to such information); (b) is or becomes known or
available to the public other than as a result of an unauthorized disclosure
by the receiving party or its Representatives; (c) is or becomes known or
available to the receiving party or its Representatives without restrictions
of confidentiality similar to those set forth herein from a source other
than the disclosing party or its Representatives, PROVIDED that the
receiving party does not know, after reasonable inquiry, that such source is
bound by a confidentiality agreement with, or other obligation of secrecy
to, the disclosing party or its Representatives that would prohibit such
disclosures to the receiving party or its Representatives by such source;
(d) is independently generated by the receiving party or its Representatives
and not derived from confidential information; or (e) is required to be
disclosed by the receiving party or its Representatives by Applicable Law or
other legal process. Subject to the foregoing, each party and its
Representatives shall not release or disclose such documents or information
to any Person other than those Representatives of such party that need to
review such documents or know such information in order to perform their
duties in connection with this Agreement and shall not use such documents or
information for purposes other than as contemplated hereby. In the event of
the termination of this Agreement, (f) each party shall, and shall cause its
Representatives to, deliver to the other party the originals of all
documents obtained by such party or its Representatives from the other party
or its Representatives in connection with this Agreement, whether so
obtained before or after the execution hereof, (g) such party shall, and
shall cause its Representatives to, destroy all copies thereof and (h)
within 30 days of such termination, such party shall certify to the other in
writing that such party and its Representatives shall have complied with
their obligations in this sentence.
7.4.2. ACTIONS OF REPRESENTATIVES. Each party shall ensure that its
Representatives are aware of the provisions of this Section 7.4, and it
shall be responsible for any breach of this Section 7.4 by any of its
Representatives.
<PAGE>
7.4.3. SURVIVAL. The agreements contained in this Section 7.4 shall
survive any termination of this Agreement and remain in effect for a period
of one year from the date hereof.
7.5. PUBLIC DISCLOSURE. Any press release or other public disclosure of
information regarding the transactions contemplated hereby (including the
existence and terms of this Agreement) shall be developed jointly by Parent and
the Company; PROVIDED, HOWEVER, that if Applicable Law shall require either
party to disclose publicly any such information, such party may disclose
publicly such information after reasonable consultation with the other party.
7.6. TAKEOVER AND OTHER LAWS. If any takeover Law or other Law shall
become applicable to the transactions contemplated hereby, the Company and its
Board of Directors or Parent and its Board of Directors, as the case may be,
shall use their reasonable best efforts to obtain such approvals and take such
actions as are necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise to minimize the effects of such takeover Law or other Law on the
transactions contemplated hereby.
7.7. POOLING ACCOUNTING. Each of Parent and the Company shall use its
reasonable best efforts to cause the business combination to be effected by the
Arrangement to be accounted for as a pooling of interests and to cause their
respective Affiliates not to take any action that would adversely affect the
ability of Parent to account for such business combination as a pooling of
interests.
7.8. COMFORT LETTERS.
7.8.1. COMPANY. The Company shall use its reasonable best efforts to
cause Ernst & Young LLP to deliver to Parent a letter addressed to Parent
with respect to the financial information of the Company contained in the
Information Circular (the "First Company Comfort Letter") and, if financial
information of the Company shall be included in the Registration Statement,
a second letter addressed to Parent with respect to the financial
information of the Company contained in the Registration Statement (the
"Second Company Comfort Letter," and together with the First Company Comfort
Letter, the "Company Comfort Letters"). The First Company Comfort Letter
shall be dated as of a date within five days before the date the Information
Circular is first mailed to the Company's securityholders. If the Second
Company Comfort Letter shall be required, the Second Company Comfort Letter
shall be dated as of a date within five days before the date on which the
Registration Statement shall become effective. The Company Comfort Letters
shall be in form and substance reasonably satisfactory to Parent and
customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with proxy statements and
registration statements similar to the Information Circular and the
Registration Statement, as the case may be.
7.8.2. PARENT. Parent shall use its reasonable best efforts to cause
PricewaterhouseCoopers LLP to deliver to the Company a letter addressed to
the Company with respect to the financial information of Parent contained in
the Information Circular (the "First Parent Comfort Letter") and, if
financial information of Parent shall be included in the Registration
Statement, a second letter addressed to the Company with respect to the
financial information of Parent contained in the Registration Statement (the
"Second Parent Comfort Letter," and together with the First Parent Comfort
Letter, the "Parent Comfort Letters"). The First Parent Comfort Letter shall
be dated as of a date within five days before the date the Information
Circular is first mailed to the Company's securityholders. If the Second
Parent Comfort Letter shall be required, the Second Parent Comfort Letter
shall be dated as of a date within five days before the date on which the
Registration Statement shall become effective. The Parent Comfort Letters
shall be in form and substance reasonably satisfactory to the Company and
customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with proxy statements and
registration statements similar to the Information Circular and the
Registration Statement, as the case may be.
7.9. NOTICE OF CERTAIN MATTERS. Each of Parent (including Subco) and the
Company shall promptly notify the other in writing (i) if such party shall
become aware that any of such party's representations and warranties in this
Agreement is untrue or inaccurate in any material respect, (ii) if there shall
have been, or is reasonably
<PAGE>
expected to be, a Material Adverse Effect on such party and (iii) if there shall
have been, or is reasonably expected to be, any material breach of any covenant
or agreement of such party contained in this Agreement.
7.10. STOCK OPTIONS AND WARRANTS.
7.10.1. EXCHANGE OF STOCK OPTIONS. At the Effective Time, each
outstanding option to purchase Company Common Shares (a "Company Option")
shall be exchanged in accordance with the Plan of Arrangement. After the
Effective Time, except as provided in the Plan of Arrangement, each Company
Option shall have, and be subject to, the same terms and conditions of such
Company Option as before the Effective Time. Any adjustments pursuant to the
Plan of Arrangement are intended to comply with Section 424(a) of the Code
with respect to any options which are incentive stock options and shall be
construed consistent with Section 424(a) of the Code.
7.10.2. EXCHANGE OF WARRANTS. At the Effective Time, each outstanding
warrant to purchase Company Common Shares (a "Company Warrant") shall be
exchanged in accordance with the Plan of Arrangement. After the Effective
Time, except as provided in the Plan of Arrangement, each Company Warrant
shall have, and be subject to, the same terms and conditions of such Company
Warrant as before the Effective Time.
7.10.3. NOTICE TO HOLDERS. Promptly after the Effective Time, Parent
shall deliver (or cause the Company to deliver) to each holder of a Company
Option or a Company Warrant appropriate notice setting forth such
participants' rights pursuant thereto.
7.10.4. RESERVATION AND REGISTRATION OF PARENT COMMON STOCK. Parent
shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Company Options and Company Warrants exchanged in accordance
with the Plan of Arrangement. Within five Business Days after the Effective
Date, Parent shall file a registration statement on Form S-8 (or any
successor or other appropriate forms), or another appropriate form with
respect to the shares of Parent Common Stock subject to the Company Options
as so exchanged, and shall maintain, in the same manner as Parent's
registration statements for its stock plans, the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for as long as
such exchanged Company Options shall remain outstanding.
7.10.5. COOPERATION OF THE COMPANY. The Company's Board of Directors
shall, prior to or as of the Effective Time, take any necessary actions
within its control, pursuant to and in accordance with the terms of the
instruments evidencing the Company Options (and any related plans or other
documents) and the Company Warrants, to provide for the exchange of the
Company Options and Company Warrants into options and warrants to acquire
Parent Common Stock in accordance with the Plan of Arrangement.
7.11. CONTINUATION OF INDEMNIFICATION AND INSURANCE.
7.11.1. INDEMNIFICATION. Parent and the Company agree that the
indemnification obligations set forth in the Company's Articles of
Incorporation and By-Laws and similar documents of any of the Company's
Subsidiaries in effect on the date of this Agreement shall, with respect to
matters occurring prior to the Effective Time, survive after the Effective
Time and, for a period of not less than the statutes of limitations
applicable to such matters, shall not be amended, repealed or otherwise
modified in any manner that would adversely affect the rights thereunder of
the individuals entitled to indemnification thereunder immediately before
the Effective Time (the "Beneficiaries").
7.11.2. INSURANCE. For a period of three years after the Effective
Time, Parent shall continue in effect the Company's director and officer
liability insurance (or obtain other insurance which is comparable in all
material respects) for the benefit of the persons presently entitled to
coverage thereunder in such amounts, and with such deductibles, retained
amounts, coverages and exclusions as the Company shall provide for its
directors and officers on the date hereof; PROVIDED, that in no event shall
Parent or the Company be required to expend in excess of 150% of the annual
premium currently paid by the Company for such coverage or such coverage as
shall be available for 150% of such annual premium.
7.11.3. THIRD-PARTY BENEFICIARIES. After the Effective Time, Parent
shall cause the Company and its Subsidiaries to perform its and their
obligations under this Section 7.11 and to fulfill its and their
<PAGE>
indemnification obligations under its and their respective organizational
documents. The obligations of Parent and the Company under this Section 7.11
shall not be amended, terminated or modified in any manner that would
adversely affect the rights of any Beneficiary without the consent of such
Beneficiary. Parent and the Company agree that each such Beneficiary shall
be a third-party beneficiary of this Section 7.11.
7.12. EMPLOYEE BENEFIT MATTERS. To the extent permitted under the terms of
the applicable Company Benefit Plans, Parent shall maintain the Company Benefit
Plans until December 31, 1999 and shall provide any notices required under
Applicable Law with respect to changes thereto; PROVIDED, HOWEVER, that Parent
may discontinue a Company Benefit Plan if Parent shall provide or make available
benefits to the beneficiaries of such Company Benefit Plan that are not
materially less favorable than the benefits available under such Company Benefit
Plan. To the extent permitted under the terms of the applicable Parent benefit
plans, all employees of the Company and its Subsidiaries shall be eligible,
after the Effective Time, to participate in the various benefit plans and
programs maintained for Parent employees or in substantially similar programs,
including any of the following benefit plans maintained by Parent as of the
Effective Time: health/medical/ dental/vision care, life insurance, disability
income, sick pay, holiday and vacation pay, 401(k) plan coverage, Section 125
benefit arrangements, Group RRSP, bonus, profit-sharing or other incentive
plans, pension or retirement programs, dependent care assistance, and employee
stock option and stock purchase plans, to the extent the employees of the
Company and its Subsidiaries meet the eligibility requirements for each such
plan or program. To the extent permitted under the terms of such plans, the
employees of the Company and its Subsidiaries shall be given credit, for
purposes of any service requirements for establishing eligibility for
participation or benefits (and not for purposes of calculating benefits) for
their period of service with the Company and its Subsidiaries prior to the
Effective Time, and the employees of the Company and its Subsidiaries shall
also, with respect to any Parent plans or programs which have co-payment,
deductible or other co-insurance features, receive credit for any amounts such
employees have paid as of the Effective Time in the plan year of the Arrangement
in co-payments, deductibles or co-insurance under comparable programs maintained
by the Company or any of its Subsidiaries prior to the Effective Time. To the
extent permitted under the terms of such plans, no employee of the Company and
its Subsidiaries who participates in any health/ medical/dental/vision plan of
the Company or any of its Subsidiaries at the Effective Time shall be denied
coverage under the Parent health/medical/dental/vision plans by reason of any
pre-existing condition exclusions. Notwithstanding the foregoing, this Section
7.12 shall not require Parent to take any action, or refrain from taking any
action, that would adversely affect its ability to account for the business
combination to be effected by the Arrangement as a pooling of interests.
7.13. OBLIGATIONS OF SUBCO. Parent shall take all action necessary to
cause Subco to perform its obligations under this Agreement and to consummate
the Arrangement on the terms and conditions set forth in this Agreement.
7.14. COMPANY OPTION. Simultaneously with the execution of this Agreement,
the Company shall deliver to Parent an executed option agreement in the form of
EXHIBIT E.
7.15. AFFILIATE AGREEMENTS. Simultaneously with the execution of this
Agreement, each of Parent and the Company shall provide the other with a list of
each Person who is, or may be deemed to be, an Affiliate of Parent (a "Parent
Affiliate") or the Company (a "Company Affiliate"), as the case may be, and
shall cause each such Parent Affiliate or Company Affiliate, respectively, to
deliver, simultaneously with the execution of this Agreement, to the other an
executed agreement in the form of EXHIBIT F (a "Parent Affiliate Agreement") or
EXHIBIT G (a "Company Affiliate Agreement") hereto, respectively. Each of Parent
and the Company shall notify the other if any Person not on the list provided to
the other pursuant to this Section 7.15 shall become, or shall be deemed to be,
a Parent Affiliate or a Company Affiliate, respectively, and shall cause each
such Person to deliver to the other an executed Parent Affiliate Agreement or a
Company Affiliate Agreement, respectively.
7.16. SHAREHOLDER AGREEMENTS. Simultaneously with the execution of this
Agreement, the Company shall cause certain shareholders of the Company
identified by Parent and each of the Company's directors, officers and their
investment affiliates to deliver to Parent an executed Shareholder Agreement in
the form of EXHIBIT H (collectively, the Shareholder Agreements") (including the
irrevocable proxy attached thereto).
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7.17. EMPLOYMENT AGREEMENTS. Simultaneously with the execution of this
Agreement, the Company shall cause each employee designated by Parent to deliver
to Parent an executed Amendment to Employment Agreement in the form of EXHIBIT I
(collectively, the "Employment Agreements").
7.18. ELECTION OF OFFICER. On or before the Effective Date, Parent shall
take such action as shall be necessary to elect Mr. Ian McKinnon as Vice
President and General Manager of Parent's Software Division, such election to be
effective on the Effective Date or as soon thereafter as practicable.
7.19. COVENANTS REGARDING NON-SOLICITATION.
7.19.1. NON-SOLICITATION. Until the Effective Time, neither the
Company nor any of its Subsidiaries shall, directly or indirectly, through
any Representative or otherwise, (a) solicit, initiate, encourage or take
any other action to facilitate (including by way of disclosing information,
affording access to the properties, books or records of the Company or any
of its Subsidiaries, or entering into any agreement, arrangement or
understanding) the making of any inquiry, proposal or offer that constitutes
or could be expected to lead to an Acquisition Proposal, (b) participate in
any discussions or negotiations regarding any Acquisition Proposal, (c)
withdraw, or modify in a manner adverse to Parent, the approval of the
Company's Board of Directors of the transactions contemplated hereby or make
or authorize any statement, recommendation or solicitation in support of any
Acquisition Proposal, (d) approve or accept any Acquisition Proposal or (e)
cause the Company to enter into any agreement related to any Acquisition
Proposal. The Company and its Subsidiaries shall immediately cease any and
all existing solicitations, initiations, encouragements, activities,
discussions or negotiations with any Person (other than Parent and Subco)
with respect to the foregoing. Notwithstanding the foregoing, the Company
may, in response to an unsolicited tender or exchange offer, comply with its
obligations under Applicable securities Laws relating to the provision of
directors' circulars and disclosures to the Company's securityholders.
7.19.2. COMPLIANCE WITH FIDUCIARY OBLIGATIONS. Subject to compliance
with the terms of Sections 7.19.3, 7.19.4 and 7.20 and notwithstanding any
other provision of this Agreement, the Company, its Subsidiaries and its
Representatives may, at any time prior to the approval of the Arrangement by
the Company's securityholders, take any action with respect to an
Acquisition Proposal received by the Company that would otherwise be
prohibited by Section 7.19.1 if, and only to the extent that, (a) the
Acquisition Proposal shall be an unsolicited BONA FIDE written Acquisition
Proposal, (b) after receiving the written advice of the Company's financial
advisors and after receiving a written opinion of outside counsel to the
effect that the fiduciary duties of the Company's Board of Directors require
such Board to take such action in order to discharge properly its fiduciary
duties, the Company's Board of Directors shall have reasonably determined in
good faith that such Acquisition Proposal (i) would result in a transaction
that (A) is more favorable from a financial point of view to the Company's
securityholders than the transactions contemplated hereby and (B) has a
value per Company Common Share greater than the value per Company Common
Share of the transactions contemplated hereby, (ii) is a transaction for
which financing, to the extent required, is then committed or which, in the
good faith reasonable judgment of the Company's Board of Directors (based
upon the good faith written advice of the Company's financial advisors), is
capable of being financed by the Person or Persons making the Acquisition
Proposal and (iii) if accepted by the Company, would be more likely than not
to be consummated (any such Acquisition Proposal being referred to herein as
a "Superior Proposal").
7.19.3. NOTICE TO PARENT OF ACQUISITION PROPOSALS. The Company shall
immediately notify Parent, at first orally and then in writing, of (a) all
Acquisition Proposals of which any Representative of the Company and its
Subsidiaries shall become aware, (b) any amendments to any Acquisition
Proposal, (c) any request for information relating to the Company or any of
its Subsidiaries or for access to the properties, books or records of the
Company or any of its Subsidiaries by any Person that any Representative of
the Company and its Subsidiaries knows, believes or suspects is considering
making, or has made, an Acquisition Proposal (each, a "Bidder"). Such notice
shall include a description of all of the terms and conditions of any
proposal and provide such details of the proposal, request, inquiry or
contact as Parent may request, including the identity of the Bidder. The
Company shall keep Parent informed on a current basis of the status of any
terms, discussions and negotiations in respect of each Acquisition Proposal.
<PAGE>
7.19.4. PROCEDURES. The Company shall not, pursuant to Section 7.19.2,
take any action prohibited by Section 7.19.1, unless at the time of the
taking of such action the Company shall have (a) complied with Section
7.19.3, (b) obtained from the Bidder a confidentiality agreement containing
provisions substantially similar to those set forth in Section 7.4 of this
Agreement, (c) delivered via facsimile a copy of such confidentiality
agreement to Parent immediately upon its execution and (d) provided Parent
with the same information and documents provided to the Bidder at the same
time and in the same manner so provided (unless such information or
documents shall have been previously provided to Parent, in which case the
Company shall have provided Parent with a list of the information and
documents provided to the Bidder).
7.19.5. ACTIONS OF REPRESENTATIVES. The Company shall ensure that its
Representatives are aware of the provisions of this Section 7.19, and it
shall be responsible for any breach of this Section 7.19 by any such
Representative.
7.20. PROCEDURES FOLLOWING SUPERIOR PROPOSAL DETERMINATION.
7.20.1. NOTICE OF SUPERIOR PROPOSAL DETERMINATION. None of the
Company, its Subsidiaries and its Representatives shall accept, approve,
recommend or enter into any agreement in respect of any Acquisition Proposal
(other than the confidentiality agreement contemplated by Section 7.19.4) on
the basis that it would constitute a Superior Proposal unless (a) the
Company shall have provided Parent with a copy of the Acquisition Proposal
document that the Company's Board of Directors shall have determined would
be a Superior Proposal, and (b) five Business Days shall have elapsed from
the later of (i) the date Parent shall have received notice of the Company's
proposed determination to accept, approve, recommend or enter into an
agreement in respect of such Acquisition Proposal and (ii) the date Parent
shall have received a copy of the Acquisition Proposal document.
7.20.2. OPPORTUNITY TO BID. During such five Business Day period, the
Company shall afford Parent the opportunity, in Parent's discretion, to
offer to amend the terms of this Agreement and the Arrangement. The
Company's Board of Directors shall convene a meeting to review in good faith
any offer by Parent to amend the terms of this Agreement and the Arrangement
in order to determine, in its discretion in the exercise of its fiduciary
duties, whether Parent's offer upon acceptance by the Company would result
in the Acquisition Proposal not being a Superior Proposal. If the Company's
Board of Directors shall so determine, the Company shall enter into an
amended agreement with Parent reflecting Parent's offer. If after such five
Business Day period the Company's Board of Directors shall conclude, in good
faith and after consultation with the Company's financial advisors and
outside counsel, that the Acquisition Proposal is nonetheless a Superior
Proposal and shall therefore reject Parent's offer, the Company shall pay to
Parent the break-up fee payable to Parent under Section 9.4 as required
thereunder. Each successive material amendment to any Acquisition Proposal
shall constitute a new Acquisition Proposal for purposes of this Section
7.20 and shall thereby initiate an additional five Business Day period under
this Section 7.20.
7.21. MUTUAL STANDSTILL AND NON-SOLICITATION AGREEMENT. For a period of
twelve months after the termination of this Agreement, if any, pursuant to
Article 9 of this Agreement, each of Parent and the Company agrees that it and
its Subsidiaries shall not (and each party and its Subsidiaries shall not assist
or encourage others to), and its Representatives shall not on its behalf (and
its Representatives shall not assist or encourage others on its behalf to),
directly or indirectly, unless specifically requested to do so by the other
party's Board of Directors (a) acquire, or agree or offer to acquire, or cause
to be acquired, ownership (including beneficial ownership as defined in Rule
13d-3 under the Exchange Act) of any of the other party's assets (other than in
the ordinary course of business) or businesses or any voting securities issued
by the other party, or any rights or options to acquire such ownership,
including from a third party; (b) make, or in any way participate in, any
solicitation of proxies or consents with respect to any securities of the other
party which are, or may be, entitled to vote in the election of the other
party's directors ("Voting Securities"), become a "participant" in any "election
contest" (as such terms are defined or used in Rule 14a-11 under the Exchange
Act) with respect to the other party, or to seek to advise, encourage or
influence any Person with respect to the voting of any Voting Securities; or
demand a copy of the other party's stock ledger, list of its stockholders or
other books and records; or call or attempt to call any meeting of the
stockholders of the other party; (c) enter into any discussions, negotiations,
arrangements or understandings with any third party (other than such party's
Representatives) with
<PAGE>
respect to any of the matters described in clauses (a) or (b) of this Section
7.21; or (d) induce or attempt to induce, directly or indirectly, any employee
or consultant of the other party to terminate his or her employment or
professional relationship with such other party (except by means of a general
solicitation of employees or consultants); PROVIDED, HOWEVER, that, nothing in
this Section 7.21 shall prevent the exercise of the Company Option or the taking
of any other action in accordance with the terms thereof.
7.22. EXPENSES.
7.22.1. GENERAL. Except as set forth in this Section 7.22, all fees
and expenses incurred in connection with this Agreement, the Arrangement and
the other transactions contemplated hereby, including fees and disbursements
of consultants, investment bankers and other financial advisors, counsel and
accountants, the costs incurred in seeking necessary consents, financial
printer expenses and filing fees, shall be paid by the party incurring such
expenses, whether or not the Arrangement and the other transactions
contemplated hereby are consummated.
7.22.2. REIMBURSEMENT. If this Agreement shall be terminated pursuant
to Section 9.1.2, 9.1.5, 9.1.7 or 9.1.9, the Company shall reimburse Parent
for all of its reasonable out-of-pocket expenses, including fees and
disbursements of consultants, investment bankers and other financial
advisors, counsel and accountants, the costs incurred in seeking necessary
consents, financial printer expenses and filing fees, incurred in connection
with this Agreement, the Arrangement and the other transactions contemplated
hereby ("Out-of-Pocket Expenses"), not to exceed $500,000. If this Agreement
shall be terminated pursuant to Section 9.1.3 or 9.1.8, Parent shall
reimburse the Company for all of its reasonable Out-of-Pocket Expenses, not
to exceed $500,000. If this Agreement shall be terminated pursuant to
Section 9.1.4 and the failure of a party to fulfill any material obligation
under this Agreement shall have been the cause of, or shall have resulted
in, the failure of the Effective Time to occur on or before the date
specified in Section 9.1.4, then such party shall reimburse the other party
for all of its reasonable Out-of-Pocket Expenses, not to exceed $500,000.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
8.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY. The obligations of
each party to consummate and effect the Arrangement and the other transactions
contemplated hereby shall be subject to the satisfaction or waiver on or before
the Effective Date of each of the following conditions:
8.1.1. SECURITYHOLDER APPROVAL. The Arrangement and such other matters
as shall require approval of the securityholders of the Company in order to
consummate the Arrangement and the other transactions contemplated hereby
shall have been approved and adopted by the securityholders of the Company
in accordance with the Interim Order, Applicable Laws and the Company's
Articles of Incorporation and By-Laws.
8.1.2. NO LEGAL ACTION. There shall not be in effect, nor shall there
be pending or threatened any action or proceeding by or before any
Governmental Entity that in the good faith judgment of the Board of
Directors of Parent or the Company shall have a reasonable probability of
resulting in, any temporary restraining order, preliminary injunction,
permanent injunction or other order or decree, nor shall there have been any
Law enacted, promulgated, issued or deemed applicable to the Arrangement or
any of the other transactions contemplated hereby by any Governmental
Entity, or any other action taken by any Governmental Entity, that would (a)
prevent or make illegal the consummation of the Arrangement or any of the
other transactions contemplated hereby, (b) prohibit Parent's ownership or
operation of all or a material portion of the business of the Company or any
of its Subsidiaries, or (c) compel Parent to dispose of or hold separate all
or a material portion of the business or assets of the Company or Parent as
a result of the Arrangement or such other transactions.
<PAGE>
8.1.3. COURT APPROVAL. The Court shall have issued the Interim Order
and the Final Order approving the Arrangement in form and substance
reasonably satisfactory to Parent and the Company and reflecting the terms
hereof, and such Final Order shall not have been set aside or modified in
any manner unacceptable to Parent and the Company on appeal or otherwise.
8.1.4. EXPIRATION OF WAITING PERIODS AND RELATED MATTERS. All waiting
periods required by the HSR Act shall have expired with respect to the
transactions contemplated hereby, or early termination with respect thereto
shall have been obtained. Each of Parent and the Company shall have filed
all notices and information (if any) required under Part IX of the
Competition Act (Canada) and the applicable waiting periods and any
extensions thereof shall have expired or the parties shall have received an
Advance Ruling Certificate pursuant to Section 102 of the Competition Act
(Canada) setting out that the Director under such Act is satisfied that he
or she would not have sufficient grounds on which to apply for an order in
respect of the Arrangement. The Arrangement shall have received the
allowance or approval or deemed allowance or approval by the responsible
Minister under the Investment Canada Act in respect of the Arrangement, to
the extent such allowance or approval is required, on terms and conditions
satisfactory to Parent and the Company.
8.1.5. SECURITIES MATTERS. All necessary orders shall have been
obtained from the Commissions and other relevant United States and Canadian
securities regulatory authorities (including the TSE) in connection with the
Arrangement and the other transactions contemplated hereby. The Registration
Statement shall have been declared effective under the Securities Act on or
before the Effective Date, and the Registration Statement shall not at its
effective date or on the Closing Date be the subject of any stop order or
proceedings seeking a stop order. The Information Circular shall not on the
Closing Date be subject to any similar proceedings commenced or threatened
by the Commissions or the SEC.
8.1.6. LISTINGS. The Parent Common Stock to be issued from time to
time after the Effective Time upon exchange of the Exchangeable Shares and
upon exercise of the Company Options and Company Warrants shall have been
approved for listing on the Nasdaq National Market, subject only to notice
of issuance. The Exchangeable Shares issuable pursuant to the Arrangement
shall have been listed on the TSE as at the Effective Time, subject only to
notice of issuance.
8.1.7. TAX OPINIONS. Parent and the Company shall have received
substantially identical opinions, dated as of the Effective Date, from their
counsel, Blake, Cassels & Graydon, and Cassels, Brock & Blackwell,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Arrangement shall be generally treated for Canadian federal
income tax purposes as a reorganization of capital of the Company under
Section 86 of the ITA (as amended to the Effective Date) for those Company
shareholders who hold Company Common Shares on capital account.
8.1.8. VOTING AND EXCHANGE TRUST AGREEMENT. The other parties to the
Voting and Exchange Trust Agreement shall have executed and delivered the
Voting and Exchange Trust Agreement to such party.
8.1.9. SUPPORT AGREEMENT. The other parties to the Support Agreement
shall have executed and delivered the Support Agreement to such party.
8.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate and effect the Arrangement and the other
transactions contemplated hereby shall be subject to the satisfaction or waiver
on or before the Effective Date of each of the following conditions, any of
which may be waived only in writing by the Company:
8.2.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Subco in this Agreement shall have been true and
correct on the date hereof and shall also be true and correct on and as of
the Effective Date, with the same force and effect as if made on and as of
the Effective Date, except (a) for changes specifically contemplated hereby,
(b) for representations and warranties that address matters only as of a
particular date (which representations and warranties shall remain true and
correct as of such date) and (c) where the failure or failures of such
representations and warranties to be so true and correct (without regard to
materiality qualifiers contained therein), individually and in the
aggregate, shall not have resulted in a Parent Material Adverse Effect (only
after including Parent's ownership of the Company and its Subsidiaries after
the Arrangement).
<PAGE>
8.2.2. COVENANTS AND AGREEMENTS. Parent and Subco shall have performed
and complied, in all material respects, with all covenants and agreements
required by this Agreement to be performed or complied with by them on or
before the Effective Date.
8.2.3. NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
Parent shall not have experienced a Parent Material Adverse Effect.
8.2.4. CERTIFICATE. The Company shall have received from Parent a
certificate, dated the Effective Date and signed by its chief executive
officer and its chief financial officer, in form and substance reasonably
satisfactory to the Company, to the effect set forth in Sections 8.2.1,
8.2.2 and 8.2.3.
8.2.5. OPINION OF PARENT COUNSEL. The Company shall have received
opinions, dated as of the Effective Date, from Foley, Hoag & Eliot LLP,
United States counsel for Parent, and Blake, Cassels & Graydon, Canadian
counsel for Parent, each in form and substance reasonably satisfactory to
the Company.
8.2.6. FAIRNESS OPINION. The Company Fairness Opinion shall have been
confirmed by Griffiths McBurney & Partners in writing to the Company's Board
of Directors as of the date the Information Circular was first mailed to the
securityholders of the Company and shall not have been subsequently
withdrawn.
8.2.7. COMFORT LETTER. The Company shall have received the First
Parent Comfort Letter and, if required, the Second Parent Comfort Letter.
The Company shall have received an additional letter from
PricewaterhouseCoopers LLP, dated the Effective Date, in form and substance
reasonably satisfactory to the Company, stating that nothing shall have come
to their attention, as of a date no earlier than five days prior to the
Effective Date, that would require any change in either the First Parent
Comfort Letter or, if required, the Second Parent Comfort Letter, if such
Parent Comfort Letter were required to be dated and delivered on the
Effective Date.
8.2.8. AFFILIATES AGREEMENTS. The Company shall have received executed
copies of the Parent Affiliate Agreements referred to Section 7.15, and all
such agreements shall be in full force and effect.
8.2.9. CERTIFICATE OF DESIGNATION. Parent shall have filed the
Certificate of Designation with the Secretary of State of the Commonwealth
of Massachusetts and shall have issued the Special Voting Share to the
Trustee.
8.2.10. CERTIFICATES AND RESOLUTIONS. The Company shall have received
such other certificates, resolutions and other documents of Parent and Subco
as may be reasonably required in connection with the consummation of the
transactions contemplated hereby.
8.3. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUBCO. The
obligations of Parent and Subco to consummate and effect the Arrangement and the
other transactions contemplated hereby shall be subject to the satisfaction or
waiver on or before the Effective Date of each of the following conditions, any
of which may be waived only in writing by Parent.
8.3.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company in this Agreement shall have been true and correct
on the date hereof and shall also be true and correct on and as of the
Effective Date, with the same force and effect as if made on and as of the
Effective Date, except (a) for changes specifically contemplated hereby, (b)
for representations and warranties that address matters only as of a
particular date (which representations and warranties shall remain true and
correct as of such date) and (c) where the failure or failures of such
representations and warranties to be so true and correct (without regard to
materiality qualifiers contained therein), individually and in the
aggregate, shall not have resulted in a Company Material Adverse Effect.
8.3.2. COVENANTS AND AGREEMENTS. The Company shall have performed and
complied, in all material respects, with all covenants and agreements
required by this Agreement to be performed or complied with by the Company
on or before the Effective Date.
8.3.3. NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
the Company shall not have experienced a Company Material Adverse Effect.
8.3.4. REDEMPTION OF RIGHTS. The Company shall have given a binding
notice of redemption or termination of the Rights (as therein defined) under
the Rights Agreement in accordance with Article 6 of
<PAGE>
the Rights Agreement, and shall have taken any other action required under
the Rights Agreement and Applicable Laws such that at the Effective Time and
thereafter the only right of the holders of Rights shall be to receive the
Redemption Price (as defined in the Rights Agreement) for each Right so
held.
8.3.5. DISSENT RIGHTS. The Company shall not have received on or prior
to the Effective Date notice from the holders of more than five percent of
the issued and outstanding Company Common Shares of their intention to
exercise their rights of dissent under Section 190 of the CBCA with respect
to the Arrangement.
8.3.6. CONSENTS OF THIRD PARTIES. The Company and its Subsidiaries
shall have received and delivered to Parent all written consents,
assignments, waivers, authorizations or other certificates necessary to
provide for the continuation in full force and effect of all its and their
material contracts and leases and for the Company and its Subsidiaries to
consummate the transactions contemplated hereby (including those set forth
in Section 3.18.2 of the Company Disclosure Schedule), except where, in the
opinion of Parent, the failure to receive such consents, assignments,
waivers, authorizations or other certificates would not have a Company
Material Adverse Effect.
8.3.7. CERTIFICATE. Parent shall have received from the Company a
certificate, dated the Effective Date and signed by its chief executive
officer and its chief financial officer, in form and substance reasonably
satisfactory to Parent, to the effect set forth in Sections 8.3.1, 8.3.2,
8.3.3, 8.3.4, 8.3.5 and 8.3.6.
8.3.8. CUSTOMER AND PRODUCT LIST. Parent shall have received on or
before December 31, 1998 a list, certified by the chief executive officer
and chief financial officer of the Company, of all of the Company's
customers and of all of the software programs and/or modules sold or
licensed by the Company to, or used by, such customers up to and including
that date, in form and substance reasonably satisfactory to the Parent.
8.3.9. OPINION OF COMPANY COUNSEL. Parent shall have received
opinions, dated as of the Effective Date, from Wilson, Sonsini, Goodrich &
Rosati, Professional Corporation, United States counsel for the Company, and
from Cassels, Brock & Blackwell, Canadian counsel for the Company, each in
form and substance reasonably satisfactory to Parent.
8.3.10. FAIRNESS OPINION. The Parent Fairness Opinion shall have been
confirmed by Lehman Brothers in writing to Parent's Board of Directors as of
the date the Information Circular was first mailed to the securityholders of
the Company and shall not have been subsequently withdrawn.
8.3.11. POOLING MATTERS. No event shall have occurred that would
establish with reasonable certainty that the Arrangement would not be
treated as a pooling of interests for accounting purposes.
PricewaterhouseCoopers LLP shall have issued the Parent Pooling Opinion to
Parent's Board of Directors on the Effective Date. Ernst & Young LLP shall
have issued the Company Pooling Opinion to the Company's Board of Directors
on the Effective Date.
8.3.12. COMFORT LETTER. Parent shall have received the First Company
Comfort Letter and, if required, the Second Company Comfort Letter. Parent
shall have received an additional letter from Ernst & Young LLP, dated the
Effective Date, in form and substance reasonably satisfactory to Parent,
stating that nothing shall have come to their attention, as of a date no
earlier than five days prior to the Effective Date, that would require any
change in either the First Company Comfort Letter or, if required, the
Second Company Comfort Letter, if such Company Comfort Letter were required
to be dated and delivered on the Effective Date.
8.3.13. AFFILIATES AGREEMENTS. Parent shall have received executed
copies of the Company Affiliate Agreements referred to Section 7.15, and all
such agreements shall be in full force and effect.
8.3.14. EMPLOYMENT AGREEMENTS. Parent shall have received executed
copies of the Employment Agreements referred to in Section 7.17, all such
agreements shall be in full force and effect, and the employees subject to
such agreements shall continue to serve as employees of the Company or its
Subsidiaries.
8.3.15. CERTIFICATES AND RESOLUTIONS. Parent shall have received such
other certificates, resolutions and other documents of the Company as may be
reasonably required in connection with the consummation of this Agreement.
<PAGE>
ARTICLE 9
TERMINATION
9.1. TERMINATION. This Agreement may be terminated at any time on or
before the Effective Date, whether before or after approval of the transactions
contemplated hereby by the securityholders entitled to vote of the Company, as
follows:
9.1.1. By mutual written agreement of Parent and the Company;
9.1.2. By Parent, if there shall have been a material breach of any
representation, warranty, covenant or agreement set forth in this Agreement
on the part of the Company, or if any representation or warranty of the
Company shall have become untrue and the Company shall have failed to cure
such breach within 5 Business Days after written notice thereof to the
Company (PROVIDED that Parent is not in material breach of any
representation, warranty, covenant or agreement set forth in this Agreement;
AND PROVIDED FURTHER, that no cure period shall be provided for a breach
which by its nature cannot be cured);
9.1.3. By the Company, if there shall have been a material breach of
any representation, warranty, covenant or agreement set forth in this
Agreement on the part of Parent, or if any representation or warranty of
Parent shall have become untrue and Parent shall have failed to cure such
breach within 5 Business Days after written notice thereof to Parent
(PROVIDED that the Company is not in material breach of any representation,
warranty, covenant or agreement set forth in this Agreement; AND PROVIDED
FURTHER, that no cure period shall be provided for a breach which by its
nature cannot be cured);
9.1.4. By either party, if the Arrangement and the other transactions
contemplated hereby shall not have been consummated on or before 5:00 p.m.,
Boston time on March 31, 1999; PROVIDED, HOWEVER, that if the Arrangement
and the other transactions contemplated hereby shall not have been
consummated solely due to the waiting period (or any extension thereof)
under the HSR Act, the Investment Canada Act or the Competition Act
(Canada), then such date shall be extended to April 30, 1999; AND PROVIDED
FURTHER, that the right to terminate this Agreement under this Section 9.1.4
shall not be available to any party whose failure to fulfill any material
obligation under this Agreement shall have been the cause of, or shall have
resulted in, the failure of the Effective Time to occur on or before such
date;
9.1.5. By either party if at the Company Shareholder Meeting the
shareholders of the Company do not approve the Arrangement and all such
other matters as shall require approval of the shareholders of the Company
in order to consummate the Arrangement and the other transactions
contemplated hereby; PROVIDED, HOWEVER, that the Company may not terminate
this Agreement pursuant to this Section 9.1.5 if it is in material breach of
any representation, warranty, covenant or agreement set forth in this
Agreement;
9.1.6. By either party if (a) a final, non-appealable order shall have
been entered in any action or proceeding before any Governmental Entity that
shall prevent or make illegal the consummation of the Arrangement or any of
the other transactions contemplated hereby or (b) there shall be any final
action taken, or any Law enacted, promulgated, issued or deemed applicable
to the Arrangement or any of the other transactions contemplated hereby by
any Governmental Entity that would prevent or make consummation of the
Arrangement or any of such other transactions illegal or that would prohibit
Parent's ownership or operation of all or a material portion of the business
of the Company or any of its Subsidiaries, or compel Parent to dispose of or
hold separate all or a material portion of the business or assets of the
Company or Parent as a result of the Arrangement or such other transactions;
9.1.7. By Parent if the Company's Board of Directors or any committee
of the Company's Board of Directors (a) shall withdraw or modify in any
adverse manner its approval or recommendation of this Agreement, the
Arrangement and the other transactions contemplated hereby, (b) within two
Business Days after Parent's request, shall fail to reaffirm such approval
and recommendation, (c) shall approve or recommend any Acquisition Proposal,
other than with Parent or an Affiliate thereof, or (d) shall resolve to take
any of the actions specified in this Section 9.1.7;
9.1.8. By the Company if Parent's Board of Directors or any committee
of Parent's Board of Directors (a) shall withdraw or modify in any adverse
manner its approval of this Agreement, the Arrangement and the other
transactions contemplated hereby, (b) within two Business Days after the
<PAGE>
Company's request, shall fail to reaffirm such approval or (c) shall resolve
to take any of the actions specified in this Section 9.1.8; or
9.1.9. By the Company, prior to the approval of the transactions
contemplated hereby by the securityholders entitled to vote of the Company,
if, after the Company's Board of Directors shall have determined that an
Acquisition Proposal is a Superior Proposal, (a) the Company shall have
complied with Sections 7.19 and 7.20 and (b) the Company's Board of
Directors shall thereafter conclude in good faith that the Acquisition
Proposal is a Superior Proposal.
9.2. NOTICE OF TERMINATION. Any termination of this Agreement pursuant to
Section 9.1 (other than pursuant to Section 9.1.1) shall be effected by the
delivery of written notice of termination by the terminating party to the other
party hereto, which notice shall state the grounds for termination and the
subsection of Section 9.1 pursuant to which such terminating party shall be
terminating this Agreement.
9.3. EFFECT OF TERMINATION. If either Parent or the Company shall
terminate this Agreement pursuant to Section 9.1, and the terminating party
shall have provided the notice required under Section 9.2 and paid the fee, if
any, required under Section 9.4, then this Agreement shall forthwith become void
and have no effect, and there shall be no liability or obligation under this
Agreement on the part of Parent, Subco or the Company or their respective
Representatives and stockholders, except that (a) the provisions of Section 7.4,
this Article 9 and Article 10 (and any defined terms used therein) shall survive
any such termination, and (b) no party shall be released or relieved from any
liability to the extent that such termination shall result from the breach by
such party of any of its representations, warranties, covenants or agreements in
this Agreement.
9.4. TERMINATION FEE.
9.4.1. If this Agreement shall be terminated pursuant to Section 9.1.5,
9.1.7(a) or (b) (unless such action is a direct result of and in direct
response to a material breach by Parent of any representation, warranty,
covenant or agreement set forth in this Agreement or the occurrence of a
Parent Material Adverse Effect), 9.1.7(c), 9.1.7(d) (unless, with respect to
resolutions to take any of the actions specified in 9.1.7(a) or (b), such
action is a direct result of and in direct response to a material breach by
Parent of any representation, warranty, covenant or agreement set forth in
this Agreement or the occurrence of a Parent Material Adverse Effect) or
9.1.9, then the Company shall pay to Parent a cash termination fee of
$1,330,000 (the "Termination Fee") at the time of such termination.
9.4.2. If this Agreement shall be terminated pursuant to Section 9.1.8
(unless such action is a direct result of and in direct response to a
material breach by the Company of any representation, warranty, covenant or
agreement set forth in this Agreement or the occurrence of a Company
Material Adverse Effect), then Parent shall pay to the Company the
Termination Fee at the time of such termination.
9.4.3. Any Termination Fee payable pursuant to this Section 9.4 shall
be paid not later than two Business Days after the delivery of written
notice of termination pursuant to Section 9.2. Payment shall be made by wire
transfer of immediately available funds to an account designated by the
payee.
9.4.4. The payment by a party of any Termination Fee pursuant to this
Section 9.4 shall be deemed to include payment of any expenses required to
be paid by such party pursuant to Section 7.22.2.
9.4.5. Parent and the Company agree that it may be difficult and
impractical to measure in money the damages that will accrue upon the
termination of this Agreement pursuant to any provision of Section 9.1 that
shall require the payment of a Termination Fee pursuant to this Section 9.4.
Accordingly, Parent and the Company agree that payment of any Termination
Fee payable pursuant to this Section 9.4 (together with any other amounts
payable pursuant to this Section 9.4) shall (a) constitute liquidated
damages and not a penalty, (b) be the sole and exclusive remedy of the payee
of the Termination Fee for the breach of any representation, warranty,
covenant or agreement in this Agreement by the payor and (c) constitute an
irrevocable waiver and release by the payee of any other remedy against the
payor for the breach of any representation, warranty, covenant or agreement
in this Agreement by the payor.
9.4.6. Each of Parent and the Company agrees that the terms of Section
7.22 and this Section 9.4 are an integral part of the transactions
contemplated hereby. If either party fails to pay promptly the other party
any fee due under such Sections, it shall also pay the other party's costs
and expenses (including fees and disbursements of counsel) in connection
with any action, including the filing of any lawsuit or other legal
<PAGE>
action, taken to collect payment, together with interest on the unpaid
amounts at the publicly announced prime rate of Fleet National Bank from the
date such amounts were first due.
ARTICLE 10
MISCELLANEOUS
10.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Parent, Subco and the Company in this Agreement shall
terminate at the Effective Time, and only the covenants and agreements that by
their terms survive the Effective Time shall survive the Effective Time.
10.2. AMENDMENTS AND SUPPLEMENTS. This Agreement may not be amended,
modified or supplemented by the parties hereto in any manner, except by an
instrument in writing signed on behalf of each party hereto.
10.3. WAIVER. The terms and conditions of this Agreement may be waived
only by a written instrument signed by the party waiving compliance. The failure
of any party hereto to enforce at any time any of the provisions of this
Agreement shall in no way be construed to be a waiver of any such provision, nor
in any way to affect the validity of this Agreement or any part hereof or the
right of such party thereafter to enforce each and every such provision. No
waiver of any breach of or non-compliance with this Agreement shall be construed
to be a waiver of any other or subsequent breach or non-compliance.
10.4. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the substantive Laws of the Commonwealth of
Massachusetts, without regard to its principles of conflicts of laws. Each of
the parties hereto irrevocably consents to the exclusive jurisdiction of any
state or federal court within the Commonwealth of Massachusetts in connection
with any matter based upon or arising out of this Agreement, the Arrangement or
the other transactions contemplated hereby, agrees that process may be served
upon them in any manner authorized by the Commonwealth of Massachusetts for such
Persons and waives, and covenants not to assert or plead, any objection which
such party might otherwise have to such jurisdiction and such service of
process.
10.5. NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given to a party if delivered by hand, sent by
facsimile transmission with confirmation of transmission, sent via a reputable
overnight delivery service with confirmation of receipt requested, or mailed by
registered or certified mail (postage prepaid and return receipt requested) to
the party at the following address and facsimile number (or at such other
address or facsimile number for the party as the party shall specify by like
notice), and shall be deemed given on the date on which delivered by hand or
otherwise on the date of confirmation of receipt or transmission:
TO PARENT OR SUBCO:
PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, MA 01821-3986
Attention: Chief Executive Officer
FACSIMILE NUMBER: (978) 671-9430
WITH COPIES TO:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Robert L. Birnbaum, Esq.
FACSIMILE NUMBER: (617) 832-7000
AND
Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, Ontario M5L 1A9
CANADA
Attention: Alan F. Brown, Esq.
FACSIMILE NUMBER: (416) 863-2653
<PAGE>
TO THE COMPANY:
Promis Systems Corporation Ltd.
170 University Avenue, Suite 1200
Toronto, Ontario M5H 3B3
CANADA
Attention: Chief Executive Officer
FACSIMILE NUMBER: (416) 977-2016
WITH A COPY TO:
Cassels, Brock & Blackwell
Scotia Plaza, Suite 2100
40 King Street West
Toronto, Ontario M5H 3C2
CANADA
Attention: Lawrence D. Wilder, Esq.
FACSIMILE NUMBER: (416) 350-6904
10.6. ENTIRE AGREEMENT. This Agreement, the Company Disclosure Schedule,
the Parent Disclosure Schedule and the other documents and instruments and other
agreements among the parties hereto and referred to herein constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including (a) the
letter agreement dated April 10, 1998 between Parent and the Company and (b) the
letter agreement dated November 3, 1998 between Parent and the Company. Each
party hereto acknowledges that, in entering into this Agreement and completing
the transactions contemplated hereby, such party is not relying on any
representation, warranty, covenant or agreement not expressly stated in this
Agreement or in the schedules, documents and instruments and other agreements
among the parties hereto and referred to herein.
10.7. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Except as expressly stated in Section 7.11, this
Agreement is not intended to confer upon any Person other than the parties
hereto (and such parties' respective successors and permitted assigns) any
rights or remedies hereunder. Neither this Agreement nor any of the rights and
obligations of the parties hereunder shall be assigned or delegated, whether by
operation of law or otherwise, without the written consent of all parties
hereto, except that the rights and obligations of Subco may be assigned and
delegated to any other wholly owned Subsidiary of Parent.
10.8. INTERPRETATION. The table of contents and headings in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of any provision of this Agreement. The word "include" and its
derivatives when used in this Agreement shall be deeded to be followed by the
words "without limitation." The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and therefore waive the application of any Law, holding or rule of construction
providing that ambiguities in an agreement or other document shall be construed
against the party that drafted such agreement or document.
10.9. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
10.10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same agreement
and shall become effective when one or more counterparts shall have been signed
by each party hereto and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Combination Agreement to be
executed as an agreement under seal as of the date first above written.
PRI AUTOMATION, INC.
By: __________________________________
Mitchell G. Tyson,
CHIEF EXECUTIVE OFFICER
1325949 ONTARIO INC.
By:___________________________________
Mitchell G. Tyson,
CHIEF EXECUTIVE OFFICER
PROMIS SYSTEMS CORPORATION LTD.
By:___________________________________
Ian McKinnon,
CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE OF DESIGNATION
TERMS OF SPECIAL VOTING PREFERRED STOCK
1. DESIGNATION; NUMBER OF SHARES. The class of Preferred Stock known
as "Special Voting Preferred Stock" shall consist of one (1) share.
2. VOTING. On all matters submitted to a vote of stockholders of the
Corporation, the holder of the share of Special Voting Preferred Stock shall
be entitled at any relevant date to the number of votes determined in
accordance with a certain Voting and Exchange Trust Agreement, dated as of
, 1999, by and among the Corporation, 1325949 Ontario Inc., a
corporation organized and existing under the laws of the Province of Ontario
and a wholly owned subsidiary of the Corporation, Promis Systems Corporation
Ltd., a corporation organized and existing under the laws of Canada
("Promis"), and Montreal Trust Company of Canada, a trust company
incorporated under the laws of Canada. Except as required by law or by the
Articles of Organization of the Corporation, the holder of the share of
Special Voting Preferred Stock and the holders of the Common Stock of the
Corporation shall vote together as a single class in the election of
directors and on all matters submitted to a vote of the stockholders of the
Corporation. In the event that the Special Voting Preferred Stock is
required by law or by the Articles of Organization of the Corporation to
vote separately as a class or series on a proposal, the holder of the share
of Special Voting Preferred Stock shall in addition to voting separately as
a class or series on such proposal, also be entitled to vote with the
holders of the Corporation's Common Stock together as a single class.
3. DIVIDENDS. The holder of the share of Special Voting Preferred
Stock shall not be entitled to receive any dividends.
4. LIQUIDATION. In the event of any dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, the holder of the share of Special Voting Preferred Stock shall
be entitled to be paid out of the net assets of the Corporation available
for distribution, before any distribution or payment is made upon any stock
of the Corporation ranking on liquidation junior to the Special Voting
Preferred Stock, an amount equal to $1.00, subject to equitable adjustment
in the event of stock splits, stock dividends, combinations and the like
involving the Special Voting Preferred Stock (the "Special Voting Preferred
Stock Liquidation Payment"). Upon any such dissolution, liquidation or
winding up of the affairs of the Corporation, after the holder of the share
of Special Voting Preferred Stock shall have been paid the amount to which
it shall be entitled, the remaining net assets of the Corporation may be
distributed to the holders of stock ranking on liquidation junior to the
Special Voting Preferred Stock. Whenever the distribution provided for in
this paragraph shall be paid in property other than cash, the value of such
distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors of the Corporation. Written notice
of such dissolution, liquidation or winding up of the affairs of the
Corporation, stating a payment date, the amount of the Special Voting
Preferred Liquidation Payment and the place where said Special Voting
Preferred Stock Liquidation Payment shall be payable, shall be given by
mail, postage prepaid, not less than 5 days prior to the payment date stated
therein, to the holder of record of Special Voting Preferred Stock, such
notice to be addressed to such holder at its address as shown by the records
of the Corporation. For purposes hereof, the Common Stock shall rank on
liquidation junior to the Special Voting Preferred Stock. A merger or
consolidation of the Corporation with or into any other corporation or a
sale or conveyance of all or any part of the assets of the Corporation
(which shall not in fact result in the liquidation of the Corporation and
the distribution of assets to stockholders) shall not be deemed to be a
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation within the meaning of this paragraph 4.
5. REDEMPTION. (a) The shares of Special Voting Preferred Stock shall
be redeemed by the Corporation as described herein, at a price of $1.00,
subject to equitable adjustment in the event of stock splits, stock
dividends, combinations and the like involving the Special Voting Preferred
Stock (the "Redemption Price"). Such redemption shall occur automatically
and simultaneously, but only, upon the issuance by the Corporation of its
Common Stock or delivery by 1325949 Ontario Inc. of the Corporation's
<PAGE>
Common Stock for the last outstanding Exchangeable Share of Promis
("Exchangeable Share") held by a person other than the Corporation or any of
its subsidiaries.
(b) Promptly after the issuance by the Corporation of its Common Stock or
delivery by 1325949 Ontario Inc. of the Corporation's Common Stock for the last
outstanding Exchangeable Share held by a person other than the Corporation or
any of its subsidiaries, the Corporation shall give written notice (the
"Redemption Notice") by mail, postage prepaid, to the holder of record (at the
close of business on the business day next preceding the day on which the
Redemption Notice is given) of the share of Special Voting Preferred Stock
notifying such holder of the redemption and specifying the Redemption Price, the
date on which the last outstanding Exchangeable Share held by a person other
than the Corporation or any of its subsidiaries was acquired by the Corporation
or any of its subsidiaries (the "Redemption Date") and the place and date (not
to exceed 20 days from the date such notice is given) where said Redemption
Price shall be payable. The Redemption Notice shall be addressed to such holder
at the address of the holder as shown by the records of the Corporation. From
and after the close of business on the Redemption Date, unless there shall have
been a default in the payment of the Redemption Price, all rights of the holder
of the share of Special Voting Preferred Stock (including the right to vote as
provided in paragraph 2 above) shall cease with respect to such share (except
the right to receive the Redemption Price), and such share shall not thereafter
be transferred on the books of the Corporation or be deemed to be outstanding
for any purpose whatsoever. If the Corporation does not have funds legally
available for redemption of the share of Special Voting Preferred Stock on the
Redemption Date, the share of Special Voting Preferred Stock shall remain
outstanding and entitled to all rights and preferences provided herein. At any
time thereafter when the Corporation has legally available funds for the
redemption of such share of Special Voting Preferred Stock, such funds will be
used to redeem such share.
(c) The share of Special Voting Preferred Stock redeemed pursuant to this
paragraph 5 or otherwise acquired by the Corporation in any manner whatsoever
shall upon any such reacquisition by the Corporation, be automatically restored
to the status of authorized but unissued shares of Preferred Stock of the
Corporation.
<PAGE>
EXHIBIT G
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT, dated as of November 24, 1998 (the "Agreement"),
is by and between (i) PRI Automation, Inc., a Massachusetts corporation
("Parent"), and (ii) the undersigned affiliate ("Affiliate") of Promis Systems
Corporation Ltd., a Canada Business Corporation Act corporation (the "Company").
RECITALS
WHEREAS, pursuant to a Combination Agreement dated as of the date hereof
(the "Combination Agreement") by and among (i) Parent, (ii) 1325949 Ontario
Inc., an Ontario corporation and wholly-owned subsidiary of Parent ("Newco"),
and (iii) the Company, the parties thereto have agreed, subject to the terms and
conditions set forth therein, to combine Parent, Newco and the Company pursuant
to an arrangement (the "Arrangement") under Section 192 of the Canada Business
Corporations Act;
WHEREAS, as a result of the Arrangement, Affiliate will receive Exchangeable
Shares (as defined in the Combination Agreement) in the capital stock of the
Company in exchange for Company Common Shares (as defined in the Combination
Agreement) owned by Affiliate at the Effective Time (as defined in the
Combination Agreement) pursuant to the Exchangeable Share Provisions (the
"Exchangeable Share Provisions") of the Plan of Arrangement attached as Exhibit
A to the Combination Agreement (the "Plan of Arrangement");
WHEREAS, the Exchangeable Shares Affiliate receives pursuant to the Plan of
Arrangement will be exchangeable for shares of common stock, $.01 par value, of
Parent ("Parent Common Stock"); and
WHEREAS, Affiliate understands that, because the Arrangement will be
accounted for using the "pooling-of-interests" accounting method and Affiliate
may be deemed, as of the date hereof, to be an "affiliate" of the Company, as
such term is (i) defined for purposes of paragraphs (c) and (d) of Rule 145 of
the rules and regulations of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), and (ii) used in and for purposes of Accounting Series Releases 130 and
135, as amended, of the Commission, the Exchangeable Shares beneficially owned
by Affiliate may only be disposed of in conformity with the limitations
described herein.
NOW THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES. (a) Affiliate agrees not to transfer, sell,
pledge or otherwise dispose of or direct or cause the sale, transfer or other
disposition of, or reduce Affiliate's risk relative to, (i) any Company Common
Shares (except for the conversion of Company Common Shares into Exchangeable
Shares as contemplated by the Combination Agreement and the Plan of
Arrangement), (ii) any Exchangeable Shares (except for the exchange of
Exchangeable Shares into shares of Parent Common Stock pursuant to the
Exchangeable Share Provisions) or (iii) any shares of Parent Common Stock held
by Affiliate or on Affiliate's behalf, whether owned on the date hereof or
acquired hereafter, during the period beginning on the date hereof and ending on
the date (the "Expiration Date") Parent shall have publicly released a report in
the form of a quarterly earnings report, registration statement filed with the
Commission, a report filed with the Commission on Form 10-K, 10-Q or 8-K or any
other public filing, statement or public announcement which includes the
combined financial results (including combined sales and net income) of the
Company for a period of at least 30 days of combined operations of Parent and
the Company following the Effective Date.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF AFFILIATE. Affiliate
represents, warrants and covenants as follows:
(a) Affiliate has full power and authority to execute this Agreement, to
make the representations, warranties and covenants herein contained
and to perform Affiliate's obligations hereunder.
(b) Affiliate has carefully read this Agreement and the Combination
Agreement and discussed its requirements and other applicable
limitations upon its ability to sell, transfer or otherwise dispose
<PAGE>
of Company Common Shares, Exchangeable Shares, and shares of Parent
Common Stock to the extent Affiliate felt necessary, with its counsel
or counsel for the Company.
(c) Affiliate will not engage in a sale, exchange, transfer, distribution
(including a distribution by a partnership to its partners or by a
corporation to its stockholders), redemption or reduction in any way
of Affiliate's risk of ownership by short sale or otherwise, or other
disposition, directly or indirectly (such actions being collectively
referred to herein as a "Sale") of Exchangeable Shares or shares of
Parent Common Stock in violation of the Act or the Rules and
Regulations thereunder.
(d) In addition to the Agreements contained in Section 1 above, Affiliate
will not sell, transfer, or otherwise dispose of, or make any offer
or agreement relating to any of the foregoing with respect to, any
Exchangeable Shares or shares of Parent Common Stock, except: (i) in
a transaction described in Rule 145(d) under the Securities Act; (ii)
in a transaction that is otherwise exempt from the registration
requirements of the Securities Act; or (iii) pursuant to an effective
registration statement under the Securities Act.
(e) Affiliate currently is the beneficial owner of that number of shares
of Company Common Shares set forth in Appendix A hereto (the "Company
Securities") and, except as otherwise set forth in Appendix A, did
not acquire any of the Company Securities in contemplation of the
Arrangement.
(f) Except as otherwise set forth in Appendix A hereto, Affiliate has not
engaged in a Sale of any Company Common Shares (including the Company
Securities) in contemplation of the Arrangement.
(g) Except to the extent written notification to the contrary is received
by Parent from Affiliate prior to the Arrangement, the
representations contained herein shall be true and correct at all
times from the date hereof through the Effective Time.
(h) Affiliate understands that Parent, Newco, the Company, and their
respective stockholders, as well as legal counsel to the Company and
Parent, will be relying on (a) the truth and accuracy of the
representations contained herein and (b) Affiliate's performance of
the obligations set forth herein.
(i) Except for the Company Securities and options to purchase that number
of Company Common Shares set forth in Appendix A hereto, Affiliate
does not beneficially own any Company Common Shares or any other
equity securities of the Company or any options, warrants or other
rights to acquire any equity securities of the Company.
3. LEGENDS.
Affiliate also understands and agrees that stop transfer instructions will
be given to Parent's transfer agent with respect to certificates evidencing the
Parent Common Stock of Affiliate and that there will be placed on the
certificates evidencing the Exchangeable Shares and the Parent Common Stock of
Affiliate issued pursuant to the terms of the Exchangeable Share Provisions
legends stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY PARENT WHICH INCLUDE THE RESULTS
OF AT LEAST THIRTY (30) DAYS OF COMBINED OPERATIONS OF PARENT AND THE
COMPANY.
and
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES
AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE
REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION STATEMENT UNDER
SAID ACT OR AN EXEMPTION FROM SUCH REGISTRATION.
<PAGE>
4. TERMINATION. This Agreement shall be terminated and shall be of no
further force and effect upon the termination of the Combination Agreement
pursuant to its terms.
5. MISCELLANEOUS.
(a) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same
instrument.
(b) BINDING AGREEMENT. This Agreement will inure to the benefit of and
be binding upon and enforceable against the parties and their
successors and assigns, including administrators, executors,
representatives, heirs, legatees and devisees of Affiliate and
pledgees of Affiliate holding Exchangeable Shares or shares of Parent
Common Stock as collateral.
(c) WAIVER. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement or any amendment of this
Agreement shall be effective unless in writing and signed by each
party hereto.
(d) GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the Commonwealth of
Massachusetts without regard to its principles of conflicts of laws.
(e) SEVERABILITY. If a court of competent jurisdiction determines that
any provision of this Agreement is not enforceable or enforceable
only if limited in time and/or scope, this Agreement shall continue
in full force and effect with such provision stricken or so limited.
(f) THIRD PARTY RELIANCE. Counsel to and independent auditors for the
parties shall be entitled to rely upon this Agreement.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
<TABLE>
<S> <C> <C>
PRI AUTOMATION, INC.
By: ------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Witness GRAEME ADAMS
- --------------------------------------------- ---------------------------------------------
Witness GLEN ALLMENDINGER
- --------------------------------------------- ---------------------------------------------
Witness JAKE AVERY
- --------------------------------------------- ---------------------------------------------
Witness WANDA DOROSZ
- --------------------------------------------- ---------------------------------------------
Witness JAMES FLECK
- --------------------------------------------- ---------------------------------------------
Witness ROBERT JOHNSTONE
- --------------------------------------------- ---------------------------------------------
Witness IAN MCKINNON
- --------------------------------------------- ---------------------------------------------
Witness FRANCOIS CORDEAU
- --------------------------------------------- ---------------------------------------------
Witness HERVE SEGUIN
- --------------------------------------------- ---------------------------------------------
Witness ELAINE ROPER
- --------------------------------------------- ---------------------------------------------
Witness THOMAS COMSTOCK
- --------------------------------------------- ---------------------------------------------
Witness BRIAN O'DONNELL
- --------------------------------------------- ---------------------------------------------
Witness BRENT BROOK-ALLRED
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
QA INVESTMENTS INC.
By: ------------------------------------------
QUORUM GROWTH PARTNERS I,
LIMITED PARTNERSHIP
by its general partner Quorum Growth
Funding Limited
By: ------------------------------------------
By: ------------------------------------------
</TABLE>
<PAGE>
APPENDIX A
Shareholder:____________________________________________________________________
Entity:_________________________________________________________________________
(individual, corporation, partnership, other -- please specify)
Total Number of Company Common Shares owned on the date hereof:_________________
Total Number of Company Common Shares disposed of in a Sale in contemplation of
the Arrangement:________________________________________________________________
Total Number of Company Common Shares acquired in contemplation of the
Arrangement:____________________________________________________________________
Total Number of options to purchase Company Common Shares owned on the date
hereof:_________________________________________________________________________
<PAGE>
Exhibit 4.4
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth FEDERAL IDENTIFICATION
Corporations Division NO. 04-2495703
One Ashburton Place, Boston, MA 02108-1512
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
--------
We, Mitchell G. Tyson, President, and
Robert L. Birnbaum, Assistant Clerk of
PRI Automation, Inc.
(name of Corporation)
located at 805 Middlesex Turnpike, Billerica, Massachusetts 01821 do hereby
certify that at a meeting of the directors of the corporation held on December
7, 1998, the following vote establishing and designating a series of a class of
stock and determining the relative rights and preferences thereof was duly
adopted:-
See Continuation Sheet 2A
<PAGE>
Continuation Sheet 2A
PRI AUTOMATION, INC.
VOTED: That, pursuant to the authority vested in the Board of Directors of
the Corporation in accordance with the provisions of the Articles of
Organization of the Corporation, the Board of Directors hereby
designates and establishes [250,000] shares of its authorized but
unissued Preferred Stock as its Series A Participating Cumulative
Preferred Stock, $.01 par value (the "Series A Preferred Stock");
that such Series A Preferred Stock shall have the terms set forth in
their entirety in Exhibit A to the Rights Agreement presented to
this meeting, and such terms be, and they hereby are, approved; and
that the President or any Vice President and the Clerk or any
Assistant Clerk of the Corporation be, and they hereby are,
authorized to execute a Certificate of Vote of Directors
Establishing a Series of a Class of Stock (the "Certificate of Vote
of Directors") setting forth such terms in the name of the
Corporation, and to file the Certificate of Vote of Directors with
the Secretary of State of The Commonwealth of Massachusetts and such
other governmental authorities as may be required by law.
<PAGE>
EXHIBIT A TO THE RIGHTS AGREEMENT
TERMS OF SERIES A
PARTICIPATING CUMULATIVE PREFERRED STOCK
OF
PRI AUTOMATION, INC.
Section 1. Designation and Number of Shares. The shares of such series
shall be designated as "Series A Participating Cumulative Preferred Stock" (the
"Series A Preferred Stock"), $.01 par value. The number of shares initially
constituting the Series A Preferred Stock shall be [250,000]; provided, however,
that, if more than a total of [250,000] shares of Series A Preferred Stock shall
be issuable upon the exercise of "Rights") issued pursuant to the Rights
Agreement dated as of December 7, 1998, between the Corporation and State Street
Bank and Trust Company, as Agent (the "Rights Agreement"), the Board of
Directors of the Corporation, pursuant to Section 26 of Chapter 156B of the
Massachusetts General Laws, shall direct by resolution or resolutions that a
certificate be properly executed, acknowledged, filed and recorded, in
accordance with the provisions of said Section 26 thereof, providing for the
total number of shares of Series A Preferred Stock authorized to be issued to be
increased (to the extent that the Articles of Organization then permits) to the
largest number of whole shares (rounded up to the nearest whole number) issuable
upon exercise of such Rights.
Section 2. Dividends or Distributions.
(a) Subject to the prior and superior rights of the holders of
shares of any other series of Preferred Stock or other class of capital stock of
the Corporation ranking prior and superior to the shares of Series A Preferred
Stock with respect to dividends, the holders of shares of the Series A Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor, (1)
quarterly dividends payable in cash on the last day of each fiscal quarter in
each year, or such other dates as the Board of Directors of the Corporation
shall approve (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or a fraction of a share of Series A Preferred
Stock, in the amount of $1.00 per whole share (rounded to the nearest cent) less
the amount of all cash dividends declared on the Series A Preferred Stock
pursuant to the following clause (2) since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Preferred Stock (the total of which shall not, in any event, be less than zero)
and (2) dividends payable in cash on the payment date for each cash dividend
declared on the Common Stock in an amount per whole share (rounded to the
nearest cent) equal to the Formula Number (as hereinafter defined) then in
effect times the cash dividends then to be paid on each share of Common Stock.
In addition, if the Corporation shall pay any dividend or make any distribution
on the Common Stock payable in assets,
<PAGE>
securities or other forms of non-cash consideration (other than dividends or
distributions solely in shares of Common Stock), then, in each such case, the
Corporation shall simultaneously pay or make on each outstanding whole share of
Series A Preferred Stock a dividend or distribution in like kind equal to the
Formula Number then in effect times such dividend or distribution on each share
of the Common Stock. As used herein, the "Formula Number" shall be 100;
provided, however, that if at any time after December 7, 1998 the Corporation
shall (i) declare or pay any dividend on the Common Stock payable in shares of
Common Stock or make any distribution on the Common Stock in shares of Common
Stock, (ii) subdivide (by a stock split or otherwise) the outstanding shares of
Common Stock into a larger number of shares of Common Stock or (iii) combine (by
a reverse stock split or otherwise) the outstanding shares of Common Stock into
a smaller number of shares of Common Stock, then in each such event the Formula
Number shall be adjusted to a number determined by multiplying the Formula
Number in effect immediately prior to such event by a fraction, the numerator of
which is the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which is the number of shares of Common
Stock that are outstanding immediately prior to such event (and rounding the
result to the nearest whole number); and provided further, that, if at any time
after December 7, 1998, the Corporation shall issue any shares of its capital
stock in a merger, reclassification, or change of the outstanding shares of
Common Stock, then in each such event the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification or change so that each share
of Series A Preferred Stock continues to be the economic equivalent of a Formula
Number of shares of Common Stock prior to such merger, reclassification or
change.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in Section 2(a) immediately prior to or at
the same time it declares a dividend or distribution on the Common Stock (other
than a dividend or distribution solely in shares of Common Stock); provided,
however, that, in the event no dividend or distribution (other than a dividend
or distribution in shares of Common Stock) shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
whole share on the Series A Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date. The Board of Directors may fix
a record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a dividend or distribution declared thereon, which
record date shall be the same as the record date for any corresponding dividend
or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from and after the Quarterly Dividend Payment
Date next preceding the date of original issue of such shares of Series A
Preferred Stock; provided, however, that dividends on such shares which are
originally issued after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend and
on or prior to the next succeeding Quarterly Dividend Payment Date shall begin
to accrue and be
<PAGE>
cumulative from and after such Quarterly Dividend Payment Date. Notwithstanding
the foregoing, dividends on shares of Series A Preferred Stock which are
originally issued prior to the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend on
the first Quarterly Dividend Payment Date shall be calculated as if cumulative
from and after the last day of the fiscal quarter next preceding the date of
original issuance of such shares. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock
unless, in each case, the dividend required by this Section 2 to be declared on
the Series A Preferred Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock shall not
be entitled to receive any dividends or other distributions except as provided
herein.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to a
number of votes equal to the Formula Number then in effect for each share of
Series A Preferred Stock held of record on each matter on which holders of the
Common Stock or stockholders generally are entitled to vote, multiplied by the
maximum number of votes per share which any holder of the Common Stock or
stockholders generally then have with respect to such matter (assuming any
holding period or other requirement to vote a greater number of shares is
satisfied).
(b) Except as otherwise provided herein or by applicable law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one class for the election of directors of
the Corporation and on all other matters submitted to a vote of stockholders of
the Corporation.
(c) If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Stock are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two. In addition to voting together with the
holders of Common Stock for the election of other directors of the Corporation,
the holders of record of the Series A Preferred Stock, voting separately as a
class to the exclusion of the holders of Common Stock, shall be entitled at said
meeting of stockholders (and at each subsequent annual meeting of stockholders),
unless all dividends in arrears have been paid or declared and set apart for
payment prior thereto, to vote for the election of two directors of the
Corporation, the holders of
<PAGE>
any Series A Preferred Stock being entitled to cast a number of votes per share
of Series A Preferred Stock equal to the Formula Number. Until the default in
payments of all dividends which permitted the election of said directors shall
cease to exist, any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time, either with or without cause,
only by the affirmative vote of the holders of the shares of Series A Preferred
Stock at the time entitled to cast a majority of the votes entitled to be cast
for the election of any such director at a special meeting of such holders
called for that purpose, and any vacancy thereby created may be filled by the
vote of such holders. If and when such default shall cease to exist, the holders
of the Series A Preferred Stock shall be divested of the foregoing special
voting rights, subject to revesting in the event of each and every subsequent
like default in payments of dividends. Upon the termination of the foregoing
special voting rights, the terms of office of all persons who may have been
elected directors pursuant to said special voting rights shall forthwith
terminate, and the number of directors constituting the Board of Directors shall
be reduced by two. The voting rights granted by this Section 3(c) shall be in
addition to any other voting rights granted to the holders of the Series A
Preferred Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for authorizing or taking
any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
A Preferred Stock, except dividends paid ratably on the Series A Preferred
Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
A Preferred
<PAGE>
Stock; provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares
of any stock of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received an amount equal to the accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (x) $1.00 per whole share
or (y) an aggregate amount per share equal to the Formula Number then in effect
times the aggregate amount to be distributed per share to holders of Common
Stock or (2) to the holders of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred Stock and all
other such parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or winding
up.
Section 6. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in any such case the then
outstanding shares of Series A Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share equal to the Formula
Number then in effect times the aggregate amount of stock, securities, cash or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is exchanged or changed. In the event both this
Section 6 and Section 2 appear to apply to a transaction, this Section 6 will
control.
<PAGE>
Section 7. No Redemption; No Sinking Fund.
(a) The shares of Series A Preferred Stock shall not be subject to
redemption by the Corporation or at the option of any holder of Series A
Preferred Stock; provided, however, that the Corporation may purchase or
otherwise acquire outstanding shares of Series A Preferred Stock in the open
market or by offer to any holder or holders of shares of Series A Preferred
Stock.
(b) The shares of Series A Preferred Stock shall not be subject to
or entitled to the operation of a retirement or sinking fund.
Section 8. Ranking. The Series A Preferred Stock shall rank junior to all
other series of Preferred Stock of the Corporation, unless the Board of
Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof.
Section 9. Fractional Shares. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is one one-hundredth (1/100th)
of a share or any integral multiple of such fraction which shall entitle the
holder, in proportion to such holder's fractional shares, to receive dividends,
exercise voting rights, participate in distributions and to have the benefit of
all other rights of holders of Series A Preferred Stock. In lieu of fractional
shares, the Corporation, prior to the first issuance of a share or a fraction of
a share of Series A Preferred Stock, may elect (1) to make a cash payment as
provided in the Rights Agreement for fractions of a share other than one
one-hundredth (1/100th) of a share or any integral multiple thereof or (2) to
issue depository receipts evidencing such authorized fraction of a share of
Series A Preferred Stock pursuant to an appropriate agreement between the
Corporation and a depository selected by the Corporation; provided that such
agreement shall provide that the holders of such depository receipts shall have
all the rights, privileges and preferences to which they are entitled as holders
of the Series A Preferred Stock.
Section 10. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors
pursuant to the provisions of the Articles of Organization.
<PAGE>
Section 11. Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred Stock
as provided herein or in the Articles of Organization shall be amended in any
manner which would alter or change the powers, preferences, rights or privileges
of the holders of Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock, voting as a separate class;
provided, however, that no such amendment approved by the holders of at least
66-2/3% of the outstanding shares of Series A Preferred Stock shall be deemed to
apply to the powers, preferences, rights or privileges of any holder of shares
of Series A Preferred Stock originally issued upon exercise of the Rights after
the time of such approval without the approval of such holder.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 7th day of December in the year 1998
/s/ Mitchell G. Tyson..............., President
/s/ Robert L. Birnbaum.............., Assistant Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Certificate of Vote of Directors Establishing
A Series of a Class of Stock
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and, the filing fee
in the amount of $ _________________
having been paid, said certificate is hereby filed this
say of______________________,
19______.
WILLIAM FRANCIS GALVIN
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF CERTIFICATE TO BE SENT
TO:
Robert L. Birnbaum, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Telephone (617) 832-1000
Copy Mailed
<PAGE>
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
CERTIFICATE OF CORRECTION
(General Laws, Chapter 156B, Section 6A)
[STAMP OF THE
SECRETARY OF THE COMMONWEALTH
98 DEC 18 PM 2:48]
1. Exact name of corporation: PRI Automation, Inc.
2. Document to be corrected: Certificate of Vote of Directors Establishing a
Series of a Class of Stock
3. The above mentioned document was filed with the Secretary of the Commonwealth
on December 9, 1998.
4. Please state the inaccuracy or defect in said document:
(a) The Certificate includes three instances (one in the Vote and two in
Section 1 of Exhibit A to the Rights Agreement) in which the number
of shares of the newly-established Series A Cumulative Participating
Preferred Stock are indicated to be "[250,000]."
(b) The Certificate includes three instances (one in Section 1 and two
in Section 2 of Exhibit A to the Rights Agreement) in which the date
of the Rights Agreement is indicated to be "December 7, 1998."
5. Please state corrected version of the document:
(a) Each identified reference to "[250,000]" should be replaced with
"250,000."
(b) Each identified reference to "December 7, 1998" should be replaced
with "December 9, 1998."
Note: This correction should be signed by the person(s) required by law to sign
the original document.
SIGNED UNDER THE PENALTIES OF PERJURY, this 18th day of December, 1998.
/s/ Mitchell G. Tyson, *President
/s/ Robert L. Birnbaum, *Assistant Clerk
*Delete the inapplicable words.
Note: If the inaccuracy or defect to be corrected is not apparent on the face of
the document, minutes of the meeting substantiating the error must be filed with
the certificate. Additional information may be provided on separate 8 1/2 x 11
sheets of white paper with a left margin of at least 1 inch.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF FOLEY, HOAG & ELIOT LLP]
December 24, 1998
PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, Massachusetts 01821
Ladies and Gentlemen:
We are familiar with the Registration Statement on Form S-3 (the "S-3
Registration Statement") filed today by PRI Automation, Inc., a Massachusetts
corporation (the "Company"), with the Securities and Exchange Commission
under the Securities Act of 1933, as amended. The S-3 Registration Statement
relates to the proposed issuance and sale by the Company of up to 2,490,516
shares (the "Shares") of its Common Stock, $0.01 par value per share.
In arriving at the opinions expressed below, we have examined and relied
on the following documents: (a) the Restated Articles of Organization of the
Company, as amended; (b) the Amended and Restated By-Laws of the Company; and
(c) the records of meetings and consents of the Board of Directors and
stockholders of the Company provided to us by the Company. In addition, we
have examined and relied on the originals or copies certified or otherwise
identified to our satisfaction of all such corporate records of the Company
and such other instruments and other certificates of public officials,
officers and representatives of the Company and such other persons, and we
have made such investigations of law, as we have deemed appropriate as a
basis for the opinions expressed below.
Based upon the foregoing, it is our opinion that:
1. The Company has taken all necessary corporate action required to
authorize the issuance and sale of the Shares; and
2. The Shares, when issued and delivered as contemplated in the S-3
Registration Statement, will be validly and legally issued and fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the S-3
Registration Statement and to the reference to our firm under the heading
"Legal Matters" in the S-3 Registration Statement.
Very Truly Yours,
FOLEY, HOAG & ELIOT LLP
By: /s/ William R. Kolb
--------------------------
A Partner
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF BLAKE, CASSELS & GRAYDON]
December 24, 1998
PRI AUTOMATION, INC.
805 Middlesex Turnpike
Billerica, Massachusetts 01821-3986
Ladies and Gentlemen:
Reference is made to the information set forth under the heading "Income
Tax Considerations -- Canadian Federal Income Tax Considerations to Holders
of Exchangeable Shares" (the "Canadian Tax Summary") contained in the
Registration Statement on Form S-3 (the "Registration Statement"), filed by
PRI Automation, Inc. (the "Company"), with the Securities and Exchange
Commission (the "SEC") on December 24, 1998, for the purpose of registering
2,490,516 shares of common stock, par value $.01 per share, of the Company.
We have aided in the preparation of the Registration Statement,
including in particular the Canadian Tax Summary. We hereby confirm that,
subject to the assumptions, limitations and qualifications set out in the
Canadian Tax Summary, in all material respects, the Canadian Tax Summary is a
fair and accurate summary of the matters addressed therein, based upon the
current provisions of the Income Tax Act (Canada), the regulations
thereunder, all proposed amendments to such Act and such regulations publicly
released by the Minister of Finance (Canada) prior to the date hereof, the
current provisions of the Canada-United States Income Tax Convention (1980),
as amended, and our understanding of the current administrative practices of
Revenue Canada. Our opinion is not binding on Revenue Canada or a court of
law, and no assurance can be given that Revenue Canada will not take contrary
positions and that a court may agree with such contrary positions. In
addition, no assurance can be given that legislative or administrative action
or judicial decisions that differ from our opinion will not be forthcoming.
Any such differences could be retroactive to transactions or business
operations prior to such action or decisions. We can give no assurance that,
after such change, our opinion would not be different. We undertake no
responsibility to update or supplement our opinion following the effective
date of the Registration Statement.
This opinion is furnished to you solely for your benefit in connection
with the filing of the Registration Statement and is not to be used,
circulated, quoted or otherwise referred to for any other purpose or relied
upon by any other person for any purpose without our prior written consent.
We also consent to the use of our name in the Canadian Tax Summary and to the
filing of this opinion with the SEC as an exhibit to the Registration
Statement. In giving such 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, or the rules and regulations of the SEC
promulgated thereunder.
Very truly yours,
BLAKE, CASSELS & GRAYDON
By: /s/ Jeffrey Trossman
---------------------------
A Partner
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF FOLEY, HOAG & ELIOT LLP]
December 24, 1998
PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, Massachusetts 01821-3986
Ladies and Gentlemen:
Reference is made to the information set forth under the heading "Income
Tax Considerations -- United States Federal Income Tax Considerations to
Holders of Exchangeable Shares" (the "U.S. Tax Summary") contained in the
Registration Statement on Form S-3 (the "Registration Statement"), filed by
PRI Automation, Inc. (the "Company"), with the Securities and Exchange
Commission (the "SEC") on December 24, 1998, for the purpose of registering
2,490,516 shares of common stock, par value $.01 per share, of the Company.
We have aided in the preparation of the Registration Statement, including
in particular the U.S. Tax Summary. We hereby confirm that, in all material
respects, the U.S. Tax Summary is a fair and accurate summary of the matters
addressed therein, based upon the provisions of the Internal Revenue Code of
1986, as amended, Treasury Department proposed temporary and final
regulations, judicial decisions, and rulings and administrative
interpretations of the Internal Revenue Service ("IRS"), as each of the
foregoing exists on the date hereof. Our opinion is not binding on the IRS
or a court of law, and no assurance can be given that the IRS will not take
contrary positions and that a court may agree with such contrary positions.
In addition, no assurance can be given that legislative or administrative
action or juducial decisions that differ from our opinion will not be
forthcoming. Any such differences could be retroactive to transactions or
business operations prior to such action or decisions. We can give no
assurance that, after such change, our opinion would not be different. We
undertake no responsibility to update or supplement our opinion following the
effective date of the Registration Statement.
This opinion is furnished to you solely for your benefit in connection
with the filing of the Registration Statement and is not to be used,
circulated, quoted or otherwise referred to for any other purpose or relied
upon by any other person for any purpose without our prior written consent.
We also consent to the use of our name in the U.S. Tax Summary and to the
filing of this opinion with the SEC as an exhibit to the Registration
Statement. In giving such 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, or the rules and regulations of the SEC
promulgated thereunder.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By: /s/ Richard Schaul-Yoder
----------------------------
A Partner
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement on Form S-3 of PRI Automation, Inc. (the "Comapny") to register
2,490,516 shares of Common Stock of our report dated November 13, 1998,
except for the information in the first paragraph of Note K and Note T which
is as of December 18, 1998 and November 24, 1998, respectively, on our audits
of the consolidated financial statements of the Company as of September 30,
1998 and 1997, and for each of the three years in the period ended September
30, 1998, which report is included in the Company's 1998 Annual Report on
Form 10-K. We also consent to the reference to our firm under the caption
"Experts."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 18, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated November 19, 1997, with respect to the
combined financial statements of the Equipe Combined Companies incorporated by
reference in the Registration Statement (Form S-3) and the related Prospectus
of PRI Automation, Inc. for the registration of 2,490,516 shares of its
common stock.
/s/ Ernst & Young LLP
San Jose, California
December 18, 1998
<PAGE>
EXHIBIT 23-3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated February 27, 1998 on our audits of the
consolidated financial statements of Promis Systems Corporation Ltd. as of
December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997 in this registration statement on Form S-3 of PRI
Automation, Inc. to register 2,490,516 shares of its Common Stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Toronto, Ontario
December 23, 1998
<PAGE>
EXHIBIT 99.1
PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT
INVOLVING AND AFFECTING PROMIS SYSTEMS CORPORATION LTD.
AND THE HOLDERS OF ITS COMMON SHARES AND
OPTIONS
ARTICLE 1
INTERPRETATION
Section 1.1 DEFINITIONS. In this Plan of Arrangement unless there is
something in the subject matter or context inconsistent therewith, the following
terms shall have the respective meanings set out below and grammatical
variations of such terms shall have corresponding meanings:
"ARRANGEMENT" means the arrangement under section 192 of the CBCA on the
terms and subject to the conditions set out in this Plan of Arrangement,
subject to any amendments thereto made (i) in accordance with Section 2.1 of
the Combination Agreement, (ii) in accordance with Section 6.1 hereof or
(iii) at the direction of the Court in the Final Order;
"ARRANGEMENT RESOLUTION" means the special resolution passed by the holders
of the Promis Common Shares and at the Meeting;
"AUTOMATIC REDEMPTION DATE" has the meaning provided in the Exchangeable
Share Provisions;
"AVERAGE CLOSING PRICE" means the average closing price (computed and
rounded to the third decimal point) of shares of PRI Common Stock on NASDAQ
during the 20 trading days ending on the third trading day prior to the
Effective Date;
"BUSINESS DAY" has the meaning provided in the Exchangeable Share
Provisions;
"CBCA " means the Canada Business Corporations Act;
"CLASS X PREFERRED SHARE" means the one authorized Class X Preferred Share
of Promis having the rights, privileges, restrictions and conditions set out
in Appendix A annexed hereto;
"COMBINATION AGREEMENT" means the agreement by and among PRI, Subco and
Promis, dated as of November 24, 1998, as amended and restated from time to
time, providing for, among other things, this Plan of Arrangement and the
Arrangement;
"COURT" means the Ontario Court of Justice (General Division);
"DEPOSITARY" means Montreal Trust Company of Canada at its principal
transfer office in Toronto, Ontario;
"DIRECTOR" means the Director appointed under the CBCA;
"DISSENT PROCEDURES" has the meaning set out in Section 3.1;
"EFFECTIVE DATE" means the date shown on the certificate of arrangement
issued by the Director under the CBCA giving effect to the Arrangement;
"EFFECTIVE TIME" means 12:01 a.m. on the Effective Date;
"EXCHANGE PUT RIGHT" has the meaning provided in Section 5.3;
"EXCHANGE RATIO" means the ratio of exchange of Exchangeable Shares for
Promis Common Shares, as determined under the Combination Agreement, being
0.1691 Exchangeable Shares for each Promis Common Share, subject to
adjustment as provided therein and herein;
"EXCHANGEABLE SHARE CONSIDERATION" has the meaning provided in the
Exchangeable Share Provisions;
"EXCHANGEABLE SHARE PRICE" has the meaning provided in the Exchangeable
Share Provisions;
<PAGE>
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares, which are set forth in
Appendix A hereto;
"EXCHANGEABLE SHARES" means the Exchangeable Shares in the capital of Promis
provided for in this Plan of Arrangement;
"FINAL ORDER" means the final order of the Court approving the Arrangement;
"LIQUIDATION CALL PURCHASE PRICE" has the meaning provided in Section 5.1;
"LIQUIDATION CALL RIGHT" has the meaning provided in Section 5.1;
"LIQUIDATION DATE" has the meaning provided in the Exchangeable Share
Provisions;
"MEETING" means the special meeting of the shareholders of Promis to be held
to consider this Plan of Arrangement;
"NASDAQ" means The Nasdaq Stock Market, Inc.;
"OPTIONS" means all options to purchase Promis Common Shares outstanding as
at the Effective Date under Promis' Amended and Restated Stock Option Plan
dated September 30, 1998 (the "Promis Option Plan") and under all private
stock option agreements;
"OPTIONHOLDERS" means holders of Options;
"PRI" means PRI Automation, Inc., a corporation organized and existing under
the laws of The Commonwealth of Massachusetts;
"PRI COMMON STOCK" has the meaning provided in the Exchangeable Share
Provisions;
"PROMIS" means Promis Systems Corporation Ltd., a corporation existing under
the CBCA;
"PROMIS COMMON SHARES" means the common shares in the capital of Promis;
"REDEMPTION CALL PURCHASE PRICE" has the meaning provided in Section 5.2;
"REDEMPTION CALL RIGHT" has the meaning provided in Section 5.2;
"SUBCO" means 1325949 Ontario Inc., a corporation existing under the
BUSINESS CORPORATIONS ACT (Ontario) and a wholly-owned subsidiary of PRI;
"SUBSIDIARY" has the meaning provided in the Exchangeable Share Provisions;
"TRANSFER AGENT" means the duly appointed transfer agent for the time being
of the Exchangeable Shares, and if there is more than one such agent then
the principal Canadian agent; and
"VOTING AND EXCHANGE TRUST AGREEMENT" means the agreement so entitled
between PRI, Subco, Promis and the Trustee named therein to be dated as of
the Effective Date and provided for in the Combination Agreement, as amended
from time to time.
"WARRANTS" means the warrants to purchase 100,000 Promis Common Shares
granted by the Company to LSI Logic Corporation pursuant to a warrant dated
May 1, 1996; and
"WARRANTHOLDERS" means holders of Warrants.
Section 1.2 SECTIONS, HEADINGS AND APPENDIXES. The division of this Plan
of Arrangement into sections and the insertion of headings are for reference
purposes only and shall not affect the interpretation of this Plan of
Arrangement. Unless otherwise indicated, any reference in this Plan of
Arrangement to a section or an Appendix refers to the specified section of or
Appendix to this Plan of Arrangement. The Appendixes are incorporated herein and
are part hereof.
Section 1.3 NUMBER, GENDER AND PERSONS. In this Plan of Arrangement,
unless the context otherwise requires, words importing the singular number
include the plural and vice versa, words importing any gender include all
genders and words importing persons include individuals, bodies corporate,
partnerships,
<PAGE>
associations, trusts, unincorporated organizations, governmental bodies and
other legal or business entities of any kind.
Section 1.4 DATE FOR ANY ACTION. In the event that any date on or by which
any action is required or permitted to be taken hereunder is not a Business Day,
such action shall be required or permitted to be taken on or by the next
succeeding day which is a Business Day.
Section 1.5 CURRENCY. Unless otherwise expressly stated herein, all
references to currency and payments in cash or money in this Plan of Arrangement
are to United States dollars.
Section 1.6 STATUTORY REFERENCES. Any reference in this Plan of
Arrangement to a statute includes such statute as amended, consolidated or
re-enacted from time to time, all regulations made thereunder, all amendments to
such regulations from time to time, and any statute or regulation which
supersedes such statute or regulations.
ARTICLE 2
ARRANGEMENT
Section 2.1 ARRANGEMENT. At the Effective Time on the Effective Date, the
following reorganization of capital and other transactions shall occur and shall
be deemed to occur in the following order without any further act or formality
and shall become effective at, and be binding at and after, the Effective Time
on (i) PRI and Subco; (ii) Promis; (iii) all holders of Promis Common Shares;
(iv) all holders of Exchangeable Shares; and (v) all holders of Options and
Warrants:
(a) The Articles of Incorporation of Promis shall be amended to create and
authorize an unlimited number of Exchangeable Shares and one Class X
Preferred Share.
(b) Promis shall issue to Subco one Class X Preferred Share in consideration
for the payment by Subco to Promis of an amount equal to the fair market
value, as determined by the board of directors of Promis, of one Promis
Common Share. No certificate shall be issued in respect of the Class X
Preferred Share.
(c) Each Promis Common Share (other than Promis Common Shares held by
holders who have exercised their rights of dissent in accordance with
Section 3.1 hereof and who are ultimately entitled to be paid the fair
value for such shares and other than Promis Common Shares held by PRI or
any Subsidiary thereof) will be exchanged at the Exchange Ratio for a
number of Exchangeable Shares, and each such holder thereof will receive
a whole number of Exchangeable Shares resulting therefrom. In lieu of
fractional Exchangeable Shares, each such holder who otherwise would be
entitled to receive a fraction of an Exchangeable Share on the exchange
shall be paid by Promis an amount determined as set forth in Section 4.3.
(d) Upon the exchange referred to in subsection (c) above, each such holder
of a Promis Common Share shall cease to be such a holder, shall have his
name removed from the register of holders of Promis Common Shares and
shall become a holder of the number of fully paid Exchangeable Shares to
which he is entitled as a result of the exchange referred to in
subsection (c), and such holder's name shall be added to the register of
holders of Exchangeable Shares accordingly.
(e) The aggregate stated capital of the Exchangeable Shares will be equal to
the aggregate stated capital immediately prior to the Effective Date of
the Promis Common Shares which are exchanged pursuant to such subsection
2.1(c) above, thereby excluding the stated capital attributable to the
fractional shares for which payment is made as contemplated in subsection
(c) above.
(f) The Articles of Incorporation of Promis shall be amended to reduce the
number of authorized Promis Common Shares to one and the rights,
privileges, restrictions and conditions attaching to the Promis Common
Share shall be changed and restated as set forth in Appendix A.
(g) The one outstanding Class X Preferred Share will be exchanged for one
fully-paid and non-assessable Promis Common Share and the holder thereof
shall cease to be a holder of the Class X Preferred Share, shall have its
name removed from the register of holders of the Class X Preferred Share
and shall become a holder of the Promis Common Share to which it is
entitled as a result of the exchange
<PAGE>
referred to in this subsection (g), and such holder's name shall be added
to the register as holder of the Promis Common Share accordingly.
(h) The stated capital of the one Promis Common Share shall be equal to the
stated capital of the one Class X Preferred Share immediately prior to
the exchange contemplated in subsection (g).
(i) The Articles of Incorporation of Promis shall be amended to delete the
Class X Preferred Share and the authorized but unissued Class of
Preferred Shares in the capital of Promis from the authorized share
capital so that, after giving effect to the foregoing provisions of this
section 2.1, the authorized capital of Promis shall consist of an
unlimited number of Exchangeable Shares having the rights, privileges,
restrictions and conditions set forth in Appendix A hereto and one Common
Share having the rights, privileges, restrictions and conditions set
forth in Appendix A hereto.
(j) Each of the then outstanding Options and Warrants will, without any
further action on the part of any Optionholder or Warrantholder, be
converted into an option or warrant, as the case may be, to purchase the
number of shares of PRI Common Stock equal to the number determined by
multiplying the number of Promis Common Shares subject to such Option or
Warrant at the Effective Time by the Exchange Ratio, at an exercise price
per share of PRI Common Stock equal to the exercise price per share of
such Option or Warrant immediately prior to the Effective Time divided by
the Exchange Ratio and converted from Canadian dollars to U.S. dollars at
the noon spot exchange rate announced by the Bank of Canada on the third
Business Day immediately preceding the Effective Date. If the foregoing
calculation results in an exchanged Option or Warrant being exercisable
for a fraction of a share of PRI Common Stock, then the number of shares
of PRI Common Stock subject to such Option or Warrant will be rounded
down to the nearest whole number of shares, and the exercise price per
whole share of PRI Common Stock will be as determined above. The Promis
Options or Warrants as so converted will (without further action on the
part of the Optionholders or Warrants as the case may be) be further
modified as necessary to effect such conversion; provided, however, the
term, exercisability, vesting schedule, and all other terms and
conditions of the Options or Warrants will otherwise be unchanged by the
provisions of this paragraph (j) and shall operate in accordance with
their terms. The obligations of Promis under the Promis Options or
Warrants as so converted shall be assumed by PRI and PRI shall be
substituted for Promis as the sponsor of the Promis Option Plan.
(k) All rights outstanding under the Shareholders Rights Plan Agreement
between Promis and Montreal Trust Company of Canada dated as of January
27, 1997 (the "Rights Plan") immediately prior to the Effective Date
shall, at the Effective Time, be redeemed and cancelled, all on the terms
and with the effects and results contained in the Rights Plan, and the
Rights Plan shall be terminated.
ARTICLE 3
RIGHTS OF DISSENT
Section 3.1 RIGHTS OF DISSENT. Holders of Promis Common Shares may
exercise rights of dissent with respect to such shares pursuant to and in the
manner set forth in section 190 of the CBCA and this Section 3.1 (the "Dissent
Procedures") in connection with the Arrangement, provided that, notwithstanding
subsection 190(5) of the CBCA, the written objection to the Arrangement
Resolution referred to in subsection 190(5) of the CBCA must be received by
Promis not later than 5:00 p.m. (Toronto time) on the Business Day preceding the
Meeting. Holders of Promis Common Shares who duly exercise such rights of
dissent and who:
(a) are ultimately entitled to be paid fair value for their Promis Common
Shares shall be deemed to have transferred such Promis Common Shares to
Promis for cancellation on the Effective Date at the Effective Time; or
(b) are ultimately not entitled, for any reason, to be paid the fair value
for their Promis Common Shares shall be deemed to have participated in
the Arrangement on the same basis as any non dissenting holder of Promis
Common Shares,
<PAGE>
but in no case shall Promis or any other person be required to recognize such
holders as holders of Promis Common Shares on and after the Effective Time, and
the names of such persons shall be deleted from the registers of holders of
Promis Common Shares as at the Effective Time.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
Section 4.1 ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES. At
or promptly after the Effective Time, Promis shall deposit with the Depositary,
for the benefit of the holders of Promis Common Shares exchanged pursuant to
subsection 2.1(c), certificates representing the Exchangeable Shares issued
pursuant to subsection 2.1(c) upon the exchange. Upon surrender to the
Depositary of a certificate which immediately prior to the Effective Time
represented outstanding Promis Common Shares together with such other documents
and instruments as would have been required to effect the transfer of the shares
formerly represented by such certificate under the CBCA and the by-laws of
Promis and such additional documents and instruments as the Depositary may
reasonably require, the holder of such surrendered certificate shall be entitled
to receive in exchange therefor, and the Depositary shall deliver to such
holder, a certificate representing that number (rounded down to the nearest
whole number) of Exchangeable Shares which such holder has the right to receive
(together with any dividends or distributions with respect thereto pursuant to
Section 4.2 and any cash in lieu of fractional Exchangeable Shares pursuant to
Section 4.3), and the certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of Promis Common Shares which is not
registered in the transfer records of Promis, a certificate representing the
proper number of Exchangeable Shares may be issued to a transferee if the
certificate representing such Promis Common Shares is presented to the
Depositary, accompanied by all documents required to evidence and effect such
transfer. Until surrendered as contemplated by this Section 4.1, each
certificate which immediately prior to the Effective Time represented
outstanding Promis Common Shares, shall be deemed at any time after the
Effective Time, but subject to Section 4.5, to represent only the right to
receive upon such surrender (a) the certificate representing Exchangeable Shares
as contemplated by this Section 4.1, (b) a cash payment in lieu of any
fractional Exchangeable Shares as contemplated by Section 4.3 and (c) any
dividends or distributions with a record date after the Effective Time
theretofore paid or payable with respect to Exchangeable Shares as contemplated
by Section 4.2.
Section 4.2 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES. No
dividends or other distributions declared or made after the Effective Time with
respect to Exchangeable Shares with a record date after the Effective Time shall
be paid to the holder of any formerly outstanding Promis Common Shares which
were exchanged pursuant to Section 2.1, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 4.3,
unless and until the certificate representing such shares shall be surrendered
in accordance with Section 4.1. Subject to applicable law and to Section 4.5, at
the time of such surrender of any such certificate (or, in the case of clause
(c) below, at the appropriate payment date), there shall be paid to the holder
of the Exchangeable Shares resulting from exchange, in all cases without
interest, (a) the amount of any cash payable in lieu of a fractional
Exchangeable Share to which such holder is entitled pursuant to Section 4.3, (b)
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such Exchangeable Shares, and
(c) the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such Exchangeable Shares.
Section 4.3 NO FRACTIONAL SHARES. No certificates or scrip representing
fractional Exchangeable Shares shall be issued upon the surrender for exchange
of certificates pursuant to Section 4.1, and such fractional interests shall not
entitle the owner thereof to vote or to possess or exercise any rights as a
security holder of Promis. In lieu of any such fractional interests, each person
entitled thereto will receive an amount of cash (rounded to the nearest whole
cent), without interest, equal to the product of (a) such fractional interest,
multiplied by (b) the Average Closing Price, such amount to be provided to the
Depositary by Promis upon request.
Section 4.4 LOST CERTIFICATES. If any certificate which immediately prior
to the Effective Time represented outstanding Promis Common Shares which were
exchanged pursuant to Section 2.1 has been lost,
<PAGE>
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed, the Depositary will
issue in exchange for such lost, stolen or destroyed certificate, certificates
representing Exchangeable Shares (and any dividends or distributions with
respect thereto and any cash pursuant to Section 4.3) deliverable in respect
thereof as determined in accordance with Section 2.1. When authorizing such
payment in exchange for any lost, stolen or destroyed certificate, the person to
whom certificates representing Exchangeable Shares are to be issued shall, as a
condition precedent to the issuance thereof, give a bond satisfactory to Promis,
PRI, Subco and the Transfer Agent, as the case may be, in such sum as Promis may
direct, or otherwise indemnify Promis, PRI, Subco and the Transfer Agent in a
manner satisfactory to Promis, PRI, Subco and the Transfer Agent against any
claim that may be made against Promis, PRI, Subco or the Transfer Agent with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4.5 EXTINGUISHMENT OF RIGHTS. Any certificate which immediately
prior to the Effective Time represented outstanding Promis Common Shares which
were exchanged pursuant to Section 2.1 and has not been deposited, with all
other instruments required by Section 4.1, on or prior to the tenth anniversary
of the Effective Date shall cease to represent a claim or interest of any kind
or nature as a shareholder of Promis. On such date, the Exchangeable Shares to
which the former registered holder of the certificate referred to in the
preceding sentence was ultimately entitled shall be deemed to have been
surrendered to Promis, together with all entitlements to dividends,
distributions and interest thereon held for such former registered holder, for
no consideration and shall thereupon be cancelled and the name of the former
registered holder shall be removed from the register of holders of such shares.
Section 4.6 WITHHOLDING RIGHTS. Promis, Subco and the Depositary shall be
entitled to deduct and withhold from any dividend or consideration otherwise
payable to any holder of Promis Common Shares or Exchangeable Shares such
amounts as Promis, Subco or the Depositary is required or permitted to deduct
and withhold with respect to such payment under the Income Tax Act (Canada), the
United States Internal Revenue Code of 1986 or any provision of provincial,
state, local or foreign tax law, in each case, as amended. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes
hereof as having been paid to the holder of the shares in respect of which such
deduction and withholding was made, provided that such withheld amounts are
actually remitted to the appropriate taxing authority. To the extent that the
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, Promis, Subco and the Depositary are hereby authorized to sell or
otherwise dispose of such portion of the consideration as is necessary to
provide sufficient funds to Promis, Subco or the Depositary, as the case may be,
to enable it to comply with such deduction or withholding requirement and
Promis, Subco or the Depositary shall notify the holder thereof and remit any
unapplied balance of the net proceeds of such sale.
ARTICLE 5
CERTAIN RIGHTS AND OBLIGATIONS OF
SUBCO TO ACQUIRE EXCHANGEABLE SHARES
Section 5.1 SUBCO LIQUIDATION CALL RIGHT.
(a) Subco shall have the overriding right (the "LIQUIDATION CALL RIGHT"), in
the event of and notwithstanding the proposed liquidation, dissolution or
winding-up of Promis as referred to in Article 5 of the Exchangeable
Share Provisions, to purchase from all but not less than all of the
holders (other than PRI and any Subsidiary thereof) of Exchangeable
Shares on the Liquidation Date all but not less than all of the
Exchangeable Shares held by such holders on payment by Subco to each
holder of the Exchangeable Share Price applicable on the last Business
Day prior to the Liquidation Date (the "LIQUIDATION CALL PURCHASE
PRICE"). In the event of the exercise of the Liquidation Call Right by
Subco, each holder shall be obligated to sell all the Exchangeable Shares
held by the holder to Subco on the Liquidation Date on payment by Subco
to the holder of the Liquidation Call Purchase Price for each such share.
(b) To exercise the Liquidation Call Right, Subco must notify the Transfer
Agent in writing, as agent for the holders of Exchangeable Shares, and
Promis of Subco's intention to exercise such right at least 55 days
before the Liquidation Date in the case of a voluntary liquidation,
dissolution or winding-up of
<PAGE>
Promis and at least five Business Days before the Liquidation Date in the
case of an involuntary liquidation, dissolution or winding-up of Promis.
Subco shall also notify the Transfer Agent accordingly if it does not
intend to exercise the Liquidation Call Right. The Transfer Agent will
notify the holders of Exchangeable Shares as to whether or not Subco has
exercised the Liquidation Call Right forthwith after the expiry of the
date by which the same may be exercised by Subco. If Subco exercises the
Liquidation Call Right, on the Liquidation Date Subco will purchase and
the holders will sell all of the Exchangeable Shares then outstanding for
a price per share 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, Subco shall deposit with the
Transfer Agent, on or before the Liquidation Date, the Exchangeable Share
Consideration representing the total Liquidation Call Purchase Price.
Provided that such Exchangeable Share Consideration has been so deposited
with the Transfer Agent, on and after the Liquidation Date the right of
each holder of Exchangeable Shares will be limited to receiving such
holder's proportionate part of the total Liquidation Call Purchase Price
payable by Subco without interest upon presentation and surrender by the
holder of certificates representing the Exchangeable Shares held by such
holder and the holder shall on and after the Liquidation Date be
considered and deemed for all purposes to be the holder of the PRI Common
Stock delivered to it. Upon surrender to the Transfer Agent of a
certificate or certificates representing Exchangeable Shares, together
with such other documents and instruments as may be required to effect a
transfer of Exchangeable Shares under the CBCA and the by-laws of Promis
and such additional documents and instruments as the Transfer Agent may
reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the
Transfer Agent on behalf of Subco shall deliver to such holder, the
Exchangeable Share Consideration to which the holder is entitled. If
Subco 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 Promis in connection with the liquidation,
dissolution or winding-up of Promis pursuant to Article 5 of the
Exchangeable Share Provisions. Notwithstanding the foregoing, until such
Exchangeable Share Consideration is delivered to the holder, the holder
shall be deemed to still be a holder of Exchangeable Shares for purposes
of all voting rights with respect thereto under the Voting and Exchange
Trust Agreement.
Section 5.2 SUBCO REDEMPTION CALL RIGHT.
(a) Subco shall have the overriding right (the "REDEMPTION CALL RIGHT"),
notwithstanding the proposed redemption of the Exchangeable Shares by
Promis pursuant to Article 7 of the Exchangeable Share Provisions, to
purchase from all but not less than all of the holders (other than PRI or
any Subsidiary thereof) of Exchangeable Shares on the Automatic
Redemption Date all but not less than all of the Exchangeable Shares held
by each such holder on payment by Subco to the holder of the Exchangeable
Share Price applicable on the last Business Day prior to the Automatic
Redemption Date (the "REDEMPTION CALL PURCHASE PRICE"). In the event of
the exercise of the Redemption Call Right by Subco, each holder shall be
obligated to sell all the Exchangeable Shares held by the holder to Subco
on the Automatic Redemption Date on payment by Subco to the holder of the
Redemption Call Purchase Price for each such share.
(b) To exercise the Redemption Call Right, Subco must notify the Transfer
Agent in writing, as agent for the holders of Exchangeable Shares, and
Promis of Subco's intention to exercise such right not later than the
date by which Promis is required to give notice of the Automatic
Redemption Date. If Subco exercises the Redemption Call Right, on the
Automatic Redemption Date Subco will purchase and the holders will sell
all of the Exchangeable Shares then outstanding for a price per share
equal to the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, Subco shall deposit with the
Transfer Agent, on or before the Automatic Redemption Date, the
Exchangeable Share Consideration representing the total Redemption Call
Purchase Price. Provided that such Exchangeable Share Consideration has
been so deposited with the Transfer Agent,
<PAGE>
on and after the Automatic Redemption Date the rights of each holder of
Exchangeable Shares will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase Price payable by
Subco upon presentation and surrender by the holder of certificates
representing the Exchangeable Shares held by such holder and the holder
shall on and after the Automatic Redemption Date be considered and deemed
for all purposes to be the holder of the PRI Common Stock delivered to
such holder. Upon surrender to the Transfer Agent of a certificate or
certificates representing Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the CBCA and the by-laws of Promis and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall
be entitled to receive in exchange therefor, and the Transfer Agent on
behalf of Subco shall deliver to such holder, the Exchangeable Share
Consideration to which the holder is entitled. If Subco does not exercise
the Redemption Call Right in the manner described above, on the Automatic
Redemption Date the holders of the Exchangeable Shares will be entitled
to receive in exchange therefor the redemption price otherwise payable by
Promis in connection with the redemption of the Exchangeable Shares
pursuant to Article 7 of the Exchangeable Share Provisions.
Notwithstanding the foregoing, until such Exchangeable Share
Consideration is delivered to the holder, the holder shall be deemed to
still be a holder of Exchangeable Shares for purposes of all voting
rights with respect thereto under the Voting and Exchange Trust
Agreement.
Section 5.3 EXCHANGE PUT RIGHT. Upon and subject to the terms and
conditions contained in the Exchangeable Share Provisions and the Voting and
Exchange Trust Agreement:
(a) a holder of Exchangeable Shares shall have the right (the "EXCHANGE PUT
RIGHT") at any time to require Subco to purchase all or any part of the
Exchangeable Shares of the holder; and
(b) upon the exercise by the holder of the Exchange Put Right, the holder
shall be required to sell to Subco, and Subco shall be required to
purchase from the holder, no later than the time or times prescribed
therefor herein or in the Exchangeable Share Provisions or the Voting and
Exchange Trust Agreement, that number of Exchangeable Shares in respect
of which the Exchange Put Right is exercised, in consideration of the
payment by Subco of the Exchangeable Share Price applicable thereto and
delivery by or on behalf of Subco of the Exchangeable Share Consideration
representing the total applicable Exchangeable Share Price.
ARTICLE 6
AMENDMENT
Section 6.1 PLAN OF ARRANGEMENT AMENDMENT. Promis reserves the right to
amend, modify and/or supplement this Plan of Arrangement at any time and from
time to time provided that any such amendment, modification or supplement must
be contained in a written document that is (a) agreed to by Subco and PRI, (b)
filed with the Court and, if made following the Meeting, approved by the Court
and (c) communicated to holders of Promis Common Shares in the manner required
by the Court (if so required).
Any amendment, modification or supplement to this Plan of Arrangement may be
proposed by Promis at any time prior to or at the Meeting (provided that PRI and
Subco shall have consented thereto) with or without any other prior notice or
communication, and if so proposed and accepted by the persons voting at the
Meeting (other than as may be required under the Court's interim order), shall
become part of this Plan of Arrangement for all purposes.
Any amendment, modification or supplement to this Plan of Arrangement which
is approved by the Court following the Meeting shall be effective only (a) if it
is consented to by Promis, (b) if it is consented to by PRI and Subco and (c) if
required by the Court or applicable law, it is consented to by the holders of
the Promis Common Shares or the Exchangeable Shares as the case may be.
<PAGE>
APPENDIX A TO THE PLAN
OF ARRANGEMENT OF PROMIS
PROVISIONS ATTACHING TO THE CLASS X PREFERRED SHARE
The Class X Preferred Share in the capital of the Corporation shall have
attached thereto the following rights, privileges, restrictions and conditions:
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking senior to
the Class X Preferred Share with respect to priority in the payment of
dividends, the holder of Class X Preferred Share shall be entitled to receive
dividends and the Corporation shall pay dividends thereon, as and when declared
by the board of directors of the Corporation as cumulative dividends in the
amount of $1.00 per share per annum payable annually on December 31 in each year
in arrears. Such dividends shall accrue from the date of issue to and including
the date to which the computation of dividends is to be made. A cheque for the
amount of the dividend less any required deduction shall be mailed by first
class mail to the address of the registered holder thereof. Notwithstanding the
foregoing, no dividend shall be payable if the Class X Share is cancelled on the
same day it is issued.
DISSOLUTION
In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding-up
its affairs, subject to the prior rights of the holders of any shares ranking
senior to the Class X Preferred Share with respect to priority in the
distribution of assets upon liquidation, dissolution or winding-up, the holder
of the Class X Preferred Share shall be entitled to receive an amount equal to
the stated capital in respect of the Class X Preferred Share and dividends
remaining unpaid, including all cumulative dividends, whether or not declared.
After payment to the holder of the Class X Preferred Share of such amounts, such
holder shall not be entitled to share in any further distribution of the assets
of the Corporation.
VOTING RIGHTS
Except where specifically provided by the Act, the holder of the Class X
Preferred Share shall not be entitled to receive notice of or to attend meetings
of the shareholders of the Corporation and shall not be entitled to vote at any
meeting of shareholders of the Corporation.
PROVISIONS ATTACHING TO EXCHANGEABLE SHARES
The Exchangeable Shares in the capital of the Corporation shall have the
following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
For the purposes of these rights, privileges, restrictions and conditions:
1.1 "ACT" means the CANADA BUSINESS CORPORATIONS ACT, as amended,
consolidated or reenacted from time to time.
"AGGREGATE EQUIVALENT VOTE AMOUNT" means, with respect to any matter,
proposition or question on which holders of PRI Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of Exchangeable
Shares then issued and outstanding and held by holders other than PRI and its
Subsidiaries multiplied by (ii) the number of votes to which a holder of one
share of PRI Common Stock is entitled with respect to such matter, proposition
or question.
"AUTOMATIC REDEMPTION DATE" means the date for the automatic redemption by
the Corporation of Exchangeable Shares pursuant to Article 7 of these share
provisions, which date shall be the first to occur of (a) the seventh
anniversary of the Effective Date of the Arrangement, (b) the date selected by
the Promis Board
<PAGE>
of Directors at a time when less than 15% of the Exchangeable Shares issuable on
the Effective Date (other than Exchangeable Shares held by PRI and its
Subsidiaries and as such number of shares may be adjusted as deemed appropriate
by the Board of Directors to give effect to any subdivision or consolidation of
or stock dividend on the Exchangeable Shares, any issuance or distribution of
rights to acquire Exchangeable Shares or securities exchangeable for or
convertible into or carrying rights to acquire Exchangeable Shares, any issue or
distribution of other securities or rights or evidences of indebtedness or
assets, or any other capital reorganization or other transaction involving or
affecting the Exchangeable Shares) are outstanding, (c) the Business Day prior
to the record date for any meeting or vote of the shareholders of the
Corporation to consider any matter on which the holders of Exchangeable Shares
would be entitled to vote as shareholders of the Corporation, but excluding any
meeting or vote as described in clause (d) below or (d) the Business Day
following the day on which the holders of Exchangeable Shares fail to take the
necessary action at a meeting or other vote of holders of Exchangeable Shares,
if and to the extent such action is required, to approve or disapprove, as
applicable, any change to, or in the rights of the holders of, Exchangeable
Shares, if the approval or disapproval, as applicable, of such change would be
required to maintain the economic and legal equivalence of the Exchangeable
Shares and the PRI Common Stock, or (e) a PRI Control Transaction or a Promis
Control Transaction occurs, in which case, provided the Board of Directors
determines, in good faith and in its sole discretion, that it is not reasonably
practicable in the circumstances of such PRI Control Transaction or Promis
Control Transaction to substantially replicate the terms and conditions of the
Exchangeable Shares in connection with such PRI Control Transaction or Promis
Control Transaction and that the redemption of all but not less than all of the
outstanding Exchangeable Shares is necessary to enable the completion of such
PRI Control Transaction or Promis Control Transaction in accordance with its
terms, the Board of Directors may accelerate such redemption date to such date
prior to the seventh anniversary of the Effective Date of the Arrangement as
they may determine, upon such number of days' prior written notice to the
registered holders of the Exchangeable Shares as the Board of Directors may
determine to be reasonably practicable in such circumstances.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation and any
committee thereof acting within its authority.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in one or more Toronto, Ontario and Boston,
Massachusetts.
"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 spot 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.
"CLASS X PREFERRED SHARE" means the Class X Preferred Share in the capital
of the Corporation.
"COMMON SHARES" means the common shares in the capital of the Corporation.
"CORPORATION" means Promis Systems Corporation Ltd., a corporation under the
laws of Canada and includes any successor corporation.
"CURRENT MARKET PRICE" means, in respect of a share of PRI Common Stock on
any date, the average of the closing prices of PRI Common Stock during the
period of 20 consecutive trading days ending not more than five trading days
before such date on NASDAQ, or, if PRI Common Stock is not then traded on
NASDAQ, on such other principal U.S. Stock exchange or automated quotation
system on which the PRI Common Stock is 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 PRI Common Stock during such period does not create a market
which reflects the fair market value of a share of PRI Common Stock, then the
Current Market Price of a share of PRI Common Stock shall be determined by the
Board of Directors based upon the advice of such qualified independent financial
advisors as the Board of Directors may
<PAGE>
deem to be appropriate, and provided further that any such selection, opinion or
determination by the Board of Directors shall be conclusive and binding.
"EXCHANGE PUT DATE" has the meaning provided in Section 8.2.
"EXCHANGE PUT RIGHT" has the meaning provided in Section 8.1(a).
"EXCHANGEABLE SHARE CONSIDERATION" means, for any acquisition of or
redemption of or distribution of assets of the Corporation in respect of or
purchase pursuant to the Exchange Put Right of Exchangeable Shares pursuant to
these share provisions, the Plan of Arrangement, the Support Agreement or the
Voting and Exchange Trust Agreement:
(a) certificates representing the aggregate number of shares of PRI Common
Stock deliverable in connection with such action;
(b) a cheque or cheques payable at par at any branch of the bankers of the
payor in the amount of all declared and unpaid and undeclared but payable
cash dividends deliverable in connection with such action; and
(c) such stock or property constituting any declared and unpaid non-cash
dividends deliverable in connection with such action;
provided that (i) that part of the consideration which is the Current Market
Price of a share of PRI Common Stock shall be fully paid and satisfied by the
delivery of one share of PRI Common Stock, (ii) that part of the consideration
which represents non-cash dividends remaining unpaid shall be fully paid and
satisfied by delivery of such non-cash items, (iii) any such stock shall be duly
issued as fully paid and non-assessable and any such property shall be delivered
free and clear of any lien, claim, encumbrance, security interest or adverse
claim or interest and (iv) such consideration shall be paid less any tax
required to be deducted or withheld therefrom and without interest.
"EXCHANGEABLE SHARE PRICE" means, for each Exchangeable Share, an amount
equal to the aggregate of:
(a) the Current Market Price of a share of PRI Common Stock; plus
(b) an additional amount equal to the full amount of all cash dividends
declared and unpaid on such Exchangeable Share; plus
(c) an additional amount equal to all dividends declared on PRI Common Stock
which have not been declared on Exchangeable Shares in accordance
herewith; plus
(d) an additional amount representing non-cash dividends declared and unpaid
on such Exchangeable Share.
"EXCHANGEABLE SHARES" means the Exchangeable Shares of the Corporation
having the rights, privileges, restrictions and conditions set forth herein.
"LIQUIDATION AMOUNT" has the meaning provided in Section 5.1.
"LIQUIDATION CALL RIGHT" has the meaning provided in the Plan of
Arrangement.
"LIQUIDATION DATE" has the meaning provided in Section 5.1.
"NASDAQ" means The Nasdaq Stock Market, Inc.
"PRI" means PRI Automation, Inc., a corporation organized and existing under
the laws of the Commonwealth of Massachusetts and includes any successor
corporation.
"PRI COMMON STOCK" means the shares of common stock of PRI, with a par value
of U.S. $0.01 per share, having voting rights of one vote per share, and any
other securities resulting from the application of section 2.7 of the Support
Agreement.
"PRI CONTROL TRANSACTION" means any merger, amalgamation, tender offer,
material sale or capital distribution of shares or assets or rights or interests
therein or any similar transaction involving PRI, or any proposal to do so.
<PAGE>
"PRI DIVIDEND DECLARATION DATE" means the date on which the board of
directors of PRI declares any dividend on the PRI Common Stock.
"PRI SPECIAL SHARE" means the one share of Special Voting Stock of PRI with
a par value of U.S. $0.01 and having voting rights at meetings of holders of PRI
Common Stock equal to the Aggregate Equivalent Voting Amount.
"PLAN OF ARRANGEMENT" means the plan of arrangement involving and affecting
the Corporation and the holders of its Common Shares, options and shareholder
rights under section 192 of the Act, to which plan of arrangement these share
provisions are an appendix.
"PROMIS CONTROL TRANSACTION" means any sale of a majority of the outstanding
voting shares of the Corporation by Subco, PRI or any affiliate of PRI to an
arm's length third party, or any proposal to do so.
"PURCHASE PRICE" has the meaning provided in Section 6.3.
"REDEMPTION CALL PURCHASE PRICE" has the meaning provided in the Plan of
Arrangement.
"REDEMPTION CALL RIGHT" has the meaning provided in the Plan of Arrangement.
"REDEMPTION PRICE" has the meaning provided in Section 7.1.
"RETRACTED SHARES" has the meaning provided in subsection 6.1(i).
"RETRACTION CALL RIGHT" has the meaning provided in subsection 6.1(iii).
"RETRACTION DATE" has the meaning provided in subsection 6.1(ii).
"RETRACTION PRICE" has the meaning provided in Section 6.1.
"RETRACTION REQUEST" has the meaning provided in Section 6.1.
"SUBCO CALL NOTICE" has the meaning provided in Section 6.3.
"SUBSIDIARY", in relation to any person, means any body corporate,
partnership, joint venture, association or other entity of which more than 50%
of the total voting power of shares of stock or units of ownership or beneficial
interest entitled to vote in the election of directors (or members of a
comparable governing body) is owned or controlled, directly or indirectly, by
such person.
"SUPPORT AGREEMENT" means the Support Agreement between PRI, Subco and the
Corporation made as of [EFFECTIVE DATE], 1999.
"TRANSFER AGENT" means the duly appointed transfer agent for the time being
of the Exchangeable Shares, and if there is more than one such agent then the
principal Canadian agent.
"TRUSTEE" means the Trustee appointed under the Voting and Exchange Trust
Agreement, and any successor trustee.
"VOTING AND EXCHANGE TRUST AGREEMENT" means the Voting and Exchange Trust
Agreement between the Corporation, PRI, Subco and the Trustee made as of
[EFFECTIVE DATE], 1999.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall rank junior to the Class X Preferred
Share, and shall be entitled to a preference over the Common Shares and any
other shares ranking junior to the Exchangeable Shares, with respect to the
payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding-up of 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.
<PAGE>
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each PRI Dividend
Declaration Date, declare a dividend on each Exchangeable Share (a) in the case
of a cash dividend declared on the PRI Common Stock, in an amount in cash for
each Exchangeable Share in U.S. dollars, or the Canadian Dollar Equivalent
thereof on the PRI Dividend Declaration Date, in each case, corresponding to the
cash dividend declared on each share of PRI Common Stock or (b) in the case of a
stock dividend declared on the PRI Common Stock to be paid in PRI Common Stock,
in such number of Exchangeable Shares for each Exchangeable Share as is equal to
the number of shares of PRI Common Stock to be paid on each share of PRI Common
Stock or (c) in the case of a dividend declared on the PRI Common Stock in
property other than cash or PRI Common Stock, in such type and amount of
property for each Exchangeable Share as is the same as the type and amount of
property declared as a dividend on each share of PRI Common Stock. 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 shares of the Corporation.
3.2 Cheques of the Corporation payable at par at any branch of the bankers
of the Corporation shall be issued in respect of any cash dividends contemplated
by subsection 3.1(a) hereof and the sending of such a cheque to each holder of
an Exchangeable Share (less any tax required to be deducted and withheld from
such dividends paid or credited by the Corporation) shall satisfy the cash
dividends represented thereby unless the cheque is not paid on presentation.
Certificates registered in the name of the registered holder of Exchangeable
Shares shall be issued or transferred in respect of any stock dividends
contemplated by subsection 3.1(b) hereof and the sending of such a certificate
to each holder of an Exchangeable Share shall satisfy the stock dividend
represented thereby. Such other type and amount of property in respect of any
dividends contemplated by subsection 3.1(c) hereof shall be issued, distributed
or transferred by the Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation to each holder of
an Exchangeable Share shall satisfy the dividend represented thereby. In all
cases any such dividends shall be subject to any reduction or adjustment for tax
required to be deducted and withheld from such dividends paid or credited by the
Corporation. No holder of an Exchangeable Share shall be entitled to recover by
action or other legal process against the Corporation any dividend which is
represented by a cheque that has not been duly presented to the Corporation's
bankers for payment or which otherwise remains unclaimed for a period of six
years from the date on which such dividend was payable.
3.3 The record date for the determination of the holders of Exchangeable
Shares entitled to receive payment of, and the payment date for, any dividend
declared on the Exchangeable Shares under Section 3.1 hereof shall be the same
dates as the record date and payment date, respectively, for the corresponding
dividend declared on the PRI Common Stock.
3.4 If on any payment date for any dividends declared on the Exchangeable
Shares under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends which remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends.
3.5 Except as provided in this Article 3, the holders of Exchangeable Shares
shall not be entitled to receive dividends in respect thereof.
<PAGE>
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 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 Article
10 of these share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking
junior to the Exchangeable Shares, other than stock dividends payable in
any such other shares ranking junior to the Exchangeable Shares;
(b) redeem or purchase or make any capital distribution in respect of Common
Shares or any other shares ranking junior to the Exchangeable Shares with
respect to the payment of dividends or on any liquidation distribution;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Exchangeable Shares with respect of the payment of dividends or
on any liquidation distribution.
The restrictions in subsections 4.1(a), 4.1(b), and 4.1(c) above shall not apply
if all dividends on the outstanding Exchangeable Shares corresponding to
dividends declared with a record date on or following the effective date of the
Plan of Arrangement on the PRI Common Stock shall have been declared on the
Exchangeable Shares and paid in full.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Exchangeable Share held by such holder on
the effective date of such liquidation, dissolution or winding-up (the
"LIQUIDATION DATE"), before any distribution of any part of the assets of the
Corporation to the holders of the Common Shares or any other shares ranking
junior to the Exchangeable Shares, an amount equal to the Exchangeable Share
Price applicable on the last Business Day prior to the Liquidation Date (the
"LIQUIDATION AMOUNT"). In connection with payment of the Liquidation Amount, the
Corporation shall be entitled to liquidate some of the PRI Common Stock which
would otherwise be deliverable to the particular holder of Exchangeable Shares
in order to fund any statutory withholding tax obligation.
5.2 On or promptly after the Liquidation Date, and subject to the exercise
by Subco of the Liquidation Call Right, the Corporation shall cause to be
delivered to the holders of the Exchangeable Shares the Liquidation Amount for
each such Exchangeable Share upon presentation and surrender of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the Act and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require, at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of the Exchangeable
Shares. Payment of the total Liquidation Amount for such Exchangeable Shares
shall be made by delivery to each holder, at the address of the holder recorded
in the securities register of the Corporation for the Exchangeable Shares or by
holding for pick up by the holder at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Exchangeable Shares, on behalf of the Corporation of
the Exchangeable Share Consideration representing the total Liquidation Amount.
On and after the Liquidation Date, the holders of the Exchangeable Shares shall
cease to be holders of such Exchangeable Shares and shall not be entitled to
exercise any of the rights of holders in respect thereof, other than the right
to receive their proportionate part of the total Liquidation Amount, unless
payment of the total Liquidation Amount for such Exchangeable Shares shall not
be made upon presentation and surrender of share certificates in accordance with
the foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Liquidation Amount has been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time on or
after the Liquidation
<PAGE>
Date to deposit or cause to be deposited the Exchangeable Share Consideration in
respect of the Exchangeable Shares represented by certificates that have not at
the Liquidation Date been surrendered by the holders thereof in a custodial
account or for safe keeping, in the case of non-cash items, with any chartered
bank or trust company in Canada. Upon such deposit being made, the rights of the
holders of Exchangeable Shares after such deposit shall be limited to receiving
their proportionate part of the total Liquidation Amount for such Exchangeable
Shares so deposited, against presentation and surrender of the said certificates
held by them, respectively, in accordance with the foregoing provisions. Upon
such payment or deposit of such Exchangeable Share Consideration, the holders of
the Exchangeable Shares shall thereafter be considered and deemed for all
purposes to be the holders of the PRI Common Stock delivered to them.
Notwithstanding the foregoing, until such payment or deposit of such
Exchangeable Share Consideration, the holder shall be deemed to still be a
holder of Exchangeable Shares for purposes of all voting rights with respect
thereto under the Voting and Exchange Trust Agreement.
5.3 After the Corporation has satisfied its obligations to pay the holders
of the Exchangeable Shares the Liquidation Amount per Exchangeable Share, such
holders shall not be entitled to share in any further distribution of the assets
of the Corporation.
ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time subject to
the exercise by Subco of the Retraction Call Right and otherwise upon compliance
with the provisions of this Article 6, to require the Corporation to redeem any
or all of the Exchangeable Shares registered in the name of such holder for an
amount equal to the Exchangeable Share Price applicable on the last Business Day
prior to the Retraction Date (the "RETRACTION PRICE"). In connection with
payment of the Retraction Price, the Corporation shall be entitled to liquidate
some of the PRI Common Stock that would otherwise be deliverable to the
particular holder of Exchangeable Shares in order to fund any statutory
withholding tax obligation. To effect such redemption, the holder shall present
and surrender at the registered office of the Corporation or at any office of
the Transfer Agent as may be specified by the Corporation in Schedule A hereto
or by notice to the holders of Exchangeable Shares the certificate or
certificates representing the Exchangeable Shares which the holder desires to
have the Corporation redeem, together with such other documents and instruments
as may be required to effect a transfer of Exchangeable Shares under the Act and
the by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require, and together with a duly executed
statement (the "RETRACTION REQUEST") in the form of Schedule A hereto or in such
other form as may be acceptable to the Corporation:
(i) specifying that the holder desires to have all or any number specified
therein of the Exchangeable Shares represented by such certificate or
certificates (the "RETRACTED SHARES") redeemed by the Corporation;
(ii) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Shares (the "RETRACTION DATE"),
provided that the Retraction Date shall be not less than five Business
Days nor more than 10 Business Days after the date on which the
Retraction Request is received by the Corporation and further provided
that, in the event that no such Business Day is specified by the holder
in the Retraction Request, the Retraction Date shall be deemed to be
the tenth Business Day after the date on which the Retraction Request
is received by the Corporation; and
(iii) acknowledging the overriding right (the "RETRACTION CALL RIGHT") of
Subco to purchase all but not less than all of the Retracted Shares
directly from the holder and that the Retraction Request shall be
deemed to be a revocable offer by the holder to sell the Retracted
Shares in accordance with the Retraction Call Right on the terms and
conditions set out in Section 6.3 below.
6.2 Subject to the exercise by Subco of the Retraction Call Right, upon
receipt by the Corporation or the Transfer Agent in the manner specified in
Section 6.1 hereof of a certificate or certificates representing the
number of Exchangeable Shares which the holder desires to have the Corporation
redeem, together with a Retraction Request, and provided that the Retraction
Request is not revoked by the holder in the manner
<PAGE>
specified in Section 6.7, the Corporation shall redeem the Retracted Shares
effective at the close of business on the Retraction Date and shall cause to be
delivered to such holder the total Retraction Price with respect to such shares
in accordance with Section 6.4 hereof. If only a part of the Exchangeable Shares
represented by any certificate are redeemed or purchased by Subco pursuant to
the Retraction Call right, a new certificate for the balance of such
Exchangeable Shares shall be issued to the holder at the expense of the
Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify Subco and PRI thereof. In order to exercise the
Retraction Call Right, Subco must notify the Corporation in writing of its
determination to do so (the "SUBCO CALL NOTICE") within two Business Days of
such notification. If Subco does not so notify the Corporation within two
Business Days, the Corporation will notify the holder as soon as possible
thereafter that Subco will not exercise the Retraction Call Right. If Subco
delivers the Subco Call Notice within such two Business Days, and provided that
the Retraction Request is not revoked by the holder in the manner specified in
Section 6.7, the Retraction Request shall thereupon be considered only to be an
offer by the holder to sell the Retracted Shares to Subco in accordance with the
Retraction Call Right. In such event, the Corporation shall not redeem the
Retracted Shares and Subco shall purchase from such holder and such holder shall
sell to Subco on the Retraction Date the Retracted Shares for a purchase price
(the "PURCHASE PRICE") per share equal to the Retraction Price per share. For
the purposes of completing a purchase pursuant to the Retraction Call Right,
Subco shall deposit with the Transfer Agent, on or before the Retraction Date
the Exchangeable Share Consideration representing the total Purchase Price.
Provided that such Exchangeable Share Consideration has been so deposited with
the Transfer Agent, the closing of the purchase and sale of the Retracted Shares
pursuant to the Retraction Call Right shall be deemed to have occurred as at the
close of business on the Retraction Date and, for greater certainty, no
redemption by the Corporation of such Retracted Shares shall take place on the
Retraction Date. In the event that Subco does not deliver a Subco Call Notice
within two Business Days or otherwise comply with these Exchangeable Share
provisions in respect thereto, and provided that Retraction Request is not
revoked by the holder in the manner specified in Section 6.7, the Corporation
shall redeem the Retracted Shares on the Retraction Date and in the manner
otherwise contemplated in this Article 6.
6.4 The Corporation or Subco, as the case may be, shall deliver or cause the
Transfer Agent to deliver to the relevant holder, at the address of the holder
recorded in the securities register of the Corporation for the Exchangeable
Shares or at the address specified in the holder's Retraction Request or by
holding for pick up by the holder at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Exchangeable Shares, the Exchangeable Share
Consideration representing the total Retraction Price or the total Purchase
Price, as the case may be, and such delivery of such Exchangeable Share
Consideration to the Transfer Agent shall be deemed to be payment of and shall
satisfy and discharge all liability for the total Retraction Price or total
Purchase Price, as the case may be, except as to any cheque included therein
which is not paid on due presentation.
6.5 On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall not be entitled to exercise any of the rights of a
holder in respect thereof, other than the right to receive his proportionate
part of the total Retraction Price or total Purchase Price, as the case may be,
unless upon presentation and surrender of certificates in accordance with the
foregoing provisions, payment of the total Retraction Price or the total
Purchase Price, as the case may be, shall not be made, in which case the rights
of such holder shall remain unaffected until the Exchangeable Share
Consideration representing the total Retraction Price or the total Purchase
Price, as the case may be, 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 Exchangeable Share
Consideration representing the total Retraction Price or the total Purchase
Price, as the case may be, has been made in accordance with the foregoing
provisions, the holder of the Retracted Shares so redeemed by the Corporation or
purchased by Subco shall thereafter be considered and deemed for all purposes to
be a holder of the PRI Common Stock delivered to it. Notwithstanding the
foregoing, until payment of such Exchangeable Share Consideration to the holder,
the holder shall be deemed to still be a holder of Exchangeable Shares for
purposes of all voting rights with respect thereto under the Voting and Exchange
Trust Agreement.
6.6 Notwithstanding any other provision of this Article 6, 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
<PAGE>
Shares would be contrary to liquidity or 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 Subco shall not
have exercised the Retraction Call Right with respect to the Retracted Shares,
the Corporation shall only be obligated to redeem Retracted Shares specified by
a holder in a Retraction Request 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 and shall notify the holder at least two Business Days prior
to the Retraction Date as to the number of Retracted Shares which will not be
redeemed by the Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be contrary to liquidity or solvency
requirements or other provisions of applicable law, the Corporation shall redeem
Retracted Shares in accordance with Section 6.2 of these share provisions on a
pro rata basis and 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 6.2 hereof. Provided
that the Retraction Request is not revoked by the holder in the manner specified
in section 6.7, the holder of any such Retracted Shares not redeemed by the
Corporation pursuant to Section 6.2 of these share provisions as a result of
liquidity or solvency requirements or applicable law shall be deemed by giving
the Retraction Request to require Subco to purchase such Retracted Shares from
such holder on the Retraction Date or as soon as practicable thereafter on
payment by Subco to such holder of the Purchase Price for each such Retracted
Share, all as more specifically provided in the Voting and Exchange Trust
Agreement, and Subco shall make such purchase.
6.7 A holder of Retracted Shares may, by notice in writing given by the
holder to the Corporation before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request in
which event such Retraction Request shall be null and void and, for greater
certainty, the revocable offer constituted by the Retraction Request to sell the
Retracted Shares to Subco shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and if Subco does not exercise the Redemption
Call Right, the Corporation shall on the Automatic Redemption Date redeem the
whole of the then outstanding Exchangeable Shares for an amount equal to the
Exchangeable Share Price applicable on the last Business Day prior to the
Automatic Redemption Date (the "REDEMPTION PRICE"). In connection with payment
of the Redemption Price, the Corporation shall be entitled to liquidate some of
the PRI Common Stock which would otherwise be deliverable to the particular
holder of Exchangeable Shares in order to fund any statutory withholding tax
obligation.
7.2 In any case of a redemption of Exchangeable Shares under this Article 7,
the Corporation, or the Transfer Agent on behalf of the Corporation, shall, at
least 45 days before the relevant Automatic Redemption Date or such number of
days as the Board of Directors may determine to be reasonably practicable under
the circumstances in respect of a possible Automatic Redemption Date arising in
connection with a PRI Control Transaction, a Promis Control Transaction, or a
matter described in paragraphs (c) or (d) of the definition of Automatic
Redemption Date in Article 1.1, the Corporation shall send to each holder of
Exchangeable Shares a notice in writing of the redemption or possible redemption
by the Corporation or the purchase by Subco under the Redemption Call Right, as
the case may be, of the Exchangeable Shares held by such holder. Such notice
shall set out the formula for determining the Redemption Price or the Redemption
Call Purchase Price, as the case may be, the Automatic Redemption Date and, if
applicable, particulars of the Redemption Call Right. In the case of any notice
given in connection with a possible Automatic Redemption Date, such notice will
be given contingently and will be withdrawn if the contingency does not occur.
7.3 On or after the Automatic Redemption Date and subject to the exercise by
Subco of the Redemption Call Right, the Corporation shall cause to be delivered
to the holders of the Exchangeable Shares to be redeemed the Redemption Price
for each such Exchangeable Share upon presentation and surrender at the
registered office of the Corporation or at any office of the Transfer Agent as
may be specified by the Corporation in such notice of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the Act and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may
<PAGE>
reasonably require. Payment of the total Redemption Price for such Exchangeable
Shares shall be made by delivery to each holder, at the address of the holder
recorded in the securities register or at any office of the Transfer Agent as
may be specified by the Corporation in such notice, on behalf of the Corporation
of the Exchangeable Share Consideration representing the total Redemption Price.
On and after the Automatic Redemption Date, the holders of the Exchangeable
Shares called for redemption shall cease to be holders of such Exchangeable
Shares and shall not be entitled to exercise any of the rights of holders in
respect thereof, other than the right to receive their proportionate part of the
total Redemption Price, unless payment of the total Redemption Price for such
Exchangeable Shares shall not be made upon presentation and surrender of
certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total Redemption Price
has been paid in the manner hereinbefore provided. The Corporation shall have
the right at any time after the sending of notice of its intention to redeem the
Exchangeable Shares as aforesaid to deposit or cause to be deposited the
Exchangeable Shares Consideration with respect to the Exchangeable Shares so
called for redemption, or of such of the said Exchangeable Shares represented by
certificates that have not at the date of such deposit been surrendered by the
holders thereof in connection with such redemption, in a custodial account or
for safe keeping, in the case of non-cash items, with any chartered bank or
trust company in Canada named in such notice, Upon the later of such deposit
being made and the Automatic Redemption Date, the Exchangeable Shares in respect
whereof such deposit shall have been made shall be redeemed and the rights of
the holders thereof after such deposit or Automatic Redemption Date, as the case
may be, shall be limited to receiving their proportionate part of the total
Redemption Price for such Exchangeable Shares so deposited, against presentation
and surrender of the said certificates held by them, respectively, in accordance
with the foregoing provisions. Upon such payment or deposit of such Exchangeable
Share Consideration, the holders of the Exchangeable Shares shall thereafter be
considered and deemed for all purposes to be holders of the PRI Common Stock
delivered to them. Notwithstanding the foregoing, until such payment or deposit
of such Exchangeable Share Consideration is made, the holder shall be deemed to
still be a holder of Exchangeable Shares for purposes of all voting rights with
respect thereto under the Voting and Exchange Trust Agreement.
ARTICLE 8
EXCHANGE PUT RIGHT
8.1 Upon and subject to the terms and conditions contained in the
Exchangeable Share Provisions and the Voting and Exchange Trust Agreement:
(a) a holder of Exchangeable Shares shall have the right (the "Exchange Put
Right") at any time to require Subco to purchase all or any part of the
Exchangeable Shares of the holder; and
(b) upon the exercise by the holder of the Exchange Put Right and provided
that, at the time of purchase, the Exchangeable Shares are listed on a
recognized Canadian stock exchange, the holder shall be required to sell
to Subco, and Subco shall be required to purchase from the holder, that
number of Exchangeable Shares in respect of which the Exchange Put Right
is exercised, in consideration of the payment by Subco of the
Exchangeable Share Price applicable thereto (which shall be the
Exchangeable Share Price applicable on the last Business Day prior to
receipt of notice required under section 8.2) and delivery by or on
behalf of Subco of the Exchangeable Share Consideration representing the
total applicable Exchangeable Share Price.
8.2 The Exchange Put Right provided in section 8.1 hereof and in Article 5
of the Voting and Exchange Trust Agreement may be exercised at any time by
notice in writing given by the holder to and received by the Trustee (the date
of such receipt, the "Exchange Put Date") accompanied by presentation and
surrender of the certificates representing such Exchangeable Shares, together
with such documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the Act and the by-laws of the Corporation and such
additional documents and instruments as the Trustee may reasonably require, at
the principal transfer office in Toronto, Ontario of the Trustee, or at such
other office or offices of the Trustee or of other persons designated by the
Trustee for that purpose as may from time to time be maintained by the Trustee
for that purpose. Such notice may be (i) in the form of the panel, if any, on
the certificates representing Exchangeable Shares, (ii) in the form of the
notice and election contained in any letter of transmittal distributed or made
available by the Corporation for that purpose, or (iii) in other form
satisfactory to the Trustee (or such other persons aforesaid),
<PAGE>
shall stipulate the number of Exchangeable Shares in respect of which the right
is exercised (which may not exceed the number of shares represented by
certificates surrendered to the Trustee), shall be irrevocable unless the
exchange is not completed in accordance herewith and with the Voting and
Exchange Trust Agreement and shall constitute the holder's authorization to the
Trustee (and such other persons aforesaid) to effect the exchange on behalf of
the holder.
8.3 The completion of the sale and purchase referred to in section 8.1 shall
be required to occur, and Subco shall be required to take all actions on its
part necessary to permit it to occur, not later than the close of business on
the third Business Day following the Exchange Put Date.
8.4 The surrender by the holder of Exchangeable Shares under section 8.2
shall constitute the representation, warranty and covenant of the holder that
the Exchangeable Shares so purchased are sold free and clear of any lien,
encumbrance, security interest or adverse claim or interest.
8.5 If a part only of the Exchangeable Shares represented by any certificate
are to be sold and purchased pursuant to the exercise of the Exchange Put Right,
a new certificate for the balance of such Exchangeable Shares shall be issued to
the holder at the expense of the Corporation.
8.6 Upon receipt by the Trustee of the notice, certificates and other
documents or instruments required by section 8.2, the Trustee shall deliver or
cause to be delivered, on behalf of Subco and subject to receipt by the Trustee
from Subco of the applicable Exchangeable Share Consideration, to the relevant
holder at the address of the holder specified in the notice or by holding for
pick-up by the holder at the registered office of the Corporation or at any
office of the Trustee (or other persons aforesaid) maintained for that purpose,
the Exchangeable Share Consideration representing the total applicable
Exchangeable Share Price, within the time stipulated in section 8.3. Delivery by
Subco to the Trustee of such Exchangeable Share Consideration shall be deemed to
be payment of and shall satisfy and discharge all liability for the total
applicable Exchangeable Share Price, except as to any cheque included therein
which is not paid on due presentation.
8.7 On and after the close of business on the Exchange Put Date, the holder
of the Exchangeable Shares in respect of which the Exchange Put Right is
exercised shall not be entitled to exercise any of the rights of a holder in
respect thereof, other than the right to receive the total applicable
Exchangeable Share Price, unless upon presentation and surrender of certificates
in accordance with the foregoing provisions, payment of the Exchangeable Share
Consideration shall not be made, in which case the rights of such holder shall
remain unaffected until such payment has been made. On and after the close of
business on the Exchange Put Date provided that presentation and surrender of
certificate and payment of the Exchangeable Share Consideration has been made in
accordance with the foregoing provisions, the holder of the Exchangeable Shares
so purchased by Subco shall thereafter be considered and deemed for all purposes
to be a holder of the PRI Common Stock delivered to it. Notwithstanding the
foregoing, until payment of the Exchangeable Share Consideration to the holder,
the holder shall be deemed to still be a holder of Exchangeable Shares for
purposes of all voting rights with respect thereto under the Voting and Exchange
Trust Agreement.
ARTICLE 9
VOTING RIGHTS
9.1 Except as required by applicable law and the provisions hereof, the
holders of the Exchangeable Shares shall not be entitled as such to receive
notice of or to attend any meeting of the shareholders of the Corporation or to
vote at any such meeting.
ARTICLE 10
AMENDMENT AND APPROVAL
10.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but, except, as
hereinafter provided, only with the approval of the holders of the Exchangeable
Shares given as hereinafter specified.
10.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if
<PAGE>
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 50% (or such higher percentage as may be required by law) of the votes cast
on such resolution by persons represented in person or by proxy at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 50% of the outstanding Exchangeable Shares at that time are present or
represented by proxy (excluding Exchangeable Shares beneficially owned by PRI or
its Subsidiaries). If at any such meeting the holders of at least 50% of the
outstanding Exchangeable Shares at that time are not present or represented by
proxy within one-half hour after the time appointed for such meeting then the
meeting shall be adjourned to such date not less than 10 days thereafter and to
such time and place as may be designated by the Chairman of such meeting. At
such adjourned meeting the holders of Exchangeable Shares present or represented
by proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
50% (or such higher percentage as may be required by law) of the votes cast on
such resolution by persons represented in person or by proxy at such meeting
shall constitute the approval or consent of the holders of the Exchangeable
Shares. For the purposes of this section, any spoiled votes, illegible votes,
defective votes and abstinences shall be deemed to be votes not cast.
ARTICLE 11
RECIPROCAL CHANGES, ETC. IN RESPECT OF PRI COMMON STOCK
11.1 (a) Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that PRI will not:
(i) issue or distribute PRI Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of PRI Common
Stock) to the holders of all or substantially all of the then
outstanding PRI Common Stock by way of stock dividend or other
distribution; or
(ii) issue or distribute rights, options or warrants to the holders of all
or substantially all of the then outstanding PRI Common Stock entitling
them to subscribe for or to purchase shares of PRI Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire shares of PRI Common Stock); or
(iii) issue or distribute to the holders of all or substantially all of the
then outstanding shares of PRI Common Stock (A) shares or securities of
PRI of any class other than PRI Common Stock (other than shares
convertible into or exchangeable for or carrying rights to acquire PRI
Common Stock), (B) rights, options or warrants other than those
referred to in subsection 11.1(a)(ii) above, (C) evidences of
indebtedness of PRI or (D) assets of PRI;
unless one or both of the Corporation and PRI is permitted under applicable law
to issue and distribute the economic equivalent on a per share basis of such
rights, options, warrants, securities, shares, evidences of indebtedness or
assets and the items referred to in clauses (i), (ii) and (iii) above, as
applicable, are issued or distributed simultaneously to holders of Exchangeable
Shares.
(b) Each holder of an Exchangeable Share acknowledges that the Support
Agreement further provides, in part, that PRI will not:
(i) subdivide, redivide or change the then outstanding shares of PRI Common
Stock into a greater number of shares of PRI Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding shares of
PRI Common Stock into a lesser number of shares of PRI Common Stock; or
(iii) reclassify or otherwise change the shares of PRI Common Stock or effect
an amalgamation, merger, reorganization or other transaction involving
or affecting the shares of PRI Common Stock;
unless the Corporation is permitted under applicable law to simultaneously make
the same or an economically equivalent change to, or in the rights of the
holders of, the Exchangeable Shares and the same or an economically equivalent
change is simultaneously made to, or in the rights of the holders of, the
Exchangeable Shares.
<PAGE>
The Support Agreement further provides, in part, that, with the exception of
certain ministerial amendments, the aforesaid provisions of the Support
Agreement shall not be changed without the approval of PRI, Subco, the
Corporation and the holders of the Exchangeable Shares given in accordance with
Article 10 of these share provisions.
ARTICLE 12
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
12.1 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 Subco and PRI with all provisions of the Support
Agreement, the Voting and Exchange Trust Agreement and PRI's Restated Articles
of Organization applicable to the Corporation, Subco and PRI, respectively, in
accordance with the terms thereof including, without limitation, taking all such
actions and doing all such things as shall be necessary or advisable to enforce
to the fullest extent possible for the direct benefit of the Corporation all
rights and benefits in favour of the Corporation under or pursuant thereto.
12.2 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, the Voting and Exchange Trust Agreement or PRI's Restated
Articles of Organization without the approval of the holders of the Exchangeable
Shares given in accordance with Article 10 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;
(b) making such provisions or modifications not inconsistent with such
agreement or certificate as may be necessary or desirable with respect to
matters or questions arising thereunder which, in the opinion of the
Board of Directors, it may be expedient to make, provided that the Board
of Directors shall be of the opinion, after consultation with counsel,
that such provisions and modifications will not be prejudicial to the
interests of the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement or certificate
which, on the advice of counsel to the Corporation, are required for the
purpose of curing or correcting any ambiguity or defect or inconsistent
provision or clerical omission or mistake or manifest error contained
therein, provided that the Board of Directors shall be of the opinion,
after consultation with counsel, that such changes or corrections will
not be prejudicial to the interests of the holders of the Exchangeable
Shares.
ARTICLE 13
LEGEND
13.1 The certificate evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the provisions of the Plan of
Arrangement relating to the Liquidation Call Right, the Retraction Call Right
and the Redemption Call Right, and the Voting and Exchange Trust Agreement
(including the provisions with respect to the voting rights and exchange
provisions thereunder).
ARTICLE 14
MISCELLANEOUS
14.1 Any notice, request or other communication to be given to the
Corporation by a holder of Exchangeable Shares shall be in writing and shall be
valid and effective if given by mail (postage prepaid) 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 be deemed to have been given and
received upon actual receipt thereof by the Corporation.
14.2 Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or
<PAGE>
winding-up of the Corporation or the retraction, redemption or exchange of
Exchangeable Shares shall be made by registered mail (postage prepaid) or by
delivery to the registered office of the Corporation or to such office of the
Transfer Agent as may be specified by the Corporation, in each case addressed to
the attention of the President of the Corporation. Any such presentation and
surrender of certificates shall only be deemed to have been made and to be
effective upon actual receipt thereof by the Corporation or the Transfer Agent,
as the case may be, and the method of any such presentation and surrender of
certificates shall be at the sole risk of the holder.
14.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the fifth Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received on the
date of delivery. Accidental failure or omission to give any notice, request or
other communication to one or more holders of Exchangeable Shares shall not
invalidate or otherwise alter or affect any action or proceeding to be or
intended to be taken by the Corporation.
14.4 For greater certainty, the Corporation shall not be required for any
purpose under these share provisions to recognize or take account of persons who
are not so recorded in such securities register.
14.5 All Exchangeable Shares acquired by the Corporation upon the redemption
or retraction thereof shall be cancelled.
PROVISIONS ATTACHING TO THE COMMON SHARE
The common share ("Common Share") in the capital of the Corporation shall
have attached thereto the following rights, privileges, restrictions and
conditions:
DIVIDENDS
Subject to the prior rights of the Exchangeable Shares and any other shares
ranking prior to the Common Share, the holder of the Common Share shall be
entitled to receive such dividends as may be declared by the Board of Directors
out of property of the Corporation legally available therefor.
LIQUIDATION
Subject to the prior rights of the Exchangeable Shares and any other shares
ranking prior to the Common Share, the holder of the Common Share shall, upon
any liquidation, dissolution or winding-up of the Corporation, whether voluntary
or involuntary, or other distribution of the assets of the Corporation of the
purpose of winding-up its affairs, be entitled to receive the remaining property
and assets of the Corporation.
VOTING
The holder of the Common Share shall be entitled to receive notice of and to
attend all meetings of shareholders (other than separate meetings of other
classes or series of shares), and the Common Share shall be entitled to one
vote.
RESTRICTIONS
So long as any of the Exchangeable Shares of the Corporation are
outstanding, the Corporation shall not at any time without, but may at any time
with, the approval of the Board of Directors and of the holder of the Common
Share issue any further Exchangeable Shares of the Corporation, except as
specifically required in accordance with the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares of the Corporation.
<PAGE>
SCHEDULE "A"
NOTICE OF RETRACTION
TO: Promis Systems Corporation Ltd. (the "Corporation")
AND TO: 1325949 Ontario Inc. ("Subco")
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the Exchangeable Shares of the Corporation and all
capitalized words and expressions used in this notice which are defined in the
Share Provisions have the meaning attributed 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 6 of the Share Provisions:
/ / all share(s) represented by the accompanying certificate(s); or
/ / ____________ share(s) only.
The undersigned hereby notifies the Corporation that the Retraction Date
shall be _______________ .
- ------------
NOTE: The Retraction Date must be a Business Day and must not be less than five
Business Days nor more than 10 Business Days after the date upon which
this notice and the accompanying shares are received by the Corporation.
In the event that no such business day is correctly specified above, the
Retraction Date shall be deemed to be the tenth Business Day after the
date on which this notice is received by the Corporation.
The undersigned acknowledges the Retraction Call Right of Subco to purchase
all but not less than all the Retracted Shares from the undersigned and that his
notice shall be deemed to be a revocable offer by the undersigned to sell the
Retracted Shares to Subco in accordance with the Retraction Call Right on the
Retraction Date for the Retraction Price and on the other terms and conditions
set out in Section 6.3 of the Share Provisions. If Subco determines not to
exercise the Retraction Call Right, the Corporation will notify the undersigned
of such fact as soon as possible. This notice of retraction, and offer to sell
the Retracted Shares to Subco may be revoked and withdrawn by the undersigned by
notice in writing given to the Corporation and Subco at any time before the
close of business on the Business Date immediately preceding the Retraction
Date.
The undersigned acknowledges that if, as a result of liquidity or solvency
provisions of applicable law, the Corporation is unable 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 Subco to
purchase the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to the Corporation and Subco
that the undersigned has good title to, and owns, the share(s) represented by
the accompanying certificate(s) free and clear of all liens, claims,
encumbrances, security interests and adverse claims or interests.
<TABLE>
<S> <C> <C>
(Date) (Signature of Shareholder) (Guarantee of Signature)
</TABLE>
/ / Please check box if the legal or beneficial owner of the Retracted Shares
is a non-resident of Canada
<PAGE>
/ / Please check box if the securities and any cheque(s) or other non-cash
assets resulting from the retraction of the Retracted Shares are to be held
for pick-up by the shareholder at the principal transfer office of Montreal
Trust Company of Canada (the "Transfer Agent") in Toronto, Ontario, failing
which the securities and any cheque(s) or other non-cash assets will be
delivered to the shareholder in accordance with the share provisions.
- ------------
NOTE: This panel must be completed and the accompanying certificate(s),
together with such additional documents as the Transfer Agent may
require, must be deposited with the Transfer Agent at its principal
transfer office in Toronto, Ontario. The securities and any cheque(s) or
other non-cash assets resulting from the retraction or purchase of the
Retracted Shares will be issued and registered in, and made payable to,
or transferred into, respectively, the name of the shareholder as it
appears on the register of the Corporation and the securities, cheque(s)
and other non-cash assets resulting from such retraction or purchase will
be delivered to the shareholder in accordance with the Share Provisions.
<TABLE>
<S> <C>
Name of Person in Whose Name Securities or Date
Cheque(s) or Other Non-Cash Assets Are To Be
Registered, Issued or Delivered (Please print)
Street, Address or P.O. Box Signature of Shareholder
City, Province Signature Guaranteed by
</TABLE>
- ---------------
NOTE: If the notice of retraction is for less than all of the share(s)
represented by the accompanying certificate(s), 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 or its lawful transferee.
<PAGE>
EXHIBIT 99.2
VOTING AND EXCHANGE TRUST AGREEMENT
THIS VOTING AND EXCHANGE TRUST AGREEMENT is entered into as of ,
1999, by and among PRI Automation, Inc., a corporation existing under laws of
the Commonwealth of Massachusetts ("Parent"), 1325949 Ontario Inc., a
corporation existing under the laws of Ontario and a wholly owned subsidiary of
Parent ("Subco"), Promis Systems Corporation Ltd., a corporation existing under
the laws of Canada (the "Company"), and Montreal Trust Company of Canada, a
trust company incorporated under the laws of Canada ("Trustee").
WHEREAS, pursuant to a Combination Agreement dated November 24, 1998 (the
"Combination Agreement"), by and among the Company, Parent and Subco, the
parties agreed that on the Effective Date (as defined in the Combination
Agreement), Parent, Subco, the Company and the Trustee would execute and deliver
a Voting and Exchange Trust Agreement substantially in the form of this
Agreement;
WHEREAS, pursuant to an arrangement (the "Arrangement") effected by the
Articles of Arrangement dated (the "Articles of Arrangement") filed
pursuant to the Canada Business Corporations Act (the "CBCA"), each issued and
outstanding common share (a "Common Share") of the Company (other than those
Common Shares held by dissenters who have exercised their dissenters' rights in
accordance with Section 190 of the CBCA and Section 3.1 of the plan of
arrangement (the "Plan of Arrangement") contained in the Articles of Arrangement
and who are ultimately entitled to be paid the fair value for such Common
Shares, and other than those Common Shares held by Parent or any of its
Subsidiaries) was exchanged for issued and outstanding Exchangeable
Shares of the Company (the "Exchangeable Shares"), and thereafter, the Company's
sole issued and outstanding Class X Preferred Share was exchanged by Subco for
one issued and outstanding Common Share;
WHEREAS, the above-mentioned Articles of Arrangement sets forth the rights,
privileges, restrictions and conditions attaching to the Exchangeable Shares
(collectively, the "Exchangeable Share Provisions");
WHEREAS, Parent is to provide voting rights in Parent to each holder (other
than Parent and its Subsidiaries) from time to time of Exchangeable Shares, such
voting rights per Exchangeable Share to be equivalent to the voting rights per
share of Parent Common Stock;
WHEREAS, Parent and Subco are to grant to and in favor of the holders (other
than Parent and its Subsidiaries) from time to time of Exchangeable Shares
certain rights, in the circumstances set forth herein, to require Parent and/or
Subco to purchase from each such holder all or any part of the Exchangeable
Shares held by the holder;
WHEREAS, the parties desire to make appropriate provision and to establish a
procedure whereby voting rights in Parent shall be exercisable by holders (other
than Parent and its Subsidiaries) from time to time of Exchangeable Shares by
and through the Trustee, which will hold legal title to one share of Special
Voting Stock of Parent, par value US$.01 (the "Parent Special Voting Stock") to
which voting rights attach for the benefit of such holders and whereby the
rights to require Subco to purchase Exchangeable Shares from the holders thereof
(other than Parent and its Subsidiaries) shall be exercisable by such holders
from time to time of Exchangeable Shares by and through the Trustee, which will
hold legal title to such rights for the benefit of such holders; and
WHEREAS, these recitals and any statements of fact in this Agreement are
made by Parent, Subco and the Company 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:
<PAGE>
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. In this Agreement, the following terms shall have the
following meanings:
"AGGREGATE EQUIVALENT VOTE AMOUNT" means, with respect to any matter,
proposition or question on which holders of Parent Common Stock are entitled to
vote, consent or otherwise act, the product of (a) the number of Exchangeable
Shares then issued and outstanding and held by Holders (as hereinafter defined)
multiplied by (b) the number of votes to which a holder of one share of Parent
Common Stock is entitled with respect to such matter, proposition or question.
"APPLICABLE LAWS" has the meaning provided in Section 5.11 hereof.
"ARRANGEMENT" has the meaning provided in the recitals hereto.
"ARTICLES OF ARRANGEMENT" has the meaning provided in the recitals hereto.
"AUTOMATIC EXCHANGE RIGHTS" means the benefit of the joint and several
obligation of Parent and Subco to effect the automatic exchange of shares of
Parent Common Stock for Exchangeable Shares pursuant to Section 5.13 hereof.
"BOARD OF DIRECTORS" means the board of directors of the Company.
"BUSINESS DAY" has the meaning provided in the Exchangeable Share
Provisions;
"COMMON SHARES" has the meaning provided in the recitals hereto.
"EQUIVALENT VOTE AMOUNT" means, with respect any matter, proposition or
question on which holders of Parent Common Stock are entitled to vote, consent
or otherwise act, the number of votes to which a holder of one share of Parent
Common Stock is entitled with respect to such matter, proposition or question.
"EXCHANGE PUT RIGHT" has the meaning provided in the Exchangeable Share
Provisions.
"EXCHANGE RIGHT" has the meaning provided in Section 5.1 hereof.
"EXCHANGEABLE SHARE CONSIDERATION" has the meaning provided in the
Exchangeable Share Provisions.
"EXCHANGEABLE SHARE PRICE" has the meaning provided in the Exchangeable
Share Provisions.
"EXCHANGEABLE SHARE PROVISIONS" has the meaning provided in the recitals
hereto.
"EXCHANGEABLE SHARES" has the meaning provided in the recitals hereto.
"HOLDER VOTES" has the meaning provided in Section 4.3 hereof.
"HOLDERS" means the registered holders from time to time of Exchangeable
Shares, other than Parent and its subsidiaries.
"INSOLVENCY EVENT" means the institution by the Company of any proceeding to
be adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or the
consent of the Company to the institution of bankruptcy, insolvency, dissolution
or winding-up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding-up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies Creditors'
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the
failure by the Company to contest in good faith any such proceedings commenced
in respect of the Company within 30 days of becoming aware thereof, or the
consent by the Company to the filing of any such petition or to the appointment
of a receiver, or the making by the Company of a general assignment for the
benefit of creditors, or the admission in writing by the Company of its
inability to pay its debts generally as they become due, or the Company not
being permitted, pursuant to liquidity or solvency requirements of applicable
law, to redeem any Retracted Shares pursuant to Section 6.6 of the Exchangeable
Share Provisions.
"LIQUIDATION CALL RIGHT" has the meaning provided in the Articles of
Arrangement.
"LIQUIDATION EVENT" has the meaning provided in subsection 5.13(b) hereof.
<PAGE>
"LIQUIDATION EVENT EFFECTIVE TIME" has the meaning provided in subsection
5.13(c) hereof.
"LIST" has the meaning provided in Section 4.7 hereof.
"OFFICER'S CERTIFICATE" means, with respect to Parent or the Company, as the
case may be, a certificate signed by the Chief Executive Officer or Chief
Financial Officer of Parent or the Company, as the case may be and, with respect
to Subco, a certificate signed by the President or Treasurer of Subco.
"PARENT COMMON STOCK" means a share of common stock of Parent, par value
US$.01.
"PARENT CONSENT" has the meaning provided in Section 4.3 hereof.
"PARENT MEETING" has the meaning provided in Section 4.3 hereof.
"PARENT SPECIAL VOTING STOCK" has the meaning provided in the recitals
hereto.
"PARENT SUCCESSOR" has the meaning provided in subsection 11.1(a) hereof.
"PERSON" includes an individual, body corporate, partnership, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"PLAN OF ARRANGEMENT" has the meaning provided in the recitals hereto.
"REDEMPTION CALL RIGHT" has the meaning provided in the Plan of Arrangement.
"RETRACTED SHARES" has the meaning provided in Section 5.8 hereof.
"RETRACTION CALL RIGHT" has the meaning provided in the Exchangeable Share
Provisions.
"SUBSIDIARY" has the meaning provided in the Exchangeable Share Provisions.
"SUPPORT AGREEMENT" means that certain support agreement made as of even
date hereof by and between Parent, Subco and the Company.
"TRUST" means the trust created by this Agreement.
"TRUST ESTATE" means the Voting Share, any other securities, the Exchange
Put Right, the Exchange Right, the Automatic Exchange Rights and any money or
other property which may be held by the Trustee from time to time pursuant to
this Agreement.
"TRUSTEE" means Montreal Trust Company of Canada and, subject to the
provisions of Article 10 hereof, includes any successor trustee or permitted
assigns.
"VOTING RIGHTS" means the voting rights attached to the Voting Share.
"VOTING SHARE" means the one share of Parent Special Voting Stock issued by
Parent to and deposited with the Trustee, which entitles the holder of record to
a number of votes at meetings of holders of Parent Common Stock equal to the
Aggregate Equivalent Vote Amount.
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. Unless otherwise indicated, all references to
an "Article" or "Section" followed by a number and/or a letter refer to the
specified Article or Section of this Agreement. The terms "this Agreement",
"hereof", "herein" and "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement or instrument supplementary or ancillary hereto.
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.
<PAGE>
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 Put Right, the Exchange Right and the Automatic
Exchange Rights in order to enable the Trustee to exercise such rights, in each
case as trustee for and on behalf of the Holders as provided in this Agreement.
ARTICLE 3
VOTING SHARE
3.1 ISSUANCE AND OWNERSHIP OF THE VOTING SHARE. Parent hereby issues to
and deposits with the Trustee the Voting Share to be hereafter held of record by
the Trustee as trustee for and on behalf of, and for the use and benefit of, the
Holders and in accordance with the provisions of this Agreement. Parent 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 Parent 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.
3.2 LEGENDED SHARE CERTIFICATES. The Company will 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 the Holders.
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
EXERCISE OF 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 Parent at a Parent Meeting or in connection with a Parent
Consent. The Voting Rights shall be and remain vested in and exercised by the
Trustee. Subject to Section 7.15 hereof:
(a) 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 a
Parent Consent is sought or a Parent Meeting is held; and
(b) to the extent that no instructions are received from a Holder with
respect to the Voting Rights to which such Holder is entitled, the
Trustee shall not exercise or permit the exercise of such Holder's Voting
Rights.
The Trustee acknowledges that, in accordance with the terms of the Parent
Special Voting Stock, the holder of the Voting Share and the holders of shares
of Parent Common Stock shall vote or consent as a single class in respect of
each matter, question or proposition to be voted on at a Parent Meeting or being
consented to in connection with a Parent Consent, it being further acknowledged
that, in certain circumstances, the holder of the
<PAGE>
Voting Share shall, in addition, have a further vote as a separate class or
series in respect of any particular matter, question or proposition.
4.2 CLASS MEETINGS OF VOTING SHARE. Provided that the holder of the Voting
Share is also entitled to vote with the holders of Parent Common Stock as a
single class in accordance with the terms of the Parent Special Voting Stock,
with respect to any vote proposed for consideration by the holder of the Voting
Share voting separately as a series or class, either at a Parent Meeting or by
Parent Consent, other than a vote which, if passed, would affect the Voting
Rights of each Holder, the clerk of Parent shall instruct the Trustee as to the
manner in which the votes attached to the Voting Share shall be cast in such
class or series vote. When the holder of the Voting Share is not entitled to
vote with the holders of Parent Common Stock as a single class in accordance
with the terms of the Parent Special Voting Stock, the Holders may instruct the
Trustee as to the exercise of the votes attached to the Voting Share in such
class or series vote.
4.3 NUMBER OF VOTES. With respect to all meetings of stockholders of
Parent at which holders of shares of Parent Common Stock are entitled to vote (a
"Parent Meeting") and with respect to all written consents sought by Parent from
its stockholders including the holders of shares of Parent Common Stock (a
"Parent Consent"), each Holder shall be entitled to instruct the Trustee to cast
and exercise, in the manner instructed, a number of votes equal to the
Equivalent Vote Amount for each Exchangeable Share owned of record by such
Holder on the record date established by Parent or by applicable law for such
Parent Meeting or Parent Consent, as the case may be, (the "Holder Votes") in
respect of each matter, question or proposition to be voted on at such Parent
Meeting or to be consented to in connection with such Parent Consent.
4.4 MAILINGS TO SHAREHOLDERS. With respect to each Parent Meeting and
Parent Consent, the Trustee will mail or cause to be mailed (or otherwise
communicate in the same manner as Parent utilizes in communications to holders
of Parent Common Stock) to each of the Holders named in the List on the same day
as the initial mailing or notice (or other communication) with respect thereto
is commenced or given by Parent to its stockholders:
(a) a copy of such notice, together with any related materials to be
provided to stockholders of Parent;
(b) a statement that such Holder is entitled to instruct the Trustee as to
the exercise of the Holder Votes with respect to such Parent Meeting or
Parent Consent, as the case may be, or, pursuant to Section 4.8 hereof,
to attend such Parent Meeting and to exercise personally the Holder Votes
thereat;
(c) a statement as to the manner in which such instructions may be given to
the Trustee, including an express indication that instructions may be
given to the Trustee to give:
(i) a proxy to such Holder or his designee to exercise personally the
Holder Votes; or
(ii) a proxy to a designated agent or other representative of the
management of Parent 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 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 a Parent Meeting shall not be earlier than the close of business on
the second Business Day prior to such meeting, and the method for
revoking or amending such instructions.
The materials referred to above are to be provided by Parent to the Trustee,
but shall be subject to review and comment by the Trustee.
For the purpose of determining Holder Votes to which a Holder is entitled in
respect of any such Parent Meeting or Parent 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 Parent or by applicable law for
purposes of determining stockholders entitled to vote at such Parent Meeting or
to give written consent in connection with
<PAGE>
such Parent Consent. Parent will notify the Trustee of any decision of the board
of directors of Parent with respect to the calling of any such Parent Meeting or
the seeking of any such Parent 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 4.4.
4.5 COPIES OF STOCKHOLDER INFORMATION. Parent will deliver to the Trustee
copies of all proxy materials, (including notices of Parent Meetings, but
excluding proxies to vote shares of Parent Common Stock), information
statements, reports (including without limitation all interim and annual
financial statements) and other written communications that are to be
distributed from time to time to holders of Parent Common Stock in sufficient
quantities and in sufficient time so as to enable the Trustee to send those
materials to each Holder at the same time as such materials are first sent to
holders of Parent Common Stock. The Trustee will mail or otherwise send to each
Holder, at the expense of Parent, copies of all such materials (and all
materials specifically directed to the Holders or to the Trustee for the benefit
of the Holders by Parent) received by the Trustee from Parent at the same time
as such materials are first sent to holders of Parent Common Stock. The Trustee
will also make available for inspection by any Holder at the Trustee's principal
trust office in the city of Toronto all proxy materials, information statements,
reports and other written communications that are:
(a) received by the Trustee as the registered holder of the Parent Special
Voting Stock and made available by Parent generally to holders of Parent
Common Stock; or
(b) specifically directed to the Holders or to the Trustee for the benefit
of the Holders by Parent.
4.6 OTHER MATERIALS. As soon as reasonably practicable after receipt by
Parent or any stockholder of Parent (if such receipt is known by Parent) of any
material sent or given generally to the holders of Parent 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), Parent shall
use its 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 will mail or otherwise send to each Holder, at the expense
of Parent, copies of all such materials received by the Trustee from Parent. The
Trustee will also make copies of all such materials available for inspection by
any Holder at the Trustee's principal trust office in the city of Toronto.
4.7 LIST OF PERSONS ENTITLED TO VOTE. The Company shall, (a) prior to each
annual and special Parent Meeting or the seeking of any Parent 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 a Parent Meeting or a Parent Consent, at the close
of business on the record date established by Parent or pursuant to applicable
law for determining the holders of Parent Common Stock entitled to receive
notice of and/or to vote at such Parent Meeting or to give consent in connection
with such Parent Consent. Each such List shall be delivered to the Trustee
promptly after receipt by the Company of such request or the record date for
such meeting or seeking of consent, as the case may be, and in any event within
sufficient time as to enable the Trustee to perform its obligations under this
Agreement. Parent agrees to give the Company written notice (with a copy to the
Trustee) of the calling of any Parent Meeting or the seeking of any Parent
Consent, together with the record dates therefor, sufficiently prior to the date
of the calling of such meeting or seeking of such consent so as to enable the
Company to perform its obligations under this Section 4.7.
4.8 ENTITLEMENT TO DIRECT VOTES. Any Holder named in a List prepared in
connection with any Parent Meeting or any Parent Consent will be entitled (a) to
instruct the Trustee in the manner described in Section 4.4 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.
<PAGE>
4.9 VOTING BY TRUSTEE, AND ATTENDANCE OF TRUSTEE REPRESENTATIVE, AT
MEETING.
(a) In connection with each Parent Meeting and Parent Consent, the Trustee
shall exercise, either in person or by proxy, in accordance with the
instructions received from a Holder pursuant to Section 4.4 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 the Trustee for receipt of such instructions in the
notice given by the Trustee to the Holder pursuant to Section 4.4 hereof.
(b) The Trustee shall cause a representative who is empowered by it to sign
and deliver, on behalf of the Trustee, proxies for Voting Rights to attend each
Parent Meeting. Upon submission by a Holder (or its designee) of identification
satisfactory to the Trustee's representative, and at the Holder's request, such
representative 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
4.4 hereof in respect of such meeting, or
(ii) submits to the Trustee's representative written revocation of any such
previous instructions.
At such meeting, the Holder exercising such Holder Votes shall have the same
rights as the Trustee to speak at the meeting in respect of any matter, question
or proposition, to vote by way of ballot at the meeting in respect of any
matter, question or proposition, and to vote at such meeting by way of a show of
hands in respect of any matter, question or proposition.
4.10 DISTRIBUTION OF WRITTEN MATERIALS. Any written materials to be
distributed by the Trustee to the Holders pursuant to this Agreement shall be
sent by mail (or otherwise communicated in the same manner as Parent utilizes in
communications to holders of Parent Common Stock) to each Holder at its address
as shown on the books of the Company. The Company 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 current List; and
(b) on the request of the Trustee, mailing labels to enable the Trustee to
carry out its duties under this Agreement.
4.11 TERMINATION OF VOTING RIGHTS. Except as otherwise provided herein or
in the Exchangeable Share Provisions, all of the rights of a Holder with respect
to the Holder Votes exercisable in respect of the Exchangeable Shares held by
such Holder, including the right to instruct the Trustee as to the voting of or
to vote personally such Holder Votes, shall be deemed to be surrendered by the
Holder to Parent or Subco, as the case may be, 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 Put Right
or the Exchange Right or the occurrence of the automatic exchange of
Exchangeable Shares for shares of Parent Common Stock, as specified in Article 5
hereof (unless in any case Parent or Subco shall not have delivered the
Exchangeable Share Consideration deliverable in exchange therefor to the Trustee
for delivery to the Holders), or upon the redemption of Exchangeable Shares
pursuant to Article 6 or Article 7 of the Exchangeable Share Provisions, or upon
the effective date of the liquidation, dissolution or winding-up of the Company
or any other distribution of the assets of the Company among its shareholders
for the purpose of winding up its affairs pursuant to Article 5 of the
Exchangeable Share Provisions, or upon the purchase of Exchangeable Shares from
the holder thereof by Subco pursuant to the exercise by Subco of the Retraction
Call Right, the Redemption Call Right or the Liquidation Call Right.
ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. Subco hereby grants to the
Trustee as trustee for and on behalf of, and for the use and benefit of, the
Holders (a) the Exchange Put Right and (b) the right (the
<PAGE>
"Exchange Right"), upon the occurrence and during the continuance of an
Insolvency Event, to require Subco to purchase from each or any Holder all or
any part of the Exchangeable Shares held by the Holders, all in accordance with
the provisions of this Agreement and the Exchangeable Share Provisions, as the
case may be. Subco hereby acknowledges receipt from the Trustee as trustee for
and on behalf of the Holders of good and valuable consideration (and the
adequacy thereof) for the grant of the Exchange Put Right and the Exchange Right
by Subco 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 Exchange Put Right and the Exchange Right and shall
be entitled to exercise all of the rights and powers of an owner with respect to
the Exchange Put Right and the Exchange Right, provided that the Trustee shall:
(i) hold the Exchange Put Right and the Exchange Right 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
(ii) except as specifically authorized by this Agreement, have no power or
authority to exercise or otherwise deal in or with the Exchange Put
Right or the Exchange Right, 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 GRANT AND OWNERSHIP OF THE AUTOMATIC EXCHANGE RIGHTS. Parent and Subco
hereby jointly and severally grant to the Trustee as trustee for and on behalf
of, and for the use and benefit of, the Holders the Automatic Exchange Rights in
accordance with the provisions of this Agreement. Parent and Subco hereby
acknowledge receipt from the Trustee as trustee for and on behalf of the Holders
of good and valuable consideration (and the adequacy thereof) for the grant of
the Automatic Exchange Rights by Parent and Subco 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 Automatic
Exchange Rights and shall be entitled to exercise all of the rights and powers
of an owner with respect to the Automatic Exchange Rights, provided that the
Trustee shall:
(a) hold 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 Automatic Exchange
Rights, and the Trustee shall not exercise such rights for any purpose
other than the purposes for which this Trust is created pursuant to this
Agreement.
5.3 LEGENDED SHARE CERTIFICATES. The Company will cause each certificate
representing 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 Put Right and the Exchange Right in respect of the Exchangeable
Shares held by a Holder, and
(b) the Automatic Exchange Rights.
5.4 GENERAL EXERCISE OF EXCHANGE PUT RIGHT AND EXCHANGE RIGHT. The
Exchange Put Right and the Exchange Right shall be and remain vested in and
exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall
exercise the Exchange Put Right and 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 Put Right
and the Exchange Right, the Trustee shall not exercise or permit the exercise of
the Exchange Put Right and the Exchange Right.
5.5 PURCHASE PRICE. The purchase price payable by Subco for each
Exchangeable Share to be purchased by Subco (a) under the Exchange Put Right
shall be the amount determined under the Exchangeable Share Provisions, and (b)
under the Exchange Right shall be an amount equal to the Exchangeable Share
Price on the last Business Day prior to the day of closing of the purchase and
sale of such Exchangeable Share under the Exchange Right. In connection with
each exercise of the Exchange Right, Subco will provide to the Trustee an
Officer's Certificate setting forth the calculation of the applicable
Exchangeable Share Price for each Exchangeable Share. The applicable
Exchangeable Share Price for each such Exchangeable Share so purchased may be
satisfied only by Subco's issuing and delivering or causing to be delivered to
the Trustee, on behalf of the
<PAGE>
relevant Holder, the applicable Exchangeable Share Consideration representing
the total applicable Exchangeable Share Price (less any amounts withheld
pursuant to Section 5.14 hereof).
5.6 EXERCISE INSTRUCTIONS. Subject to the terms and conditions set forth
herein, a Holder shall be entitled, upon the occurrence and during the
continuance of an Insolvency Event, to instruct the Trustee to exercise the
Exchange Right with respect to all or any part of the Exchangeable Shares
registered in the name of such Holder on the books of the Company. To cause the
exercise of the Exchange Right by the Trustee, the Holder shall deliver to the
Trustee, in person or by certified or registered mail, at its principal trust
office in Toronto, Ontario or at such other places in Canada as the Trustee may
from time to time designate by written notice to the Holders, the certificates
representing the Exchangeable Shares which such Holder desires Subco 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 CBCA and the by-laws of the Company and such additional documents and
instruments as the Trustee may reasonably require, together with:
(a) a duly completed form of notice of exercise of the Exchange Right,
contained on the reverse of or attached to the Exchangeable Share
certificates, stating:
(i) that the Holder thereby instructs the Trustee to exercise the
Exchange Right so as to require Subco to purchase from the Holder
the number of Exchangeable Shares specified therein,
(ii) that such Holder has good title to and owns all such Exchangeable
Shares to be acquired by Subco free and clear of all liens, claims,
encumbrances, security interests and adverse claims or interests,
(iii) the names in which the certificates representing Parent Common
Stock issuable in connection with the exercise of the Exchange
Right are to be issued, and
(iv) the names and addresses of the persons to whom the Exchangeable
Share Consideration should be delivered; and
(b) payment (or evidence satisfactory to the Trustee, the Company and Subco
of payment) of the taxes (if any) payable as contemplated by Section 5.9
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 Subco under the
Exchange Right, a new certificate for the balance of such Exchangeable Shares
shall be issued to the Holder at the expense of the Company.
5.7 DELIVERY OF EXCHANGEABLE SHARE CONSIDERATION; EFFECT OF
EXERCISE. Promptly after receipt of the certificates duly endorsed for transfer
to Subco representing the Exchangeable Shares which the Holder desires Subco to
purchase under the Exchange Put Right or the Exchange Right, together with such
documents and instruments of transfer and a duly completed form of notice of
exercise of the Exchange Put Right or the Exchange Right (and payment of taxes,
if any, payable as contemplated by Section 5.9 hereof), the Trustee shall notify
Subco and the Company of its receipt of the same, which notice to Subco and the
Company shall constitute exercise of the Exchange Put Right or the Exchange
Right by the Trustee on behalf of the Holder of such Exchangeable Shares, and
Subco shall immediately thereafter deliver or cause to be delivered to the
Trustee, for delivery to the Holder of such Exchangeable Shares (or to such
other persons, if any, properly designated by such Holder), the Exchangeable
Share Consideration deliverable in connection with the exercise of the Exchange
Put Right or the Exchange Right (less any amounts withheld pursuant to Section
5.14 hereof); provided, however, that no such delivery shall be made unless and
until the Holder requesting the same shall have paid (or provided evidence
satisfactory to the Trustee, the Company and Subco of the payment of) the taxes
(if any) payable as contemplated by Section 5.9 of this Agreement. Immediately
upon the giving of notice by the Trustee to Subco and the Company of the
exercise of the Exchange Put Right or the Exchange Right, as provided in this
Section 5.7, (a) the closing of the transaction of purchase and sale
contemplated by the Exchange Put Right or the Exchange Right shall be deemed to
have occurred, (b) Subco shall be required to take all action necessary to
permit it to occur, including delivery to the Trustee of the relevant
Exchangeable Share Consideration, no later than the close of business on the
fifth Business Day following the receipt by the Trustee of notice, certificates
and other documents as aforesaid and (c) the Holder of such Exchangeable Shares
shall be deemed to have transferred to Subco all of its right, title and
interest in and to such Exchangeable Shares and the related interest in the
Trust Estate, shall cease to be a holder of such Exchangeable Shares and
<PAGE>
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the total
purchase price therefor, unless such Exchangeable Share Consideration is not
delivered by Subco to the Trustee by the date specified above, in which case the
rights of the Holder shall remain unaffected until such Exchangeable Share
Consideration is delivered by Subco and any check included therein is 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 Parent Common Stock delivered to it pursuant to the Exchange Put Right
or the Exchange Right. Notwithstanding the foregoing until the Exchangeable
Share Consideration is delivered to the Holder, the Holder shall be deemed to
still be a holder of the sold Exchangeable Shares for purposes of voting rights
with respect thereto under this Agreement.
5.8 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION. In the event that
a Holder has exercised its right under Article 6 of the Exchangeable Share
Provisions to require the Company to redeem any or all of the Exchangeable
Shares held by the Holder (the "Retracted Shares") and is notified by the
Company pursuant to Section 6.6 of the Exchangeable Share Provisions that the
Company will not be permitted as a result of liquidity or solvency requirements
of applicable law to redeem all such Retracted Shares, subject to receipt by the
Trustee of written notice to that effect from the Company and provided that
Subco shall not have exercised the Retraction Call Right with respect to the
Retracted Shares and that the Holder has not revoked the retraction request
delivered by the Holder to the Company pursuant to Section 6.1 of the
Exchangeable Share Provisions, the retraction request will constitute and will
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 the Company is unable to redeem. In any such event, the Company hereby
agrees with the Trustee and in favor of the Holder immediately to notify the
Trustee of such prohibition against the Company's redeeming all of the Retracted
Shares and immediately to forward or cause to be forwarded to the Trustee all
relevant materials delivered by the Holder to the Company or to the transfer
agent of the Exchangeable Shares (including without limitation a copy of the
retraction request delivered pursuant to Section 6.1 of the Exchangeable Share
Provisions) in connection with such proposed redemption of the Retracted Shares,
and the Trustee will thereupon exercise the Exchange Right with respect to the
Retracted Shares which the Company is not permitted to redeem and will require
Subco to purchase such shares in accordance with the provisions of this Article
5.
5.9 STAMP OR OTHER TRANSFER TAXES. Upon any sale of Exchangeable Shares to
Subco pursuant to the Exchange Put Right or the Exchange Right or any sale of
Exchangeable Shares to Parent or Subco pursuant to the Automatic Exchange
Rights, the share certificate or certificates representing Parent Common Stock
to be delivered in connection with the payment of the total 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 none of Parent, Subco, the Company or the Trustee shall
be required to pay) any documentary, stamp, transfer or other 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, or
(b) shall have established to the satisfaction of the Trustee, Subco, Parent
(in the case of the sale of Exchangeable Shares to Parent pursuant to the
Automatic Exchange Rights) and the Company that such taxes, if any, have
been paid.
5.10 NOTICE OF INSOLVENCY EVENT. As soon as practicable following the
occurrence of an Insolvency Event or any event which with the giving of notice
or the passage of time or both would be an Insolvency Event, the Company and
Subco shall give written notice thereof to the Trustee. As soon as practicable
after receiving notice from the Company or Subco of the occurrence of an
Insolvency Event, the Trustee will mail to each Holder, at the expense of Subco,
a notice of such Insolvency Event in the form provided by Subco, which notice
shall contain a brief statement of the right of the Holders with respect to the
Exchange Right.
5.11 QUALIFICATION OF PARENT COMMON STOCK. Parent covenants that if any
shares of Parent Common Stock to be issued and delivered pursuant to the
Exchange Put Right, the Exchange Right or the Automatic Exchange Rights require
registration or qualification with or approval of or the filing of any document
including any prospectus or similar document, the taking of any proceeding with
or the obtaining of any order, ruling or consent from any governmental or
regulatory authority under any Canadian or United States federal, provincial
<PAGE>
or state law or regulation or pursuant to the rules and regulations of any
regulatory authority, or the fulfillment of any other legal requirement
(collectively, the "Applicable Laws") before such shares may be issued and
delivered by Parent or Subco to the initial holder thereof (other than the
Company) or in order that such shares may be freely traded thereafter (other
than contractual restrictions and any restrictions on transfer by reason of a
holder being a "CONTROL PERSON" of Parent for purposes of Canadian federal or
provincial securities law or an "AFFILIATE" of Parent or the Company for
purposes of United States federal or state securities law), Parent will in good
faith expeditiously take all such actions and do all such things as are
necessary to cause such shares of Parent Common Stock to be and remain duly
registered, qualified or approved. Parent represents and warrants that it has in
good faith taken all actions and done all things as are necessary under
Applicable Laws as they exist on the date hereof to cause the shares of Parent
Common Stock to be issued and delivered pursuant to the Exchange Put Right, the
Exchange Right and the Automatic Exchange Rights and to be freely tradeable
thereafter (other than contractual restrictions and restrictions on transfer by
reason of a holder being a "CONTROL PERSON" of Parent for the purposes of
Canadian federal and provincial securities law or an "AFFILIATE" of Parent or
the Company for the purposes of United States federal or state securities law).
Parent will in good faith expeditiously take all such actions and do all such
things as are necessary to cause all shares of Parent Common Stock to be
delivered pursuant to the Exchange Put Right, the Exchange Right or the
Automatic Exchange Rights to be listed, quoted or posted for trading on all
stock exchanges and quotation systems on which such shares are listed, quoted or
posted for trading at such time.
5.12 PARENT COMMON STOCK. Parent hereby represents, warrants and covenants
that the Parent Common Stock issuable and deliverable as described herein will
be duly authorized and validly issued as fully paid and non-assessable.
5.13 AUTOMATIC EXCHANGE ON LIQUIDATION OF PARENT.
(a) Parent will give the Trustee written notice of each of the following
events at the time set forth below:
(i) in the event of any determination by the board of directors of Parent to
institute voluntary liquidation, dissolution or winding-up proceedings
with respect to Parent or to effect any other distribution of assets of
Parent among its stockholders for the purpose of winding up its affairs,
at least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution; and
(ii) as soon as practicable following the earlier of:
(A) receipt by Parent of notice of and
(B) Parent's 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 Parent or to
effect any other distribution of assets of Parent among its
stockholders for the purpose of winding up its affairs, in each case
where Parent has failed to contest in good faith any such proceeding
commenced in respect of Parent within 30 days of becoming aware
thereof.
(b) Immediately following receipt by the Trustee from Parent of notice of
any event (a "Liquidation Event") contemplated by Section 5.13(a)(i) or
5.13(a)(ii) above, the Trustee will give notice thereof to the Holders. Such
notice shall include a brief description of the automatic exchange of
Exchangeable Shares for shares of Parent Common Stock provided for in Section
5.13(c).
(c) In order that the Holders will be able to participate on a pro rata
basis with the holders of Parent Common Stock in the distribution of assets of
Parent in connection with a Liquidation Event, immediately prior to the
effective time (the "Liquidation Event Effective Time") of a Liquidation Event,
all of the then outstanding Exchangeable Shares shall be automatically exchanged
for shares of Parent Common Stock. To effect such automatic exchange, Parent or
Subco, as determined by Parent and notified in writing to the Trustee, or upon
failure of such notice, Parent, shall be deemed to have purchased each
Exchangeable Share outstanding immediately prior to the Liquidation Event
Effective Time and held by Holders, and each Holder shall be deemed to have sold
the Exchangeable Shares held by it at such time, for a purchase price per share
equal to the Exchangeable Share Price applicable at such time. In connection
with such automatic exchange, Parent will provide to the Trustee an Officer's
Certificate setting forth the calculation of the purchase price for each
Exchangeable Share.
<PAGE>
(d) The closing of the transaction of purchase and sale contemplated by
Section 5.13(c) above shall be deemed to have occurred immediately prior to the
Liquidation Event Effective Time, and each Holder of Exchangeable Shares shall
be deemed to have transferred to Parent or Subco, as the case may be, 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 Parent or Subco, as the case may be, shall deliver to
the Holder the Exchangeable Share Consideration deliverable upon the automatic
exchange of Exchangeable Shares (less any amounts withheld pursuant to Section
5.14 hereof). Concurrently with such Holder's 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 Parent Common Stock delivered to it pursuant
to the automatic exchange of Exchangeable Shares for Parent Common Stock, and
the certificates held by the Holder previously representing the Exchangeable
Shares exchanged by the Holder with Parent or Subco, as the case may be,
pursuant to such automatic exchange shall thereafter be deemed to represent the
shares of Parent Common Stock delivered to the Holder pursuant to such automatic
exchange. Upon the request of a Holder and the surrender by the Holder of
Exchangeable Share certificates deemed to represent shares of Parent Common
Stock, duly endorsed in blank and accompanied by such instruments of transfer as
Parent or Subco, as the case may be, may reasonably require, Parent or Subco, as
the case may be, shall deliver or cause to be delivered to the Holder
certificates representing the shares of Parent Common Stock of which the Holder
is the holder. Notwithstanding the foregoing, until each Holder is actually
entered on the register of holders of Parent Common Stock, such Holder shall be
deemed to still be a holder of the transferred Exchangeable Shares for purposes
of all voting rights with respect thereto under this Agreement.
5.14 WITHHOLDING RIGHTS. Parent, Subco and the Trustee shall be entitled
to deduct and withhold from any consideration otherwise payable under this
Agreement to any holder of Exchangeable Shares or Parent Common Stock such
amounts as Parent, Subco or the Trustee is required or permitted to deduct and
withhold with respect to such payment under the Income Tax Act (Canada), the
United States Internal Revenue Code of 1986 or any provision of provincial,
state, local or foreign tax law, in each case as amended or succeeded. To the
extent that amounts are so withheld, such withheld amounts shall be treated for
all purposes as having been paid to the holder of the shares in respect of which
such deduction and withholding was made, provided that such withheld amounts are
actually remitted to the appropriate taxing authority. To the extent that the
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, Parent, Subco and the Trustee are hereby authorized to sell or otherwise
dispose of such portion of the consideration as is necessary to provide
sufficient funds to Parent, Subco or the Trustee, as the case may be, to enable
it to comply with such deduction or withholding requirement and Parent, Subco or
the Trustee shall notify the holder thereof and remit to such holder any
unapplied balance of the net proceeds of such sale.
ARTICLE 6
RESTRICTIONS ON ISSUANCE OF PARENT SPECIAL VOTING STOCK
During the term of this Agreement, Parent will not, without the consent of
the holders at the relevant time of the Exchangeable Shares given in accordance
with Article 10 of the Exchangeable Share Provisions, issue any shares of Parent
Special Voting Stock in addition to the Voting Share.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 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 deposit of the Voting Share from Parent 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;
<PAGE>
(d) receiving the grant of the Exchange Put Right and the Exchange Right
from Subco and receiving the grant of the Automatic Exchange Rights from
Parent and Subco as trustee for and on behalf of the Holders in
accordance with the provisions of this Agreement;
(e) exercising the Exchange Put Right and 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 shares of Parent Common Stock and
checks, if any, to which such Holders are entitled upon the exercise of
the Exchange Put Right and the Exchange Right or pursuant to the
Automatic Exchange Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the Trust
Estate as provided in this Agreement;
(h) taking action at the direction of a Holder or Holders to enforce the
obligations of Parent, Subco and the Company 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. The Trustee in
exercising its rights, powers, duties and authorities hereunder shall act
honestly and in good faith with a view to the best interests of the Holders and
shall exercise the care, diligence and skill that a reasonably prudent trustee
would exercise in comparable circumstances.
7.2 NO CONFLICT OF INTEREST. The Trustee represents to the Company, Parent
and Subco 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 60 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 10 hereof. If,
notwithstanding the foregoing provisions of this Section 7.2, 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 7.2, any interested party may apply to the
Ontario Court of Justice (General Division) for an order that the Trustee be
replaced as trustee hereunder.
7.3 DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. The Company, Parent
and Subco irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective registrars
and transfer agents, and with any such subsequent registrar or transfer
agent, of the Exchangeable Shares and Parent Common Stock; and
(b) requisition, from time to time,
(i) from any such registrar or transfer agent any information readily
available from the records maintained by it which the Trustee may
reasonably require for the discharge of its duties and
responsibilities under this Agreement and
(ii) from the transfer agent of Parent Common Stock, and any subsequent
transfer agent of such shares, to complete the exercise from time
to time of the Exchange Put Right, the Exchange Right and the
Automatic Exchange Rights in the manner specified in Article 5
hereof, the share certificates issuable upon such exercise.
<PAGE>
The Company, Parent and Subco irrevocably authorize their respective
registrars and transfer agents to comply with all such requests. Parent
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 Put Right, the Exchange Right and the Automatic Exchange Rights, in
each case pursuant to Article 5 hereof.
7.4 BOOKS AND RECORDS. The Trustee shall keep available for inspection by
Parent, Subco and the Company, at the Trustee's principal trust office in
Toronto, Ontario, correct and complete books and records of account relating to
the Trustee's actions under this Agreement, including without limitation, all
information relating to mailings and instructions to and from Holders and all
transactions pursuant to the Voting Rights, the Exchange Put Right, the Exchange
Right and the Automatic Exchange Rights for the term of this Agreement. On or
before March 31, 2000, 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 Parent and the Company a brief report, dated as of the preceding
December 31, with respect to:
(a) property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Put Right and 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 Parent of shares of Parent Common Stock in connection with
the Exchange Put Right and 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 which it had not previously reported.
7.5 INCOME TAX RETURNS AND REPORTS. The Trustee shall to the extent
necessary, prepare and file on behalf of the Trust appropriate United States and
Canadian income tax returns and any other returns or reports as may be required
by applicable law or pursuant to the rules and regulations of any securities
exchange or other trading system through which the Exchangeable Shares are
traded.
7.6 INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested in it by
this Agreement at the request, order or direction of any Holder upon such
Holder's furnishing to the Trustee reasonable funding, security and indemnity
against the costs, expenses and liabilities which 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 the Voting Share pursuant to Article 4 hereof, subject to Section 7.15
hereof, and with respect to the Exchange Put Right and the Exchange Right
pursuant to Article 5 hereof, subject to Section 7.15 hereof, and with respect
to the Automatic Exchange Rights pursuant to Article 5 hereof. None of the
provisions contained in this Agreement shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the exercise of any
of its rights, powers, duties or authorities unless funded, given funds,
security and indemnified as aforesaid.
7.7 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 7.6 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 Put Right, 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 equal benefit of all Holders.
7.8 RELIANCE UPON DECLARATIONS. The Trustee shall not be considered to be
in contravention of any of its rights, powers, duties and authorities hereunder
if, when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other papers
or documents furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its
<PAGE>
rights, powers, duties and authorities hereunder, and such lists, mailing
labels, notices, statutory declarations, certificates, opinions, reports or
other papers or documents comply with the provisions of Section 7.9 hereof, if
applicable, and with any other applicable provisions of this Agreement.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE. The Company, Parent and Subco 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 any of them 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 or the Exchange Put Right, the Exchange Right or
the Automatic Exchange Rights and the taking of any other action to be taken by
the Trustee at the request of or on the application of the Company, Parent or
Subco 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
7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this Agreement, gives the Company, Parent or Subco
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 Company,
Parent or Subco 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 or
the Exchange Put Right, 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 such person, provided that if such report or opinion is
furnished by a director, officer or employee of the Company, Parent or Subco it
shall be in the form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, Officer's 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 such person 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 such person based the statutory declaration, Officer's Certificate,
opinion or report; and
(c) declaring that such person has made such examination or investigation as
such person believes is necessary to enable such person to make the
statements or give the opinions contained or expressed therein.
7.10 EXPERTS, ADVISERS AND AGENTS. The Trustee may:
(a) in relation to these presents act and rely on the opinion or advice of
or information obtained from or prepared by any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert, whether retained
by the Trustee or by any of the Company, Parent and Subco or otherwise,
and may employ such assistants as may be necessary to the proper
determination and discharge of its powers and duties and determination of
its rights hereunder and may pay proper and reasonable compensation for
all such legal and other advice or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably require for
the proper determination and discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all services performed
for it (and shall be entitled to receive reasonable remuneration for all
services performed by it) in the discharge of the trusts hereof and
compensation for all disbursements, costs and expenses made or incurred
by it in the determination and discharge of its duties hereunder and in
the management of the Trust.
<PAGE>
7.11 INVESTMENT OF MONEYS HELD BY TRUSTEE. Unless otherwise provided in
this Agreement, any moneys held by or on behalf of the Trustee which under the
terms of this Agreement may or ought to be invested or which may be on deposit
with the Trustee or which may be in the hands of the Trustee, may be invested
and reinvested in the name or under the control of the Trustee in securities in
which, under the laws of the Province of Ontario, trustees are authorized to
invest trust moneys; provided that such securities are stated to mature within
two years after their purchase by the Trustee, and the Trustee shall so invest
such moneys on the written direction of the Company. Pending the investment of
any moneys as hereinbefore provided, such moneys may be deposited in the name of
the Trustee in any chartered bank in Canada or, with the consent of the Company,
in the deposit department of the Trustee or any other loan or trust company
authorized to accept deposits under the laws of Canada or any province thereof
at the rate of interest then current on similar deposits.
7.12 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 or otherwise in respect
of the premises.
7.13 TRUSTEE NOT BOUND TO ACT ON REQUEST. Except as otherwise specifically
provided in this Agreement, the Trustee shall not be bound to act in accordance
with any direction or request of the Company, Parent or Subco or of the
directors thereof until a duly authenticated copy of the instrument or
resolution containing such direction or request shall have been delivered to the
Trustee, and the Trustee shall be empowered to act and rely upon any such copy
purporting to be authenticated and believed by the Trustee to be genuine.
7.14 AUTHORITY TO CARRY ON BUSINESS. The Trustee represents to the
Company, Parent and Subco that at the date of execution and delivery by it of
this Agreement it is authorized to carry on the business of a trust company in
each of the Provinces of Canada but if, notwithstanding the provisions of this
Section 7.14, it ceases to be so authorized to carry on business, the validity
and enforceability of this Agreement and the Voting Rights, the Exchange Put
Right, the Exchange Right and the Automatic Exchange Rights shall not be
affected in any manner whatsoever by reason only of such event; provided,
however, the Trustee shall within 60 days after ceasing to be authorized to
carry on the business of a trust company in any Province of Canada, either
become so authorized or resign in the manner and with the effect specified in
Article 10 hereof.
7.15 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 Put Right, Exchange Right 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 Put Right, Exchange Right or Automatic Exchange Rights subject
to such conflicting claims or demands have been adjudicated by a final
judgment of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange Put Right,
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 indemnity it as between all conflicting claims
or demands.
7.16 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.
<PAGE>
ARTICLE 8
COMPENSATION
Parent, Subco and the Company 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
(including taxes other than taxes based on the net income of the Trustee) and
disbursements, including the cost and expense of any suit or litigation of any
character and any proceedings before any governmental agency, reasonably
incurred by the Trustee in connection with its rights and duties under this
Agreement; provided that Parent, Subco and the Company shall have no obligation
to reimburse the Trustee for any expenses or disbursements paid, incurred or
suffered by the Trustee in any suit or litigation in which the Trustee is
determined to have acted fraudulently or in bad faith or with negligence,
recklessness or willful misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 INDEMNIFICATION OF THE TRUSTEE. Parent, Subco and the Company jointly
and severally agree to indemnity and hold harmless the Trustee and each of its
directors, officers 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, negligence,
recklessness, 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 Parent, Subco or the Company pursuant
hereto. In no case shall Parent, Subco or the Company be liable under this
indemnity for any claim against any of the Indemnified Parties unless Parent,
Subco and the Company 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, Parent, Subco and the Company shall be entitled to
participate at their own expense in the defense and, if Parent, Subco or the
Company so elect at any time after receipt of such notice, any of them may
assume the defense of any suit brought to enforce any such claim. The Trustee
shall have the right to employ separate counsel in any such suit and participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of the Trustee unless: (i) the employment of such counsel has been
authorized by Parent, Subco or the Company; or (ii) the named parties to any
such suit include both the Trustee and Parent, Subco or the Company and the
Trustee shall have been advised by counsel acceptable to Parent, Subco or the
Company that there may be one or more legal defenses available to the Trustee
that are different from or in addition to those available to Parent, Subco or
the Company and that, in the judgement of such counsel, would present a conflict
of interest were a joint representation to be undertaken (in which case Parent,
Subco and the Company 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).
9.2 LIMITATION OF LIABILITY. The Trustee shall not be held liable for any
loss which may occur by reason of depreciation of the value of any part of the
Trust Estate or any loss incurred on any investment of funds pursuant to this
Agreement, except to the extent that such loss is attributable to the fraud,
negligence, recklessness, willful misconduct or bad faith on the part of the
Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 RESIGNATION. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to Parent, Subco
and the Company specifying the date on which it desires to resign, provided that
such notice shall never be given less than 60 days before such desired
resignation date unless Parent, Subco and the Company 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
<PAGE>
successor trustee. Upon receiving such notice of resignation, Parent, Subco and
the Company 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 of Justice
(General Division) upon application of one or more of the parties hereto.
10.2 REMOVAL. The Trustee, or any trustee hereafter appointed, may be
removed with or without cause, at any time on not less than 30 days' prior
notice by written instrument executed by Parent, Subco and the Company, in
duplicate, one copy of which shall be delivered to the trustee so removed and
one copy to the successor trustee, provided that, in connection with such
removal, provision is made for a replacement trustee similar to that
contemplated in Section 10.1.
10.3 SUCCESSOR TRUSTEE. Any successor trustee appointed as provided under
this Agreement shall execute, acknowledge and deliver to Parent, Subco and the
Company 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 Parent, Subco and the Company 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, Parent, Subco, the Company
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.
10.4 NOTICE OF SUCCESSOR TRUSTEE. Upon acceptance of appointment by a
successor trustee as provided herein, Parent, Subco and the Company shall cause
to be mailed notice of the succession of such trustee hereunder to each Holder
specified in a List. If Parent, Subco or the Company shall fail to cause such
notice to be mailed within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of Parent, Subco and the Company.
ARTICLE 11
PARENT SUCCESSORS
11.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. Parent 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, but may do so if:
(a) such other Person or continuing corporation (the "Parent 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, and in the opinion of
legal counsel to the Trustee are necessary or advisable to evidence the
assumption by the Parent Successor of liability for all moneys payable
and property deliverable hereunder, the covenant of such Parent 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 Parent under
this Agreement; and
(b) such transaction shall, to the satisfaction of the Trustee and in the
opinion of legal counsel to the Trustee, be upon such terms which
substantially preserve and do not impair in any material respect any of
the rights, duties, powers and authorities of the Trustee or of the
Holders hereunder.
11.2 VESTING OF POWERS IN PARENT SUCCESSOR. Whenever the conditions of
Section 11.1 hereof have been duly observed and performed, the Trustee, if
required by Section 11.1 hereof, the Parent Successor, Subco and the Company
shall execute and deliver the supplemental agreement provided for in Article 12
hereof, and thereupon the Parent Successor shall possess and from time to time
may exercise each and every right and power of Parent under this Agreement in
the name of Parent or otherwise and any act or proceeding by any provision
<PAGE>
of this Agreement required to be done or performed by the board of directors of
Parent or any officers of Parent may be done and performed with like force and
effect by the directors or officers of such Parent Successor.
11.3 WHOLLY-OWNED SUBSIDIARIES. Nothing herein shall be construed as
preventing the amalgamation or merger of any wholly-owned subsidiary of Parent
with or into Parent or the winding-up, liquidation or dissolution of any
wholly-owned subsidiary of Parent provided that all of the assets of such
subsidiary are transferred to Parent or another wholly-owned subsidiary of
Parent, and any such transactions are expressly permitted by this Article 11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
12.1 AMENDMENTS, MODIFICATIONS, ETC. Subject to Section 12.4, this
Agreement may not be amended, modified or waived except by an agreement in
writing executed by the Company, Subco, Parent and the Trustee and approved by
the Holders in accordance with Section Article 10 of the Exchangeable Share
Provisions. No amendment to or modification or waiver of any of the provisions
of this Agreement otherwise permitted hereunder shall be effective unless made
in writing and signed by all of the parties hereto.
12.2 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of Section
12.1 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 which, in the opinion of the board of directors of each of
Parent, Subco and the Company and in the opinion of the Trustee and its
counsel, having in mind the best interests of the Holders as a whole, it
may be expedient to make, provided that such boards of directors and the
Trustee and its counsel shall be of the opinion that such amendments and
modifications will not be prejudicial to the interests of the Holders as
a whole; or
(c) making such changes or corrections which, on the advice of counsel to
the Company, Subco, Parent and the Trustee, are required for the purpose
of curing or correcting any ambiguity or defect or inconsistent provision
or clerical omission or mistake or manifest error; provided that the
Trustee and its counsel and the board of directors of each of the
Company, Subco and Parent shall be of the opinion that such changes or
corrections will not be prejudicial to the interests of the Holders as a
whole.
12.3 MEETING TO CONSIDER AMENDMENTS. The Company, at the request of Parent
or Subco, shall call a meeting or meetings of the Holders for the purpose of
considering any proposed amendment or modification requiring approval pursuant
hereto. Any such meeting or meetings shall be called and held in accordance with
the by-laws of the Company, the Exchangeable Share Provisions and all applicable
laws.
12.4 CHANGES IN CAPITAL OF PARENT AND THE COMPANY. At all times after the
occurrence of any event effected pursuant to Section 2.7 or Section 2.8 of the
Support Agreement, as a result of which either Parent Common Stock or the
Exchangeable Shares or both are in any way changed, this Agreement shall
forthwith be amended and modified as necessary in order that it shall apply with
full force and effect, mutatis mutandis, to all new securities into which Parent
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.
12.5 EXECUTION OF SUPPLEMENTAL AGREEMENTS. From time to time the Company
(when authorized by a resolution of its Board of Directors), Parent (when
authorized by a vote of its board of directors), Subco (when authorized by a
resolution of its board of directors) and the Trustee may, subject to the
provisions of these presents, and they shall, when so directed by these
presents, execute and deliver by their proper officers, agreements or other
instruments supplemental hereto, which thereafter shall form part hereof, for
any one or more of the following purposes:
<PAGE>
(a) evidencing the succession of any Parent Successors to Parent and the
covenants of and obligations assumed by each such Parent Successor in
accordance with the provisions of Article 11 and the successor of any
successor trustee in accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the provisions
of this Agreement or the Voting Rights, the Exchange Put Right, the
Exchange Right or the Automatic Exchange Rights which, in the opinion of
the Trustee and its counsel, will not be prejudicial to the interests of
the Holders as a whole or are in the opinion of counsel to the Trustee
necessary or advisable in order to incorporate, reflect or comply with
any legislation the provisions of which apply to Parent, Subco, the
Company, 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 and its counsel, the rights
of the Trustee and the Holders as a whole will not be prejudiced thereby.
ARTICLE 13
TERMINATION
13.1 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 a Holder,
(b) each of the Company, Subco and Parent elects in writing to terminate the
Trust and such termination is approved by the Holders in accordance with
Article 10 of the Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of His
Majesty King George VI of the United Kingdom of Great Britain and
Northern Ireland living on the date of the creation of the Trust.
13.2 SURVIVAL OF AGREEMENT. This Agreement shall survive any termination
of the Trust and shall continue until there are no Exchangeable Shares
outstanding held by a Holder, provided, however, that the provisions of Articles
8 and 9 hereof shall survive any such termination of this Agreement.
ARTICLE 14
GENERAL
14.2 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 the Agreement shall be carried out as nearly as possible in
accordance with its original terms and conditions.
14.3 INUREMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns and to the benefit of the Holders.
14.3 NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in like
notice):
TO PARENT OR SUBCO:
PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, MA 01821-3986
Attention: Chief Executive Officer
FACSIMILE NUMBER: (978) 671-9430
WITH COPIES TO:
Foley, Hoag & Eliot LLP
<PAGE>
One Post Office Square
Boston, Massachusetts 02109
Attention: Robert L. Birnbaum, Esq.
FACSIMILE NUMBER: (617) 832-7000
AND
Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, Ontario M5L 1A9
CANADA
Attention: Alan F. Brown, Esq.
FACSIMILE NUMBER: (416) 863-2653
TO THE COMPANY:
Promis Systems Corporation Ltd.
170 University Avenue, Suite 1200
Toronto, Ontario M5H 3B3
CANADA
Attention: Chief Executive Officer
FACSIMILE NUMBER: (416) 977-2016
WITH A COPY TO:
Cassels, Brock & Blackwell
Scotia Plaza, Suite 2100
40 King Street West
Toronto, Ontario M5H 3C2
CANADA
Attention: Lawrence D. Wilder, Esq.
FACSIMILE NUMBER: (416) 350-6904
TO THE TRUSTEE:
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof, and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
<PAGE>
14.4 NOTICE TO HOLDERS. Any and all notices to be given and any documents
to be sent to any Holders may be given or sent to the address of such Holder
shown on the register of Holders of Exchangeable Shares in any manner permitted
by the Exchangeable Share Provisions and shall be deemed to be received (if
given or sent in such manner) at the time specified in such Exchangeable Share
Provisions, the provisions of which Exchangeable Share Provisions shall apply
mutatis mutandis to notices or documents as aforesaid sent to such Holders.
14.5 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
14.6 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.
14.7 ATTORNMENT. Parent 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 such courts in
any such action or proceeding, agrees to be bound by any judgment of such courts
and agrees not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints the Company
at its registered office in the Province of Ontario as attorney for service of
process.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Voting and Exchange
Trust Agreement to be duly executed as of the date first above written.
<TABLE>
<S> <C> <C>
PRI AUTOMATION, INC.
By:
------------------------------------------
Mitchell G. Tyson,
CHIEF EXECUTIVE OFFICER
1325949 ONTARIO INC.
By:
------------------------------------------
Mitchell G. Tyson,
CHIEF EXECUTIVE OFFICER
PROMIS SYSTEMS CORPORATION LTD.
By:
------------------------------------------
Ian McKinnon,
CHIEF EXECUTIVE OFFICER
MONTREAL TRUST COMPANY OF CANADA
By:
------------------------------------------
[name],
[TITLE]
By:
------------------------------------------
[name],
[TITLE]
</TABLE>
<PAGE>
EXHIBIT 99.3
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT is entered into as of , 1999, by and
among by and among PRI Automation, Inc., a corporation existing under laws of
the Commonwealth of Massachusetts ("Parent"), 1325949 Ontario Inc., a
corporation existing under the laws of Ontario and a wholly owned subsidiary of
Parent ("Subco"), and Promis Systems Corporation Ltd., a corporation existing
under the laws of Canada (the "Company").
WHEREAS, pursuant to a Combination Agreement dated November 24, 1998 (the
"Combination Agreement"), by and among the Company, Parent and Subco, the
parties agreed that on the Effective Date (as defined in the Combination
Agreement), Parent, Subco, and the Company would execute and deliver a Support
Agreement substantially in the form of this Agreement;
WHEREAS, pursuant to an arrangement (the "Arrangement") effected by the
Articles of Arrangement dated (the "Articles of Arrangement") filed
pursuant to the Canada Business Corporations Act (the "CBCA"), each issued and
outstanding common share (a "Common Share") of the Company (other than those
Common Shares held by dissenters exercising their dissenters' rights in
accordance with Section 190 of the CBCA and Section 3.1 of the plan of
arrangement (the "Plan of Arrangement") contained in the Articles of
Arrangement) was exchanged for issued and outstanding Exchangeable
Shares of the Company (the "Exchangeable Shares"), and thereafter, the Company's
sole issued and outstanding Class X Preferred Share was exchanged by Subco for
one issued and outstanding Common Share;
WHEREAS, the above-mentioned Articles of Arrangement sets forth the rights,
privileges, restrictions and conditions attaching to the Exchangeable Shares
(collectively, the "Exchangeable Share Provisions");
WHEREAS, the parties hereto desire to make appropriate provision and to
establish a procedure whereby Parent and Subco will take certain actions and
make certain payments and deliveries necessary to ensure that the Company will
be able to make certain payments and to deliver or cause to be delivered shares
of common stock of Parent, par value US$.01 per share ("Parent Common Stock") in
satisfaction of the obligations of the Company under the Exchangeable Share
Provisions with respect to the payment and satisfaction of dividends,
Liquidation Amounts, Retraction Prices and Redemption Prices, all in accordance
with the Exchangeable Share Provisions;
WHEREAS, the parties hereto desire to make appropriate provision and to
establish a procedure whereby Parent will take certain actions and make certain
payments and deliveries necessary to ensure that Subco will be able to deliver
or cause to be delivered shares of Parent Common Stock in satisfaction of the
obligations of Subco under the Voting and Exchange Trust Agreement and the
Exchangeable Share Provisions with respect to the payment and satisfaction of
the Liquidation Call Purchase Price (as defined in the Articles of Arrangement)
and the Redemption Call Purchase Price (as defined in the Articles of
Arrangement) or with respect to satisfaction of the Exchange Put Right, the
Exchange Right (as defined in the Voting and Exchange Trust Agreement) and the
Automatic Exchange Rights (as defined herein);
NOW, THEREFORE, in consideration of the respective covenants and agreements
provided in this Agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 DEFINED TERMS. Each term denoted herein by initial capital letters and
not otherwise defined herein shall have the meaning attributed thereto in the
Exchangeable Share Provisions, unless the context otherwise requires.
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. Unless otherwise indicated, all references to
an "Article" or
<PAGE>
"Section" followed by a number and/or a letter refer to the specified Article or
Section of this Agreement. The terms "this Agreement", "hereof ", "herein" and
"hereunder" and similar expressions refer to this Agreement and not to any
particular Article, Section or other portion hereof and include any agreement or
instrument supplementary or ancillary hereto.
1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any gender shall
include all genders.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to be
taken under this Agreement is not a Business Day, such action shall be required
to be taken on the next succeeding Business Day.
ARTICLE II
COVENANTS OF PARENT, SUBCO AND THE COMPANY
2.1 COVENANTS OF PARENT AND SUBCO REGARDING EXCHANGEABLE SHARES. So long
as any Exchangeable Shares are outstanding:
(a) Parent will not declare or pay any dividend on Parent Common Stock
unless (i) the Company will have sufficient assets, funds and other
property available to enable the due declaration and the due and punctual
payment in accordance with applicable law of an equivalent dividend on
the Exchangeable Shares and (ii) subsection 2.1(b) shall be complied with
in connection with such dividend;
(b) Parent and Subco will cause the Company to declare simultaneously with
the declaration of any dividend on Parent Common Stock an equivalent
dividend on the Exchangeable Shares and, when such dividend is paid on
Parent Common Stock, cause the Company to pay simultaneously therewith
such equivalent dividend on the Exchangeable Shares, in each case in
accordance with the Exchangeable Share Provisions;
(c) Parent will advise Subco and the Company sufficiently in advance of the
declaration by Parent of any dividend on Parent Common Stock and take all
such other actions as are necessary, in cooperation with Subco and the
Company, to ensure that the respective declaration date, record date and
payment date for a dividend on the Exchangeable Shares shall be the same
as the record date, declaration date and payment date for the
corresponding dividend on Parent Common Stock and that such dividend on
the Exchangeable Shares will correspond with any requirement of the
principal stock exchange on which the Exchangeable Shares are listed;
(d) Parent will ensure that the record date for any dividend declared on
Parent Common Stock is not less than ten Business Days after the
declaration date for such dividend;
(e) Parent and Subco will take all such actions and do all such things as
are reasonably necessary or desirable to enable and permit the Company,
in accordance with applicable law, to pay and otherwise perform its
obligations with respect to the satisfaction of the Liquidation Amount,
the Retraction Price or the Redemption Price in respect of each issued
and outstanding Exchangeable Share upon the liquidation, dissolution or
winding-up of the Company, the delivery of a Retraction Request by a
holder of Exchangeable Shares or a redemption of Exchangeable Shares by
the Company, as the case may be, including, without limitation, all such
actions and all such things as are reasonably necessary or desirable to
enable and permit the Company to cause to be delivered Parent Common
Stock to the holders of Exchangeable Shares in accordance with the
provisions of Article 5, 6 or 7, as the case may be, of the Exchangeable
Share Provisions; and
(f) Parent will take all such actions and do all such things as are
reasonably necessary or desirable to enable and permit Subco, in
accordance with applicable law, to perform its obligations arising upon
(i) the exercise by Subco of the Liquidation Call Right, the Retraction
Call Right or the Redemption Call Right or (ii) the exercise by a holder
of Exchangeable Shares of such holder's Exchange Put Right or Exchange
Right or (iii) the automatic exchange of a holder's Exchangeable Shares
in accordance with the rights set forth in Section 5.13 of the Voting and
Exchange Trust Agreement (the "Automatic Exchange Rights"), including,
without limitation, all such actions and all such things as are
reasonably necessary or desirable to enable and permit Subco to cause
Parent Common Stock to be delivered to
<PAGE>
the holders of Exchangeable Shares in accordance with the Exchangeable
Share Provisions and the Voting and Exchange Trust Agreement.
2.2 SEGREGATION OF FUNDS. Parent and Subco will cause the Company to
deposit a sufficient amount of funds in a separate account and segregate a
sufficient amount of such assets and other property as is necessary to enable
the Company 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 the Company will 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, net of any
corresponding withholding tax obligations and for the remittance of such
withholding tax obligations.
2.3 RESERVATION OF SHARES OF PARENT COMMON STOCK. Parent hereby
represents, warrants and covenants that it has irrevocably reserved for issuance
and will at all times keep available, free from preemptive and other rights, out
of its authorized and unissued capital stock such number of shares of Parent
Common Stock (or other shares or securities into which Parent Common Stock may
be reclassified or changed as contemplated by section 2.7 hereof) (a) as is
equal to the sum of (i) the number of Exchangeable Shares issued and outstanding
from time to time and (ii) the number of Exchangeable Shares issuable upon the
exercise of all rights to acquire Exchangeable Shares outstanding from time to
time and (b) as are now and may hereafter be required to enable and permit
Parent to meet its obligations hereunder, under the Voting and Exchange Trust
Agreement and under any other security or commitment pursuant to which Parent
may now or hereafter be required to issue Parent Common Stock, to enable and
permit Subco to meet its respective obligations or exercise its rights
hereunder, under the Voting and Exchange Trust Agreement and the Exchangeable
Share Provisions and to enable and permit the Company to meet its respective
obligations or exercise its rights hereunder and under the Exchangeable Share
Provisions.
2.4 NOTIFICATION OF CERTAIN EVENTS. In order to (a) assist Parent to
comply with its obligations hereunder and under the Voting and Exchange Trust
Agreement, (b) assist Subco to comply with its obligations hereunder, under the
Voting and Exchange Trust Agreement and under the Exchangeable Share Provisions
and (c) permit Subco to exercise its rights under the Exchangeable Share
Provisions, the Company will give or cause the Transfer Agent to give Subco and
Parent notice of each of the following events at the time set forth below:
(i) immediately, in the event of any determination by the Board of Directors
of the Company to take any action which would require a vote of the
holders of Exchangeable Shares for approval;
(ii) immediately, upon the earlier of (A) receipt by the Company of notice
of, and (B) the Company otherwise becoming aware of, any threatened or
instituted claim, suit, petition or other proceedings with respect to
the involuntary liquidation, dissolution or winding-up of the Company
or to effect any other distribution of the assets of the Company among
its shareholders for the purpose of winding-up its affairs;
(iii) immediately, upon receipt by the Company of a Retraction Request;
(iv) at least 130 days prior to any Automatic Redemption Date determined by
the Board of Directors of the Company in accordance with clause (b) of
the definition of Automatic Redemption Date in the Exchangeable Share
Provisions; and
(v) as soon as practicable upon the issuance by the Company of any
Exchangeable Shares or rights to acquire Exchangeable Shares (other than
the issuance of Exchangeable Shares and rights to acquire Exchangeable
Shares in exchange for outstanding Common Shares pursuant to the
Arrangement).
2.5 DELIVERY OF SHARES OF PARENT COMMON STOCK. In furtherance of its
obligations hereunder, upon notice from the Company or Subco of any event which
requires the Company or Subco to cause to be delivered shares of Parent Common
Stock to any holder of Exchangeable Shares, Parent shall forthwith issue and
deliver or cause to be delivered to the Company or Subco the requisite shares of
Parent Common Stock to be received by, and issued to the order of, the former
holder of the surrendered Exchangeable Shares, as the Company or Subco shall
direct. All such shares of Parent Common Stock shall be duly issued as fully
paid and non-assessable. In consideration of the issuance and delivery of each
such share of Parent Common Stock, the Company or Subco,
<PAGE>
as the case may be, shall issue to Parent, or as Parent shall direct, shares or
other securities having equivalent value.
2.6 QUALIFICATION OF SHARES OF PARENT COMMON STOCK. If any shares of
Parent Common Stock (or other shares or securities into which Parent Common
Stock may be reclassified or changed as contemplated by Section 2.7 hereof) to
be issued and delivered hereunder require registration or qualification with or
approval of or the filing of any document including any prospectus or similar
document, the taking of any proceeding with or the obtaining of any order,
ruling or consent from any governmental or regulatory authority under any
Canadian or United States federal, provincial or state law or regulation or
pursuant to the rules and regulations of any regulatory authority, or the
fulfillment of any other legal requirement (collectively, the "Applicable Laws")
before such shares (or such other shares or securities) may be issued by Parent
and delivered by Parent at the direction of Subco or the Company, if applicable,
to the holder of surrendered Exchangeable Shares or in order that such shares
(or such other shares or securities) may be freely traded thereafter (other than
contractual restrictions or any restrictions on transfer by reason of a holder
being a "control person" of Parent for purposes of Canadian federal or
provincial securities law or an "affiliate" of Parent or the Company for
purposes of United States federal or state securities law), Parent will in good
faith expeditiously take all such actions and do all such things as are
necessary to cause such shares of Parent Common Stock (or such other shares or
securities) to be and remain duly registered, qualified or approved. Parent will
in good faith take all actions and do all things as are reasonably necessary or
desirable under Applicable Laws as they exist on the date hereof to cause the
shares of Parent Common Stock (and such other shares or securities) to be issued
and delivered hereunder to be freely tradeable thereafter (other than
contractual restrictions or any restrictions on transfer by reason of a holder
being a "control person" of Parent for the purposes of Canadian federal and
provincial securities law or an "affiliate" of Parent or the Company for
purposes of United States federal or state securities law). Parent will in good
faith expeditiously take all such actions and do all such things as are
reasonably necessary to cause all shares of Parent Common Stock (or such other
shares or securities) to be delivered hereunder to be listed, quoted or posted
for trading on all stock exchanges and quotation systems on which outstanding
shares of Parent Common Stock (or such other shares or securities) are listed,
quoted or posted for trading at such time.
2.7 ECONOMIC EQUIVALENCE.
(a) Parent will not, without the prior approval of the Company and the prior
approval of the holders of the Exchangeable Shares given in accordance with
Article 10 of the Exchangeable Share Provisions:
(i) issue or distribute shares of Parent Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire
shares of Parent Common Stock) to the holders of all or substantially
all of the then outstanding shares of Parent Common Stock by way of
stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders of all
or substantially all of the then outstanding shares of Parent Common
Stock entitling them to subscribe for or to purchase shares of Parent
Common Stock (or securities exchangeable for or convertible into or
carrying rights to acquire shares of Parent Common Stock); or
(iii) issue or distribute to the holders of all or substantially all of the
then outstanding shares of Parent Common Stock (A) shares or securities
of Parent of any class other than Parent Common Stock (other than
shares convertible into or exchangeable for or carrying rights to
acquire shares of Parent Common Stock), (B) rights, options or warrants
other than those referred to in subsection 2.7(a)(ii) above, (C)
evidences of indebtedness of Parent or (D) assets of Parent;
unless one or both of the Company and Parent is permitted under applicable law
to issue and distribute the economic equivalent on a per share basis of such
rights, options, warrants, securities, shares, evidences of indebtedness or
assets to holders of the Exchangeable Shares and the economic equivalent on per
share basis of the items referred to in subsections 2.7(a)(i), (ii) and (iii)
above, as applicable, is simultaneously issued or distributed to the holders of
the Exchangeable Shares.
<PAGE>
(b) Parent will not, without the prior approval of the Company and the prior
approval of the holders of the Exchangeable Shares given in accordance with
Article 10 of the Exchangeable Share Provisions:
(i) subdivide, redivide or change the then outstanding shares of Parent
Common Stock into a greater number of shares of Parent Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding shares of
Parent Common Stock into a lesser number of shares of Parent Common
Stock, or
(iii) reclassify or otherwise change the shares of Parent Common Stock or
effect an amalgamation, merger, reorganization or other transaction
affecting the shares of Parent Common Stock;
unless the Company is permitted under applicable law to make the same or an
economically equivalent change to, or in the rights of holders of, the
Exchangeable Shares and the same or an economically equivalent change is
simultaneously made to, or in the rights of, the holders of the Exchangeable
Shares.
(c) Parent will ensure that the record date for any event referred to in
subsection 2.7 (a) or 2.7 (b) above, or (if no record date is applicable for
such event) the effective date for any such event, is not less than 20 Business
Days after the date on which such event is declared or announced by Parent (with
simultaneous notice thereof to be given by Parent to Subco and the Company).
(d) Subco and the Company agree that, to the extent required, upon due
notice from Parent, Subco and the Company will use their best efforts to take or
cause to be taken such steps as may be necessary for the purposes of ensuring
that appropriate dividends are paid or other distributions are made by the
Company, or subdivisions, redivisions or changes are made to the Exchangeable
Shares, in order to implement the required economic equivalence with respect to
the Parent Common Stock and Exchangeable Shares as provided for in this Section
2.7.
(e) The Board of Directors of the Company shall determine, in good faith and
in its sole discretion, economic equivalence for the purposes of any event
referred to in section 2.7(a) or 2.7(b) above and each such determination shall
be conclusive and binding on Parent. In making each such determination, the
following factors shall, without excluding other factors determined by the Board
of Directors of the Company to be relevant, be considered by the Board of
Directors of the Company:
(i) in the case of any stock dividend or other distribution payable in
Parent Common Stock, the number of such shares issued in proportion to
the number of shares of Parent Common Stock previously outstanding;
(ii) in the case of the issuance or distribution of any rights, options or
warrants to subscribe for or purchase Parent Common Stock (or
securities exchangeable for or convertible into or carrying rights to
acquire Parent Common Stock), the relationship between the exercise
price of each such right, option or warrant and the current market
value (as determined by the Board of Directors of the Company in the
manner contemplated below) of a share of Parent Common Stock;
(iii) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of
Parent of any class other than Parent Common Stock, any rights, options
or warrants other than those referred to in subsection 2.7 (e)(ii)
above, any evidences of indebtedness of Parent or any assets of
Parent), the relationship between the fair market value (as determined
by the Board of Directors of the Company in the manner contemplated
below) of such property to be issued or distributed with respect to
each outstanding share of Parent Common Stock and the current market
value (as determined by the Board of Directors of the Company in the
manner contemplated below) of a share of Parent Common Stock;
(iv) in the case of any subdivision, redivision or change of the then
outstanding shares of Parent Common Stock into a greater number of
shares of Parent Common Stock or the reduction, combination,
consolidation or change of the then outstanding shares of Parent Common
Stock into a lesser number of shares of Parent Common Stock or any
amalgamation, merger, reorganization or other transaction affecting
Parent Common Stock, the effect thereof upon the then outstanding
shares of Parent Common Stock; and
<PAGE>
(v) in all such cases, the general taxation consequences of the relevant
event to holders of Exchangeable Shares to the extent that such
consequences may differ from the taxation consequences to holders of
Parent Common Stock as a result of differences between taxation laws of
Canada and the United States (except for any differing consequences
arising as a result of differing marginal taxation rates and without
regard to the individual circumstances of holders of Exchangeable
Shares).
For purposes of the foregoing determinations, the current market value of any
security listed and traded or quoted on a securities exchange shall be the
weighted average of the daily trading prices of such security during a period of
not less than 20 consecutive trading days ending not more than three trading
days before the date of determination on the principal securities exchange on
which such securities are listed and traded or quoted; provided, however, that
if in the opinion of the Board of Directors of the Company the public
distribution or trading activity of such securities during such period does not
create a market which reflects the fair market value of such securities, then
the current market value thereof shall be determined by the Board of Directors
of the Company, in good faith and in its sole discretion, and provided further
that any such determination by the Board of Directors of the Company shall be
conclusive and binding on Parent.
2.8 TENDER OFFERS, ETC. In the event that a tender offer, share exchange
offer, issuer bid, take-over bid or similar transaction with respect to Parent
Common Stock (an "Offer") is proposed by Parent or is proposed to Parent or its
shareholders and is recommended by the board of directors of Parent, or is
otherwise effected or to be effected with the consent or approval of the board
of directors of Parent, and the Exchangeable Shares are not redeemed by the
Company or purchased by Subco pursuant to the Redemption Call Right, Parent will
use its 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 equivalent basis as the holders of shares of Parent Common
Stock, without discrimination. Without limiting the generality of the foregoing,
Parent will use its reasonable efforts expeditiously and in good faith to ensure
that holders of Exchangeable Shares may participate in all such Offers without
being required to retract Exchangeable Shares as against the Company (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). Nothing herein shall affect or
limit the rights of the Company to redeem or Subco to purchase pursuant to the
Redemption Call Right, Exchangeable Shares, as applicable, in the event of an
Offer or an Automatic Redemption Date.
2.9 OWNERSHIP OF OUTSTANDING SHARES OF SUBCO AND THE COMPANY. Without the
prior approval of the Company and the prior approval of the holders of the
Exchangeable Shares given in accordance with Article 10 of the Exchangeable
Share Provisions, Parent covenants and agrees in favor of the Company that, as
long as any outstanding Exchangeable Shares are owned by any person or entity
other than Parent or any of its Subsidiaries, Parent will be and remain the
direct or indirect beneficial owner of all issued and outstanding voting shares
in the capital of Subco and the Company. Notwithstanding the foregoing, nothing
contained herein shall affect or limit the rights of the Company to redeem or
Subco to purchase pursuant to the Redemption Call Right, Exchangeable Shares, as
applicable, in the event of an Automatic Redemption Date.
2.10 PARENT AND SUBSIDIARIES NOT TO VOTE EXCHANGEABLE SHARES. Parent
covenants and agrees that it will appoint and cause to be appointed proxy
holders with respect to all Exchangeable Shares held by Parent and its
Subsidiaries for the sole purpose of attending each meeting of holders of
Exchangeable Shares in order to be counted as part of the quorum for each such
meeting. Parent further covenants and agrees that it will not, and will cause
its Subsidiaries not to, exercise any voting rights which 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 CBCA (or any successor or
other corporate statute by which the Company may in the future be governed) with
respect to any Exchangeable Shares held by it or by its Subsidiaries in respect
of any matter considered at any meeting of holders of Exchangeable Shares.
2.11 STOCK EXCHANGE LISTING. Parent covenants and agrees in favor of the
Company that, as long as any outstanding Exchangeable Shares are owned by any
person or entity other than Parent or any of its Subsidiaries, Parent will use
its reasonable efforts to maintain a listing for such Exchangeable Shares on a
Canadian stock exchange which is listed in section 3200 of the Regulations made
under the Income Tax Act (Canada).
<PAGE>
2.12 RULE L0B-18 PURCHASES. Nothing contained in this Agreement, including
without limitation the obligations of Parent contained in Section 2.8 hereof,
shall limit the ability of Parent or any Subsidiary to make a "Rule l0b-18
Purchase" of Parent Common Stock pursuant to Rule l0b-18 of the U.S. Securities
Exchange Act of 1934, as amended, or any successor provisions thereof.
ARTICLE III
PARENT SUCCESSORS
3.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. Parent 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, but may do so if:
(a) such other Person or continuing corporation (the "Parent 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 reasonably
necessary or advisable to evidence the assumption by the Parent Successor
of liability for all moneys payable and property deliverable hereunder
and the covenant of such Parent 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 Parent under this Agreement; and
(b) such transaction be upon such terms as substantially preserve and do not
impair in any material respect any of the rights, duties, powers and
authorities of the other parties hereunder.
3.2 VESTING OF POWERS IN PARENT SUCCESSOR. Whenever the conditions of
Section 3.1 hereof have been duly observed and performed, the parties, if
required by Section 3.1 hereof, shall execute and deliver the supplemental
agreement hereto and thereupon the Parent Successor shall possess and from time
to time may exercise each and every right and power of Parent under this
Agreement in the name of Parent 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 Parent or any officers of Parent may be done and performed with
like force and effect by the directors or officers of such Parent Successor.
3.3 WHOLLY-OWNED SUBSIDIARIES. Nothing herein shall be construed as
preventing the amalgamation or merger of any wholly-owned subsidiary of Parent
with or into Parent or the winding-up, liquidation or dissolution of any
wholly-owned subsidiary of Parent provided that all of the assets of such
subsidiary are transferred to Parent or another wholly-owned subsidiary of
Parent, and any such transactions are expressly permitted by this Article 3.
ARTICLE IV
GENERAL
4.1 TERM. This Agreement shall come into force and be effective as of the
date hereof and shall terminate and be of no further force and effect at such
time as no Exchangeable Shares (or securities or rights convertible into or
exchangeable for or carrying rights to acquire Exchangeable Shares) are held by
any party other than Parent and any of its Subsidiaries.
4.2 CHANGES IN CAPITAL OF PARENT AND THE COMPANY. Notwithstanding the
provisions of Section 4.4 hereof, at all times after the occurrence of any event
effected pursuant to Section 2.7 or 2.8 hereof, as a result of which either
Parent Common Stock or the Exchangeable Shares or both are in any way changed,
this Agreement shall forthwith be amended and modified as necessary in order
that it shall apply with full force and effect, mutatis mutandis, to all new
securities into which Parent Common Stock or the Exchangeable Shares or both are
so changed, and the parties hereto shall execute and deliver an agreement in
writing giving effect to and evidencing such necessary amendments and
modifications.
4.3 SEVERABILITY. If any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this Agreement shall not in any way be affected or
<PAGE>
impaired thereby and this Agreement shall be carried out as nearly as possible
in accordance with its original terms and conditions.
4.4 AMENDMENTS, MODIFICATIONS, ETC. This Agreement may not be amended,
modified or waived except by an agreement in writing executed by the Company,
Subco and Parent and approved by the holders of the Exchangeable Shares in
accordance with Article 10 of the Exchangeable Share Provisions.
4.5 MINISTERIAL AMENDMENTS. Notwithstanding the provisions of section 4.4,
the parties to this Agreement may in writing, at any time and from time to time,
without the approval of the holders of the Exchangeable Shares, amend or modify
this Agreement for the purposes of:
(a) adding to the covenants of any or all parties provided that the board of
directors of each of Parent, Subco and the Company shall be of the good
faith opinion that such additions will not be prejudicial to the rights
or interests of the holders of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this
Agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the board of directors of each of
Parent, Subco and the Company, it may be expedient to make, provided that
each such board of directors shall be of the opinion that such amendments
or modifications will not be prejudicial to the interests of the holders
of the Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of counsel to
Parent, Subco and the Company, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error, provided that the boards of
directors of each of Parent, Subco and the Company shall be of the good
faith opinion that such changes or corrections will not be prejudicial to
the interests of the holders of the Exchangeable Shares.
4.6 MEETING TO CONSIDER AMENDMENTS. The Company, at the request of Parent,
shall call a meeting or meetings of the holders of the Exchangeable Shares for
the purpose of considering any proposed amendment or modification requiring
approval of such shareholders pursuant to Section 4.4 hereof. Any such meeting
or meetings shall be called and held in accordance with the by-laws of the
Company, the Exchangeable Share Provisions and all applicable laws.
4.7 AMENDMENTS ONLY IN WRITING. No amendment to or modification or waiver
of any of the provisions of this Agreement otherwise permitted hereunder shall
be effective unless made in writing and signed by all of the parties hereto.
4.8 INUREMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the holders, from time to time, of
Exchangeable Shares and each of their respective heirs, successors and assigns.
4.9 NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given to a party if delivered by hand, sent by
facsimile transmission with confirmation of transmission, sent via a reputable
overnight delivery service with confirmation of receipt requested, or mailed by
registered or certified mail (postage prepaid and return receipt requested) to
the party at the following address and facsimile number (or at such other
address or facsimile number for the party as the party shall specify by like
notice), and shall be deemed given on the date on which delivered by hand or
otherwise on the date of confirmation of receipt or transmission:
TO PARENT OR SUBCO:
PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, MA 01821-3986
Attention: Chief Executive Officer
FACSIMILE NUMBER: (978) 671-9430
WITH COPIES TO:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Robert L. Birnbaum, Esq.
FACSIMILE NUMBER: (617) 832-7000
AND
<PAGE>
Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, Ontario M5L 1A9
CANADA
Attention: Alan F. Brown, Esq.
FACSIMILE NUMBER: (416) 863-2653
TO THE COMPANY:
Promis Systems Corporation Ltd.
170 University Avenue, Suite 1200
Toronto, Ontario M5H 3B3
CANADA
Attention: Chief Executive Officer
FACSIMILE NUMBER: (416) 977-2016
WITH A COPY TO:
Cassels, Brock & Blackwell
Scotia Plaza, Suite 2100
40 King Street West
Toronto, Ontario M5H 3C2
CANADA
Attention: Lawrence D. Wilder, Esq.
FACSIMILE NUMBER: (416) 350-6904
4.10 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.
4.11 JURISDICTION. This Agreement shall be construed and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
4.12 ATTORNMENT. Parent 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 such courts in
any such action or proceeding, agrees to be bound by any judgment of such 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 Company
at its registered office in the Province of Ontario as attorney for service of
process.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Support Agreement to be
signed by their respective officers thereunder duly authorized, all as of the
date first written above.
<TABLE>
<S> <C> <C>
PRI AUTOMATION, INC.
By: ----------------------------------------------
Mitchell G. Tyson,
CHIEF EXECUTIVE OFFICER
1325949 ONTARIO INC.
By: ----------------------------------------------
Mitchell G. Tyson,
CHIEF EXECUTIVE OFFICER
PROMIS SYSTEMS CORPORATION LTD.
By: ----------------------------------------------
Ian McKinnon,
CHIEF EXECUTIVE OFFICER
</TABLE>
