1.1	Definitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

changes, developments or conditions in or relating to general international, political, economic or financial or capital market conditions, or political, economic or financial or capital market conditions in any jurisdiction in which the applicable Party or any of the subsidiaries operate or carry on business;

 

(b)	changes, developments or conditions resulting from any act of sabotage or terrorism or any outbreak of hostilities or declared or undeclared war, or any escalation or worsening of such acts of sabotage, terrorism, hostilities or war;

 

(c)	any earthquake, hurricane, tornado or other similar natural disaster;

 

(d)	changes or developments in or relating to currency exchange or interest rates;

 

(e)	changes or developments generally affecting the life sciences industry in general;

 

(f)	any adoption, change or proposed change in any Laws or the interpretation, application or non-application of any Laws by any Governmental Authority;

 

(g)	any adoption, change or proposed change in Canadian GAAP or U.S. GAAP;

 

(h)

any change in the market price or trading volume of any securities of the Parent (it being understood that the causes underlying such change in market price may be taken into account in determining whether a Material Adverse Effect has occurred) or any suspension of trading in securities generally on any securities exchange on which any securities of the Parent trade;

 

(i)	(i) with respect to the Company, any actions taken (or omitted to be taken) by the Company upon the request of the Parent or the Purchaser and (ii) with respect to the Parent, any actions taken (or omitted to be taken) by the Parent upon the request of the Company;

 

(j)	any failure by such Party to meet any internal or publicly disclosed projections, forecasts or estimates of, or guidance relating to, revenue, earnings or cash flow of such Party, whether made by or attributed to such Party or any financial analyst or other person;

 

(k)	the announcement of the execution of this Agreement or the transactions contemplated hereby, the pendency of the completion of the transactions contemplated hereby, the performance of any obligation contemplated hereunder or the completion of any of the transactions contemplated hereby; or

 

(l)	any legal proceeding commenced by or involving any current or former securityholders of the Parent or the Company arising out of or relating to this Agreement;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)	Liens for current real estate taxes and assessments not yet due and payable or Liens for income and similar taxes that are being contested in good faith and for which the Company has made adequate provision in accordance with Canadian GAAP;

 

(b)	inchoate mechanics’ and materialmen’s and/or construction Liens for construction in progress and in respect of which payments are not past due;

 

(c)

to the extent such Liens would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company, (i) workmen’s, repairmen’s, warehousemen’s and carriers’ Liens arising in the ordinary course of business of the Company consistent with past practice, (ii) all matters of record, whether or not registered, which do not individually or in the aggregate render title to any real estate asset invalid or unmarketable and (iii) all Liens and other imperfections of title and encumbrances which would not reasonably be expected to interfere with the conduct of the business of the Company;

 

(d)

rights reserved to or vested in any Governmental Entity by the terms of any lease, licence, franchise, grant or permit, or by any statutory provision, to terminate the same, to take action which results in an expropriation or condemnation, or to require annual or other payments as a condition to the continuance thereof;

 

(e)	deposits of cash or securities in connection with any appeal, review or contestation of any Lien or any matter giving rise to an Lien described in (a) or (c) above and for which adequate reserves have been provided for in the books of such person in accordance with Canadian GAAP;

 

(f)

the provisions of applicable Laws including zoning, land use and building restrictions, by laws, regulations and ordinances of federal, state, provincial, municipal or other Governmental Authorities, including municipal by-laws and regulations, airport zoning regulations, restrictive covenants and other land use limitations, public or private, by-laws and regulations and other similar Liens or privileges in respect of real property which in the aggregate do not materially impair the use of such property by the Company in the operation of its business, and which are not violated in any material respect by existing or proposed structures or land use;

 

(g)

Permits, reservations, water course, right of access or user licenses, easements, rights of way, restrictions, building schemes, licenses, restrictive covenants and servitudes, rights of access or user, airport zoning regulations and other similar rights in land (including licenses, easements, rights of way, servitudes and rights in the nature of easements for walkways, sidewalks, public ways, sewers, drains, gas, soil, steam and water mains or pipelines, electrical lights and power, telephone, television and cable conduits, poles, wires or cables) granted to, reserved or taken by any person which would not materially impair the use of the real property to which they relate and any rights reserved or vested in any Governmental Authority or public or private utility or railway company by the terms of any lease, licence, franchise, grant, agreement or permit, subdivision, development, servicing, encroachment, site plan or other similar agreement with any Governmental Authority or public or private utility or railway company that would not materially impair the use of the real property to which they relate;

 

(h)	purchase money security interests securing indebtedness in the ordinary course of business;

 

 

 

(i)	security given by the Company to a public utility or any Governmental Authority, when required by such utility or Governmental Authority in connection with the operations of such person, in the ordinary course of its business; and

 

(j)	any other Lien that is identified as a “Permitted Lien” in the Company Disclosure Letter or in the Parent Disclosure Letter, as the context requires;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

corporation of which issued and outstanding voting securities of such corporation to which are attached more than 50% of the votes that may be cast to elect directors of the corporation (whether or not shares of any other class or classes will or might be entitled to vote upon the happening of any event or contingency) are at all times owned by such specified entity;

 

 

 

(b)	partnership, unlimited liability company, joint venture or other similar entity in which such specified entity has more than 50% of the equity interests and the power to direct the policies, management and affairs thereof; and

 

(c)	a subsidiary (as defined in clauses (a) and (b) above) of any subsidiary (as so defined) of such specified entity;

 

 

(a)	the Board of Directors has determined in good faith, after consultation with its financial advisors and outside legal counsel:

 

(i)

would, taking into account all of the terms and conditions of such Acquisition Proposal, and if consummated in accordance with its terms (but not assuming away any risk of non-completion), result in a transaction which is more favourable to the Securityholders from a financial point of view than the Acquisition; and

 

(ii)	is reasonably capable of being completed in accordance with its terms, without undue delay, taking into account all legal, financial, regulatory and other aspects of such Acquisition Proposal and the person or persons making such Acquisition Proposal;

 

(b)	is not subject to any due diligence condition or due diligence termination right in favour of the acquirer; or

 

(c)	is made available to all of the Securityholders on the same terms and conditions;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.2

Currency

 

 

1.3	Interpretation Not Affected by Headings

 

 

1.4	Knowledge and Disclosure

 

 

1.5	Extended Meanings, Etc.

 

 

1.6	Date of any Action

 

 

1.7	Performance of the Purchaser’s Obligations

 

 

1.8

Schedules

 

 

Schedule A	-	List of SecurityHolders
Schedule B	-	Exchangeable Share Provisions
Schedule C	-	Required Regulatory Approvals
Schedule D	-	Form of Support Agreement
Schedule E	-	Form of Voting and Exchange Trust Agreement

 

 

 

 

2.1	Acquisition

 

 

2.2	Consideration Mechanics

 

(a)	The Company, each Eligible Holder, the Parent, the Purchaser and Callco agree that at the Effective Time:

 

(i)	each Eligible Share will be and be deemed to be transferred by the Eligible Holder to the Purchaser (free and clear of any Liens) in exchange for the Eligible Share Consideration; and

 

(ii)

at the same time as the step in Section 2.2(a)(i) occurs, the Eligible Holder of each Eligible Share transferred to the Purchaser pursuant to Section 2.2(a)(i) will cease to be the holder thereof, or to have any rights as a holder thereof other than the right to receive the Eligible Share Consideration payable in respect thereof pursuant to Section 2.2(a)(i), and legal and beneficial title to each such Eligible Share will vest in the Purchaser and the Purchaser will be and be deemed to be the transferee and legal and beneficial owner of such Eligible Share (free and clear of any Liens) and will be entered in the central securities register of the Company as the sole holder thereof.

 

(b)	The Company, each Non-Eligible Holder, the Parent, the Purchaser and Callco agree that at the Effective Time:

 

(i)	each Common Share outstanding immediately prior to the Effective Time (other than Eligible Shares) will be and be deemed to be transferred by the Non-Eligible Holder to the Purchaser (free and clear of any Liens) in exchange for the Share Consideration; and

 

(ii)

at the same time as the step in Section 2.2(b)(i) occurs, the Non-Eligible Holder of each Common Share transferred to the Purchaser pursuant to Section 2.2(b)(i) will cease to be the holder thereof, or to have any rights as a holder thereof other than the right to receive the Share Consideration payable in respect thereof pursuant to Section 2.2(b)(i), and legal and beneficial title to each such Common Share will vest in the Purchaser and the Purchaser will be and be deemed to be the transferee and legal and beneficial owner of such Common Share (free and clear of any Liens) and will be entered in the central securities register of the Company as the sole holder thereof.

 

(c)

The Company, each Optionholder, the Parent, the Purchaser and Callco agree that at the Effective Time each of the outstanding Options (whether vested or unvested) registered in the name of and held by the Optionholder, and each certificate representing such Options, shall be deemed to be amended such that, rather than entitling the Optionholder to acquire one (1) Common Share for each Option at the exercise price provided for therein, each Option shall entitle the Optionholder to acquire one (1) Parent Share for each Option at the exercise price provided for therein, and for the purpose of such outstanding Options, the Acquisition shall constitute an Event, as such term is defined in the Stock Option Plan.

 

(d)

The Company, each Warrantholder, the Parent, the Purchaser and Callco agree that at the Effective Time each of the outstanding Warrants registered in the name of and held by the Warrantholder, and each certificate representing such Warrants, shall be deemed to be amended such that, rather than entitling the Warrantholder to acquire one (1) Common Share for each Warrant at the exercise price provided for therein, each Warrant shall entitle the Warrantholder to acquire one (1) Parent Share for each Warrant at the exercise price provided for therein, and for the purpose of each of the outstanding Warrants, the Acquisition shall constitute a Capital Reorganization and a Reverse Take-Over, as such terms are defined in each certificate representing such Warrants, and for greater certainty, the reference to “underlying securities” in Section 5(c) of each certificate representing the Warrants means Parent Shares.

 

(e)

The Company, each Broker Warrantholder, the Parent, the Purchaser and Callco agree that at the Effective Time each of the outstanding Broker Warrants registered in the name of and held by the Broker Warrantholder, and each certificate representing such Broker Warrants, shall be deemed to be amended such that, rather than entitling the Broker Warrantholder to acquire one (1) Common Share for each Broker Warrant at the exercise price provided for therein, each Broker Warrant shall entitle the Broker Warrantholder to acquire one (1) Parent Share for each Broker Warrant at the exercise price provided for therein, and for the purpose of each of the outstanding Broker Warrant, the Acquisition shall constitute a Capital Reorganization and a Reverse Take-Over, as such terms are defined in each certificate representing such Broker Warrants.

 

(f)

Each Shareholder, Optionholder,Warrantholder and Broker Warrantholder agrees that, with respect to each step set out above applicable to such holder, to execute and deliver all consents, releases, assignments and waivers, statutory or otherwise, required to transfer such Common Shares or to amend such certificate representing the Options, Warrants or Broker Warrants held by such holder in accordance with such step.

 

2.3	Income Tax Elections

 

 

 

 

3.1	Payments of Consideration

 

(a)

At or before the Effective Time, the Purchaser will deposit or cause to be deposited with the Company for the benefit of the Shareholders one or more certificates representing the aggregate number of Exchangeable Shares or Parent Shares required to be delivered by the Purchaser to the Shareholders pursuant to Sections 2.2(a)(i) or 2.2(b)(i).

 

(b)

As soon as practicable following the later of the Effective Date and the surrender by a Shareholder to the Company of a certificate that immediately prior to the Effective Time represented outstanding Common Shares (including Eligible Shares) that were transferred to the Purchaser under Sections 2.2(a)(i) or 2.2(b)(i), the former Shareholder will be entitled to receive in exchange therefor a certificate representing that number (rounded down to the nearest whole number) of Exchangeable Shares or Parent Shares such holder is entitled to receive pursuant to Section 2.2(a)(i) or Section 2.2(b)(i), together with any distributions or dividends which such holder is entitled to receive pursuant to Section 3.2, less any amounts withheld pursuant to Section 3.6, and any certificate so surrendered will forthwith be cancelled.

 

(c)

Subject to Section 3.5, until surrendered as contemplated by this Section 3.1, each certificate which immediately prior to the Effective Time represented Common Shares (including Eligible Shares) that were transferred to the Purchaser under Section 2.2(a)(i) or Section 2.2(b)(i) will be thereafter deemed to represent only the right to receive a certificate representing that number (rounded down to the nearest whole number) of Exchangeable Shares or Parent Shares such holder is entitled to receive pursuant to Section 2.2(a)(i) or Section 2.2(b)(i), together with any distributions or dividends which such holder is entitled to receive pursuant to Section 3.2, less any amounts withheld pursuant to Section 3.6.

 

(d)	The Purchaser will cause the Company, as soon as a former Shareholder becomes entitled to receive Eligible Share Consideration or Share Consideration in accordance with Section 3.1(b), to:

 

(i)	forward or cause to be forwarded by first class mail (postage paid) to such former Shareholder at the address specified in the register of Common Shares; or

 

(ii)	if requested by such former Shareholder, make available at the offices of the Company for pick-up by such former Shareholder; or

 

 

(e)

No former Shareholder shall be entitled to receive any consideration with respect to such Common Shares other than Eligible Share Consideration or Share Consideration such former Shareholder is entitled to receive pursuant to this Section 3.1 and, for greater certainty, no such former Shareholder will be entitled to receive any interest, dividends, premium or other payment in connection therewith except in accordance with Section 3.2.

 

3.2	Dividends and Distributions

 

 

3.3	Fractional Shares

 

 

3.4	Loss of Certificates

 

 

 

 

3.5	Extinction of Rights

 

 

3.6	Withholding Rights

 

 

 

 

4.1	Liquidation Call Right.

 

 

(a)

Subject to the proviso in Section 4.1(b) that Callco shall only be entitled to exercise the Liquidation Call Right with respect to those Exchangeable Shares, if any, in respect of which the Parent has not exercised the Liquidation Call Right, the Parent and Callco shall each have the overriding right (the “Liquidation Call Right”), in the event of and notwithstanding the proposed liquidation, dissolution or winding-up of the Purchaser or any other distribution of the assets of the Purchaser among its shareholders for the purpose of winding up its affairs, pursuant to Section 5 of the Exchangeable Share Provisions, to purchase from all but not less than all of the holders of Exchangeable Shares (other than any holder of Exchangeable Shares which is the Parent or an affiliate of the Parent) on the Liquidation Date all but not less than all of the Exchangeable Shares held by each such holder on payment by the Parent or Callco, as the case may be, to each such holder of the Exchangeable Share Price (payable in the form of the Exchangeable Share Consideration) applicable on the last Business Day prior to the Liquidation Date (the “Liquidation Call Purchase Price”) in accordance with Section 4.1(c).  In the event of the exercise of the Liquidation Call Right by the Parent or Callco, as the case may be, each such holder of Exchangeable Shares shall be obligated to sell all of the Exchangeable Shares held by the holder to the Parent or Callco, as the case may be, on the Liquidation Date on payment by the Parent or Callco, as the case may be, to such holder of the Liquidation Call Purchase Price (payable in the form of Exchangeable Share Consideration) for each such share, and the Purchaser shall have no obligation to pay any Liquidation Amount to the holders of such shares so purchased.

 

(b)

Callco shall only be entitled to exercise the Liquidation Call Right with respect to those Exchangeable Shares, if any, in respect of which the Parent has not exercised the Liquidation Call Right.  To exercise the Liquidation Call Right, the Parent or Callco must notify the Transfer Agent, as agent for the holders of Exchangeable Shares, and the Purchaser of its intention to exercise such right (i) in the case of a voluntary liquidation, dissolution or winding-up of the Purchaser or any other voluntary distribution of the assets of the Purchaser among its shareholders for the purpose of winding up its affairs, at least 30 days before the Liquidation Date or (ii) in the case of an involuntary liquidation, dissolution or winding-up of the Purchaser or any other involuntary distribution of the assets of the Purchaser among its shareholders for the purpose of winding up its affairs, at least five Business Days before the Liquidation Date.  The Transfer Agent will notify the holders of Exchangeable Shares as to whether or not the Parent and/or Callco has exercised the Liquidation Call Right forthwith after the expiry of the period during which the Parent or Callco may exercise the Liquidation Call Right.  If the Parent and/or Callco exercises the Liquidation Call Right, the Parent and/or Callco, as the case may be, will purchase and the holders of the Exchangeable Shares (other than any holder of Exchangeable Shares which is the Parent or an affiliate of the Parent) will sell, on the Liquidation Date, all of the Exchangeable Shares held by such holders on such date for a price per share equal to the Liquidation Call Purchase Price (payable in the form of Exchangeable Share Consideration).

 

(c)

For the purposes of completing the purchase and sale of the Exchangeable Shares pursuant to the exercise of the Liquidation Call Right, the Parent and/or Callco, as the case may be, shall deposit or cause to be deposited with the Transfer Agent, on or before the Liquidation Date, the Exchangeable Share Consideration representing the total Liquidation Call Purchase Price less any amounts withheld pursuant to Section 3.6.  Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, the holders of the Exchangeable Shares shall cease to be holders of the Exchangeable Shares on and after the Liquidation Date and, from and after such date, shall not be entitled to exercise any of the rights of holders in respect thereof (including any rights under the Voting and Exchange Trust Agreement) other than the right to receive their proportionate part of the total Liquidation Call Purchase Price, 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 Parent Shares which such holder is entitled to receive. 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 BCBCA and the constating documents  of the Purchaser, and such additional documents, instruments and payments as the Transfer Agent and the Purchaser 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 the Parent and/or Callco, as the case may be, shall deliver to such holder, the Exchangeable Share Consideration such holder is entitled to receive.  If neither the Parent nor Callco exercises the Liquidation Call Right in the manner described above, each holder of the Exchangeable Shares will be entitled to receive, on the Liquidation Date, the Liquidation Amount otherwise payable by the Purchaser in respect of the Exchangeable Shares held by such holder in connection with the liquidation, dissolution or winding-up of the Purchaser or any distribution of the assets of the Purchaser among its shareholders for the purpose of winding up its affairs pursuant to Section 5 of the Exchangeable Share Provisions.

 

 

 

4.2	Redemption Call Right.

 

 

(a)

Subject to the proviso in Section 4.2(b) that Callco shall only be entitled to exercise the Redemption Call Right with respect to those Exchangeable Shares, if any, in respect of which the Parent has not exercised the Redemption Call Right, and notwithstanding the proposed redemption of the Exchangeable Shares by the Purchaser pursuant to Section 7 of the Exchangeable Share Provisions, the Parent and Callco shall each have the overriding right (the “Redemption Call Right”) to purchase from all but not less than all of the holders of Exchangeable Shares (other than any holder of Exchangeable Shares which is the Parent or an affiliate of the Parent) on the Redemption Date all but not less than all of the Exchangeable Shares held by each such holder on payment by the Parent or Callco, as the case may be, to each such holder of the Exchangeable Share Price (payable in the form of the Exchangeable Share Consideration) applicable on the last Business Day prior to the Redemption Date (the “Redemption Call Purchase Price”) in accordance with Section 4.2(c).  In the event of the exercise of the Redemption Call Right by the Parent or Callco, as the case may be, each such holder shall be obligated to sell all of the Exchangeable Shares held by the holder to the Parent or Callco, as the case may be, on the Redemption Date on payment by the Parent or Callco, as the case may be, to such holder of the Redemption Call Purchase Price (payable in the form of Exchangeable Share Consideration) for each such share, and the Purchaser shall have no obligation to redeem, or to pay the Redemption Price (as defined in the Exchangeable Share Provisions) in respect of, such shares so purchased.

 

(b)

Callco shall only be entitled to exercise the Redemption Call Right with respect to those Exchangeable Shares, if any, in respect of which the Parent has not exercised the Redemption Call Right.  To exercise the Redemption Call Right, the Parent or Callco must notify the Transfer Agent, as agent for the holders of Exchangeable Shares, and the Purchaser of its intention to exercise such right (i) in the case of a redemption occurring as a result of a Parent Control Transaction, an Exchangeable Share Voting Event or an Exempt Exchangeable Share Voting Event, on or before the Redemption Date and (ii) in any other case, at least 30 days before the Redemption Date.  The Transfer Agent will notify the holders of the Exchangeable Shares as to whether or not the Parent and/or Callco has exercised the Redemption Call Right forthwith after the expiry of the period during which the Parent or Callco may exercise the Redemption Call Right.  If the Parent and/or Callco exercises the Redemption Call Right, the Parent and/or Callco, as the case may be, will purchase and the holders of the Exchangeable Shares (other than any holder of Exchangeable Shares which is the Parent or an affiliate of the Parent) will sell, on the Redemption Date, all of the Exchangeable Shares held by such holders on such date for a price per share equal to the Redemption Call Purchase Price (payable in the form of Exchangeable Share Consideration).

 

(c)

For the purposes of completing the purchase and sale of the Exchangeable Shares pursuant to the exercise of the Redemption Call Right, the Parent and/or Callco, as the case may be, shall deposit or cause to be deposited with the Transfer Agent, on or before the Redemption Date, the Exchangeable Share Consideration representing the total Redemption Call Purchase Price less any amounts withheld pursuant to Section 3.6.  Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, the holders of the Exchangeable Shares shall cease to be holders of the Exchangeable Shares on and after the Redemption Date and, from and after such date, shall not be entitled to exercise any of the rights of holders in respect thereof (including any rights under the Voting and Exchange Trust Agreement) other than the right to receive their proportionate part of the total Redemption Call Purchase Price, 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 Redemption Date be considered and deemed for all purposes to be the holder of the Parent Shares which such holder is entitled to receive.  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 BCBCA and the constating documents of the Purchaser, and such additional documents, instruments and payments as the Transfer Agent and the Purchaser 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 the Parent and/or Callco, as the case may be, shall deliver to such holder, the Exchangeable Share Consideration such holder is entitled to receive.  If neither the Parent nor Callco exercises the Redemption Call Right in the manner described above, each holder of the Exchangeable Shares will be entitled to receive, on the Redemption Date, the redemption price otherwise payable by the Purchaser in respect of the Exchangeable Shares held by such holder in connection with the redemption of the Exchangeable Shares pursuant to Section 7 of the Exchangeable Share Provisions.

 

4.3	Change of Law Call Right.

 

 

(a)

Subject to the proviso in Section 4.3(b) that Callco shall only be entitled to exercise the Change of Law Call Right with respect to those Exchangeable Shares, if any, in respect of which the Parent has not exercised the Change of Law Call Right, the Parent and Callco shall each have the overriding right (the “Change of Law Call Right”), in the event of a Change of Law, to purchase from all but not less than all of the holders of Exchangeable Shares (other than any holder of Exchangeable Shares which is the Parent or an affiliate of the Parent) on the Change of Law Call Date all but not less than all of the Exchangeable Shares held by each such holder on payment by the Parent or Callco, as the case may be, to each such holder of the Exchangeable Share Price (payable in the form of the Exchangeable Share Consideration) applicable on the last Business Day prior to the Change of Law Call Date (the “Change of Law Call Purchase Price”) in accordance with Section 4.3(c).  In the event of the exercise of the Change of Law Call Right by the Parent or Callco, as the case may be, each such holder of Exchangeable Shares shall be obligated to sell all of the Exchangeable Shares held by the holder to the Parent or Callco, as the case may be, on the Change of Law Call Date on payment by the Parent or Callco, as the case may be, to such holder of the Change of Law Call Purchase Price (payable in the form of Exchangeable Share Consideration) for each such share.

 

(b)

Callco shall only be entitled to exercise the Change of Law Call Right with respect to those Exchangeable Shares, if any, in respect of which the Parent has not exercised the Change of Law Call Right.  To exercise the Change of Law Call Right, the Parent or Callco must notify the Transfer Agent, as agent for the holders of Exchangeable Shares, and the Purchaser of its intention to exercise such right at least 30 days before the date (the “Change of Law Call Date”) on which the Parent or Callco, as the case may be, shall acquire the Exchangeable Shares pursuant to the exercise of the Change of Law Call Right.  The Transfer Agent will notify the holders of Exchangeable Shares as to whether the Parent and/or Callco has exercised the Change of Law Call Right forthwith after receiving notice of such exercise from the Parent and/or Callco.  If the Parent and/or Callco exercises the Change of Law Call Right, the Purchaser and/or Callco, as the case may be, will purchase and the holders of Exchangeable Shares (other than any holder of Exchangeable Shares which is the Parent or an affiliate of the Parent) will sell, on the Change of Law Call Date, all of the Exchangeable Shares held by such holders on such date for a price per share equal to the Change of Law Call Purchase Price (payable in the form of Exchangeable Share Consideration).

 

(c)

For the purposes of completing the purchase and sale of the Exchangeable Shares pursuant to the exercise of the Change of Law Call Right, the Parent and/or Callco, as the case may be, shall deposit or cause to be deposited with the Transfer Agent, on or before the Change of Law Call Date, the Exchangeable Share Consideration representing the total Change of Law Call Purchase Price.  Provided that such Exchangeable Share Consideration has been so deposited with the Transfer Agent, the holders of the Exchangeable Shares shall cease to be holders of the Exchangeable Shares on and after the Change of Law Call Date and, from and after such date, shall not be entitled to exercise any of the rights of holders in respect thereof (including any rights under the Voting and Exchange Trust Agreement) other than the right to receive their proportionate part of the total Change of Law Purchase Price, 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 Change of Law Call Date be considered and deemed for all purposes to be the holder of the Parent Shares which such holder is entitled to receive.  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 BCBCA and the constating documents of the Purchaser, and such additional documents, instruments and payments as the Transfer Agent and the Purchaser 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 the Parent and/or Callco, as the case may be, shall deliver to such holder, the Exchangeable Share Consideration such holder is entitled to receive.

 

 

 

4.4	List of Securityholders

 

 

4.5	Securityholder Communications

 

 

 

 

5.1	Representations and Warranties of the Company

 

 

(a)

Organization and Qualification.  The Company has been duly incorporated and validly exists and is in good standing under the BCBCA and has the requisite corporate and legal power and capacity to own its assets as now owned and to carry on its business as it is now being carried on.  The Company is duly qualified to carry on business in each jurisdiction in which the nature or character of the respective properties and assets, owned, leased or operated by it, or the nature of its business or activities, makes such qualification necessary except where the failure to be so qualified has not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company.  The minute books of the Company have true, complete and correct copies of the constating documents of the Company, as amended, and copies of the minutes (or, in the case of draft minutes, the most recent drafts thereof) of all meetings of the Shareholders, the Board of Directors and each committee of the Board of Directors held since the Company’s date of incorporation, excluding any minutes (or portion thereof) of the Board of Directors in relation to this Agreement.

 

(b)

Authority Relative to this Agreement.  The Company has the requisite corporate power, authority and capacity to enter into this Agreement and to perform its obligations hereunder and to complete the transactions contemplated by this Agreement.  The execution and delivery of this Agreement and the completion by the Company of the transactions contemplated by this Agreement have been duly authorized by the Board of Directors and no other corporate proceedings on the part of the Company are necessary to authorize the execution and delivery by it of this or the completion by the Company of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other Laws relating to limitations of actions or affecting the availability of equitable remedies and the enforcement of creditors’ rights generally and general principles of equity and public policy and to the qualification that equitable remedies such as specific performance and injunction may be granted only in the discretion of a court of competent jurisdiction.

 

(c)

Required Approvals.  No authorization, license, Permit, certificate, registration, consent or approval of, or filing with, or notification to, any Governmental Authority is required to be obtained or made by or with respect to the Company for the execution and delivery of this Agreement, the performance by the Company of its obligations hereunder, the completion by the Company of the Acquisition or the ability of the Purchaser to conduct operations after the Effective Time, other than:

 

(i)	such filings and other actions required under applicable Securities Laws;

 

(ii)	the Required Regulatory Approvals relating to the Company; and

 

(iii)

any other authorizations, licenses, Permits, certificates, registrations, consents, approvals and filings and notifications with respect to which the failure to obtain or make same could not have or reasonably be expected to have a Material Adverse Effect on the Company or could not reasonably be expected to prevent or significantly impede or materially delay the completion of the Acquisition.

 

(d)

No Violation.  Subject to obtaining the authorizations, consents and approvals and making the filings referred to in Section 5.1(c) and complying with applicable Laws, the execution and delivery by the Company of this Agreement, the performance by the Company of its obligations hereunder and the completion of the Acquisition do not and will not (nor will they with the giving of notice or the lapse of time or both):

 

(i)	result in a contravention, breach, violation or default under any Law applicable to it or any of its properties or assets;

 

(ii)	result in a contravention, conflict, violation, breach or default under the constating documents of it;

 

 

 

(iii)

result in a contravention, breach or default under or termination of, or acceleration or permit the acceleration of the performance required by, or loss of any benefit under, any Material Contract or material Permit to which it is a party or by which it is bound or to which any of its properties or assets is subject or give to any person any interest, benefit or right, including any right of purchase or sale, termination, payment, modification, reimbursement, penalty, cancellation or acceleration, under any such Contract or Permit; or

 

(iv)	result in the suspension or alteration in the terms of any material Permit held by it or in the creation of any Lien upon any of its properties or assets;

 

 

(e)

Authorized Capital and Outstanding Warrants and Options.  The authorized capital of the Company consists of an unlimited number of Common Shares.  As at the date of this Agreement, there are (i) 13,070,000 Common Shares issued and outstanding all of which have been duly authorized and validly issued and are fully paid and non-assessable, (ii) Warrants providing for the issuance of up to 3,360,000 Common Shares upon exercise thereof, (iii) 1,020,000 Options outstanding under the Stock Option Plan providing for the issuance of up to 1,020,000 Common Shares upon the exercise thereof.  There is no outstanding contractual obligation of the Company to repurchase, redeem or otherwise acquire any Common Shares.  Except for such Warrants and Options, and except for the Consultation Agreement between the Company and SJBarer Consulting LLC, the Company has no outstanding agreement, subscription, warrant, option, conversion or exchange privilege right, arrangement or commitment (nor has it granted any right or privilege (contingent or otherwise) capable of becoming an agreement, subscription, warrant, option, conversion or exchange privilege, right, arrangement or commitment) obligating it to issue or sell any Common Shares or other securities of the Company, including any security or obligation of any kind convertible into or exchangeable or exercisable for any Common Shares or other security of the Company.  Except for the Stock Option Plan, the Company does not have outstanding any stock appreciation rights, phantom equity, restricted share unit, deferred share unit or similar right, agreement, arrangement or commitment based on the book value, Common Share price, income or any other attribute of or related to the Company.  No securities of the Company are listed on any stock or securities exchange or market or registered under any securities Laws.  Except as disclosed in the Company Financial Statements, there are no outstanding bonds, debentures or other evidences of indebtedness of the Company having the right to vote (or that are convertible into or exchangeable or exercisable for securities having the right to vote) with the holders of Common Shares on any matter.  Section 5.1(e) of the Company Disclosure Letter sets out a true, complete and correct list of all Warrants and Options, and the names of the holders of the Warrants and Options, and the respective issuance or grant date of such securities.

 

(f)	Company Entities.  There are no Company Entities.

 

(g)

Reporting Issuer Status and Securities Laws Matters.  The Company is not a “reporting issuer” within the meaning of applicable Canadian Securities Laws and no securities commission or similar regulatory authority has issued any order preventing or suspending trading of any securities of the Company, and the Company is in compliance in all material respects with applicable Canadian Securities Laws.  To the knowledge of the Company, no inquiry, review or investigation (formal or informal) of the Company by any securities commission or similar regulatory authority under applicable Canadian Securities Laws is in effect or ongoing or expected to be implemented or undertaken.

 

(h)

Financial Statements.  The Company Financial Statements have been prepared in accordance with Canadian GAAP applied on a basis consistent with those of previous periods and in accordance with applicable Laws except (i) as otherwise stated in the notes to such statements or, in the case of the Company Annual Financial Statements, in the auditor’s report thereon and (ii) except that the Company Interim Financial Statements are subject to normal period-end adjustments and may omit notes which are not required by applicable Canadian Securities Laws or Canadian GAAP.  The Company Financial Statements present fairly, in all material respects, the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of the Company on a consolidated basis as at the respective dates thereof and the revenues, earnings, results of operations, changes in shareholders’ equity and cash flows of the Company on a consolidated basis for the periods covered thereby (subject, in the case of the Company Interim Financial Statements, to normal period-end adjustments).  Except as disclosed in Section 5.1(h) of the Company Disclosure Letter, there are no outstanding loans made by the Company to any director or officer of the Company.

 

(i)

No Undisclosed Liabilities.  The Company has no liability or obligation of any nature (whether accrued, absolute, contingent or otherwise) other than (i) liabilities and obligations disclosed in the Company Interim Financial Statements, (ii) liabilities and obligations incurred in the ordinary course of business since December 31, 2011 that have not had and could not reasonably be expected to have, individually or in aggregate with all other liabilities and obligations of the Company (other than those disclosed in the Company Interim Financial Statements), a Material Adverse Effect on the Company and (iii) liabilities and obligations incurred as expressly permitted or specifically contemplated by this Agreement (including those related to Transaction Expenses). Without limiting the foregoing, the Company Interim Financial Statements reflect reasonable reserves in accordance with Canadian GAAP for contingent liabilities relating to pending litigation and other contingent obligations of the Company.

 

(j)	Absence of Certain Changes.  Since December 31, 2011, except as set out in Section 5.1(j) of the Company Disclosure Letter:

 

(i)	the Company has conducted its business only in the ordinary course consistent with past practice;

 

(ii)	there has not been any event, occurrence, development or state of circumstances or facts that has had or could reasonably be expected to have a Material Adverse Effect on the Company;

 

(iii)

there has not been any material write-down by the Company of any of the assets of the Company;

 

(iv)	there has not been any expenditure or commitment to expend by the Company with respect to capital expenses where any such expenditures and commitments exceed $10,000 in the aggregate;

 

(v)	other than in the ordinary course of business, there has not been any material change in the levels of accounts receivable or payable, inventories or employees of the Company;

 

(vi)	there has not been any, direct or indirect, acquisition or sale, lease, license or other disposition by the Company of any interest in any material assets;

 

(vii)

there has not been any incurrence, assumption or guarantee by the Company of any indebtedness for borrowed money, any creation or assumption by the Company of any Lien (other than Permitted Liens), or any making by the Company of any loan, advance or capital contribution to or investment in any other person, except, in each case, in the ordinary course of business;

 

(viii)

there has not been any satisfaction, settlement or compromise of any material claim, liability or obligation that was not reflected in the Company Interim Financial Statements;

 

 

 

(ix)	the Company has not effected any material change in its accounting policies, principles, methods, practices or procedures, except for undertaking preparatory work to convert from Canadian GAAP to U.S. GAAP;

 

(x)	the Company has not suffered any casualty, damage, destruction or loss to any of its properties in excess of $10,000 in the aggregate;

 

(xi)	the Company has not declared, set aside or paid any dividends or made any distribution or payment or return of capital in respect of the Common Shares;

 

(xii)

the Company has not effected or passed any resolution to approve a split, division, consolidation, combination or reclassification of the Common Shares or any other securities of the Company;

 

(xiii)

other than in the ordinary course of business, there has not been any material increase in or modification of the compensation payable or to become payable by the Company to any of its directors, officers, employees, former employees or consultants (or any of their respective dependents or beneficiaries) or any grant or award to any such director, officer, employee or consultant of any increase in severance or termination pay or any increase or modification of any bonus, pension, insurance or benefit arrangement to, for or with any of such directors, officers, employees or consultants;

 

(xiv)

the Company has not adopted, or materially amended, any collective bargaining agreement, bonus, pension, profit sharing, stock purchase, stock option or other benefit plan; and

 

(xv)	the Company has not agreed, announced, resolved or committed to do any of the foregoing.

 

(k)

Compliance with Laws.  The business of the Company has been and is currently being conducted in compliance in all material respects with all applicable Laws, and the Company has not received any notice of any alleged material non-compliance or violation of any such Laws.  Without limiting the generality of the foregoing, all issued and outstanding Common Shares, Options and Warrants have been issued in compliance, in all material respects, with all applicable Canadian Securities Laws.

 

(l)

Litigation.  Except as disclosed in Section 5.1(l) of the Company Disclosure Letter, there is no court, administrative, regulatory or similar proceeding (whether civil, quasi-criminal or criminal), arbitration or other dispute settlement procedure, investigation or inquiry before or by any Governmental Authority, or any claim, action, suit, demand, arbitration, charge, indictment, hearing or other similar civil, quasi-criminal or criminal, administrative or investigative matter or proceeding (collectively, “Proceedings”) against or involving the Company (whether in progress, pending or, to the knowledge of the Company, threatened) that, if adversely determined, would, in the aggregate, result in an obligation, award or damages payable by the Company in excess of $10,000 or prevent or significantly impede or materially delay the completion of the Acquisition and, to the knowledge of the Company, no event or circumstance has occurred which might reasonably be expected to give rise to any such Proceeding.  None of the Company’s properties or assets is subject to any outstanding judgment, order, writ, injunction, rule, award or decree of any Governmental Authority that involves or may involve, or restricts or may restrict, the right or ability of the Company to conduct its business in all material respects as it has been conducted prior to the date hereof or that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company or could reasonably be expected to prevent or significantly impede or materially delay the completion of the Acquisition.

 

(m)

Insolvency.  No Proceeding is pending by or against the Company, or, to the knowledge of the Company, is planned or threatened, in connection with the dissolution, liquidation, winding up, bankruptcy or reorganization of the Company or for the appointment of a trustee, receiver, manager or other administrator of the Company or any of its properties or assets nor, to the knowledge of the Company, is any such act or Proceeding threatened.  The Company has not sought protection under the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada), the United States Bankruptcy Code or similar legislation.

 

(n)	Real Property.  The Company does not hold beneficial or legal title to any real property.

 

(o)

Leased Property.  With respect to the real property identified as being leased or subleased by the Company in Section 5.1(o) of the Company Disclosure Letter (which real property constitutes all of the real property leased or subleased as of the date hereof by the Company for leases having an outstanding term of 12 months or more), (i) each lease or sublease for such property (each, a “Lease”) constitutes a legal, valid and binding obligation of the Company, enforceable against the Company, as the case may be, in accordance with its terms, subject to bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other Laws relating to limitations of actions or affecting the availability of equitable remedies and the enforcement of creditors’ rights generally and general principles of equity and public policy and to the qualification that equitable remedies such as specific performance and injunction may be granted only in the discretion of a court of competent jurisdiction, and is in full force and effect, unamended by oral or written agreement, (ii) the Company is not in material breach of or default under any Lease and, to the knowledge of the Company, no event has occurred which, with the giving of notice or lapse of time, or both, would constitute a breach of or default under any Lease, (iii) to the knowledge of the Company, no third party has repudiated or has the right to terminate or repudiate any Lease except in accordance with its terms or with respect to the normal exercise of remedies in connection with any defaults thereunder or in accordance with any termination rights set out therein and (iv) to the knowledge of the Company, no counterparty to any Lease is in material default thereunder.

 

(p)

Assets.  The Company owns or otherwise holds good and valid legal title to, or holds a valid leasehold interest in, all material assets and properties that are required to conduct the business and operations of the Company as presently conducted and proposed to be conducted and there are no Liens on any such assets or properties that could, individually or in the aggregate, materially adversely impact the normal use and operation thereof in the ordinary course of business of the Company or materially detract from the value of any such assets or properties except for Permitted Liens.

 

(q)	Operational Matters.  Except as would not have or reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company:

 

(i)

all rentals, royalties, overriding royalty interests, production payments, net profits, interest burdens, contract commitments, payments and obligations due and payable, or performable, as the case may be, on or prior to the date hereof under, with respect to, or on account of any direct or indirect assets of the Company; and

 

(ii)	all costs, expenses, and liabilities due and payable on or prior to the date hereof under the terms of any Contracts to which the Company is directly or indirectly bound have been properly paid in accordance with the applicable terms other than payments being contested in good faith.

 

(r)

Taxes.

 

(i)

The Company has duly filed all Returns required to be filed by it prior to the date hereof, and all such Returns are true, complete and correct in all material respects and fully disclose all income and expenses as required or permitted by applicable Law.  The Company has paid or has collected, withheld and remitted to the appropriate Governmental Authority on a timely basis all assessments and reassessments and all other Taxes due and payable by it, other than those which are being or have been contested in good faith pursuant to applicable Laws and in respect of which adequate reserves or accrual in accordance with Canadian GAAP have been provided in the Company Interim Financial Statements.  Except as provided in the Company Interim Financial Statements, no audit, action, investigation, deficiency, litigation, proposed adjustment or other Proceeding exists or has been asserted or, to the knowledge of the Company, threatened with respect to Taxes of the Company, and the Company is not a party to any Proceeding for assessment, reassessment or collection of Taxes and no such event has been asserted or, to the knowledge of the Company, threatened against the Company or any of its respective assets, and there are no matters of dispute or matters under discussion with any Governmental Authority relating to Taxes assessed by any Governmental Authority against the Company or relating to any matters which could result in claims for Taxes or additional Taxes.  No Lien, other than Permitted Liens, for Taxes has been filed or exists other than for Taxes not yet due and payable by the Company.  The Company Interim Financial Statements accurately reflect, as of the dates thereof, the Company’s liability for Taxes due and accruing, including Taxes for which a tax return was not yet filed or required to be filed.  There are no currently effective material elections, agreements or waivers extending the statutory period or providing for an extension of time with respect to the assessment or reassessment of any Taxes, the filing of any Return or any payment of Taxes by the Company.  The Company has not made, prepared and/or filed any elections, designations or similar filings relating to Taxes or entered into any agreement or other arrangement in respect of Taxes or Returns that could, in and of itself, require a material amount to be included in the income of the Company for any period ending after the Effective Date.  The Company has not acquired property from a non-arm’s length person (within the meaning of the Tax Act) (i) for consideration the value of which is less than the fair market value of the property or (ii) to the knowledge of the Company, as a contribution of capital for which no shares were issued by the acquirer of the property and the recipient’s cost in such property is less than its fair market value at the time of such contribution.  The Company is a taxable Canadian corporation as defined in the Tax Act.  The Company is not required to file any Return in respect of income taxes in any jurisdiction other than the jurisdiction of its formation.

 

 

 

(ii)	The Company has withheld from each payment made to any of its present or former employees, officers and directors, and to all other persons, all material amounts required by applicable Law to be withheld.

 

(iii)

No facts, circumstances or events exist or have existed that have resulted in or may result in the application of any of sections 79 to 80.04 of the Tax Act to the Company.

 

(iv)

Records or documents that meet the requirements of paragraphs 247(4)(a) to (c) of the Tax Act have been made and obtained by the Company with respect to all material transactions between the relevant entity and any person not resident in Canada with whom such entity was not dealing at arm’s length within the meaning of the Tax Act, during a Taxation year commencing after 2005 and ending on or before the Effective Date.

 

(s)	Contracts.

 

(i)	Except as set forth in Section 5.1(s)(i) of the Company Disclosure Letter, the Company is not a party to or bound or governed by any of the following (each, together with all exhibits and schedules thereto, a “Material Contract”):

 

A.	any Contract under which the Company is obliged to make payments on an annual basis in excess of $10,000 in the aggregate and that is not terminable by the Company on less than 12 months’ notice;

 

B.	any partnership, limited or unlimited liability company agreement, joint venture, alliance agreement or other similar agreement or license agreement;

 

C.

any Contract  under which indebtedness for borrowed money in excess of $10,000 is outstanding or may be incurred or pursuant to which any property or asset of the Company is mortgaged, pledged or otherwise subject to a Lien, any Contract under which the Company has directly or indirectly guaranteed any liabilities or obligations of any person in excess of $10,000 or any Contract restricting the incurrence of indebtedness by the Company in any material respect or the incurrence of Liens on any properties or securities of the Company in any material respect or restricting the payment of dividends or other distributions in any material respect;

 

D.	any currency, commodity, interest rate or equity related hedge, derivative, swap or other financial risk management Contract;

 

E.	any Contract providing for indemnification by the Company;

 

F.	any standstill or similar Contract currently restricting the ability of the Company to offer to purchase or purchase the assets or equity securities of another person; or

 

G.	any Contract which, if terminated or modified or if it ceased to be in effect, would have or reasonably be expected to have a Material Adverse Effect on the Company.

 

 

(ii)

The Company is not or, to the knowledge of the Company, any of the other parties thereto are not, in breach or violation of or in default under (in each case, with or without notice or lapse of time or both) any Material Contract in any material respect, and the Company has not received or given any notice of default under any Material Contract which remains uncured, and, to the knowledge of the Company, there exists no state of facts which after notice or lapse of time or both would constitute a default under or breach or violation of any Material Contract or the inability of a party to any Material Contract to perform its obligations thereunder where, in any such case, such default, breach, violation or non-performance has had or would reasonably be expected to have a Material Adverse Effect on the Company.

 

(iii)

There are no shareholders or stockholders agreements, registration rights agreements, voting trusts, proxies or similar agreements, arrangements or commitments to which the Company is a party or, to the knowledge of the Company, with respect to any shares or other equity interests of the Company or any other Contract relating to disposition, voting or dividends with respect to any shares or other equity securities of the Company.

 

(iv)

To the knowledge of the Company, the Material Contracts constitute all of the Contracts that are required to conduct the business and operations of the Company as presently conducted.  The Company has not received written notice of the termination of, or intent to terminate or otherwise fail to fully perform any Material Contract.

 

 

 

(t)	Employment Agreements and Collective Agreements.  The Company is not a party to or bound or governed by, or subject to, or has any liability with respect to:

 

(i)

any employment, retention or change of control agreement with, or any written or oral agreement, commitment, obligation, arrangement, plan or understanding providing for any retention, bonus, severance, change of control, retirement or termination payments in excess of $10,000 to any current or former director, officer or employee of the Company;

 

(ii)	any collective bargaining or union agreement or other similar arrangement with any labour union or employee associate, or any actual or, to the knowledge of the Company, threatened application for certification or bargaining rights in respect of the Company;

 

(iii)

any labour dispute, work stoppage or slowdown, strike or lock-out relating to or involving any employees of the Company; or

 

(iv)	any actual or, to the knowledge of the Company, threatened claim or other Proceeding arising out of or in connection with employment by the Company or the termination thereof.

 

(u)

Health and Safety.  There are no notices of reassessment or penalty assessments or any other communications related thereto which the Company has received from any Governmental Authority regarding occupational health and safety or workers compensation matters and there are no such assessments which are unpaid as of the date hereof.

 

(v)

Employment and Labour Laws.  The Company has operated in accordance with all applicable Laws with respect to employment and labour in all material respects, including employment and labour standards, occupational health and safety, employment equity, pay equity, workers’ compensation, human rights, labour relations and privacy, and there are no current, pending or, to the knowledge of the Company, threatened Proceedings by or before any Governmental Authority with respect to any such matters, except where the failure to so operate would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect on the Company.

 

(w)

Acceleration of Benefits.  Except as contemplated herein or in Section 5.1(w) of the Company Disclosure Letter, no person will, as a result of the Company completing the Acquisition, become entitled to (i) any retirement, severance, termination, bonus or other similar payment, (ii) the acceleration of the vesting of or the time to exercise any outstanding stock option or employee, officer or director awards, (iii) the forgiveness or postponement of payment of any material indebtedness owing by such person to the Company or (iv) receive any additional payments or compensation under or in respect of any employee, officer or director benefits or incentive, performance or other compensation plans or arrangements.

 

(x)	Intellectual Property.

 

(i)

The Company owns all right, title and interest in and to, or has validly licensed (and are not in material breach of such licenses), all patent applications, patents, trade-marks, trade names, service marks, copyrights, trade secrets, software, technology and all other intellectual property and proprietary rights that are material to the conduct of the business and operations, as presently conducted, of the Company (collectively, the “Intellectual Property Rights”).

 

(ii)	All of the registered Intellectual Property Rights are sufficient, in all material respects, for conducting the business, as presently conducted, of the Company.

 

(iii)

To the knowledge of the Company, all of the Intellectual Property Rights are valid, protectable, and enforceable and do not infringe, misuse, misappropriate, or otherwise violate in any material way upon any third parties’ intellectual property and proprietary rights and no event will occur as a result of the transactions contemplated hereby that would render invalid or unenforceable any of the Intellectual Property Rights, in each case except as has not had and could not have or reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company.

 

(iv)

The Company has obtained and properly recorded previously executed assignments for the patents and patent applications in the registered Intellectual Property Rights as necessary to fully perfect their respective rights and title therein in accordance with applicable Laws in each respective jurisdiction except where the failure to do so could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company.

 

(v)	There are no Proceedings, reissues, re-examinations, cancellations or invalidations of any kind pending or in progress, or, to the knowledge of the Company, threatened relating in any way to the registered Intellectual Property Rights.

 

(vi)	To the knowledge of the Company, no third party is infringing upon, misusing, misappropriating, or otherwise violating the Intellectual Property Rights in any material respect.

 

(vii)

There are no outstanding Liens or material agreements or restrictions of any kind relating to the Intellectual Property Rights, nor is the Company bound by or a party to or otherwise subject to any Liens or material agreements or restrictions of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person other than such licenses or agreements arising from the purchase of “off the shelf” or similar products.

 

(viii)

The Company has not received any communications nor, to the knowledge of the Company, is there any Proceeding alleging that the Company has violated or, by conducting its business and operations, as presently conducted or proposed to be conducted, would violate, misuse, misappropriate, or otherwise violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person, nor is the Company aware of any basis therefor.

 

(ix)	Except as disclosed in the Company Financial Statements, the Company knows of no asserted or unasserted claims of ownership of the Intellectual Property Rights by any third party other than the Company.

 

(x)	The Company knows of no inventors of the Intellectual Property Rights other than the named inventors of the Intellectual Property Rights and know of no asserted or unasserted claims of inventorship by any person other than the named inventors of the Intellectual Property Rights.

 

(xi)	The Company knows of no asserted claims of prior invention of the Intellectual Property Rights.

 

(xii)

The Company have complied in all material respects with all laws, statutes, regulations, and rules in obtaining and perfecting the Intellectual Property Rights, including, without limitation, all prior art disclosure requirements.

 

(xiii)

The Company has paid all fees and annuities on and made all required filings relating to the Intellectual Property Rights and the Intellectual Property Rights are in good standing except where the failure to make such payments has not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company.

 

(xiv)

Except as disclosed in the Company Financial Statements, the Company does not intend to utilize any inventions, trade secrets, or proprietary information of any employee made prior to his or her employment by the Company, as appropriate.

 

(xv)

All hardware, software and firmware, processed data, technology infrastructure and other computer systems used in connection with the conduct of the business and operations, as presently conducted, of the Company (collectively, the “Technology”) are sufficient, in all material respects, for conducting the business, as presently conducted, of the Company.

 

(xvi)

The Company owns or has validly licensed (and are not in material breach of such licenses) the Technology and have commercially reasonable security measures in place in relation to the Technology.

 

(xvii)

The Company has reasonable back-up systems adequate to ensure the continuing availability of the functionality, in all material respects, provided by the Technology, and have ownership of or a valid license to the Intellectual Property Rights necessary to allow them to continue to provide the functionality, in all material respects, provided by the Technology in the event of any malfunction of the Technology.

 

 

 

(y)	Environment.  Except as disclosed in Section 5.1(y) of the Company Disclosure Letter:

 

(i)

there has not occurred any Release of any Hazardous Substances (except in compliance with applicable Environmental Laws) on, at, in, under or from any of the real properties currently or previously owned, leased or used by the Company and there is no such Release, regardless of whether it was in compliance with Environmental Laws that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company, and the Company has been and is currently conducting its business and operations in compliance in all material respects with all applicable Environmental Laws;

 

(ii)

to the knowledge of the Company, none of the real properties currently or previously owned, leased or used by the Company has been used to generate, manufacture, refine, treat, recycle, transport, store, handle, dispose of, transfer, produce or process Hazardous Substances (except in compliance in all material respects with all applicable Environmental Laws) and all Hazardous Substances handled, recycled, disposed of, treated or stored on or off site of any of the Material Properties have been handled, recycled, disposed of, treated and stored in compliance in all material respects with all applicable Environmental Laws;

 

(iii)

there are no claims pending or, to the knowledge of the Company, threatened against the Company arising out of any applicable Environmental Laws.  The Company is not subject to any past or present fact, condition or circumstance that would reasonably be expected to result in any liability under any applicable Environmental Laws that could, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect on the Company.

 

(z)	Insurance.  The Company maintains the material insurance policies described in Section 5.1(z) of the Company Disclosure Letter, and the Company is in compliance in all material respects with all requirements with respect thereto.

 

(aa)

Books and Records.  The corporate records and minute books of the Company have been maintained in accordance with all applicable Laws in all material respects, and such corporate records and minute books are complete and accurate in all material respects.  The financial books, records and accounts of the Company have in all material respects been maintained in accordance with good business practices and in accordance with Canadian GAAP and with the accounting principles generally accepted in the country of domicile of each such entity on a basis consistent with prior years.

 

(bb)

Non-Arm’s Length Transactions.  Except for employment or employment compensation agreements entered into in the ordinary course of business and as disclosed in the Company Financial Statements, as disclosed in Section 5.1(bb) of the Company Disclosure Letter, there are no current contracts, commitments, agreements, arrangements or other transactions between the Company, on the one hand, and any (i) officer or director of the Company, (ii) any holder of record or, to the knowledge of the Company, beneficial owner of or 10% or more of the outstanding Common Shares or (iii) any affiliate or associate or any such officer, director or Shareholder, on the other hand.

 

(cc)

No Collateral Benefits.  Except as disclosed in the Company Financial Statements, to the knowledge of the Company, no “related party” (as defined in MI 61-101) of the Company that beneficially owns or exercises control or direction over 1% or more of the outstanding Common Shares will receive a “collateral benefit” (as defined in MI 61-101) as a consequence of the Acquisition.

 

(dd)

Corrupt Practices Legislation.  The Company has not taken or committed to take any action which would cause the Company or affiliates to be in violation of the United States Foreign Corrupt Practices Act, the Corruption of Foreign Public Officials Act (Canada) or any applicable Law of similar effect, to the extent to which they may be applicable to the Company or affiliates, and, to the knowledge of the Company, no such action has been taken by any person acting on behalf of the Company or affiliates.

 

(ee)

Financial Advisers or Brokers.  Except for the agreement between the Company and Charles Vista, LLC dated December 14, 2012, the Company has not incurred any obligation or liability, contingent or otherwise, or agreed to pay or reimburse any broker, finder, financial adviser or investment banker, for any brokerage, finder’s, advisory or other fee or commission, or for the reimbursement of expenses, in connection with this Agreement, the transactions contemplated hereby or any alternative transaction in relation to the Company.

 

(ff)

Board of Directors Approval.  The Board of Directors, at a meeting duly called and held, has unanimously determined that this Agreement and the Acquisition are fair to the Securityholders and are in the best interests of the Company and has unanimously approved the execution and delivery of this Agreement and the transactions contemplated by this Agreement.

 

(gg)

Full Disclosure.  The Company Disclosure Letter discloses all material facts related to the Company, its respective business, financial condition, assets, liabilities and operations, in each case to the extent required to be disclosed pursuant to applicable Canadian Securities Laws, and no representation or warranty of the Company contained in this Agreement or in the Company Disclosure Letter or in any certificate furnished to the Purchaser pursuant to any provision of this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made.

 

5.2	Representations and Warranties of the Shareholders

 

 

(a)	the Shareholder is the registered owner of the Common Shares being transferred by such Shareholder to the Purchaser pursuant to this Agreement and has good title to such shares;

 

(b)	such Common Shares are free and clear of all hypothecs, liens, charges, encumbrances, mortgages, security interests and adverse claims;

 

(c)

the Shareholder has full power and authority to deposit, sell, assign, transfer and deliver such Common Shares and, when the consideration to which such Shareholder is entitled under the Acquisition is received, the Purchaser will acquire good title to such Common Shares free and clear of any hypothecs, liens, charges, encumbrances, mortgages and security interests and none of the Company, the Parent or the Purchaser or any successors thereto will be subject to any adverse claim in respect of such Common Shares, and the Shareholder hereby irrevocably nominates, constitutes and appoints the President and Chief Executive Officer of the Company, from time to time, with full power of substitution, as agent and true and lawful attorney to act for and on behalf of the Shareholder with full power and authority in the name, place and stead of the Shareholder to, among other things, execute (under seal or otherwise), swear to, acknowledge, deliver and record or file as and where required any instrument or document as may be deemed necessary by the Company to carry out fully the provisions of this Agreement in accordance with its terms and conditions;

 

(d)	such Common Shares have not been sold, assigned or transferred nor has any agreement been entered into by the Shareholder to sell, assign or transfer any such Common Shares to any person other than the Purchaser;

 

 

 

(e)	the Shareholder will execute, upon request, any additional documents, transfers and other assurances as may be necessary or desirable to complete the exchange of certificate(s) representing Common Shares for share consideration the Shareholder is entitled to receive;

 

(f)

the Shareholder acknowledges that all authority conferred or agreed to be conferred by the Shareholder herein may be exercised during any subsequent legal incapacity of the Shareholder and shall survive the death, incapacity, bankruptcy or insolvency of the Shareholder and all obligations of the undersigned herein shall be binding upon any heirs, personal representatives, successors and assigns of the Shareholder;

 

(g)	the Shareholder will not transfer or permit to be transferred any of the Common Shares being transferred by such Shareholder to the Purchaser pursuant to this Agreement;

 

(h)

the Shareholder has full right, power and authority to execute and deliver this Agreement and to take all actions required pursuant hereto and, if the Shareholder is a corporation, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been given to authorize execution of this Agreement on behalf of the Shareholder;

 

(i)	the entering into of this Agreement and the transactions completed hereby will not result in the violation of any of the terms and provisions of any law applicable to, or, if applicable, to the constating documents of, the Shareholder;

 

(j)

this Agreement has been duly executed and delivered by the Shareholder and, if the Shareholder is not an individual, has been duly authorized by the Shareholder, and will constitute a legal, valid and binding agreement of the Shareholder enforceable against the Shareholder in accordance with its terms, subject to the qualification that enforcement thereof is subject to applicable bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally;

 

(k)	if the Shareholder is a resident of the United States, such Shareholder is an accredited investor as defined under Rule 501 under the 1933 Securities Act;

 

(l)	the Shareholder has received the PPM, which has been delivered concurrently with this Agreement; and

 

(m)	if an individual, the Shareholder has attained the age of majority and is legally competent to execute this Agreement and to take all actions required pursuant thereto.

 

 

 

5.3	Representations and Warranties of the Optionholders

 

 

(a)	the Optionholder is the holder of the Options registered in such Optionholder’s name that are being amended pursuant to this Agreement and has good title to such Options;

 

(b)	such Options are free and clear of all hypothecs, liens, charges, encumbrances, mortgages, security interests and adverse claims;

 

(c)	such Options have not been sold, assigned or transferred nor has any agreement been entered into to sell, assign or transfer any such Options, to any person;

 

(d)

the Optionholder will execute, upon request, any additional documents, transfers and other assurances as may be necessary or desirable to complete the amendment of certificate(s) representing such Options, and the Optionholder hereby irrevocably nominates, constitutes and appoints the President and Chief Executive Officer of the Company, from time to time, with full power of substitution, as agent and true and lawful attorney to act for and on behalf of the Optionholder with full power and authority in the name, place and stead of the Optionholder to, among other things, execute (under seal or otherwise), swear to, acknowledge, deliver and record or file as and where required any instrument or document as may be deemed necessary by the Company to carry out fully the provisions of this Agreement in accordance with its terms and conditions;

 

(e)

the Optionholder acknowledges that all authority conferred or agreed to be conferred by the Optionholder herein may be exercised during any subsequent legal incapacity of the Optionholder and shall survive the death, incapacity, bankruptcy or insolvency of the Optionholder and all obligations of the Optionholder herein shall be binding upon any heirs, personal representatives, successors and assigns of the Optionholder;

 

(f)

the Optionholder has full right, power and authority to execute and deliver this Agreement and to take all actions required pursuant hereto and, if the Optionholder is a corporation, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been given to authorize execution of this Agreement on behalf of the Optionholder;

 

(g)	the entering into of this Agreement and the transactions completed hereby will not result in the violation of any of the terms and provisions of any law applicable to, or, if applicable, to the constating documents of, the Optionholder;

 

(h)

this Agreement has been duly executed and delivered by the Optionholder and, if the Optionholder is not an individual, has been duly authorized by the Optionholder and will constitute a legal, valid and binding agreement of the Optionholder enforceable against the Optionholder in accordance with its terms, subject to the qualification that enforcement thereof is subject to applicable bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally;

 

(i)	the Optionholder acknowledges that they have received the PPM, which has been delivered concurrently with this Agreement; and

 

(j)	if an individual, the Optionholder has attained the age of majority and is legally competent to execute this Agreement and to take all actions required pursuant thereto.

 

 

 

5.4	Representations and Warranties of the Warrantholders

 

 

(a)	the Warrantholder is the holder of the Warrants registered in the such Warrantholder’s name that are being amended pursuant to this Agreement and has good title to such Warrants;

 

 

 

(b)	such Warrants are free and clear of all hypothecs, liens, charges, encumbrances, mortgages, security interests and adverse claims;

 

(c)	such Warrants have not been sold, assigned or transferred nor has any agreement been entered into to sell, assign or transfer any such Warrants, to any person;

 

(d)

the Warrantholder will execute, upon request, any additional documents, transfers and other assurances as may be necessary or desirable to complete the amendment of certificate(s) representing such Warrants, and the Warrantholder hereby irrevocably nominates, constitutes and appoints the President and Chief Executive Officer of the Company, from time to time, with full power of substitution, as agent and true and lawful attorney to act for and on behalf of the Warrantholder with full power and authority in the name, place and stead of the Warrantholder to, among other things, execute (under seal or otherwise), swear to, acknowledge, deliver and record or file as and where required any instrument or document as may be deemed necessary by the Company to carry out fully the provisions of this Agreement in accordance with its terms and conditions;

 

(e)

the Warrantholder acknowledges that all authority conferred or agreed to be conferred by the Warrantholder herein may be exercised during any subsequent legal incapacity of the Warrantholder and shall survive the death, incapacity, bankruptcy or insolvency of the Warrantholder and all obligations of the Warrantholder herein shall be binding upon any heirs, personal representatives, successors and assigns of the Warrantholder;

 

(f)

the Warrantholder has full right, power and authority to execute and deliver this Agreement and to take all actions required pursuant hereto and, if the Warrantholder is a corporation, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been given to authorize execution of this Agreement on behalf of the Warrantholder;

 

(g)	the entering into of this Agreement and the transactions completed hereby will not result in the violation of any of the terms and provisions of any law applicable to, or, if applicable, to the constating documents of, the Warrantholder;

 

(h)

this Agreement has been duly executed and delivered by the Warrantholder and, if the Warrantholder is not an individual, has been duly authorized by the Warrantholder and will constitute a legal, valid and binding agreement of the Warrantholder enforceable against the Warrantholder in accordance with its terms, subject to the qualification that enforcement thereof is subject to applicable bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally;

 

(i)	the Warrantholder acknowledges that they have received the PPM, which has been delivered concurrently with this Agreement; and

 

(j)	if an individual, the Warrantholder has attained the age of majority and is legally competent to execute this Agreement and to take all actions required pursuant thereto.

 

 

 

5.5	Representations and Warranties of the Broker Warrantholders

 

 

(a)	the Broker Warrantholder is the holder of the Broker Warrants registered in the name of such Broker Warrantholder that are being amended pursuant to this Agreement and has good title to such Broker Warrants;

 

(b)	such Broker Warrants are free and clear of all hypothecs, liens, charges, encumbrances, mortgages, security interests and adverse claims;

 

(c)	such Broker Warrants have not been sold, assigned or transferred nor has any agreement been entered into to sell, assign or transfer any such Broker Warrants, to any person;

 

(d)

the Broker Warrantholder will execute, upon request, any additional documents, transfers and other assurances as may be necessary or desirable to complete the amendment of certificate(s) representing such Broker Warrants, and the Broker Warrantholder hereby irrevocably nominates, constitutes and appoints the President and Chief Executive Officer of the Company, from time to time, with full power of substitution, as agent and true and lawful attorney to act for and on behalf of the Broker Warrantholder with full power and authority in the name, place and stead of the Broker Warrantholder to, among other things, execute (under seal or otherwise), swear to, acknowledge, deliver and record or file as and where required any instrument or document as may be deemed necessary by the Company to carry out fully the provisions of this Agreement in accordance with its terms and conditions;

 

(e)

the Broker Warrantholder acknowledges that all authority conferred or agreed to be conferred by the Broker Warrantholder herein may be exercised during any subsequent legal incapacity of the Broker Warrantholder and shall survive the death, incapacity, bankruptcy or insolvency of the Broker Warrantholder and all obligations of the Broker Warrantholder herein shall be binding upon any heirs, personal representatives, successors and assigns of the Broker Warrantholder;

 

(f)

the Broker Warrantholder has full right, power and authority to execute and deliver this Agreement and to take all actions required pursuant hereto and, if the Broker Warrantholder is a corporation, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been given to authorize execution of this Agreement on behalf of the Broker Warrantholder;

 

(g)	the entering into of this Agreement and the transactions completed hereby will not result in the violation of any of the terms and provisions of any law applicable to, or, if applicable, to the constating documents of, the Broker Warrantholder;

 

(h)

this Agreement has been duly executed and delivered by the Broker Warrantholder and, if the Broker Warrantholder is not an individual, has been duly authorized by the Broker Warrantholder and will constitute a legal, valid and binding agreement of the Broker Warrantholder enforceable against the Broker Warrantholder in accordance with its terms, subject to the qualification that enforcement thereof is subject to applicable bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally;

 

(i)	the Broker Warrantholder acknowledges that they have received the PPM, which has been delivered concurrently with this Agreement; and

 

 

 

(j)	if an individual, the Broker Warrantholder has attained the age of majority and is legally competent to execute this Agreement and to take all actions required pursuant thereto.

 

 

 

5.6	Representations and Warranties of the Purchaser, Callco and the Parent

 

 

(a)

Organization and Corporate Capacity.  The Parent has been duly organized and is validly existing and in good standing under the Laws of the State of Nevada.  The Parent has the power and authority to own its property and to conduct its business as described in the Parent Public Disclosure Record and is duly qualified to transact business and is in good standing (to the extent such concept is recognized) in each jurisdiction in which the conduct of its business as currently conducted or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Material Adverse Effect on the Parent.  Each of Callco and the Purchaser has been duly organized and is validly existing and in good standing under the Laws of Canada.  The Parent owns, directly or indirectly, all of the issued and outstanding shares of each of Callco and the Purchaser.

 

(b)

Authority Relative to this Agreement.  Each of the Parent, Callco and the Purchaser has the requisite corporate or limited liability company power, authority and capacity to enter into and perform its obligations under this Agreement and to complete the transactions contemplated hereby.  The execution and delivery of this Agreement and the completion by the Parent, Callco and the Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or limited liability company action of the Parent, Callco and the Purchaser and no other corporate proceedings on the part of the Parent, Callco or the Purchaser, as the case may be, are necessary to authorize the execution and delivery by it of this Agreement or the completion by the Parent, Callco and the Purchaser of the transactions contemplated hereby.  This Agreement has been duly executed and delivered by each of the Parent, Callco and the Purchaser and constitutes the legal, valid and binding obligation of the Parent, Callco and the Purchaser enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other Laws relating to or affecting the availability of equitable remedies and the enforcement of creditors’ rights generally and general principles of equity and public policy and to the qualification that equitable remedies such as specific performance and injunction may be granted only in the discretion of a court of competent jurisdiction.

 

(c)

Required Approvals.  No authorization, licence, Permit, certificate, registration, consent or approval of, or filing with, or notification to, any Governmental Authority is necessary for the execution and delivery by the Parent, Callco or the Purchaser of this Agreement, the performance by either of them of its obligations hereunder and the completion by either of them of the Acquisition, other than:

 

(i)	the Required Regulatory Approvals relating to the Purchaser, Callco and the Parent; and

 

(ii)

any other authorizations, licences, Permits, certificates, registrations, consents, approvals and filings and notifications with respect to which the failure to obtain or make the same would not reasonably be expected to prevent or significantly impede or materially delay the completion of the Acquisition.

 

(d)

No Violation.  Subject to obtaining the authorizations, consents and approvals and making the filings referred to in Section 5.6(c) and complying with applicable Laws, the execution and delivery by each of the Parent, Callco and the Purchaser of this Agreement, the performance by each of them of its respective obligations hereunder does not and will not (nor will they with the giving of notice or the lapse of time or both) (i) result in a contravention, breach, violation or default under any Law applicable to it, (ii) result in a contravention, conflict, violation, breach or default under its constating documents or (iii) result in a contravention, breach or default under or termination of, or acceleration or permit the acceleration of the performance required by, any material agreement, contract, covenant, undertaking, commitment, instrument, licence, permit or authorization to which it is a party or by which it is bound, except, in the case of each of clauses (i) and (iii) above, as would not reasonably be expected to have a Material Adverse Effect on the Parent.

 

(e)

Capitalization of the Parent.  As of the date of this Agreement, the authorized capital of the Parent consists of 200,000,000 shares of common stock, of which 13,369,500 shares are issued and outstanding (of which 10,119,493 shares will be returned to the Parent immediately following the closing of the Acquisition), and 5,000,000 shares of preferred stock, par value US$0.001 per share, of which one share has been designated Special Voting Preferred Stock and no shares of preferred stock are issued and outstanding, and warrants to purchase 13,369,500 shares of common stock (issued pursuant to the Warrant Dividend) are issued and outstanding (of which 10,119,493 warrants will be returned to the Parent immediately following the Closing).  All of the issued and outstanding shares of common stock of the Parent (i) have been duly authorized and validly issued and are fully paid and nonassessable, (ii) have not been issued in violation of the articles, charter, by-laws or other constating documents of the Parent, or any agreement, contract, covenant, undertaking, or commitment to which the Parent is a party or bound, and (iii) have been issued and sold in compliance with U.S. Securities Laws in all material respects.  As of the Effective Date (immediately following the closing of the Acquisition, not including any securities issuable pursuant to this Agreement, the PPM or the Valent Agreement Amendment), the outstanding capital of the Parent will consist of 3,250,007 shares of common stock and warrants to purchase 3,250,007 shares of common stock issued pursuant to the Warrant Dividend.  As of the date of this Agreement, except as contemplated by the PPM and except for the Warrant Dividend, there are no outstanding agreements, subscriptions, warrants, options, rights or commitments (nor has it granted any right or privilege capable of becoming an agreement, subscription, warrant, option, right or commitment) obligating the Parent to issue or sell any shares of common stock or other securities of the Parent, including any security or obligation of any kind convertible into or exchangeable or exercisable for any shares of common stock or other security of the Parent.  The issuance of the Consideration Shares pursuant to the Acquisition will not obligate the Parent, Callco or the Purchaser to issue shares of common stock or other securities of the Parent, Callco or the Purchaser to any person except as contemplated in this Agreement will not result in a right of any holder of securities of the Parent, Callco or the Purchaser to adjust the exercise, conversion, exchange or reset of price under any of such securities..

 

(f)

Material Subsidiaries.  As of the date of this Agreement, the only material subsidiaries of the Parent are: (i) Callco and (ii) the Purchaser (collectively, the “Parent Material Subsidiaries”).  All of the issued and outstanding shares of capital stock of each Parent Material Subsidiary held by the Parent have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Parent, free and clear of all Liens except those Liens imposed by applicable securities Laws and those Liens imposed by the transaction documents pursuant to which the Parent Material Subsidiaries were acquired or formed, as applicable.  Each Parent Material Subsidiary has been duly organized, is validly existing and in good standing (to the extent such concept is recognized) under the Laws of the jurisdiction of its organization, has the power and authority to own its property and to conduct its business as described in the Parent Public Disclosure Record and is duly qualified to transact business and is in good standing (to the extent such concept is recognized) in each jurisdiction in which the conduct of its business as currently conducted or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Material Adverse Effect on the Parent.

 

 

 

(g)

Consideration Shares.  The Consideration Shares to be issued pursuant to the Acquisition (i) have been duly authorized, and, upon issuance, will be validly issued, fully paid and nonassessable and (ii) will not be issued in violation of the articles, charter, by-laws or other constating documents of the Parent or the Purchaser, as the case may be, or any agreement, contract, covenant, undertaking, or commitment to which the Parent or the Purchaser is a party or bound.  The Parent Shares trade on the OTCBB.

 

(h)	Parent Public Disclosure Record and Listing Compliance.

 

(i)

The Parent has filed or furnished, as applicable, all forms, filings, registrations, submissions, statements, certifications, reports and documents required to be filed or furnished by it with the U.S. Securities and Exchange Commission (the “SEC”) under the 1934 Exchange Act.  As of their respective dates, the documents and information comprising the Parent Public Disclosure Record complied in all material respects with the requirements of the 1933 Securities Act and the 1934 Exchange Act and the rules and regulations of the SEC promulgated thereunder, as applicable, and none of such documents or information, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(ii)

The Parent is in compliance in all material respects with the requirements of the OTCBB for continued trading of its shares of common stock thereon.  The Parent has not taken any action designed to terminate, or likely to have the effect of terminating, the registration of its shares of common stock under the 1934 Exchange Act or the trading of such shares on the OTCBB.

 

(i)

Parent Financial Statements.  Except as set forth in the Parent Public Disclosure Record, the Parent Financial Statements were prepared in accordance with U.S. GAAP applied on a basis consistent with those of previous periods and in accordance with applicable Laws, except that interim financial statements are subject to normal period-end adjustments and may omit notes which are not required by applicable U.S. Securities Laws or U.S. GAAP.  Except as set forth in the Parent Public Disclosure Record, the Parent Financial Statements present fairly, in all material respects, the assets, liabilities and financial condition of the Parent and its consolidated subsidiaries on a consolidated basis as at the respective dates thereof and the revenues, earnings, results of operations, changes in shareholders’ equity and cash flows of the Parent and its consolidated subsidiaries on a consolidated basis for the periods covered thereby (subject, in the case of the interim financial statements, to normal period-end adjustments).

 

(j)

Internal Controls.  Each of the Parent and the Parent Material Subsidiaries (from and after the date of their acquisition by the Purchaser) maintains a system of internal accounting controls sufficient to provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements by the Parent in conformity with U.S. GAAP and to maintain asset accountability.  Except as set forth in the Parent Public Disclosure Record, (A) the Parent is not aware of any material weakness in the Parent’s internal control over financial reporting (whether or not remediated) and (B) no change in the Parent’s internal control over financial reporting has occurred that has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Parent’s internal control over financial reporting.  The Parent is not subject to any significant deficiencies or material weaknesses with applicable provisions of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder.

 

(k)	No Undisclosed Liabilities.  As of the Effective Date, except as contemplated by the PPM, the Parent and the Parent Material Subsidiaries shall have no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise).

 

(l)	Absence of Certain Changes.  Since June 30, 2012:

 

(i)	each of the Parent and the Parent Material Subsidiaries has conducted its business only in the ordinary course consistent with past practice;

 

(ii)	there has not been any event, occurrence, development or state of circumstances or facts that has had or could reasonably be expected to have a Material Adverse Effect on the Parent;

 

(iii)

there has not been any material write-down by the Parent or any of the Parent Material Subsidiaries of any of the assets of the Parent or any of the Parent Material Subsidiaries;

 

(iv)

there has not been any incurrence, assumption or guarantee by the Parent or any of the Parent Material Subsidiaries of any indebtedness for borrowed money, any creation or assumption by the Parent or any of the Parent Material Subsidiaries of any Lien (other than a Permitted Lien), or any making by the Parent or any of the Parent Material Subsidiaries of any loan, advance or capital contribution to or investment in any other person, except in each case, in the ordinary course of business;

 

(v)	the Parent has not effected any material change in its accounting policies, principles, methods, practices or procedures;

 

(vi)	the Parent has not effected or passed any resolution to approve a split, division, consolidation, combination or reclassification of any of its shares of common stock other than the Forward Split and the filing of a certificate of designations to designate voting preferred stock; and

 

(vii)

neither the Parent nor any of the Parent Material Subsidiaries has agreed, announced, resolved or committed to do any of the foregoing.

 

(m)

Compliance with Laws.  The business of the Parent and each of the Parent Material Subsidiaries has been and is currently being conducted in compliance with all applicable Laws, except where any failure of compliance would not, and could not reasonably be expected to, result in a Material Adverse Effect on the Parent.

 

(n)

Litigation.  As of the date of this Agreement, there is no Proceeding against or involving the Parent or any of the Parent Material Subsidiaries (whether in progress or, to the knowledge of the Parent, threatened) that, if adversely determined, would or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Parent or prevent or significantly impede or materially delay the completion of the Acquisition and, to the knowledge of the Parent, no event has occurred which might reasonably be expected to give rise to any such Proceeding.  Neither the Parent nor any of the Parent Material Subsidiaries nor any of their respective properties or assets is subject to any outstanding judgment, order, writ, injunction, rule, award or decree of any Governmental Authority that involves or may involve, or restricts or may restrict, the right or ability of the Parent or any of the Parent Material Subsidiaries to conduct its business in all material respects as it has been conducted prior to the date hereof or that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Parent or could reasonably be expected to prevent or significantly impede or materially delay the completion of the Acquisition.

 

(o)

Insolvency.  No Proceeding is pending by or against the Parent or any of the Parent Material Subsidiaries, or, to the knowledge of the Parent, is planned or threatened, in connection with the dissolution, liquidation, winding up, bankruptcy or reorganization of the Parent or any of the Parent Material Subsidiaries or for the appointment of a trustee, receiver, manager or other administrator of the Parent or any of the Parent Material Subsidiaries or any of their respective properties or assets nor, to the knowledge of the Parent, is any such act or Proceeding threatened.  Neither the Parent nor any of the Parent Material Subsidiaries has sought protection under the United States Bankruptcy Code or similar legislation.

 

 

 

(p)

Taxes.  Each of the Parent and the Parent Material Subsidiaries has duly filed all Returns required to be filed by it prior to the date hereof, other than those which have been administratively waived, and all such Returns are true, complete and correct in all material respects.  The Parent and each of the Parent Material Subsidiaries has paid or has collected, withheld and remitted to the appropriate Governmental Authority on a timely basis all assessments and reassessments and all other Taxes due and payable by it, other than those which are being or have been contested in good faith pursuant to applicable Laws and in respect of which adequate reserves or accruals in accordance with U.S. GAAP have been provided.  Except as would not result in a Material Adverse Effect on the Parent, no audit, action, investigation, deficiency, litigation, proposed adjustment or other Proceeding exists or has been asserted or, to the knowledge of the Parent, threatened with respect to Taxes of the Parent or any of the Parent Material Subsidiaries.  The Purchaser is a “taxable Canadian corporation” and not a “mutual fund corporation”, each within the meaning of the Tax Act.

 

(q)

Environmental Laws.  The business of the Parent and each of the Parent Material Subsidiaries has been and is currently being conducted in compliance with all applicable Environmental Laws, except where any failure of compliance would not, and could not reasonably be expected to, result in a Material Adverse Effect on the Parent.

 

(r)

Non-Arm’s Length Transactions.  Except for employment, indemnification or other compensation agreements entered into in the ordinary course of business or as disclosed in the Parent Public Disclosure Record, there are no current contracts, commitments, agreements, arrangements or other transactions between the Parent or any of the Parent Material Subsidiaries, on the one hand, and any (A) officer or director of the Parent or any of the Parent Material Subsidiaries, (B) any holder of record or, to the knowledge of the Parent, beneficial owner of or 5% or more of the outstanding share of the Parent’s common stock or (C) any affiliate or associate of any such officer, director or shareholder, on the other hand.

 

(s)

Corrupt Practices Legislation.  Neither the Parent nor any of the Parent Material Subsidiaries (in each case, only from and after the date of acquisition or formation of such Parent Material Subsidiary) has taken or committed to take any action which would cause the Parent or any of the Parent Material Subsidiaries to be in violation of the United States Foreign Corrupt Practices Act or any applicable Law of similar effect, to the extent to which they may be applicable to the Parent or any of the Parent Material Subsidiaries or affiliates, and, to the knowledge of the Parent, no such action has been taken by any person acting on behalf of the Parent or any of the Parent Material Subsidiaries.

 

(t)	Investment Canada.  The Parent is not a Canadian within the meaning of the Investment Canada Act.

 

(u)

Full Disclosure.  The Parent Public Disclosure Record discloses all material facts related to the Parent, the Parent Material Subsidiaries, their respective businesses, financial conditions, assets, liabilities and operations, in each case to the extent required to be so disclosed pursuant to applicable U.S. Securities Laws, and no representation or warranty of the Parent or the Purchaser contained in this Agreement, or in any certificate furnished to the Company pursuant to any provision of this Agreement, taken together and with the Parent Disclosure Letter and the Parent Public Disclosure Record, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made.

 

(v)

Contracts.  Except as disclosed in Section 5.6(v) of the Parent Disclosure Letter or as contemplated by the PPM, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Parent and its subsidiaries taken as a whole.  The Parent is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

5.7	Survival of Representations and Warranties

 

 

 

 

6.1	Covenants of the Company

 

 

(a)	the respective business of the Company will be conducted only, their respective facilities will be maintained, and the Company will continue to operate its respective business only in, the ordinary course of business in an effort to preserve the value thereof;

 

(b)

the Company will comply with the terms of all Material Contracts and the Company will use commercially reasonable efforts to maintain and preserve intact its business organization, assets, properties, rights, goodwill and business relationships and keep available the services of its officers and employees as a group;

 

(c)	the Company will not, directly or indirectly:

 

(i)	alter or amend its articles or other constating documents;

 

(ii)	declare, set aside or pay any dividend on or make any distribution or payment or return of capital in respect of the Common Shares;

 

(iii)

split, divide, consolidate, combine or reclassify the Common Shares or any other securities;

 

(iv)

except as disclosed in the Company Financial Statements, issue, grant, sell or pledge or authorize or agree to issue, grant, sell or pledge any Common Shares or other securities of the Company (including, for greater certainty, Options, or any equity-based awards), or securities convertible into or exchangeable or exercisable for, or otherwise evidencing a right to acquire, Common Shares or other securities of the Company, other than the issuance of Common Shares issuable pursuant to the exercise of Options outstanding on the date hereof;

 

(v)

except as disclosed in the Company Financial Statements, redeem, purchase or otherwise acquire any of its outstanding Common Shares or other securities or securities convertible into or exchangeable or exercisable for Common Shares or any such other securities unless otherwise required by the terms of such securities;

 

(vi)	amend the terms of any securities of the Company;

 

(vii)

adopt a plan of liquidation or resolution providing for the liquidation or dissolution of the Company;

 

(viii)

reorganize, amalgamate or merge with any other person;

 

(ix)	make any material changes to any of its accounting policies, principles, methods, practices or procedures (including by adopting any material new accounting policies, principles, methods, practices or procedures), except as required by applicable Laws or under Canadian GAAP;

 

(x)	make any material change to its general practices and policies relating to the payment of accounts payable or the collection of accounts receivable; or

 

(xi)	enter into, modify or terminate any Contract with respect to any of the foregoing;

 

(d)

the Company will promptly notify the Purchaser in writing of any “material change” (as defined in the Securities Act) in relation to the Company, and the Company will promptly notify the Purchaser in writing of any circumstance or development that, to the knowledge of the Company, has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company;

 

(e)	the Company will not, directly or indirectly:

 

(i)	except for sales in the ordinary course of business, sell, pledge, lease, licence, dispose of or encumber any assets or properties  of the Company having a value greater than $10,000 in the aggregate;

 

(ii)

(A) acquire (by merger, amalgamation, consolidation, arrangement or acquisition of shares or other equity securities or interests or assets or otherwise) any corporation, partnership, association or other business organization or division thereof or any property or asset, or make any investment by the purchase of securities, contribution of capital, property transfer, or purchase of any property or assets of any other person or (B) enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement with respect to such a transaction;

 

 

 

(iii)

incur any indebtedness (including the making of any payments in respect thereof, including any premiums or penalties thereon or fees in respect thereof) or issue any debt securities, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other person, or make any loans or advances in excess of $10,000 in the aggregate to any other persons, except to employees pursuant to policies to reimburse expenses in advance or pursuant to or in respect of existing credit facilities or debt instruments or the maintenance or extension thereof (or the agreements, indentures or guarantees governing or relating to such facilities or instruments, or the maintenance or extension thereof), or the refinancing, renewal or replacement of existing indebtedness on substantially market terms and without increasing the principal amount thereof;

 

(iv)	enter into any material currency, commodity, interest rate or equity related hedge, derivative, swap or other financial risk management Contract, other than in the ordinary course of business;

 

(v)

pay, discharge or satisfy any material claim, liability or obligation prior to the same being due, other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the Financial Statements, or voluntarily waive, release, assign, settle or compromise any Proceeding, where such payment, discharge, satisfaction, waiver, release, assignment, settlement or compromise exceeds $5,000 individually or $10,000 in the aggregate or would entail any non-monetary damages;

 

(vi)	settle or compromise any action, claim or other Proceeding brought by any present, former or purported holder of its securities in connection with the transactions contemplated by this Agreement or the Acquisition;

 

(vii)

enter into any material new line of business, enterprise or other activity that is inconsistent with the existing businesses of the Company in the manner such existing businesses generally have been carried on;

 

(viii)

expend or commit to expend any amounts with respect to capital expenses, where such expenditure or commitment exceeds $10,000 individually or $15,000 in the aggregate, except to the extent reserved for in the Company Financial Statements; or

 

(ix)	authorize any of the foregoing, or enter into or modify any Contract to do any of the foregoing;

 

(f)	the Company will not, directly or indirectly:

 

(i)	terminate, fail to renew, cancel, waive, release, grant or transfer any rights of material value or modify or change in any material respect any existing Material Contract except in the ordinary course of business, or as required by its terms;

 

(ii)	enter into any lease or sublease of real property (whether as a lessor, sublessor, lessee or sublessee), or modify, amend or exercise any right to renew any lease or sublease of real property or acquire any interest in real property that would exceed $10,000 per year; or

 

(iii)

enter into any Contract containing any restriction on the ability of the Company to assign all or any material portion of its rights, interests or obligations thereunder, unless such restriction expressly permits the assignment of such rights, interests or obligations (or portion thereto) to the Purchaser or any of its affiliates in connection with or following the completion of the Acquisition or the other transactions contemplated by this Agreement;

 

(g)

without the consent of the Parent, which consent will not be unreasonably withheld or delayed, the Company will not, except pursuant to any existing Contracts or employment, pension, supplemental pension, termination or compensation arrangements or policies or plans in effect on the date hereof, and except as is necessary to comply with applicable Laws and as required to comply with Section 7.6:

 

(i)	grant to any senior management employee, officer or director of the Company an increase in compensation in any form other than in the ordinary course;

 

(ii)	grant any general salary increase or pay any bonus or other material compensation to the employees of the Company other than the payment of any of the foregoing (or increases thereof) consistent with historical practices;

 

(iii)

take any action with respect to the grant or increase of any severance, change of control, retirement, retention or termination pay not in accordance with existing policies;

 

(iv)	enter into any employment agreement, deferred compensation or other similar agreement with any senior management employee, officer or director of the Company;

 

(v)	terminate the employment of the Company’s senior management employees other than for cause;

 

(vi)	increase any benefits payable under its current severance or termination pay policies;

 

(vii)

adopt or amend or make any contribution to or any award under any bonus, profit sharing, option, pension, retirement, deferred compensation, insurance, incentive compensation, compensation or other similar plan, agreement, trust, fund or arrangement for the benefit of directors or senior officers or former directors or senior officers of the Company; or

 

(viii)

take any action to accelerate the time of payment of any compensation or benefits, amend or waive any performance or vesting criteria or accelerate vesting under the Stock Option Plan;

 

(h)	other than as set out in Section 5.1(e) of the Company Disclosure Letter, the Company will not grant to any officer or director of the Company any equity based awards pursuant to the Stock Option Plan or otherwise;

 

(i)	the Company will not make any loan to any officer or director of the Company, except for the advance of expenses consistent with historical practice;

 

 

 

(j)

the Company will use its commercially reasonable efforts to cause the current insurance (or re-insurance) policies maintained by the Company, including directors’ and officers’ insurance, not to be cancelled or terminated and to prevent any of the coverage thereunder from lapsing, unless at the time of such termination, cancellation or lapse, replacement policies underwritten by insurance or re-insurance companies of nationally recognized standing having comparable deductions and providing coverage comparable to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect; provided, however, that, except as contemplated by Section 7.8(b), the Company will not obtain or renew any insurance (or re-insurance) policy for a term exceeding 12 months;

 

(k)	the Company will promptly provide written notice to the Purchaser of the resignation or dismissal of any of its senior management employees;

 

(l)	the Company will use its commercially reasonable efforts to maintain and preserve all of its rights under each of its material Permits;

 

(m)	the Company will:

 

(i)	duly file all Returns required to be filed by it on or after the date hereof and all such Returns will be true, complete and correct;

 

(ii)	timely withhold, collect, remit and pay all Taxes which are to be withheld, collected, remitted or paid by it to the extent due and payable, unless such Taxes are disputed in good faith and the Company has taken adequate reserves therefor in accordance with Canadian GAAP;

 

(iii)

not change in any respect any of its methods of reporting income or deductions or accounting for income tax purposes from those employed in the preparation of their most recently filed Returns and financial statements except as may be required by applicable Laws;

 

(iv)	not make, change, revoke or rescind any material election relating to Taxes or make any material amendment with respect to any Return;

 

(v)	not surrender any right to claim a Tax refund, offset or other reduction in Tax liability;

 

(vi)	not consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment or reassessment;

 

(vii)

not settle, compromise or agree to the entry of judgment with respect to any action, claim or other Proceeding relating to Taxes; and

 

(viii)

not enter into any tax sharing, tax allocation or tax indemnification agreement;

 

(n)	the Company will not commence any litigation for damages in excess of $10,000 or provide for the grant of injunctive relief or other non-monetary remedy (other than litigation in connection with the collection of accounts receivable or to enforce the terms of this Agreement);

 

(o)	the Company will not enter into or renew any Contract containing:

 

(i)	any limitation or restriction on the ability of the Company or, following completion of the transactions contemplated hereby, the ability of the Purchaser or any of its affiliates, to engage in any type of activity or business;

 

(ii)

any limitation or restriction on the manner in which, or the localities in which, all or any portion of the business of the Company or, following consummation of the transactions contemplated hereby, all or any portion of the business of the Purchaser or any of its affiliates, is or would be conducted; or

 

(iii)

any limit or restriction on the ability of the Company or, following completion of the transactions contemplated hereby, the ability of the Purchaser or any of its affiliates, to solicit customers or employees; and

 

(p)

the Company will not take any action that would (i) reasonably be expected to prevent or significantly impede or materially delay the completion of the Acquisition or (ii) render, or reasonably be expected to render, any representation or warranty made by the Company in this Agreement untrue or inaccurate in any material respect (disregarding for this purpose all materiality or Material Adverse Effect qualifications contained therein).

 

 

 

 

6.2	Covenants of the Parent

 

 

(a)

the respective businesses of the Parent and the Parent Material Subsidiaries will be conducted only, their respective facilities will be maintained, and the Parent and Parent Material Subsidiaries will continue to operate their respective businesses only in, the ordinary course of business in an effort to preserve the value thereof;

 

(b)

the Parent will use commercially reasonable efforts to maintain and preserve intact its and the Parent Material Subsidiaries’ respective business organizations, assets, properties, rights, goodwill and business relationships and keep available the services of its and its subsidiaries’ respective officers and employees as a group;

 

(c)	the Parent will not, and will not permit any of the Parent Material Subsidiaries to, directly or indirectly:

 

(i)	alter or amend its articles, charter, by-laws or other constating documents in a manner adverse to the Shareholders;

 

(ii)

declare, set aside or pay any dividend, or make any distribution or payment or return of capital in respect of any of its securities other than in the ordinary course of business and consistent with past practice except, in the case of any of the Parent’s wholly-owned subsidiaries, for dividends payable to the Parent;

 

(iii)

split, divide, consolidate, combine or reclassify the Parent Shares;

 

(iv)	amend the terms of the Parent Shares or any other securities of the Parent except, in each case, as would not have an adverse effect on the Parent Shares or the holders thereof;

 

(v)	adopt a plan of liquidation or resolution providing for the liquidation or dissolution of the Parent or any of its subsidiaries;

 

(vi)	reorganize, amalgamate or merge with any other person (other than any of the Parent’s direct or indirect wholly-owned subsidiaries);

 

(vii)

make any material changes to any of its accounting policies, principles, methods, practices or procedures (including by adopting any material new accounting policies, principles, methods, practices or procedures), except as disclosed in the Parent Public Disclosure Record, as required by applicable Laws or under U.S. GAAP;

 

(viii)

make any material change to its general practices and policies relating to the payment of accounts payable or the collection of accounts receivable; or

 

(ix)	enter into, modify or terminate any agreement, contract, covenant, undertaking, or commitment with respect to any of the foregoing;

 

(d)	the Parent will promptly notify the Company in writing of any circumstance or development that, to the knowledge of the Parent, has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Parent;

 

(e)

the Parent will not, and will not permit any of the Parent Material Subsidiaries to, take any action that would (i) reasonably be expected to prevent or significantly impede or materially delay the completion of the Acquisition or (ii) render, or reasonably be expected to render, any representation or warranty made by the Purchaser, Callco or the Parent in this Agreement untrue or inaccurate in any material respect (disregarding for this purpose all materiality or Material Adverse Effect qualifications contained therein); and

 

(f)	the Parent will pay or cause to be satisfied all Transaction Expenses prior to the Effective Date.

 

 

 

7.1	Access to Information

 

(a)

Subject to compliance with applicable Laws and the terms of any existing Contracts, each of the Company and the Parent will, and will cause its respective subsidiaries to, afford to the other and its Representatives, until the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, and reasonable access, during normal business hours and upon reasonable notice, to its respective businesses, properties, books and records and such other data and information as the other may reasonably request, as well as to their respective management personnel, subject, however, to such access not interfering with the ordinary conduct of its businesses.  Subject to compliance with applicable Laws and such requests not materially interfering with the ordinary conduct of the business of the Company, the Company will also make available to the Purchaser and its Representatives all information reasonably requested by the Purchaser for the purposes of preparing, considering and implementing integration and strategic plans for the combined businesses of the Company and the Purchaser and its affiliates following completion of the Acquisition.

 

 

 

(b)

Other than as may be required in respect of information requested by Governmental Authorities in connection with obtaining the Required Regulatory Approvals, nothing in this Section 7.1 or in any other provision of this Agreement will require the Company or the Parent, or its respective subsidiaries, to disclose information if such disclosure would violate a written confidentiality agreement with a third party or customer specific or competitively sensitive information (“Confidential Data”).  For greater certainty, until the Effective Time, access to and exchange of Confidential Data as between the Parties will be limited to what is reasonably necessary for the purposes of securing all necessary regulatory approvals, the preparation and settlement of definitive documents and the advancement of the Acquisition and will be limited such that the dissemination of Confidential Data will be confined to the Representatives of the Parties and their counsel who have a need to know such information for such purposes and who agree to respect such confidentiality in their dealings with Confidential Data.  For the purpose of this Section 7.1(b), counsel to the Purchaser shall include counsel to the Parent.

 

7.2	Covenants of the Company Regarding the Acquisition

 

 

(a)	if required by the Parent, publicly announcing the entering into of this Agreement, the support of the Board of Directors of the Acquisition;

 

(b)

cooperating with the Purchaser and the Parent in connection with, and using its commercially reasonable efforts to assist the Purchaser and the Parent in, obtaining all Required Regulatory Approvals relating to the Purchaser or the Parent or relating to the Company or any of its subsidiaries which are customarily applied for by a purchaser in transactions of this nature; provided that the Company and/or its subsidiaries will not be required to make any applications of the Purchaser or the Parent under applicable Law, but will rather provide assistance with any such applications made by, on behalf of, or jointly with the Purchaser or the Parent;

 

(c)

using its commercially reasonable efforts to obtain all necessary waivers, consents and approvals required to be obtained by the Company from other parties to any Contracts in order to complete the Acquisition, including, without limitation, the Required Regulatory Approvals; provided, however, that, notwithstanding anything to the contrary in this Agreement, in connection with obtaining any waiver, consent or approval from any person (other than a Governmental Authority) with respect to any transaction contemplated by this Agreement, the Company will not be required to pay or commit to pay to such person whose waiver, consent or approval is being solicited any cash or other consideration, make any commitment or incur any liability or other obligation other than such fees or expenses contemplated by the terms of such Contract unless requested by the Purchaser;

 

(d)	using its commercially reasonable efforts to effect all necessary registrations, filings and submissions of information required by Governmental Authorities from the Company relating to the Acquisition;

 

(e)

applying for and using its commercially reasonable efforts to obtain all Required Regulatory Approvals relating to the Company which are customarily applied for by an offeree and, in doing so, keeping the Purchaser reasonably informed as to the status of the proceedings related to obtaining such Required Regulatory Approvals, including providing the Purchaser with copies of all related applications and notifications (other than, subject to Section 7.1(b), Confidential Data contained in such applications and notifications), in draft form, in order for the Purchaser to provide its reasonable comments thereon, and copies of all notices and correspondence received by the Purchaser from any Governmental Authority with respect thereto;

 

(f)

promptly advising the Purchaser of any requests by a Governmental Authority for any substantive meeting or discussion (whether in person, by telephone or otherwise) in respect of any filing, investigation or inquiry concerning the Acquisition and providing the Purchaser the opportunity to attend or have its Representatives attend and participate thereat (except to the extent that in any such case the Governmental Authority expressly requests that the Purchaser and its Representatives should not be present at the meeting or discussion or part or parts of the meeting or discussion);

 

(g)

not extending or consenting to any extension of any waiting period under applicable Laws or entering into any agreement with any Governmental Authority to not complete the Acquisition, except with the consent of the Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed);

 

(h)	defending all lawsuits or other legal, regulatory or other Proceedings against the Company challenging or affecting this Agreement or the completion of the Acquisition.

 

7.3	Covenants of the Purchaser, Callco and the Parent Regarding the Acquisition

 

 

(a)

cooperating with the Company in connection with, and using its commercially reasonable efforts to assist the Company in, obtaining the waivers, consents and approvals referred to in Section 7.2(c); provided, however, that, notwithstanding anything to the contrary in this Agreement, in connection with obtaining any waiver, consent or approval from any person (other than a Governmental Authority) with respect to any transaction contemplated by this Agreement, neither the Purchaser, Callco nor the Parent, nor any of their respective subsidiaries, will be required to pay or commit to pay to such person whose waiver, consent or approval is being solicited any cash or other consideration, make any commitment or incur any liability or other obligation;

 

(b)	using its commercially reasonable efforts to effect all necessary registrations, filings and submissions of information required by Governmental Authorities from the Purchaser, Callco or the Parent relating to the Acquisition;

 

(c)

applying for and using its commercially reasonable efforts to obtain all Required Regulatory Approvals relating to the Purchaser, Callco or the Parent or relating to the Company which are customarily applied for by an offeror and, in doing so, keeping the Company reasonably informed as to the status of the proceedings related to obtaining such Required Regulatory Approvals, including providing the Company with copies of all related applications and notifications in draft form (other than, subject to Section 7.1(b), Confidential Data contained in such applications and notifications), in draft form, in order for the Company to provide its reasonable comments thereon;

 

(d)

promptly advising the Company of any requests by a Governmental Authority for any substantive meeting or discussion (whether in person, by telephone or otherwise) in respect of any filing, investigation or inquiry concerning the Acquisition and providing the Company the opportunity to attend or have its Representatives attend and participate thereat (except to the extent that in any such case the Governmental Authority expressly requests that the Company and its Representatives should not be present at the meeting or discussion or part or parts of the meeting or discussion);

 

(e)	not extending or consenting to any extension of any waiting period under applicable Laws, except with the consent of the Company (which consent shall not be unreasonably withheld, conditioned or delayed);

 

(f)	defending all lawsuits or other legal, regulatory or other Proceedings against or relating to the Purchaser, Callco or the Parent challenging or affecting this Agreement or the completion of the Acquisition;

 

 

 

(g)

forthwith carrying out the terms of this Agreement to the extent applicable to it and taking all necessary actions to give effect to the transactions contemplated herein, including providing the Company with sufficient Consideration Shares to pay the aggregate share consideration payable to the Shareholders; and

 

(h)	paying or causing to be paid all Transaction Expenses prior to the Effective Date.

 

7.4	Additional Covenants with Respect to Exchangeable Share Structure

 

(a)	Each of the Purchaser and the Parent will use their commercially reasonable efforts to:

 

(i)	cause the Parent Shares to be issued from time to time upon exchange of the Exchangeable Shares in accordance with their terms to be quoted and posted for trading on the OTCBB; and

 

(ii)

ensure that the Purchaser is, at the Effective Time and for so long as there are any Exchangeable Shares issued and outstanding (other than Exchangeable Shares held by the Parent or any of its affiliates), a “taxable Canadian corporation” and not a “mutual fund corporation,” each within the meaning of the Tax Act.

 

(b)

The Purchaser acknowledges and agrees that it shall execute joint elections under subsection 85(1) or 85(2) of the Tax Act (and in each case, where applicable, the analogous provisions of provincial income tax Laws) with respect to the transfer of Eligible Shares to the Purchaser pursuant to Section 2.2(a)(i) with Shareholders who are Eligible Holders who are entitled to receive Exchangeable Shares under the Acquisition, in each case subject to and in accordance with Section 2.3 of this Agreement.

 

(c)

Each Party represents and warrants that it understands that the shares of the Parent issued in connection with this Agreement will be “restricted securities” under the 1933 Securities Act, and that the shares of the Parent issued in connection with the Acquisition and this Agreement may not be resold without registration under the Securities Act or an exemption therefrom.

 

(d)	Each Party represents and warrants that it understands that the shares of the Parent issued in connection with the Acquisition and this Agreement will bear a legend that is similar to the following:

 

 

 

7.5	Mutual Covenants

 

 

(a)

it will use commercially reasonable efforts to satisfy (or cause the satisfaction of) the conditions precedent to its obligations hereunder as set forth in Article 10 to the extent the same is within its control and to take, or cause to be taken, all other commercially reasonable actions and to do, or cause to be done, all other things necessary and commercially reasonable to permit the completion of the Acquisition in accordance with its obligations under this Agreement, and applicable Laws and cooperate with the other Parties in connection therewith, including using its commercially reasonable efforts to (i) obtain all Required Regulatory Approvals required to be obtained by it, (ii) effect or cause to be effected all necessary registrations, filings and submissions of information requested by Governmental Authorities required to be effected by it in connection with the Acquisition, (iii) oppose, lift or rescind any injunction or restraining order against it or other order or action against it seeking to stop, or otherwise adversely affecting its ability to make and complete, the Acquisition and (iv) cooperate with the other Parties in connection with the performance by it of its obligations hereunder;

 

(b)	it will use commercially reasonable efforts not to take or cause to be taken any action which is inconsistent with this Agreement or which would reasonably be expected to prevent or significantly impede or materially delay the completion of the Acquisition;

 

(c)

it will give prompt notice to the others of: (i) the occurrence or failure to occur of any event, which occurrence or failure would cause or may cause any representation or warranty on its part contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the earlier of the Effective Date and the termination of this Agreement; and (ii) any failure of such Party, or any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; and

 

(d)	it will use commercially reasonable efforts to execute and do all acts, further deeds, things and assurances as may be required in the reasonable opinion of the other Parties’ legal counsel to permit the completion of the Acquisition.

 

7.6	Employment Agreements; Options; Board

 

(a)

The Purchaser agrees that the Company and any successor to the Company (including any Surviving Corporation) shall continue to honour and comply with the terms of all existing employment, change of control and severance agreements of the Company (as the same may be amended or modified as permitted hereunder and thereunder), complete and correct copies of all of which agreements have been provided to the Purchaser.

 

 

 

(b)

The Purchaser acknowledges that, pursuant to the provisions of the Stock Option Plan, the Company may facilitate as necessary the acceleration of vesting of any unvested Options as may be necessary or desirable to allow the Optionholders to exercise their Options for the purpose of participating in the Acquisition as Shareholders.

 

(c)	The parties agree that as soon as practicable following the Effective Date, subject to the Parent meeting its information obligations under the 1934 Exchange Act, the board of directors of the Parent shall consist of up to six directors which shall be designated by the president of the Company.

 

7.7	Indemnification by Shareholders, Optionholders, Warrantholders and Broker Warrantholders

 

(a)

Each Shareholder agrees to indemnify the Company, the Parent, the Purchaser and Callco, and their respective directors, officers, employees, agents and representatives against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur as a result of reliance upon the representations, warranties and covenants of such Shareholder herein. Each Shareholder undertakes to notify the Company immediately of any change in any representation, warranty or other information relating to such Shareholder set forth herein which takes place prior to the Effective Date.

 

(b)

Each Optionholder agrees to indemnify the Company, the Parent, the Purchaser and Callco, and their respective directors, officers, employees, agents and representatives against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur as a result of reliance upon the representations, warranties and covenants of such Optionholder herein. Each Optionholder undertakes to notify the Company immediately of any change in any representation, warranty or other information relating to such Optionholder set forth herein which takes place prior to the Effective Date.

 

(c)

Each Warrantholder agrees to indemnify the Company, the Parent, the Purchaser and Callco, and their respective directors, officers, employees, agents and representatives against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur as a result of reliance upon the representations, warranties and covenants of such Warrantholder herein. Each Warrantholder undertakes to notify the Company immediately of any change in any representation, warranty or other information relating to such Warrantholder set forth herein which takes place prior to the Effective Date.

 

(d)

Each Broker Warrantholder agrees to indemnify the Company, the Parent, the Purchaser and Callco, and their respective directors, officers, employees, agents and representatives against all losses, claims, costs, expenses and damages or liabilities which any of them may suffer or incur as a result of reliance upon the representations, warranties and covenants of such Broker Warrantholder herein. Each Broker Warrantholder undertakes to notify the Company immediately of any change in any representation, warranty or other information relating to such Broker Warrantholder set forth herein which takes place prior to the Effective Date.

 

7.8	Indemnification and Insurance

 

(a)

The Company and the Purchaser agree that all rights to indemnification or exculpation now existing in favour of the present and former directors and officers of the Company (each such present or former director or officer of the Company being herein referred to as an “Indemnified Party” and such persons collectively being referred to as the “Indemnified Parties”) as provided in the constating documents of the Company or any Contract by which the Company is bound and which is in effect as of the date hereof, will survive the completion of the Acquisition and continue in full force and effect and without modification, with respect to actions or omissions of the Indemnified Parties occurring prior to the Effective Time, for the period contemplated therein.

 

(b)

If requested by the Company, the Purchaser will, or will cause the Company to, maintain in effect without any reduction in scope or coverage for seven (7) years from the Effective Date customary policies of directors’ and officers’ liability insurance providing protection no less favourable to the protection provided by the policies maintained by the Company which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date; provided, however, that the Purchaser acknowledges and agrees that prior to the Effective Time, notwithstanding any other provision hereof, the Company may, at its option, purchase prepaid non-cancellable run-off directors’ and officers’ liability insurance on terms substantially similar to the directors’ and officers’ liability policies currently maintained by the Company, but providing coverage for a period of seven (7) years from the Effective Date with respect to claims arising from or related to facts or events which occurred on or prior to the Effective Date.

 

(c)

The provisions of this Section 7.7 are and are intended to be for the benefit of, and will be enforceable by, each Indemnified Party, his or her heirs, executors, administrators and other legal representatives and such rights will be held by the Company, and any successor to the Company (including any Surviving Corporation), in trust for such persons and the Company hereby accepts such trust and agrees to hold the benefit of and enforce performance of such covenants on behalf of each Indemnified Party, his or her heirs, executors, administrators and other legal representatives; provided, however, that no approval of any beneficiary of such trust will be required in connection with an amendment or variation of this Section 7.7 prior to the Effective Time.

 

(d)

If the Company or any of its respective successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, the Purchaser shall ensure that any such successor or assign (including, as applicable, any acquirer of substantially all of the properties and assets of the Company) assumes all of the obligations set forth in this Section 7.7.

 

 

 

8.1	Non-Solicitation

 

(a)

Except as expressly contemplated by this Agreement or to the extent that the Purchaser has otherwise consented to in writing, until the earlier of the Effective Time or the date, if any, on which this Agreement is terminated pursuant to Section 9.1, neither the Board of Directors nor the Company shall, and the Company shall cause its Representatives to not, directly or indirectly through any other person:

 

(i)

initiate, solicit, knowingly facilitate or knowingly encourage (including by way of furnishing or affording access to information), or take any other action that knowingly promotes or facilitates, directly or indirectly, any inquiries or the making of any proposal or offer with respect to an Acquisition Proposal or potential Acquisition Proposal;

 

(ii)

participate or engage in any discussions or negotiations regarding, or provide any information with respect to, or otherwise co-operate in any way with, or assist or participate in, encourage or otherwise facilitate, any effort or attempt by any other person (other than the Purchaser and its affiliates) to make or complete an Acquisition Proposal;

 

(iii)

withdraw, modify, change or qualify, or publicly propose to withdraw, modify, change or qualify, in a manner adverse to the Purchaser or the Parent, the approval of the Board of Directors of the transactions contemplated hereby;

 

(iv)

approve, recommend or remain neutral with respect to, or publicly propose to approve, recommend or remain neutral with respect to, any Acquisition Proposal (it being understood that publicly taking no position or a neutral position with respect to an Acquisition Proposal until the fifth Business Day after such Acquisition Proposal has been publicly announced shall not constitute a violation of this Section 8.1(a)(iv)); or

 

(v)	accept or enter into, or publicly propose to accept or enter into, any letter of intent, memorandum of understanding, agreement in principle, agreement, arrangement or undertaking related to an Acquisition Proposal (an “Acquisition Agreement”).

 

(b)

The Company shall, and shall cause its Representatives to, immediately cease and cause to be terminated any solicitation,  encouragement, discussion or negotiation with or involving any person (other than the Purchaser and its affiliates) conducted heretofore by the Company, or any of its Representatives, with respect to any Acquisition Proposal or which could reasonably be expected to lead to an Acquisition Proposal and, in connection therewith, the Company will immediately discontinue access to any person (other than the Purchaser and its affiliates) to any data room (virtual or otherwise). The Company agrees not to release any third party from any standstill agreement to which it is a party unless such party has made an Acquisition Proposal that the Board of Directors, after consultation with its financial advisors and outside legal counsel, has determined in good faith would be reasonably likely to result in a Superior Proposal.

 

(c)

The Company shall promptly (and, in any event, within 72 hours of receipt by the Company) notify the Purchaser, at first orally and then in writing, of any proposal, inquiry, offer or request relating to or constituting an Acquisition Proposal, or which could reasonably be expected to lead to an Acquisition Proposal, in each case, received after the date hereof, of which any of its Representatives is or becomes aware, or any request received by the Company or any of its Representatives for non-public information relating to the Company in connection with an Acquisition Proposal or for access to the properties, books and records or a list of securityholders of the Company in connection with an Acquisition Proposal.  Such notice shall include a description of the material terms and conditions of such Acquisition Proposal or proposal, inquiry, offer or request.  At the Purchaser’s reasonable request, the Company will keep the Purchaser promptly and fully informed of the status, including any change to the material terms and conditions, of any such Acquisition Proposal, proposal, inquiry, offer or request.

 

(d)

Notwithstanding Section 8.1(a) or any other provision of this Agreement to the contrary, following receipt by the Company of any proposal, inquiry, offer or request (or any amendment thereto) that is not an Acquisition Proposal but which the Company reasonably believes could lead to an Acquisition Proposal, the Company may respond to the proponent to advise it that, in accordance with this Agreement, the Company can only enter into discussions or negotiations with a party in accordance with Section 8.2.

 

8.2	Right to Match

 

(a)

Notwithstanding Section 8.1(a) or any other provision of this Agreement to the contrary, if after the date hereof the Company, or any of its Representatives, receives a written Acquisition Proposal (including, for greater certainty, an amendment, change or modification to an Acquisition Proposal made prior to the date hereof) that was not solicited after the date hereof in contravention of Section 8.1, the Company and its Representatives may:

 

(i)

contact the person making such Acquisition Proposal and its Representatives solely for the purpose of clarifying the terms and conditions of such Acquisition Proposal and the likelihood of its consummation so as to determine whether such Acquisition Proposal is, or could reasonably be expect to lead to, a Superior Proposal; and

 

(ii)

if the Board of Directors determines in good faith, after consultation with its outside legal counsel and financial advisors, that such Acquisition Proposal is, or could reasonably be expected to lead to, a Superior Proposal and that the failure to take the relevant action would conflict with its fiduciary duties:

 

 

 

A.

furnish information with respect to the Company to the person making such Acquisition Proposal and its Representatives provided that (1) the Company first enters into a confidentiality agreement with such person that is no less favourable to the Company than the Non-Disclosure Agreement, and sends a copy of such agreement to the Purchaser promptly following its execution, and (2) the Company promptly provides to the Purchaser any material non-public information concerning the Company that is provided to such person which was not previously provided to the Purchaser, the Parent or their respective Representatives; and

 

B.	engage in discussions and negotiations with respect to the Acquisition Proposal with the person making such Acquisition Proposal and its Representatives.

 

(b)

Section 8.1(a) or any other provision of this Agreement to the contrary notwithstanding, the Company may, at any time after the date of this Agreement, terminate this Agreement and accept, approve, recommend or enter into any agreement, understanding or arrangement in respect of an Acquisition Proposal (with the exception of a confidentiality agreement described in Section 8.2(a), the execution of which shall not be subject to the conditions of this Section 8.2(b)) if and only if:

 

(i)	such Acquisition Proposal did not result from a breach of Section 8.1 and the Company has complied with the other terms of this Section 8.2;

 

(ii)

the Board of Directors has determined in good faith, after consultation with its outside legal counsel and financial advisors, that such Acquisition Proposal constitutes or could reasonably be expected to constitute a Superior Proposal and that the failure to take the relevant action would conflict with its fiduciary duties;

 

(iii)

the Company has (A) given written notice to the Purchaser of the determination of the Board of Directors that such Acquisition Proposal constitutes a Superior Proposal and that the Board of Directors intends to withdraw, modify, qualify or change in a manner adverse to the Purchaser or the Parent its approval or recommendation of the Acquisition (the “Superior Proposal Notice”) and (B) provided the Purchaser with a copy of the document containing such Acquisition Proposal (together, if applicable, with a summary of the value that the Board of Directors has, after consultation with its financial advisors and outside legal counsel, determined should be ascribed to any non-cash consideration included in such Acquisition Proposal);

 

(iv)

a period of least five full Business Days (such five Business Day Period, the “Right to Match Period”) shall have elapsed from the later of the date on which the Purchaser received the Superior Proposal Notice and the date on which the Purchaser received a copy of the documents referred to in clause (B) of Section 8.2(b)(iii), it being understood that the Right to Match Period shall expire at 12:00 p.m. (Toronto time) at the end of the fifth full Business Day following such later date;

 

(v)

if the Purchaser and the Parent have offered to amend the terms of this Agreement during the Right to Match Period pursuant to Section 8.2(c), the Board of Directors has determined, after consultation with its outside legal counsel and financial advisors, that such Acquisition Proposal continues to be a Superior Proposal when assessed against this Agreement as they are proposed to be amended as at the termination of the Right to Match Period; and

 

(vi)	the Company terminates this Agreement pursuant to Section 9.1(d)(i).

 

(c)

During the Right to Match Period, the Purchaser and the Parent will have the opportunity, but not the obligation, to offer to amend the terms of this Agreement.  The Company agrees that, if requested by the Purchaser, it will negotiate with the Purchaser and the Parent in good faith to make such amendments to the terms of this Agreement as would enable it to proceed with the transactions contemplated hereby on such amended terms.  The Board of Directors will review in good faith any such offer made by the Purchaser and the Parent to amend the terms of this Agreement in order to determine, as part of exercising its fiduciary duties, and in consultation with its financial advisors and outside legal counsel, whether such offer to amend the terms of this Agreement would, upon its acceptance, result in the applicable Acquisition Proposal ceasing to be a Superior Proposal when assessed against this Agreement as it is proposed to be amended as at the termination of the Right to Match Period. If the Board of Directors determines that the applicable Acquisition Proposal would cease to be a Superior Proposal when assessed against this Agreement and the Acquisition as they are proposed to be amended as at the termination of the Right to Match Period, the Company will forthwith so advise the Purchaser and will promptly thereafter accept the offer by the Purchaser and the Parent to amend the terms of this Agreement and the Parties agree to take such actions and execute such documents as are necessary to give effect to the foregoing.

 

(d)

If requested by the Purchaser, the Board of Directors shall reaffirm its recommendation in favour of the Acquisition by news release promptly after (A) any Acquisition Proposal that the Board of Directors determines not to be a Superior Proposal is publicly announced or made or (B) the Board of Directors determines that an Acquisition Proposal which previously constituted a Superior Proposal would cease to be a Superior Proposal when assessed against this Agreement as they are proposed to be amended as at the termination of the Right to Match Period.  The Purchaser shall be given a reasonable opportunity to review and comment on the form and content of any such news release.  Such news release shall state that the Board of Directors has determined that the applicable Acquisition Proposal is not a Superior Proposal.

 

(e)

Each successive material amendment, change or modification to any Acquisition Proposal that results in an increase in, or modification of, the consideration (or value of such consideration) to be received by the Shareholders or other material terms and conditions thereof shall constitute a new Acquisition Proposal for the purposes of this Section 8.2 and shall result in the commencement of a new Right to Match Period from the date specified in Section 8.2(b)(vi) with respect to such new Acquisition Proposal.

 

(f)	The Company shall ensure that each of its Representatives is aware of the provisions of Section 8.1 and this Section 8.2 and the Company shall be responsible for any breach of Section 8.1 or this Section 8.2 by such persons.

 

(g)

Nothing contained in this Agreement shall prohibit the Board of Directors from making a change in recommendation or from making any disclosure to any Securityholders of the Company prior to the Effective Time, including for greater certainty disclosure of a change in recommendation, if, in the good faith judgment of the Board of Directors, after consultation with outside legal counsel, failure to take such action or make such disclosure would conflict with the Board of Director’s exercise of its fiduciary duties or such action or disclosure is otherwise required under Law (including without limitation by responding to an Acquisition Proposal under a directors’ circular or otherwise as required under applicable Law).

 

 

 

9.1	Termination

 

(a)	Termination By Mutual Consent.  This Agreement may be terminated at any time prior to the Effective Time by mutual written consent of the Company and the Purchaser.

 

(b)	Termination by either the Company or the Purchaser.  This Agreement may be terminated by either the Company or the Purchaser at any time prior to the Effective Time:

 

(i)

if the Effective Time does not occur on or before the Outside Date, except that the right to terminate this Agreement under this Section 9.1(b)(i) shall not be available to a Party if the failure of that Party or its affiliate to fulfill any of its obligations or breach of any of its representations and warranties under this Agreement has been a principal cause of, or resulted in, the failure of the Effective Time to occur by such date;

 

(ii)	if any Law makes the completion of the Acquisition or the transactions contemplated by this Agreement illegal or otherwise prohibited, and such Law has become final and non-appealable.

 

(c)	Termination by the Purchaser.  This Agreement may be terminated by the Purchaser at any time prior to the Effective Time if:

 

(i)

(A) the Board of Directors accepts, approves, endorses or recommends any Acquisition Proposal, (B) the Company enters into an Acquisition Agreement in respect of any Acquisition Proposal (with the exception of a confidentiality and standstill agreement described in Section 8.2(a)) or (C) the Company or the Board of Directors publicly proposes or announces its intention to do any of the foregoing (each of the foregoing, a “Change of Recommendation”);

 

(ii)	the Company breaches Section 8.1(a); or

 

(iii)

subject to compliance with Section 9.3, the Company breaches any of its representations, warranties, covenants or agreements contained in this Agreement, which breach would cause any of the conditions set forth in Section 10.1 or Section 10.3 not to be satisfied, provided, however, that the Purchaser is not then in breach of this Agreement so as to cause any of the conditions set forth in Section 10.1 or Section 10.2 not to be satisfied; or

 

(d)	Termination by the Company.  This Agreement may be terminated by the Company at any time prior to the Effective Time:

 

(i)

subject to the Company complying with the terms of Article 8 and provided that the Board of Directors has determined in good faith, after consultation with its financial advisors and outside legal counsel, that such Acquisition Proposal constitutes a Superior Proposal, if the Board of Directors approves, and authorizes the Company to enter into, an Acquisition Agreement with respect to an Acquisition Proposal; or

 

(ii)

subject to compliance with Section 9.3, if the Purchaser or the Parent breaches any of its representations, warranties, covenants or agreements contained in this Agreement, which breach would cause any of the conditions set forth in Section 10.1 or Section 10.2 not to be satisfied, provided, however, that the Company is not then in breach of this Agreement so as to cause any of the conditions set forth in Section 10.1 or Section 10.3 not to be satisfied.

 

9.2	Void upon Termination

 

 

9.3	Notice and Cure Provisions

 

 

 

 

10.1	Mutual Conditions Precedent

 

 

(a)	the Required Regulatory Approvals will have been obtained or concluded or, in the case of waiting or suspensory periods, expired or been terminated;

 

(b)

no Law will have been enacted, issued, promulgated, enforced, made, entered, issued or applied and no Proceeding will otherwise have been taken under any Laws or by any Governmental Authority (whether temporary, preliminary or permanent) that makes the Acquisition illegal or otherwise directly or indirectly cease trades, enjoins, restrains or otherwise prohibits completion of the Acquisition as contemplated herein; and

 

(c)	this Agreement will not have been terminated in accordance with its terms.

 

10.2	Additional Conditions Precedent to the Obligations of the Company

 

 

(a)	each of the Purchaser, Callco and the Parent will have complied in all material respects with its obligations, covenants and agreements in this Agreement to be performed and complied with on or before the Effective Date;

 

(b)

the representations and warranties of the Purchaser, Callco and the Parent in Section 5.6 will be true and correct (disregarding for this purpose all materiality or Material Adverse Effect qualifications contained therein) as of the Effective Date as if made on and as of such date (except for such representations and warranties which refer to or are made as of another specified date, in which case such representations and warranties will have been true and correct as of that date) and except (i) as affected by transactions, changes, conditions, events or circumstances contemplated or permitted by this Agreement or (ii) for breaches of representations and warranties which have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Parent;

 

(c)

there will not have occurred prior to the date hereof a Material Adverse Effect on the Parent that has not been publicly disclosed or disclosed to the Company in writing by the Purchaser prior to the date hereof and, between the date hereof and the Effective Time, there will not have occurred a Material Adverse Effect on the Parent or any event, occurrence, circumstance or development that would reasonably be expected to have a Material Adverse Effect on the Parent;

 

(d)

the Company will have received a certificate of the Parent signed by a senior officer of the Parent for and on behalf of the Parent and without personal liability and dated the Effective Date certifying that the conditions set out in Section 10.2(a), Section 10.2(b) and Section 10.2(c) have been satisfied, which certificate will cease to have any force and effect after the Effective Time;

 

(e)	the Company will have received certified copies of resolutions duly passed by the board of directors of the Parent (acting for itself and on behalf of the Purchaser) approving this Agreement and the completion of the transactions contemplated hereby; and

 

(f)	the Support Agreement and Voting and Exchange Trust Agreement shall have each been executed and delivered by each of the parties thereto.

 

10.3	Additional Conditions Precedent to the Obligations of the Purchaser, Callco and the Parent

 

 

(a)	the Company will have complied in all material respects with its obligations, covenants and agreements in this Agreement to be performed and complied with on or before the Effective Date;

 

(b)

the representations and warranties of the Company in Section 5.1 will be true and correct (disregarding for this purpose all materiality or Material Adverse Effect qualifications contained therein) as of the Effective Date as if made on and as of such date (except for such representations and warranties which refer to or are made as of another specified date, in which case such representations and warranties will have been true and correct as of that date) except (i) as affected by transactions, changes, conditions, events or circumstances contemplated or permitted by this Agreement or (ii) for breaches of representations and warranties which have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company;

 

(c)

there will not have occurred prior to the date hereof a Material Adverse Effect on the Company that has not been publicly disclosed or disclosed to the Purchaser in writing by the Company prior to the date hereof and, between the date hereof and the Effective Time, there will not have occurred a Material Adverse Effect on the Company or any event, occurrence, circumstance or development that would reasonably be expected to have a Material Adverse Effect on the Company;

 

 

 

(d)

the Purchaser will have received a certificate of the Company signed by a senior officer of the Company for and on behalf of the Company and without personal liability and dated the Effective Date certifying that the conditions set out in Section 10.3(a), Section 10.3(b), and Section 10.3(c) have been satisfied, which certificate will cease to have any force and effect after the Effective Time;

 

(e)	the Purchaser will have received certified copies of resolutions duly passed by the Board of Directors approving this Agreement and the completion of the transactions contemplated hereby;

 

(f)

Company shall have obtained all waivers, consents, permits, approvals, releases, licences or authorizations required to be obtained from any lender or other third party in connection with or in order for the Company to complete the Acquisition, except for waivers, consents, permits, approvals, releases, licences or authorizations the failure of which to obtain would not have a Material Adverse Effect on the Company;

 

(g)	there shall not be pending or threatened in writing any Proceeding involving any Governmental Authority that is reasonably likely to result in any:

 

(i)	prohibition or restriction on the acquisition by the Purchaser or the Parent of any Common Shares or the completion of the Acquisition or any person obtaining from any of the Parties any material damages directly in connection with the Acquisition;

 

(ii)	prohibition or material limit on the ownership by the Purchaser or the Parent of the Company or any material portion of their respective businesses; or

 

(iii)

imposition of limitations on the ability of the Purchaser or the Parent to acquire or hold, or exercise full rights of ownership of, any Common Shares, including the right to vote such Common Shares; and

 

(h)

executed mutual releases in a form acceptable to the Purchaser and the Company, acting reasonably, will have been received by the Purchaser on or prior to the Effective Date from (i) each director and officer of the Company who will cease to act as a director or officer of such entity as of the Effective Date and (ii) any other person who will receive a severance, change of control or termination payment at or before the Effective Time.

 

 

 

11.1	Independent Legal Advice

 

 

 

11.2

Notices

 

 

(i)	if to the Purchaser, Callco or the Parent as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(ii)	if to the Company and the Securityholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.3

Expenses

 

 

11.4	No Assignment

 

 

11.5	Benefit of Agreement

 

 

11.6	Time of Essence

 

 

11.7	Public Announcements

 

 

 

 

11.8	Governing Law; Attornment; Service of Process; Waiver of Jury Trial

 

(a)

This Agreement shall be governed, including as to validity, interpretation and effect, by the laws of the Province of British Columbia and the laws of Canada applicable therein.  Each of the Parties hereby irrevocably attorns to the non-exclusive jurisdiction of the courts of the Province of British Columbia in respect of all matters arising under and in relation to this Agreement.

 

(a)

Each Party hereby agrees that any service of process, summons, notice or document by registered mail addressed to such person at its address set forth in Section 11.1 shall be effective service of process for any suit, action or proceeding relating to any dispute arising out of this Agreement or the transactions contemplated by this Agreement.

 

(b)	Each Party hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or other proceeding arising out of this Agreement or the transactions contemplated by this Agreement.

 

11.9	Entire Agreement

 

 

11.10

Third Party Beneficiaries

 

 

11.11

Amendment

 

(a)

This Agreement may, at any time and from time to time but not later than the Effective Time, be amended by written agreement of the Parties hereto without, subject to applicable Laws, further notice to or authorization on the part of the Securityholders, and any such amendment may, without limitation:

 

(i)	change the time for performance of any of the obligations or acts of the Parties;

 

(ii)	waive any inaccuracies or modify any representation, warranty, term or provision contained herein or in any document delivered pursuant hereto; or

 

(iii)

waive compliance with or modify any of the conditions precedent referred to in Article 10 or any of the covenants herein contained or waive or modify performance of any of the obligations of the Parties,

 

 

11.12

Waiver and Modifications

 

 

11.13

Severability