GERBERSCIENTIFIC CANADA INC., GERBERSCIENTIFIC, INC. and VIRTEKVISION INTERNATIONAL INC.

(a)  

the Annual Financial Statements;

 

(b)  

the Interim Financial Statements;

 

(c)  

the documents filed by the Company on SEDAR since September 1, 2007; and

 

(d)  

any material change reports of the Company filed on SEDAR subsequent to the date hereof up to and including the Effective Time;

(a)  

all business names, trade names, corporate names, telephone numbers, domain names, domain name registrations, website names and worldwide web addresses and other communications addresses;

 

(b)  

all inventions, patents, patent rights, patent applications (including all provisional applications, utility applications, reissues, divisions, continuations, continuation-in-part and extensions of any patent or patent application);

 

(c)  

all industrial designs and applications for and registration of industrial designs, design patents and industrial design registrations;

 

(d)  

all trade-marks (whether used with wares or services and including the goodwill attaching to such trade-marks) and registrations and applications for registration of trade-marks and all trade dress, logos, slogans and brand names;

 

(e)  

all copyright in all works (including software programs and databases) and database rights and registrations and applications for registrations of copyright;

(f)  

all rights and interests in and to processes, lab journals, notebooks, data, trade secrets, designs, know-how, product formulae and information, manufacturing, engineering and other drawings and manuals, technology, blue prints, research and development reports, agency agreements, technical information, technical assistance, engineering data, design and engineering specifications, and similar materials recording or evidencing expertise or information;

 

(g)  

all of the intellectual property affected by the registrations and applications for registration listed in the Disclosure Letter and the permissions and licences listed in the Disclosure Letter;

 

(h)  

all other intellectual property rights throughout the world used in carrying on, or arising from the operation of, the business of the Company and its Subsidiaries;

 

(i)  

all licences granted by the Company and its Subsidiaries of the intellectual property listed in items (a) to (h) above;

 

(j)  

all future income and proceeds from any of the intellectual property listed in items (a) to (h) above and the licences listed in item (i) above; and

 

(k)  

all rights to damages and profits by reason of the infringement of any of the intellectual property listed in items (a) to (h) above and the licences listed in item (i) above.

 

(a)  

The Offeror shall promptly (but in any event within 24 hours, following the execution of this Agreement) publicly announce its intention to make an offer and shall make, subject to the terms and conditions hereof, a take-over bid for all the issued and outstanding Common Shares, including Common Shares issued after the date of the Offer and prior to the Expiry Time on the exercise, surrender or cancellation of Options, at a price per Common Share of $1.05 in cash (the “Offer”).  The Offer shall not be subject to any conditions, save and except for the conditions set forth in Schedule “A”.

 

(b)  

The Offer shall, subject to the terms and conditions hereof, be made to the holders of Common Shares in Canada in accordance with applicable Securities Laws and to holders of Common Shares in the United States in accordance with applicable United States Securities Laws and shall be open for acceptance until a time or times that is (i) not earlier than 5:00 p.m. (Toronto time) on the 36th day after the day that the Offer is mailed to Shareholders, subject to the right of the Offeror to extend from time to time the period during which Common Shares may be

 

deposited under the Offer and (ii) not later than the Outside Date (the time at which the Offer initially expires being referred to as its “Expiry Time”).

 

(c)  

The Offeror shall prepare with the Company’s co-operation and mail the Offer and accompanying take-over bid circular (such circular, together with the Offer, being referred to as the “Bid Circular”) in accordance with applicable Laws to each Shareholder as soon as reasonably practicable (with a target date of September 15, 2008) and, in any event, not later than 11:59 p.m. (Toronto time) on September 22, 2008 (such time on such date being referred to herein as the “Latest Mailing Time”).  However, if the mailing of the Bid Circular is delayed by reason of (i) an injunction or order made by a court or Governmental Authority of competent jurisdiction or (ii) the Company not having provided to the Offeror information pertaining to the Company that is necessary for the completion of the Bid Circular by the Offeror, or not having provided the Offeror with such other assistance in the preparation of the Bid Circular as may be reasonably requested by the Offeror in order that the Bid Circular comply in all material respects with Securities Laws, or not having provided the lists referred to in Section 2.4(b), then the Latest Mailing Time shall be extended for a period ending on the fifth Business Day following, (a) in the case of (i) above, the date on which such injunction or order ceases to be in effect, provided that such injunction or order is not being contested or appealed, and (b) in the case of (ii) above, the date on which the Company supplies such necessary documents, information, lists or other assistance.  If such injunction or order continues in effect or the Company does not supply the necessary information by such time, then the Offeror may elect not to proceed with the Offer.  In addition, the Latest Mailing Time shall be extended if an Alternative Transaction with a per Common Share offering price greater than the per Common Share offering price of the Offer shall have been (i) publicly announced by any Person other than the Offeror unless, since such Alternative Transaction was announced, the Board of Directors has publicly stated that such offer is not a Superior Proposal and has publicly reaffirmed its recommendation in favour of the Offer, or (ii) privately submitted to the Company or the Board of Directors or any committee or member thereof unless the Board of Directors has confirmed in writing to the Offeror that such Alternative Transaction is not a Superior Proposal, in which case the Latest Mailing Time shall be extended until the Board of Directors has publicly stated that such offer is not a Superior Proposal and has publicly reaffirmed its recommendation in favour of the Offer, in the case of (i) above or the Board of Directors has confirmed in writing to the Offeror that such Alternative Transaction is not a Superior Proposal, in the case of (ii) above.  Notwithstanding the preceding sentence, the Offeror shall mail the Bid Circular no later than 5:00 p.m. on September 30, 2008, provided that the Board of Directors has used all reasonable commercial efforts to evaluate any Alternative Transaction.  The Company and its advisors shall be given an opportunity to review and comment on the Bid Circular reasonably in advance of its printing, recognizing that whether or not such comments are appropriate will be determined by the Offeror, acting reasonably.

(d)  

The Company acknowledges and agrees that the Offeror may, in its sole discretion, modify or waive any term or condition of the Offer; provided, however, that the Offeror shall not, without the prior written consent of the Company: (i) modify or waive the Minimum Condition; (ii) decrease the consideration per Common Share; (iii) change the form of consideration payable under the Offer (other than to add additional consideration); (iv) decrease the number of Common Shares in respect of which the Offer is made; (v) impose additional conditions to the Offer; or (vi) otherwise vary the Offer (or any terms or conditions thereof) in a manner that is adverse to the Shareholders.

 

(e)  

The Offeror agrees that, provided all of the conditions to the Offer set out in Schedule “A” shall have been satisfied or waived, the Offeror shall take up and pay for all the Common Shares tendered under the Offer as soon as reasonably possible and in any event not later than three Business Days following the time at which it becomes entitled to take up such Common Shares under the Offer pursuant to applicable Laws.

 

(a)  

the Board of Directors shall have not allowed the Separation Time to have occurred and shall have agreed to waive the application of the Shareholder Rights Plan to the Offer upon the request of the Offeror;

 

(b)  

all of the holders of DSUs shall have agreed in writing as follows:

 

(i)  

the “Settlement Date” for the purposes of the DSU Plan shall be the Take-Up Date;

 

(ii)  

the Fair Market Value (as defined in the DSU Plan) of a Deferred Share Unit on the Settlement Date (as defined in the DSU Plan) shall be $1.05 per Deferred Share Unit; and

 

(iii)  

the holder shall elect to receive a cash payment (rather than shares) on the Settlement Date (as defined in the DSU Plan).

 

(c)  

the Company shall have terminated the RC Subscription Agreement;

 

(d)  

the Company shall have terminated the Mitek Agreement;

 

(e)  

the Company shall have either adjourned indefinitely or cancelled the special meeting of its Shareholders scheduled for September 10, 2008;

 

(f)  

this Agreement shall not have been terminated pursuant to Section 7.1;

 

(g)  

the Company shall have complied in all material respects with all of its covenants and agreements in this Agreement (without giving effect to, applying or taking

  

into consideration any materiality qualification already contained in such covenant or obligation);

 

(h)  

each of the representations and warranties of the Company (without giving effect to any materiality qualifiers therein) provided herein shall be true and correct at the date the Offer is made, except for any breaches of representations or warranties which, individually or in aggregate, would not result in a Material Adverse Change;

 

(i)  

no circumstance, fact, change, event or occurrence caused by a Person other than the Offeror shall have occurred that would render it impossible or impracticable for one or more of the conditions set out in Schedule “A” to be satisfied;

 

(j)  

the Offeror shall be satisfied, acting reasonably, that no Material Adverse Change shall have occurred since the date hereof;

 

(k)  

no Person shall have commenced a bona fide action for injunctive relief against the performance of this Agreement or the completion of the Offer;

 

(l)  

no Person shall have proposed an Alternative Transaction which the Board of Directors has determined to be a Superior Proposal;

 

(m)  

assurances satisfactory to the Offeror, acting reasonably, shall have been received by the Offeror that all waivers, rulings or orders necessary for the Offeror to make the Offer and to mail to the Shareholders the Bid Circular have been or will be obtained from all applicable securities commissions or other regulatory authorities, provided that the Offeror shall use its commercially reasonable efforts to obtain any such necessary waivers, rulings or orders;

 

(n)  

the Board of Directors shall have unanimously recommended that Shareholders accept the Offer in accordance with Section 2.3(a) and shall not have withdrawn such recommendation or changed, modified or qualified such recommendation in a manner that has substantially the same effect or taken any other action or made any other public statement in connection with the Offer inconsistent with such recommendation;

 

(o)  

the Board of Directors shall have prepared and approved in final form, printed for distribution to Shareholders and delivered to the depositary of the Offer, at its offices in Toronto, Ontario on or before 9:00 a.m. (Toronto time) on September 15, 2008 for mailing with the Bid Circular, a sufficient quantity of commercial copies of a directors’ circular (the “Directors’ Circular”) in both the English and French languages unanimously recommending that Shareholders accept the Offer, provided that the Offeror delivers a substantially completed draft of the Bid Circular to the Board of Directors no later than 9:00 a.m. (Toronto time) on September 11, 2008;

 

(p)  

the Company shall have provided to the Offeror the lists referred to in Section 2.4(b);

(q)  

no cease trade order, injunction or other prohibition at law shall exist against the Offeror making the Offer or taking-up or paying for any Common Shares deposited under the Offer or completing a Compulsory Acquisition or Subsequent Acquisition Transaction;

 

(r)  

no Law shall have been proposed, enacted, promulgated or applied that would cease trade, enjoin, prohibit or impose material limitations or conditions on the Offeror making the Offer or taking-up or paying for any Common Shares deposited under the Offer or completing a Compulsory Acquisition or Subsequent Acquisition Transaction or which could have such an effect; and

 

(s)  

each of the current directors of the Company shall have delivered a covenant to resign effective on the Take-Up Date conditioned on execution of a mutual release with the Company in a form satisfactory to the director and the Offeror, each acting reasonably.

 

(a)  

The Company hereby consents to the Offer as set forth in Section 2.1 and represents that its Board of Directors: (i) has approved this Agreement; (ii) has, following consultation with its financial and legal advisors, unanimously determined that the Offer is in the best interests of the Company and the Shareholders; and (iii) has unanimously resolved to recommend acceptance of the Offer to holders of Common Shares, provided that the Offer is not amended except in accordance with the terms of this Agreement.  The Company shall prepare the Directors’ Circular in accordance with Securities Laws and shall deliver sufficient copies of such Director’s Circular to the Offeror so as to permit the Offeror to mail a copy of the Director’s circular to each Shareholder at the same time as the Bid Circular, Letter of Transmittal and Notice of Guaranteed Delivery are mailed.  The Directors’ Circular will set forth (among other things) the recommendation of the Board of Directors as described above.  The Offeror and its advisors shall be given an opportunity to review and comment on the Directors’ Circular prior to its printing, recognizing that whether or not such comments are appropriate will be determined by the Board of Directors, acting reasonably.

 

(b)  

The Company represents that it has obtained an oral fairness opinion from Genuity Capital Markets that the consideration to be offered to the Shareholders under the Offer is fair, from a financial point of view, to all Shareholders, and that Genuity Capital Markets will provide a written opinion to such effect on or before the date of the Directors’ Circular.  Such fairness opinion will be attached to the Directors’ Circular.

(c)  

The Company represents that the Board of Directors has been advised and believes that each of the directors and senior officers of the Company intends to tender or cause to be tendered to the Offer all Common Shares of which he or she is the beneficial owner and will either exercise or surrender their Options.  The Company represents that any restrictions imposed by the Company that would prevent any director or senior officer from tendering such Common Shares to the Offer have been waived or removed.

 

 

(a)  

Within the time periods required by Law, the Offeror shall file or cause to be filed with the appropriate Securities Authorities the Bid Circular and the related “Letter of Transmittal” and “Notice of Guaranteed Delivery” pursuant to which the Offer will be made (collectively, the “Offer Documents”).  The Offer Documents and all documents relating to, or necessary to complete, a Compulsory Acquisition or Subsequent Acquisition Transaction, when filed with such Securities Authorities and when mailed to holders of Common Shares, shall contain (or shall be amended in a timely manner to contain) all information that is required to be included therein in accordance with all applicable Canadian provincial securities laws (collectively, the “Securities Laws”) and any other applicable Laws in all material respects.

 

(b)  

The Company agrees to provide such assistance as the Offeror or its agents may reasonably request in connection with communicating the Offer and any amendments and supplements thereto to the Shareholders and to such other Persons as are entitled to receive the Offer in accordance with Securities Laws, including delivering to the Offeror: (A) on or before September 11, 2008, lists of all registered holders of Common Shares in electronic form, showing the name and address of each holder and the number of Common Shares held by each such holder (together with participants lists), all as shown on the records of the Company as of a date that is not more than three Business Days prior to the date of delivery of such basic lists; and (B) from time to time, at the request of the Offeror, acting reasonably, supplemental lists setting out any changes from the basic lists referred to in clause (A) above in the names or addresses of the holders of Common Shares or the number of Common Shares held by each such holder (together with participants lists).

 

(a)  

in order to ensure that the Separation Time (as defined in the Shareholder Rights Plan) does not occur in connection with this Agreement or any Contemplated Transactions, Compulsory Acquisition or Subsequent Acquisition Transaction; and

 

(b)  

otherwise to give effect to the waiver, if required, of the application of the Shareholder Rights Plan to the Contemplated Transactions and to ensure that the Shareholder Rights Plan does not interfere with or impede the success of the Contemplated Transactions; provided that the Company shall not waive the application of the Shareholder Rights Plan to the Contemplated Transactions unless so requested by the Offeror.

 

 

(a)  

The Offeror and the Company agree that, between the date hereof and the Take-Up Date, subject to the receipt of any necessary approvals and to Securities Laws, the Company shall amend the terms of any Options and the Stock Option Plan to provide that all Options vest no later than immediately prior to the Take-Up Date and that each holder of vested Options shall be entitled to, at his or her option: (i) exercise such Options, in accordance with their terms, and thereby acquire Common Shares; or (ii) surrender or cancel such Options to the Company, in exchange for a payment by the Company in the form of Common Shares having a fair market value equal to the Cash-Out Amount, for the purposes of tendering to the Offer all Common Shares issued in connection with such exercise, surrender or cancellation, where “Cash-Out Amount” means an amount equal to the amount by which $1.05 exceeds the aggregate exercise price under such Option (net of applicable withholdings).  In addition, the Company shall amend the Stock Option Plan in any other reasonable manner requested by the Offeror (including, if requested by the Offeror, to provide that all holders of Options be required to either receive a Cash-Out Amount or exchange their Options for options to purchase shares of common stock of Parent prior to the Take-Up Date, following which all outstanding Options would be terminated), subject to the receipt of any required regulatory approvals.

 

(b)  

The Company agrees that it will use commercially reasonable efforts to ensure that all outstanding Options are either exercised, terminated, surrendered, cancelled or expire prior to the Take-Up Date, provided that, except as provided in Section 2.8(d), the Company shall not pay the holders any amount in consideration therefor without the prior approval of the Offeror, and the Company shall not grant any additional Options or other rights to purchase or acquire Common Shares, or make any amendments to outstanding Options without the prior written consent of the Offeror.

 

(c)  

The Company shall promptly notify the Offeror in writing of any exercise or surrender of Options pursuant to Section 2.8(d).  Such notice shall include full particulars of each such exercise or surrender.

 

(a)  

None of the execution and delivery of this Agreement by the Offeror, the completion of the transactions contemplated hereby nor the fulfilment and compliance by the Offeror with any of the terms and provisions hereof will:

 

(i)  

violate, conflict with, or result in a breach of any provision of, require any consent, approval or notice under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or

  

result in a right of termination or acceleration under, any of the terms, conditions or provisions of:

 

(A)  

the articles of incorporation or any other constating documents of the Offeror; or

 

(B)  

any material Contract to which the Offeror or any of its Subsidiaries is a party, except as would not, individually or in the aggregate, materially adversely affect the Offeror’s ability to perform its obligations hereunder; or

 

(ii)  

subject to compliance with the statutes and policies referred to in Section 3.3(b) below, violate any judgment, ruling, order, writ, injunction, award, decree, statute, ordinance, rule or regulation applicable to the Offeror or any of its Subsidiaries, except as would not, individually or in the aggregate, materially adversely affect the Offeror’s ability to perform its obligations hereunder.

 

(b)  

Other than in connection with or in compliance with the provisions of applicable Securities Laws, the policies of the TSX, and as otherwise contemplated herein: (i) there is no legal impediment to the Offeror’s consummation of the transactions contemplated by this Agreement; and (ii) no authorization, approval, license, permit, order, authorization of, or registration, declaration or filing with, any third party or Governmental Authority is required to be obtained or made by or with respect to the Offeror in connection with the performance of its obligations hereunder.

 

(a)  

Each of the Company and its Subsidiaries is an entity duly incorporated, continued, amalgamated or formed and organized and validly existing under the laws of its jurisdiction of formation, continuance, incorporation or organization, has the requisite power and authority to own or lease its property and assets and to carry on its business as it is now being conducted, and is duly registered to do business and is in good standing in each jurisdiction in which the character of its properties (owned or leased), or the nature of its activities make such registration necessary, except when the absence of such registration or such lack of good standing would not constitute a Material Adverse Change.  The Company and its Subsidiaries are registered, licensed or otherwise qualified to do business under the laws of the jurisdictions specified in the Disclosure Letter.

 

(b)  

Except as disclosed in the Disclosure Letter, the Company does not have any Subsidiaries nor an equity interest in any Person.  Except as set out in the Disclosure Letter, the Company is the registered and beneficial owner of 100% of the outstanding shares (or equity if no shares exist) of each of its Subsidiaries with good and valid title to all such shares, free and clear of all Encumbrances (other than any security interest in favour of the Company’s bankers) and no Person holds any securities convertible or exchangeable into securities of such Subsidiaries or now has any agreement, warrant, option, right or privilege (whether pre-emptive or contractual) being or capable of becoming an agreement for the purchase, subscription or issuance of any unissued shares, securities (including convertible securities) or warrants of any of the Company’s Subsidiaries.  There are no intercompany agreements within the meaning of Section 291 et sqq. German Stock Corporations Act (Aktiengesetz – AktG), silent partnership agreements or similar agreements in respect of any shares or equity of the Subsidiaries.

 

(c)  

No bankruptcy, insolvency, liquidation or similar proceedings (whether mandatory or voluntary) are pending, and no filing for such proceedings has been made or is required, with respect to the Company or any Subsidiary.  The Company and the Subsidiaries have not entered into any moratorium agreement or similar agreement with their respective creditors.  The Company and the Subsidiaries have not stopped or suspended payment of its debts, become unable to pay its debts or otherwise become insolvent in any jurisdiction.  No assets of the Company or any Subsidiaries have been seized or confiscated by or on behalf any third party nor are any foreclosure, forfeiture, execution or enforcement proceedings pending or threatened with respect to the Company, any Subsidiary or its assets.  To the knowledge of the Company, there are no facts or events

  

which may reasonably be expected to result in any proceedings or other events as referred to in this Section 3.7(c).

 

 

(a)  

Except as disclosed in the Disclosure Letter, none of the execution and delivery of this Agreement by the Company, the completion of the transactions contemplated hereby nor the fulfilment and compliance by the Company with any of the terms and provisions hereof will:

 

(i)  

violate, conflict with, or result in breach of any provision of, require any consent, approval or notice under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in a right of termination or acceleration under any of the terms, conditions or provisions of:

 

(A)  

the articles of incorporation of the Company or the constating documents of any of its Subsidiaries; or

 

(B)  

any Contract to which the Company or any of its Subsidiaries is a party, except as would not reasonably be expected to have a Material Adverse Change; or

 

(C)  

any applicable Laws, except to the extent that the violation or breach of, under, any applicable Laws, would not reasonably be expected to have a Material Adverse Change;

 

(ii)  

subject to compliance with the statutes and policies referred to in Section 3.9(b), violate any judgment, ruling, order, writ, injunction, award, decree, statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, except, as would not reasonably be expected to cause a Material Adverse Change; or

 

(iii)  

give rise to any rights of first refusal or trigger any change in control provisions or any restriction or limitation under any such Contract, or result in the imposition of any Encumbrance, upon any of the Company’s

  

assets or the assets of any the Subsidiaries, except as would not, reasonably be expected to have a Material Adverse Change or as set forth in the Disclosure Letter;

 

(b)  

Other than in connection with or in compliance with the Securities Laws, the policies and by-laws of the TSX and except as otherwise contemplated herein: (i) there is no legal impediment to the Company’s consummation of the transactions contemplated by this Agreement; and (ii) no authorization, approval, license, permit, order, authorization of, or registration, declaration or filing with Governmental Authority is required to be obtained or made by the Company in connection with the performance of its obligations hereunder.

 

 

(a)  

The Company is authorized to issue an unlimited number of Common Shares.  As at the date hereof, there are 33,473,241 issued and outstanding Common Shares and Options to acquire an aggregate of 1,652,003 Common Shares outstanding under the Stock Option Plan.  All outstanding Common Shares and the Common Shares to be issued on exercise of the Options have been duly authorized.  All outstanding Common Shares are, and the Common Shares to be issued on exercise of the Options will be when issued, validly issued and outstanding as fully paid and non-assessable Common Shares, free of pre-emptive rights.  All securities of the Company (including the Common Shares and the Options) have been issued in compliance, in all material respects, with applicable Securities Laws.  As of the date hereof, upon exercise of the Options for Common Shares, there shall be no more than 35,125,244 Common Shares outstanding on a Fully-Diluted Basis.

 

(b)  

All outstanding shares of the Subsidiaries have been duly authorized and validly issued, are fully paid and have not been repaid, and there is no shareholder obligation to make any additional payment or contribution with respect to any shares of any Subsidiary.

 

(c)  

Except for the Options outstanding as of the date hereof as set forth in the Disclosure Letter, there are no options, rights, warrants or other Contracts of any character whatsoever requiring or permitting the issuance, sale or transfer by the Company or any Subsidiary of any securities of the Company or any Subsidiary (including Common Shares) or any securities convertible into, or exchangeable or exercisable for, or otherwise evidencing a right to acquire, any securities of the Company or any Subsidiary (including Common Shares).  In addition, there are no bonds, debentures or other evidence of indebtedness of the Company outstanding having a right to vote with Shareholders on any matter.

 

(a)  

made any change in its accounting principles and practices as previously applied including the basis upon which its assets and liabilities are recorded on its books and its earnings and profits and losses are ascertained other than as required by GAAP or by any other general accounting principles applying to the Subsidiaries;

 

(b)  

declared, paid or set aside for payment any dividend or distribution of any kind in respect of any of its outstanding securities nor made any repayments of capital to Shareholders or incurred any material indebtedness for borrowed money or any other material liability or obligation or issued any debt securities or assumed, guaranteed, endorsed or otherwise become responsible for, the obligations of any other Person (other than in respect of the Company or one of its Subsidiaries) or made any loans or advances, except in the ordinary course of business consistent with past practices;

 

(c)  

transferred, assigned, sold or otherwise disposed of any of its assets, except in the ordinary course of business consistent with past practices;

 

(d)  

effected any lay-off with respect to a significant part of the workforce of the Company or of any Subsidiary; any action qualifying as a change of operation (Betriebsänderung) within the meaning of Section 111 German Shop Constitution Act (Betriebsverfassungsgesetz – BetrVG) or other restructuring or action materially affecting the workforce which requires any consent by or consultation with any body of employee representatives;

 

(e)  

increased the compensation paid or payable to its Employees or changed the benefits to which such Employees and former employees are entitled under any employee benefit plan or created any new employee benefit plan or modified,

  

amended or terminated any existing employee benefit plan for any such employees other than increases or changes made in the ordinary course of business consistent with past practices, provided that no increases or changes may have been made to Employees whose salary plus bonus exceeded $100,000 in 2007 (or if not employed for the full year in 2007, any Employee whose 2008 salary plus target or expected bonus would exceed $100,000);

 

(f)  

purchased, redeemed or otherwise acquired any Common Shares or agreed to do so; or

 

(g)  

entered into or become bound by any Contract, or made or authorized any capital expenditure, in either case under which the Company has any obligations as of the date hereof or involving, or that may result in the payment of money by the Company or any of its Subsidiaries, of an amount in excess of $50,000.

 

 

(a)  

The Financial Statements were prepared in accordance with GAAP applied on a basis consistent with prior periods (except (i) as otherwise indicated in such

  

Financial Statements and the notes thereto or, in the case of the Annual Financial Statements, in the related report of the Company’s independent auditors or (ii) in the case of the Interim Financial Statements, to the extent they may not include footnotes, are subject to normal year end adjustments or may be condensed or summary statements), and fairly present in accordance with GAAP, the assets, liabilities and financial condition of the Company and its Subsidiaries on a consolidated basis as at the dates indicated and the revenue, earnings and results of operations of the Company and its Subsidiaries on a consolidated basis for the specified period (subject, in the case of the Interim Financial Statements, to normal year-end audit adjustments) and reflect appropriate and adequate reserves in respect of contingent liabilities, if any, of the Company on a consolidated basis.  The Company maintains a system of internal accounting controls which provides reasonable assurance that transactions are executed in accordance with management’s authorizations and facilitates the preparation of the Financial Statements.

 

(b)  

The documents comprising Company Public Disclosure Record, as of their respective dates, (i) did not contain any misrepresentation of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (ii) complied in all material respects with the requirements of applicable Securities Laws, except where any such non-compliance would not result in a Material Adverse Change.  The Company has not filed any confidential material change report with the Securities Authorities that at the date hereof, remains confidential.

 

 

(a)  

The operations of each of the Company and its Subsidiaries are conducted, in all material respects, in compliance with all Laws of each jurisdiction in which the Company or its Subsidiaries carries on its business and none of the Company or any of its Subsidiaries has received any notice of any violation of any such Laws, except for any such non-compliance or violations that would not reasonably be expected to cause a Material Adverse Change.

 

(b)  

To the knowledge of the Company, there is no pending or contemplated change to any applicable Law that would reasonably be expected to cause a Material Adverse Change.

 

 

(a)  

The Disclosure Letter contains a complete and accurate list of all Employees, their respective positions, dates of hire with the Company or any Subsidiaries or predecessors of the Company, current salaries, benefits and other remunerations

  

and dates of last salary increases and indicates which Employees are parties to a written or oral agreement with the Company (including confidentiality and non-competition agreements).  Except as disclosed in the Disclosure Letter, the Company is not a party to any agreements with past or present employees, agents or independent contractors.  All written employment contracts with Employees are described in the Disclosure Letter and full and complete copies of such employment contracts have been provided to the Offeror.  Except as set forth in the Disclosure Letter, neither the Company nor any of its Subsidiaries has any employment contracts or arrangements that are not terminable on the giving of reasonable notice in accordance with Law, nor do any of them have any management, employment, consulting, retention or like agreements providing for cash payments or other compensation or benefits upon the consummation of the transactions contemplated by this Agreement.

 

(b)  

Except as disclosed in the Disclosure Letter, neither the Company nor any of its Subsidiaries is a party, either directly or indirectly, voluntarily, or to the knowledge of the Company, by operation of law, to any collective agreement, letters of understanding, letters of intent or other written communication with any trade union or association that may qualify as a trade union, which would cover any of the Employees.

 

(c)  

All obligations of the Company and its Subsidiaries under the Company Plans have been satisfied in all material respects and there are no deficiencies required to be funded thereunder, and there are no outstanding defaults or violations thereunder by the Company or any of its Subsidiaries that would result in or give rise to any liability to the Company or any of its Subsidiaries, nor does the Company or any of its Subsidiaries have any knowledge of any such default or violation by any other party to any Company Plan.

 

(d)  

All employer payments, contributions or premiums required to be remitted or paid to or in respect of each Company Plan have been remitted and paid in a timely fashion in accordance with the terms thereof, all applicable actuarial reports and all applicable Laws, and no Taxes, penalties or fees are owing or exigible under or in respect of any Company Plan.

 

(e)  

Except as set forth in the Disclosure Letter, neither the execution of this Agreement nor the consummation of any of the transactions contemplated in this Agreement will:

 

(i)  

result in any payment (including bonus, golden parachute, retirement, severance, unemployment compensation, or other benefit or enhanced benefit) becoming payable under any Company Plan;

 

(ii)  

increase any benefits otherwise payable under any Company Plan; or

 

(iii)  

result in the acceleration of the time of payment or vesting of any benefits otherwise payable under the Company Plans, or result in any Company

  

Plan becoming terminable other than at the sole and unfettered discretion of the Company.

 

(f)  

The Company and each of its Subsidiaries has withheld from each payment made to any of its present or former employees all amounts required by applicable Laws to be withheld, and has remitted such withheld amounts within the prescribed periods to the appropriate Governmental Authority.  The Company and each of its Subsidiaries has remitted all Canada Pension Plan contributions, provincial pension plan contributions, employment insurance premiums, employer health taxes and other Taxes payable by it in respect of its Employees to the proper Governmental Authority within the time required under applicable Laws.

 

 

(a)  

Except as set out in the Disclosure Letter, each of the Company and its Subsidiaries has duly and timely filed all Tax Returns required to be filed prior to the date hereof with the appropriate Governmental Authorities and all such Tax Returns were, at the time of filing, complete and correct in all material respects.  No such Tax Returns have been amended.

 

(b)  

Except as set out in the Disclosure Letter, each of the Company and its Subsidiaries has duly and timely paid all Taxes due or payable by it whether or not assessed by the appropriate Governmental Authority.  Each of the Company and its Subsidiaries has duly and timely paid all instalments on account of Taxes for the current year that are due or payable by it whether or not assessed.  The Financial Statements contain an adequate provision in accordance with GAAP for all amounts of Taxes payable in respect of each period covered by such Financial Statements and all prior periods to the extent such Taxes have not been paid, whether or not due and whether or not shown as being due on any Tax Returns.  On a consolidated basis, the Company has made adequate provision in accordance with GAAP in its books and records for amounts at least equal to the amount of all Taxes due or payable by the Company or any of its Subsidiaries that will not be due or payable by the Effective Time in respect of any period subsequent to the period covered by such Financial Statements and that relate to the periods ending on or prior to the Effective Time.

 

(c)  

Except as disclosed in the Disclosure Letter, neither the Company nor any of its Subsidiaries has requested, or entered into any agreement or other arrangement or executed any waiver providing for, any extension of time within which:

 

(i)  

to file any Tax Return covering any Taxes for which the Company or any of its Subsidiaries is or may be liable;

 

(ii)  

to file any elections, designations or similar filings relating to Taxes for which the Company or any of its Subsidiaries is or may be liable;

 

(iii)  

the Company or any of its Subsidiaries is required to pay or remit any Taxes or amounts on account of Taxes; or

(iv)  

any Governmental Authority may assess or collect Taxes for which the Company or any of its Subsidiaries is or may be liable.

 

(d)  

There are no proceedings, investigations, assessments, reassessments, actions, suits, audits or claims now pending or threatened against the Company or any of its Subsidiaries in respect of any Taxes.  There are no matters under discussion, audit or appeal with any Governmental Authority relating to Taxes and neither the Company nor any of its Subsidiaries has received any notification that any issues involving Taxes have been raised by any Governmental Authority.  No Tax liens exist for Taxes of the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries is a party to any agreement or arrangement with any Person (other than with the Company or any of its Subsidiaries) or any Tax authority pursuant to which the Company or any of its Subsidiaries has or could have any liabilities in respect of Taxes.  Neither the Company nor any Subsidiary of the Company has received a refund of any Taxes to which it was not entitled.

 

(e)  

The Company and each of its Subsidiaries have duly and timely withheld from any amount paid or credited by it to or for the account or benefit of any Person, including any Employees and any non-resident Person, the amount of all Taxes and other deductions required by any Laws to be withheld from any such amount and has duly and timely remitted the same to the appropriate Governmental Authority.

 

(f)  

No debt or other obligation to pay an amount by the Company or any Subsidiary has been settled or extinguished without payment by the debtor of an amount at least equal to the outstanding principal amount of the debt or obligation.

 

(g)  

There is no deductible outlay or expense owing by the Company or any Subsidiary to a Person with whom it was not dealing at arm’s length at the time the outlay or expense was incurred which is unpaid and which will be included in the Company’s or any of its Subsidiaries’ income for any taxation year ending on or after the date hereof.

 

(h)  

No claim has ever been made by or is expected from any Governmental Authority in a jurisdiction in which the Company or its Subsidiaries does not file Tax Returns that it is or may be subject to taxation in that jurisdiction.  The Company and its Subsidiaries are not required to file any Tax Returns in any jurisdiction outside Canada, the United States, Italy and Germany.

 

(i)  

The Disclosure Letter sets forth and accurately describes the amount of loss carryforwards, investment tax credits and undeducted research and development expenditures of the Company and each of its Subsidiaries available for deduction or utilization in periods ending after the date hereof.

(a)  

all operations of the Company and its Subsidiaries have been and are in compliance with all Environmental Laws.  To the knowledge of the Company, no written demands, notices, requests or information exist with regard to any required current or future modernization measures required under any Environmental Law;

 

(b)  

the Company and its Subsidiaries do not require any Environmental Permits for the conduct of its business;

 

(c)  

neither the Company nor any Subsidiary is subject to:

 

(i)  

any written demand, written notice, request for information or, to the knowledge of the Company, pending or threatened claims or complaints with respect to the breach of or liability under any Environmental Laws applicable to the Company or any Subsidiary, including any Environmental Laws respecting the use, storage, treatment, transportation, disposition (including disposal or arranging for disposal) discharge, remediation or corrective action of Contaminants; or

 

(ii)  

written demand or written notice with respect to liability, by contract (including real property leases) or operation of applicable Laws, under Environmental Laws applicable to the Company or any Subsidiary or any of their respective predecessor entities, divisions or any currently or formerly owned, leased or operated properties or assets of the foregoing, including liability with respect to the presence, release, migration, discharge remediation or corrective action of Contaminants in, on, under or from any currently or formerly owned, leased or operated properties or assets of the foregoing;

 

(d)  

there are no environmental audits, evaluations and assessments relating to any real property currently or formerly owned, leased or operated by the Company or its Subsidiaries that are or with reasonable effort could be within the possession or control of the Company or the Subsidiaries; and

 

(e)  

neither the Company nor any of its Subsidiaries have ever been convicted of any offence for non-compliance with any Environmental Law or occupational safety and health Laws, been fined or otherwise penalized for non-compliance with an Environmental Law or occupational safety and health Laws or settled any prosecution for non-compliance with Environmental Law or occupational safety and health Laws short of conviction.

 

 

(a)  

The aggregate value of the assets in Canada of the Company and its affiliates or the gross revenues from sales in or from Canada of the Company and its affiliates, as determined in the manner prescribed in the Competition Act (Canada) and the Notifiable Transactions Regulations made thereunder, does not exceed $50 million.

 

(b)  

The aggregate value of the assets in Canada of the Company and its affiliates or the gross revenues from sales in, from or into Canada of the Company and its affiliates, as determined in the manner prescribed in the Competition Act (Canada) and the Notifiable Transactions Regulations made thereunder, does not exceed $55 million.

 

(c)  

Since January 31, 2008, neither the Company nor any of its affiliates was a party to or otherwise affected by a transaction or event the consequences of which, if taken into account, would affect the determination of whether notification is required to be given under Part IX of the Competition Act (Canada) with respect to the transactions contemplated in this Agreement.

(a)  

the business of the Company shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business consistent with past practices, it being acknowledged and agreed that the Company shall be entitled to take such actions as are deemed appropriate by the Board of Directors to respond to the unsolicited take over bid by StockerYale Inc. in a manner consistent with the response conducted by the Company to such bid prior to the date hereof, after consulting with the Offeror and without violating Section 5.1 of this Agreement.  The Company shall use commercially reasonable efforts to maintain and preserve its business organization and goodwill and assets, to keep available the services of its officers and Employees, to maintain satisfactory relationships with suppliers, distributors, customers, Employees and others having business relationships with them; and shall not make any change in the business, assets, liabilities, operations, capital or affairs of the Company other than changes in the ordinary course of business consistent with past practices;

 

(b)  

without limiting the generality of Section 4.1(a), the Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly do or permit to occur any of the following:

 

(i)  

amend its or any of its Subsidiaries articles, charter or by-laws or other comparable organizational documents;

 

(ii)  

amend the Stock Option Plan or the terms of any of its outstanding securities (except to provide for the accelerated vesting of Options in accordance with the provisions of the Stock Option Plan and the “cashless” exercise of such options as permitted by this Agreement), including any outstanding indebtedness and credit facilities;

 

(iii)  

declare, set aside or pay any dividend or other distribution or payment (whether in cash, shares or property) in respect of the Common Shares owned by any Person or the securities of any Subsidiary owned by a Person other than the Company other than any dividends payable to the Company or any other wholly-owned Subsidiary of the Company;

 

(iv)  

issue, sell or pledge or agree to issue, sell or pledge any Common Shares or other securities of the Company, or securities convertible into or exchangeable or exercisable for, or otherwise evidencing a right to acquire Common Shares, other than Common Shares issuable upon exercise of the currently outstanding Options;

 

(v)  

redeem, purchase or otherwise acquire any of its outstanding Common Shares or other securities;

 

(vi)  

split, consolidate or reclassify any of its Common Shares;

(vii)  

adopt a plan of liquidation or resolutions providing for the liquidation, dissolution, merger, consolidation or reorganization of the Company or any of its Subsidiaries;

 

(viii)  

reorganize, amalgamate or merge the Company or any of its Subsidiaries with any other Person;

 

(ix)  

acquire, encumber or divest a shareholding or equity interest in any other entity (including for the avoidance of doubt, each of its Subsidiaries) or any business;

 

(x)  

enter into or modify any Contract to do any of the foregoing;

 

(xi)  

sell, lease, pledge, dispose of or encumber any assets, except in the ordinary course of business consistent with past practices or except for assets with an aggregate value of less than $100,000;

 

(xii)  

acquire (by merger, amalgamation, consolidation, acquisition of shares or assets or otherwise) another Person or division thereof or make any investment either by purchase of shares or securities, contribution of capital (other than to wholly-owned Subsidiaries), property transfer or purchase of any property or assets of any other Person or division thereof having a value in excess of $10,000 individually or $25,000 in the aggregate;

 

(xiii)  

incur, extend, renew or replace any indebtedness or any other liability or obligation or issue any debt securities or assume, guarantee, endorse or otherwise become responsible for, the obligations of any other Person (other than in respect of the Company or one of its Subsidiaries) or make any loans or advances, except for fluctuations in working capital in the ordinary course of business consistent with past practices;

 

(xiv)  

expend or commit to expend any amounts with respect to capital expenditures in excess of $10,000 individually or $25,000 in the aggregate except in the ordinary course of business consistent with past practices and consistent with budgets presented to the Offeror;

 

(xv)  

pay, discharge or satisfy any material claims, liabilities or obligations other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Financial Statements or of liabilities incurred since April 30, 2008 in the ordinary course of business consistent with past practices;

 

(xvi)  

excluding investments of available cash in short-term bankers’ acceptances and similar investments, enter into any hedges, Swaps or other financial instruments or like transactions;

 

(xvii)  

enter into, terminate, waive, modify, amend or release any Person from any obligation under any Material Contract;

(xviii)  

make any changes in financial or tax accounting methods, principles, policies or practices, except as required by GAAP or by Law;

 

(xix)  

make any material Tax election or settle or compromise any material Tax liability;

 

(xx)  

enter into any Contracts or other transactions with any officer, director or trustee of the Company or any of the Subsidiaries, or any person who owns 10% or more of the outstanding Common Shares;

 

(xxi)  

except in accordance with Sections 5.1 and 5.2 hereof, enter into any transaction or perform any act which might interfere with or be materially inconsistent with the successful completion of the acquisition of Common Shares by the Offeror pursuant to the Offer or which would render, or which reasonably may be expected to render, inaccurate any of the Company’s representations and warranties set forth in this Agreement or interfere with the completion of the Offer;

 

(xxii)  

settle any action, claim or proceeding brought (i) against it and/or its Subsidiaries or (ii) by any present or former holder of its securities or any other person in connection with the transactions contemplated by this Agreement, provided that the Company may settle any such action, claim or proceeding that has a value of less than $10,000, provided that the Offeror shall be given notice of the commencement of any action by the Company or any of its Subsidiaries; or

 

(xxiii)  

authorize or propose any of the foregoing, or enter into or modify any Contract to do any of the foregoing;

 

(c)  

the Company shall use its commercially reasonable efforts to cause the current insurance (or re-insurance) policies of the Company not to be cancelled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies providing coverage similar to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect;

 

(d)  

the Company shall (and cause each Subsidiary to) (i) duly and timely file all Tax Returns required to be filed by it on or after the date hereof and all such Tax Returns will be true, complete and correct in all material respects; (ii) timely withhold, collect, remit and pay all Taxes which are to be withheld, collected, remitted or paid by it to the extent due or payable, except for any Taxes contested in good faith pursuant to applicable Laws, provided that the applicable Laws do not require payment of Taxes in dispute during the Tax contest; (iii) not make or rescind any election relating to Taxes; (iv) not make a request for a Tax ruling or enter into a closing agreement with any Tax authorities; (v) not settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes; (vi) not change any of its methods of reporting income, deductions or accounting for income tax purposes

  

from those employed in the preparation of its income tax return for the tax year for which it last filed its Tax Return under the Tax Act, except as may required by applicable Laws; and (vii) promptly inform the Offeror in writing about any proceedings, investigations assessments, reassessments, actions, suits, audits or claims pending or threatened against the Company or any of its Subsidiaries in respect of any Taxes.

 

(e)  

the Company shall duly and timely file all material forms, reports, schedules, statements and other documents required to be filed pursuant to any applicable corporate Laws or Securities Laws;

 

(f)  

the Company promptly notify the Offeror orally and in writing of (i) any material change (within the meaning of the Securities Act (Ontario)), on a consolidated basis, in the operation of its business or in the operation of its properties and of any material governmental or third party complaints, investigations or hearings (or communications indicating that the same may be contemplated); and (ii) the occurrence, or failure to occur, of any event or state of facts which occurrence or failure would or would be likely to (x) cause any of the representations or warranties of the Company contained herein to be untrue or inaccurate; or (y) result in the failure in any material respect of the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied prior to the Effective Time;

 

(g)  

the Company shall not create any new Officer Obligations and the Company shall not grant to any officer, director or Employee an increase in compensation in any form, make any loan to any officer, director or Employee, or take any action with respect to the grant of any severance or termination pay arising from the Offer or a change of control of the Company or enter into any employment agreement with, any officer, director or Employee, or enter into any other agreement with respect to any increase of benefits payable under its current severance or termination pay or any other policies, other than to permit the accelerated vesting of Options in accordance with the provisions of the Stock Option Plan; and

 

(h)  

the Company shall not adopt or amend or make any contribution to any bonus, profit sharing, option, pension, retirement, deferred compensation, insurance, incentive compensation, other compensation or other similar plan, agreement, trust, fund or arrangements for the benefit of Employees except: (i) with respect to its obligations under existing provisions of any of the Company Plans; (ii) to accelerate vesting of Options in accordance with the provisions of the Stock Option Plan; and (iii) to give effect to Section 2.8(c) hereof.

 

 

(a)  

Except as otherwise provided in this Article 5, the Company shall not, directly or indirectly, through any of its or its Subsidiaries’ Representatives, (i) solicit, assist, initiate, encourage or otherwise facilitate (including by way of furnishing non-public information or entering into any form of agreement, arrangement or understanding) any inquiries, offers or proposals regarding an Alternative Transaction, (ii) enter into or participate in any discussions or negotiations regarding an Alternative Transaction (provided that the Company may advise the party making a proposal for an Alternative Transaction that such Alternative Transaction does not constitute a Superior Proposal if such is the case); (iii) withdraw, modify or qualify (or propose to do so) in a manner adverse to the Offeror, the approval or recommendation of the Board of Directors of the Offer, (iv) approve, recommend or remain neutral regarding, or propose publicly to approve, recommend or remain neutral regarding, any Alternative Transaction (provided however that the Company may remain neutral or express no opinion concerning a proposed Alternative Transaction for a period of five (5) Business Days following the public disclosure of such Alternative Transaction), or (v) accept, recommend, approve or enter into any agreement, understanding or arrangement in respect of an Alternative Transaction; provided that nothing contained in this Agreement shall prevent the Board of Directors from doing any of the things otherwise prohibited by the foregoing in respect of any Person who has made an unsolicited bona fide, written proposal regarding a transaction that:

 

(i)  

did not result from a breach of this Section 5.1;

 

(ii)  

involves the acquisition or offer by such Person of all of the outstanding Common Shares or all or substantially all of the consolidated assets of the Company;

 

(iii)  

the Board of Directors has determined in good faith is funded or in respect of which adequate arrangements (in compliance with applicable Securities Laws) have been made to ensure that the required funds will be available to effect payment in full for all of the Common Shares (on a Fully-Diluted Basis) or assets as the case may be;

 

(iv)  

would not be subject to any due diligence and/or access condition in excess of 10 days;

 

(v)  

the Board of Directors has determined in good faith (after consultation with its financial advisors and its outside legal counsel) that the transaction (x) is reasonably capable of completion without undue delay

  

taking into account all legal, financial, regulatory and other aspects of such transaction and the Person making such transaction, and (y) would, if consummated in accordance with its terms (but not assuming away any risk of non completion) result in a transaction more favourable from a financial point of view to the Shareholders than the Offer (including any adjustment to the terms and conditions of the Offer proposed by the Offeror pursuant to Section 5.2); and

 

(vi)  

in the case of Section 5.1(a)(v), the Company shall have complied with all of the requirements of Section 5.2;

 

(b)  

The Company shall, and shall cause its and its Subsidiaries’ Representatives to, immediately terminate any existing discussions or negotiations with any parties (other than the Offeror) with respect to any proposal that constitutes, or which could reasonably be expected to constitute, an Alternative Transaction.  The Company shall not amend, modify or waive any of the standstill provisions of the confidentiality agreements entered into by the Company with other parties relating to a potential Alternative Transaction, it being understood and agreed that the termination of a standstill agreement or a standstill provisions which occurs as the result of the execution and delivery of this Agreement or the announcement of the Offer in accordance with the terms of such agreement is not a violation of this section.  Immediately upon execution of this Agreement, the Company shall request the return or destruction of all information provided to any third parties who have entered into a confidentiality agreement with the Company relating to any potential Alternative Transaction and shall use commercially reasonable efforts to ensure that such requests are honoured in accordance with the terms of such confidentiality agreements.

 

(c)  

The Company shall, as soon as practicable and in any event within 24 hours following receipt thereof notify the Offeror, at first orally and then in writing, of any proposal, inquiry, offer (or any amendment thereto) or request relating to or constituting a bona fide Alternative Transaction, any request for discussions or negotiations, and/or any request for non-public information relating to the Company or any Subsidiary or for access to properties, books and records or a list of the Shareholders of the Company or Subsidiaries of which the Company’s Representatives, are or become aware, or any amendments to the foregoing.  Such notice shall include a description of the background to such offer, the terms and conditions of, and the identity of the Person making, any proposal, inquiry, offer (including any amendment thereto) or request, and shall include copies of any such proposal, inquiry, offer or request or any amendment to any of the foregoing.  The Company shall keep the Offeror promptly and fully informed of the status, including any change to the material terms, of any such proposal, inquiry, offer or request, or any amendment to the foregoing, and will respond promptly to all inquiries by the Offeror with respect thereto, including requests to provide the Offeror (or its outside counsel) with copies of all documents and written

 

communications relating to any such Alternative Transaction, request or inquiry exchanged between the Company or any of its Representatives, on the one hand, and the person making an Alternative Transaction or any of its Representatives, on the other hand.

 

(d)  

Notwithstanding Section 5.1(a) or any provision of this Agreement to the contrary, if after the date of this Agreement, the Company receives a request for non-public information from a Person in relation to a potential Alternative Transaction and who proposes an unsolicited bona fide Alternative Transaction (that was not solicited, encouraged or facilitated after the date hereof in contravention of Section 5.1(a)), (i) the Board of Directors determines in good faith consultation with its financial advisors and its legal counsel, that such Alternative Transaction could reasonably be likely to constitute a Superior Proposal within five Business Days of such Person being provided access to such non-public information, and (ii) the failure to provide such party with access to such information regarding the Company would result in a breach of the fiduciary duties of the Board of Directors, then, and only then, the Company may provide such person with access to information regarding the Company, subject to the execution of a confidentiality agreement on terms no less favourable to the Company and no more favourable to the counterparty than the Confidentiality Agreement, provided however that the Company sends a copy of any such confidentiality agreement to the Offeror promptly upon its execution and the Offeror is provided with a list of or copies of the information provided to such person and is immediately provided with access to similar information to which such person was provided and the Company may also enter into or participate in any discussions or negotiations with respect to such Alternative Transaction.

 

(e)  

The Company shall ensure that its and its Subsidiaries’ Representatives are aware of the provisions of this Section 5.1 and the Company shall be responsible for any breach of this Section  5.1 by such Representatives.

 

 

(a)  

Subject to Section 5.2(b), the Company covenants that it will not accept, approve, recommend or enter into any agreement, understanding or arrangement in respect of a Superior Proposal (other than a confidentiality agreement permitted by Section 5.1(e)) unless:

 

(i)  

the Company has complied with its obligations under the other provisions of this Article 5 and has provided the Offeror with a copy of the Superior Proposal;

 

(ii)  

a period (the “Response Period”) of five Business Days shall have elapsed from the date on which the Offeror received written notice from the Board of Directors that the Board of Directors has determined, subject only to compliance with this Section 5.2, to accept, approve, recommend or enter into a binding agreement to proceed with the Superior Proposal;

(iii)  

after the Response Period, the Board of Directors determines in good faith, after consultation with its financial advisors and outside counsel, that such Alternative Transaction continues to constitute a Superior Proposal; and

 

(iv)  

the Company concurrently terminates this Agreement pursuant to Section 7.1(i) and pays to the Offeror the Termination Fee pursuant to Section 5.3.

 

(b)  

During the Response Period, the Offeror will have the right, but not the obligation, to offer to amend in writing the terms of the Offer.  The Board of Directors will review any such written amendment to determine whether the Alternative Transaction to which the Offeror is responding would continue to be a Superior Proposal when assessed against the Offer as it is proposed by the Offeror as amended.  If the Board of Directors does not so determine, the Board of Directors will cause the Company to enter into an amendment to this Agreement reflecting the offer by the Offeror to amend the terms of the Offer and upon the execution by the Parties of such amendment will reaffirm its recommendation of the Offer, as so amended.  If the Board of Directors does so determine, the Company may approve, recommend, accept or enter into an agreement, understanding or arrangement to proceed with the Superior Proposal.

 

(c)  

Each successive amendment to any Alternative Transaction that results in an increase in, or modification of, the consideration (or value of such consideration) to be received by the Shareholders shall constitute a new Alternative Transaction for the purposes of this Section 5.2(a) and the Offeror shall be afforded a new Response Period in respect of each such Alternative Transaction which Response Period shall, however, be three (3) days.

 

(a)  

If after the execution of this Agreement:

 

(i)  

the Offeror shall have terminated this Agreement pursuant to Section 7.1(g), then the Company shall pay to the Offeror, within five Business Days of termination of this Agreement, the amount of $1,150,000 in immediately available funds to an account designated by the Offeror (the “Termination Fee”) and shall direct the Fee Escrow Agent to reimburse the Offeror for the Mitek and RC Termination Fee Payments;

 

(ii)  

the Company shall have terminated this Agreement pursuant to Section 7.1(i), then the Company shall pay the Offeror the Termination Fee and shall direct the Fee Escrow Agent to reimburse the Offeror for the Mitek and RC Termination Fee Payments prior to or concurrently with entering into the definitive agreement relating to the Superior Proposal;

 

(iii)  

the Offeror shall have terminated this Agreement pursuant to clause (i) of Section 7.1(f) on the basis that the Company materially breached any covenant in Section 5.1 or 5.2 then the Company shall pay the Offeror the

  

Termination Fee and shall direct the Fee Escrow Agent to reimburse the Offeror for the Mitek and RC Termination Fee Payments within five Business Days of such termination;

 

(iv)  

on or after the date hereof and prior to the Expiry Time, an Alternative Transaction is publicly announced or any person has publicly announced an intention to make an Alternative Transaction (it being acknowledged and agreed that the formal take over bid for the Company commenced by StockerYale Inc. and the transactions contemplated by the Mitek Agreement and the RC Subscription Agreement shall be deemed not to be Alternative Transactions for the purposes of this clause unless the terms of any such transactions are materially improved) and such Alternative Transaction either:

 

(A)  

has been accepted by the Board of Directors; or

 

(B)  

has not expired, been withdrawn or been publicly abandoned, and

 

(1)  

the Offer is not completed as a result of either (a) the Minimum Condition not having been met or (b) the sale not having been consummated by the Outside Date, and

 

(2)  

within 12 months of the termination of this Agreement the Person who proposed such Alternative Transaction either (a) acquires, directly or indirectly, (i) more than 50% of the issued and outstanding Common Shares, or (ii) the businesses referred to in the Company Public Disclosure Record as the “Imaging and Templating segment”.

 

(v)  

in addition, in the event this Agreement is terminated pursuant to Section 7.1(b), (j) or (k), then the Company and the Offeror shall direct the Fee Escrow Agent to reimburse each of the Offeror and the Company 50% of the Mitek and RC Termination Fee Payments within five Business Days of such termination;

 

(vi)  

in addition, in the event this Agreement is terminated pursuant to Section 7.1(c), clause (ii) or (iii) of (f), (i), (l), (unless the condition which is not met is condition (a) on Schedule A attached to this Agreement), (m) or (n) then the Company and the Offeror shall direct the Fee Escrow Agent to reimburse the Offeror all of the Mitek and RC Termination Fee Payments within five Business Days of such termination.

(b)  

For greater certainty, the Company shall not be obligated to make more than one payment under Section 5.3 if one or more of the events specified therein occurs.

 

 

(a)  

On or before the Effective Time, at the election of the Offeror, the Offeror shall either secure, or cause the Company to secure, pre-paid, non-cancellable directors’ and officers’ liability insurance for the Company’s present and former directors and officers and those of the Subsidiaries, covering claims made prior to and within six years after the Effective Time, on a “trailing” or “run-off” basis,

  

which policy has scope and coverage substantially equivalent in scope and coverage to that provided by the Company’s current directors’ and officers’ insurance policy, provided that such insurance is available at a one-time cost that is not in excess of 250% of the annual cost to the Company of the Company’s current directors’ and officers’ insurance policy.

 

(b)  

From and after the Effective Time, the Offeror agrees to maintain in place the insurance policy referenced in Section 6.1(a) of this Agreement and agrees not to take any action, or to cause the Company to take any action, to terminate such directors’ and officers’ liability insurance or any indemnity agreements in place for the current and former directors and officers of the Company and its Subsidiaries, and the Offeror shall cause the Company (or its successor) to indemnify the current and former directors and officers of the Company and its Subsidiaries to the fullest extent to which the Offeror and the Company are permitted to indemnify such directors and officers under their respective charters, by laws, contracts of indemnity and under applicable Law from all claims in connection with the Company and transactions contemplated under this Agreement following the completion of the Offer and will not amend the provisions of the Company’s constating documents that provide for such indemnification in any material respects.

 

(c)  

The provisions of this Section 6.1 are intended to be for the benefit of, and will be enforceable by, each individual referred to therein, his or her heirs and successors and his or her legal representatives and, for such purpose, the Company hereby confirms that it is acting as agent on their behalf.  Furthermore, the provisions of this Section 6.1 shall survive the termination of this Agreement.

 

 

(a)  

Each Party will give prompt notice to the other of the occurrence, or failure to occur, at any time from the date hereof until the earlier to occur of the termination of this Agreement and the Effective Time of any event or state of facts of which it is aware which occurrence or failure would, or would be reasonably likely to:

 

(i)  

cause any of the representations or warranties of either Party contained herein to be untrue or inaccurate in any material respect; or

 

(ii)  

result in the failure to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by either Party hereunder prior to the Expiry Time, the Take-Up Date or the Effective Time.

 

(b)  

Each Party will give prompt notice to the other if at any time before the Expiry Time it becomes aware that the Bid Circular, the Directors’ Circular, an application for an order, any registration, consent, circular or approval, or any other filing under applicable Laws contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in the light of the circumstances in which they are made, or that otherwise requires an amendment or supplement to the Bid Circular, the Directors’ Circular, such application, registration, consent, circular, approval or filing, and the Offeror and the Company shall co-operate in the preparation of any amendment or supplement to the Bid Circular, the Directors’ Circular, application, registration, consent, circular, approval or filing, as required.

 

(a)  

to obtain all necessary consents, approvals and authorizations as are required to be obtained under applicable Law;

 

(b)  

to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby;

 

(c)  

to cause to be lifted or rescinded any injunction or restraining order or other order adversely affecting the ability of the Parties to consummate the transactions contemplated hereby;

(d)  

to effect all necessary registrations and other filings and submissions of information requested by Governmental Authorities or required under any applicable Securities Laws, or any other Law relating to the transactions contemplated herein;

 

(e)  

to execute and deliver such documents as the other Party may reasonably require; and

 

(f)  

to fulfil all conditions within its power and satisfy all provisions of this Agreement, the Offer and any Compulsory Acquisition or Subsequent Acquisition Transaction.

 

 

(a)  

The Company covenants and agrees to advise the Offeror of all purposes for which the Transferred Information was initially collected from or in respect of the individual to which such Transferred Information relates and all additional purposes where the Company has notified the individual of such additional purpose, and where required by law, obtained the consent of such individual to such use or disclosure.

 

(b)  

The Offeror covenants and agrees to:

 

(i)  

prior to the completion of the transactions contemplated herein, collect, use and disclose the Transferred Information solely for the purpose of

  

reviewing and completing the transactions contemplated herein, including the determination to complete such transactions;

 

(ii)  

after the completion of the transactions contemplated herein:

 

(A)  

collect, use and disclose the Transferred Information only for those purposes for which the Transferred Information was initially collected from or in respect of the individual to which such Transferred Information relates or for the completion of the transactions contemplated herein, unless:

 

(1)  

the Company or the Offeror has first notified such individual of such additional purpose, and where required by law, obtained the consent of such individual to such additional purpose, or

 

(2)  

such use or disclosure is permitted or authorized by law, without notice to, or consent from, such individual;

 

(B)  

where required by Law, promptly notify the individuals to whom the Transferred Information relates that the transactions contemplated herein have taken place and that the Transferred Information has been disclosed to the Offeror; and

 

(C)  

return or destroy the Transferred Information, at the option of the Company, should the transactions contemplated herein not be completed.

(a)  

by mutual consent;

 

(b)  

either by the Offeror or by the Company if any Law makes the making or completion of the Offer or the transactions contemplated by this Agreement illegal or otherwise prohibited;

 

(c)  

by the Offeror prior to the mailing of the Bid Circular if any condition contained in Section 2.2 is not satisfied or waived by the Offeror at or before mailing the Bid Circular;

 

(d)  

by the Company if the Offeror shall not have performed in all material respects any covenant to be performed by it under this Agreement or if any representation or warranty of the Offeror shall have been or become untrue in any material

  

respect and such failure to perform or inaccuracy is (a) reasonably likely to prevent, restrict or materially delay consummation of the Offer and (b) not curable or, if curable, is not cured by the earlier of the date which is five Business Days from the date of written notice of such breach and the Expiry Time, provided however, any intentional breach shall be deemed to be not curable;

 

(e)  

by the Offeror if (i) the Company shall not have performed in all material respects, or the Company shall have intentionally or knowingly breached, any covenant in Sections 5.1 or 5.2 hereof, (ii) the Company shall not have performed in all material respects any other covenant to be performed by it under this Agreement, or (iii) any representation or warranty of the Company (without giving effect to any materiality qualifiers contained therein) shall have been or become untrue to the extent that the failure of such representation or warranty to be true and correct is (a) reasonably likely to cause a Material Adverse Change (other than with respect to the representations and warranties set forth in Section 3.16(c), which must be true in all respects) or materially impede the transactions contemplated hereby and (b) not curable or, if curable, is not cured by the earlier of the date which is five Business Days from the date of written notice of such breach and the Expiry Time, provided however, that any intentional breach shall be deemed not to be curable;

 

(f)  

by the Offeror if the Board of Directors shall have: (i) withdrawn, modified, changed or qualified its approval or recommendation of the Offer, (ii) approved or recommended or publicly proposes to approve or recommend an Alternative Transaction or entered into a binding written agreement in respect of an Alternative Transaction (other than a confidentiality agreement permitted by Section 5.1(e)), or (iii) fails to publicly recommend or reaffirm its approval of the Offer within four Business Days of any written request by the Offeror (or, in the event that the Offer shall be scheduled to expire within such four-Business Day period, prior to the scheduled expiry of the Offer);

 

(g)  

by the Company if (i) the Offeror has not mailed the Bid Circular by the Latest Mailing Time; (ii) the Offer (or any amendment thereto other than as permitted hereunder or any amendment thereof that has been mutually agreed to by the Parties) does not conform in all material respects with Schedule “A” or any amendment thereof that has been mutually agreed to by the Parties and such non conformity is not cured within five Business Days; or (iii) the Offer has been terminated, withdrawn or expires without the Common Shares being taken up thereunder;

 

(h)  

by the Company in order to enter into a binding written agreement with respect to a Superior Proposal (other than a confidentiality agreement permitted by Section 5.1(e)), in compliance with Section 5.2;

 

(i)  

by the Offeror if the Minimum Condition is not satisfied or any other condition of the Offer shall not be satisfied or waived at the Expiry Time of the Offer (as such Expiry Time may be extended from time to time by the Offeror in its sole discretion);

(j)  

by either Party if the Expiry Date does not occur on or prior to the Outside Date, provided that the failure of the Expiry Date to so occur is not the result of the breach of a representation, warranty or covenant by the Party terminating this Agreement;

 

(k)  

by either the Offeror or the Company, if the Offer terminates or expires at the Expiry Time without the Offeror taking up and paying for any of the Common Shares as a result of the failure of any condition to the Offer to be satisfied or waived, unless the failure of such condition shall be due to the failure of the party seeking to terminate this Agreement to perform the obligations required to be performed by it under this Agreement;

 

(l)  

by the Offeror, if the Termination Fee becomes payable; or

 

(m)  

by the Company, if the Termination Fee becomes payable and payment thereof has been made to the Offeror,

 

(a)  

In the event of the termination of this Agreement as provided in Section 7.1, this Agreement shall forthwith have no further force or effect and there shall be no obligation on the part of the Offeror or the Company hereunder except as set forth in Section 5.2, Section 5.3, Section 6.1 and this Article 7, which provisions shall survive the termination of this Agreement.

 

(b)  

In the event the Termination Fee is paid to the Offeror, no other amounts will be due and payable as damages or otherwise by the Company, and the Offeror hereby accepts that the payment of such Termination Fee is in lieu of any damages or any other payment or remedy to which it may be entitled.  The Offeror agrees that the payment of such Termination Fee constitutes payment of liquidated damages that are a genuine anticipated assessment or estimate of the damages which it will suffer or incur as a result of the termination of this Agreement.

 

(a)  

extend the time for the performance of any of the obligations or other acts of the other;

(b)  

waive compliance with the other’s agreements or the fulfilment of any conditions to its own obligations contained herein; or

 

(c)  

waive inaccuracies in any of the other’s representations or warranties contained herein or in any document delivered by the other Party;

(a)  

if to the Company:

(b)  

if to the Offeror:

(a)  

except for the Confidentiality Agreement, constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between the Parties, with respect to the subject matter hereof;

 

(b)  

shall be binding upon and enure to the benefit of the Parties and their respective successors and assigns; and

 

(c)  

does not give any other Person (including any Shareholder) any right or recourse whatsoever.

(a)  

there shall have been validly deposited under the Offer and not withdrawn as at the Expiry Time of the Offer, such number of Common Shares which, together with any Common Shares beneficially owned or over which control or direction is exercised by the Offeror and its Affiliates and joint actors, represents at least 66⅔% of the issued and outstanding Common Shares (on a Fully-Diluted Basis);

 

(b)  

all government or regulatory approvals (including those of applicable stock exchanges or securities law regulatory authorities) that in the Offeror’s reasonable judgement are necessary to complete the Offer or any Compulsory Acquisition or Subsequent Acquisition Transaction shall have been obtained or concluded or, in the case of waiting or suspensory periods, expired or been terminated, each on terms and conditions satisfactory to the Offeror, acting reasonably;

 

(i)  

no act, action, suit, demand or proceeding shall have been taken by or before any Canadian or foreign court, tribunal or Governmental Authority or administrative agency or commission or by or before any elected or appointed public official in Canada or elsewhere; and

 

(ii)  

no law, regulation or policy shall have been proposed, enacted, promulgated or applied; in each case

 

(A)  

to cease trade, enjoin, prohibit or impose material limitations or conditions on the purchase by or the sale to the Offeror of any of the Common Shares or the right of the Offeror to own or exercise full rights of ownership of the Common Shares (either pursuant to the Offer or a Subsequent Acquisition Transaction); or

 

(B)  

which, if the Offer or Compulsory Acquisition or Subsequent Acquisition Transaction was consummated, would reasonably be expected to lead to a Material Adverse Change or to materially adversely affect the Offeror or Parent;

 

(C)  

which would materially and adversely affect the ability of Offeror to proceed with the Offer (or any Compulsory Acquisition or any Subsequent Acquisition Transaction) and/or take up and pay for any Common Shares deposited under the Offer;

 

(D)  

seeking to prohibit or limit the ownership or operation by the Offeror of any material portion of the business or assets of the

  

Company or the Subsidiaries or to compel the Offeror to dispose of or hold separate any material portion of the business or assets of the Company or any of the Subsidiaries as a result of the Offer (or any Compulsory Acquisition or any Subsequent Acquisition Transaction);

 

(d)  

the Offeror shall have determined, in its sole judgment, acting reasonably, that there does not exist any prohibition at Law against the Offeror making or maintaining the Offer, taking up and paying for any Common Shares deposited under the Offer or completing any Compulsory Acquisition or Subsequent Acquisition Transaction;

 

(e)  

the Offeror shall have determined, in its sole judgment, acting reasonably, that there has not occurred any Material Adverse Change (i) since the date of the Support Agreement or (ii) prior to the date of the Support Agreement that has not previously been disclosed to the Offeror in the Disclosure Letter;

 

(f)  

the Offeror shall have determined, in its sole judgment, acting reasonably, that:

 

(i)  

no representation or warranty of the Company (without giving effect to any materiality qualifiers contained therein) shall have been or have become untrue to the extent that the failure of such representation or warranty to be true and correct is reasonably likely to, individually or in the aggregate, cause a Material Adverse Change; and

 

(ii)  

the Company has performed all of the covenants and agreements to be performed by it under the Agreement in all material respects;

 

(g)  

the Company shall not have knowingly or intentionally breached a covenant in Article 5 of the Agreement;

 

(h)  

the Separation Time shall not have occurred under the Shareholder Rights Plan; and

 

(i)  

the Agreement shall not have been terminated or the Offeror shall have determined in its sole judgment, acting reasonably, that such termination shall not affect the ability of the Offeror to consummate the Offer or to complete a Compulsory Acquisition or Subsequent Acquisition Transaction or that such termination was not related to any matter that is materially adverse to the business of the Company or to the value of the Common Shares to the Offeror.

(a)  

within two Business Days from receipt of a joint written direction of the Offeror and Virtek (the “Release Notice”) and only to the extent provided in such Release Notice;

 

(b)  

upon receipt of a final (and not subject to appeal) judgment, order or decision of a competent court or arbitral panel, or out of court settlement regarding the Mitek and RC Termination Fee Payments Reimbursement, within two Business Days from the receipt by the Escrow Agent of a copy of such judgment, order, arbitral decision or out of court settlement as the case may be; the Party delivering such judgment, order, decision or settlement, as the case may be, to the Escrow Agent shall concurrently provide a copy thereof to all other Parties.

(a)  

if to Virtek:

(b)  

if to the Offeror or Parent:

(c)  

if to the Escrow Agent:

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